Melco China Resorts
TSX VENTURE : MCG

Melco China Resorts

August 26, 2010 10:38 ET

Melco China Resorts Reports Second Quarter 2010 Financial and Operational Results

BEIJING, CHINA--(Marketwire - Aug. 26, 2010) - Melco China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the "Company"), which is to be renamed as Mountain China Resort (Holding) Limited subject to final approval by the TSXV, today reported its financial results for the three and six-month periods ended June 30, 2010 (the "Reporting Period"). The Company reports in Canadian Dollars.

Corporate Developments

The Company obtained its shareholders' approval and endorsement for its change of name from Melco China Resorts (Holding) Limited to Mountain China Resorts (Holding) Limited at the Annual General Meeting held on June 1st 2010. Such change of name was certified by the Registrar of Companies, Province of British Columbia Canada on June 7th, 2010 and is subject to final approval by the TSX Venture Exchange. The change of name recognizes and emphasizes the Company's primary focus on the mountain resort industry in China and its premier and peak position. Following the Annual General Meeting, Mr. Graham Kwan tendered his resignation as CEO and director of the Company. In addition, Mr. Danny Liu tendered his resignation as CFO of the Company. Mr. Zhenhua Mao was appointed as Chief Executive Officer, Mr. Gang Han as Chief Financial Officer, and Mr. Wang Lian as Director of Corporate Finance & Investor Relations. Furthermore, all other proposed resolutions were approved including the reappointment of Deloitte Touche Tohmatsu as the auditors of the Company.

MCR is pleased to announce that Mr. Gang Han and Mr. Jianyue Huang are appointed as Vice Presidents of MCR effective on 19 August 2010 subject to approval of the TSX Venture Exchange. Mr. Han currently holds the position of Director and CFO of MCR. Mr. Huang is the General Manager of Sun Mountain Yabuli Resort and will be responsible for the resort operation of MCR. Mr. Huang has held a number of senior positions in Chinese commercial corporations over the past 10 years. Mr. Huang holds a Postgraduate degree in Economic Statistics from the Renmin University of China.

Financial Results

Total revenue and the net results were from resort operations with no real estate sales activities being undertaken during the Reporting Period. For the three-month period ended June 30, 2010, the Company generated revenues from resort operations of $0.06 million and a net loss of $4.12 million or $0.03 per share. The loss in the second quarter was primarily due to reduced revenue from ski operations as the resorts closed at the end of their respective ski seasons in late March or early April.

For the six month period ended June 30, 2010, the Company generated revenues from resort operations of $2.37 million and a net loss of $8.57 million, or $0.06 per share. Resort operations were severely limited in both 2009 and 2010 due to MCR's financial constraints caused by the global financial crisis. The Company dramatically reduced expenditures on marketing and promotion as part of a cash conservation strategy in order to continue the development of its premiere Sun Mountain Yabuli Resort. Sun Mountain Yabuli Resort's skiing season ended on April 4th, 2010; winter season operations will resume in November 2010. The hotels, ski lifts, and sliding slope of the Resort operate normally during the summer. Operating EBITDA for the 2010 first six months was negative $0.65 million (RMB 4.35 million) compared to negative $3.59 million (RMB 19.9 million) over the same period in 2009.

Cash and cash equivalents totaled $5.77 million and working capital was negative $0.12 million as at June 30, 2010. Capital expenditures were minimal in the quarter.

Operations

Sun Mountain Yabuli

Sun Mountain Yabuli Resort opened for winter operations on November 18, 2009 and closed for operations on April 4, 2010 for a 138 day operating season. Revenue at the Yabuli Resort for the second quarter and the six-month period ended June 30, 2010 was $0.01 million and $1.77 million respectively. EBITDA was negative $0.62 million in the second quarter and negative $0.71 million in the first half of 2010.

Sun Mountain Yabuli - Real Estate

Since May 2010, the Company has been working on the exterior decoration of the 55 homes (a total of 75 homes) of which three were completed with interior finishing. Four homes are currently in the process of refining the interior finishing to be fully completed in September 2010. The Company has been working extensively during Q2 2010 on supporting facilities for the homes which include road pavement, landscaping, as well as water and electricity facilities construction within the community. The sales team is in the process of expanding in order to market the homes extensively across the country.

Sun Mountain Yabuli- Future Developments

In the near future, the Company has been advised that it is expected that Harbin official transport department will open an express train line from Beijing to Mu Dan Jiang (a major city of Harbin) with a stop in Yabuli. It is expected that this expedient new express train differs from the current train lines in that it will reduce a considerable amount of travel time and attract additional visitors from major cities such as Beijing and Tianjin.

Changchun Resort

Changchun Resort opened after winter operations on November 21st, 2009 and closed for operations on March 7th, 2010 for a 108 day operating season. Revenue at the Changchun Resort for the second quarter and the six-month period ended June 30, 2010 was $0.05 million and $0.60 million respectively. EBITDA was negative $0.06 million in the second quarter and $0.06 million in the first half of 2010. The resort primarily services a regional market from the city of Changchun and was originally purchased as a feeder resort to drive traffic to the Company's larger destination resorts of Yabuli and Beidahu.

As previously announced, the Company is in discussions regarding the possible divestment of the Changchun Resort so as to limit its ongoing capital expenditures and reduce debt. Current debt attributed to this resort is $3.72 million (RMB 25million) and is repayable on demand.

No real estate development, construction or sales activities were undertaken at the Changchun Resort for the 2010 period to date.

Financial Highlights

Summary Financial Results




----------------------------------------------------------------------------
For the For the
(in thousands of three-month three-month For the six- For the six-
Canadian dollars period ended period ended month period month period
except for per June 30, June 30, ended June ended June
share data) 2010 2009 30, 2010 30, 2009
----------------------------------------------------------------------------
Revenue $ 61 $ 72 $ 2,370 $ 1,664
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Operating expenses (735) (1,878) (3,023) (5,252)
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----------------------------------------------------------------------------
Other income 6 1 15 1
----------------------------------------------------------------------------
General and
administrative
expenses (867) (1,567) (1,535) (6,402)
----------------------------------------------------------------------------
Depreciation and
amortization (1,974) (2,351) (4,196) (3,788)
----------------------------------------------------------------------------
Operating loss (3,509) (5,723) (6,369) (13,777)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total non-operating
income and expenses (664) (1,203) (2,235) (4,337)
----------------------------------------------------------------------------
Recovery
of/(provision for)
future income taxes 13 30 31 60
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Net loss $ (4,160) $ (8,517) $ (8,573) $ (20,145)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net loss per share
(Basic and Diluted) (0.03) (0.10) (0.06) (0.23)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Weighted average
number of shares
outstanding (Basic
and Diluted) 133,295,698 87,439,344 133,295,698 87,439,344
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Balance Sheet Key Indicators



(in thousands of Canadian dollars except for ratios) June 30, 2010

Current Ratio(1) 0.99:1
Free Cash 5,765
Working Capital(2) (115)
Total Assets 194,284
Total Debt(3) 115,730
Total Equity(4) 78,554
Total Debt to Total Equity Ratio 1.47:1


(1) Current ratio is defined as total current assets divided by total
current liabilities
(2) Working capital is defined as total current assets less total
current liabilities
(3) Total debt is defined as total current liabilities plus total
non-current liabilities
(4) Total equity is equal to the total shareholders' equity


The ability of the Company to meet its current obligations is dependent on its ability to source financing and/or investment from external sources due to its limited income generating capability while in a development stage. The ability of the Company to arrange such financing in the future will depend in part upon prevailing capital and financial market conditions, as well as upon the business success of the Company. Historically, the Company has been successful in obtaining funding and is actively seeking new financing sources, including via Chinese and foreign banks, shareholder investment and/or loan and divestment of assets, to meet operational obligations. There can be no assurance that the Company will be able to arrange such financing. If the financing efforts are unsuccessful or are not available on acceptable terms the Company may not have sufficient funds to meet its obligations or on-going operations and may need to suspend part or all of its operations and consider other alternatives.

The Company will host a conference call to discuss its operational and financial results. Mr. Wang Lian, Director of Corporate Finance & Investor Relations will host the call.
Management invites analysts and investors to participate on the conference call:



Date: Friday, August 27, 2010

Time: 11:00 am Eastern Standard Time


Dial In Number: 416-340-2216 / 866-226-1792


Taped Replay: 416-695-5800 / 800-408-3053
(Available for 14 days)

Taped Replay Pass code: 6112162

Live webcast link: http://www.gowebcasting.com/1971


About MCR

MCR is the premier developer of four season destination ski resorts in China. MCR is transforming existing China ski properties into world-class, four seasons luxury mountain resorts with excellent real estate investment opportunities for discerning buyers. In February 2009, the Company's Sun Mountain Yabuli Resort was awarded Best Resort Makeover in Asia by TIME Magazine. Yabuli is also the permanent home of the China Entrepreneur's Forum the leading and most influential community of China's most distinguished and successful entrepreneurs and business leaders with over 5,000 members from across a variety of key industries.

www.mountainchinaresorts.com

FORWARD LOOKING INFORMATION

Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, and actual results may vary from the forward-looking information. Implicit in this information are assumptions regarding future operations, plans, expectations, anticipations, estimates and intentions, such as the plans to develop the ski resorts in China. These assumptions, although considered reasonable by MCR at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of MCR are subject to a number of risks and uncertainties, including general economic, market and business conditions, uncertainty relating to land use rights, adverse industry events for the ski and real estate industries, MCR's ability to make and integrate acquisitions, the requirements of recent Chinese regulations relating to cross-border mergers and acquisitions, the inability to obtain required approvals or approvals may be subject to conditions that are unacceptable to the parties, changing industry and government regulation, as well as MCR's ability to implement its business strategies, dispose of assets or raise sufficient capital, seasonality, weather conditions, competition, currency fluctuations and other risks, and could differ materially from what is currently expected as set out above.

Forward-looking information contained in this press release is based on current estimates, expectations and projections, which MCR believes are reasonable as of the date of this press release. MCR uses forward-looking statements because it believes such statements provide useful information with respect to the operation and financial performance of MCR, and cautions readers that the information may not be appropriate for other purposes. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While MCR may elect to, it does not undertake to update this information at any particular time except as required by applicable law.

NON-GAAP MEASURES

Throughout this news release we use certain non-GAAP measures such as the term "EBIDTA" to analyze operating performance. We define EBITDA as operating revenues less operating expenses from continuing operations and therefore reflects earnings before interest, income tax, depreciation and amortization, non-controlling interest and any non-operating and non-recurring items. These non-GAAP measures do not have a standardized meaning prescribed by GAAP and may not be comparable to similarly titled measures presented by other companies. We refer you to MCR's Management's Discussion & Analysis where we have included reconciliations between any non-GAAP measures mentioned in this news release and the closest GAAP measure, if applicable. These non-GAAP measures are referred to in this news release because we believe they are indicative measures of a company's performance and are generally used by investors to evaluate companies in the resort operations and resort development industries.



Melco China Resorts (Holding) Limited
(To be renamed as Mountain China Resorts (Holding) Limited subject to final
approval by TSX Venture Exchange)

Management's Discussion and Analysis

Second Quarter, Fiscal 2010
Ended June 30th, 2010

Prepared by Management



August 27th, 2010


MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of the financial condition of Melco China Resorts (Holding) Limited (to be renamed as Mountain China Resorts (Holding) Limited subject to final approval by TSXV), (the "Company" or "MCR") should be read in conjunction with our unaudited interim financial statements for the three-month and six-month periods ended June 30th, 2010 and accompanying notes included therein, and also the MD&A and Annual Audited Consolidated Financial Statements for the year ended December 31st, 2009 and accompanying notes included therein. The statements made in this MD&A may contain forward-looking information about our future operations, financial results and objectives that involves risks and uncertainties. All statements, other than statements of historical facts, which address MCR's expectations, should be considered forward-looking statements. Such statements are based on management's exercise of business judgment as well as assumptions made by and information currently available to management. When used in this document, the words "may", "will", "anticipate", "believe", "estimate", "expect", "intend" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated, expressed or implied by such forward-looking statements. Implicit in this information are assumptions regarding future operations, plans, expectations, anticipations, estimates and intentions, such as the plans to develop the ski resorts in China and the ability of the Company to obtain additional financing. These assumptions, although considered reasonable by MCR at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of MCR are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward looking information, including general economic, market and business conditions, uncertainty relating to land use rights, adverse industry events for the ski and real estate industries, MCR's ability to make and integrate acquisitions, the requirements of recent Chinese regulations relating to cross-border mergers and acquisitions, changes to government policies, the inability to obtain required approvals or approvals may be subject to conditions that are unacceptable to the parties, changing industry and government regulation, as well as MCR's ability to implement its business strategies, dispose of assets or raise sufficient capital or secure sufficient liquidity, seasonality, weather conditions, competition, currency fluctuations and other risks. For a further description of material factors that could cause our actual results to differ materially from the forward looking statements in this MD&A, please see the "Risk Factors" section.

Forward-looking information and future-oriented financial information contained in this MD&A is based on current estimates, expectations and projections, which MCR believes are reasonable as of the date of this MD&A. MCR uses forward-looking information because it believes such statements provide useful information with respect to the operation and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While MCR may elect to, it does not undertake to update forward looking information at any particular time except as required by securities regulations.

All amounts are in Canadian dollars unless otherwise noted (tabular amounts are in thousands of Canadian dollars) and prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). We use non-GAAP measures to assess our financial performance, such as operating EBITDA(1). Such measures do not have a standardized meaning prescribed by GAAP and they may not be comparable to similarly titled measures presented by other companies. We have provided reconciliations between any non-GAAP measures mentioned in this MD&A and the closest GAAP measure, if applicable. These non-GAAP measures are referred to in this document because we believe they are indicative measures of a company's performance and are generally used by investors to evaluate companies in the resort operations and resort development industries.

Reference should also be made to the Company's filings with Canadian securities regulatory authorities, which are available at www.sedar.com. The date of this MD&A is August 27th, 2010.



1. Operating EBITDA is defined as operating revenues less operating
expenses from continuing operations and therefore reflects earnings
before interest, income tax, depreciation and amortization, non-
controlling interest and any non-operating and non-recurring items.


Company Overview

MCR was incorporated under the Business Corporations Act (British Columbia) on February 6th, 2008. The Company had no significant assets and did not have any results of operation and cash flow during the period from February 6th, 2008 (date of incorporation) to May 27th, 2008. On May 27th, 2008, the Company entered into a sale and purchase agreement with the shareholders of Melco China Resort Investment Limited (renamed as Mountain China Resorts Investment Limited on July 21st, 2010) ("MCR Cayman") and agreed to purchase 100% of the equity interests of MCR Cayman. The acquisition was completed on the same day and upon completion it entitled the Company to own 100% of the assets and operations of MCR Cayman. On May 28th, 2008, the Company completed the reverse takeover by way of amalgamation with Virtual China Travel Services Co., Ltd. to form a listed issuer on the TSX Venture Exchange under the symbol "MCG".

The Company obtained its shareholders' approval and endorsement for its change of name from Melco China Resorts (Holding) Limited to Mountain China Resorts (Holding) Limited at the Annual General Meeting held on June 1st 2010. Such change of name was certified by the Registrar of Companies, Province of British Columbia Canada on June 7th, 2010 and is subject to final approval by TSXV. The change of name recognizes and emphasizes the Company's primary focus on the mountain resort industry in China and its premier and peak position. Following the Annual General Meeting, Mr. Graham Kwan tendered his resignation as CEO and director of the Company. In addition, Mr. Danny Liu tendered his resignation as CFO of the Company. Mr. Zhenhua Mao was appointed as Chief Executive Officer, Mr. Gang Han as Chief Financial Officer, and Mr. Wang Lian as Director of Corporate Finance & Investor Relations. Furthermore, all other proposed resolutions were approved including the reappointment of Deloitte Touche Tohmatsu as the auditors of the Company.

As at June 30th, 2010, the Company owned 100% of the issued share capital of MCR Cayman, which in turn owned 100% of the following subsidiaries: (i) Melco China Resort Limited (renamed as Mountain China Resorts Limited on July 9th, 2010) ("MCR HK"); (ii) Heilongjiang Yabuli On Snow Asian Game Village Hotel Co., Ltd. ("Yabuli Resort"); (iii) Heilongjiang Yabuluoni Zhiye Co., Ltd. ("Zhiye"); (iv) Changchun Lianhua Mountain Skiing Field Co., Ltd. ("Changchun Resort"); (v) Jilin Melco Sky Mountain Beidahu Ski Resort Co., Ltd. ("Beidahu Resort"), (vi) Jilin Melco Sky Mountain Beidahu Real Estate Co., Ltd., ("Beidahu Real Estate") and (vii) Melco China Resort Travel Consultancy (Beijing) Co., Ltd. ("MCR Beijing"), among which Beidahu Resort, Beidahu Real Estate and MCR Beijing are dormant as of the balance sheet and report dates.

MCR, through its operating subsidiaries, that include the Yabuli Resort and Changchun Resort, (collectively referred to as the "Group") are in the process of developing existing ski areas in China into world class resort destinations with new lifts, snowmaking and trails, hotels, conference and skier services, dining, shopping, spa and entertainment. MCR expects that the development of its properties into resort centered lifestyle experiences will allow it to attract a disproportionate share of the Chinese ski market. As the skill level and expectations of skiers develop in China, they are expected to increasingly seek more advanced ski experiences and engaging destination resort locations.

The Company currently owns and operates the largest existing destination ski resort in the People's Republic of China ("PRC" or "China"), Sun Mountain Yabuli in Heilongjiang Province ("Sun Mountain Yabuli Resort") which successfully hosted the 2009 World Winter University Games. This property enjoys favorable mountain terrain directly connected to flat land at their base for real estate development, excellent water supply, freeway and international airport access, proximity to both major regional drive markets and major destination fly markets, and government support for tourism and winter sports development. The Sun Mountain Yabuli Resort also facilitates with two luxury, 5 star hotels, restaurants, spa, retail, and conference facilities together with on mountain facilities with new trails, lifts and snowmaking.

The successful combination of resort operations and real estate development in MCR's resort centered business model is based on the traditional European alpine pedestrian village which has also been utilized by other resort developers outside of China in both North America and Europe. The resort centered model creates superior value by:



-- increasing the market positioning, distinct image and reputation of the
resorts;

-- attracting a disproportionate share of the market and extending the
customer's length of stay which in turn results in higher overall
revenue per visit;

-- providing recurring earning streams in both hotel and condo-hotel
operations, as well as commercial operations (retail, food and beverage,
spa, attractions and entertainment);

-- attracting the interest of resort home buyers purchasing "trophy"
properties that in turn may enhance the status and reputation of the
resorts.



Fiscal 2010 Major Corporate Developments

New RMB 150 million Loan with Harbin Bank

On February 12th, 2010, the Company's indirectly wholly owned subsidiary, Heilongjiang Yabuli On Snow Asian Game Village Hotel Co. Ltd., successful repaid a RMB 120 million ($18.15 million) loan to the Harbin Bank due on February 15th, 2010 and arranged a new loan facility of RMB 150 million ($22.69 million) with the same bank for a two-year term with a maturity date of February 9th, 2012, and with a fixed annual interest rate of 5.94%. This new loan was facilitated by a short term bridge loan of RMB 74 million ($11.19 million) provided by Wisecord Holdings Limited ("WHL") on February 11th, 2010. The bridge loan had a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and was fully repaid by April 6th, 2010.

Club Med Resorts Appointed as Manager at the Sun Mountain Yabuli Resort

On February 17th, 2010, the Company announced that it has entered into definitive management agreements (the "Agreements") with Club Med Asie S.A. ("Club Med") to operate and manage two hotels at the Sun Mountain Yabuli Resort ("Club Med Yabuli Resort"). Club Med will provide marketing and sales services for the Club Med Yabuli Resort. The Agreements have renewable initial terms of ten years with performance management fees tied to gross operating profit. As well, Club Med will provide funding of up to US$3 million ($3.10 million) for additions to the Club Med Yabuli Resort so as to include facilities and refinements to meet Club Med's brand and operating standards. These improvements will be undertaken prior to the resort re-opening for winter operations in November 2010.

Strategic Relationship with the China Entrepreneurs' Forum

On March 1st, 2010, the Company announced that it has entered into a strategic relationship agreement with the China Entrepreneurs' Forum ("CEF") under which the CEF has agreed to hold all of its future Annual Forums at the Sun Mountain Yabuli Resort. In addition, CEF and MCR both agree to establish a "CEF Founders Club" that actively promotes the resort vacation homes situated in the Sun Mountain Yabuli Resort for purchase by CEF members, as well as work with its 5,000 member companies to select Sun Mountain Yabuli Resort as the site for their corporate meetings and retreats.

Final Payment to Zhiye Completed

The Company completed all of its payment obligations for the acquisition of Heilongjiang Yabuluoni Zhiye Co. Ltd. on April 12th, 2010 with a final payment of RMB 35 million ($5.29 million). Zhiye was acquired in August of 2008 for a total consideration of RMB 55 million ($8.32 million) wherein the acquisition included 144.6 hectares of development land at its Sun Mountain Yabuli Resort. An initial payment of RMB 20 million ($3.03 million) was made in March 2009. The second and final installment of RMB 35 million ($5.29 million) was required to be deferred as the Company managed its cash resources over the last twelve months to combat the worldwide economic downturn. With the completion of the Private Placement (as defined in the below section), this amount has now been fully paid and satisfied.

Fiscal 2010 Financing and Going Concern Update

The Company has completed a number of financings in order to meet its working capital requirements.

Completion of $15 million Private Placement with Wisecord Holdings Limited

On April 9th, 2010, the Company successfully completed its private placement with WHL in which WHL subscribed for 100,000,000 common shares at a subscription price of $0.15 per common share for a total subscription price of $15 million (equivalent to RMB 102.93 million at the then CAN/ RMB exchange rate) (the "Private Placement"). WHL subscribed for approximately 49.4% of the equity interest of the Company (on a fully diluted basis and after the conversion of MCR's outstanding Class B non-voting shares and the conversion of two- thirds of the existing US$1.5 million ($1.55 million) loan from Melco Leisure and Entertainment Group Limited ("MLE"), a beneficial shareholder of the Company). Details of the conversion of Class B non-voting shares and loan from MLE are given in the following paragraphs.

Upon closing of the Private Placement, the Company established (in consultation with WHL) that: the board of the Company be set at nine (9) MCR board members in total, comprising of six (6) non-independent directors and three (3) independent directors; the resignation of two of the four existing executive directors of the Company who have been replaced with 2 new directors nominated by WHL; and the appointment of an additional two (2) directors of the Company nominated by WHL. As at June 30th 2010, the composition of the board is five (5) non-independent directors and three (3) independent directors.

Revised Terms of Shareholder Loans and Call Option with MLE

In connection with the completion of the Private Placement, MLE, WHL and MCR entered into a supplemental loan agreement (the "Shareholder Loans Agreement") under which MLE has extended the maturity of its existing US$23 million ($23.74 million) aggregate principal amount in loans to the Company (the "Shareholder Loans") to June 30th, 2013 such that the Shareholder Loans are no longer due on demand and accrue interest at the rate of 3% per annum. Pursuant to the Shareholder Loans Agreement, at any time before June 30th, 2013, if the Company's 30 consecutive day weighted average trading price exceeds $1.00 per common share, WHL has the right, subject to any applicable regulatory approvals, to require MLE to convert all or part of the Shareholder Loans into common shares (the "Converted Shares") at a 50% discount plus accrued interest at a price (the "Conversion Price") equal to (a) 70% of the said weighted average trading price or (b) $1.00, whichever is greater. Further, WHL will have a call option to buy one-third of the Converted Shares from MLE at the Conversion Price within 30 days of the conversion (the "Call Option").

In addition, MLE, WHL and MCR executed a binding agreement in relation to the settlement of US$1.5 million ($1.55 million) loan provided by MLE to the Company (the "Loan Settlement Agreement"). Pursuant to the Loan Settlement Agreement, US$1 million ($1.03 million) principal amount of the loan was settled by way of conversion of the said US$1 million ($1.03 million) principal amount at a price of $0.15 per common share into 6,686,666 common shares, issued in the name of Melco (Luxembourg) S.A.R.L. ("ML Luxco"). The remaining US$0.5 million ($0.52 million) principal amount of the loan has been repaid to MLE in cash upon the completion of the Private Placement.

Conversion of Class B Non-Voting Shares

ML Luxco also converted its 8,437,565 Class-B non-voting shares in the capital of the Company into common shares in accordance with the terms of the Loan Settlement Agreement.

Going Concern Update

Through the completion of the Company's Private Placement refinancing and revised terms of the Shareholder Loans with MLE, the Company has significantly reduced and satisfied its immediate and current financial obligations. The Company's ability to operate as a going concern is dependent upon its ability to generate funds from resort operations and resort real estate activities and/or on borrowing from third parties.

Summary of Overall Performance

THREE-MONTH PERIOD ENDED JUNE 30TH, 2010 (THE "2010 PERIOD") COMPARED WITH THREE- MONTH PERIOD ENDED JUNE 30TH, 2009 (THE "2009 PERIOD")



2010 2nd Quarter 2009 2nd Quarter
$'000 RMB'000 $'000 RMB'000
Continuing Operations
Resort Operations Revenue 61 407 72 405
Resort Operations Expenses (735) (4,900) (1,878) (10,574)
----------------------------------------
Resort Operations EBITDA (674) (4,493) (1,806) (10,169)

Add: Other Income 6 40 1 6

Less: Corporate General and
Administrative Expenses (867) (5,813) (1,567) (8,823)
----------------------------------------
Total Operating EBITDA from
Continuing Operations (1,535) (10,266) (3,372) (18,986)
Add: Interest Income 8 53 155 873
Add/(Less): Exchange Gain/(Loss),
net 285 1,900 210 1,182
Less: Depreciation and
Amortization (1,974) (13,158) (2,351) (13,237)
Less: Finance Costs (957) (6,379) (1,568) (8,829)
Add: Recovery of Future Income
Taxes 13 120 30 169
----------------------------------------

Loss from Continuing Operations (4,160) (27,730) (6,896) (38,828)
----------------------------------------
----------------------------------------


Total revenue and net results from continuing operations were driven by resort operations for the three-month period ended June 30th, 2010 and 2009. No real estate sales activities were undertaken during these periods. Revenue from continuing operations totaled $0.06 million (RMB 0.41 million) for the 2010 2nd Quarter versus $0.07 million (RMB 0.41 million) in the 2009 2nd Quarter. Resort operations were severely limited in both 2009 and 2010 Periods due to MCR's financial constraints caused by the global financial crisis. The Company dramatically reduced expenditures on marketing and promotion as part of a cash conservation strategy in order to continue the development of its premiere Sun Mountain Yabuli Resort. Sun Mountain Yabuli Resort's skiing season ended on April 4th 2010; winter season operations will resume in November 2010. The hotels, ski lifts, and sliding slope of the Resort operate normally during the summer.

Resort operations expenses from continuing operations totaled $0.74 million (RMB 4.9 million) for the 2010 2nd Quarter compared to $1.88 million (RMB 10.57 million) in the 2009 2nd Quarter.

Corporate general and administrative expenses ("G&A expenses") totaled $0.87 million (RMB 5.81 million) for the 2010 2nd Quarter compared to $1.57 million (RMB 8.82 million) in the 2009 2nd Quarter. This amount mainly comprised executive employee costs, public company costs, audit and legal fees, corporate information technology costs, Beijing head office occupancy costs. The Company reduced corporate staff, compensation and other related costs throughout the 2009 year and the 2010 Period at the Beijing and Hong Kong offices.

Operating EBITDA from continuing operations for the 2010 2nd Quarter after corporate G&A expenses was negative $1.54 million (RMB 10.27 million) compared to negative $3.37 million (RMB 18.99 million) during the 2009 2nd Quarter.

Minimal capital expenditures of $3,000 were incurred during the 2010 2nd quarter per cash flow. The capital expenditures for resort and hotel operations assets of the Group were included in Properties under Development (PUD).

Depreciation and Amortization

Depreciation and amortization expense totaled $1.97 million (RMB 13.16 million) for the 2010 2nd Quarter compared to $2.35 million (RMB 13.24 million) in the 2009 2nd Quarter. The depreciation and amortization charges are provided using the straight-line method over the estimated useful lives of each asset category and the term of land use rights under the Group's accounting policies.

Finance Costs

The Group incurred interest expenses of $0.96 million (RMB 6.38 million) during the 2010 2nd Quarter compared to $1.57 million (RMB 8.83 million) during the respective period in 2009. The proceeds of the RMB 250 million bank loan were primarily utilized on redevelopment works at the Sun Mountain Yabuli Resort. On February 12th, 2010, the Company's indirectly wholly owned subsidiary, Heilongjiang Yabuli On Snow Asian Game Village Hotel Co. ltd., successfully repaid a RMB 120 million (18.15 million) loan to the Harbin Bank due on February 15th, 2010. Heilongjiang Yabuli then arranged a new loan facility of RMB 150 million ($22.69 million) with the same bank for a two year term with a maturity date of February 9th, 2012, and with a fixed annual interest rate of 5.94%. A short term bridge loan of RMB 74 million ($11.19 million) provided by WHL on February 11th, 2010, facilitated this new loan. The bridge loan had a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and was fully repaid by April 6th, 2010.

Second Quarter Fiscal 2010 Review of Resort Operations

The key drivers of resort operations are skier visits, revenue per visit and margins. Skier visits are impacted by many factors including the quality of the on-mountain and resort center facilities, weather conditions, snow quality, the accessibility of the resort and the cost to the visitor. MCR's strategy to increase skier visits is primarily focused on upgrading the on-mountain facilities and building animated resort centers that provide accommodation and add amenities to attract a broader range of guests. The resort centers also help to extend the length of stay and spread visits more evenly during the week and during the season. Apart from a drop in skier visits in 2006 due to a warm winter, the trend of skier visits has been positive due to the growing popularity of skiing in China. Revenue per visit is primarily driven by entrance fees and the attraction of facilities provided, such as quality ski clothing rentals, ski lessons provided by professional instructors, hotel accommodation and the quality of food and beverage offerings. In 2008 we completed our initial upgrades to rental ski clothing and equipment, and the quality and selection of food and beverage offerings. By upgrading the resort facilities and service, management expects to be able to increase prices and enhance margins.

The current revenue stream from resort and hotel operations is seasonal and mostly generated in the first quarter during the ski season (i.e., the January to March period). Revenue totaled $0.06 million (RMB 0.41 million) for 2010 2nd quarter compared to $0.15 million (RMB 0.84 million) during 2009 2nd quarter.

The following table summarizes the results of Resort Operations from continuing operations (before corporate G&A expenses) for the 2010 and 2009 2nd quarter:



2010 2nd quarter 2009 2nd quarter
$'000 RMB'000 $'000 RMB'000
Resort Operations Revenue
Yabuli Resort 13 84 11 59
Changchun Resort 48 323 61 346
----------------------------------------
Total Resort Operations Revenue 61 407 72 405
----------------------------------------
----------------------------------------

Resort Operations EBITDA
Yabuli Resort (616) (4,105) (1,653) (9,306)
Changchun Resort (58) (388) (153) (863)
----------------------------------------
Total Resort Operations EBITDA (674) (4,493) (1,806) (10,169)
----------------------------------------
----------------------------------------


Second Quarter Fiscal 2010 Sun Mountain Yabuli Resort Operations

MCR's Sun Mountain Yabuli Resort opened for winter operations on November 18th, 2009 and closed for operations on April 4th, 2010 for a 138 day operating season. The winter season operations will resume in November 2010. The hotels, ski lifts, and sliding slope operated normally during the summer. The principal revenue stream during the 2010 2nd quarter was generated from hotel accommodations, food and beverage offerings, ski lifts and sliding slope. Revenue in the Yabuli Resort for the 2010 2nd quarter was $0.013 million (RMB 0.08 million) with EBITDA of negative $0.62 million (RMB 4.10 million).

The resort attracted both regional and destination visitors from city ski clubs as well as independent travelers. Consistent with the response from conference and event attendees, visitors consistently ranked the Sun Mountain Yabuli Resort the superior ski experience in China. This exceeded both expatriate and domestic market expectations.

With the completion of the Private Placement during the second quarter of 2010, the Company can now focus on implementing enhanced marketing and sales programs to drive revenue while maintaining discipline over its operating cost base. In the near future, the Company has been advised that it is expected that Harbin official transport department will open an express train line from Beijing to Mu Dan Jiang (a major city of Harbin) with a stop in Yabuli. It is expected that this expedient new express train differs from the current train lines in that it will reduce a considerable amount of travel time and attract additional visitors from major cities such as Beijing and Tianjin.

Second Quarter Fiscal 2010 Changchun Resort Operations

MCR's Changchun Resort ("Changchun Resort") opened for winter operations on November 21st, 2009 and closed for operations on March 7th, 2010 for a 108 day operating season. Revenue at the Changchun Resort for the 2010 2nd quarter was $0.05 million (RMB 0.32 million) with operations EBITDA of negative $0.06 million (RMB 0.39 million).

The resort primarily serves a regional market from the city of Changchun and was originally purchased as a feeder resort to drive traffic to the Company's larger destination resort of Yabuli Resort. The resort hosted a number of events, themed ski days and corporate functions throughout the winter that aimed to draw traffic from the local market. As previously announced in 2009 and 2010, the Company is involved in ongoing discussions regarding the possible divestment of the Changchun Resort so as to limit its ongoing capital expenditures and reduce debt. Current debt attributed to this resort is $3.72 million (RMB 25 million) and is repayable on demand.

Second Quarter Fiscal 2010 Review of Resort Real Estate Development

MCR's resort real estate development activities are focused on the development of four and five-star hotel rooms and suites together with luxury resort vacation homes. The hotel units are usually built over ground-floor commercial space that MCR either retains for its own operations or leases out to third-party tenants. In order to broaden market appeal, the resort vacation home units are sold with Club Member Services(2) allowing owners to be rewarded and recognized within the properties as VIP customers and receive premium services when they stay at their properties including provisioning, house-keeping and executive chef services.

MCR's business strategy for resort real estate has two major elements: (i) to maximize profits from the sale of real estate units; and (ii) to maximize accommodation inventory for destination visitors to stay at the resort. The Company has significant flexibility over its profitability from real estate activities in its resorts that include:



-- The development for sale of resort vacation homes that can be
constructed within a 9 - 12 month development cycle and where sales
pricing can be increased based on development density, proximity to
resort amenities (ski-in / ski-out locations, golf course fairway
frontage, etc.), size and configuration of unit;

-- The two hotels which completed in 2009 were transferred from
Construction in Progress to operating fixed assets within Buildings.

-- The development for sale condohotel units has not been commenced. Such
development can be constructed within an 18 - 24 month development cycle
and where sales pricing can be increased based on amenities offered
within each development (e.g. spa) and proximity to resort amenities,
size and configuration of unit, and rental returns since these units are
included within the rental pool of units under MCR's management; and

-- The joint venture development for sale of land parcels with other
developers that allow the company to pass on construction, sales and
capital risk to others and where profitability can be regulated by the
number and size of units developed in such an arrangement.



The ability to maintain this development flexibility is a function of the Granted Land Use Rights ("Granted LURs") that the Company currently controls through direct control or under option. In China, private users secure the right to use land through three processes: (i) obtaining "allocated land", (ii) obtaining "granted land", or (iii) entering into a traditional lease where the lessor, if a private party, holds Granted LURs over the leased lands, or the land is designated as state-owned construction land and leased directly from the government. Granted LURs may be transferred, leased, or mortgaged to a third party and are particularly relevant to asset sales and real estate development where title may be sold to a third party. Granted LURs can be mortgaged or pledged as a secured asset to obtain bank financing. Generally speaking, it is necessary for a property developer to secure Granted LURs, whether through a grant by the state or through acquisition of existing rights from the current holder. The rights of the holder of Granted LURs will be evidenced by a land use rights certificate issued by the PRC government at county or higher levels.

For the Sun Mountain Yabuli Resort, MCR controls Granted LURs of approximately 220.3 hectares which includes 127.5 hectares at the base of the mountain available for real estate development and approximately 92.8 hectares on the mountain.



2. Club Member Services revenue is driven by the completion of the resort
development improvements and resort vacation homes. As resort vacation
homes are yet to be completed in the resorts no Club Member Services
operations are being undertaken at this time.


Second Quarter Fiscal 2010 Overview of Sun Mountain Yabuli Resort Real Estate Development

Since May 2010, the Company has been working on the exterior decoration of the 55 homes (a total of 75 homes) of which three were completed with interior finishing. Four homes are currently in the process of refining the interior finishing to be fully completed in September 2010. The Company has been working extensively during the 2010 2nd quarter on supporting facilities for the homes which include road pavement, landscaping, as well as water and electricity facilities construction within the community. The sales team is in the process of expanding in order to market the homes extensively across the country.

Second Quarter Fiscal 2010 Overview of Changchun Resort Real Estate Development

No real estate development, construction or sales activities were undertaken at the Changchun Resort for the 2010 Period.

Second Quarter Fiscal 2010 Review of Corporate Operations

Fluctuations in Foreign Exchange

MCR earns all of its revenue in Chinese RMB. Accordingly, reported revenue will fluctuate with changes in the exchange rate to Canadian dollars. The average exchange rate for the second quarter of 2010 and closing exchange rate as at June 30th, 2010 was $0.15002 and $0.15126 to 1 RMB, respectively.

Income Tax

Under the Law of the People's Republic of China on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from January 1st, 2008 onwards. During the period from January 1st, 2010 to June 30th, 2010, there is no material income tax effect.

Legal Proceedings

MCR currently, and from time to time, is involved in litigation in the ordinary course of its business. The Company does not believe that it is involved in any litigation that will, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations or cash flows.

MCR's resorts can be subject to lawsuits with respect to personal injury claims related principally to skiing activities at each resort. The Company maintains liability insurance that it considers adequate to insure claims related to usual and customary risks associated with the operation of a ski resort.

There are no financially material environmental protection requirements in connection with MCR's resort operations.

SIX-MONTH PERIOD ENDED JUNE 30 TH, 2010 (THE "2010 1ST HALF") COMPARED WITH SIX- MONTH PERIOD ENDED JUNE 30 TH, 2009 (THE "2009 1ST HALF")



2010 1st Half 2009 1st Half
$'000 RMB'000 $'000 RMB'000
Continuing Operations
Resort Operations Revenue 2,370 15,663 1,664 9,230
Resort Operations Expenses (3,023) (20,016) (5,252) (29,133)
----------------------------------------
Resort Operations EBITDA (653) (4,353) (3,588) (19,903)

Add: Other Income 15 99 1 6

Less: Corporate General and
Administrative Expenses (1,535) (10,245) (6,402) (35,513)
----------------------------------------

Total Operating EBITDA from
Continuing Operations (2,178) (14,499) (9,989) (55,410)
Add: Interest Income 14 92 322 1,786
Add/(Less): Exchange Gain/(Loss),
net 402 2,627 137 760
Less: Depreciation and
Amortization (4,196) (27,843) (3,788) (21,013)
Less: Finance Costs (2,651) (17,578) (4,796) (26,604)
Add: Recovery of Future Income
Taxes 31 238 60 333
----------------------------------------

Loss from Continuing Operations (8,573) (56,963) (18,054) (100,148)
----------------------------------------
----------------------------------------


Total revenue and net results were driven by resort operations for the six-month period ended June 30th, 2010 and 2009. No real estate sales results were delivered during these periods. Revenue totaled $2.37 million (RMB 15.67 million) for the 2010 1st Half versus $1.66 million (RMB 9.23 million) in 2009 1st Half. Resort operations were severely limited in both the 2009 and 2010 Periods due to MCR's financial constraints caused by the global financial crisis. The Company dramatically reduced expenditures on marketing and promotion as part of a cash conservation strategy in order to continue the development of its premiere Sun Mountain Yabuli Resort. Operating EBITDA for the 2010 1st Half was negative $0.65 million (RMB 4.35 million) compared to negative $3.59 million (RMB 19.9 million) over the same period in 2009.

Resort operations expenses totaled $3.02 million (RMB 20.02 million) for the 2010 1st Half compared to $5.25 million (RMB 29.13 million) in the 2009 1st Half. Resort operations were severely limited in both 2009 and 2010 Periods due to MCR's financial constraints caused by the global financial crisis. The Company dramatically reduced expenditures. Before the completion of the Private Placement, the Company maintained discipline over its operating cost base.

Corporate G&A expenses totaled $1.54 million (RMB 10.25 million) for the 2010 1st Half compared to $6.40 million (RMB 35.51 million) over the same period in 2009. This amount was mainly comprised of executive employee costs, public company costs, audit and legal fees, corporate information technology costs, Beijing head office occupancy costs. The Company reduced corporate staff, compensation and occupancy costs throughout the 2009 year and the 2010 Period due to the reduction of MCR's resort portfolio following the divestment of Beijing Lianhua Mountain Skiing Field Co. Ltd. ("Beijing Resort") and Jilin Lianhua Mountain Skiing Field Co. Ltd. ("Jilin Resort") on December 12th 2008, the discontinued operations of the Beidahu Resort in mid-August 2009 and the ongoing discussions to divest the Changchun Resort and the decision to forego major capital projects continued in 2009 and 2010. G&A expenses for the 2009 Period also included a one-time charge of $2.72 million (RMB 14.85 million) for transaction fees pertaining to the new RMB 250 million bank loan.

The Company dramatically reduced expenditures on marketing and promotion as part of a cash conservation strategy in order to continue the development of its premiere Sun Mountain Yabuli Resort. The decrease was primarily due to the decrease of corporate staff, compensation and occupancy costs due to the reduction of MCR's resort portfolio following the divestment of the Jilin Resort and Beijing Resort in the last quarter of 2008, the ongoing discussions to divest the Changchun Resort and the decision to forego major capital projects continued in 2009.

The minimal capital expenditure totaled $11,000 for the 2010 1st Half, which were also constrained under the same circumstances as other expenses. Capital expenditures totaled $18.10 million for the 2009 1st Half, which included progress payments for the initial and major improvements at the Yabuli Resort.

Depreciation and Amortization

Depreciation and amortization expense totalled $4.20 million (RMB 27.84 million) for the 2010 1st Half compared to $3.79 million (RMB 21.01 million) in the 2009 1st Half. The depreciation and amortization charges are provided using the straight-line method over the estimated useful lives of each asset category and the term of land use rights under the Group's accounting policies.

Finance Costs

The Group incurred interest expenses of $2.65 million (RMB 17.58 million) during the 2010 1st Half, compared to $4.8 million (RMB 26.6 million) during the respective period in 2009. The decrease was due to additional bank loan secured by the Group and shareholder loans in 2009 and a $2.24 million (RMB12.25 million) one-time charge related to finance arrangement fee and transaction costs pertaining to the new RMB 250 million bank loan. The proceeds were primarily employed in the redevelopment works at Yabuli Resort. There was a short term bridge loan of RMB 74 million ($11.01 million) provided by WHL on February 11th, 2010. The bridge loan had a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and was fully repaid by April 6th 2010.

Given the early stage nature of the Company's redevelopment of its resorts, the current revenue stream from resort and hotel operations is seasonal and mostly generated in the first quarter during the ski season (i.e., the January to March period). Revenue from operations totaled $2.37 million (RMB 15.66 million) for the 2010 1st Half. Operating expenses within the resorts were mainly attributable to snow making, grooming, staffing, fuel and utilities, which also include the G&A expenses relating to these resorts' senior management, marketing and sales, information technology, insurance and accounting.

First Half Fiscal 2010 Review of Resort Operations

Revenue was constrained as the Company was required to maintain cash reserves and limit all expenditures prior to the completion of the Private Placement. As such the Company did not implement any major marketing campaigns and limited all advertising expenses with the exception of corporate sales and functions and season pass sales to major ski clubs in Harbin, Changchun and Beijing.

On February 17th, 2010, the Company entered into definitive management agreements with Club Med to operate and manage two hotels at the Sun Mountain Yabuli Resort ("Club Med Yabuli Resort"). Club Med will also provide all marketing and sales services for the Club Med Yabuli Resort at their cost under a commission arrangement. The Agreements have renewable initial terms of ten years with performance management fees tied to gross operating profit. As well, Club Med will provide funding of up to US$3 million ($3.10 million) for additions to the Club Med Yabuli Resort so as to include facilities and refinements to meet Club Med's brand and operating standards.

During 2010 2nd quarter, Club Med started construction refinements from June 2010 and plans to finish construction on September 15th 2010 to be ready for the November 2010 winter opening.

The Club Med Yabuli Resort marks China's first Club Med collaboration. Located in Heilongjiang Province, this winter ski resort sits atop a breathtaking mountain. This new Club Med resort will provide clients with "an all- inclusive" luxury resort experience. Open all year, the resort boasts 284 luxurious guest rooms including 27 with full room service in Mountain View Suites, 22 deluxe rooms, and 235 superior rooms. The resort also provides daytime supervised facilities such as the Petit Club and the Mini Club which offer a place for young adults and children to relax.

On March 1st, 2010, the Company entered into a strategic relationship agreement with the China Entrepreneurs' Forum ("CEF") under which the CEF has agreed to hold all of its future Annual Forums at the Sun Mountain Yabuli Resort. CEF and MCR have established a "CEF Founders Club". This prestigious club actively promotes the resort vacation homes situated in the Sun Mountain Yabuli Resort for purchase by CEF members. Furthermore, the Club works with its 5,000 member companies to select Sun Mountain Yabuli Resort to host their corporate meetings and retreats.

When the standard of these improved amenities and in resort lodging are combined with marketing activities that increase and position attendance and drive demand throughout the overall ski season, we anticipate advanced bookings, revenue per guest and length of stay to increase throughout the winter months. The Company shall also implement additional summer attractions as well as marketing to corporate and incentive group segments to increase attendance throughout the summer months.

The following table summarizes the results of Resort Operations (and before corporate G&A expenses) for the 2010 1st Half:



2010 1st Half 2009 1st Half
$'000 RMB'000 $'000 RMB'000
Resort Operations Revenue
Yabuli Resort 1,770 11,697 926 5,137
Changchun Resort 600 3,966 738 4,093
----------------------------------------
Total Resort Operations Revenue 2,370 15,663 1,664 9,230
----------------------------------------
----------------------------------------

Resort Operations EBITDA
Yabuli Resort (713) (4,755) (3,613) (20,042)
Changchun Resort 60 402 25 139
----------------------------------------
Total Resort Operations EBITDA (653) (4,353) (3,588) (19,903)
----------------------------------------
----------------------------------------


First Half Fiscal 2010 Sun Mountain Yabuli Resort Operations

Revenue in Yabuli Resort for the 2010 1st Half was $1.77 million (RMB 11.70 million) with EBITDA of negative $0.71 million (RMB 4.76 million).

As before noted revenue at Yabuli was constrained as the Company was required to maintain cash reserves and limit all expenditures prior to the completion of the Private Placement. As such the Company did not implement any major marketing campaigns and limited all advertising expenses with the exception of corporate sales and functions and season pass sales to major ski clubs in Harbin, Changchun and Beijing.

Such corporate functions included the 10th China Entrepreneurs Forum held at the resort from February 26th to 28th, 2010. This major conference was attended by over 500 of the country's most prominent business leaders and senior executives from industries ranging from banking, real estate, insurance and manufacturing. This was the 10th Forum that had been held at the Sun Mountain Yabuli Resort. The overall consensus from all attendees was exceptionally positive in regards to MCR's operations at the resort. Subsequent to the event on March 1st, 2010, MCR announced that it has entered into a strategic relationship agreement with the CEF under which the CEF agreed to hold all of its future Annual Forums on a permanent basis at the Sun Mountain Yabuli Resort. In addition, both parties also agreed to establish a "CEF Founders Club" that actively promotes the resort vacation homes situated in the Sun Mountain Yabuli Resort for purchase by CEF members, as well as work with its 5,000 member companies to select the Sun Mountain Yabuli Resort as the site for their corporate meetings and retreats. Other corporate events were held throughout the season with such organizations as major luxury automobile companies, financial institutions and sporting groups.

The resort attracted both regional and destination visitors from city ski clubs as well as independent travelers. Consistent with the response from conference and event attendees, visitors consistently ranked the Sun Mountain Yabuli Resort the superior ski experience in China which exceeded both the expatriate and domestic market expectations. The ski season at the resort runs from November to April. As China's most extensive ski resort, Sun Mountain Yabuli boasts 17 different trails with varying levels of difficulty for a total length of 31,075 meters. In addition to skiing, other outdoor sports such as sledding and skating are accessible. The resort is outfitted with first- class ski equipment available for leasing.

With the completion of the Private Placement subsequent to the second quarter of 2010, the Company can now focus on implementing enhanced marketing and sales programs to drive revenue while maintaining discipline over its operating cost base.

As before noted, the Company has entered into definitive management agreements with Club Med to operate and manage two hotels at the Sun Mountain Yabuli Resort. Club Med will also provide all marketing and sales services for the Club Med Yabuli Resort at their cost under a commission arrangement. Management anticipates that with the inclusion of Club Med the resort shall benefit with increased revenue per guest due to the "all inclusive" pricing of Club Med vacations and advanced sales prior to the winter season. The all-inclusive experience at Club Med Yabuli Resort includes ski-related services, ski tickets, ski schools, professional training, high-quality ski equipment, children's clubs, gourmet cuisine, the services of staff specializing in hospitality, and a friendly comfortable atmosphere.

From March 20th to 21st, 2010 Club Med held a major international media event at the resort launching the marketing of Club Med Yabuli Resort for the 2010/11 winter season. The event was attended by leading international travel and leisure media representatives from Europe, Asia, Australia, and China and included a taste of what the new Club Med Yabuli Resort will include when operational for the coming winter season. Guests to the event experienced the finest ski conditions in China complimented with international and local cuisine, live entertainment, and Club Med's extraordinary hospitality provided by their over 50 international GO's (Club Med's signature Gentils Organisateurs resort managers) who were on hand for the event.

First Half Fiscal 2010 Changchun Resort Operations

MCR's Changchun resort ("Changchun Resort") opened for winter operations on November 21st, 2009 and closed for operations on March 7th, 2010 for a 108 day operating season. Revenue at the Changchun Resort for the 2010 1st Half was $0.60 million (RMB 3.97 million) with EBITDA of $0.06 million (RMB 0.39 million).

The resort primarily serves a regional market from the city of Changchun and was originally purchased as a feeder resort to drive traffic to the Company's larger destination resort of Yabuli Resort. The resort hosted a number of events, themed ski days and corporate functions throughout the winter that aimed to draw traffic from the local market. As previously announced in 2009 and 2010, the Company is in discussions regarding the possible divestment of the Changchun Resort so as to limit its ongoing capital expenditures and reduce debt. Current debt attributed to this resort is $3.72 million (RMB 25 million) and is repayable on demand.

First Half Fiscal 2010 Review of Resort Real Estate Development

As discussed above, MCR's resort real estate development activities are focused on the development of four and five-star hotel rooms and suites together with luxury resort vacation homes.

First Half Fiscal 2010 Overview of Sun Mountain Yabuli Resort Real Estate Development

Prior to the first quarter of 2010, the Company completed the construction of 55 home structures (of a total of 75 homes) of which three were been completed with interior finishing options and appliances as show homes for sales and marketing purposes. The homes are located on a prominent ski in ski out location adjacent the resort center. No home construction was undertaken during the winter.

Since May 2010, the Company has been working on the exterior decoration of the 55 homes (a total of 75 homes) of which three were completed with interior finishing. Four homes are currently in the process of refining the interior finishing to be fully completed in September 2010. The Company has been working extensively during the 2010 2nd quarter on supporting facilities for the homes which include road pavement, landscaping, as well as water and electricity facilities construction within the community. The sales team is in the process of expanding in order to market the homes extensively across the country

These homes were originally intended for sale for the personal use by their owners and were not considered to be placed into a rental pool. However, customer response after reviewing the resort's operations this winter and location of the homes indicate the majority of buyers wish to place their homes into a rental pool arrangement. As such the Company is in discussions with a number of rental management companies in regards to the rental program for these homes which includes final selection of loose furniture, artwork and operating items (linens, kitchenware, etc). The Company aims to have these homes fully completed in 2010 once the rental management company is engaged and buyers have selected their home and finishing preferences.

MCR has yet to complete a final construction contract with the contractor for these homes. The construction continues to be financed by the builder and the Company expects a final contract can be agreed once buyers have selected their home finishing packages. During the first quarter of 2010, a prepayment of RMB 10 million ($1.51 million) has been paid to the builder to finance the construction of real estate homes. On July 12th, 2010, a further RMB 20 million ($3.03 million) has been paid to the builder for the purpose of financing the construction of real estate homes.

As of June 30th, 2010, approximately $14.78 million has been recorded as Properties under Development for Sale ("PUD") (of which approximately $8.36 million is allocated to the first phase of 75 homes) in the 2010 Interim Consolidated Financial Statements of the Company.

First Half Fiscal 2010 Overview of Changchun Resort Real Estate Development

No real estate development, construction or sales activities were undertaken at the Changchun resort for the 2010 Period

First Half Fiscal 2010 Review of Corporate Operations

G&A Expenses

Corporate G&A expenses totaled $1.54 million (RMB 10.25 million) for the 2010 1st Half compared to $6.40 million (RMB 35.51 million) over the same period in 2009. Corporate G&A expenses mainly comprise executive employee costs, public company costs, audit and legal fees, corporate information technology costs and Beijing head office occupancy costs. However, during this period the Company reduced corporate staff, compensation and occupancy costs due to the reduction of MCR's resort portfolio following the divestment of the Jilin Resort and Beijing Resort in the last quarter of 2008 and the ongoing discussions to divest the Changchun Resort and the decision to forego major capital projects continued in 2009.

Fluctuations in Foreign Exchange

MCR earns all of its revenue in Chinese RMB. Accordingly, reported revenue will fluctuate with changes in the exchange rate to Canadian dollars. The average exchange rate for the first half year of 2010 and closing exchange rate as at June 30th, 2010 was $0.15257 and $0.15126 to 1 RMB, respectively.

Income Tax

On March 16th, 2007, the PRC promulgated the New Tax law by Order No. 63 of the President of PRC. On December 6th, 2007, the State Council of the PRC issued Implementation Regulations of the New Tax law. The New Tax law and Implementation Regulations changed the tax rate from 33% to 25% for certain MCR subsidiaries from January 1st, 2008. During the 2010 1st Half, there was no material income tax effect.

Legal Proceedings

MCR currently, and from time to time, is involved in litigation in the ordinary course of its business. The Company does not believe that it is involved in any litigation that will, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations or cash flows.

It should be noted that the Company is managing its cash flow as it continues to seek financing to meet its business requirements. This includes maintaining an open dialogue with all of its current vendors and suppliers.

MCR's resorts can be subject to lawsuits with respect to personal injury claims related principally to skiing activities at each resort. The Company maintains liability insurance that it considers adequate to insure claims related to usual and customary risks associated with the operation of a ski resort.

There are no financially material environmental protection requirements in connection with MCR's resort operations.



Summary of Quarterly Results(i)

Q2-10 Q1-10 Q4-09 Q3-09
(in thousands of Canadian dollars,
except per share amounts)

Operating revenue from
continuing operations 61 2,309 876 218
Loss from continuing operations (4,160) (4,413) (40,717) (5,486)
Results of discontinued
operations - - - (489)
Net loss (4,160) (4,413) (40,717) (5,975)
Loss per share from continuing
Operations
Basic (0.03) (0.05) (0.46) (0.06)
Diluted (0.03) (0.05) (0.46) (0.06)
Net loss per share
Basic (0.03) (0.05) (0.46) (0.07)
Diluted (0.03) (0.05) (0.46) (0.07)

(i) In this summary, there was no restatement of prior periods' financial
data in connection with the results of discontinued operations from the
Beijing, Jilin and Beidahu Resorts.

Summary of Quarterly Results(i)

Q2-09 Q1-09 Q4-08 Q3-08
(in thousands of Canadian dollars,
except per share amounts)

Operating revenue from
continuing operations 149 3,245 1,118 342
Loss from continuing operations (8,517) (11,628) (98,254) (12,464)
Results of discontinued
operations - - (20,746) -
Net loss (8,517) (11,628) (119,000) (12,464)
Loss per share from continuing
Operations
Basic (0.10) (0.13) (1.12) (0.14)
Diluted (0.10) (0.13) (1.12) (0.14)
Net loss per share
Basic (0.10) (0.13) (1.36) (0.14)
Diluted (0.10) (0.13) (1.36) (0.14)

(i) In this summary, there was no restatement of prior periods' financial
data in connection with the results of discontinued operations from the
Beijing, Jilin and Beidahu Resorts.


Several factors impact comparability between quarters:

The timing of disposals. MCR disposed 100% of the Beijing and Jilin Resorts in the fourth quarter of 2008 and the major assets and prepaid lease payment of the Beidahu Resort in the third quarter of 2009. The financial results of these resorts up to the date of disposal are excluded from the continuing operations, and included in the results of discontinued operations as stated in the 2009 Annual Audited Consolidated Financial Statements of the Company.

The timing of discontinued operations. The Company announced on October 5th, 2009, that the agreement (the "Acquisition Agreement") with the Jilin Beidahu Sports and Tourism Industry Development Company Limited ("Jilin Beidahu Development Zone") dated November 22nd, 2007 for the acquisition of the Beidahu Resort was terminated. The acquisition terms for Beidahu Resort included an initial payment of RMB 30 million ($4.54 million) paid on March 1st, 2008, a second installment of RMB 70 million ($10.59 million) due December 31st, 2008, and a final payment of RMB 120 million ($18.15 million) due December 31st, 2010. The Acquisition Agreement was terminated pursuant to its terms as MCR had failed to pay the RMB 70 million ($10.59 million) payment which was due on December 31st, 2008. The Company was unsuccessful in renegotiating terms of the Acquisition Agreement to defer the acquisition payments and the Acquisition Agreement was terminated on September 17th, 2009.

The seasonality of ski resorts and hotels operations. Revenue and operating EBITDA from this business are weighted disproportionately to the first and fourth quarters each year. As before stated:

The Sun Mountain Yabuli Resort was closed for operations given the major construction being undertaken throughout 2008 to late January 2009. This resort hosted two major events in February 2009. It was closed for operations on April 6th, 2009 and re-opened for its winter 09/10 operations on November 18th, 2009. The operation for winter 09/10 was closed on April 4th, 2010.

Summer operations were undertaken at the Changchun Resort but were disproportionate to winter operations that are typically more significant in terms of visitation and revenue. Changchun Resort closed for winter operations on March 15th, 2009 and re-opened for its winter 09/10 operations on November 21st, 2009. The operation for winter 09/10 was closed on March 7th, 2010.

The Beidahu Resort had only minimal 2008 summer operations mainly concentrating on post acquisition integration leading into the core winter operations beginning in the fourth quarter of 2008. Beidahu Resort opened for winter operations on November 12th, 2008 and closed for operations on March 22nd, 2009 for a 131 day operating season. As mentioned above, the operation of the Beidahu Resort was handed over to Jilin Beidahu Development Zone in mid-August 2009.

The timing of recording reserves and valuation adjustments. In the fourth quarter of 2008, MCR wrote down the goodwill amounting to $96.09 million due to the global economic crisis in the second half of 2008. By the end of 2009, MCR further wrote down the goodwill by $22.70 million to reflect the current macro-economic environment as China and international economies recover from the financial crisis with MCR's recovery yet to be fully realized in 2010.

Private placement. On April 9th, 2010, the Company successfully completed its private placement with Wisecord Holdings Limited ("WHL") in which WHL subscribed for 100,000,000 common shares at a subscription price of $0.15 per common share for a total subscription price of $15 million (the "Private Placement") or RMB 102.93 million. WHL subscribed for approximately 49.4% of the equity interest of the Company (on a fully diluted basis and after the conversion of MCR's outstanding Class B non-voting shares and the conversion of two-thirds of the existing US$1.5 million ($1.55 million) loan from Melco Leisure and Entertainment Group Limited ("MLE"), a beneficial shareholder of the Company).

Liquidity and Capital Resources

Cash Flow and Cash Position

The following table summarizes our major sources and uses of cash for the 2010 Period. This table should be read in conjunction with the 2010 interim consolidated statement of cash flows.



$'000
Cash outflow from operations (10,573)
Cash inflow from financing activities 15,316
Cash outflow from investing activities (11)
--------------------------
Net cash inflow 4,732
--------------------------
--------------------------


Funds from financing activities for the 2010 Period were comprised primarily of: (i) a bank loan repayment with the Harbin Bank for an amount of RMB 120 million ($18.16 million) in February 2010; (ii) a bank loan with the Harbin Bank drawn down for an amount of RMB 150 million ($22.70 million) in February 2010; (iii) the proceeds of the Private Placement of RMB 96 million ($14.53 million) in February 2010. and (iv) a bridge loan advanced from WHL for an amount of RMB 74 million ($11.10 million) in February 2010; The bridge loan had a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and was fully repaid by April 6th 2010.

Funds used for investing activities for the 2010 Period mainly included capital expenditures for resort and hotel operations assets of the Group.

Contractual Obligations

In normal operations, MCR enters into arrangements that obligate it to make future payments under contracts such as debt and lease agreements. The following table summarizes our contractual obligations as at June 30th, 2010 in the future periods:



Payments due by period
Less than Over 5
Total 1 year 1-5 years years
(in thousands of Canadian dollars)

Accounts payable and accrued
liabilities 2,981 2,981 - -
Other payables 16,281 12,750 3,531 -
Amount due to related party 343 343 - -
Amounts due to shareholders 26,243 71 26,172 -
Bank loans 71,382 3,151 68,231 -
Other borrowings 3,782 3,782 - -
Purchase obligations(3) 5,813 5,813 - -
--------------------------------------------
Total 127,751 30,475 97,276
--------------------------------------------
--------------------------------------------


3. This refers to the capital commitments contracted for but not provided
in respect of the construction of property and equipment. Apart from
this, there are additional capital commitments amounting to $0.83
million, which are authorized but not contracted for in respect of
construction of property and equipment.


Key indicators as to the Company's liquidity and capital resources as of June 30th, 2010 and December 31st, 2009 are noted in the following table:



(in thousands of Canadian dollars except for June 30th, December
ratios) 2010 31st, 2009
----------------------------------------------------------------------------
Current Ratio(4) 0.99:1 0.23:1

Free Cash 5,765 1,636

Working Capital(5) (115) (57,773)

Total Assets 194,284 193,308

Total Debt(6) 115,730 121,852

Total Equity(7) 78,554 71,456

Total Debt to Total Equity Ratio 1.47:1 1.71:1


Working Capital and Funding Updates

MCR's working capital balance was negative $0.12 million as of June 30th, 2010 (December 31st, 2009 was negative $57.77 million). The balance does not include any commitments to the Harbin general contractor regarding the completion of resort vacation homes at the Sun Mountain Yabuli Resort, which were incurred after June 30th, 2010.

On February 12th, 2010, the Company's indirect wholly owned subsidiary, Heilongjiang Yabuli On Snow Asian Game Village Hotel Co. Ltd., repaid the full principal amount of its RMB 120 million ($18.15 million) loan with the Harbin Bank and also entered into a new loan agreement with the same bank for a loan facility of RMB 150 million ($22.69 million), which has a term of two years with principal repayable on February 9th, 2012, and a fixed annual interest rate of 5.94%.

The new loan was facilitated by a short term bridge loan of RMB 74 million ($11.19 million) provided by WHL on February 11th, 2010. The bridge loan has a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and has been fully repaid by April 6th, 2010.

Other Financial Information

Goodwill

Goodwill of $19.80 million as at June 30th, 2010 (December 31st, 2009: $20.14 million) arose from the acquisition of MCR Cayman and its subsidiaries on May 27th, 2008. This was after the write off of the relevant amounts related to: (i) the disposition of MCR's Beijing Resort and Jilin Resort amounting to $21.73 million, and (ii) the relevant amounts related to the impairment of goodwill of Changchun Resort, Beidahu Resort and Yabuli Resort, amounting to $96.09 million and $22.70 million, in 2008 and 2009 respectively, in view of the current macro- economic environment as China and international economies recover from the financial crisis with MCR's recovery yet to be fully realized in 2010. The Company is not aware of any significant adverse events which trigger an impairment indictor during the 2010 Period and therefore, no impairment test has been performed as at June 30th, 2010. The movement in current period represents the currency alignment for the period.



4. Current ratio is defined as total current assets divided by total
current liabilities
5. Working capital is defined as total current assets less total current
liabilities
6. Total debt is defined as total current liabilities plus total non-
current liabilities
7. Total equity is equal to the total shareholders' equity


Property and Equipment and Construction in Progress

Property and equipment net of accumulated depreciation, including the construction in progress, was $103.72 million as of June 30th, 2010 (December 31st, 2009: $109.26 million). It consists of $84.97 million of existing buildings and ski lifts, and $7.25 million of construction in progress across various resorts. Further, the Company has pledged property and equipment for an amount of $87.52 million as at June 30th, 2010 to secure its bank loans.

The Company has (i) capital commitments contracted for but not provided, and (ii) authorized but not contracted in respect of the construction of property and equipment of $5.81 million and $0.83 million, respectively.

Prepaid Lease Payment

Prepaid lease payments net of amortization was $46 million, including the current and non-current portion, as of June 30th, 2010 (December 31st, 2009: $47.53 million). It mainly includes all the Granted LURs held by Yabuli Resort of approximately 220.3 hectares which includes 127.5 hectares at the base of the mountains available for real estate development. The Company has pledged Granted LURs having a carrying value of approximately $39.8 million located in the Sun Mountain Yabuli Resort at June 30th, 2010 to secure the bank loans.

Off-Balance Sheet Arrangements

The construction costs for the 55 resort vacation homes being constructed at the Sun Mountain Yabuli Resort are currently being financed by the general contractor. The Company has not yet finalized a construction contract agreement with the contractor. The total construction costs for the 55 resort vacation homes, other than $14.78 million recorded under the PUD, would constitute a future commitment of the Company not recorded within the second quarter of 2010 financial statements.

Other than the construction costs mentioned above, MCR does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of MCR including, without limitation, such considerations as liquidity and capital resources that have not previously been discussed.

Transactions with Shareholders and Related Parties

As of June 30th, 2010, the amount due to Melco Services Limited ("Melco Services") was $0.34 million, which is unsecured, non-interest bearing and repayable on demand. This balance is mainly derived from the provision of advisory services by Melco Services to MCR.

During the 2010 Period, the Company incurred $0.085 million of advisory service fees payable to Melco Services pertaining to a service agreement entered into on August 15th, 2008. The agreement stipulates that Melco Services shall provide various professional services utilizing its expertise and personnel for a monthly fee not to exceed HK$500,000 ($65,259).

As of June 30th, 2010, the amount due to Melco International Development Limited ("MIDL") was $0.07 million, which is unsecured, non-interest bearing and repayable on demand. This balance is mainly derived from a one-off payment in relation to operating expense of the Company.

As mentioned in the previous section, upon the completion of the Private Placement, the amount of US$1.5 million ($1.55 million) has been settled through conversion and repayment and the terms of the remaining two shareholders loans have been revised with repayment of the two shareholder loans due on June 30th, 2013.

As at June 30th, 2010, the loans from intermediate shareholders include the remaining two shareholder loans from Melco Leisure and Entertainment Group Limited ("MLE") in the principal amounts of US$12 million ($12.39 million) (the "MLE US$12m Loan") and US$11 million ($11.36 million) (the "MLE US$11m Loan") respectively. The original terms of the MLE US$12m Loan and the MLE US$11m Loan were interest bearing at 3-month LIBOR plus 3% and non-interest bearing with fixed repayment terms to March 31, 2010 and March 31, 2010, respectively. Through a Supplemental Loan Agreement made on April 8, 2010, the new terms of both loans are interest bearing at 3% per annum with fixed repayment terms to March 31, 2013. Accrued interest is repayable quarterly. As at April 8th, 2010, the outstanding accrued interests arising from the MLE US$12m Loan amounted to US$0.29 million ($0.30 million). All loans are unsecured.

Both Melco Services and MLE are subsidiaries of MIDL, a company held a beneficial interest in one of the shareholders of MCR. Therefore, both Melco Services and MLE are the related companies of MCR.

Restricted Stock Units

On June 2nd, 2009, the Company adopted the Restricted Stock Unit Plan ("RSU Plan") after the approval by the shareholders on the same date so as to provide employees, consultants, and/or directors of the Company with an additional incentive program to further the growth and development of the Company and to encourage them to remain with the Company. On the same date, the Company granted a total of six RSU awards ("RSU awards"), one to each of the non-management directors. The RSU awards are valued at $80,000 each and will be satisfied with common shares to be issued from treasury in accordance with the terms of the RSU Plan. These awards will vest equally in one-third portions on the anniversary date of the grant over a three year period, that is, on June 2nd, 2010, June 2nd, 2011 and June 2nd, 2012 respectively. As at June 30th, 2010, the Company had outstanding 4 RSU awards with an aggregated value of $320,000.

On May 3rd, 2010, an additional 261,436 common shares of the Company were issued from treasury under the RSU Plan and, after such issuance, the Company has outstanding 4 RSU awards with an aggregated value of $320,000.

Capital Structure and Outstanding Share Data

The Company is authorized to issue an unlimited number of common shares and unlimited number of Class B non-voting shares without nominal or par values. Each common share provides the holder with one vote. Each Class B non-voting share is convertible into one common share of the Company for no additional consideration, subject to certain conditions, and is entitled to a dividend of $0.001 per annum.

On April 9th, 2010, the Private Placement with WHL was successfully completed in which WHL has subscribed for 100,000,000 common shares at a subscription price of $0.15 per common share for a total subscription price of $15 million or RMB 102.93 million. US$1 million ($1.03 million) principal amount of the shareholders loan was settled by way of conversion of the said US$1 million ($1.03 million) principal amount at a price of $0.15 per common share into 6,686,666 common shares, issued in the name of Melco (Luxembourg) S.A.R.L. ("ML Luxco"). ML Luxco also converted its 8,437,565 Class-B non-voting shares in the capital of the Company into common shares.

After the completion of the Private Placement with WHL, WHL has subscribed for approximately 49.4% of the equity interest of the Company.

On May 3rd, 2010, an additional 261,436 common shares of the Company were issued from treasury under the RSU plan.

As of June 30th, 2010, there were:



-- 202,825,011 common shares outstanding

-- Nil Class B non-voting shares outstanding.

-- 566,666 stock options granted under the Stock Option Plan are currently
exercisable.

-- 480,000 stock options granted in connection with the reverse takeover
expired on April 15th, 2010. None of these stock options were exercised.

-- There are 12,021,816 warrants with an exercise price of $4.00 each,
expired on May 27th, 2010. None of these warrants options were
exercised.



Critical Accounting Policies

This MD&A should be read in conjunction with our unaudited interim financial statements for the three-month and six-month periods ended June 30th, 2010 and accompanying notes included therein, and also the MD&A and Annual Audited Consolidated Financial Statements for the year ended December 31st, 2009 and accompanying notes included therein. Those consolidated financial statements outline the significant accounting principles and policies used to prepare our financial statements. Accounting policies are critical if they rely on a substantial amount of judgment in their application or if they result from a choice between accounting alternatives and that choice has a material impact on reported results or financial position.

The preparation of our interim consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingencies. These estimates and judgments are based on factors that are inherently uncertain. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual amounts could differ from those based on such estimates and assumptions.

New Accounting Standards

The Company has applied all accounting standards as set out in the Canadian Institute of Chartered Accountants ("CICA") handbook that is applicable to the period from January 1st, 2010 to June 30th, 2010.

New Accounting Standards Not Yet Adopted

International Financial Reporting Standards ("IFRS")

In February 2008, the Accounting Standards Board (Canada) ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption possibly allowed starting in calendar year 2009. The conversion to IFRS will be required, for the Company, for interim and annual financial statements beginning on January 1st, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences on recognition, measurement and disclosures.

In the period leading up to the conversion, the AcSB will continue to issue accounting standards that are converged with IFRS such as IAS 2 "Inventories" and IAS 38 "Intangible assets", thus mitigating the impact of adopting IFRS at the mandatory transition date. The Company is currently evaluating the impact of the adoption of IFRS on its consolidated financial statements.

Business Combinations

In January 2009, the AcSB issued Section 1582, Business Combinations, which replaces former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. The Company does not expect the adoption of this statement to have a material impact on its results of operations or financial position.

Revenue recognition

In December 2009, the CICA issued EIC 175, Multiple Deliverable Revenue Arrangements, replacing EIC 142, Revenue Arrangements with Multiple Deliverables. This abstract was amended to: (1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2) require, in situations where a vendor does not have vendor-specific objective evidence ("VSOE") or third-party evidence of selling price, that the entity allocate revenue in an arrangement using estimated selling prices of deliverables; (3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and (4) require expanded qualitative and quantitative disclosures regarding significant judgments made in applying this guidance. The accounting changes summarized in EIC 175 are effective for fiscal years beginning on or after January 1st, 2011, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application. If the abstract is adopted early, in a reporting period that is not the first reporting period in the entity's fiscal year, it must be applied retroactively from the beginning of the Company's fiscal period of adoption. The Company does not expect the adoption of this statement to have a material impact on its results of operations or financial position.

Consolidated Financial Statements

In January 2009, the AcSB issued Sections 1601, "Consolidated Financial Statements", and 1602, "Non- controlling Interests", which replaces existing guidance. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. The Company does not expect the adoption will have a material impact on its results of operations or financial position.

Financial Instruments and Other Instruments

The Group's carrying value of cash, pledge bank deposits, accounts and other receivables, amounts due to related party and ultimate shareholder, accounts payable, other payables and other borrowings approximates the fair value thereof because of the short-term nature of these instruments. The Group's carrying value of the bank loans and amount due to intermediate shareholder approximates the fair value thereof by using the current market rates for debt securities.

RISK FACTORS

The Company is exposed to a variety of risks in the normal course of operations. In the 2009 MD&A and Annual Audited Consolidated Financial Statements dated March 18th, 2010, MCR provided a detailed review of the risks that could affect its financial condition, results of operations or business and that could cause actual results to differ materially from those expressed in our forward-looking statements. We highlight the main areas of the risk factors, as mentioned in the 2009 MD&A and Annual Audited Consolidated Financial Statements dated March 18th, 2010, as follows:

Risk Factors Related to the Company's Business

The Company's business is in an early stage of development, and is subject to significant risks and uncertainties.

The operating subsidiaries of the Company are subject to a wide variety of laws and regulations relating to land use and development and to environmental compliance and permitting obligations.

The land use rights relating to the Company's ski resorts may not be enforceable or may be terminated or non- renewable.

Real estate development and the Company's ability to generate revenues there from may be adversely affected by numerous factors, many of which are beyond the control of the Company.

The Company will require more debt or equity financing, which will require the Company to incur substantial additional indebtedness or sell additional debt or other equity securities. The Company's ability to obtain additional financing may be limited, which could delay or prevent the launch of one or more projects.

The market price of common shares of the Company can fluctuate.

Simultaneous planning, design, construction and development of the Company's major projects may stretch its management's time and resources, which could lead to delays, increased costs and other inefficiencies in the development of one or more of the Company's projects.

The Company will need to recruit a substantial number of new employees before each of its projects can open and competition may limit the Company's ability to attract qualified management and personnel.

The Company's business depends substantially on the continuing efforts of its senior management, and the Company's business may be severely disrupted if it loses their services or their other responsibilities cause them to be unable to devote sufficient time and attention to the Company.

Possible inadequacy of insurance coverage could materially adversely affect the Company's business, results of operations and financial condition.

The Company's contractors may face difficulties in finding sufficient labor at acceptable cost, which could cause delays and increase construction costs of the Company's projects.

The Company may be unable to attract additional skiers through investment in on-mountain and base area improvements.

Risk Factors Related to China

PRC economic, political and social conditions as well as government policies could adversely affect the Company's business.

The Company's land use rights in China are subject to acquisition and State confiscation.

The Company's operations are subject to the uncertainty of the PRC legal system.

Restrictions on foreign currency exchange may limit the Company's ability to obtain foreign currency or to utilize its revenue effectively.

Failure to comply with foreign exchange registration requirements for offshore investment by PRC residents may result in liability.

Recent PRC regulations relating to cross-border mergers and acquisitions may impact the Company.

The Company is subject to risks presented by fluctuations in foreign currencies.

Intellectual property rights are not generally well protected in China.

The Company's net profitability is subject to changes in PRC tax treatment.

Risk Factors Related to the Ski Resort and Real Estate Industries

Unfavorable weather conditions could have a material adverse effect on the Company's financial condition and results of operations.

Seasonality of operations has an effect on the Company's financial condition and results of operations.

The development of real estate contains a number of risks.

The skiing and real estate development industries are cyclical in nature and are particularly vulnerable to shifts in regional and national economic conditions.

The skiing industry is highly competitive and capital intensive.

Certain world events could adversely affect the Company's financial condition and results of operations.

Additional information relating to MCR, including the Interim Consolidated Financial Statements dated May 14th 2010), are available on SEDAR at www.sedar.com.



Melco China Resorts (Holding) Limited

(To be renamed as Mountain China Resorts (Holding) Limited subject to final
approval by TSX Venture Exchange)

Interim Consolidated Financial Statements
Second Quarter, Fiscal 2010
Ended June 30, 2010
(Unaudited)


The interim consolidated financial statements which are included in this report
have not been subject to a review by the Company's external auditors.



Melco China Resorts (Holding) Limited
----------------------------------------------------------------------------
Table of Contents
For the six-month period ended June 30, 2010
(Unaudited)
----------------------------------------------------------------------------
Page
Interim Consolidated Financial Statements

Consolidated Balance Sheet F-1
Consolidated Statement of Loss and Comprehensive Loss F-2
Consolidated Statement of Cash Flows F-3
Consolidated Statement of Shareholders' Equity and
Accumulated Other Comprehensive Income F-4
Notes to Consolidated Financial Statements F-5 - F-24




Interim Consolidated Balance Sheet
June 30, 2010
(Unaudited)
(in thousands of Canadian dollars)
June 30, December 31,
2010 2009
------------ ---------------
Assets
Current assets:
Cash $ 5,765 $ 1,636
Accounts receivable 315 140
Other receivables and prepayments 2,690 2,309
Prepaid lease payment (note 9) 1,423 1,448
Inventory 855 975
Properties under development for sale 14,780 10,779
------- -------
Total current assets 25,828 17,287
------- -------

Non-current assets:
Property and equipment (note 8) 103,724 109,260
Prepaid lease payment (note 9) 44,575 46,089
Other receivables - -
Prepayment for construction 271 443
Goodwill (note 15) 19,799 20,142
Future tax assets 87 87
------- -------
Total non-current assets 168,456 176,021
------- -------
Total assets $ 194,284 $ 193,308
------- -------
------- -------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 2,981 $ 1,690
Other payable (note 11) 12,750 21,818
Deferred revenue (note 10) 19 19
Amounts due to related parties (note 12) 343 398
Amount due to shareholders (note 12) 71 25,803
Bank loans (note 13) 3,025 18,466
Other borrowings 3,782 3,847
Income taxes 2,972 3,019
------- -------
Total current liabilities 25,943 75,060
------- -------

Non-current liabilities:
Deferred revenue 132 144
Other payable (note 11) 3,531 3,636
Future tax liabilities 4,429 4,542
Amount due to shareholders (note 12) 24,216 -
Bank loans (note 13) 57,479 38,470
------- -------
Total non-current liabilities 89,787 46,792
------- -------
Total liabilities 115,730 121,852
------- -------
Shareholders' equity:
Accumulated deficits (207,557) (206,363)
Accumulated other comprehensive income (8,331) (7,686)
------- -------
(215,888) (214,049)
Common shares (note 16) 291,835 250,385
Class B non-voting shares (note 16) - 25,313
Contributed surplus 2,607 2,834
Warrants - 6,973
------- -------
Total shareholders' equity 78,554 71,456
------- -------
Total liabilities and shareholders' equity $ 194,284 $ 193,308
------- -------
------- -------


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

Approved on behalf of the Board of Directors



(signed) Zhenhua Mao (signed) Gang Han
------------------- ----------------
Director Director




Interim Consolidated Statement of Loss and Comprehensive Loss (Unaudited)

(in thousands of Canadian dollars, except for number of shares
and per share amounts)



Three-month Three-month Six-month Six-month
period ended period ended period ended period ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
------------ ---------- ----------- ------------
Revenue $ 61 $ 72 $ 2,370 $ 1,664
Operating expenses (735) (1,878) (3,023) (5,252)
------------ ---------- ----------- ------------
(674) (1,806) (653) (3,588)
Other income 6 1 15 1
General and
administrative expenses (867) (1,567) (1,535) (6,402)
Depreciation and
amortization (1,974) (2,351) (4,196) (3,788)
------------ ---------- ----------- ------------

Operating loss (3,509) (5,723) (6,369) (13,777)
------------ ---------- ----------- ------------

Non-operating income and
expenses
Finance costs (957) (1,568) (2,651) (4,796)
Interest income 8 155 14 322
Exchange gain, net 285 210 402 137
------------ ---------- ----------- ------------
Total non-operating
income and expenses (664) (1,203) (2,235) (4,337)
------------ ---------- ----------- ------------

Loss before income tax (4,173) (6,926) (8,604) (18,114)
Recovery of future
income taxes 13 30 31 60
------------ ---------- ----------- ------------
Loss from continuing
operations (4,160) (6,896) (8,573) (18,054)
Results of discontinued
operations (note 7) - (1,621) - (2,091)
Net Loss $ (4,160) $ (8,517) $ (8,573) $ (20,145)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------

Other comprehensive
income:
Unrealized gains and
losses on translation
of
self-sustaining
foreign operations $ 1,757 $ (13,961) $ (645) $ (8,229)
------------ ---------- ----------- ------------
Comprehensive loss $ (2,403) $ (22,478) $ (9,218) $ (28,374)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------

Loss from continuing
operations per share
- Basic $ (0.03) $ (0.08) $ (0.06) $ (0.20)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
- Diluted $ (0.03) $ (0.08) $ (0.06) $ (0.20)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Net loss per share
- Basic $ (0.03) $ (0.10) $ (0.06) $ (0.23)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
- Diluted $ (0.03) $ (0.10) $ (0.06) $ (0.23)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------

Weighted average
number of shares
outstanding
- Basic 133,295,698 87,439,344 133,295,698 87,439,344
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
- Diluted 133,295,698 87,439,344 133,295,698 87,439,344
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------

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



Interim Consolidated Statement of Cash Flows
(Unaudited)
(in thousands of Canadian dollars)

Three-month Three-month Six-month Six-month
period ended period ended period ended period ended
June 30, June 30, June 30, to June 30,
2010 2009 2010 2009
------------ ------------ ------------ ------------
Cash Provided By
(Used In):
Operations:
Net loss $ (4,160) $ (8,517) $ (8,573) $ (20,145)
Items not affecting
cash:
Results of
discontinued
operation - 1,621 - 2,091
Depreciation and
amortization 1,974 2,351 4,196 3,788
Future income
taxes (13) (30) (31) (60)
Notional interest
on amount due to
shareholder - 165 146 336
Notional interest
on other
receivables - (139) - (284)
Share-based
compensation 162 288 315 594
Loss on disposal
of
property and
equipment - 2 5 2
Changes in non-cash
operating working
capital (note 6) (2,131) (723) (6,631) 420
Funds from
discontinued
operation (note 7) - (1,030) - (923)
------------ ------------ ------------ ------------
(4,168) (6,012) (10,573) (14,181)
------------ ------------ ------------ ------------
Financing:
Advance of bank
loans - - 33,899 46,575
Repayment of bridge
loan (RMB 74
million). (11,102) - (11,102) -
Repayment of bank
loan (RMB 120
million) - - (18,160) -
Final payment for
acquisition of
"Zhiye" (RMB 35
million) (5,251) - (5,251) -
Repayment of bank
loans - - - (3,726)
The first proceeds
of the Private
Placement - - 14,528 -
The second proceeds
of the Private
Placement 1,040 - 1,040 -
(Repayment
to)/advance from
shareholders 208 (178) 362 1,920
------------ ------------ ------------ ------------
(15,105) (178) 15,316 44,769
------------ ------------ ------------ ------------
Investing:
Purchases of
property and
equipment (3) (1,496) (11) (10,585)
Construction
prepayment - (32) - (7,511)
Repayment of other
payable - - - (3,726)
Decrease in pledged
bank deposits - - - 4,069
Disposal of property
and equipment - 1 - 1
------------ ------------ ------------ ------------
(3) (1,527) (11) (17,752)
------------ ------------ ------------ ------------
(Decrease)/increase in
cash (19,276) (7,717) 4,732 12,836
Effect of changes
in exchange rate (71) (2,256) (603) (2,125)
Cash, beginning 25,112 24,178 1,636 3,494
------------ ------------ ------------ ------------
Cash, end $ 5,765 $ 14,205 $ 5,765 $ 14,205
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental
information:
Finance costs paid $ 1,958 $ 1,733 $ 2,778 $ 4,673
Tax paid - - - -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

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



Interim Consolidated Statement of Shareholders' Equity and
Accumulated Other Comprehensive Income
(Unaudited)
(in thousands of Canadian dollars, except for number of shares)



Class B non-voting
Common shares, common shares,
issued and issued and
outstanding outstanding Contributed
Shares Amount Shares Amount surplus
---------- --------- --------- -------- ----------
Balance at
December 31,
2008 and
January 1, 2009 87,439,344 $ 250,385 8,437,565 $ 25,313 $ 2,150
Employee's share-
based compensation - - - - 684
Dividend payable to
Class B non-voting
shares - - - - -
Net loss - - - - -
Unrealized losses on
translation of
self-sustaining
foreign operations - - - - -
---------- --------- --------- -------- ----------
Balance at December
31, 2009 and
January 1, 2010 87,439,344 $ 250,385 8,437,565 $ 25,313 $ 2,834
Issue of common
shares (note 16) 100,000,000 15,000 - - -
Conversion of
Class-B non-
voting shares
(note 16) 8,437,565 25,313 (8,437,565) (25,313) -
Conversion of
Shareholder's
Loan (note 16) 6,686,666 1,003 - - -
Issue of common
shares under
RSU (note 16) 261,436 134 - - -
Warrants Expire
(note 17) - - - - -
Stock option
expire (note 18) - - - - (408)
Employee's share-based
compensation
(notes 18 and 19) - - - - 181
Dividend payable to
Class B non-voting
shares - - - - -
Net loss - - - - -
Unrealized losses on
translation of
self-sustaining
foreign operations - - - - -
---------- --------- --------- -------- ----------
Balance at
June 30, 2010 202,825,011 $ 291,835 - $ - $ 2,607
---------- --------- --------- -------- ----------
---------- --------- --------- -------- ----------



Accumulated
other Total
Accumulated comprehensive shareholders'
Warrant deficit income/(loss) equity
------- ----------- ------------- ------------
Balance at December
31, 2008 and
January 1, 2009 $ 6,973 $ (139,518) $ 11,605 $ 156,908
Employee's share-
based compensation - - - 684
Dividend payable to
Class B non-voting
shares - (8) - (8)
Net loss - (66,837) - (66,837)
Unrealized losses
on translation
of self-sustaining
foreign operations - - (19,291) (19,291)
------- ----------- ------------- ------------
Balance at December
31, 2009 and
January 1, 2010 $ 6,973 $ (206,363) $ (7,686) $ 71,456
Issue of common
shares (note 16) - - - 15,000
Conversion of Class-B
non-voting shares
(note 16) - - - -
Conversion of
Shareholder's
Loan (note 16) - - - 1,003
Issue of common
shares under
RSU (note 16) - - - 134
Warrants Expire
(note 17) (6,973) 6,973 - -
Stock option
expire (note 18) 408 -
Employee's share-based
compensation
(notes 18 and 19) - - - 181
Dividend payable to
Class B non-voting
shares - (2) - (2)
Net loss - (8,573) - (8,573)
Unrealized losses on
translation of
self-sustaining
foreign operations - - (645) (645)
------- ----------- ------------- ------------
Balance at June
30, 2010 $ - $ (207,557) $ (8,331) $ 78,554
------- ----------- ------------- ------------
------- ----------- ------------- ------------

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



Notes to Interim Consolidated Financial Statements
For the six-month period ended June 30, 2010
(Unaudited)
(in thousands of Canadian dollars, unless otherwise indicated and
except for share and per share amounts)


1. OPERATIONS

Melco China Resorts (Holding) Limited (the "Company" or "MCR"), is an investment holding company, with registered office in Canada with its subsidiaries engaged in the development and operation of mountain resorts and provision of hotel services in the People's Republic of China (the "PRC"). MCR common shares trade on the TSX Venture Exchange under the symbol "MCG".

As at June 30, 2010, the Company obtained its shareholders' approval and endorsement for its change of name from Melco China Resorts (Holding) Limited to Mountain China Resorts (Holding) Limited at the Annual General Meeting held on June 1, 2010. Such change of name was certified by the Registrar of Companies, Province of British Columbia Canada on June 7, 2010 and is subject to final approval by TSXV. The change of name recognizes and emphasizes the Company's primary focus on the mountain resort industry in China and its premier and peak position.

The Company was incorporated under the Business Corporations Act (British Columbia) on February 6, 2008. The Company holds 100% of the issued share capital of Melco China Resort Investment Limited, renamed as Mountain China Resorts Investment Limited on July 21, 2010, which in turn holds 100% of the issued share capital of Melco China Resort Limited ("MCRHK"), renamed as Mountain China Resorts Limited on July 9, 2010. MCRHK then holds 100% of the registered capital of the following subsidiaries in the PRC, including Heilongjiang Yabuli On Snow Asian Game Village Hotel Co. Ltd. ("Yabuli Resort"), Heilongjiang Yabuluoni Zhiye Co. Ltd. ("Zhiye"), Changchun Lianhua Mountain Skiing Field Co. Ltd. ("Changchun Resort"), Jilin Melco Sky Mountain Beidahu Ski Resort Co. Ltd. ("Beidahu Resort"), Jilin Melco Sky Mountain Beidahu Real Estate Co. Ltd. ("Beidahu Real Estate") and Melco China Resort Travel Consultancy (Beijing) Co. Ltd. ("MCR Beijing"), among which, Beidahu Resort, Beidahu Real Estate and MCR Beijing are dormant as of the balance sheet date.

2. BASIS OF PREPARATION

The interim consolidated financial statements as at June 30, 2010 and for the six-month period ended June 30, 2010 comprise the financial statements of the Company and its subsidiaries (collectively referred to as the "Group") and have been prepared by management, in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") for the preparation of interim financial statements and are unaudited. These interim consolidated financial statements do not include all of the information and notes required by Canadian GAAP for annual financial statements and should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2009.

The majority of the Group's resort and hotel operations revenue is generated during the period from October to March.

The interim consolidated financial statements have been presented in Canadian dollars ("CAD"). The measurement currency of the Company is CAD.

Financing and Going Concern Update

These financial statements have been prepared on a going-concern basis. As at June 30, 2010, the Company had working capital deficit of $115. The Company's ability to operate as a going concern is dependent upon its ability to generate funds from resort operations and resort real estate activities and/or on borrowing from third parties. Company has completed a number of financings in order to meet its working capital requirements.

New RMB 150 million Loan with Harbin Bank

On February 12, 2010, the Company's indirectly wholly owned subsidiary, Heilongjiang Yabuli On Snow Asian Game Village Hotel Co. Ltd., successful repaid a RMB 120 million ($18.15 million) loan to the Harbin Bank due on February 15th, 2010 and arranged a new loan facility of RMB 150 million ($22.69 million) with the same bank for a two-year term with a maturity date of February 9, 2012, and with a fixed annual interest rate of 5.94%. This new loan was facilitated by a short term bridge loan of RMB 74 million ($11.19 million) provided by WHL on February 11, 2010. The bridge loan had a term of 60 days with a loan fee of 4.6% for each 30 day period on the principal amount drawn down and was fully repaid by April 6, 2010.

Completion of $15,000 Private Placement with Wisecord Holdings Limited:

On April 9, 2010, the Company successfully completed its private placement with Wisecord Holdings Limited ("WHL") in which WHL has subscribed for 100,000,000 common shares at a subscription price of $0.15 per common share for a total subscription price of $15,000 (the "Private Placement") or RMB 102.93 million. WHL has subscribed for approximately 49.4% of the equity interest of the Company (on a fully diluted basis and after the conversion of MCR's outstanding Class B non-voting shares and the conversion of two-thirds of the existing US$1.5 million ($1,548) loan from Melco Leisure and Entertainment Group Limited ("MLE"), the intermediate shareholder of the Company).

Revised Terms of Shareholder Loans and Call Option with MLE:

In connection with the completion of the Private Placement, MLE, WHL and MCR entered into a supplemental loan agreement (the "Shareholder Loans Agreement") under which MLE has extended the maturity of its existing US$23 million ($23.74 million) aggregate principal amount in loans to the Company (the "Shareholder Loans") to March 31, 2013 such that the Shareholder Loans are no longer be due on demand and accrue interest at the rate of 3% per annum. Pursuant to the Shareholder Loans Agreement, at any time before March 31, 2013, if the Company's 30 consecutive day weighted average trading price exceeds $1.00 per common share, WHL has the right, subject to any applicable regulatory approvals, to require MLE to convert all or part of the Shareholder Loans into common shares (the "Converted Shares") at a 50% discount plus accrued interest at a price (the "Conversion Price") equal to (a) 70% of the said weighted average trading price or (b) $1.00, whichever is greater. Further, WHL will have a call option to buy one-third of the Converted Shares from MLE at the Conversion Price within 30 days of the conversion (the "Call Option").

In addition, MLE, WHL and MCR executed a binding agreement in relation to the settlement of US$1.5 million ($1.55 million) loan provided by MLE to the Company (the "Loan Settlement Agreement"). Pursuant to the Loan Settlement Agreement, US$1 million ($1.03 million) principal amount of the loan was settled by way of conversion of the said US$1 million ($1.03 million) principal amount at a price of $0.15 per common share into 6,686,666 common shares, issued in the name of Melco (Luxembourg) S.A.R.L. ("ML Luxco"). The remaining US$0.5 million ($0.52 million) principal amount of the loan has been re-paid to MLE in cash upon the completion of the Private Placement.

Conversion of Class B Non-Voting Shares:

ML Luxco also converted its 8,437,565 Class-B non-voting shares in the capital of the Company into common shares in accordance with the terms of the Loan Settlement Agreement.

Through the completion of the Company's refinancing efforts of the Private Placement and revised terms of the Shareholder Loans with MLE subsequent to the current period, the Company has significantly reduced and satisfied its immediate and current financial obligations.

Acquisition of Heilongjiang Yabuluoni Zhiye Co. Ltd

On April 12, 2010, the Company completed all of its payment obligations for the acquisition of Heilongjiang Yabuluoni Zhiye Co. Ltd. with a final payment of RMB 35 million ($5.29 million). Zhiye was acquired in August of 2008 for a total consideration of RMB 55 million ($8.32 million) (wherein the acquisition included 144.6 hectares of development land at its Sun Mountain Yabuli Resort. An initial payment of RMB 20 million ($3.03 million) was made in March 2009. The second and final installment of RMB 35 million ($5.29 million) was required to be deferred as the Company managed its cash resources over the last twelve months to combat the worldwide economic downturn.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied in these interim consolidated financial statements are consistent with those applied in the annual audited consolidated financial statements of the Company for the year ended December 31, 2009.

Recently adopted accounting standards

The Company adopted the following new accounting standard that was issued by the Canadian Institute of Chartered Accountants ("CICA"). The standard was adopted on a prospective basis. There were no adjustments recorded to opening deficit as a result of the adoption of this standard.

Goodwill and Intangible Assets

Section 3064, Goodwill and Intangible Assets replaced Section 3062, "Goodwill and Other Intangible Assets", and Section 3450, "Research and Development Costs". The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit oriented enterprises. Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of intangible assets. These changes clarify that costs may only be deferred when they relate to an item that meets the definition of an asset.

The concept of matching revenues and expenses remains appropriate only for allocating the cost of an asset that is consumed in generating revenue over multiple reporting periods. Standards relating to goodwill are unchanged from those included in Section 3062. The standard has no significant effect to these interim consolidated financial statements.

New Accounting Standards Not Yet Adopted

International Financial Reporting Standards ("IFRS")

In February 2008, AcSB confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption possibly allowed starting in calendar year 2009. The conversion to IFRS will be required, for the Group, for annual financial statements beginning on January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences on recognition, measurement and disclosures.

In the period leading up to the conversion, the AcSB will continue to issue accounting standards that are converged with IFRS such as IAS 2 "Inventories" and IAS 38 "Intangible assets", thus mitigating the impact of adopting IFRS at the mandatory transition date. The Company is currently evaluating the impact of the adoption of IFRS on its consolidated financial statements.

Business Combinations

In January 2009, the AcSB issued Section 1582, "Business Combinations", which replaces former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. It provides the Canadian equivalent to the IFRS standard, IFRS 3 (Revised), "Business Combinations". This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. We do not expect the adoption of this statement to have a material impact on our results of operations or financial position.

Revenue recognition

In December 2009, the CICA issued EIC Abstract 175, "Multiple Deliverable Revenue Arrangements", replacing EIC Abstract 142, "Revenue Arrangements with Multiple Deliverables". This abstract was amended to: (1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2) require, in situations where a vendor does not have vendor-specific objective evidence ("VSOE") or third-party evidence of selling price, that the entity allocate revenue in an arrangement using estimated selling prices of deliverables; (3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and (4) require expanded qualitative and quantitative disclosures regarding significant judgments made in applying this guidance. The accounting changes summarized in EIC Abstract 175 are effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application. If EIC Abstract 175 is adopted early, in a reporting period that is not the first reporting period in the entity's fiscal year, it must be applied retroactively from the beginning of the Company's fiscal period of adoption. We do not expect the adoption will have a material impact on our results of operations or financial position.


4. CAPITAL DISCLOSURES

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.



Total capital is calculated as follows:


As at As at
June 30, December 31,
2010 2009
--------- -----------

Amounts due to shareholders $ 24,287 $ 25,803
Bank loans 60,504 56,936
Other borrowings 3,782 3,847
Equity 78,554 71,456
--------- -----------
$ 167,127 $ 158,042
--------- -----------
--------- -----------


The directors of the Company review the capital structure from time to time. As part of this review, the directors considered the cost of capital and the risks associate with each class of capital. The Group will balance its overall capital structure through issue of new shares, new debts or the redemption or extension of existing debts.

5. FINANCIAL INSTRUMENTS

Fair Value

The carrying values of cash, accounts and other receivables, amount due to related parties, accounts payable, other payables and other borrowings approximate the fair values thereof because of the short-term nature of these instruments. The carrying values of the bank loans, amount due to intermediate shareholder approximate the fair values thereof by using the current market rates for similar debt securities.

Risk Management Policies

The Group, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at the balance sheet date of June 30, 2010.

Credit Risk

The Group's maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties totals the carrying amount of these assets as stated in the consolidated balance sheet.

The Group's principal financial assets are cash and accounts and other receivables, which represent the Group's exposure to credit risk in relation to financial assets.

The credit risk on cash is mitigated by transacting with banks with high credit ratings assigned by international credit-rating agencies.

The credit risk on accounts and other receivables is also limited as (i) most of the amounts are repaid during the credit period and (ii) the amount consists of a large number of customers and thus the concentration of credit risk is low.

The Group does not have any significant financial assets that are past due but not impaired.

Foreign Exchange Risk

The Group's results in its respective measurement currency are subject to fluctuations as a result of exchange rate movements to the extent that transactions are made in currencies other than the measurement currency.

A 10% increase or decrease in the USD/CAD exchange rate would have increased or decreased the net loss of the Group by approximately $1,436 (2009: $1,562) for the six-month period.

A 10% increase or decrease in the HKD/CAD exchange rate would have increased or decreased the net loss of the Group by $1,144 (2009: nil)for the six-month period.

A 10% increase or decrease in the RMB/CAD exchange rate would have increased or decreased the net loss of the Group by nil (2009: $1,006) for the three-month period.

A 10% increase or decrease in the RMB/CAD exchange rate would have increased or decreased the other comprehensive income of the Group by approximately $298 (2009: $6,761) for the six-month period.

The Group has not entered into derivative instruments to hedge its foreign exchange risk during the periods.

Interest Rate Risk

The Group is exposed to fair value interest rate risk in relation to fixed interest rate bank and other borrowings as of June 30, 2010.

A 1% increase or decrease in interest rates on bank borrowings would have increased or decreased the net loss of the Group by approximately $303 (2009: $312) for the six-month period.

A 1% increase or decrease in interest rates on other borrowings would have increased or decreased the net loss of the Group by approximately $19 (2009: $21) for the six-month period.

The Group is also exposed to cash flow interest rate risk with regard to amount due to intermediate shareholder and total cash deposits.

A 1% increase or decrease in interest rates on total cash deposits would have decreased or increased the net loss of the Group by approximately $29 (2009: $71) for the six-month period.

A 1% increase or decrease in interest rates on the total amount due to intermediate shareholder would have increased or decreased the net loss of the Group by approximately $121 (2009: $139) for the six-month period.

Liquidity Risk

The Group's policy is to actively maintaining credit facilities to ensure sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost.

The following items are the contractual maturities of financial liabilities as at June 30, 2010:





June 30, 2010 Carrying Contractual 0 to 6 6 to 12 12 to 24 After 24
Amount Cash Flows months months months months
-------- ----------- ------- ------- -------- --------
Accounts
payable
and accrued
liabilities $ 2,981 $ 2,981 $ 2,981 $ - $ - $ -

Other payable 16,281 16,281 12,750 - 3,531 -

Amount due
to related
party 343 343 343 - - -

Amounts
due to
shareholders 24,287 26,243 71 - - 26,172

Bank loans 60,504 71,382 - 3,151 29,872 38,359

Other
borrowings 3,782 3,782 3,782 - - -
-------- ----------- ------- ------- -------- --------
Total $ 108,178 $ 121,012 $ 19,927 $ 3,151 $ 33,403 $ 64,531
-------- ----------- ------- ------- -------- --------
-------- ----------- ------- ------- -------- --------



December Carrying Contractual 0 to 6 6 to 12 12 to 24 After 24
31, 2009 Amount Cash Flows months months months months
-------- ----------- ------- ------- -------- --------
Accounts
payable
and accrued
liabilities $ 1,690 $ 1,690 $ 1,690 $ - $ - $ -
Other payable 25,454 25,454 21,818 - 3,636 -
Amounts due to
related parties 398 398 398 - - -
Amount due to
intermediate
shareholder 25,803 26,060 26,060 - - -
Bank loans 56,936 67,132 18,614 - 3,303 45,215
Other
borrowings 3,847 3,847 3,847 - - -
-------- ----------- ------- ------- -------- --------
Total $ 114,128 $ 124,581 $ 72,427 $ - $ 6,939 $ 45,215
-------- ----------- ------- ------- -------- --------
-------- ----------- ------- ------- -------- --------


Some of the financial liabilities which are coming due in the current year, the Group will be seeking to establish committed equity financing, debt refinancing, new debt, or negotiated terms of payment. The contractual cash flows of amounts due to shareholders, bank loans and other borrowings are interest bearing.


6. CASH FLOW INFORMATION

The changes in non-cash operating working capital balance consist of the following:




Three- Three- Six-month Six-month
month month month period
period period period ended
ended ended ended to
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
-------- -------- ---------- ---------
Movement in working capital:
(Increase)/decrease in
accounts and other
receivables $ (457) $ 289 $ (594) $ 550
(Increase)/decrease in
inventory 12 114 103 (347)
Increase in properties
under development for sale (1,631) (13) (4,172) (15)
Increase/(decrease) in accounts
payable and accrued liabilities (102) (235) (1,917) 929
Increase/(decrease) in amounts
due to related parties 47 (878) (51) (697)
-------- -------- ---------- ---------
$ (2,131) $ (723) $ (6,631) $ 420
-------- -------- ---------- ---------
-------- -------- ---------- ---------


7. DISCONTINUED OPERATION

On July 17, 2009, Jilin Beidahu Sports and Tourism Industry Development Company Limited ("Jilin Beidahu Development Zone") served formal notice to the Company that the agreement (the "Acquisition Agreement") with Jilin Beidahu Development Zone dated November 22, 2007 for the acquisition of Beidahu Resort's assets would be terminated pursuant to its terms as the Company had failed to pay the RMB 70 million ($10,772) payment which was due on December 31, 2008. The Company was unsuccessful in renegotiating terms of the Acquisition Agreement to defer the acquisition payments and the Acquisition Agreement was terminated on September 17, 2009.

For comparative purposes, the results of operation of Beidahu Resort have been disclosed separately from those of continuing operations for the period presented.

Loss from discontinued operation and the results of the loss relating to the discontinued operation of Beidahu Resort during the three-month period ended June 30, 2009 are as follows:



Revenue $ 77
--------
--------
Results of discontinued operation
net of income tax expenses $ (1,621)
--------
--------
Results of discontinued operation per share:
Basic $ (0.02)
--------
--------
Dilute $ (0.02)
--------
--------
Cash from discontinued operation:
Loss from discontinued operation $ (1,621)
Adjustments for:
Depreciation and amortization 600
Recovery of future income tax (9)
$ (1,030)
--------
--------


Loss from discontinued operation and the results of the loss relating to the discontinued operation of Beidahu Resort during the six-month period ended June 30, 2009 are as follows:



Revenue $ 1,730
--------
--------
Results of discontinued operation
net of income tax expenses $ (2,091)
--------
--------
Results of discontinued operation per share:
Basic $ (0.02)
--------
--------
Dilute $ (0.02)
--------
--------
Cash from discontinued operation:
Loss from discontinued operation $ (2,091)
Adjustments for:
Depreciation and amortization 1,187
Recovery of future income tax (19)
--------
$ (923)
--------
--------


8. PROPERTY AND EQUIPMENT



June 30, 2010
--------------------------------
Accumulated Net
Cost depreciation book value
---- -------------- ------------
Ski assets:
Buildings and ski lifts $ 93,933 $ (8,967) $ 84,966
Construction in progress 7,248 - 7,248
Machineries 9,718 (1,862) 7,856
Tools and equipment 2,290 (543) 1,747
Motor vehicles 493 (183) 310
Ski clothes and equipment 2,991 (1,394) 1,597
------- -------------- ------------
$ 116,673 $ (12,949) $ 103,724
------- -------------- ------------
------- -------------- ------------


December 31, 2009
--------------------------------
Accumulated Net
Cost depreciation book value
Ski assets:
Buildings and ski lifts $ 95,866 $ (6,887) $ 88,979
Construction in progress 7,371 - 7,371
Machineries 9,886 (1,357) 8,529
Tools and equipment 2,220 (358) 1,862
Motor vehicles 502 (150) 352
Ski clothes and equipment 3,056 (889) 2,167
------- -------------- ------------
$ 118,901 $ (9,641) $ 109,260
------- -------------- ------------
------- -------------- ------------


Depreciation expense charged to statement of operations for the three-month and six-month periods ended June 30, 2010 were $1,613 and $3,471 respectively

During the three-month and six-month periods ended June 30, 2010, no interest was capitalized by the Group (three month and six month periods ended June 30, 2009: nil and $890 respectively).

The Group has pledged property and equipment of $87,520 at June 30, 2010 (December 31, 2009: $69,623) to secure the bank loans (note 13).

The cost of buildings and ski lifts was reduced by an amount RMB102.1 million ($15,711) during the year ended December 31, 2009 as the Group obtained a government grant of the same amount on June 16, 2008 with a condition that the Group will provide the requested infrastructure facilities for the 24th World Winter University Games, which was finished in February 28, 2009. As such, the government grant amount was reflected as a reduction of the property and equipment.

9. PREPAID LEASE PAYMENT


As at As at
June 30, December 31,
2010 2009
--------- ------------
Current portion $ 1,423 $ 1,448
Non-current portion 44,575 46,089
--------- ------------
$ 45,998 $ 47,537
--------- ------------
--------- ------------


Prepaid lease payments represented the payments for the certificates of land use rights of the Group.

Amortization of prepaid lease payments was an expense of $361 and $725 for the three-month and six-month periods ended June 30, 2010. The following table represents the total estimated amortization expense of prepaid lease payments for each of the next five years.



Period ending June 30
2010 $ 1,423
2011 1,423
2012 1,423
2013 1,423
2014 1,423
Thereafter 38,883
------
Total $ 45,998
------
------


As at June 30, 2010, the Group had not obtained the formal land use rights for certain of its leasehold land, the carrying value of which at that date was approximately $1,897 (December 31, 2009: $1,999).

The Group has pledged land use rights having a carrying value of approximately $39,803, at June 30, 2010 (December 31, 2009: $41,150) to secure the bank loans (note 13).


10. DEFERRED REVENUE



As at As at
June 30, December 31,
2010 2009
------- -----------
Lodging deposits $ 151 $ 163
Current portion (19) (19)
------- -----------
$ 132 $ 144


11. OTHER PAYABLE



As at As at
June 30, December 31,
2010 2009
------- -----------
Construction payable $ 6,332 $ 10,196
Amounts due to former related parties 3 5,386
Retention payable for construction 3,531 3,636
Others 6,415 6,236
------- -----------
16,281 25,454
Classified as non-current (3,531) (3,636)
------- -----------
Classified as current $ 12,750 $ 21,818
------- -----------
------- -----------



12. RELATED PARTY BALANCES/TRANSACTIONS

The balances owing to related parties as at June 30, 2010 and December 31, 2009 are as follows:



Name of related party Relationship with the Group
--------------------- ---------------------------
MLE Shareholder

Melco International Development Limited ("MIDL") A company held a beneficial
interest in one
of the shareholders of MCR

Melco Services Limited Subsidiary of shareholder



As at As at
June 30, December 31,
Account Name of related party 2010 2009
------- --------------------- -------- -----------
Loans from shareholder MLE $ 23,709 $ 25,730
Notional interest - (149)
-------- -----------
23,709 25,581
Accrued interest 507 222
-------- -----------
$ 24,216 $ 25,803
-------- -----------
-------- -----------
Amount due to shareholder MIDL $ 71 $ -
-------- -----------
-------- -----------
Melco
Amount due to related party Services Limited $ 343 $ 398
-------- -----------
-------- -----------



The loans from shareholders include the remaining two shareholder loans from MLE in the principal amounts of US $12 million ($12,388) and US $11 million ($11,355) before notional interest. The original terms of these loans were interest bearing at 3-month LIBOR plus 3% and non-interest bearing with fixed repayment terms to March 31, 2010 and March 31, 2010, respectively. Through a Supplemental Loan Agreement made on April 8, 2010, the new terms of both loans are interest bearing at 3% per annum with fixed repayment terms to March 31, 2013. Accrued interest is repayable quarterly. All loans are unsecured.

The remaining balances with shareholder and related party are unsecured, non-interest bearing and repayable on demand.

The amount due to MIDL is derived from a one-off payment in relation to the operating expenses of the Company.

During the period, the Group had the following transactions with the related parties:



Three-month Three -month Six-month Six-month
Name of ended ended ended ended
related Nature of June 30, June 30, June 30, June 30,
party transaction 2010 2009 2010 2009
------- ----------- ----------- ------------ --------- ---------
Melco Advisory
Services service
Limited fee $ 13 $ 182 $ 85 $ 347
Loan
interest
MLE expense 176 326 437 684
------- ----------- ----------- ------------ --------- ---------
------- ----------- ----------- ------------ --------- ---------


The advisory service fee was charged on an actual basis with reference to the actual amount of time provided by the personnel of Melco Services Limited for the provision of the services, subject to the fee caps. The loan interest expense was related to the above amount due to MLE with a total principal amount of USD$23 million as at June 30, 2010.


13. BANK LOANS

The Group has obtained financing for its resort and hotel operations from various financial institutions by pledging land use rights with a carrying value of $39,803 and property and equipments of $87,520 as securities for such financing (December 31, 2009: pledged land use rights of $41,150 and property and equipments of $69,623).

On February 12, 2010, the Group repaid a RMB 120 million ($18,185) loan to the Harbin Bank due on February 15, 2010 and arranged a new loan facility of RMB 150 million ($22,689) with the same bank for a two-year term with a maturity date of February 9, 2012.

The following are the significant terms of the bank loans:


Weighted
average As at As at
Maturity interest June 30, December 31,
dates rates (%) 2010 2009
-------- --------- ------- -----------
General
corporate debt February 15, 2009 6.48% $ - $ 18,466
March 2, 2011 to
March 2, 2016 6.237% 37,815 38,470
February 9, 2012 5.94% 22,689 -
------- -----------
60,504 56,936
Current portion (3,025) (18,466)
------- -----------
$ 57,479 $ 38,470
------- -----------
------- -----------




The bank loans are repayable as follows:



Year ending June 30
2011 $ 3,025
2012 27,228
2013 6,050
2014 7,563
2015 8,319
2016 8,319
--------
$ 60,504
--------
--------


14. NET LOSS PER SHARE

As of June 30, 2010, the Company had 1,710,000 outstanding stock options granted under the stock option plan (note 17). The options are potentially dilutive, but have been excluded in the computation of diluted net loss per share, as these are anti-dilutive for the three-month and six-month periods ended June 30, 2010.

15. GOODWILL

Goodwill of $19,799 as at June 30, 2010 arose from the acquisition of MCR China Resort Limited ("MCR Cayman") and its subsidiaries on May 27, 2008. This was after the write off of the relevant amounts related to the disposition of Beijing and Jilin Mountain Resorts, amounting to $21,733, and the relevant amounts related to the impairment of goodwill of Changchun, Beidahu and Yabuli Resorts, amounting to $96,090 in 2008 and $22,700 in 2009.

Goodwill impairment is tested annually or if factors indicative of impairment are present. The Company is not aware of any significant adverse events which trigger an impairment indicator during the three-month period ended June 30, 2010. Accordingly, no impairment test has been performed as at June 30, 2010. The movement in current period represents the currency realignment for the period.

16. SHARE CAPITAL

The Company's authorized share capital consists of unlimited number of common shares and Class B non-voting shares without nominal or par value.

At January 1, 2009, December 31, 2009, January 1, 2010, and June 30, 2010, the Company had the following issued common shares and Class B non-voting shares:

MOVEMENTS IN SHARE CAPITAL



Date Details Number Amount
---- ------- of shares ------
---------

COMMON SHARES

January 1, 2009,
December 31, 2009 and Opening balance 87,439,344 $ 250,385
January 1, 2010
Issue of shares for
Private Placement 100,000,000 15,000

Conversion of Class-B
non-voting shares 8,437,565 25,313

Conversion of
shareholder's
loan of US$1 million 6,686,666 1,003

Issue of shares under
Restricted Stock Units
Plan ("RSU Plan") 261,436 134

June 30, 2010 Closing balance 202,825,011 291,835
----------- -------
----------- -------
CLASS-B NON-VOTING SHARES
June 30, 2010 Closing balance - -
----------- -------
----------- -------


17. SHARE PURCHASE WARRANTS

There are 12,021,816 warrants with an exercise price of $4.00 each, expired on May 27, 2010. None of these warrants options were exercised. As at June 30, 2010, no share purchase warrant was outstanding.

18. STOCK OPTIONS

The Company adopted the Stock Option Plan so as to provide additional incentives to attract and retain directors, executive officers, employees and consultants of the Company and its affiliates. Under the Stock Option Plan, options to purchase shares may be granted by the Board of Directors of the Company (the "Board") to directors, executive officers, employees and consultants of the Company or its affiliates. Options granted will have an exercise price of not less than the volume weighted average trading price of the shares on the stock exchange on which the shares are traded for the five trading days immediately preceding the day on which the option is granted. The maximum aggregate number of shares which may be subject to options under the Stock Option Plan is 10% of the shares of the Company outstanding from time to time. Unless the Board decides otherwise, options granted under the Stock Option Plan will vest over a three-year period and may be exercised in whole or in part at any time as to one-third on each anniversary of the grant date for the three-year period and the options will expire on the tenth anniversary of the grant date. Any option not exercised prior to the expiry date will become null and void.

The Cox, Ross and Rubinstein Binomial option valuation model, used by the Company to determine fair values, was developed for use in estimating the fair value of freely traded options. This model requires the input of highly subjective assumptions including future stock price volatility and expected time until exercise. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing model does not necessarily provide a reliable single measure of the fair value of the Company's stock options granted.

The following table summarizes the activity of the Company's stock option plan.



Weighted
Average
Options exercise price
------- --------------

Outstanding - January 1, 2009 3,520,000 $ 3.00
Lapsed during the year (1,790,000) 3.00
----------
Outstanding - December 31, 2009
and January 1, 2010 1,730,000 3.00
Lapsed during the period (20,000) 3.00
----------
Outstanding - June 30, 2010 1,710,000 3.00
----------
----------
Options exercisable - June 30, 2010 556,666 3.00
----------
----------
Options exercisable - December 31, 2009 576,666 3.00
----------
----------


Each option entitles the holder to purchase one common share of the Company at a price of $3.00 per common share. These options have vesting periods of up to 3 years and an exercise period of up to 10 years, expiring on May 28, 2018, August 15, 2018 and September 1, 2018 respectively. The fair value of the options issued was estimated using the Cox, Ross and Rubinstein Binomial Model on the date of issue to be $1.41 per option, $0.38 per option and $0.37 per option respectively. Assumptions used to determine the value of the options were as follows:



May 28, August 15, September 1,
2008 2008 2008
------- ---------- -----------
Number of options issue 1,500,000 3,250,000 50,000
Risk-free interest rate 3.788% 3.568% 3.536%
Contractual life 10 years 10 years 10 years
Expected volatility 49% 48% 47%
Dividend yield 0% 0% 0%


The options granted under Stock Option Plan resulted in a compensation expense of $70 (2009:$264) and $150 (2009: $570) for the three-month and six-month period ended June 30, 2010, which is included in general and administrative expenses. As at June 30, 2010, there was $139 of unrecognized compensation cost related to non-vested stock options (December 31, 2009: $289).

Further, On April 15, 2010, 480,000 stock options granted to finders of VCTS in connection with the reverse takeover expired and none of these options were exercised. The fair value of the options issued was estimated using the Cox, Ross and Rubinstein Binomial Model on the date of issue to be $0.85 per option. Assumptions used to determine the value of the options were: dividend yield 0%; risk-free interest rate 3.086%; expected volatility 50%; and contractual life of 1.88 years. All compensation expense related to the options granted to finders was charged to the consolidated statement of operations in 2008.

19. RESTRICTED STOCK UNITS

The Company adopted the Restricted Stock Unit Plan ("RSU Plan") on June 2, 2009 after the approval by the shareholders on the same date so as to provide employees, consultants, and/or directors of the Company with an additional incentive program to further the growth and development of the Company and encourage them to remain with the Company. Each RSU granted under the RSU Plan will entitle the participant to cash and/or common shares, provided (i) the participant is continuously employed by or in service with the Company or any of its affiliates from the date or the effective date of such grant until vested, and (ii) all other terms and conditions of the grant have been satisfied.

On June 2, 2009, the Company has granted a total of six RSU awards ("RSU awards"), one to each of the non-management directors. The RSU awards are valued at $80 each and will be satisfied with common shares to be issued from treasury in accordance with the terms of the RSU Plan. The awards do not have a performance target and are otherwise subject to the proposed RSU Plan. These awards have vested equally in one-third portions on the anniversary date of the grant over a three year period, that is, on June 2, 2010, June 2, 2011 and June 2, 2012 respectively.

The following table summarizes the activity of the Company's RSU Plan.


Awards

Outstanding - January 1, 2009 $ -
Granted during the period 480
--------
Outstanding - December 31, 2009 and January 1, 2010 $ 480
Lapsed during the period (160)
--------
Outstanding - June 30, 2010 $ 320
--------
--------


The awards granted under RSU Plan resulted in a compensation expense of $92 and $165 for the three-month and six-month periods ended June 30, 2010 respectively, which is included in general and administrative expenses. As at June 30, 2010, there was $145 of unrecognized compensation cost related to non-vested RSU awards.

On May 3, 2010, an additional 261,436 common shares of the Company were issued from treasury under the RSU plan and resulted in a compensation expense of $44. After such issuance, the Company has outstanding 4 RSU awards with an aggregated value of $320.

20. CONTINGENCIES AND COMMITMENTS

At June 30, 2010, the Group had capital commitments contracted for but not provided and authorized but not contracted in respect of construction of property and equipment of $5,813 and $832 respectively. The amount is expected to be settled upon the satisfactory certification of the property construction or the delivery of properties under development for sale in 2010.

The TSX Venture Exchange nor its Regulation Services Provider has neither approved nor disapproved the contents of this press release. The TSX Venture Exchange nor its Regulation Services Provider does not accept responsibility for the adequacy or accuracy of this release.

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