Imperium Technology Group Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

LR 14.63(2)(b) LR 14A.58(3)(b)

LR 14.63(2)(b)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

LR 14.58(1) LR 14A.59(1)

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other licensed securities dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in JF Household Furnishings Limited , you should at once hand this circular and the accompanying proxy form to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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JF Household Furnishings Limited 捷豐家居用品有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 776)

LR App 1B(1) LR 13.51A

(1) MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS; (2) PROPOSED REDUCTION OF SHARE PREMIUM ACCOUNT; (3) PROPOSED SPECIAL DISTRIBUTION; AND (4) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Disposal Independent Board Committee and the

Independent Shareholders

A letter from the Disposal Independent Board Committee containing their recommendations to the Independent Shareholders is set out on page 27 of this circular. A letter from Quam Capital Limited, the Independent Financial Adviser, containing its advice to the Disposal Independent Board Committee and the Independent Shareholders is set out on pages 28 to 54 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at Board Room, South Pacifi c Hotel, No. 23 Morrison Hill Road, Wanchai, Hong Kong on 31 May 2011 at 3:00 p.m. is set out on pages EGM-1 to EGM-2 of this circular. Whether or not you intend to attend the extraordinary general meeting of JF Household Furnishings Limited, you are requested to complete and return the accompanying proxy form to the share registrar of JF Household Furnishings Limited, Tricor Investor Services Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for holding the extraordinary general meeting of JF Household Furnishings Limited. The return of the proxy form will not preclude you from attending and voting in person in the extraordinary general meeting of JF Household Furnishings Limited if you so wish.

This circular will remain on the Exchange’s HKEx news website at http://www.hkexnews.hk/index.htm on the “Latest Information” page for at least seven days from the date of its posting and on the Company’s website at http://www. jffurnishings.com.

13 May 2011

	Page
Def nitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Disposal Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix I — Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Unaudited Pro Forma Financial Information of the Remaining Group. . . . .	II-1
Appendix III — Report on Unaudited Financial Information on the Remaining Group . . . . .	III-1
Appendix IV — Property Valuation Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

“acting in concert”

has the meaning ascribed in the Takeovers Code

“Adjusted Disposal HK$100,576,477, being the audited JF Furniture NAV refl ected in Consideration” the audited fi nancial statements of JF Furniture for the year ended 31 December 2010 and the consideration for the Disposal adjusted pursuant to the Disposal Consideration Adjustments

“associate”

has the meaning ascribed in the Listing Rules

“Articles of Association”

the articles of association of the Company, as amended from time to time

“Board” the board of Directors
“Business Day”
a day (excluding Saturday, Sunday, public holiday and any day on which a tropical cyclone warning no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 5:00 p.m. and is not lowered at or before 5:00 p.m. or on which a “black” rainstorm warning is hoisted or remains in effect between 9:00 a.m. and 5:00 p.m. and is not discontinued at or before 5:00 p.m.) on which licensed banks in Hong Kong are generally open for business throughout their normal business hours
“BVI”

the British Virgin Islands

“Cayman Companies Law”
Companies Law, Cap.22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands
“Clarifi cation Announcement” the clarifi cation announcement published by the Company on 9 March 2011
“Collateral Securities” all of the collateral securities in the sum of RMB70 million (equivalent to approximately HK$84 million) provided by the Disposed Group supporting the bank borrowings of the other members of the Group and all of the collateral securities in the sum of approximately HK$174 million provided by the other members of the Group supporting the bank borrowings of the Disposed Group
“Company” JF Household Furnishings Limited (stock code: 776), a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the Main Board
“Completion” completion of the sale and purchase of the Sale Shares in accordance with the terms and conditions of the Sale and Purchase Agreement

DEFINITIONS

“Completion Date” the date falling on the third Business Day after the Conditions have been fulfi lled or waived “Conditions” being the conditions precedent to Completion

“connected person(s)” has the meaning ascribed in the Listing Rules “Consideration” the aggregate consideration of HK$202,000,000 for the sale of the Sale Shares (equivalent to approximately HK$1.47713 per Sale Share) pursuant to the Sale and Purchase Agreement
“controlling shareholder(s)” has the meaning ascribed in the Listing Rules
“Director(s)” the director(s) of the Company

“Disposal” the proposed disposal of the Disposed Group by JF Asia (wholly-owned subsidiary of the Company) at the Disposal Consideration pursuant to the terms of the Disposal Agreement

“Disposal Agreement” the agreement dated 29 January 2011 entered into between JF Asia (as vendor) and First Priority (as purchaser) in relation to the Disposal, as amended and supplemented by the Supplemental Disposal Agreement
“Disposal Completion” completion of the Disposal and the transactions contemplated under the Disposal Agreement
“Disposal Completion Date” being the date falling on the third Business Day after all the conditions precedent to the Disposal Agreement have been fulfi lled or such other date as mutually agreed between JF Asia and First Priority
“Disposal Consideration” HK$102,060,703 (subject to the Disposal Consideration Adjustments which had been subsequently adjusted to the Adjusted Disposal Consideration)
“Disposal Consideration the adjustments to the Disposal Consideration, details of which are set Adjustments” forth in “The Disposal Agreement – Disposal Consideration – Disposal Consideration Adjustments” of this circular
“Disposed Group”

JF BVI and JF Furniture

“Disposal Independent Board the independent board committee of the Board (consisting three Committee” independent non-executive Directors) formed to advise and give recommendations to the Independent Shareholders in respect of the Special Deal

DEFINITIONS

“EGM” the extraordinary general meeting of the Company to be convened at Board Room, South Pacifi c Hotel, No. 23 Morrison Hill Road, Wanchai, Hong Kong on 31 May 2011 at 3:00 p.m. for the purpose of, among other things, approving the Disposal Agreement, the Proposed Special Distribution and Share Premium Reduction by the Independent Shareholders

“Encumbrance” any mortgage, charge, pledge, lien, (otherwise than arising by statute or operation of law), equities, hypothecation or other encumbrance, priority or security interest, deferred purchase, title retention, leasing, sale-andrepurchase or sale-and-leaseback arrangement whatsoever over or in any property, assets or rights of whatsoever nature and includes any agreement for any of the same
“Excel Strength” Excel Strength Investments Limited, a company incorporated in the BVI whose entire issued share capital is solely owned by Mr. Yan
“Executive” the Executive Director of the Corporate Finance Division of the SFC and any delegate of the Executive Director
“First Priority” First Priority Inc., a company incorporated in the BVI and is owned as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively

“Form of Acceptance” the accompanying form of acceptance and transfer of Shares in respect of the Share Offer

“Group” the Company and its subsidiaries “Hero Talent” Hero Talent Investments Limited, a company incorporated in the BVI whose entire issued share capital is solely owned by Mr. Bao
“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board the independent board committee of the Board (consisting three Committee” independent non-executive Directors and the non-executive Director) formed to advise and give recommendations to Independent Shareholders in respect of the Offers
“Independent Financial Quam Capital Limited, a licensed corporation to carry out type 6 Adviser” (advising on corporate fi nance) of the regulated activity under the SFO and is the independent fi nancial adviser appointed by the Company to advise (i) the Disposal Independent Board Committee and Independent Shareholders in respect of the Special Deal and; (ii) the Independent Board Committee in respect of the Offers

DEFINITIONS

“Independent Shareholders” Shareholders other than (i) Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates and concert parties (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao); (ii) the Offeror and parties acting in concert with it; and (iii) any Shareholders who are involved in or interested in the Sale and Purchase Agreement, the Disposal Agreement and/or the transactions contemplated therein
“Independent Third Party(ies)” person(s) or company(ies) who or which is/are independent of and not connected with the Directors, chief executive or substantial Shareholder of the Company, or any of their respective subsidiaries or associates
“JF Asia” JF Household Furnishings (Asia) Ltd., a wholly-owned subsidiary of the Company
“JF BVI” JF Household Furnishings (BVI) Ltd., an indirect wholly-owned subsidiary of the Company and the foreign investor holding 100% equity interests in JF Furniture
“JF BVI Sale Shares” 100 ordinary shares of US$1.00 each in the issued share capital of JF BVI, representing the entire issued shares of JF BVI to be sold by JF Asia to First Priority pursuant to the terms and conditions of the Disposal Agreement
“JF Furniture” 寧波捷豐現代家俱有限公司 (Ningbo JF Furniture Co. Ltd.), a wholly foreign-owned enterprise established in the PRC directly wholly owned by JF BVI and an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date
“JF Furniture Collateral the guarantees provided by JF Furniture to secure the banking facilities Securities” and bank loans of Ningbo JF pursuant to two guarantee agreements which provided guarantee for respective amounts of RMB30 million and RMB40 million
“JF Furniture NAV” NAV of JF Furniture as at 31 December 2010
“Joint Announcement” the announcement jointly published by the Company and the Offeror on 3 March 2011
“Joyday” Joyday Consultants Limited, a company incorporated in the BVI whose entire issued share capital is solely owned by Mr. Leung
“Keylink” Keylink Technology Limited, a company incorporated in the BVI whose entire issued share capital is solely owned by JF Asia

DEFINITIONS

“Latest Practicable Date” 11 May 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Long Stop Date” 31 July 2011 or such a later date as both the Offeror and the Vendors may agree
“Macau” the Macau Special Administrative Region of the PRC “Main Board” the Main Board of the Stock Exchange
“Mr. Bao” Mr. Bao Jisheng, an executive Director, the ultimate benefi cial substantial Shareholder interested in approximately 11.69% of the total issued share capital of the Company as at the Latest Practicable Date, who directly holds 3,360,000 Shares and is the sole benefi cial owner of 100% of the issued share capital of Hero Talent which is interested in 22,680,000 Shares
“Mr. Cheong” or “Offeror’s Mr. Cheong Jose Vai Chi, the sole shareholder of the entire issued share Guarantor” capital of the Offeror and the sole director of the Offeror “Mr. Leung” Mr. Leung Kwok Yin, an executive Director, the ultimate benefi cial substantial Shareholder interested in approximately 13.78% of the total issued share capital of the Company as at the Latest Practicable Date, who directly holds 18,076,800 Shares and is the sole benefi cial owner of 100% of the issued share capital of Joyday which is interested in 12,600,000 Shares
“Mr. Yan” Mr. Yan Siu Wai, an executive Director and chairman of the Company, the ultimate benefi cial controlling Shareholder interested in approximately 35.94% of the total issued share capital of the Company as at the Latest Practicable Date, who directly held 17,035,200 Shares, the sole benefi cial owner of 100% of the issued share capital of Excel Strength which holds 34,020,000 Shares and is the sole benefi cial owner of 100% of the issued share capital of Willhero which is interested in 28,980,000 Shares
“NAV” net asset value

“Ningbo JF” 寧波捷豐家居用品有限公司 (JF A.C.R. Equipment Supplies (Ningbo) Co. Ltd.), a wholly foreign-owned enterprise established in the PRC directly wholly owned by JF BVI and an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date

DEFINITIONS

“Offeror” Bounty Wealth Limited, which is a company incorporated in the BVI with limited liability, and the entire issued share capital of which is legally and benefi cially wholly owned by Mr. Cheong

“Offers” collectively, the Share Offer and the Option Offer

“Offer Share(s)” Share(s) in respect of which the Share Offer is made, being Share(s) not already owned by the Offeror and parties acting in concert with it “Option(s)” the option(s) granted under the Share Option Scheme by the Company to an employee of the Group to subscribe for 1,000,000 Option Shares (at an exercise price of HK$0.90 per Share) which remain outstanding as at the Latest Practicable Date

“Optionholder” holder of the Options “Option Offer” the possible unconditional mandatory cash offer to be made by SHK for and on behalf of the Offeror for the cancellation of the Options pursuant to Rule 13 of the Takeovers Code

“Option Offer Price” the price at which the Option Offer will be made, being HK$0.57713 for the cancellation of each Option
“Option Share(s)” the 1,000,000 Shares which will be issued upon exercise of the Options “PRC” the People’s Republic of China excluding, for the purpose of this circular, Hong Kong, Macau and Taiwan
“Proposed Special Distribution” subject to and conditional on, among other things, Disposal Completion, a proposed cash special dividend of not more than HK$170,000,000 to be declared and distributed by the Company to the Qualifying Shareholders (including the Vendors) at any time on or prior to Completion pursuant to the Sale and Purchase Agreement, to be approved by the Shareholders at the EGM
“Qualifying Shareholder(s)” Shareholders whose names appear on the register of members of the Company at the close of business on the Record Date to determine the entitlements of the Shareholders to the Proposed Special Distribution
“Record Date” 9 June 2011, the record date for ascertaining the entitlement of the Shareholders to participate in the Proposed Special Distribution

“Registrar” Tricor Investor Services Limited, the Hong Kong branch share registrar and transfer offi ce of the Company

DEFINITIONS

“Relatives Shareholders of comprise of two sons of Mr. Bao, namely Mr. Bao Xiangming and Mr. Bao” Mr. Bao Xiangqian, holding 4,000,000 Shares and 2,688,000 Shares respectively as at the Latest Practicable Date

“Relatives Shareholders of comprise of two sisters (namely Leung Mo Lan and Leung Mo Ching) and Mr. Leung” one brother-in-law (namely Wong Wing Cheung) of Mr Leung holding, in aggregate, 3,315,000 Shares as at the Latest Practicable Date
“Relatives Shareholders of comprise of two sisters-in-law of Mr. Yan (namely Mak Lee Nar and Mr. Yan” Ma Wai Ling) holding, in aggregate, 1,150,000 Shares as at the Latest Practicable Date

“Remaining Group” the Group excluding the Disposed Group

“Sale and Purchase Agreement” the sale and purchase agreement dated 29 January 2011 entered into among the Offeror, the Offeror’s Guarantor and the Vendors in relation to the sale and purchase of the Sale Shares
“Sale Shares” 136,752,000 Shares to be acquired by the Offeror from the Vendors pursuant to the terms and conditions of the Sale and Purchase Agreement
“SFC” the Securities and Futures Commission of Hong Kong
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)” ordinary share(s) of HK$0.01 each in the capital of the Company

“Shareholder(s)” holder(s) of Share(s)

“Share Offer” the possible unconditional mandatory cash offer to be made by SHK for and on behalf of the Offeror for all the issued Shares (other than those already owned by or agreed to be acquired by the Offeror and parties acting in concert with it) pursuant to Rule 26.1 of the Takeovers Code

“Share Offer Price” the price at which the Share Offer will be made, i.e. at HK$1.47713 per Offer Share

“Share Option Scheme” the share option scheme approved and adopted by the Company on 26 November 2008 “Share Premium Reduction” a proposed reduction of the share premium account of the Company to facilitate the Proposed Special Distribution to be approved by the Shareholders at the EGM

DEFINITIONS

“SHK”	Sun Hung Kai International Limited, a licensed corporation to carry out
	type 1 (dealings in securities) and type 6 (advising on corporate f nance)
	of the regulated activities under the SFO and the f nancial adviser to the
	Offeror
“Special Deal”	the Disposal as a special deal under Rule 25 of the Takeovers Code
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“substantial shareholder(s)”	has the meanings ascribed to it under the Takeovers Code and the Listing
	Rules
“Supplemental Disposal	the supplemental agreement entered into between JF Asia (as vendor)
Agreement”	and First Priority (as purchaser) on 11 May 2011 for the modif cation of
	certain terms and conditions of the Disposal Agreement
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Transfer”	the transfer of the entire equity interests in Ningbo JF from JF BVI
	to another indirect wholly-owned subsidiary of the Company, namely
	Keylink, before Disposal Completion pursuant to the Disposal Agreement
“Vendors”	collectively, Excel Strength, Willhero, Mr. Yan, Joyday, Mr. Leung, Hero
	Talent and Mr. Bao
“Willhero”	Willhero Investments Limited, a company incorporated in the BVI whose
	entire issued share capital is solely owned by Mr. Yan
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“sq.m.”	square metre(s)
“US$”	United States dollars, the lawful currency of the United States of America
“%”	per cent.

For the purpose of this circular, all amounts denominated in US$ has been translated (for information only) into HK$ using the exchange rates of US$1.00: HK$7.76 and all amounts denominated in RMB has been translated (for information only) into HK$ using the exchange rates of RMB1.00:HK$1.20. Such translation shall not be construed as a representation that amounts of US$ and RMB were or may have been converted.

EXPECTED TIMETABLE

The expected timetable set out below is indicative only and subject to change. Further announcement(s) will be made as and when appropriate.

2011

Latest time for lodging form of proxy in respect

of the EGM (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3:00 p.m. Sunday, 29 May

EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3:00 p.m. Tuesday, 31 May

Assuming all the resolutions proposed at the EGM are passed:

Effective date of the Share Premium Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 1 June

Last day of dealings in the Shares cum-entitlement to the

Proposed Special Distribution (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 2 June

First day of dealings in the Shares ex-entitlement to the

Proposed Special Distribution (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 3 June

Latest time for lodging transfers of the Shares with the Registrar

in order to be qualifi ed for the Proposed Special Distribution . . . . . . . . . . . 4:30 p.m. on Tuesday, 7 June

Closure of the register of members of the Company for determining the entitlements of the Qualifying Shareholders Wednesday, 8 June to the Proposed Special Distribution . . . . . . . . . . . . . . . . . . . . . to Thursday, 9 June (both dates inclusive)

Record Date for determining the entitlements of the

Qualifying Shareholders to the Proposed Special Distribution . . . . . . . . . . . . . . . . . . Thursday, 9 June

Expected date of despatch of the cash cheque for the

Proposed Special Distribution to the Qualifying Shareholders. . . . . . . . . . . . . . . . . . Wednesday, 15 June

Notes:

The form of proxy should be lodged with the Registrar as soon as possible and in any event not later than the time and date stated above. Completion and return of a form of proxy for the EGM will not preclude a Shareholder from attending and voting in person at the EGM if he or she so wishes. In such event, the returned form of proxy will be deemed to have been revoked.
The distribution of the Proposed Special Distribution is subject to the Disposal Completion and the Share Premium Reduction becoming effective.

LETTER FROM THE BOARD

LR App 1B(1) LR 13.51A LR 2.14

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JF Household Furnishings Limited 捷豐家居用品有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 776)

Executive Directors: Mr. Yan Siu Wai Mr. Leung Kwok Yin Mr. Bao Jisheng

Non-executive Director

Registered offi ce: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Mr. Kwan Kai Cheong

Independent non-executive Directors: Mr. Yu Hon Wing Allan Mr. Garry Alides Willinge Mr. Chu Kwok Man

Head offi ce and principal place of business in Hong Kong: 15th Floor, EIB Tower 4-6 Morrison Hill Road Wanchai Hong Kong

13 May 2011

To the Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS; (2) PROPOSED REDUCTION OF SHARE PREMIUM ACCOUNT; (3) PROPOSED SPECIAL DISTRIBUTION; AND (4) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The Company and the Offeror jointly announced on 3 March 2011, among other things, that:

(i) on 29 January 2011, the Offeror, the Offeror’s Guarantor and the Vendors entered into the Sale and Purchase Agreement pursuant to which the Offeror agreed to acquire, and the Vendors agreed to sell the Sale Shares at the Consideration of HK$202,000,000 (equivalent to approximately HK$1.47713 per Sale Share). As at the Latest Practicable Date, the Sale Shares represent approximately 61.41% of the entire issued share capital of the Company;

LR 14.58(4) LR 14.60(1)

LETTER FROM THE BOARD

(ii) on 29 January 2011, JF Asia, a wholly-owned subsidiary of the Company (as vendor), entered into the Disposal Agreement with First Priority (as purchaser) pursuant to which First Priority conditionally agreed to purchase and JF Asia conditionally agreed to sell the JF BVI Sale Shares at the Disposal Consideration of HK$102,060,703 (subject to the Disposal Consideration Adjustments); and

LR 14.58(3)

(iii) subject to and conditional on, among other things, the Disposal Completion and the Share Premium Reduction becoming effective, the Proposed Special Distribution of not more than HK$170,000,000 (subject to fi nalization) will be distributed by the Company to the Qualifying Shareholders (including the Vendors) on or prior to the Completion pursuant to the Sale and Purchase Agreement.

Upon Completion, the Offeror will own 136,752,000 Shares, representing approximately 61.41% of the entire issued share capital of the Company as at the Latest Practicable Date or approximately 61.13% of the entire issued share capital of the Company as enlarged by the issue of the Option Shares upon full exercise of the Options. Pursuant to Rules 26.1 and 13 of the Takeovers Code, the Offeror will be required to make an unconditional mandatory general offer in cash for all the Shares not already owned or agreed to be acquired by the Offeror and parties acting in concert with it and to make an appropriate offer for the Options upon Completion. The Share Offer Price of HK$1.47713 per Offer Share is the same as the price per Sale Share paid by the Offeror under the Sale and Purchase Agreement, and the Option Offer Price of HK$0.57713 for every Option represents the difference between the Share Offer Price of HK$1.47713 and the prevailing exercise price of the Options of HK$0.90 each. Details of the Offers and information on the Offeror were set out in the Joint Announcement. Upon Completion, a composite offer document (accompanied by the Form of Acceptance) in connection with the Offers setting out, inter alia, details of the Offers and incorporating the respective letters of advice from the Independent Board Committee and the Independent Financial Adviser on the Offers will be issued and despatched by the Offeror and the Company jointly to the Shareholders and the Optionholder in accordance with the Takeovers Code.

As one of the conditions for the Completion, JF Asia shall dispose the Disposed Group to the nominee of Mr. Yan, Mr. Leung and Mr. Bao. As the applicable percentage ratios as defi ned under Rule 14.07 of the Listing Rules in respect of the Disposal are more than 25% but less than 75%, the Disposal will constitute a major transaction for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, Mr. Yan, an executive Director and chairman of the Company and a controlling Shareholder, is personally interested in 17,035,200 Shares and is the sole benefi cial owner of Excel Strength and Willhero which in turn hold 34,020,000 Shares and 28,980,000 Shares respectively, aggregating to a total of 80,035,200 Shares (representing approximately 35.94% of the total issued share capital of the Company). As at the Latest Practicable Date, Mr. Leung, an executive Director and a substantial Shareholder, is personally interested in 18,076,800 Shares and is the sole benefi cial owner of Joyday which in turn holds 12,600,000 Shares, aggregating to a total of 30,676,800 Shares (representing approximately 13.78% of the total issued share capital of the Company). As at the Latest Practicable Date, Mr. Bao, an executive Director and a substantial Shareholder, is personally interested in 3,360,000 Shares and is the sole benefi cial owner of Hero Talent which in turn holds 22,680,000 Shares, aggregating to a total of 26,040,000 Shares (representing approximately 11.69% of the total issued share capital of the Company). First Priority is held as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively and is therefore, regarded as a connected person of the Company under the Listing Rules. Given the applicable percentage ratios are more than 25% and the Disposal Consideration is more than HK$10 million, the Disposal will also constitute a non-exempt connected transaction for the Company under Rule 14A.16(5) of the Listing Rules and is subject to the requirements of reporting, announcement and approval of the Independent Shareholders at the EGM by way of poll pursuant to Chapter 14A of the Listing Rules.

LR14A.59(2) (e) and (f)

LR2.17(1) LR14.63(2)(d) LR14A.59(5) LR14A.59(18)

LETTER FROM THE BOARD

On 11 May 2011, the Supplemental Disposal Agreement was entered into between JF Asia and First Priority in relation to, inter alia:

(i) the exclusion of the release of the JF Furniture Collateral Securities from the conditions for the Disposal Completion; and
(ii) the provision of the JF Furniture Collateral Securities unconditionally by JF Furniture to Ningbo JF until the earlier of (a) the end of the guarantee periods under the guarantee contracts; or (b) the date of early releases of the guarantees under the guarantee contracts agreeable by the relevant banks after the full repayment of the relevant banking facilities or bank loans (“ Guarantee Period ”), on the basis that:
(aa) save and except for the banking facilities or banks loans in the total outstanding sum of approximately RMB34.5 million, Ningbo JF shall cease to utilize and shall not create any banking facilities or borrow any bank loans under the guarantee of the JF Furniture Collateral Securities after the signing of the Supplemental Disposal Agreement; and
(bb) Ningbo JF shall duly and promptly repay all of the outstanding bank loans or banking facilities on or before their respective due date for repayment.

JF Asia had undertaken to procure the compliance and/or fulfi llment of the obligations of Ningbo JF set out in sub-paragraph (aa) and (bb) above.

Further, JF Asia shall use reasonable endeavor to procure that upon the full repayment of the relevant outstanding banking facilities and bank loans, the relevant JF Furniture Collateral Securities shall be early released by the relevant bank before the expiration of the relevant Guarantee Period.

No consideration will be payable by the Remaining Group (including Ningbo JF) to Mr. Yan, Mr. Leung, Mr. Bao and/or their respective concert parties for the provision of the JF Furniture Collateral Securities.

Although the provision of JF Furniture Collateral Securities after the Disposal Completion will constitute a continuing connected transaction for the Company (“ Continuing Connected Transaction ”) as JF Furniture will, upon the Disposal Completion, be ultimately wholly owned by Mr. Yan, Mr. Leung and Mr. Bao who are connected persons of the Company due to their capacity as Directors within the preceding 12 months pursuant to the Listing Rules, JF Furniture Collateral Securities will be provided by connected persons after the Disposal Completion for the benefi t of the Company on terms better than normal commercial terms where no security over the assets of the Company will be granted in respect of this fi nancial assistance and the Continuing Connected Transaction will, therefore, be exempted from the reporting, announcement and the independent shareholders’ approval requirements pursuant to Rule 14A.65(4) of the Listing Rules.

LETTER FROM THE BOARD

In view of the interests of Mr. Yan, Mr. Leung and Mr. Bao in the Disposal, Mr. Yan, Mr. Leung and Mr. Bao had abstained from voting at the Board meeting approving the Disposal. Further, Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao) will be required to abstain from voting at the relevant resolutions in relation to the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder at the EGM. To the best knowledge, information and belief of the Directors and having made all reasonable enquiries, save and except to the foregoing, no other Shareholder has a material interest in the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), as such, no other Shareholder will be required to abstain from voting on the relevant resolution(s) at the EGM to approve the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder.

Further, the Disposal also constitutes a special deal for the Company under Rule 25 of the Takeovers Code and therefore requires the consent of the Executive. Such consent, if granted, will be subject to (i) the Independent Financial Adviser publicly stating that in its opinion the terms of the Special Deal are fair and reasonable; and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the EGM. Shareholders including (i) Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates and parties acting in concert with them (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao); (ii) the Offeror and parties acting in concert with it; and (iii) any Shareholders who are involved in or interested in the Sale and Purchase Agreement, the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and/or the transactions contemplated therein shall abstain from voting on the proposed resolutions in respect of the Special Deal at the EGM.

The Share Premium Reduction and the Proposed Special Distribution are also subject to the approval by the Independent Shareholders.

The purpose of this circular is to provide you with details of (i) the Disposal; (ii) the Share Premium Reduction; (iii) the Proposed Special Distribution; (iv) the recommendation of the Disposal Independent Board Committee; and (v) the advice from the Independent Financial Adviser in respect of the Special Deal; and to give you the notice of the EGM.

THE DISPOSAL AGREEMENT

LR2.17(1)

LR14.63(2)(d) LR14A.59(5)

LR2.17(1) LR14.63(2)(d)

LR14.63(1) LR14.63(2)(d) LR14A.58(1) LR14A.58(3)(a)

LR14.63(2)(a)

Date

29 January 2011

LR14.58(3) LR14A.59(2)(a)

Parties

Vendor: JF Asia, a wholly-owned subsidiary of the Company

Purchaser: First Priority

As at the Latest Practicable Date, First Priority is owned as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively, and First Priority is therefore regarded as a connected person of the Company according to the Listing Rules.

LR14A.59(2) (d), (e) and (f)

LETTER FROM THE BOARD

LR14.60(1)&(2) LR14.A59(2)(b)

Assets to be disposed of

Pursuant to the Disposal Agreement, JF Asia conditionally agreed to dispose of and First Priority conditionally agreed to acquire the JF BVI Sale Shares free from all Encumbrances and together with all rights now or hereafter attaching thereto including the right to all dividends and other distributions which may be paid, declared or made in respect thereof at any time on or after the Disposal Completion Date (inclusive the Disposal Completion Date).

As one of the conditions for Completion, JF Asia shall dispose the Disposed Group to the nominee of Mr. Yan, Mr. Leung and Mr. Bao. Since the entire equity interests in each of Ningbo JF (i.e. the manufacturing and sales arm of the stainless steel products of the Group) and JF Furniture (i.e. the manufacturing and sales arm of wooden panel products of the Group) are held by JF BVI as at the Latest Practicable Date, to facilitate the implementation of Disposal Completion and the retention of Ningbo JF in the Remaining Group, JF Asia will before the Disposal Completion transfer the entire equity interests in Ningbo JF to another indirect wholly-owned subsidiary of the Company, namely Keylink. Following Disposal Completion, the members of the Disposed Group, i.e. JF BVI and JF Furniture, shall cease to be subsidiaries of the Company and none of the shares or equity interests in the members of the Disposed Group will be held by the Company directly or indirectly after the Disposal Completion. Set out below are the group chart of the Group as at the Latest Practicable Date and the group chart of the Remaining Group after the completion of the Transfer and Disposal Completion:

LR14.60(6) LR14.66(6)(a) LR14A.59(16)

Group chart of the Group as at the Latest Practicable Date

==> picture [384 x 303] intentionally omitted <==

----- Start of picture text -----

The Company
(Cayman Islands)
(Investment holding)
100%
JF Asia
(BVI)
(Investment holding)
100% 100% 100%
Keylink JF Household Furnishings JF BVI
(BVI) (Macau) Holdings Ltd. (BVI)
(Investment holding) (BVI) (Investment holding)
(Investment holding) (Note)
100% 100% 100% 100%
JF Household Furnishings
Ningbo JF Metal Macao Commercial Ningbo JF JF Furniture
Products Co., Ltd. Offshore Limited (PRC) (PRC)
(PRC) (Macau) (Manufacturing and (Manufacturing and
(Manufacturing and (Sale of furnishings and sales of stainless sales of wooden
processing of stainless household products and steel furnishings and furniture and
steel rods and other accessories and provision of household products related accessories)
accessories) agency services) and accessories) (Note)
----- End of picture text -----

Note: JF BVI and JF Furniture are members of the Disposed Group

LR14.58(4) LR14A.59(2)(c)

LETTER FROM THE BOARD

The group chart of the Remaining Group after the completion of the Transfer and the Disposal Completion

==> picture [406 x 326] intentionally omitted <==

----- Start of picture text -----

The Company
(Cayman Islands)
(Investment holding)
100%
JF Asia
(BVI)
(Investment holding)
100% 100%
Keylink JF Household Furnishings
(BVI) (Macau) Holdings Ltd.
(Investment holding) (BVI)
(Investment holding)
100% 100% 100%
Ningbo JF Metal Ningbo JF JF Household Furnishings Macao
Products Co. Ltd. (PRC) Commercial Offshore Limited
(PRC) (Manufacturing and sales (Macau)
(Manufacturing and of stainless steel (Sale of furnishings and household
processing of stainless steel furnishings and household products and accessories and
rods and other accessories) products and accessories) provision of agency services)
----- End of picture text -----

Disposal Consideration

Disposal Consideration

According to the Disposal Agreement, subject to the Disposal Consideration Adjustments, the Disposal Consideration of HK$102,060,703 shall be satisfi ed in cash on the Disposal Completion.

LETTER FROM THE BOARD

Disposal Consideration Adjustments

According to the Disposal Agreement, the Disposal Consideration is subject to the following Disposal Consideration Adjustments:

(i) Scenario 1

In the event that the audited JF Furniture NAV as at 31 December 2010 as shown in audited fi nancial statements of JF Furniture for the year ended 31 December 2010 shall exceed HK$102,060,703, the Disposal Consideration for the JF BVI Sale Shares payable by First Priority shall be adjusted upwards according to the following formula:

Z = A – B
Z = the sum to be added to the Disposal Consideration for the JF BVI Sale Shares payable by First Priority in accordance the above adjustment
A = audited JF Furniture NAV
B = unaudited JF Furniture NAV

(ii) Scenario 2

In the event that the audited JF Furniture NAV shall be less than HK$102,060,703, the Disposal Consideration payable by First Priority shall be adjusted downwards according to the following formula:

Y = E – F

Y = the sum to be deducted from the Disposal Consideration for the JF BVI Sale Shares payable by First Priority in accordance the above adjustment
E = unaudited JF Furniture NAV
F = audited JF Furniture NAV

(iii) Scenario 3

In the event that the audited JF Furniture NAV is equal to the unaudited JF Furniture NAV, no adjustment shall be made to the Disposal Consideration for the JF BVI Sale Shares.

According to the audited fi nancial statements of JF Furniture for the year ended 31 December 2010 issued by the Company’s auditor, RSM Nelson Wheeler on 6 May 2011, the audited JF Furniture NAV as at 31 December 2010 amounted to HK$100,576,477. Hence, the Disposal Consideration will be adjusted to HK$100,576,477 pursuant to Scenario 2 above accordingly.

LETTER FROM THE BOARD

The Disposal Consideration of HK$102,060,703 was determined after arm’s length negotiation between JF Asia and First Priority with reference to the unaudited JF Furniture NAV (i.e. HK$102,060,703) as refl ected in the management accounts of JF Furniture for the year ended 31 December 2010 on the signing of the Disposal Agreement and was subsequently adjusted to the Adjusted Disposal Consideration of HK$100,576,477 with reference to the audited JF Furniture NAV (i.e. HK$100,576,477) as refl ected in the audited fi nancial statements of JF Furniture for the year ended 31 December 2010.

LR14.58(5) and (6) LR14.70(2)

Supplemental Disposal Agreement

On 11 May 2011, the Supplemental Disposal Agreement was entered into between JF Asia and First Priority in relation to, inter alia:

(i) the exclusion of the release of the JF Furniture Collateral Securities from the conditions for the Disposal Completion;
(ii) the provision of the JF Furniture Collateral Securities unconditionally by JF Furniture to Ningbo JF until the earlier of (a) the end of the guarantee periods under the guarantee contracts; or (b) the date of early releases of the guarantees under the guarantee contracts agreeable by the relevant banks after the full repayment of the relevant banking facilities or bank loans (i.e. the Guarantee Period), on the basis that:
(aa) save and except for the banking facilities or banks loans in the total outstanding sum of approximately RMB34.5 million, Ningbo JF shall cease to utilize and shall not create any banking facilities or borrow any bank loans under the guarantee of the JF Furniture Collateral Securities after the signing of the Supplemental Disposal Agreement; and
(bb) Ningbo JF shall duly and promptly repay all of the outstanding bank loans or banking facilities on or before their respective due date for repayment.

JF Asia had undertaken to procure the compliance and/or fulfi llment of the obligations of Ningbo JF set out in sub-paragraph (aa) and (bb) above.

Conditions precedent of the Disposal Agreement

The Disposal Completion is conditional upon the fulfi llment and compliance of the following conditions:

LR14A.59(2)(c)

(a) the Sale and Purchase Agreement having become unconditional (other than the fulfi llment of any condition(s) in the Sale and Purchase Agreement requiring the completion of the Disposal Agreement and other transactions contemplated therein) and not being terminated in accordance with its terms and conditions;

LETTER FROM THE BOARD

(b) the passing by the Independent Shareholders at the EGM by way of poll of the resolution approving the Disposal and the transactions contemplated under the Disposal Agreement in accordance with the requirements of the Listing Rules and the Takeovers Code;
(c) the consent of the Executive in relation to the Disposal Agreement and the transactions contemplated thereunder as a special deal under Rule 25 of the Takeovers Code having been obtained and not having been revoked prior to Disposal Completion;
(d) the completion of the Transfer (including but not limited to the grant of all consents and approval by the relevant governmental authorities in the PRC and completion of all of the relevant registration in respect of the Transfer);
(e) the issue of JF Furniture’s audited accounts for the year ended 31 December 2010 by the auditor of the Company; and
(f) the completion of the release of the Collateral Securities.

Save and except for the exclusion of the release of the JF Furniture Collateral Securities from condition (f) above as amended and modifi ed pursuant to the Supplemental Disposal Agreement (“ Excluded Condition ”), none of the above conditions precedent can be waived. The consents, approvals and registrations referred to in condition (d) above relate to the routine consent(s), approval(s) and registrations required for the transfer of equity interests in a foreign invested enterprise in the PRC.

In the event the abovementioned conditions precedent (except for the Excluded Condition) are not fulfi lled on or before 31 July 2011 (or such later date as the parties to the Disposal Agreement may agree in writing), the rights and obligations of the parties to the Disposal Agreement shall lapse and the Disposal Agreement shall be of no further effect and the parties to the Disposal Agreement shall be released from such obligations without any liability, save in respect of any antecedent breach or any accrued right or remedies, which shall not be prejudiced or affected.

Disposal Completion

Subject to the fulfi llment of all the conditions precedent as set out above (except for the Excluded Condition), the Disposal Completion shall take place simultaneously with the Completion on the Disposal Completion Date at such place as shall be mutually agreed by JF Asia and First Priority. The Sale and Purchase Agreement and the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) are inter-conditional with each other.

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

LR14.58(2)

The Company commenced listing on the Growth Enterprise Market operated by the Stock Exchange on 13 October 2005 and the listing of which were subsequently transferred to the Main Board on 10 September 2008. As at the Latest Practicable Date, the Company is an investment holding company incorporated in the Cayman Islands and through its subsidiaries, is principally engaged in the manufacture and sale of (i) furnishings, home products and accessories primarily used in kitchens and bathrooms with stainless steel as raw materials; and (ii) wooden panel furniture.

The Group recorded audited profi t attributable to equity holders of the Company of approximately HK$21.5 million for the fi nancial year ended 31 December 2009 and of approximately HK$18.4 million for the fi nancial year ended 31 December 2010. The audited consolidated NAV of the Group as at 31 December 2010 was approximately HK$212.9 million.

INFORMATION ON THE DISPOSED GROUP

JF BVI

JF BVI, a company incorporated in the BVI with limited liability, is a direct wholly-owned subsidiary of JF Asia which is a direct wholly-owned subsidiary of the Company as at Latest Practicable Date. As at the Latest Practicable Date, the principal activity of JF BVI is investment holding and its principal assets are its two wholly-owned subsidiaries, namely Ningbo JF and JF Furniture.

JF Furniture

As at the Latest Practicable Date, JF Furniture, an indirect wholly-owned subsidiary of the Company, is a wholly foreign-owned enterprise established in the PRC whose entire equity interests are held by JF BVI. JF Furniture is principally engaged in manufacturing and sales of wooden panel furniture products.

The properties owned by the Disposed Group have an aggregate market value of approximately RMB82.6 million (equivalent to approximately HK$99.12 million) as at 28 February 2011 based on the assessment by Grant Sherman Appraisal Limited, an independent property valuer. Property valuation report of the properties owned by the Disposed Group has been set out in Appendix IV to this circular.

INFORMATION ON NINGBO JF

As at the Latest Practicable Date, Ningbo JF, an indirect wholly-owned subsidiary of the Company, is a wholly foreign-owned enterprise established in the PRC whose entire equity interests are held by JF BVI. Ningbo JF is principally engaged in the manufacturing and sales of stainless steel products.

INFORMATION ON KEYLINK

As at the Latest Practicable Date, Keylink is a company incorporated in the BVI whose entire issued share capital is solely owned by JF Asia. Keylink is an investment holding company.

LETTER FROM THE BOARD

INFORMATION ON FIRST PRIORITY

LR14.58(2)

As at the Latest Practicable Date, First Priority is a company incorporated in the BVI whose issued share capital is owned as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively. First Priority is an investment holding company.

Financial information of the Disposed Group

LR14.58(7)

The unaudited NAV of the Disposed Group as at 31 December 2010 was approximately HK$100.6 million and the audited JF Furniture NAV as at 31 December 2010 was HK$100,576,477. In addition, the unaudited profi t before and after taxation of the Disposed Group for the year ended 31 December 2009, the unaudited loss before and after taxation of the Disposed Group for the year ended 31 December 2010, the unaudited profi t before and after taxation of JF Furniture for the year end 31 December 2009 and the audited loss before and after taxation of JF Furniture for the year ended 31 December 2010 were as follows:

		Year ended 31 December	Year ended 31 December
		2009	2010
		HK$’000	HK$’000
Prof	t/(loss) of the Disposed Group before taxation	5,183	(4,527)
		(unaudited)	(unaudited)
Prof	t/(loss) of the Disposed Group after taxation	2,964	(6,222)
		(unaudited)	(unaudited)
			(Note)
Prof	t/(loss) of JF Furniture before taxation	7,208	(2,124)
		(unaudited)	(audited)
Prof	t/(loss) of JF Furniture after taxation	7,208	(2,375)
		(unaudited)	(audited)
			(Note)

LR14.58(7)

Note:

The difference between the loss of the Disposed Group after taxation for the year ended 31 December 2010 and the loss of JF Furniture after taxation for the year ended 31 December 2010 was mainly attributed to (i) the debit of administrative costs of approximately HK$2.1 million incurred by JF BVI for performing administrative and management functions of the other members of the Group, such as bearing the exchange loss arising from the settlement of bank borrowings denominated in Euro for the acquisition of machineries, settling credit or banking facilities charges, payment of premium for life insurance of key employees, payment of salaries of non-PRC employee, payment of provident funds for non-PRC employee and directors and miscellaneous expenses incurred by the Group or its management out of the PRC, fi nance costs of approximately HK$0.8 million paid by JF BVI in bank borrowings and the taxation charge on dividend income of approximately HK$1.4 million paid by JF BVI; and (ii) the credit of profi t from intercompany sales of approximately HK$0.3 million and interest and sundry income of approximately HK$0.2 million by JF BVI.

LETTER FROM THE BOARD

Possible fi nancial effects of the Disposal

The net proceeds of the Disposal after deducting all relevant expenses (being the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction) is estimated to be approximately HK$96.1 million. The net proceeds will be applied for the partial payment of the Proposed Special Distribution as mentioned in the paragraph headed “Use of Proceeds from the Disposal” below.

As set out in the unaudited pro forma fi nancial information on the Remaining Group in Appendix II to this circular, based on the Adjusted Disposal Consideration of approximately HK$100.6 million, less (i) the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction of approximately HK$4.5 million; and (ii) the net asset value of the Disposed Group of approximately HK$100.6 million as at 31 December 2010, plus the accumulated exchange difference of approximately HK$14.5 million released from the foreign currency translation reserve resulted from the Disposal, the estimated gain from the Disposal is expected to be approximately HK$10 million based on the basis and assumption that the Transfer and the Disposal had been taken place on 31 December 2010. Further details of the estimated gain from the Disposal are set out in note 4 to the “Unaudited pro forma fi nancial statement of the Remaining Group” on page II-4 of this circular.

LR14.60(3)(b) LR14.66(5) LR14.70(1)

LR14.60(a)

The unaudited pro forma fi nancial information (including the estimated gain on the Disposal) on the Remaining Group were reported on by the reporting accountant of the Company and the Independent Financial Adviser in accordance with Rule 10 of the Takeovers Code as set out in Appendices II and III to this circular respectively.

To the best of knowledge, information and belief of the Directors, the Directors (including the independent non-executive Directors who had opined on the Disposal after considering the advice of the Independent Financial Adviser) consider that the Disposal, if completed, would not have any material adverse impact on the business of the Remaining Group.

REASONS FOR THE DISPOSAL

As disclosed in the announcements of the Company dated 12 February 2010 and 16 March 2010 respectively, the Group had entered into various agreements (“ Wooden Panel Furniture Agreements ”) in relation to the manufacture and sale of wooden panel furniture with its key customer, IKEA (“ Key Customer ”), including an agreement on sales and purchase volumes (“ Sales Volumes Agreement ”), a right of fi rst refusal agreement- assets (“ Right of First Refusal Agreement – Assets ”) and a right of fi rst refusal agreement- shares (“ Right of First Refusal Agreement – Shares ”). Pursuant to the Sales Volumes Agreement, the Key Customer has the right of early termination and cancellation of existing orders without compensation in the event of change of ownership of JF Furniture. Under the Right of First Refusal Agreement – Assets, the Key Customer has a right of fi rst refusal to purchase all or any of the assets of JF Furniture which are bought mainly for the manufacture of board on frame products before any material assets held in JF Furniture may be sold or otherwise transferred, assigned or otherwise be disposed of (including transfer by gift or operation of law). Further, pursuant to the Right of First Refusal Agreement – Shares, the Key Customer has a right of fi rst refusal on the shares held by JF BVI in JF Furniture before any shares in JF Furniture held by JF BVI or its transferee may be sold or otherwise transferred, assigned,

LR14.58(8) LR14A.59(13)

LETTER FROM THE BOARD

or otherwise be disposed of (including transfer by gift or operation of law). The purposes and reasons for entering into the Disposal Agreement are, on one hand, to minimise the risk of the Group in the continuous operation of a developing business which requires high capital expenditure and expertises and effective communications with the Key Customer in product development and production techniques, and on the other hand, to avoid any losses which may arise from the possible termination (“ Possible Termination ”) of the Sales Volumes Agreement resulting from the change of the ultimate controlling shareholder of JF Furniture, i.e. the manufacturing arm of wooden panel furniture of the Group, after Completion. The Key Customer is entitled to exercise its right of fi rst refusal to acquire the shares in JF Furniture within a period up to 104 Business Days from the date of receiving notice of the Disposal (“ Exercise Period ”). The management of the Company had discussed with the Key Customer the possible impact on the Wooden Panel Furniture Agreements arising from the change of the controlling interests in the Company after the publication of the Joint Announcement. The Key Customer had confi rmed in writing on 18 April 2011 that (i) the Key Customer do not consider that it is appropriate to continue the operation of the Sales Volumes Agreement if there are any changes of the existing ultimate controlling shareholders of JF Furniture and/ or its existing management; (ii) the Key Customer has no objection to the Disposal and will not exercise its right of fi rst refusal to acquire the shares in JF Furniture; and (iii) on the condition that the ultimate shareholders of JF BVI and JF Furniture will be Mr. Yan, Mr. Leung and Mr. Bao after the Disposal, the Sales Volumes Agreement will continue to be valid and effective subsequent to the Disposal and the Key Customer will not terminate the Sales Volumes Agreement for the reason of the Disposal.

The terms of the Disposal Agreement had been arrived at after arm’s length negotiations between First Priority and the Company with reference to the unaudited JF Furniture NAV as at 31 December 2010 (in the amount of HK$ 102,060,703) which was subsequently adjusted to the Adjusted Disposal Consideration of HK$100,576,477 with reference to the audited JF Furniture NAV as at 31 December 2010 pursuant to the Disposal Consideration Adjustments and the terms of the Wooden Panel Furniture Agreements (including the Possible Termination). Having taken into account the above reasons and that (i) the net proceeds of the Disposal will be distributed to the Shareholders by way of the Proposed Special Distribution (subject to and upon Disposal Completion, Completion and the Share Premium Reduction becoming effective); and (ii) the Disposal will facilitate Completion and accordingly the Offers to the Shareholders, the Directors (including the independent non-executive Directors who had opined on the Disposal after considering the advice of the Independent Financial Adviser) consider the Disposal to be fair and reasonable and are of the view that it is in the interests of the Company and the Shareholders as a whole to realize the investment in the Disposed Group, in particular, in the business of wooden panel furniture.

LR14A.58(1)

LR14.58 (5)and (6) (LR14.70(2)

USE OF PROCEEDS FROM THE DISPOSAL

The net proceeds of the Disposal after deducting all relevant expenses is estimated to be approximately HK$96.1 million. The Company will apply the estimated net proceeds received from the Disposal for the partial payment of the Proposed Special Distribution.

LR14.60(3)(b) LR14.70(1)

SHARE PREMIUM REDUCTION

For the purpose of facilitating the Proposed Special Distribution, the Board will put forward to the Shareholders a proposal to reduce the amount standing to the credit of the share premium account of the Company and the credit arising from the Share Premium Reduction will be applied towards the payment of the Proposed Special Distribution for distribution to the Qualifying Shareholders.

LETTER FROM THE BOARD

Pursuant to article 137 of the Articles of Association, with the sanction of an ordinary resolution, dividends may be declared and paid out of the share premium account or any other fund or account of the Company authorised for such purpose in accordance with the Cayman Companies Law. As advised by the legal counsel of the Company as to Cayman Islands law, a reduction of the balance of the share premium account does not require court approval under the Cayman Companies Law.

The Share Premium Reduction is conditional upon, inter alia, the approval of the Independent Shareholders by way of an ordinary resolution at the EGM.

PROPOSED SPECIAL DISTRIBUTION

The Board proposes that subject to and conditional on Disposal Completion and the Share Premium Reduction becoming effective, the Proposed Special Distribution of not more than HK$170,000,000 (subject to full declaration and fi nalisation of the Proposed Special Distribution) will be distributed to the Qualifying Shareholders on or around the Disposal Completion Date.

As a condition precedent of the Sale and Purchase Agreement, the Offeror agreed that the Company shall be entitled to declare and pay the Proposed Special Distribution to the Qualifying Shareholders, including the Vendors. The Company will apply the estimated net proceeds received from the Disposal of approximately HK$96.1 million (after deducting all relevant expenses) and surplus cash of the Group for the payment of the Proposed Special Distribution while maintaining suffi cient cash resources for the Group to operate the members of the Remaining Group. According to the audited consolidated fi nancial statements of the Company for the year ended 31 December 2010, the Group has cash and cash equivalents of approximately HK$32.6 million.

Based on 222,689,000 Shares in issue as at the Latest Practicable Date, (i) assuming none of the Options have been exercised on or before the Record Date, the Qualifying Shareholders will receive the Proposed Special Distribution in cash of approximately HK$0.76339 per Share (subject to full declaration and fi nalisation of the Proposed Special Distribution); and (ii) assuming the Options have been exercised in full on or before the Record Date, the Proposed Special Distribution will be approximately HK$0.75998 per Share (subject to full declaration and fi nalisation of the Proposed Special Distribution).

An ordinary resolution will be put forward at the EGM for declaration of the Proposed Special Distribution for voting by the Independent Shareholders.

LETTER FROM THE BOARD

IMPLICATIONS OF THE DISPOSAL UNDER THE LISTING RULES AND THE TAKEOVERS CODE

Major and connected transaction

As the applicable percentage ratios as defi ned under Rule 14.07 of the Listing Rules in respect of the Disposal are more than 25% but less than 75%, the Disposal will constitute a major transaction for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, Mr. Yan, an executive Director and chairman of the Company and a controlling Shareholder, is personally interested in 17,035,200 Shares and is the sole benefi cial owner of Excel Strength and Willhero which in turn hold 34,020,000 Shares and 28,980,000 Shares respectively, aggregating to a total of 80,035,200 Shares (representing approximately 35.94% of the total issued share capital of the Company). As at the Latest Practicable Date, Mr. Leung, an executive Director and a substantial Shareholder, is personally interested in 18,076,800 Shares and is the sole benefi cial owner of Joyday which in turn holds 12,600,000 Shares, aggregating to a total of 30,676,800 Shares (representing approximately 13.78% of the total issued share capital of the Company). As at the Latest Practicable Date, Mr. Bao, an executive Director and a substantial Shareholder, is personally interested in 3,360,000 Shares and is the sole benefi cial owner of Hero Talent which in turn holds 22,680,000 Shares, aggregating to a total of 26,040,000 Shares (representing approximately 11.69% of the total issued share capital of the Company). First Priority is held as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively and is therefore, regarded as a connected person of the Company under the Listing Rules. Given the applicable percentage ratios are more than 25% and the Disposal Consideration is more than HK$10 million, the Disposal will also constitute a non-exempt connected transaction for the Company under Rule 14A.16(5) of the Listing Rules and is subject to the requirements of reporting, announcement and approval of the Independent Shareholders at the EGM by way of poll pursuant to Chapter 14A of the Listing Rules.

LR14A.59(2) (e) and (f)

Although the provision of JF Furniture Collateral Securities after the Disposal Completion will constitute a continuing connected transaction for the Company as JF Furniture will, upon the Disposal Completion, be ultimately wholly owned by Mr. Yan, Mr. Leung and Mr. Bao who are connected persons of the Company due to their capacity as Directors within the preceding 12 months pursuant to the Listing Rules, JF Furniture Collateral Securities will be provided by connected persons after the Disposal Completion for the benefi t of the Company on terms better than normal commercial terms where no security over the assets of the Company will be granted in respect of this fi nancial assistance and the Continuing Connected Transaction will, therefore, be exempted from the reporting, announcement and the independent shareholders’ approval requirements pursuant to Rule 14A.65(4) of the Listing Rules.

LETTER FROM THE BOARD

In view of the interests of Mr. Yan, Mr. Leung and Mr. Bao in the Disposal, Mr. Yan, Mr. Leung and Mr. Bao had abstained from voting at the Board meeting approving the Disposal. Further, Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao) will be required to abstain from voting at the relevant resolution(s) in relation to the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder at the EGM. To the best knowledge, information and belief of the Directors and having made all reasonable enquiries, save and except to the foregoing, no other Shareholder has a material interest in the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), as such, no other Shareholder will be required to abstain from voting on the relevant resolution(s) at the EGM to approve the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder.

LR2.17(1) LR14.63(2)(d) LR14A.59(5) LR14A.59(18)

Special deal

The Disposal also constitutes a special deal for the Company under Rule 25 of the Takeovers Code and therefore requires the consent of the Executive. Such consent, if granted, will be subject to (i) the Independent Financial Adviser publicly stating that in its opinion the terms of the Special Deal are fair and reasonable; and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the EGM. Shareholders including (i) Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates and concert parties (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao); (ii) the Offeror and parties acting in concert with it; and (iii) any Shareholders who are involved in or interested in the Sale and Purchase Agreement, the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and/or the transactions contemplated therein shall abstain from voting on the proposed resolutions in respect of the Special Deal at the EGM.

LR2.17(1) LR14.63(2)(d) LR14A.59(5)

The Company has made an application to the Executive for consent under Rule 25 of the Takeovers Code in relation to the Special Deal.

DISPOSAL INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Disposal Independent Board Committee (consisting three independent non-executive Directors) has been established to advise and give its recommendation to the Independent Shareholders in respect of the Disposal (being the Special Deal). For the purpose of the Takeovers Code, Mr. Kwan Kai Cheong, the non-executive Director, is excluded from the Disposal Independent Board Committee for the reasons that he is a shareholder of a company which has been providing certain services to the other businesses of Mr. Yan and Mr. Leung and has consistent cooperation and negotiations of other private businesses with Mr. Yan and Mr. Leung. Hence, Mr. Kwan Kai Cheong is considered to have a potential confl ict of interest in the Special Deal due to his business relationships with Mr. Yan and Mr. Leung. For the purpose of the Listing Rules, the Disposal Independent Board Committee shall only consist of independent non-executive Directors. Therefore, Mr. Kwan Kai Cheong is excluded from the Disposal Independent Board Committee. Quam Capital Limited, a licensed corporation to carry out type 6 (advising on corporate fi nance) of the regulated activity under the SFO, with the approval of the Disposal Independent Board Committee, has been appointed to advise the Disposal Independent Committee and the Independent Shareholders in respect of the Special Deal.

LETTER FROM THE BOARD

EGM

The notice of the EGM is set out on pages EGM-1 to EGM-2 of this circular. Whether or not you intend to attend the EGM in person, you are requested to complete and return the accompanying proxy form to the share registrar of the Company, Tricor Investor Services Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for holding the EGM. The return of the proxy form will not preclude you from attending and voting in person if you so wish.

The results of the voting of the EGM will be announced by the Company following the conclusion thereof.

RECOMMENDATION

The Board (excluding the members of the Disposal Independent Board Committee) considers that (i) the Disposal; (ii) the Proposed Special Distribution; and (iii) the Share Premium Reduction are fair and reasonable so far as the Company and the Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board (excluding the members of the Disposal Independent Board Committee) recommends that the Independent Shareholders should vote in favour of the resolutions to be proposed at the EGM to approve (i) the Disposal; (ii) the Proposed Special Distribution; and (iii) the Share Premium Reduction.

LR14.63(2)(c)

Your attention is drawn to (i) the letter from the Disposal Independent Board Committee which is set out on page 27 of this circular; and (ii) the letter from the Independent Financial Adviser which is set out on pages 28 to 54 of this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the appendices to this circular.

Yours faithfully By order of the Board JF Household Furnishings Limited Yan Siu Wai

Chairman and Executive Director

LETTER FROM THE DISPOSAL INDEPENDENT BOARD COMMITTEE

LR14A.58(3)(c) LR14A.59(7)

The following is the text of a letter of recommendation from the Disposal Independent Board Committee to the Independent Shareholders prepared for the purpose of inclusion in this circular.

==> picture [77 x 48] intentionally omitted <==

JF Household Furnishings Limited 捷豐家居用品有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 776)

13 May 2011

To the Independent Shareholders

Dear Sir or Madam,

We have been appointed as members of the Disposal Independent Board Committee to advise you in respect of the terms of the Special Deal, details of which have been set out in the letter from the Board contained in the circular to the Shareholders dated 13 May 2011 (the “ Circular ”), of which this letter forms part. Terms defi ned in the Circular shall have the same meanings when used herein unless otherwise requires.

RECOMMENDATION

Having considered the terms of the Special Deal, and the advice and recommendation of Quam Capital Limited as the Independent Financial Adviser in relation to the Special Deal as set out in pages 28 to 54 of the Circular, we are of the opinion that the Special Deal is in the best interests of the Company and the Shareholders as a whole, and the terms are on normal commercial terms and are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Special Deal.

Yours faithfully For and on behalf of

Disposal Independent Board Committee

Yu Hon Wing, Allan Garry Alides Willinge Chu Kwok Man Independent non-executive Independent non-executive Independent non-executive Director Director Director

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Quam Capital Limited, the Independent Financial Adviser to the Disposal Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Disposal Independent Board Committee and the Independent Shareholders in respect of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder.

13 May 2011

To the Disposal Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Disposal Independent Board Committee and the Independent Shareholders in respect of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder, details of which are set out in the “Letter from the Board” contained in the circular issued by the Company to its shareholders dated 13 May 2011 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meaning as defi ned in the Circular unless the context otherwise requires.

On 29 January 2011, the Offeror, the Offeror’s Guarantor and the Vendors entered into the Sale and Purchase Agreement pursuant to which the Offeror agreed to acquire, and the Vendors agreed to sell the Sale Shares at the Consideration of HK$202,000,000 (equivalent to approximately HK$1.47713 per Sale Share). As at the Latest Practicable Date, the Sale Shares represent approximately 61.41% of the entire issued share capital of the Company.

On 29 January 2011, JF Asia, a wholly-owned subsidiary of the Company (as vendor), entered into the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) with First Priority (as purchaser) pursuant to which First Priority conditionally agreed to acquire and JF Asia conditionally agreed to dispose the JF BVI Sale Shares at the Disposal Consideration of HK$102,060,703 (subject to the Disposal Consideration Adjustments).

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, Mr. Yan, an executive Director and chairman of the Company and a controlling Shareholder, is personally interested in 17,035,200 Shares and is the sole benefi cial owner of Excel Strength and Willhero which in turn hold 34,020,000 Shares and 28,980,000 Shares respectively, aggregating to a total of 80,035,200 Shares (representing approximately 35.94% of the total issued share capital of the Company). Mr. Leung, an executive Director and a substantial Shareholder, is personally interested in 18,076,800 Shares and is the sole benefi cial owner of Joyday which in turn holds 12,600,000 Shares, aggregating to a total of 30,676,800 Shares (representing approximately 13.78% of the total issued share capital of the Company). Mr. Bao, an executive Director and a substantial Shareholder, is personally interested in 3,360,000 Shares and is the sole benefi cial owner of Hero Talent which in turn holds 22,680,000 Shares, aggregating to a total of 26,040,000 Shares (representing approximately 11.69% of the total issued share capital of the Company).

First Priority is held as to 33%, 22% and 45% by Mr. Yan, Mr. Leung and Mr. Bao respectively and is therefore regarded as a connected person of the Company under the Listing Rules. As the applicable percentage ratios as defi ned under Rule 14.07 of the Listing Rules in respect of the Disposal are more than 25% but less than 75%, the Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Given that the applicable percentage ratios are more than 25% and the Disposal Consideration is more than HK$10 million, the Disposal also constitutes a non-exempt connected transaction for the Company under Rule 14A.16(5) of the Listing Rules and is subject to the requirements of reporting, announcement and approval of the Independent Shareholders at the EGM by way of poll pursuant to Chapter 14A of the Listing Rules. In view of the interests of Mr. Yan, Mr. Leung and Mr. Bao in the Disposal, Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao) will be required to abstain from voting at the relevant resolution(s) in relation to the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder at the EGM. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, save and except for the foregoing, no other Shareholder has a material interest in the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), as such, no other Shareholder will be required to abstain from voting on the relevant resolution(s) at the EGM to approve the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and the transactions contemplated thereunder.

The Disposal constitutes a special deal for the Company under Rule 25 of the Takeovers Code and therefore requires the consent of the Executive. Such consent, if granted, will be subject to (i) the Independent Financial Adviser publicly stating that in its opinion the terms of the Special Deal are fair and reasonable; and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the EGM. Shareholders including (i) Mr. Yan, Mr. Leung, Mr. Bao, First Priority and their respective associates and concert parties (including the Relatives Shareholders of Mr. Yan, the Relatives Shareholders of Mr. Leung and the Relatives Shareholders of Mr. Bao); (ii) the Offeror and parties acting in concert with it; and (iii) any Shareholders who are involved in or interested in the Sale and Purchase Agreement, the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) and/or the transactions contemplated therein shall abstain from voting on the proposed resolutions in respect of the Special Deal at the EGM.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Messrs. Yu Hon Wing Allan, Garry Alides Willinge and Chu Kwok Man, the independent non-executive Directors, have been appointed as members of the Disposal Independent Board Committee to advise the Independent Shareholders in respect of the Special Deal and whether the terms of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and the Disposal is in the interests of the Company and the Shareholders as a whole; and to advise the Independent Shareholders as to whether to vote in favour of the Disposal and the transactions contemplated thereunder. As the independent fi nancial adviser, our role is to give an independent opinion to the Disposal Independent Board Committee and the Independent Shareholders in such regard.

BASIS OF OUR OPINION

In formulating our recommendation, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Company and its advisers; (iii) the opinions expressed by and the representations of the Directors and management of the Group; and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects at the date thereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations provided to us by the management of the Group, the Directors and the advisers of the Company. We have also sought and received confi rmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations regarding the Company and the Disposal provided to us by the Company and/or the Directors and the management of the Group are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the Circular.

We consider that we have reviewed suffi cient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verifi cation of the information, nor have we conducted any form of in-depth investigation into the business, affairs, operations, fi nancial position or future prospects of the Company or any of its subsidiaries and associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the Disposal, we have taken into consideration the following factors and reasons:

1. Background and fi nancial information of the Group

(a) Information on the Group

The Group is principally engaged in the manufacturing and sale of (i) furnishings, home products and accessories primarily used in kitchens and bathrooms with stainless steel as raw materials; and (ii) wooden panel furniture. As discussed in the geographical information contained in the annual report of the Company for the year ended 31 December 2010, the customers of the Group are mainly located in Hong Kong and the PRC. The Group is unable to identify the major markets of its products as the products are mainly supplied to the Key Customer for its own distribution.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group produces different home furnishing articles for kitchen and bathroom with stainless steel as raw materials and wooden panel furniture to its main customer (IKEA) (the “ Key Customer ”), one of the world biggest retailers in this industry, who sells in over 30 countries and territories. In year 2010, sales to the Key Customer account for over 98% of the Group’s turnover.

The Company commenced listing on the Growth Enterprise Market operated by the Stock Exchange on 13 October 2005 and the listing of which were subsequently transferred to the main board of the Stock Exchange on 10 September 2008.

(b) Furniture industry outlook in the PRC

According to the National Bureau of Statistics in China, the total value of furniture production in the PRC increased from approximately RMB37.0 billion (approximately HK$44.4 billion) in 2000 to approximately RMB343.1 billion (approximately HK$411.7 billion) in 2009, representing a compound annual growth rate of approximately 28.1%. The following chart illustrates the total value of furniture production in the PRC from 2000 to 2009.

Total value of furniture production in the PRC from 2000 to 2009

==> picture [389 x 164] intentionally omitted <==

----- Start of picture text -----

RMB billion
400
350
300
250
200
150
100
50
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
total production value
----- End of picture text -----*

Figure in 2004 represents the total revenue from furniture production as the fi gure for total value of furniture production is not available from National Bureau of Statistics in China

Source: National Bureau of Statistics in China

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Among the total furniture production in the PRC, a majority of those are export for consumption outside the PRC. According to the National Bureau of Statistics in China, the total export value of furniture production in the PRC increased from approximately US$3,565.2 million (approximately HK$27.7 billion) in 2000 to approximately US$25,329.2 million (approximately HK$196.6 billion) in 2009, representing a compound annual growth rate of approximately 24.3%. The following chart illustrates the total export value of furniture production in the PRC from 2000 to 2009.

Total export value of furniture production in the PRC from 2000 to 2009

==> picture [386 x 153] intentionally omitted <==

----- Start of picture text -----

USD million
30,000
25,000
20,000
15,000
10,000
5,000
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
total production value
----- End of picture text -----

Source: National Bureau of Statistics in China

The Remaining Group and Disposed Group are both mainly engaged in the manufacturing and sales of furniture to the Key Customer, we consider that there are no material difference in the prospect of the Remaining Group and Disposed Group. We are of the view that the furniture industry outlook in the PRC contained in this letter only provides a general reference as to the business environment in which the Group is operating, and we have not relied on the prospect of the Remaining Group in forming the basis of our view.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Financial information on the Group

The following table summarises the audited fi nancial information of the Group for each of the three years ended 31 December 2010 as extracted from the Company’s respective annual reports:

Revenue
Cost of goods sold
Gross prof t
Other income
Distribution costs
Administrative expenses
Other operating expenses
Prof t from operations
Finance costs
Prof t before tax
Income tax expenses
Prof t for the year attributable
to owners of the Company
Earnings per share
Basic
Diluted
Net current assets
Net asset value attributable
to the Shareholders
Cash and bank balances

For the year ended 31 December
2010
2009
2008
HK$’000
HK$’000
HK$’000
438,244
368,474
403,057
(377,794)
(312,121)
(342,680)
60,450
56,353
60,377
904
2,188
4,827
(2,228)
(4,131)
(4,296)
(24,562)
(21,398)
(21,620)
(894)
(671)
(2,289)
33,670
32,341
36,999
(3,911)
(2,430)
(5,463)
29,759
29,911
31,536
(11,386)
(8,407)
(8,730)
18,373
21,504
22,806
HK$0.09
HK$0.12
HK$0.13
HK$0.08
HK$0.11
HK$0.13
As at 31 December
2010
2009
2008
HK$’000
HK$’000
HK$’000
(restated)
(restated)
17,417
67,314
24,157
212,921
184,701
141,876
32,573
29,614
21,460

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the above table, the Group’s revenue has decreased by approximately 8.6% from approximately HK$403.1 million for the year ended 31 December 2008 to approximately HK$368.5 million for the year ended 31 December 2009. The Group’s revenue has increased by approximately 18.9% during the year ended 31 December 2010, to approximately HK$438.2 million. According to the annual report of the Company for the year ended 31 December 2010, such increase was mainly attributed to the increase of revenue by around 28.7% from the stainless steel furnishings business as the worldwide economy stabilized. The Group’s profi t attributable to the owners of the Company has continued to decrease from approximately HK$22.8 million for the year ended 31 December 2008 to approximately HK$21.5 million for the year ended 31 December 2009 and to approximately HK$18.4 million for the year ended 31 December 2010, represented an annualised decrease of approximately 10.1%. The net asset value attributable to the owners of the Company has increased by approximately 30.2% from approximately HK$141.9 million as at 31 December 2008 to approximately HK$184.7 million as at 31 December 2009, mainly attributed to the placement of new shares completed during the year and the operation profi t accrued in the relevant year. The amount has further increased by approximately 15.3% to approximately HK$212.9 million as at 31 December 2010, mainly attributed to the proceeds from the exercise of share options by the senior management (including the executive Directors) in

2010 and the operation profi t accrued in the relevant year.

For the year ended 31 December 2010

For the year ended 31 December 2010, the Group recorded revenue of approximately HK$438.2 million and profi t attributable to the owners of the Company of approximately HK$18.4 million. According to the annual report of the Company for the year ended 31 December 2010, the Group has two reportable segments which are the stainless steel furnishings and the wooden furnishings. The increase in revenue for the year ended 31 December 2010 was resulted from the contribution from the stainless steel furnishings business, which went up around 28.7%, from approximately HK$241.3 million in 2009 to approximately HK$310.7 million for the year ended 31 December 2010 as the worldwide economy stabilized. Revenue for the wooden furnishings business increased slightly from approximately HK$127.2 million for the year ended 31 December 2009 to approximately HK$127.6 million for the year ended 31 December 2010. The wooden furnishings business recorded a segment loss of approximately HK$4.5 million for the year ended 31 December 2010, which decreased from the segment profi t of approximately HK$7.7 million for the year ended 31 December 2009. The segment loss of approximately HK$4.5 million was mainly attributed to the increase in research and development costs for the Board on Frame (“ BOF ”) products, being wooden furnishings, the increase of allowances for inventory stocks and the fl uctuation of orders of wooden panel furniture from the Key Customer that decreasing profi tability. Although the Group has successfully concluded a fi ve year sales volume agreement on the BOF series, being wooden furnishings, with the Key Customer, which contemplated to give the Group specifi ed amount of orders for fi ve consecutive fi scal years of the Key Customer commenced from 2010 with progressive increase in purchase value of 8 million Euros for the fi scal year of 2010 increasing up to 62.95 million Euros for the fi scal year of 2014, subject to a 15% increment or a 15% decrement on such agreed value for the relevant fi scal year and subject to the satisfaction of the Key Customer over the

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

product quality, delivery security, price and other requirements as determined by the Key Customer from time to time, trial production for the BOF series only started in the second half of 2010. The products categories and production techniques were still under adjustment which increased the research and development costs and wastage of materials. Further, the unique machineries for the BOF series were continuously adjusted and under trial which also increased capital expenditure. The progress of development was therefore delayed and the Group did not achieve the scheduled sales plan for 2010 for the BOF products agreed with the Key Customer. The amount of actual sales of the BOF products to the Key Customer pursuant to the Sale Volumes Agreement in the year ended 31 December 2010 only amounted to approximately HK$11.4 million. According to the Directors, as the Key Customer was fully aware of the progress of the trial production of BOF products and the possible delay on achieving the sales plan under the Sales Volumes Agreement, the Key Customer did not raise any objection on the non-fulfi llment of the sales plan for 2010. Apart from not receiving orders for BOF products as scheduled under the Sales Volumes Agreement, the Group did not suffer any material loss on the non-fulfi llment of the sales plan for 2010. In addition, since the orders from the Key Customer for other wooden panel furniture were consistently adjusted in accordance with market demand, the adjustment of orders (including the reduction or termination of orders for certain higher profi t margin wooden panel furniture by the Key Customer) in year 2010 also increased the impairment of inventory stocks and decreased the profi tability of the wooden furnishing business.

For the year ended 31 December 2009

For the year ended 31 December 2009, the Group recorded revenue of approximately HK$368.5 million and profi t attributable to the owners of the Company of approximately HK$21.5 million. According to the annual report of the Company for the year ended 31 December 2009, the Group suffered a slight decline in turnover in 2009 as a result of the retrogressive atmosphere of the worldwide economy during most of 2009. The decrease in turnover was mainly due to the decline in orders for the stainless steel products which dropped by approximately 16% from that of 2008. The improvement in the wooden furnishings business as a result of the introduction of new products, such as the kitchen cabinet series, increased the turnover of this segment by approximately 9.9%. However, the segment profi t of the wooden furnishings business has reduced from approximately HK$9.0 million for the year ended 31 December 2008 to approximately HK$7.7 million for the year ended 31 December 2009. The net asset value attributable to the Shareholders increased by approximately HK$42.8 million as compared with that as at 31 December 2008 as a result of the net proceeds from the placing of Shares of approximately HK$29.9 million and the profi t generated during the year.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2008

For the year ended 31 December 2008, the Group recorded revenue of approximately HK$403.1 million and profi t attributable to the owners of the Company of approximately HK$22.8 million. According to the annual report of the Company for the year ended 31 December 2008, the businesses of the Group were fi rst adversely affected by the tightening of the labour policies by the PRC government and the elimination of preferential tax treatment for export businesses and foreign-owned enterprises, and subsequently impacted by the severe global economic slowdown during the second half of the year. However, the Group had completed a 30,000 square meters timber plant and the installation of new equipment in June 2007 which enabled the Group to expand the production level of timber products in 2008. The revenue attributed to the sales of timber products increased by approximately 68.3% in 2008 and gross profi t margin of timber products increased from approximately 4.2% in 2007 to approximately 12.9% in 2008. Despite an improvement of gross profi t margin in 2008, the profi t attributable to owners of the Company declined due to (i) the costs incurred for the transfer of listing to main board of the Stock Exchange; and (ii) increase in administrative costs and selling and distribution costs associated with the full scale operation of the timber division, which resulted in reduction in the profi t attributable to the owners of the Company by approximately 17.5% as compared to that of 2007.

Having considered the above analysis, we noted that despite the growing revenue contributed by the wooden furnishings business to the Group, the segment results of the wooden furnishings business was deteriorating during the past three years with segment profi t reduced from approximately HK$9.0 million for the year ended 31 December 2008 to approximately HK$7.7 million for the year ended 31 December 2009 and turned to segment loss of approximately HK$4.5 million for the year ended 31 December 2010. On the other hand, the stainless steel furnishings segment remained the driver for the Group’s profi tability recording segment profi t of approximately HK$25.1 million, HK$21.6 million and HK$32.5 million respectively for each of the three years ended 31 December 2010. In addition, in view of the fact that the Disposed Group relies on the sales to the Key Customer, we are of the view that notwithstanding that JF Furniture had entered into the Sales Volumes Agreement with the Key Customer, the prospects of the Disposed Group will rely on the actual amounts or margins of the orders from the Key Customer which is subject to the satisfaction of the Key Customer over the product quality, delivery security, price and other requirements as determined by the Key Customer from time to time and thus it is uncertain as to whether the deteriorating fi nancial performance as discussed above will persist or not.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. The Disposal

(a) Information on the Disposed Group

Information on JF BVI

JF BVI, a company incorporated in the BVI with limited liability, is a direct wholly-owned subsidiary of JF Asia which is a direct wholly-owned subsidiary of the Company as at the Latest Practicable Date. As at the Latest Practicable Date, the principal activity of JF BVI is investment holding and its principal assets are its two wholly-owned subsidiaries, namely Ningbo JF and JF Furniture.

Information on JF Furniture

(b) Financial information on the Disposed Group

As set out in the “Letter from the Board”, the unaudited profi t and loss accounts of the Disposed Group for the two years ended 31 December 2010 which are mainly contributed by JF BVI and JF Furniture are set out as follows:

		For the year ended 31 December	For the year ended 31 December
		2010	2009
		HK$’000	HK$’000
		(unaudited)	(unaudited)
(Loss)/prof	t of the Disposed Group before taxation	(4,527)	5,183
(Loss)/prof	t of the Disposed Group after taxation	(6,222)	2,964

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the key fi nancial information on the profi t and loss account of the JF Furniture for the two years ended 31 December 2010 as extracted from the audited fi nancial statements of JF Furniture for the year ended 31 December 2010 issued by RSM Nelson Wheeler, the auditor of the Company, prepared for the purpose of the Disposal.

	For the year ended 31 December	For the year ended 31 December
	2010	2009
	HK$’000	HK$’000
	(audited)	(unaudited)
Revenue	127,574	127,160
Gross prof t	8,457	13,883
Gross margin	6.6%	10.9%
(Loss)/prof t of JF Furniture before taxation	(2,124)	7,208
(Loss)/prof t of JF Furniture after taxation	(2,375)	7,208

JF BVI is an investment holding company and the fi nancial information of JF BVI is mainly illustrated by the difference between the fi nancial information of the Disposed Group and that of JF Furniture. As set out in the “Letter from the Board”, the difference between the loss of the Disposed Group after taxation for the year ended 31 December 2010 and the loss of JF Furniture after taxation for the year ended 31 December 2010 was mainly attributed to (i) the debit of administrative costs of approximately HK$2.1 million incurred by JF BVI for performing administrative and management functions of the other members of the Group, such as bearing the exchange loss arising from the settlement of bank borrowings denominated in Euro for the acquisition of machineries, settling credit or banking facilities charges, payment of premium for life insurance of key employees, payment of salaries of non-PRC employee, payment of provident funds for non-PRC employee and directors and miscellaneous expenses incurred by the Group or its management out of the PRC, fi nance costs of approximately HK$0.8 million paid by JF BVI in bank borrowings and the taxation charge on dividend income of approximately HK$1.4 million paid by JF BVI; and (ii) the credit of profi t from intercompany sales of approximately HK$0.3 million and interest and sundry income of approximately HK$0.2 million by JF BVI.

As set out in the table above, despite JF Furniture had managed to maintain the revenue at approximately HK$127.6 million for the year ended 31 December 2010, the gross margin of JF Furniture dropped from approximately 10.9% in 2009 to approximately 6.6% in 2010. JF Furniture has suffered from net loss after taxation of approximately HK$2.4 million for the year ended 31 December 2010 as compared with the net profi t after taxation of approximately HK$7.2 million for the year ended 31 December 2009. According to the annual reports of the Group, the Disposed Group, as represented by the wooden furnishings segment of the Group, suffered from cost pressure from the Key Customer as it raised its material standard requirement.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notwithstanding that JF Furniture has suffered from net loss after taxation and descending gross profi t margin, the Disposed Group had entered into the Sales Volumes Agreement for a duration of fi ve years, an agreement for investment of BOF production and an agreement of knowhow licence with the Key Customer on 12 February 2010. In the year 2010, for the purpose of enhancing the production capacity for the BOF series, JF Furniture had incurred substantial capital expenditure of approximately HK$86.8 million for the construction of the fi rst phase of a production plant for BOF production lines which is expected to have a total gross fl oor area of approximately 50,000 sq.m. and the acquisition of machineries to build up the production lines of the BOF products as extracted from the audited fi nancial statements of JF Furniture for the year ended 31 December 2010 issued by RSM Nelson Wheeler, the auditor of the Company.

Set out below is a breakdown of the net assets value of the Disposed Group as at 31 December 2010 as extracted from the unaudited pro forma fi nancial information on the Remaining Group included in Appendix II to the Circular.

	As at
	31 December 2010
	HK$’000
Non-current assets	177,022
Current assets	237,104
Current liabilities	(309,910)
Non-current liabilities	(3,640)
Net current liabilities	(72,806)
Net assets	100,576

As at 31 December 2010, the Disposed Group had net assets of approximately HK$100.6 million. Non-current assets of the Disposed Group as at 31 December 2010 is mainly represented by property, plant and equipment of approximately HK$175.0 million which according to the audited fi nancial statement of JF Furniture, comprised construction in progress of approximately HK$85.8 million and leasehold land of approximately HK$52.9 million. Other assets of the Disposed Group include mainly deposits, other receivables and prepayment of approximately HK$155.2 million, inventories of approximately HK$34.1 million (a majority of which were raw materials), trade and bills receivables of approximately HK$31.6 million and cash and bank balances of approximately HK$15.1 million. The liabilities of the Disposed Group include mainly other payables and accruals of approximately HK$192.7 million, bank borrowings of approximately HK$88.5 million and trade and bills payable of approximately HK$28.6 million. As advised by the Directors, the deposits, other receivables and prepayment and other payables and accruals mainly comprises of amounts due from and to the Remaining Group.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

It is noted that the fi nancial performance of the Disposed Group has been deteriorating for the past years, which is indicated by the results of its principal subsidiary JF Furniture turned from unaudited net profi t of approximately HK$7.2 million for the year ended 31 December 2009 to audited net loss of approximately HK$2.4 million for the year ended 31 December 2010.

(c) Reasons for and benefi ts of the Disposal

As disclosed in the announcements of the Company dated 12 February 2010 and 16 March 2010 respectively, the Group had entered into the Wooden Panel Furniture Agreements in relation to the manufacture and sale of wooden panel furniture with Key Customer, including the Sales Volumes Agreement. Although the Sales Volumes Agreement contemplated to give the Group specifi ed amount of orders from the Key Customer for fi ve consecutive fi scal years commenced from 2010 with progressive increase in purchase value of 8 million Euros for the fi scal year of 2010 increasing up to 62.95 million Euros for the fi scal year of 2014, subject to a 15% increment or a 15% decrement on such agreed value for the relevant fi scal year and subject to the satisfaction of the Key Customer over the product quality, delivery security, price and other requirements as determined by the Key Customer from time to time, trial production for the BOF series only started in the second half of 2010. It is uncertain as to whether or when the purchase schedule of the Key Customer as stipulated under the Sales Volumes Agreement can be achieved, which is subject to, among others, the meeting by the Disposed Group of the relevant technical and quality requirements. In case the amount of orders stipulated under the Sales Volumes Agreement is not achieved by the end of the fi scal year of 2014, the Group can discuss with the Key Customer for any possible solution. However, the Group may not be able to extend the terms of the Sales Volumes Agreement. In addition, as discussed with the Directors, the Group has to incur further capital expenditure to acquire machineries, construct production plant and expend research and development effort in order to achieve the sales plan under the Sales Volumes Agreement. Such additional capital expenditures would impose a downward pressure on the gross margin of the wooden furnishings products.

As set out in the “Financial Information of the Group” in the Appendix I to this Circular, for the three months ended 31 March 2011, the unaudited revenue of JF Furniture amounted to approximately RMB27.1 million, amongst which approximately RMB23.8 million was generated from the sales of normal wooden panel furniture and approximately RMB3.3 million was generated from the sales of BOF products. It is expected that by the end of June 2011, the construction of the BOF production plant with gross fl oor area of approximately 52,000 sq.m. will be completed and a fundamental production line for BOF products will be fully installed and commissioned. However, based on the overall budget of the BOF project, in order to fully achieve the sales plan under the Sales Volumes Agreement, additional machineries of approximately HK$75 million must be acquired and additional production plant with gross fl oor area of approximately 20,000 sq.m. with estimated costs of approximately RMB20 million will be constructed by the wooden division. Further research and development costs and efforts are also due to be expended for achieving the sales plan under the Sales Volumes Agreement. Up to 31 March 2011, approximately HK$10 million had been incurred by the Group since year 2009 in the research and development of the BOF products.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Since the orders from the Key Customer for other wooden panel furniture were consistently adjusted in accordance with market demand, the adjustment of orders (including the reduction or termination of orders for certain higher profi t margin wooden panel furniture by the Key Customer) in year 2010 also increased the impairment of inventory stocks and decreased the profi tability of the wooden furnishing business.

As stated in the Letter from the Board, the Group had entered into the Wooden Panel Furniture Agreements in relation to the manufacture and sale of wooden panel furniture with the Key Customer, including the Sales Volumes Agreement, the Right of First Refusal Agreement – Assets and Right of First Refusal Agreement – Shares. Pursuant to the Sales Volumes Agreement, the Key Customer has the right of early termination and cancellation of existing orders without compensation in the event of change of ownership of JF Furniture. On 18 April 2011, the Key Customer had confi rmed in writing that (i) the Key Customer do not consider that it is appropriate to continue the operation of the Sales Volumes Agreement if there are any changes of the existing ultimate controlling shareholders of JF Furniture and/or its existing management; (ii) the Key Customer has no objection to the Disposal and will not exercise its right of fi rst refusal to acquire the shares in JF Furniture; and (iii) on the condition that the ultimate shareholders of JF BVI and JF Furniture will be Mr. Yan, Mr. Leung and Mr. Bao after the Disposal, the Sales Volumes Agreement will continue to be valid and effective subsequent to the Disposal and the Key Customer will not terminate the Sales Volumes Agreement for the reason of the Disposal. As such, we concur with the view of the Directors that the entering into of the Disposal Agreement can avoid any losses which may arise from the Possible Termination of the Sales Volumes Agreement resulting from the change of the ultimate controlling shareholder of JF Furniture.

Having considered that (i) the fi nancial performance of the Disposed Group is deteriorating; (ii) the prospects of the Disposed Group will rely on the actual amounts or margins of the orders from the Key Customer which is subject to the satisfaction of the Key Customer and thus it is uncertain as to whether the deteriorating fi nancial performance of the Disposed Group will persist or not; (iii) additional capital expenditure will have to be incurred which would impose a downward pressure on the gross margin of the wooden furnishings products; (iv) it is uncertain as to whether or when the purchase schedule of the Key Customer as stipulated under the Sales Volumes Agreement can be achieved; and (v) the entering into of the Disposal Agreement can avoid any losses which may arise from the Possible Termination of the Sales Volumes Agreement resulting from the change of the ultimate controlling shareholder of JF Furniture, we consider that the entering into of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) by the Group is in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) Principal terms of the Disposal Agreement and the Supplemental Disposal Agreement

On 29 January 2011, JF Asia (as vendor) and First Priority (as purchaser) entered into the Disposal Agreement. Principal terms of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) are set out below.

(i) Assets to be disposed of

Pursuant to the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), JF Asia conditionally agreed to dispose of and First Priority conditionally agreed to acquire the JF BVI Sale Shares free from all Encumbrances and together with all rights now or hereafter attaching thereto including the right to all dividends and other distributions which may be paid, declared or made in respect thereof at any time on or after the Disposal Completion Date (inclusive the Disposal Completion Date).

As one of the conditions for Completion, JF Asia shall dispose the Disposed Group to the nominee of Mr. Yan, Mr. Leung and Mr. Bao. Since the entire equity interests in each of Ningbo JF (i.e. the manufacturing and sales arm of the stainless steel products of the Group) and JF Furniture (i.e. the manufacturing and sales arm of wooden panel products of the Group) are held by JF BVI as at Latest Practicable Date, to facilitate the implementation of Disposal Completion and the retention of Ningbo JF in the Remaining Group, JF Asia will before the Disposal Completion transfer the entire equity interests in Ningbo JF to another indirect wholly-owned subsidiary of the Company, namely Keylink. Following the Disposal Completion, the members of the Disposed Group, i.e. JF BVI and JF Furniture, shall cease to be subsidiaries of the Company.

(ii) Disposal Consideration

As set out in the Letter from the Board, the Disposal Consideration of HK$102,060,703 was determined after arm’s length negotiation between JF Asia and First Priority with reference to the unaudited JF Furniture NAV (i.e. HK$102,060,703) as refl ected in the management accounts of JF Furniture for the year ended 31 December 2010 on the signing of the Disposal Agreement and was subsequently adjusted to the Adjusted Disposal Consideration of HK$100,576,477 (i.e. the audited JF Furniture NAV) as refl ected in the audited fi nancial statements of JF Furniture for the year ended 31 December 2010.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Market comparables

As discussed in the paragraph headed “Financial Information on the Disposed Group” above, the Disposed Group was loss-making for the year ended 31 December 2010. In addition, we consider that the business of the Disposed Group is an asset-based business which requires relatively high capital spending on fi xed assets such as machineries and equipment while the size of fi xed assets of which to a large extent, refl ects its capability and capacity to secure manufacturing orders. As illustrated in the adjustment to the unaudited pro forma fi nancial information of the Remaining Group for the year ended 31 December 2010 set out in Appendix II to the Circular, the major assets of the Disposed Group comprise mainly property, plant and equipment. As such, in assessing the fairness and reasonableness of the Disposal Consideration, the price-toearnings ratios (“ P/E ratio ”) is considered not applicable and the price-to-book ratios (“ P/B ratio ”) has been used instead in the analysis. We have, based on the information available from the website of the Stock Exchange and Bloomberg, identifi ed the following comparables (the “ Comparables ”) being companies listed on the Stock Exchange (both GEM and Main Board) engaging in businesses similar to those of the Disposed Group, which principally engaged in the manufacturing and sale of furniture products for their respective latest fi nancial year. In general, in assessing whether a business segment is principal to a company, we consider it is a justifi able basis to make reference to the revenue generated from a business segment which contributes more than half of the total revenue of a company. We have thus identifi ed fi ve Comparables by searching through published information on the Stock Exchange’s website, which (i) are principally engaged in the manufacturing and sale of home furniture; (ii) have revenue derived from manufacturing and sale of furniture products represent not less than 60% of the total revenue for their respective latest fi nancial year; and (iii) have market capitalisation of less than HK$10 billion. We consider that the Comparables are fair and representative sample for comparison as the principal business of the Comparables is similar to the businesses of the Disposed Group. In forming our opinion, we have also considered the results of the comparison together with the other

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

factors stated in this letter as a whole. The list of the Comparables is exhaustive and their respective P/B ratios are set out below. For information only, the P/E ratio of the Comparables is also set out below.

		Closing price
		as at the
		Latest
		Practicable	Market
Company (stock code)	Principal activities	Date	Capitalisation	P/B ratio	P/E ratio
		HK$	HK$’ million	(Note 1)	(Note 2)
Hing Lee (HK) Holdings	Design, manufacture,	1.59	385.4	1.28	9.63
Limited (396)	sale and marketing of
	home furniture products
	including mainly wood-
	based furniture and
	mattresses and licensing of
	its own brands and product
	designs.
Kasen International	Manufacturing of upholstered	1.45	1,684.5	0.61	39.68
Holdings Ltd. (496)	furniture, furniture leather
	and automotive leather;
	properties development;
	and retail of furniture.
Samon Holdings Limited	Design, production, sale and	1.70	5,182.0	1.14	17.05
(531)	marketing of furniture
Decca Holdings Ltd. (997)	Manufacturing and trading of	1.40	280.0	0.79	N/A
	furniture and decoration				(Note 3)
	materials, and interior
	decoration works.
FAVA International	Manufacturing and sales of	0.109	191.7	0.63	N/A
Holdings Limited (8108)	household products				(Note 3)
	Minimum			0.61	9.63
	Maximum			1.28	39.68
	Average			0.89	22.12
Disposed Group	Manufacturing and sales of			1.00	N/A
	wooden panel furniture				(Note 3)
	products

Source: The Stock Exchange’s website and Bloomberg

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

1. P/B ratio of the Comparables are calculated based on their respective closing prices as at the Latest Practicable Date and the net assets value of the Comparables as extracted from their respective latest published balance sheets divided by the total number of issued shares.

2. P/E ratio of the Comparables are calculated based on their respective closing prices as at the Latest Practicable Date and the net profi t of the Comparables as extracted from their respective latest annual reports divided by the total number of issued shares.

3. The companies were loss making in their respective latest fi nancial year and price-to-earnings multiple are thus not available.

As shown in the table above, the P/B ratio of the Comparables are ranged from approximately 0.61 to 1.28 times and the average P/B ratio of the Comparables is approximately 0.89 times. The P/B ratio of the Disposed Group as at 31 December 2010 of approximately 1.0 time was within the range and above the average of the Comparables.

(iii) Disposal Consideration Adjustments

The Disposal Consideration is subject to adjustments with reference to the audited JF Furniture NAV as shown in the audited fi nancial statements of JF Furniture. If the JF Furniture NAV exceeds HK$102,060,703, the Disposal Consideration shall be adjusted to add thereto the amount (if any) by which the audited JF Furniture NAV exceeds the Disposal Consideration; while if the JF Furniture NAV falls below HK$102,060,703, the Disposal Consideration shall be adjusted downward to the audited JF Furniture NAV. No adjustment will be made to the Disposal Consideration if the audited JF Furniture NAV equal to HK$102,060,703.

Pursuant to the Disposal Consideration Adjustments and the audited JF Furniture NAV of HK$100,576,477 as stated in the audited fi nancial statements of JF Furniture for the year ended 31 December 2010, the Disposal Consideration was adjusted downward by HK$1,484,226 to the Adjusted Disposal Consideration of HK$100,576,477 which will be payable by First Priority to JF Asia in cash upon Disposal Completion.

Having considered the fi nancial performance of the Disposed Group in the paragraph headed “Financial Information on the Disposed Group” above, although the Disposed Group has entered into the Sales Volumes Agreement with the Key Customer, the Disposed Group has to incur further capital expenditure to acquire machineries, construct production plant and expend research and development effort in order to achieve the sales plan under the Sales Volumes Agreement, it is uncertain as to whether or when the purchase schedule of the Key Customer as stipulated under the Sales Volumes Agreement can be achieved and whether it is profi table for the sales of BOF products under the Sales Volumes Agreement as evidenced by the decreasing gross margin of JF Furniture. We consider that such Disposal Consideration Adjustments refl ects the actual value of the Disposed Group and allow the fi nal consideration to be determined with reference to the audited JF Furniture NAV. Given that the Disposal Consideration has been adjusted with reference to the audited JF Furniture NAV, we consider the Adjusted Disposal Consideration had refl ected the audited net book value of JF Furniture.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Supplemental Disposal Agreement

As set out in the Letter from the Board, the Supplemental Disposal Agreement was entered into between JF Asia and First Priority on 11 May 2011 in relation to, inter alia, (i) the exclusion of the release of the JF Furniture Collateral Securities from the conditions for the Disposal Completion; and (ii) the provision of the JF Furniture Collateral Securities unconditionally by JF Furniture to Ningbo JF during the Guarantee Period, on the basis that:

(a) save and except for the banking facilities or bank loans in the total outstanding sum of approximately RMB34.5 million, Ningbo JF shall cease to utilize and shall not create any banking facilities or borrow any bank loans under the guarantee of the JF Furniture Collateral Securities after the signing of the Supplemental Disposal Agreement; and
(b) Ningbo JF shall duly and promptly repay all of the outstanding bank loans or banking facilities on or before their respective due date for repayment.

Pursuant to the Supplemental Disposal Agreement, JF Asia had undertaken to procure the compliance and/or fulfi llment of the obligations of Ningbo JF set out in subparagraph (a) and (b) above, and JF Asia shall use reasonable endeavor to procure that upon the full repayment of the relevant outstanding banking facilities and bank loans, the relevant JF Furniture Collateral Securities shall be early released by the relevant bank before the expiration of the relevant Guarantee Period.

Taking into account that (i) the deteriorating fi nancial performance of the Disposed Group for the years ended 31 December 2009 and 2010 that it turned from a profi t after taxation for the year ended 31 December 2009 to a loss after taxation for the year ended 31 December 2010; (ii) the P/B ratio of the Disposed Group was within the range and above the average of the P/B ratio of the Comparables; (iii) the Adjusted Disposal Consideration had refl ected the audited net book value of JF Furniture; and (iv) the JF Furniture Collateral Securities will be provided by JF Furniture during the Guarantee Period for the benefi t of the Company, which do not charge any security over the assets of the Company, we consider the terms of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement), is fair and reasonable and in the interests of the Company and the Shareholders as a whole. We also concur with the view of the Directors that the Disposal will enable the Group to realize the investment in the Disposed Group at a fair price.

(e) Intended application of the proceeds from the Disposal

As stated in the Letter from the Board, as a condition precedent of the Sale and Purchase Agreement, the Offeror agrees that the Company shall be entitled to declare and pay the Proposed Special Distribution to the Qualifying Shareholders, including the Vendors. Upon the Disposal Completion, the estimated net proceeds received from the Disposal of approximately HK$96.1 million (after deducting all relevant expenses) and surplus cash of the Group will be applied for distribution of the Proposed Special Distribution.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted from the annual reports of the Company from the fi nancial year ended 31 December 2006 to 31 December 2009 that the Company has declared total amount of dividends of HK$0.199 per Share and no fi nal dividend has declared for the year ended 31 December 2010. In view of the fact that the Company has no intention to utilize the proceeds from the Disposal immediately and for other purposes such as further investments, it is reasonable for the Company to declare the Proposed Special Distribution. This will be an opportunity for the Shareholders to realize and receive cash proceeds from their investments in the Shares in the form of the Proposed Special Distribution.

Upon Completion, the Offeror will be required to make an unconditional mandatory general cash offer at HK$1.47713 per Offer Share for all the Shares not already owned or agreed to be acquired by the Offeror and parties acting in concert with it, and an unconditional mandatory general cash offer at HK$0.57713 per Option for cancellation of each Option carrying right to subscribe for one Option Share.

After receiving the Proposed Special Distribution, Shareholders will also have the option of (i) continue holding the shares which value will depend on the then prevailing market prices of Shares; or (ii) accepting the Offers at the Share Offer Price of HK$1.47713 per Offer Share and Option Offer Price of HK$0.57713 for each Option respectively. Pursuant to the Sale and Purchase Agreement, the Disposal Completion is one of the conditions precedent for the Completion. As such, the Offers will be made following the Disposal Completion and the Completion. In case the Shareholders accepting the Offers, the aggregate benefi t receivable by the Shareholders through receiving the Proposed Special Distribution and accepting the Offers will be approximately HK$2.23711 (assuming the Options have been exercised in full by the Optionholder on or before the Record Date).

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the historical closing prices of the Shares traded on the Stock Exchange starting from 12 May 2010, being 12 months preceding the Latest Practicable Date, up to and including the Latest Practicable Date.

==> picture [336 x 208] intentionally omitted <==

----- Start of picture text -----

Historical share price and trading volume
5,000,000 3.50
4,500,000 Proposed Special Distribution
Offer Price + Proposed Special = HK$0.75998 3.00
4,000,000 Distribution = HK$2.23711
3,500,000 Offer Price = HK$1.47713 2.50
3,000,000 2.00
Trading in Shares
2,500,000 were suspended
1.50
2,000,000
1,500,000 1.00
1,000,000
0.50
500,000
-
Trading volume Offer price + Proposed Offer price Proposed Special Share Price
Special Distribution Distribution
Latest
Practicable Date
Number of share Closing price (HK$)
----- End of picture text -----

Source: The Stock Exchange’s website

As shown in the chart above, the closing prices of the Shares were close to or below the aggregate of Proposed Special Distribution and the Offer Price in most of the time during the period from late June 2010 to early March 2011.

On 30 April 2010, the Company published an unusual price and trading volume movement announcement and informed Shareholders that although the Mr. Yan, the then controlling shareholder of the Company, had been approached by certain independent third parties soliciting for the sale of the controlling interests in the Company, Mr. Yan had not entered into any discussions or negotiations in this respect. The closing share price of the Group plumged from HK$3.00 per Share on 12 May 2010 to HK$2.20 per Share on 20 May 2010 which was in line with the direction of the Hang Seng Index during the same period. On 19 May 2010, the Company published an announcement for the discloseable transaction for the acquisition of machineries and construction of production facilities.

On 25 January 2011, trading in Shares were suspended pending the release of the Joint Announcement. On 4 March 2011, being the fi rst trading day of Shares after publication of the Joint Announcement, the closing price of the Shares surged to HK$2.70. As at the Latest Practicable Date, the closing price of the Shares was HK$2.91. In view of the pattern of the Shares as set out above, in the absence of further signifi cant positive events, we are of the view that the current level of Share prices may not be sustainable without the Disposal, the Proposed Share Distribution and the Offers.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered the above analysis, we are of the opinion that the Disposal, which will result in the payment of the Proposed Special Distribution, provides an opportunity to the Independent Shareholders to partially realize their investment in the Company while retaining the Shares.

3. Information on the Remaining Group

(a) Principal business

The Remaining Group has been engaging in the furnishings, home products and accessories primarily used in kitchens and bathrooms with stainless steel as raw materials. As advised by the Company, the Disposed Group will cease to be subsidiaries of the Company upon Disposal Completion and its fi nancial results will not be consolidated in the fi nancial statements of the Remaining Group.

As set out in the Joint Announcement, save for the implementation of the Disposal (being one of the Conditions), the Offeror intends to continue the existing businesses of the Remaining Group of furnishings, home products and accessories primarily used in kitchens and bathrooms with stainless steel as raw materials. The Offeror does not intend to introduce any major changes to the existing operations and business of the Company immediately after the Offers. The Offeror will conduct a more detailed review on the operations of the Remaining Group with a view to formulate a comprehensive business strategy for the Remaining Group and subject to the result of the review, the Offeror may explore other business opportunities and consider whether any assets and/or business acquisitions by the Remaining Group will be appropriate in order to enhance its growth. As further stated in the Joint Announcement, subject to the result of the review, the Offeror may introduce or employ relevant expertise in managing and overseeing the operation of the Remaining Group and the Offeror has no intention to discontinue the employment of the employees (save for a change in the composition of the Board) or to dispose of or re-deploy the remaining assets of the Remaining Group after the Disposal other than those in its ordinary course of business.

(b) Financial information of the Remaining Group

As the Remaining Group will continue to focus on the manufacturing and sale of furniture products in stainless steel, we have extracted from the annual reports of the Company for the three years ended 31 December 2010 the segment information in relation to the Group’s operation in stainless steel business, which contributed to the principal business of the Remaining Group as follows:

	For the year ended 31 December	For the year ended 31 December
	2010	2009	2008
	HK$’000	HK$’000	HK$’000
Revenue	310,670	241,314	287,389
Segment prof t	32,484	21,623	25,066
Segment margin	10.5%	9.0%	8.7%

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition, the unaudited pro forma fi nancial information of the Remaining Group for the year ended 31 December 2010 is set out in Appendix II to the Circular and is referred to in the paragraph headed “Possible fi nancial effects of the Disposal” in the Letter from the Board. Set out below are the key pro forma fi nancial information of the Remaining Group as at 31 December 2010 as extracted from Appendix II to the Circular:

	As at
	31 December 2010
	HK$’000
Non-current assets	19,706
Current assets	355,400
Current liabilities	(338,787)
Net current assets	16,613
Net assets	36,319
	For the year ended
	31 December 2010
	HK$’000
Revenue	326,015
Gross prof t	51,898
Gross prof t margin	15.9%
Prof t for the year attributable to owners of the Company	36,238

As set out in the table above, assuming the Disposal was completed on 1 January 2010, the Remaining Group would record a pro forma net profi t after tax of approximately HK$36.2 million for the year ended 31 December 2010. Nevertheless, as stated in the Letter from the Board, should the Disposal was completed on 31 December 2010, an estimated gain of approximately HK$10.0 million would be resulted.

Based on the segment information of the Group set out in the annual report of the Company for the year ended 31 December 2010, the stainless steel segment recorded a segment profi t of approximately HK$32.5 million while the wooden furnishings segment recorded a segment loss of approximately HK$4.5 million, Based on the unaudited pro forma fi nancial information of the Remaining Group as set out in Appendix II to the Circular, the Remaining Group achieved a gross margin of approximately 15.9% for the year ended 31 December 2010, while the Disposed Group was approximately 7.6% for the same period.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in Appendix I to the Circular, the Key Customer and Ningbo JF, the manufacturing and sales arm of the Group’s stainless steel products, entered into the Stainless Steel Agreement on 6 July 2009. Pursuant to the Stainless Steel Agreement, the Key Customer has the right of early termination and cancellation of existing orders without compensation in the event of change of ownership of Ningbo JF. Although the Key Customer did not confi rm that it will not early terminate the Stainless Steel Agreement or cancel the existing orders under the Stainless Steel Agreement, according to the Directors, upon the request of the Key Customer, the Offeror and Mr. Cheong had issued a letter to the Key Customer confi rming, inter alia, that the Offeror and Mr. Cheong shall, after the Completion, use their best endeavour to procure the fulfi llment of the obligation of Ningbo JF as supplier of stainless steel products under the Stainless Steel Agreement and maintain proper working relationship established between the Key Customer and Ningbo JF in such consistent manner as the stainless steel products business was operated between the parties in the past. Having considered that (i) prior to the entering into of the Stainless Steel Agreement, the Key Customer has been cooperating with Ningbo JF since 1999 and both parties maintain an established business relationship with each other, the Key Customer and Ningbo JF entered into the Stainless Steel Agreement mainly for the purpose of production planning rather than a commitment of purchase order; (ii) with the letter issued by the Offeror and Mr. Cheong to the Key Customer as mentioned above which indicates that the Offeror and Mr. Cheong will continue to maintain a proper working relationship established between the Key Customer and Ningbo JF after the Completion; and (iii) it is commercially reasonable for the Key Customer to see whether the Offeror and Mr. Cheong could fulfi l their obligation pursuant to the confi rmation letter provided to the Key Customer, we concur with the view of the Directors that the Key Customer intends to secure the continuous working relationship with Ningbo JF after the Completion. According to the Directors, in the event that the Key Customer terminates the Stainless Steel Agreement, the Key Customer may still continue to place purchase order with Ningbo JF given its past business working relationship prior to the entering into of the Stainless Steel Agreement, thus we are unable to assess the impact on the Remaining Group should the Key Customer terminates the Stainless Steel Agreement.

In light of the above, despite the decline in the revenue of the Remaining Group for the year ended 31 December 2009 as a result of the global recession, the fi nancial performance of the Remaining Group has been improved as evidenced by the increasing segment profi t margin for the three years ended 31 December 2010, we consider that the performance of the Remaining Group was relatively better than the Disposed Group and has been gradually improving during the past two years.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Financial effects on earnings, net assets value, gearing and working capital of the Remaining Group

The following analyses are based on the pro forma fi nancial information of the Remaining Group as set out in Appendix II to the Circular. The information is for illustration purpose only.

(a) Earnings

The Group recorded a net profi t attributable to owners of the Company of approximately HK$18.4 million for the year ended 31 December 2010 which represented a basic earnings per Share of approximately HK$0.09. According to the unaudited pro forma fi nancial statement as set out in Appendix II to the Circular, the Remaining Group would result in pro forma net profi t of approximately HK$36.2 million and estimated gain of approximately HK$10.0 million resulted from the Disposal for the year ended 31 December 2010 assuming the Disposal had taken place on 1 January 2010. During the year ended 31 December 2010, the Disposed Group has recorded a net loss after taxation of approximately HK$6.2 million for the year ended 31 December 2010. Based on the aforesaid, it would be in the interest of the Remaining Group as to its forthcoming fi nancial performance as a result of the disposal of a loss making business and the estimated gain on disposal to be recorded by the Remaining Group of approximately HK$10.0 million.

(b) Net assets value

As at 31 December 2010, the Group had an audited net asset value of HK$212.9 million. Upon the Disposal Completion and before the Proposed Special Distribution, the net asset value of the Remaining Group will be approximately HK$206.3 million, mainly due to the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal and the Proposed Special Distribution of approximately HK$4.5 million and the dividend tax payable of approximately HK$2.4 million in respect of the dividend declared by Ningbo JF out of all of its retained profi ts as at 31 December 2010 as stated in the statutory audited fi nancial statements of Ningbo JF as at 31 December 2010 before the Transfer. After the Proposed Special Distribution, the Remaining Group’s net assets value will decrease to approximately HK$36.3 million.

(c) Gearing

As at 31 December 2010, the Group’s gearing ratio (being total bank borrowings divided by total equity capital of the Group) was approximately 75.1%. As illustrated in the unaudited pro forma fi nancial information of the Remaining Group as set out in Appendix II to the Circular, the Remaining Group has outstanding bank borrowings of approximately HK$71.5 million as at 31 December 2010. Upon Disposal Completion and before the Proposed Special Distribution, the gearing ratio of the Remaining Group would reduce to approximately 34.7%. After the Proposed Special Distribution, the Remaining Group’s gearing ratio will be increased to approximately 196.9%.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) Working capital

As at 31 December 2010, the Group had an audited cash and bank balances of approximately HK$32.6 million. Upon the Disposal Completion and before the Proposed Special Distribution, the cash and bank balances of the Remaining Group will be increased to approximately HK$113.6 million, mainly due to the increase in cash and bank balances of approximately HK$100.6 million from the Disposal Consideration, less the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal and the Proposed Special Distribution of approximately HK$4.5 million and the deconsolidation of the Disposed Group which had cash and bank balances of approximately HK$15.1 million as at 31 December 2010. After the Proposed Special Distribution, the Remaining Group’s cash and bank balances will decrease to nil.

In view of the above, as a result of the Disposal and the Proposed Special Distribution, the fi nancial results of the Remaining Group will be improved, whereas the gearing ratio of the Remaining Group would increase, and the net assets value and working capital position of the Remaining Group would decline. In light of (i) the increase in the gearing ratio and the decline in the net assets value and working capital position of the Remaining Group were mainly attributable to the Proposed Special Distribution, which was made to all Shareholders on an equal basis with an opportunity for the Shareholders to realize and receive cash proceeds from their investments in the Shares in the form of the Proposed Special Distribution; and (ii) the results of the Remaining Group may be improved as a result of the disposal of a loss making business and the estimated gain on disposal to be recorded by the Remaining Group of approximately HK$10.0 million, the increase in gearing ratio, decrease in net assets value and working capital is acceptable.

RECOMMENDATION

In arriving at our recommendation in respect of the Disposal, we have considered the principal factors and reasons as discussed above and as summarized below:

the deteriorating fi nancial performance of the Disposed Group for the two years ended 31 December 2010;
it is uncertain as to whether or when the purchase schedule of the Key Customer as stipulated under the Sales Volumes Agreement can be achieved;
the Disposed Group turned from a profi t after taxation for the year ended 31 December 2009 to a loss after taxation for the year ended 31 December 2010;
the Adjusted Disposal Consideration represents a P/B ratio of approximately 1.0 times based on the audited JF Furniture NAV and within the range and above the average of the P/B ratio of the Comparables;
subject to the Disposal Completion, the aggregate benefi t receivable by the Shareholders through receiving the Proposed Special Distribution and accepting the Offers will be HK$2.23711 (assuming the Options have been exercised in full by the Optionholder on or before the Record Date), which is above the closing price of the Company in most of the time during the period from late June 2010 to early March 2011;

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Proposed Special Distribution provides an opportunity to the Independent Shareholders to partially realize their investments in the Company while retaining the Shares; and
the Disposal will facilitate the Offers which represents a further alternative exit to Shareholders, in addition to disposing of the Shares in the open market.

Based on the above, in conclusion, we are of the view that (i) the terms of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) are on normal commercial terms as the Adjusted Disposal Consideration has been determined based on arm’s length negotiations; and (ii) the Disposal, including the terms, is fair and reasonable so far as the Company and the Independent Shareholders are concerned and the entering into of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) is in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Disposal Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Special Deal to be proposed at the EGM.

Yours faithfully For and on behalf of Quam Capital Limited Gary Mui Executive Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. INDEBTEDNESS

Borrowings

App 1B(28)

At the close of business on 31 March 2011, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the Group had total outstanding borrowings of approximately HK$230.0 million, comprising secured bank loans of approximately HK$73.7 million (of which approximately HK$31.6 million were guaranteed) and unsecured bank loans of approximately HK$156.3 million (of which approximately HK$132.1 million were guaranteed).

At the close of business on 31 March 2011, the Group’s bank borrowings were secured by (i) the pledge of the Group’s leasehold land and buildings with carrying amounts of approximately HK$37.8 million; (ii) all monies charge over deposits executed by subsidiaries of the Company in favour of banks of approximately HK$2.3 million; (iii) charge on available-for-sale fi nancial assets of approximately HK$2.0 million; (iv) assignment of life insurance policy owned by a subsidiary including prepayments of life insurance policy of approximately HK$4.3 million; and (v) corporate guarantees given by the Company and its three subsidiaries.

Contingent liabilities

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at the close of business on 31 March 2011, the Group did not have other outstanding mortgages, charges, debentures or other loan capital, bank overdrafts or loans, other similar indebtedness, fi nance lease or hire purchase commitments, liabilities under acceptance or acceptance credits, guarantees or other material contingent liabilities.

2. WORKING CAPITAL

The Directors are of the opinion that taking into account the fi nancial resources available to the Group, including internally generated funds, the effect of the Disposal and the Proposed Special Distribution, the Group has suffi cient working capital for its present requirements for the next twelve months from the date of this circular.

App 1B(30)

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the fi nancial or trading position of the Group since 31 December 2010, being the date to which the latest published audited fi nancial statements of the Company were made up.

App 1B(32)

I-1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

App 1B(29) (1)(b)

4. FINANCIAL AND TRADING PROSPECTS

For the year ended 31 December 2010, the revenue of the Group increased by approximately 18.9% to approximately HK$438.2 million (2009: approximately HK$368.5 million) with profi t attributable to shareholders reduced by approximately 14.6% to approximately HK$18.4 million (2009: approximately HK$21.5 million). The decline in net profi t was mainly due to lower gross profi t margin of the wooden division and the higher total expenses for this division. As at 31 December 2010, the Group had cash and cash equivalents of approximately HK$32.6 million (2009: approximately HK$29.6 million).

In the fi rst quarter of 2011, the revenue of both of the stainless steel business and the wooden business remained stable. However, the start up costs of the Board on Frame (“ BOF ”) products continuously affected the profi tability of the wooden business. Following the commencement of trial production of the BOF products in the second half of 2010, the Group continued to spend costs and efforts for the development of the BOF series. It is inevitable for the wooden division to further incur research and development costs as the products categories were continuously adjusted and the production techniques were gradually improved to satisfy the production specifi cations and production standard of the Key Customer. The initial set up and investment costs for the BOF products is expected to continuously affect the performance of the wooden division while the Group is still situating in the learning curve for normal and ordinary production of BOF products. Although the Sales Volumes Agreement contemplated to give the Group specifi ed amount of orders on BOF products from the Key Customer for fi ve consecutive fi scal years of the Key Customer commenced from 2010 with progressive increase in purchase value of 8 million Euros for the fi scal year of 2010 increasing up to 62.95 million Euros for the fi scal year of 2014 subject to a 15% increment or a 15% decrement on such agreed value for the relevant fi scal year and the maintenance of product quality, delivery security, price and other requirements as determined by the Key Customer from time to time, trial production for the BOF products only commenced in the second half of 2010. For the three months ended 31 March 2011, the unaudited revenue of JF Furniture amounted to approximately RMB27.1 million, amongst which approximately RMB23.8 million was generated from the sales of normal wooden panel furniture and approximately RMB3.3 million was generated from the sales of BOF products. It is expected that by the end of June 2011, the construction of the BOF production plant with gross fl oor area of approximately 52,000 sq.m. will be completed and a fundamental production line for BOF products will be fully installed and commissioned. However, based on the overall budget of the BOF project, in order to fully achieve the sales plan under the Sales Volumes Agreement, additional machineries of approximately HK$75 million must be acquired and additional production plant with gross fl oor area of approximately 20,000 sq.m. with estimated costs of approximately RMB20 million will be constructed by the wooden division. Further research and development costs and efforts are also due to be expended for achieving the sales plan under the Sales Volumes Agreement. Up to 31 March 2011, approximately HK$10 million had been incurred by the Group since 2009 in the research and development of the BOF products. It will take considerable period of time for the wooden business to meet the production scale agreed under the Sales Volumes Agreement and it is uncertain as to whether or when the sales plan under the Sales Volumes Agreement can be achieved which is subject to the meeting of the relevant technical and quality requirements by the Disposed Group.

I-2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Although there was slight downward adjustment of gross profi t margin of the stainless steel products of the Group in 2010 due to the shift of payment obligation on the land transportation costs for containers from the Group to the Key Customer upon the request of the Key Customer that eliminated the gross profi t of the stainless steel division generated from providing logistic arrangement, the stainless steel business of the Group maintains competitive position following the improvement of global fi nancial environment that will continue to benefi t the manufacturing industry in the PRC. The Group is expected to be in a strong competitive position to secure more businesses and achieve better results in the stainless steel business to counteract the challenges from higher commodity prices worldwide, rising labour costs in the PRC and the pressure for the appreciation of Renminbi notwithstanding that the business remains sensitive to market sentiment and worldwide economic prospects. The management of the Group remains cautiously optimistic about the future of the Group’s stainless steel business.

Further, pursuant to an agreement for sales and purchase volumes (“ Stainless Steel Agreement ”) entered into between the Key Customer and Ningbo JF, the manufacturing and sales arm of the Group’s stainless steel products, on 6 July 2009, the Key Customer agreed to buy and Ningbo JF agreed to sell stainless steel products for three fi scal years of the Key Customer commenced from 2010 and expiring on 2012 with progressive increase in purchase value of US$28 million for the fi scal year of 2010 increasing up to US$39 million for the fi scal year of 2012, subject to a 10% increment or a 10% decrement on such purchase value for the relevant fi scal year and the maintenance of product quality, delivery security, price and other requirements as determined by the Key Customer from time to time. The Stainless Steel Agreement was entered into between the Key Customer and Ningbo JF upon the request of Ningbo JF for better production planning of the stainless steel division and is the fi rst time for the parties to enter into similar kind of sales and purchase volumes agreement for a fi xed term since Ningbo JF commenced supplies of stainless steel products to the Key Customer in year 1999. Pursuant to the Stainless Steel Agreement, the Key Customer has the right of early termination of the Stainless Steel Agreement and cancellation of existing orders under the Stainless Steel Agreement without compensation in the event of change of ownership of Ningbo JF. Although the Key Customer did not confi rm that it will not early terminate the Stainless Steel Agreement or cancel the existing orders under the Stainless Steel Agreement, upon the request of the Key Customer, the Offeror and Mr. Cheong had issued a letter to the Key Customer confi rming, inter alia, that the Offeror and Mr. Cheong shall, after the Completion, use their best endeavor to procure the fulfi llment of the obligation of Ningbo JF as supplier of stainless steel products under the Stainless Steel Agreement and maintain proper working relationship established between the Key Customer and Ningbo JF in such consistent manner as the stainless steel products business was operated between the parties in the past. Hence, the Directors consider that the Key Customer intends to secure the continuous working relationship with Ningbo JF after the Completion. According to the Stainless Steel Agreement, the parties shall negotiate for extension of the Stainless Steel Agreement not less than 12 months before the expiration of the Stainless Steel Agreement. No fi rst right of refusal had been granted to the Key Customer to acquire the assets of the stainless steel division and/or the shares of Ningbo JF.

I-3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Taking into consideration that (i) there may be a Possible Termination of the Sales Volumes Agreement following the Completion which may attribute to substantial impairment of the capital expenditure incurred for the set up of the production lines of the BOF products that may, in turn, result in substantial loss to the Group; and (ii) it is in the interest of the Group to minimise the risk in the continuous operation of a developing business which requires high capital expenditure and expertises and effective communications with the Key Customer in product development and production techniques, JF Asia entered into the Disposal Agreement with First Priority to conditionally dispose of the Disposed Group, for a consideration of HK$102,060,703 (which was subsequently adjusted to the Adjusted Disposal Consideration of HK$100,576,477). The Disposal will enable the Group to realise a substantial portion of its asset portfolio into cash, when combined with the surplus cash in excess of its operations, totaling not more than HK$170 million is proposed to be distributed to the Shareholders. After the Completion, the stainless steel business will continue to be operated by the Remaining Group. Although the net asset value of the Remaining Group will be substantially reduced after the Proposed Special Distribution and the Disposal, it is expected that the competitive edge of the Remaining Group will improve as a result of the disposal of a loss making business and the estimated gain on the Disposal of approximately HK$10.0 million.

As at the Latest Practicable Date, the Board has no agreement, arrangement, understanding, intention, negotiation to acquire or inject new business or assets into the Group. As stated in the Joint Announcement, following the Completion, the Offeror will conduct a more detailed review on the operations of the Remaining Group with a view to formulate a comprehensive business strategy for the Remaining Group and subject to the result of the review, the Offeror may explore other business opportunities and consider whether any assets and/or business acquisitions by the Remaining Group will be appropriate in order to enhance its growth. Furthermore, the Offeror may introduce or employ relevant expertise in managing and overseeing the operation of the Remaining Group. However, no particular investment or business opportunities have been identifi ed as at the date of the Joint Announcement.

I-4

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

A. INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The accompanying unaudited pro forma fi nancial information of the Remaining Group has been prepared to illustrate the effect of the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction might have affected the fi nancial information of the Group.

The unaudited pro forma consolidated income statement of the Remaining Group for the year ended 31 December 2010 is prepared based on the audited consolidated income statement of the Group for the year ended 31 December 2010 as extracted from the annual report of the Company for the year ended 31 December 2010 as if the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction had been completed on 1 January 2010.

The unaudited pro forma consolidated statement of fi nancial position of the Remaining Group as at 31 December 2010 is prepared based on the audited consolidated statement of fi nancial position of the Group as at 31 December 2010 as extracted from the annual report of the Company for the year ended 31 December 2010 as if the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction had been completed on 31 December 2010.

The unaudited pro forma fi nancial information of the Remaining Group is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the unaudited pro forma fi nancial information of the Remaining Group, it may not give a true picture of the actual fi nancial position or results of operation of the Remaining Group that would have been attained had the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction actually occurred on the dates indicated herein. Furthermore, the unaudited pro forma fi nancial information of the Remaining Group does not purport to predict the Remaining Group’s future fi nancial position or results of operation.

The unaudited pro forma fi nancial information of the Remaining Group should be read in conjunction with the fi nancial information of the Group as set out in Appendix I and other fi nancial information included elsewhere in this circular.

II-1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

B. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE REMAINING GROUP FOR THE YEAR ENDED 31 DECEMBER 2010

The Group
for the
year ended
31 December
2010
Pro forma adjustments
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Note 1)
(Note 2)
(Note 3)
(Note 4)
Revenue
438,244
(112,229)
Cost of goods sold
(377,794)
103,677
Gross prof ts
60,450
Other income
904
(534)
4,108
9,951
Distribution costs
(2,228)
453
Administration
expenses
(24,562)
10,049
Other operating
expenses
(894)
848
Prof t from operations
33,670
Finance costs
(3,911)
2,263
Prof t before tax
29,759
Income tax expense
(11,386)
(2,416)
1,695
Prof t for the year
attributable
to owners of the
Company
18,373

Unaudited
pro forma
Remaining
Group
HK$’000
326,015
(274,117)
51,898
14,429
(1,775)
(14,513)
(46)
49,993
(1,648)
48,345
(12,107)
36,238

II-2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

C. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE REMAINING GROUP AS AT 31 DECEMBER 2010

Non-current assets Property, plant and equipment Available-for-sale f nancial assets Current assets Inventories Trade and bills receivables Deposits, other receivables and prepayments Restricted cash and bank balances Cash and bank balances Non-current assets held for sale Current liabilities Trade and bills payables Other payables and accruals Dividend payable Current tax liabilities Bank borrowings Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Net assets Capital and reserves Share capital Reserves Total equity	The Group as at 31 December 2010 Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 5) (Note 6) (Note 7) (Note 8) 194,728 (175,022) 2,000 (2,000) 196,728 128,915 (34,084) 67,518 (31,564) 27,700 (155,179) 320,801 21,340 (1,206) 32,572 (15,071) 96,076 (113,577) 278,045 11,159 289,204 72,433 (28,609) 30,011 (192,712) 320,487 – 56,423 9,334 (103) 160,009 (88,486) 271,787 17,417 214,145 1,224 2,416 (3,640) 212,921 2,227 210,694 (2,416) (100,576) 314 96,076 (170,000) 212,921	Unaudited pro forma Remaining Group HK$’000 19,706 –
		19,706
		94,831 35,954 193,322 20,134 –
		344,241 11,159
		355,400
		43,824 157,786 56,423 9,231 71,523
		338,787
		16,613
		36,319
		–
		36,319

		2,227 34,092
		36,319

II-3

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

D. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The adjustment refl ects the dividend tax payable in respect of the dividend declared by Ningbo JF out of all of its retained profi ts as at 31 December 2010 as stated in the statutory audited fi nancial statements of Ningbo JF as at 31 December 2010 before the Transfer.
The adjustment refl ects the exclusion of the results of the Disposed Group for the year ended 31 December 2010, assuming the Transfer and the Disposal had taken place on 1 January 2010.
The adjustment refl ects the reversal of the elimination for the gain on disposal of property, plant and equipment from the Remaining Group to the Disposed Group.
The adjustment refl ects the estimated gain from the Disposal amounted to approximately HK$10.0 million, assuming the Disposal was effected on 1 January 2010 and is calculated based on the Adjusted Disposal Consideration of approximately HK$100.6 million (i.e. the audited JF Furniture NAV as at 31 December 2010 which is extracted from the audited fi nancial statements of JF Furniture issued by the Company’s auditor, RSM Nelson Wheeler) less (i) the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction of approximately HK$4.5 million; and (ii) the net asset value of the Disposed Group of approximately HK$100.6 million as at 31 December 2010, plus the accumulated exchange difference of approximately HK$14.5 million released from the foreign currency translation reserve resulted from the Disposal.

The net asset value of the Disposed Group of approximately HK$100.6 million was determined by the Directors on the basis that dividend would be declared by JF BVI to JF Asia. As per the deliberation of the Board, if the net asset value of the Disposed Group as at the Completion Date is more than the Adjusted Disposal Consideration, there will be equivalent dollar-for-dollar increase in the dividend to be declared by JF BVI to JF Asia. For the purpose of the pro forma fi nancial information, approximately HK$9.8 million dividend is assumed to have been declared by JF BVI to JF Asia.

The adjustments refl ects the exclusion of the net asset value of the Disposed Group of approximately HK$100.6 million as at 31 December 2010 as if the Transfer and the Disposal had been completed on 31 December 2010.
The adjustment refl ects the increase in exchange reserve resulted from the reversal of elimination of amounts due from and to the Disposed Group as other receivables and other payables as if the Transfer and the Disposal had been completed on 31 December 2010.
The adjustment refl ects the Adjusted Disposal Consideration of approximately HK$100.6 million, less the estimated aggregate professional and related costs to be incurred to complete the Transfer, the Disposal, the Proposed Special Distribution and the Share Premium Reduction of approximately HK$4.5 million.
The adjustment is made on the assumption of the payment of the Proposed Special Distribution of not more than HK$170 million (i.e. approximately HK$0.76339 per ordinary share of the Company for a total of 222,689,000 shares in issue as at 31 December 2010).

II-4

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

E. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, RSM Nelson Wheeler, Certifi ed Public Accountants, Hong Kong.

==> picture [151 x 51] intentionally omitted <==

29/F., Caroline Centre Lee Gardens Two 28 Yun Ping Road Hong Kong

13 May 2011

The Board of Directors

JF Household Furnishings Limited

Dear Sirs,

We report on the unaudited pro forma fi nancial information of JF Household Furnishings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the transfer of the entire equity interests in JF A.C.R. Equipment Supplies (Ningbo) Co. Ltd. from JF Household Furnishings (BVI) Ltd. (“JF BVI”) to another indirect wholly-owned subsidiary of the Company, Keylink Technology Limited, the proposed disposal of JF BVI and its subsidiary, Ningbo JF Furniture Co. Ltd. by the Company (the “Disposed Group”), the proposed special distribution and the share premium reduction might have affected the fi nancial information of the Group presented, for inclusion in Appendix II to the circular of the Company dated 13 May 2011 (the “Circular”). The basis of preparation of the unaudited pro forma fi nancial information is set out on pages II-1 to II-4 of the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibilities solely of the directors of the Company to prepare the unaudited pro forma fi nancial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certifi ed Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules and Rule 10 of the Code on Takeovers and Mergers in Hong Kong, on the unaudited pro forma fi nancial information and the estimated gain on disposal of the Disposed Group respectively, and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any fi nancial information used in the compilation of the unaudited pro forma fi nancial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

II-5

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted fi nancial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma fi nancial information with the directors of the Company. The engagement did not involve independent examination of any of the underlying fi nancial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with suffi cient evidence to give reasonable assurance that the unaudited pro forma fi nancial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma fi nancial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma fi nancial information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the fi nancial position of the Group as at 31 December 2010 or any future date; or
the results of the Group for the year ended 31 December 2010 or any future periods.

Opinion

In our opinion:

(a) the unaudited pro forma fi nancial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group;
(c) the adjustments are appropriate for the purposes of the unaudited pro forma fi nancial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules; and

II-6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(d) so far as the accounting policies and calculations are concerned, the estimated gain on disposal of the Disposed Group has been properly compiled on the basis of preparation set out in Note 4 on page II-4 and the second paragraph under the sub-section headed “Possible fi nancial effects of the Disposal” in the Letter from the Board on page 21 of the Circular, and is presented on a basis consistent, in all material respects, with the accounting policies adopted by the Group in preparing the consolidated fi nancial statements of the Company as at and for the year ended 31 December 2010.

Yours faithfully, RSM Nelson Wheeler Certifi ed Public Accountants Hong Kong

II-7

REPORT ON UNAUDITED FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

The following is the comfort letter from Quam Capital Limited, the Independent Financial Adviser to the Company, prepared for the purpose of incorporation in this circular.

13 May 2011

The Board of Directors JF Household Furnishings Limited 15th Floor, EIB Tower 4-6 Morrison Hill Road Wanchai, Hong Kong

Dear Sirs

JF HOUSEHOLD FURNISHINGS LIMITED

MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS

We refer to the gain estimated to accrue to the Remaining Group and the basis for calculating such gain as a result of the Disposal (the “ Required Financial Information ”) as set out in the section headed “Possible fi nancial effects of the Disposal” in the “Letter from the Board” in the circular dated 13 May 2011 issued by the Company in connection with, among others, the Disposal (the “ Circular ”). Terms used in this letter shall have the same meanings as defi ned in the Circular unless otherwise stated.

We have reviewed the Required Financial Information and have discussed with the Directors the basis and assumptions as set out in note (4) to the “Unaudited pro forma fi nancial information on the Remaining Group” in appendix II to the Circular and the second paragraph under the sub-section headed “Possible fi nancial effects of the Disposal” in the Letter from the Board on page 21 of the Circular, upon which the Required Financial Information has been prepared. We have also considered the “Accountant’s report on unaudited pro forma fi nancial information” addressed to you by RSM Nelson Wheeler, the reporting accountants of the Company regarding the procedures performed by them in respect of the accounting policies and calculations adopted by the Directors in the preparation of the Required Financial Information, as set out in appendix II to the Circular. The preparation of the Required Financial Information is the sole responsibility of, and has been approved by the Directors.

III-1

REPORT ON UNAUDITED FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

Based on the above, we are satisfi ed that the Required Financial Information set out in the section headed “Possible fi nancial effects of the Disposal” in the “Letter from the Board” in the Circular has been prepared by the Directors after due care and consideration.

Yours faithfully For and on behalf of

Quam Capital Limited Gary Mui Executive Director

III-2

PROPERTY VALUATION REPORT

APPENDIX IV

==> picture [260 x 37] intentionally omitted <==

Room 1701, 17/F, Jubilee Centre, No 18 Fenwick Street, Wanchai, Hong Kong

13 May 2011

The Directors

JF Household Furnishings Limited 15th Floor EIB Tower 4-6 Morrison Hill Road Wanchai, Hong Kong

Dear Sirs/Madams,

In accordance with your instructions to value the property interests held by and to be disposed by Ningbo JF Furniture Co. Ltd. (“JF Furniture”), an indirectly wholly-owned subsidiary of JF Household Furnishings Limited (the “Company”) (hereinafter together referred to as the “Group”) located in the People’s Republic of China (the PRC), we confi rm that we have carried out site inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interests as at 28 February 2011 (“date of valuation”) for the purpose of incorporation into the circular issued by the Company on the date hereof.

5.06(8)

Our valuation of the property interests is our opinion of the market value of the property interests which we would defi ne as intended to mean the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

Due to the nature of buildings and structures, we have valued the property by Depreciated Replacement Cost (“DRC”). DRC is based on an estimate of the market value for the existing use of the land, plus the current gross replacement (reproduction) costs of the improvements, less allowances for physical deterioration and all relevant forms of obsolescence and optimization.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the properties nor for any expenses or taxation which may be incurred in effecting a sale. It is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

The valuations have been made on the assumption that the owner sells the property interests on the market in their existing state without the benefi t of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect their value.

In valuing the property interests, we have complied with all the requirements contained in Chapter 5, Practice Notes 12 and 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and The HKIS Valuation Standards on Properties (1st Edition 2005) published by The Hong Kong Institute of Surveyors.

IV-1

PROPERTY VALUATION REPORT

APPENDIX IV

In valuing the properties, we have assumed that the owner has free and uninterrupted rights to use the properties for the whole of the unexpired term as granted and is entitled to transfer the properties with the residual term without payment of any further premium to the government authorities or any third parties.

We have assumed that all consents, approvals and licenses from all relevant government authorities for the properties have been granted without any onerous conditions or undue time delay which might affect their values. It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defi ned, and considered in the appraisal report.

We have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. Due to the nature of the land registration system in the PRC, we are unable to search the original documents to verify the existing title of the properties or any material encumbrances that might be attached to the properties. In the preparation of our valuation report regarding the properties in the PRC, we have relied to a considerable extent on the legal opinion provided by the Company’s PRC legal adviser, Hills & Co. on the PRC laws regarding the titles of the properties in the PRC.

In the course of our valuation, we have relied on a considerable extent on the information provided by the Company on such matters as property title, statutory notices, easements, tenure, occupation, site and fl oor areas, identifi cation of the properties and all other relevant matters. We have no reason to doubt the truth and accuracy of the information provided to us. We were also advised by the Company that no material facts have been omitted from the information supplied. All documents have been used as reference only. All dimensions, measurements and areas are approximations. No on site measurement has been taken.

We have inspected the exterior of the properties and, where possible, the interior of the properties in respect of which we have been provided with such information as we have required for the purpose of our valuation. However, no structural survey has been carried out and it was not possible to inspect the wood work and other parts of the structure which were covered, unexposed or inaccessible. We are therefore, unable to report that the properties are free of rot, infestation or any structural defect. No tests have been carried out on any of the building services.

Unless otherwise specifi ed, all amounts are denominated in Renminbi.

We enclose herewith the summary of valuations and valuation certifi cates.

Respectfully submitted, For and on behalf of

GRANT SHERMAN APPRAISAL LIMITED

Peggy Y. Y. Lai

MRICS MHKIS RPS(GP) Director Real Estate Group

Note: Ms. Peggy Y.Y. Lai is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyors and Registered Professional Surveyors in the General Practice Section, who has over 5 years experience in the valuation of properties in Hong Kong, the PRC and the Asian Region.

IV-2

PROPERTY VALUATION REPORT

APPENDIX IV

SUMMARY OF VALUATION

Property Interests to be disposed by the Group in the PRC

Property

Market Value as at 28 February 2011

A parcel of land buildings and structure located at No. 9 Jing Liu Road, Yaobei Industrial Zone, Yuyao, Zhejiang Province, The People’s Republic of China.
A parcel of land buildings and structure located at Yuyao Industrial Zone (land identifi cation no. 2008-1), Yuyao, Zhejiang Province, The People’s Republic of China.

RMB23,746,500 RMB58,864,000

Grand-total RMB82,610,500

IV-3

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Property Interests to be disposed by the Group in the PRC

Market Value

as at

Property

Description and Tenure

Particulars of 28 February 2011 occupancy (RMB)

A parcel of land, buildings and structure located at No. 9 Jing Liu Road, Yaobei Industrial Zone, Yuyao, Zhejiang Province, The People’s Republic of China.
The property comprises a parcel of land having a site area of approximately 44,105 sq.m. together with 2 blocks of industrial buildings, an offi ce building and various structures erected thereon.

The total gross fl oor area of buildings is approximately 29,300 sq.m. and were mainly completed in between 2007 and 2008.

The property is 23,746,500 currently occupied Notes (5) and (6) by the Group for production, storage and ancillary offi ce purposes.

Notes:

According to a Transfer Agreement dated 15 March 2010, the land use rights of the subject land together with the subject buildings erected thereon were transferred by JF AC.R. Equipment Supplies (Ningbo) Co. Ltd. (“Ningbo JF”), an indirect wholly-owned subsidiary of the Company, to JF Furniture at a consideration of RMB42,871,006.09.
Pursuant to a State-owned Land Use Rights Certifi cate (Yu Guo Yong (2010) Di 05352 Hau) (余國用(2010)第05352 號) dated 6 April 2010, the land use rights of the subject property with a total site area of approximately 44,104.99 sq.m. has been granted to JF Furniture for industrial use for a term up to 30 December 2056. According to the remarks on the Land Use Rights Certifi cate, the Land Use Rights Certifi cate will be valid until 30 December 2010 (“Validity Period of the First Certifi cate”) and the Land Use Rights Certifi cate will be renewed upon the completion of the development on the subject land. Further, the plot ratio for the development on the subject land is 1.1 (“Approved Plot Ratio for First Land”).
As at 28 February 2011, the Group had completed phase I development on the subject land with total gross fl oor area of approximately 29,300 sq.m. and the phase II development of approximately 19,216 sq.m. to be constructed for the fulfi llment of the Approved Plot Ratio for First Land had not been commenced yet. Hence, the Approved Plot Ratio for First Land had not been fulfi lled before the expiration of the Validity Period of the First Certifi cate.

IV-4

PROPERTY VALUATION REPORT

APPENDIX IV

According to the PRC legal opinion (“PRC Legal Opinion”) in relation to, inter alia, the title to the subject property issued by Hill’s & Co., the PRC legal adviser of the Company,
(a) JF Furniture had completed the necessary approval and registration procedures in relation to the transfer of the land use rights of the subject land which were legal and valid and all of the related land premium and relevant taxes due and payable had been promptly paid;
(b) according to the relevant PRC laws and regulations, land abandoned for over two years may be subject to the resumption of land use rights by the government in the PRC. Since Phase I construction on the subject land was completed on or before the end of 2007, the subject land will not be regarded as abandoned land. Neither abandoned land premium will be levied on JF Furniture nor the land use rights of the subject land will be resumed by the relevant governmental authority.
(c) the land bureau of Yuyao had indicated that it will not levy additional land premium or land use fee or other payment on JF Furniture or resume the land use rights of the subject land due to the non-fulfi llment of the Approved Plot Ratio for First Land. Nevertheless, unless and until the development on the subject land is completed in accordance with the Approved Plot Ratio for First Land, the land bureau may not approve any transfer of land use rights of the subject land and may not issue the building ownership certifi cate of the subject buildings;
(d) as confi rmed by JF Furniture, as at the Latest Practicable Date, no notice, warning or penalty from any governmental authorities in respect of the expiration of the land use rights certifi cate had been received by JF Furniture; and
(e) after renewing the land use rights certifi cate of the subject land and obtaining the building ownership certifi cate of the subject buildings erected on the subject land, JF Furniture is entitled to transfer, let or mortgage the subject land and the subject buildings.
As the building ownership certifi cate to the subject buildings with a total gross fl oor area of 29,300 sq.m., have not been issued, we therefore attributed no commercial value to the subject buildings.
For reference purposes, the value of the subject buildings with a total gross fl oor area of approximately 29,300 sq.m. mentioned in note (5) above is RMB 24,397,000 on the assumption that JF Furniture possesses valid legal title to the subject buildings, the construction costs of the subject buildings have been fully settled, and JF Furniture will obtain the relevant building ownership certifi cates without material legal impediment and payment of onerous fees to the government authorities and any other parties. The value of the aforesaid buildings has not been refl ected in our valuation above.

IV-5

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Market Value as at
Particulars of 28 February 2011
Property Description and Tenure occupancy (RMB)
1. A parcel of land, The property comprises a The property is under 58,864,000 buildings and parcel of land having a site construction. As at structure located at area of approximately 42,085 the valuation date (i.e. Yuyao Industrial sq.m. together with 3 blocks 28 February 2011), Zone (land of industrial buildings and approximately 90% of identifi cation no. various structures which are construction work has 2008-1), under construction. been completed. Yuyao, Zhejiang Province, The total gross fl oor area of The People’s buildings is approximately Republic of China.. 51,815 sq.m. and will be completed in mid of 2011.

Notes:

Pursuant to a State-owned Land Use Rights Certifi cate (Yu Guo Yong (2008) Di 13135 Hau) (余國用 (2008)第13135 號) dated 19 December 2008, the land use rights of the subject land with a total site area of approximately 42,085 sq.m. has been granted to JF Furniture for industrial use for a term of 50 years commenced from 10 July 2008 and expiring on 9 July 2058. The land use rights of the subject land was granted to JF Furniture pursuant to a state-owned construction land use rights transfer agreement dated 10 July 2008 (“Land Transfer Agreement”). According to the remarks on the Land Use Rights Certifi cate, the Land Use Rights Certifi cate will be valid until 9 July 2011 (“Validity Period of the Second Certifi cate”) and the Land Use Rights Certifi cate will be renewed upon the completion of the development on the subject land. Further, the plot ratio for the development on the subject land should be over 1.3 times (“Approved Plot Ratio for Second Land”).
On 27 April 2010, a Construction Planning Permit (建設工程規劃許可證) had been issued to JF Furniture for the construction of gross fl oor area 52,409 sq.m.. On 6 May 2010, a Construction Commencement Permit (建築工程施工許可證) had been issued to JF Furniture for the construction of gross fl oor area of 51,815 sq.m.. According to the Approved Plot Ratio for Second Land, the gross fl oor area to be constructed on the subject land should be approximately 54,710.5 sq.m.. Hence, there may be a shortfall of approximately 2,301.5 sq.m. (“Shortfall of Construction Area”) between the gross fl oor area calculated pursuant to the Approved Plot Ratio for Second Land and the gross fl oor area scheduled to be constructed on the subject land by JF Furniture.

IV-6

PROPERTY VALUATION REPORT

APPENDIX IV

According to the PRC Legal Opinion,
(a) JF Furniture is the legal user of the land use rights of the subject land and had fully paid all of the land premium and relevant taxes in accordance with the state-owned land use right transfer contract and the relevant PRC laws and regulations;
(b) Pursuant to the Land Transfer Agreement, the land bureau of Yuyao is entitled to impose a fi ne for breach of contract on JF Furniture calculated based on the proportional rate of Shortfall of Construction Area to the gross fl oor area to be constructed pursuant to the Approved Plot Ratio for Second Land multiplied by the land premium paid on the subject land and to require continuous construction until the fulfi llment of the Approved Plot Ratio for Second Land;
(c) the land bureau of Yuyao had indicated that if the development on the subject land is not completed in accordance with the Approved Plot Ratio for Second Land after the expiration of the Validity Period of the Second Certifi cate, the land bureau may not approve any transfer of land use rights of the subject land and may not issue the building ownership certifi cate of the subject buildings;
(d) the land use rights of the subject land is subject to a charge for a term commenced from 7 July 2010 and expiring on 9 July 2011 for securing banking facilities and bank loans of RMB40,000,000; and
(e) after renewing the land use rights certifi cate of the subject land and obtaining the building ownership certifi cate of the subject buildings erected on the subject land, JF Furniture is entitled to transfer, let or mortgage the subject land and the subject buildings.
As advised by the Company, the estimated cost for completing the development is approximately RMB41.8 million. As at the valuation date (i.e. 28 February 2011), the construction costs incurred amounted to approximately RMB37.6 million.

IV-7

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

LR App1B(2)

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of providing information with regard to the Group. The Directors having made all reasonable enquiries, confi rm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confi rm, having made all reasonable inquiries, that to the best of their knowledge, opinions in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

LR App1B (34) and (38)

(a) Directors’ and chief executives’ interests and short positions in shares, underlying shares and debentures of the Company or its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executives of the Company and each of their respective associates (as defi ned under the Listing Rules), in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “ SFO ”)) which (a) were required, to be notifi ed to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of the Part XV of the SFO (including interests and short positions which the Directors were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “ Model Code ”) contained in the Listing Rules, to be notifi ed to the Company and the Stock Exchange were as follows:

					Approximate
					percentage of
					the total issued
	Personal	Family	Corporate		capital of the
Name of Director	Interests	Interests	Interests	Total	Company
Mr. Yan	17,035,200	–	63,000,000	80,035,200	35.94%
				(Note 1)
Mr. Leung	18,076,800	–	12,600,000	30,676,800	13.78%
				(Note 2)
Mr. Bao	3,360,000	–	22,680,000	26,040,000	11.69%
				(Note 3)

V-1

GENERAL INFORMATION

APPENDIX V

Notes:

Among these 80,035,200 Shares, (i) 34,020,000 Shares were registered in the name of Excel Strength; (ii) 28,980,000 Shares were registered in the name of Willhero; and (iii) the remaining 17,035,200 Shares were registered in the name of Mr. Yan directly. Each of Excel Strength and Willhero is a company incorporated in the BVI and whose entire issued capital is solely owned by Mr. Yan. By virtue of the SFO, Mr. Yan was deemed to be interested in 63,000,000 Shares through his shareholdings in Excel Strength and Willhero.
Among these 30,676,800 Shares, (i) 12,600,000 Shares were registered in the name of Joyday; and (ii) the remaining 18,076,800 Shares were registered in the name of Mr. Leung directly. Joyday is a company incorporated in the BVI and whose entire issued capital is solely owned by Mr. Leung. By virtue of the SFO, Mr. Leung was deemed to be interested in 12,600,000 Shares through his shareholdings in Joyday.
Among these 26,040,000 Shares, (i) 22,680,000 Shares were registered in the name of Hero Talent; and (ii) the remaining 3,360,000 Shares were registered in the name of Mr. Bao directly. Hero Talent is a company incorporated in the BVI and whose entire issued capital is solely owned by Mr. Bao. By virtue of the SFO, Mr. Bao was deemed to be interested in 22,680,000 Shares through his shareholdings in Hero Talent.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company and each of their respective associates (as defi ned under the Listing Rules) had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notifi ed to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which the Directors were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code, to be notifi ed to the Company and the Stock Exchange.

(b) Substantial shareholders’ interests and short positions in shares, underlying shares and debentures

As at the Latest Practicable Date, other than the interests disclosed above in respect of certain Directors, the Directors were not aware of any other persons who had interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO.

3. LITIGATION

LR App1B(33)

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and no litigation or claims of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

V-2

GENERAL INFORMATION

APPENDIX V

4. SERVICE CONTRACTS

LR 14.66(7)

LR App1B(39)

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any of its subsidiaries other than contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. COMPETING INTERESTS

LR 14.66(8) LR 14A.59(11)

As at the Latest Practicable Date, none of the Directors or the chief executive of the Company and their respective associates had any interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

6. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

LR App1B(40) (1)&(2)

As at the Latest Practicable Date, save as disclosed in this circular, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was signifi cant in relation to the business of the Group.

As at the Latest Practicable Date, save as disclosed in this circular, none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2010 (being the date to which the latest published audited fi nancial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group.

7. MATERIAL CONTRACTS

Save as disclosed below, no material contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Group within the two years preceding the date of this circular and are or may be material:

(a) a placing agreement dated 29 August 2009 entered into between the Company and Excalibur Securities Limited in relation to the placing (“ Placing ”) of 34,809,000 shares (“ Placing Shares ”) of HK$0.01 each in the share capital of the Company;
(b) a contract dated 20 October 2009 entered into between JF BVI and IMA Klessmann GmbH in relation to the acquisition of certain machineries at a contract sum of Euro 1,200,000 (equivalent to approximately HK$ 13,886,352 as at the date of the contract);
(c) a contract dated 26 November 2009 entered into between JF Furniture and Wemhoener Changzhou Machinery Manufacturing Co., Ltd. in relation to the acquisition of certain machineries and the provision of supervision on the erection, start-up and test runs of the machineries at a total contract sum of RMB 8,951,250 (equivalent to approximately HK$ 10,174,415 as at the date of the contract);

V-3

APPENDIX V

GENERAL INFORMATION

(d) a purchase contract dated 10 December 2009 entered into between JF BVI and HOMAG Group AG (“ HOMAG ”) in relation to the acquisition of certain machineries at a contract sum of Euro 1,239,910 (equivalent to approximately HK$14,151,100 as at the date of the purchase contract);
(e) a construction contract (“ Construction Contract ”) dated 19 May 2010 entered into between JF Furniture and 寧波市鄞州建築有限公司(Ningbo Yinzhou Construction Co., Ltd.), a limited liability company established in the PRC and an independent third party, in relation to the construction of the framework structures of a two-storey production factory with estimated gross fl oor area of 32,405 square metres and a four-storey production factory with estimated gross fl oor area of 19,410 sq.m. on a parcel of a land with a total gross area of 42,085 square metres situated at East of Jingsi Road, Zhengxi Village, Langxia Street of Yuyao City, Zhejiang Province, PRC (中國浙江省余姚市朗霞街道鎮西村經四路東側) with land identifi cation number 2008-1 (宗地編號2008-1) for industrial use (furniture manufacturing) at a contract sum of RMB26,512,923 (equivalent to approximately HK$30,224,122 as at the date of the Construction Contract);
(f) a state-owned land use rights transfer agreement (“ Transfer Agreement ”) dated 30 September 2010 entered into between Ningbo JF (as transferor) and 寧波合眾不銹鋼有限公司(transliteration, Ningbo Hezhong Stainless Steel Company Limited)(“ Ningbo Hezhong ”), a sino-foreign joint venture established in the PRC (as transferee) in relation to the disposal by Ningbo JF to Ningbo Hezhong the property comprised of: (i) the land use rights of a parcel of land (“ Land ”) with a site area of 17,549 square metres situated at Changyuan Road, Yuyao Economic Development Zone, Zone B, Yuyao City, Zhejiang Province, PRC (中國浙江省余姚市經濟開發區(B區)長元路); and (ii) six buildings erected on the Land with total gross fl oor area of approximately 15,142.39 square metres at a consideration of RMB25,000,000 (equivalent to approximately HK$29,043,608 as at the date of the Transfer Agreement);
(g) the Disposal Agreement; and
(h) the Supplemental Disposal Agreement.

8. EXPERTS AND CONSENTS

LR App1B(5)

The followings are the qualifi cations of the experts who have given opinions or advice contained in this circular:

Name	Qualif cation
Quam Capital Limited	A licensed corporation to carry out type 6 (advising on
	corporate f nance) of the regulated activity under the SFO
RSM Nelson Wheeler	Certif ed Public Accountants
Grant Sherman Appraisal Limited	Independent professional valuer
Hills & Co.	PRC legal advisers

V-4

GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, each of Quam Capital Limited, RSM Nelson Wheeler, Grant Sherman and Hills & Co.:

(a) had no direct or indirect interest in any assets which have since 31 December 2010 (being the date to which the latest published audited fi nancial statements of the Company were made up) been acquired or disposed of by, or leased to, any member of the Group, or are proposed to be acquired or disposed of by, or leased to, any member of the Group; and
(b) had no direct or indirect shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of Quam Capital Limited, RSM Nelson Wheeler, Grant Sherman and Hills & Co. has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its advice or report, as the case may be, and reference to its name in the form and context in which they are respectively included.

9. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Cheung Wai Tak, who is a Certifi ed Public Accountant in the United States of America and is a member of the Hong Kong Institute of Certifi ed Public Accountants.
(b) The registered offi ce of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
(c) The branch share registrar and transfer offi ce of the Company in Hong Kong is Tricor Investor Services Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

LR App1B(35)

LR App1B(36)

(d) The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese text in case of inconsistency.

10. DOCUMENTS AVAILABLE FOR INSPECTION

LR App1B(436)

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at 15th Floor, EIB Tower, 4-6 Morrison Hill Road, Wanchai, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for two years ended 31 December 2009 and 31 December 2010 respectively;
(c) the letter from the Disposal Independent Board Committee to the Independent Shareholders, the text of which is set out on page 27 of this circular;

V-5

GENERAL INFORMATION

APPENDIX V

(d) the letter of advice from the Independent Financial Adviser to the Disposal Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 28 to 54 of this circular;
(e) the accountant’s report on the unaudited pro forma fi nancial information of the Remaining Group from RSM Nelson Wheeler, the text of which is set out in Appendix II to this circular;
(f) the report on unaudited fi nancial information on the Remaining Group from the Independent Financial Adviser, the text of which is set out in Appendix III to this circular;
(g) the property valuation report prepared by Grant Sherman Appraisal Limited, the text of which is set out in Appendix IV to this circular;
(h) the PRC legal opinion issued by Hills & Co. in relation to the properties of the Disposed Group;
(i) the written consents referred to in the paragraph headed “Experts and consents” of this Appendix V;
(j) the material contracts referred to in the paragraph headed “Material Contracts” of this Appendix V;
(k) the Disposal Agreement; and
(l) the Supplemental Disposal Agreement.

V-6

NOTICE OF EGM

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JF Household Furnishings Limited 捷豐家居用品有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 776)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting of JF HOUSEHOLD FURNISHINGS LIMITED (the “ Company ”) will be held at Board Room, South Pacifi c Hotel, No. 23 Morrison Hill Road, Wanchai, Hong Kong on 31 May 2011 at 3:00 p.m. for the purpose of considering and, if thought fi t, passing, with or without modifi cation, the following resolutions of the Company (unless otherwise defi ned, capitalized terms used herein shall have the same meanings as ascribed to them in the circular of the Company dated 13 May 2011 (the “ Circular ”)).

ORDINARY RESOLUTIONS

“ THAT the terms and conditions of the Disposal Agreement (as amended and supplemented by the Supplemental Disposal Agreement) in relation to the sale and purchase of all the JF BVI Sale Shares between JF Asia as vendor and First Priority as purchaser dated 29 January 2011 and the transactions contemplated thereunder be and are hereby approved and the execution of the Disposal Agreement and the Supplemental Disposal Agreement by a Director be and is hereby approved, confi rmed and ratifi ed in all respects; and the Directors (or any one of them) be and is/are hereby authorized to do such acts or things and execute such documents (and, where necessary, to affi x the seal of the Company in accordance with the articles of association of the Company) which in his/their opinion may be necessary, desirable or expedient to carry out or to give effect to the Disposal Agreement, the Supplemental Disposal Agreement and the transactions contemplated under the Disposal Agreement and the Supplemental Disposal Agreement.”
“ THAT subject to the passing of the resolutions numbered 1 and 3 set out in the notice convening the extraordinary general meeting of which this resolution forms part, the amount standing to the credit of the share premium account of the Company as at 31 December 2010 be reduced by such sum (“ Share Premium Reduction ”) as the Directors may consider appropriate, and the Directors (or any one of them) be and is/are hereby authorized to apply all the credit arising from such reduction towards the payment of the proposed special dividend referred to in resolution numbered 3 in the notice convening the extraordinary general meeting of which this resolution forms part in such manner as they may consider appropriate in accordance with all applicable laws; and the Directors (or any one of them) be and is/are hereby authorized to do such acts or things and execute such documents (and, where necessary, to affi x the seal of the Company in accordance with the articles of association of the Company) which in his/their opinion may be necessary, desirable or expedient to carry out or to give effect to the transactions contemplated under this resolution.”

EGM-1

NOTICE OF EGM

“ THAT subject to and upon the Disposal Completion and the Share Premium Reduction becoming effective, a special dividend of not more than HK$0.76339 for each Share held by the Qualifying Shareholders be declared and paid out of the share premium account of the Company and the Directors be and are hereby authorized and delegated the power to determine the fi nal amount of the said special dividend to be paid on such terms, in such manner and on such date as the Directors in their absolute discretion determine; and the Directors (or any one of them) be and is/are hereby authorized to do such acts or things and execute such documents (and, where necessary, to affi x the seal of the Company in accordance with the articles of association of the Company) which in his/their opinion may be necessary, desirable or expedient to carry out or to give effect to the transactions contemplated under this resolution.”

By order of the Board JF Household Furnishings Limited Cheung Wai Tak Company Secretary

Hong Kong, 13 May 2011

Notes:

(1) A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and, in the event of, a poll, vote instead of him. A proxy needs not be a member of the Company.
(2) In order to be valid, the form of proxy must be deposited with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, together with any power of attorney or other authority, under which it is signed, or a notarially certifi ed copy of that power or authority, not less than 48 hours before the time for holding the meeting. Completion and return of the proxy form will not preclude any member from attending and voting in person at the meeting should he so wishes.
(3) Where there are joint holders of any shares in the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such shares as if he were solely entitled thereto, but if more than one of such joint holders are present at the meeting, the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
(4) The transfer books and register of members of the Company will be closed from Wednesday, 8 June 2011 to Thursday, 9 June 2011 (both days inclusive). During such period, no transfer of shares will be registered. In order to qualify for the proposed special dividend, all properly completed transfer forms accompanied by the relevant share certifi cates must be lodged with the share registrar of the Company in Hong Kong, Tricor Investor Services Limited at the above address no later than 4:30 p.m. on Tuesday, 7 June 2011.

EGM-2

AI assistant

Imperium Technology Group Limited — Proxy Solicitation & Information Statement 2011

49462_rns_2011-05-12_6fed4e82-01df-4041-b21d-f333f26bb3a7.pdf

JF Household Furnishings Limited 捷豐家居用品有限公司

(1) MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS; (2) PROPOSED REDUCTION OF SHARE PREMIUM ACCOUNT; (3) PROPOSED SPECIAL DISTRIBUTION; AND (4) NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

JF BVI and JF Furniture

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

Assuming all the resolutions proposed at the EGM are passed:

Record Date for determining the entitlements of the

Notes:

JF Household Furnishings Limited 捷豐家居用品有限公司

(1) MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS; (2) PROPOSED REDUCTION OF SHARE PREMIUM ACCOUNT; (3) PROPOSED SPECIAL DISTRIBUTION; AND (4) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE DISPOSAL AGREEMENT

Date

Parties

Assets to be disposed of

LETTER FROM THE BOARD

Disposal Consideration

Disposal Consideration Adjustments

(i) Scenario 1

(ii) Scenario 2

(iii) Scenario 3

LETTER FROM THE BOARD

Supplemental Disposal Agreement

Conditions precedent of the Disposal Agreement

LETTER FROM THE BOARD

Disposal Completion

INFORMATION ON THE COMPANY

INFORMATION ON THE DISPOSED GROUP

JF BVI

JF Furniture

INFORMATION ON NINGBO JF

INFORMATION ON KEYLINK

INFORMATION ON FIRST PRIORITY

Financial information of the Disposed Group

Note:

Possible fi nancial effects of the Disposal

REASONS FOR THE DISPOSAL

LETTER FROM THE BOARD

USE OF PROCEEDS FROM THE DISPOSAL

SHARE PREMIUM REDUCTION

PROPOSED SPECIAL DISTRIBUTION

IMPLICATIONS OF THE DISPOSAL UNDER THE LISTING RULES AND THE TAKEOVERS CODE

Major and connected transaction

LETTER FROM THE BOARD

Special deal

DISPOSAL INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

EGM

RECOMMENDATION

ADDITIONAL INFORMATION

JF Household Furnishings Limited 捷豐家居用品有限公司

RECOMMENDATION

Disposal Independent Board Committee

MAJOR AND CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ASSETS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background and fi nancial information of the Group

(b) Furniture industry outlook in the PRC

Total value of furniture production in the PRC from 2000 to 2009

Total export value of furniture production in the PRC from 2000 to 2009

For the year ended 31 December 2010

For the year ended 31 December 2009

For the year ended 31 December 2008

2. The Disposal

Information on JF BVI

Information on JF Furniture

(c) Reasons for and benefi ts of the Disposal

Imperium Technology Group Limited Proxy Solicitation & Information Statement 2011