sunmart ann special audit report

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SUNMART HOLDINGS LIMITED(Incorporated in Singapore)(Registration No. 200600432W)

SPECIAL AUDIT REPORT

All capitalized terms used and not defined herein shall have the same meanings given to them in theannouncements dated 9 April 2012, 30 April 2012, 7 May 2012, 24 May 2012, 10 August 2012, 31 October 2012,30 November 2012, 2 January 2013, 31 January 2013, 28 February 2013, 28 March 2013, 30 April 2013, 31 May2013, 1 July 2013 and 1 August 2013 (the Announcements).

The board of directors (the Board) of Sunmart Holdings Limited (the Company) wishes to announce that thespecial auditor, Ferrier Hodgson (the Special Auditor), appointed by the Company to (i) carry out an independentreview of the Group on the issues raised by the auditors of the Company, Ernst & Young LLP, during its audit of the

financial statements of the Group for FY2011 (the Independent Investigation); and (ii) provide the AuditCommittee and the SGX-ST with the findings arising from its review, has completed the Independent Investigation.The Special Auditor has submitted its report on the Independent Investigation (the Report) to the AuditCommittee of the Company and the SGX-ST. A copy of the executive summary of the Report is attached asAnnexure Ato this announcement. Certain key issues identified by the Special Auditor are set out as follows:

(a) Accounts

Due to the recording of fictitious entries, the profit after tax for FY2011 was inflated by RMB 22.0 million. Thefictitious entries have been cancelled and the accounts have been restated. More details can be found inparagraph 1.23 of the executive summary of the Special Audit Report.

(b) Loan to Jiangsu Xuebao Penwu Guanye Co., Ltd. (

) (the Xuebao)

Mr Sun Bingzhong is our Executive Chairman and Chief Executive Officer and has been on our Board of Directorssince the Company was listed in 2007.

Mr Sun Bingzhong is deemed to be interested in the shares held by Top Items Assets Ltd by virtue of his 88.9%equity interest in Top Items Assets Ltd pursuant to Section 7 of the Companies Act(Cap. 50).

Top Items Assets Ltd owns 280,129,543 shares in Sunmart Holdings Limited and is a substantial shareholder(69.7%) of the Company.

As Mr. Sun Bingzhong (Executive Chairman and Chief Executive Officer) holds 80.7% of the equity interest inXuebao, Xuebao is considered an interested person of the Company within the meaning of the listing rules (theListing Manual) of the Singapore Exchange Securities Trading Limited (the SGX-ST).

During the financial year 2011 and the 8 month period from January to August 2012, we extended loans to Xuebaofor their working capital purposes pursuant to which funds were remitted from our banks directly to Xuebao viafacilities taken up by us with our banks. Xuebao had, during the same period, made partial payments to theCompany to repay the loans owed to the Company. After cancellation of the fictitious entries and the restatement ofaccounts, as at the date of the report, there was an amount of RMB 18.1 million owing to the Company by Xuebao(the Debt).

The previous finance manager, Mr Xie Jianjun in charge of the accounts of the Companys subsidiaries had left theCompany and is now not contactable. His duties are now taken over by Mr Xue Yuhu, the Companys new FinanceManager, who joined the Company in May 2012 and is now overall in charge of the accounting functions in theCompanys subsidiaries.


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Although attempts were made to locate Mr. Xie Jianjun, he could not be found. In view of this, the Audit Committeeintends to seek legal advice from the Companys PRC legal counsel on the appropriate steps to take in such

circumstances, including lodging report (s) with the relevant PRC authorities and taking appropriate legal actionsagainst him, with a view to holding him accountable for the misstatement of financial accounts in the Companyssubsidiaries.

The Board is committed to recovering the balance and will procure that the Debt to be repaid in 3 years in 3 equalinstallments with interests at prevailing market rates.

Based on the transactions recorded in the books of the Company for FY 2011, the aggregate value of the aboveinterested persons transactions was approximately RMB76 million. Accordingly, the aggregate value of the Group'stransactions with Xuebao have exceeded 5% of the Groups latest audited net tangible assets which, under Rule906 of the SGX Listing Manual, requires shareholders approval.

The Audit Committee noted that the Company has neither made an announcement nor sought shareholdersapproval for the above interested person transactions as required by Rules 905 and 906 of the SGX ListingManual.

In order to ratify the abovementioned interested person transactions as pursuant to the requirements of the SGXListing Manual, the Company will be preparing a shareholders circular to seek shareholders approval for the loansto Xuebao in an Extraordinary General Meeting

To prevent future breaches of Rules 905 and 906 of the SGX Listing Manual, the Audit Committee will put insafeguards as described in section (c) of this Announcement below.

(c) External Auditors

The term of appointment of our previous external auditors, Ernst & Young LLP, has expired on the date of last

annual general meeting. The Directors are in the midst of sourcing for a new auditor and such appointment will beput to shareholders for approval in due course. The appointment of the new auditors will assist the directors of theCompany to examine the state of the affairs of the Company and to determine whether the Company can carry onas going concern.

The Audit Committee has reviewed the contents and findings of the Report and, after consultation with theCompanys lawyers, auditors and other professionals, the Audit Committee has accepted all the recommendationsfrom the Special Auditor and is now proposing the following measures to further enhance the corporate governanceprocedures of the Group:-

1. To develop and prepare a business plan, budget and cash flow for the next five years to ensure that thebusiness of the Group can be monitored against pre-defined plans and objectives;

2. To cease and/or reduce the advances made to suppliers and loans to third parties;

3. To enhance the credit control and cash management of the Group;

4. To provide training for the finance staff in the Company to ensure that they understand their responsibilityand requisite skills in the context of a listed company;

5. CFO to provide adequate supervision of the finance departments of the subsidiaries of the Company andensure that the internal accounting control is in place and strictly complied with by all the finance staff;

6. To implement procedures to ensure adequate control over the assets of the Group, including but not limitedto detailed recording of the fixed assets register; and


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7. To appoint a suitable qualified professional firm to perform the internal audit functions for the Group.

8. The Company will also, in consultation with the incoming qualified professional firm, put in place relevant

internal procedures, such as the approval matrix, in its operations manual to ensure there will not be anyfuture breaches of Rules 905 and 906 of the SGX Listing Manual.

(d) Update on the trading suspension of the Companys Shares

In light of the findings of the Special Audit, we are pleased to note that our Special Auditors has opined in itsSpecial Audit Report that the Company did not violate Section199 of the Singapore Companies Act.

With the release of the Special Audit Report, the Company will appoint new auditors to assist the Directors toexamine the state of the affairs of the Company and to determine whether the Company can carry on as goingconcern. The Company will also be separately submitting a resumption proposal to the SGX-ST after the state ofaffairs and the going concern status of the Company are determined. The shares of the Company will resumetrading upon the approval of resumption proposal in accordance with the Listing Rules. The Company will keep itsShareholders updated on any updates relating to the resumption proposal.

For any questions in relation to the above, please contact Mr. Ho Soo Hui at:

Address: 112 Robinson Road #12-04 Singapore 0689028Telephone: +65 62209070Email: [email protected]

The Company shall continue to make announcements as and when appropriate on a timely basis.

By Order of the Board

SUNMART HOLDINGS LIMITED

Ho Soo HuiCompany Secretary23 August 2013


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ANNEXURE A


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sunmart ann special audit report

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