FHTK AR2007

FHTK HOLDINGS LTD ANNUAL REPORT 2007

FHTK HOLDINGS LTD ANNUAL REPORT 2007

Embracing Transformation

FHTK HOLDINGS LTD Company Registration No. 198304656K 20 Harbour Drive, #06-02 PSA Vista Singapore 117612 Tel: (65) 6779 5688 Fax: (65) 6777 3960

contents 01 CORPORATE PROFILE 02 CORPORATE INFORMATION 03 CORPORATE STRUCTURE 06 CHAIRMAN’S STATEMENT 10 BOARD OF DIRECTORS 14 KEY MANAGEMENT 15 FINANCIAL HIGHLIGHTS

FHTK A N N UA L RE PO R T 2 007

CORPORATE PROFILE FHTK is a fully integrated fresh fruit and dehydrated produce company focused on meeting the increasing consumer demand for healthy, safe and premium fresh produce. We aim to be a global player in Fresh Fruits and Dehydrated Produce. The core businesses of FHTK are Fruit Trading & Distribution, Dehydrated Produce Processing & Distribution, and Fruit Plantations.

Fruits Trading & Distribution FHTK is an international player in the fresh fruit business, with an extensive distribution and market network spanning five continents, integrated with sourcing, processing, packaging, cold storage, marketing and logistics operations. To support our scale of operations, we have 32 fruit processing lines with a total throughput of 500 MT per day and total cold storage capacity of 46,500 MT, with distribution centres in Shandong, Shanghai and Guangdong.

FHTK has a diversified customer base including importers, wholesalers and supermarket chains with sales of Fuji Apples, Asian Pears, and other premium fruits including grapes, peaches, nectarines and cherries. Our SunMoon and Trigem brands are well recognised in the industry and highly sought after for their assured premium quality. Our fruits are found on the shelves of major supermarket chains like Tesco in the UK, and Coles and Woolworth in Australia.

Our reputation for quality and food safety is backed by accreditations by EUREPGAP, HACCP, ISO 9001:2000, Tesco Nature Choice (TNC), Woolworth Quality Assurance (WQA), and Good Manufacturing Practice (GMP).

Dehydrated Produce Processing & Distribution Our Dehydrated Produce operation in Shandong is the largest integrated exporter of dehydrated garlic and onion in China. Annually, we produce more than 10,000 MT of dehydrated garlic and onion for export globally, with an established customer base in North America, UK, European Union, Australia, Southeast Asia and Africa. Our operations are fully accredited with: HACCP, Good Manufacturing Practice (GMP), Standard Sanitary Operating Procedure (SSOP), ISO 9001:2000, EurepGAP Certificate and Kosher Certified.

Our integrated Dehydrating and Milling operation, together with our Quality Assurance and Quality Control programmes, gives our valued customers confidence in the consistency and quality of our products, which are vital in the Food Ingredient industry. Our dehydrated garlic and onion thus command a premium in the market, and we take pride in having some of the leading food ingredient players like Unilever, Newly Weds, and McCormick as our customers.

Fruit Plantations We currently lease and manage 15 plantations in Shandong totalling 1,769.3 hectares to cultivate a variety of premium fruits. As an on-going rationalisation effort to improve yield and returns, we are reducing the total plantation size. This will result in better cash utilisation and reduce our exposure to the risks associated with primary production in China.

To strengthen our corporate identity and leverage on our well-recognised brand, we are proposing to change the company’s name to SUNMOON FOOD COMPANY LIMITED. This change in name also signifies a new dawn for the company in its resolve to turn around.

1

2

FHTK A NNUAL REP O R T 2 0 0 7

Corporate INFORMATION Board of Directors

Nominating Committee

Tan Eng Liang (appointed as Chairman on 13 November, 2006) Loh Hock Chuan (appointed as Director on the 15 April, 2007; appointed as Deputy Chairman on 22 May, 2007 ) Chee Wai Pong Chan Soo Sen (appointed on 13 November, 2006) Michael John Martin (appointed on 15 April, 2007) Goh Hoon Kan (appointed on 15 April, 2007)

Chan Soo Sen (Chairman) Chee Wai Pong Tan Eng Liang (appointed on 15 April, 2007)

Lee Ying Cheun (resigned as Chairman on 13 November, 2006) Lim How Teck (resigned on 13 November, 2006) Manuel J Sanchez Ortega (resigned on 14 April, 2007) Lim Soo Peng (resigned on 17 April, 2007) Ee Tai Ting (resigned on 7 June, 2007)

Company Secretary Chia Lay Beng Registered Office 20 Harbour Drive #06-02 PSA Vista Singapore 117612 Phone: 6779 5688 Fax: 6777 3960 Company Registration No. 198304656K Share Registrar B.A.C.S. Private Limited 63 Cantonment Road Singapore 089758

Executive Committee Loh Hock Chuan (appointed as Chairman on 1 July, 2007) Tan Eng Liang (stepped down as Chairman on 1 July, 2007) Chee Wai Pong Chan Soo Sen Audit Committee Michael John Martin (appointed as Chairman on 15 April, 2007) Tan Eng Liang (stepped down as Chairman on 15 April, 2007) Chan Soo Sen Chee Wai Pong Remuneration Committee Chee Wai Pong (Chairman) Tan Eng Liang Chan Soo Sen Loh Hock Chuan (appointed on 15 April, 2007)

Auditor Mazars Moores Rowland LLP Certified Public Accountants 133 Cecil Street #15-02 Keck Seng Tower Singapore 069535 Mr Victor Chang (Partner) Date of appointment: May 11, 2005 Principal Bankers Agricultural Bank of China Bank of China ABN AMRO Bank N.V DBS Bank Ltd

FHTK A N N UA L RE PO R T 2 007

CORPORATE STRUCTURE

FHTK Holdings Ltd

Fook Huat Tong Kee Pte Ltd (100%)

Fook Huat Tong Kee (Xiamen) Foodstuffs Co Ltd (100%)

FHTK Cold Store Pte Ltd (100%)

Sunmoon Retail & Franchise Pte Ltd (100%)

Fook Yong Pte Ltd (100%)

Longkou Fook Huat Tong Kee Refrigeration Co Ltd (100%)

United Fruit Company Limited (100%)

Dongguan Fook Huat Tong Kee Refrigeration & Foodstuffs Co Ltd (100%)

Fook Huat Tong Kee (M) Sdn Bhd (100%)

Shanghai Fook Huat Tong Kee Cold Storage Co Ltd (100%)

UGC 2003, Inc. (100%)

Taian Fook Huat Tong Kee Foodstuffs Co Ltd (100%)

United Fruits Pak (Pvt) Ltd (50%)

Hotel Longsin Co Ltd (47.5%)

Weifang Xinan FHTK Fruits Co Ltd (100%)

3

4 FHTK FHTKANNUAL A NNUALRE REP P OORRTT22000077

Focusing on Core Strengths Having successfully restructured our business operations, the Group is now steering ahead with greater efficiency. We are reducing our exposure to non-core businesses, such as the fruit plantations. On the other hand, we are focusing on our core strengths, including strengthening our procurement capabilities by the addition of a new procurement team, establishing an extensive global network. We are confident that our renewed strategy will propel us towards a direction for higher returns.

FHTK A N N UA L RE PO R T 2 007

5

6

FHTK A NNUAL REP O R T 2 0 0 7

Chairman’s STATEMENT

“The Group is in the process of evolving from a grower and exporter of fresh fruits and dehydrated produce from China into a world class food supply chain management company, with worldwide sourcing capabilities and a worldwide customer base.”

Dear Shareholders, On behalf of the Board, I am pleased to present my first annual report as Chairman, for the financial year 1 July 2006 to 30 June 2007 (“FY07”).

An Eventful FY07: New Investor, New Board, New Management, New Business Focus Several significant corporate developments took place during the 2nd half of FY07. During the said period, a new investor, FACT 2006 Pte. Ltd. injected much needed new funds into the Group. 3 new directors, Mr. Loh Hock Chuan, Mr. Goh Hoon Kan and Mr. Michael John Martin were appointed to replace Mr. Lee Ying Cheun, Mr. Ee Tai Ting, Mr. Lim Soo Peng, Mr. Manuel J Sanchez Ortega and Mr. Lim How Teck who resigned for personal reasons over the course of FY07. Mr. Ee Tai Ting, has also stepped down as the Group CEO with effect from 30 June 2007.

A new management team led by the new CEO, Mr. Wee Liang Pin, has been brought in to lead the Group into a new era of growth. With the injection of new funds, the Group has repaid several of its creditors. The Group has also successfully restructured its bank loan with the Agricultural Bank of China, its principal banker in China.

The Group’s new business plan is focused: to reduce its exposure on non-core businesses and concentrate on its core strengths. The Group’s core strengths are 1) in the procurement for, processing and marketing of high quality fresh fruits under the world-renowned SunMoon Brand; and 2) in the manufacture and distribution of high quality dehydrated produce. In view of the above, and under the leadership of the new Board and new management, the Group has successfully restructured its business operations and completed a cost rationalization exercise which will significantly enhance the Group’s efficiency, reduce its operational costs and enable it to focus on its core strengths.

Financial Review: Losses Largely Attributable to Write-offs, Limited Cash Flow The Group had to endure a difficult FY07. The Group’s revenue in FY07 was $47.4 million, a decrease of 30% as compared to FY06. The Group’s net loss widened to $49.2 million, as compared to FY06’s loss of $20.4 million. This poor set of results was largely due to legacy issues such as inadequate cash flow to sustain its businesses, the Group’s inability to service its debts and an ineffective business model that invested heavily in fixed and biological assets. To illustrate, a large part of the $49.2 million of losses is made up of the write-off of $26.7 million in relation to the Group’s biological assets due to the poor yields of the plantations and $14.7 million due to depreciation expenses.

FHTK A N N UA L RE PO R T 2 007

Business Vision: Evolving into a World Class Food Supply Chain Management Company The Group is in the process of evolving from a grower and exporter of fresh fruits and dehydrated produce from China into a world class food supply chain management company, with worldwide sourcing capabilities and a worldwide customer base. To achieve this, the Group has taken / will be taking the following steps: It has significantly strengthened its procurement capabilities through the hire of a new procurement team which will enable it to procure fruits not only from China, but from other fruit producing countries such as the United States, Chile, Australia, Malaysia, Thailand, Vietnam etc.; In recent months, it has reduced its exposure on the fruit plantation business by scaling back on the total size of its plantations. The Group will instead capitalise on its extensive procurement network to procure fresh fruits from growers worldwide to ensure its supply of fresh fruits; it will increase its product range to include higher margin fruits and dehydrated produce and it will focus on strengthening its current stringent quality controls by investing in technology to further improve its inspection and processing processes, with the aim of further differentiating itself from other players in the industry.

In light of the booming fresh food industry globally, I believe that the Group’s strategic move in refocusing its business on its strengths as well as strengthening its procurement capabilities, product range and customer base is very timely, and is definitely a step in the right direction to turn the Group around.

On this note, I would like to thank the investor for all its efforts in guiding the Group through this difficult period, and in putting in place a new professional management team. I sincerely hope that you, the shareholders of the Group, share my appreciation for the efforts of the investor by supporting the convertible loan agreement at the upcoming Extraordinary General Meeting scheduled to take place on 16 October 2007.

Poised to Turn Around I am confident that with a clearer business focus, an expansion of customer base as well as a strengthened procurement capability, the Group is poised for strategic, sustainable and scalable growth in the years to come.

Acknowledgments Finally, I would like to take this opportunity to express my sincere gratitude to my fellow directors on the Board, the management and all the staff for their hard work and commitment, particularly those who have worked hard and contributed to our Group’s successful restructuring efforts. I would also like to say a big thank you to all the shareholders who have kept faith with the Group.

On behalf of the Board, I would like to record our appreciation to the out going directors on their contributions to the Group. I look forward to your continued support as the new team takes FHTK Holdings Ltd to the next stage of growth. I assure you that we will focus all our energies and efforts to deliver greater value to all our shareholders.

Dr. Tan Eng Liang Chairman of the Board

7

8 FHTK FHTKANNUAL A NNUALRE REP P OORRTT22000077

Benefiting from New Guidance “We already have a world class brand in an industry driven by the changing lifestyles of increasingly health-conscious consumers. Undoubtedly, the demand for premium Fresh Fruits will continue to grow worldwide. Equipped with our intimate fruit knowledge and with renewed strategies in place, I am confident the new management team will ride on these trends to grow our businesses.”

– Wee Liang Pin, CEO

FHTK A N N UA L RE PO R T 2 007

9

10

FHTK A NNUAL R EP O R T 2 0 0 7

BOARD OF DIRECTORS

1

2

3

Dr. Tan Eng Liang1 (Chairman) Dr. Tan was appointed to the Board as an Independent Director and Chairman of the Board on 13 November 2006. Dr. Tan held several directorships in private and public companies in Singapore, Hong Kong, Malaysia and US. He was a Member of Parliament, Singapore from 1972 to 1980. He was also a Chairman of Singapore Quality & Reliability Association, Urban Redevelopment Authority and Singapore Sports Council. He held the position of Senior Minister of State National Development from 1975 to 1978 and Senior Minister of State for Finance from 1978 to 1979.

Mr. Loh Hock Chuan2 (Deputy Chairman) Mr. Loh was appointed to be Board as a Non-Independent Director on 15 April 2007, as Deputy Chairman of the Board on 22 May 2007 and as Executive Director and Chairman of the Executive Committee on 1 July 2007. Mr. Loh is the Executive Chairman of First Alverstone Capital Ltd and Friven & Co. Ltd. He was the Director of Sales in UOB Kay Hian Pte Ltd and an Associate Director in BNP Paribas Ltd. Mr. Loh graduated from the National University of Singapore (NUS) with a Bachelor of Arts (Political Science & Economics) and NUS Business School with a Master in Applied Finance.

Mr. Chee Wai Pong3 Mr. Chee was appointed to the Board as an Independent Director on 28 February 2005 and as Chairman of the Remuneration Committee on 11 November 2005. He joined the Legal Service and was appointed a Deputy Public Prosecutor/State Counsel from 1971 to 1973. He was appointed a Magistrate and then District Judge and the State Coroner between 1973 and 1976.

Mr. Chee joined M/s Osborne Jones & Co as a partner from August 1976 to December 1978. He was a partner of M/s Ng Ong & Chee from January 1979 to December 2006. From 1 January 2007 he started his own practice under the name and style of Chee Wai Pong & Co. .Mr. Chee is the honorary legal advisor to the Medical Alumni, Ling Kwong Home for the Senior Citizens, the Kwong Wai Shiu Hospital and the Kwong Wai Siew Li Shi She Shut. He is also a member of the Management Committee of the Students Care Service and a member of the Yishun Centre Advisory Committee of the Students Care Service. He is also a council member of Lifewords (formerly Scripture Gift Mission). Mr. Chee graduated from the University of Singapore with a Bachelor of Law Degree (L.L. B Hons) in 1971.

FHTK A N N UA L RE PO R T 2 0 07

4

5

Mr. Chan Soo Sen4 Mr. Chan was appointed to the Board as an Independent Director on 13 November 2006 and as Chairman of the Nominating Committee on 14 November 2006. Mr. Chan was appointed Minister of State in 2001. He served in the Prime Minister’s Office from November 2001 to July 2003, Ministry of Community Development Youth and Sports from 2001 to 2004, Ministry of Education from 2003 to 2006, Ministry of Trade and Industry from 2005 to 2006, National Trades Union Congress from 2001 to 2006, Executive Secretary Building Construction and Timber Workers’ Union from 2001 to 2006. Mr. Chan is currently serving as a Board Member of the People’s Association and re-elected Member of Parliament for Joo Chiat Constituency in the 2006 General Election.

Mr. Michael John Martin5 Mr. Martin was appointed as an Independent Director and Chairman of the Audit Committee of the Company with effect from 15 April 2007. Mr. Martin was a partner in Cooper Lancaster Brewers, London and a member firm partner in Arthur Andersen, Singapore. He has his own business advisory firm, Michael Martin Business Advisory. He is a Fellow of the Institute of Chartered Accountants in England and Wales.

Mr. Goh Hoon Kan6 Mr. Goh was appointed to the Board as an Independent Director on 15 April 2007. Currently, Mr. Goh is the Chief Executive Officer of Delifrance Asia Ltd. He holds a Bachelor of Science Degree in Business Administration and is a Certified Hotel Administrator. Mr. Goh has over 30 years of experience in the Food and Hospitality industry. Mr. Goh served as the elected President of The Singapore Hotel Association from 1987 till 1993.

11

6

12 FHTK FHTKANNUAL A NNUALRREEP P OORRTT22000077

Delivering the SunMoon Promise “I always insist on Sun Moon fruits for my family for their assured safety, quality and freshness.”

– Madam Leong Fong Yee, consumer

FHTK A N N UA L RE PO R T 2 0 07

13

14

FHTK A NNUAL R EP O R T 2 0 0 7

Key Management Mr. Wee Liang Pin Mr. Wee is the Chief Executive Officer of the FHTK Group with effect from 1 July 2007. His previous employment was with Singapore Food Industries, a leading food manufacturing and distribution company as its Regional Director (Asia Pacific) and General Manager (Food Distribution). He brings with him over 28 years of experience in global sourcing, supply chain management, market development and distribution channel management in the food industry. He is responsible for the overall management of the Group, and the development and implementation of strategic business plans for growth. He directs the on-going restructuring of the Group’s business units to put in place robust management processes and controls. He will also drive the company’s growth through focusing on product range expansion, widening the sources of supply, and penetrating new export markets. He holds a Bachelor of Arts in Business Administration from the Seattle University (USA).

Mr. Neo Wei Ming Mr. Neo joins the FHTK Group on 1 October 2007 as Chief Operating Officer. He assists the CEO as his deputy in managing the Group. He is also responsible for all Operations and Business Development within the Group. He brings with him vast experiences in marketing, procurement, supply chain management and strategic planning from both the public and private sectors. He holds a Bachelor of Arts (Honours) in Engineering Science from Oxford University and a MBA from Insead.

Mr. Ng Weng Sui, Harry Mr. Ng is the Chief Financial Officer of the FHTK Group. He is responsible for financial management, taxation and M&A of the Group. He is also responsible for dealings with the Stock Exchange. He joined FHTK Group in 2004. He has more than 20 years of financial management experience, including an appointment as the Chief Financial Officer of Eltech Electronics Limited and Group Financial Controller of Luxasia Pte Ltd. He is a Fellow of The Chartered Association of Certified Accountants, CPA and holds a MBA from The University of Hull.

Mr. Ee Huat Kiang Eric Mr. Ee is the Chief Administration Officer and Director of Operations of the FHTK Group. He assists the CEO in the management of subsidiaries and is responsible for the administration of policies, project development, plantation, information technology, human resources, training and development, corporate treasury, assets management and corporate affairs of the Group. He joined the FHTK Group in 1998 and had been exposed to sales, retail and franchising, managing processing plant, financial controlling and corporate finance as well as working closely with the CEO in the restructuring of the Company. He has been promoted to the above positions in May 2007. He has a degree in Business Administration majoring in Accountancy and a Master of Science in Management Informational Systems.

Ms. Chen Mei Ms. Chen was appointed as Regional Financial Controller of Fook Huat Tong Kee Pte Ltd on 1 September 2007. She is widely experienced in financial management with previous employment in MNCs including Seagate Technology International.

She was also the Senior Finance Manager with Mitsui Sumitomo Insurance, Shanghai Branch. Prior to joining the Company, she was the Financial Controller at Tech International (Shanghai). As the Regional Financial Controller, she is responsible for all finance functions including internal controls for our China subsidiaries.

She is a CPA and holds a Bachelor Degree in International Trade from Xiamen University, China, and a MBA (Accountancy) from NTU, Singapore.

Mr. Gui Han Tee Mr. Gui came on board the company on 1 July 2007 as General Manager (Procurement/Operations). He has extensive experience in the sourcing of fresh fruits and vegetables within China and will strengthen the current procurement team. Prior to joining Fook Huat Tong Kee Pte Ltd, he was involved in the import and export of food commodities into China, South-East Asia and South Asia. He is responsible for the total sourcing and procurement of the company’s requirements within China. He is also tasked to expand the current sources of supply and to develop new relationships with reliable fruit growers.

Ms. Lin Bin Ms. Lin has been with the company for 13 years and has a wealth of fruit product knowledge. Due to her outstanding performance, she was promoted to General Manager (Fruits Operation Division) on 1st July 2007. She has extensive sales experience of fruits into both the China market and the international arena. She is responsible for Global sales of fresh fruits in the group and heads the sales force in all the business units. She is tasked to develop sales strategies and to execute the action plans focusing on increasing the product range and geographical expansion of customer base. She also plays a major role in procurement planning of fruits for the group.

Mr. Chng Say Kiat Mr. Chng is the Senior Manager with Fook Huat Tong Kee Pte Ltd. He is overseeing a team of sales and marketing staff in the sales and marketing of dehydrated products to dometic and overseas clients including European and Asia markets.

He joined the Group in 2004 as the President of UGC 2003, Inc. He holds a Bachelor of Engineering majoring in Computer Engineering and a MBA (Finance & International Business).

Mr. Bob Sorenson Mr. Sorenson is the Vice President of UGC 2003, Inc. He is responsible for the sales and marketing of dehydrated garlic and onions business in the U.S. and U.K markets. He has more than 27 years of experience in the dehydrated garlic and onions business. He joined the Company in1999 and has held the position for the past 3 years. He holds a Bachelor of Business Administration majoring in Accounting.

Mr. Sheung Kam Keung Mr. Sheung is the Senior Manager, International Sales and Marketing, of United Fruit Company Ltd (UFC). He is responsible for the marketing and sales to overseas market. Albert has over 17 years of experience working as buyer with big supermarket chains (Australia and Hong Kong) in the produce department. He joined UFC in April 2007.

FHTK A N N UA L RE PO R T 2 0 07

15

FINANCIAL HIGHLIGHTS

2007

2006

2005

2004

2003

Turnover ($ Millions)

47.44

67.51

85.99

99.28

95.16

Profit/(Loss) before Income Tax ($ Millions)

(49.02)

(20.43)

(16.92)

(15.97)

Shareholders’ funds ($ Millions)

13.20

61.35

59.77

77.86

94.84

Net Tangible Assets Per Share (Cents)

0.21

1.00

4.86

6.33

7.70

Net Earnings/(Loss) per Share (Cents)

(0.79)

(1.47)

(1.37)

(1.29)

(0.59)

Turnover (in $ Millions)

Profit/(Loss) before Income Tax (in $ Millions) 99.28 95.16

100

0

85.99 80

-7.20

-10

67.51 60

-16.92 -15.97

-20

-20.43

47.44 40

-30

20

-40

0

-50 07

06

05

04

03

07

Shareholders’ Funds (in $ Millions) 94.84

100

61.35 60

8

06

05

03

6.33

6

59.77

04

Net Tangible Assets Per Share (Cents) 7.70

7

77.86

80

-49.02

4.86

5 4

40 20

3 2

13.20

1 0

0 07

06

05

04

03

Net Earnings/(Loss) per Share (Cents) 0.0 -0.3 -0.6 -0.9

-0.59 -0.79

-1.2 -1.5

-1.47 07

-1.37 06

05

-1.29 04

03

1.00 0.21 07

06

05

04

03

(7.20)

financial contents 17 CORPORATE GOVERNANCE 21 REPORT OF THE DIRECTORS 24 STATEMENT BY THE DIRECTORS 25 AUDITORS’ REPORT 27 CONSOLIDATED INCOME STATEMENT 28 BALANCE SHEETS 29 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 30 CONSOLIDATED STATEMENT OF CASH FLOWS 31 NOTES TO FINANCIAL STATEMENTS 59 SHAREHOLDING STATISTICS 60 NOTICE OF ANNUAL GENERAL MEETING 63 PROXY FORM

FHTK A N N UA L RE PO R T 2 0 07

17

REPORT ON CORPORATE GOVERNANCE

FHTK Holdings Ltd (“FHTK”) is committed to a high standard of corporate governance. This report describes FHTK’s corporate governance processes and activities.

Board of Directors The Board comprises six directors, including five independent non–executive directors and one executive director. The members of the Board have extensive corporate experience and are respected members of the business community. Profiles of the directors are found on page 10-11 of the Annual Report.

The Board is responsible for the effectiveness of governance practices and the overall management and control of all entities within the FHTK Group. It sets the overall corporate strategy and directions for the Group and monitors the performance of management. The Board also approves the nomination of board directors and appointment of key management personnel, reviews and approves annual budgets, major funding proposals and investment and divestment proposals.

The Board members are provided with adequate and timely information prior to Board Meetings on an ongoing basis, and have separate and independent access to the Group’s senior management and company secretary. The Board also has access to independent professional advice where appropriate.

During the year, the Board adopted an orientation program for new directors.

The positions of Chairman and CEO (“CEO”) are held by two persons in order to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The Chairman who is non–executive is responsible for the Board and is free to act independently in the interest of the Company and shareholders. The Chairman ensures that members of the Board and Management work together with integrity and competency and that the Board engages in constructive debate on strategy, business operations, enterprise risk and other plans. The CEO is responsible for the running of the Group’s business with full executive responsibilities over the operational decisions of the Group.

The Chairman, in consultation with the CEO, schedules Board meetings on a regular basis and, as and when required finalises the preparation of the agenda. The Board also delegates certain functions to the following Specialised Committees:– – – – –

Audit Committee Remuneration Committee Nominating Committee Executive Committee

The present independent directors also met with the CEO and senior management on a regular basis. As the independent directors were newly appointed, the main purpose of the meetings was to enable them to gain a better insight on the nature of the business and its operations. These regular meetings also gave the independent directors the opportunities to be apprised of the performance of the Company.

18

FHTK A NNUAL R EP O R T 2 0 0 7

REPORT ON CORPORATE GOVERNANCE Specialised Committees The composition and roles of the Specialised Committees set up by the Board are as follows: Audit Committee The Audit Committee (“AC”) comprises: Independent And Non–Executive Directors Mr Michael John Martin Mr Chee Wai Pong Dr Tan Eng Liang Mr Chan Soo Sen

(Chairman, appointed on 15 April 2007) (appointed on 13 November 2006 as Chairman and stepped down as Chairman on 15 April 2007, remains as member) (appointed on 13 November 2006)

The AC held regular meetings during the year and performed the functions specified by Section 201B of the Companies Act, Chapter 50 and the Listing Manual and the Code of Corporate Governance of Singapore Exchange Securities Trading Limited (SGX–ST).

During the year, the AC reviewed with the Management and the external auditors, the Group’s financial policies and internal control procedures to reasonably assure itself of the adequacy of internal controls and appropriate operating controls. The AC met the external auditors without the presence of Management during the year.

The AC also reviews the quarterly, half–yearly and year end financial statements for adoption by the Board, the interested party transactions (“IPT”) as well as the Group’s procedures set up to monitor IPT and the independence of auditors.

The AC has full access to Management and is given the resources required for it to discharge its functions. It has full authority and discretion to invite any director or executive officer to attend meetings. Minutes of the AC Meetings are regularly submitted to the Board for its information and review. In addition, the Group’s external auditors have unrestricted access to the AC. Remuneration Committee The Remuneration Committee (“RC”) comprises: Independent And Non–Executive Directors Mr Chee Wai Pong Dr Tan Eng Liang Mr Chan Soo Sen

(Chairman) (appointed on 14 November 2006) (appointed on 14 November 2006)

Executive Director Mr Loh Hock Chuan

(appointed on 15 April 2007)

The role of the RC is to facilitate transparency, accountability and reasonableness on the issue of executive remuneration.

The RC is responsible for recommending to the Board a structure of compensation programme for directors and senior management to ensure that the programme is competitive and sufficient to attract, retain and motivate senior management of the required quality to run the Group successfully.

FHTK A N N UA L RE PO R T 2 0 07

19

REPORT ON CORPORATE GOVERNANCE Nominating Committee The Nominating Committee (“NC”) comprises: Independent And Non–Executive Directors Mr Chan Soo Sen Mr Chee Wai Pong Dr Tan Eng Liang Mr Goh Hoon Kan

(Chairman, appointed on 14 November 2006) (appointed on 14 November 2006) (appointed on 15 April 2007)

The role of the NC is to establish a formal and transparent process for the Group, for the appointment of new directors and re–nomination and re–election of directors at regular intervals. The NC will also assess the effectiveness of the Board as a whole, and the contribution of each director to the effectiveness of the Board. In drawing up objective performance criteria for such evaluation and determination, the NC considers a number of factors, including those set out in the Code of Corporate Governance. The NC also considers and determines the independence of directors.

During the financial year 2007, the NC had obtained confirmation of independency from the Independent Directors.

Executive Committee The Executive Committee (“Exco”) operates under delegated authority from the Board and comprises: Executive Director Mr Loh Hock Chuan

(appointed as Chairman on 1 July 2007)

Independent And Non-Executive Directors Dr Tan Eng Liang Mr Chee Wai Pong Mr Chan Soo Sen

(appointed as Chairman on 4 January 2007, stepped down as Chairman on 1 July 2007 and remains as member) (appointed on 4 January 2007) (appointed on 16 February 2007)

The Executive Committee oversees the management of the business and affairs of the group. It reviews the group’s policies, principles, strategies, values, objectives and performance targets. These include investment and divestment policies.

Interested Person Transactions The Company has adopted an internal policy in respect of any transactions with interested persons and has set out the procedures for review and approval of the Company’s interested persons transactions. Details of the interested persons transactions are disclosed in Note 3 of the financial statements under Related Party Transactions.

Communication with Shareholders The Board is mindful of the need to provide timely and transparent information to shareholders. Announcements of results and other material information are promptly released to the SGX–ST. Dealing in Securities The Company has adopted internal codes pursuant to the SGX–ST Listing Manual’s guidelines applicable to all its officers in relation to dealings in the Company’s securities. Its officers are not allowed to deal in the Company’s shares during the period commencing one month before and up to and including the date of announcement of the Company’s results (quarterly, half–year and full–year).

20

FHTK A NNUAL R EP O R T 2 0 0 7

REPORT ON CORPORATE GOVERNANCE Directors’ Attendance at Board and Board Committee Meetings Number of Meetings Attended for the financial year 2007

Board Audit Exco Remuneration Nominating

Number of Meetings held 11 4 7 3 Directors during financial year Dr Tan Eng Liang (appointed on 13 November 2006) 6 2 4 2 Mr Chee Wai Pong 11 4 4 3 Mr Chan Soo Sen (appointed on 13 November 2006) 5 2 4 2 Mr Loh Hock Chuan (appointed on 15 April 2007) 1

3 Mr Michael John Martin (appointed on 15 April 2007) 2 1 Mr Lee Ying Cheun (resigned on 13 November 2006) 5 1 1 Mr Lim How Teck (resigned on 13 November 2006) 5 2 4 1 Mr Lim Soo Peng (resigned on 17 April 2007) 7 Mr Ee Tai Ting (resigned on 7 June 2007) 9

4 Mr Manuel J Sanchez Ortega (resigned 14 April 2007) 4

2

2

2 2

Directors’ Fees & Remuneration Variable/ Performance Benefits

Base/Fixed Allowance & –in–kinds Fees Salary Bonus and Others Total

% % % % % $250,000 to S1,100,000 Mr Ee Tai Ting 0.9% 96.1% 0.0% 3.0% 100% Below 250,000 Lee Ying Cheun 100.0% 0.0% 0.0% 0.0% Tan Eng Liang 100.0% 0.0% 0.0% 0.0% Loh Hock Chuan 100.0% 0.0% 0.0% 0.0% Chee Wai Pong 100.0% 0.0% 0.0% 0.0% Goh Hoon Kan 100.0% 0.0% 0.0% 0.0% Lim Soo Peng 100.0% 0.0% 0.0% 0.0% Lim How Teck 100.0% 0.0% 0.0% 0.0% Michael John Martin 100.0% 0.0% 0.0% 0.0% Chan Soo Sen 100.0% 0.0% 0.0% 0.0% Manuel J Sanchez Ortega 100.0% 0.0% 0.0% 0.0%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

FHTK A N N UA L RE PO R T 2 0 07

21

report OF the DIRECTORS We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended 30 June 2007.

DIRECTORS The directors in office at the date of this report are as follows: Tan Eng Liang (Chairman)

(Appointed on 13 November 2006)

Chan Soo Sen

(Appointed on 13 November 2006)

Michael John Martin

Goh Hoon Kan Loh Hock Chuan

(Appointed on 15 April 2007) (Appointed on 15 April 2007)

(Appointed on 15 April 2007)

Chee Wai Pong DIRECTORS’ INTERESTS According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the “Act”), none of the directors (including those held by their spouses and infant children) who held office at the end of the financial year had interest either at the beginning of the financial year, or date of appointment, if later, or at the end of the financial year.

There were no changes in any of the above mentioned interests in the Company between the end of the financial year and 21 July 2007.

Except as disclosed in this report, since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.

Neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors to acquire benefits through the acquisition of shares in or debentures of the Company or any other body corporate.

22

FHTK A NNUAL R EP O R T 2 0 0 7

report OF the DIRECTORS (cont’d) DIRECTORS’ INTERESTS (cont’d) SHARE OPTIONS During the financial year, 22,000,000 shares had been issued by virtue of the exercise of options by investors who had given loans to the Company in the previous financial year.

There were no options granted by the Company or its subsidiaries to take up unissued shares in the Company or its subsidiaries during the financial year.

There were no unissued shares of the Company or its subsidiaries under options as at the end of the financial year.

AUDIT COMMITTEE The members of the Audit Committee during the year and at the date of this report are: Michael John Martin (Chairman) (Appointed on 15 April 2007) Tan Eng Liang

(Appointed on 13 November 2006)

Chan Soo Sen

(Appointed on 13 November 2006)

Chee Wai Pong The Audit Committee performs the functions specified in Section 201B of the Singapore Companies Act, the Listing Manual and the Code of Corporate Governance.

The Audit Committee has held four meetings since the last report of the directors. In performing its functions, the Audit Committee met with the Company’s external auditors to discuss the scope of their work, the results of their examination and evaluation of the Company’s internal accounting control system.

The Audit Committee also reviewed the following: (i) assistance provided by the Company’s officers to the external auditors; and (ii) interested person transactions (as defined in Chapter 9 of the Listing manual of the Singapore E xchange) The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non–audit fees.

The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the auditors, Mazars Moores Rowland LLP, be nominated for re–appointment as auditors at the forthcoming Annual General Meeting of the Company.

FHTK A N N UA L RE PO R T 2 0 07

23

report OF the DIRECTORS (cont’d) AUDITORS Moores Rowland was converted to Moores Rowland LLP, a limited liability partnership, with effect from 28 June 2007. On 31 August 2007, Moores Rowland LLP changed its name to Mazars Moores Rowland LLP. Accordingly, Mazars Moores Rowland LLP, Certified Public Accountants, have expressed their willingness to accept re–appointment.

On behalf of the Board of Directors

Tan Eng Liang Director 27 September 2007

Michael John Martin Director

24

FHTK A NNUAL R EP O R T 2 0 0 7

STATEMENT BY THE DIRECTORS The Board of Directors is responsible for the preparation and fair presentation of these financial statements set out on pages 27 to 58 in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act�) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

In our opinion: (a) the accompanying financial statements are drawn up so as to give a true and fair view of the state of affairs of the Group and Company as at 30 June 2007 and of the results, changes in equity and cash flows of the Group for the year ended on that date in accordance with the provisions of the Act and Singapore Financial Reporting Standards; and (b) at the date of this statement, subject to the successful completion of the $60 million convertible loan agreement with an investor, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

On behalf of the Board of Directors

Tan Eng Liang Director 27 September 2007

Michael John Martin Director

FHTK A N N UA L RE PO R T 2 0 07

25

AUDITORS’ REPORT

TO THE MEMBERS OF FHTK HOLDINGS LTD (Incorporated in Singapore) AND ITS SUBSIDIARIES We have audited the accompanying financial statements of FHTK HOLDINGS LTD (the “Company”) and its subsidiaries (the “Group”), which comprise the balance sheets of the Group and the Company as at 30 June 2007, the income statement, statement of changes in equity and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 27 to 58.

Directors’ responsibility for the financial statements The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards.

This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion: (a) the consolidated financial statements of the Group and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards to give a true and fair view of the state of the affairs of the Group and of the Company as at 30 June 2007 and of the results, changes in equity and cash flow of the Group for the year ended on that date; and (b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with provisions of the Act. Without qualifying our report, we draw your attention to Note 1 to the financial statements.

As stated in Note 1, the Group incurred a net loss of $49.2 million for the year ended 30 June 2007. As at 30 June 2007, the Group and the Company have net current liabilities of $17.0 million and $24.3 million respectively, and had total bank loans and loans from an investor of $51.0 million and $21.2 million respectively. As disclosed in Note 1 to the financial statements, based on the cash flow projection for the year ending 30 June 2008 prepared by the Group, the Group would require additional credit facilities to provide for the additional working capital to continue to operate as a going concerns. During the financial year, the Company had entered into a $60 million convertible loan agreement with an investor (“$60 million loan facility”), which is subject to the fulfillment of certain terms and conditions including approval from its shareholders at an extraordinary general meeting which will be held on 16 October 2007.

26

FHTK A NNUAL R EP O R T 2 0 0 7

AUDITORS’ REPORT (cont’d)

TO THE MEMBERS OF FHTK HOLDINGS LTD (Incorporated in Singapore) AND ITS SUBSIDIARIES These factors indicate the existence of a material uncertainty which may cast significant doubt about the ability of the Group and the Company to continue operations as going concerns. The ability of the Group and the Company to continue as going concerns depends on the successful completion of the $60 million loan facility, the continued financial support from its principal lenders and the generation of significant positive cash flows from the Group’s on–going activities. The accompanying financial statements and consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts and classification of liabilities that might result if the going concern basis was found to be inappropriate. Should the going concern assumption be inappropriate, adjustments would have to be made to reflect the situation that assets may need to be realised other than in the amounts at which they are currently recorded in the balance sheets. In addition, the Group and the Company may have to provide for further liabilities that may arise and to reclassify non–current assets and non–current liabilities as current assets and current liabilities respectively.

No adjustments have been made in the financial statements of the Company and consolidated financial statements of the Group in respect of these matters.

MAZARS MOORES ROWLAND LLP CERTIFIED PUBLIC ACCOUNTANTS Singapore: 27 September 2007

FHTK A N N UA L RE PO R T 2 0 07

27

CONSOLIDATED INCOME STATEMENT

for the Year ended 30 June 2007

Group

Note

2007 $’000

2006 $’000

Revenue 4 Cost of sales

47,441 (49,232)

67,509 (64,677)

Gross (loss) / profit

(1,791)

2,832

Other income 5 Selling and distribution expenses Administrative expenses Other operating expenses Impairment of biological assets – plantations 15 Finance costs Net loss on dilution of interests in associated company 6 Share of losses of associates

2,487 (5,057) (11,102) (2,513) (26,698) (4,070) (271) –

4,289 (5,950) (15,932) (1,555) – (3,602) – (511)

Loss before taxation Income tax expense

7 8

(49,015) (228)

(20,429) (2)

Loss for the year

(49,243)

(20,431)

(0.79)

(1.47)

Loss per share (cents)

– Basic and diluted

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

9

28

FHTK A NNUAL R EP O R T 2 0 0 7

BALANCE SHEETS

AS AT 30 June 2007

ASSETS

Note

2007 $’000

Group Company 2006 2007 2006 $’000 $’000 $’000

Non–current assets Subsidiaries 10 – – 36,501 Associates 11 – 1,278 – Other investments 12 1,075 68 1,007 Other assets 13 662 802 – Property, plant and equipment 14 43,238 49,048 352 Biological assets–Plantations 15 9,342 36,328 –

55,190 3,546 – – 155 –

54,317

87,524

37,860

58,891

Current assets Cash and bank balances 16 6,480 10,562 Trade receivables 17 4,073 6,328 Other receivables and prepayments 18 2,778 2,681 Inventories 19 15,687 17,918

81 – 61 –

4,556 – 153 –

29,018

37,489

142

4,709

Total assets

83,335

125,013

38,002

63,600

LIABILITIES AND EQUITY Equity attributable to equity holders of the Company Share capital 20 85,006 84,160 85,006 84,160 Capital reserve 944 944 – – Capital reduction reserve 21 18,384 18,384 18,384 18,384 Foreign currency translation reserves 9,254 8,998 – – General reserve 2,201 2,201 – – Accumulated losses (102,585) (53,342) (89,924) (40,825) Total equity

13,204

61,345

13,466

61,719

Current liabilities Bank loans – secured 22 5,728 Loans from investor 23 21,178 Trade payables 24 4,416 Other payables 25 13,747 Provision for income tax 895 Finance leases obligation 26 21

39,220 – 9,853 13,907 676 12

– 21,178 – 3,257 – 21

– – – 1,869 – 12

63,668

24,456

1,881

45,985

Non–current liabilities Finance leases obligations 26 80 – 80 – Bank loans – secured 22 24,066 – – –

24,146

Total liabilities Total liabilities and equity

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

–

80

–

70,131

63,668

24,536

1,881

83,335

125,013

38,002

63,600

FHTK A N N UA L RE PO R T 2 0 07

29

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the Year ended 30 June 2007

Foreign Capital currency Share Share Capital reduction translation General Accumulated

Note capital premium reserve reserve reserves reserve losses Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Group Balance at

30 June 2005 6,155 54,443 944 18,384 10,549 2,201 Currency translation

arising during the

year recognised

directly in equity – – – – (1,551) – Loss for the year – – – – – – Total recognised

income and

expenses for

the year – – – – (1,551) – Proceeds from issue

of ordinary shares

under rights issue

and exercise of

options 20 24,640 – – – – – Transfer from share

premium account

to share capital

upon

implementation

of the Companies

(Amendment)

Act 2005 54,443 (54,443) – – – – Right issue expenses (1,078) – – – – – Balance at 30 June 2006 84,160 Currency translation

arising during the

year recognised

directly in equity – Loss for the year – Total recognised income

and expenses for

the year – Proceeds from issue of

shares and exercise

of share options 20 846 Balance at 30 June 2007 85,006

(32,911) 59,765

– (1,551) (20,431) (20,431)

(20,431) (21,982)

– 24,640

– –

– (1,078)

–

944

18,384

8,998

2,201

(53,342) 61,345

– –

– –

– –

256 –

– –

– 256 (49,243) (49,243)

–

–

–

256

–

(49,243) (48,987)

–

–

–

–

–

–

944

18,384

9,254

2,201

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

–

846

(102,585) 13,204

30

FHTK A NNUAL R EP O R T 2 0 0 7

CONSOLIDATED STATEMENT OF cash flow

for the Year ended 30 June 2007

Group 2007 $’000

2006 $’000

(49,015)

(20,429)

4,070 (28) (14) 1,094 852 26,698 271 – 14,660 – (128) – (443) (256)

3,602 (20) (7) – – 1,278 – 511 13,473 800 58 25 1,191 (242)

Operating (loss)/profit before working capital changes

Change in working capital:

Trade receivables

Other receivables and prepayments

Inventories

Trade payables

Other payables

(2,239)

240

2,715 25 2,816 (5,437) (160)

4,216 1,349 (205) (4,909) 1,797

Cash (used in)/generated from operations Interest paid Interest received Income tax paid

(2,280) (3,641) 28 (4)

2,488 (3,602) 20 –

Cash flows from operating activities

(5,897)

(1,094)

Investing activities Dividends received Purchase of property, plant and equipment Additions to biological assets Proceeds from disposal of property, plant and equipment

14 (445) (8,393) 108

7 (733) (8,700) –

Cash flows from investing activities

(8,716)

(9,426)

Financing activities Repayment of bank loans Loans from investor Finance lease obtained/(repayment of finance leases) Net proceeds from issue of ordinary shares under rights issue and exercise of options

(9,426) 21,178 89 110

(5,571) – (34) 23,562

Cash flows from financing activities

11,951

17,957

Net effect of exchange rate changes in consolidating subsidiaries

(1,420)

238

Net (decrease)/increase in cash and cash equivalents

(4,082)

7,675

Cash and cash equivalents at beginning of year

10,562

2,887

Cash and cash equivalents at end of year

6,480

10,562

Operating activities Loss before taxation Adjustments for:

Interest expense

Interest income

Dividend income

Impairment of property, plant and equipment

Property, plant and equipment written off

Impairment of biological assets/biological assets written off

Net loss on dilution of interest in associated company

Share of associates losses

Depreciation expense

Goodwill written off

(Gain)/loss on disposal of property, plant and equipment

Inventories written off

Allowance for doubtful receivables written back/made

Allowance for inventories, net of provision and written back

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

FHTK A N N UA L RE PO R T 2 0 07

31

notes to the financial statements

for the Year ended 30 June 2007 1. DOMICILE AND ACTIVITIES

FHTK Holdings Ltd (the “Company”) is incorporated in the Republic of Singapore with its principal place of business and registered office at 20 Harbour Drive #06–02 PSA Vista, Singapore 117612. The Company is domiciled in Singapore and is listed on the Singapore Exchange Securities Trading Limited.

The principal activity of the Company is that of investment holding. The principal activities of the significant subsidiaries are disclosed in Note 10 to the financial statements.

The consolidated financial statements relate to the Company and its subsidiaries (referred to as the “Group”) and the Group’s interest in associates.

For the year ended 30 June 2007, the Group incurred a net loss of $49.2 million. As at 30 June 2007, the Group and the Company had net current liabilities of $17.0 million and $24.3 million respectively, and had total bank loans and loans from an investor of $51.0 million and $21.2 million respectively. As indicated in Note 22, the Company had entered into an agreement with the Group’s principal banker in the People’s Republic of China (“PRC”) to repay the loan of RMB 161.1 million ($32 million) in instalments over a 10–year period. Based on the cash flow projection for the year ending 30 June 2008 prepared by the Group, the Group would require additional credit facilities to provide for the additional working capital to continue to operate as a going concern. As indicated in Note 23 to the financial statements, the Company had secured and obtained credit facilities of up to $30 million from an investor for its working capital requirements during the year. During the financial year, the Company had entered into a $60 million convertible loan agreement with an investor. The completion of this agreement is subject to the fulfilment of certain terms and conditions as stated in the agreement. The Company will be seeking approval from its shareholders for the $60 million convertible loan at an extraordinary general meeting which will be held on 16 October 2007.

The ability of the Group and the Company to continue operations as going concerns depends on the successful completion of the $60 million convertible loan referred to above, the continued financial support from its principal lenders and the generation of significant positive cash flows from the Group’s on–going activities. The accompanying financial statements and consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts and classification of liabilities that might result if the going concern basis was found to be inappropriate.

Should the going concern assumption be inappropriate, adjustments would have to be made to reflect the situation that assets may need to be realised other than in the amounts at which they are currently recorded in the balance sheets.

In addition, the Company and the Group may have to provide for further liabilities that may arise and to reclassify non– current assets and non–current liabilities as current assets and current liabilities respectively. No adjustments have been made in the financial statements of the Company and consolidated financial statements of the Group in respect of these matters.

The balance sheet of the Company and consolidated financial statements of the Group for the year ended 30 June 2007 were authorised for issue by the Board of Directors on 27 September 2007.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation

The financial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”) including related Interpretations promulgated by the Council on Corporate Disclosure and Governance.

The financial statements are presented in Singapore dollars (S$ or $). The financial s tatements are rounded to the nearest thousand, unless otherwise stated. They are p repared on the historical cost basis except as set out in the significant accounting p olicies stated below.

32

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2.1 Basis of preparation (Cont’d)

On 1 July 2006, the Group adopted the following amendments to FRSs and Interpretations to FRS (INT FRS) which are relevant to its operations:

FRS 1 (Amendment) FRS 16 (Amendment) FRS 19 (Amendment) FRS 21 (Amendment) FRS 24 (Amendment) FRS 32 (Amendment) FRS 37 (Amendment) FRS 39 (Amendment) INT FRS 104 INT FRS 108 INT FRS 109

The adoption of the above amendments to new FRSs and INT FRSs did not have a significant impact to the financial statements of the Group.

The Group has not applied certain new accounting standards and interpretations that have been issued as of the balance sheet date but not yet effective. The initial application of those standards and interpretations are not expected to have any material impact on the Group’s financial statements. The Group has not considered the impact of accounting standards issued after the balance sheet date.

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Estimates and judgements are currently evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

Presentation of Financial Statements Property, Plant and Equipment Employee Benefits The Effects of Changes in Foreign Exchange Rates Related Party Disclosures Financial Instruments: Disclosures and Presentation Provisions, Contingent Liabilities and Contingent Assets Financial Instruments: Financial Guarantee Contracts Determining Whether an Arrangement contains a Lease Related Party Disclosures Reassessment of Embedded Derivatives

2.2 Functional currency

The management has determined the currency of the primary economic environment in which the Group operates i.e., functional currency, to be Singapore dollars . Sales prices and major costs of providing goods and services including major operating expenses are primarily influenced by fluctuations in S$.

2.3 Foreign currencies

Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiary companies and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non–monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Company’s net investment in foreign operations, which are recognised initially in a separate component of equity as foreign currency translation reserves in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the foreign operation. In the Company’s separate financial statements, such exchange differences are recognised in the income statement.

FHTK A N N UA L RE PO R T 2 0 07

33

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.3 Foreign currencies (Cont’d)

Foreign currency transactions (cont’d)

The results and financial position of foreign operations are translated into S$ using the following procedures:

– Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and

– Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.

All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserves.

Goodwill and fair value adjustments arising on the acquisition of foreign subsidiary companies on or after 1 January 2005 are treated as assets and liabilities of the foreign subsidiary companies and are recorded in the functional currency of the foreign subsidiary companies and translated at the closing rate at the balance sheet date.

Goodwill and fair value adjustments which arose on acquisitions of foreign operation before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in S$ at the rates prevailing at the date of acquisition.

On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the income statement as a component of the gain or loss on disposal.

2.4 Principles of consolidation

Subsidiaries are companies controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of a Company so as to obtain benefits from its activities. The Company generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the Board of Directors. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Investments in subsidiaries and associates are stated in the Company’s balance sheet at cost less impairment losses.

Associates are those entities in which the Group has significant influence, but not control, over their financial and operating policies. This generally coincides with the Group having 20% or more of the voting power, or has representation on the Board of Directors. Associates are accounted for using the equity method. The consolidated financial statements include the Group’s share of the income and expenses of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long–term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

The most recent available audited financial statements or management financial information of the associates are used by the Group in applying the equity method.

Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is credited to the income statement in the period of the acquisition.

34

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.4 Principles of consolidation (Cont’d) Transactions eliminated on consolidation

Intra–group balances, and any unrealised income or expenses arising from intra–group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

2.5 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is computed to write off the cost of property, plant and equipment on a straight–line basis over the estimated useful life of the asset as follows: Leasehold properties Coldroom, plant and machinery Furniture, fixtures and fittings Office equipment Motor vehicles

over lease period of 10 to 70 years 6 to 10 years 5 to10 years 3 to 10 years 2 to 5 years

Assets under construction are not depreciated. The cost of self–constructed assets includes the cost of materials, direct labour and an approximate portion of production overheads.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The useful life and depreciation method are reviewed at each financial year–end to ensure that the method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

Fully depreciated assets are retained in the financial statements until they are no longer in use and no further charge for depreciation is made in respect of these assets. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

2.6 Biological assets (plantations)

The biological assets in the form of plantations are carried at cost less accumulated depreciation and any impairment losses. Cost includes pre–paid rental lease payments for land and cost of planting, fertilising and maintaining the plantation and other indirect overhead costs.

Immature plantation is stated at cost. A fruit plantation is considered mature when such a plantation is harvestable or has attained harvestable specifications and able to sustain regular harvests. The cost of mature plantations are depreciated, using forecasted fruit yield, over the fruit bearing period of 11 to 15 years or the remaining term of the lease whichever is shorter.

2.7 Intangible assets (goodwill)

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

FHTK A N N UA L RE PO R T 2 0 07

35

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.8 Financial instruments

Financial instruments

Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other receivables and payables. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in these Notes.

Recognition and derecognition

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.

Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

2.9 Other investments

Other investments in unquoted equity instruments are classified as available–for–sale investments and are stated at cost less any impairment loss as there are no quoted market p rices in an active market (and thus, their fair value cannot be reliably measured).

2.10 Inventories

Inventories are carried at the lower of cost (weighted average method) and net realisable value.

Agricultural produce comprises harvested fruits such as apples, pears, grapes, cherry, nectarines and peaches.

Other inventories include agricultural products that have undergone processing after harvest, such as dehydrated garlic and onions, and packaging materials. The cost of these inventories comprises all cost of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

When inventories are sold, the carrying amount of inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write–down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write–down or loss occurs.

The amount of any reversal of any write–down of inventories, arising from an increase in net realisable value, is recognised in the income statement in the period in which the reversal occurs.

2.11 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently at a mortised cost using the effective interest method, less any impairment losses.

2.12 Impairment of financial and non–financial assets

Impairment of financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

36

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.12 Impairment of financial and non–financial assets (Cont’d)

Impairment of financial assets (cont’d)

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the income statement.

Impairment of non–financial assets

The carrying amounts of the Group’s non–financial assets, other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. An impairment loss is recognised if the carrying amount of an asset or its cash–generating unit exceeds its recoverable amount. A cash–generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.

Impairment losses are recognised in the income statement unless it reverses a previous revaluation, credited to equity, in which case it is charged to equity. Impairment losses recognised in respect of cash–generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash–generating unit is the greater of its value in use and its fair value less costs to sell.

In assessing value in use the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash–generating unit.

In respect of impairment of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill and available–for–sale financial assets measured at cost is not reversed to the income statement.

2.13 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand.

For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts which are repayable on demand and which form an integral part of the Group’s cash management.

2.14 Share capital

Ordinary shares are classified as equity. Incremental cost directly attributable to the issue of ordinary shares, share options and warrants are recognised as a deduction from equity.

2.15 Liabilities and interest–bearing liabilities

Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost, using the effective interest method. Interest–bearing liabilities are recognised initially at cost less attributable transaction costs. Subsequent to initial recognition, interest–bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

FHTK A N N UA L RE PO R T 2 0 07

37

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.16 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Revenue from the sale of goods is recognised when significant risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction can be measured reliably. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

(ii) Interest income

Interest income is recognised as interest accrues (using the effective interest method).

(iii) Dividend

Dividend income is recognised when the Group’s right to receive payment is e stablished.

(iv) Rental income

Rental income is accounted for on a straight–line basis over the lease terms on on–going leases. The aggregate cost of incentives provided to lessees is recognised as a reduction of rental income over the lease term on a straight–line basis.

2.17 Finance income and expenses

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method.

Finance expenses comprise interest expense on borrowings and financing charges. All borrowing costs are recognised in the income statement using the effective interest method, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale.

2.18 Employee benefits

Defined contribution plans

Obligations for contributions to defined contribution plans are recognised as an expense in the income statement as incurred.

Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date.

2.19 Income taxes

Current income tax liabilities (and assets) for current and prior periods are recognised in the income statement for the period at the amounts expected to be paid to (or recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date.

38

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.19 Income taxes (Cont’d)

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Temporary differences are not recognised for goodwill not deductible for tax purposes and for the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.20 Leases

Finance lease

Finance leases, which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments at the inception of the lease term. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement.

Operating lease

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, are classified as operating leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight–line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight–line basis.

2.21 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre–tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

FHTK A N N UA L RE PO R T 2 0 07

39

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.22 Related parties

Related parties

A party is related to the Group if:

(a) directly, or indirectly through one or more intermediaries, the party controls, is controlled by, or is under common control with, the Group; or has an interest in the Group that gives it significant influence over the Group; or has joint control over the Group;

(b) the party is an associate of the Group;

(c) the party is a joint venture in which the Group is a venturer;

(d) the party is a member of the key management personnel of the Group or its p arent;

(e) the party is a close member of the family of any individual referred to in (a) or (d);

(f ) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

(g) the party is a post–employment benefit plan for the benefit of employees of the G roup, or of any entity that is a related party of the Group.

Key management personnel

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Group.

2.23 Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

2.24 Financial guarantees

The Company has issued corporate guarantees to banks for bank borrowings of its subsidiaries. These guarantees are financial guarantee contracts as they require the Company to reimburse the banks if the subsidiaries fail to make principal or interest payments when due in accordance with the terms of their borrowings.

Financial guarantee contracts are initially recognised at their fair values plus transaction costs.

Financial guarantee contracts are subsequently amortised to the income statement over the period of the subsidiaries’ borrowings, unless the Company has incurred an obligation to reimburse the bank for an amount higher than the unamortised amount.

In this case, the financial guarantee contracts shall be carried at the expected amount payable to the bank.

40

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 2.25 Critical judgements

The following are the judgements made by management in the process of applying the Group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements.

(a) Impairment of investments and financial assets

The Group follows the guidance of FRS 39 and FRS 36 in determining when an asset is impaired in respect of its property, plant and equipment, investments in subsidiary companies and associated companies and other non–current assets, are other than temporarily impaired. This assessment requires significant judgement. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment or financial asset is less than its cost; and the financial health of and near–term business outlook for the investment or financial asset, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

(b) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to severe industry cycles. Management will reassess the estimations at the balance sheet date.

(c) Impairment of receivables

The Group makes allowance for impairment based on an assessment of the recoverability of trade and other receivables. Allowance is applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying amount of trade and other receivables and the allowance for impairment in the financial period in which such estimate has been changed.

2.26 Critical estimates

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes

The Group has exposure to income taxes in a few jurisdictions. Significant judgement is involved in determining the Group’s provision for income taxes. There are certain transactions and computations for which ultimate tax determination is uncertain during the course of ordinary business. The Group recognises liabilities for expected tax issues based on estimate of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(b) Impairment of biological assets

Biological assets are stated at cost less accumulated depreciation and impairment loss. The use of discounted cash flow method for impairment test requires the Group to estimate the expected yields, key costs of production and appropriate market prices of fruits over a period of time. Changes due to circumstances such as weather conditions, diseases on agriculture produce, market value of products used in the assumptions and the weak cash flow position of the Group may affect the outcome of these estimates.

FHTK A N N UA L RE PO R T 2 0 07

41

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

3. RELATED PARTY TRANSACTIONS

Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions.

Some of the Group’s transactions and arrangements are with related parties and the effect of these on the basis determined between the parties are reflected in these financial statements.

Significant related party transactions

Purchase of goods/services

Related parties

Associates

Sale of goods/services

Associates

Group 2007 $’000

2006 $’000

– –

2,475 248

–

186

Key management personnel compensation

The key management personnel compensation is as follows:

2007 $’000

1,878

Short–term employee benefits

Group Company 2006 2007 2006 $’000 $’000 $’000 1,991

1,175

1,372

2007 $’000

2006 $’000

Disposal of plastic containers Disposal of low–grade fruits Sales commission Rental income Interest income Dividend income Gain on disposal of property, plant and equipment Write–back of inventories previously written off Write–back of allowance for doubtful receivables Others

16 1,039 – 230 28 14 128 256 443 333

2,460 630 535 215 20 7 – 193 – 229

2,487

4,289

4. REVENUE

Revenue consists of the sale of fruits and agricultural products.

5. OTHER INCOME Group

42

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

6. NET LOSS ON DILUTION OF ASSOCIATES

Group 2007 $’000

Gain on dilution of associated company Accumulated share of post–acquisition accumulated losses of associated company Impairment losses on associated company

2,268 (2,268) (271)

Net loss on dilution of interests in associated company

(271)

During the financial year, the Group’s interest in an associated company was diluted from 20% to 5.14% when the associated company issued additional shares for which the Group did not subscribe. The effect of the dilution resulted in the deconsolidation of the associated company as at 30 June 2007. The net impact was an additional charge of $271,000 to the consolidated income statement. Following the dilution in interest, the Group’s investment in the associated company was reclassified to Other Investments account (Note 12) as at 30 June 2007.

7. LOSS BEFORE TAXATION

The following items have been included in arriving at loss before taxation:

Note

Depreciation of property, plant and equipment 14

Loss on disposal of property, plant and equipment

Property, plant and equipment written off

Impairment loss on property, plant and equipment 14

Impairment loss on biological assets – plantations 15

Depreciation of biological assets – plantations 15

Biological assets – plantations written off 15

Directors’ fees:

Directors of the Company

Directors’ remuneration:

Directors of the Company

Fees paid to a firm in which a director is a member

Goodwill written off

Staff costs

Costs of defined contribution plans included in staff cost

Allowance for doubtful receivables

Exchange loss

Group 2007 $’000

2006 $’000

5,810 – 852 1,094 26,698 8,850 –

5,985 58 – – – 7,488 1,278

166

204

1,000 – – 4,328 98 – 372

1,164 1 800 6,373 151 1,191 85

No non–audit fees were paid to the auditors of the Company for the financial years ended 30 June 2007 and 30 June 2006.

8. INCOME TAX Group

2007 $’000

2006 $’000

Current tax expense Current

228

2

FHTK A N N UA L RE PO R T 2 0 07

43

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 8. INCOME TAX (CONT’D)

The Group operates in different countries and is subject to varying rates of tax as they apply to each of the countries in which the Group operates.

The reconciliation of the income tax and accounting loss multiplied by the applicable tax rate is as follows:

Group 2007 $’000

2006 $’000

Loss before taxation

(49,015)

(20,429)

Tax at applicable tax rate of 18% (2006: 20%)

Non–allowable items

Non–taxable items

Effect of different tax rates of overseas operations

Unabsorbed tax losses for current year for which deferred tax

asset has not been recognized

Utilisation of deferred tax benefits previously not recognised

Others

(8,823) 7,923 (90) (1,792)

(4,086) 1,327 (270) (365)

2,984 – 26

3,662 (321) 55

228

2

Subject to the agreement by the income tax authorities of the respective countries in which the Group operates, the Group has tax loss carryforwards available for offsetting against future taxable income as follows:

Group 2007 $’000

2006 $’000

Amount at beginning of year Adjustment in respect of prior years Arising in current year Exchange adjustment

165,415 – 10,878 856

149,842 4,255 12,450 (1,132)

Amount at end of year

177,149

165,415

Deferred tax benefit on above not recorded

35,623

35,324

Pursuant to the Chinese income tax regulations, the subsidiaries in PRC are entitled to exemptions from PRC income tax for the first two years commencing from their first profit making year followed by 50% reduction in their income tax for the next three years. A profit–making year is defined as the first year for which an enterprise would need to pay income tax after absorption of any loss carried forward.

The realisation of the future income tax benefits from tax losses carryforwards is available for an unlimited future period subject to the conditions imposed by law in the respective countries of incorporation where the subsidiaries operate.

In accordance with the relevant PRC tax laws and regulations, PRC subsidiaries’ tax losses cannot be carried forward for more than five years.

No deferred tax asset has been recognised in the financial statements in respect of tax losses carryforwards due to the unpredictability of future profit streams.

44

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 9. LOSS PER SHARE

The calculation of the basic and fully diluted loss per share is based on the following: Group

2007 $’000

2006 $’000

49,243

20,431

Loss attributable to shareholders of the Company:

Weighted average number of ordinary shares in issue

during the financial year – Basic

Weighted average number of ordinary shares in issue

during the financial year – Diluted

Number (‘000) (‘000) 6,248,109

1,393,128

Number (‘000) (‘000) 6,248,109

1,406,695

The loans from investor amounting to approximately $21.2 million as at 30 June 2007, which c ould be convertible into shares of the Company, were not included in the computation of diluted loss per share because they are antidilutive.

10. SUBSIDIARIES

Company 2007 2006 $’000 $’000

Unquoted equity shares, at cost Less: impairment loss

246,058 (246,058)

246,058 (207,885)

–

38,173

Amount due from subsidiaries – non–trade

Less: allowance for doubtful receivables

145,423 (108,922)

119,557 (102,540)

36,501

17,017

36,501

55,190

The amounts due from subsidiaries are unsecured and interest–free. The settlement of the amounts due from subsidiaries is neither planned nor likely to occur in the foreseeable future. As the amounts are, in substance, part of the Company’s net investments in the subsidiaries, they are stated at cost less accumulated impairment losses.

FHTK A N N UA L RE PO R T 2 0 07

45

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 10. SUBSIDIARIES (cont’d)

The significant subsidiaries of the Group are:

Names of subsidiary and Group’s effective Cost of investment

country of incorporation Principal activities equity interest in the Company

2007 2006 2007 2006

% % $’000 $’000

Fook Huat Tong Kee Pte Ltd

(Singapore)

Investment holding and 100 100 229,620 229,620 importer, exporter, wholesaler, retailer and commission agent of all kinds of fruits and foodstuffs

United Fruit Company Limited Importer, exporter, wholesaler, 100 100 2,328 2,328 retailer and commission agent

(Hong Kong, a SAR of PRC) (a)

of fruits and foodstuffs

Weifang Xinan FHTK Planting, sourcing, processing, 100 100 3,724 3,724

Fruits Co., Ltd refrigeration and packing of

(PRC) ** fruits, vegetables and other

agricultural products

UGC 2003 Inc Distributor of garlic and 100 100 610 610 other food products

(USA) (b)

Dongguan Fook Huat Tong Sourcing, processing, 100 100 – –

Kee Refrigeration & refrigeration, packing and

Foodstuffs Co., Ltd distribution of fruits, vegetables

(PRC) ** and other agricultural products

Longkou Fook Huat Tong Kee Planting, sourcing, processing, 100 100 – –

Refrigeration Co., Ltd refrigeration and packing of

(PRC) ** fruits, vegetables and other

agricultural products

Shanghai Fook Huat Tong Kee To operate foodstuff cold–store, 100 100 – –

Cold Storage Co., Ltd foodstuff packing and related

(PRC) ** logistics activities

Taian Fook Huat Tong To process, market and 100 100 – –

Kee Foodstuffs Co., Ltd sell garlic and onions

(PRC) ** and trading of fruits

Sunmoon Retail & To own, operate and manage as 100 100 – –

Franchise Pte Ltd principal, franchisor and/or agent

(Singapore) of any fresh produce sales outlets ** The financial year ends of these subsidiaries (which is 31 December in accordance with the local statutory requirements) are not co–terminous with that of the Company. These subsidiaries were audited by Mazars Moores Rowland LLP, Singapore for consolidation purposes.

Audited by Mazars CPA Limited, Hong Kong.

An audit is not required in the country of incorporation. The financial statements of UGC 2003, Inc. were reviewed

by Mazars Moores Rowland LLP for consolidation purposes.

(a)

(b)

All the subsidiaries incorporated in Singapore are audited by Mazars Moores Rowland LLP.

46

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 11. ASSOCIATES

Note

Unquoted equity shares, at cost

Cost transferred to Other Investments

account on dilution of associate 12

Share of post–acquisition accumulated

losses and reserves

Share of post–acquisition accumulated

losses and reserves transferred to

Other Investments account on dilution

of associate 12

2007 $’000

Group Company 2006 2007 2006 $’000 $’000 $’000

6,453

6,453

3,962

3,962

(3,546)

–

–

–

(4,759)

(4,759)

–

–

2,268

–

(3,546)

–

Less: impairment loss

416 (416)

1,694 (416)

416 (416)

3,962 (416)

–

1,278

–

3,546

Names of associates and Group’s effective Cost of investment

country of incorporation Principal activities equity interest in the Company

2007 2006 2007 2006

% % $’000 $’000

United Fruits Pak (Pvt) Ltd Dormant 50 50 416 416

(Pakistan)

Long Kou Jin Sheng Packaging Sales and production – * 20 – * 3,546

Co, Ltd (formerly known as Long of packaging materials

Kou Mitsui – Mori Packaging)

(PRC)

Hotel Longsin Co Ltd# Provision of hotel services 47.5 47.5 – –

(PRC)

* Cost of investment in the associate, Long Kou Jing Sheng Packaging Co, Ltd was transferred to Other Investments account on dilution of the Group’s interest to 5.14% (Note 6). #

The investment in the associate, Hotel Longsin Co Ltd, is held by Fook Huat Tong Kee Pte Ltd, a wholly–owned subsidiary of the Company.

The summarised financial information of associates is as follows: Group

2007 $’000

2006 $’000

2,424 (4,736) 289 (301)

31,141 (10,662) 5,400 (3,223)

Assets Liabilities Revenue Net Loss

FHTK A N N UA L RE PO R T 2 0 07

47

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 12. OTHER INVESTMENTS

Note

2007 $’000

Group Company 2006 2007 2006 $’000 $’000 $’000

At cost

Cost transferred from Associates account 11

Share of post acquisition accumulated

losses transferred from Associates account 11

Less impairment losses

68 3,546

68 –

– 3,546

– –

(2,268) (271)

– –

(2,268) (271)

– –

1,075

68

1,007

–

This represents investments in unquoted equity shares which are classified as available–for–sale financial asset and measured at cost.

13. OTHER ASSETS

Other assets which are non–current represents prepayments for long–term land rental. The other assets which are non–current have been reclassified from other receivables and prepayment during the current financial year.

Comparative figures have been reclassified as explained in Note 30 – Comparative Figures.

14. PROPERTY, PLANT AND EQUIPMENT Coldroom, Furniture,

Leasehold plant and fixtures Office Motor Construction Group properties machinery and fittings equipment vehicles –in–progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

2007 Cost: As at 01.07.2006 56,034 113,326 1,873 2,402 2,840 683 177,158 Additions 115 55 4 16 261 4 455 Disposals and write–offs (44) (8,034) (681) (362) (1,028) – (10,149) Reclassifications (33) (107) – (6) (5) (5) (156) Exchange adjustment 624 1,344 4 24 42 4 2,042

As at 30.06.2007

56,696

106,584

1,200

2,074

2,110

686 169,350

Accumulated

depreciation

As at 01.07.2006 18,124 54,579 1,417 1,442 2,126 – 77,688

Depreciation for the year 1,845 3,483 75 152 255 – 5,810

Disposals & write–offs (18) (7,284) (241) (316) (960) – (8,819)

Reclassifications (11) (47) (392) (3) (4) – (457)

Exchange adjustment 54 245 2 20 34 – 355

As at 30.06.2007

19,994

50,976

861

1,295

1,451

–

74,577

Impairment loss

As at 01.07.2006 16,643 33,032 137 129 56 425 50,422

Exchange realignment – 19 – – – – 19

Additions

As at 30.06.2007

–

1,094

–

–

–

–

1,094

16,643

34,145

137

129

56

425

51,535

Net book value

As at 30.06.2007 20,059 21,463 202 650 603 261 43,238

48

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

14. PROPERTY, PLANT AND EQUIPMENT (CONT’D) Coldroom, Furniture,

Leasehold plant and fixtures Office Motor Construction Group properties machinery and fittings equipment vehicles –in–progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

2006 Cost

As at 01.07.2005 56,733 116,471 2,022 2,554 3,126 768 181,674

Additions 61 457 2 20 117 76 733

Disposals (44) (1,477) (121) (132) (333) (103) (2,210)

Reclassifications 264 (146) – 11 (3) (50) 76

Exchange adjustment (980) (1,979) (30) (51) (67) (8) (3,115)

As at 30.06.2006

56,034

113,326

1,873

2,402

2,840

683 177,158

Accumulated

depreciation

As at 01.07.2005 17,141 52,747 1,369 1,363 2,089 – 74,709

Depreciation for the year 1,182 4,081 161 234 327 – 5,985

Disposals (15) (936) (92) (112) (2) – (1,157)

Reclassifications – – – – (236) – (236)

Exchange adjustment (184) (1,313) (21) (43) (52) – (1,613)

As at 30.06.2006

18,124

54,579

1,417

1,442

2,126

–

77,688

Impairment loss

At 01.07.2005

and 30.06.2006 16,643 33,032 137 129 56 425 50,422

Net book value

As at 30.06.2006 21,267 25,715 319 831 658 258 49,048

Furniture, Leasehold fixtures Office Motor Company properties and fittings equipment vehicles Total

$’000 $’000 $’000 $’000 $’000

2007 Cost As at 01.07.2006 141 10 8 352 Addition – – – 262 Disposals – (6) – (352)

511 262 (358)

As at 30.06.2007

415

141

4

8

262

Accumulated depreciation

As at 01.07.2006 12 7 8 329 356

Depreciation for the year 4 1 – 58 63

Disposals – (4) – (352) (356)

As at 30.06.2007

16

4

8

35

63

Net book value

As at 30.06.2007 125 – – 227 352

FHTK A N N UA L RE PO R T 2 0 07

49

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

14. PROPERTY, PLANT AND EQUIPMENT (CONT’D) Furniture, Leasehold fixtures Office Motor Company properties and fittings equipment vehicles Total

$’000 $’000 $’000 $’000 $’000

2006 Cost

As at 01.07.2005 141 10 8 352

511

511

As at 30.06.2006

141

10

8

352

Accumulated depreciation

As at 01.07.2005 9 6 8 259 282

Depreciation for the year 3 1 – 70 74

As at 30.06.2006

12

7

8

329

356

Net book value

As at 30.06.2006 129 3 – 23 155

Motor vehicles of the Group and the Company with a net book value of $227,000 (2006: $23,000) are under finance lease arrangement (Note 26).

The net book value of the Group’s leasehold properties, coldroom and plant and machinery which have been pledged to banks as collateral for credit facilities granted by banks amounted to $13,126,000 (2006: $18,842,000) (Note 22).

The leasehold properties in PRC comprises : a) commercial land located in Qingxi, Guangdong Province, PRC of 11,680 square metres for a lease period of 70 years from August 1992; b) industrial land located in Qingxi, Guangdong Province, PRC of 40,000 square metres for a lease period of 50 years from August 1992; c) industrial land and building located in Longkou, Shandong Province, PRC of 338,241 square metres for a lease period of 50 years from October 1992; d) two residential properties in Qingdao, Shandong Province, PRC of 800 square metres for a lease period of 70 years from May 1993; e) four residential apartment units in Qingxi, Guangdong Province, PRC of 436 square metres for a lease period of 70 years from May 1993; f ) leasehold land and warehouse located in Longkou, Shandong Province, PRC with a built up area of 1,376 square metres and a total site area of 4,872 square metres for a lease period of 50 years from June 1994; and g) leasehold land and building located in Taian, Shandong Province, PRC of 161,933 square metres for a lease period of 50 years from May 1998.

The residential properties in Qingdao are held in the name of a director and a former employee of the Group in trust for the Group.

50

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

14. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

The leasehold property, for a lease period of 75 years from April 1978, in Hong Kong comprises four office units with a total gross floor area of approximately 252 square metres is located on the 19th floor of a 23–storey building known as Hollywood Centre.

The impairment loss represents the write–down of certain property, plant and equipment to its recoverable amount as the usage of these property, plant and equipment was limited. The recoverable amount was based on the value of the property, plant and equipment in its limited use or indicative resale value.

15. BIOLOGICAL ASSETS – PLANTATIONS Group

2007 $’000

2006 $’000

Cost:

At beginning of year

Exchange adjustment

Additions

Write off

63,737 1,123 8,393 –

57,943 (1,628) 8,700 (1,278)

At end of year

73,253

63,737

Accumulated depreciation and impairment losses

At beginning of year

Exchange adjustment

Depreciation for the year

Impairment loss

27,409 954 8,850 26,698

20,423 (502) 7,488 –

At end of year

63,911

27,409

Net book value

At beginning of year

36,328

37,520

9,342

36,328

At end of year

The biological assets comprise 15 (2006: 15) plantations in PRC with a total planted area of 1,769.3 (2006: 1,769.3) hectares. Plantations normally reach full harvest potential between 4 and 8 years.

Currently there are no financial derivatives in PRC to hedge against the future selling price of fruits. There are also no insurance policies in PRC against losses due to uncontrollable and extraordinary weather conditions.

During the financial year, the Group carried out an impairment assessment of its biological assets in accordance with FRS 36 Impairment of Assets. The impairment was computed using a value–in–use approach aided by an external independent consultant. The valuation was performed using discounted cash flows which required the Group to estimate the expected yields, key costs of production and appropriate market prices of fruits over a period of time. Based on the results of the valuation, the biological assets were valued at $9,342,000 as at 30 June 2007 and an impairment charge of $26,698,000 was recognised in the income statement during the financial year.

16. CASH AND BANK BALANCES Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Cash on hand Cash at banks

36 6,444

67 10,495

– 81

– 4,556

6,480

10,562

81

4,556

FHTK A N N UA L RE PO R T 2 0 07

51

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

16. CASH AND BANK BALANCES (cont’d)

Cash and bank balances denominated in foreign currencies at balance sheet date are as follows: Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Chinese Renminbi United States dollars Hong Kong dollars Malaysian Ringgit

4,422 1,884 63 –

371 5,134 22 2

– – – –

– – – –

6,369

5,529

–

–

17. TRADE RECEIVABLES Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Third parties Less: allowance for doubtful receivables

8,066 (3,993)

10,340 (4,012)

– –

– –

4,073

6,328

–

–

Trade receivables denominated in foreign currencies at balance sheet date are as follows: Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Chinese Renminbi United States dollars Hong Kong dollars

3,403 2,800 1,577

5,920 2,699 1,394

– – –

– – –

7,780

10,013

–

–

18. OTHER RECEIVABLES AND PREPAYMENTS Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Other receivables Less: allowance for doubtful receivables

1,583 (1,089)

2,212 (1,089)

11 –

115 –

494

1,123

11

115

Associates Less: allowance for doubtful receivables

6,038 (5,866)

6,461 (5,802)

– –

– –

172

659

–

–

Advances to suppliers Less: allowance for doubtful receivables

1,261 (21)

458 (21)

– –

– –

1,240

437

–

–

Deposits and prepayments

872

462

50

38

2,778

2,681

61

153

The amount due from associates is non–trade in nature, unsecured, interest–free and is r epayable on demand.

52

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 19. INVENTORIES

Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

At cost: Fruits and agricultural products Packing materials

3,482 917

4,274 1,205

– –

– –

4,399

5,479

–

–

At net realisable value: Fruits and agricultural products 10,858 11,291 – Packing materials 430 1,148 –

– –

11,288

12,439

–

–

15,687

17,918

–

–

The following has been included in the carrying amount of inventories as at the end of the year:

Depreciation of property, plant and equipment

2007 $’000 636

Group Company 2006 2007 2006 $’000 $’000 $’000 282

–

–

20. SHARE CAPITAL

No. of shares 2007 (‘000) $’000

No. of shares 2006 (‘000) $’000

The Company

Issued and paid up:

Balance at beginning of the year 6,158,816 84,160 1,230,963

Transfer from share premium account to

share capital upon implementation

of Companies (Amendment) Act 2005 – – –

Issue of new ordinary shares for settlement of debt 147,334 736 –

Issue of new ordinary shares under rights issue – – 4,923,853

Issue of new ordinary shares under options 22,000 110 4,000

Rights issue expenses – – –

54,443 – 24,620 20 (1,078)

Balance at end of the year

84,160

Since the date of commencement of the Companies (Amendment) Act 2005 on 30 January 2006:

– – –

85,006

6,158,816

the concept of authorised share capital was abolished; shares of the Company ceased to have par value; and the amount standing to the credit of the Company’s share premium account became part of the Company’s share capital.

21. CAPITAL REDUCTION RESERVE

6,328,150

6,155

The capital reduction reserve is a non–distributable reserve.

FHTK A N N UA L RE PO R T 2 0 07

53

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 22. BANK LOANS – SECURED

The bank loans are secured on leasehold properties, coldroom, plant and machinery of the Group with a net book value amounting to $13,126,000 (2006: $18,842,000). The bank loans bear an effective interest rate of 6.12% (2006: 6.12%) per annum.

In January 2007, the Group’s principal banker in PRC had agreed to allow one of the Group’s subsidiaries to repay bank loans of RMB 161.1 million ($32 million) over a 10–year period commencing April 2007 after the initial payment of RMB 24.4 million ($4.9 million) in February and March 2007. Consequently, a portion of the bank loans were reclassified from current to non–current in the current financial year.

23. LOANS FROM INVESTOR

During the financial year, the Company entered into a convertible facility loan agreement with an investor, amounting to a total of $30 million. The Company also entered into a $60 million convertible loan agreement with the investor.

This is subject to the approval of Company’s shareholders at an extraordinary general meeting which will be held on 16 October 2007. Part of the $60 million convertible loan may only be used to repay the $30 million convertible facility loan. As at 30 June 2007, the amount utilised was approximately $21,178,000.

The loans from investor bear a premium at an effective rate of 8% per annum and are secured by a charge on the shares of Fook Huat Tong Kee Pte Ltd, a wholly–owned subsidiary of the Company.

The principal terms and conditions of the $30 million loan from investor are as follows:

Date and amount of loan

• 5 January 2007 for $20 million loan facility

• 21 March 2007 for $10 million loan facility

Purpose of loan

The purpose of the above loans are for the working capital requirements of the company and/or to pay certain critical payments.

Interest

8 percent per annum payable in arrears

Repayment and prepayment of loan

The repayment can be made in cash or at the investor’s discretion, by way of ordinary shares at $0.01 each in the capital of the company to be ranked pari passu with existing shares and free from any encumbrance.

The company may at any time prepay the loan or any part thereof without any penalty, prepayment fee or break–funding cost in cash or, at the investor’s discretion, by way of ordinary shares at $0.01 each in the capital of the company to be ranked pari passu with existing shares and free from any encumbrance.

Security

• Charge over the shares of Fook Huat Tong Kee Pte Ltd, a wholly–owned subsidiary of the Company;

• Subordination agreement by the company not to demand or receive payment of any loan made prior to the date of the above loan agreements to Fook Huat Tong Kee Pte Ltd on or before the date on which the above loans have both been repaid or satisfied in full; and

• Negative pledge over the assets of the Company.

54

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

23. LOANS FROM INVESTOR (CONT’D)

The principal terms and conditions of the $60 million loan from investor are as follows:

Date and amount of loan

21 March 2007 for the $60 million convertible loan amount.

Maturity date

The convertible loan is repayable on the date falling 2 years from the date of the convertible loan agreement.

Purpose of loan

The $60 million loan may only be used:

•

for the repayment in full of the above $30 million loan;

•

for working capital purposes; and/or

•

to make certain critical payments as the majority lenders may approve in writing.

Premium

Premium equal to 8% per annum on the principal amount calculated from the date of the drawdown until the maturity date.

Repayment

All outstanding amounts under the convertible loan shall be repaid in cash on the maturity date but the lenders may on the maturity date and at its discretion, convert the outstanding convertible loan and the premium payable at $0.01 each (subject to adjustments as stated in the $60 million convertible loan agreement) into shares in the capital of the Company. The convertible loan is subject to the approval of the shareholders at an extraordinary general meeting to be held on 16 October 2007.

Security

Charge over the shares of Fook Huat Tong Kee Pte Ltd, a wholly–owned subsidiary of the Company;

24. TRADE PAYABLES Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Third parties

4,416

In the previous financial year, a subsidiary of the Group owed eleven separate trade creditors RMB 13.5 million ($2.7 million) in aggregate. The individual debts ranged from RMB 414,000 to RMB 3.2 million, and were incurred separately over a period of time. The creditors took separate legal action against the subsidiary. The Company has agreed with the creditors to an out–of–court settlement to repay the debts by instalments during the current financial year.

Trade payables denominated in foreign currencies at balance sheet date are as follows:

9,853

–

–

Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Chinese Renminbi United States dollars

4,024 390

9,076 589

– –

– –

4,414

9,665

–

–

FHTK A N N UA L RE PO R T 2 0 07

55

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 25. OTHER PAYABLES

Group Company 2006 2007 2006 $’000 $’000 $’000

2007 $’000

Accrued expenses Deposits received Directors of the Company

11,550 2,197 –

11,564 2,095 248

3,257 – –

1,621 – 248

13,747

13,907

3,257

1,869

In December 2006, the Group reached a settlement with a creditor of the Company for amounts owed to the creditor of approximately $2.47 million. The outstanding owed to the creditor has been settled by the allotment and issue of 147,334,120 shares at $0.005 each (approximately $736,000) to the creditor.

26. OBLIGATION UNDER FINANCE LEASE Minimum Present value of

lease payments minimum lease payments

2007 2006 2007 2006

$’000 $’000 $’000 $’000

Group and Company Amount payable under finance lease: Within 1 year 21 12 21 12 Within 2 to 5 years 80 – 80 –

Less: Future finance charges

101 –

12 –

101 –

12 –

Present value of finance lease obligation

101

12

101

12

The finance lease for the Group and the Company bears an average effective interest rate of 6.10% (2006: 6.10%) per annum.

27. OPERATING LEASE COMMITMENTS

2007 $’000

Group Company 2006 2007 2006 $’000 $’000 $’000

Lease payments under operating leases for

rental of premises and land 3,577 3,863 88 88

At the balance sheet date, the commitments in respect of non–cancellable operating leases for rental of premises and land are as follows:

2007 $’000

Group Company 2006 2007 2006 $’000 $’000 $’000

Future minimum lease payments payable:

Within 1 year 3,221 3,662 88 66

After 1 year and within 5 years 16,336 17,588 – –

More than 5 years 20,051 32,894 – –

39,608

54,144

88

66

56

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 28. SEGMENTAL INFORMATION

For management purposes, the Group is organised on a world–wide basis into two major operating divisions – agricultural products and fruits. The divisions are the basis on which the Group reports its primary segment information.

The agricultural products division distributes fresh garlic and manufactures dehydrated garlic and onion products. The production facilities are located in PRC while the products are mainly distributed to the markets in United States of America, Europe, PRC and the ASEAN countries.

The fruits division operates mainly through distribution of fruits and its coldroom facilities and plantations located in PRC. The produce is mainly distributed to the markets in PRC, Europe and the ASEAN countries. a) Analysis by Business Segment

Segment revenue and expense: Segment revenue and expense are the operating revenue and expenses reported in the Group’s income statement that are directly attributable to a segment and the relevant portion of such revenue and expense that can be allocated on a reasonable basis to a segment.

Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of operating receivables, inventories, property, plant and equipment and biological asset, net of allowances and impairment that can be specifically attributable to a specific segment. Capital expenditure includes the total cost incurred to acquire property, plant and equipment and biological asset directly attributable to the segment.

Segment liabilities include all operating liabilities and consist principally of trade and other payables. The Group’s income tax expense and income tax payable are not allocated to any specific segment.

Investment in associates: Income from associates is not allocated as it is not specifically attributable to any of the major business segments, accordingly the investments in associates are included as unallocated assets of the Group.

Agricultural products Fruits Consolidated

2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000

REVENUE External sales 28,961 24,614 18,480 42,895 47,441 67,509

RESULT

Segment result (868) (2,153) (48,876) (17,765) (48,744) (19,918)

Net loss on dilution of interest

in associate company

Share of losses of associates

(271) –

– (511)

Loss before income tax Income tax

(49,015) (228)

(20,429) (2)

Loss attributable to shareholders

of the Company

(49,243)

(20,431)

OTHER INFORMATION Segment assets 18,370 38,367 64,965 85,145 83,335 123,512

Associates – Unallocated corporate assets

Consolidated total assets

1,278 –

223

83,335

125,013

Segment liabilities 2,674 10,093 66,461 52,887

69,135

62,980

Unallocated corporate liabilities

996

688

Consolidated total liabilities

70,131

63,668

Capital expenditure 163 293 8,675 9,140

Depreciation expense 528 1,232 14,132 12,241

8,838 14,660

9,433 13,473

FHTK A N N UA L RE PO R T 2 0 07

57

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007

28. SEGMENTAL INFORMATION (CONT’D) b) Analysis by Geographical Segments

Segment revenue: Segment revenue is analysed based on the location of customers regardless of where the goods are produced.

Segment assets and capital expenditure: Segment assets and capital expenditure are analysed based on the location of those assets. Capital expenditure includes the total cost incurred to acquire the property, plant and equipment and biological asset.

Revenue Assets Capital expenditure

2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000

ASEAN PRC America and Europe Others

9,403 3,559 32,530 1,949

28,777 8,718 25,630 4,384

3,231 73,449 6,655 –

8,691 111,391 4,931 –

3 8,834 – 1

4 9,315 – 114

47,441

67,509

83,335

125,013

8,838

9,433

29. FINANCIAL RISKS AND MANAGEMENT

Exposure to credit, interest rate and foreign currency exchange risk arises in the ordinary course of the Group’s business.

The Group has written risk management policies and guidelines which set out its overall business strategies, its tolerance of risk and its general risk management philosophy. (i) Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

The Group places its cash with creditworthy financial institutions.

(ii) Interest rate and foreign currency exchange risk

The Group does not enter into derivative financial instruments contracts. All interest rate and foreign currency exchange risks are in the ordinary course of business from bank loans and transactions in foreign currencies.

Interest expenses arising from bank borrowings are funded out of the sale of products. The Group seeks to balance its foreign currency exchange risk through its sales and purchases in the respective currencies.

The Group is also exposed to foreign currency exchange rate movements on its net investments in subsidiaries in PRC. No hedge has been taken up for this exposure.

(iii) Liquidity risk

As at 30 June 2007, the Group’s current liabilities exceeded its current assets by $17.0 million. As disclosed in Note 1 to the financial statements, the Group and the Company would require additional credit facilities to provide working capital to continue as going concerns.

(iv) Fair value of financial assets and financial liabilities

The carrying amounts of cash and bank balances, trade and other current receivables and trade and other current payables approximates fair value due to the relatively short term maturity of these financial instruments.

It is not practicable within the constraint of cost to reliably determine the fair value of other investments and amounts due from subsidiaries. These instruments are shown at cost subject to impairment in value.

58

FHTK A NNUAL R EP O R T 2 0 0 7

notes to the financial statements (CONT’D)

for the Year ended 30 June 2007 30. COMPARATIVE FIGURES

Comparative figures in the financial statements have been changed in the previous financial period due to the classification of the following items to conform to current year’s presentation as the directors consider this presentation to be more meaningful and appropriate.

Previously classified as Now reclassified as

Income statement Description $’000 Description $’000

(Year ended 30.06.2006)

Write–back of inventories previously Write–back of inventories Included as part of

written off previously written off 193 Other Income

193

Allowance for doubtful receivables Allowance for doubtful

Included as part of receivables 1,191 Other Income 1,191

Balance sheet

(As at 30.06.2006)

Other receivables and repayment Other Receivables Other Assets

– prepaid long–term land rental

– Current Assets

802 – Non–Current Assets 802 31. SUBSEQUENT EVENTS

On 22 September 2007, the Company has issued a Circular to its shareholders in relation to the approval of the $60 million convertible loan, and the proposed change of name of the Company from FHTK Holdings Ltd to Sunmoon Food Company Limited. The extraordinary general meeting is scheduled to be held on 16 October 2007.

FHTK A N N UA L RE PO R T 2 0 07

59

SHAREHOLDING STATISTICS ISSUED AND FULLY PAID-UP CAPITAL NUMBER OF SHARES ISSUED CLASS OF SHARES

: : :

$85,006,000 6,328,149,955 Ordinary Shares Ordinary shares fully paid with equal voting rights each

DISTRIBUTION OF SHAREHOLDINGS AS AT 13 SEPTEMBER 2007 Size of shareholdings

No. of shareholders

%

No. of Shares

%

121 5,531 7,169 525

0.91 41.44 53.72 3.93

21,621 20,089,430 1,476,897,135 4,831,141,769

0.00 0.32 23.34 76.34

13,346

100.00

6,328,149,955

100.00

1-999 1,000-10,000 10,001-1,000,000 1,000,001 and above Total

TWENTY LARGEST SHAREHOLDERS AS AT 13 SEPTEMBER 2007 No.

Name of shareholders

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

HSBC (Singapore) Nominees Pte Ltd Morgan Stanley Asia (Singapore) Pte Ltd Lim & Tan Securities Pte Ltd Phillip Securities Pte Ltd Raffles Nominees Pte Ltd UOB Kay Hian Pte Ltd United Overseas Bank Nominees Pte Ltd Harmony Holdings Ltd Tan Ng Kuang OCBC Securites Pte Ltd CIMB-GK Securities Pte Ltd DBS Nominees Pte Ltd DBS Vickers Securities (S) Pte Ltd Oversea Chinese Bank Nominees Pte Ltd Kim Eng Securities Pte Ltd DBSN Services Pte Ltd Lim Soo Peng Citibank Nominees Singapore Pte Ltd OCBC Nominees Singapore Pte Ltd Tan Dah Ching (Chen Daqing)

Total:

No. of shares

%

773,309,872 310,703,700 239,579,504 234,627,000 211,424,769 202,424,500 192,391,750 157,389,042 147,334,120 115,350,000 102,615,000 101,183,300 70,535,400 61,849,569 55,540,701 50,000,000 49,681,307 41,500,491 38,012,500 32,234,279

12.22 4.91 3.79 3.71 3.34 3.20 3.04 2.49 2.33 1.82 1.62 1.60 1.11 0.98 0.88 0.79 0.78 0.65 0.60 0.51

3,187,686,804

50.37

On the basis of the information available to the Company, approximately 85.32% of the equity securities of the Company are held in the hands of the public. This is in compliance with Rule 723 of the Listing Manual of the SGX-ST, which requires at least 10% of a listed issuer’s equity securities to be held by the public.

SUBSTANTIAL SHAREHOLDERS

No. of shares Name of substantial shareholders Direct Interest Deemed Interest Tan Ng Kuang 437,249,624 – Li Jie Hong 491,500,000 –

60

FHTK A NNUAL R EP O R T 2 0 0 7

NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting of FHTK Holdings Ltd will be held at 20 Harbour Drive #06-02 PSA Vista, Singapore 117612 on 29 October 2007 at 10.00 a.m. to transact the following businesses: 1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company and the Group for the year ended 30 June 2007.

2. To approve the payment of Directors’ Fees in respect of the year ended 30 June 2007.

3. To re-elect Mr Chan Soo Sen retiring from office pursuant to Article 97 of the Company’s Articles of Association.

4. To re-elect Mr Loh Hock Chuan retiring from office pursuant to Article 97 of the Company’s Articles of Association.

5. To re-elect Mr Goh Hoon Kan retiring from office pursuant to Article 97 of the Company’s Articles of Association.

6. To re-elect Mr Michael John Martin retiring from office pursuant to Article 97 of the Company’s Articles of Association.

7. To consider and, if thought fit, to pass the following as an ordinary resolution:

“That pursuant to Section 153(6) of the Companies Act, Cap. 50, Dr Tan Eng Liang be and is hereby re-appointed Director of the Company, to hold office until the next Annual General Meeting.”

8. To re-appoint Messrs Mazars Moores Rowland LLP, Certified Public Accountants, Singapore as Auditors of the Company and to authorise the Directors to fix their remuneration.

9. As Special Business

To consider and, if thought fit, to pass the following as an Ordinary Resolution:

AUTHORITY TO ISSUE SHARES

“That pursuant to Section 161 of the Companies Act, Cap. 50, approval be and is hereby given to the Directors to issue shares in the Company at any time to such persons upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that the aggregate number of shares to be issued pursuant to this ordinary resolution shall not exceed fifty per cent (50%) of the issued share capital of the Company for the time being, of which the aggregate number of shares issued other than on a pro-rata basis to existing shareholders shall not exceed twenty per cent (20%) of the Company’s issued share capital for the time being and such authority shall continue in force until the conclusion of the Company’s next Annual General Meeting.”

10. To transact any other business that may be transacted at an Annual General Meeting.

By Order of the Board

Chia Lay Beng Secretary Singapore 12 October 2007

FHTK A N N UA L RE PO R T 2 0 07

61

NOTICE OF ANNUAL GENERAL MEETING NOTES: A member of the Company entitled to attend and vote at the above meeting is entitled to appoint not more than two proxies to attend and vote in his stead. A proxy need not be a member of the Company and where there is more than one proxy, the proportion (expressed as a percentage of the whole) of his shareholding to be represented by each proxy must be stated.

The instrument appointing a proxy must be deposited at the Company’s Registered Office at 20 Harbour Drive #06-02 PSA Vista, Singapore 117612 not less than 48 hours before the time for holding the Meeting.

EXPLANATORY NOTES Mr Michael John Martin, if re-appointed, will remain as Audit Committee Chairman.

Dr Tan Eng Liang and Mr Chan Soo Sen, if re-appointed, will remain as Audit Committee members.

The ordinary resolution proposed in item 9 above, if passed, will empower the Directors of the Company from the date of the above meeting until the next Annual General Meeting to issue shares in the capital of the Company up to an amount not exceeding in total 50 per cent of the issued share capital of the Company for the time being, of which the aggregate number of shares issued other than on a pro-rata basis to existing shareholders shall not exceed 20 per cent of the Company’s issued share capital for the time being, for the purposes as they consider would be in the interest of the Company. This authority will, unless previously revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company.

This page has been left blank intentionally.

FHTK HOLDINGS LTD (Incorporated in Singapore) Company Registration No. 198304656K Registered Office: 20 Harbour Drive #06-02 PSA Vista Singapore 117612

PROXY FORM I/We, of being a member/members of the abovementioned Company, hereby appoint Name

Address

NRIC/Passport No.

Proportion of Shareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies, to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 29 October 2007 and at any adjournment thereof in the following manner: No.

Resolutions relating to:

1

Ordinary Business Adoption of Report and Accounts

2

Approval of amount proposed as directors’ fees

3

Re-election of Mr Chan Soo Sen retiring under Article 97

4

Re-election of Mr Loh Hock Chuan retiring under Article 97

5

Re-election of Mr Goh Hoon Kan retiring under Article 97

6

Re-election of Mr Michael John Martin retiring under Article 97

7

Re-election of Dr Tan Eng Liang retiring pursuant to Section 153(6) of the Companies Act, Cap. 50.

8

Re-appointment of Auditors

For

Against

9 Special Business

Approval to issue Shares pursuant to Section 161 of the Companies Act, Cap. 50

10 Any Other Business If you wish to exercise all your votes For or Against, please tick with [√]. Alternatively, please indicate the number of votes For and Against each resolution.

If this form of proxy contains no indication as to how the proxy should vote in relation to each resolution, the proxy shall, as in the case of Any Other Business raised at the meeting, vote as the proxy deems fit.

As witness my/our hand(s) this ___________ day of _______________ 2007

_______________________________________ Signature(s) or Common Seal of Shareholder(s) Important please read notes overleaf

No. of Ordinary Shares

64

FHTK A NNUAL R EP O R T 2 0 0 7

Notes for Proxy Form 1. Please insert the total number of Ordinary Shares held by you. If you have Ordinary Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50), you should insert that number of Ordinary Shares. If you have Ordinary Shares registered in your name in the Register of Members, you should insert that number of Ordinary Shares. If you have Ordinary Shares entered against your name in the Depository Register and Ordinary Shares registered in your name in the Register of Members, you should insert the aggregate number of Ordinary Shares entered against your name in the Depository Register and registered in your name in the Register of Members.

2. A Member entitled to attend and vote at a Meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him.

3. Where a Member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4. The Instrument appointing a proxy must be deposited at the registered office of the Company at 20 Harbour Drive #06-02 PSA Vista Singapore 117612 not less than 48 hours before the time appointed for the Annual General Meeting.

5. The instrument appointing the proxy or proxies must be under the hand of the appointer or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised.

6. A corporation which is a Member may, in accordance with Section 179 of the Companies Act, Chapter 50, authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual General Meeting.

7. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointer are not ascertainable from the instructions of the appointer specified in the Instrument appointing a proxy or proxies. In addition, in the case of members whose Ordinary Shares are entered against their names in the Depository Register, the Company may reject any Instrument appointing a proxy or proxies lodged if such Members are not shown to have Ordinary Shares entered against their names in the Depository Register 48 hours before the time appointed for holding the Annual General Meeting as certified by The Central Depository (Pte) Limited to the Company.