FORD GLORY GROUP HOLDINGS LIMITED 福源集團控股

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Web Proof Information Pack of

FORD GLORY GROUP HOLDINGS LIMITED福源集團控股有限公司*

(incorporated in Bermuda with limited liability)

WARNING

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* For identification purposes only

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Contents

THIS INFORMATION PACK IS IN DRAFT FORM. The �nformat�on conta�ned �n �t �s �ncomplete and �s subject to change. Th�s Informat�on Pack must be read �n conjunct�on w�th the sect�on headed “Warn�ng” on the cover of th�s Informat�on Pack.

Th�s Web Proof Informat�on Pack conta�ns the follow�ng �nformat�on relat�ng to the Company

extracted from post hear�ng proof of the draft document:

• Contents

• summary

• Definitions

• Riskfactors

• Directors

• Corporate information

• Industryoverview

• Regulations

• Historyanddevelopment

• Reorganisation

• Business

• Directors,seniormanagementandstaff

• RelationshipwiththeVCGroup

• Continuingconnectedtransactions

• Financial information

• Futureplans

• sharecapital

• AppendixI – Accountants’report

• AppendixIII – Propertyvaluation

• AppendixIV – summaryof theconstitutionof theCompanyand Bermudacompany law

• AppendixV – statutoryandgeneral information

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SUMMARY

THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed “Warning” on the cover of this Information Pack.

OVERVIEW

Business model

We are a well-developed sourcing management group with production capabilities which operates

a one-stop shop business model. We provide our customers a comprehensive range of services covering

the entire supply chain of garment products. We source garment products for our customers and we also

provide them with a comprehensive range of sourcing management services and expertise, including

product design and product development, sampling, product offering, sourcing, in-house production,

outsourcing, logistics and delivery and overseas sales capabilities.

Business trend

The Group recorded a turnover of approximately HK$�,430.9 million, HK$�,284.3 million and

HK$894.4 million for the three year ended 3� March 2008, 2009 and 20�0 respectively. Based on

the unaudited management account of the Group for the four months ended 3� July 20�0, the Group

recorded a turnover of approximately HK$328.� million which is comparable to the corresponding

period of last year. Our financial results for the six months ending 30 September 20�0 and the year

ending 3� March 20�� will be affected by certain non-recurring expenses, including the expenses in

relation to the [•••] and the costs of the options granted under the Share Option Scheme. For further

details, please refer to the paragraph headed “Our revenue for the four months ended 3� July 20�0 and

the possible impact of certain non-recurring expenses to financial performance” in this section and

the section headed “Financial Information” in this document, and the paragraph headed “Our financial

results are expected to be affected by the expenses in relation to the [•••] and the costs of options

granted under the Share Option Scheme” in the section headed “Risk factors” in this document.

With regard to (i) the unaudited management accounts of the Group for the four months ended

3� July 20�0; (ii) the signs of recovery of the global economy; and (iii) our orders on hand, which is

comparable to the corresponding period of last year, our Directors are optimistic that our Group will

be operating in a fairly stable environment for the year ending 3� March 20��.

Products

Based on the manufacturing process, garment products can be broadly classified into three

categories, namely Cut-and-Sew knitwear, Knit-to-Shape sweater and woven products. We source

all these three categories of garment products for our customers. Currently, we only manufacture

Cut-and-Sew knitwear and Knit-to-Shape sweater. With our in-house production plants in the PRC

and Indonesia as well as outsourcing production capabilities supported by our wide and established

network of sub-contract manufacturers, we are able to provide to our customers a comprehensive range

of garment products which include ladies’, men’s and kids’ knitwear, sweaters, polo-shirts, T-shirts,

sportswear, blouses, shorts, jackets and inner-wears.

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SUMMARY


Customers

We source a comprehensive range of garment products for our direct customers mainly located

in the U.S., Canada, the U.K., Mexico, Japan and the PRC. Our direct customers are mostly overseas

brand owners/carriers, megastores, department stores and supermarket chains. We also source garment

products for our importer customers.

The following table sets forth the breakdown of our revenue by customer category:

Fortheyearended31March 2008 2009 2010 Approximate Approximate Approximate

(HK$’000) % (HK$’000) % (HK$’000) %

Brand owners/carriers 46�,343 32.2% 468,252 36.5% 46�,00� 5�.5%

Megastores 6�,78� 4.3% 8�,239 6.3% 93,863 �0.5%

Department stores �03,899 7.3% 84,247 6.6% 66,�0� 7.4%

Supermarket chains �9,8�8 �.4% 54,656 4.2% �8,468 2.�%

Importers 743,254 5�.9% 570,023 44.4% 22�,67� 24.8%

Others 40,795 2.9% 25,85� 2.0% 33,247 3.7%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

Our sales to our largest customer, a U.S. importer, amounted to approximately HK$530.4 million,

HK$478.2 million and HK$�37.2 million respectively, representing approximately 37.�%, 37.2% and

�5.3% respectively of our total revenue for the three years ended 3� March 20�0.

Our sales to importers decreased by approximately HK$�73.2 million from approximately

HK$743.2 million for the year ended 3� March 2008 to approximately HK$570.0 million for the year

ended 3� March 2009, primarily due to (i) the decrease in sales to our largest customer, a U.S. importer,

due to decrease in its sales to its major customer (a megastore), which accounted for approximately

30.�% of the decrease; and (ii) decrease in sales to certain U.S. importers mainly as a result of

our decision to cease manufacturing at our production facilities in Jordan (where no import duty is

imposed by the U.S.), which accounted for approximately 25.5% of the decrease. For the year ended

3� March 20�0, our sales to importers decreased from approximately HK$570.0 million for the year

ended 3� March 2009 to approximately HK$22�.7 million. Such decrease is primarily attributable to

the decrease in sales to our largest customer, which in turn was caused by a decrease in orders from

its major customer (a megastore) as a result of organisational changes of such megastore customer

of it, which had accounted for approximately 97.9% of the decrease. The organisational changes

refer to the re-location of offices of such megastore’s sourcing and merchandising division and the

corresponding personnel changes, and we understand that additional time and effort was required

for our customer, the U.S. importer, to re-build the business relationship with the new sourcing and

merchandising division of its customer. [As advised by our customer,] such organisational changes of

its megastore customer had been completed. Our Directors consider that impact of such organisational

change of the major customer of our U.S. importer customer has largely been reflected in our results

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SUMMARY


for the year ended 3� March 20�0, and do not expect that our sales to such U.S. importer customer

will further drop materially due to this factor.

We have offices in the U.S., the PRC, Hong Kong and Macau, and have a representative in

Canada to provide sales supporting and/or customer services to enhance the quality and efficiency of

our sourcing management services to our customers.

The following table sets forth the breakdown of our revenue by location of our customers:


HK$’000 % HK$’000 % HK$’000 %

U.S. �,006,864 70.4% 8�4,752 63.4% 5�3,484 57.4%

Canada �50,220 �0.5% �53,469 �2.0% �48,8�5 �6.6%

PRC ��6,778 8.�% 92,5�2 7.2% 95,356 �0.7%

Others �57,028 ��.0% 223,535 �7.4% �36,696 �5.3%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

The U.S. is our most important market, which accounted for approximately 70.4%, 63.4% and

57.4% of our revenue for the three years ended 3� March 20�0 respectively.

Our revenue decreased by approximately �0.2% (i.e. approximately HK$�46.6 million) to

approximately HK$�,284.3 million for the year ended 3� March 2009 from approximately HK$�,430.9

million for the year ended 3� March 2008. The decrease was primarily attributable to our decision to

cease manufacturing at our production facilities in Jordan (where no import duty is imposed by the

U.S.), which had been handling primarily our orders for our customers in the U.S. market (including

one of our top five customers during the Track Record Period). Our Jordan Factory [has relatively

high labour cost with production labour mainly imported from Bangladesh and the PRC], and for

cost efficiency reason, we decided to close our Jordan Factory. This resulted in a decrease in sales

to one of our top five customers during the Track Record Period of approximately HK$83.8 million

from approximately HK$�57.5 million for the year ended 3� March 2008 to approximately HK$73.7

million for the year ended 3� March 2009. Further, there was a decrease in sales to our largest

customer, a U.S. importer, from approximately HK$530.4 million for the year ended 3� March 2008

to approximately HK$478.2 million for the year ended 3� March 2009, due to the decrease in its

sales to its major customer (a megastore). In addition, our Directors believe that consumer spending

shrunk and orders placed by certain customers of the Group in the U.S. market had also decreased in

the year ended 3� March 2009 as a result of the global economic downturn, the sub-prime mortgage

crisis, the investment bank failures, falling home prices and tight credit environment that had pushed

the U.S. into a recession by mid-2008.

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SUMMARY


Our revenue decreased by approximately 30.4% (i.e. approximately HK$389.9 million) to

approximately HK$894.4 million for the year ended 3� March 20�0 from approximately HK$�,284.3

million for the year ended 3� March 2009. The decrease was primarily attributable to the decrease in

sales of approximately HK$34�.0 million to our largest customer, a U.S. importer, from approximately

HK$478.2 million for the year ended 3� March 2009 to approximately HK$�37.2 million for the year

ended 3� March 20�0. Such decrease is primarily attributable to the decrease in its orders from its

major customer (a megastore) as a result of organisational changes of such megastore customer of

it and not related to the quality of our products. The organisational changes refer to the re-location

of offices of such megastore’s sourcing and merchandising division and the corresponding personnel

changes, and we understand that additional time and effort was required for our customer, the U.S.

importer, to re-build the business relationship with the new sourcing and merchandising division of

its customer. [As advised by our customer,] such organisational changes of its megastore customer

had been completed. Our Directors consider that impact of such organisational change of the major

customer of our U.S. importer customer has largely been reflected in our results for the year ended

3� March 20�0, and do not expect that our sales to such U.S. importer customer will further drop

materially due to this factor.

The Directors confirmed that since 3� March 20�0 and up to the Latest Practicable Date, there

have been no notification and indication of non-payment of our trade receivables or the need to make

provisions for our inventories and trade receivables. Further, based on the unaudited management

accounts of the Group for the four months ended 3� July 20�0, our Group recorded a turnover of

approximately HK$328.� million which is comparable to the corresponding period of last year. The

above unaudited revenue figure may not be indicative of the full year results for 20��. Our business

and financial performance may be affected by a number of factors as set out in the section headed

“Risk factors” in this document. Our Directors believe that the measures that we can adopt in order

to manage the risks of our major customers reducing their purchases include increasing our product

offerings and diversifying our client base.

During the Track Record Period, our revenue was mainly generated from our customers in the

U.S., Canada, the U.K., Mexico, Japan and the PRC and more than half of our total revenue for each

year during the Track Record Period was generated from our customers in the U.S.. The products

sourced by us for our customers are subject to anti-dumping actions, however, during the Track

Record Period, none of the products sourced by our Group had been subject to any anti-dumping

investigations nor measures. So far as our Directors are aware, there were about 35 anti-dumping

investigations on textiles and clothing products (of which category the products we source for our

customers, being apparel products, belong) in 2008 and none of them related to apparel products.

As far as our Directors understand, anti-dumping measures could be applied by a member country

of the World Trade Organisation when imports of a product is said to be at an export price below

its normal value (measured against the price of the product in the domestic market of the exporting

country) and if such “dumped import” causes injury to a domestic industry in the importing country.

Our Directors believe that the export price of the products sourced by us for our customers are at

market price of such products in their country of manufacture, therefore, the risk of such products

being categorised as “dumped import” should not be high. Besides, our Directors also believe that the

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SUMMARY


garment manufacturing industry in the U.S. and the E.U. is not as flourishing as in the past, it is also

less likely that the importing garment products could be viewed as causing injury to their domestic

industry. Accordingly, our Directors are of the view that the chance of the products sourced by us for

our customers being subject to anti-dumping investigations or measures is very low.

In-house production and third party outsourcing capabilities

We have in-house production facilities in the PRC and Indonesia as well as outsourcing

production capabilities supported by our wide and established network of sub-contract manufacturers

to cater for customised orders from our customers. As a result, we are able to provide a wide range

of garment products to our customers.

Our decisions on, whether to outsource production and the choice of sub-contract manufacturer(s),

depend on various criteria, including: (i) costs and pricing; (ii) the quality standard required; (iii)

the capability and capacity of the sub-contract manufacturer(s); (iv) whether there is any tax benefit

for our customers in selecting a particular sub-contract manufacturer. The duty rate imposed by the

government of the country of our customers may vary according to the origin of the garment products,

and some of our sub-contract manufacturers are located in places which may enjoy lower duty rates;

(v) the need for diversification in producing countries; and (vi) the financial status of the sub-contract

manufacturer(s). Some of our customers, based on their requirements on products and production

process, may designate specific fabric and/or accessories suppliers, or require the whole production

process to be carried out at our in-house production facilities. During the Track Record Period [and

up to the Latest Practicable Date], none of our customers demanded for the entire production process

for its products to be outsourced to sub-contract manufacturers designated by them. For the three years

ended 3� March 20�0, the costs of outsourced products and processing fees paid to our sub-contract

manufacturers were approximately HK$903.9 million, HK$850.6 million and HK$5�5.8 million,

respectively, representing approximately 73.3%, 75.8% and 70.�%, respectively, of our total cost of

sales during the same three-year period.

We also source raw materials from the VC Group to ensure our involvement starts from the

beginning of a garment supply chain which in turn enables us to provide a comprehensive range of

sourcing management services to our customers. Further details of our purchases from the VC Group

are set out in the sections headed “Continuing connected transactions” and “Relationship with the

VC Group” in this document.

Our PRC Factory, being our largest production plant in terms of production volume during the

Track Record Period, is equipped with advanced and computerised machinery. It has adopted the “Just-

in-time” production system and produces garment products with fashionable and complicated styles,

patterns and designs. Our Indonesian Factory operates under the traditional garment manufacturing

system producing apparels of simple and classic style.

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SUMMARY


We have our in-house design and development team to keep track of the latest trends, any new

fabric concepts and/or production skills. We provide value-added services to our customers, such as the

development of samples and designs, production of garment products which involve a more complicated

production process and require a higher level of workmanship, and delivery of garment products

within a short time frame. Further, we have our own sample workshop consisting of approximately

[77] staff that can produce samples and our own designs within a short lead time.

With our in-house production facilities, we can produce within a short lead time and are flexible

in terms of adjustment of production time and volume. We can adjust our offerings promptly in response

to our customers’ specific needs and market demands. On the other hand, our outsourcing capabilities

enable us to achieve greater flexibility in allocating our resources with minimal capital commitment.

We can leverage on the expertise, knowledge and equipment of our sub-contract manufacturers. Our

production capability is not limited to our own manufacturing facilities.

Our Directors believe that throughout the years, we have established a notable reputation in

quality service supported by an outstanding delivery track record, which provides confidence to our

customers that we are capable of providing one-stop comprehensive services covering the entire supply

chain of garment products to our customers.

The one-stop comprehensive range of services covers the full supply chain of garment

products – from the beginning of the supply chain involving product design, product development

and sampling, to the middle stage of the supply chain involving sourcing of fabrics and coordination

of the manufacturing process (either by in-house production or outsourcing), and further to the latter

stage of the supply chain involving the management of the logistics, the delivery arrangements and

overseas sales.

Our capabilities and management expertise, network and experience are demonstrated from our

delivery track record of providing the one-stop comprehensive range of services to our customers,

which differentiate us from sub-contract manufacturers who only provide manufacturing functions

to their customers.

We adhere to consistently high quality standards. Our quality control procedures start from the

raw materials procurement stage. Various inspections are carried out at each stage of our manufacturing

process. Quality reports are also prepared throughout our production process. In respect of our sub-

contract manufacturers, we have a quality assurance and control team with [�0] employees who

oversee the performance of our sub-contract manufacturers by conducting on-site quality inspections

and testing procedures at the factories of our sub-contract manufacturers at different stages in the

manufacturing process.

Our revenue for the four months ended 31 July 2010 and the possible impact of certain non-recurring expenses to financial performance

Based on the unaudited management accounts of our Group for the four months ended 3� July

20�0, our Group recorded a turnover of approximately HK$328.� million which is comparable to the

corresponding period of last year. Notwithstanding the above, our financial results will be affected

by certain non-recurring expenses, including the expenses in relation to the [•••] and the costs of the

options granted under the Share Option Scheme.

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SUMMARY


The costs of the options granted under the Share Option Scheme are calculated using the

[Binomial Model] with assumptions on various inputs to the model such as the expected yield and

share price volatility and on the basis of [•••]. The fair value of the share options granted on 2 June

20�0 is estimated to be approximately HK$[6.27] million or HK$[8.�8] million. As the grant of share

options will become effective on the [•••], the amount that will be charged to our income statement

in the second half of the year ending 3� March 20�� as equity-settled expenses will be approximately

HK$[6.27] million or HK$[8.�8] million. Our Directors would like to emphasise that such cost is

a current estimate for reference only and the final amount to be recognised to our profit and loss

accounts for the respective periods is subject to adjustment based on audit and the then changes in

variables and assumptions.

Such expenses in relation to the [•••] and the costs of the options granted under the Share Option Scheme are non-recurring and were not incurred during the Track Record Period.

Accordingly, our Board wishes to inform our Shareholders and potential investors that, based on our preliminary review of the management accounts of our Group which have neither been confirmed nor audited by our independent auditors, the financial results of our Group for the six months ending 30 September 20�0 are expected to be materially and adversely affected by the estimated expenses in relation to the [•••], and our financial results for the year ending 3� March 20�� are expected to be affected by the costs of the options granted under the Share Option Scheme.

It should be noted that the above unaudited revenue figure may not be indicative of our full year

results for 20��. As set out in the section headed “Risk factors” in this document, our business and

financial performance may be affected by a number of factors, including, amongst all, the risk factors

headed “Our results of operations are subject to seasonality”, “Our financial results are expected to

be affected by the expenses in relation to the [•••] and the costs of options granted under the Share

Option Scheme” and “We do not have long-term contracts with our customers, which exposes us to

potential volatility in our turnover”, in the section headed “Risk Factors” in this document.

For the financial year ending 3� March 20��, our Directors expect that our customer base

will remain stable, with growth in sales to a number of customers. Since we will expand into the

retail market by launching our “夢仕臣”(Monstons) brand products, growth in sales attributable to

the retail market is expected. Save as disclosed in the sections headed “Risk factors” and “Financial

information” in this document, there are no other trade factors or risks which we anticipate could

materially affect our profits.

With regard to (i) the unaudited management accounts of our Group for the four months ended

3� July 20�0; (ii) the signs of recovery of the global economy; and (iii) our orders on hand, which is

comparable to the corresponding period of last year, our Directors are optimistic that our Group will

be operating in a fairly stable environment for the year ending 3� March 20��.

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SUMMARY


No material adverse change

Save as disclosed in the paragraph headed “Our revenue for the four months ended 3� July

20�0 and the possible impact of certain non-recurring expenses to financial performance” above, our

Directors have confirmed that, during the period from � April 20�0 to the Latest Practicable Date

(both dates inclusive), there had been no material adverse change in the financial or trading position

or prospects of our Group and no event had occurred that would materially affect the information

shown in the accountants’ report set out in Appendix I to this document.

COMPETITIVESTRENGTHS

• One-stop shop business model

• Strong design and development ability

• High quality product with a variety of product mix

• Experienced management team

• Solid customer base and ability to develop new clients and offer dedicated customer services

BUSINESSSTRATEGIES

• Enhance manufacturing capabilities

• Strengthen and expand customer base

• Retail market expansion

• Cooperate with brand owners or importers to establish joint ventures

RISKFACTORS

We believe that there are certain risks involved in our operations, many of which are beyond

our control. These risks are set out in the section headed “Risk factors” in this document and are summarised below:

RisksrelatingtoourGroup

• We may face difficulties in consolidating our existing customer base and developing new customers

• We are dependent on our major customers

• We may face credit risks

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SUMMARY


• Our factoring choices may be limited

• We may not be able to successfully track the fast changing fashion trends and respond to customer demands for garment products

• Our results of operations are subject to seasonality

• Our financial results are expected to be affected by the expenses in relation to the [•••] and the costs of options granted under the Share Option Scheme

• Reliance on key management personnel may impose risks on our Group

• We depend on our sub-contract manufacturers

• Reliance on few suppliers may impose risks on our Group

• Our business strategies or expansion plans may not be successful

• Our business depends on reliable supply of quality fabric

• We do not have long-term contracts with our customers, which exposes us to potential volatility in our turnover

• Our insurance coverage may not be sufficient to cover the risks related to our operations and losses

• We may be subject to product liability claims

• We are subject to foreign exchange exposure

• Our business requires significant capital investments and a high level of working capital to sustain our operations and overall growth

• We may not be able to develop our own brand

• We may not be able to expand into the retail market successfully

• We rely on consignment sales with large chain supermarkets in selling our “夢仕臣”(Monstons) brand products

• We cannot be certain that our operation does not or will not infringe any patents, valid copyrights or other intellectual property rights held by third parties

• The interests of our Controlling Shareholders may differ from those of our other Shareholders

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SUMMARY


Risksrelatingtothe industry

• Our industry is subject to economic and market conditions. There has been significant deterioration and volatility in the global financial markets recently. As a result, our business operations may be adversely affected

• We operate in a highly competitive industry

• The business of our Group may be affected by outbreaks and recurrence of epidemics, natural disasters, acts of war, terrorist acts, political unrest and other events which are beyond our control

Risksrelatingtoconductingbusiness inthePRC

• Political and economic policies of the PRC government and social conditions and legal developments of the PRC could affect our business

• The government control of currency conversion could affect our business operations

• Uncertainties regarding interpretation and enforcement of the PRC laws and regulations may impose adverse impact on our business, operations and profitability

• Our labour costs may increase for reasons such as the implementation of the Labour

Contract Law of the PRC or a labour shortage in the places we operate

• Non-compliance with PRC laws and regulations relating to housing fund contributions

may adversely affect our financial condition

• Any changes in our tax treatment, including an unfavourable change in preferential

enterprise income tax rates in the PRC, may have a material adverse impact on our

financial condition and results of operations

• Recent PRC regulations relating to acquisitions of PRC companies by foreign entities

may limit our ability to acquire PRC companies and adversely affect the implementation

of our strategy as well as our business and prospects

• PRC regulations on loans to and direct investment by offshore holding companies in PRC

entities may delay or prevent us from using the [•••] to make loans or additional capital

contributions to our PRC subsidiaries

• A shortage of electricity and water supply in the PRC would affect our production and

affect our business and financial performance

• Changes in government regulations such as environmental laws and regulations could

affect our results of operations

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SUMMARY


Risksrelatingtoconductingbusiness inIndonesia

• Indonesia is located in an earthquake zone and is subject to significant geological risk

that could lead to social unrest and economic loss

• The interpretation and implementation of legislation on regional governance in Indonesia

is uncertain

• Labour unrest or activism could adversely affect us, our customers and Indonesian

companies in general which in turn could affect business, financial condition, results of

operations and prospects

• We operate in a legal and regulatory system in which the application and enforcement

of various laws and regulations may be uncertain

Risksrelatingtoconductingbusiness inotherplaces

• We may also be affected by the political and economic policies and the social conditions

and legal developments of the places that we operate or conduct business in

• We are a holding company and rely on dividend payments from our subsidiaries

- �2 -

SUMMARY


SUMMARYFINANCIAlINFORMATION

The following table summarises the combined financial information of our Group during the

Track Record Period, details of which are set out in the Accountants’ Report in Appendix I to this

document.

SummaryInformationofCombinedStatementsofComprehensiveIncome


(HK$’000) (HK$’000) (HK$’000)

Revenue �,430,890 �,284,268 894,35�

Cost of sales (�,233,994 ) (�,�22,780 ) (736,362 )

Gross profit �96,896 �6�,488 �57,989

Other income 4,502 3,965 3,502

Other gains and losses (7,533 ) ��,427 656

Selling and distribution costs (�9,83� ) (�9,445 ) (�5,465 )

Administrative expenses (�08,308 ) (�02,060 ) (96,469 )

Share of loss of a jointly controlled entity (338 ) – –

Interest on bank borrowings

wholly repayable within five years (6,754 ) (3,407 ) (2,253 )

Profit before tax 58,634 5�,968 47,960

Income tax expense (2,32� ) (3,493 ) (7,��5 )

Profit for the year 56,3�3 48,475 40,845

Profit for the year attributable to: Owners of the Company 5�,790 45,322 [35,480] Minority interests 4,523 3,�53 [5,365]

56,3�3 48,475 40,845

HKcents HKcents HKcents

Earnings per share – basic �6.2 �4.2 ��.�

- �3 -

SUMMARY


SummaryInformationofCombinedStatementsofFinancialPosition

At31March 2008 2009 2010 Approximate Approximate Approximate

(HK$’000) (HK$’000) (HK$’000)

Assets Non-current assets 7�,360 ��5,277 ��7,276

Current assets 559,943 492,487 388,423

Total assets 63�,303 607,764 505,699

Equityand liabilities Current liabilities 406,900 300,899 249,�77

Non-current liabilities �96 40,260 �9,904

Total equity 224,207 266,605 236,6�8

Total liabilities and equity 63�,303 607,764 505,699

SummaryInformationofCombinedStatementsofCashFlows

Fortheyearended31March 2008 2009 2010 (HK$’000) (HK$’000) (HK$’000)

Net cash inflow from operating activities ��9,438 8�,473 62,23�

Net cash inflow/(outflow) from

investment activities (�5,872 ) (35,689 ) 5,236

Net cash outflow from financial activities (59,025 ) (9,980 ) (99,886 )

DIVIDENDPOlICY

On 6 September 20�0, FG Holdings declared a special dividend of HK$30.0 million payable

to its then shareholders. Such dividend will be paid before [•••]. [Investors should pay attention to

the possible impact on our cashflow and working capital as a result of the payment of the special

dividend.] FG Holdings had also declared and paid dividends in the amount of HK$7 million, HK$6.2

million and HK$3 million, respectively to its then shareholders for the three years ended 3� March

2008, 2009 and 20�0, respectively. Save as disclosed above, no other dividend was paid by us or any

of our subsidiaries during the Track Record Period. Our dividend distribution record in the past may

not be used as a reference or basis to determine the level of dividends that may be declared or paid

by us in the future.

- �4 -

SUMMARY


We may declare dividends, if any, after taking into account, among other things, our results

of operations, cash flows and financial condition, operating and capital requirements, the amount of

distributable profits based on IFRS, the memorandum of association of our Company and the Bye-laws,

the Companies Act, applicable laws and regulations and other factors that our Directors deem relevant.

A distribution of dividend for any financial year shall be subject to Shareholders’ approval.

- 15 -

DEFINITIONS


In this document, unless the context otherwise requires, the following expressions shall have

the following meanings.

“associate(s)” has the meaning ascribed to it under [•••]

“Board” our board of Directors

“Business Day(s)” any day(s) (excluding Saturday(s) and Sunday(s)) in Hong Kong

on which licensed banks in Hong Kong are open for banking

business throughout their normal business hours

“BVI” British Virgin Islands

“Bye-laws” the bye-laws of the Company adopted on 8 September 2010, as

amended from time to time

“CAGR” compound annual growth rate

“Companies Act” the Companies Act 1981 of Bermuda, as amended, supplemented

or modified from time to time

“Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong

Kong)

“Company” Ford Glory Group Holdings Limited, an exempted company

incorporated in Bermuda on 3 March 2010 under the Companies

Act with limited liability

“connected person(s)” has the meaning ascribed to it under [•••]

“Controlling Shareholder(s)” has the meaning ascribed to it under [•••] and unless the context

requires otherwise, refers to Sure Strategy, Merlotte and VC

Investments

“Cut-and-Sew” a process by which knit fabrics in form of yardage (instead of

fully-fashioned panels) are being cut and sew, which requires

special attention in layout and cutting of the fabrics and special

sewing equipment for construction and finishing

“Directors” director(s) of our Company

“FG Holdings” Ford Glory Holdings Limited, a company incorporated on 28

May 2002 in the BVI, a direct wholly-owned subsidiary of our

Company as at the Latest Practicable Date

- 16 -

DEFINITIONS


“FG International” Ford Glory International Limited, a company incorporated on 11

July 1996 in Hong Kong, an indirect wholly-owned subsidiary

of our Company as at the Latest Practicable Date

“FG Shanghai” 福之源貿易(上海)有限公司(Ford Glory Trading (Shanghai)

Limited*), a company established on 7 February 2006 in the

PRC, an indirect wholly-owned subsidiary of our Company as

at the Latest Practicable Date

“FG Shenzhen” 福源創業信息咨詢服務(深圳)有限公司(Ford Glory (Shenzhen)

International Ltd.*), a company established on 15 December

2009 in the PRC, an indirect wholly-owned subsidiary of our

Company as at the Latest Practicable Date

“Group”, “we”, “our” and “us” our Company and our subsidiaries or, where the context otherwise

requires, in respect of the period prior to our Company becoming

the holding company of our present subsidiaries, the present

subsidiaries of our Company, some or any of them

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Independent Third Party(ies)” a person(s) or company(ies) which is/are independent of and not connected with any directors, chief executive, Controlling

Shareholders and Substantial Shareholders or any of its subsidiaries and their respective associates

“Indonesian Factory” the factory located in Indonesia and operated by PT. Victory Apparel Semarang, an indirect wholly-owned subsidiary of our Company, for manufacturing of garment products

“Jiangmen Factory” 江門冠暉製衣有限公司 (Jiangmen V-Apparel Manufacturing

LTD.), a company established on 31 May 2000 in the PRC,

an indirect wholly-owned subsidiary of our Company as at the

Latest Practicable Date

“Jordan Factory” the factory located in Jordan and operated by Victory Apparel

(Jordan) Manufacturing Company Limited, an indirect wholly-

owned subsidiary of our Company, which was leased to an

Independent Third Party as at the Latest Practicable Date

“Kimberley” 加美(清遠)製衣有限公司 (Kimberley (Qing Yuan) Garment Limited),

a company established in the PRC and indirectly owned as to 50% by

Mr. Lau and as to 50% by his wife

- 17 -

DEFINITIONS


“Knit-to-Shape” a process by which major components of a knit garment are

produced by panel knitting, linking the knitted panels and

washing, so as to require minimal, if any, cutting or trimming

“Latest Practicable Date” [•••], being the latest practicable date prior to the printing

of this document for ascertaining certain information in this

document

“Macau” Macau Special Administrative Region of the PRC

“Mayer” Mayer Apparel Limited, a company incorporated on 4 January

2006 in Hong Kong, a non-wholly owned subsidiary of our

Company and owned as to 51% by FG Holdings and as to 49%

by Mr. Lau as at the Latest Practicable Date

“Merlotte” Merlotte Enterprise Limited, a company incorporated on 19

April 2002 in the BVI and wholly-owned by Mr. Choi, and our

Controlling Shareholder

“Mr. Chen” Mr. Chen Tien Tui, our non-executive Director and an executive

director and a Substantial Shareholder of VC

“Mr. Choi” Mr. Choi Lin Hung, our chairman and chief executive officer

and our executive Director

“Mr. Lau” Mr. Lau Kwok Wa, Stanley, our executive Director, a Substantial

Shareholder and a director of Mayer

“Mr. Li” Mr. Li Ming Hung, our non-executive Director and an executive

director and a Substantial Shareholder of VC

“PRC” or “China” the People’s Republic of China which, for the purposes of this

document only, excludes Hong Kong, Macau and Taiwan

“PRC Factory” the factory located in the PRC and operated by Jiangmen Factory

for manufacturing of garment products

“PRC Legal Advisers” GFE Law Office, a qualified PRC law firm acting as the PRC

legal advisers to the Company

“Reorganisation” the corporate reorganisation of our Group in preparation for [•••]

as described under the section headed “Reorganisation” in this

document

- 18 -

DEFINITIONS


“RFID” Radio frequency identification, the use of a tag applied to or

incorporated into another object for the purpose of identification

and tracking using radio waves

“SAFE” State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局)

“Share(s)” the ordinary share(s) of HK$0.01 each in the share capital of

our Company

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

“Share Option Scheme” the share option scheme conditionally adopted by our Company

and approved by the shareholders of VC on 28 July 2010, a

summary of the principal terms of which is set out under the

paragraph headed “Share Option Scheme” in Appendix V to this

document

“subsidiary(ies)” has the meaning ascr ibed to i t under the Companies

Ordinance

“Substantial Shareholder(s)” has the meaning ascribed to it under [•••]

“Sure Strategy” Sure Strategy Limited, a company incorporated on 25 March

2010 in the BVI and owned as to 49% by Merlotte and 51%

by VC Investments as at the Latest Practicable Date, and our

Controlling Shareholder

“Track Record Period” the three financial years ended 31 March 2010

“U.K.” the United Kingdom of Great Britain and Northern Ireland

“U.S.” or “United States” the United States of America, its territories, its possessions and

all areas subject to its jurisdictions

“VC” Victory City International Holdings Limited, a company

incorporated in Bermuda with limited liability, the shares of

which are listed on the Main Board

“VC Group” VC and its subsidiaries, which, for the purpose of this document,

excludes our Group

“VC Holdings” Victory City Holdings Limited, a company incorporated on

28 October 1993 in the BVI, a direct wholly-owned subsidiary

of VC

- 19 -

DEFINITIONS


“VC Investments” Victory City Investments Limited, a company incorporated on

28 May 2002 in the BVI, a direct wholly-owned subsidiary of

VC, and our Controlling Shareholder

“VC Shares” ordinary shares of HK$0.01 each in the share capital of VC

“Yoko Sun” Yoko Sun Limited, a company incorporated on 20 July 2007 in

Hong Kong, which is owned by three Independent Third Parties

and operates its business under the name “teelocker”

“CAD” Canadian dollars, the lawful currency of Canada

“EUR” Euro, the lawful currency of the European Union

“GBP” or “£” British pound sterling, the lawful currency of the UK

“HK$” and “cents” Hong Kong dollars and cents, respectively, the lawful currency

of Hong Kong

“IDR” Indonesian Rupiah, the lawful currency of Indonesia

“MXN” Mexican Peso, the lawful currency of Mexico

“RMB” Renminbi, the lawful currency of the PRC

“US$” or “USD” United States dollars, the lawful currency of the U.S.

“sq.m.” or “m2” square metres

“%” per cent.

Unless otherwise specified, for the purpose of this document and for the purpose of illustration

only, Hong Kong dollar amounts have been translated using the following rates:

IDR 1: HK$[•••]

No representation is made that any amounts in IDR or HK$ were or could have been converted

at the above rate or at any other rates or at all.

For ease of reference, the names of certain PRC laws and regulations or the PRC established

companies or entities have been included in this document in both the Chinese and English languages.

The English names of these companies and entities are only English translation of their respective

official Chinese names and they are denoted with “*”. In the event of any inconsistency, the Chinese

version shall prevail.

- 20 -

RISK FACTORS


RISKS RELATING TO OUR GROUP

We may face difficulties in consolidating our existing customer base and developing new customers

We source garment products for our customers mainly located in the U.S., Canada, the U.K., Mexico, Japan and the PRC and our customers are mostly overseas brand owners/carriers, megastores, department stores, supermarket chains or importers. The success of our business depends on our ability to maintain and expand the volume of businesses with our existing customers and to source and develop new customers.

There is no assurance that we will be successful to continue to maintain good business relationships with our existing customers or to develop new customers. Moreover, as many of our customers are brand owners/carriers, megastores, department stores, supermarket chains or importers, potential customers may not be willing to place orders with us if our existing customers may be their competitors.

If we are not able to expand the volume of businesses with our existing customers or to extend our customer base by adding new customers at desired levels or at all, it could have a material adverse effect on our business, financial condition and results of operations.

Our revenue decreased by approximately 30.4% to approximately HK$894.4 million for the year ended 31 March 2010 from approximately HK$1,284.3 million for the year ended 31 March 2009. The decrease was primarily attributable to the decrease in sales to the Group’s largest customer, a U.S. importer, due to the decrease in its orders from its major customer (a megastore) as a result of organisational changes of such megastore customer of it and not related to the quality of the Group’s products. The organisational changes refer to the re-location of offices of such megastore’s sourcing and merchandising division and the corresponding personnel changes, and we understand that additional time and effort was required for our customer, the U.S. importer, to re-build the business relationship with the new sourcing and merchandising division of its customer. [As advised by our customer,] such organisational changes of its megastore customer had been completed. For the year ended 31 March 2009, our revenue decreased by approximately 10.2% to approximately HK$1,284.3 million from approximately HK$1,430.9 million for the year ended 31 March 2008. The decrease is primarily due to our decision to cease manufacturing at our production facilities in Jordan, which had been handling primarily our orders for our customers in the U.S. market (including one of our top five customers during the Track Record period). Our Jordan Factory [has relatively high labour cost with production labour mainly imported from Bangladesh and PRC], and for cost efficiency reason, we decided to close our Jordan Factory. This resulted in a decrease in sales to one of our top five customers during the Track Record Period.

We are dependent on our major customers

Our sales to our top five customers during the Track Record Period amounted to approximately

HK$[877.6] million, HK$[786.0] million and HK$[448.8] million which accounted for approximately

[61.3]%, [61.2]%, and [50.2]%, respectively, of our total revenue for each of the three years ended

31 March 2010. The decrease in sales to our top five customers during the Track Record Period was

primarily due to the decrease in revenue from the U.S. market as a result of our decision to cease

manufacturing at our production facilities in Jordan (where no import duty is imposed by the U.S.),

- 21 -

RISK FACTORS


which had been handling primarily our orders for the U.S. market. Our Jordan Factory [has relatively

high labour cost with production labour mainly imported from Bangladesh and PRC], and for cost

efficiency reason, we decided to close our Jordan Factory. Our sales to our largest customer for the

three years ended 31 March 2010 amounted to approximately HK$[530.4] million, HK$[478.2] million

and HK$[137.2] million respectively, representing approximately [37.1]%, [37.2]% and [15.3]% of

our total revenue respectively. The decrease in sales to our largest customer, a U.S. importer, is due

to the decrease in its sales to its major customer (a megastore).

We do not enter into long-term contracts with our major customers as our Directors are of the

opinion that we have been sourcing products for our top five customers for a relatively long period of

time, ranging from four to twelve years. However, there is no assurance that our business relationship

with our major customers will continue in the future. In the event that any of our major customers

significantly reduce their purchases from us or our business relationship with them terminates, we may

not be able to maintain the same sales volume with the remaining customers or attract new customers

with the ability or willingness to contribute to the same amount of sales as our major customers have

been contributing, which may adversely affect our business and profitability.

Even if we are able to maintain our business relationship with our major customers, the

popularity of their brands may decline for reasons of changes in consumer trends or preferences, a

loss of goodwill and reputation of them or other reasons. In addition, the decline of popularity in

their brand in one region may affect the popularity of such brand in other regions, and the decline of

popularity in one or some lines of their products may affect their other lines of products, which may

all in turn adversely affect our operations as well as financial results.

We may face credit risks

We factor some of our receivables to factoring companies to hedge the risk of collection from

customers as well as to maintain a cash inflow at a desired level for our business operation. Generally,

we assess various aspects of a new customer to determine whether we should factor the receivables

from it, including the relevant volume of the purchase order, its credit reference and background as

well as the credit terms offered to it.

During the Track Record Period, we had engaged [three] factoring companies, most of the sales

that we factored are without recourse. The sales that we factored to them without recourse represented

approximately [39.9]%, [40.1]% and [23.8]%, respectively, of our total turnover during the period.

During the same period the sales that we factored to the factoring companies with recourse accounted

for 0%, approximately 0.33% and 6.81%, respectively, of our total turnover.

A majority of our customers settled the amount payable to us on an open account basis and we,

on average, offer a credit period of approximately 30 to 60 days to them. There is also no assurance

that our customers will pay to us on time or at all or whether any of them will fall into financial

difficulties thereby affecting their ability to pay to us. If any of our customers or the factoring companies

that we assign our debts to should fail to pay to us on time or at all, our financial condition will be

materially adversely affected which will in turn affect our business operation.

- 22 -

RISK FACTORS


Our factoring choices may be limited

A factoring company that we factored our receivables to encountered financial difficulties and

underwent corporate restructuring during the Track Record Period which resulted in our decrease in

factored receivables in the year ended 31 March 2010. We did not experience any operational and

financial impact as a result of the incident and we did not experience any loss from factoring our

receivables during the Track Record Period [and up to the Latest Practicable Date]. However, there

is no assurance that any of the factoring companies we assigned our receivables to will be able to

pay all the monies due to us on time or at all.

We may not be able to successfully track the fast changing fashion trends and respond to customer demands for garment products

The supply and demand for particular garment products changes from season to season and from

year to year, depending on the fashion trends, fluctuations in consumer preferences and demands, as

well as other factors. In order to maintain our relationship with our existing customers and develop

new customers, we must be able to predict, identify and respond promptly to such changes. In addition,

the purchasing power of our customers and their spending patterns may also be affected by increases

in supply from our competitors in the industry or deteriorating economic conditions. Hence, if we fail

to anticipate and respond rapidly and effectively to the fast changing fashion trends and customers’

demands, our customers may reduce the size of orders or the number of types of products placed

with us or cease to place orders with us, and our operating results may be materially and adversely

affected due to fluctuation in purchase order. If we fail to develop new customers, our profitability

may be adversely affected.

Our results of operations are subject to seasonality

Our results of operations are subject to seasonality. We generally sell and distribute products

for the spring-summer season of the following year from October to March, and products for the

fall-winter season from April to September. Typically, September and October amount to our “low”

season. Unexpected and abnormal changes in climate may also affect the sales of our products that

are timed for release during a particular season. For example, a warm winter may affect the sales of

winter products, while a cool summer may affect the sales of T-shirts and other summer products.

Hence, if climate changes irregularly, it may affect our customers’ orders placed with us which in

turn may adversely affect our business and results of operations.

Our financial results are expected to be affected by the expenses in relation to the [•••] and the costs of options granted under the Share Option Scheme

Based on the unaudited management accounts of our Group for the four months ended 31 July 2010, our Group recorded a turnover of approximately HK$328.1 million which is comparable to the corresponding period of last year.

Notwithstanding the above, our financial results will be affected by the expenses in relation to the [•••] and the costs of the options granted under the Share Option Scheme.

- 23 -

RISK FACTORS


The costs of the options granted under the Share Option Scheme are calculated using the Binomial

Model with assumptions on various inputs to the model such as the expected yield and share price

volatility and on the basis of the [•••]. The fair value of the share options granted on 2 June 2010 is

estimated to be approximately HK$[6.27] or HK$[8.18]. As the grant of share options will become

effective on the [•••], the amount that will be charged to our income statement in the second half of the

year ending 31 March 2011 as equity-settled expenses will be approximately HK$[6.27] or HK$[8.18],

respectively. Our Directors would like to emphasise that such cost is a current estimation for reference

only and the final amount to be recognised to our profit and loss accounts for the respective periods

is subject to adjustment based on audit and the then changes in variables and assumptions.

Therefore, our financial results for the six months ending 30 September 2010 will be affected

by the expenses in relation to the [•••], and our financial results for the year ending 31 March 2011

will additionally be affected by the costs of the options granted under the Share Option Scheme.

Reliance on key management personnel may impose risks on our Group

Our performance and success is, to a significant extent, attributable to the vision and leadership

of Mr. Choi and the contribution of our other executive Directors (including Mr. Ng Tze On) and

senior management team. The future success of our Group will depend on the continued involvement,

efforts, performance and abilities of our Directors and senior management team of our Group as a

whole. Competition for senior management and key personnel, in particular, qualified and experienced

merchandisers, in our industry is intense and the pool of experienced candidates is limited. There is

no assurance that we can maintain, develop and continually tap on the leadership skills of our key

personnel, and we may lose our key personnel to competitors. If we are not able to retain our key

personnel or attract and engage a suitable replacement on a timely and commercially viable basis, it

may result in the loss of strategic leadership, disruption or delay to business operation, which may

materially adversely affect alternative business strategies, our business, operations and financial

condition.

We depend on our sub-contract manufacturers

Under our one-stop shop business model, we have the flexibility to outsource some of our

production processes to sub-contract manufacturers. The criteria for determining whether to engage

sub-contract manufacturers include (i) costs and pricing; (ii) the quality standard required; (iii) the

capability and capacity of the sub-contract manufacturer(s); (iv) whether there is any tax benefit





manufacturer(s).

- 24 -

RISK FACTORS


We may also outsource part of the production process to our sub-contract manufacturers which

have expertise in certain specific production processes such as printing or embroidery as per the

requirements of our customers. Our operation and future success depend on our cooperation and stable

business relationship with our sub-contract manufacturers. Major risks in relation to our dependence

on our sub-contract manufacturers are set out below.

A significant portion of the garment products we sourced for our customers during the Track Record Period were sourced from sub-contract manufacturers

During the Track Record Period, approximately [73.3]%, [75.8]% and [70.1]% of the garment

products we sourced for our customers were produced by our sub-contract manufacturers. There is

no assurance that all of our sub-contract manufacturers will continue to supply garment products to

us at our desired quality, in a timely manner and on commercially acceptable terms. If any of our

major sub-contract manufacturers should terminate their business relationship with us and we are not

able to source suitable products from comparable alternative sub-contract manufacturers, our business

may be adversely affected.

We do not enter into long-term contracts with any of our sub-contract manufacturers

We do not enter into long-term contracts with any of our sub-contract manufacturers as our

Directors are of the opinion that we have had good and stable business relationship with our top

five sub-contract manufacturers for six to ten years. However, there is no assurance that any of our

sub-contract manufacturers will continue to provide sub-contracting services to us. The terms of

services provided by the sub-contract manufacturers may also be susceptible to changes with regards

to pricing, timing and quality. Our sub-contract manufacturers may fail to meet their production

deadlines or maintain our required quality standards. In the event of termination of or changes to the

current arrangements with our sub-contract manufacturers for any reason, our Group may not be able

to locate comparable alternative sub-contract manufacturers or alternative sub-contract manufacturers

that could provide sub-contract manufacturing services in a timely manner and/or on commercially

acceptable terms. This could result in delay in the production schedule and in turn adversely affect

our Group’s business operations and financial results.

Our customers may bypass us to source products directly from our sub-contract manufacturers

Our customers may bypass us and place orders for garment products directly with our sub-

contract manufacturers. If our customers bypass us and seek manufacturing services from our sub-

contract manufacturers directly, we may experience a decrease in demand for our products, which

may affect adversely our profitability and financial results. During the Track Record Period, to the

best of the knowledge, information and belief of our Directors, none of our customers had bypassed

us and directly placed order for garment products with our sub-contract manufacturers.

- 25 -

RISK FACTORS


We are directly affected by the performance of our sub-contract manufacturers

If our sub-contract manufacturers cannot meet production deadlines or deliver products of

unsatisfactory quality, our business, reputation and operations may be adversely affected. There is

no assurance that the products our sub-contract manufacturers produce for us will always be able to

meet the requirements of our customers. If any of the products they manufacture cannot satisfy our

customers’ required standards or have to be returned for any reason, we may not be able to meet our

commitments to our customers, which may have an adverse impact on our business reputation. We

may also incur significant additional costs which we may not be able to pass along to our customers,

which in turn could have a material adverse effect on our business, financial condition and results

of operations.

Reliance on few suppliers may impose risks on our Group

Our suppliers include raw material suppliers as well as sub-contract manufacturers to whom we

outsource the manufacture of our products. For each of the years ended 31 March 2008, 2009 and 2010,

purchases from our top five suppliers amounted to approximately HK$[455.5] million, HK$[512.8]

million and HK$[253.0] million, respectively, representing approximately [36.9]%, [45.7]% and

[34.4]%, respectively of our total costs of sales. There is no assurance that any of our key suppliers

will continue to supply fabric or garment products to us at our desired quality or at all and in a

timely manner or on commercially acceptable terms. If any of our major suppliers fails to meet our

purchase orders on a timely basis or fails to offer us commercially acceptable terms or fails to supply

us with fabric or garments of the quality that we require or terminates its business relationship with

us, we may be unable to source fabric or garment products from comparable alternative suppliers on

a timely basis and on commercially acceptable terms and our business, financial condition and results

of operations may be adversely affected.

Our business strategies or expansion plans may not be successful

We plan to further enhance our manufacturing capabilities by expanding our existing facilities

and through merger and acquisitions or strategic cooperation with business partners. We also plan

to allocate more resources into design and development and marketing and promotional activities to

attract more potential customers and to expand our customer base.

To carry out our expansion plan, we may pursue selective strategic acquisitions of businesses and assets to expand our business portfolio in the future. The ability of our Group to achieve such expansion depends on our ability to identify the appropriate target and to initiate, negotiate and complete the acquisition. Acquisitions involve uncertainties and risks, including:

• potential ongoing financial obligations and unforeseen or hidden liabilities;

• failure to achieve the intended objectives, benefits or revenue-enhancing opportunities; and

• diversion of resources and management attention.

- 26 -

RISK FACTORS


In addition, we may experience difficulties in integrating newly acquired businesses or assets and in retaining key personnel to manage such acquired businesses or assets. Furthermore, the cost and duration of integration could also exceed our original estimation. We may not be able to develop our brand or expand into the retail market successfully, details of which are set out in other risk factors in this section. Any of these factors could adversely affect our business, operations and our financial results.

We expect to incur significant costs in connection with the expansion of our business, and any failure to successfully implement our expansion plans or to expand our customer base and attract more orders through the implementation of our business strategies may materially and adversely affect our profitability and growth. Any failure to successfully manage our expansion may make it difficult to effectively compete, develop new products or take advantage of new markets.

Our business depends on reliable supply of quality fabric

The principal raw material used in the production of our garment products is fabric. Quality of the garment products supplied to our customers, to a large extent, depends on the quality of the fabric. We have not entered into any long term supply agreements with any of our suppliers for fabric as our Directors are of the opinion that many of our top five suppliers for the Track Record Period have been supplying fabric to us for three to six years. However, there is no assurance that any of our key suppliers will continue to supply fabric to us at our desired quality or at all and in a timely manner or commercially acceptable terms.

If any of our major suppliers fails to meet our purchase orders on a timely basis or commercially acceptable terms or supply us with fabric of the quality that we require or terminate their business relationship with us, we may be unable to source fabric from comparable alternative suppliers on a timely basis and on commercially acceptable terms.

If we are unable to obtain sufficient quantities of quality fabric or if there are increases in the prices of raw materials, we may be unable to maintain our production schedules and meet our commitments to our customers. We may also incur significant additional costs to source raw materials from alternative suppliers, and may not be able to shift the increased costs to our customers by increasing product prices. Any such development may have a material adverse effect on our business, financial condition and results of operations. During the Track Record Period, we had not experienced any failure of our suppliers to meet our purchase orders which resulted in significant increase in costs

incurred by us.

We do not have long-term contracts with our customers, which exposes us to potential volatility in our turnover

We do not have long-term contracts with our customers. The usual lead time between the placement of purchase orders by our customers and delivery of finished products will not be more than three months. Accordingly, the volume of our customers’ purchase orders and our product mix may vary significantly from period to period, and it is difficult for us to forecast future order quantities. The terms of the current arrangements with our customers are susceptible to changes. There is no assurance that any of our customers will continue to place purchase orders with us in the future at the

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RISK FACTORS


same level as in the current or prior periods, or at all and such reduction or termination of purchase order may be effected with short notice and we may not be able to locate alternative customers to replace the shorten purchase order. If one or more major customers were to cease to conduct business

with us or if there is any adverse change in our business relationship with our customers, and we

were unable to expand our business with existing customers or attract new customers, our business,

financial condition and results of operations would be materially and adversely affected.

Furthermore, the actual volume of our customers’ purchase orders may be inconsistent with our

expectation at the time we plan our expenditures. As a result, our results of operations may vary from

period to period and may fluctuate significantly. Our revenue decreased by approximately 30.4% to

approximately HK$894.4 million for the year ended 31 March 2010 from approximately HK$1,284.3

million for the year ended 31 March 2009. The decrease was primarily attributable to the decrease in

sales to the Group’s largest customer, a U.S. importer. Such decrease is primarily attributable to the

decrease in its orders from its major customer (a megastore) as a result of organisational changes of

such megastore customer of it and not related to the quality of the Group’s products. The organisational

changes refer to the re-location of offices of such megastore’s sourcing and merchandising division and

the corresponding personnel changes, and we understand that additional time and effort was required





for the year ended 31 March 2010, and do not expect that our sales to such U.S. importer customer will

further drop materially due to this factor. For the year ended 31 March 2009, our revenue decreased

by approximately 10.2% to approximately HK$1,284.3 million from approximately HK$1,430.9

million for the year ended 31 March 2008. The decrease is primarily due to our decision to cease

manufacturing at our production facilities in Jordan (where no import duty is imposed by the U.S.),

which had been handling primarily our orders for our customers in the U.S. market (including one

of our top five customers during the Track Record Period). Our Jordan Factory [has relatively high

labour cost with production labour mainly imported from Bangladesh and the PRC], and for cost

efficiency reason, we decided to close our Jordan Factory. This resulted in a decrease in sales to one

of our top five customers during the Track Record Period.

Our insurance coverage may not be sufficient to cover the risks related to our operations and losses

Our operations are subject to hazards and risks associated with our manufacturing operations,

which may cause significant harm to persons or damage to properties. We maintain different types

of insurance policies, including product liability insurance, transport accident insurance, vehicle

insurance, property all risk insurance, industrial all risk insurance, earthquake insurance, employer

liability insurance, marine cargo insurance and public liability insurance. However, we can give no

assurance that our insurance policies will be adequate to cover all losses incurred. Losses incurred

and associated liabilities may have a material adverse effect on our results of operations if such losses

or liabilities are not covered by our insurance policies.

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RISK FACTORS


We may be subject to product liability claims

We maintain insurance against product liability for all of our products. Certain customers in

the U.S. and Canada have specifically requested us to include them as the insured entities under our

Group’s product liability insurance policies so that they are entitled to claim for damages from the

insurance companies directly. Any imposition of liability in excess of our Group’s insurance coverage

may materially affect our Group’s business and financial position.

As at the Latest Practicable Date, as far as our Directors are aware and after making all

reasonable enquiries, no legal claim has been made against our Group arising from product defects.

Our Directors believe that, however, if the products sourced or manufactured by us for our customers

contain defects which adversely affect our customers or ultimate buyers of such products, our Group

may incur additional costs and sustain other resources in curing such defects or defending any legal

proceedings or claims brought against our Group or paying substantial damage for any successful

product liability claim and may result in negative publicity which adversely affects our reputation.

No legal claim had been made by any of our customers relating to the products sourced or

manufactured by us during the Track Record Period. There is no assurance that there will not be any

product liabilities claims against our Group in the future. If any customers of our Group make any

claim against our Group due to the defects of the products sourced by us, our business and financial

condition may be adversely affected.

We are subject to foreign exchange exposure

Substantially all our costs are denominated in RMB, USD, HK$ and IDR and our sales are

mainly denominated in USD, EUR, CAD, RMB, HK$ and GBP.

We have not taken out [extensive] measures to hedge our foreign currency exchange risks. It is

our Group’s practice to address certain foreign currency exposure that arises as a result of entering

into transactions involving large amounts of foreign currencies through the use of derivative financial

instruments. Further details of the derivative financial instruments are set out in the paragraph headed

“Derivative financial instruments” under the section headed “Financial information” in this document.

If there is any material fluctuation in the exchange rates of one currency that we use to settle our

payables against the other currencies that we receive from our customers, and if we are unable to

pass on the exchange risk to our customers, our results of operations and financial condition may be

adversely affected.

Our business requires significant capital investments and a high level of working capital to sustain our operations and overall growth

Our business is capital intensive and we depend on cash generated from our operations as well

as access to external financing to operate and expand our business. Our future funding requirements

will depend, to a large extent, on our working capital requirements and the nature of our capital

expenditures, our business performance, market conditions and other factors which are beyond the

control and anticipation of our management. The tightening of credit which resulted from the recent

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RISK FACTORS


economic downturn may increase the interest expenses on our bank borrowings and create difficulties

for our Group to renew existing banking facilities and/or obtain additional sources of debt financing, which may affect the amount of banking facilities available to our Group. The lenders may withdraw facilities, request for early repayment of outstanding loans or increase in the amount of pledges for secured borrowings. Further, if our Group requires additional debt financing, the lenders may require us to agree on restrictive covenants that could limit our flexibility in conducting future business

activities. We need substantial capital expenditures to maintain and continuously upgrade and expand

our production facilities, design and development and sourcing functions, and distribution and marketing

networks to keep pace with the competitive landscape and changing requirements in our industry.

We intend to fund a portion of our future capital expenditures, working capital needs and other

funding requirements from our cash flow generated from our operating activities and from external

sources of financing. If we are unable to generate sufficient cash flow or raise sufficient external

financing on attractive terms to meet our operations and expansion needs, we may not be able to

manage our existing operations, achieve our desired operating scale or expansion plans, which in turn

may adversely impact our competitiveness and, therefore, our results of operations. During the Track

Record Period, we had not experienced any lack of working capital for our operations.

We may not be able to develop our own brand

We are in the course of launching our branded “夢仕臣” (Monstons) underwear and homewear

products in the PRC, targeting at mass production market. An element of our strategy for growth

envisages us selling these products in large chain supermarkets in the PRC.

To effectively promote our brand, we would have to be able to build and maintain the brand

image by focusing on a variety of promotional and marketing activities to promote brand awareness,

as well as to increase our presence in the PRC by expanding our retail network.

However, as our brand has a short history, we may encounter difficulties in promoting and

marketing our brand. There may be competition between our existing customers going forward with

us and/or future customers with us which include brand owners/carriers, megastores, department stores

and supermarket chains, and us. Therefore, there is no assurance that the intended strategy can be

achieved or will be profitable. We therefore cannot assure the growth in sales of our branded products

and the future prospect of our brand. If the development strategy of our brand is not successful, the

goodwill of our brand may be undermined, our Group’s operating costs may increase and our Group’s

sales and financial results may be adversely affected, which may have a material adverse effect on

our future revenue and profitability.

We may not be able to expand into the retail market successfully

We plan to cooperate with a brand of casual wear targeting at the youngsters’ market in the

PRC and to diversify our business into the retail market of the PRC. As at the Latest Practicable

Date, the Company has considered certain cooperation opportunities but has not concluded with any

joint venture partners in relation to its plans for expansion into the PRC retail market. We also plan

to enter the retail market by launching our branded “branded “夢仕臣”(Monstons) underwear and

homewear products in the PRC.

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RISK FACTORS


We do not have any experience in the retail business sector. There is no assurance that our

plan of such cooperation will proceed or our initiative to expand into the retail market of the PRC

will become successful. In the event that such business strategy is not successful, our future revenue

and profitability will be affected.

We rely on consignment sales with large chain supermarkets in selling our “夢仕臣”(Monstons) brand products

We supply our “夢仕臣”(Monstons) brand products to the large chain supermarkets on a

consignment basis. We cannot guarantee the large chain supermarkets that are having consignment

business relationship with us will continue such mode of business cooperation with us in future or

whether we can increase the number of our consignment business partners. In the event that we cannot

reach further agreements on consignment arrangements with these large chain supermarkets or if we

cannot increase the number of our consignment business partners at a rate that we desire, the growth

in the sales of our “夢仕臣”(Monstons) brand products may be adversely affected; or alternatively,

we may need to allocate extra resources to develop retail channels in the PRC. In either case, our

business and financial position might be adversely affected.

We cannot be certain that our operation does not or will not infringe any patents, valid copyrights or other intellectual property rights held by third parties

We may in the future be, subject to legal proceedings and claims from time to time relating

to the intellectual property of others in the ordinary course of our business. If we are found to have

violated the intellectual property rights of others, we may be prohibited from using such intellectual

property, and we may incur licensing fees or be forced to develop alternatives. In addition, we may

incur substantial expenses in defending against these third party infringement claims, regardless of

their merit. Successful infringement or licensing claims against us may result in substantial monetary

liabilities, which may materially disrupt the continuity of our business and the stability of our financial

situation.

The interests of our Controll ing Shareholders may differ from those of our other Shareholders

Our Controlling Shareholders could exercise significant influence in determining the outcome

of any corporate transaction or other matters submitted to our Shareholders for approval, including

mergers, consolidations and the sale of all, or substantially all, of our assets, election of directors,

and other significant corporate actions.

The interests of our Controlling Shareholders may differ from the interests of our other

Shareholders. If the interests of our Controlling Shareholders conflict with the interests of our other

Shareholders, or if our Controlling Shareholders choose to cause our business to pursue strategic

objectives that conflict with the interests of our other Shareholders, those Shareholders could be

disadvantaged by the actions of our Controlling Shareholders.

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RISK FACTORS


RISKS RELATING TO THE INDUSTRY

Our industry is subject to economic and market conditions. There has been significant deterioration and volatility in the global financial markets recently. As a result, our business operations may be adversely affected

Our business depends substantially on the global economic and market conditions. Slowing

economic growth or a recession could have a material adverse effect on our business, financial

condition and results of operations as well as affecting our expansion strategies. Periods of relatively

slow economic growth, a recession or public perception that a slowdown or recession may occur, may

decrease the demand for our products, thereby adversely affecting our sales and profitability. For

example, during periods of slowing growth or recession, consumer spending power may drop as they

are less willing to spend money. As our garment products are ultimately sold to consumers in the retail

market, a drop in consumer spending power could lead to a drop in the amount of purchases from

our customers and, in turn, adversely affect the demand of our products thereby adversely affecting

our results of operations and financial conditions. This is particularly so as garment products are

generally considered discretionary consumption items and the garment industry is very sensitive to

changes in the economy.

Certain recent adverse financial developments have impacted the global financial markets. These

developments include a general slowing of economic growth both in the U.S. and globally and a drop

in consumer expenditure in general, substantial volatility in equity securities markets, volatility and

tightening of liquidity in credit markets. Economic downturn has also affected the purchasing power

of our customers and their demands.

It is difficult to predict how long these conditions will exist and which markets and businesses

of our Company may be affected. These developments could continue to present risks for an extended

period of time for our Group, including a potential slowdown in our sales to customers. If this

economic downturn continues, our business, financial condition and results of operations may be

adversely affected.

We operate in a highly competitive industry

The garment industry is highly competitive, with a large number of manufacturers and sourcing

companies throughout. We face competition from garment manufacturers and garment sourcing companies.

Some of our competitors may have greater manufacturing capabilities and a more extensive customer

base while others may have better financial and other resources than we do. We can not assure you

that we will be successful in expanding our market share against our competitors. Our competitors

may be able to respond more quickly to new or changes in market trend or customer requirements

and/or demands or adopt more competitive pricing policies. Existing and/or increased competition

could adversely affect our market share and materially affect our business, financial condition and

operating results.

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RISK FACTORS


In addition, our success is, to a large extent, attributable to our one-stop shop business model

which enables us to provide to our customers a comprehensive range of services covering the entire

supply chain of garment products, including product design, product development, production, logistics

and delivery. There is no assurance that any of our competitors will not develop similar or better

business models than ours. There is also no assurance that we may continue with our current business

model due to cost reasons and pricing policies or keep up with design and develop improvement to

maintain our competitive advantages or strengthen our business model. New competitors may also

enter into the market with more innovative and competitive business model. If our competitors are

more successful in developing their business models, they may be able to expand their customer

base faster and obtain more orders than us. We may also lose our competitive advantages with more

innovative business model in the market. In such event, our business operations and profitability will

be adversely affected.

The business of our Group may be affected by outbreaks and recurrence of epidemics, natural disasters, acts of war, terrorist acts, political unrest and other events which are beyond our control

Certain countries in Asia have experienced epidemics such as SARS, avian influenza and natural

disasters such as fire, floods, droughts, blizzards and earthquakes, which have had an adverse impact

on the economies of the PRC and other parts of Asia.

Where there is an outbreak or a recurrence of epidemics or natural disaster in any country,

acts of war, terrorist acts, political unrest and other events which are beyond our control, this could

result in disruption to our business, which could in turn adversely affect our operations and financial

results.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Political and economic policies of the PRC government and social conditions and legal developments of the PRC could affect our business

Our results, financial condition and prospects are to a significant degree subject to the economic,

political and legal developments of the PRC, as a substantial part of our assets are located in the PRC

and some of our sub-contract manufacturers are located in the PRC. The economic, political and social

conditions, as well as government policies, including taxation policies, of the PRC, could affect our

business. The PRC economy differs from the economies of most developed countries in many respects,

including its structure, level of government involvement, level of development, growth rate, control

of foreign exchange and allocation of resources. The PRC economy has historically been a planned

economy and has been in a transitional stage to a more market-driven economy. The PRC government

continues to play a significant role in regulating industries by imposing industrial policies. There can

be no assurance that economic, political or legal systems of the PRC will not develop in a way that

is detrimental to our business, results of operations and prospects.

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RISK FACTORS


The government control of currency conversion could affect our business operations

At present, RMB is not freely convertible to other currencies. Under the current foreign

exchange regulations, RMB is convertible without approvals from the SAFE or its local counterpart

only with regard to current account transactions, including trade and service related foreign exchange

transactions and payment of dividends to foreign investors, while the foreign exchange transactions

in respect of capital account items including the foreign currency capital in any foreign investment

enterprise in the PRC, the repayment of foreign currency loans and the payment pursuant to foreign

currency guarantees, continue to be subject to significant foreign exchange controls and require the

prior approval of the SAFE or its local counterpart. There can be no assurance that the PRC government

will not impose more stringent restrictions on the convertibility of RMB, especially relating to foreign

exchange transactions. If the PRC government imposes additional restrictions on the convertibility of

RMB, we may have difficulties remitting out the profits generated from our operations in the PRC,

which may in turn adversely affect our ability to pay dividends to Shareholders in HK$ or other

foreign currencies.

Uncertainties regarding interpretation and enforcement of the PRC laws and regulations may impose adverse impact on our business, operations and profitability

Although many laws and regulations have been promulgated and amended in the PRC since 1978,

the PRC legal system is still not sufficiently comprehensive when compared to the legal systems of

certain developed countries. The interpretation of the PRC laws and regulations involves significant

uncertainties and different degrees of inconsistencies. Some of the laws and regulations are still at

a developing stage and are therefore subject to policy changes. Many laws, regulations, policies and

legal requirements have only been recently adopted by PRC central or local government agencies,

and their implementation, interpretation and enforcement may involve uncertainty due to the lack of

established practice available for reference. In addition, it may also be difficult to enforce judgments

and arbitration awards in the PRC.

Many laws and regulations in the PRC are promulgated in broad principles and the Central

People’s Government has gradually laid down implementation rules and has continued to refine and

modify such laws and regulations. As the PRC legal system develops, the promulgation of new laws or

refinement and modification of existing laws may affect foreign investors. There can be no assurance

that future changes in legislation or the interpretation thereof will not have an adverse effect upon

our business, operations or profitability.

Our labour costs may increase for reasons such as the implementation of the Labour Contract Law of the PRC or a labour shortage in the places we operate

The Labour Contract Law of the PRC (中華人民共和國勞動合同法) (the “Labour Law”) became

effective on 1 January 2008 in the PRC. It imposes more stringent requirements on employers in relation

to entry into fixed term employment contracts and dismissal of employees. Pursuant to the Labour Law,

the employer is required to make severance payment to fixed-term contract employees when the term

of their employment contract expires, unless the employee does not agree to renew the contract even

though the conditions offered by the employer for renewal are the same as or are better than those

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RISK FACTORS


stipulated in the current employment contract. In general, the amount of severance payment is equal

to the monthly wage of the employee multiplied by the number of full years that the employee has

worked for the employer. A minimum wage requirement has also been incorporated into the Labour

Law. In addition, the employer is also required to enter into non-fixed term employment contracts

with employees who have worked for them for more than 10 years or, unless otherwise provided in

the Labour Law, to enter into non-fixed term employment contracts with employees whose fixed term

employment contracts have been concluded for two consecutive terms since 1 January 2008.

In addition, under the “Regulations on Paid Annual Leave for Employees” (職工帶薪年休假條例) (the “Regulation”), which became effective on 1 January 2008, employees who have worked

continuously for more than one year are entitled to a paid vacation ranging from 5 to 15 days,

depending on the length of the employees’ work time. Employees who consent to waive such vacation

at the request of employers shall be compensated an amount equal to three times their normal daily

salaries for each vacation day being waived. As a result of the Labour Law and the Regulation, our

labour costs may increase. [Further, under the Labour Law, when we terminate our PRC employees’

employment, we may be required to compensate them for such amount which is determined based

on their length of service with us, and we may not be able to efficiently terminate non-fixed term

employment contracts under the Labour Law without cause. In the event we decide to significantly

change or decrease our workforce, the Labour Law could adversely affect our ability to effect these

changes cost-effectively or in the manner we desire, which could result in adverse impact to our

business, operations or profitability.]

In addition, if there is a shortage of labour or for any reason the labour cost in the PRC or

any other country in which we operate rises significantly, the cost of production of our products is

likely to increase. This may in turn affect the selling prices of our products, which may then affect

the demand of such products and thereby adversely affect our sales and financial condition. Increase

in costs of other components required for production of our products may cause similar adverse

effects, particularly if we are unable to identify and employ other appropriate means to reduce our

costs of production. Furthermore, we may not be able to pass on the increased cost to consumers by

increasing the selling prices of our products in light of competitive pressure in the markets where

it operates. In such circumstances, our profit margin may decrease and our financial results may be

adversely affected.

Non-compliance with PRC laws and regulations relating to housing fund contributions may adversely affect our financial condition

Under the relevant PRC laws and regulations, enterprises in China are required to make

contributions to housing fund, in the amount equal to certain percentage of each employee’s salary

on a monthly basis. An employer who fails to make such mandatory contributions may be ordered to

make up such contributions within a stipulated time frame and also pay certain amount of fines. If we

are found by the relevant government authorities to have breached the relevant laws and regulations,

we may be required to make relevant contributions for the employees retroactively and may also be

subject to fines, which may adversely affect our financial condition.

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RISK FACTORS


According to the Regulations on the Administration of Housing Fund (住房公積金管理條例)

effective on 3 April 1999, the PRC companies shall go through housing fund registration with the

local housing fund administration center and open housing fund accounts for its employees in the

bank. A company may be subject to order to handling within a time limit for failure to comply with

the rules in relation to the abovementioned registration and accounts opening. If a company fails to

handle within the prescribed time limit, it shall be imposed with a penalty ranging from RMB10,000

to RMB50,000. Where a company fails to pay up housing funds within time limit, the housing fund

administration center shall order it to make payment in certain period of time, if the Company still

fails to do so, the housing fund administration center may apply to the court for enforcement of the

unpaid amount.

Jiangmen Factory and FG Shenzhen did not register with relevant authorities, did not establish

a housing fund account with banks and did not contribute to the housing fund. Due to different levels

of acceptance of housing fund system by employees and the fact that certain employees did not

ordinarily reside in Jiangmen or Shenzhen, Jiangmen Factory and FG Shenzhen have not made any

housing fund contribution. As at 30 April 2010, Jiangmen Factory’s outstanding amounts of housing

fund contributions amounted to approximately RMB4 million, which, together with the maximum

amount penalty of RMB50,000 that may be payable, is the maximum potential liability arising from

the outstanding contributions for Jiangmen Factory.

Rocwide Limited, a member of the VC Group, acquired 60% equity interest in Jiangmen

Factory in 2006; our Group acquired the remaining 40% equity interest in 2009 and acquired Rocwide

Limited in 2010, and from 7 April 2010, Jiangmen Factory became a wholly-owned subsidiary of our

Company. Since our Group was not a shareholder of Jiangmen Factory since its establishment until

the respective transfers of equity interest as mentioned, the past shareholders of Jiangmen Factory

had undertaken, should Jiangmen Factory be required to contribute to the housing fund, to contribute

the portion attributable to them according to the period during which they were the shareholders and

their respective shareholding ratios. Taking into account the undertakings of the past shareholders,

the portion of the housing fund attributable to our Group was approximately RMB[139,451] as at [30

April] 2010. In addition, our Controlling Shareholders have provided indemnities in favour of our

Group against the potential liability arising from the outstanding housing fund contributions. Without

taking into account the undertakings of the past shareholders, should the housing fund contributions

be provided for based on the maximum potential liability, the Group’s consolidated profit before tax

for each of the three years ended 31 March 2010 would be reduced by approximately 1.15%, 0.86%

and 1.12% respectively, and the amount of the Group’s consolidated net asset at 31 March 2010 would

be reduced by approximately [0.07]%.

[As advised by the official at the Housing Fund Administration Center of Xinhui District, being

a competent authority in this aspect, during a meeting on 23 June 2010, Jiangmen Factory was only

required to pay its outstanding housing fund contribution for its employees if and when the Center

received complaint(s) from the relevant employee(s). According to such official, the Center has not

received any complaint from any employee of Jiangmen Factory as at the date of the above meeting.

Based on the above, Jiangmen Factory is not, at present, required to make payment of its outstanding

housing fund contribution. No written confirmation from the Center was obtained.]

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RISK FACTORS


The amount required to be contributed by FG Shenzhen was approximately RMB12,800 for the

period commencing from 1 February 2010 (being the first whole month since employees were hired)

to 30 April 2010, which, together with the maximum amount of penalty of RMB50,000 that may be

payable, is the maximum potential liability arising from the outstanding contributions for FG Shenzhen.

Based on the results of its enquiry with the Shenzhen Social Insurance Fund Management Bureau*

(深圳市社會保險基金管理局) on 8 September 2010, being a competent authority in this aspect, our

PRC Legal Advisers advised that, although the Regulations on the Administration of Housing Fund

became effective on 3 April 1999, at present, it is still not mandatory for companies in Shenzhen to

contribute to the housing fund and accordingly, the possibility for FG Shenzhen being legally liable

for failure to contribute to the housing fund is low. No written confirmation from this Bureau was

obtained.

Any changes in our tax treatment, including an unfavourable change in preferential enterprise income tax rates in the PRC, may have a material adverse impact on our financial condition and results of operations

On 16 March 2007, the National People’s Congress of the PRC promulgated the Corporate

Income Tax Law of the PRC (中華人民共和國企業所得稅法) (the “New Tax Law”) by Order No. 63 of

the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation

Regulations of the New Tax Law (the “Implementation Regulations”). According to the New Tax

Law and the Implementation Regulations, the statutory tax rate of 25% was effective from 1 January

2008. Before 1 January 2008, the statutory income tax rate was 33%.

Pursuant to the relevant laws and regulations in the PRC, Jiangmen Factory is exempted from PRC

enterprise income tax for two years starting from its first profit making year, which is 2008, followed

by a 50% reduction for the next three years. Jiangmen Factory can continue to enjoy the tax incentives

granted to it according to the grandfathering provisions in the Implementation Regulations.

However, no assurance can be given that the current policies in the PRC with respect to the

current preferential tax treatment that we enjoyed will not be abolished or unfavourably amended, or

that the approval for such preferential tax treatment will be granted to our subsidiaries in a timely

manner, or at all.

Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may limit our ability to acquire PRC companies and adversely affect the implementation of our strategy as well as our business and prospects

The Rules on the Acquisition of Domestic Enterprises by Foreign Investors (2006 Revision)

(關於外國投資者併購境內企業的規定) (the “M&A Rules”), which were promulgated in August 2006

and were effective from 8 September 2006 as well as were amended on 22 June 2009, provide the

rules with which foreign investors must comply if they are seeking to acquire shares in a non-foreign

funded enterprise, whether through a purchase agreement with existing shareholders or through a

direct subscription to the company’s capital increase, that would result in that company becoming a

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RISK FACTORS


foreign-funded enterprise. The M&A Rules further require that the business scope of the resultant

foreign-funded enterprise conform to the Foreign Investment Industrial Guidance Catalogue (外商投資產業指導目錄). The M&A Rules also provide the takeover procedures for the acquisition of equity

interests in domestic enterprises.

There are uncertainties as to how the M&A Rules will be interpreted or implemented. If we

decide to acquire a PRC company in the future, there is no assurance that we or the owners of such

PRC company can successfully complete all necessary approval requirements under the M&A Rules.

This may restrict our ability to implement our expansion and acquisition strategy and could materially

and adversely affect our future growth.

[PRC regulations on loans to and direct investment by offshore holding companies in PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries

As an offshore holding company of our PRC subsidiaries, we may make loans to our PRC

subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans

to our PRC subsidiaries are subject to PRC regulations and foreign exchange loan registrations. For

example, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits

and must be registered with the SAFE or its local counterpart. We may also determine to finance our

PRC subsidiaries by means of capital contributions. These capital contributions must be approved

by the PRC Ministry of Commerce or its local counterpart. We cannot assure you that we can obtain

these government registrations or approvals on a timely basis, if at all, with respect to future loans

or capital contributions by us to finance our PRC subsidiaries.

A shortage of electricity and water supply in the PRC would affect our production and affect our business and financial performance

Part of our revenue is dependent on the continued operations of our production facilities in the

PRC. A disruption in the supply of utilities including electricity and water supply, typhoons, floods

or other calamities resulting in a prolonged power outage, could result in an interruption or delay

of, or require us to curtail, our operations. Any such disruption in our operations could cause us to

reduce or halt our production, prevent us from meeting customer orders, adversely affect our business

reputation, increase our costs of production or require us to make unplanned capital expenditures,

any one of which could materially and adversely affect our business, financial condition and results

of operations. During the Track Record Period, we had not experienced any disruption of electricity

and/or water supply resulting in losses to our Group.

Changes in government regulations such as environmental laws and regulations could affect our results of operations

Our operations generate pollutants and waste in various stages of the manufacturing process.

The discharge, storage and disposal of such pollutants and waste are subject to environmental laws

and regulations in the PRC, including laws and regulations requiring clean-up of contamination

and reclamation. Historically, environmental legislation in the PRC has, in many cases, been less

- 38 -

RISK FACTORS


stringently enforced. However, more stringent standards may be introduced, stricter interpretations

of existing laws may occur or enforcement may become more stringent in the PRC. Changes in the

regulatory framework may result in an increase in our actual operating costs and liabilities for which

we have not provided.

RISKS RELATING TO CONDUCTING BUSINESS IN INDONESIA

Indonesia is located in an earthquake zone and is subject to significant geological risk that could lead to social unrest and economic loss

Indonesia is located in one of the most volcanically active regions in the world and is subject

to significant seismic activity that can lead to destructive earthquakes and tsunamis, or tidal waves. In

December 2004, an underwater earthquake off the coast of Sumatra created a tsunami that devastated

coastal communities in Indonesia, Thailand and Sri Lanka and caused billions of US$ in damages.

In Indonesia, more than 220,000 people died or were recorded as missing in the disaster. In May

2008, a 6.4 magnitude earthquake struck roughly 30 miles southwest of Mount Merapi, killing over

6,000 people and leaving over 200,000 people homeless in the Yogyakarta region. In July 2006, a

7.7 magnitude earthquake struck approximately 220 miles of south Jakarta and the resulting tsunami

killed over 500 people and left over 35,000 people homeless. Most recently, in September and October

2009, as series of earthquakes ranging in magnitude of up to 7.6 struck various parts of Indonesia.

The Indonesian government has had to expand significant amounts of resources on emergency

aid and resettlement efforts. Most of these costs have been underwritten by foreign governments

and international aid agencies. However, such aid may not continue to be forthcoming or delivered

to recipients on a timely basis. If the Indonesian government is unable to timely deliver foreign aid

to affected communities, political and social unrest could result. Additionally, recovery and relief

efforts could strain the Indonesian government’s finances and may adversely affect its liability to meet

its obligations on its sovereign debt. Any such failure on the part of the Indonesian government, or

declaration by it of a moratorium on its sovereign debt, could potentially trigger an event of default

under numerous private-sector borrowings.

A significant earthquake, geological disturbance or tsunami affecting any of Indonesia’s more

populated cities could severely disrupt the Indonesian economy and undermine investor confidence,

thereby materially and adversely affecting us. [We had not been subject to any damages and loss

resulting from this risk during the Track Record Period and up to the Latest Practicable Date.]

The interpretation and implementation of legislation on regional governance in Indonesia is uncertain

Following the end of 32 years’ centralised regime of Soeharto, the Indonesian government has

enacted a number of laws to increase regional autonomy. Under these laws, regional governments have

greater powers and responsibilities over the use of national assets and to create a more balanced and

equitable financial relationship with the central government. Regional government has been allowed

to impose taxes and other charges on entities. This may cause different treatment on every entity

operated in a different regional territory.

- 39 -

RISK FACTORS


This decentralisation of power has created uncertainties, including with respect to the validity,

scope, interpretation and application of foreign investment policy. Limited precedent or other guidance

exists on the interpretation and implementation of the regional autonomy laws. This uncertainty has

increased the risks and may increase the costs, involved in our operation in Indonesia.

Labour unrest or activism could adversely affect us, our customers and Indonesian companies in general which in turn could affect business, financial condition, results of operations and prospects

Our operations are labour intensive. Our operations have not been materially affected by any

significant labour dispute or dispute with community farmers in the past. However, we may, in the

future experience labour unrest, activism, disputes or actions involving our employees any of which

could have a material adverse effect on our business, financial condition, results of operations and

prospects.

In addition, laws permitting the formation of labour unions, combined with weak economic

conditions, have resulted, and may continue to result, in labour unrest in Indonesia. On March 25,

2003, the Indonesian government enacted Law No. 13 Year 2003 regarding Manpower (the “Manpower Law”). The Manpower Law, among other things, and subject to certain procedural requirements,

gives the right to employees to strike in the event that regulations may also be expected in the future.

Due to the active involvement of various non-governmental organisations, employees’ awareness of

Indonesian employment regulations has also increased during the last several years. The Manpower

Law, existing Indonesian employment regulations and any manpower regulations and laws adopted

in Indonesia aim the future may have an impact on the business environment, including ours, which

may limit our ability to downsize or implement flexible labour policies.

Labour unrest and activism in Indonesia could disrupt our operations, the operations of our

suppliers or contractors and could affect the financial condition of Indonesian companies in general,

including depreciation of securities it issued. Any of such events could have a material adverse effect

on our business, financial condition, results of operation and prospects. [We had not been subject to

any damages and loss resulting from this risk during the Track Record Period and up to the Latest

Practicable Date.]

We operate in a legal and regulatory system in which the application and enforcement of various laws and regulations may be uncertain

Indonesia’s legal system is a civil law system based on written statutes. However, at times, the

interpretation, application or enforcement of laws and regulations may be unclear and the content of

applicable laws and regulations may not be immediately available to the public.

Judicial decisions in Indonesia, in particular those rendered by the Supreme Court, are persuasive

but they do not constitute binding precedent. They are also not systematically and publicly available as

in developed countries. Many of Indonesia’s commercial and civil laws and rules on judicial process

are based on pre-independence Dutch law and have not been revised to reflect the complexities of

modern financial transactions and instruments. Indonesian courts are often unfamiliar with sophisticated

- 40 -

RISK FACTORS


commercial or financial transactions, leading in practice to uncertainty in the interpretation and

application of Indonesian legal principles. The application of many Indonesian laws and regulations depends, in large part, upon subjective criteria such as the good faith of the parties to the transaction and principles of public policy. Indonesian judges operate in an inquisitorial legal system and have very broad fact-finding powers and a high level of discretion in relation to the manner in which those powers are exercised. In practice, Indonesian court decisions may omit, or may not be decided upon, a legal and factual analysis of the issues presented in a case.

Further, public and judiciary supervision of administrative and law enforcement authorities are not well established. Consequently, there are instances of these authorities changing their interpretation of the law without public consultation prior notice.

In summary, administration and enforcement of laws and regulations by Indonesian courts and governmental agencies may be subject to uncertainty and considerable discretion. Uncertainty regarding the application and enforcement of various laws and regulations to our business, our entitlement to the various land rights, or other legal or regulatory matters relating to our business could have a material adverse effect on our business, financial condition, results of operations and prospects.

RISKS RELATING TO CONDUCTING BUSINESS IN OTHER PLACES

We may also be affected by the political and economic policies and the social conditions and legal developments of the places that we operate or conduct business in

Our customers are mainly located in the U.S., Canada, the U.K., Mexico, Japan and the PRC

and we source garment products for them in the PRC, and other places in Asia including Cambodia

and Vietnam. We also have offices or representatives in the U.S., Canada, PRC, Hong Kong and Macau

to provide sales supporting and customer services to our customers.

We operate in different places and our customers and business partners are both in China and

overseas. Other than the PRC, our business operations are also affected by the economic, political

and legal developments of the places where we or our business operate. There can be no assurance

that economic, political or legal systems of those places will not develop in a way that is detrimental

to our business, results of operations and prospects.

We are a holding company and rely on dividend payments from our subsidiaries

On [6 September] 2010, FG Holdings declared a special dividend of HK$30.0 million payable




million and HK$3 million, respectively to its then shareholders for the three years ended 31 March

2008, 2009 and 2010, respectively. Save as disclosed above, no other dividend was paid by us or any




- 41 -

RISK FACTORS


We are a holding company and conduct substantially all of our business through our operating

subsidiaries in various jurisdictions. As a result, our ability to pay dividends depends on dividends and

other distributions received from our operating subsidiaries. If our subsidiaries incur debt or losses,

it may impair their ability to pay dividends or other distributions to us, which could adversely affect

our ability to pay dividends to our Shareholders.

The ability of our subsidiaries to pay any dividend in a given year to us depends on the legal

and regulatory requirements to which the relevant subsidiary is subject; in general, our subsidiaries

could not pay dividend to us if they do not have distributable profits. Limitations on the ability of

our subsidiaries to remit their after-tax profits to us in the form of dividends or other distributions

could adversely affect our ability to grow, make investments that could be beneficial to our business,

pay dividends and otherwise fund and conduct our business. We also cannot assure you that our

subsidiaries will generate sufficient earnings and cash flows to pay dividends or otherwise distribute

sufficient funds to us to enable us to pay dividends to our Shareholders.

In respect of our PRC Subsidiaries, the newly enacted PRC Enterprise Income Tax Law and its

implementation rules stipulate that if an entity is deemed to be a non-PRC resident enterprise which

has no establishment or place of business in the PRC or has establishment or place of business in

the PRC but the income has no relationship with such establishment or place, withholding tax at the

rate of 10% will be applicable to any dividends paid to it by its PRC subsidiary, unless it is entitled

to reduction or elimination of such tax, including by tax treaties.

In addition, restrictive covenants in bank credit facilities, joint venture agreements or other

arrangements that we or our subsidiaries may enter into in the future may also restrict the ability

of our subsidiaries to pay dividends or make distributions to us. These restrictions could reduce the

amount of dividends or other distributions we receive from our subsidiaries, which in turn would

restrict our ability to pay dividends to our Shareholders.

- 42 -

DIRECTORS


DIRECTORS

Name ResidentialAddress Nationality

Executive Directors

Mr. Choi Lin Hung (蔡連鴻) 11th Floor, The Primrose British

No. 38 Rose Street

Yau Yat Chuen

Kowloon

Hong Kong

Mr. Ng Tze On (吳子安) Ground Floor, Chinese

No. 190 Mong Chan Estate

DD129 Lot 1495

Lau Fou Shan

Yuen Long

New Territories

Hong Kong

Mr. Lau Kwok Wa, Stanley (劉國華) No. 41 Bauhinia Road North Chinese

Section M, Fairview Park

Yuen Long

New Territories

Hong Kong

Non-executive Directors

Mr. Li Ming Hung (李銘洪) A4, Luso Apartment Chinese

No. 5 Warwick Road

Kowloon

Hong Kong

Mr. Chen Tien Tui (陳天堆) Unit D, 10th Floor Chinese

Block A, Lung Tang Court

Nos. 88-90 Castle Peak Road

Tsing Lung Tau

New Territories

Hong Kong

- 43 -

DIRECTORS


Independent non-executive Directors

Mr. Lau Chi Kit (劉智傑) 160 Nam Shan British

DD220 in Lot 1007

Sai Kung, Kowloon

Hong Kong

Mr. Mak Chi Yan (麥志仁) Flat C, 10th Floor Chinese

Block A, Tempo Court

4 Braemar Hill Road

Hong Kong

Mr. Wong Wai Kit, Louis (黃瑋傑) 25C, Manrich Court Chinese

33 St. Francis Street

Hong Kong

Mr. Yuen Kin Kei (袁建基) 14/F, Holland Garden Chinese

54-56 Blue Pool Road

Happy Valley

Hong Kong

- 44 -

CORPORATE INFORMATION


Registered office Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Headquarters and principal place of 19/F, Ford Glory Plaza business in Hong Kong 37-39 Wing Hong Street Cheung Sha Wan Hong Kong

Company secretary Chan Shuk Fun CPA

Audit committee Yuen Kin Kei (Chairman) Lau Chi Kit Mak Chi Yan Wong Wai Kit, Louis

Remuneration committee Mak Chi Yan (Chairman) Lau Chi Kit Wong Wai Kit, Louis Yuen Kin Kei Choi Lin Hung

Principal bankers The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited DBS Bank (Hong Kong) Limited Bank of America, N.A.

- 45 -

INDUSTRY OVERVIEW


This section contains certain information which is derived from various official government or

publicly available sources, including The World Bank, The National Bureau of Statistics of China,

The U.S. Census Bureau, Statistics Canada, The United Kingdom Office for National Statistics,

Instituto Nacional de Estadistica y Geografia, The Ministry of Economy, Trade and Industry of

Japan. We believe that the sources of these information are appropriate sources for such information

and have taken reasonable care in extracting and reproducing such information. We have no reason

to believe that such information is false or misleading in any material respect or that any fact has

been omitted that would render such information false or misleading in any material respect.

INTRODUCTION









brand owners/carriers, megastores, department stores and supermarket chains. We also source garment


GROWTH OF THE GLOBAL ECONOMY AND INCOME LEVELS

Following the deepest global downturn in recent history, economic growth solidified and

broadened to advanced economies in the second half of 2009. Confidence rebounded strongly on both

financial and real fronts, supported by extraordinary policy stimulus. According to The World Bank,

world output is expected to rise by 2.7% in 2010 after a 2.2% decline in 2009.

The global economy had been growing steadily prior to the global downturn in 2009. According

to The World Bank, world Gross Domestic Product (“GDP”) increased from approximately US$41,917

billion in 2004 to approximately US$60,557 billion in 2008, and the CAGR of the period is approximately

9.6%, which reflects a steady growth.

Associated with the steady growth of GDP, income levels have increased accordingly. World Gross

National Income (GNI) per capita increased from approximately US$6,375 in 2004 to approximately

US$8,654 in 2008 according to The World Bank, representing a CAGR of approximately 7.9%.

- 46 -

INDUSTRY OVERVIEW


41,91745,292

49,022

55,11760,557

2004 2005 2006 2007 2008

2004-2008 World GDP

(US

$ bi

llio

n)

GDP Growth rate

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

12.7% 8.1% 8.2% 12.4% 9.9%

Source: The World Bank

6,3757,080

7,5388,046

8,654

2004 2005 2006 2007 2008

2004-2008 World GNI per capita

(US

$)

GNI per capita Growth rate

0

2,000

4,000

6,000

8,000

10,000

14.4% 11.1% 6.5% 6.7% 7.6%


Growth of the U.S. economy and income levels

According to The World Bank, U.S.’s GDP increased steadily from approximately US$11,631

billion in 2004 to approximately US$14,093 billion in 2008, representing a CAGR of approximately

4.9%. The global economic downturn, the sub-prime mortgage crisis, investment bank failures, falling

home prices, and tight credit pushed the United States into a recession by mid-2008. GDP contracted

till the third quarter of 2009, making this the deepest and longest downturn since the Great Depression.

According to the CIA World Factbook, GDP growth is estimated to be -2.4% in 2009. However, the

U.S. economy has shown signs of stabilising. In January 2009, the U.S. Congress passed and President

Barack Obama signed a bill providing an additional US$787 billion fiscal stimulus to be used over

10 years (two-thirds on additional spending and one-third on tax cuts) to create jobs and to help the

economy recover. Approximately two-thirds of these funds will have been injected into the economy

by the end of 2010.

- 47 -

INDUSTRY OVERVIEW


Associated with the steady growth of GDP, income levels in the U.S. have increased accordingly

over the 4-year period from 2004 to 2008. According to The World Bank, GNI per capita in the U.S.

increased from approximately US$41,180 in 2004 to approximately US$47,930 in 2008, representing

a CAGR of approximately 3.9%.

11,63112,364

13,11713,742

14,093

2004 2005 2006 2007 2008

2004-2008 U.S. GDP(U

S$

bill

ion)

GDP Growth rate

0

3,000

6,000

9,000

12,000

15,000

6.6% 6.3% 6.1% 4.8% 2.6%


41,18043,870 45,370

46,40047,930

2004 2005 2006 2007 2008

2004-2008 U.S. GNI per capita

(US

$)


0

10,000

20,000

30,000

40,000

50,000

9.7% 6.5% 3.4% 2.3% 3.3%


- 48 -

INDUSTRY OVERVIEW


Growth of the Canadian economy and income levels

According to The World Bank, Canada’s GDP increased significantly from approximately US$992

billion in 2004 to approximately US$1,501 billion in 2008, representing a CAGR of approximately

10.9%.

Associated with the high level of growth of GDP, income levels in the Canada have increased

accordingly. GNI per capita in the Canada increased from approximately US$28,530 in 2004 to

approximately US$43,640 in 2008 according to The World Bank, representing a CAGR of approximately

11.2%.

992

1,133

1,279

1,4301,501

2004 2005 2006 2007 2008

2004-2008 Canada GDP

(US

$ bi

llio

n)

GDP Growth rate

0

200

400

600

800

1,000

1,200

1,400

1,600

14.5% 14.2% 12.9% 11.8% 5.0%


28,530

33,100

36,91040,450

43,640

2004 2005 2006 2007 2008

2004-2008 Canada GNI per capita

(US

$)


0

10,000

20,000

30,000

40,000

50,000

15.8% 16.0% 11.5% 9.6% 7.9%


- 49 -

INDUSTRY OVERVIEW


Growth of the U.K. economy and income levels

According to The World Bank, U.K.’s GDP embarked on a general upward trend over the 4-year

period from 2004 to 2008, increasing from approximately US$2,198 billion in 2004 to approximately

US$2,674 billion in 2008, despite approximately 4.6% decrease in GDP between 2007 & 2008. Income

levels in the U.K. have also increased over the 4-year period, with GNI per capita increasing from

approximately US$34,540 in 2004 to approximately US$46,040 in 2008 and a CAGR over the period

of approximately 7.5%.

2,1982,280

2,436

2,8032,674

2004 2005 2006 2007 2008

2004-2008 U.K. GDP

(US

$ bi

llio

n)

GDP Growth rate

0

500

1,000

1,500

2,000

2,500

3,000

18.1% 3.7% 6.8% 15.1% -4.6%


34,540

38,80041,040

44,07046,040

2004 2005 2006 2007 2008

2004-2008 U.K. GNI per capita

(US

$)


0

10,000

20,000

30,000

40,000

50,000

18.8% 12.3% 5.8% 7.4% 4.5%


- 50 -

INDUSTRY OVERVIEW


Growth of the Mexico economy and income levels

According to The World Bank, Mexico’s GDP increased from approximately US$759 billion in

2004 to approximately US$1,088 billion in 2008, representing a CAGR of approximately 9.4%.

Associated with the high level of growth of GDP, income levels in the Mexico have increased

accordingly. GNI per capita in the Mexico increased from approximately US$7,410 in 2004 to

approximately US$9,990 in 2008 according to The World Bank, representing a CAGR of approximately

7.8%.

759

847

9491,023

1,088

2004 2005 2006 2007 2008

2004-2008 Mexico GDP

(US

$ bi

llio

n)

GDP Growth rate

0

200

400

600

800

1,000

1,200

8.4% 11.6% 12.0% 7.8% 6.4%


7,410

8,0808,740

9,4009,990

2004 2005 2006 2007 2008

2004-2008 Mexico GNI per capita

(US

$)


0

2,000

4,000

6,000

8,000

10,000

12.8% 9.0% 8.2% 7.6% 6.3%


- 51 -

INDUSTRY OVERVIEW


Growth of the Japanese economy and income levels

According to The World Bank, Japan’s GDP, although fluctuating over the 4-year period from

2004 to 2008, embarked on a general upward trend, increasing from approximately US$4,606 billion in

2004 to approximately US$4,911 billion in 2008. Income levels in the Japan have also increased over

this period, with GNI per capita increasing from approximately US$36,690 in 2004 to approximately

US$38,130 in 2008 and a CAGR over the period of approximately 1.0%.

4,606 4,5524,363 4,381

4,911

2004 2005 2006 2007 2008

2004-2008 Japan GDP

(US

$ bi

llio

n)

GDP Growth rate

0

1,000

2,000

3,000

4,000

5,000

8.9% -1.2% -4.2% 0.4% 12.1%


36,69038,950 38,590 37,780 38,130

2004 2005 2006 2007 2008

2004-2008 Japan GNI per capita

(US

$)


0

10,000

20,000

30,000

40,000

50,000

9.8% 6.2% -0.9% -2.1% 0.9%


- 52 -

INDUSTRY OVERVIEW


Rapid growth of the PRC economy

The PRC economy has been growing rapidly since the implementation of market liberalisation

policies by the PRC government in the late 1970s. Economic growth was further reinforced by the

launch of special economic zones along the coastal PRC regions since the 1980s. According to

National Bureau of Statistics of China, PRC’s GDP increased from approximately RMB15,988 billion

in 2004 to approximately RMB30,067 billion in 2008, representing a CAGR of approximately 17.10%,

reflecting rapid growth. The GDP per capita increased from approximately RMB12,336 in 2004 to

approximately RMB22,698 in 2008.

15,98818,322

21,192

25,731

30,067

2004 2005 2006 2007 2008

2004-2008 PRC GDP

(RM

B b

illi

on)

GDP Growth rate

0

8,000

16,000

24,000

32,000

40,000

17.7% 14.6% 15.7% 21.4% 16.9%

Source: National Bureau of Statistics of China

12,336

14,053

16,165

19,524

22,698

2004 2005 2006 2007 2008

2004-2008 PRC GDP per capita

(RM

B)

GDP per capita Growth rate

0

5,000

10,000

15,000

20,000

25,000

17.0% 13.9% 15.0% 20.8% 16.3%


- 53 -

INDUSTRY OVERVIEW


THE GLOBAL RETAIL MARKET AND CLOTHING RETAIL MARKET

The overall retail market and clothing retail market in the U.S.

According to the U.S. Census Bureau, U.S. retail sales increased over the 4-year period from

approximately US$3,480 billion in 2004 to approximately US$3,671 billion in 2009, with a decrease

from approximately US$3,959 billion in 2008 as a result of the economy downturn in the U.S..

Similarly, clothing stores sales in the U.S. rose over the same period from approximately US$137

billion in 2004 to approximately US$152 billion in 2009, with a decrease from approximately US$158

billion in 2008. In the latest monthly report released by the U.S. Census Bureau, advance estimates

of retail and food services sales in the U.S. for June 2010 was approximately US$360.2 billion, a

slight decrease of approximately 0.5% from May 2010 but a year-on-year increase of approximately

4.8%, which indicates strengthening consumer sentiment and a positive outlook for the retail sector

in the U.S..

3,671

152

3,959

158

4,005

162

3,882

155

3,698

1463,480

137

0

3,200

3,400

3,600

3,800

4,000

4,200

2004 2005 2006 2007 20092008

(US

$ bi

llio

n)

0

110

120

130

140

150

160

170

180

190

200

(US

$ bi

llio

ns)

Retail sales Clothing stores sales

2004-2009 U.S. Retail sales & Clothing stores sales

Source: U.S. Census Bureau

- 54 -

INDUSTRY OVERVIEW


The overall retail market and clothing retail market in the Canada

According to Statistics Canada, retail sales in Canada increased over the 4-year period from

approximately CAD347 billion in 2004 to approximately CAD413 billion in 2009. Clothing stores

sales also rose over the same period from approximately CAD15.3 billion in 2004 to approximately

CAD17.9 billion in 2009. According to the preliminary figures released by Statistics Canada, retail

sales in Canada was approximately CAD36.0 billion for May 2010, a slight decrease of approximately

0.2% from April 2010 but a year-on-year increase of approximately 5.2%, reflecting a positive outlook

for the Canadian retail sector.

347

15.3

2004

413

17.9

2009

426

18.4

2008

366

16.1

2005

389

17.2

2006

412

18.2

2007

320

340

360

380

400

420

(CA

D b

illi

on)

0

14

16

18

20

22

(CA

D b

illi

on)

2004-2009 Canada Retail sales & Clothing stores sales

Retail sales Clothing stores sales

0

Source: Statistics Canada

The overall retail market and clothing retail market in the U.K.

According to the U.K. Office for National Statistics, the retail sales index increased from 98.6 in

2004 to 110.9 in 2009 (2005 = 100), which indicates that retail sales have been on a general positive

upward trend over this 5-year period. According to the figures released by the Office for National

Statistics, total retail sales increased by approximately 0.7% in June 2010, a year-on-year increase of

approximately 1.3%, which reflects the positive outlook for the retail sector in the U.K..

110.9

46,882

111.0

46,079

98.6

42,339

100.0

43,532

103.8

44,491

107.9

45,597

92

94

96

98

100

102

104

106

108

110

112

0

42,000

44,000

46,000

48,000

(m

illi

on)

Retail Sales Index (At current prices) Total household consumption on clothing & footwear

2004-2009 U.K. Retail Sales Index and total householdconsumption on clothing & footwear

2004 200920082005 2006 20070

Source: Office for National Statistics

- 55 -

INDUSTRY OVERVIEW


The quarterly average expenditure on clothing of households in Mexico

According to the Instituto Nacional de Estadistica y Geografia (INEGI), or the National Institute

of Statistics and Geography in Mexico, the quarterly average expenditure per household on clothing

in Mexico fluctuated from 2000 to 2008. The quarterly average expenditure per household on clothing

increased from approximately MXN1,306 in 2000 to approximately MXN1,480 in 2006, before decreasing

to approximately MXN1,155 in 2008.

0

1,306 1,355 1,320

1,480

1,155

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2002 2004 2006 2008

(MX

N)

Quarterly average expenditure per household on clothing in Mexico

2004-2008 Quarterly average expenditure per household on clothing in Mexico

Source: Instituto Nacional de Estadistica y Geografia (INEGI)

The overall retail market and clothing retail market in Japan

According to the Ministry of Economy, Trade and Industry of Japan, retail sales in Japan

fluctuated over the 5-year period from 2004 to 2009 as with its GDP. Sales of fabric, apparel and

accessories also moved in tandem over the same period. According to the figures released by Ministry

of Economy, Trade and Industry of Japan, retail sales in Japan was approximately Japanese Yen

(“¥”)11,004 billion for June 2010, a year-on-year increase of approximately 3.2%, which indicates

the start of a positive upward trend for the Japanese retail sector.

2004-2009 Japan retail sales and sales of fabric, apparel & accessories

122,000

124,000

126,000

128,000

130,000

132,000

134,000

136,000

138,000

140,000

133,712

11,155

2004

135,055

11,123

2005

135,257

10,871

2006

135,081

10,629

2007

132,328

10,280

2009

135,477

10,467

2008

(¥ b

illi

on)

0

9,000

10,000

11,000

12,000

13,000

14,000

(¥ b

illi

on)

Retail sales Fabric, apparel & accessories sales

0

Source: Ministry of Economy, Trade and Industry of Japan, Yearbook of the Current Survey of

Commerce 2006 & 2008

- 56 -

INDUSTRY OVERVIEW


The booming retail industry in the PRC

The retail sales of consumer goods in the PRC had experienced rapid growth amid the PRC’s

strong economy, growing middle class and increasing affluence. These changing demographics have

coincided with the increase in disposable income per capita, suggesting that the consumption power

of consumers in the PRC has risen. Consumer spending, as measured by the total value of retail

sales of consumer goods, has grown from approximately RMB5,950 billion in 2004 to approximately

RMB12,534 billion in 2009, with a CAGR of approximately 16.1%.

2004-2009 Retail sales and growth rate in the PRC

0

2,500

5,000

7,500

10,000

12,500

15,000

5,950

2004

6,718

2005

7,641

2006

8,921

2007

12,534

2009

10,849

2008

(RM

B b

illi

on)

Retail Sales Growth rate

13.3% 12.9% 13.7% 16.8% 15.5%21.6%


Annual consumption expenditure on clothing of urban households

The annual consumption expenditure on clothing per urban household capita has grown from

approximately RMB687 in 2004 to approximately RMB1,166 in 2008, with a CAGR of approximately

14.1%, which suggests that an expanding target customer base is interested in apparel products. Besides,

the increasing size of the PRC’s middle class and growing affluence in the PRC overall have greatly

contributed to the increasing consumption. As the level of disposable income increases among these

people, their purchase decisions become increasingly less driven by price and functionality, but more

by brand image, product design and style.

- 57 -

INDUSTRY OVERVIEW


687801

902

1,042

1,166

0

200

400

600

800

1,000

1,200

1,400

1,600

2004

(RM

B)

Per urban household capita annual consumption on clothing

2004-2008 Per urban household capita annual consumptionexpenditure on clothing (RMB)

2008200720062005

Growth rate

11.9%7.7% 16.6% 12.7% 15.5%


Key drivers of growth of the PRC retail market

Our Directors believe that the increase of disposable income among the people in the expanding middle class and the increased purchasing power of consumers in the PRC are the principal drivers of the increased consumption of lifestyle-enhancing products such as entertainment, leisure, technology and apparel. Consumers have become increasingly less concerned with price and functionality but instead more focused on the style and image of products.

The growing exports market in the PRC

Since becoming a member of the World Trade Organization in 2002, the PRC has benefited from freer trade and liberalisation from many trade restrictions on textile and apparel products. These liberalisations are expected to result in a gradual upward growth trend in exports from the PRC. According to National Bureau of Statistics of China and as shown in the chart below, total value of exports from the PRC grew from approximately RMB4,910 billion in 2004 to approximately RMB10,039 billion in 2008, representing a CAGR of approximately 19.6%. The upward trend of growth in exports looks set to continue with confidence rebounding and the strengthening of the global economy.

2004-2008 Total exports from the PRC

4,910

6,265

7,759

9,34610,039

0

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006 2007 2008

(RM

B b

illi

on)

Total exports


- 58 -

REGULATIONS


In relatIon to our operatIons In the prc

ESTABLISHMENT, OPERATION AND MANAGEMENT OF A WHOLLY FOREIGN-OWNED ENTERPRISE

The establishment, operation and management of corporate entities in China is governed by the

Company Law of the PRC (中華人民共和國公司法) (the “Company Law”), which was promulgated

by the Standing Committee of the National People’s Congress (全國人民代表大會常務委員會) on 29

December 1993 and became effective on 1 July 1994. It was subsequently amended on 25 December

1999, 28 August 2004 and 27 October 2005. The Company Law generally governs two types of

companies – limited liability companies and joint stock limited companies. The Company Law shall

also apply to foreign-invested companies. Where laws on foreign investment have other stipulations,

such stipulations shall apply.

The establishment procedures, verification and approval procedures, registered capital

requirement, foreign exchange restriction, accounting practices, taxation and labour matters of a wholly

foreign-owned enterprise are governed by the Wholly Foreign-owned Enterprise Law of the PRC (中華人民共和國外資企業法) (the “Wholly Foreign-owned Enterprise Law”), which was promulgated

on 12 April 1986 and amended on 31 October 2000, and Implementation Regulation under the Wholly

Foreign-owned Enterprise Law, which was promulgated on 12 December 1990 and amended on 12

April 2001.

Investment in the PRC conducted by foreign investors and foreign-owned enterprises shall

comply with the Guidance Catalogue of Industries for Foreign Investment (外商投資產業指導目錄)

(the “Catalogue”), which was amended and promulgated by the Ministry of Commerce (商務部) and

the National Development and Reform Commission (國家發展和改革委員會) on 31 October 2007. The

Catalogue, as amended, became effective on 1 December 2007 and contains specific provisions guiding

market access of foreign capital, stipulating in detail the areas of entry pertaining to the categories of

encouraged foreign-invested industries, restricted foreign-invested industries and prohibited foreign

investment. Any industry not listed in the Catalogue is a permitted industry.

PRC REGULATIONS ON FOREIGN INVESTORS INVESTING IN COMMERCIAL SECTORS

Pursuant to the Provisions for Management of Foreign-invested Business Domains (外商投資商業領域管理辦法) which was issued by the Ministry of Commerce on 16 April 2004 and took

effect on 1 June 2004, wholesale means the sales of products and related services to retailers and

industrial, commercial and institutional customers or other wholesalers; retail means the sales of

goods for individual or group consumption or related services at fixed location or through television,

telephone, post, the internet and auto vending machines. Pursuant to the above provisions, foreign

investors who wish to engage in wholesale and retail operating activities in the PRC could establish

foreign-invested commercial enterprises.

- 59 -

REGULATIONS


Pursuant to the Notice of the Ministry of Commerce on Matters Relating to Additions to

Distribution Business Scope of Foreign Invested Non-commercial Enterprises (關於外商投資非商業企業增加分銷經營範圍有關問題的通知) which was issued by the Ministry of Commerce on 2 April 2005

and took effect on the same day, foreign-invested non-commercial enterprises who wish to engage in

wholesale and retail operating activities should apply for the additions to distribution business scope,

report to the authority according to the related legal procedures of the extended business scope of the

enterprise and apply for approval certificate for foreign-invested enterprises. The foreign-invested

non-commercial enterprises should clearly detail their distribution methods (wholesale, retail and

commission agent) for the additions to distribution business scope and submit their list of products

upon application.

TAXATION

Income tax

Prior to 1 January 2008, income tax payable by foreign-invested enterprises in the PRC was

governed by the Foreign-invested Enterprise and Foreign Enterprise Income Tax Law of the PRC (中華人民共和國外商投資企業和外國企業所得稅法) (the “FIE Tax Law”) which was promulgated on 9

April 1991 and became effective on 1 July 1991 and the related implementation rules. Pursuant to the

FIE Tax Law, a foreign-invested enterprise was subject to a national income tax at the rate of 30%

and a local income tax at the rate of 3% unless a lower rate was provided by law or administrative

regulations. The income tax on foreign-invested enterprises established in Special Economic Zones,

foreign enterprises which have establishments or places in Special Economic Zones engaged in

production or business operations, and on foreign-invested enterprises of a production nature in

Economic and Technological Development Zones, was levied at the reduced rate of 15%. The income

tax on foreign-invested enterprises of a production nature established in coastal economic open

zones or in the old urban districts of cities where the Special Economic Zones or the Economic and

Technological Development Zones are located, was levied at the reduced rate of 24%. Any foreign-

invested enterprise of a production nature scheduled to operate for a period of not less than ten years

was exempt from income tax for two years commencing from the first profit-making year (after

offsetting all tax losses carried forward from previous years) and allowed a fifty percent reduction

in the following three consecutive years.

According to the newly promulgated Corporate Income Tax Law of the PRC (中華人民共和國企業所得稅法) (the “New Tax Law”), which was promulgated on 16 March 2007, the income tax for

both domestic and foreign-invested enterprises will be at the same rate of 25% effective from 1 January

2008. However, there will be a transition period for enterprises that previously receive preferential

tax treatments under the FIE Tax Law. Foreign-invested enterprises that are subject to an enterprise

income rate lower than 25% may continue to enjoy the lower rate and gradually transit to the new tax

rate after the effective date of the New Tax Law. Foreign-invested enterprises that enjoy a tax rate of

24% will have their tax rate increased to 25% in 2008. Foreign-invested enterprises which enjoy a fixed

period of exemptions or reductions under the existing applicable rules and regulations may continue

to enjoy such treatment until the expiry of such prescribed period, and for those enterprises whose

preferential tax treatment has not commenced due to lack of profit, such preferential tax treatment

will commence from the effective date of the New Tax Law.

- 60 -

REGULATIONS


Withholding tax on dividend distribution

Before the promulgation of the New Tax Law, the principal regulations governing distribution

of dividends paid by wholly foreign-owned enterprises include the FIE Tax Law, together with its

implementation rules.

Under these regulations, wholly foreign-owned enterprises in China may only pay dividends

from accumulated after-tax profit, if any, determined in accordance with PRC accounting standards

and regulations. Dividends paid to its foreign investors are exempt from withholding tax. However,

this provision has been revoked by the New Tax Law. The New Tax Law prescribes a standard

withholding tax rate of 20% on dividends and other China-sourced passive income of non-resident

enterprises. However, the Implementation Rules reduced the rate from 20% to 10%, effective from

1 January 2008.

According to the Arrangement between the Mainland and Hong Kong Special Administrative

Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to

Taxes on Income (內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排) which became

effective on 1 January 2007, the withholding tax rate for dividends paid by a PRC resident enterprise

to a Hong Kong resident enterprise is 5%, if the Hong Kong enterprise owns at least 25% of the PRC

enterprise. According to the Notice of the State Administration of Taxation on the Issues relating

to the Administration of the Dividend Provision in Tax Treaties (國家稅務總局關於執行稅收協定股息條款有關問題的通知) promulgated on 20 February 2009, the corporate recipients of dividends

distributed by Chinese enterprises must satisfy the direct ownership thresholds at all times during the

12 consecutive months preceding the receipt of the dividends.

Value added tax

Pursuant to the Provisional Regulations of the PRC Concerning Value Added Tax (“中華人民共和國增值稅暫行條例”) (the “VAT Regulations”) promulgated by the State Council which was

subsequently amended and took effect on 1 January 2009 and its implementation rules, all entities

or individuals in the PRC engaged in the sale of goods, the supply of processing services, repairs

and replacement services, and the importation of goods are required to pay value-added tax (“VAT”).

VAT payable is calculated as “output VAT” minus “input VAT”. The rate of VAT is 17% or in certain

limited circumstances, 13%, depending on the product type.

Business tax

Pursuant to the Provisional Regulations of the PRC Concerning Business Tax (“中華人民共和國營業稅暫行條例”) promulgated by the State Council which was subsequently amended and took

effect on 1 January 2009 and its Implementation Rules, business that provide services including

entertainment business, assign intangible assets or sell immovable property became liable to business

tax at a rate ranging from 3% to 20% of the charges of the services provided, intangible assets assigned

or immovable property sold, as the case may be.

- 61 -

REGULATIONS


ENVIRONMENTAL PROTECTION

According to the Environmental Protection Law of the PRC (中華人民共和國環境保護法) (the

“Environmental Protection Law”), promulgated and became effective on 26 December 1989:

• any entity that discharges pollutants must establish environmental protection rules and

adopt effective measures to control or properly treat waste gas, waste water, waste residues,

dust, malodorous gases, radioactive substances, noise, vibration and electromagnetic

radiation and other hazards it produces;

• any entity that discharges pollutants must report to and register with the relevant

environmental protection authorities; and

• any entity that discharges pollutants in excess of the prescribed national or local standards

must pay a fee therefore.

Violation of the Environmental Protection Law may result in fines, suspension of operation,

closedown or even criminal liabilities.

FOREIGN CURRENCY EXCHANGE

The principal regulations governing foreign currency exchange in China is the Foreign

Exchange Administration Rules of the PRC (中華人民共和國外匯管理條例) (the “Foreign Exchange Administration Rules”), which was promulgated by the State Council on 29 January 1996, became

effective on 1 April 1996 and was subsequently amended on 14 January 1997 and 1 August 2008.

Under these rules, RMB is freely convertible for payments of current account items, such as trade

and service-related foreign exchange transactions and dividend payments, but not freely convertible

for capital account items, such as direct investment, loan or investment in securities outside China

unless prior approval of SAFE is obtained.

Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may

purchase foreign exchange without the approval of SAFE for paying dividends by providing certain

supporting documents (such as board resolutions, tax certificates), or for trade and services-related

foreign exchange transactions by providing commercial documents evidencing such transactions. They

are also allowed to retain their recurrent exchange earnings according to their needs of operation and

the sums retained may be deposited into foreign exchange bank accounts maintained with the designated

banks in the PRC. In addition, foreign exchange transactions involving overseas direct investment

or investment and exchange in securities, derivative products abroad are subject to registration with

SAFE and approval from or filing with the relevant PRC government authorities (if necessary).

- 62 -

REGULATIONS


PRODUCT QUALITY

The principal legal provisions governing product liability are set out in the Product Quality

Law of the PRC (中華人民共和國產品質量法) (the “Product Quality Law”), which was promulgated

on 22 February 1993 and amended on 8 July 2000.

The Product Quality Law is applicable to the production and sale of any product within the PRC,

and producers and sellers shall be liable for any failure of their products to meet quality standards

in accordance with the Product Quality Law.

Violations of the Product Quality Law may result in the imposition of fines. In addition, the

seller or producer will be ordered to suspend its operations and its business licence will be revoked.

Criminal liability may be incurred in serious cases. According to the Product Quality Law, consumers

or other victims who suffer injury or property losses due to product defects may demand compensation

from the producer as well as the seller. Where the responsibility lies with the producer, the seller

shall, after settling compensation, have the right to recover such compensation from the producer,

and vice versa.

In relatIon to our operatIons In IndonesIa

ESTABLISHMENT, OPERATION AND MANAGEMENT OF ENTERPRISE

The establishment, operation and management of corporate entities in Indonesia is governed by

the Law No. 40 Year 2007 regarding Limited Liability Company (the “Indonesian Company Law”),

which was promulgated on 16 August 2007 and took effect on the same day. The Indonesian Company

Law requires establishment of limited liability company must be conducted by at least two parties.

In addition, there is also obligation of registration subjected to Indonesian entity as provided

under the Law No. 3 Year 1982 regarding Mandatory Company Registry (the “Indonesian Company Registration Law”), which was promulgated on 1 February 1982 and took effect on the same day.

The Indonesian Company Registration Law obliges any Indonesian entity to conduct registration in

the Company registration office under the Department of Trade upon any change made to its articles

of association.

FOREIGN OWNERSHIP

The ownership of limited liability company in Indonesia is subject to the Law No. 25 Year

2007 regarding Capital Investment (the “Indonesian Investment Law”), which was promulgated

on 26 April 2007 and took effect on the same day. The Indonesian Investment Law provides direct

investment in Indonesia by establishing foreign invested company. Moreover, foreign investor who

wishes to engage in direct investment in Indonesia shall be by means of capital participation in a

limited liability company. Moreover, the Indonesian Investment Law provides that save for which are

listed as the closed and open with condition, all business fields shall be open for foreign investment

in 100% ownership.

- 63 -

REGULATIONS


Reference for the list of business field is currently provided under the Presidential Rule No.

36 Year 2010 regarding List of Business Fields which are Closed and Open with Requirements for

Investment (the “Negative List of Investment”), which was promulgated by the President of Republic

of Indonesia on 25 May 2010 and took effect on the same day. Garment manufacturers are not listed on

the Negative List of Investment which consequently entitles foreign investor to hold 100% ownership

in respective business.

TAXATION

The provision on tax is governed under the Law No. 7 Year 1983 regarding Income Tax, which

was promulgated on 31 December 1983 and became effective on 1 December 1984. It has been amended

subsequently on 30 December 1991, 9 November 1994, 2 August 2000 and 23 September 2008. The

last amendment is made by the Law No. 36 Year 2008 and became effective on 1 January 2009.

In general, the Indonesian Tax Law provides that an individual is considered to be a non-resident

of Indonesia if the individual does not reside in Indonesia or does not stay in Indonesia for more than

183 days within a twelve-month period. A company will be considered as a non-resident of Indonesia if

the Company is not established or domiciled in Indonesia. In determining the residency and tax status

of an individual or corporation, consideration will also be given to the provision of any applicable

double tax treaty which Indonesia has concluded with other countries. In this section, both a non-

resident individual and a non-resident company will be referred to as “non-resident taxpayers”.

Subject to the provisions of any applicable agreement for the avoidance of double taxation,

non-resident taxpayers, namely individuals or corporations not domiciled or established in Indonesia,

which derive income sourced in Indonesia from, among other things, the sale or transfer of assets

situated in Indonesia, interest (including any payment in the nature of interest), royalty and dividends,

are subject to a final withholding tax on that income at the rate of 20.0%, as long as the income is not

effectively connected with a permanent establishment of such individuals or corporations in Indonesia.

If the income is effectively connected with a permanent establishment in Indonesia, the income is

subject to branch profit tax of 20.0% imposed on the net profit after being deducted with income tax

applicable for permanent establishment (the income tax rate 25.0% starting from 2010 onwards). With

regard to asset sales or transfer, income tax is imposed on the estimated net income.

VAT

Withholding of VAT is mainly governed under the Law No. 8 Year 1984 regarding VAT and

Sales Tax on Luxury Goods (the “Indonesian VAT Law”), which was promulgated on 31 December

1983 and became effective on 1 July 1984. It has been amended subsequently on 27 October 1984, 9

November 1994, 2 August 2000, and 15 October 2009. The Indonesian VAT Law subjects all entities

in Indonesia to pay 10% upon any engagement in delivery, utilisation and exportation of goods and

services in Indonesia.

- 64 -

REGULATIONS


ENVIRONMENTAL PROTECTION

According to the Law No. 32 Year 2009 regarding Environmental Protection and Management

(the “Indonesian Environmental Law”), promulgated and became effective on 3 October 2009:

• Any entity may discharge waste to environment media, provided that it:

– Meets the environmental standard quality; and

– Obtains approval from the authority.

• Any entity that pollutes and/or damages the environment must conduct management by

means of:

– Providing the society with information on pollution and/or damage;

– Isolation of environmental pollution and/or damage;

– Termination of source to environmental pollution and/or damage;

– Other applicable methods.

• Any entity that pollutes and/or damage the environment must conduct environment

recovery;

• Any entity that produces, transports, distributes, stores, uses, discharges, produces, and/or

stacks the hazardous and toxic materials must conduct management of hazardous and

toxic materials.

• Any entity is prohibited to conduct dumping of waste and/or other materials to environment

media without any permission from the authority.

• Any entity that undertakes any business and/or activity is obligated to:

– Provide relevant information on environment protection and management in true,

accurate, open and due;

– Maintain the environmental sustainability; and

– Comply with environment standard quality and/or environment standard criteria.

- 65 -

REGULATIONS


• Any entity is prohibited to:

– Conduct any action that may cause environmental pollution and/or damage;

– Put in the hazardous and toxic materials which is prohibited under the prevailing

laws and regulations (i.e., DDT, PCBs, and dieldrin);

– Put in the waste which originated from overseas to the territory of Indonesian;

– Put in the hazardous and toxic materials to the territory of Indonesia;

– Discharge waste to environmental media;

– Discharge the hazardous and toxic materials and its waste to environmental

media;

– Discharge genetic work into the environment which against the law regulations or

environmental license;

– Undertake land clearing with fire;

– Arrange environmental impact assessment without any required certification; and

– Provide false and misleading information, dismiss information, sabotage the

information, or provide untruth explanation.

Violation of the Indonesian Environmental Law may results in suspension of operation, liability

on damage recovery or even criminal liabilities in a form of fine or imprisonment.

- 66 -

REGULATIONS


FOREIGN CURRENCY EXCHANGE

According to the Law No. 24 Year 1999 regarding Foreign Exchange Trading and System,

promulgated and became effective on 17 May 1999 (the “Indonesian Foreign Exchange Law”), any

entity that conducts foreign currency exchange trading shall report to Bank Indonesia (“BI”).

More specifically, the report obligation is provided under the BI Regulation No. 4/2/PBI/2002

regarding Supervisory on Foreign Exchange Trading (the “BI Regulation No. 4/2002”), which was

promulgated 28 March 2002 and became effective on 1 June 2002. It has been amended by the BI

Regulation No. 5/1/PBI/2003, which was promulgated and became effective on 31 January 2003.

Under the BI Regulation No. 4/2002, any entity that conducts foreign exchange trading shall be

subject to submit report consisting details and data regarding foreign exchange trading it conducts to

BI in complete, accurate and due.

The report obligation is only subject to transaction which is not carried out through bank or

non-bank finance institution in Indonesia. There shall be no different treatment on report obligation

whether the entity is foreign-invested enterprise or local. The obligation shall be subject to any

entity which owns the total asset or sales turnover in amount of or equal to IDR 100,000,000,000

(approximately HK$[•••]). The entity is obligated to submit report on the transaction that affects asset

and obligation towards any party outside Indonesia. They are also obliged to submit current position

of its asset and/or obligation on the end of its reporting period.

Failing to comply with report obligation may result in fine, suspension of operation or even

criminal liabilities.

IN RELATION TO OUR OPERATIONS IN OTHER PLACES

During the Track Record Period, our revenue was mainly generated from the U.S., Canada, the

U.K., Mexico, Japan and the PRC and more than half of our total revenue for each year during the

Track Record Period was generated from our customers in the U.S.. The products sourced by us for

our customers are subject to anti-dumping actions, however, during the Track Record Period, none of

the products sourced by our Group had been subject to any anti-dumping investigations nor measures.

So far as our Directors are aware, there were about 35 anti-dumping investigations on textiles and

clothing products (of which category the products we source for our customers, being apparel products,

belong) in 2008 and none of them related to apparel products. As far as our Directors understand,

anti-dumping measures could be applied by a member country of the World Trade Organisation when

imports of a product is said to be at an export price below its normal value (measured against the price

of the product in the domestic market of the exporting country) and if such “dumped import” causes

injury to a domestic industry in the importing country. Our Directors believe that the export price of

the products sourced by us for our customers are at market price of such products in their country of

manufacture, therefore, the risk of such products being categorised as “dumped import” should not

be high. Besides, our Directors also believe that the garment manufacturing industry in the U.S. and

the E.U. is not as flourishing as in the past, it is also less likely that the importing garment products

could be viewed as causing injury to their domestic industry. Accordingly, our Directors are of the

view that the chance of the products sourced by us for our customers are subject to anti-dumping

investigations or measures is very low.

- 67 -

HISTORY AND DEVELOPMENT


OUR CORPORATE HISTORY

FG International

Our history began when Mr. Choi and Mr. Ng Tsze Lun, our senior management staff, joined

FG International in 1998 and the garment trading business of FG International started to expand. Prior

to the joining of Mr. Choi and Mr. Ng Tsze Lun, FG International was engaged in general trading

business. The issued share capital of FG International at that time was HK$2,000,000 divided into

2,000,000 shares of HK$1.00 each and all the shares were owned by Independent Third Parties.

On 18 March 1999, the issued share capital of FG International was increased to HK$5,000,000

divided into 5,000,000 shares of HK$1.00 each.

The garment trading business of FG International had grown substantially since 1998. In

appreciation of Mr. Choi’s contribution to the business development of FG International, on 16 March

2001, the then shareholders of FG International transferred to Mr. Choi 3,000,000 shares of FG

International, representing 60% of the then entire issued capital of FG International, at an aggregate

consideration of HK$100,000, as bonus shares for Mr. Choi’s contribution to FG International.

As a vertical integration of the VC Group to expand its fabric manufacturing and garment

business, on 1 April 2001, VC Holdings acquired 11% interest in FG International from Mr. Choi at a

consideration of approximately HK$1.8 million and acquired 40% interest in FG International from one

of its then shareholders at a consideration of approximately HK$6.5 million, such consideration was

determined with reference to the then net asset value and the value of goodwill of FG International.

After the acquisition, FG International became an indirect 51% owned subsidiary of VC while the

remaining 49% interest in FG International was owned by Mr. Choi.

Mr. Choi was appointed as a director of FG International on 28 February 2001 and Mr. Li and

Mr. Chen were appointed as directors of FG International on 1 April 2001.

After the acquisition by the VC Group, FG International gradually developed its business into

garment sourcing management. In the meantime, FG International continued to expand its business

with existing customers and develop new customers.

On 1 June 2002, Mr. Choi transferred all of his 2,450,000 shares in FG International to FG

Holdings at a consideration of HK$2,450,000 and VC Holdings transferred its 2,549,999 shares in

FG International to FG Holdings and one share to Mr. Li (who held such one share on trust for FG

Holdings) at an aggregated consideration of HK$2,550,000. Since then, FG Holdings has become the

holding company of FG International.

Jiangmen Factory

The principal business of Jiangmen Factory is manufacturing and sale of apparel products and it

was established by an Independent Third Party in the PRC on 31 May 2000 with an initial registered

capital of HK$50,000,000 and an initial total investment of HK$100,000,000. The initial registered

- 68 -



capital of Jiangmen Factory of HK$50,000,000 was required to be fully paid up within two years

from its establishment. However, the Independent Third Party was unable to fulfill its obligation to

inject capital into Jiangmen Factory within the required time frame.

On 11 October 2005, Rocwide Limited, the then wholly-owned subsidiary of VC, entered into

an equity transfer agreement with the Independent Third Party holding 100% interest in Jiangmen

Factory and acquired from it 60% equity interest in Jiangmen Factory at nil consideration. By the same

agreement, Mr. Lau Fat Chuen, our senior management staff, acquired the remaining 40% interest in

Jiangmen Factory at nil consideration. The Independent Third Party was willing to transfer its equity

interests in Jiangmen Factory to each of Rocwide Limited and Mr. Lau Fat Chuen at nil consideration

because prior to the disposal of its interests in Jiangmen Factory, it had only injected approximately

HK$7.9 million into Jiangmen Factory and it was not able to fulfill its obligation to inject further

capital into Jiangmen Factory as required. Additionally, Jiangmen Factory had been operating at a loss

before Rocwide Limited and Mr. Lau Fat Chuen acquired their respective 60% and 40% interests in

it. The approval of both transfers was obtained on 4 January 2006. The VC Group acquired the 60%

interest in Jiangmen Factory to enhance its manufacturing capabilities.

On 4 January 2006, Jiangmen Factory reduced its registered capital and total investment

to HK$30,000,000 and HK$60,000,000, respectively. Such reduction was made after taking into

account the capital requirement of Jiangmen Factory. Subsequent to the equity transfer in October

2005 abovementioned, Rocwide Limited and Mr. Lau Fat Chuen contributed to the then outstanding

registered capital of Jiangmen Factory amounted to approximately HK$22,000,000.

On 18 May 2009, Mr. Lau Fat Chuen entered into individual equity transfer agreement with

each of the five individuals pursuant to which Mr. Lau Fat Chuen agreed to transfer 8% interest in

Jiangmen Factory to each of these five individuals at an aggregate consideration of HK$12,000,000.

The considerations were arrived at based on normal commercial terms after arm’s length negotiations

between the parties with reference to [the then net asset value of Jiangmen Factory]. Approval for

such transfer was obtained on 16 June 2009. Following completion of such transfer, Jiangmen Factory

was owned as to 60% by Rocwide Limited and 8% by each of the five individuals.

On 29 June 2009 and 6 July 2009, FG Holdings entered into individual equity transfer agreements

with each of the then five shareholders holding 40% interest in Jiangmen Factory and acquired from

them 40% equity interest in Jiangmen Factory at an aggregate consideration of HK$12,000,000. The

considerations were arrived at based on normal commercial terms after arm’s length negotiations between

the parties with reference to the then net asset value of Jiangmen Factory at completion date. Approval

for such transfer was obtained on 25 August 2009 and registration for the change of shareholders of

Jiangmen Factory was completed on 19 November 2009. Following completion of the acquisition,

Jiangmen Factory was owned as to 40% by FG Holdings and 60% by Rocwide Limited.

On 25 February 2010, FG Holdings and V-Apparel International Limited, an indirect

wholly-owned subsidiary of VC, entered into a sale and purchase agreement (the “Rocwide Agreement”),

pursuant to which FG Holdings acquired the entire issued share capital of Rocwide Limited and the

outstanding amount of loan made by or on behalf of V-Apparel International Limited to Rocwide Limited

- 69 -



at a consideration of HK$48 million. Such consideration was arrived at based on normal commercial

terms after arm’s length negotiations between the parties with reference to unaudited consolidated net

asset value of Rocwide Limited of approximately HK$12,774,000 as at 30 September 2009 and the

amount of the loan made by or on behalf of V-Apparel International Limited to Rocwide Limited as

at the date of the Rocwide Agreement. Rocwide Limited owned 60% of Jiangmen Factory as at the

date of the Rocwide Agreement. Following completion of the Rocwide Agreement on 7 April 2010,

Jiangmen Factory became our wholly-owned subsidiary.

In preparing the financial information, our Group has adopted the principle of merger accounting

for business combination involving entities under common control. Accordingly, Jiangmen Factory

has been accounted for as a 60% subsidiary during the Track Record Period until 18 November 2009

and as a wholly-owned subsidiary thereafter.

CSG Apparel Inc.

On 11 January 2001, CSG Apparel Inc. was incorporated in Canada to function as FG

International’s overseas representative in Canada to serve our customers in Canada. CSG Apparel

Inc. was authorised to issue an unlimited number of common shares, and of which one common share

was issued to the then shareholder of FG International, an Independent Third Party. The one common

share was later transferred to FG International on 1 April 2001 following the acquisition of interest

in FG International by the VC Group.

FG Holdings

FG Holdings was incorporated in the BVI on 28 May 2002 to act as the holding company of our

then Group. It has an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00

each, of which 49 shares were issued to Merlotte and 51 shares were issued to VC Investments. FG

Holdings was owned as to 49% by Merlotte and as to 51% by VC Investments, respectively, since

its incorporation and before the Reorganisation. The entire issued share capital of FG Holdings was

transferred to the Company in the Reorganisation, details of which are set out in the section headed

“Reorganisation” in this document.

Top Star Limited

On 8 November 2002, Top Star Limited was incorporated in Hong Kong with an authorised share

capital of HK$10,000 divided into 10,000 shares of HK$1.00 each, of which one share was issued to

Company Kit Registrations Limited, which was later transferred to FG Holdings on 18 November 2002

and one share was issued to Company Kit Secretarial Services Limited, which was later transferred to

Mr. Li on 18 November 2002, who held such one share on trust for FG Holdings. Since 18 November

2002 and up to the Latest Practicable Date, Top Star Limited had been an investment holding company

and had been beneficially wholly-owned by FG Holdings (with one share owned by FG Holdings and

one share held by Mr. Li on trust for FG Holdings).

- 70 -



Value Plus (Macao Commercial Offshore) Limited

On 18 November 2002, Value Plus (Macao Commercial Offshore) Limited was incorporated in

Macau to provide quality inspection services to our customers. Its registered capital was Macau Pataca

(MOP) 100,000, all of which was issued to, and paid up by FG Holdings. Since its incorporation

and up to the Latest Practicable Date, Value Plus (Macao Commercial Offshore) Limited had been

wholly-owned by FG Holdings.

Glory Time Limited

On 3 May 2004, Glory Time Limited was incorporated in Hong Kong to engage in garment

trading business. It has an authorised share capital of HK$10,000 divided into 10,000 shares of

HK$1.00 each, of which one share was issued to Gold Regal Development Limited, which was later

transferred to FG Holdings on 30 June 2004. On the same day, 69 shares of Glory Time Limited were

issued to FG Holdings and 30 shares were issued to Doncan Limited, which is a nominee company

whose beneficiary is Mr. Yiu Kit Kee, the cousin of Mr. Choi and an employee of our Group. Since

30 June 2004 and up to the Latest Practicable Date, Glory Time Limited had been owned as to 70%

by FG Holdings and as to 30% by Doncan Limited.

Surefaith Limited

On 26 April 2005, Surefaith Limited was incorporated in the BVI with an authorised share

capital of US$50,000 divided into 50,000 shares of US$1.00 each, among which 10 shares were issued

to FG Holdings. Since its incorporation and up to the Latest Practicable Date, Surefaith Limited had

been wholly-owned by FG Holdings. Surefaith Limited had been the holding company of PT. Victory

Apparel Semarang up to the Latest Practicable Date.

Wealth Choice Limited

On 26 April 2005, Wealth Choice Limited was incorporated in the BVI with an authorised share

capital of US$50,000 divided into 50,000 shares of US$1.00 each, of which 10 shares were issued to

FG Holdings. Since its incorporation and up to the Latest Practicable Date, Wealth Choice Limited

had been wholly-owned by FG Holdings. Wealth Choice Limited had been the holding company of

Victory Apparel (Jordan) Manufacturing Company Limited up to the Latest Practicable Date.

Top Value Inc.

On 27 May 2005, Top Value Inc. was incorporated under the laws of New York, the U.S.. It

was authorised to issue 200 common shares without par value, of which 200 shares were issued to

FG Holdings. Since its incorporation and up to the Latest Practicable Date, Top Value Inc. had been

wholly-owned by FG Holdings and it provided importing services arrangement and other customer

support and marketing services for our customers in the U.S..

- 71 -



Rocwide Limited

On 6 June 2005, Rocwide Limited was incorporated in the BVI with an authorised share capital

of US$50,000 divided into 50,000 shares of US$1.00 each, among which 10 shares were issued to

V-Apparel International Limited, a wholly-owned subsidiary of VC. Following completion of the

Rocwide Agreement (details of which were set out in the paragraph headed “Jiangmen Factory” in

this section above) and up to the Latest Practicable Date, Rocwide Limited had been directly wholly-

owned by FG Holdings.

PT. Victory Apparel Semarang

On 26 September 2005, PT. Victory Apparel Semarang was established in Indonesia with a

basic capital of IDR 3,135,000,000 (equivalent to US$300,000) divided into 300,000 preferred shares

of IDR. 10,450 (equivalent to US$1.00) each, of which one share was issued to Mr. Li, who held the

one share on trust for Surefaith Limited, and 299,999 shares were issued to Surefaith Limited. PT.

Victory Apparel Semarang is principally engaged in manufacturing of garment products and operates

our Indonesian Factory. Since its incorporation and up to the Latest Practicable Date, PT. Victory

Apparel Semarang had been beneficially indirectly wholly-owned by FG Holdings.

Mayer

On 4 January 2006, Happy Lane Limited was incorporated in Hong Kong with an authorised

issued share capital of HK$10,000 divided into 10,000 shares of HK$1.00 each, of which one share

was issued to Gold Regal Development Limited. On 6 March 2006, Gold Regal Development Limited

transferred the one share in Happy Lane Limited to FG Holdings at a consideration of HK$1. On the

same date, 50 shares were issued to FG Holdings and 49 shares were issued to Mr. Lau. On 15 March

2006, Happy Lane Limited changed its name to Mayer. Mayer was principally engaging in garment

trading business. Since 6 March 2006 and up to the Latest Practicable Date, Mayer had been owned

as to 51% by FG Holdings and 49% by Mr. Lau.

FG Shanghai

On 7 February 2006, FG Shanghai was established in the PRC with a registered capital of

RMB1,000,000 and a total investment of RMB1,428,000, respectively, and the entire interest of it

was held by FG International. The registered business scope of FG Shanghai included the import

and export of garment products and other related business support and consultation services. The

Certificate of Approval for Establishment of Enterprises with Foreign Investment in the PRC (the

“Certificate of Approval”) and the business licence were granted to FG Shanghai on 17 January 2006

and 7 February 2006 respectively. As at 19 April 2006, the paid-up capital of FG Shanghai amounted

to RMB1,000,000. All such capital was contributed by FG International.

The scope of business of FG Shanghai was extended to cover import and export, wholesale

and commissioned agency of general merchandise and jewellery (rough diamond and cut diamond

excluded). Approval for such extension of scope of business was obtained on 30 April 2008 from the

relevant PRC governmental authority and the relevant Certificate of Approval and business licence

were granted to FG Shanghai on 22 May 2008 and 23 June 2008 respectively.

- 72 -



福之源貿易(上海)有限公司深圳分公司, the branch company of FG Shanghai, was established

in the PRC on 14 January 2008. The registered business scope of this branch company included

wholesale and commissioned agency of garment (apparel) and its raw and supplementary material

and other related business support and consultation services. This branch company remained dormant

since its incorporation.

Victory Apparel (Jordan) Manufacturing Company Limited

Wealth Choice Limited acquired the entire interest in Victory Apparel (Jordan) Manufacturing

Company Limited on 6 September 2006. Victory Apparel (Jordan) Manufacturing Company Limited

has an authorised share capital of Jordan Dinar 50,000 and all of which were issued and owned by

Wealth Choice Limited since 6 September 2006 up to the Latest Practicable Date.

Victory Apparel (Jordan) Manufacturing Company Limited operates our Jordan Factory which

serves as the manufacturing arm of our Group in Jordan until [2008] when we decided to re-deploy

our resources and concentrate our manufacturing functions in the PRC Factory and the Indonesian

Factory. Except for leasing the Jordan Factory to an Independent Third Party, Victory Apparel (Jordan)

Manufacturing Company Limited did not carry on any business operations.

Gojifashion Inc.

On 5 October 2006, Gojifashion Inc. was incorporated in Canada and it was authorised to issue

an unlimited number of class “A” common shares and class “B” common shares without nominal or par

value and unlimited number of preferred “A”, preferred “B”, preferred “C” and preferred “D” shares

without nominal or par value, of which 100 class “A” common shares were issued to 4352785 Canada

Inc., an Independent Third Party and 100 class “A” common shares were issued to FG Holdings. Since

its incorporation and up to the Latest Practicable Date, Gojifashion Inc., a jointly controlled entity,

had been owned as to 50% by 4352785 Canada Inc. and 50% by FG Holdings. Gojifashion Inc. was

incorporated to engage in the business of creation, development and sale of knitwear and sportswear

in Canada and the U.S. and it has remained dormant since 2008.

Brilliant Fashion Inc.

On 25 August 2009, Brilliant Fashion Inc. was incorporated under the laws of New York, the

U.S. intended for the purpose of providing importing services arrangement and other customer support

and marketing services to our customers there. It was authorised to issue 100 common shares without

par value, of which 100 shares were issued and allotted to FG Holdings. Since its incorporation and

up to the Latest Practicable Date, Brilliant Fashion Inc. had been wholly-owned by FG Holdings.

FG Shenzhen

On 15 December 2009, FG Shenzhen was established in the PRC with a registered capital of

HK$3,000,000 and a total investment of HK$4,250,000, respectively, and the entire interest of it was

held by FG International. It was established to provide business supporting services to our Group.

The principal business activities of FG Shenzhen included quality control and quality management

services, supply chain management information service, logistic consultation and marketing planning.

- 73 -



The Certificate of Approval and the business licence was granted to FG Shenzhen on 10 December

2009 and 15 December 2009 respectively. As at 22 January 2010, the paid-up capital of FG Shenzhen

amounted to HK$1,000,000. All such capital was contributed by FG International. The remaining

registered capital of HK$2,000,000 is required to be paid up by 15 December 2011.

福源創業信息諮詢服務(深圳)有限公司分公司, the branch company of FG Shenzhen, was

established in the PRC on 26 February 2010. The principal business activities of this branch company

included commodity information consultation, quality control and management services, supply chain

management information services, logistics consultation and sales and marketing planning.

Happy Noble Holdings Limited

Happy Noble Holdings Limited was incorporated in the BVI on 15 July 2010 with an authorised

share capital of US$50,000 divided into 50,000 shares of US$1.00 each, among which 70 shares were

issued to FG Holdings. Since its incorporation and up to the Latest Practicable Date, Happy Noble

Holdings Limited had been wholly-owned by FG Holdings. Happy Noble Holdings Limited had been

the holding company of Sky Winner Investment Limited up to the Latest Practicable Date.

Sky Winner Investment Limited

On 11 February 2010, Sky Winner Investment Limited was incorporated in Hong Kong with

an authorised share capital of HK$10,000.00 divided into 10,000 shares of HK$1.00 each. On 11

February 2010, one share was allotted to Acota Services Limited and such share was transferred to

an Independent Third Party. On 16 March 2010, 99 shares in Sky Winner Investment Limited were

allotted and issued to four Independent Third Parties, together with the aforesaid one share, Sky

Winner Investment Limited was owned by such four Independent Third Parties as to 50%, 17%, 17%

and 16% respectively. On 24 August 2010, such four Independent Third Parties transferred their entire

interests in Sky Winner Investment Limited to Happy Noble Holdings Limited at a consideration of

HK$100. As at the Latest Practicable Date, Sky Winner Investment Limited was wholly-owned by

Happy Noble Holdings Limited. It is intended that Sky Winner Investment Limited will acquire the

business assets and operate the “teelocker” business, please refer to the paragraph headed “Retail

market expansion” in the section headed “Business” in this document.

Our Company

Our Company was incorporated on 3 March 2010 in Bermuda as an exempted company with

limited liability. Details of the Reorganisation are set out in the section headed “Reorganisation” in

this document.

For charts illustrating the shareholding structure of our Group (i) immediately prior to the

Reorganisation; and (ii) after the Reorganisation, please refer to the section headed “Reorganisation”

in this document.

- 74 -



OUR BUSINESS HISTORY

In 1996, FG International was set up by its then shareholder as a general trading company. After

the joining of Mr. Choi and Mr. Ng Tsze Lun in 1998, the garment trading business of FG International

started to expand. At that time, we were a garment trading company without our own manufacturing

facilities and we relied on garment factories in the PRC and Hong Kong to manufacture the garment

products required. We sold garment products to importers in the U.S., and to department stores in the

U.S. and in Canada. Revenue was mainly generated from customers in the U.S. and Canada, while the

remaining revenue was contributed by customers in other countries including the U.K. and Mexico.

To obtain the benefit of cheaper labour costs and more favourable quota treatment, we started

to diversify our garment sourcing bases from the PRC and Hong Kong to other places including

Cambodia in 1999.

In January 2001, CSG Apparel Inc. was incorporated in Canada to function as FG International’s

overseas representative in Canada to serve our customers in Canada.

The promising business prospect of FG International had attracted the VC Group, which intended

to expand its garment and fabric business by vertical integration. After the acquisition of 51% interest

in FG International in April 2001 by the VC Group, the VC Group provided strong support to us in

our development in terms of financial resources, fabric supply and business supporting.

With the fabric manufacturing capabilities of the VC Group, we expanded our businesses to

provide garment sourcing management services to our customers and we continued to expand our

customer base. During the two financial years ended 31 March 2007, our customer base expanded

to include two companies, which belong to two groups of companies and a member of each of such

group owns famous garment brands.

In 2007, we started to provide importing services arrangement for our customers through our

subsidiary established in the U.S., Top Value Inc. Under such arrangement, products required by our

customers are delivered “door-to-door” from our facilities to our customers’ desired location at the

aggregate cost of production, transportation, appropriate customs duties and taxes. Such importing

services arrangement is used by our U.S. customers.

We were equipped with manufacturing capacity when the VC Group acquired 60% equity

interest in Jiangmen Factory in January 2006. We also established our own garment manufacturing

facilities in 2005 in Indonesia. In December 2005, we established PT. Victory Apparel Semarang

in Indonesia to carry on the business of garment manufacturing. We further expanded our garment

manufacturing facilities to Jordan in 2006 when we acquired the entire interest of Victory Apparel

(Jordan) Manufacturing Company Limited. In [2008], we decided to re-deploy our resources and

concentrate our manufacturing functions in the PRC Factory and the Indonesian Factory and we

ceased our manufacturing activities in Jordan. Since then, Victory Apparel (Jordan) Manufacturing

Company Limited did not carry on any business operations except for leasing the Jordan Factory to

an Independent Third Party.

- 75 -



In 2006, we established Gojifashion Inc. in Canada to engage in the business of creation,

development and sale of knitwear and sportswear in Canada and the U.S..

Other than sourcing of garment products, we also sourced other miscellaneous items such as

hats, scarves, handbags, purses and gloves. These miscellaneous items are mainly sold to megastores

and supermarket chains in China. In February 2006, FG Shanghai was set up to carry out the sourcing

of these miscellaneous items for our customers.

On 25 August 2009, Brilliant Fashion Inc. was incorporated under the laws of New York, the

U.S., we intend to provide customer support and marketing services to our customers in the U.S.

through this Company.

Our manufacturing capability was further expanded when we acquired 40% interest in Jiangmen

Factory in November 2009 from five Independent Third Parties. After completion of the acquisition,

Jiangmen Factory was owned as to 40% by us and the remaining 60% by the VC Group.

To enhance our control over the PRC Factory and to further delineate the fabric business and

the garment business of VC and its subsidiaries, in April 2010 we acquired the entire issued capital

of Rocwide Limited which in turn owned 60% interest in Jiangmen Factory. Since then, Jiangmen

Factory has become our wholly-owned subsidiary.

We now have our own production facilities located in the PRC and Indonesia, which enable

us to position ourselves as a sourcing management company with both production and sourcing

capabilities.

In [2010], we started to developed our “夢仕臣” (Monstons) brand underwear and homewear

products. [We have received orders from these large chain supermarkets for “夢仕臣” (Monstons)

brand products on a consignment sales basis since July 2010, retail sales of which has commenced

by [September] 2010 at approximately 200 sales points in large chain supermarkets in the PRC.]

On [•••] September 2010, we entered into a business transfer agreement for the acquisition of

70% interests in certain business assets relating to the production and sales of apparel products under

the business name “teelocker” and it is expected that, upon completion of such acquisition, we will

continue to operate such business under the name “teelocker”.

For future particulars, please refer to the paragraph headed “Retail market expansion” in the

section headed “Business” in this document.

- 76 -

REORGANISATION


INTRODUCTION

Members of our Group have undergone certain restructuring steps whereby a coherent corporate

structure of our Group has been established. The Reorganisation involved the following principal

steps:–

(1) Incorporation of our Company

(2) Incorporation of Sure Strategy

(3) Acquisition of entire issued share capital in our Company by Sure Strategy

(4) Acquisition of entire issued share capital in FG Holdings by our Company

CORPORATE STRUCTURE PRIOR TO THE REORGANISATION

Set out below is the shareholding structure of our Group immediately prior to the

Reorganisation:

100% 100% 100% 50% 100% 100% 100% 100% 70% 51%

40%

100%

49% 51%

Merlotte(BVI)

VC(Bermuda)

Mayer(Hong Kong)

100% 100%

FGInternational(Hong Kong)

FG Shenzhen(PRC)

FG Shanghai(PRC)

CSG ApparelInc.

(Canada)

100%

60%

100%

Top ValueInc.

(U.S.)

Brilliant Fashion

Inc.(U.S.)

GojifashionInc.

(Canada)

Top Star Limited

(Hong Kong)

Glory Time Limited

(Hong Kong)

100%100%

JiangmenFactory(PRC)

Value Plus (Macao

CommercialOffshore)Limited(Macau)

VC Investments(BVI)

FG Holdings(BVI)

Surefaith Limited(BVI)

PT. Victory Apparel

Semarang(Indonesia)

Wealth Choice Limited(BVI)

Victory Apparel(Jordan)

ManufacturingCompanyLimited(Jordan)

RocwideLimited(BVI)

100%

100%

Happy NobleHoldingsLimited(BVI)(Note)

Sky WinnerInvestment

Limited(Hong Kong)

(Note)

- 77 -

REORGANISATION


DETAILED PROCEDURES

For the purpose of [•••], the following Reorganisation steps have been implemented:

(1) Incorporation of our Company

On 3 March 2010, our Company was incorporated in Bermuda under the Companies Act as an

exempted company with an authorised share capital of HK$10,000 divided into 1,000,000 Shares of

HK$0.01 each, of which 510,000 Shares and 490,000 Shares were allotted and issued nil-paid by our

Company to VC Investments and Merlotte respectively on 8 April 2010. The said 1,000,000 nil-paid

Shares were, on 17 May 2010, transferred to Sure Strategy at nil consideration and were subsequently

paid up in the manner described in paragraph (4) below.

(2) Incorporation of Sure Strategy

On 25 March 2010, Sure Strategy was incorporated in the BVI with an authorised share capital

of US$50,000 divided into 50,000 shares of US$1.00 each, of which 49 shares and 51 shares were

subscribed at par by each of Merlotte and VC Investments respectively.

(3) Acquisition of the Company by Sure Strategy

On 17 May 2010, Merlotte and VC Investments transferred all of their respective shares, being

the entire issued share capital in the Company, to Sure Strategy at nil consideration.

(4) Acquisition of entire issued share capital in FG Holdings by our Company

On 8 September 2010, the authorised share capital of our Company was increased from

HK$10,000 to HK$9,000,000. On 8 September 2010, our Company as purchaser, VC Investments

and Merlotte as vendors and VC as warrantor, entered into a share transfer agreement, pursuant to

which our Company acquired the entire issued share capital of FG Holdings in consideration of and

in exchange for which the Company, (i) at the direction of VC Investments and Merlotte, allotted

and issued, credited as fully paid, 1,000,000 Shares to Sure Strategy and 14,700 Shares and 15,300

Shares to Merlotte and VC Investments respectively; and (ii) credited as fully paid at par 1,000,000

nil-paid Shares then held by Sure Strategy.

- 78 -

REORGANISATION


CORPORATE STRUCTURE AFTER THE REORGANISATION

Set out below is the shareholding structure of our Group after the Reorganisation:

0.765%

98.5%

100%

100%

49% 51%

0.735%

100% 100% 100% 100%50% 100% 100% 100% 70% 51%

40%

Mayer(Hong Kong)

100% 100%

FGInternational(Hong Kong)

FG Shenzhen(PRC)

FG Shanghai(PRC)

CSG ApparelInc.

(Canada)

100%

60%

100%

Top ValueInc.

(U.S.)

Brilliant Fashion

Inc.(U.S.)

GojifashionInc.

(Canada)

Top Star Limited

(Hong Kong)

Glory Time Limited

(Hong Kong)

100%100%

JiangmenFactory(PRC)

Value Plus (Macao

CommercialOffshore)Limited(Macau)

Surefaith Limited(BVI)

PT. Victory Apparel

Semarang(Indonesia)

Wealth Choice Limited(BVI)

Victory Apparel(Jordan)

ManufacturingCompanyLimited(Jordan)

RocwideLimited(BVI)

Merlotte(BVI)

VC Investments(BVI)

VC(Bermuda)

The Company(Bermuda)

Sure Strategy(BVI)

FG Holdings(BVI)

100%

100%

Happy NobleHoldingsLimited(BVI)

Sky WinnerInvestment

Limited(Hong Kong)

Note:

Happy Noble Holdings Limited was incorporated on 15 July 2010 and Sky Winner Investment Limited was incorporated

on 11 February 2010. Their incorporations were not part of the Reorganisation.

- 79 -

BUSINESS


OVERVIEW

We are a well-developed sourcing management group with production capabilities which operates a one-stop shop business model. We provide to our customers a comprehensive range of services covering the entire supply chain of garment products. We source garment products for our customers and we also provide them with a comprehensive range of sourcing management services and expertise, including product design and product development, sampling, product offering, sourcing, in-house production, outsourcing, logistics and delivery and overseas sales capabilities.

We source a comprehensive range of garment products for our direct customers mainly located in the U.S., Canada, the U.K., Mexico, Japan and the PRC. Our direct customers are mostly overseas brand owners/carriers, megastores, department stores and supermarket chains. We also source garment products for our importer customers.


Fortheyearended31March 2008 2009 2010 Approximate Approximate Approximate (HK$’000) % (HK$’000) % (HK$’000) %

Brand owners/carriers 461,343 32.2% 468,252 36.5% 461,001 51.5%Megastores 61,781 4.3% 81,239 6.3% 93,863 10.5%Department stores 103,899 7.3% 84,247 6.6% 66,101 7.4%Supermarket chains 19,818 1.4% 54,656 4.2% 18,468 2.1%Importers 743,254 51.9% 570,023 44.4% 221,671 24.8%Others 40,795 2.9% 25,851 2.0% 33,247 3.7%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

Our sales to our largest customer, a U.S. importer, amounted to approximately HK$530.4 million, HK$478.2 million and HK$137.2 million respectively, representing approximately 37.1%, 37.2% and 15.3% respectively of our total revenue for the three years ended 31 March 2010.

Our sales to importers decreased by approximately HK$173.2 million from approximately HK$743.2 million for the year ended 31 March 2008 to approximately HK$570.0 million for the year ended 31 March 2009, primarily due to (i) the decrease in sales to our largest customer, a U.S. importer, due to decrease in its sales to its major customer (a megastore), which accounted for approximately 30.1% of the decrease; and (ii) decrease of sales to certain U.S. importers mainly as a result of our decision to cease manufacturing at our production facilities in Jordan (where no import duty is imposed by the U.S.), which accounted for approximately 25.5% of the decrease. For the year ended 31 March 2010, our sales to importers decreased from approximately HK$570.0 million for the year ended 31 March 2009 to approximately HK$221.7 million. Such decrease is primarily attributable to the decrease in sales to our largest customer, which in turn was caused by a decrease in orders from its major customer (a megastore) as a result of organisational changes of such megastore customer of it, which had accounted for approximately 97.9% of the decrease. The organisational changes refer to the re-location of offices of such megastore’s sourcing and merchandising division and the corresponding personnel changes, and we understand that additional time and effort was required for our customer,

the U.S. importer, to re-build the business relationship with the new sourcing and merchandising

- 80 -

BUSINESS


division of its customer. [As advised by our customer,] such organisational changes of its megastore

customer had been completed. Our Directors consider that impact of such organisational change of the

major customer of our U.S. importer customer has largely been reflected in our results for the year

ended 31 March 2010, and do not expect that our sales to such U.S. importer customer will further

drop materially due to this factor. Our Directors confirmed that since 31 March 2010 and up to the

Latest Practicable Date, there have been no notification and indication of non-payment of our trade

receivables or the need to make provisions for our inventories and trade receivables. Further, based on

the unaudited management account of the Group for the four months ended 31 July 2010, the Group

recorded a turnover of approximately HK$328.1 million which is comparable to the corresponding

period of last year. The above unaudited revenue figure may not be indicative of the full year result

for 2011. Our business and financial performance may be affected by a number of factors as set out

in the section headed “Risk factors” in this document.




The following table sets forth the breakdown of our revenue by location of our customers:

Fortheyearended31March 2008 2009 2010 Approximate Approximate Approximate HK$’000 % HK$’000 % HK$’000 %

U.S. 1,006,864 70.4% 814,752 63.4% 513,484 57.4%Canada 150,220 10.5% 153,469 12.0% 148,815 16.6%PRC 116,778 8.1% 92,512 7.2% 95,356 10.7%Others 157,028 11.0% 223,535 17.4% 136,696 15.3%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

The U.S. is our most important market, which accounted for approximately 70.4%, 63.4% and

57.4% of our revenue for the three years ended 31 March 2010 respectively.

Our revenue decreased by 10.2% (i.e. approximately HK$146.6 million) to HK$1,284.3 million

for the year ended 31 March 2009 from HK$1,430.9 million for the year ended 31 March 2008. The

decrease was primarily attributable to our decision to cease manufacturing at our production facilities

in Jordan (where no import duty is imposed by the U.S.), which had been handling primarily our

orders for our customers in the U.S. market (including one of our top five customers during the Track

Record Period). Our Jordan Factory [has relatively high labour cost with production labour mainly

imported from Bangladesh and the PRC], and for cost efficiency reason, we decided to close our Jordan

Factory. This resulted in a decrease in sales to one of our top five customers during the Track Record

Period of approximately HK$83.8 million from approximately HK$157.5 million for the year ended

31 March 2008 to approximately HK$73.7 million for the year ended 31 March 2009. Further, there

was a decrease in sales to our largest customer, a U.S. importer, from approximately HK$530.4 million

for the year ended 31 March 2008 to approximately HK$478.2 million for the year ended 31 March

2009, due to the decrease in its sales to its major customer (a megastore). In addition, our Directors

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BUSINESS


believe that consumer spending shrank and orders placed by certain customers of the Group in the

U.S. market had also decreased in the year ended 31 March 2009 as a result of the global economic

downturn, the sub-prime mortgage crisis, the investment bank failures, falling home prices and tight

credit environment that had pushed the U.S. into a recession by mid-2008.



million for the year ended 31 March 2009. Our Directors believe that the decrease was primarily

attributable to the decrease in sales of approximately HK$341.0 million to our largest customer, a U.S.

importer, from approximately HK$478.2 million for the year ended 31 March 2009 to approximately

HK$137.2 million for the year ended 31 March 2010. Such decrease is primarily attributable to the


such megastore customer of it and not related to the quality of the Group’s products. The organisational







for the year ended 31 March 2010, and do not expect that our sales to such U.S. importer customer

will further drop materially due to this factor.

Our Directors confirmed that since 31 March 2010 and up to the Latest Practicable Date, there

have been no notification and indication of non-payment of our trade receivables or the need to make

provisions for our inventories and trade receivables. Further, based on the unaudited management

accounts of the Group for the four months ended 31 July 2010, the Group recorded a turnover of

approximately HK$328.1 million which is comparable to the corresponding period of last year. The

above unaudited revenue figure may not be indicative of the full year result for 2011. Our business

and financial performance may be affected by a number of factors as set out in the section headed

“Risk factors” in this document. Our Directors believe that the measures that we can adopt in order



We have in-house production facilities in the PRC and Indonesia as well as outsourcing

production capabilities supported by our wide and established network of sub-contract manufacturers

to cater for customised orders from our customers. As a result, we are able to provide a wide range

of garment products to our customers. Currently, we only manufacture Cut-and-Sew knitwear and

Knit-to-Shape sweater.

Our decision on, whether to outsource production and the choice of sub-contract manufacturer(s)

depend on various criteria, including: (i) costs and pricing; (ii) the quality standard required; (iii)

the capability and capacity of the sub-contract manufacturer(s); (iv) whether there is any tax benefit





manufacturer(s). Some of our customers, based on their requirements on products and production

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process, may designate specific fabric and/or accessories suppliers, or require the whole production

process to be carried out at our in-house production facilities. During the Track Record Period [and

up to the Latest Practicable Date], none of our customers demanded for the entire production process

for its products to be outsourced to sub-contract manufacturers designated by them. For the three years

ended 31 March 2010, the costs of outsourced products and processing fees paid to our sub-contract

manufacturers were approximately HK$903.9 million, HK$850.6 million and HK$515.8 million,

respectively, representing approximately 73.3%, 75.8% and 70.1%, respectively, of our total cost of

sales during the same three-year period.

The following table sets forth the concentration of our sub-contract manufacturers by

location:

Fortheyearended31March 2008 2009 2010 Transaction Transaction Transaction Volume Volume Volume (HK$million) % (HK$million) % (HK$million) %

PRC 310 34.3 322 37.9 364 70.7Cambodia 44 4.9 67 7.9 46 8.9Madagascar 126 14.0 166 19.5 23 4.5Vietnam 33 3.7 77 9.1 13 2.5Hong Kong 86 9.5 12 1.4 9 1.7Macau 188 20.8 101 11.9 1 0.2Bangladesh 4 0.4 13 1.5 3 0.6Others 112 12.4 92 10.8 56 10.9

Total 903 100.0 850 100.0 515 100.0

We also source raw materials from the VC Group to ensure our involvement starts from the

beginning of a garment supply chain which in turn enables us to provide a comprehensive range of

sourcing management services to our customers. Further details of our purchases from the VC Group

are set out in the sections headed “Continuing connected transactions” and “Relationship with the

VC Group” in this document.

Our PRC Factory, being our largest production plant in terms of production volume during the

Track Record Period, is equipped with advanced and computerised machinery. It has adopted the “Just-

in-time” production system and produces garment products with fashionable and complicated styles,

patterns and designs. Our Indonesian Factory operates under the traditional garment manufacturing

system producing apparels of simple and classic style.

We have our in-house design and development team to keep track of the latest trends, any new

fabric concepts and/or production skills. Within our design and development team, we have our own

sample workshop consisting of approximately [77] staff to produce samples and our own designs within

a short lead time. We also provide value-added services to our customers, such as the development of

samples and designs, production of garment products which involve a more complicated production

process and require a higher level of workmanship, and delivery of garment products within a short

time frame.

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We adhere to consistently high quality standards. Our quality control procedures start from the raw

material procurement stage and various inspections are carried out at each stage of our manufacturing

process. Quality reports are also prepared throughout our production process. In respect of our sub-

contract manufacturers, we have a quality assurance and control team with [10] employees who

oversee the performance of our sub-contract manufacturers by conducting on-site quality inspections

and testing procedures at the factories of our sub-contract manufacturers at different stages in the

manufacturing process.

BUSINESSMOdEl

The diagram below illustrates our one-stop shop business model:

CUSTOMERS

Visits to potential customers

Organise presentation with potential customers

Advising on fabric Offering in-house designs

Producing samples Providing product development services

RECEIPT OF PURCHASE ORDER

Our manufacturing capabilities:– PRC Factory – Indonesian Factory

Our sourcing capabilities:– PRC– Cambodia – Vietnam – Bangladesh–––

MadagascarHong KongMacau

Quality control measures: – Maintain list of

qualified suppliers – Conduct quality

control procedures at each manufacturingprocess

Quality control measures: – Conduct site visits to

sub-contractmanufacturers

– Maintain list of qualifiedsub-contractmanufacturers

– Conduct quality control procedures at thefactories of our sub-contractmanufacturers on-site

DELIVERY OF PRODUCTS

Sales supporting and customer services through our offices:

– U.S.

Sales supporting and customer services through our representative:

– Canada

– PRC– Hong Kong – Macau

Notes:

Services provided by our Group

Quality control measures implemented by our Group

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COMPETITIVESTRENGTHS

We believe that our success to date and potential for future long-term growth can be attributed

to our following strengths:

One-stopshopbusinessmodel

Our one-stop shop business model integrates the entire supply chain functions of garment

products, including in-house production, product offering, sourcing, outsourcing, product

design, product development, sampling, logistics and delivery and overseas sales capabilities,

thus enabling us to provide a comprehensive range of sourcing management services to our

customers.

Unlike some of our competitors who outsource the entire manufacturing process to

independent sub-contractors, we have our in-house production facilities in the PRC and Indonesia

as well as outsourcing production capabilities supported by our wide and established network

of sub-contract manufacturers. With our in-house production facilities, we can produce within

a short lead time and are flexible in adjusting production time and volume. We can also adjust

our offerings promptly which enable us to be responsive to customers’ specific needs and

market demands. On the other hand, our outsourcing capabilities allow us to achieve greater

flexibility in allocating our resources with minimal capital commitment. We can also leverage

on the expertise, knowledge and equipment of our sub-contract manufacturers. Our production

capability is not simply limited to our own manufacturing facilities.

We believe that our one-stop shop business model gives us a sustainable competitive edge

by providing significant operational flexibility to our Group to meet changing market conditions

and demands, and enhances our capabilities to cater for the needs of customers. We also believe

that our Group’s efficient production and sourcing management capabilities enable our Group

to provide timely services to our customers in a cost efficient manner.

Strongdesignanddevelopmentability

Our strength in design and development enable us to broaden our product offering to

include new and up-to-date products. We organise sampling sourcing trips around the world

periodically to obtain first hand garment product samples so as to keep abreast with global

fashion trends and plan for future designs. We visit various department stores and boutiques

in different countries and places to identify latest trends in style and fabric materials in those

places, enabling us to analyse consumer preference. Within our design and development team,

we have our own sample workshop consisting of approximately 77 staff to produce samples

and in-house designs. Our workshop has the capacity to produce 1,000 samples every week

and the wide range of available samples can provide more product choices for our customers

to suit their requirements. With our in-house sample workshop, we are able to develop samples

for our customers with approximately 24 hours from the receipt of sketches from them, which

enhances our lead time to develop samples for our customers and enables us to provide timely

services to them. Further, with the support of the VC Group, we can source our raw materials

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efficiently for our sample making process. Our fabric sourcing capabilities also enable us to

effectively develop garment products for our customers at an early stage. Our involvement in the

product development stage of the manufacturing process of our customers’ orders solidifies our

relationship with our customers and ensures that quality of our products meets our customers’

demands.

Our merchandising team, which comprises [118] members, has extensive production and

technological knowledge of garment. With our strong design and development capabilities, we,

from time to time, make recommendations on the use of fabrics or offer in-house designed

samples to our customers.

Highqualityproductwithavarietyofproductmix

We have established stringent quality control procedures for the procurement and

inspection of our raw materials, each of our production processes as well as our sub-contract

manufacturers. We conduct inspection and testing on our raw materials and at each of our

production processes; and we may also engage third-party inspectors to conduct quality control

inspections on our products.

We also have a quality assurance and control team who oversees the performance of

our sub-contract manufacturers. The team consists of [10] members and they travel to the

factories of our sub-contract manufacturers to perform on-site quality control inspections and

testing procedures at different stages in their manufacturing process to ensure quality of our

products.

We also work closely with our customers to improve and ensure our product quality.

During the Track Record Period, the aggregate value of the product claim had been insignificant

in comparison with the Company’s revenue.

In our PRC Factory, we have adopted the “Just-in-time” production system (“JITSystem”),

which is an efficient and labour saving manufacturing system to ensure that materials and goods

arrive only as they are required at a particular manufacturing point in a production line. Under

the JIT System, our workers are divided into work stations along the production line, and each

work station is categorised by a particular production stage required for a garment product. Each

worker at a work station is only responsible for a particular step required for that production

stage. When the production stage of a semi-finished product is completed, the relevant item

is passed to the next work station in the production line for completion of another production

stage. As semi-finished products are passed onto the next production stage in small quantities

instead of in bulk after completion of a particular production process, the manufacturing lag time

at each production process can also be reduced. Quality control procedures can be conducted

on the semi-finished products throughout these processes and errors can be easily and more

efficiently detected.

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We have trained our workers to be familarised with a number of steps required for each

production stage so that we can further increase the operational efficiency of the JIT System

by allocating the workers to work in different production stages of the production line to suit

production needs. Salaries of the workers are determined based on the number of pieces of

finished garment products produced by the team, thus the workers have a higher incentive to

complete a finished product efficiently.

With the manufacturing advantage attributable to our own production capabilities, an

efficient production system, and our established network of sub-contract manufacturers, we offer

a comprehensive range of garment products to our customers, including Cut-and-Sew knitwear,

Knit-to-Shape sweaters and woven products, which include ladies’, men’s and kids’ knitwear,

sweaters, polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears.

With our production and sourcing capabilities and stringent quality control procedures,

we are able to provide a diversified and high-quality product mix to our customers and cater for

their changing demands or requirements. We have maintained close and long-term relationships

with our customers. All of our top five customers for the three years ended 31 March 2010

have sourced products from us for more than four years and some of them have more than ten

years’ business relationship with us.

Experiencedmanagementteam

Our core management team is led by our Chairman and chief executive officer, Mr. Choi,

who has been engaging in the trading of garment products since 1998. Such experience has

enhanced his knowledge and understanding of garment production and sourcing industry and set

up a foundation for the subsequent development of our Group. Our management team (including

Mr. Ng Tze On and Mr. Lau Kwok Wa, Stanley, our executive Directors) possesses extensive

operating experience and industry knowledge. Our senior management staff (including Mr. Ng

Tsze Lun) has been with our Group or in garment industry for an average of [13] years. We

believe that our management team’s in-depth knowledge of the garment industry can enable us

to respond efficiently to various challenges from the changing market conditions.

Solid customer base and ability to develop new clients and offer dedicated customerservices

We have a solid customer base comprising mostly overseas brand owners/carriers,

megastores, department stores and supermarket chains. We also source garment products for

customers which are importers.

We have maintained close and long-term relationships with our customers as we provide

quality products and services. We have both the production capabilities and sourcing capabilities

to cater for our customers’ demands. All of our top five customers for the three years ended 31

March 2010 have sourced our products for more than four years and some of them have more

than ten years’ business relationship with us.

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Other than a solid customer base with long-term relationship with us, we are also able

to source and develop new clients effectively with our one-stop shop business model and

capabilities. During the Track Record Period, our revenue was mainly generated from the U.S.,

Canada, the U.K., Mexico, Japan and the PRC and more than half of our total revenue for each

year during the Track Record Period was generated from our customers in the U.S.. We have

offices in the U.S., the PRC, Hong Kong and Macau, and have a representative in Canada to

provide sales supporting and/or customer services to enhance the quality and efficiency of our

sourcing management services to our customers.

In addition, we provide importing services arrangement for our customers in the U.S. and

Canada. Under such arrangement, products required by our customers are delivered “door-to-

door” from our facilities to our customers’ desired location at an aggregate cost of production,

transportation, appropriate customs duties and taxes without incurring extra time and costs for

our customers.

We believe that our overseas office network and dedicated customer services differentiate

us from our competitors and enhance our reputation and relationship with our customers.

BUSINESSSTRATEGIES

Our principal business strategies are:

Enhancemanufacturingcapabilities

In order to provide more efficient and timely services to our customers thereby further

enhancing our competitiveness and profitability, we target to further enhance our manufacturing

capabilities, to increase our production capacity, to include other processes such as printing and

embroidery to further achieve vertical integration, and to upgrade our production equipment and

acquire environmental-friendly and energy-saving machineries to further enhance efficiency and

costs saving. We may also acquire existing garment factories or enter into joint ventures or other

forms of cooperation with other business partners if suitable targets could be identified.

In particular, we aim at expanding our manufacturing facilities to cater for the anticipated

demands from our major customers with reputable brands.

Existing production equipment will be upgraded to increase efficiency. We will also seek

to identify other new production equipment designed to enhance our production efficiency and

capacity, shorten turnaround time and reduce labour costs and energy consumption. We also

plan to develop in-house production as to printing and embroidery.

The expected increase in production capacity is not intended to be a substitute for the

use of sub-contract manufacturers. Instead, we expect to have growth in both sales generated

from in-house production facilities as well as from sub-contract manufacturers. The anticipated

increase in production capacity is expected to be used to satisfy the demand from customers

with more complicated/stringent production requirements or with tighter delivery schedule who

frequently request for our own in-house production. Such form of production would yield a

higher gross profit margin.

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We believe that the planned expansions, upgrades and vertical integration, as well as the

strategic merger, acquisitions and business cooperation, will lay the foundation for improving

both our productivity and profitability in the future.

Strengthenandexpandcustomerbase

We plan to enhance our promotional and marketing activities to further build our reputation

and to enhance business with our existing customers and explore new business opportunities.

We will explore more potential customers in the PRC and overseas.

We currently intend to engage additional staff for our design and development team,

expand our sample workshop and expand our sales office in the U.S. so that more new products

can be sourced globally, more sample garment products could be developed by us for our

customers to meet their requirements and better services and products can be offered to our

existing customers and attract more potential customers. We will work closely with our existing

customers to provide better and more personalised services to them and further solidify our

relationships with them.

Retailmarketexpansion

Monstons

With the PRC’s economic growth, the country’s apparel retail market is fast expanding.

We target to diversify our business model by entering into the retail market in China. We

aim to sell our “夢仕臣” (Monstons) brand underwear and homewear products in large chain

supermarkets in the PRC, targeting the mass market. We supply our “夢仕臣” (Monstons) brand

products to these large chain supermarkets on a consignment basis, as they offer us a low-risk

and effective means of testing the market demand for our products. The products under our “夢仕臣” (Monstons) brand will either be sourced from external manufacturers or manufactured at

our existing production facilities, depending on the complexity of the production process for

the products and our production capacity. We manufacture basic style products, e.g. leggings, at

our production facilities while more complicated style products, e.g. warm clothes, are sourced.

As we can (i) utilise our existing production capacities to manufacture our “夢仕臣”(Monstons)

brand products; or (ii) source the products from other sub-contract manufacturers; and (iii) sell

our “夢仕臣”(Monstons) brand products on consignment basis to large chain supermarkets without

the need to invest in the establishment of retail channels, we are of the view that only minimal

initial capital injection is required for the launch of such products. Our Directors consider that

the entry barrier for the underwear and homewear market in the PRC is relatively low as such

market is generally fragmented and not monopolised by certain suppliers. Further, as seasonality

is not a major influencing factor in such market, obsolete stock is not common. We believe that

the sale and development of our “夢仕臣” (Monstons) brand products in the PRC can enhance

customer awareness of our Group among our target garment sourcing customers. We believe

that enhanced customer awareness of our Group and our business track records with existing

renowned PRC brands will assist us to further expand our garment sourcing customer base in

the PRC. The launch of the “夢仕臣” (Monstons) brand products is not a shift in our business

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focus, but a means of diversifying our business model by entering into the retail market in

China. No revenue was recorded for the sales of our “夢仕臣” (Monstons) brand underwear

and homewear products during the Track Record Period.

To the best knowledge of our Directors, none of our customers engaged in the sale of

branded underwear and home wear products in the PRC as at the Latest Practicable Date.

We plan to expand the retail network for our “夢仕臣” (Monstons) brand to 200 and

300 points of sales in the PRC by 2011 and 2012 respectively through cooperation with large

chain supermarkets. [We have received orders from these large chain supermarkets for “夢仕臣” (Monstons) brand products on a consignment sales basis since July 2010, retail sales

of which has commenced by [September] 2010 at approximately 200 sales points in large

chain supermarkets in the PRC.] We believe that we can benefit from our consignment sales

cooperation with large chain supermarkets and their existing nationwide network to increase

market penetration without managing the retail system ourselves, differentiating us from other

retail competitors in the underwear and homewear market. The relatively long credit period

normally granted to the large chain supermarkets by suppliers also make consignment sales a

less attractive alternative to some of our competitors with weaker financial resources. We do

not rely on one single large chain supermarket as there are many potential cooperation partners

available in the market. [Our Directors expect the profit margins of our “夢仕臣” (Monstons)

brand products to be higher than that of our garment sourcing business and we expect to finance

our plans for expansion of our “夢仕臣” (Monstons) brand through [•••], cash flow generated

from sales of such products and through our Group’s internal resources.]

teelocker

We entered into a memorandum of understanding and a business transfer agreement

(“BusinessTransferAgreement”) with Yoko Sun, Mr. Lo Chi Hang Jack, Mr. Lai Fuk Sang

and Mr. Lan Chi Fung (collectively, the “Transferors”) on 29 July 2010 and 8 September 2010,

respectively in relation to the acquisition of an effective 70% interests in certain of Yoko Sun’s

assets (“BusinessAssets”) including, amongst others, its intellectual property rights (including

trademarks and domain names), contracts with its designers and business partners, inventory and

stock-in-trade and goodwill. It is intended that upon completion of the acquisition, the Business

Assets will be operated by Sky Winner Investment Limited, which will then be a subsidiary

in which we will have a 70% interest whilst the remaining 30% interests will be held by each

of Mr. Lo Chi Hang Jack, Mr. Lai Fuk Sang and Mr. Lan Chi Fung, the existing shareholders

and directors of Yoko Sun, in equal proportions. The results of Sky Winner Investment Limited

will be included in the combined statement of comprehensive income from the effective date

of its establishment. The majority of the board of directors of such company is expected to be

controlled by us.

Yoko Sun is a company incorporated in Hong Kong on 20 July 2007, which was owned

by Mr. Lo Chi Hang Jack, Mr. Lai Fuk Sang and Mr. Lan Chi Fung, all being Independent Third

Parties, as to 33.34%, 33.33% and 33.33% respectively as at the Latest Practicable Date. Mr. Lo

Chi Hang Jack, Mr. Lai Fuk Sang and Mr. Lan Chi Fung were also the directors of Yoko Sun as

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at the Latest Practicable Date. Yoko Sun operates its business under the name “teelocker” and

is principally engaged in the production and sales of apparel products, with an online platform

for recruitment of designers and sales of apparel products. It also sells its products, on both

consignment and direct sales basis, to department stores, retail shops and various points of sales

at various locations in Hong Kong, Taiwan and the PRC (the “teelocker Business”).

Yoko Sun requires investment capital to grow its business operations and we are of the

view that Yoko Sun’s business has market potential. Hence, we intend to acquire part of its

business and inject capital to enhance the growth of its business. Our Directors believe that the

proposed acquisition of the business assets of Yoko Sun will diversify our business model and

enable us to enter into the retail market in Hong Kong, Taiwan and the PRC.

Pursuant to the Business Transfer Agreement, the consideration for the acquisition of

70% interests in the Business Assets was HK$1,200,000, which would be settled in cash. It

has been agreed that 60% of the consideration shall be paid on the date of completion of the

Business Transfer Agreement (which is currently expected to take place by the end of 2010)

and 40% of the consideration shall be paid on or before the fifth business day after the first

anniversary of the date of completion of the Business Transfer Agreement. We intend to utilise

our internal resources to settle the consideration.

Pursuant to the Business Transfer Agreement, among others, each of the Transferors had

agreed to give certain non-compete undertakings to us, which provides amongst other things

that, during a period of one year after completion of the Business Transfer Agreement, it/he

will not, without our prior written consent (i) solicit or interfere with customers or employees

of Yoko Sun in relation to the teelocker Business; (ii) carry on or be engaged in any business or

activities which will compete with the teelocker Business; or (iii) use the name of “teelocker”

or any other trademarks or logos similar to “teelocker” or represent itself/himself as carrying

on or being connected with the teelocker Business.

Cooperate with brand owners or importers to form joint ventures

We plan to cooperate with a brand of casual wear targeting at the youngsters’ market

in the PRC so as to diversify our business into the retail market of the PRC. As at the Latest

Practicable Date, the Company has considered certain cooperation opportunities but has not

concluded with any joint venture partners in relation to its plans for expansion into the PRC

retail market. Further, we may form joint venture companies with importers in the U.S. to

enhance the market share of our Group and those importers. [Our Directors consider that by

entering into the retail market and cooperating with importers, we can better understand our

customers’ demands and requirements and our integrated business model and customer base

can be further enhanced.]

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PRINCIPAlPROdUCTS

We offer a comprehensive range of products to our customers including Cut-and-Sew knitwear,

Knit-to-Shape sweater and woven products which include ladies’, men’s and kids’ knitwear, sweaters,

polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears. The gross margins vary for

products within each of the categories of Cut-and-Sew, Knit-to-Shape and woven products, as the

gross margin of a garment product is not dependent on the product category that it falls under but

the complexity of the production process involved and the level of workmanship required. We also

sell other miscellaneous items to our customers such as hats, scarves and handbags and these items

are mainly sold to megastores and supermarket chains in China.

Other than the garment products we sourced for our customers, we have developed and are

in the process of launching our “夢仕臣” (Monstons) brand of underwear and homewear products

in large chain supermarkets in the PRC, targeting at mass market. The products under our “夢仕臣”

(Monstons) brand will either be sourced from external manufacturers or manufactured at our own

production facilities. We plan to launch our branded product as part of our strategy to diversify our

business model into the retail market in the PRC as well as to enhance PRC customer awareness of

our Group.

AWARdSANdACCREdITATIONS

The following table sets out the major awards and accreditations obtained by us:

Yearofgrant Award Awardingbody

2007 Outstanding Supplier Award Semir Group

(供應商進步獎) (森馬集團有限公司)

2007 Partners in Progress Sears

– Celebrating a shared vision of

outstanding service, innovation

and superior quality products

2009 08 Olympics Supportive Award Li Ning (China) Sports Goods

(08年度奧運支持獎) Co., Ltd.

李寧(中國)體育用品有限公司

2009 Top Vendor Award Forever 21

2010 Outstanding Member of Xinhui District Xinhui District Industry and

Industry and Commercial Federation Commercial Federation

in 2009 (新會區工商業聯合會 (2009年度新會區工商聯系統優秀會員) 江門市新會總商會)

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PROdUCTION

Based on manufacturing process, garment products can be broadly classified into three

categories, namely Cut-and-Sew knitwear, Knit-to-Shape sweater and woven products. Currently, we

only manufacture Cut-and-Sew knitwear and Knit-to-Shape sweater.

For the financial year ended 31 March 2010, approximately [29.9]% of our total costs of sales

attributable to the manufacture of garment products was incurred by our in-house production team,

while the remaining approximately [70.1]% of our total costs of sales attributable to the manufacture

of garment products was incurred by our sub-contract manufacturers. Our decision on, whether to

outsource production and the choice of sub-contract manufacturer(s) depend on various criteria,

including: (i) costs and pricing; (ii) the quality standard required; (iii) the capability and capacity of

the sub-contract manufacturer(s); (iv) whether there is any tax benefit for our customers in selecting

a particular sub-contract manufacturer. The duty rate imposed by the government of the country of

our customers may vary according to the origin of the garment products, and some of our sub-contract

manufacturers are located in places which may enjoy lower duty rates; (v) the need for diversification

in producing countries; and (vi) the financial status of the sub-contract manufacturer(s). Some of our

customers, based on their requirements on products and production process, may designate specific

fabric and/or accessories suppliers, or require the whole production process to be carried out at our

in-house production facilities. During the Track Record Period [and up to the Latest Practicable Date],

none of our customers demanded for the entire production process for its products to be outsourced to

sub-contract manufacturers designated by them. For the three years ended 31 March 2010, the costs of

outsourced products and processing fees paid to our sub-contract manufacturers were approximately

HK$903.9 million, HK$850.6 million and HK$515.8 million, respectively, representing approximately

73.3%, 75.8% and 70.1%, respectively, of our total cost of sales during the same three-year period.

Our manufacturing process for Cut-and-Sew knitwear is divided into seven major stages: (i) raw

materials inspection and testing; (ii) cutting and trimming; (iii) printing and embroidery; (iv) sewing

and assembly; (v) washing and ironing; (vi) packaging; and (vii) shipping. We may engage third party

sub-contract manufacturers for printing and embroidery to leverage their expertise, knowledge and

equipment in handling a particular design or specification required by our customers.

Our manufacturing process for Knit-to-Shape sweater is divided into seven major stages:

(i) raw materials inspection and testing; (ii) panel knitting; (iii) linking and smoothing; (iv) washing

and ironing; (v) sewing of labels; (vi) packaging; and (vii) shipping.

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Cut-and-Sewknitwear

The diagram below illustrates the major stages of our manufacturing process for Cut-and-Sew

knitwear:

Raw materialsinspection and testing

Cutting and trimming

Printing andembroidery

Sewing and assembly

Washing and ironing

Packaging

Shipping

– Appearance inspection – Decolouring and shrinkage tests

– Measurement checking

– Appearance inspection

– Broken needle checking


– Appearance inspection – Needle detector machine

– Final inspection

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Knit-to-Shapesweater

The diagram below illustrates the major stages of our manufacturing process for Knit-to-Shape

sweater:

Raw materialsinspection and testing

Panel knitting

Linking andSmoothing

Washing and ironing

Sewing of labels

Packaging

Shipping

– Workmanship checking – Light testing


– Packaging information checking

– Workmanship checking– Label information checking


– Appearance and texture inspection – Knitting and washing test

MANUFACTURINGFACIlITIES

Our manufacturing capabilities are supported by our PRC Factory and our Indonesian Factory.

For the financial year ended 31 March 2010, approximately [29.9]% of our total costs of sales

attributable to the manufacture of garment products was incurred by our own production capabilities,

among which approximately 15.6% and 14.3% were incurred by the production in our PRC Factory

and our Indonesian Factory respectively.

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OurPRCFactory

Our PRC Factory was operated by Jiangmen Factory. It is located in Jiangmen, Guangdong

Province, the PRC with a gross floor area of approximately [37,392] sq.m.. Our PRC Factory operates

under the JIT System with an annual production capacity of approximately 6,800,000 pieces of Cut-

and-Sew knitwear and approximately [247,100] pieces of Knit-to-Shape sweater. Our PRC Factory

produces garment products with fashionable and complicated styles, patterns and designs.

As at the Latest Practicable Date, there were [30] production lines and approximately [1,309]

staff in our PRC Factory. We have also installed the RFID system in our PRC Factory so that our

staff can record completion of each production process for each product by swiping a recording card.

Our production team monitors each stage of the manufacturing process in real time and is able to

estimate the time required for each production process, enabling our PRC Factory to maintain a high

production efficiency. At the PRC Factory, each box of finished garment products will be labelled

with a bar code so that management of finished products or inventory can be done systematically.

The table below sets out the major machineries used at our PRC Factory:

Productionprocess Majormachinery Principal functions

Cutting Gerber automatic cutting Cutting of fabrics automatically

(Cut-and-Sew) system

Gerber automatic spreading

system

Printing Automatic printing machine Printing on fabric

(Cut-and-Sew)

Embroidery Eight computerised Embroidering on fabric adopting

(Cut-and-Sew) embroidery machines various styles

Sewing Hanging system Transferring semi-finished products

(Cut-and-Sew) along the work stations, real-time

electronic recording and

monitoring

Panel knitting 24 flat knitting machines Making complicated patterns

(Knit-to-Shape) using digital technology

Packaging Needle detector machine Detecting broken needle or other

(Cut-and-Sew) metal pieces in the garment

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OurIndonesianFactory

Our Indonesian Factory was established in September 2005. It is located at our leased properties

in Semarang in Indonesia with a floor area of approximately [13,485.08] sq.m.. Our Indonesian Factory

operates at [near full] capacity under the traditional “Bundle” production system with an annual

production capacity of approximately [4,680,000] pieces of garment products. In total, there are [31]

production lines with approximately [22] workers per line. It mainly produces garment products with

simple classic style, such as polo-shirts.

Our Indonesian Factory houses various kinds of automatic manufacturing equipments, including

one set of automatic placket setting machine, one set of automatic hemming sleeves and bottoms

machine and two sets of computerised cloth spreading machine. The use of automatic machineries

enhances the quality and efficiency of our production and lowers the labour costs involved. As at the

Latest Practicable Date, there were about [1,160] staff at our Indonesian Factory. The table below

sets out the major machineries used at our Indonesian Factory:

Productionprocess Majormachinery Principal functions

Sewing Automatic hemming sleeves and Sewing for hemming

bottoms machine sleeves and bottoms

Sewing Automatic placket setting machine Sewing plackets

Cutting Computerised cloth spreading machine Spreading fabric

The following table sets out the annual production capacity and related information for our

apparel manufacturing facilities:

Fortheyearended31March 2008 2009 2010

PRCFactory

Annual production capacity (’000 pieces) (Note1) [6,800] [6,800] [7,047]

(Note2)

Actual annual production (’000 pieces) (Note1) [6,015] [6,430] [6,223]

Average utilisation rate (Approximate %) [88.5] [94.6] [88.3]

IndonesianFactory

Annual production capacity (’000 pieces) (Note3) [7,200] [6,000] [4,680]

(Note4) (Note5)

Actual annual production (’000 pieces) (Note3) [6,339] [5,564] [4,026]

Average utilisation rate (Approximate %) [88.0] [92.7] [86.0]

(Note6)

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Notes:

1. The production capacity for our PRC Factory is calculated on the basis of 26 days per month and the figures are

estimated based on manufacturers’ specifications of the machineries, historical figures and other data we believe

to be reliable. The production capacity also varies depending on the style of the garment products required. With

the production of more complicated garment products, the annual production capacity of our PRC Factory were

approximately 6,800,000 pieces for the years ended 31 March 2008 and 2009 respectively, and approximately

7,047,100 pieces for the year ended 31 March 2010.

2. The increase of production capacity for the year ended 31 March 2010 was due to the additional annual production

capacity of approximately 247,100 pieces of Knit-to-Shape sweater contributed by the new Knit-to-Shape

division.

3. The production capacity for our Indonesian Factory is calculated on the basis of 20 days per month and the figures

are estimated based on manufacturers’ specifications of the machineries, historical figures and other data we

believe to be reliable. The production capacity also varies depending on the style of the garment products required.

The estimated annual production capacity for the years ended 31 March 2008 and 2009 were approximately

7,200,000 pieces and 6,000,000 pieces respectively, based on the production of basic garment products such as

round neck T-shirts. Therefore, actual production capacity may differ from estimated capacity.

4. The reduction in production capacity for the year ended 31 March 2009 was due to reduction of number of

production lines in our Indonesian Factory from [34] to 30 in 2009.

5. Given the shift in mix of products being manufactured at our Indonesian Factory from basic garment products

such as round neck T-shirts towards more complicated garment products such as hooded pullovers and zippered

pullovers, the restated annual production capacity of our Indonesian Factory taking into account the production

of such more complicated garment products is estimated to be approximately 4,680,000 pieces.

6. Accordingly, the average utilisation rate of our Indonesian Factory for the year ended 31 March 2010 on such

restated basis is approximately 86.0%.

We believe that our current manufacturing facilities are cost-competitive. At the same time, we

also continue to improve our manufacturing facilities and production lines to increase productivity

and efficiency of our manufacturing facilities.

[During the Track Record Period, we did not experience any major failures of our

machineries.]

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THIRdPARTYOUTSOURCING

We have a wide and established network of sub-contract manufacturers with whom we have

maintained good working relationships that can provide a wide range of garment products. Our customers

may have diverse and/or specific requirements for our products, including type and range of products,

complicated patterns or designs, or distinct colors, features or functions, and they may also require

different production capabilities and expertise. Some of our customers, based on their requirements

on products and production process, may designate specific fabric and/or accessories suppliers, or

require the whole production process to be carried out at our in-house production facilities. During the

Track Record Period [and up to the Latest Practicable Date], none of our customers demanded for the

entire production process for its products to be outsourced to sub-contract manufacturers designated by

them. We select our sub-contract manufacturers based on their capability and capacity and the quality

of their work. We do not enter into long-term agreements with such sub-contract manufacturers but

instead maintain flexibility by working with them based on individual orders with garment purchase

costs, charged on fixed price basis. The sub-contract manufacturers will deliver the finished goods

based on our instructions and generally by ship, to the ports designated by our customers without

any further processing by us. The title of the goods will pass to our customers once the goods are on

board. We, on average, enjoy a credit period of 30 to 60 days with our sub-contract manufacturers.

We have a quality assurance and control team with [10] employees who oversees the performance

of our sub-contract manufacturers. To ensure the quality of our sub-contract manufacturers’ products,

members of our quality assurance and control team would perform on-site quality inspections and

testing procedures at the factories of our sub-contract manufacturers at different stages in the

production process.

The number of sub-contract manufacturers approved by our Group for the three years ended 31

March 2008, 2009 and 2010 was about 39, 44 and 33; other than Kimberley, all of our sub-contract

manufacturers are Independent Third Parties. Our existing sub-contract manufacturers, amongst all,

are located in the PRC, Cambodia, Madagascar and Vietnam. We have maintained good and stable

relationship with our sub-contract manufacturers. For our top five sub-contract manufacturers for the

three years ended 31 March 2010, we have an average of around [six] years of business relationship

with them and some of them have worked with us for [10] years.

During the Track Record Period, approximately [26.7]%, [24.2]% and [29.9]% of the garment

products we sourced for our customers were produced in our in-house production facilities, while

approximately [73.3]%, [75.8]% and [70.1]% were sourced from our sub-contract manufacturers.

The costs incurred by us in respect of outsourcing to sub-contract manufacturers for the three years

ended 31 March 2008, 2009 and 2010 were approximately HK$[903.9] million, HK$[850.6] million

and HK$[515.8] million, respectively, representing approximately [73.3]%, [75.8]% and [70.1]% of

our total costs of sales respectively.

Our Directors believe that as sub-contract manufacturers are widely available, in order to remain

competitive, the prices offered by our existing or potential sub-contract manufacturers are likely

to stay competitive. In addition, our Directors believe that our relationships with our sub-contract

manufacturers are mutually beneficial. Based on the above, our Directors believe that we do not

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have a substantial risk of losing a majority of our sub-contract manufacturers and that in the event

a particular sub-contract manufacturer should cease to provide sub-contracting services to us or the

quality of products of a particular sub-contract manufacturer is poor or the charge of outsourcing is

high, we should be able to replace such sub-contract manufacturer with another.

Our customers may bypass us and place orders for garment products directly with our sub-contract

manufacturers and our profitability and financial results may be adversely affected. However, during

the Track Record Period, to the best of the knowledge, information and belief of our Directors, none

of our customers had bypassed us and directly placed order for garment products with our sub-contract

manufacturers. In contrast with some of our sub-contract manufacturers with only manufacturing

capabilities, we provide a comprehensive range of services in the supply chain of garment products to our

customers. Our capabilities differentiate ourselves from some of our sub-contract manufacturers which

only provide manufacturing functions to their clients. As our customers may require a comprehensive

range of garment sourcing services which could be provided under our one-stop shop business model,

we do not envisage there is a substantial risk of a majority of our customers switching to place orders

directly with our sub-contract manufacturers.

RAWMATERIAlS,MATERIAlSPURCHASEdANdSUPPlIERS

For our own production

The principal raw material used in the production of our products is fabric. We have adopted

an internal policy in selecting suppliers of raw materials.

Generally, we source our raw materials from our list of qualified suppliers compiled internally.

However, some of our customers would request us to source fabric from their nominated suppliers. In

such event, we will obtain the designated materials from the suppliers nominated by our customers.

We have developed solid and steady relationships with many of our key suppliers as they have

been supplying to us for years. Many of our top five suppliers for the Track Record Period have

been supplying raw materials to us for three to six years. Given our stable relationship with many

of our key suppliers, we believe that our suppliers generally priorities their supply to us and we did

not experience any material delays in receiving supplies from our suppliers during the Track Record

Period.

For our outsourcing arrangement

Another type of our suppliers are our sub-contract manufacturers, which supplied to us the

garment products for our sourcing business.

From time to time, members of our merchandising team would conduct site visits at our potential

sub-contract manufacturers’ factories to ensure the basic structure and facilities of the factories meet

our requirements. In order to determine whether a factory is qualified to be one of our suppliers, the

major factors which would be taken into account include pricing, quality of products, past performance,

production capacity and payment terms.

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For our outsourcing arrangement, our compliance team, which consisted of [two] employees,

would conduct an on-site visit of our potential sub-contract manufacturer’s production facilities and

then complete a “Factory Evaluation” form for such sub-contract manufacturer to evaluate whether

it is able to meet the usual compliance requirements of our customers as regards its factory. At the

same time, we would ask such sub-contract manufacturer to provide quotations based on customers’

requirements of the products to determine whether the price offered is within the acceptable price

range of our customers. If all the requirements are met and relevant orders from our customers have

been confirmed, we will proceed to conduct an official factory audit as requested by our customers.

Our compliance team would work either with our customer’s compliance team or a third-party audit

firm appointed by our customer on such audit. Suppliers in compliance with all applicable quality

inspection requirements and procedures would become our qualified sub-contract manufacturers.

Our sub-contract manufacturers will be responsible for purchasing the relevant raw materials. So far

as our Directors are aware, raw materials used by our sub-contract manufacturers are independently

sourced from suppliers (which include the VC Group) except in the situation that the source of raw

material is designated by the end customers. We compile our internal list of qualified sub-contract

manufacturers based on results of the audits and information obtained.

Our suppliers include raw material suppliers as well as sub-contract manufacturers to whom

we outsource the manufacturing process of our products. For each of the years ended 31 March 2008,

2009 and 2010, purchases from our top five suppliers amounted to approximately HK$[455.5] million,

HK$[512.8] million and HK$[253.0] million, respectively, representing approximately [36.9]%,

[45.7]% and [34.4]% of our total costs of sales. During these periods, purchases from our largest

supplier amounted to approximately HK$[156.7] million, HK$[213.3] million and HK$[69.8] million,

respectively, representing approximately [12.7]%, [19.0]% and [9.5]% of our total costs of sales for

2008, 2009 and 2010. We, on average, enjoy a credit period of 30 to 60 days from our suppliers.

We purchase certain raw materials from our connected parties, details of which are set out in the

section headed ‘‘Continuing connected transactions” in this document. The VC Group and Kimberley

are our top five suppliers during the Track Record Period. Save for the VC Group and Kimberley,

none of our Directors, our chief executive, or any person who (to our knowledge) owns more than

5% of our issued share capital or any of our subsidiaries, or any of their respective associates, had

any interest in any of our top five suppliers during the Track Record Period.

QUAlITYCONTROlANdASSURANCE

Our Group believes that its commitment to quality control is key to its success.

In-houseproductionfacilities

Our quality control procedures start at the raw materials procurement stage when our staff

checks the quality of the raw materials delivered prior to confirming the receipt of raw materials.

Fabrics, our principal raw material, are checked randomly through visual appearance inspection,

focusing on whether they are broken. Inspection reports are prepared based on the rate of decolouring

and shrinkage of the fabrics. Other raw materials undergo a conventional viewing of their quality

which can be identified easily through visual appearance inspection to ensure that the raw materials

comply with our quality standards.

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At each stage of our manufacturing process for the Cut-and-Sew knitwear, appearance inspection

is carried out on the semi-finished products, and only qualified semi-finished products are allowed to

go onto the next stage of production. During the cutting stage, measurement checking is done. During

the sewing stage, supervisors at each of the production lines are responsible for checking whether

there are any broken needles on each garment product. When our products are finished, the size and

length of each product have to be checked. During the ironing stage, measurement checking is to be

conducted again to ensure that our products meet our quality requirements. During the packaging

stage, our quality assurance staff members perform appearance inspection on the supplementary

packaging materials such as price tags and care labels to ensure that they are appropriately attached

to the right products, and each product will be placed into a needle detector machine to have a final

checking to ensure no broken needle is left on the garment products. Lastly, a final inspection on

sizes and quantities will be conducted randomly. Prior to shipping, each box of our products will

be placed into a shipment detector machine to confirm no needles are kept in the box. Some of our

customers may conduct their own quality control inspection on our products and prepare relevant

inspection reports.

As for our manufacturing process of the Knit-to-Shape sweater, the appearance and texture of

raw materials are inspected. Test of knitting and washing of simple pattern on the raw materials will

be carried out. During the panel knitting stage, measurement checking is done. During the linking and

smoothing stage, workmanship checking and light testing are carried out. We will check measurement

again during the washing and ironing stage. Workmanship checking and label information inspection

are carried out during the sewing of labels stage. During the packaging stage, we will double check

the accuracy of the label and information on the packaging material.

Various reports are prepared throughout our production processes, including knit fabric quality

inspection report, accessory inspection report, inspection cutting report, embroidery and printing

inspection report, measurement checking report and final inspection report.

For certain branded customers, they have their internal quality control standards for us to comply

with and these standards may be higher than the common quality control standards implemented by us.

These customers will arrange their own staff to travel to our factories to monitor the manufacturing

processes of our products. Some of them have established their specific acceptable manufacturing

system which shall be complied with by their supplier factories.

Based on the confirmation issued by Bureau of Quality and Technology Supervision of Xinhui,

Jiangmen (江門市新會區質量技術監督局), our principal products complied with the relevant product

quality rules and regulations, and no penalties had been imposed upon us for the violation of any

product quality laws or regulations as at 14 May 2010.

Sub-contractmanufacturers

In respect of sub-contract manufacturers, we have a quality assurance and control team with

[10] employees who oversees the performance of our sub-contract manufacturers. Members of such

quality assurance and control team perform on-site quality inspections and testing procedures at the

factories of our sub-contract manufacturers at different stages in the manufacturing process to ensure

quality of our products.

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So far, we have not received any significant complaints about the quality of our products from

our customers or otherwise in connection with social, health or safety regulations that may impose

material and adverse effect on our business or relationship with our customers. During the Track

Record Period, there were no material claims against our sub-contract manufacturers by our Group.

dESIGNANddEVElOPMENT

As at 31 March 2010, our design and development team consisted of [96] experienced members.

We organise sampling sourcing trips around the world periodically to obtain first hand clothing samples

so as to keep abreast with global fashion trend. We visit various department stores and boutiques in

different countries and places to experience latest trends in style and fabric materials in those places.

Within our design and development team, we have our own sample workshop of approximately 77 staff

to produce in-house designs of garment products as well as to provide design and product development

services to our customers. Our workshop has the capacity to produce approximately 1,000 samples every

week and the wide range of available samples can provide more products choices for our customers

to suit their requirements. Our sample workshop enhances our lead time to produce samples for our

customers. Further, with the support of the VC Group, we can source our raw materials efficiently for

our sample making process. Our involvement in the product development stage of the manufacturing

process of our customers’ orders solidifies our relationship with our customers and ensure quality of

our products which meet our customers’ demands.

Sometimes, our customers will provide tech-packs with required specifications on certain

products for us to develop samples. We will then follow such specifications and arrange for making of

the sample and with our in-house sample workshop, we are able to develop samples for our customers

around [24] hours from the receipt of specifications from them. During the development of samples,

we, from time to time, give suggestions to our customers to improve their designs. We work closely

with our customers to ensure product quality and our design and development team plays an important

part in development processes to meet quality standards.

SAlESANdMARKETING

Customers

Our customers are mostly brand owners/carriers, megastores, department stores, supermarket

chains and importers both in China and overseas. We also source garment products for customers

which are importers. We source a wide variety of garment products for our customers including Cut-

and-Sew knitwear, Knit-to-Shape sweater and woven products, which include ladies’, men’s and kids’

knitwear, sweaters, polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears. During

the Track Record Period, our revenue was mainly generated from the U.S., Canada, the U.K., Mexico,

Japan and the PRC and more than half of our total revenue for each year during the Track Record

Period was generated from our customers in the U.S.. The products sourced by us for our customers

are subject to anti-dumping actions, however, during the Track Record Period, none of the products

sourced by the Group had been subject to any anti-dumping investigations nor measures. So far as our

Directors are aware, there were about 35 anti-dumping investigations on textiles and clothing products

(of which category the products we source for our customers, being apparel products, belong) in

2008 and none of them related to apparel products. As far as our Directors understand, anti-dumping

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measures could be applied by a member country of the World Trade Organisation when imports of

a product is said to be at an export price below its normal value (measured against the price of the

product in the domestic market of the exporting country) and if such “dumped import” causes injury

to a domestic industry in the importing country. Our Directors believe that the export price of the

products sourced by us for our customers are at market price of such products in their country of

manufacture, therefore, the risk of such products being categorised as “dumped import” should not

be high. Besides, our Directors also believe that the garment manufacturing industry in the U.S. and

the E.U. is not as flourishing as in the past, it is also less likely that the importing garment products

could be viewed as causing injury to their domestic industry. Accordingly, our Directors are of the

view that the chance of the products sourced by us for our customers are subject to anti-dumping

investigations or measures is very low.

We have developed and maintained good business relationships with our customers; among our

top 10 customers during the Track Record Period, we have, on average, over [five] years’ business

relationship with them. We have over 12 years’ business relationship with our largest customer during

the Track Record Period.

We have dedicated sales teams which frequently contact our customers in order to enhance

our knowledge of and responsiveness to our customers’ needs and ensure timely customer services.

As at 31 March 2010, our merchandising team which is responsible for sales services consisted of

approximately [113] employees.

Sales to our top five customers during the Track Record Period amounted to approximately

HK$[877.6] million, HK$[786.0] million and HK$[448.8] million which accounted for approximately

[61.3]%, [61.2]%, and [50.2]%, respectively, of our total revenue for the three years ended 31 March

2010. Sales to our largest customer during the Track Record Period amounted to approximately

HK$[530.4] million, HK$[478.2] million and HK$[137.2] million respectively, representing approximately

[37.1]%, [37.2]% and [15.3]% of our total revenue. None of our Directors, their respective associates

or, so far as our Directors are aware, the existing Shareholders had any interest in any of the top five

customers of our Group during the Track Record Period.

Our customers are invoiced at the time when products are delivered by us. Generally, we provide

our customers with credit period of 30 to 60 days depending on the customer’s financial strength,

business size, credit history and historical sales performance. All credit terms are subject to our

senior management’s approval. Our management and responsible staff conduct regular reviews of

customers with overdue payments. As at 31 March 2008, 2009 and 2010, impairment loss recognised

on receivables of approximately HK$0.8 million, HK$0.6 million and HK$0.8 million was recognised

for the years ended 31 March 2008, 2009 and 2010.

Sales

Our sales team, consisted of approximately [35] employees as at 31 March 2010, is divided

into teams based on the geographical location of our customers. We have offices in the U.S., the

PRC, Hong Kong and Macau, and have a representative in Canada to provide sales supporting and/

or customer services to enhance the quality and efficiency of our sourcing management services to

our customers. In addition, for customers in the U.S. and Canada, we provide importing services

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arrangement to them through our subsidiaries established in the U.S., Top Value Inc.. Under such

arrangement, products required by our customers are delivered “door-to-door” from our facilities to our

customers’ designated location at the aggregate cost of production, transportation, appropriate customs

duties and taxes without incurring extra time and costs for our customers. Such sales arrangement is

welcomed by our U.S. customers.

Generally, we obtain sales orders from our customers through periodic visits to the offices of

apparel brand owners when we explore cooperation opportunities with them from time to time. We

organise presentations with potential customers to introduce to them our Company, our products and

services and our competitive strengths. We also develop samples based on our potential customers’

required specifications for their consideration. Upon receiving positive feedback or confirmation

from our potential customers, we will further follow up with them. We will provide fee quotation for

such customers to consider after obtaining relevant estimates from our factories or our sub-contract

manufacturers. When a purchase order is placed and confirmed, the head of our sales team will allocate

our merchandising staff to monitor the production processes of that order. Such staff will act as a

coordinator between our customers and our factories or our sub-contract manufacturers. The major

follow-up work include various approval processes such as lap-dips approval and bulk fabric approval,

sample fitting, pre-production sample approval, printing and embroidery approval, and processing of

fabric and garment tests. In-line, pre-final and final inspection will also be carried out prior to delivery.

Our shipping team will monitor the shipping arrangement and delivery of finished products.

We believe the ability to provide timely and quality services to our customers and reputation

are key contributors to our success and we place much importance on the quality of services and

support that we provide to our customers. Our sales team provides dedicated post-sales services to

our customers and handles minor claims or complaints from existing customers. Our management

will be responsible for handling more major claims or complaints from existing customers. Our sales

staff will coordinate with our production and logistics team for any necessary reprocessing of orders.

During the Track Record Period, there were no material claims or complaints against us from our

customers.

Marketingandpromotion

Our marketing and promotional activities are conducted by our merchandising team. Members

of our merchandising team generally visit our existing customers periodically to maintain close

relationship with them. With the help of our in-house design and development team, we can provide

up-to-date information to our customers, such as recommendation on the use of fabrics. Through

these regular visits and communications with our customers, we can better understand their needs and

obtain feedback from them so as to improve our products and services, which in turn will enhance

our ability to develop and expand our customer base.

From time to time, we organise presentations with potential customers to introduce to them the

Company, our products and services and our competitive strengths. Direct promotion and discussion

with potential customers enhance their awareness of our Group and help us further expand our business

to them should the opportunity arises.

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COMPETITION

Our direct customers are mostly overseas brand owners/carriers, megastores, department stores

and supermarket chains and we source garment products for customers which are importers. We

manufacture Cut-and-Sew knitwear and Knit-to Shape sweaters which include ladies’, men’s and

kids’ knitwear, sweaters, polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears.

We are also developing our “夢仕臣” (Monstons) brand products in the PRC market. To the best

knowledge of our Directors, none of our customers was engaged in the sale of branded underwear

and home wear products in the PRC as at the Latest Practicable Date. Accordingly, there should not

be any competition between the branded products that we are developing and the products of our

existing customers.

[In the garment industry, market players mainly compete in areas such as, among other things,

product quality, price, and the ability to provide timely services and fulfill delivery commitments.

We face competition from both garment factories and garment sourcing companies in the PRC and

international players. Price competition in respect of our products and services to our customers

is a major element in the competition we faced. In order to reduce cost, we engaged sub-contract

manufacturers in the PRC, Cambodia, Madagascar and Vietnam. Our competitors may have more

abundant resources to enhance their manufacturing capabilities and production processes or have

established good relationships with their customers due to their long-standing history of business.

However, with our one-stop shop business model as a garment sourcing management group with

manufacturing capabilities and our relationship with VC which is our fabric supplier, we can provide

to our customers a comprehensive range of garment products sourcing management services in a

timely and costs efficient manner. With our merchandising experience and stringent quality control,

we can offer to our customers high quality products and services, which include trendy and stylish

garments for the renowned brands. ]

We compete on the basis of the quality and reliability of our services and products. Since

our customers are international and PRC brands with strong images, we must provide high quality

services as well as products to them. Quality services include reliability in providing timely services,

fulfilling delivery commitments, and responsiveness and flexibility in meeting customer requirements.

We seek to enhance our competitive position by offering a broad range of products, including Cut-

and-Sew knitwear, Knit-to-Shape sweater and woven products, which include ladies’, men’s and kids’

knitwear, sweaters, polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears, to our

customers.

ENVIRONMENTAlISSUES

PRC

There are no environmental protection laws or regulations in the PRC specifically applicable

to garment manufacturers in the PRC. In general, we are required to abide by the Environmental

Protection Law of the PRC (中華人民共和國環境保護法) (the “EnvironmentalProtectionlaw”) which

took effect on 26 December 1989, pursuant to which we should establish a system for environmental

protection and take effective measures to prevent pollution caused by production, construction work or

other activities. According to the Environmental Protection Law, where the construction of a project

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may cause any pollution to the environment, an environmental impact evaluation must be performed

to determine the preventive and remedial measures to be adopted, and the relevant environmental

protection administration approval shall be obtained. Enterprises discharging pollutants must report

to and register such discharge with relevant environmental protection administration departments.

Enterprises discharging pollutants in excess of prescribed national or local discharge standards shall

be responsible for paying a discharge fee for exceeding the standard and eliminating and controlling

pollution. Depending on the circumstances and the extent of the pollution, the relevant environmental

protection administration departments may impose various types of penalties on persons or enterprises

who are in violation of the Environmental Protection Law. Penalties include issuance of a warning

notice; imposition of a fine; determination of a time limit for rectification; issuance of an order to

reinstall and resume operation of environmental protection facilities which have been dismantled or left

unused; issuance of an order to suspend production or to suspend and close the business; imposition of

administrative sanctions or investigation and establishment of criminal liabilities against the personnel

in charge. In addition, in cases where the pollution causes damage to others, civil indemnification to

victims shall be required.

Furthermore, due to the composition of the products which we manufacture, there is minimal

air pollution. During the Track Record Period, the amount we spent on waste water treatment was

approximately RMB215,000 for laying of sewage pipes and facilities at our PRC Factory for the

sewage treatment services provided by the VC Group. Our waste water was treated by the VC

Group during the Track Record Period, and such arrangement will constitute continuing connected

transactions for the Company. As the VC Group has been providing waste water treatment services

to our Group at no cost since 19 November 2009, being the date of completion of the transfer

of 40% interest in Jiangmen Factory to our Group, our Directors expect that we will not incur

any significant cost in relation to the waste water treatment in the future. Further details of such

transactions were disclosed in the section headed “Continuing connected transactions” in this

document. The Jiangmen Xinhui Luokeng Environmental Protection Office (江門市新會區羅坑鎮環境保護辦公室) had confirmed that we had complied with the Environmental Protection Law and

other relevant rules and regulations since the establishment of Jiangmen Factory to 29 April 2010.

Our PRC Legal Advisers advised that the Jiangmen Xinhui Luokeng Environmental Protection Office

(江門市新會區羅坑鎮環境保護辦公室) could only confirm that Jiangmen Factory had complied with

the Environmental Protection Law and other relevant rules and regulations since its establishment to 29

April 2010. FG Shanghai and FG Shenzhen (being the remaining group companies established in the

PRC), since establishment, have never engaged in any construction projects and their actual business

operation does not cause environmental pollution like manufacturing entities. No confirmation as to

the compliance of the Environmental Protection Law could be obtained by each of FG Shanghai and

FG Shenzhen. As advised by the PRC Legal Advisers, FG Shanghai and FG Shenzhen have confirmed

that, since establishment, they have been in compliance with PRC environment laws and regulations

and no administrative penalty arising from violation of the PRC relevant laws and regulations has

been imposed on them. As at the Latest Practicable Date, no administrative sanctions, penalties or

punishments had been imposed upon us for violation of any environmental laws or regulations. In

accordance with the requirements of relevant laws and regulations on environment protection, we have

adopted advanced technologies and equipment to prevent and reduce pollution. We have reported to

and registered with the relevant environmental protection administration departments for pollutants

discharge and have obtained the Permit for the Discharge of Pollutants.

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BUSINESS


Indonesia

As advised by our Indonesian Legal Advisers, there are no specific laws or regulations in

Indonesia which are related to environment obligation for garment manufacturers. In general, we are

required to comply with Law No. 32 Year 2009 regarding Environmental Protection and Management

(the “IndonesianEnvironmentallaw”).

The Indonesian Environmental Law encourages any enterprise to achieve environmental license which shall be a requirement for the issuance of business license. Aside from required prevention action on environmental protection and management, any entity shall also be obliged to conduct environmental audit specifically to those that conducts an activity with high potential risk to pollute and/or damage the environment. [During the Track Record Period, our Group had complied with the Indonesian Environmental Law and no administrative sanctions, penalties or punishments had been imposed upon us for violation of any Indonesian Environmental Law or regulations as at the Latest Practicable Date.]

INVENTORYCONTROl

We are committed to reducing excess inventory of raw materials and finished goods, and meanwhile continuing to meet the supply and delivery requirements of our customers. In accordance with our existing business model, we do not have a general inventory provision policy. We normally adopt the practice of “pre-sold orders”, which means confirming purchase orders with our customers before we purchase related raw materials and begin production. We closely monitor our inventories, including inventory levels and inventory age. We have a policy to review regularly the obsolescence of inventories based on the expected future sales and the age of the inventories in order to further reduce the risk of accumulation of obsolete inventories. We also conduct physical stock counts from time to time to identify obsolete or damaged products. If the market conditions are less favourable than those forecasted by the management and our unused inventories remain for a period longer than we expected, we will consider whether specific provision will be warranted on an item-by-item basis and if the costs are higher than the corresponding estimated net realisable value of certain inventories, we will make a provision against such inventories. Impairment loss was recognised on inventories for the year ended 31 March 2008 as a batch of finished goods had been aged over one year and sold out as discount subsequently. During the year ended 31 March 2009 and 2010, we did not make any specific provisions for inventories, the reason being all of the ending inventories as at 31 March 2009 and 2010 were subsequently consumed or sold higher than costs.

lEGAlPROCEEdINGS

On 5 February 2010, Jiangmen Factory was adjudicated to have underpaid value-added tax of RMB455,565.57 and was ordered by Jiangmen Xinhui National Tax Bureau* (江門市新會區國家稅務局) to pay the outstanding tax of RMB455,565.57 and a penalty of RMB227,782.79. According to the confirmation issued by the Jiangmen Xinhui National Tax Bureau* (江門市新會區國家稅務局), the aforesaid outstanding tax and penalty were fully settled. Our PRC Legal Advisers advised that our Company will not be subject to any enforcement action arising from this event. The underpayment of value-added tax by Jiangmen Factory was due to mis-interpretation of the relevant tax regulations. To prevent such event from recurrence, we had taken the following measures: (i) to consult the relevant tax authorities in respect of tax treatment in case of doubts; and (ii) to educate our staff on the implications and applications on the relevant tax laws and regulations.

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BUSINESS


From time to time, we may be involved in litigation or other legal proceedings in the ordinary course of our businesses. We are not aware of any material legal or administrative proceedings currently existing or pending against us. We are not involved in any intellectual property rights dispute or claims in relation to our product design/development and manufacturing.

PROPERTIES

Ourownedproperties

As at the Latest Practicable Date, we owned [one] property and [five] car park spaces in Hong Kong, and [one] property in Jordan. The properties in Hong Kong are used as our [head-office in Hong Kong]. Our property in Jordan is currently leased to an Independent Third Party and used by it for production purposes [and as office].

We also owned the land use rights certificates to three parcels of land with an aggregate site area of approximately [65,677] sq.m., among which (i) approximately 50,092 sq.m. was for our own use, on which our PRC Factory, consists of [seven] buildings, and various ancillary structures have been erected for our business activities and operations in the PRC. The total gross floor area of such buildings is approximately [37,392] sq.m.; and (ii) approximately [15,585] sq.m. was leased to the VC Group, further details of which were disclosed in the section headed “Continuing connected transactions” in this document. Our PRC Legal Advisers confirmed that, as at the Latest Practicable Date, we had obtained all necessary land use right certificates and building ownership right certificates for our properties in the PRC. In addition, Jiangmen Factory has confirmed that there are certain buildings erected on our owned land in the PRC constructed by the VC Group and the ownership of such buildings do not belong to our Group, our PRC Legal Advisers are of the view that such ownership of the abovementioned buildings would not affect our right to such land and Jiangmen Factory further confirmed that such ownership of the abovementioned buildings does not affect our operations. Details of our properties are set out in Appendix III to this document.

Ourleasedproperties

As at the Latest Practicable Date, to support our business activities and operations, we leased (i) four premises in the PRC; (ii) one premises in the U.S.; (iii) four premises in Indonesia; and (iv) one premises in Macau, with a total floor area of approximately [16,723.37] sq.m.. Our leased properties are used as offices, factories, workshop, warehouse or staff quarters and the premises in Shenzhen also house our sample workshop. All our leases are entered into with independent third parties and we are using the leased premises in accordance with the purposes stated in the respective tenancy agreements. Further details regarding the buildings or units that we occupy and the terms of the tenancies are set out in Appendix III to this document.

INSURANCE

[We maintain insurance for our offices, manufacturing facilities and inventories in the PRC and Indonesia. We also maintain insurance covering public liability relating to third party bodily injury and property damage arising from accidents. In respect of our local trucking services, we maintain insurance against traffic accidents.We also maintain marine insurance against losses of cargo shipments in connection with our shipment of products to our customers. We maintain insurance against product liability for all of our products. Certain customers in the U.S. and Canada have specifically requested us to include them as the insured entities under our Group’s product liability insurance policies so that they are entitled to claim for damages from the insurance companies directly.

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BUSINESS


Social insurance is provided for our employees including insurance for retirement, unemployment,

sickness, injury and maternity as required by the PRC social security regulations. Our Directors

believe that the coverage is adequate for our Group’s operation. As at the Latest Practicable Date, we

had not been the subject of any insurance claims which were material to us. For Jiangmen Factory,

the Luokeng Management Office of Jiangmen Xinhui Labour and Social Protection Bureau (江門市新會區勞動和社會保障局羅坑管理所) (a competent regulatory authority as advised by our PRC

Legal Advisers) has confirmed that we had complied with the relevant regulations in respect of

social insurance as at 29 April 2010. For FG Shanghai, the Putuo District Social Insurance Affairs

Management Center (普陀區社會保險事業管理中心) (a competent regulatory authority as advised by

our PRC Legal Advisers) has confirmed that we had joined the retirement insurance scheme and there

was no outstanding payment under such scheme as of April 2010, being the month immediately prior

to the issue of such confirmation. [We have also taken out insurance for our employees in Indonesia,

the U.S. and other places where we have our offices as required by the laws or regulations of the

relevant jurisdictions.]

As advised by our Indonesian Legal Advisers, all entities in Indonesia are required to have

their employees registered under a social insurance scheme. PT. Victory Apparel Semarang maintains

a social insurance scheme for its employees and has settled all its annual obligations for payment

under the scheme. Other than the abovementioned, there is no obligation for entities to maintain other

insurance schemes. Nevertheless, PT. Victory Apparel Semarang maintains all risk insurance for its

leased buildings, machinery and stock.

EMPlOYEES

For the three years ended 31 March 2010, we had 3,936, 2,941 and 2,667 staff (including our

employees and contract personnel), respectively of which 602, 109 and 1 were contract personnel

engaged through independent third-party employment agencies, respectively. The following table

shows a breakdown of our staff by functions as at 31 August 2010:

Function Numberofemployees

Merchandising 118 –Sales,marketingandbusinessdevelopment 29 –Salessupporting 89

Production and logistics 2,153 –Production 2,125 –Shipping 28

Quality assurance and control 106

Administration, finance and human resources 152

Others 160 –Designanddevelopment 96 –Othersupporting 64

Total 2,689

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BUSINESS


Our total staff costs for the three years ended 31 March 2008, 2009 and 2010 were approximately HK$[136] million, HK$[102] million and HK$[93] million respectively and which accounted for approximately [9.5]%, [7.9]% and [10.4]% of our total revenue in the corresponding periods. Our management participates in the performance evaluation of our staff and conduct salary reviews. We adhere strictly to both statutory employment standards and those requested by our customers, such as wages and working hours, and maintain appropriate internal standards and workplace practices.

We maintain good working relationships with our staff. Our Directors believe that our working environment and benefits offered to our employees have contributed to building good staff relations and retention. As at the Latest Practicable Date, we had not experienced any strikes or any disputes with our staff which had any material impact on our business.

PRC

We contribute to social insurance scheme in accordance with PRC laws and regulations. Based on the confirmation issued by The Luokeng Management Office of Jiangmen Xinhui Labour and Social Protection Bureau (江門市新會區勞動和社會保障局羅坑管理所) (a competent regulatory authority as advised by our PRC Legal Advisers), we have complied with the labour law and regulations in the PRC.

According to the Regulations on the Administration of Housing Fund (住房公積金管理條例) effective on 3 April 1999, the PRC companies shall go through housing fund registration with the local housing fund administration center and open housing fund accounts for its employees in the bank. A company may be subject to order to handling within a time limit for failure to comply with the rules in relation to the abovementioned registration and accounts opening. If a company fails to handle within the prescribed time limit, a penalty ranging from RMB10,000 to RMB50,000 would be imposed. Where a company fails to pay up housing funds within time limit, the housing fund administration center shall order it to make payment in certain period of time, if the company still fails to do so, the housing fund administration center may apply to the court for enforcement of the unpaid amount.

Based on the confirmation issued by Shanghai Provident Fund Management Office 上海市公積金管理中心普陀區管理部 on 14 May 2010, FG Shanghai had established a housing fund account in July 2007 and had contributed to the fund until April 2010, being the month immediately prior to the issue of such confirmation.

However, Jiangmen Factory and FG Shenzhen did not register with relevant authorities, did not establish a housing fund account with banks and did not contribute to the housing fund. Due to different levels of acceptance of housing fund system by employees and the fact that certain employees did not ordinarily reside in Jiangmen or Shenzhen, Jiangmen Factory and FG Shenzhen have not made housing fund contribution. As at 30 April 2010, Jiangmen Factory’s outstanding amounts of housing fund contributions amounted to approximately RMB4 million, which, together with the maximum amount penalty of RMB50,000 that may be payable, is the maximum potential liability arising from the outstanding contributions for Jiangmen Factory. The amount required to be contributed by FG Shenzhen was approximately RMB12,800 for the period commencing from 1 February 2010 (being the first whole month since its employees were first hired) to 30 April 2010, which, together with the maximum amount of penalty of RMB50,000 that may be payable, is the maximum potential liability arising from the outstanding contributions for FG Shenzhen.

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BUSINESS


Rocwide Limited, a member of the VC Group, acquired 60% equity interest in Jiangmen Factory in 2006; our Group acquired the remaining 40% equity interest in 2009 and acquired Rocwide Limited in 2010, and from 7 April 2010, Jiangmen Factory became a wholly-owned subsidiary of our Company. Since our Group was not a shareholder of Jiangmen Factory since its establishment until the respective transfer of equity interest as mentioned, the past shareholders of Jiangmen Factory had undertaken, should Jiangmen Factory be required to contribute to the housing fund, to contribute the portion attributable to them according to the period during which they were the shareholders and their respective shareholding ratios. In addition, our Controlling Shareholders have provided indemnities in favour of our Group against the potential liability arising from the outstanding housing fund contributions. Without taking into account the undertakings of the past shareholders, should the housing fund contributions be provided for based on the associated maximum potential liability, the Group’s consolidated profit before tax for each of the three years ended 31 March 2010 would be reduced by approximately 1.15%, 0.86% and 1.12% respectively, and the Group’s consolidated net assets as at 31 March 2010 would be reduced by approximately [0.07]%.

[As advised by the official at the Housing Fund Administration Center of Xinhui District, being a competent authority in this aspect, during a meeting on 23 June 2010, Jiangmen Factory was only required to pay its outstanding housing fund contribution for its employees if and when the Center received complaint(s) from the relevant employee(s). According to such official, the Center has not received any complaint from any employee of Jiangmen Factory as of the date of the above meeting. Based on the above, Jiangmen Factory is not, at present, required to make payment of its outstanding housing fund contribution. No written confirmation from the Center was obtained.]

The amount required to be contributed by FG Shenzhen was approximately RMB12,800 for the period commencing from 1 February 2010 (being the first whole month since its employees were first hired) to 30 April 2010, which, together with the maximum amount of penalty of RMB50,000 that may be payable, is the maximum potential liability arising from the outstanding contributions for FG Shenzhen. Based on the results of its enquiry with the Shenzhen Social Insurance Fund Management Bureau* (深圳市社會保險基金管理局) on 8 September 2010, being a competent authority in this aspect, our PRC Legal Advisers advised that, although the Regulations on the Administration of Housing Fund became effective on 3 April 1999, at present, it is still not mandatory for companies in Shenzhen to contribute to the housing fund and accordingly, the possibility for FG Shenzhen being legally liable for failure to contribute to the housing fund is low. No written confirmation from this Bureau was obtained.

In the event that Jiangmen Factory or FG Shenzhen is mandatorily required to register with relevant authorities, establish a housing fund account with banks, contribute to the housing fund and/or make payment of its outstanding housing fund contribution pursuant to any PRC laws or regulations in the future, our Group will ensure full compliance with relevant PRC laws and regulations.

As disclosed in the section headed “Risk factors” in this document, the Labour Law became effective on 1 January 2008 in the PRC. We have complied with the Labour Law since it became effective. During the Track Record Period, the direct labour costs for staff in our Jiangmen Factory only accounted for approximately 2.1%, 2.3% and 3.4% of our total costs of sales during the period. Given the insignificant proportion of costs attributable to direct labour costs of Jiangmen Factory, our Directors are of the view that our Group’s financial position and operations are not materially affected by the Labour Law during the Track Record Period, and expect it will continue to be so in the future.

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BUSINESS


Our Directors also note that although there were recent lifting of labour wages in some PRC factories, we did not increase labour wages in our PRC Factory.

Indonesia

All entities in Indonesia are obligated to submit report to the authority regarding company’s identity, employment relationship, employment protection and work vacancy. They are obligated to submit the report by no later than 30 days following establishment, reoperation or relocation. Afterwards, they are required to submit annual report to the authority. PT. Victory Apparel Semarang has fulfilled this obligation under registration No. 02440/08/DNT.Smg/05, as confirmed by the letter from local authority dated 2 October 2009.

It is also required for all entities which employ expatriates to obtain an expatriate working permit (Izin mempekerjakan Tenaga Kerja Asing- “IMTA”) for each expatriate. PT. Victory Apparel Semarang has fulfilled this obligation by having IMTA for all 11 expatriates it employs.

OCCUPATIONAlSAFETY

To ensure that our production facilities comply with applicable safety standards, we have established several factory safety manuals such as fire safety manual and production safety manual which set out the requisite requirements and procedures to be adhered to for the prevention of accident in our production facilities. All of our production facilities are required to be thoroughly tested before commencement of production. All operators of production facilities are required to be trained before they are allowed to operate the facilities. Training sessions are provided on the required safety and hygiene standards. During the Track Record Period, we had not experienced any material or prolonged stoppages of production due to production facilities failure and we had not experienced any major accidents during our production process. We are not aware that any toxic substance produced during our manufacturing process has caused personal injuries. As at the Latest Practicable Date, our production facilities complied with all applicable laws, regulations and standards in relation to safety.

PROdUCTIONSAFETYMATTERS

During the Track Record Period, we had complied with all applicable production safety laws in all material respects. We have made, and will continue to make, efforts and take necessary measures to ensure the safety of our employees. Such measures include ensuring that the design, installation, use and maintenance of our equipments meet national and industrial standards, providing occupational safety education and training to employees to enhance their awareness of safety issues, providing suitable protective devices to our employees and requiring them to properly wear those devices. Based on the confirmation issued by the Jiangmen Xinhui Luokeng Safety Supervision Management Office (江門市新會區羅坑鎮安全監督管理辦公室) on 29 April 2010, our operations at our Jiangmen Factory are in compliance with the current applicable production safety law in all material respects since its establishment up to 29 April 2010.

As advised by our Indonesian Legal Advisers, obligation to maintain production safety in Indonesia is governed by the Law No. 1 Year 1970 regarding Work Safety (the “Indonesian WorkSafetylaw”), which was promulgated and became effective on 12 January 2010. As required under the Indonesian Work Safety Law, all directors of entities in Indonesia are required to provide guidelines and facility for safety work manner of its employee.

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BUSINESS


We are fully aware of the urgency of production safety procedure and therefore we have formed

the Committee on the Safety and Healthy Work (PanitiaPembinaKeselamatandanKesehatanKerja)

in the Indonesian Factory which was legalised on 3 September 2007 by Head Office of the Semarang

Manpower and Transmigration Service. To maintain good production safety manner, PT. Victory Apparel

Semarang is also engaged with other party in conducting the Fire Undertaking and Prevention.

We also provide health service for employees of the Indonesian Factory which has been legalised

since 9 December 2009 by the local authority.

INTEllECTUAlPROPERTYRIGHTS

As at the Latest Practicable Date, we owned the rights to three registered trademarks in the

PRC and nine registered domain names, which are being used in the business of our Group. Further

details of our intellectual property rights are set out in the paragraph headed “Intellectual property

rights of our Group” in Appendix V to this document.

INVESTMENTSINOTHERCOMPANIES

As at the Latest Practicable Date, save as disclosed herein, we have not invested in any other

companies.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF


DIRECTORS

Our Board consists of nine Directors, including three executive Directors, two non-executive

Directors and four independent non-executive Directors.

The information of our Directors is set out as follows:

Name Age Position/Title

Mr. Choi Lin Hung (蔡連鴻) 48 Chairman, chief executive officer

and Executive Director

Mr. Ng Tze On (吳子安) 58 Executive Director

Mr. Lau Kwok Wa, Stanley (劉國華) 52 Executive Director

Mr. Li Ming Hung (李銘洪) 59 Non-executive Director

Mr. Chen Tien Tui (陳天堆) 61 Non-executive Director

Mr. Lau Chi Kit (劉智傑) 65 Independent non-executive Director

Mr. Mak Chi Yan (麥志仁) 47 Independent non-executive Director

Mr. Wong Wai Kit, Louis (黃瑋傑) 50 Independent non-executive Director

Mr. Yuen Kin Kei (袁建基) 41 Independent non-executive Director

Executive Directors

Mr. Choi Lin Hung (蔡連鴻), aged 48, is our chairman and our chief executive officer. He was

appointed as our Director on 8 April 2010. His director’s service contract with us commenced on 8

September 2010. Mr. Choi is responsible for strategic planning and overseeing the overall operation

and general management of our Group. [He is also the director of FG Holdings, FG International,

Value Plus (Macao Commercial Offshore) Limited, Top Value Inc., Brilliant Fashion Inc., Top Star

Limited, Surefaith Limited, Glory Time Limited, Mayer, Rocwide Limited, FG Shanghai, Jiangmen

Factory, PT. Victory Apparel Semarang, Wealth Choice Limited, CSG Apparel Inc., Happy Noble

Holdings Limited, Sky Winner International Limited and Gojifashion Inc.]. He is also one of the

authorised signatories of Victory Apparel (Jordan) Manufacturing Company Limited.]

[He was awarded the professional diploma in company secretaryship and administration by the

Hong Kong Polytechnic, the former Hong Kong Polytechnic University, in 1985. He obtained a master’s

degree in Business Administration from the University of Sheffield, the United Kingdom, in 1987.

Prior to joining our Group in 1998, Mr. Choi had worked in [Deutsche Bank] and [First Pacific

Bank] and had obtained extensive experience in the banking industry. Mr. Choi became an executive

director of VC in 2001 when the VC Group acquired our Group and remains an executive director of

VC up to the Latest Practicable Date.]

Mr. Ng Tze On (吳子安), aged 58, was appointed as our Director on 8 April 2010. His director’s

service contract with us commenced on 8 September 2010. He is the brother of Mr. Ng Tsze Lun,

one of our senior management staff. He is responsible for production management of our Group. [He

is also the director of FG Holdings, FG International, Surefaith Limited, Rocwide Limited, Wealth

Choice Limited, Top Star Limited, FG Shanghai and Jiangmen Factory.] He was the director of Yee

On Printing (China) Limited (怡安印花廠 (中國) 有限公司) and Yee On Printing Factory Limited

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(怡安印花廠有限公司) from 1995 to 1997 and from 1986 to 1997 respectively. Mr. Ng joined our

Group in 1999 as a sample coordinator. He was later promoted to manager in 2001 and has been

responsible for overseeing the operations of our sample room. He has been responsible for our

production management since 2007.

Mr. Lau Kwok Wa, Stanley (劉國華), aged 52, was appointed as our executive Director on 8 September 2010. Mr. Lau is the director and a Substantial Shareholder of Mayer and is responsible for the overall operation of Mayer including marketing for Mayer.

[Mr. Lau obtained a bachelor’s degree in Arts, majoring in History and minoring in Government and Public Administration from The Chinese University of Hong Kong in 1982. He worked as an inspector in the Customs & Excise Department in Hong Kong from 1983 to 1989.

Mr. Lau started to work in the garment field in 1993 when he joined Kyosei Company as Manager. He founded Mayer Garment Limited (美雅創業製衣有限公司) with his wife in 1997 and he worked mainly in ladies’ fashion in Japanese market. Mayer Garment Limited is held by Mr. Lau and his wife in equal shares, and is an investment holding company which holds two factories, including the entire interest in Kimberley. Kimberley is principally engaged in the manufacturing of apparel products and has been and will be supplying apparel products to our Group, details of which were disclosed in the section headed “Continuing connected transactions” in this document. Mayer Garment Limited, through its subsidiaries, is solely engaged in the manufacturing business and not the garment sourcing business which requires a greater level of technical knowledge and expertise. So far as our Directors are aware and based on Mr. Lau’s confirmation, Kimberley and Mayer Garment Limited will not be competing with our Group. Kimberley and Mayer Garment Limited (being the holding company of Kimberley) are engaged in similar manufacturing business with our Group. However, in contrast with the pure manufacturing nature of Kimberley and Mayer Garment Limited, we are a well-developed sourcing management group with production capabilities which operates a one-stop shop business model. The ability of providing our customers a comprehensive range of services covering the entire supply chain of garment products differentiates us from Kimberley and Mayer Garment Limited. Further, we only manufacture Cut-and-Sew knitwear and Knit-to-Shape sweater while Kimberley mainly manufactures woven products. Kimberley and Mayer Garment Limited are not of a comparable size with our Group in terms of revenue, assets and number of employees and it is not likely that they are in competition with our Group. We are capable of carrying on our business independently of each of Kimberley and Mayer Garment Limited.

Under Mr. Lau’s management, Mayer Garment Limited’s market coverage then expanded to cover U.S. in 2005. On 6 March 2006, 49 shares of Happy Lane Limited were issued to Mr. Lau. Mr. Lau was appointed as the director of Happy Lane Limited on the same date. On 15 March 2006, Happy Lane Limited changed its name to Mayer. Under Mr. Lau’s management, Mayer expanded its market coverage to cover Europe in 2009.]

Non-executive Directors

Mr. Li Ming Hung (李銘洪), aged 59, was appointed as our non-executive Director on 8 September 2010. Mr. Li is the chairman and an executive director of VC and a co-founder of the VC Group. [Mr. Li is also the director of FG Holdings, FG International, Rocwide Limited, Surefaith Limited, Mayer, Wealth Choice Limited, FG Shanghai and Jiangmen Factory. He is also one of the

authorised signatories of Victory Apparel (Jordan) Manufacturing Company Limited.]

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Mr. Li has over 33 years’ experience in the textile industry and is responsible for the overall

strategic planning of the corporate as well as business development of the VC Group. Mr. Li worked

in Kam Fung Bleaching and Dyeing Factory Limited as manager from 1977 to 1991 and worked in

Victory City Company Limited, now a subsidiary of VC, as a director from 1991 until now.

Mr. Chen Tien Tui (陳天堆), aged 61, was appointed as our non-executive Director on 8

September 2010. Mr. Chen is the chief executive officer and an executive director of VC and a co-

founder of the VC Group. [Mr. Chen is also the director of FG Holdings, FG International, Rocwide

Limited, Surefaith Limited, Wealth Choice Limited, FG Shanghai and Jiangmen Factory. He is also

one of the authorised signatories of Victory Apparel (Jordan) Manufacturing Company Limited.]

Mr. Chen has over 31 years’ experience in the textile industry and is responsible for the day-to-

day operation in respect of production, sales and marketing of the VC Group. Mr. Chen worked in Kam

Fung Bleaching and Dyeing Factory Limited as manager from 1971 to 1991 and worked in Victory City

Company Limited, now a subsidiary of VC, as a director from 1991 until now. He is an independent

non-executive director of China Lilang Limited which is a company listed on the Main Board.

Independent non-executive Directors

Mr. Lau Chi Kit (劉智傑), aged 65, was appointed as our independent non-executive Director

on 8 September 2010. He retired from The Hongkong and Shanghai Banking Corporation Limited

(“HSBC”) in December 2000 after more than 35 years of service. Among the major positions in

HSBC, he was the Assistant General Manager and Head of Personal Banking Hong Kong and Assistant

General Manager and Head of Strategic Implementation, Asia-Pacific Region.

He is a fellow of the Hong Kong Institute of Bankers (“Institute”). He was the Chairman of

the Institute’s Executive Committee in 1999 and is currently the Honorary Advisor of the Institute’s

Executive Committee. He served at a number of committees appointed by the Government of Hong

Kong, including the Advisory Council on the Environment (from October 1998 to December 2001),

the Advisory Committee on Human Resources Development in the Financial Services Sector (June

2000 to May 2001), the Corruption Prevention Advisory Committee of the Independent Commission

Against Corruption (January 2000 to December 2003), the Environment and Conservation Fund

Committee (August 2000 to October 2006), the Innovation and Technology Fund (Environment)

Projects Vetting Committee (January 2000 to December 2004) and the Law Reform Commission’s

Privacy Sub-committee (February 1990 to March 2006). He also served as Chairman of the Business

Environment Council Ltd..

Mr. Mak Chi Yan (麥志仁), aged 47, was appointed as our independent non-executive Director

on 8 September 2010. Mr. Mak obtained a Bachelor’s degree in Accountancy in 1996 and a Master

degree in corporate finance in 2002, both from the Hong Kong Polytechnic University. He has over 20

years’ experience in securities dealing and asset management. Mr. Mak joined Sakura Finance Asia

Limited in 1989 as a securities salesperson, and he was promoted to the position of assistant manager

in 1992 and vice president in 1994, and remained in the same position until he left the Company in

1998. He then worked in the corporate and institutional business division in HLG Securities Sdn Bhd

from [1999 to 2000]. Mr. Mak is currently the associate director of UOB Kay Hian (Hong Kong)

Limited, a company engaged in securities trading and investment in Asian financial markets.

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Mr. Wong Wai Kit, Louis (黃瑋傑), aged 50, was appointed as our independent non-executive

Director on 8 September 2010. Mr. Wong commenced his employment at Phillip Securities (HK)

Limited in 1993 and has over 17 years’ experience in securities market. Mr. Wong was appointed as

a Dealing Director at Phillip Securities in 1996 and has over 10 years’ management experience in

securities dealing. He was appointed as a Responsible Officer for Phillip Capital Management (HK)

Limited in 2003 and gained over seven years’ experience in asset management. Mr. Wong has also

been in charge of the Research Department of Phillip Securities and has over 15 years’ experience in

financial research. He is currently the director of Phillip Securities and Phillip Capital Management

(HK) Limited. Mr. Wong obtained a Bachelor’s degree in Arts, majoring in English studies and

comparative literature and Translation, in 1982 from The University of Hong Kong.

Mr. Yuen Kin Kei (袁建基), aged 41, was appointed as our independent non-executive Director on

8 September 2010. He obtained a Bachelor’s degree in Accountancy from the Hong Kong Polytechnic,

the former Hong Kong Polytechnic University, in 1992. He is a member of both the Hong Kong

Institute of Certified Public Accounts and the Association of Chartered Certified Accountants. He is

a Certified Public Accountant (Practising) in Hong Kong.

Mr. Yuen is currently a senior associate director of Shun Tak Holdings Limited (“Shun Tak”), a

company listed on [•••], responsible for corporate finance affairs. He has over [11] years of experience

in corporate finance, debt and equity fund raising and treasury management with Shun Tak. Prior to

joining Shun Tak in July 1999, he spent seven years in total with another listed company in Hong

Kong and an international accounting firm.

Save as disclosed above, each of our Directors (i) did not hold other positions in the Company

or other members of our Group as at the Latest Practicable Date; (ii) had no other relationship with

any Directors, senior management or substantial or controlling shareholders of the Company as at

the Latest Practicable Date; and (iii) did not hold any other directorships in listed public companies

in the three years prior to the Latest Practicable Date.

Save as disclosed herein, to the best of the knowledge, information and belief of our Directors

having made all reasonable enquiries, there was no other matter with respect to the appointment of our

Directors that needs to be brought to the attention of the Shareholders and there was no information

relating to our Directors that is required to be disclosed pursuant to [•••] as at the Latest Practicable

Date.

SENIOR MANAGEMENT

Mr. Ng Tsze Lun (吳子綸), aged 55, is our marketing director. He is the brother of Mr. Ng

Tze On, one of our executive Directors. Mr. Ng is responsible for overseeing the daily operation

and marketing of the garment products of our Group. He is also the director of [FG Holdings], [FG

International], Value Plus (Macao Commercial Offshore) Limited, [Wealth Choice Limited] and

[Surefaith Limited.]

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Prior to joining our Group in 1998, Mr. Ng has 13 years’ experience in trading. Mr. Ng was a

director of a garment manufacturing company from 1986 to 1998.

Ms. Chan Shuk Fun (陳淑芬) CPA, aged 44, is our assistant general manager and our company

secretary. Ms. Chan is responsible for monitoring the daily operation of finance function of our

Group. She is also the director of Value Plus (Macao Commercial Offshore) Limited. She obtained

the professional diploma in accountancy from the Hong Kong Polytechnic, the former Hong Kong

Polytechnic University, in 1988. She is a member of the Hong Kong Institute of Certified Public

Accountants.

Ms. Chan was an auditor at Deloitte Touche Tohmatsu from 1988 and to 1990. She then worked

as the accounting manager in companies engaging in trading from 1991 to 1998. Ms. Chan joined

our Group in 1998 as the financial controller and was promoted to the assistant general manager in

2004.

Ms. Cheng Sylvia (鄭思敏), aged 46, is our general merchandising manager. She joined our

Group in 2000. Ms. Cheng obtained a diploma in management studies jointly organised by the Hong

Kong Polytechnic University and the Hong Kong Management Association in 2000. Prior to joining

our Group, Ms. Cheng had around nine years’ experience in the field of garment merchandising.

Ms. Cheng worked as personal assistant to the general manager of U.S. womenswear, kids and Susie

Tompkins divisions in Esprit de Corp (Far East) Ltd. from 1991 to 1993, as an executive assistant

to the managing director and a senior merchandiser in Namon Ltd. from 1993 to 1998, as senior

merchandiser in Mechantex Ltd. from 1998 to 1999 and as a senior merchandiser (and later promoted

to assistant merchandising manager) in Associated Clothing Company (Hong Kong) Ltd. from 1999

to 2000.

Ms. Cheng Kam Wan (鄭錦雲) aged 47, is our general merchandising manager. Ms. Cheng was

awarded a craft certificate in light clothing manufacture by the Vocational Training Council in 1987.

Prior to joining our Group in 2002, she had over 14 years’ experience in garment merchandising.

She worked as a senior merchandiser in Jefferson International Ltd. from 1988 to 1989, as a men’s

shirt merchandiser (and later promoted to section manager) in Mondial Services (Hong Kong) Ltd.

from 1989 to 2002.

Ms. Leung Suk Hing (梁淑卿), aged 44, is our merchandising manager. In 1986, she completed

a training course in quality control inspection in Clothing Industry Training Authority. Ms. Leung

worked in a garment manufacturing Company as product clerk since 1983. In 1989, she joined a

trading company as a merchandiser. From 1993 to 2000, she worked in three garment companies as

a merchandiser. Ms. Leung joined our Group in 2000.

Mr. Cheuk Tak Kwong (卓德光), aged 51, is the production executive of PT. Victory Apparel

Semarang. Mr. Cheuk is also the director of PT. Victory Apparel Semarang. He is responsible for

overseeing the day-to-day operations of the Indonesian Factory. From 1984 to 1998, he worked in

two trading companies as a merchandiser. He joined our Group in 2000.

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Mr. Lau Fat Chuen (劉佛傳), aged 54, [is the general manager and the director of Jiangmen

Factory. Prior to joining our Group in 2005, Mr. Lau Fat Chuen has over seven years’ experience

in trading. He was the sole proprietor of Kai Po Trading Company (家寶貿易公司) from 1998 to

2005.

He is responsible for overseeing the overall management of Jiangmen Factory.] He was the

holder of 40% equity interest in Jiangmen Factory from 4 January 2006 to 15 June 2009.

COMPANY SECRETARY

Ms. Chan Shuk Fun (陳淑芬), was appointed as our company secretary on 8 September 2010.

Ms. Chan is responsible for our company secretarial functions, the review and supervision of our

Group’s overall internal control systems and providing advice to our Board and the audit committee

of our Board. Her details are set out under the paragraph headed “Senior management” above.

STAFF

We maintain good working relations with our staff. We have not experienced any significant

problems with the recruitment and retention of experienced employees. In addition, we have not

suffered from any material disruption of our normal business operations as a result of labour disputes

or strikes.

Benefits

As required by the PRC regulations on social insurance, we participate in the social insurance

schemes operated by the relevant local governmental authorities which cover retirement pension,

medical insurance, unemployment insurance, industrial injuries insurance and maternity insurance.

Details of our contribution to the housing fund were disclosed in the paragraph headed “Employees”

in the section headed “Business” in this document.

As an Indonesian entity, PT. Victory Apparel Semarang is required to comply with the Law

No. 3 Year 1992 regarding Employment Social Insurance (the “Indonesian Employment Insurance Law”), which was promulgated and became effective on 17 February 1992. The Indonesian Employment

Insurance Law provides that each employer employing 10 or more employees or has a monthly

payroll of more than Rp. 1 million is required to register its employees to participate in and make

contributions to the employee social insurance program including employee work accidents, death,

retirement and healthcare.

Pursuant to the Law No. 40 Year 2004 regarding Social Insurance System (the “Indonesian Social Insurance System Law”), which was promulgated and became effective on 19 October 2004,

employers are required to provide insurance for their employees under an insurance program (the

“Indonesian Insurance Program”). The Indonesian Insurance Program covers industrial injuries,

death, pension fund and health insurance for the employees including their families. In this regards,

the employers must pay monthly premium of the Indonesian Insurance Program to PT Jamsostek,

the authorised institution. Employers’ participation in the Indonesian Insurance Program shall be

effective following the registration and payment of the first premium to PT Jamsostek. Employees of

the participating employers shall become the beneficiary to the Indonesian Insurance Program.

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Failure of employers to have their employees registered to participate in the Indonesian Insurance

Program may result in fines and imprisonment.

[PT. Victory Apparel Semarang had complied with the Indonesian Employment Insurance Law

and the Indonesian Social Insurance System Law during the Track Record Period and as at the Latest

Practicable Date.]

Compensation

The aggregate amount of remuneration of our Directors for the three years ended 31 March

2010 were approximately HK$1,117,000, HK$1,066,000 and HK$1,030,000 respectively. Details of

the arrangement for remuneration are set out in Note 13 to the Accountants’ Report in Appendix I to

this document. Under such arrangement and pursuant to our Directors’ service agreements and letters

of appointment referred to in the paragraph headed “Particulars of Directors’ service contracts” under

the section headed “Statutory and general information” as set out in Appendix V to this document,

the aggregate amount of directors’ fee and other emoluments payable to our Directors for the year

ending 31 March 2011 is estimated to be approximately HK$3 million, excluding any discretionary

bonuses.

Our Directors and senior management receive compensation in the form of salaries, benefits in

kind and/or discretionary bonuses relating to the performance of our Group. We also reimburse them

for expenses which are necessarily and reasonably incurred for providing services to us or executing

their functions in relation to our operations. We regularly review and determine the remuneration and

compensation packages of our Directors and senior management.

Our remuneration committee will review and determine the remuneration and compensation

packages of our Directors and senior management with reference to salaries paid by comparable

companies, time commitment and responsibilities of our Directors and performance of our Group.

During the Track Record Period, no remuneration was paid by us to, or received by, our Directors

as an inducement to join or upon joining us.

BOARD COMMITTEES

Audit committee

The Company established an audit committee on 8 September 2010 with written terms of

reference in compliance with [•••]. The primary duties of our audit committee are mainly to make

recommendations to our Board on the appointment and removal of the external auditor, review the

financial statements and materials and provide advice in respect of financial reporting and oversee

the internal control procedures of our Company. At present, our audit committee comprises Mr. Yuen

Kin Kei, Mr. Lau Chi Kit, Mr. Mak Chi Yan and Mr. Wong Wai Kit, Louis, all being independent

non-executive Directors. Mr. Yuen Kin Kei is the chairman of our audit committee.

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Remuneration committee

Our Company established a remuneration committee on 8 September 2010 with written terms

of reference in compliance with [•••]. The primary functions of our remuneration committee are to

make recommendation to our Board on the overall remuneration policy and structure relating to all

Directors and senior management of our Group, review performance based remuneration and ensure

none of our Directors determine their own remuneration. At present, our remuneration committee

comprises Mr. Mak Chi Yan, Mr. Lau Chi Kit, Mr. Wong Wai Kit, Louis and Mr. Yuen Kin Kei, all

being independent non-executive Directors and Mr. Choi, our chairman, our chief executive officer

and an executive Director. Mr. Mak Chi Yan is the chairman of our remuneration committee.

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Relationship with the VC GRoup


BaCKGRounD inFoRMation oF the VC GRoup

VC was incorporated in Bermuda under the Companies Act as an exempted company with limited

liability on 13 February 1996, the shares of which have been listed on the Main Board since 13 May

1996. Immediately upon completion of the [•••] (assuming that no Shares have been issued pursuant

to the exercise of any option granted or which may be granted under the Share Option Scheme), VC,

through its indirect 51% owned subsidiary, Sure Strategy and its direct wholly-owned subsidiary, VC

Investments, will be interested in [•••]% of the issued share capital of the Company.

The VC Group is principally engaged in the production and sale of knitted fabric and dyed yarn.

At the same time its garment sourcing and manufacturing division continued to grow. For the three

years ended 31 March 2010, our Group’s net profit amounted to approximately HK$[56.3] million,

HK$[48.5] million and HK$[40.8] million. Our Group’s net profit for the three years ended 31 March

2010 also represented approximately [15.2]%, [20.1]% and [•••]% of the net profit of the VC Group

and our Group on an aggregate basis.

Our Group had been operated as an integral part of the VC Group but we have been operating

independently from the VC Group since VC Holdings acquired FG International in 2001. The garment

sourcing and manufacturing division and the other business segments of the VC Group have been

organised into separate operating units. Accordingly, save for the continuing connected transactions

disclosed in the section headed “Continuing connected transactions” in this document, our Group

does not have any business relationship with the VC Group. [As at the Latest Practicable Date, there

is no intention to inject any business from VC Group to the Company.]

inDepenDenCe FRoM the VC GRoup

Our Directors consider that our Group is capable of carrying on its business independently of

the VC Group after [•••] based on the following particulars:

Management independence

As at the Latest Practicable Date, our Board had nine members, comprising three executive

Directors, two non-executive Directors and four independent non-executive Directors while the board

of directors of VC had four executive directors and three independent non-executive directors.

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The following table sets out the composition of the board of directors of VC and our Board:

Company VC

executive Directors executive directorsMr. Choi Lin Hung Mr. Li Ming Hung

Mr. Ng Tze On Mr. Chen Tien Tui

Mr. Lau Kwok Wa, Stanley Mr. Lee Yuen Chiu Andy

Mr. Choi Lin Hung

non-executive Directors Mr. Li Ming Hung

Mr. Chen Tien Tui

independent non-executive Directors independent non-executive directorsMr. Lau Chi Kit Mr. Kan Ka Hon

Mr. Mak Chi Yan Mr. Phaisalakani Vichai

Mr. Wong Wai Kit, Louis Mr. Kwok Sze Chi

Mr. Yuen Kin Kei

In addition, three employees of our Group namely, Mr. Ng Tsze Lun, Ms. Chan Shuk Fun and

Mr. Lau Fat Chuen, were referred to and regarded as senior management of VC’s subsidiaries for the

year ended 31 March 2010.

Mr. Choi, our executive Director and the Chairman and the chief executive officer of the Company,

is an executive director of VC and will remain as an executive director of VC after [•••]. Mr. Choi has

been concentrating on strategic planning and overseeing the overall operation and general management

of our Group since his appointment as an executive director of VC in 2001. He will serve the same

function after [•••]. As at the Latest Practicable Date, he was interested in [7,980,000] shares in VC,

representing approximately [0.75]% of the total issued share capital of VC.

Each of Mr. Li and Mr. Chen, our non-executive Directors, are executive directors of VC.

Mr. Li is the Chairman of VC, and is responsible for the overall strategic planning of the corporate

and business development of the VC Group. Mr. Chen is the Chief Executive Officer of VC, and

is responsible for the day-to-day operation in respect of production, sales and marketing of the VC

Group. Each of Mr. Li and Mr. Chen will remain on the board of VC as executive directors after

[•••]. During the Track Record Period, each of Mr. Li and Mr. Chen was the director and/or senior

management member of certain of our subsidiaries.

Each of Mr. Li and Mr. Chen will not participate in the day-to-day operations of our Group

due to the non-executive nature of their directorship. Their presence on our Board is mainly for the

representation of VC for its indirect shareholding interest in the Company. Accordingly, it is expected

that there will not be any conflict of interests arising as a result of the overlapping of the roles of

the two Directors.

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Mr. Ng Tsze Lun, Ms. Chan Shuk Fun and Mr. Lau Fat Chuen have been acting as directors and/or senior management members of various subsidiaries of the Company during the Track Record Period. The above personnel were regarded as senior management personnel of the VC Group in VC’s annual reports for the three years ended 31 March 2010. However, none of them had played any role in the VC Group during the Track Record Period other than the business and operation of our Group.

On the other hand, Mr. Lee Chung Shing, the Company secretary of VC, had been acting as a director of Top Star Limited, our wholly-owned subsidiary, during the Track Record Period. However, he had not involved in the management of our Group during the Track Record Period. His directorship is purely for administration convenience. Mr. Lee Chung Shing had resigned from his directorship in Top Star Limited on 9 September 2010.

Save as disclosed above, no other directors or senior management of our Group had any role in the VC Group. Our Directors are of the view that there is no management function overlapping between our Group and the VC Group and our Group is capable of maintaining management independence.

Moreover, if potential conflict of interest between the overlapping directors’ roles should arise, the interested Directors with potential conflict of interest shall abstain from voting at the relevant board meetings of VC, the Company or the relevant subsidiaries of the Company, where appropriate, in respect of such transactions or matters with potential conflict of interest, and they shall not be counted in the quorum of the relevant board meetings. For the Company, board decisions in respect of such matters or transactions with potential conflict of interest will be decided by the independent non-executive Directors as well as our executive Directors with no involvement in the VC Group.

Based on the above reasons, our Directors are of the view that our Directors and the senior management of our Group are able to function independently from the VC Group and potential conflict of interest can be avoided and where it arises, resolved.

operational independence

The core businesses of the VC Group and our Group, by their very nature, are different businesses which are independently operated in distinct markets. Our Directors expect that, immediately following completion of the [•••], the VC Group will remain to be engaged principally in the production and sale of knitted fabric and dyed yarn, whereas our Group will focus on sourcing management which provides a wide range of services covering the entire supply chain of garment products with manufacturing capabilities. Fabric and yarn are raw materials of garment products. By the nature of the products and services provided by our Group and the VC Group, there is a clear delineation between the businesses retained by the VC Group and the business of our Group and there will not be any overlapping of business.

The current production bases of our Group are located in Jiangmen, the PRC and Indonesia, while those of the VC Group are located in Jiangmen, the PRC. Although the production facilities of our Group and of the VC Group in Jiangmen are adjacent to each other, the production plants and ancillary facilities of the two groups are clearly delineated. In respect of our PRC production base, all of our production plants and ancillary facilities, such as warehouses and staff quarters, are situated on the land owned by us. Save for the leasing arrangement with the VC Group as disclosed in the section headed “Continuing connected transactions” in this document, as at the Latest Practicable Date, there were no buildings or facilities that were not owned and used by us erected on our land.

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The principal raw materials for manufacturing of fabric and yarn are cotton yarn, dyestuff

and chemicals while fabric and yarn themselves are principal raw materials for manufacturing of

garment products. Further, products/services of the VC Group are mainly sold/provided to [garment

manufacturing factories] while products/services of our Group are mainly sold/provided to garment

products retailers or distributors. As the respective principal raw materials, production base, products

and customers of the VC Group and our Group are different or can be clearly delineated, our Directors

are of the view that there will not be any actual or potential competition between the respective

businesses of the VC Group and our Group. [As at the Latest Practicable Date, there is no common

customer between VC Group and our Group.]

The VC Group has been supplying fabric products and yarn, steam and electricity and waste

water treatment services to our Group during the Track Record Period and will continue to supply

such products/services to our Group after [•••]. These transactions constitute continuing connected

transactions for the Company under [•••] and are governed by the Fabric Master Agreement, the Steam

and Electricity Master Agreement, the Yarn Master Agreement and the Waste Water Treatment Master

Agreement, details of which were set out in the section headed “Continuing connected transactions”

in this document. The transactions were entered into after arm’s length negotiations and the terms

of these transactions are determined with reference to market terms. Other than these transactions

and the Lease Agreement referred to in the section headed “Continuing Connected Transactions” in

this document, there are no other transactions between our Group and the VC Group. Under [•••],

these transactions will be subject to annual review by our independent non-executive Directors and

our auditors to ensure, among other matters, that these transactions are (i) in the ordinary and usual

course of business; (ii) either on normal commercial terms or, if there are not sufficient comparable

transactions to judge whether they are on normal commercial terms, on terms no less favourable to

the Company than terms available to or from (as appropriate) Independent Third Parties; and (iii) in

accordance with the relevant agreement governing them on terms that are fair and reasonable and in the

interest of our Shareholders as a whole. In order to comply with these requirements, our management

will continuously monitor the conducts of all continuing connected transactions between our Group

and the VC Group to ensure that all these transactions will be conducted in the above manner, failing

which the Company will need to re-comply with the reporting, announcement and/or independent

shareholders’ approval requirement under [•••] in respect of the relevant transactions.

Our Directors consider that we can function independently from the VC Group given that our

Group is able to engage other suppliers for the provision of fabric products and yarn when necessary.

The fabric products and yarn supplied by the VC Group are generic and can be replaced by products

supplied by other independent third party suppliers. Our Group has engaged the VC Group as one of

the suppliers because our Directors consider that the fabric products and yarn from the VC Group are

of high quality. During the Track Record Period, we had engaged other suppliers for the provision of

fabric products and yarn. The purchase of fabric and yarn from the VC Group by our Group accounted

for approximately [20.8]% of the direct material cost of the Group for the year ended 31 March 2010

and approximately 4.6% of the total cost of sales of the Group business for the year ended 31 March

2010. Other than the VC Group, our Group had [27] suppliers of fabric products and [nine] suppliers

of yarn as at the Latest Practicable Date.

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[As regards the supply of steam and electricity and waste water treatment services from the VC

Group to our Group, our Directors are of the view that in the event the VC Group ceases to supply steam

and/or electricity and/or provide waste water treatment services to our Group, we would be able to obtain

electricity from other utilities companies when necessary at an annual cost of approximately RMB3.5

million and obtain waste water treatment services from other service providers in the same district which

are Independent Third Parties, and we can install devices within one month at a cost of approximately

RMB300,000 for generating steam ourselves at a monthly cost of approximately RMB350,000, without

undue delay or inconvenience when necessary. Currently we do not have any plan to (i) engage any

Independent Third-Parties for the supply of steam and/or electricity or waste water treatment services

to us; or (ii) install devices for generating steam ourselves.]

To ensure the independence of the operation and businesses of our Group from the VC Group,

our Group also has our own mechandising (including sales, marketing and business development, and

sales supporting), production and logistics (including production and shipping), quality assurance

and control, administration, finance and human resources and other teams (including design and

development and other supporting) which have been operating and are expected to continue to operate

separately.

The VC Group and our Directors have confirmed that they do not have any interest in a business

which competes or is likely to compete, directly or indirectly, with the Group’s business.

Financial independence

Our Group has an independent financial system and finance team which is responsible for its

own treasury functions despite its members are subsidiaries of VC during the Track Record Period.

During the Track Record Period, all of the bank borrowings of our Group were guaranteed

by the VC Group. [Agreements in principle for the release of such guarantees upon [•••] have been

obtained from the relevant banks.]

During the Track Record Period, members of our Group were subsidiaries or jointly controlled

entities of VC despite that their operations were carried out individually at company level. The financials

of such companies are consolidated at the group level. As such, there was no fixed credit terms

granted/obtained from such companies as these transactions were considered as internal transactions

during such period. Our Group has its own financial system and internal control procedures which

are independent from that of the VC Group. The business transactions between our Group and the VC

Group includes the supply by the VC Group to us of fabric products and yarn, steam and electricity

and waste water treatment services, the terms of which are governed by the Fabric Master Agreement,

the Steam and Electricity Master Agreement and the Yarn Master Agreement, details of which were

set out in the section headed “Continuing connected transactions” in this document. Under the Fabric

Master Agreement and the Yarn Master Agreement, the credit terms obtained from the VC Group

are determined by the mutual agreement of the parties concerned, failing which payment shall be

made within 90 days, [which are comparable to the credit terms granted by the other fabric and yarn

suppliers of our Group.] Under the Steam and Electricity Master Agreement, the credit terms obtained

from the VC Group is 30 business days, unless otherwise agreed by the parties, [which is comparable

to the credit terms granted by other utilities provider to our Group.]

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[On the basis above, our Directors are of the view that the financial system of our Group is

independent from the VC Group and apart from the trade nature balances, our Group will not have

any outstanding balances with, and guarantees from or to, the VC Group upon [•••].]

administrative independence

The Company has its own team of staff to carry out its own administrative functions which is

independent of that of VC and without requiring the support of VC or its associates. Our Group has

its own capabilities and personnel to perform all essential administrative functions, including financial

and accounting management, invoicing and billing, human resources and information technology.

Each of VC and the Company will be managed and operated by its own board of directors and senior

management separately and independently and in the interests of its shareholders. Our Directors

are of the view that there is no undue reliance by our Group on the VC Group in any aspect of its

operations based on the reasons stated above.

Our Directors are of the view that there is no undue reliance by our Group on the VC Group

in any aspect of its operations based on the reasons stated above. In addition, the close working

relationship between the two groups arose as a result of their strategic relationship in terms of the

supply of fabric products, steam and electricity and yarn by the VC Group to our Group and our

Group being part of the group of companies of VC.

non-CoMpetition unDeRtaKinG

In order to further delineate the respective businesses of the VC Group and that of our Group

and to protect our Group from any potential competition from the VC Group, VC has entered into

a deed of non-competition (the “non-Competition undertaking”) in favour of our Company (for

itself and for the benefits of its subsidiaries) on 8 September 2010 pursuant to which VC has, among

other matters, irrevocably undertaken with the Company that at any time during the Relevant Period

(as defined below), VC shall, and shall procure that its associates and/or companies controlled by

it (which shall include other members of the VC Group but excluding our Group), either on its own

account or in conjunction with or on behalf of any person, firm or company, shall:

(i) not, directly or indirectly, be interested or involved or engaged in or acquire or hold

any right or interest (in each case whether as a shareholder, partner, agent or otherwise

and whether for profit, reward or otherwise) in any business which is or is about to be

engaged in any business which competes or is likely to compete directly or indirectly

with the business currently and from time to time engaged by our Group (including but

not limited to the sourcing management and manufacture and sale of garment products to

customers) and businesses ancillary to any of the foregoing, in Hong Kong, the PRC and

any other country or jurisdiction to which our Group markets, sells, distributes, supplies

or otherwise provides such products/services and/or in which any member of the Group

carries on business mentioned above from time to time (the “Restricted activity”);

(ii) not solicit any existing or then existing employee of our Group for employment by it or

its associates (excluding our Group);

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(iii) not, without the consent from the Company, make use of any information pertaining to

the business of our Group which may have come to its knowledge in its capacity as our

Controlling Shareholder for the purpose of engaging, investing or participating in any

Restricted Activity;

(iv) if there is any project or new business opportunity that relates to the Restricted Activity,

refer such project or new business opportunity to our Group for consideration;

(v) not invest or participate in any Restricted Activity; and

(vi) procure its associates (excluding our Group) not to invest or participate in any project

or business opportunity of the Restricted Activity.

The above undertakings are subject to the exception that any of the associates of VC (excluding

our Group) are entitled to invest, participate and be engaged in any Restricted Activity or any project

or business opportunity, regardless of value, which has been offered or made available to our Group,

provided always that information about the principal terms thereof has been disclosed to the Company

and our Directors, and the Company shall have, after review and approval by our Directors (including

our independent non-executive Directors without the attendance by any Director with beneficial interest

in such project or business opportunities, in which resolutions have been duly passed by the majority

of the independent non-executive Directors), confirmed its rejection to be involved or engaged, or to

participate, in the relevant Restricted Activity and provided also that the principal terms on which that

relevant associate of VC invests, participates or engages in the Restricted Activity are substantially

the same as or not more favourable than those disclosed to the Company. Subject to the above, if the

relevant associate of VC decides to be involved, engaged, or participate in the relevant Restricted

Activity, whether directly or indirectly, the terms of such involvement, engagement or participation

must be disclosed to the Company and our Directors as soon as practicable.

For the above purpose, the “Relevant Period” means the period commencing from the [•••] and

shall expire for the earlier of the dates below:

(a) the date on which VC, and its associates, individually or taken as a whole, cease to own

[30]% or more of our issued share capital directly or indirectly or cease to be deemed

as Controlling Shareholder of the Company and do not have power to control the Board

and there is at least one other independent Shareholder holding more Shares than VC

and its associates taken together; or

(b) the date on [•••].

Under the Non-Competition Undertaking, VC has also undertaken to our Group to allow our

Directors, their respective representatives and the auditors of our Group to have sufficient access to

the records of VC and its associates to ensure compliance of the terms and conditions of the Non-

Competition Undertaking and to provide to our Group and our Directors (including independent

non-executive director) from time to time with all information necessary for annual review by the

independent non-executive Directors with regard to compliance of the terms of the Non-Competition

Undertaking. VC has also undertaken to make annual declaration on compliance with the terms of

the Non-Competition Undertaking in the annual reports of our Company, if necessary.

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CoRpoRate GoVeRnanCe MeasuRes to aVoiD ConFliCt oF inteRests

Our Directors recognise the importance of incorporating elements of good corporate governance

in management conducive to the protection of the interests of the Shareholders. In particular, the

following corporate governance measures in relation to managing potential conflict of interests between

our Group and the VC Group, the compliance and enforcement of the Non-Competition Undertaking

are taken:

(a) our Directors or, if appropriate, the disinterested Directors will be responsible for deciding

and given authority to decide, without attendance by any Directors with beneficial or

conflict interests in the new business opportunity, whether or not to take up a new

business opportunity which relates to the garment sourcing and manufacturing business

and is referred to our Group by VC or any other matter arising under the terms of the

Non-Competition Undertaking. For this purpose, the disinterested Directors may, from

time to time, engage external professional advisers as they may consider necessary to

advise them on the issues which relate to the above matters;

(b) any transaction (if any) between (or proposed to be made between) our Group and

connected persons will be required to comply with [•••], including, where applicable,

the announcement, reporting and independent shareholders’ approval requirements and

with [•••];

(c) in the event that there are conflict of interest in the operations of our Group and the VC

Group and its associates, and in respect of any proposed contract or arrangement between

our Group and the VC Group and its associates, any Director who is considered to be

interested in a particular matter or the subject matter, he shall disclose his interests to

our Board and where, pursuant to the applicable provisions in the Bye-laws, he has a

material interest in the matter, he may not vote on the resolutions of our Board approving

the same and shall not be counted in the quorum for the voting as required under [•••]. A

relevant board meeting attended by disinterested Directors who have no material interest

in the matter shall be held to deliberate on the matters;

(d) under the Non-Competition Undertaking given by VC, VC has undertaken to our Group

to allow our Directors, their respective representatives and the auditors to have sufficient

access to the records of VC and its associates to ensure compliance with the terms and

conditions under the Non-Competition Undertaking.

On the basis that all Directors (except Mr. Choi, Mr. Chen and Mr. Li), and senior management

of our Group do not hold any position in the VC Group, and that each of our executive Directors and

senior management has extensive and relevant experience in the garment sourcing and manufacturing

business, our Directors are of the view that our Board will have the expertise to transact business

which may potentially involve conflicts of interests between the VC Group and our Group objectively,

impartially and in the best interest of the Company and our Shareholders as a whole. Besides, conflicts

of interests of any overlapping Directors will not affect the business operations of our Group as the

daily business operations of our Group are operated and implemented by employees of our Group under

the strategic directions of our Board, or as the case may be, the experienced and interested Board.

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Our Directors consider that the above corporate governance measures are sufficient to manage

any potential conflict of interests between the VC Group and our Group and to protect the interests

of our Shareholders, in particular, our minority Shareholders.

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continuing connected transactions


reLationsHiP BetWeen our grouP and tHe connected Persons

(1) Vc Holdings

Sure Strategy is and will, immediately following completion of the [•••], become a Controlling

Shareholder of our Company. VC Investments, being the holding company of Sure Strategy, is an

associate of Sure Strategy and a connected person of our Company under [•••]. VC is the holding

company of VC Investments. Being a subsidiary of VC, VC Holdings is an associate of VC Investments.

In view of such relationship, VC Holdings, being an associate of a connected person, is considered

to be a connected person of our Company.

Under the [•••], for so long as VC Investments remains a connected person of the Company, our

following transactions between VC Holdings and our Group would constitute continuing connected

transactions upon [•••].

(2) Kimberley

Mr. Lau, being our executive Director and a director and Substantial Shareholder of Mayer,

a non wholly-owned subsidiary of our Company, will become a connected person of our Company

under [•••] upon the [•••]. Kimberley is indirectly owned as to 50% by Mr. Lau and as to 50% by his

wife, and accordingly it is an associate of Mr. Lau and will also become a connected person of our

Company under [•••] upon the [•••]. To the best knowledge of our Directors, Kimberley is principally

engaged in the manufacturing of apparel products.

Under [•••], for so long as Mr. Lau remains a connected person of our Company, the following

transactions between Kimberley and our Group would constitute continuing connected transactions

upon [•••].

(3) Mayer

As mentioned above, Mr. Lau will become a connected person of our Company under [•••] upon

the [•••]. Mayer is owned as to 51% by FG Holdings and as to 49% by Mr. Lau, and accordingly it is

an associate of Mr. Lau and will also become a connected person of our Company under [•••] upon

[•••]. By virtue of the fact that Mr. Lau is entitled to exercise 10% or more of the voting power at

any general meeting of Mayer, Mayer is also a connected person of our Company under [•••] upon

[•••].

Under [•••], for so long as Mr. Lau remains a connected person of our Company, the following

transactions between Mayer and our Group would constitute continuing connected transactions upon

[•••].

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eXeMPted continuing connected transactions

The following continuing connected transactions will constitute exempted continuing connected

transactions for the Company under [•••] and will be exempted from the reporting, announcement and

independent shareholders’ approval requirements under [•••] and are disclosed on a voluntary basis. Such transactions are undertaken on normal commercial terms. The applicable percentage ratios (other than the profits ratio) of the following transactions on an annual basis are either (i) less than 0.1%; or (ii) less than 5% and the annual consideration is less than HK$1,000,000.

(1) Lease agreement

Background

Since 19 November 2009, being the date of completion of the transfer of 40% interest in Jiangmen Factory to our Group, the VC Group has been leasing approximately 15,585 sq.m. of land in Luokeng, Xinhui, the PRC (the “Leased Land”) from our Group at no cost. Such lease arrangement become continuing connected transaction when Jiangmen Factory became our wholly-owned subsidiary after our Group completed acquiring the 60% interest in Jiangmen Factory on 7 April 2010. A lease agreement (the “Lease agreement”) was entered into by VC Holdings (on its own behalf and on behalf of other members of the VC Group) and Jiangmen Factory on 8 September 2010 to formalise this leasing arrangement. Our Directors consider that the entering into of the Lease Agreement is in the interest of our Company as a whole.

Principal terms

Pursuant to the Lease Agreement, the VC Group agreed to lease from Jiangmen Factory, and Jiangmen Factory has agreed to lease to the VC Group, the Leased Land during the term of the Lease Agreement. The term of the Lease Agreement commenced from 19 November 2009 to 31 March 2012. The VC Group shall send a renewal notice to Jiangmen Factory in case it wishes to renew the Lease Agreement upon its expiry to get Jiangmen Factory’s written approval, and the parties shall enter into a new lease agreement thereafter. The annual rental payable to Jiangmen Factory is RMB396,000, exclusive of utilities and other charges which are payable by the tenant.

(2) Waste Water treatment Master agreement

Background

Since 19 November 2009, being the date of completion of the transfer of 40% interest in Jiangmen Factory to our Group, the VC Group has been providing waste water treatment services to our Group at no cost. A waste water treatment master agreement (the “Waste Water treatment Master agreement”) was entered into by VC Holdings (on its own behalf and as trustee for the benefit of other members of the VC Group) and FG Holdings (on its own behalf and as trustee for the benefit of other members of our Group) on 8 September 2010 to formalise this arrangement. Our Directors consider that the entering into of the Waste Water Treatment Master Agreement is in the interest of our Company as a whole.

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Principal terms

Pursuant to the Waste Water Treatment Master Agreement, the VC Group agreed to

provide, and our Group agreed to accept the provision of, waste water treatment services

during the term of the Waste Water Treatment Master Agreement. The term of the Waste Water

Treatment Master Agreement commenced from 19 November 2009 to 31 March 2012, and at

any time either party may give the other not less than three months’ prior written notice to

terminate the agreement.

Under the Waste Water Treatment Master Agreement, the VC Group will provide waste

water treatment services to our Group at no cost. As at the Latest Practicable Date, the fair

market price for the provision of the waste water treatment services amounted to approximately

RMB10,000 per month.

non-eXeMPt continuing connected transactions

The following continuing connected transactions will constitute non-exempt continuing connected

transactions for our Company under [•••].

(1) Fabric Master agreement

Background

During the Track Record Period, the VC Group has been supplying fabric products to

our Group. The historical transaction amounts for the purchase of fabric products from the VC

Group were approximately HK$84.6 million, HK$98.9 million and HK$32.0 million for the

three years ended 31 March 2010 respectively.

Principal terms

A master sale and purchase agreement (the “Fabric Master agreement”) was entered

into by VC Holdings (on its own behalf and as trustee for the benefit of other members of the

VC Group) and FG Holdings (on its own behalf and as trustee for the benefit of other members

of our Group) on 25 February 2010, pursuant to which the VC Group agreed to sell, and our

Group agreed to purchase, fabric products during the term of the Fabric Master Agreement. The

term of the Fabric Master Agreement commenced from 1 April 2010 to 31 March 2013, and

at any time either party may give the other not less than three months’ prior written notice to

terminate the agreement. The purchase price or consideration, the quantity and specifications of

products concerned, the time and place of delivery of the products concerned and other relevant

matters will be negotiated by the parties with reference to the then prevailing market prices of

the raw materials and accessories required for the manufacturing of the products concerned, as

well as, where applicable, prevailing market prices of similar products, and in good faith.

The purchase price and the other payment terms for the products will be set out in the

relevant purchase orders to be placed under the Fabric Master Agreement.

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Expected annual caps

Our Directors estimate that the annual transaction amount for the purchases of fabric

products under the Fabric Master Agreement for the three years ending 31 March 2013 will not

exceed the annual caps of HK$80 million, HK$104 million and HK$135 million, respectively.

In determining the annual caps, our Directors have considered (a) the historical transaction

amounts for the purchases of fabric products for the three years ended 31 March 2010 and the

three months ended 30 June 2010; (b) the targeted growth in demand for the products under

the Fabric Master Agreement for the three years ending 31 March 2013; and (c) the prevailing

market prices of the products under the Fabric Master Agreement.

When considering the historical volume of transactions for the purchases of fabric products,

our Directors noted the fact that the historical transaction amount for the year ended 31 March

2010 had decreased significantly from that for the year ended 31 March 2009. Such decrease

is mainly attributable to (i) the increase in proportion of fabric suppliers designated by our

customers and (ii) the introduction of new customers with products that required special fabric

types which had to be sourced from fabric suppliers other than the VC Group. Our Directors

are of the view that no specific trend can be observed from the past or projected for the future

in relation to the proportion of fabric suppliers to be designated by our customers or the

proportion of special fabric that cannot be sourced from the VC Group, since such requests are

on a case-by-case basis and are solely based on customers’ discretion. As such, our Directors

are of the view that the decreased historical transaction amount for the year ended 31 March

2010 is not a representative benchmark for determining the annual caps for the three years

ending 31 March 2013.

Our Directors have further made reference to the following factors in determining the

annual caps under the Fabric Master Agreement: (i) the historical volume of transactions for

the purchases of fabric products from the VC Group for the years ended 31 March 2008 and

2009, which are higher than that for the year ended 31 March 2010; (ii) targeted growth in

demand for the products under the Fabric Master Agreement after considering the historical

growth rate of the historical transaction amounts for the purchases of fabric products from the

VC Group for the Track Record Period; and (iii) the historical utilisation rate and production

capacity for the related production plant of our Group.

Given the above, as well as the fact that the proposed annual caps for the three years

ending 31 March 2013 under the Fabric Master Agreement would enable our Group to better

utilise the available resources on hand and achieve higher efficiency when serving our customers

from sourcing from the VC Group, all of which would be beneficial to our Group and our

Shareholders, our Directors consider the proposed annual caps for the three years ending 31

March 2013 under the Fabric Master Agreement are fair and reasonable and in the interests of

our Shareholders as a whole.

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[•••] implications

The transactions contemplated under the Fabric Master Agreement constitute continuing

connected transactions for our Company under [•••] upon [•••]. The details of the Fabric Master

Agreement was disclosed in the announcement of VC dated 25 February 2010 and the circular

of VC dated 18 March 2010. The transactions contemplated under the Fabric Master Agreement

was approved by the then shareholders of VC on 7 April 2010.

Given that the highest applicable percentage ratio of the transactions contemplated under

the Fabric Master Agreement, the Steam and Electricity Master Agreement (details of which are

set out below) and the Yarn Master Agreement (details of which are set out below), in aggregate,

is expected to be more than 25%, such transactions are subject to the reporting, announcement

and independent shareholders’ approval requirement under [•••].

(2) steam and electricity Master agreement

Background

During the Track Record Period, the VC Group has been supplying steam and electricity

to our Group. The historical amounts paid for the supply of the steam and electricity from the

VC Group were approximately HK$1.9 million, HK$2.2 million and HK$3.9 million for the

three years ended 31 March 2010 respectively.

Principal terms

A master purchase agreement (the “steam and electricity Master agreement”) was

entered into by VC Holdings (on its own behalf and as trustee for the benefit of other members

of the VC Group) and FG Holdings (on its own behalf and as trustee for the benefit of other

members of our Group) on 25 February 2010, pursuant to which the VC Group agreed to

supply, and our Group agreed to accept the provision of, steam and electricity during the term

of the Steam and Electricity Master Agreement. The term of the Steam and Electricity Master

Agreement commenced from 1 April 2010 to 31 March 2013, and at any time either party may

give the other not less than three months’ prior written notice to terminate the agreement.

Under the Steam and Electricity Master Agreement, instructions as to the electricity

capacity and voltage required and the quantities, pressure, degree of saturation and other

specifications of the steam required will be given to the supplier (i.e. a member of the VC Group)

from time to time and a monthly fee will be charged. Pursuant to the Steam and Electricity

Master Agreement, the supplier shall calculate the fees for electricity and steam on an arm’s

length basis, base on the actual costs incurred which include the cost incurred for generating

electricity/steam for the supply concerned, the quantity of electricity/steam supplied and the

maintenance cost involved.

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Our Directors estimate that the annual amount paid for the purchase of steam and

electricity under the Steam and Electricity Master Agreement for the three years ending 31

March 2013 will not exceed the annual caps of HK$5.5 million, HK$7.2 million and HK$9.3

million, respectively. In determining the annual caps, our Directors have considered, (a) the

historical transaction amounts for the purchase of steam and electricity for the three years ended

31 March 2010 and the three months ended 30 June 2010; (b) the expected growth in demand

for the services under the Steam and Electricity Master Agreement for the three years ending

31 March 2013, taking into account the expected expansion in capacity of certain knitting

machineries; and (c) the prevailing market rates of the services under the Steam and Electricity

Master Agreement considering the rising trend of commodity price of coal which would have

impact on the price of steam and electricity.

(3) Yarn Master agreement

Background

The VC Group has been supplying yarn to Jiangmen Factory since 24 June 2009. The

historical transaction amounts for the purchase of yarn from the VC Group were approximately

HK$1.7 million for the period from 24 June 2009 to 31 March 2010.

Principal terms

A master sale and purchase agreement (the “Yarn Master agreement”) was entered into

by VC Holdings (on its own behalf and as trustee for the benefit of other members of the VC

Group) and FG Holdings (on its own behalf and as trustee for the benefit of other members

of our Group) on 25 February 2010, pursuant to which the VC Group agreed to sell, and our

Group agreed to purchase, yarn during the term of the Yarn Master Agreement. The term of

the Yarn Master Agreement commenced from 1 April 2010 to 31 March 2013, and at any time

either party may give the other not less than three months’ prior written notice to terminate

the agreement. The purchase price or consideration, the quantity and specifications of products

concerned, the time and place of delivery of the products concerned and other relevant matters

will be negotiated by the parties with reference to the then prevailing market prices of the raw

materials and accessories required for the manufacturing of the products concerned, as well as,

where applicable, prevailing market prices of similar products, and in good faith.

The purchase price and the other payment terms for the products will be set out in the

relevant purchase orders to be placed under the Yarn Master Agreement.


Our Directors estimate that the annual transaction amount for the purchases of yarn under

the Yarn Master Agreement for the three years ending 31 March 2013 will not exceed the annual

caps of HK$3.0 million, HK$4.5 million and HK$7.0 million, respectively. In determining the

annual caps, our Directors have considered (a) the historical transaction amounts for the purchases

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of yarn for the period from 24 June 2009 to 31 March 2010 and the three months ended 30 June

2010; (b) the targeted growth in demand for the products under the Yarn Master Agreement for

the three years ending 31 March 2013, taking into account the expected expansion in capacity

of certain knitting machineries for which the yarn purchased from the VC Group may be used;

and (c) the prevailing market prices of the products under the Yarn Master Agreement.

(4) Kimberley apparel Master agreement

Background

The transactions with Kimberley and Mayer forms part of our Group’s cooperation with

Mayer and Kimberley under which Kimberley manufactures apparel products and sells them to

Mayer; Mayer then sells the apparel products bought from Kimberley either directly or through

our Group to the independent customers. Our Group provides business supporting services to

Mayer including shipping and delivery services and accounting services in respect of Mayer’s

sales to its independent customers.

During the Track Record Period, Kimberley has been supplying apparel products to our Group. The historical transaction amounts for the purchase of apparel products from Kimberley were approximately HK$38.3 million, HK$54.0 million, HK$69.8 million for the three years ended 31 March 2010 respectively. The historical transactions were carried out under a master sale and purchase agreement dated 1 April 2007 and entered into by Kimberley and Mayer (the “Former Kimberley apparel Master agreement”). For details of the Former Kimberley Apparel Master Agreement, please refer to the circular of VC dated 4 October 2007.

Principal terms

A master sale and purchase agreement (the “Kimberley apparel Master agreement”) was entered into by Kimberley and FG Holdings (on its own behalf and as trustee for the benefit of other members of our Group) on 16 March 2010, pursuant to which Kimberley agreed to sell, and our Group agreed to purchase, apparel products during the term of the Kimberley Apparel Master Agreement. The term of the Kimberley Apparel Master Agreement commenced from 1 April 2010 to 31 March 2013, and at any time either party may give the other not less than three months’ prior written notice to terminate the agreement. The purchase price or consideration, the quantity and specifications of products concerned, the time and place of delivery of the products concerned and other trade terms will be negotiated by the parties with reference to the then prevailing market prices of the raw materials and accessories required for the manufacturing of the products concerned, as well as, where applicable, prevailing market prices of similar products, and in good faith.

The payment terms for the products will be set out in the relevant purchase orders to be placed under the Kimberley Apparel Master Agreement.

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Our Directors estimate that the annual transaction amount for the purchases of apparel products under the Kimberley Apparel Master Agreement for the three years ending 31 March 2013 will not exceed the annual caps of HK$100 million, HK$133 million and HK$176 million, respectively. The basis for the determination of annual caps are set out in the paragraph headed “Basis of the annual caps of Kimberley Apparel Master Agreement and Mayer Apparel Master Agreement” below.

(5) Mayer apparel Master agreement

Background

As explained in the paragraph headed “Background” under “(4) Kimberley Apparel Master Agreement” in this section, Mayer sells the apparel products bought from Kimberley either (i) directly to the customers, or (ii) through our Group to the independent customers. For scenario (i), Mayer will directly issue invoices to the customers while FG International will provide business supporting services to Mayer; while for scenario (ii), FG International will purchase goods from Mayer based on orders from the customers. In both cases, our Group provides business supporting services to Mayer including shipping and delivery services and accounting services in respect of Mayer’s sales to its independent customers. The historical transaction amounts for the transaction with Mayer (aggregating transactions in the above mentioned scenario (i) and (ii)) were approximately HK$50.97 million, HK$70.11 million and HK$96.51 million for the three years ended 31 March 2010 respectively. The historical transactions were carried out under a master sale and purchase agreement dated 1 April 2007 and entered into by Mayer and FG Holdings (the “Former Mayer apparel Master agreement”). For details of the Former Mayer Apparel Master Agreement, please refer to the circular of VC dated 4 October 2007.

Since 1 February 2010, our Group (excluding Mayer) has been providing business supporting service to Mayer. The historical transaction amounts for the provision of business supporting service was approximately HK$46,000 from 1 February 2010 to 31 March 2010.

Principal terms

A master sale and purchase agreement (the “Mayer apparel Master agreement”) was entered into by Mayer and FG Holdings (on its own behalf and as trustee for the benefit of other members of our Group) on 16 March 2010, pursuant to which (i) Mayer agreed to sell, and our Group agreed to purchase, apparel products during the term of the Mayer Apparel Master Agreement; and (ii) our Group (excluding Mayer) has agreed to provide, and Mayer has agreed to engage the provision of, business supporting service during the term of the Mayer Apparel Master Agreement. The term of the Mayer Apparel Master Agreement commenced from 1 April 2010 to 31 March 2013, and at any time either party may give the other not less than three months’ prior written notice to terminate the agreement. The purchase price or consideration, the quantity and specifications of products concerned, the time and place of delivery of the products concerned, as well as, where applicable, prevailing market prices of similar products will be negotiated by the parties with reference to the then prevailing market prices of the raw materials or costs required for the manufacturing of the products concerned, and in good faith. The purchase price and the other payment terms for the products will be set out in the relevant purchase orders to be placed under the Mayer Apparel Master Agreement.

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In respect of the provision of business supporting service from our Group (excluding Mayer) to Mayer, orders shall be given orally or in writing from Mayer to our Group (excluding Mayer) from time to time during the term of the Mayer Apparel Master Agreement. The service fee shall be determined by the parties from time to time, by reference to, among other factors, the complexity of the service to be provided as well as, where applicable, prevailing market rates of similar services. Complexity of the service to be provided varies depending on, for instance, the Group’s arrangements for delivery. The Group may arrange for delivery up to the customers’ designated port of loading or, alternatively, shipment from port of loading to port of discharge with arrangements for insurance cover for goods-in-transit, customs clearance process and payment for relevant duty, as well as arrangements for local delivery of goods to customers’ designated warehouse after the goods are cleared from customs.


Our Directors estimate that the annual transaction amount for the (i) purchases of apparel products by our Group (excluding Mayer) under the Mayer Apparel Master Agreement for the three years ending 31 March 2013 will not exceed the annual caps of HK$126 million, HK$164 million and HK$214 million respectively; and (ii) provision of business supporting service from our Group (excluding Mayer) to Mayer under the Mayer Apparel Master Agreement for the three years ending 31 March 2013 will not exceed the annual caps of HK$2 million, HK$4 million and HK$10 million respectively.

Basis of the annual caps of Kimberley Apparel Master Agreement and Mayer Apparel Master Agreement

The Kimberley Apparel Master Agreement and the Mayer Apparel Master Agreement are inter-related as Mayer will place purchase orders with Kimberley based on the sales orders received by FG Holdings from its customers. Kimberley and Mayer entered into the Former Kimberley Apparel Master Agreement in relation to the arrangement in 2007.

The proposed annual caps for the Mayer Apparel Master Agreement for the three years ending 31 March 2013 are determined by reference to (i) the historical amount of sales order of the apparel products received by FG Holdings from its customers; (ii) the targeted growth in demand for the apparel products from customers of FG Holdings; (iii) the historical transaction amounts under the Former Mayer Apparel Master Agreement for the three years ended 31 March 2010 and Mayer Apparel Master Agreement for the three months ended 30 June 2010; and (iv) the historical transaction amount for the provision of business supporting service from the FG Group (excluding Mayer) to Mayer for the period from 1 February 2010 to 30 June 2010.

The proposed annual caps for the Kimberley Apparel Master Agreement for the three years ending 31 March 2013 are determined by reference to (i) the expected amount of sales under the Mayer Apparel Master Agreement as affected by factors stated above; (ii) the historical transaction amounts under the Former Kimberley Apparel Master Agreement for the three years ended 31 March 2010 and the Kimberley Apparel Master Agreement for the three months ended 30 June 2010; (iii) the expected growth in the sales volume of the existing clients of Kimberley as well as from Kimberley’s expanded new clientele; and (iv) the prevailing market prices of the apparel products.

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Given that the highest applicable percentage ratio of the transactions contemplated

under the Kimberley Apparel Master Agreement and the Mayer Apparel Master Agreement,

in aggregate, is expected to be more than 25%, such transactions are subject to the reporting,

announcement and independent shareholders’ approval requirement under [•••].

conFirMation FroM our directors

[Our Directors (including our independent non-executive Directors) are of the view that the

non-exempt continuing connected transactions described above are fair and reasonable and in the best

interests so far as our Shareholders as a whole are concerned, and all such non-exempt continuing

connected transactions have been entered into and will be carried out in the ordinary and usual course

of business of our Company on normal commercial terms. In addition, our Directors (including our

independent non-executive Directors) consider the respective annual caps for the non-exempt continuing

connected transactions are fair and reasonable and in the interests of our Shareholders as a whole.]

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FINANCIAL INFORMATION


You should read the following discussion and analysis of our financial condition and our

results of operations together with our audited combined financial statements as at and for the years

ended 31 March 2008, 2009 and 2010 and the accompanying notes included in the Accountants’

Report set out in Appendix I to this document (collectively the “Financial Information”). The

Accountants’ Report has been prepared in accordance with HKFRS. The following discussion and

analysis contains forward-looking statements that involve risks and uncertainties. Our actual results

may differ from those anticipated in these forward-looking statements as a result of a number of

factors, including those set forth in the section headed “Risk factors” in this document.

OVERVIEW









brand owners/carriers, megastores, departments stores and supermarket chains. We also source garment



For the year ended 31 March 2008 2009 2010 (HK$’000) % (HK$’000) % (HK$’000) %

Brand owners/carriers 461,343 32.2% 468,252 36.5% 461,001 51.5%

Megastores 61,781 4.3% 81,239 6.3% 93,863 10.5%

Department stores 103,899 7.3% 84,247 6.6% 66,101 7.4%

Supermarket chains 19,818 1.4% 54,656 4.2% 18,468 2.1%

Importers 743,254 51.9% 570,023 44.4% 221,671 24.8%

Others 40,795 2.9% 25,851 2.0% 33,247 3.7%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

Our sales to our largest customer, a U.S. importer, amounted to approximately HK$530.4

million, HK$478.2 million and HK$137.2 million respectively, representing approximately 37.1%,

37.2% and 15.3% respectively of our total revenue for the three years ended 31 March 2010.

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Our sales to importers decreased by approximately HK$173.2 million from approximately

HK$743.2 million for the year ended 31 March 2008 to approximately HK$570.0 million for the year

ended 31 March 2009, primarily due to (i) the decrease in sales to our largest customer, a U.S. importer,

due to decrease in its sales to its major customer (a megastore), which accounted for approximately

30.1% of the decrease; and (ii) decrease of sales to certain U.S. importers mainly as a result of

our decision to cease manufacturing at our production facilities in Jordan (where no import duty is

imposed by the U.S.), which accounted for approximately 25.5% of the decrease. For the year ended

31 March 2010, our sales to importers decreased from approximately HK$570.0 million for the year

ended 31 March 2009 to approximately HK$221.7 million. Such decrease is primarily attributable to

the decrease in sales to our largest customer, which in turn was caused by a decrease in orders from

its major customer (a megastore) as a result of organisational changes of such megastore customer

of it, which had accounted for approximately 97.9% of the decrease. The organisational changes

refer to the re-location of offices of such megastore’s sourcing and merchandising division and the

corresponding personnel changes, and we understand that additional time and effort was required





for the year ended 31 March 2010, and do not expect that our sales to such U.S. importer customer

will further drop materially due to this factor. Our Directors confirmed that since 31 March 2010

and up to the Latest Practicable Date, there have been no notification and indication of non-payment

of our trade receivables or the need to make provisions for our inventories and trade receivables.

Further, based on the unaudited management accounts of the Group for the four months ended 31 July

2010, the Group recorded a turnover of approximately HK$328.1 million which is comparable to the

corresponding period of last year. It should be noted that the above unaudited revenue figure may not

be indicative of the full year results for 2011. As set out in the section headed “Risk factors” in this

document, our business and financial performance may be affected by a number of factors, including

the risk factor headed “Our financial results are expected to be affected by the expenses in relation

to the [•••] and the costs of options granted under the Share Option Scheme”.




We have in-house production plants in the PRC and Indonesia as well as outsourcing production

capabilities supported by our wide and established network of sub-contract manufacturers to cater

for customised orders from our customers. Further, we have our own sample workshop consisting of

approximately 77 staff to produce samples and our own designs within a short lead time.

We have a wide and established network of sub-contract manufacturers that can provide a wide

range of garment products. Our customers may have diverse and/or specific requirements for our

products, including type and range of products, complicated patterns or designs, or distinct colors,

features or functions, and they may also require different production capabilities and expertise. We

have established a wide network of sub-contract manufacturers with whom we have maintained good

working relationships.

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We adhere to consistent high quality standards. Our quality control procedures start from the raw materials

procurement stage and various inspections are carried out at each stage of our manufacturing process. Quality

reports are also prepared throughout our production process. In respect of our sub-contract manufacturers,

we have a quality assurance and control team with [10] employees who oversees the performance of our

sub-contract manufacturers by conducting on-site inspections. Members of such quality assurance

and control team perform on-site quality inspections and testing procedures at the factories of our

sub-contract manufacturers at different stages in the manufacturing process to ensure quality of our

products.

Our revenue for the four months ended 31 July 2010 and the possible impact of certain non-recurring expenses to financial performance

Based on the unaudited management accounts of our Group for the four months ended 31 July

2010, our Group recorded a turnover of approximately HK$328.1 million which is comparable to the

corresponding period of last year. Notwithstanding the above, our financial results will be affected

by certain non-recurring expenses, including the expenses in relation to the [•••] and the costs of the

options granted under the Share Option Scheme.

The costs of the options granted under the Share Option Scheme are calculated using the

[Binomial Model] with assumptions on various inputs to the model such as the expected yield and

share price volatility and on the basis of the exercise price being HK$[•••] or HK$[•••], the fair value

of the share options granted on 2 June 2010 is estimated to be approximately HK$[6.27] million or

HK$[8.18] million. As the grant of share options will become effective on the [•••], which is expected

to be 5 October 2010, the amount that will be charged to our income statement in the second half of

the year ending 31 March 2011 as equity-settled expenses will be approximately HK$[6.27] million

or HK$[8.18] million, respectively. Our Directors would like to emphasise that such cost is a current

estimate for reference only and the final amount to be recognised to our profit and loss accounts for

the respective periods is subject to adjustment based on [audit] and the then changes in variables

and assumptions.

Accordingly, our Board wishes to inform our Shareholders and potential investors that, based

on our Company’s preliminary review on the management accounts of our Group which has not been

confirmed nor audited by our Company’s independent auditor, the financial results of our Group for the

six months ending 30 September 2010 will be materially adversely affected by the estimated expenses

in relation to the [•••], and our financial results for the year ending 31 March 2011 will additionally

be affected by the costs of the options granted under the Share Option Scheme.

It should be noted that the above unaudited revenue figure may not be indicative of the full year

results for 2011. As set out in the section headed “Risk factors” in this document, our business and

financial performance may be affected by a number of factors, including, amongst all, the risk factors

headed “Our results of operations are subject to seasonality”, “Our financial results are expected to

be affected by the expenses in relation to the [•••] and the cost of options granted under the Share

Option Scheme” and “We do not have long-term contracts with our customers, which exposes us to

potential volatility in our turnover”.

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For the financial year ending 31 March 2011, our Directors expect that our customer base will

remain stable, with growth in sales to a number of customers. Since we will expand into the retail

market by launching our “夢仕臣”(Monstons) brand products, growth in sales attributable to the retail

market is also expected. Save as disclosed in this section and the section headed “Risk factors” in this

document, there are no other trade factors or risks which could materially affect our profits.

With regard to (i) the unaudited management accounts of the Group for the four months ended

31 July 2010; (ii) the signs of recovery of the global economy; and (iii) our orders on hand, which

is comparable to the corresponding period of last year, our Directors are optimistic that our Group

will be operating in a fairly stable environment in the year ending 31 March 2011.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations have been and will continue to be affected by a number of factors,

including those set out below:

General global economic conditions and the consumer spending power

We source a comprehensive range of garment products for our direct customers mainly located in

the [U.S., Canada, the U.K., Mexico, Japan and the PRC]. We believe that our financial condition and

results of operations are and will continue to be affected by the general global economic conditions

and the growth in disposable income of residents. The global economy had been growing steadily

prior to the global downturn in 2009. According to The World Bank, world Gross Domestic Product

(“GDP”) increased from approximately US$41,917 billion in 2004 to approximately US$60,557

billion in 2008, and the CAGR of the period is approximately 9.6%, which reflects a steady growth.

Associated with the steady growth of GDP, income levels have increased accordingly. World Gross

National Income (GNI) per capita increased from approximately US$6,375 in 2004 to approximately

US$8,654 in 2008 according to The World Bank, representing a CAGR of approximately 7.9%.

Following the deepest global downturn in recent history, economic growth solidified and broadened

to advanced economies in the second half of 2009. According to The World Bank, world output is

expected to rise by approximately 2.7% in 2010 after an approximately 2.2% decline in 2009.

Our sourcing and production flexibility

We have our in-house production facilities in the PRC and Indonesia as well as outsourcing

production capabilities supported by our wide and established network of sub-contract manufacturers.

With our in-house production facilities, we can produce within a short lead time and are flexible in

adjusting production time and volume. We can also adjust our offerings promptly which enable us to

remain responsive to customers’ specific needs and market demands. Our out-sourcing capabilities

allow us to leverage the expertise, knowledge and equipment of our sub-contract manufacturers. Our

production capability is not limited to our own manufacturing facilities, as we can utilise the production

capabilities of our sub-contract manufacturers to satisfy our customers’ demand.

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We believe that our one-stop shop business model gives us a sustainable competitive edge by

providing significant operational flexibility to our Group to meet changing market conditions and

demands, and enhances our capabilities to cater for the needs of customers. We also believe that our

Group’s efficient production and sourcing management capabilities enable our Group to provide timely

services to our customers in a costs efficient manner.

Our financial condition and results of operations will be significantly affected by our ability

to maintain strong flexibility in making effective use of our internal production and sub-contract

manufacturers.

Our market intelligence and sourcing ability

We offer a comprehensive range of products to our customers including Cut-and-Sew knitwear,

Knit-to-Shape sweater and woven products, which include ladies’, men’s and kids’ knitwear,

sweaters, polo-shirts, T-shirts, sportswear, blouses, shorts, jackets and inner-wears. We also sell other

miscellaneous items to our customers such as hats, scarves and handbags. We continuously monitor

our product mix and source new products that we believe will generate higher customer demand, as

part of our efforts to maximise revenues.

With our production and sourcing capabilities and stringent quality control procedures, we

are able to provide a diversified and high-quality product mix to our customers and cater for their

new demands or requirements. Our merchandising team has extensive production and technological

knowledge in relation to garment industry. We research for or develop garment products for our

customers to meet their requirements. With our strong design and development capabilities, we,

from time to time, take the initiative to make recommendations on the use of fabrics or offer

in-house designed samples to our customers for consideration.

We will continue to adjust our product mix and as we are to make the adjustments, our gross

profit will be affected both by any change in revenues attributable to, and any change in the gross

profit margin of, each product line.

Cost of labour

Any upward trends in cost of labour will affect our Group’s operating results as the cost of

manufacturing as well as the pricing of the sub-contract manufacturers would increase accordingly.

Compared to garment manufacturers located in relatively-higher-wage areas, our low labour cost

provides us with a competitive advantage. We expect that labour costs will continue to be subject to

upward pressure, so we seek to improve our production processes and technology to enhance worker

productivity in order to reduce the upward pressure on labour costs.

Cost of raw materials

The main raw materials consumed by our Group are fabric and accessories. Any upward trends

in fabric prices or accessories will affect our Group’s operating results as the cost of manufacturing

as well as the pricing of the sub-contract manufacturers would increase accordingly.

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Seasonality

Our results of operations are subject to seasonality. We generally sell and distribute our spring-

summer seasonal products from October to March of the following year, and our autumn-winter seasonal

products from April to September. Typically, September and October are the lower season. Unexpected

and abnormal changes in climate may also affect the sales of our products that are timed for release

during a particular season. For example, a warm winter may affect the sales of winter products, while

a cool summer may affect the sales of T-shirts and other summer products. As a result, we believe that

comparisons of our operating results and net income over any interim periods may not be meaningful

and such comparisons may not be an accurate indicator of our future performance.

Level of income tax and preferential tax treatment

Our profit attributable to equity holders is affected by the level of income tax that we pay and

the preferential tax treatment that we are entitled to.

Hong Kong

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced

corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. The

applicable tax rate is 17.5%, 16.5% and 16.5% for the years ended 31 March 2008, 2009 and 2010,

respectively.

PRC

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the

“New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council

of the PRC issued Implementation Regulations of the New Law (the “Implementation Regulations”).

Under the New Law and Implementation Regulations, the statutory tax rate of 25% was effective from

1 January 2008. Before 1 January 2008, the statutory income tax rate was 33%.

Pursuant to the relevant laws and regulations in the PRC, a major PRC subsidiary, Jiangmen

Factory, is exempted from PRC enterprise income tax for two years starting from its first profit-making

year, which is 2008, followed by a 50% reduction for the next three years. The relevant PRC subsidiary

can continue to enjoy the tax incentives granted to it according to the grandfathering provisions in

the Implementation Regulations.

Macau

As stated in the Decree Law No. 58/99/M, Chapter 2, Article 12, dated 18 October 1999, the

Macau subsidiary is exempted from Macao Complementary Tax.

Other jurisdictions

Taxation arising in other jurisdictions is calculated at the rates prevailing in the respective

jurisdictions.

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BASIS OF PRESENTATION OF FINANCIAL INFORMATION

Pursuant to the Reorganisation which was completed on 8 September 2010 by principally

interspersing the Company between FG Holdings and its shareholders, as detailed in the section headed

“Reorganisation” in this document, the Company became a holding company of the Group.

The Group was controlled by VC before and after the Reorganisation. Accordingly, the Financial

Information has been prepared as if the Company had always been the holding company of the Group.

The combined statements of comprehensive income, combined statements of changes in equity and

combined statements of cash flows of the Group for the Track Record Period have been prepared as

if the current group structure had been in existence throughout the Track Record Period, or since the

respective dates of incorporation/establishment of the relevant entities now comprising the Group

where this is a shorter period. The combined statements of financial position of the Group as at 31

March 2008, 2009 and 2010 have been prepared to present the assets and liabilities of the entities

now comprising the Group which were in existence at those dates.

Since 2006, VC owned 60% interest in Jiangmen Factory through its wholly owned subsidiary,

Rocwide Limited (“Rocwide”). On 19 November 2009, the Group acquired the 40% interest in Jiangmen

Factory not already controlled by VC from independent third parties for an aggregate consideration

of HK$19,000,000. On 7 April 2010, the Group acquired the entire equity interest in Rocwide from

VC for a consideration of HK$48,000,000. In preparing the Financial Information, the Group has

adopted the principle of merger accounting for business combination involving entities under common

control. Accordingly, Jiangmen Factory has been accounted for as a 60% subsidiary during the Track

Record Period until 18 November 2009 and as a wholly-owned subsidiary thereafter.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations as included

in this document is based on the Financial Information prepared in accordance with the significant

accounting policies set forth in Note 4 to the Accountants’ Report set out in Appendix I to this

document, which conform with HKFRS. Accounting methods, assumptions and estimates that underlie

the preparation of the Financial Information affect our financial condition and results of operations

reported. Such assumptions and estimates are made based on historical experience and various other

assumptions that we believe to be reasonable, the results of which form the basis of judgements on

our carrying amounts of assets and liabilities and our results. Results may differ under different

assumptions or conditions.

The selection of critical accounting policies, the judgements and other uncertainties affecting

application of those policies and the sensitivity of reported results to changes in conditions and

assumptions are factors to be considered when reviewing our Financial Information. We believe that

the following accounting policies involve the most significant accounting judgements and estimates

used in the preparation of our Financial Information.

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Revenue recognition

We derive our revenue from the sourcing and manufacturing a variety of garment products for

our customers. Revenue is measured at the fair value of the consideration received or receivable and

represents amounts receivable for goods sold and services provided in the normal course of business,

net of discounts and sales related taxes. Sale of goods is recognised when the goods are delivered and

title has passed. Service income is recognised when services are provided. Rental income, including

rental invoiced in advance from properties under operating leases, is recognised on a straight-line

basis over the terms of the relevant lease. Interest income from a financial asset is accrued on a time

basis, by reference to the principal outstanding and at the effective interest rate applicable, which

is the rate that exactly discounts the estimated future cash receipts through the expected life of the

financial asset to that asset’s net carrying amount on initial recognition.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the

weighted average method. Net realisable value represents the estimated selling price less all estimated

costs to completion and costs to be incurred in marketing, selling and distribution.

Our management reviews the inventories listing at the end of each reporting period, and impairs

obsolete and slow-moving inventory items identified that are no longer suitable for use in operation.

Allowance may be made by reference to the latest market value for those inventories identified. Where

the net realisable value is less than the cost, a write down may arise.

Impairment loss on trade receivables

The assessment of the impairment loss on trade receivables of our Group is based on the evaluation

of collectability and aging analysis of accounts and on management’s judgement. A considerable

amount of judgement is required in assessing the ultimate realisation of these receivables, including

the current creditworthiness of each customer. If the financial conditions of our customers are to

deteriorate, resulting in an impairment of their ability to make payments, additional allowances may

be required. Impairment is made based on the estimation of the future cash flow discounted at the

original effective rate to calculate the present value.

Depreciation and useful lives of property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply

of goods or services, or for administrative purposes are stated at cost less subsequent accumulated

depreciation and accumulated impairment losses. The property, plant and equipment are depreciated

using the straight-line method at the following rates per annum or over the following years:

Buildings 4%

Leasehold improvements 5 to 10 years or over the term of the relevant

leases, if shorter

Furniture, fixtures and equipment 15% - 25%

Motor vehicles 20%

Plant and machinery 6 2/3% - 25%

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PRINCIPAL ITEMS OF COMBINED STATEMENTS OF COMPREhENSIVE INCOME

Revenue

Revenue, which is also our Group’s turnover, represents the net invoiced value of goods sold

during the Track Record Period after adjustments such as sales commission, allowances for returns

and trade discounts. Our Group’s revenue is principally generated from trading of garment, which

represented approximately 97.4%, 97.7% and 98.8% of the total revenue for each of the three years

ended 31 March 2008, 2009 and 2010, respectively. The remaining revenue is attributable to the

provision of quality inspection service, which represented approximately 2.6%, 2.3% and 1.2% of

the revenue for each of the three years ended 31 March 2008, 2009 and 2010 respectively. We have

our own in-house production facilities to cater for the manufacturing needs of different products, and

we have a wide and established network of sub-contract manufacturers that can provide a wide range

of garment products. During the Track Record Period, approximately [26.7]%, [24.2]% and [29.9]%

of the garment products we sourced for our customers were produced in our in-house production

facilities, while approximately [73.3]%, [75.8]% and [70.1]% were sourced from our sub-contract

manufacturers.

We derive our revenue mainly from sourcing a variety of garment products for our customers

mainly located in the [U.S., Canada, the U.K., Mexico, Japan and the PRC]. The following table sets

forth, for the periods indicated, a breakdown of our revenue by geographical segment:

For the year ended 31 March 2008 2009 2010 Revenue Revenue Revenue

Approximate Approximate Approximate

(HK$’000) % (HK$’000) % (HK$’000) %

U.S. 1,006,864 70.4% 814,752 63.4% 513,484 57.4%

Canada 150,220 10.5% 153,469 12.0% 148,815 16.6%

PRC 116,778 8.1% 92,512 7.2% 95,356 10.7%

Others 157,028 11.0% 223,535 17.4% 136,696 15.3%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

U.S. and Canada are the most important markets of our Group, which together accounted for

approximately 81%, 75% and 74% of our Group’s revenue for each of the three years ended 31 March

2010 respectively. Our Group’s revenue for the U.S. market were approximately HK$1,006.9 million,

HK$814.8 million and HK$513.5 million for the three years ended 31 March 2010. The decrease

in revenue for the U.S. market for the year ended 31 March 2009 was as a result of our decision to

cease manufacturing at our manufacturing facilities in Jordan (where no import duty is imposed by the

U.S.), which had been handling primarily our orders for our customers in the U.S. market (including

one of our top five customers during the Track Record Period). Our Jordan Factory [has relatively

high labour cost with production labour mainly imported from Bangladesh and the PRC], and for cost

efficiency reason, we decided to close our Jordan Factory. This resulted in a decrease in sales to one

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of our top five customers during the Track Record Period from approximately HK$157.5 million for

the year ended 31 March 2008 to approximately HK$73.7 million for the year ended 31 March 2009.

Further, there was a decrease in sales to our largest customer, a U.S. importer, from approximately

HK$530.4 million for the year ended 31 March 2008 to approximately HK$478.2 million for the year

ended 31 March 2009, due to the decrease in sales to its major customer (a megastore). For the year

ended 31 March 2010, the decrease in revenue for the U.S. market was primarily attributable to the

decrease in sales to the Group’s largest customer, a U.S. importer, from approximately HK$478.2

million for the year ended 31 March 2009 to approximately HK$137.2 million for the year ended

31 March 2010. Such decrease is primarily attributable to the decrease in its orders from its major

customer (a megastore) as a result of organisational changes of such megastore customer of it and

not related to the quality of our Group’s products. The organisational changes refer to the re-location

of offices of such megastore’s sourcing and merchandising division and the corresponding personnel

changes, and we understand that additional time and effort was required for our customer, the U.S.

importer, to re-build the business relationship with the new sourcing and merchandising division of

its customer. [As advised by our customer,] such organisational changes of its megastore customer

had been completed. Our Directors consider that the impact of such organisational change of the

major customer of our U.S. importer customer has largely been reflected in our results for the year

ended 31 March 2010, and do not expect that our sales to such U.S. importer customer will further

drop materially due to this factor. Our Directors confirmed that since 31 March 2010 and up to the

Latest Practicable Date, there have been no notification and indication of non-payment of our trade

receivables or the need to make provisions for our inventories and trade receivables. Further, based on

the unaudited management accounts of our Group for the four months ended 31 July 2010, our Group

recorded a turnover of approximately HK$328.1 million which is comparable to the corresponding

period of last year. The above unaudited revenue figure may not be indicative of the full year results

for 2011. Our business and financial performance may be affected by a number of factors as set out

in the section headed “Risk factors” in this document. In addition, consumer spending shrank and

orders placed by certain customers of our Group in our U.S. market had also decreased in the year

ended 31 March 2009 as a result of the global economic downturn, the sub-prime mortgage crisis,

the investment bank failures, falling home prices and tight credit environment that had pushed the

U.S. into a recession by mid-2008. Our Directors believe that the measures that we can adopt in order



The PRC apparel market is expanding with the country’s economic growth. Despite that our Group

recorded decrease in actual sales amount for the PRC market, the decrease in revenue was relatively

less than that in other markets, and hence the relative revenue contribution from PRC increased from

approximately 8% of our Group’s revenue for the year ended 31 March 2008 to approximately 11%

of our Group’s revenue for the year ended 31 March 2010. Economies globally and in Greater China

had seen signs of recovery since the later half of 2009. Our Directors believe that the improved market

sentiment and optimism on the state of the economy will reinforce consumer confidence, and lead to

increased spending on discretionary items, such as clothing.

Revenue from other markets of our Group also decreased in the Track Record Period as affected

by the general economic environment, except for the increase in the year ended 31 March 2009 due

to a one-off increase in orders from a particular customer in the U.K..

- 151 -




For the year ended 31 March 2008 2009 2010 Approximate Approximate Approximate

(HK$’000) % (HK$’000) % (HK$’000) %

Brand owners/carriers 461,343 32.2% 468,252 36.5% 461,001 51.5%

Megastores 61,781 4.3% 81,239 6.3% 93,863 10.5%

Department stores 103,899 7.3% 84,247 6.6% 66,101 7.4%

Supermarket chains 19,818 1.4% 54,656 4.2% 18,468 2.1%

Importers 743,254 51.9% 570,023 44.4% 221,671 24.8%

Others 40,795 2.9% 25,851 2.0% 33,247 3.7%

Total 1,430,890 100.0% 1,284,268 100.0% 894,351 100.0%

Our sales to our largest customer, a U.S. importer, amounted to approximately HK$530.4 million, HK$478.2 million and HK$137.2 million respectively, representing approximately 37.1%, 37.2% and 15.3% respectively of our total revenue for the three years ended 31 March 2010.

Our sales to importers decreased by approximately HK$173.2 million from approximately HK$743.2 million for the year ended 31 March 2008 to approximately HK$570.0 million for the year ended 31 March 2009, primarily due to (i) the decrease in sales to our largest customer, a U.S. importer, due to decrease in its sales to its major customer (a megastore), which accounted for approximately 30.1% of the decrease; and (ii) decrease of sales to certain U.S. importers mainly as a result of our decision to cease manufacturing at our production facilities in Jordan (where no import duty is imposed by the U.S.), which accounted for approximately 25.5% of the decrease. For the year ended 31 March 2010, our sales to importers decreased from approximately HK$570.0 million for the year ended 31 March 2009 to approximately HK$221.7 million. Such decrease is primarily attributable to the decrease in sales to our largest customer, which in turn was caused by a decrease in orders from its major customer (a megastore) as a result of organisational changes of such megastore customer of it, which had accounted for approximately 97.9% of the decrease. The organisational changes refer to the re-location of offices of such megastore’s sourcing and merchandising division and the corresponding personnel changes, and we understand that additional time and effort was required for our customer, the U.S. importer, to re-build the business relationship with the new sourcing and merchandising division of its customer. [As advised by our customer,] such organisational changes of its megastore customer had been completed. Our Directors consider that impact of such organisational change of the major customer of our U.S. importer customer has largely been reflected in our results for the year ended 31 March 2010, and do not expect that our sales to such U.S. importer customer will further drop materially due to this factor. Our Directors confirmed that since 31 March 2010 and up to the Latest Practicable Date, there have been no notification and indication of non-payment of our trade receivables or the need to make provisions for our inventories and trade receivables. Further, based on the unaudited management accounts of our Group for the four months ended 31 July 2010, our Group recorded a turnover of approximately HK$328.1 million which is comparable to the corresponding period of last year. The above unaudited revenue figure may not be indicative of the full year results for 2011. Our business and financial performance may be affected by a number of factors as set out in the section headed “Risk factors” in this document.

- 152 -



Cost of sales

Our cost of sales were approximately HK$1,234.0 million, HK$1,122.8 million and HK$736.4

million for the years ended 31 March 2008, 2009 and 2010 respectively, comprises mainly subcontracting

cost, direct labour costs and direct material costs.

The following table sets forth, for the periods indicated, a breakdown of our cost of sales:


(HK$’000) % (HK$’000) % (HK$’000) %

Subcontracting

costs 903,880 73.3% 850,589 75.8% 515,835 70.1%

Direct labour

costs 74,603 6.0% 43,326 3.9% 38,262 5.2%

Direct material

costs 217,771 17.6% 202,641 18.0% 162,272 22.0%

Others 37,740 3.1% 26,224 2.3% 19,993 2.7%

Total 1,233,994 100.0% 1,122,780 100.0% 736,362 100.0%

Subcontracting costs refers to the costs of the outsourced products and the processing fees we

paid to our sub-contract manufacturers, and represented approximately 73.3%, 75.8% and 70.1% of

the total cost of sales for the years ended 31 March 2008, 2009 and 2010 respectively.

Direct labour costs mainly refer to salary and staff benefits to manufacturing workers, representing

approximately 6%, 4% and 5% of the total cost of sales for the years ended 31 March 2008, 2009

and 2010 respectively.

Direct material costs include material cost for yarns, different kind of fabrics, threads and

accessories consumed by our Group for manufacturing of garment products, representing approximately

18%, 18% and 22% of the total cost of sales for the years ended 31 March 2008, 2009 and 2010

respectively. We purchase raw materials from various places in Asia, including, amongst all, Hong

Kong, Japan, Taiwan, Macau and Indonesia. We also source fabric and yarn from the VC Group to

ensure our involvement starts from the top of a garment supply chain for better management of the

production cycle. The purchase of fabric and yarn from the VC Group by our Group accounted for

approximately [38.9]%, [48.8]% and [20.8]% of the direct material costs of the Group for the year

ended 31 March 2008, 2009 and 2010 respectively and approximately [6.9]%, [8.8]% and [4.6]% of the

total [cost of sales] of our Group for the year ended 31 March 2008, 2009 and 2010 respectively.

Other cost of sales includes miscellaneous cost for production assembly such as shipment costs

and manufacturing overheads, which accounted for approximately 3%, 2% and 3% of the total cost

of sales for the years ended 31 March 2008, 2009 and 2010 respectively.

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Other income

Other income were approximately HK$4.5 million , HK$4.0 million and HK$3.5 million for the

years ended 31 March 2008, 2009 and 2010 respectively, amounted to approximately 0.3%, 0.3% and

0.4% of revenue for the respective years. Other income comprises mainly interest income, quota income,

rental income from investment properties and property, plant and equipment and scrap sales.

Other gains and losses

Other gains or losses are generally gains or losses on disposal of properties, plant and equipment

and leasehold land, gain on fair value changes of derivative financial instruments, net foreign exchange

gains or losses on transactions and impairment losses or reversal of impairment loss recognised on

receivables.

Our Group recorded net other losses of approximately HK$7.5 million for the year ended 31

March 2008, primarily attributable by the loss on fair value change of the investment properties held

by a subsidiary of approximately HK$12.2 million (which was subsequently sold in the year ended

31 March 2009), and an exchange gain of approximately HK$5.3 million due to the slightly lower

than the then average market rate used for booking foreign currency transactions.

Net other gains for the year ended 31 March 2009 was largely represented by a gain on disposal

of an office premises of approximately HK$12.6 million.

Selling and distribution costs

Selling and distribution costs were approximately HK$19.8 million, HK$19.4 million and

HK$15.5 million for the years ended 31 March 2008, 2009 and 2010 respectively, amounted to

approximately 1.4%, 1.5% and 1.7% of revenue for respective years. Selling and distribution costs

comprise mainly design and development expenses, transportation expenses, sales commission to

export agents and claims expense.

Administrative expenses

Administrative expenses were approximately HK$108.3 million, HK$102.1 million and HK$96.5

million for the years ended 31 March 2008, 2009 and 2010 respectively, amounted to approximately

7.6%, 7.9% and 10.8% of revenue of the respective years. Administrative expenses comprise mainly

staff salary, depreciation and other costs such as bank charges.

Share of loss of a jointly controlled entity

Share of loss of a jointly controlled entity in the year ended 31 March 2008 represents share of

loss of Gojifashion Inc. (“Goji”), a joint venture company established in Canada and was principally

engaged in sales and marketing of knitwear apparels in Canada. Goji has become dormant since 2008.

Share of losses was only up to investment cost and hence no further loss of Goji was shared by our

Group for the year ended 31 March 2009 and 2010.

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Interest on bank borrowings wholly repayable within five years

Interest on bank borrowings wholly repayable within five years were approximately HK$6.8

million, HK$3.4 million and HK$2.3 million for the years ended 31 March 2008, 2009 and 2010

respectively, amounted to approximately 0.5%, 0.3% and 0.3% of revenue for the respective years.

This consists primarily of interest expenses on our Group’s bank loans and other borrowings.

Income tax expense

The Company was incorporated in Bermuda and has subsidiaries incorporated in Hong Kong,

the PRC, Canada, the USA, Indonesia, Macau, Jordan and BVI.

– Hong Kong tax

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which

reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment

2008/2009. The applicable tax rate is 17.5%, 16.5% and 16.5% for the years ended 31 March

2008, 2009 and 2010, respectively.

– PRC tax

On 16 March 2007, the PRC promulgated the New Law by Order No. 63 of the President

of the PRC. On 6 December 2007, the State Council of the PRC issued the Implementation

Regulations. Under the New Law and Implementation Regulations, the statutory tax rate of

25% was effective from 1 January 2008. Before 1 January 2008, the statutory income tax rate

was 33%.

Pursuant to the relevant laws and regulations in the PRC, a major PRC subsidiary is

exempted from PRC enterprise income tax for two years starting from its first profit-making

year, which is 2008, followed by a 50% reduction for the next three years. The relevant PRC

subsidiary can continue to enjoy the tax incentives granted to it according to the grandfathering

provisions in the Implementation Regulations.

– Macau

As stated in the Decree Law No. 58/99/M, Chapter 2, Article 12, dated 18 October 1999,

the Macau subsidiary is exempted from Macao Complementary Tax.

– Other jurisdiction


jurisdictions.

- 155 -



RESULTS OF OPERATIONS

The following table is the extracts of the combined statements of comprehensive income from the

Financial Information during the Track Record Period, details of which are set out in the Accountants’

Report in Appendix I to this document.


(HK$’000) (HK$’000) (HK$’000)

Revenue 1,430,890 1,284,268 894,351

Cost of sales (1,233,994 ) (1,122,780 ) (736,362 )

Gross profit 196,896 161,488 157,989

Other income 4,502 3,965 3,502

Other gains and losses (7,533 ) 11,427 656

Selling and distribution costs (19,831 ) (19,445 ) (15,465 )

Administrative expenses (108,308 ) (102,060 ) (96,469 )

Share of loss of a jointly controlled entity (338 ) – –

Interest on bank borrowings

wholly repayable within five years (6,754 ) (3,407 ) (2,253 )

Profit before tax 58,634 51,968 47,960

Income tax expense (2,321 ) (3,493 ) (7,115 )

Profit for the year 56,313 48,475 40,845

Year to year comparison of results of operations

Year ended 31 March 2010 compared to year ended 31 March 2009

Revenue



million for the year ended 31 March 2009. Our Directors believe that the decrease is primarily

attributable to the decrease in sales of approximately HK$341.0 million to our largest customer, a U.S.

importer, from approximately HK$478.2 million for the year ended 31 March 2009 to approximately

HK$137.2 million for the year ended 31 March 2010. Such decrease is primarily attributable to the


such megastore customer of it and not related to the quality of our Group’s products. The organisational



- 156 -







for the year ended 31 March 2010, and do not expect that our sales to such U.S. importer customer will

further drop materially due to this factor. Impact of the U.S. market on our revenue is proportionately

larger as it is our most important market, accounting for approximately 57.4% and 63.4% of our

revenue for each of the years ended 31 March 2010 and 2009 respectively. Further, revenue from other

markets for the year ended 31 March 2009 had increased due to a one-off increase in orders from a

particular customer in the U.K.. Our Directors believe that the measures that we can adopt in order



Cost of sales

Cost of sales decreased by approximately 34.4% to HK$736.4 million for the year ended 31

March 2010 from HK$1,122.8 million for the year ended 31 March 2009. Such decrease in cost of

sales of our Group was mainly due to the decrease in production and purchases following the decrease

in sales.

Gross profit and gross profit margin

As a result of the foregoing, gross profit decreased to approximately HK$158.0 million for the

year ended 31 March 2010 from approximately HK$161.5 million for the year ended 31 March 2009.

Gross profit margin increased to approximately 17.7% from 12.6%. During the year, we improved our

product offering by providing more value-added services to customers, such as the development of

samples and designs, production of garment products which involve a more complicated production

process and require a higher level of workmanship (“Complicated Garment Products”), and delivery

of garment products within a short time frame. Examples of Complicated Garment Products include

garments with styling and trendy elements such as embroidery, hand-stitched beading, smocking,

pleating, distress and burn-out effects, picot edge, bias cutting, etc. while examples of basic items

include knitted pants, shorts, leggings and short sleeve blouses. Garments that are made of functional

fabric (e.g. quick-dry fabric) or fashionable/fine fabric (e.g. polyester chiffon, tulle, modal, rayon, satin

with spandex, etc.) are also categorised as Complicated Garment Products. As a result, Complicated

Garment Products which commanded higher profit margins than other basic items increased as a

percentage of revenue. The increase in gross profit margin was mainly attributable to such change

of product mix for the year.

Other income

Other income decreased by approximately 11.7% to HK$3.5 million for the year ended 31 March

2010 from HK$4.0 million for the year ended 31 March 2009. The decrease was mainly due to the

drop of the income from the sales of scrap inventories from approximately HK$1.0 million for the year

ended 31 March 2009 to HK$0.5 million for the year ended 31 March 2010, as a large proportion of

the stored scrap garments were sold in the years ended 31 March 2008 and 2009. Rental income of

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our Group, however, has increased from approximately HK$1.8 million for the year ended 31 March

2009 to approximately HK$2.3 million for the year ended 31 March 2010 due to the increase in rental

income from new property acquired in the year.


Other gains decreased by approximately 94.3% to HK$0.7 million for the year ended 31 March

2010 from HK$11.4 million for the year ended 31 March 2009. Other gains for the year ended

31 March 2009 is largely represented by a gain on disposal of an office premises in mid 2008 of

approximately HK$12.6 million.


Selling and distribution costs decreased by approximately 20.5% to HK$15.5 million for the

year ended 31 March 2010 from HK$19.4 million for the year ended 31 March 2009. The decrease was

primarily due to the decrease of design and development expenses following the decrease in sales in

the year, and the decrease in sales commission paid by a subsidiary of our Company to export agents

in the year ended 31 March 2010 after the change of channel of export from relying on agents to

export directly by the subsidiary. Claims expense has increased from approximately HK$2.3 million in

the year ended 31 March 2009 (representing approximately 11.9% of the total selling and distribution

costs) to HK$4.2 million in the year ended 31 March 2010 (representing approximately 27.1% of the

total selling and distribution costs). The claims arose mainly from garment products which involved

a more complicated production process. Profit margin of these products are normally higher than

other basic products to, among others, compensate potential claims. During the year, claim amounts

increased reflecting the fact that our Group produced more of these products for the year.


Administrative expenses decreased by approximately 5.5% to HK$96.5 million for the year

ended 31 March 2010 from HK$102.1 million for the year ended 31 March 2009. The decrease was

primarily due to the decrease in salary expense following the tightened cost control policy implemented

during the year.


Interest on bank borrowings wholly repayable within five years decreased by approximately

33.9% to HK$2.3 million for the year ended 31 March 2010 from HK$3.4 million for the year ended

31 March 2009. The decrease was mainly due to the decrease in trade related bank borrowings

following the decrease in revenue.

Profit before tax

As a result of the foregoing, profit before tax decreased by approximately 7.7% to HK$48.0 million

for the year ended 31 March 2010 from HK$52.0 million for the year ended 31 March 2009.

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Income tax expense

Income tax expense increased by approximately 103.7% to HK$7.1 million for the year ended 31

March 2010 from HK$3.5 million for the year ended 31 March 2009. The effective tax rate increased

to approximately 14.8% for the year ended 31 March 2010 from 6.7% for the year ended 31 March

2009. The increase was mainly due to two reasons, one was the gain on disposal of a self-used building

in 2009, which was non-taxable in nature. These resulted in more non-taxable income in 2009. For

the year ended 31 March 2010, no such material non-taxable income was noted. The other reason was

the reduction in profit from the quality inspection service provided by our Group’s Macau subsidiary.

As the Macau subsidiary is exempted from Macau Complimentary Tax pursuant to the Decree Law

No. 58/99/M, Chapter 2, Article 12, dated 18th October 1999, a decrease in its profit, as a result of

a decrease in its revenue from approximately HK$30,109,000 for the year ended 31 March 2009 to

HK$10,383,000 for the year ended 31 March 2010, as a proportion to our Group’s consolidated profit,

has increased our Group’s effective tax rate for the year ended 31 March 2010.

Profit for the year

As a result of the foregoing, profit for the year decreased by approximately 15.7% to HK$40.8

million for the year ended 31 March 2010 from HK$48.5 million for the year ended 31 March

2009.

Year ended 31 March 2009 compared to year ended 31 March 2008

Revenue


approximately HK$1,284.3 million for the year ended 31 March 2009 from approximately HK$1,430.9

million for the year ended 31 March 2008. The decrease is primarily due to our decision to cease

production at our manufacturing facilities in Jordan (where no import duty is imposed by the U.S.),

which had been handling primarily our orders for our customers in the U.S. market (including one

of our top five customers during the Track Record Period). Our Jordan Factory [has relatively high

labour cost with production labour mainly imported from Bangladesh and the PRC], and for this

cost efficiency reason, we decided to close our Jordan Factory. This resulted in a decrease in sales

to one of our top five customers during the Track Record Period of approximately HK$83.8 million

from approximately HK$157.5 million for the year ended 31 March 2008 to approximately HK$73.7

million for the year ended 31 March 2009. Further, there was a decrease in sales to our largest

customer, a U.S. importer, from approximately HK$530.4 million for the year ended 31 March 2008

to approximately HK$478.2 million for the year ended 31 March 2009, due to the decrease in its

sales to its major customer (a megastore). In addition, consumer spending shrank and orders placed

by certain customers of our Group in the U.S. market had also decreased in the year ended 31 March

2009 as a result of the global economic downturn, the sub-prime mortgage crisis, the investment bank

failures, falling home prices and tight credit environment that had pushed the U.S. into a recession

by mid-2008. Given that the U.S. is the most important market of our Group which accounted for

approximately 63.4% and 70.4% of our Group’s revenue for each of the years ended 31 March 2009

and 2008 respectively, the impact on our Group’s revenue was relatively large.

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Cost of sales

Cost of sales decreased by approximately 9.0% to HK$1,122.8 million for the year ended 31

March 2009 from HK$1,234.0 million for the year ended 31 March 2008, primarily contributed by

the decrease in the production and purchases following the decrease in sales.

Gross profit and gross profit margin

As a result of the foregoing, gross profit decreased by approximately 18.0% to HK$161.5 million

for the year ended 31 March 2009 from HK$196.9 million for the year ended 31 March 2008. Gross

profit margin decreased to approximately 12.6% for the year ended 31 March 2009 from 13.8% for

the year ended 31 March 2008.

Other income

Other income decreased by approximately 11.9% to HK$4.0 million for the year ended 31 March

2009 from HK$4.5 million for the year ended 31 March 2008. The decrease was mainly attributable

to the income arose from the transfer of our Group’s surplus trade quota to other trading companies

in the year ended 31 March 2008, while in the year ended 31 March 2009, there was no surplus quota

available for transfer to other trading companies and the trade quota system for textile exports from

the PRC to the U.S. was eliminated after 31 December 2008. Hence, no income was derived from

such quota transfer.


Our Group recorded net other losses of approximately HK$7.5 million for the year ended 31

March 2008 while recorded net other gains of approximately HK$11.4 million for the year ended 31

March 2009. The net other losses recorded by our Group were primarily attributable by the loss on

fair value change of the investment properties held by a subsidiary of approximately HK$12.2 million

(which was subsequently sold in the year ended 31 March 2009), and an exchange gain of approximately

HK$5.3 million due to the slightly lower than the then average market rate used for booking foreign

currency transactions. Net other gains for the year ended 31 March 2009 is largely represented by a

gain on disposal of an office premises in mid 2008 of approximately HK$12.6 million.


Selling and distribution costs decreased by approximately 1.9% to HK$19.4 million for the

year ended 31 March 2009 from HK$19.8 million for the year ended 31 March 2008. The decrease

was mainly attributable to transportation expenses which correlates with the decrease in revenue.

The decrease was partly offset by the increase of design and development expenses due to request

from customers and the increase in sales commission to export agents due to change in channel of

export.

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Administrative expenses decreased by approximately 5.8% to HK$102.1 million for the year

ended 31 March 2009 from HK$108.3 million for the year ended 31 March 2008. The decrease was

mainly due to suspension of operation of Jordan Factory during the year and the cost control measures

implemented on staff cost during the year.

Share of loss of a jointly controlled entity

Share of loss of a jointly controlled entity in the year ended 31 March 2008 represents share

of loss of Gojifashion Inc (“Goji”), a joint venture company established in Canada for sales and

marketing of knitwear apparels in Canada. Goji has become dormant since 2008. Share of losses was

only up to investment cost and hence no further loss of Goji was shared by our Group for the year

ended 31 March 2009.


Interest on bank borrowings wholly repayable within five years decreased by approximately

49.6% to HK$3.4 million for the year ended 31 March 2009 from HK$6.8 million for the year ended

31 March 2008. The decrease was mainly due to the decrease in trade related bank borrowings

following the decrease in revenue.

Profit before tax

As a result of the foregoing, profit before tax decreased by approximately 11.4% to HK$52.0


2008.

Income tax expense

Income tax expense increased by approximately 50.5% to HK$3.5 million for the year ended

31 March 2009 from HK$2.3 million for the year ended 31 March 2008. The increase was mainly

due to two reasons. One was the combination of effects of the PRC Tax Exemption Regime and the

reverse of deferred tax of approximately HK$5 million in the year ended 31 March 2008 for the non-

taxable gain on sales of investment properties which leads to a lower tax charge in the same year. The

other reason was the reduction in profit from the quality inspection service provided by our Group’s

Macau subsidiary, As the Macau subsidiary is exempted from Macau Complimentary Tax pursuant

to the Decree Law No. 58/99/M, Chapter 2, Article 12, dated 18th October 1999, a decrease in its

profit, as a result of a decrease in its revenue from approximately HK$37,906,000 for the year ended

31 March 2008 to HK$30,109,000 for the year ended 31 March 2009, as a proportion to our Group’s

consolidated profit, has increased our Group’s effective tax rate for the year ended 31 March 2009.

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Profit for the year

As a result of the foregoing, profit for the year decreased by approximately 13.9% to HK$48.5


2008.

LIQUIDITY AND CAPITAL RESOURCES

Our operations are funded through a combination of cash generated from our operations and

bank borrowings. Our Directors are not aware of any material change to the sources of cash of our

Group and the use of cash by our Group during the Track Record Period.

As of 31 March 2010, our material sources of liquidity are bank balances and cash of

approximately HK$128.4 million and unutilised bank borrowing limits of approximately HK$191.0

million. We believe our liquidity requirements will be satisfied using a combination of the [•••] from

the [•••], cash generated from operating activities and bank loans.

Cash flow data

The following table summarises, for the periods indicated, our combined statements of cash

flows:


(HK$’000) (HK$’000) (HK$’000)

Net cash inflow from operating activities 119,438 81,473 62,231

Net cash inflow/(outflow) from

investing activities (15,872 ) (35,689 ) 5,236

Net cash outflow from financing activities (59,025 ) (9,980 ) (99,886 )

Net increase (decrease) in cash and

cash equivalents 44,541 35,804 (32,419 )

Cash and cash equivalents at the beginning

of the financial year 81,894 126,183 161,230

Effect of foreign exchange rate changes (252 ) (757 ) (407 )

Cash and cash equivalents at the end of the

financial year 126,183 161,230 128,404

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Operating activities

For the year ended 31 March 2010, the operating cash inflow before movements in working

capital of our Group was approximately HK$64.2 million. Working capital decreased by approximately

HK$1.4 million and was principally due to the increase in trade and bills receivables, other receivables,

deposit and prepayments of approximately HK$2.6 million, the decrease in amounts due to related

companies of approximately HK$9.9 million and partly offset by the decrease in inventories of

approximately HK$6.0 million and increase in trade payables and accruals of approximately HK$4.7

million. The increase in trade and bills receivables, other receivables, deposits and prepayments mainly

arise from the increase in amount of deposit paid for purchase of raw materials, while the decrease in

amounts due to related companies is the result of the decrease in purchases from related companies

due to changes in the fabric required for producing certain garment products. Inventory decreased

due to decrease in production and purchases following the decrease in sales, while trade payables and

accruals increased due to the more relaxed credit policy of the suppliers. After accounting for changes

in working capital as explained, together with the interest paid on bank borrowings of approximately

HK$2.3 million and the tax refund of approximately HK$1.6 million, our Group recorded a net cash

inflow from operating activities of approximately HK$62.2 million.


capital of our Group was approximately HK$54.9 million. Working capital increased by approximately

HK$35.6 million and was principally attributable to the decrease in trade and bills receivables, other

receivables, deposits and prepayments of approximately HK$87.6 million and the decrease in inventory

of approximately HK$6.3 million, partly offset by the decrease in trade payables and accruals of

approximately HK$60.2 million. The decrease in trade and bills receivables, other receivables, deposits

and prepayments was mainly because of the relatively lower level of the balance in the year ended

31 March 2009, when our Group implemented a more stringent control on receivable collection by

the Group following the credit crunch. Similarly, suppliers of our Group, as affected by the credit

crunch and the then tighter credit policy of the financial institutions, opted for faster collection policy,

which is principally the reason for the decrease in trade payables and accruals as well as the amounts

due to related companies. Inventory decreased due to decrease in production and purchases following

the decrease in sales. After accounting for changes in working capital as explained, interest paid on

bank borrowings of approximately HK$3.4 million and tax paid of approximately HK$5.6 million,

our Group recorded a net cash inflow from operating activities of approximately HK$81.5 million.


capital of the Group was approximately HK$93.9 million. Working capital increased by approximately

HK$41.3 million and was principally the result of the decrease in inventories of approximately HK$43.0

million and the decrease in trade and bills receivables, other receivables, deposits and prepayments of

approximately HK$9.7 million, partly offset by the decrease in amounts due to related companies of

approximately HK$11.1 million. The decrease in inventories was mainly because of the high inventory

level as at 31 March 2007 caused by goods in transit. The decrease in amounts due to related companies

was mainly because of the decrease of fabric purchased from the VC Group. After accounting for

changes in working capital of approximately HK$41.3 million, the interest paid on bank borrowings

of approximately HK$6.8 million and tax paid of approximately HK$9.0 million, our Group recorded

a net cash inflow from operating activities of approximately HK$119.4 million.

- 163 -



Investing activities

For the year ended 31 March 2010, net cash from investing activities was approximately

HK$5.2 million, mainly comprised the purchase of office premises and prepaid lease payments of

approximately HK$44.2 million, partially offset by the net repayment from related companies of

approximately HK$45.7 million.

Net cash used in investing activities for the year ended 31 March 2009 was approximately

HK$35.7 million, mainly comprised the purchase of the current office premises and prepaid lease

payments of our Group in Hong Kong of approximately HK$58.4 million and the net advance to related

companies of approximately HK$32.3 million. The net advance to related companies was an internal

cash management arrangement between holding company and subsidiaries of the related companies.

Net cash used in investing activities for the year ended 31 March 2008 was approximately

HK$15.9 million mainly comprised of the purchase of property, plant and equipment of approximately

HK$21.9 million, partially offset by the proceeds form sales of property, plant and equipment, leasehold

land and investment properties of approximately HK$3.6 million.

Financing activities

Cash generated from our financing activities has been mainly derived from new bank loans,

trust receipt loans and mortgage loans.

Net cash used in financing activities for the year ended 31 March 2010 was approximately

HK$99.9 million, which was primarily due to net repayment of trust receipt loans of approximately

HK$62.6 million and repayment of mortgage loans of HK$2.4 million.


HK$10.0 million, primarily due to the mortgage loan raised for the purchase of office premises of our

Group in Hong Kong of approximately HK$42.6 million, together with net trust receipt loans raised

approximately HK$5.4 million and repayment of mortgage loans of approximately HK$0.4 million,

released due to the sales of investment properties.


HK$59.0 million, primarily attributable by net trust receipt loans repaid of approximately HK$24.2

million and repayment of mortgage loans of approximately HK$3.2 million.

- 164 -



Capital expenditures

Our capital expenditures have primarily been used in purchase of property, plant and equipment.

The following table sets forth, for the periods indicated, our capital expenditures:


(HK$’000) (HK$’000) (HK$’000)

Property, plant and equipment 21,916 29,644 40,549

Prepaid lease payments – 28,778 3,631

21,916 58,422 44,180

Total capital expenditures was approximately HK$21.9 million for the year ended 31 March

2008, which was mainly incurred for acquisition of property, plant and equipment.

Total capital expenditures was approximately HK$58.4 million for the year ended 31 March

2009 mainly due to the purchase of building and prepaid lease payments of the current office premises

of our Group in Hong Kong which located at 19/F and 20/F, Ford Glory Plaza, Cheung Sha Wan,

Hong Kong. Our total capital expenditures further decreased to approximately HK$44.2 million for

the year ended 31 March 2010, which was mainly incurred for acquisition of building and prepaid

lease payment of Jiangmen Factory amounting to approximately HK$33.5 million.

[Between 31 March 2010 and the Latest Practicable Date, we did not make any material capital

expenditures.]

We expect our capital expenditures in 2011 to be approximately HK$[8] million, respectively,

and intend to finance these capital expenditures primarily through a combination of internally

generated cash flow, proceeds from the [•••], and bank borrowings. As we may incur additional capital

expenditures from time to time as we pursue new opportunities to expand our production capacities,

actual expenditures may differ significantly from our current plans. Our planned capital expenditure

projects may also be changed due to changes in business plans such as potential acquisitions, individual

project progress, market conditions and outlook. Further, our ability to obtain sufficient funding for

our planned capital expenditure projects in the future is subject to a variety of uncertainties, including

our future results of operations, financial condition and cash flows, economic, political and other

conditions in the PRC, Hong Kong and other jurisdictions in which we operate.

- 165 -



COMMITMENTS

Capital commitments

The following table sets forth the aggregate amounts of our Group’s capital commitments on

a combined basis as at the dates indicated:

At 31 March 2008 2009 2010 Approximate Approximate Approximate

(HK$’000) (HK$’000) (HK$’000)

Expenditure in respect of property, plant

and equipment and prepaid lease payments

contracted for but not provided

in the Financial Information 58,258 – –

Capital expenditure in respect of the capital

injection to a wholly-owned subsidiary,

FG Shenzhen, contracted for but not

provide in the Financial Information – – 2,000

The contractual commitments as at 31 March 2008 represented acquisitions of property, plant

and equipment and prepaid lease payments for office premises. The amounts were settled during the

year ended 31 March 2009.

Operating lease commitments and arrangements

Our Group as lessee


(HK$’000) (HK$’000) (HK$’000)

Minimum lease payments paid under

operating leases in respect of premises

and warehouses during the year 3,148 6,399 5,533

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At the respective reporting dates, our Group had commitments for future minimum lease

payments under non-cancellable operating leases in respect of rented premises and warehouses which

fall due as follows:


(HK$’000) (HK$’000) (HK$’000)

Within one year 2,291 3,317 2,451

In the second to fifth year inclusive 1,314 1,733 595

Total 3,605 5,050 3,046

Leases are negotiated for terms ranging from one to four years and rental is fixed throughout

the lease period.

Our Group as lessor

At the respective reporting dates, our Group had contracted with tenants for the following

future minimum lease payments:


(HK$’000) (HK$’000) (HK$’000)

Within one year 263 – –

- 167 -



NET CURRENT ASSETS/LIABILITIES

The table below sets out, as of the end of each reporting period, selected information for our

current assets and current liabilities:


(HK$’000) (HK$’000) (HK$’000)

Current assetsInventories 68,222 62,149 56,436

Trade and bills receivables, other receivables,

deposits and prepayments 230,782 144,105 147,136

Amounts due from related companies 89,265 121,557 27,866

Derivative financial instruments 100 494 –

Prepaid lease payments – 747 463

Tax recoverable – 2,205 –

Bank balances and cash 126,183 161,230 128,404

514,552 492,487 360,305

Assets held for sale 45,391 – 28,118

559,943 492,487 388,423

Current liabilitiesTrade payables and accruals 177,102 116,865 122,697

Amounts due to related companies 100,130 50,165 27,960

Bank borrowings-amount due within one year 123,686 131,415 67,701

Tax payable 2,420 2,284 8,537

Derivative financial instruments – 170 –

403,338 300,899 226,895

Liabilities associated with assets held for sale 3,562 – 22,282

406,900 300,899 249,177

Net current assets 153,043 191,588 139,246

We recorded a net current assets position of approximately HK$139.2 million as at 31 March

2010, compared to a net current assets position of HK$191.6 million as at 31 March 2009. The net

current assets decreased by approximately 27.3% mainly because of the decrease in cash and cash

equivalent balance from approximately HK$161.2 million as at 31 March 2009 to approximately

- 168 -



HK$128.4 million as at 31 March 2010. The cash position of our Group in the year ended 31 March

2009 was the strongest compared to that in 31 March 2010 and 31 March 2008, after the implementation

of our Group’s strategy to preserve the strong liquidity position and to keep more cash on hand in

the year ended 31 March 2009 following the financial crisis and the then tighter credit policy of

the financial institutions. Amounts due from related companies arose from the treasury management

in the course of normal business operation of the then VC Group during the Track Record Period,

which varies according to the treasury need of the then VC Group. Bank borrowings due within one

year decreases due to the decrease of trade related loans following the decrease in sales in the year

ended 31 March 2010.

We recorded a net current assets position of approximately HK$191.6 million as at 31 March

2009, compared to a net current assets position of HK$153.0 million as at 31 March 2008. The net

current assets increased by approximately 25.2% mainly because of the higher cash and cash equivalent

balance of HK$161.2 million as at 31 March 2009 as compared to HK$126.2 million as at 31 March

2008, owing to the implementation of our Group’s strategy to preserve the strong liquidity position

in the year ended 31 March 2009 as explained above. The balance of trade and bills receivables,

other receivables, deposits and prepayments decreased, mainly because of the more stringent control

on receivable collection which accords our Group’s strategy of preserving strong liquidity position.

Similarly, suppliers of our Group, as affected by the financial crisis, credit crunch and the then tighter

credit policy of the financial institutions, opted for faster collection policy, which is principally the

reason for the decrease in trade payables and accruals.

TRADE AND BILLS RECEIVABLES ANALYSIS

The following table sets out the aging analysis of our trade and bills receivables (net of allowance

for doubtful debts) for the Track Record Period:


(HK$’000) (HK$’000) (HK$’000)

Trade and bills receivables (net of allowance for doubtful debts)

0-30 days 106,090 66,008 72,007

31-60 days 78,166 26,147 41,804

61-90 days 19,175 18,584 9,192

91-120 days 900 7,126 851

Over 120 days 4,586 6,803 649

Subtotal 208,917 124,668 124,503

Other receivable, deposits and prepayments 21,865 19,437 22,633

Total 230,782 144,105 147,136

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For the year ended 31 March 2010, the decrease in the total trade and bills receivables of

approximately HK$0.2 million was mainly attributable to the longer trade and bills receivables turnover

days of approximately 51 days for the year ended 31 March 2010 (as compared to approximately 47

days for the year ended 31 March 2009).

For the year ended 31 March 2009, the decrease in trade and bills receivables of approximately

HK$84.2 million was mainly because of our Group’s ability to speed up the collection of receivables

following the implementation of the Group’s strategy to preserve the strong liquidity position and to

keep more cash on hand in the year ended 31 March 2009 after the financial crisis.

The impairment loss recognised on receivables of our Group as at 31 March 2008, 2009 and 2010

were approximately HK$0.8 million, HK$0.6 million and HK$0.8 million, respectively. Management

of our Group performs regular reviews of trade receivables and provides against specific doubtful

accounts. In determining impairment loss on receivables, management takes into account the credit

history and payment pattern of their customers as well as their on-going relationship with our Group.

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or

financial reorganisation, and default or delinquency in payments are considered indicators that the

trade receivable is impaired. The impairment loss of trade receivables was made because of long

overdue from customers during the Track Record Period.


Trade and bills receivables turnover days 55 47 51

The average trade and bills receivables turnover days decreased from approximately 55 days

for the year ended 31 March 2008 to 47 days for the year ended 31 March 2009, mainly due to the

more stringent control on receivable collection and hence improvement in cash collection in the year

ended 31 March 2009 following the financial crisis. The average trade and bills receivables turnover

days increased from approximately 47 days for the year ended 31 March 2009 to 51 days for the year

ended 31 March 2010, which is within the general credit period given to customers.

We factor some of our receivables to factoring companies to hedge the risk of collection from

customers as well as to maintain a cash inflow at a desired level for our business operation. Generally,

we assess various aspects of a new customer to determine whether we should factor the receivables

from it, including the relevant volume of the purchase order, its credit reference and background as

well as the credit terms offered to it.

During the Track Record Period, we had engaged [three] factoring companies, most of the sale

that we factored are without recourse. The sales that we factored to them without recourse represented

approximately [39.9]%, [40.1]% and [23.8]%, respectively, of our total turnover during the period.

During the same period, the sales that we factored to the factoring companies with recourse accounted

for 0%, approximately 0.33% and 6.81%, respectively, of our total turnover.

- 170 -



A factoring company that we factored our receivables to encountered financial difficulties and underwent corporate restructuring during the Track Record Period which resulted in our decrease in factored receivables in the year ended 31 March 2010. We did not experience any operational and financial impact as a result of the incident and we did not experience any loss from factoring our receivables during the Track Record Period [and up to the Latest Practicable Date].

TRADE AND BILLS PAYABLES ANALYSIS

The table below shows the aging analysis of our trade and bills payables and the analysis of accruals and receipts in advance for the Track Record Period:

At 31 March 2008 2009 2010 Approximate Approximate Approximate (HK$’000) (HK$’000) (HK$’000)

Trade and bills payables

0-60 days 136,328 83,689 85,91461-90 days 15,774 6,172 7,630Over 90 days 3,969 5,859 2,338

Subtotal 156,071 95,720 95,882

Accruals and receipts in advance

Receipts in advance – 312 338Accruals 21,031 20,833 26,477

Subtotal 21,031 21,145 26,815

Trade payables and accruals 177,102 116,865 122,697

Trade and bills payables has decreased from the year ended 31 March 2008 to the year ended 31 March 2010, primarily because of the decrease in orders and hence decrease in purchases needed to meet customers’ demand. Further, the decrease of trade and bills payables as at the year ended 31 March 2009 as compared to the year ended 31 March 2008 was mainly due to the tighter credit policy of suppliers of our Group after the financial crisis and the then tighter credit policy of the financial institutions. As shown in the table below, the trade and bills payable turnover days for the year ended 31 March 2010 returned to the level of that for the year ended 31 March 2008.


Trade and bills payables turnover days 47 41 47

- 171 -



The average trade and bills payables turnover days decreased from approximately 47 days for

the year ended 31 March 2008 to 41 days for the year ended 31 March 2009, mainly due to the more

stringent control on cash collection of the suppliers following the financial crisis. The average trade

and bills payables turnover days increased from approximately 41 days for the year ended 31 March

2009 to the 47 days for the year ended 31 March 2010, which is within the general credit period

given by suppliers.

INVENTORY ANALYSIS

The following table sets out a summary of our inventory balances as of the balance sheet dates

indicated:


(HK$’000) (HK$’000) (HK$’000)

Raw materials 9,744 10,653 12,924

Work-in-progress 17,256 22,027 26,243

Finished goods 41,222 29,469 17,269

Total 68,222 62,149 56,436

Our Group is principally a sourcing management group engaging in sourcing and trading of

garments with production capacity. As of 31 March 2008, 2009, 2010, the value of our inventories

accounted for approximately 12.2%, 12.6% and 14.5% of current assets respectively. In accordance

with our existing business model, we do not have a general inventory provision policy. We normally

confirm purchase orders with our customers before we source for garments or purchase raw materials

for production which is a common practice for the garment trading industry known as “pre-sold order”.

We have a policy to regularly review the obsolescence of inventories based on the expected future

sales and the age of the inventories in order to further reduce the risk of accumulation of obsolete

inventories. We also conduct physical stock counts from time to time in order to identify obsolete or

damaged products. If the market conditions are less favourable than those forecast by the management

and our unsold inventories remain for a period longer than we expected, we will make specific

provision on an item-by-item basis and if the costs are higher than the corresponding estimated net

realisable value of certain inventories, we make a provision against such inventories. Impairment loss

was recognised on inventories for the year ended 31 March 2008 as a batch of finished goods had

been aged over one year and sold out subsequently. During the year ended 31 March 2009 and 2010,

we did not make any specific provisions for inventories, the reason being all of the ending inventories

as at 31 March 2009 and 2010 were subsequently sold higher than costs.

As at 31 March 2008 2009 2010 Approximate Approximate Approximate

Inventory turnover days [26] [21] [29]

- 172 -



The average inventory turnover days decreased from approximately 26 days for the year

ended 31 March 2008 to 21 days for the year ended 31 March 2009, mainly due to [a large batch

of finished garment products that were in the process of being delivered to a customer in the U.S.

as at 31 March 2008]. The average inventory turnover days increased from approximately 21 days

for the year ended 31 March 2009 to 29 days for the year ended 31 March 2010, mainly due to [the

increase in raw material inventory levels as a result of the addition of production in the PRC Factory

of “Knit-to-Shape” garments which require a longer production lead time of approximately 75 to 90

days compared to 45 to 60 days for “Cut-and-Sew” garments].

INDEBTEDNESS

Borrowings

The table below shows our indebtedness as of the end of each reporting period during the Track

Record Period:


(HK$’000) (HK$’000) (HK$’000)

Bank loans – secured 4,845 50,350 31,420

Bank loans – unsecured 118,841 120,885 55,466

The table below shows the maturity profile of our bank loans as of the end of each reporting

period during the Track Record Period:


(HK$’000) (HK$’000) (HK$’000)

Within one year 123,686 131,415 [67,701]

Amount due after one year – 39,820 [19,185]

At the close of business on 31 July 2010, being the latest practicable date for the purpose of

this indebtedness statement, our Group had the following indebtedness:

– bills discounted with recourse and debts factored with recourse of approximately HK$[0.6]

million;

– import loans, export loans and trust receipt loans of approximately HK$[80.5] million;

– mortgage loan of approximately HK$[20.0] million; and

- 173 -



We recorded a net current assets position of approximately HK$[180.6] million as at 31 July

2010, compared to a net current assets position of HK$[139.2] million as at 31 March 2010. The net

current assets increased by approximately [29.7]% mainly because of the net effect of increase in

trade and bills receivables of approximately HK$39.1 million, decrease in trade and bills payables of

approximately HK$54.7 million, increase in other receivables, deposits and prepayments of approximately

HK$34.3 million and decrease in cash and cash equivalent balance of approximately HK$64.0 million.

The increase in trade and other receivables was mainly because of [more sales made in June and July

2010 when compared to that in February and March 2010]. The decrease in bank balances, decrease

in trade and bills payables and increase in other receivables, deposits and prepayments were mainly

due to advance payment to suppliers as deposits to lock the price for raw materials.

Our Group generated its cash mainly from operating activities, including cash receipts from

sales of goods and net off with the cash payments to acquire inventories and other necessary operating

costs to run the business, for example, staff costs. In addition, our Group would also use its cash

for repayment of trust receipt loans and mortgage loans. Our Group expects to continue to fund its

operation in this way and not to raise material external debt financing in the near future, except for

renewing those existing banking facilities of our Group for operation use.

Our Group had no outstanding obligations under hire purchase contracts or finance leases and

it had no material contingent liabilities.

All our Group's banking facilities are secured by corporate guarantees given by VC. [Our

Directors have confirmed that guarantees will be released and replaced by guarantees from our

Company upon [•••].]

Bank borrowings (which including bills discounted with recourse and debt factored with

recourse, import loans, export loans and trust receipt loans and mortgage loan) to the extent of

approximately HK$37.1 million were secured by fixed charges on certain of our Group's assets,

including properties).

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, our

Group did not have outstanding at the close of business on 31 July 2010 any loan capital issued and

outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities

under acceptances or acceptable credits, debentures, mortgages, charges, hire purchases commitments,

guarantees or other material contingent liabilities.

Contingent liabilities

As of the Latest Practicable Date, we had no material contingent liabilities. We currently are

not involved in major legal proceedings, nor are we aware of any pending or potential major legal

proceedings involving us. If we are involved in such major legal proceedings, we would record any

contingent losses when, according to the information then obtained, it is likely that a loss had been

incurred and there is a reasonable estimate of the amount of the loss.

- 174 -



Disclaimers

Save as disclosed in “Financial Information – Indebtedness” above, and apart from intra-group

liabilities, we did not have outstanding mortgages, charges, debentures, loan capital, bank overdrafts,

loans, debt securities or other similar indebtedness, finance leases or hire purchase commitments,

liabilities under acceptances or acceptance credits or any guarantees or other material contingent

liabilities outstanding as at 31 March 2010.

Gearing ratios

The gearing ratio (calculated based on the total interest bearing debts for the respective periods,

divided by total assets for the respective periods) was approximately 19.6%, 28.2% and 21.0%

respectively for the years ended 31 March 2008, 2009 and 2010.

The gearing ratio increased from approximately 19.6% for the year ended 31 March 2008 to

approximately 28.2% for the year ended 31 March 2009, mainly attributable to the mortgage loan

raised for the acquisition of office premises and investment properties in the year ended 31 March

2009. The gearing ratio has decreased to approximately 21.0% for the year ended 31 March 2010 due

to decrease of trade loans following the decrease in sales.

The net of cash gearing ratio (calculated based on the total interest bearing debt less cash and

cash equivalents for the respective periods, divided by total assets for the respective periods) was

nil, approximately 1.7% and nil for the years ended 31 March 2008, 2009 and 2010 respectively,

indicating a strong liquidity position of the Group.

WORKING CAPITAL

Our Directors have confirmed that, taking into consideration the financial resources presently

available to us, including banking facilities and other internal resources, and the estimated net proceeds

from the [•••], we have sufficient working capital for our requirements and for at least 12 months

commencing from the date of this document.

- 175 -



DERIVATIVE FINANCIAL INSTRUMENTS

Major terms of the foreign currency forward contracts outstanding at the end of each reporting

period during the Track Record Period are as follows:

Maturity date/Notional amount Forward contract rates period of contracts

31 March 2008

17 contracts to buy in US$1 to HK$7.705 Maturity of each contract per total of US$42,500,000 month from 30 April 2008 to 31 August 2009

17 contracts to sell in US$1 to HK$7.745 Maturity of each contract per total of US$42,500,000 month from 30 April 2008 to 31 August 2009

31 March 2009

5 contracts to buy in US$1 to HK$7.705 Maturity of each contract per total of US$12,500,000 month from 30 April 2009 to 31 August 2009

5 contracts to sell in US$1 to HK$7.745 Maturity of each contract per total of US$12,500,000 month from 30 April 2009 to 31 August 2009

1 contract to sell in total of US$1 to CAD1.2980 30 September 2009 CAD800,000

31 March 2010

Nil

It is our Group’s practice to address certain foreign currency exposure that arises as a result of

entering into transactions involving large amounts of foreign currencies through the use of derivative

financial instruments. Our Group primarily enters into foreign currency forward contracts to, reduce

the effects of fluctuating foreign currency exchange rates, subject to the prevailing market conditions

and pricing; and to hedge anticipated transactions as well as receivables and payables not denominated

in the functional currency of the relevant group entities for periods consistent with its identified

exposures.

Prior approval by [our Directors] is required for all such hedging operations.

The above derivatives are measured at fair value at the end of each reporting period. The fair

values are measured using quoted forward exchange rates matching maturities of the contracts at the

end of each reporting period.

- 176 -



SUBSEQUENT EVENTS

The following events have occurred subsequent to 31 March 2010:

(i) With a resolution in writing by shareholders of FG Holdings passed on 6 September

2010, FG Holdings declared a special dividend of HK$30,000,000 to its then existing

shareholders. The dividend will be paid before [•••].

(ii) FG Holdings entered into a memorandum of understanding and Sky Winner Investment

Limited, a wholly-owned subsidiary of FG Holdings entered into a business transfer

agreement with Yoko Sun Limited, Mr. Lo Chi Hang Jack, Mr. Lai Fuk Sang and Mr.

Lan Chi Fung (collectively, the “Transferors”) on 29 July 2010 and 8 September 2010,

respectively in relation to the acquisition of an effective approximately 70% interests in

certain of Yoko Sun’s assets (“Business Assets”) for a total consideration of approximately

HK$1,200,000. It is intended that upon completion of the acquisition, the Business Assets

will be operated by Sky Winner Investment Limited, which will then be a FG subsidiary

in which FG Holdings will have approximately 70% interest whilst the remaining 30%

interests will be held by each of Mr. Lo Chi Hang Jack, Mr. Lai Fuk Sang and Mr. Lan

Chi Fung, the existing shareholders and directors of Yoko Sun, in equal proportions. The

results of Sky Winner Investment Limited will be included in the combined statement of

comprehensive income from the effective date of its establishment.

Yoko Sun is engaged in production and sales of apparel products, with an online platform

for recruitment of designers and sales of garment products, and points of sales at various

locations including Hong Kong, Taiwan and the PRC under the name of “teelocker”.

Set out below is a summary of financial information of Yoko Sun based on its financial

statements for each of the two years ended 31 December 2009 prepared in accordance

with the Small to Medium-sized Entity Financial Reporting Standards issued by HKICPA,

and audited by a certified public accountant registered in Hong Kong:

Period from 20 July 2007 (date of Year ended incorporation) to 31 December 31 December 2009 2008 Approximate Approximate

(HK$000) (HK$000)

Revenue 1,834 1,281

Profit before taxation 67 54

Profit after taxation 61 54

- 177 -



As at 31 December 2009, the total assets and net assets of Yoko Sun amounted to

approximately HK$993,000 and HK$17,000, respectively. As at 31 December 2008, the total assets and net liabilities of Yoko Sun amounted to approximately HK$440,000 and

HK$17,000, respectively.

The acquisition of the Business Assets has not been completed at the date of this

document.

PROPERTY INTERESTS

Details relating to our property interests are set out in Appendix III to this document. Jones

Lang LaSalle Sallmanns Limited, an independent property valuer, has valued the properties owned

and leased by us as at 31 July 2010. The text of their letters, summaries of values and valuation

certificates are set out in Appendix III to this document.

A reconciliation of the net book value of the relevant property interests as at 31 March 2010

to their fair value as stated in Appendix III to this document is as follows:

Approximate

HK$’000

Net book value of our Group’s property interests as at 31 March 2010 65,558

Additions –

Depreciation/Amortization (895 )

Disposals –

Net book value of our Group’s property interests as at 31 July 2010 64,663

Valuation surplus 99,637

Valuation amount as at 31 July 2010 164,300

DIVIDEND POLICY

On 6 September 2010, FG Holdings declared a special dividend of HK$30.0 million payable




million and HK$3 millions, respectively to its then shareholders for the three years ended 31 March

2008, 2009 and 2010, respectively. Save as disclosed above, no other dividend was paid by us or any




- 178 -



[We may declare dividends, if any, after taking into account, among other things, our results

of operations, cash flows and financial condition, operating and capital requirements, the amount of

distributable profits based on IFRS, the memorandum of association of our Company and the Bye-laws,

the Companies Act, applicable laws and regulations and other factors that our Directors deem relevant.

A distribution of dividend for any financial year shall be subject to Shareholders’ approval.]

NO MATERIAL ADVERSE ChANGE

Our Directors have confirmed that, during the period from 1 April 2010 to the Latest Practicable

Date (both dates inclusive), save as disclosed in the paragraph headed “Our revenue for the four

months ended 31 July 2010 and the possible impact of certain non-recurring expenses to financial

performance”, there had been no material adverse change in the financial or trading position or

prospects of our Group and no event had occurred that would materially affect the information shown

in the accountants’ report set out in Appendix I to this document.

- 179 -

FUTURE PLANS


FUTURE PLANS

Detailed description of our future plans are set out the paragraph headed “Business strategies”

under the section headed “Business” in this document.

- 180 -

SHARE CAPITAL


SHARE CAPITAL

HK$

Authorisedsharecapital:

[900,000,000] Shares of HK$0.01 each [9,000,000]

Issuedand tobe issued, fullypaidorcreditedas fullypaid

[2,000,000] Shares in issue at the date of this document [20,000]

Share Option Scheme

The Company has conditionally adopted and the shareholders of VC have approved the adoption

of the Share Option Scheme.

A summary of the principal terms of the Share Option Scheme and the details of the options

conditionally granted as at the Latest Practicable Date are set out in the paragraph headed “Share

Option Scheme” in Appendix V to this document.

- I-� -

appendix i accountants’ report


[•••]

[DRAFT]

The Directors

Ford Glory Group Holdings Limited

Dear Sirs,

We set out below our report on the financial information relating to Ford Glory Group Holdings

Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for

each of the three years ended 3� March 20�0 (the “Track Record Period”) (the “Financial Information”)

for inclusion in a document dated [•••] issued by the Company.

The Company was incorporated in Bermuda on 3 March 20�0 as an exempted company with limited

liability under Section �4 of the Companies Act �98� of Bermuda. Pursuant to a group reorganisation,

as more fully explained in the paragraph headed “Reorganisation” in Appendix [•••] to this document

(the “Reorganisation”), the Company became a holding company of the Group on [•••].

At the date of this report, the Company has interests in the following subsidiaries:

issued and place and date fully paid of incorporation/ share capital/ attributable equityname of company establishment registered capital interest held by the Group principal activities date of at 31 March this 2008 2009 2010 reportdirectly owned

Brilliant Fashion Inc. United States of Common stock – – �00% �00% Trading of garment

America (“USA”) US$�00 products

25 August 2009

Ford Glory Holdings Limited British Virgin Islands Ordinary �00% �00% �00% �00% Investment holding

(“FG Holdings”) (“BVI”) US$�00

28 May 2002

Ford Glory International Limited Hong Kong Ordinary �00% �00% �00% �00% Trading of garment

�� July �996 HK$5,000,000 products

- I-2 -



issued and place and date fully paid of incorporation/ share capital/ attributable equityname of company establishment registered capital interest held by the Group principal activities date of at 31 March this 2008 2009 2010 report

Glory Time Limited Hong Kong Ordinary 70% 70% 70% 70% Trading of garment

3 May 2004 HK$�00 products

Mayer Apparel Limited Hong Kong Ordinary 5�% 5�% 5�% 5�% Trading of garment

4 January 2006 HK$�00 products

Surefaith Limited BVI Ordinary �00% �00% �00% �00% Investment holding

26 April 2005 US$�0

Rocwide Limited BVI Ordinary �00% �00% �00% �00% Investment holding

(“Rocwide”) 6 June 2005 US$�0

Top Star Limited Hong Kong Ordinary �00% �00% �00% �00% Property holding

8 November 2002 HK$2

Top Value Inc. USA Common stock �00% �00% �00% �00% Trading of garment

27 May 2005 US$�,000 products

Wealth Choice Limited BVI Ordinary �00% �00% �00% �00% Investment holding

26 April 2005 US$�0

Value Plus (Macao Commercial Macau Quota capital �00% �00% �00% �00% Provision of quality

Offshore) Limited �8 November 2002 MOP�00,000 inspection service

indirectly owned

CSG Apparel Inc. Canada Common stock �00% �00% �00% �00% Trading of garment

�� January 200� CAD� products

PT. Victory Apparel Semarang Indonesia Ordinary �00% �00% �00% �00% Manufacture of

26 September 2005 US$300,000 garment products

Victory Apparel (Jordan) Jordan Common stock �00% �00% �00% �00% Manufacture of

Manufacturing Company �8 September 2005 JOD50,000 garment products

Limited

- I-3 -



issued and place and date fully paid of incorporation/ share capital/ attributable equityname of company establishment registered capital interest held by the Group principal activities date of at 31 March this 2008 2009 2010 report

Jiangmen V-Apparel The People’s Republic Registered 60% 60% [�00%] [�00%] Manufacture and trading

Manufacturing Ltd. of China (“PRC”) HK$30,000,000 of garment products

(“Jiangmen Factory”) (note) 3� May 2000

江門冠暉製衣有限公司

Ford Glory Trading (Shanghai) PRC Registered �00% �00% �00% �00% Trading of garment

Limited 7 February 2006 RMB�,000,000 products and

(“FG Shanghai”) (note) accessories

福之源貿易（上海）有限公司

Ford Glory (Shenzhen) PRC Registered – – �00% �00% Provision of procurement

International Ltd. �5 December 2009 HK$3,000,000 services

(“FG Shenzhen”) (note)

福源創業信息諮詢服務（深圳）有限公司

note: These companies are registered in the form of wholly foreign owned enterprise.

All of the above subsidiaries are limited liability companies incorporated/established in their

respective place of incorporation/establishment.

The statutory financial statements of all the subsidiaries incorporated in Hong Kong for the Track

Record Period were audited by Deloitte Touche Tohmatsu, certified public accountants registered in

Hong Kong. The statutory financial statements of the other subsidiaries during the Track Record Period

were audited by certified public accountants registered in their respective jurisdiction as follows:

name of subsidiary Financial year name of auditor

Jiangmen Factory Each of the three years ended 江門市新會志尚會計師事務 3� December 2009 所有限公司

FG Shanghai Each of the three years ended 上海上咨會計師事務所 3� December 2009

Value Plus (Macao [Each of the three years ended Deloitte Touche Tohmatsu

Commercial Offshore) 3� March 20�0] – Sociedade De Auditores

Limited

- I-� -



No statutory audited financial statements have been prepared for the Company, which was

incorporated in Bermuda, and those subsidiaries which were incorporated in BVI, Canada, Jordan,

Indonesia, or USA as there are no statutory audit requirements in these jurisdictions. Moreover, no

statutory audited financial statements have been prepared for FG Shenzhen for the period from date

of establishment to 31 December 2009 as the period is less than one year.

For the purpose of this report, the directors of FG Holdings, an intermediate holding company

of all the entities in the Group during the Track Record Period, have prepared consolidated financial

statements of FG Holdings and its subsidiaries for the Track Record Period or where shorter, from their

dates of incorporation/establishment in accordance with Hong Kong Financial Reporting Standards

(“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the

“HKFRS Financial Statements”). In addition, for the purpose of this report, the directors of Rocwide

have prepared consolidated financial statements of Rocwide and its subsidiary, Jiangmen Factory, for

the Track Record Period in accordance with HKFRSs issued by the HKICPA (the “Rocwide Financial

Statements”). We have undertaken an independent audit of the HKFRS Financial Statements and

the Rocwide Financial Statements in accordance with Hong Kong Standards on Auditing issued by

the HKICPA. Pursuant to the Reorganisation, which was completed on [•••], 2010 by principally

interspersing the Company between FG Holdings and its shareholders, the Company became a holding

company of the Group. For the purpose of this report, we have reviewed all relevant transactions of the

Company, which has not carried on any business other than the Reorganisation since its incorporation,

and carried out such procedures as we considered necessary for inclusion of the financial information

relating to the Company in this document.

We have examined the HKFRS Financial Statements, the management accounts of the Company

and the Rocwide Financial Statements for the Track Record Period (collectively referred to the

“Underlying Financial Statements”) in accordance with the Auditing Guideline 3.3�0 “Documents

and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial

Statements, on the basis set out in Note 2 below, after making such adjustments as considered

necessary by us to the Underlying Financial Statements in preparing our report for inclusion in this

document.

The Underlying Financial Statements are the responsibility of the directors of those companies

who approved their issue. The directors of the Company are responsible for the contents of this document

in which this report is included. It is our responsibilities to compile the Financial Information set

out in this report from the Underlying Financial Statements, to form an independent opinion on the

Financial Information and to report our opinion to you.

In our opinion, on the basis of presentation set out in Note 2 below, the Financial Information

gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31

March 2008, 2009, 2010 and of the Company as at 31 March 2010, and of the combined results and

cash flows of the Group for the respective year then ended.

- I-5 -



a. FinanciaL inForMation

coMBined stateMents oF coMpreHensiVe incoMe

Year ended 31 March 2008 2009 2010 Notes HK$’000 HK$’000 HK$’000

Revenue 8 �,430,890 �,284,268 894,35�Cost of sales (�,233,994 ) (�,�22,780 ) (736,362 )

Gross profit �96,896 �6�,488 �57,989Other income 10 4,502 3,965 3,502Other gains and losses 11 (7,533 ) ��,427 656Selling and distribution costs (�9,83� ) (�9,445 ) (�5,465 )Administrative expenses (�08,308 ) (�02,060 ) (96,469 )Share of loss of a jointly controlled entity (338 ) – –Interest on bank borrowings wholly repayable within five years (6,754 ) (3,407 ) (2,253 )

Profit before tax 12 58,634 5�,968 47,960Income tax expense 14 (2,32� ) (3,493 ) (7,��5 )

Profit for the year 56,3�3 48,475 40,845Other comprehensive income Exchange difference arising on translation to presentation currency 2,495 72� (�95 )

Total comprehensive income for the year 58,808 49,�96 40,650

Profit for the year attributable to: Owners of the Company 5�,790 45,322 35,480 Minority interests 4,523 3,�53 5,365

56,3�3 48,475 40,845

Total comprehensive income attributable to: Owners of the Company 53,338 45,639 35,285 Minority interests 5,470 3,557 5,365

58,808 49,�96 40,650

HKcents HKcents HKcents

Earnings per share – basic 16 �6.2 �4.2 ��.�

- I-6 -



coMBined stateMents oF FinanciaL position

at 31 March 2008 2009 2010 Notes HK$’000 HK$’000 HK$’000

non-current assetsProperty, plant and equipment 17 59,346 80,84� 94,688Prepaid lease payments 18 – 27,875 �7,047Goodwill 19 5,54� 5,54� 5,54�Deposit paid for acquisition of property, plant and equipment 6,473 �,020 –Interest in a jointly controlled entity 20 – – –

7�,360 ��5,277 ��7,276

current assetsInventories 21 68,222 62,�49 56,436Trade and bills receivables, other receivables, deposits and prepayments 22 230,782 �44,�05 �47,�36Amounts due from related companies 23 89,265 �2�,557 27,866Derivative financial instruments 24 �00 494 –Prepaid lease payments 18 – 747 463Tax recoverable – 2,205 –Bank balances and cash 25 �26,�83 �6�,230 �28,404

5�4,552 492,487 360,305Assets held for sale 26 45,39� – 28,��8

559,943 492,487 388,423

current liabilitiesTrade payables and accruals 27 �77,�02 ��6,865 �22,697Amounts due to related companies 23 �00,�30 50,�65 27,960Bank borrowings – amount due within one year 28 �23,686 �3�,4�5 67,70�Tax payable 2,420 2,284 8,537 Derivative financial instruments 24 – �70 –

403,338 300,899 226,895Liabilities associated with assets held for sale 26 3,562 – 22,282

406,900 300,899 249,�77

net current assets �53,043 �9�,588 �39,246

total assets less current liabilities 224,403 306,865 256,522

capital and reservesShare capital 29 – – –Reserves 204,058 243,497 229,743

equity attributable to equity holders of the company 204,058 243,497 229,743Minority interests 20,�49 23,�08 6,875

Total equity 224,207 266,605 236,6�8

non-current liabilitiesBank borrowings – amount due after one year 28 – 39,820 �9,�85Deferred taxation 30 �96 440 7�9

�96 40,260 �9,904

224,403 306,865 256,522

- I-7 -



coMBined stateMents oF cHanGes in eQuitY

attributable to equity holders of the company Foreign currency share share special translation accumulated Minority capital premium reserve reserve profits total interest total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At � April 2007 – 4,999 – 360 �52,36� �57,720 ��,766 �69,486Profit for the year – – – – 5�,790 5�,790 4,523 56,3�3Exchange difference arising on translation to presentation currency – – – �,548 – �,548 947 2,495

Total comprehensive income recognised for the year – – – �,548 5�,790 53,338 5,470 58,808Capital injection in a subsidiary – – – – – – 3,�97 3,�97Dividend recognised as distribution (Note15) – – – – (7,000 ) (7,000 ) – (7,000 )Dividend paid to minority interests – – – – – – (284 ) (284 )

At 3� March 2008 – 4,999 – �,908 �97,�5� 204,058 20,�49 224,207Profit for the year – – – – 45,322 45,322 3,�53 48,475Exchange difference arising on translation to presentation currency – – – 3�7 – 3�7 404 72�

Total comprehensive income recognised for the year – – – 3�7 45,322 45,639 3,557 49,�96Dividend recognised as distribution (Note15) – – – – (6,200 ) (6,200 ) – (6,200 )Dividend paid to minority interests – – – – – – (598 ) (598 )

At 3� March 2009 – 4,999 – 2,225 236,273 243,497 23,�08 266,605Profit for the year – – – – 35,480 35,480 5,365 40,845Exchange difference arising on translation to presentation currency – – – (�95 ) – (�95 ) – (�95 )

Total comprehensive income recognised for the year – – – (�95 ) 35,480 35,285 5,365 40,650Acquisition of additional interest in a subsidiary (note i) – – �,96� – – �,96� (20,96� ) (�9,000 )Deemded capital distribution to Victory City International Holdings Limited (“VC”) (note ii) – – (48,000 ) – – (48,000 ) – (48,000 )Dividend recognised as distribution (Note15) – – – – (3,000 ) (3,000 ) – (3,000 )Dividend paid to minority interests – – – – – – (637 ) (637 )

At 3� March 20�0 – 4,999 (46,039 ) 2,030 268,753 229,743 6,875 236,6�8

notes:

(i) The amount of HK$�,96�,000 represents discount on acquisition of 40% equity interest in Jiangmen Factory (see Note 2 for details).

(ii) This represents the deposit paid to VC for the acquisition of Rocwide (see Note 2 for details).

- I-8 -



coMBined stateMents oF casH FLoWs

Year ended 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

OPERATING ACTIVITIES


Adjustments for:

Depreciation of property, plant and equipment �4,887 �3,8�3 �3,0�5

(Gain) loss on disposal of property, plant

and equipment and prepaid lease payments (2� ) (�2,572 ) 8

Interest income (493 ) (342 ) (4�0 )

Interest on bank borrowings 6,754 3,407 2,253

Gain on fair value changes of derivative financial

instruments (200 ) (�,424 ) (�83 )

Loss on fair value changes of investment properties �2,236 – –

Impairment losses (reversal of impairment loss)

recognised on receivables 808 (�46 ) 783

Impairment losses recognised on inventories 885 – –

Release of prepaid lease payments 87 �56 792

Share of loss of a jointly controlled entity 338 – –

Operating cash flows before movements

in working capital 93,9�5 54,860 64,2�8

Decrease in inventories 42,97� 6,252 6,0�7

Decrease (increase) in trade and bills receivables,

other receivables, deposits and prepayments 9,727 87,578 (2,6�7 )

Increase (decrease) in amounts due to related

companies – trade (��,068 ) 766 (9,923 )

Increase (decrease) in trade payables and accruals (406 ) (60,�86 ) 4,660

Increase in derivative financial instruments �00 �,200 507

Cash generated from operations �35,239 90,470 62,862

Interest paid on bank borrowings (6,754 ) (3,407 ) (2,253 )

Profits tax (paid) refund (9,047 ) (5,590 ) �,622

NET CASH FROM OPERATING ACTIVITIES ��9,438 8�,473 62,23�

- I-9 -




INVESTING ACTIVITIES

Purchase of property, plant and equipment (�5,443 ) (28,624 ) (40,549 )

Purchase of prepaid lease payments – (28,778 ) (3,63� )

Deposit paid for acquisition of property,

plant and equipment (6,473 ) (�,020 ) –

Advance to related companies – non-trade (39,888 ) (92,768 ) (4,655 )

Repayment from related companies

– non-trade 4�,876 60,476 50,346

Deposits received/final proceeds from disposal of

property, plant and equipment and leasehold land �,223 �7,359 3,3�5

Deposits received/final proceeds from disposal

of investment properties 2,340 37,324 –

Interest received 493 342 4�0

NET CASH (USED IN) FROM INVESTING

ACTIVITIES (�5,872 ) (35,689 ) 5,236

FINANCING ACTIVITIES

Repayment to related companies (86,226 ) (�74,630 ) (9�,400 )

New bank loans raised – 42,560 –

Net trust receipt loans (repaid) raised (24,�79 ) 5,380 (62,6�0 )

Acquisition of additional interest in a subsidiary – – (�9,000 )

Dividend paid (7,284 ) (6,798 ) (3,637 )

Repayment of mortgage loans (3,�8� ) (39� ) (2,357 )

Advance from related companies – non-trade 58,648 �23,899 79,��8

Capital injection from minority interest to a subsidiary 3,�97 – –

NET CASH USED IN FINANCING ACTIVITIES (59,025 ) (9,980 ) (99,886 )

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 44,54� 35,804 (32,4�9 )

CASH AND CASH EQUIVALENTS AT BEGINNING

OF THE YEAR 8�,894 �26,�83 �6�,230

EFFECT OF FOREIGN EXCHANGE RATE CHANGES (252 ) (757 ) (407 )

CASH AND CASH EQUIVALENTS

AT END OF THE YEAR,

represented by bank balances and cash �26,�83 �6�,230 �28,404

- I-�0 -



notes to tHe FinanciaL inForMation

1. GeneraL

The Company is an exempted company with limited liability incorporated in Bermuda. The Company’s registered

office is located at Clarendon House, 2 Church Street, Hamilton HM��, Bermuda and its place of business is located at

�9/F., Ford Glory Plaza, 37-39 Wing Hong Street, Cheung Sha Wan, Kowloon, Hong Kong.

The Company is an investment holding company. The Group is principally engaged in the trading and manufacturing

of garment products and provision of quality inspection services.

The Company’s ultimate holding company is VC, a company incorporated in Bermuda as an exempted company

with limited liability under The Companies Act �98� of Bermuda (as amended). The Company’s immediate holding

company is Victory City Investments Limited, a company incorporated in the BVI as an exempted company with limited

liability. For the purpose of this report, VC, together with its subsidiaries other than entities comprising the Group, are

collectively referred to as the “VC Group”.

The functional currency of the Company is United States dollars (“US$”). The Financial Information is presented

in Hong Kong dollars (“HK$”).

2. Basis oF presentation oF FinanciaL inForMation

Pursuant to the Reorganisation, which was completed on [•••], 20�0 by principally interspersing the Company

between FG Holdings and its shareholders, the Company became a holding company of the Group.

The Group was controlled by VC before and after the Reorganisation. Accordingly, the Financial Information

has been prepared as if the Company had always been the holding company of the Group. The combined statements of

comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group

for the Track Record Period have been prepared as if the current group structure had been in existence throughout the

Track Record Period, or since the respective dates of incorporation/establishment of the relevant entities now comprising

the Group where this is a shorter period. The combined statements of financial position of the Group as at 3� March

2008, 2009 and 20�0 have been prepared to present the assets and liabilities of the entities now comprising the Group

which were in existence at those dates.

Since 2006, VC owned 60% interest in Jiangmen Factory through its wholly owned subsidiary, Rocwide. On �9

November 2009, the Group acquired the 40% interest in Jiangmen Factory not already controlled by VC from independent

third parties for a consideration of HK$�9,000,000. On 7 April 20�0, the Group acquired the entire equity interest in

Rocwide from VC for a consideration of HK$48,000,000. In preparing the Financial Information, the Group has adopted

the principle of merger accounting for business combination involving entities under common control. Accordingly,

Jiangmen Factory has been accounted for as a 60% subsidiary during the Track Record Period until �8 November 2009

and as a wholly-owned subsidiary thereafter.

- I-�� -



3. appLication oF HonG KonG FinanciaL reportinG standards

The HKICPA has issued a number of new and revised Hong Kong Accounting Standards (“HKASs”) and HKFRSs,

Amendments and Interpretations (“Int”s) (hereinafter collectively referred to as “new HKFRSs”) which are effective for

the Group’s financial periods beginning on � April, 2009. For the purposes of preparing and presenting the Financial

Information for the Track Record Period, the Group has adopted all these new HKFRSs consistently throughout the

Track Record Period.

At the date of this report, the following new and revised standards, amendments and interpretations have been

issued which are not yet effective:

HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs 2008�

HKFRSs (Amendments) Improvements to HKFRSs 20092

HKFRSs (Amendments) Improvements to HKFRSs 20�03

HKAS 24 (Revised) Related Party Disclosures7

HKAS 27 (Revised) Consolidated and Separate Financial Statements�

HKAS 32 (Amendment) Classification of Rights Issues5

HKAS 39 (Amendment) Eligible Hedged Items�

HKFRS � (Amendment) Additional Exemptions for First-time Adopters4

HKFRS � (Amendment) Limited Exemption from Comparative HKFRS 7

Disclosures for First-time Adopters6

HKFRS 2 (Amendment) Group Cash-settled Share-based Payment Transactions4

HKFRS 3 (Revised) Business Combinations�

HKFRS 9 Financial Instruments8

HK(IFRIC) – Int �4 (Amendment) Prepayments of a Minimum Funding Requirement7

HK(IFRIC) – Int �7 Distributions of Non-cash Assets to Owners�

HK(IFRIC) – Int �9 Extinguishing Financial Liabilities with Equity Instruments6

� Effectiveforannualperiodsbeginningonorafter1July2009.2 Amendmentsthatareeffectiveforannualperiodsbeginningonorafter1July2009or1January2010,

asappropriate.3 Effectiveforannualperiodsbeginningonorafter1July2010and1January2011,asappropriate.4 Effectiveforannualperiodsbeginningonorafter1January2010.5 Effectiveforannualperiodsbeginningonorafter1February2010.6 Effectiveforannualperiodsbeginningonorafter1July2010.7 Effectiveforannualperiodsbeginningonorafter1January2011.8 Effectiveforannualperiodsbeginningonorafter1January2013.

The Group has not early adopted these new and revised standards, amendments and interpretations in the

preparation of the Financial Information.

The application of HKFRS 3 (Revised) may affect the Group’s accounting for business combination for which

the acquisition date is on or after � April 20�0. HKAS 27 (Revised) will affect the accounting treatment for changes in

the Group’s ownership interest in a subsidiary.

HKFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial

assets and will be effective from � January 20�3, with earlier application permitted. The Standard requires all recognised

financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be

measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model

whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of

principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments

and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and

measurement of the Group’s financial assets.

- I-�2 -



In addition, as part of Improvements to HKFRSs (2009), HKAS �7 Leases has been amended in relation to

the classification of leasehold land. The amendments will be effective for the Group from � April 20�0, with earlier

application permitted. Before the amendments to HKAS �7, lesses were required to classify leasehold land as operating

leases and presented as prepaid lease payments in the combined statements of financial position. The amendments have

removed such a requirement. Instead, the amendments require the classification of leasehold land to be based on the

general principles set out in HKAS �7, that are based on the extent to which risks and rewards incidental to ownership

of a leased asset lie with the lessor or the lessee. The application of the amendments to HKAS �7 might affect the

classification and measurement of the Group’s leasehold land.

The directors of the Company anticipate that the application of the other new and revised standards, amendments

or interpretations will have no material impact on the Financial Information.

4. siGniFicant accountinG poLicies

The Financial Information has been prepared on the historical cost basis except that certain financial instruments

are measured at fair values, as explained in the accounting policies set out below.

The Financial Information has been prepared in accordance with the following accounting policies which conform

to HKFRSs issued by the HKICPA. These policies have been consistently applied throughout the Track Record Period.

In addition, the Financial Information includes applicable disclosures required by [•••].

Basis of combination

The Financial Information incorporates the financial statements of the Company and entities controlled

by the Company (its subsidiaries) and the ultimate holding company. Control is achieved where the Company

and the ultimate holding company have the power to govern the financial and operating policies of an entity so

as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the Track Record Period are included in the

combined statements of comprehensive income from the effective date of acquisition or up to the effective date

of disposal, as appropriate.

When necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting

policies in line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on combination.

Minority interests in the net assets of combined subsidiaries are presented separately from the Group’s

equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the

original business combination and the minority’s share of changes in equity since the date of the combination.

Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated

against the interests of the Group except to the extent that the minority has a binding obligation and is able to

make an additional investment to cover the losses.

Merger accounting for business combination involving entities under common control

The Financial Information incorporate the financial statement items of the combining entities or businesses

in which the common control combination occurs as if they had been combined from the date when the combining

entities or businesses first came under the control of the controlling party.

- I-�3 -



The net assets of the combining entities or businesses are combined using the existing book values from

the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest

in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of

common control combination, to the extent of the continuation of the controlling party’s interest.

The combined statements of comprehensive income includes the results of each of the combining entities

or businesses from the earliest date presented or since the date when the combining entities or businesses first

came under the common control, where this is a shorter period, regardless of the date of the common control

combination.

acquisition of additional interest in a subsidiary

When the Group increases its interests in a controlled entity, the difference between the consideration

paid by the Group to minority shareholder and the carrying value of the ownership interests acquired by the

Group is recognised in special reserve.

Goodwill

Goodwill arising on an acquisition of a business other than involving entities under common control is

carried at cost less any accumulated impairment losses and is presented separately in the combined statements

of financial position.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to the relevant

cash-generating unit (“CGU”) that is expected to benefit from the synergies of the acquisition. A CGU to which

goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit

may be impaired. For goodwill arising on an acquisition in a financial year, the CGU to which goodwill has

been allocated is tested for impairment before the end of that financial year. When the recoverable amount of a

CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount

of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the

carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or

loss. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant CGU, the attributable amount of goodwill capitalised is included

in the determination of the amount of profit or loss on disposal.

Jointly controlled entity

Joint venture arrangements that involve the establishment of a separate entity in which venturers have

joint control over the economic activity of the entity are referred to as jointly controlled entity.

The results and assets and liabilities of jointly controlled entity are incorporated in the Financial

Information using the equity method of accounting. Under the equity method, interest in a jointly controlled entity

is carried in the combined statements of financial position at cost as adjusted for post-acquisition changes in

the Group’s share of the net assets of the jointly controlled entity, less any identified impairment loss. When the

Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity

(which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly

controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses

is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive

obligations or made payments on behalf of that jointly controlled entity.

When a group entity transacts with a jointly controlled entity of the Group, profits or losses are eliminated

to the extent of the Group’s interest in the jointly controlled entity.

- I-�4 -



property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods

or services, or for administrative purposes are stated at cost less subsequent accumulated depreciation and

accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated

useful lives and after taking into account of their estimated residual value, using the straight-line method.

An item of property, plant and equipment is derecognised upon disposal or when no future economic

benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of

the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is

included in the profit or loss in the period in which the item is derecognised.

investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable

expenditure. Subsequent to initial recognition, investment properties are measured at their fair values using the

fair value model. Gains or losses arising from changes in the fair value of investment property are included in

profit or loss for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently

withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising

on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying

amount of the asset) is included in the combined statements of comprehensive income in the year in which the

item is derecognised.

prepaid lease payment

Prepaid lease payments, represent up-front payments to acquire leasehold land interests, are stated at

cost and released over the period of the lease on a straight-line basis. Prepaid lease payments which are to be

released in the next twelve months or less are classified as current assets.

non-current assets held for sale

Non-current assets are reclassified as held for sale if their carrying amounts will be recovered principally

through a sale transaction rather than through continuing use. This condition is regarded as met only when the

sale is highly probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as assets held for sale are measured at the lower of the assets’ previous

carrying amount and fair value less costs to sell except for investment properties which are measured at fair

values.

revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts

receivable for goods sold and services provided in the normal course of business, net of discounts and sales

related taxes.

Sale of goods is recognised when the goods are delivered and title has passed.

Service income is recognised when services are provided.

- I-�5 -



Rental income, including rental invoiced in advance from properties under operating leases, is recognised

on a straight-line basis over the terms of the relevant lease.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding

and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts

through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks

and rewards of ownership to the lessee. All other leases are classified as operating leases.

TheGroupasLessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term

of the relevant lease.

TheGroupasLessee

Operating lease payments are recognised as an expense on a straight line basis over the term of the

relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as

a reduction of rental expense over the lease term on a straight-line basis.

Leaseholdlandandbuilding

The land and building elements of a lease of land and building are considered separately for the purpose

of lease classification, unless the lease payments cannot be allocated reliably between the land and building

elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property,

plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests

in land are accounted for as operating leases and released over the lease term on a straight-line basis except for

those that are classified and accounted for as investment properties under the fair value model.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other

than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency

(i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges

prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in

foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary

items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the group entities which are stated at functional currency other than HK$ and the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollar) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (the foreign currency translation reserve). Exchange differences in relation to foreign operations are recognised in profit or loss in the period in which the foreign operation is disposed of.

- I-�6 -



Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of foreign

operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of exchange

prevailing at the end of the reporting period. Exchange differences arising are recognised in the foreign currency

translation reserve.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,

which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are

added to the cost of those assets until such time as the assets are substantially ready for their intended use or

sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure

on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

retirement benefit costs

Payments to the Group’s defined contribution retirement benefit plans, Mandatory Provident Fund Scheme

and state-managed retirement benefit schemes are charged as expense when employees have rendered services

entitling them to the contributions.

taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as

reported in the combined statements of comprehensive income because it excludes items of income or expense

that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted

by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities

in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred

tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally

recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be

available against which those deductible temporary differences can be utilised. Such assets and liabilities are

not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a

business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor

the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in

subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary

difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred

tax assets arising from deductible temporary differences associated with such investments and interests are only

recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the

benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of

the asset to be recovered.

- I-�7 -



Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period

in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or

substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets

reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the

reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised

in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly

in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity

respectively.

inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted

average method. Net realisable value represents the estimated selling price less all estimated costs to completion

and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and financial liabilities are recognised on the combined statements of financial position

when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial

liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or

issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value

through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities,

as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets

or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financialassets

The Group’s financial assets are classified into one of the two categories, including loans and receivables

and financial assets at fair value through profit or loss (“FVTPL”). The Group’s financial assets at FVTPL are

derivative financial instruments.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and

of allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts (including all fees paid or received that form an integral part

of the effective interest rate, transaction costs and other premiums or discounts) through the expected

life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial

recognition.

Interest income is recognised on an effective interest basis for debt instruments.

- I-�8 -



Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including

trade and bills receivables, other receivables, amounts due from related companies and bank balances

and cash) are carried at amortised cost using the effective interest method, less any identified impairment

losses (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each of reporting period.

Financial assets are impaired where there is objective evidence that, as a result of one or more events

that occurred after the initial recognition of the financial asset, the estimated future cash flows of the

financial assets have been affected.

For financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-

organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not

to be impaired individually are subsequently assessed for impairment on a collective basis. Objective

evidence of impairment for a portfolio of receivables could include the Group’s past experience of

collecting payments and observable changes in national or local economic conditions that correlate with

default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss

when there is objective evidence that the asset is impaired, and is measured as the difference between

the asset’s carrying amount and the present value of the estimated future cash flows discounted at the

original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets with the exception of trade receivables, where the carrying amount is reduced through the

use of an allowance account. Changes in the carrying amount of the allowance account are recognised in

profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance

account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of

impairment loss decreases and the decrease can be related objectively to an event occurring after the

impairment loss was recognised, the previously recognised impairment loss is reversed through profit or

loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not

exceed what the amortised cost would have been had the impairment not been recognised.

- I-�9 -



Financialliabilitiesandequity

Financial liabilities and equity instruments issued by a group entity are classified according to the

substance of the contractual arrangements entered into and the definitions of a financial liability and an equity

instrument. The Group’s financial liabilities at FVTPL are derivative financial instruments.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after

deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity

instruments are set out below.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability

and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments (including all fees paid or received that form an integral part

of the effective interest rate, transaction costs and other premiums or discounts) through the expected

life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial

recognition.

Interest expense is recognised on an effective interest basis for debt instruments.

Other financial liabilities

Other financial liabilities including trade payables, amounts due to related companies and bank

borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the group entities are recorded at the proceeds received, net of

direct issue costs.

Derivative Financial Instruments

Derivatives that are not designated and effective as hedging instruments are initially recognised

at fair value at the date a derivative contract is entered into and are subsequently remeasured to their

fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss

immediately.

- I-20 -



Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the

financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership

of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount

and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised

directly in other comprehensive income is recognised in profit or loss. If the Group retains substantially all the

risks and rewards of ownership of a transferred asset, the Group continues to recognise the financial asset and

recognise a collateralised borrowing for proceeds received.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged,

cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the

consideration paid and payable is recognised in profit or loss.

impairment losses

At the end of the reporting period, the Group reviews the carrying amounts of its assets to determine

whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,

the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the

asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the

revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying

amount that would have been determined had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is recognised as income immediately.

5. KeY sources oF estiMation uncertaintY

In the application of the Group’s accounting policies, which are described in Note 4, the directors of the Company

are required to make various estimates based on past experience, expectations of the future and other information. The

key sources of estimation uncertainty at the end of the reporting period that can significantly affect the carrying amounts

of assets and liabilities recognised in the Financial Information within the next financial year are disclosed below.

impairment loss on trade receivables

The assessment of the impairment loss on trade receivables of the Group is based on the evaluation of

collectability and aging analysis of accounts and on management’s judgment. A considerable amount of judgement

is required in assessing the ultimate realisation of these receivables, including the current creditworthiness of each

customer. If the financial conditions of the Group’s customers were to deteriorate, resulting in an impairment of

their ability to make payments, additional allowances may be required. Impairment is made based on the estimation

of the future cash flow discounted at the original effective rate to calculate the present value.

impairment loss recognised on inventories

Management reviews the inventories listing at the end of each reporting period, and impairs obsolete and

slow-moving inventory items identified that are no longer suitable for use in operation. Allowance was made by

reference to the latest market value for those inventories identified. Where the net realisable value is less than

expected, a material write down may arise.

- I-2� -



income taxes

As at 3� March 20�0, deferred tax asset in relation to unused tax losses of HK$27,948,000 (see Note 30)

was not recognised in the combined statement of financial position due to the unpredictability of future profit

streams. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable

temporary differences will be available in the future. In cases where the expectation for future profit streams

changes, a recognition of deferred tax assets may arise, which would be recognised in the profit or loss for the

period in which such a recognition takes place.

6. capitaL risK ManaGeMent

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern

while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall

strategy remained unchanged throughout the Track Record Period.

The capital structure of the Group consists of net debt, which includes bank borrowings, net of cash and cash

equivalents and equity attributable to owners of the Company, comprising issued share capital and various reserves.

The directors of the Company review the capital structure on a semi-annual basis. As part of this review, the

directors of the Company consider the cost of capital and the risks associated with each class of capital. Based on

recommendations of the directors, the Group will balance its overall capital structure through new share issues, and share

buy-backs as well as the issue of new debt or the redemption of existing debts.

7. FinanciaL instruMents

7a. categories of financial instruments


Financial assetsLoans and receivables (including cash and

cash equivalents) 435,�05 4�7,460 29�,089

Derivative financial instruments �00 494 –

Financial liabilitiesAmortised cost 379,887 3�7,�20 230,��0

Derivative financial instruments – �70 –

7b. Financial risk management objectives and policies

The Group’s major financial instruments include trade and bills receivables, other receivables, derivative

financial instruments, amounts due from (to) related companies, bank balances and cash, trade payables and bank

borrowings. Details of these financial instruments are disclosed in the respective notes. The risks associated with

these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and

liquidity risk. The policies on how to mitigate these risks are set out below. Management manages and monitors

these exposures to ensure appropriate measures are implemented on a timely and effective manner.

- I-22 -



Marketrisk

(i) Currency risk

Several subsidiaries in the Group have foreign currency sales and purchases which expose the

Group to risk due to changes in foreign exchange rates.

The carrying amounts of the Group’s monetary assets and liabilities denominated in currencies

other than functional currency of the relevant group entities at the end of each reporting period are as

follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

assetsHK$ 77,099 �60,9�4 6�,030

British Pound (“GBP”) – �7,6�9 �3,02�

Canadian Dollar (“CAD”) 9,286 4,694 4,253

Euro Dollar (“EURO”) 379 �,436 �,044

LiabilitiesHK$ �46,495 �8�,075 �25,644

The Group also occasionally enters into foreign currency forward contracts. Details of such

outstanding contracts at the end of each reporting period are set out in Note 24.

Sensitivity analysis

As HK$ is pegged to US$, the Group’s currency risk in relation to its monetary assets, monetary

liabilities and foreign currency forward contracts involving HK$/US$ exchanges is not expected to be

significant.

The Group is mainly exposed to foreign currency risk of GBP, CAD and EURO.

The following table details the Group’s sensitivity to a 5% increase and decrease in US$ against

GBP, CAD and EURO. 5% is the sensitivity rate used when reporting foreign currency risk internally to

key management personnel and represents management’s assessment of the reasonably possible change in

foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated

monetary items and adjusts their translation at year end for a 5% change in foreign currency rates. A

5% strengthening of GBP, CAD and EURO against US$ will give rise to exchange gain as follow, and

vice versa.

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Increase in profit 399 992 765

No sensitivity analysis was presented for the outstanding foreign currency forward contracts as

the impact of the foreign currency forward contracts is insignificant.

- I-23 -



(ii) Interest rate risk

The Group is exposed to cash flow interest rate risk due to the fluctuation of the prevailing

market interest rates on its bank balances and floating rate bank borrowings. Most of the Group’s bank

borrowings carry interest based on Hong Kong Interbank Offer Rate (“HIBOR”) or London Interbank

Offer Rate (“LIBOR”) plus a spread.

The Group’s exposure to interest rate on financial liabilities is detailed in the liquidity risk

management section of this note. The management monitors interest rate exposure and will consider

hedging significant interest rate exposure should the need arise.

Sensitivity analysis

In the opinion of the directors, no sensitivity analysis is prepared for the interest rate risk for

variable-rate bank balances since the impact to the Group’s results for 2008, 2009 and 20�0 is not

significant.

The sensitivity analyses below have been determined based on the exposure to floating rate of

bank borrowings at the end of the reporting period. The analysis is prepared assuming the amount of

bank borrowings outstanding at the end of the reporting period date was outstanding for the whole year.

A 50 basis point increase or decrease in interest rate is used when reporting interest rate risk internally

to key management personnel and represents management’s assessment of the reasonably possible change

in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the

Group’s profit for each of the three years ended 3� March 20�0 would decrease/increase by approximately

HK$5�0,000, HK$7�5,000 and HK$444,000, respectively.

(iii) Other price risk

The Group is exposed to other price risk through its derivative financial instruments. The fair

values of the derivative financial instruments are determined using quoted forward exchange rates matching

maturities of the derivative financial instruments. The management monitors the price risk closely. No

sensitivity analysis was presented for the outstanding foreign currency forward contracts as the impact

of these derivative financial instruments is insignificant.

Creditrisk

As at the end of each reporting period, the Group’s maximum exposure to credit risk which will cause a

financial loss to the Group due to failure to perform an obligation by the counterparties is the carrying amount

of the respective recognised financial assets as stated in the combined statements of financial position.

In order to minimise the credit risk on trade debts, management of the Group has delegated a team

responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that

follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of

each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made

for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is

significantly reduced.

The Group has no significant concentration of credit risk in relation to its trade debts, with exposure

spread over a number of customers.

- I-24 -



The Group has a concentration of credit risk in relation to the amounts due from related companies which

are companies in VC Group, the balances of which at the end of the reporting period are set out in Note 23.

Because of the close relationship between the Group and VC Group during the Track Record Period, management

was able to obtain latest information related to VC Group’s financial position and was able to take prompt action

to recover the amounts due from VC Group should the need arise. In this regard, the directors of the Company

consider that the Group’s credit risk is minimal.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings

assigned by international credit-rating agencies.

Liquidityrisk

In management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents

deemed adequate by management to finance the Group’s operations and mitigate the effects of fluctuations in cash

flows. Management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The following table details the Group’s remaining contractual maturity for its non-derivative financial

liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash

flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table

includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted

amount is derived from interest rate at the end of the reporting period.

The following table also details the Group’s liquidity analysis for its derivative financial instruments. The

tables have been drawn up based on the undiscounted contractual net cash outflows on derivative instruments

that settle on a net basis. The liquidity analysis for the Group’s derivative financial instruments are prepared

based on the contractual maturities as the management consider that the contractual maturities are essential for

an understanding of the timing of the cash flows of derivatives.

Liquidity table

Weighted total total average Less than 1-3 3 months over undiscounted carrying interest rate 1 month months to 1 year 1 year cash flows value % HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

at 31 March 2008Trade payables – 80,9�9 75,�52 – – �56,07� �56,07�

Amounts due to related

companies – �00,�30 – – – �00,�30 �00,�30

Bank borrowings 4.77 69,080 55,076 6,8�5 – �30,97� �23,686

250,�29 �30,228 6,8�5 – 387,�72 379,887

- I-25 -



Weighted total total

average Less than 1-3 3 months 1-2 2-3 3-4 4-5 undiscounted carrying

interest rate 1 month months to 1 year years years years years cash flows value

% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

at 31 March 2009

Trade payables – 46,455 49,265 – – – – – 95,720 95,720


companies – 50,�65 – – – – – – 50,�65 50,�65

Bank borrowings 3.88 33,556 77,�26 22,��8 3,5�2 3,5�4 3,52� 34,094 �77,44� �7�,235

�30,�76 �26,39� 22,��8 3,5�2 3,5�4 3,52� 34,094 323,326 3�7,�20

derivatives-net settlementForeign currency forward

contracts – – �77 – – – – �77 �70

Weighted total total

average Less than 1-3 3 months 1-2 2-3 3-4 4-5 undiscounted carrying

interest rate 1 month months to 1 year years years years years cash flows value

% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

at 31 March 2010

Trade payables – 45,336 50,546 – – – – – 95,882 95,882


companies – 27,960 – – – – – – 27,960 27,960

Bank borrowings 2.�9 25,459 64,362 954 �,809 �,8�� ,8�2 �6,056 ��2,263 �06,268

98,755 ��4,908 954 �,809 �,8�� ,8�2 �6,056 236,�05 230,��0

7c. Fair values

The fair value of financial assets and financial liabilities are determined as followings:

• the fair value of the derivative financial instruments were measured using quoted forward exchange

rates matching maturities of the derivative financial instruments.

• the fair value of other financial assets and financial liabilities are determined in accordance with

generally accepted pricing models based on discounted cash flow analysis using prices or rates

from observable current market transactions as input.

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities

recorded at amortised cost in the Financial Information approximate their fair values.

- I-26 -



Fair value measurement recognised in the combined statements of financial position

Financial instruments that are measured subsequent to initial recognition at fair value and grouped into

Level � to 3 based on the degree to which the fair value is observable.

• Level � fair value measurements are those derived from quoted prices (unadjusted) on active

market for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included

within Level � that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs

for the asset or liability that are not based on observable market data (unobservable inputs).

At the end of each reporting period, all the Group’s derivative financial instruments measured at fair

value as set out in Note 24 fell within the Level 2 category.

There were no transfers between the three Levels during the Track Record Period.

8. reVenue

The Group’s revenue represents the amount received and receivable for trading and manufacturing of garment

products and provision of quality inspection service during the Track Record Period:

2008 2009 2010 HK$’000 HK$’000 HK$’000

Sale of garment products �,392,984 �,254,�59 883,968

Provision of quality inspection service 37,906 30,�09 �0,383

�,430,890 �,284,268 894,35�

9. seGMent inForMation

HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the

Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to segments and

to assess their performance. The chief operating decision maker is the Company’s executive directors.

In the meantime of undergoing the Reorganisation to rationalise the structure of the Group in preparation for

[•••], the structure of the internal organisation of the Group has changed in a manner that causes the composition of

its operating segments to change during the year ended 3� March 20�0. The Group has presented the information of

operating segments for the Track Record Period with the current basis of internal reporting. The details of the two

operating segments are as follows:

Segment A – this segment includes certain subsidiaries of the Group which trade garment products

to USA, Canada, Hong Kong and other locations except the PRC and provide quality

inspection services

Segment B – this segment includes remaining subsidiaries of the Group which manufacture garment

products and trade garment products in the PRC

For the purpose of resources allocation and performance assessment, the directors evaluate operating results and

financial information primarily based on the above segments.

- I-27 -



Information regarding the above segments is set out below.

segment revenues and results

The following is an analysis of the Group’s revenues and results by operating segment.

Fortheyearended31March2008

segment a segment B eliminations total HK$’000 HK$’000 HK$’000 HK$’000

REVENUE

External sales �,3�7,768 ��3,�22 – �,430,890

Inter-segment sales – 242,930 (242,930 ) –

Total �,3�7,768 356,052 (242,930 ) �,430,890

RESULTS

Segment results 68,�58 8,205 76,363

Unallocated income �,923

Unallocated expenses (�2,560 )

Share of loss of a jointly controlled entity (338 )

Interest expense (6,754 )

Profit before tax 58,634



REVENUE

External sales �,�97,893 86,375 – �,284,268

Inter-segment sales – 22�,937 (22�,937 ) –

Total �,�97,893 308,3�2 (22�,937 ) �,284,268

RESULTS

Segment results 34,88� 6,334 4�,2�5

Unallocated income �4,503

Unallocated expenses (343 )


Profit before tax 5�,968

- I-28 -





REVENUE

External sales 832,962 6�,389 – 894,35�

Inter-segment sales – �99,68� (�99,68� ) –

Total 832,962 26�,070 (�99,68� ) 894,35�

RESULTS

Segment results 44,842 4,792 49,634

Unallocated income 594

Unallocated expenses (�5 )


Profit before tax 47,960

Segment profit represents the profit earned by each segment without allocation of share of loss of a jointly

controlled entity, gain (loss) on disposal of property, plant and equipment and prepaid lease payments, rental

income from and fair value change on investment properties, gain on fair value changes of derivative financial

instruments, investment income and finance costs. This is the measure reported to the executive directors for the

purposes of resource allocation and performance assessment.

Inter-segment sales are charged at prevailing market rates.

segment assets and liabilities

2008

segment a segment B total HK$’000 HK$’000 HK$’000

ASSETS

Segment assets 249,262 2�0,367 459,629

Unallocated assets �26,283

Asset classified as held for sale 45,39�

Combined total assets 63�,303

LIABILITIES

Segment liabilities 80,246 �96,986 277,232

Unallocated liabilities �26,302

Liabilities associated with

asset classified as held for sale 3,562

Combined total liabilities 407,096

- I-29 -



2009


ASSETS

Segment assets 302,83� �4�,004 443,835


Combined total assets 607,764

LIABILITIES

Segment liabilities 80,295 86,735 �67,030

Unallocated liabilities �74,�29

Combined total liabilities 34�,�59

2010


ASSETS

Segment assets �76,955 �72,222 349,�77


Asset classified as held for sale 28,��8

Combined total assets 505,699

LIABILITIES

Segment liabilities 88,894 6�,763 �50,657

Unallocated liabilities 96,�42

Liabilities associated with asset

classified as held for sale 22,282

Combined total liabilities 269,08�

For the purposes of monitoring segment performances and allocating resources between segments:

• all assets other than bank balances and cash, derivative financial instruments, assets held for sale

and tax recoverable are allocated to operating segments; and

• all liabilities other than current and deferred tax liabilities, bank borrowings, derivative financial

instruments, and liabilities associated with assets classified as held for sale are allocated to

operating segments.

- I-30 -



other segment information

Amount included in the measure of segment profit or loss or segment assets:


2008

Addition to non-current assets (note) 7,990 �3,926 2�,9�6

Depreciation 2,943 ��,944 �4,887

Impairment loss recognised on receivables 575 233 808

Release of prepaid lease payments 87 – 87

2009

Addition to non-current assets (note) 54,96� 3,46� 58,422

Depreciation 2,30� ��,5�2 �3,8�3

Impairment loss recognised on receivables 623 – 623

Reversal of impairment loss on receivables 769 – 769

Release of prepaid lease payments �56 – �56

20�0

Addition to non-current assets (note) 3,973 40,207 44,�80

Depreciation 2,088 �0,927 �3,0�5

Impairment loss recognised on receivables 808 – 808

Reversal of impairment loss on receivables 25 – 25

Release of prepaid lease payments 747 45 792

note: Amounts included additions to property, plant and equipment, prepared lease payments and

deposit paid for acquisition of property, plant and equipment.

No other amounts are regularly provided to the chief operating decision maker but not included in the

measure of segment profit or loss or segment assets.

Geographical information

The Group’s operations are mainly located in Hong Kong, the PRC, Canada and USA.

The Group’s revenue from external customers by location of customers and information about its non-

current assets by geographical location of the assets are detailed below:

revenue from external customers non-current assets Year ended 31 March at 31 March 2008 2009 2010 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong 24,05� 3�,544 �5,263 �0,324 60,83� 34,300

PRC ��6,778 92,5�2 95,356 3�,560 3�,459 65,448

USA �,006,864 8�4,752 5�3,484 482 37� 23�

Canada �50,220 �53,469 �48,8�5 3 5 –

Others �32,977 �9�,99� �2�,433 28,99� 22,6�� 7,297

�,430,890 �,284,268 894,35� 7�,360 ��5,277 ��7,276

- I-3� -



information about major customers

The following customers individually contributed �0% or more to the Group’s annual total revenue

during the Track Record Period:

Year ended 31 March 2008 2009 2010 notes HK$’000 HK$’000 HK$’000

Customer A 530,354 478,244 �37,203

Customer B i �57,45� 73,685 90,378

Customer C ii 8�,5�6 92,686 ��8,63�

Revenue from the above customers were all from Segment A.

notes:

(i) Revenue from this customer for the year ended 3� March 2009 contributed less than �0% of the

Group’s total sales for that year.

(ii) Revenue from this customer for the years ended 3� March 2008 and 2009 contributed less than

�0% of the Group’s total sales for the respective year.

information about products and services

The Group’s revenue represents sale of garment products and provision of quality inspection service

(see note 8 for details).

10. otHer incoMe


Interest income 493 342 4�0

Quota income 2,475 – –

Rental income

– investment properties 834 �37 –

– property, plant and equipment – �,638 2,256

Scrap sales 4� �,007 508

Others 659 84� 328

4,502 3,965 3,502

- I-32 -



11. otHer Gains and Losses


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

and leasehold land 2� �2,572 (8 )

Gain on fair value changes of derivative financial instruments 200 �,424 �83

Net foreign exchange gains (losses) 5,290 (2,7�5 ) �,264

(Impairment losses) reversal of impairment loss

recognised on receivables (808 ) �46 (783 )

Loss on fair value change of investment properties (�2,236 ) – –

(7,533 ) ��,427 656

12. proFit BeFore tax


Profit before tax has been arrived at after charging:

Directors’ emoluments (Note13) �,��7 �,066 �,030

Other staff costs (note):

Salaries and other allowances �29,490 96,055 86,708

Retirement benefit scheme contributions,

excluding those of directors 5,5�8 4,39� 4,95�

Total staff costs �36,�25 �0�,5�2 92,689

Auditors’ remuneration 586 508 906

Depreciation of property, plant and equipment �4,887 �3,8�3 �3,0�5

Release of prepaid lease payments 87 �56 792

Impairment loss recognised on inventories 885 – –

and after crediting:

Gross rental income from investment properties 834 �37 –

Less: direct operating expenses from investment

properties that generated rental income

during the year (229 ) (37 ) –

605 �00 –

Note: Other staff costs including salaries and other allowances of HK$33,296,000, HK$3,49�,000 and nil, and

retirement benefit scheme contributions of HK$�,549,000, HK$�2�,000 and nil for the year ended 3�

March 2008, 2009 and 20�0, respectively, represent staff worked for the Group but were employed by

ex-owner of factory previously acquired. For the year ended 3� March 2008, 2009 and 20�0, other staff

costs also including salaries and other allowances of HK$2,48�,000, HK$4,35�,000 and HK$3,587,000,

respectively, and retirement benefit scheme contributions of HK$2�2,000, HK$385,000 and HK$326,000,

respectively, represent staff worked for the Group but were employed by an agency company.

- I-33 -



13. directors’ and eMpLoYees’ eMoLuMents

directors

Details of the emoluments paid by the Group to the directors of the Company for the Track Record

Period are as follows:


Fee – – –

Salaries and other allowances �,�05 �,054 �,0�8

Retirement benefit scheme contributions �2 �2 �2

�,��7 �,066 �,030

Executive directors:

Choi Lin Hung �,��7 �,066 �,030

Ng Tze On – – –

Lau Kwok Wa, Stanley – – –

�,��7 �,066 �,030

Non-executive directors:

Li Ming Hung – – –

Chen Tien Tui – – –

– – –

Independent non-executive directors:

Lau Chi Kit – – –

Yuen Kin Kei – – –

Mak Chi Yan – – –

Wong Wai Kit, Louis – – –

– – –

�,��7 �,066 �,030

- I-34 -



employees

The five highest paid individuals of the Group included one director for the year ended 3� March 2008,

2009 and 20�0, respectively, details of his emoluments are set out above. The emoluments of the remaining four

individuals for the respective year are as follows:


Salaries and other allowances 2,84� 3,�48 3,235

Retirement benefit scheme contributions 36 36 36

2,877 3,�84 3,27�

The emoluments for each individual were below HK$�,000,000.

During the Track Record Period, no emoluments were paid by the Group to any of the directors or the

five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss

of office.

No other directors’ emoluments were paid or payable for the Track Record Period. However, certain

directors of the Company were also directors of VC whose fees, salaries and other benefits were paid by VC and

no amount was charged to the Group for services that these directors rendered to the Group during the Track

Record Period. None of the directors have waived any emoluments during the Track Record Period.

No remuneration was paid to the independent non-executive directors during the Track Record Period

as all of them were appointed subsequent to the Track Record Period.

- I-35 -



14. incoMe tax expense


The tax charge comprises:

Current tax:

Hong Kong Profits Tax

– current year 6,098 2,623 4,952

– under(over)provision in respect of prior years 26 (682 ) (95 )

6,�24 �,94� 4,857

Enterprise income tax in the PRC attributable to

subsidiaries �,�83 �,�99 �,753

Overseas income tax 326 �09 226

7,633 3,249 6,836

Deferred tax (Note30):

– current year (5,3�2 ) 255 279

– effect of change in tax rate – (�� ) –

(5,3�2 ) 244 279

2,32� 3,493 7,��5

Hong Kong

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced

corporate profits tax rate from �7.5% to �6.5% effective from the year of assessment 2008/2009. The applicable

tax rate is �7.5%, �6.5% and �6.5% for the years ended 3� March 2008, 2009 and 20�0, respectively.

prc

On �6 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New

Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued

Implementation Regulations of the New Law (the “Implementation Regulations”). Under the New Law and

Implementation Regulations, the statutory tax rate of 25% was effective from � January 2008. Before � January

2008, the statutory income tax rate was 33%.

Pursuant to the relevant laws and regulations in the PRC, a major PRC subsidiary, Jiangmen Factory is

exempted from PRC enterprise income tax for two years starting from its first profit-making year, which is 2008,

followed by a 50% reduction for the next three years. The relevant PRC subsidiary can continue to enjoy the tax

incentives granted to it according to the grandfathering provisions in the Implementation Regulations.

- I-36 -



Macau

As stated in the Decree Law No. 58/99/M, Chapter 2, Article �2, dated �8 October �999, the Macau

subsidiary is exempted from Macao Complementary Tax.

other jurisdictions


jurisdictions.

The tax charge for the Track Record Period can be reconciled to the profit before tax per the combined

statements of comprehensive income as follows:



Applicable tax rate: �7.5% �6.5% �6.5%

Tax at the domestic income tax rate �0,26� 8,575 7,9�3

Tax effect of expenses not deductible for tax purpose �,076 2,298 59�

The effect of income not taxable for tax purpose(note) (3,432 ) (2,�47 ) (666 )

Tax effect of utilisation of tax losses previously

not recognised (79 ) (596 ) (284 )

Tax effect of tax losses not recognised 502 – �45

Income tax on concessionary rate and tax exemption (6,�64 ) (4,450 ) (�,296 )

Effect of different tax rates of subsidiaries operating

in other jurisdictions �3� 352 572

Under(over) provision in respect of prior years 26 (682 ) (95 )

Decrease in opening deferred tax liabilities resulting

from a decrease in applicable rate – (�� ) –

Tax effect of withholding tax on the undistributed

profits of PRC subsidiaries earned since

� January 2008 – �54 235

Tax charge for the year 2,32� 3,493 7,��5

note: The amount for the year ended 3� March 2008 includes HK$3,223,000 in respect of tax effect of

fair value change of investment properties not taxable upon reclassification of such investment

properties to assets held for sale. The amount for the year ended 3� March 2009 includes

HK$2,074,000 in respect of tax effect of gain on disposal of property, plant and equipment.

- I-37 -



15. diVidends

The Company did not declare nor pay any dividend during the Trade Record Period. However, FG Holdings, an

intermediate holding company, paid the following dividends to its then shareholders during the Track Record Period:


Dividend recognised as distribution during

the Track Record Period:

Interim dividend for the year ended 3� March 2008 7,000 – –

Interim dividend for the year ended 3� March 2009 – 6,200 –

Interim dividend for the year ended 3� March 20�0 – – 3,000

7,000 6,200 3,000

With a resolution in writing by the Company’s shareholders passed on [date], the Company declared a special

dividend of HK$30,000,000 to its then existing shareholders.

16. earninGs per sHare

The calculation of the basic earnings per share for the Track Record Period is based on the following data:


Profit for the year attributable to owners

of the Company for the purpose of basic

earnings (loss) per share [•••] [•••] [•••]

Number of ordinary shares for the purpose

of basic earnings per share [•••] [•••] [•••]

The weighted average number of ordinary shares for the purpose of calculating basic earnings per share

for the Track Record Period has been retrospectively adjusted for the [•••] as described more fully in the paragraph

headed “Resolution passed at extraordinary general meeting of the Company on [•••], 20�0” in Appendix [•••] to this

document.

No diluted earnings per share are presented as there were no dilutive ordinary shares in issue during the Track

Record Period.

- I-38 -



17. propertY, pLant and eQuipMent

Furniture, fixtures and Leasehold Motor plant and Buildings equipment improvements vehicles machinery total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000COSTAt � April 2007 6,528 �3,09� 9,988 2,889 46,84� 79,337Exchange realignment (25 ) 429 350 53 �,587 2,394Additions – 3,402 2,�34 264 9,643 �5,443Transfer to asset held for sale (Note26) (2,672 ) – – – – (2,672 )Disposals – (�4 ) – – (�39 ) (�53 )

At 3� March 2008 3,83� �6,908 �2,472 3,206 57,932 94,349Exchange realignment �8 �88 �5� �8 752 �,�27Additions 29,993 �,304 �,250 862 �,688 35,097Disposals – (499 ) – (8� ) (70 ) (650 )

At 3� March 2009 33,842 �7,90� �3,873 4,005 60,302 �29,923Exchange realignment 7 (29 ) (36 ) (�2 ) (�05 ) (�75 )Additions 29,873 �,434 3,469 �,355 5,438 4�,569Transfer to asset held for sale (Note26) (�3,956 ) – (2�0 ) – – (�4,�66 )Disposals – (�,650 ) (�,5�3 ) (�,0�5 ) (�,686 ) (5,864 )

At 3� March 20�0 49,766 �7,656 �5,583 4,333 63,949 �5�,287

DEPRECIATIONAt � April 2007 545 4,484 2,523 �,404 ��,�6� 20,��7Exchange realignment (� ) �47 8� 24 �59 4�0Provided for the year 282 3,044 2,070 575 8,9�6 �4,887Eliminated on transfer to asset held for sale (Note26) (378 ) – – – – (378 )Eliminated on disposals – (5 ) – – (28 ) (33 )

At 3� March 2008 448 7,670 4,674 2,003 20,208 35,003Exchange realignment 2 50 96 �2 474 634Provided for the year 225 2,364 �,690 637 8,897 �3,8�3Eliminated on disposals – (287 ) – (�7 ) (64 ) (368 )

At 3� March 2009 675 9,797 6,460 2,635 29,5�5 49,082Exchange realignment � (�0 ) (�2 ) (5 ) (3� ) (57 )Provided for the year 953 2,354 2,�42 545 7,02� �3,0�5Eliminated on disposals – (�,525 ) (�,323 ) (986 ) (�,607 ) (5,44� )

At 3� March 20�0 �,629 �0,6�6 7,267 2,�89 34,898 56,599

CARRYING VALUEAt 3� March 2008 3,383 9,238 7,798 �,203 37,724 59,346

At 3� March 2009 33,�67 8,�04 7,4�3 �,370 30,787 80,84�

At 3� March 20�0 48,�37 7,040 8,3�6 2,�44 29,05� 94,688

- I-39 -



The above items of property, plant and equipment are depreciated using the straight-line method at the following

rates per annum or over the following years:

Buildings 4%

Furniture, fixtures and equipment �5% – 25%

Leasehold improvements 5 to �0 years or over the term of the relevant leases, if shorter

Motor vehicles 20%

Plant and machinery 62/3% – 25%

18. prepaid Lease paYMents

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

The Group’s prepaid lease payments comprise:

Leasehold land in Hong Kong:

Medium-term lease – 28,622 �3,923

Leasehold land in the PRC:

Medium-term lease – – 3,587

– 28,622 �7,5�0

Analysed for reporting purposes as:

Current asset – 747 463

Non-current asset – 27,875 �7,047

– 28,622 �7,5�0

19. GoodWiLL

HK$’000

COST

At � April 2007 and at the end of each reporting period 5,54�

The carrying amount of goodwill is related to Jiangmen Factory which is in segment B. For the purposes of

impairment testing, goodwill was allocated to a CGU relating to the garment product manufacturing business. The

recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow

projections based on financial budgets approved by management covering a 5-year period, and discount rate of 4%. The

cash flows beyond the 5-year period are extrapolated using a steady 4% growth rate. This growth rate is based on the

relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Other

key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted

sales and gross margin, such estimation is based on the unit’s past performance and management’s expectations for the

market development. Management believes that any reasonably possible change in any of these assumptions (even on

the assumption with no growth rate and a higher discount rate of �0%) would not cause the carrying amount to exceed

the recoverable amount.

- I-40 -



20. interest in a JointLY controLLed entitY

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Cost of unlisted investment in a jointly controlled entity �,340 �,340 �,340

Share of post-acquisition loss (�,340 ) (�,340 ) (�,340 )

– – –

During the Track Record Period, the Group had interest in the following jointly controlled entity:

proportion of Form of principal nominal value of business place of place of issued capitalname of entity structure incorporation operation held by the Group principal activity

Gojifashion Inc. Incorporation Canada Canada 50% Inactive

The jointly controlled entity is inactive and has insignificant assets and liabilities. The Group has discontinued

recognition of its share of losses of the jointly controlled entity. The amounts of unrecognised share of the jointly

controlled entity, both for the year and cumulatively, are insignificant.

21. inVentories

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Raw materials 9,744 �0,653 �2,924

Work in progress �7,256 22,027 26,243

Finished goods 4�,222 29,469 �7,269

68,222 62,�49 56,436

- I-4� -



22. trade and BiLLs receiVaBLes, otHer receiVaBLes, deposits and prepaYMents

The Group allows its trade customers a credit period of 30 to �20 days. Aged analysis of the Group’s trade and

bills receivables presented based on the invoice date at the end of each reporting period are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Trade receivables:

0 – 30 days 95,492 6�,266 68,390

3� – 60 days 7�,309 24,773 40,009

6� – 90 days �8,�7� �3,467 8,584

9� – �20 days 900 5,065 85�

Over �20 days 4,586 6,803 649

�90,458 ��,374 ��8,483

Bills receivables:

0 – 30 days �0,598 4,742 3,6�7

3� – 60 days 6,857 �,374 �,795

6� – 90 days �,004 5,��7 608

9� – �20 days – 2,06� –

�8,459 �3,294 6,020

Other receivables, deposits and prepayments:

Deposits and prepayments �,85� 3,858 5,365

Deposits paid for purchase of raw materials 8,606 4,34� 6,882

Others ��,408 ��,238 �0,386

2�,865 �9,437 22,633

230,782 �44,�05 �47,�36

Before accepting any new customers, the Group assesses and understands the potential customer’s credit quality.

Management review each customer’s credit quality regularly. All trade receivables that are neither past due nor impaired

have good credit quality after taking into account of the repayment history of the trade customers. The Group has not

identified any credit risk on these trade receivables. Included in the trade receivable balance are the following past due

debts for which no impairment loss has been provided:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Over �20 days 4,586 6,803 649

- I-42 -



The Group did not hold any collateral against the above amounts. However, management believes that these

amounts are still recoverable because there has not been an adverse change in the relevant entities’ credit quality. The

Group has assessed the credit quality of the trade receivables by using the internal assessment, taking into account of

the repayment history and financial difficulties (if any) of the trade customers and has not identified any credit risk on

these trade receivables.

As at March 3�, 2008, 2009 and 20�0, the Group discounted certain bill receivables to banks with recourse. The

Group continued to recognise the portion of carrying amount of the respective receivables which were discounted until

they were eventually settled by the customers as the Group was still exposed to credit risk on these receivables. As at

March 3�, 2008, 2009 and 20�0, the carrying amount of bill receivables discounted with recourse was HK$4,845,000,

HK$8,�8�,000 and HK$2,�42,000, respectively.

The amount of trade and bills receivables, other receivables that are denominated in currencies other than the

functional currency of the relevant group entities are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

HK$ �70 2,330 �,0�0

GBP – �46 –

CAD 9,286 2,684 4�2

EURO �40 – –

Movement in the allowance for doubtful debts

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Balance at beginning of the year – 808 662

Impairment losses recognised on receivables 808 623 808

Amount recovered during the year – (769 ) (25 )

Balance at end of the year 808 662 �,445

The impairment losses recognised and the amounts written off as uncollectible (if any) were related to customers

that were in financial difficulties.

- I-43 -



23. aMounts due FroM (to) reLated coMpanies

Details of the balances with related companies are as follows:

Maximum amount outstanding at 31 March during the year ended 31 March 2008 2009 2010 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Amounts due from fellow subsidiaries – non-trade (notes(i)&(ii)) 75,538 4,063 4,655 75,538 75,538 4,655Amount due from ultimate holding company – non-trade (notes(i)&(ii)) �3,727 ��7,494 23,2�� 4,657 ��7,494 ��7,494

89,265 �2�,557 27,866

Amounts due to fellow subsidiaries – trade ��,20� ��,967 2,044 – non-trade (notes(i)&(ii)) 88,929 38,�98 25,9�6

�00,�30 50,�65 27,960

notes:

(i) All the above balances are unsecured, interest-free and repayable on demand.

(ii) The non-trade balances arose as a result of treasury management by VC Group during the Track Record

Period. In the opinion of the directors, all non-trade balances will be settled prior to [•••].

Aged analysis of the Group’s amount due to related companies at the end of each reporting period are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Amounts due to fellow subsidiaries: – trade 0 – 30 days 7,774 8,788 9�3 3� – 60 days 2,�04 �,429 332 6� – 90 days �,323 �,750 799

��,20� ��,967 2,044

- I-44 -



The amounts due from (to) related companies that are denominated in a currency other than the functional

currency of the relevant group entities are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

HK$

Amounts due from fellow subsidiaries – non-trade ��,837 – 4,655

Amount due from ultimate holding company – non-trade �3,727 ��7,494 23,2��

25,564 ��7,494 27,866

HK$

Amounts due to fellow subsidiaries – non-trade 44,04� �0,667 23,7�4

24. deriVatiVe FinanciaL instruMents

Major terms of the outstanding foreign currency forward contracts outstanding at the end of each reporting

period are as follows:

notional amount Forward contract rates Maturity date/period of contracts

2008�7 contracts to buy in total of US$42,500,000 US$� to HK$7.705 Maturity of each contract per month from

30 April 2008 to 3� August 2009

�7 contracts to sell in total of US$42,500,000 US$� to HK$7.745 Maturity of each contract per month from


20095 contracts to buy in total of US$�2,500,000 US$� to HK$7.705 Maturity of each contract per month from


5 contracts to sell in total of US$�2,500,000 US$� to HK$7.745 Maturity of each contract per month from


� contract to sell in total of CAD800,000 US$� to CAD�.2980 30 September 2009

2010Nil

The above derivatives were measured at fair value at the end of each reporting period. The fair value are measured

using quoted forward exchange rates matching maturities of the contracts at the end of each reporting period.

- I-45 -



25. BanK BaLances and casH

Bank balances and cash

Bank balances and cash of the Group comprise bank balances and cash held and short-term bank

deposits.

All bank balances carry prevailing market deposit rates. The range of effective interest rates at the end

of each reporting period are as follows:

at 31 March

2008 �.5% to 2.7% per annum

2009 0.0�% to �.5% per annum

2010 0.00�% to 0.8% per annum

Bank balances and cash that are denominated in currencies other than the functional currency of the

relevant group entities are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

HK$ 5�,365 4�,090 32,�54

GBP – �7,473 �3,02�

CAD – 2,0�0 3,84�

EURO 239 �,436 �,044

26. assets HeLd For saLe/LiaBiLities associated WitH assets HeLd For saLe

2008

On �7 October 2007, the Group entered into two separate sales and purchase agreements with independent

third parties to dispose of certain property interests comprising a building for own use purpose and leasehold land

for cash consideration of HK$�8,336,000 and investment properties for cash consideration of HK$39,664,000.

Accordingly, the relevant property interests were reclassified from property, plant and equipment,

prepaid lease payments and investment properties with the carrying amount of HK$2,294,000, HK$3,433,000

and HK$39,664,000, respectively, to assets held for sale in the combined statement of financial position as at 3�

March 2008. The fair value of the Group’s investment properties at 3� March 2008 has been determined by the

directors of the FG Holdings by reference to the consideration in sales and purchase agreement.

The liabilities associated with assets held for sale in the combined statement of financial position at 3�

March 2008 mainly included the sale deposit of HK$3,422,000 in respect of the above disposal.

The above disposal was completed on 27 May 2008 resulting in a gain on disposal of HK$�2,549,000

(net of expenses of HK$60,000 related to the disposal) for the year ended 3� March 2009.

- I-46 -



2010

On 28 January 20�0, the Group entered into a sales agreement with an independent third party to dispose

of a self-used building.

Accordingly, the relevant property interests were reclassified from property, plant and equipment and

prepaid lease payments with the carrying amount of HK$�4,�66,000 and HK$�3,952,000, respectively, to assets

held for sale in the combined statement of financial position as at 3� March 20�0.

The Group received a sale deposit of HK$2,900,000 in respect of the above disposal which together

with bank borrowings of HK$�9,382,000 were classified as liabilities associated with assets held for sale in the

combined statement of financial position as at 3� March 20�0.

The above disposal has not yet been completed at the date of this report.

27. trade paYaBLes and accruaLs

Ageing analysis of the Group’s trade payables presented based on the invoice date at the respective reporting

dates are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Trade payables:

0 – 60 days �36,328 83,689 85,9�4

6� – 90 days �5,774 6,�72 7,630

Over 90 days 3,969 5,859 2,338

�56,07� 95,720 95,882

Accruals 2�,03� 20,833 26,477

Receipts in advance – 3�2 338

2�,03� 2�,�45 26,8�5

�77,�02 ��6,865 �22,697

The credit period taken for trade purchases is 30 – 90 days. The Group has financial risk management policies

in place to ensure that all payables are settled within the credit periods granted.

- I-47 -



The amount of trade payables that are denominated in a currency other than the functional currency of the

relevant group entities are as follows:


HK$ 3,904 7,354 6,652

28. BanK BorroWinGs

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Bills discounted with recourse and debts factored

with recourse 4,845 8,�8� 2,�42

Import loans, export loans and trust receipts loans ��8,84� �20,885 64,3�4

Mortgage loans – 42,�69 20,430

�23,686 �7�,235 86,886

Analysed as:

– secured 4,845 50,350 3�,420

– unsecured ��8,84� �20,885 55,466

�23,686 �7�,235 86,886

Carrying amount repayable:

Within one year �23,686 �3�,4�5 67,70�

In more than one year but not more than two years – 2,4�2 �,276

In more than two years but not more than three years – 2,475 �,3��

In more than three years but not more than four years – 2,545 �,345

In more than four years – 32,388 �5,253

�23,686 �7�,235 86,886

Less: Amount due within one year included in

current liabilities (�23,686 ) (�3�,4�5 ) (67,70� )

Amount due after one year – 39,820 �9,�85

- I-48 -



All the Group’s bank borrowings carry floating interest rates. The range of contractual interest rates at the end

of each reporting period are as follows:

at 31 March

2008 HIBOR plus 0.75% to LIBOR plus 0.95% per annum



The range of effective interest rates at the end of the each reporting period are as follows:

at 31 March

2008 4.29% to 4.54% per annum

2009 2.67% to 3.90% per annum

2010 �.75% to 3.50% per annum

The amounts of bank borrowings that are denominated in a currency other than the functional currency of the

relevant group entities are set out below:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

HK$ 98,550 �63,054 75,896

29. sHare capitaL

number of shares amount HK$’000

the companyOrdinary shares of HK$0.0� each

Authorised:

On 3 March 20�0 (date of incorporation) and

balance at 3� March 20�0 �,000,000 �0

Issued and fully paid:

Issued of shares on 3 March 20�0 (date of

incorporation) and balance at 3� March 20�0 3 –

For the purpose of the presentation of the combined statements of financial position, the balances of the share

capital at � January 2008, 3� March 2008 and 3� March 2009 represent the combined share capital of FG Holdings

and Rocwide. The balance of the share capital at 3� March 20�0 represent the combined share capital of FG Holdings,

Rocwide and the Company.

- I-49 -



30. deFerred taxation

The following are the major categories of deferred tax liabilities recognised and movements thereon during the

Track Record Period:

accelerated revaluation dividend tax of investment withholding depreciation properties tax total HK$’000 HK$’000 HK$’000 HK$’000

At � April 2007 �98 5,3�0 – 5,508

Credit to profit or loss (2 ) (5,3�0 ) – (5,3�2 )

At 3� March 2008 �96 – – �96

Charge to profit or loss �0� – �54 255

Effect of change in tax rate (�� ) – – (�� )

At 3� March 2009 286 – �54 440

Charged to profit or loss 44 – 235 279

At 3� March 20�0 330 – 389 7�9

The Group had unused tax losses of approximately HK$32,40�,000, HK$28,790,000 and HK$27,948,000 as at

3� March 2008, 2009 and 20�0, respectively, which are available for offset against future profits. No deferred tax assets

have been recognised in respect of these unused tax losses due to the unpredictability of future profit streams and such

unused tax losses can be carried forward indefinitely.

Under the EIT Law of PRC, withholding tax is imposed on dividends declared in respect of profit carried by PRC

subsidiaries from � January 2008 onwards. As at 3� March 2008, 2009 and 20�0, deferred taxation has been provided

in full in respect of any temporary differences attributable to such accumulated profits.

- I-50 -



31. pLedGe oF assets

At the end of each reporting period, the carrying value of the Group’s assets which were pledged to secure credit

facilities granted to the Group are as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Property, plant and equipment – 29,993 �5,823

Prepaid lease payment – 28,622 �3,924

– 58,6�5 29,747

Assets held for sale

– property, plant and equipment – – �4,�66

– prepaid lease payment – – �3,952

– – 28,��8

– 58,6�5 57,865

32. coMMitMents

(i) capital and other commitments

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Expenditure in respect of property,

plant and equipment and prepaid lease payments

contracted for but not provided in the

Financial Information 58,258 – –

Capital expenditure in respect of the

capital injection to a wholly-owned subsidiary,

FG Shenzhen, contracted for but not provide

in the Financial Information – – 2,000

- I-5� -



(ii) operating lease commitments and arrangements

TheGroupaslessee


Minimum lease payments paid under operating

leases in respect of premises and warehouses

during the year 3,�48 6,399 5,533

At the end of each reporting period, the Group had commitments for future minimum lease payments under

non-cancellable operating leases in respect of rented premises and warehouses which fall due as follows:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Within one year 2,29� 3,3�7 2,45�

In the second to fifth year inclusive �,3�4 �,733 595

3,605 5,050 3,046

Leases are negotiated for terms ranging from one to four years and rental is fixed throughout the lease

period.

TheGroupaslessor

At the end of each reporting period, the Group had contracted with tenants for the following future

minimum lease payments:

at 31 March 2008 2009 2010 HK$’000 HK$’000 HK$’000

Within one year 263 – –

33. non-casH transaction

During the year ended 3� March 20�0, the deposit of HK$48,000,000 paid for the acquisition of subsidiaries

recognised as deemed capital distribution to VC in the combined statement of changes in equity was settled through

current account with a related company.

- I-52 -



34. reLated partY discLosures

(i) transactions

During the Track Record Period, the Group had the following transactions with related parties:

Year ended 31 March notes 2008 2009 2010 HK$’000 HK$’000 HK$’000

VC Group

Purchase of fabrics 84,642 98,94� 32,0�6

Purchase of yarn – – �,706

Rent paid i �,605 �,55� 775

Utility expenses paid �,937 2,2�0 3,93�

Management fee expenses paid i 960 960 960

Dividend paid 3,570 3,�62 �,530

Other related party – Kimberley

Purchase of apparel products ii 38,295 53,962 69,8�6

Notes:

(i) Rent paid and management fee expenses paid have been discontinued in October 2009 and

September 20�0, respectively.

(ii) On � April 2007, the Group entered into a master sale and purchase agreement (“Kimberley-Mayer

Master Agreement”) with 加美(清遠)製衣有限公司 Kimberley (Qing Yuan) Garment Limited

(“Kimberley”). Kimberley is owned by a director of a subsidiary of the Company. Pursuant to

the Kimberley-Mayer Master Agreement, Kimberley agreed to supply apparel products to the

Group. The Group placed deposits with Kimberley in the amount of HK$4,894,000, HK$�,020,000

and HK$5,5�8,000 at 3� March, 2008, 2009 and 20�0, respectively (included in trade and other

receivable), and purchased apparel products from Kimberley in the amounts as stated above for

the respective year then ended.

In addition, since �9 November 2009, the VC Group has leased certain land from, and provided waste

water treatment services to, the Group, at no cost, as set out in the section headed “Exempted continuing connected

transactions” in this document.

(ii) Balances

Details of balances with VC Group are set out in Note 23.

(iii) Guarantees

All the Group’s bank borrowings are guaranteed by VC Group throughout the Track Record Period. The

guarantee provided by VC Group is released before [•••].

(iV) compensation of key management personnel

The directors of the Company and the five highest paid employees are identified as key management

members of the Group, their compensation during the Track Record Period is set out in Note �3.

- I-53 -



B. FinanciaL inForMation oF tHe coMpanY

The Company was incorporated on 3 March 20�0 with an authorised share capital of HK$�0,000

divided into �,000,000 shares of HK$0.0� each. As at 3� March 20�0, the Company had amounts due

from shareholders of HK$0.03 and share capital of HK$0.03. The Company has not carried on any

business since its date of incorporation to 3� March 20�0, hence there was no distributable reserve

as at 3� March 20�0.

c. directors’ reMuneration

Save as disclosed in this report, no remuneration was paid or is payable by the Group to the

Company’s directors in respect of the Track Record Period.

Under the arrangement presently in force, the aggregate remuneration of the Company’s directors

for the year ended 3� March 20�� are set out in the paragraph headed [“Disclosure of interests”] in

Appendix [•••] to this document.

d. suBseQuent eVents

The following events have occurred subsequent to 3� March 20�0:

(i) With a resolution in writing by the Company’s shareholders passed on [date], the Company

declared a special dividend of HK$[30,000,000] to its then existing shareholders. The

dividend was fully paid on [•••].

(ii) FG Holdings entered into a memorandum of understanding [and a business transfer

agreement] with Yoko Sun Limited (“Yoko Sun”), Mr. Lo Chi Hang Jack, Mr. Lai Fuk

Sang and Mr. Lan Chi Fung (collectively, the “Transferors”) on 29 July 20�0 and [[•••]

September 20�0], respectively in relation to the acquisition of an effective 70% interests in

certain of Yoko Sun’s assets (“Business Assets”) for a total consideration of HK$�,200,000.

It is intended that FG Holdings will set up a new subsidiary in which FG Holdings will

have a 70% interest whilst the remaining 30% interests will be held by each of Mr. Lo

Chi Hang Jack, Mr. Lai Fuk Sang and Mr. Lan Chi Fung, the existing shareholders and

directors of Yoko Sun, in equal proportions, and that the new subsidiary will operate the

Business Assets. The results of this subsidiary will be included in the combined statement

of comprehensive income from the effective date of its establishment.

Yoko Sun is engaged in production and sales of apparel products, with an online platform

for recruitment of designers and sales of garment products, and points of sales at various

locations including Hong Kong, Taiwan and the PRC under the name of “teelocker”.

- I-54 -



Set out below is a summary of financial information of Yoko Sun based on its financial

statements for the periods stated below prepared in accordance with the Small to Medium-

sized Entity Financial Reporting Standards issued by HKICPA, and audited by a certified

public accountant registered in Hong Kong:

period from 20 July 2007 (date of Year ended incorporation) to 31 december 31 december 2009 2008 HK$000 HK$000

Revenue �,834 �,28�

Profit before taxation 67 54

Profit after taxation 6� 54

As at 3� December 2009, the total assets and net assets of Yoko Sun amounted to

approximately HK$993,000 and HK$�7,000, respectively. As at 3� December 2008, the

total assets and net liabilities of Yoko Sun amounted to approximately HK$440,000 and

HK$�7,000, respectively.

[The acquisition of the Business Assets has not been completed at the date of this

report.]

e. suBseQuent FinanciaL stateMents

No audited financial statements have been prepared by the Group, the Company or any of its

subsidiaries in respect of any period subsequent to 3� March 20�0.

Yours faithfully,

deloitte touche tohmatsuCertifiedPublicAccountants

Hong Kong

- III-� -

appendix iii property valuation


The following is the text of a letter, summary of values and valuation certificates, prepared for

the purpose of incorporation in this document received from Jones Lang LaSalle Sallmanns Limited,

an independent valuer, in connection with its valuation as at 31 July 2010 of the property interests

of the Group.

[•••] 20�0

The Board of Directors

Ford Glory Group Holdings Limited

Dear Sirs,

In accordance with your instructions to value the properties in which Ford Glory Group Holdings

Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) have

interests in the People’s Republic of China (the “PRC”), Hong Kong, Macau, Indonesia, Jordan and

United States of America (“USA”), we confirm that we have carried out inspections, made relevant

enquiries and searches and obtained such further information as we consider necessary for the purpose

of providing you with our opinion of the capital values of the property interests as at 3� July 20�0

(the “date of valuation”).

Our valuation of the property interests represents the market value which we would define as

intended to mean “the estimated amount for which a property should exchange on the date of valuation

between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing

wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

Where, due to the nature of the buildings and structures of the properties in the PRC and

Jordan, there are no market sales comparables readily available, the property interests in Group I and

Group III have been valued on the basis of their depreciated replacement costs.

Depreciated replacement cost is defined as “the current cost of replacement (reproduction)

of a property less deductions for physical deterioration and all relevant forms of obsolescence and

optimization.” It is based on an estimate of the market value for the existing use of the land, plus

the current cost of replacement (reproduction) of the improvements, less deductions for physical

deterioration and all relevant forms of obsolescence and optimization. The depreciated replacement

cost of the property interest is subject to adequate potential profitability of the concerned business.

We have valued the property interest in Group II by direct comparison approach assuming sale

of the property interest in its existing state with the benefit of immediate vacant possession and by

making reference to comparable sales transactions as available in the relevant market.

- III-2 -



We have attributed no commercial value to the property interests in Group IV, Group V and

Group VI, which are leased by the Group, due either to the short-term nature of the lease or the

prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rent.

Our valuation has been made on the assumption that the seller sells the property interests in the

market without the benefit of a deferred term contract, leaseback, joint venture, management agreement

or any similar arrangement, which could serve to affect the values of the property interests.

No allowance has been made in our report for any charge, mortgage or amount owing on any

of the property interests valued nor for any expense or taxation which may be incurred in effecting a

sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions

and outgoings of an onerous nature, which could affect their values.

In valuing the property interests, we have complied with all requirements contained in [•••];

the RICS Valuation Standards published by the Royal Institution of Chartered Surveyors; the HKIS

Valuation Standards on Properties published by the Hong Kong Institute of Surveyors; and the

International Valuation Standards published by the International Valuation Standards Council.

We have relied to a very considerable extent on the information given by the Group and have

accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements,

particulars of occupancy, lettings, and all other relevant matters.

We have been provided with copies of tenancy agreement relating to the property interests and

have caused searches to be made at the Hong Kong Land Registry and Macau Land Registry. However,

we have not searched the original document to verify the ownership or to ascertain any amendment.

We have relied considerably on the advice given by the Company’s overseas legal advisers concerning

the validity of the ownership and tenancy agreements relating to the property interests in Macau,

Jordan and Indonesia respectively.

We have been shown copies of various title documents and tenancy agreements relating to the

property interests and have made relevant enquiries. Where possible, we have examined the original

documents to verify the existing title to the property interests in the PRC and any material encumbrance

that might be attached to the property interests or any tenancy amendment. We have relied considerably

on the advice given by the Company’s PRC legal advisers – GFE Law Office, concerning the validity

of the tenancy agreement of property interest in the PRC.

We have not carried out detailed measurements to verify the correctness of the areas in respect

of the properties but have assumed that the areas shown on the title documents and official site

plans handed to us are correct. All documents and contracts have been used as reference only and all

dimensions, measurements and areas are approximations. No on-site measurement has been taken.

- III-3 -



We have inspected the exterior and, where possible, the interior of the properties. However, we

have not carried out investigation to determine the suitability of the ground conditions and services

for any development thereon. Our valuation has been prepared on the assumption that these aspects

are satisfactory. Moreover, no structural survey has been made, but in the course of our inspection,

we did not note any serious defect. We are not, however, able to report whether the properties are free

of rot, infestation or any other structural defect. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the

Group. We have also sought confirmation from the Group that no material factors have been omitted

from the information supplied. We consider that we have been provided with sufficient information

to arrive an informed view, and we have no reason to suspect that any material information has been

withheld.

Unless otherwise stated, all monetary figures stated in this report are in Hong Kong Dollars. The

exchange rates adopted in our valuations are approximately HK$�= [RMB0.87], HK$�= [JOD0.09��]

which were approximately the prevailing exchange rate as at the date of valuation.

Our valuation is summarised below and the valuation certificates are attached.

Yours faithfully,

for and on behalf of

Jones lang laSalle Sallmanns limitedpaul l. BrownB.Sc. FRICS FHKIS

Director

Note: Paul L. Brown is a Chartered Surveyor who has 27 years’ experience in the valuation of properties in the PRC and 30

years of property valuation experience in Hong Kong and the United Kingdom, as well as relevant experience in the

Asia-Pacific region.

- III-� -



SuMMary oF valueS

Group i – property interest owned and occupied by the Group in the prC

no. property

Capital value in existing state as at 31 July 2010

HK$

�. 3 parcels of land and various

buildings and structures

located at

Jinfeng Industrial

Development District

Chen Chong Village Committee

Gong Mei Shan

Luokeng Town

Xinhui District

Jiangmen City

Guangdong Province

the PRC

[89,300,000]

Sub-total: [89,300,000]

Group ii – property interest owned and occupied by the Group in Hong Kong

no. property


HK$

2. �9th Floor and

Car Parking Spaces

Nos. P2�-P25 on 2nd Floor

Ford Glory Plaza

Nos. 37-39 Wing Hong Street

Cheung Sha Wan

Kowloon

Hong Kong

[36,700,000]

Sub-total: [36,700,000]

- III-5 -



Group iii – property interest held by the Group in Jordan

no. property


HK$

3. Block F Industrial Building

located at plot

number �3�0 parcel number 3

Al Tajamouat Industrial City

Al Rakim City

South Amman

Jordan

[38,300,000]

Sub-total: [38,300,000]

Group iv – property interests rented and occupied by the Group in the prC

no. property


HK$

�. Rooms �00�-�008

on Level �0

Block C

Tianan International Building

Renmin South Road

Luohu District

Shenzhen

Guangdong Province

the PRC

[No Commercial

Value]

5. Level � and 2

Industrial Block 3

Xinxiu Industrial Zone

Shenzhen

Guangdong Province

the PRC

[No Commercial

Value]

6. West portion on Level �

No. �0 of ��75 nong

Tongpu Road

Putuo District

Shanghai

the PRC

[No Commercial

Value]

Sub-total: [Nil]

- III-6 -



Group v – property interest rented and occupied by the Group in Macau

no. property


HK$

7. Unit F on

��th Floor

Banco Luso Internacional

Nos. �-3 Rua Do

Dr. Pedro Jose Lobo

Macau

[No Commercial

Value]

Sub-total: [Nil]

Group vi – property interests rented and occupied by the Group in overseas Countries

no. property


HK$

8. Blocks A06, B03-0�, B05

and B05 Extension

Kawasan Industri

Tanjung Emas

Export Processing Zone

Jln. Coaster No. 8

Semarang

Indonesia

[No Commercial

Value]

Sub-total: [Nil]

9. �th Floor

��3� Broadway

New York

USA

[No Commercial

Value]

Sub-total: [Nil]

total: [�6�,300,000]

- III-7 -



valuation CertiFiCate

Group i – property interest owned and occupied by the Group in the prC

no. propertydescriptionand tenure

particulars ofoccupancy

Capital value in existing state as at

31 July 2010HK$

�. 3 parcels of land and

various buildings and

structures located at

Jinfeng Industrial

Development District

Chen Chong Village

Committee

Gong Mei Shan

Luokeng Town

Xinhui District

Jiangmen City

Guangdong Province

the PRC

The property comprises

3 parcels of land with

a total site area of

approximately [65,677]

sq.m. and [7] buildings

and various structures

erected thereon which were

completed in about [2002

to 2008].

The buildings have a

total gross floor area of

approximately [37,392]

sq.m.

The buildings mainly

include industrial

buildings, staff quarters

and stores, etc.

The land use rights of the

property have been granted

for a term with expiry date

on �7 July 2050.

Expect a portion

of land which are

currently leased

to a connected

party (see note

�), the property is

currently occupied

by the Group

for [production,

ancillary office,

staff quarters and

storage] purposes.

[89,300,000]

�00% interest

attributable

to the Group:

HK$[89,300,000]

Notes:

�. Pursuant to 3 State-owned Land Use Rights Certificates – Xin Guo Yong (2007) Di Nos. 0��02, 0��03 and 0��0�, the land

use rights with a total site area of approximately 65,677 sq.m. has been granted to Jiangmen V-Apparel Manufacturing

Ltd. (“Jiangmen Factory”) (江門冠暉製衣有限公司) for a term with the expiry date on �7 July 2050 for industrial

uses.

2. Pursuant to 7 Real Estate Title Certificates – Yue Fang Ti Cheng Zi Di Nos. C70�7�22, C70�7�23, C70�7�2�, C70�7�25,

C70�7�26, C70�7�27 and C70�7�28, the buildings with a total gross floor area of approximately 37,392 sq.m. are owned

by Jiangmen Factory for a term with the expiry date on �7 July 2050 for industrial uses.

- III-8 -



3. Jiangmen Factory is an indirect wholly-owned subsidiary of the Company.

�. Pursuant to a Tenancy Agreement, made between Victory City Holdings Limited as Tenant a connected party and Jiangmen

Factory as Landlord, the site consists 2 parcels of land with a total site area of approximately �5,585 sq.m. under 2

Stated-owned Land Use Rights Certificates – Xin Guo Yong (2007) Di Nos. 0��63 and 0��0�, the site is rented by the

Tenant for a term commencing from �9 November 2009 and expiring on 3� March 20�2 at a rental of RMB33,000 per

month.

5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which

contains, inter alia, the following:

a. The property is legally owned by the Group and the Group has right to use, transfer, lease or mortgage of the

property in accordance with laws; and

b. The property is not subject to any encumbrance or mortgage.

- III-9 -




Group ii – property interest owned and occupied by the Group in Hong Kong




HK$

2. �9th Floor

and Car Park Spaces

Nos. P2�-P25 on

2nd Floor

Ford Glory Plaza

Nos. 37-39

Wing Hong Street

Cheung Sha Wan

Kowloon

Hong Kong

�093/30000th shares

of and in The

Remaining Portion,

The Remaining

Portion of Section A

and The Remaining

Portion of Sub-

Section 2 of Section

A of New Kowloon

Inland Lot No. 2828

The property comprises a

unit on the �9th Floor and

5 car parking spaces on

the 2nd Floor of a

[29]-storey industrial

building completed in

[2008].

The property has a gross

floor area of approximately

[�0,377] sq.ft. (96�.05

sq.m.) excluding the car

parks.

The property is held under

Conditions of Sale No.

UB��52 for a term up to

30 June 20�7 subject to

an annual Government

Rent equivalent to 3%

the rateable value of the

property.

The property is

currently occupied

by the Group

for [ancillary

office and sample

production]

purpose.

[36,700,000]

�00% interest

attributable to

the Group:

HK$36,700,000

Notes:

�. Ford Glory International Limited is an indirect wholly-owned subsidiary of the Company.

2. The registered owner of the property is Ford Glory International Limited vide Memorial Nos. 090��90��0272,

0902090�9600�2, 0902090�960028, 0902090�960035, 0902090�9600�2 and 0902090�960050 dated 29 December 2008

and �6 January 2009 respectively for a total consideration of HK$33,565,3�5.

3. The property is subject to an Occupation Permit vide Memorial No. 08�20202080�9� dated �7 November 2008.

�. The property is subject to a Deed of Mutual Covenant and Management Agreement in favour of Savills Billion Property

Management Limited (Manager) vide Memorial No. 090��90��0282 dated 29 December 2008.

5. The property is subject to a Mortgage in favour of DBS Bank (Hong Kong) Limited to secure a term loan facility of

HK$2�,8�0,000 (part) vide Memorial No. 090209�960060 dated �6 January 2009.

6. The property is subject to an Assignment of Rentals in favour of DBS Bank (Hong Kong) Limited vide Memorial No.

0907060�5�0�2� dated �� June 2009.

- III-�0 -




Group iii – property interest held by the Group in Jordan




HK$

3. Block F Industrial

Building located at

plot number �3�0

parcel number 3

Al Raqeem

Al -Tajamouat

Industrial City

South Amman

Jordan


parcel of land with site area

of approximately [5,�07]

sq.m. Erected on the land

is a �-storey industrial

building completed in about

2002.

This building has a gross


[7,8�5] sq.m.

Adjoining it is a later

addition of a 2-storey

building of gross floor area

approximately [�,�30] sq.m.

The land is a fee simple

estate.

The property is

currently rental to

[an independent

third party]

for garment

manufacturing use

[38,300,000]

�00% interest

attributable to

the Group:

HK$38,300,000

Notes:

�. Pursuant to a Sale Agreement dated 3� March 2006 between Jerash Garments & Fashions Manufacturing Co. Ltd.

(“Jerash”) as Vendor and Victory Apparel Jordan Garments Manufacturing Company Limited (“Jordan Factory”) as

Purchaser, the property was sold to the Purchaser.

2. Jordan Factory is a wholly-owned subsidiary of the Company.

3. Pursuant to a Tenancy Agreement, made between Jerash as Tenant [an independent third party] and Jordan Factory as

Landlord, the property is rented by the Tenant for a term commencing from �5 May 2008 and expiring on �� May 20�3

at a rental of USD20,000 per month. Pursuant to a Termination of Tenancy Agreement dated 26 May 20�0, Tenant and

Landlord mutually agreed to terminate the Lease on 3� October 20�0.

�. We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the

Company’s legal advisers of relevant jurisdiction, which contains, inter alia, the following:

a. Jordan Factory the owner of the Assets (Building F, Equipment and Machinery therein) and is entitled to act

with it in any legal manner it deems proper, however the Sale Agreement dated 3� March 2006 has not been

registered; and

b. the Assets are clean from any mortgages, liens or attachment orders.

- III-�� -




Group iv – property interests rented and occupied by the Group in the prC




HK$

�. Rooms �00�-�008

on Level �0

Block C

Tianan International

Building

Renmin South Road

Luohu District

Shenzhen

Guangdong Province

the PRC


unit on Level �0 of a [3�]-

storey [commercial/office]


about [�993].



[9��.60] sq.m.

Pursuant to a Tenancy

Agreement made between

Ford Glory (Shenzhen)

International Ltd. (福源創業信息咨詢服務（深圳）有限公司), as Lessee and

Bandai (H.K.) Co., Ltd., as Lessor, an independent

third party, the property

is leased by the Group

for a term commencing

from � February 20�0 and

expiring on 3� August

20�2 at a monthly rent of

RMB�7,230 [exclusive of

management fee, water and

electricity charges].

The property is

currently occupied

by the Group for

[office] purpose.

No commercial

value

Notes:

�. Ford Glory (Shenzhen) International Ltd. is an indirect [wholly-owned subsidiary of the Company].

2. We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the

Company’s PRC legal advisers, which contains, inter alia, the following:

a. [the Tenancy Agreement regarding the property is legal, valid and binding]; and

b. [the Tenancy Agreement has registered with relevant government authority.]

- III-�2 -







HK$

5. [Level � and 2

Industrial Block 3

Xinxiu Industrial

Zone

Shenzhen

Guangdong Province

the PRC]


two units on Level � and

2 of a 6-storey [industrial]


about �987.

The property has a

total gross floor area of

approximately [�,63�]

sq.m.

Pursuant to 2 Tenancy

Agreements made between

Ford Glory (Shenzhen)

International Ltd. (福源創業信息咨詢服務（深圳）有限公司), as Lessee and

Shenzhen Fitout Company Limited (深圳市菲德實業有限公司), as Lessor, an

independent third party, the property is leased by

the Group for a common

term commencing from

� February 20�0 and

expiring on 3� January

20�� at a monthly rent

of RMB�9,632 and

RMB2�,�80 respectively.

The property is

currently occupied

by the Group

for [storage with

ancillary office]

purposes.

No commercial

value

Notes:

�. Ford Glory (Shenzhen) International Ltd.（福源創業信息咨詢服務（深圳）有限公司） is an indirect [wholly-owned

subsidiary of the Company].




b. [the Tenancy Agreement has registered with the relevant government authority.]

- III-�3 -







HK$

6. West portion on

Level �

No. �0 of

��75 nong

Tongpu Road

Putuo District

Shanghai

the PRC


a unit on Level � of a

3-storey [industrial]


about 2000.



[300.00] sq.m.



Ford Glory Trading

(Shanghai) Limited (福之源貿易(上海)有限公司),

as Lessee and Shanghai Zhenteng Warehouse

Limited (上海真騰倉儲有限責任公司), as Lessor, an

independent third party, the property is leased by

the Group for a term of 2

years commencing on 20

June 20�0 and expiring on

�9 June 20�� at a rental of

RMB�27,020 per annum.

The property is

currently occupied

by the Group

for [storage with

ancillary office]

purposes.

No commercial

value

Notes:

�. Ford Glory Trading (Shanghai) Limited is an indirect [wholly-owned subsidiary of the Company].




b. [the Tenancy Agreement has not registered with the relevant government authority, but the validity of the agreement

will not be affected.]

- III-�� -




Group v – property interests rented and occupied by the Group in Macau




HK$

7. Unit F on

��th Floor

Banco Luso

Internacional

Nos. �-3 Rua Do

Dr. Pedro Jose Lobo

Macau


unit on the ��th Floor of a

29-storey [office] building

completed in about �983.

The property has a saleable

area of approximately

[58.3�] sq.m.



Value Plus (Macao

Commercial Offshore)

Limited, as Lessee and

Multinational Real Estate

Service Co., Ltd. (萬國置業地產有限公司) as an agent

of Lessor, an independent

third party, the property is

leased by the Group for a

term commencing from �

October 2009 and expiring

on 30 September 20�0 at a

monthly rent of HK$6,525

exclusive of management

fee, water and electricity

charges.

The property is

currently occupied

by the Group for

[office] purpose.

No commercial

value

Notes:

�. [Value Plus (Macao Commercial Offshore) Limited] is a [wholly-owned subsidiary of the Company].

2. The registered owner of the property is Lao Nga Fong (劉雅防).

- III-15 -



3. We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the Company’s legal advisers of relevant jurisdiction, which contains, inter alia, the following;

a. the unit is free from and clear of all claims, charges, liens, encumbrances and any other third party rights of whatsoever nature and so far as we are aware there is no other matter, event or circumstance (whether legal or otherwise) which may adversely affect the owner’s title to the Unit, expect the Unit is subject to the three mortgages and one assignment of income in favour of Bank of China Limited to secure banking facilities granted to the owner up to the amount of HK$22,000,000 and value of HK$5,000,000 respectively, registered with the Real Estate Registry of Macau under nos. 57949C, 7667SC, 92990C and 32163F.; and

b. based on the assumption that the power of attorney of the landlord’s representative is duly executed and all the assumptions set out above in this opinion, the Lease is valid and subsistent and is legally binding upon and enforceable against each of the parties thereto under the laws of Macau.

- III-�6 -




Group vi – property interests rented and occupied by the Group in overseas Countries




HK$

8. Blocks A06, B03-0�, B05 and B05 ExtensionKawasan Industri Tanjung Emas Export Processing ZoneJln. Coaster No. 8SemarangIndonesia

The property comprises 5 units of industrial buildings completed in [various stage between �995 and 2000].

The property has a total lettable area of approximately [9,22�.75] sq.m. plus open yards of approximately [�,263.33] sq.m.

Pursuant to � Tenancy Agreements made between PT. Victory Apparel Semarang, as Lessee and PT. Lamicitra Nusantara, as Lessor, an independent third party, the property is leased by the Group for various terms with the last expiry date on �5 September 20�� at a total monthly rent of USD�5,660.67 exclusive of management fees, water and electricity charges.

The property is currently occupied by the Group for [production] purpose.

No commercial value

Notes:

�. [PT. Victory Apparel Semarang] (“Indonesian Factory”) is a [wholly-owned subsidiary of the Company].

2. We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the Company’s legal advisers of relevant jurisdiction, which contains, inter alia, the following:

a. Indonesian Factory has power and capacity to execute and deliver the Lease Agreements, and to perform its obligations thereunder. The execution and delivery of the Lease Agreements and the performance of PT VAS obligations thereunder would not (i) contravene any provisions of its corporate constitutional documents as in force as of the date of this opinion, or (ii) contravene any law of the Republic of Indonesia of general application as of the date of this opinion;

b. Indonesian Factory PT VAS has taken or obtained all necessary corporate actions or approvals to authorize it to execute and deliver the Lease Agreements, and to perform its obligations; and

c. Indonesian Factory was represented by the authorized person in accordance with its Articles of Association and thus the Lease Agreements constitutes legal, valid, and binding obligations.

- III-�7 -







HK$

9. �th Floor

��3� Broadway

New York

USA


unit on the �th Floor of a

�2-storey [office] building

completed in about �9�0’s.

The property has a lettable

area of approximately

[278.87] sq.m.

Pursuant to Tenancy


Top Value, Inc., as Lessee

and ��3� Associates, LCC,

as Lessor, an independent

third party, the property is

leased by the Group for a

term of 5 years with expiry

date on 30 November 20��

at a current monthly rent

of US$8,275.02 exclusive

of management fees, water

and electricity charges.

The property is

currently occupied

by the Group for

[office] purpose.

No commercial

value

Notes:

�. Top Value, Inc. is a wholly-owned subsidiary of the Company.

2. The registered owner of the property is ��3� Associates, LCC.

- IV-� -

appendix iv summary of the constitution of the company and bermuda company law


Set out below is a summary of certain provisions of the memorandum of association and

Bye-laws of the Company and of certain aspects of Bermuda company law.

1. memorandum of association

The memorandum of association states, among other matters, that the liability of members of

the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively

held by them and that the Company is an exempted company as defined in the Companies Act. The

memorandum of association also sets out the objects for which the Company was formed which are

unrestricted and that the Company has the capacity, rights, powers and privileges of a natural person.

As an exempted company, the Company will be carrying on business outside of Bermuda for a place

of business in Bermuda.

In accordance with and subject to section 42A of the Companies Act, the memorandum of

association of the Company empowers it to purchase its own Shares and, pursuant to its bye-laws,

this power is exercisable by our Directors upon such terms and subject to such conditions as it thinks

fit.

2. bye-laws

The Bye-laws were adopted on [8] September 20�0. The following is a summary of certain

provisions of the Bye-laws.

(a) directors

(i) Power toallotand issueshares

Without prejudice to any special rights or restrictions for the time being attaching

to any shares or any class of shares, any share may be issued upon such terms and

conditions and with such preferred, deferred or other special rights, or such restrictions,

whether as regards dividend, voting, return of capital or otherwise, as the Company

may from time to time by ordinary resolution determine (or, in the absence of any such

determination or so far as the same may not make specific provision, as our Directors

may determine) and any preference shares may, subject to the Companies Act and with

the sanction of a special resolution, be issued on terms that they are liable to be redeemed

upon the happening of a specified event or upon a given date and either at the option of

the Company or, if so authorised by the memorandum of association of the Company, at

the option of the holder. The Directors may subject to the approval of the members in

general meeting, issue warrants to subscribe for any class of shares or securities of the

Company on such terms as they may from time to time determine.

All unissued shares in the Company shall be at the disposal of our Directors, who

may offer, allot, grant options over or otherwise dispose of them to such persons, at such

times, for such consideration and generally on such terms they shall in their absolute

discretion think fit, but so that no shares shall be issued at a discount.

- IV-2 -



(ii) Power todisposeof theassetsof theCompanyoranysubsidiary

There are no specific provisions in the Bye-laws relating to the disposal of the

assets of the Company or any of its subsidiaries although our Directors may exercise all

powers and do all acts and things which may be exercised or done or approved by the

Company and which are not required by the Bye-laws or relevant statutes of Bermuda to

be exercised or done by the Company in general meeting.

(iii) Compensationorpayments for lossofoffice

Payments to any Director or past Director of any sum by way of compensation for

loss of office or as consideration for or in connection with his retirement from office

(not being a payment to which the Director is contractually entitled) must be approved

by the Company in general meeting.

(iv) Loansand thegivingofsecurity for loans toDirectors

Save as described in sub-paragraph (vi) below, there are no provisions in the Bye-

laws relating to the making of loans or the giving of security for loans to Directors.

However, the Companies Act contains restrictions on companies making loans and giving

security for loans to their directors, the relevant provisions of which are summarised in

paragraph 4(l) below.

(v) Financialassistance topurchasesharesof theCompanyor itsholdingscompany

(aa) subject to the provisions of all relevant statutes of Bermuda (see paragraph

4(b) below regarding the relevant provisions of the Companies Act), the

Company may in accordance with an employees’ share scheme provide

money on such terms as our Directors think fit for the acquisition of fully or

partly paid shares in the Company or its holding company. For the purposes

of the Bye-law in this regard, an employees’ share scheme is a scheme for

encouraging or facilitating the holding of shares or debentures in the Company

by or for the benefit of bona fide employees of the Company (including any

such bona fide employee or former employee who is or was a Director), the

Company’s subsidiary or holding company or a subsidiary of the Company’s

holding company, or the wives, husbands, widows, widowers or children

or step-children under the age of twenty-one of such employees or former

employees;

(bb) subject to the provisions of all relevant statutes of Bermuda, the Company

may make loans to persons (including Directors) employed or formerly

employed in good faith by the Company with a view to enabling those

persons to acquire fully or partly paid shares in the Company or its holding

company to be held by them by way of beneficial ownership; and

- IV-� -



(cc) the conditions subject to which money and loans may be provided under

the provisions of the Bye-laws summarised in paragraphs (aa) or (bb) above

may include a provision to the effect that when an employee ceases to be

employed by the Company, a subsidiary or holding company of the Company

or a subsidiary of the holding company of the Company, the shares acquired

with such money or loans shall or may be sold to the Company or any other

company on such terms as our Directors think fit.

(vi) Disclosureof interests incontractswith theCompanyoranyof itssubsidiaries

Subject to the Companies Act, a Director may hold any other office or place of profit

with the Company (except that of an auditor) in conjunction with his office of Director

for such period and upon such terms as our Directors may determine, and may be paid

such extra remuneration therefor (whether by way of salary, commission, participation

in profits or otherwise) as our Directors may determine. A Director may be or become

a director or other officer of, or be otherwise interested in, any company promoted by

the Company or any other company in which the Company may be interested, and shall

not be liable to account to the Company or the members for any remuneration, profit

or other benefit received by him as a director or officer of or from his interest in such

other company. The Directors may also cause the voting power conferred by the shares

in any other company held or owned by the Company to be exercised in such manner in

all respects as they think fit, including the exercise thereof in favour of any resolution

appointing our Directors or any of them to be directors or officers of such other company,

or voting or providing for the payment of remuneration to the directors or officers of such

other company. A Director shall not vote or be counted in the quorum on any resolution of

our Directors concerning his own appointment or the appointment of any of his associates

as the holder of any office or place of profit with the Company or any other company

in which the Company is interested (including the arrangement or variation of the terms

thereof, or the termination thereof).

Subject to the provisions of the Companies Act and the Bye-laws, no Director or

proposed or intended Director shall be disqualified by his office from contracting with

the Company, either with regard to his tenure of any office or place of profit or as vendor,

purchaser or in any other manner whatsoever, nor will any contract with regard thereto

or any other contract or arrangement in which any Director is in any way interested be

liable to be avoided, nor shall any Director so contracting or being so interested be liable

to account to the Company or the members for any remuneration, profit or other benefits

realised by any such contract or arrangement by reason of such Director holding that

office or the fiduciary relationship thereby established. If to the knowledge of a Director,

he or any of his associates, is in any way, whether directly or indirectly, interested in a

contract or arrangement or proposed contract or arrangement with the Company, he must

declare the nature of his or, as the case may be, his associates’ interest at the meeting of

our Directors at which the question of entering into the contract or arrangement is first

- IV-4 -



taken into consideration, if he knows his interest or that of his associates then exists,

or in any other case at the first meeting of our Directors after he knows that he or his

associates is or has become so interested.

Save as otherwise provided by the Bye-laws, a Director may not vote (nor be counted

in the quorum for the voting) on any resolution of our Directors approving any contract

or arrangement in which he or his associates is to his knowledge materially interested,

and if he does so his vote will not be counted, but this prohibition will not apply to any

of the following matters, namely:

(aa) any contract or arrangement for the giving to the Director or his associates

of any security or indemnity in respect of money lent by him or any of them

or obligations undertaken by him for the benefit of the Company;

(bb) any contract or arrangement for the giving by the Company of any security

to a third party in respect of a debt or obligation of the Company or any

company in which the Company has an interest for which the Director or

his associates has himself/themselves guaranteed or secured in whole or in

part;

(cc) any contract or arrangement by a Director or his associate(s) to subscribe

for shares or debentures or other securities of the Company to be issued

pursuant to any offer or invitation to the members or debenture or other

securities holders or to the public which does not provide the Director and

his associates any privilege not accorded to any other members or debenture

or other securities holders or to the public;

(dd) any contract or arrangement concerning an offer of the shares, debentures

or other securities of or by the Company for subscription or purchase where

the Director or his associates is/are or is/are to be interested as a participant

in the underwriting or sub-underwriting of the offer and/or for the purposes

of making any representations, the giving of any covenants, undertakings

or warranties or assuming any other obligations in connection with such

offer;

(ee) any contract or arrangement in which the Director or his associates is/are

interested as other holders of shares or debentures or other securities of the

Company by virtue only of his/their interest in shares or debentures or other

securities of the Company and/or his/their being the offeror or one of the

offerors or is interested in one of the offerors for the purchase or effective

acquisition of such shares, debentures or other securities;

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(ff) any contract or arrangement concerning any other company in which the

Director or his associates is/are interested directly or indirectly whether as

an officer and/or executive and/or a member, other than a company in which

the Director or his associates owns five per cent. or more of the voting equity

capital or voting rights of any class of shares of such company (or of any

third company through which his interest is derived), excluding shares which

carry no voting rights at general meetings and no or nugatory dividend and

return of capital rights;

(gg) any proposal or arrangement for the benefit of employees of the Company

or its subsidiaries including a pension fund or retirement, death or disability

benefit scheme or personal pension plan under which a Director or his

associates and employees of the Company or of any of its subsidiaries may

benefit and which has been approved by or is subject to and conditional

on approval by the relevant tax authorities for taxation purposes or relates

both to Directors, associates of Directors and employees of the Company or

any of its subsidiaries and does not give the Director or his associates any

privilege not accorded to the relevant class of officers of which the Director

is a member and to whom such scheme or fund relates;

(hh) any proposal concerning the adoption, modification or operation of any share

scheme involving the issue or grant of options over shares or other securities

by the Company to, or for the benefit of, the employees of the Company

or its subsidiaries under which the Director or his associates may benefit;

and

(ii) any contract, agreement, transaction or proposal concerning the purchase

and/or maintenance of any insurance policy for the benefit of any Director,

his associates, officer or employee pursuant to the Bye-laws.

(vii) Remuneration

The Directors shall be entitled to receive by way of ordinary remuneration for

their services such sum as is from time to time determined by the Company in general

meeting, such sum (unless otherwise directed by the resolution by which it is voted) to

be divided amongst our Directors in such proportions and in such manner as they may

agree, or failing agreement, equally, except that in such event any Director holding office

for less than the whole of the relevant period in respect of which the remuneration is paid

shall only rank in such division in proportion to the time during such period for which

he has held office. The foregoing provisions shall not apply to a Director who holds any

salaried employment or office in the Company except in the case of sums paid in respect

of Directors’ fees. Our Directors shall also be entitled to be repaid all travelling, hotel

and other expenses reasonably incurred by them respectively in or about the performance

- IV-� -



of their duties as Directors, including their expenses of travelling to and from Directors’

meetings, committee meetings or general meetings, or otherwise incurred whilst engaged

on the business of the Company or in the discharge of their duties as Directors.

Our Directors may grant special remuneration to any Director who performs any

special or extra services to or at the request of the Company. Such special remuneration

may be made payable to such Director in addition to or in substitution for his ordinary

remuneration as a Director, and may be made payable by way of salary, commission or

participation in profits or otherwise as may be arranged. Notwithstanding the foregoing

the remuneration of chairman, deputy chairman, managing director, joint managing

director, deputy managing director or an executive Director or a Director appointed to

any other office in the management of the Company may be fixed from time to time by

our Directors and may be by way of salary, commission or participation in profits or

otherwise or by all or any of those modes and with such other benefits (including pension

and/or gratuity and/or other benefits on retirement) and allowances as our Directors may

from time to time decide. Such remuneration is in addition to his ordinary remuneration

as a Director.

The Directors also have power to establish and maintain or procure the establishment

and maintenance of any contributory or non-contributory pension or superannuation funds

for the benefit of, or to give or procure the giving of donations, gratuities, pensions,

allowances or emoluments to, any persons who are or were at any time in the employment

or service of the Company, or of any company which is a subsidiary of the Company,

or is allied or associated with the Company or with any such subsidiary company, or

who are or were at any time directors or officers of the Company or of any such other

company as aforesaid, and holding or who have held any salaried employment or office

in the Company or such other company, and the spouses, widows, widowers, families and

dependants of any such persons and may make payments for or towards the insurance

of any such persons. Any Director holding any such employment or office is entitled

to participate in and retain for his own benefit any such donation, gratuity, pension,

allowance or emolument.

(viii) Retirement,appointmentandremoval

At each annual general meeting one-third of our Directors for the time being

(or if their number is not three or a multiple of three, then the number nearest but not

exceeding one third) will retire from office save for any chairman, deputy chairman,

managing director or joint managing director. The Directors to retire in every year will

be those who have been longest in office since their last election but as between persons

who became Directors on the same day those to retire shall (unless they otherwise agree

between themselves) be determined by lot.

A Director is not required to retire upon reaching any particular age.

- IV-� -



The Directors are entitled to attend and speak at all general meetings.

The number of Directors shall not be fewer than two. A Director may be removed

by a special resolution of the Company before the expiration of his period of office (but

without prejudice to any claim which such Director may have for damages for breach of

any contract of service between him and the Company) provided that the notice of any

general meeting convened for the purpose of removing a Director shall contain a statement

of the intention to do so and be served on such Director �4 days before the meeting and

at such meeting the Director shall be entitled to be heard on the motion for his removal.

The Company may from time to time in general meeting by ordinary resolution elect

any person to be a Director either to fill a casual vacancy or as an additional Director.

In addition, our Directors may appoint any person to be a Director either to fill a casual

vacancy or as an additional Director but so that the number of Directors so appointed

shall not exceed the maximum number determined from time to time by the members in

general meeting. Any Director appointed by our Board to fill a casual vacancy shall hold

office until the first general meeting of Shareholders after his appointment and be subject

to re-election at such meeting and any Director appointed by our Board as an addition to

the existing Board shall hold office only until the next following annual general meeting

of the Company and shall then be eligible for re-election.

Our Directors may from time to time entrust to and confer upon the chairman,

managing director, joint managing director, deputy managing director or executive director

of the Company all or any of the powers of our Directors that they may think fit, provided

that the exercise of all powers by such Director shall be subject to such regulations and

restrictions as our Directors may from time to time make and impose. Our Directors

may delegate any of their powers to committees consisting of such member or members

of their body and such other persons as they think fit, and they may from time to time

revoke such delegation or revoke the appointment of and discharge any such committees

either wholly or in part, and either as to persons or purposes, but every committee so

formed shall in the exercise of the powers so delegated conform to any regulations that

may from time to time be imposed upon it by our Directors.

(ix) Borrowingpowers

Subject to the provisions of the Companies Act, our Directors may from time to

time at their discretion exercise all the powers of the Company to raise or borrow or to

secure the payment of any sum or sums of money for the purposes of the Company and

to mortgage or charge its undertaking, property and uncalled capital or any part thereof.

Our Directors may raise or secure the payment or repayment of such sum or sums in

such manner and upon such terms and conditions in all respects as they think fit and in

particular, but subject to the provisions of the Companies Act, by the issue of debentures,

debenture stock, bonds or other securities of the Company, whether outright or as collateral

security for any debt, liability or obligation of the Company or of any third party.

Note: The provisions summarised above, in common with the Bye-laws in general, may be varied with the

sanction of a special resolution of the Company.

- IV-8 -



(x) Qualificationshares

Directors are not required under the Bye-laws to hold any qualification shares.

(xi) Indemnity toDirectors

The Bye-laws contain provisions that provide indemnity to, among other persons,

our Directors from and against all actions, costs, charges, losses, damages and expenses

which they or any of them may incur or sustain by reason of any act done, concurred in

or omitted in or about the execution of their duty or supposed duty in their respective

offices or trusts, except such (if any) as they shall incur or sustain through their own

fraud or dishonesty.

(b) alterations to constitutive documents

The memorandum of association of the Company may be altered by the Company in

general meeting. In certain circumstances, consent to the alteration must be obtained from the

Minister of Finance of Bermuda. The Bye-laws may be amended by our Directors subject to the

approval of the Company in general meeting. As more fully described in paragraph � below, the

Bye-laws provide that a special resolution is required to alter the memorandum of association,

to approve any alteration to the Bye-laws and to change the name of the Company.

(c) alterations of capital

The Company may from time to time by ordinary resolution:

(i) increase its share capital;

(ii) consolidate or divide all or any of its share capital into shares of larger or smaller

amount than its existing shares; on any consolidation of fully paid shares into shares

of larger amount, our Board may settle any difficulty which may arise as it thinks

expedient and in particular (but without prejudice to the generality of the foregoing)

may, as between the holders of the shares to be consolidated, determine which

particular shares are to be consolidated into a consolidated share, and if it shall

happen that any person shall become entitled to fractions of a consolidated share

or shares, such fractions may be sold by some person appointed by our Directors

for that purpose and the person so appointed may transfer the shares so sold to the

purchaser thereof and the validity of such transfer shall not be questioned, and so

that the net proceeds of such sale (after deduction of the expenses of such sale)

may either be distributed among the persons who would otherwise be entitled to

a fraction or fractions of a consolidated share or shares rateably in accordance

with their rights and interests or may be paid to the Company for the Company’s

benefit;

- IV-� -



(iii) divide its shares into several classes and attach thereto respectively any preferential,

deferred, qualified or special rights, privileges or conditions;

(iv) cancel any shares which at the date of the passing of the resolution have not been

taken or agreed to be taken by any person, and diminish the amount of its share

capital by the amount of the shares so cancelled;

(v) sub-divide its shares or any of them into shares of smaller amount than is fixed by

the memorandum of association, subject nevertheless to the Companies Act, and

so that the resolution whereby any shares are sub-divided may determine that, as

between the holders of the shares resulting from such sub-division, one or more of

the shares may have any such preferred or other special rights over, or may have

such deferred rights or be subject to any such restrictions as compared with the

others as the Company has power to attach to unissued or new shares;

(vi) change the currency of denomination of its share capital; and

(vii) make provision for the issue and allotment of shares which do not carry any voting

rights.

The Company may by special resolution reduce its authorised or issued share capital, any

capital redemption reserve fund or any share premium account or other undistributable reserve

in any manner authorised and subject to any conditions prescribed by law. The Company may

apply its share premium account in any manner permitted by law.

(d) variation of rights of existing shares or classes of shares

If at any time the capital is divided into different classes of shares, all or any of the

special rights (unless otherwise provided for by the terms of issue of that class) attached to

any class may, subject to the provisions of the Companies Act, be varied or abrogated either

with the consent in writing of the holders of not less than three-fourths in nominal value of

the issued shares of that class or with the sanction of a special resolution passed at a separate

meeting of the holders of the shares of that class. To every such separate general meeting the

provisions of the Bye-laws relating to general meetings will mutatis mutandis apply, save as to

the provisions regarding the quorum of meetings, as to which see paragraph 2(s) below.

(e) special resolutions – majority required

A special resolution of the Company must be passed by a majority of not less than three-

fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the

case of such members as are corporations, by their respective duly authorised representatives

or, where voting is by poll, by proxy, at a general meeting of which not notice of not less than

twenty-one (2�) clear days and not less than ten (�0) clear business days, specifying the intention

- IV-�0 -



to propose the resolution as a special resolution, has been duly given. However, except in the

case of an annual general meeting, if it is so agreed by a majority in number of the members

having a right to attend and vote at such meeting, being a majority together holding not less

than �� per cent. in nominal value of the shares giving that right, a resolution may be proposed

and passed as a special resolution at a meeting of which not less than 2� days’ clear and not

less than ten (�0) clear business days has been given.

(f) voting rights

Subject to any special rights, privileges or restrictions as to voting for the time being

attached to any class or classes of shares, at any general meeting on a poll every member present

in person (or, in the case of a member being a corporation, by its duly authorised representative)

or by proxy shall have one vote for every share of which he is the holder which is fully paid

or credited as fully paid (but so that no amount paid or credited as paid on a share in advance

of calls or instalments is treated for the foregoing purposes as paid on the share). On a poll,

a member entitled to more than one vote need not use all his votes or cast all his votes in

the same way. At all times during the Relevant Period (as defined in the Bye-laws) (but not

otherwise), whereby any member is, under [•••], required to abstain from voting on any particular

resolution or restricted to voting only for or only against any particular resolution, any votes

cast by or on behalf of such member in contravention of such requirement or restriction shall

not be counted.

At any general meeting a resolution put to the vote of the meeting shall be decided on

by way of a poll.

So far as permitted by the Companies Act, where a shareholder is a clearing house (as

defined in the Bye-laws) or a nominee of a clearing house and, in each case, being a corporation,

it may authorise such persons as it thinks fit to act as its representatives at any meeting of

the Company or at any meeting of any class of shareholders provided that the authorisation

shall specify the number and class of shares in respect of which each such representative is so

authorised. Each person so authorised under the provisions of the Bye-laws shall be entitled to

exercise the same rights and powers as if such person was the registered holder of the shares

of the Company held by the clearing house (or its nominee) in respect of the number and class

of shares specified in the relevant authorisation.

(g) requirements for annual general meetings

An annual general meeting must be held once in every year and within not more than

�� months after the last preceding annual general meeting or, as the case may be, its statutory

meeting or such longer period as is permissible or not prohibited under the rules of the stock

exchange of the Relevant Territory (as defined in the Bye-laws.)

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(h) accounts and audit

The Directors shall cause true accounts to be kept of the sums of money received and

expended by the Company, and the matters in respect of which such receipts and expenditure

take place, and of the property, assets, credits and liabilities of the Company and of all other

matters required by Companies Act affecting the Company or are necessary to give a true and

fair view of the state of the Company’s affairs and to show and explain its transactions.

The books of accounts are to be kept at the principal office of the Company or at such

other place as our Directors think fit and shall always be open to the inspection of our Directors

provided that such records as are required by the Companies Act shall also be kept at the

registered office. No member (not being a Director) or other person has any right to inspect

any account or book or document of the Company except as conferred by Companies Act or

ordered by a court of competent jurisdiction or authorised by our Directors or by the Company

in general meeting.

Our Directors shall from time to time cause to be prepared and laid before the Company at

its annual general meeting such profit and loss accounts, balance sheets, group accounts (if any)

and reports as are required by the Companies Act. Every balance sheet of the Company shall be

signed on behalf of our Directors by two Directors and a copy of every balance sheet (including

every document required by law to be comprised therein or attached or annexed thereto) and

profit and loss accounts which is to be laid before the Company at its annual general meeting,

together with a copy of the Directors’ report and a copy of the auditors’ report, shall not less

than 2� days before the date of the meeting, be sent to every member of, and every holder

of debentures of, the Company and every other person entitled to receive notices of general

meetings of the Company under the Companies Act or of the Bye-laws. If all or any of the

shares or debentures of the Company are for the time being (with the consent of the Company)

listed or dealt in on any stock exchange, there shall be forwarded to such stock exchange such

number of copies of such documents as may for the time being be required under its regulations

or practice. However, subject to compliance with all applicable laws, including the rules of

the Designated Stock Exchange (as defined in the Bye-laws), the Company may send to such

persons a summary financial statement derived from the Company’s annual accounts and the

directors’ report instead provided that any such person may by notice in writing served on the

Company, demand that the Company sends to him, in addition to a summary financial statement,

a complete printed copy of the Company’s annual financial statement and the directors’ report

thereon.

Auditors shall be appointed and their duties regulated in accordance with the Companies

Act. Save as otherwise provided by such provisions the remuneration of the auditors shall be

fixed by or on the authority of the Company at each annual general meeting, but in respect of any

particular year, the Company in general meeting may delegate the fixing of such remuneration

to our Directors.

- IV-�2 -



(i) notices of meetings and business to be conducted thereat

An annual general meeting shall be called by notice of not less than twenty-one (2�)

clear days and not less than twenty (20) clear business days and any special general meeting

at which the passing of a special resolution is to be considered shall be called by notice of not

less than twenty-one (2�) clear days and not less than ten (�0) clear business days. All other

special general meetings may be called by notice of not less than fourteen (�4) clear days and

not less than ten (�0) clear business days. The notice must specify the place, the day and the

hour of meeting and particulars of the resolutions to be considered at the meeting, in the case

of special business, the general nature of that business.

(j) transfer of shares

All transfers of shares must be effected by transfer in writing in the usual or common

form or so long as [•••], such standard form prescribed by [•••] or in any other form acceptable

to our Board and may be under hand only or, if the transferor or transferee is a clearing

house or its nominee(s), by hand, by machine imprinted signature or by such other means of

execution as our Directors may approve from time to time; and an instrument of transfer must

be executed by or on behalf of the transferor and by or on behalf of the transferee and the

transferor shall be deemed to remain the holder of the share until the name of the transferee is

entered in the register of members in respect thereof, provided that our Directors may in their

absolute discretion dispense with the execution of the instrument of transfer by the transferor

or the transferee of a share.

The Directors may, in their absolute discretion, at any time and from time to time transfer

or agree to transfer any share upon the principal register to any branch register or any share on

any branch register to the principal register or any other branch register.

Unless our Directors otherwise agree, no shares on the principal register shall be transferred

to any branch register nor shall shares on any branch register be transferred to the principal

register or any other register. All transfers and other documents of title must be lodged for

registration and registered, in the case of shares on a branch register, at the relevant registration

office and, in the case of shares on the principal register, at the transfer office in Bermuda.

The Directors may in their absolute discretion and without assigning any reason therefor,

refuse to register any transfer of any shares (not being fully paid shares) to a person of whom

they do not approve and they may refuse to register the transfer of any shares (not being fully

paid shares) on which the Company has a lien. Our Directors may also refuse to register a

transfer of shares (whether fully paid or not) in favour of more than four persons jointly or

where the transfer is to an infant or a person of unsound mind or under other legal disability.

If our Directors refuse to register a transfer, they must within two months after the date on

which the transfer was lodged with the Company send to the transferor and transferee notice of

the refusal and (if the shares concerned are fully paid shares) the reasons(s) for such refusal.

- IV-�� -



Our Directors may, if applicable, decline to recognise an instrument of transfer unless the

instrument of transfer is properly stamped, is in respect of only one class of share and is lodged

at the relevant registration or transfer office accompanied by the relevant share certificate(s)

and such other evidence as they may reasonably require to show the right of the transferor to

make the transfer (and if the instrument of transfer is executed by some other person on his

behalf, the authority of that person so to do). Where applicable, the permission of the Bermuda

Monetary Authority with respect thereto shall be obtained.

The registration of transfers may, on giving notice by advertisement in an appointed

newspaper in Bermuda and in one English and one Chinese newspaper circulating in Hong

Kong, be suspended at such times and for such periods as our Directors may from time to time

determine and either generally or in respect of any class of shares. The register of members

shall not be closed for periods exceeding in the whole �0 days in any year.

(k) power for the company to purchase its own shares

The Bye-laws supplement the Company’s memorandum of association (which empowers

the Company to purchase its own shares) by providing that the power is exercisable by our

Directors upon such term and conditions as they think fit.

(l) power of any subsidiary to own securities in the company

There are no provisions in the Bye-laws relating to ownership of securities in the Company

by a subsidiary.

(m) dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency but no dividend may

exceed the amount recommended by our Directors. The Company may also make a distribution

out of contributed surplus (as to the meaning of this term, see paragraph 4(d) below).

Unless and to the extent that the rights attached to any shares or the terms of issue

thereof otherwise provide, all dividends will be apportioned and paid pro rata according to the

amounts paid or credited as paid on the shares during any portion or portions of the period

in respect of which the dividend is paid. No amount paid on a share in advance of calls will

for this purpose be treated as paid on the shares. The Directors may retain any dividends or

other moneys payable on or in respect of a share upon which the Company has a lien, and may

apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of

which the lien exists. Our Directors may deduct from any dividend or bonus payable to any

member all sums of money (if any) presently payable by him to the Company on account of

calls, instalments or otherwise.

- IV-�4 -



Whenever our Directors or the Company in general meeting have resolved that a dividend

be paid or declared on the share capital of the Company, our Directors may further resolve

either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares

credited as fully paid, provided that the members entitled thereto will be entitled to elect to

receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that the members

entitled to such dividend will be entitled to elect to receive an allotment of shares credited as

fully paid in lieu of the whole or such part of the dividend as our Directors may think fit.

The Company may also upon the recommendation of our Directors by an ordinary resolution

resolve in respect of any particular dividend of the Company that it may be satisfied wholly in

the form of an allotment of shares credited as fully paid without offering any right to members

to elect to receive such dividend in cash in lieu of such allotment.

Whenever our Directors or the Company in general meeting have resolved that a dividend

be paid or declared our Directors may further resolve that such dividend be satisfied wholly or

in part by the distribution of specific assets of any kind.

All dividends, bonuses or other distributions or the proceeds of the realisation of any of

the foregoing unclaimed for one year after having been declared may be invested or otherwise

made use of by our Directors for the benefit of the Company until claimed and the Company

shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions

or proceeds as aforesaid unclaimed for six years after having been declared may be forfeited by

our Directors and, upon such forfeiture, shall revert to the Company and, in the case where any

of the same are securities in the Company, may be re-allotted or re-issued for such consideration

as our Directors think fit.

(n) proxies

Any member of the Company entitled to attend and vote at a meeting of the Company or

a meeting of the holders of any class of shares in the Company is entitled to appoint another

person as his proxy to attend and vote instead of him. A member who is the holder of two or

more shares may appoint more than one proxy to represent him to vote on his behalf at a general

meeting of the Company or at a class meeting. At any general meeting where voting is by poll,

votes may be given either personally (or, in the case of a member being a corporation, by its

duly authorised representative) or by proxy. Proxies need not be members of the Company.

A proxy or proxies representing either an individual or a corporate member shall be

entitled to exercise the same powers on behalf of the member whom he or they represent as

such member could exercise.

- IV-�� -



(o) corporate representatives

A corporate member of the Company entitled to attend and vote at a meeting of the

Company is entitled to appoint any person as its representative to attend and vote on its behalf.

A corporate member represented by its representative is deemed to be present in person at

the relevant meeting and its representative may vote on a poll on any resolution put at such

meeting.

(p) calls on shares and forfeiture of shares

The Directors may from time to time make such calls as it may think fit upon the members

in respect of any monies unpaid on the shares held by them respectively (whether on account of

the nominal value of the shares or by way of premium) and not by the conditions of allotment

thereof made payable at fixed times. A call may be made payable either in one sum or by

instalments. If the sum payable in respect of any call or instalment is not paid on or before

the day appointed for payment thereof, the person or persons from whom the sum is due shall

pay interest on the same at such rate not exceeding 20 per cent. per annum as our Directors

shall fix from the day appointed for the payment thereof to the time of actual payment, but our

Directors may waive payment of such interest wholly or in part. Our Directors may, if they think

fit, receive from any member willing to advance the same, either in money or money’s worth,

all or any part of the money uncalled and unpaid or instalments payable upon any shares held

by him, and in respect of all or any of the monies so advanced the Company may pay interest

at such rate (if any) not exceeding 20 per cent. per annum as our Directors may decide.

If a member fails to pay any call or instalment of a call on the day appointed for payment

thereof, our Directors may, at any time thereafter during such time as any part of the call or

instalment remains unpaid, serve a notice on him requiring payment of so much of the call or

instalment as is unpaid, together with any interest which may have accrued and which may still

accrue up to the date of actual payment. The notice will name a further day (not earlier than the

expiration of fourteen days from the date of the notice) on or before which the payment required

by the notice is to be made, and it will also name the place where payment is to be made. The

notice shall also state that, in the event of non-payment at or before the time appointed, the

shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of

which the notice has been given may at any time thereafter, before the payment required by

the notice has been made, be forfeited by a resolution of our Directors to that effect. Such

forfeiture will include all dividends and bonuses declared in respect of the forfeited share and

not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the

forfeited shares but shall, notwithstanding, remain liable to pay to the Company all moneys

which, at the date of forfeiture, were payable by him to the Company in respect of the shares

- IV-�� -



together with (if our Directors shall in their discretion so require) interest thereon from the

date of forfeiture until payment at such rate not exceeding 20 per cent. per annum as our Board

may prescribe.

(q) inspection of register of members

There are no provisions in the Bye-laws relating to inspection of the register of members

as the matter is dealt with in the Companies Act (as to which see paragraph 4(m) below).

(r) inspection of register of directors

There are no provisions in the Bye-laws relating to the inspection of the register of

Directors of the Company, as the matter is dealt with in the Companies Act (as to which see

paragraph 4(m) below).

(s) Quorum for meetings and separate class meetings

For all purposes the quorum for a general meeting shall be two members present in person

and entitled to vote (or, in the case of a member being a corporation, by its duly authorised

representative) or by proxy and entitled to vote. In respect of a separate class meeting convened

to sanction the modification of class rights, the necessary quorum shall not be less than two

persons holding or representing by proxy one-third in nominal value of the issued shares of that

class and, where such meeting is adjourned for want of quorum, the quorum for the adjourned

meeting shall be any two members present in person and entitled to vote or by proxy (whatever

the number of shares held by them).

(t) rights of the minorities in relation to fraud or oppression

There are no provisions in the Bye-laws relating to rights of minority members in relation

to fraud or oppression. However, certain remedies are available to members of the Company

under Bermuda company law as summarised in paragraph 4(e) below.

(u) procedures on liquidation

A resolution for a court or voluntary winding up of the Company must be passed by way

of a special resolution.

If the Company shall be wound up, the surplus assets remaining after payment to all

creditors are to be divided among the members in proportion to the capital paid up on the

shares held by them respectively, and if such surplus assets shall be insufficient to repay the

whole of the paid up capital, they are to be distributed so that, as nearly as may be, the losses

shall be borne by the members in proportion to the capital paid up on the shares held by them

respectively, all subject to the rights of any shares issued on special terms and conditions.

- IV-�� -



If the Company shall be wound up (whether the liquidation is voluntary or by the court),

the liquidator may, with the sanction of a special resolution, divide among the members in specie

or kind the whole or any part of the assets of the Company and whether the assets consist of

property of one kind or properties of different kinds and the liquidator may, for such purposes,

set such value as he deems fair upon any one or more class or classes of property to be divided

as aforesaid and may determine how such division is to be carried out as between the members

or different classes of members and the members within each class. The liquidator may, with

the like sanction, vest any one or more class or classes of property and may determine how

such division shall be carried out as between the members or different classes of members.

The liquidator may, with the like sanction, vest any part of the assets in trustees upon such

trusts for the benefit of members as the liquidator, with the like sanction, shall think fit, but

so that no member shall be compelled to accept any shares or other assets upon which there

is a liability.

(v) untraceable members

The Company may sell the shares of any member if: (i) dividends or other distributions

have been declared by the Company on at least three occasions during a period of �2 years

and these dividends or distributions have been unclaimed on such shares; (ii) the Company

has published an advertisement of its intention to sell such shares in English and in Chinese in

one leading English and (unless unavailable) one leading Chinese newspaper circulating in the

territory of the stock exchange on which the ordinary share capital of the Company is listed and

a period of three months has elapsed since the date of the first publication of such notice; (iii)

the Company has not at any time during the said periods of �2 years and three months received

any indication of the existence of the member who is the holder of such shares or of a person

entitled to such shares by death, bankruptcy or operations of law; and (iv) the Company has

notified the stock exchange on which the ordinary share capital of the Company is listed of its

intention to sell such shares. The net proceeds of any such sale will belong to the Company and

upon the receipt of such net proceeds by the Company, the Company will become indebted to

the former holder of such shares for an amount equal to the amount of such net proceeds.

(w) stock

Subject to the provisions of the relevant statues of the Company may by ordinary resolution

convert any fully paid shares into stock, and may from time to time by like resolution reconvert

any stock into fully paid shares of any denominations. The holders of stock may transfer the

same or any part thereof in the same manner, and subject to the same regulations as and subject

to which the shares from which the stock arose might prior to conversion have been transferred

or as near thereto as circumstances admit, but our Directors may from time to time, if they

think fit, fix the minimum amount of stock transferable and restrict or prohibit the transfer

of fractions of that minimum, but so that such minimum shall not exceed the nominal amount

of the shares from which the stock arose. No warrants to bearer shall be issued in respect of

any stock. The holders of stock shall, according to the amount of the stock held by them, have

- IV-�8 -



the same rights, privileges and advantages as regards dividends, participation in assets on a

winding-up, voting at meetings, and other matters, as if they held the shares from which the

stock arose, but no such privilege of the Company shall be conferred by an amount of stock

which would not, if existing in shares, have conferred such privilege or advantage. All such of

the provisions of the Bye-laws as are applicable to paid up shares shall apply to stock, and the

words “share”, “shareholder” and “member” therein shall include “stock” and “stockholder”.

(x) other provisions

The Bye-laws provide that, to the extent that it is not prohibited by and is in compliance

with Bermuda law, if any rights attaching to any warrants which the Company may issue after [•••]

shall remain exercisable and the Company does any act which would result in the subscription

price under such warrants being reduced below the par value of a Share, a subscription right

reserve shall be established and applied in paying up the shortfall between the subscription

price and the par value of a Share on any exercise of the warrants.

3. variation of memorandum of association and bye-laws

The memorandum of association of the Company may be altered by the Company in general

meeting. In certain circumstances, consent to the amendment must be obtained from the Minister of

Finance of Bermuda. The Bye-laws may be amended by our Directors subject to the confirmation

of the Company in general meeting. The Bye-laws state that a special resolution shall be required

to alter the provisions of the memorandum of association or to confirm any amendment to the

Bye-laws or to change the name of the Company. For these purposes, a resolution is a special resolution

if it has been passed by a majority of not less than three-fourths of the votes cast by such members

of the Company as, being entitled to do so, vote in person or, in the case of such members as are

corporations, by their respective duly authorised representatives or, where proxies are allowed, by

proxy at a general meeting of which not less than 2� clear days’ notice specifying the intention to

propose the resolution as a special resolution has been duly given. Except in the case of an annual

general meeting, the requirement of 2� clear days’ notice may be waived by a majority in number of

the members having the right to attend and vote at the relevant meeting, being a majority together

holding not less than �� per cent. in nominal value of the shares giving that right.

- IV-�� -



4. bermuda company law

The Company is incorporated in Bermuda and, therefore, operates subject to Bermuda law. Set

out below is a summary of certain provisions of Bermuda company law, although this does not purport

to contain all applicable qualifications and exceptions or to be a complete review of all matters of

Bermuda company law and taxation, which may differ from equivalent provisions in jurisdictions

with which interested parties may be more familiar:

(a) share capital

The Companies Act provides that where a company issues shares at a premium, whether

for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those

shares shall be transferred to an account, to be called the “share premium account”, to which

the provisions of the Companies Act relating to a reduction of share capital of a company shall

apply as if the share premium account were paid up share capital of the Company except that

the share premium account may be applied by the Company:

(i) in paying up unissued shares of the Company to be issued to members of the

Company as fully paid bonus shares;

(ii) in writing off:

(aa) the preliminary expenses of the Company; or

(bb) the expenses of, or the commission paid or discount allowed on, any issue

of shares or debentures of the Company; or

(iii) in providing for the premiums payable on redemption of any shares or of any

debentures of the Company.

In the case of an exchange of shares the excess value of the shares acquired over the

nominal value of the shares being issued may be credited to a contributed surplus account of

the issuing company.

The Companies Act permits a company to issue preference shares and subject to the

conditions stipulated therein to convert those preference shares into redeemable preference

shares.

The Companies Act includes certain protections for holders of special classes of shares,

requiring their consent to be obtained before their rights may be varied. Where provision is

made by the memorandum of association or bye-laws for authorising the variation of rights

attached to any class of shares in the Company, the consent of the specified proportions of the

holders of the issued shares of that class or the sanction of a resolution passed at a separate

- IV-20 -



meeting of the holders of those shares is required, and where no provision for varying such

rights is made in the memorandum of association or bye-laws and nothing therein precludes a

variation of such rights, the written consent of the holders of three-fourths of the issued shares

of that class or the sanction of a resolution passed as aforesaid is required.

(b) financial assistance to purchase shares of a company or its holding company

A company is prohibited from providing financial assistance for the purpose of an

acquisition of its own or its holding company’s shares unless there are reasonable grounds

for believing that the Company is, and would after the giving of such financial assistance be,

able to pay its liabilities as they become due. In certain circumstances, the prohibition from

giving financial assistance may be excluded such as where the assistance is only an incidental

part of a larger purpose or the assistance is of an insignificant amount such as the payment of

minor costs.

(c) purchase of shares and warrants by a company and its subsidiaries

A company may, if authorised by its memorandum of association or bye-laws, purchase

its own shares. Such purchases may only be effected out of the capital paid up on the purchased

shares or out of the funds of the Company otherwise available for dividend or distribution or

out of the proceeds of a fresh issue of shares made for the purpose. Any premium payable on

a purchase over the par value of the shares to be purchased must be provided for out of funds

of the Company otherwise available for dividend or distribution or out of the company’s share

premium account. Any amount due to a shareholder on a purchase by a company of its own

shares may (i) be paid in cash; (ii) be satisfied by the transfer of any part of the undertaking or

property of the Company having the same value; or (iii) be satisfied partly under (i) and partly

under (ii). Any purchase by a company of its own shares may be authorised by its board of

directors or otherwise by or in accordance with the provisions of its bye-laws. Such purchase

may not be made if, on the date on which the purchase is to be effected, there are reasonable

grounds for believing that the Company is, or after the purchase would be, unable to pay its

liabilities as they become due. The shares so purchased may either be cancelled or held as

treasury shares. Any purchased shares that are cancelled will, in effect, revert to the status

of authorised but unissued shares. If shares of the Company are held as treasury shares, the

Company is prohibited to exercise any rights in respect of those shares, including any right

to attend and vote at meetings, including a meeting under a scheme of arrangement, and any

purported exercise of such a right is void. No dividend shall be paid to the Company in respect

of shares held by the Company as treasury shares; and no other distribution (whether in cash

or otherwise) of the company’s assets (including any distribution of assets to members on a

winding up) shall be made to the Company in respect of shares held by the Company as treasury

shares. Any shares allotted by the Company as fully paid bonus shares in respect of shares held

by the Company as treasury shares shall be treated for the purposes of the Companies Act as

if they had been acquired by the Company at the time they were allotted.

- IV-2� -



A company is not prohibited from purchasing and may purchase its own warrants subject to

and in accordance with the terms and conditions of the relevant warrant instrument or certificate.

There is no requirement under Bermuda law that a company’s memorandum of association or

its bye-laws contain a specific provision enabling such purchases.

Under Bermuda law, a subsidiary may hold shares in its holding company and in certain

circumstances, may acquire such shares. The holding company is, however, prohibited from

giving financial assistance for the purpose of the acquisition, subject to certain circumstances

provided by the Companies Act. A company, whether a subsidiary or a holding company, may

only purchase its own shares if it is authorised to do so in its memorandum of association or

bye-laws pursuant to section 42A of the Companies Act.

(d) dividends and distributions

A company may not declare or pay a dividend, or make a distribution out of contributed

surplus, if there are reasonable grounds for believing that (i) the Company is, or would after

the payment be, unable to pay its liabilities as they become due; or (ii) the realisable value of

the company’s assets would thereby be less than the aggregate of its liabilities and its issued

share capital and share premium accounts. Contributed surplus is defined for purposes of section

�4 of the Companies Act to include the proceeds arising from donated shares, credits resulting

from the redemption or conversion of shares at less than the amount set up as nominal capital

and donations of cash and other assets to the Company.

(e) protection of minorities

Class actions and derivative actions are generally not available to shareholders under

the laws of Bermuda. The Bermuda courts, however, would ordinarily be expected to permit

a shareholder to commence an action in the name of a company to remedy a wrong done to

the Company where the act complained of is alleged to be beyond the corporate power of

the Company or is illegal or would result in the violation of the company’s memorandum of

association and bye-laws. Furthermore, consideration would be given by the court to acts that

are alleged to constitute a fraud against the minority shareholders or, for instance, where an

act requires the approval of a greater percentage of the company’s shareholders than actually

approved it.

Any member of a company who complains that the affairs of the Company are being

conducted or have been conducted in a manner oppressive or prejudicial to the interests of

some part of the members, including himself, may petition the court which may, if it is of the

opinion that to wind up the Company would unfairly prejudice that part of the members but

that otherwise the facts would justify the making of a winding up order on just and equitable

grounds, make such order as it thinks fit, whether for regulating the conduct of the company’s

affairs in future or for the purchase of shares of any members of the Company by other members

of the Company or by the Company itself and in the case of a purchase by the Company itself,

for the reduction accordingly of the company’s capital, or otherwise. Bermuda law also provides

- IV-22 -



that the Company may be wound up by the Bermuda court, if the court is of the opinion that

it is just and equitable to do so. Both these provisions are available to minority shareholders

seeking relief from the oppressive conduct of the majority, and the court has wide discretion

to make such orders as it thinks fit.

Except as mentioned above, claims against a company by its shareholders must be based

on the general laws of contract or tort applicable in Bermuda.

A statutory right of action is conferred on subscribers of shares in a company against

persons, including directors and officers, responsible for the issue of a document in respect of

damage suffered by reason of an untrue statement therein, but this confers no right of action

against the Company itself. In addition, such company, as opposed to its shareholders, may take

action against its officers including directors, for breach of their statutory and fiduciary duty

to act honestly and in good faith with a view to the best interests of the Company.

(f) management

The Companies Act contains no specific restrictions on the power of directors to dispose

of assets of a company, although it specifically requires that every officer of a company, which

includes a director, managing director and secretary, in exercising his powers and discharging his

duties must do so honestly and in good faith with a view to the best interests of the Company

and exercise the care, diligence and skill that a reasonably prudent person would exercise in

comparable circumstances. Furthermore, the Companies Act requires that every officer should

comply with the Companies Act, regulations passed pursuant to the Companies Act and the

bye-laws of the Company. The directors of a company may, subject to the bye-laws of the

Company, exercise all the powers of the Company except those powers that are required by the

Companies Act or the bye-laws to be exercised by the members of the Company.

(g) accounting and auditing requirements

The Companies Act requires a company to cause proper records of accounts to be kept

with respect to (i) all sums of money received and expended by the Company and the matters in

respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods

by the Company and (iii) the assets and liabilities of the Company.

Furthermore, it requires that a company keeps its records of account at the registered

office of the Company or at such other place as the directors think fit and that such records

shall at all times be open to inspection by the directors or the resident representative of the

Company. If the records of account are kept at some place outside Bermuda, there shall be kept

at the office of the Company in Bermuda such records as will enable the directors or the resident

representative of the Company to ascertain with reasonable accuracy the financial position of

the Company at the end of each three month period, except that where the Company is listed

on an appointed stock exchange, there shall be kept such records as will enable the directors or

- IV-2� -



the resident representative of the Company to ascertain with reasonable accuracy the financial

position of the Company at the end of each six month period.

The Companies Act requires that the directors of the Company must, at least once a year,

lay before the Company in general meeting financial statements for the relevant accounting

period. Further, the company’s auditor must audit the financial statements so as to enable him

to report to the members. Based on the results of his audit, which must be made in accordance

with generally accepted auditing standards, the auditor must then make a report to the members.

The generally accepted auditing standards may be those of a country or jurisdiction other than

Bermuda or such other generally accepted auditing standards as may be appointed by the Minister

of Finance of Bermuda under the Companies Act; and where the generally accepted auditing

standards used are other than those of Bermuda, the report of the auditor shall identify the

generally accepted auditing standards used. All members of the Company are entitled to receive

a copy of every financial statement prepared in accordance with these requirements, at least five

(�) days before the general meeting of the Company at which the financial statements are to

be tabled. A company the shares of which are listed on an appointed stock exchange may send

to its members summarised financial statements instead. The summarised financial statements

must be derived from the company’s financial statements for the relevant period and contain

the information set out in the Companies Act. The summarised financial statements sent to the

company’s members must be accompanied by an auditor’s report on the summarised financial

statements and a notice stating how a member may notify the Company of his election to receive

financial statements for the relevant period and/or for subsequent periods.

The summarised financial statements together with the auditor’s report thereon and the

accompanied notice must be sent to the members of the Company not less than twenty-one

(2�) days before the general meeting at which the financial statements are laid. Copies of the

financial statements must be sent to a member who elects to receive the same within seven (�)

days of receipt by the Company of the member’s notice of election.

(h) auditors

At each annual general meeting, a company must appoint an auditor to hold office until

the close of the next annual general meeting; however, this requirement may be waived if all

of the shareholders and all of the directors, either in writing or at the general meeting, agree

that there shall be no auditor.

A person, other than an incumbent auditor, shall not be capable of being appointed

auditor at an annual general meeting unless notice in writing of an intention to nominate

that person to the office of auditor has been given not less than twenty-one (2�) days before

the annual general meeting. The Company must send a copy of such notice to the incumbent

auditor and give notice thereof to the members not less than seven (�) days before the annual

general meeting. An incumbent auditor may, however, by notice in writing to the secretary of

the Company waive the requirements of the foregoing.

- IV-24 -



Where an auditor is appointed to replace another auditor, the new auditor must seek from

the replaced auditor a written statement as to the circumstances of the latter’s replacement.

If the replaced auditor does not respond within fifteen (��) days, the new auditor may act in

any event. An appointment as auditor of a person who has not requested a written statement

from the replaced auditor is voidable by a resolution of the shareholders at a general meeting.

An auditor who has resigned, been removed or whose term of office has expired or is about

to expire, or who has vacated office is entitled to attend the general meeting of the Company

at which he is to be removed or his successor is to be appointed; to receive all notices of, and

other communications relating to, that meeting which a member is entitled to receive; and to

be heard at that meeting on any part of the business of the meeting that relates to his duties

as auditor or former auditor.

(i) exchange control

An exempted company is usually designated as “non-resident” for Bermuda exchange

control purposes by the Bermuda Monetary Authority. Where a company is so designated, it

is free to deal in currencies of countries outside the Bermuda exchange control area which

are freely convertible into currencies of any other country. The permission of the Bermuda

Monetary Authority is required for the issue of shares and securities by the Company and the

subsequent transfer of such shares and securities. In granting such permission, the Bermuda

Monetary Authority accepts no responsibility for the financial soundness of any proposals or

for the correctness of any statements made or opinions expressed in any document with regard

to such issue. Before the Company can issue or transfer any further shares and securities in

excess of the amounts already approved, it must obtain the prior consent of the Bermuda

Monetary Authority.

The Bermuda Monetary Authority has granted general permission for the issue and

transfer of shares and securities to and between persons regarded as resident outside Bermuda

for exchange control purposes without specific consent for so long as any equity securities,

including shares, are listed on an appointed stock exchange (as defined in the Companies Act).

Issues to and transfers involving persons regarded as “resident” for exchange control purposes

in Bermuda will be subject to specific exchange control authorisation.

(j) taxation

Under present Bermuda law, no Bermuda withholding tax on dividends or other distributions,

nor any Bermuda tax computed on profits or income or on any capital asset, gain or appreciation

will be payable by an exempted company or its operations, nor is there any Bermuda tax in the

nature of estate duty or inheritance tax applicable to shares, debentures or other obligations of the

Company held by non-residents of Bermuda. Furthermore, a company may apply to the Minister

of Finance of Bermuda for an assurance, under the Exempted Undertakings Tax Protection Act

�� of Bermuda, that no such taxes shall be so applicable until 28 March 20��, although this

assurance will not prevent the imposition of any Bermuda tax payable in relation to any land

in Bermuda leased or let to the Company or to persons ordinarily resident in Bermuda.

- IV-2� -



(k) stamp duty

An exempted company is exempt from all stamp duties except on transactions involving

“Bermuda property”. This term relates, essentially, to real and personal property physically

situated in Bermuda, including shares in local companies (as opposed to exempted companies).

Transfers of shares and warrants in all exempted companies are exempt from Bermuda stamp

duty.

(l) loans to directors

Bermuda law prohibits the making of loans by a company to any of its directors or to

their families or companies in which they hold more than a twenty per cent. (20%) interest,

without the consent of any member or members holding in aggregate not less than nine-tenths

of the total voting rights of all members having the right to vote at any meeting of the members

of the Company. These prohibitions do not apply to (a) anything done to provide a director

with funds to meet the expenditure incurred or to be incurred by him for the purposes of the

Company, provided that the Company gives its prior approval at a general meeting or, if not,

the loan is made on condition that it will be repaid within six months of the next following

annual general meeting if the loan is not approved at or before such meeting, (b) in the case of

a company whose ordinary business includes the lending of money or the giving of guarantees

in connection with loans made by other persons, anything done by the Company in the ordinary

course of that business, or (c) any advance of moneys by the Company to any officer or auditor

under Section �8(2)(c) of the Companies Act which allows the Company to advance moneys to

an officer or auditor of the Company for the costs incurred in defending any civil or criminal

proceedings against them, on condition that the officer or auditor shall repay the advance if

any allegation of fraud or dishonesty is proved against them. If the approval of the Company

is not given for a loan, the directors who authorised it will be jointly and severally liable for

any loss arising therefrom.

(m) inspection of corporate records

Members of the general public have the right to inspect the public documents of a

company available at the office of the Registrar of Companies in Bermuda which will include

the company’s certificate of incorporation, its memorandum of association (including its objects

and powers) and any alteration to the company’s memorandum of association. The members of

the Company have the additional right to inspect the bye-laws of a company, minutes of general

meetings and the company’s audited financial statements, which must be presented to the annual

general meeting. Minutes of general meetings of a company are also open for inspection by

directors of the Company without charge for not less than two (2) hours during business hours

each day. The register of members of a company is open for inspection by members of the public

without charge. The Company is required to maintain its share register in Bermuda but may,

subject to the provisions of the Companies Act, establish a branch register outside Bermuda.

Any branch register of members established by the Company is subject to the same rights of

inspection as the principal register of members of the Company in Bermuda. Any person may

- IV-2� -



on payment of a fee prescribed by the Companies Act require a copy of the register of members

or any part thereof which must be provided within fourteen (�4) days of a request. Bermuda

law does not, however, provide a general right for members to inspect or obtain copies of any

other corporate records.

A company is required to maintain a register of directors and officers at its registered

office and such register must be made available for inspection for not less than two (2) hours

in each day by members of the public without charge. If summarised financial statements are

sent by a company to its members pursuant to section 8�A of the Companies Act, a copy of

the summarised financial statements must be made available for inspection by the public at the

registered office of the Company in Bermuda.

(n) winding up

A company may be wound up by the Bermuda court on application presented by the

Company itself, its creditors or its contributors. The Bermuda court also has authority to order

winding up in a number of specified circumstances including where it is, in the opinion of the

Bermuda court, just and equitable that such company be wound up.

A company may be wound up voluntarily when the members so resolve in general

meeting, or, in the case of a limited duration company, when the period fixed for the duration

of the Company by its memorandum expires, or the event occurs on the occurrence of which

the memorandum provides that the Company is to be dissolved. In the case of a voluntary

winding up, such company is obliged to cease to carry on its business from the time of passing

the resolution for voluntary winding up or upon the expiry of the period or the occurrence of

the event referred to above. Upon the appointment of a liquidator, the responsibility for the

company’s affairs rests entirely in his hands and no future executive action may be carried out

without his approval.

Where, on a voluntary winding up, a majority of directors make a statutory declaration

of solvency, the winding up will be a members’ voluntary winding up. In any case where such

declaration has not been made, the winding up will be a creditors’ voluntary winding up.

In the case of a members’ voluntary winding up of a company, the Company in general

meeting must appoint one or more liquidators within the period prescribed by the Companies

Act for the purpose of winding up the affairs of the Company and distributing its assets. If the

liquidator at any time forms the opinion that such company will not be able to pay its debts in

full, he is obliged to summon a meeting of creditors.

As soon as the affairs of the Company are fully wound up, the liquidator must make up

an account of the winding up, showing how the winding up has been conducted and the property

of the Company has been disposed of, and thereupon call a general meeting of the Company

for the purposes of laying before it the account and giving an explanation thereof. This final

general meeting requires at least one month’s notice published in an appointed newspaper in

Bermuda.

- IV-2� -



In the case of a creditors’ voluntary winding up of a company, the Company must call a

meeting of creditors of the Company to be summoned on the day following the day on which

the meeting of the members at which the resolution for winding up is to be proposed is held.

Notice of such meeting of creditors must be sent at the same time as notice is sent to members.

In addition, such company must cause a notice to appear in an appointed newspaper on at least

two occasions.

The creditors and the members at their respective meetings may nominate a person

to be liquidator for the purposes of winding up the affairs of the Company provided that if

the creditors nominate a different person, the person nominated by the creditors shall be the

liquidator. The creditors at the creditors’ meeting may also appoint a committee of inspection

consisting of not more than five persons.

If a creditors’ winding up continues for more than one year, the liquidator is required to

summon a general meeting of the Company and a meeting of the creditors at the end of each

year to lay before such meetings an account of his acts and dealings and of the conduct of the

winding up during the preceding year. As soon as the affairs of the Company are fully wound

up, the liquidator must make an account of the winding up, showing how the winding up has

been conducted and the property of the Company has been disposed of, and thereupon shall call

a general meeting of the Company and a meeting of the creditors for the purposes of laying

the account before such meetings and giving an explanation thereof.

5. General

Conyers Dill & Pearman, the Company’s legal advisers on Bermuda law, have sent to the

Company a letter of advice summarising certain aspects of Bermuda company law. This letter, together

with a copy of the Companies Act, is available for inspection as referred to in the paragraph headed

“Documents available for inspection” in Appendix VI. Any person wishing to have a detailed summary

of Bermuda company law or advice on the differences between it and the laws of any jurisdiction

with which he is more familiar is recommended to seek independent legal advice.

- V-� -

appendix v statutory and general information


furtHer information aBout our Company and our suBsidiaries

1. incorporation of our Company

Our Company was incorporated in Bermuda as an exempted company with limited liability

under the Companies Act on 3 March 20�0 with an authorised share capital of HK$�0,000 divided

into �,000,000 Shares, of which 5�0,000 Shares and 490,000 Shares were allotted and issued nil-paid

by our Company to VC Investments and Merlotte respectively on 8 April 20�0. The said �,000,000

nil-paid Shares were, on �7 May 20�0, transferred to Sure Strategy at nil consideration and were

subsequently paid up in the manner described in paragraph 4 below.

As our Company was incorporated in Bermuda, we operate subject to the relevant laws and

regulations of Bermuda and our constitution which comprises a memorandum of association and

the Bye-laws. A summary of the relevant laws and regulations of Bermuda and of our Company’s

constitution is set out in Appendix IV to this document.

2. Changes in share capital of our Company

(a) Increase inauthorisedsharecapital

On 8 September 20�0, the authorised share capital of our Company was increased from

HK$�0,000 to HK$9,000,000 by the creation of 899,000,000 new Shares pursuant to a resolution

passed by the sole Shareholder:

Immediately following the completion of the [•••] (taking no account of any Shares which

may be allotted and issued pursuant to the exercise of the options granted or which may be

granted under the Share Option Scheme), our authorised share capital will be HK$9,000,000

divided into 900,000,000 Shares, of which 438,000,000 Shares will be issued fully paid or

credited as fully paid, and 462,000,000 Shares will remain unissued. Other than pursuant to

the exercise of the options granted or which may be granted under the Share Option Scheme,

there is no present intention to issue any of the authorised but unissued share capital of our

Company and, without the prior approval of the Shareholders in general meeting, no issue of

Shares will be made which would effectively alter the control of our Company.

Save as disclosed in this paragraph and in the paragraphs headed “Incorporation of our

Company”, “Resolutions in writing of all Shareholders passed on 8 September 20�0” and

“Group reorganisation” of this Appendix, there has been no alteration in the share capital of

the Company since its incorporation.

(b) Foundershares

Our Company has no founder shares, management shares or deferred shares.

- V-2 -



3. [•••]

4. group reorganisation

The companies comprising our Group underwent a reorganisation to rationalise our Group’s

structure in preparation for [•••], which involved the following:

(a) on 25 March 20�0, Sure Strategy was incorporated in the BVI with an authorised share

capital of US$50,000 divided into 50,000 shares of US$�.00 each, of which 49 shares and

5� shares were subscribed at par by each of Merlotte and VC Investments respectively;

(b) on �7 May 20�0, Merlotte and VC Investments transferred all of their respective shares, being

the entire issued share capital in our Company, to Sure Strategy at nil consideration;

(c) on 8 September 20�0, the authorised share capital of our Company was increased from

HK$�0,000 to HK$9,000,000; and

(d) on 8 September 20�0, our Company as purchaser, VC Investments and Merlotte as

vendors and VC as warrantor, entered into a share transfer agreement, pursuant to which

our Company acquired the entire issued share capital of FG Holdings in consideration

of and in exchange for which our Company, (i) at the direction of VC Investments and

Merlotte, allotted and issued, credited as fully paid, an aggregate of �,000,000 Shares

to Sure Strategy and �4,700 Shares and �5,300 Shares to Merlotte and VC Investments

respectively; and (ii) credited as fully paid at par �,000,000 nil-paid Shares then held by

Sure Strategy.]

5. Changes in share capital of our subsidiaries

Our subsidiaries are listed in the Accountants’ Report set out in Appendix I to this document.

Save for the alterations described in paragraph 4 above, the following alterations in the share capital of our subsidiaries took place within the two years immediately preceding [•••]:

(a) Brilliant Fashion Inc. was incorporated in New York, the U.S. on 25 August 2009. It was authorised to issue �00 common shares without par value. �00 shares were issued and allotted to FG Holdings on the same date;

(b) FG Shenzhen was established in the PRC on �5 December 2009 with a total investment amount of HK$4,250,000 and a registered capital of HK$3,000,000;

(c) Happy Noble Holdings Limited was incorporated in the BVI on �5 July 20�0 with an authorised share capital of US$50,000 divided into 50,000 shares of US$�.00 each; and

- V-3 -



(d) on �� February 20�0, Sky Winner Investment Limited was incorporated in Hong Kong with an authorised share capital of HK$�0,000 divided into �0,000 shares of HK$�.00 each. On �� February 20�0, one share was allotted to Acota Services Limited and such share was transferred to an Independent Third Party. On �6 March 20�0, 99 shares in Sky Winner Investment Limited were allotted and issued to four Independent Third Parties together with the aforesaid one share, Sky Winner Investment Limited was owned by such four Independent Third Parties as to 50%, �7%, �7% and �6% respectively. On 24 August 20�0, such four Independent Third Parties transferred their entire interests in Sky Winner Investment Limited to Happy Noble Holdings Limited at a consideration of HK$�00.

6. further information about our group’s prC establishments

Our Group has interest in the registered capital of three wholly foreign-owned enterprises in the PRC. A summary of the corporate information of these enterprises are set out as follows:

(a) JiangmenFactory

(i) Name of the enterprise: 江門冠暉製衣有限公司 (Jiangmen V-Apparel Manufacturing LTD.)

(ii) Economic nature: Wholly foreign-owned enterprise

(iii) Registered owners: Rocwide Limited (60%) FG Holdings (40%)

(iv) Total investment: HK$60,000,000

(v) Registered capital: HK$30,000,000

(vi) Attributable interest to our �00%

Group:

(vii) Term of operation: From 3� May 2000 to 30 May 2050

(viii) Scope of business: Processing of all types of apparel products, sales and

manufacture of supplementary materials of apparel

products, wholesale and retail of all types of textile

products including garment and supplementary

materials (No establishment of stores, commodities

involving quota permit management and specific

regulation management to be dealt with in accordance

with the relevant regulations of China)

- V-4 -



(b) FGShanghai

(i) Name of the enterprise: 福之源貿易(上海)有限公司 (Ford Glory Trading (Shanghai) Limited*)


(iii) Registered owner: FG International

(iv) Total investment: RMB�,428,000

(v) Registered capital: RMB�,000,000


Group:

(vii) Term of operation: From 7 February 2006 to 6 February 2036

(viii) Scope of business: Import and export, wholesale and commissioned

agency (excluding auction) of general merchandise,

jewellery (rough diamond and cut diamond excluded),

garment (apparel) and its raw and supplementary

material, other relevant accessory service, business

consultation (commodities involving quota permit

management and specific regulation management

to be dealt with in accordance with the relevant

regulations of China) (Those involving administrative

permit to be operated under the permit)

(c) FGShenzhen

(i) Name of the enterprise: 福源創業信息咨詢服務(深圳)有限公司

(Ford Glory (Shenzhen) International Ltd.*)


(iii) Registered owner: FG International

(iv) Total investment: HK$4,250,000

(v) Registered capital: HK$3,000,000


Group:

(vii) Term of operation: From �5 December 2009 to �5 December 2039

- V-5 -



(viii) Scope of business: Commodity information consultation, quality

control and quality management services, supply

chain management information service, logistic

consultation and marketing planning (Restricted

items not included)

7. [•••]

8. registration under part xi of the Companies ordinance

Our Company has established our head office and a principal place of business in Hong Kong

for the purpose of registration under Part XI of the Companies Ordinance at �9/F., Ford Glory Plaza,

37-39 Wing Hong Street, Cheung Sha Wan, Hong Kong. Our Company [has been registered] as an

oversea company under Part XI of the Companies Ordinance. Ms. Chan Shuk Fun, our company

secretary, has been appointed as agent of our Company for the acceptance of service of process in

Hong Kong.

furtHer information aBout tHe Business of our Company

9. summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business)

have been entered into by the members of our Group within the two years preceding [•••] and are or

may be material:

(a) a nomination dated 28 October 2008 entered into by Billion Sun International Limited as

nominator and FG International as nominee, pursuant to which Billion Sun International

Limited nominated FG International to take up the assignment of the whole of the 20th

Floor of Ford Glory Plaza, Kowloon, Hong Kong and directed the purchase balance of

HK$3�,649,850 to be paid by FG International;

(b) a nomination dated 28 October 2008 entered into by FG International as nominator

and Billion Sun International Limited as nominee, pursuant to which FG International

nominated Billion Sun International Limited to take up the assignment of the whole of

the �8th Floor of Ford Glory Plaza, Kowloon, Hong Kong and directed the purchase

balance of HK$3�,�65,345 to be paid by Billion Sun International Limited;

(c) a deed of mutual covenant and management agreement dated 29 December 2008 entered

into among Sun Top Development Limited, FG International, Savills Billion Property

Management Limited and The Bank of East Asia, Limited for the purposes of making

provisions for the management of Ford Glory Plaza, Kowloon, Hong Kong and defining

and regulating the rights, interests and obligations of all owners in respect of Ford Glory

Plaza, Kowloon, Hong Kong;

- V-6 -



(d) an assignment dated �6 January 2009 entered into by Sun Top Development Limited and

FG International, pursuant to which FG International was assigned the whole of the �9th

Floor of Ford Glory Plaza, Kowloon, Hong Kong at a consideration HK$3�,�65,345;

(e) an assignment dated �6 January 2009 entered into by Sun Top Development Limited and

FG International, pursuant to which FG International was assigned the whole of the 20th

Floor of Ford Glory Plaza, Kowloon, Hong Kong at a consideration HK$3�,649,850;

(f) an equity transfer agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Zou Weichang (鄒偉昌), pursuant to which FG Holdings acquired 8% equity interest

in Jiangmen Factory;

(g) a supplemental agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Zou Weichang (鄒偉昌) to supplement the agreement in item (f) above, stating that

the consideration for the transfer of 8% equity interest in Jiangmen Factory was HK$3

million;

(h) an equity transfer agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Chen Tianhe (陳天賀), pursuant to which FG Holdings acquired 8% equity interest


(i) a supplemental agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Chen Tianhe (陳天賀) to supplement the agreement in item (h) above, stating that


million;

(j) an equity transfer agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Li Liupan (李柳泮), pursuant to which FG Holdings acquired 8% equity interest in

Jiangmen Factory;

(k) a supplemental agreement dated 29 June 2009 and entered into by FG Holdings and

Mr. Li Liupan (李柳泮) to supplement the agreement in item (j) above, stating that


million;

(l) an equity transfer agreement dated 6 July 2009 and entered into by FG Holdings and Mr.

Ding Congning (丁聰凝), pursuant to which FG Holdings acquired 8% equity interest in

Jiangmen Factory;

(m) a supplemental agreement dated 6 July 2009 and entered into by FG Holdings and Mr.

Ding Congning (丁聰凝) to supplement the agreement in item (l) above, stating that


million;

- V-7 -



(n) an equity transfer agreement dated 6 July 2009 and entered into by FG Holdings and

Mr. Wang Jiabo (王家波), pursuant to which FG Holdings acquired 8% equity interest


(o) a supplemental agreement dated 6 July 2009 and entered into by FG Holdings and

Mr. Wang Jiabo (王家波) to supplement the agreement in item (n) above, stating that


million;

(p) a share purchase agreement dated 25 February 20�0 and entered into by V-Apparel

International Limited and FG Holdings, pursuant to which FG Holdings acquired the

entire issued shares capital of and the loan to Rocwide Limited at a consideration of

HK$48,000,000;

(q) an assignment dated 30 June 20�0 entered into between FG International, Alpha Best

Development Limited, Wan Wing Wing, Wan Wing Man and Ng Mei Yi for the assignment

of Workshop A on the 20th Floor of Ford Glory Plaza, Kowloon, Hong Kong at a

consideration payable to FG International, when aggregated with those payable to FG

International under the assignments of Workshops B, C, D and E on the 20th Floor of

Ford Glory Plaza (items (r), (s), (t) and (u) below), amounted to HK$29,000,000;

(r) an assignment dated 30 June 20�0 entered into between FG International, Alpha Best

Development Limited and Wong Wai Ling Joan for the assignment of Workshop B on

the 20th Floor of Ford Glory Plaza, Kowloon, Hong Kong at a consideration payable

to FG International, when aggregated with those payable to FG International under the

assignments of Workshops A, C, D and E on the 20th Floor of Ford Glory Plaza (item

(q) above and items (s), (t) and (u) below), amounted to HK$29,000,000;

(s) an assignment dated 30 June 20�0 entered into between FG International and Alpha

Best Development Limited for the assignment of Workshop C on the 20th Floor of Ford

Glory Plaza, Kowloon, Hong Kong at a consideration payable to FG International, when

aggregated with those payable to FG International under the assignments of Workshops

A, B, D and E on the 20th Floor of Ford Glory Plaza (items (q) and (r) above and items

(t) and (u) below), amounted to HK$29,000,000;

(t) an assignment dated 30 June 20�0 entered into between FG International, Alpha Best

Development Limited and Kent Full Limited for the assignment of Workshop D on the

20th Floor of Ford Glory Plaza, Kowloon, Hong Kong at a consideration payable to

FG International, when aggregated with those payable to FG International under the

assignments of Workshops A, B, C and E on the 20th Floor of Ford Glory Plaza (items

(q), (r) and (s) above and item (u) below), amounted to HK$29,000,000;

- V-8 -



(u) an assignment dated 30 June 20�0 entered into between FG International, Alpha Best

Development Limited, World Victoria Limited and D & G Property Investment Limited

for the assignment of Workshop E on the 20th Floor of Ford Glory Plaza, Kowloon, Hong

Kong at a consideration payable to FG International, when aggregated with those payable

to FG International under the assignments of Workshops A, B, C and D on the 20th Floor

of Ford Glory Plaza (items (q), (r), (s) and (t) above), amounted to HK$29,000,000;

(v) [a share transfer agreement dated 8 September 20�0 and entered into by our Company as

purchaser, VC Investments and Merlotte as vendors and VC as warrantor, pursuant to which

our Company acquired the entire issued share capital of FG Holdings in consideration

of and in exchange for which our Company (i) at the direction of VC Investments and

Merlotte, allotted and issued, credited as fully paid, �,000,000 Shares to VC Investments,

Merlotte and/or Sure Strategy; and (ii) credited as fully paid at par �,000,000 nil-paid

Shares then held by Sure Strategy];

(w) a deed of non-competition dated 8 September 20�0 executed by VC as convenantor in

favour of our Company (for ourselves and on behalf of our subsidiaries), details of which

are set out in the paragraph headed “Non-competition undertaking” in the section headed

“Relationship with the VC Group” in this document;

(x) a deed of indemnity dated �6 September 20�0 executed by VC in favour of our Company

(for ourselves and as trustee for our subsidiaries) containing the indemnities more

particularly referred to in the paragraph headed “Estate duty, tax and other indemnities”

of this Appendix; and

(y) [•••].

10. intellectual property rights of our group

Trademarks

As at the Latest Practicable Date, our Group had registered the following trademarks:

no. trademarkregistered owner

place of registration Class

registration number duration of validity

�. Jiangmen

Factory

PRC 25 (Note1) 3248453 2� January 2004 to

20 January 20�4

2. FG Shanghai PRC 25 (Note1) 37�9076 2� June 2006 to

20 June 20�6

3. 豆芽夢 FG Shanghai

(Note2)

PRC 25 (Note1) 3805094 2� October 2006 to

20 October 20�6

- V-9 -



Notes:

�. The specific goods under class 25 in respect of which these trademarks were applied for registration are

clothing, footwear, headgear.

2. The trademark was registered by 江門市新會區福源利民貿易有限公司 (Jiangmen Xinhui Fuyuan Limin

Trading Company Limited*) and was transferred to FG Shanghai on 2� January 2007.

As at the Latest Practicable Date, applications had been made by our Group for the

registration of the following trademarks:

no. trademark applicantplace of registration Class

application number application date

�. FG Shanghai PRC 25 (Note1) 8009728 20 January 20�0

2. Our Company Hong Kong 25 (Note1) 30�592893 20 April 20�0

Note:

�. The specific goods under class 25 in respect of which these trademarks were applied for registration are

clothing, footwear, headgear.

Domainnames

As at the Latest Practicable Date, our Group had registered the following domain names

which are being used in the business of our Group:

no. domain name registrant registration date expiry date

�. jmv-apparel.com FG International 2 August 2005 2 August 20�5

2. fordglory.cn Jiangmen Factory �0 January 2006 �0 January 20��

3. fordglory.com.cn Jiangmen Factory �0 January 2006 �0 January 20��

4. glorytime.cn FG International �� January 2006 �� January 20��

5. v-apparel.cn Jiangmen Factory �� January 2006 �� January 20�2

6. v-apparel.com.cn Jiangmen Factory �� January 2006 �� January 20�2

7. vapparel-id.com FG International �3 February 2006 �3 February 20��

8. fordglory.com.hk FG International 5 June �998 � September 20��

9. glorytime.com.hk Glory Time Limited 26 August 2004 28 August 20��

- V-�0 -



11. Connected transactions and related party transactions

Save as disclosed in the section headed “Continuing connected transactions” in this document

and in note 34 to the Accountants’ Report, the text of which is set out in Appendix I to this document,

during the two years immediately preceding [•••], we have not engaged in any other material connected

transactions or related party transactions.

furtHer information aBout direCtors and sHareHolders

12. directors

(a) Disclosureof interestsofDirectors

(i) Each of Mr. Choi, Mr. Li and Mr. Chen is interested in the Reorganisation.

(ii) Save as disclosed in this document, none of our Directors or their associates was

engaged in any dealings with our Group during the two years preceding the date

of this document.

(b) ParticularsofDirectors’servicecontracts

executive directors

Each of our executive Directors has entered into a service contract with our Company

pursuant to which they agreed to act as executive Directors for an initial term of three

years with effect from 8 September 20�0. The term of service shall be renewed and

extended automatically by one year on the expiry of such initial term and on the expiry of

every successive period of one year thereafter, unless either party has given at least three

months’ written notice of non-renewal before the expiry of the then existing term.

Our executive Directors are not entitled to any director’s fee, but are entitled to basic

salaries as set out below. Each of our executive Directors is entitled to a discretionary

management bonus provided that the aggregate amount of the bonuses payable to all

the executive Directors for any financial year of our Company may not exceed �0% of

the audited combined or consolidated audited net profit of our Group (after taxation

and minority interests and payment of such bonuses but before extraordinary items) in

respect of that financial year of our Company. An executive Director may not vote on

any resolution of our Directors regarding the amount of the management bonus payable

to him.

name annual salary (HK$)

Mr. Choi �,200,000

Mr. Ng Tze On 660,000

Mr. Lau 780,000

- V-�� -



non-executive directors and independent non-executive directors

Each of our non-executive Directors and our independent non-executive Directors

has been appointed for an initial term of two years commencing from 8 September 20�0

renewable automatically for successive term of one year each commencing from the next

day after the expiry of the then current term of appointment, unless terminated by not

less than three months’ notice in writing served by either our non-executive Directors

or our independent non-executive Director or our Company expiring at the end of the

initial term or at any time thereafter. Our non-executive Directors are not entitled to

any director’s fees, and each of our independent non-executive Directors is entitled to a

director’s fee of HK$�80,000 per annum. Save for directors’ fees, where applicable, none

of our non-executive Directors or our independent non-executive Directors is expected

to receive any other remuneration for holding their office as a non-executive Director or

an independent non-executive Director.

Save as disclosed aforesaid, none of our Directors has or is proposed to have a

service contract with our Company or any of our subsidiaries other than contracts expiring

or determinable by the employer within one year without the payment of compensation

(other than statutory compensation).

(c) RemunerationofDirectors

(i) The aggregate emoluments paid and benefits in kind granted by our Group to our

Directors in respect of the financial year ended 3� March 20�0 was approximately

HK$�,030,000.

(ii) Under the arrangements currently in force, the aggregate emoluments (excluding

discretionary bonus) payable by our Group to and benefits in kind receivable by

our Directors (including our non-executive Directors and independent non-executive

Directors) for the year ending 3� March 20��, are expected to be approximately

HK$3 million.

(iii) None of our Directors or any past directors of any member of our Group has been

paid any sum of money for each of the three years ended 3� March 20�0 as (i)

an inducement to join or upon joining our Company; or (ii) for loss of office as

a director of any member of our Group or of any other office in connection with

the management of the affairs of any member of our Group.

(iv) There has been no arrangement under which a Director has waived or agreed to

waive any emoluments for each of the three years ended 3� March 20�0.

13. [•••]

14. [•••]

- V-�2 -



otHer information

15. share option scheme

(a) Summaryof terms

The following is a summary of the principal terms of the Share Option Scheme conditionally

adopted by a resolution in writing passed by all Shareholders and approved by the shareholders

of VC on 28 July 20�0:

(i) Purpose of the scheme

The purpose of the Share Option Scheme is to enable us to grant options to selected

participants as incentives or rewards for their contribution to us. Our Directors consider

the Share Option Scheme, with its broadened basis of participation, will enable us to

reward the employees, our Directors and other selected participants for their contributions

to us. Given that our Directors are entitled to determine any performance targets to be

achieved as well as the minimum period that an option must be held before an option can

be exercised on a case by case basis, and that the exercise price of an option cannot in

any event fall below the price stipulated in [•••] or such higher price as may be fixed by

our Directors, it is expected that grantees of an option will make an effort to contribute

to our development so as to bring about an increased market price of the Shares in order

to capitalise on the benefits of the options granted.

(ii) Who may join

Our Directors (which expression shall, for the purpose of this paragraph �5, include

a duly authorised committee thereof) may, at its absolute discretion, invite any person

belonging to any of the following classes of participants, to take up options to subscribe

for Shares:

(aa) any employee (whether full-time or part-time including any executive

director but excluding any non-executive director) of our Company, any of

our subsidiaries or any entity (the “invested entity”) in which our Group

holds an equity interest (the “option Qualified employee”);

(bb) any non-executive directors (including independent non-executive directors)

of our Company, any of our subsidiaries or any Invested Entity;

(cc) any supplier of goods or services to any member of our Group or any Invested Entity;

(dd) any customer of any member of our Group or any Invested Entity;

(ee) any person or entity that provides research, development or other technological support to any member of our Group or any Invested Entity;

- V-�3 -



(ff) any shareholder of any member of our Group or any Invested Entity or any holder of any securities issued by any member of our Group or any Invested Entity;

(gg) any adviser (professional or otherwise) or consultant to any area of business or business development of any member of our Group or any Invested Entity;

(hh) (for so long as VC remains as a controlling shareholder of our Company) any employee or proposed employee (whether full time or part time) of VC, any of its subsidiaries or any entity in which VC or any of its subsidiaries holds an equity interest, including any executive director of VC, any of such subsidiaries or any entity in which VC or any of its subsidiaries holds an equity interest;

(ii) (for so long as VC remains as a controlling shareholder of our Company) any non-executive directors (including independent non-executive directors) of VC, any of its subsidiaries or any entity in which VC or any of its subsidiaries holds an equity interest; and

(jj) any other group or classes of participants who have contributed or may contribute by way of joint venture, business alliance or other business arrangement to the development and growth of our Group,

and, for the purposes of the Share Option Scheme, the options may be granted to any company wholly owned by one or more persons belonging to any of the above classes of participants. For avoidance of doubt, the grant of any options by our Company for the subscription of Shares or other securities of our Group to any person who fall within any of the above classes of participants shall not, by itself, unless our Directors otherwise determined, be construed as a grant of option under the Share Option Scheme.

The eligibility of any of the above class of participants to the grant of any option shall be determined by our Directors from time to time on the basis of our Directors’ opinion as to his contribution to the development and growth of our Group.

(iii) Maximum number of Shares

(aa) The maximum number of Shares to be alloted and issued upon the exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option scheme of our Group must not in aggregate exceed 30% of the issued share capital of our Company from time to time.

(bb) The total number of Shares which may be alloted and issued upon exercise

of all options (excluding, for this purpose, options which have lapsed in

accordance with the terms of the Share Option Scheme and any other share

option scheme of our Group) to be granted under the Share Option Scheme

and any other share option scheme of our Group must not in aggregate

exceed �0% of the Shares in issue on the day on which trading of the Shares

commence on the Main Board (the “general scheme limit”).

- V-�4 -



(cc) Subject to (aa) above but without prejudice to (dd) below, our Company may

seek approval of the Shareholders in general meeting to refresh the General

Scheme Limit provided that the total number of Shares which may be alloted

and issued upon exercise of all options to be granted under the Share Option

Scheme and any other share options scheme of our Group must not exceed

�0% of the Shares in issue as at the date of approval of the limit and for

the purpose of calculating the limit, options (including those outstanding,

cancelled, lapsed or exercised in accordance with the Share Option Scheme

and any other share option scheme of our Group) previously granted under

the Share Option Scheme and any other share option scheme of our Group

will not be counted.

(dd) Subject to (aa) above and without prejudice to (cc) above, our Company may

seek separate Shareholders’ approval in general meeting to grant options beyond

the General Scheme Limit or, if applicable, the refreshed limit referred to

in (cc) above to participants specifically identified by our Company before

such approval is sought.

(iv) Maximum entitlement of each participant

The total number of Shares issued and which may fall to be issued upon exercise

of the options granted under the Share Option Scheme and any other share option scheme

of our Group (including both exercised or outstanding options) to each grantee in any �2-

month period shall not exceed �% of the issued share capital of our Company for the time

being (the “individual limit”). Any further grant of options in excess of the Individual

Limit in any �2-month period up to and including the date of such further grant must be

separately approved by the Shareholders in general meeting of our Company with such

grantee and his associates abstaining from voting. The number and terms (including the

exercise price) of options to be granted must be fixed before Shareholders’ approval and

the date of board meeting for proposing such further grant should be taken as the date

of grant for the purpose of calculating the exercise price under [•••].

(v) Grant of options to connected persons

(aa) Any grant of options under the Share Option Scheme to a director, chief

executive or substantial shareholder of our Company or any of their respective

associates must be approved by independent non-executive Directors of our

Company (excluding independent non-executive Director who or whose

associate is the proposed grantee of the options).

(bb) Where any grant of options to a substantial shareholder or an independent

non-executive director of our Company or any of their respective associates,

would result in the Shares issued and to be issued upon exercise of all options

already granted and to be granted (including options exercised, cancelled

- V-�5 -



and outstanding) to such person in the �2-month period up to and including

the date of such grant:

(i) representing in aggregate over 0.�% of the Shares in issue; and

(ii) having an aggregate value, based on the closing price of the Shares

at the date of each offer for the grant, in excess of HK$5 million;

such further grant of options must be approved by the Shareholders in general meeting.

All connected persons of our Company must abstain from voting at such general meeting,

except that any connected person may vote against the relevant resolution at the general

meeting provided that his intention to do so has been stated in the circular. Any vote

taken at the meeting to approve the grant of such options must be taken on a poll. Any

change in the terms of options granted to a substantial shareholder or an independent

non-executive director of our Company or any of their respective associates must be

approved by the Shareholders in general meeting.

(vi) Time of acceptance and exercise of option

An option may be accepted by a participant within 2� days from the date of the

offer of grant of the option.

An option may be exercised in accordance with the terms of the Share Option

Scheme at any time during a period to be determined and notified by our Directors to

each grantee, which period may commence from the date of the offer for the grant of

options is made, but shall end in any event not later than �0 years from the date of grant

of the option subject to the provisions for early termination thereof. Unless otherwise

determined by our Directors and stated in the offer for the grant of options to a grantee,

there is no minimum period required under the Share Option Scheme for the holding of

an option before it can be exercised.

(vii) Performance targets

Unless our Directors otherwise determined and stated in the offer for the grant of

options to a grantee, a grantee is not required to achieve any performance targets before

any options granted under the Share Option Scheme can be exercised.

(viii) Subscription price for Shares and consideration for the option

The subscription price for Shares under the Share Option Scheme shall be a price

determined by our Directors, but shall not be less than the highest of (i) [•••]; (ii) [•••];

and (iii) the nominal value of a Share.

In respect of options granted prior to [•••], the subscription price must be determined

in accordance with [•••].

- V-�6 -



A nominal consideration of HK$� is payable on acceptance of the grant of an

option.

(ix) Ranking of Shares

(aa) Shares allotted upon the exercise of an option will be subject to all the

provisions of the Bye-laws and will rank pari passu in all respects with the

fully paid Shares in issue on the date on which the option is duly exercised

or, if that date falls on a day when the register of members of our Company

is closed, the first day of the re-opening of the register of members (the

“exercise date”) and accordingly will entitle the holders thereof to participate

in all dividends or other distributions paid or made on or after the Exercise

Date other than any dividend or other distribution previously declared or

recommended or resolved to be paid or made if the record date therefor shall

be before the Exercise Date. A Share allotted and issued upon the exercise

of an option shall not carry voting rights until the name of the grantee has

been duly entered on the register of members of our Company as the holder

thereof.

(bb) Unless the context otherwise requires, references to “Shares” in this paragraph

include references to shares in the ordinary equity share capital of our Company

of such nominal amount as shall result from a subdivision, consolidation,

re-construction or reduction of the share capital of our Company from time

to time.

(x) Restrictions on the time of the offer for the grant of options

No offer for grant of options shall be made after a price sensitive event has occurred

or a price sensitive matter has been the subject of a decision until such price sensitive

information has been announced in accordance with the requirements of [•••]. In particular,

during the period commencing one month immediately preceding the earlier of (aa) the

date of the meeting of our Directors (as such date is first notified to [•••]) for the approval

of our Company’s results for any year, half-year, quarterly or any other interim period

(whether or not required under [•••]); and (ii) the deadline for our Company to publish

an announcement of its results for any year or half-year (whether or not required under

[•••]), and ending on the date of the results announcement, no option may be granted.

Our Directors may not make any offer for the grant of option to a participant who

is a Director during the periods or times in which Directors are prohibited from dealing

in shares pursuant to [•••] or any corresponding code or securities dealing restrictions

adopted by our Company.

(xi) Period of the Share Option Scheme

The Share Option Scheme will remain in force for a period of �0 years commencing

on the date on which the Share Option Scheme is adopted.

- V-�7 -



(xii) Rights on ceasing employment

If the grantee of an option is an Option Qualified Employee and ceases to be an

Option Qualified Employee for any reason other than death, ill-health or retirement in

accordance with his contract of employment or the termination of his employment on

more of the grounds referred to in sub-paragraph (xiv) below before exercising his option

in full, the option (to the extent not already exercised) will lapse on the date of cessation

and shall not be exercisable unless our Directors otherwise determine in which event the

grantee may exercise the option (to the extent not already exercised) in whole or in part

within such period as our Directors may determine following the date of such cessation,

which will be taken to be the last day on which the grantee was at work with our Group

or the Invested Entity whether salary is paid in lieu of notice or not.

Option Qualified Employee means any employee (whether full time or part time

employee, including any executive director but not any non-executive director) of our

Company, any of our subsidiaries or any Invested Entity.

(xiii) Rights on death, ill-health or retirement


Option Qualified Employee by reason of his death, ill-health or retirement in accordance

with his contract of employment before exercising the option in full, his personal

representative(s), or, as appropriate, the grantee may exercise the option (to the extent

not already exercised) in whole or in part within a period of �2 months following the

date of cessation of employment which date shall be the last day on which the grantee

was at work with our Group or the Invested Entity whether salary is paid in lieu of notice

or not or such longer period as our Directors may determine.

(xiv) Rights on dismissal


Option Qualified Employee by reason of termination of his employment on the grounds

that he has been guilty of persistent or serious misconduct or has committed any act of

bankruptcy or has become insolvent or has made any arrangements or composition with

his creditors generally, or has been convicted of any criminal offence (other than an

offence which in the opinion of our Directors does not bring the grantee or our Group or

the Invested Entity into disrepute), his option (to the extent not already exercised) will

lapse automatically on the date of cessation to be an Option Qualified Employee.

(xv) Rights on breach of contract

If our Directors shall at their absolute discretion determine that (aa) (�) the grantee

of any option (other than an Option Qualified Employee) or his associate has committed

any breach of any contract entered into between the grantee or his associate on the one

part and our Group or any Invested Entity on the other part; or (2) that the grantee has

committed any act of bankruptcy or has become insolvent or is subject to any winding-up,

- V-�8 -



liquidation or analogous proceedings or has made any arrangement or composition with

his creditors generally; or (3) the grantee could no longer make any contribution to the

growth and development of our Group by reason of the cessation of its relations with our

Group or by other reason whatsoever; and (bb) the option granted to the grantee under

the Share Option scheme shall lapse as a result of any event specified in sub-paragraphs

(�), (2) and (3), his option will lapse automatically on the date on which our Directors

have so determined.

(xvi) Rights on a general offer, a compromise or arrangement

If a general or partial offer, whether by way of take-over offer, share re-purchase

offer, or scheme of arrangement or otherwise in like manner is made to all the holders

of Shares, or all such holders other than the offeror and/or any person controlled by the

offeror and/or any person acting in association or concert with the offeror, our Company

shall use all reasonable endeavours to procure that such offer is extended to all the grantees

on the same terms, mutatis mutandis, and assuming that they will become, by the exercise

in full of the options granted to them, Shareholders. If such offer becomes or is declared

unconditional or such scheme of arrangement is formally proposed to the Shareholders, a

grantee shall be entitled to exercise his option (to the extent not already exercised) to its

full extent or to the extent specified in the grantee’s notice to our Company in exercise of

his option at any time thereafter and up to the close of such offer (or any revised offer) or

the record date for entitlements under such scheme of arrangement, as the case may be.

Subject to the above, an option will lapse automatically (to the extent not exercised) on

the date on which such offer (or, as the case may be, revised offer) closes, or the relevant

date for entitlements under such scheme of arrangement, as the case may be.

(xvii) Rights on winding up

In the event of a resolution being proposed for the voluntary winding-up of our

Company during the option period, the grantee may, subject to the provisions of all

applicable laws, by notice in writing to our Company at any time not less than two business

days before the date on which such resolution is to be considered and/or passed, exercise

his option (to the extent not already exercised) either to its full extent or to the extent

specified in such notice in accordance with the provisions of the Share Option Scheme

and our Company shall allot and issue to the grantee the Shares in respect of which such

grantee has exercised his option not less than one business day before the date on which

such resolution is to be considered and/or passed whereupon the grantee shall accordingly

be entitled, in respect of the Shares allotted and issued to him in the aforesaid manner,

to participate in the distribution of the assets of our Company available in liquidation

pari passu with the holders of the Shares in issue on the day prior to the date of such

resolution. Subject thereto, all options then outstanding shall lapse and determine on the

commencement of the winding-up of our Company.

- V-�9 -



(xviii) Grantee being a company wholly owned by eligible participants

If the grantee is a company wholly owned by one or more eligible participants:

(i) sub-paragraphs (xii), (xiii), (xiv) and (xv) shall apply to the grantee and to

the options to such grantee, mutatis mutandis, as if such options had been

granted to the relevant eligible participant, and such options shall accordingly

lapse or fall to be exercisable after the event(s) referred to in sub-paragraphs

(xii), (xiii), (xiv) and (xv) shall occur with respect to the relevant eligible

participant; and

(ii) the options granted to the grantee shall lapse and determine on the date

the grantee ceases to be wholly owned by the relevant eligible participant

provided that our Directors may in their absolute discretion decide that such

options or any part thereof shall not so lapse or determine subject to such

conditions or limitations as they may impose.

(xix) Adjustments to the subscription price

In the event of a capitalisation issue, rights issue, subdivision or consolidation

of Shares or reduction of capital of our Company while an option remains exercisable,

such corresponding alterations (if any) certified by the auditors for the time being of or

an independent financial adviser to our Company as fair and reasonable will be made

to the number or nominal amount of Shares, to which the Share Option Scheme or any

option relates (insofar as it is/they are unexercised) and/or the subscription price of the

option concerned and/or (unless the grantee of the option elects to waive such adjustment)

the number of Shares comprised in an option or which remains comprised in an option,

provided that (i) any adjustments shall give a grantee the same proportion of the issued

share capital to which he was entitled prior to such alteration; (ii) the issue of Shares

or other securities of our Group as consideration in a transaction may not be regarded

as a circumstance requiring adjustment; (iii) no alteration shall be made the effect of

which would be to enable a Share to be issued at less than its nominal value; and (iv)

any adjustment must be made in compliance with [•••]. In addition, in respect of any such

adjustments, other than any adjustment made on a capitalisation issue, such auditors or

independent financial adviser must confirm to our Directors in writing that the adjustments

satisfy the requirements of the relevant provision of [•••].

(xx) Cancellation of options

Any cancellation of options granted but not exercised must be subject to the prior

written consent of the relevant grantee and the approval of our Directors.

When our Company cancels any option granted to a grantee but not exercised and

issues new option(s) to the same grantee, the issue of such new option(s) may only be

made with available unissued options (excluding the options so cancelled) within the

General Scheme Limit or the new limits approved by the Shareholders pursuant sub-

paragraphs (iii) (cc) and (dd) above.

- V-20 -



(xxi) Termination of the Share Option Scheme

Our Company may by resolution in general meeting at any time terminate the Share

Option Scheme and in such event no further options shall be offered but in all other

respects the provisions of the Share Option Scheme shall remain in force to the extent

necessary to give effect to the exercise of any options (to the extent not already exercised)

granted prior to the termination or otherwise as may be required in accordance with the

provisions of the Share Option Scheme. Options (to the extent not already exercised)

granted prior to such termination shall continue to be valid and exercisable in accordance

with the Share Option Scheme.

(xxii) Rights are personal to the grantee

An option is personal to the grantee and shall not be transferable or assignable.

(xxiii) Lapse of option

An option shall lapse automatically (to the extent not already exercised) on the

earliest of:

(aa) the expiry of the period referred to in paragraph (vi); and

(bb) the expiry of the periods or dates referred to in paragraph (xii), (xiii), (xiv),

(xv), (xvi), (xvii) and (xviii).

(xxiv) Others

(aa) The Share Option Scheme is conditional upon [•••].

(bb) The terms and conditions of the Share Option Scheme relating to the matters

set out in [•••] shall not be altered to the advantage of grantees of the options

except with the approval of the shareholders in general meeting.

(cc) Any alterations to the terms and conditions of the Share Option Scheme

which are of a material nature or any change to the terms of options granted

must be approved by the Shareholders in general meeting, except where the

alterations take effect automatically under the existing terms of the Share

Option Scheme.

(dd) The amended terms of the Share Option Scheme or the options shall comply

with the relevant requirements of [•••].

(ee) Any change to the authority of our Directors or the scheme administrators

in relation to any alteration to the terms of the Share Option Scheme shall

be approved by the Shareholders in general meeting.

- V-2� -



(ff) The Share Option Scheme complies with [•••].

(b) Presentstatusof theShareOptionScheme

(i) [•••]

(ii) [•••]

(iii) Grant of option

As at the Latest Practicable Date, 4�,900,000 options were conditionally granted under the Share Option Scheme.

(iv) Value of options

The costs of the options granted under the Share Option Scheme are calculated using the [Binomial Model] with assumptions on various inputs to the model such as the expected yield and share price volatility and on the basis of the exercise price being HK$[•••] or HK$[•••], the fair value of the share options granted on 2 June 20�0 is estimated to be approximately HK$[6.27] million or HK$[8.�8] million; and given the grant of options is effecitve on the [•••], the amount that will be charged to our income statement in the second half of the year ending 3� March 20�� as equity-settled expenses will be approximately HK$[6.27] million or HK$[8.�8] million, respectively. Our Directors would like to emphasise that such cost is a current estimation for reference only and the final amount to be recognised to the profit and loss accounts for the year ending 3� March 20�� is subject to adjustment based on [audit] and the then changes in variables and assumptions.

(c) Detailsof theoutstandingoptionsgrantedunder theShareOptionScheme

As at the Latest Practicable Date, 4�,900,000 options were conditionally granted under the Share Option Scheme. The grant of 4�,900,000 options complies with the terms of the Share Option Scheme and [•••].

Details of the options granted were set out below:

Grant date: 2 June 20�0

Exercise price: HK$[•••]

Consideration paid: HK$� by the grantees

Conditions: No conditions are attached saved for those provided in the Share Option Scheme

- V-22 -



Details of the grantees and the options granted to them were set out below:

name of grantees (position in our group)

residential address of grantees

exercise period

number of shares to be allotted upon

exercise in full of the options granted

under the share option scheme

approximate percentage

of shares to be allotted upon

exercise in full of the options

granted under the share option

scheme (Note1)

�. Ng Tsze Lun (Marketing director of FG International)

Flat 2, G/F, Block A, Billion Terrace, �37-�39 Blue Pool Road, Happy Valley, Hong Kong

Note 2 2�,000,000 Shares [•••]

2. Ng Tze On (Director) Ground Floor, No. �90 Mong Chan Estate DD�29 Lot �495, Lau Fou Shan, Yuen Long, New Territories, Hong Kong

Note 2 5,350,000 Shares [•••]

3. Lau Kwok Wa, Stanley (Director)

No. 4� Bauhinia Road North, Section M, Fairview Park, Yuen Long, New Territories, Hong Kong

Note 2 5,350,000 Shares [•••]

4. Chan Shuk Fun (Assistant general manager of FG International and company secretary of our Company)

Flat C, 57/F., Block 3, Seaview Crescent, 8 Waterfront Road, Tung Chung, New Territories, Hong Kong

Note 2 800,000 Shares [•••]

5. Cheng Sylvia (General merchandising manager of FG International)

Flat C, �0/F., Block �0, Metro City Phase II, Tseung Kwan O, Kowloon, Hong Kong

Note 2 800,000 Shares [•••]

6. Cheng Kam Wan (General merchandising manager of FG International)

Room 9, 2�/F., Block C, Serende Cove, 623 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong

Note 2 800,000 Shares [•••]

7. Leung Suk Hing (Merchandising manager of FG International)

Flat G, �/F., Block 9, Kenswood Centre Phase 7, Kingswood Villas, Tin Shui Wai, New Territories, Hong Kong

Note 2 400,000 Shares [•••]

- V-23 -





exercise period








scheme (Note1)

8. Ching Chor Bik (Shipping manager of FG International)

Flat C, �2/F, Tower 3, Aegean Coast, 2 Kwun Tsing Road, So Kwun Wat Tuen Mun N.T

Note 2 400,000 Shares [•••]

9. Chan Mi Wa (Accounting manager of FG International)

Room �303, �3/F, Ka Wui House, Ka Keung Court, Wang Tau Hom, Kowloon, Hong Kong

Note 2 400,000 Shares [•••]

�0. Cheuk Tak Kwong (Production executive of PT. Victory Apparel Semarang)

Room 6, �3/F, Shun Shing House, Shun Chi Court, Kwun Tong, Kowloon, Hong Kong

Note 2 400,000 Shares [•••]

��. Yiu Kit Kee (Merchandising manager of FG Shenzhen)

Flat B, �6/F, Block 88, Broadway Street, Mei Foo Sun Chuen, Kowloon, Hong Kong

Note 2 200,000 Shares [•••]

�2. Lau Fat Chuen (General manager and the director of Jiangmen Factory)

�/F, Block 26, Opulent Villa, ��6 To Yuen Wai, Lam Tei, Tuen Mun, New Territories, Hong Kong

Note 2 200,000 Shares [•••]

�3. Tang Man Yi (Executive officer of FG International)

Flat 4, 20/F, Kwai Fung House, Kwai Chun Court, Kwai Chung, New Territories, Hong Kong

Note 2 200,000 Shares [•••]

�4. Lam Pui Yi (Assistant manager of FG International)

Flat B, 38/F., Tower 3, The Pacifica, Cheung Sha Wan, Kowloon, Hong Kong

Note 2 200,000 Shares [•••]

�5. Lo Sze Wan (Assistant merchandising manager of FG International)

Flat B, �2/F, 88 Aberdeen Main Road, Hong Kong

Note 2 200,000 Shares [•••]

- V-24 -





exercise period








scheme (Note1)

�6. Hown Yee Wa (Merchandising manager of FG International)

Flat 4, 3/F, Block G, Ching Lai Court Lai Chi Kok Bay, Kowloon, Hong Kong

Note 2 200,000 Shares [•••]

�7. Yung Siu Chin (Merchandising manager of FG International)

Flat B, �/F, Tower 6, Tai Hing Gardens, Phase II, Tuen Mun, New Territories, Hong Kong

Note 2 200,000 Shares [•••]

�8. Yeung King Man (Merchandising Manager of FG International)

Room 8, �0/F, Block H, Man Hei Mansion, Chun Man Court, Homantin, Kowloon, Hong Kong

Note 2 200,000 Shares [•••]

�9. Hui Yee Ling (Merchandising manager of FG International)

Room 808, 8/F, Yan King House, King Shing Court, Fanling, New Territories, Hong Kong

Note 2 200,000 Shares [•••]

20. Tang Yiu Hong, Eric (Administration manager of FG International)

Suite 3�30, 3�/F, Tower 3, Harbourview Horizon, �2 Hung Lok Road, Hung Hom Bay, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

2�. Chan Sau Ying (Administrative assistant of FG International)

8/F, 20 Kweilin Street, Sham Shui Po, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

22. Tang Miu Fun (Administrative assistant of FG International)

Flat G, 9/F, Block 5, Kingsford Terrace, 8 King Tung Street, Ngau Tsz Wan, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

23. Mok Mei Che, Amy (Administrative assistant of FG International)

Flat A, 22/F, Block �, Aqua Marine, Cheung Sha Wan, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

- V-25 -





exercise period








scheme (Note1)

24. Wong Cheung Ling (Messenger of FG International)

Room 634, Block 3, Lai King Estate, Kwai Chung, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

25. Fong Po Wah (Assistant merchandising manager of FG International)

Flat A, �6/F, Block �, Nerine Cove, 23 Hang Fu Street, Tuen Mun, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

26. Lee Lai Ping (Assistant merchandising manager of FG International)

Flat C �408, �4/F, On Wah House, Lok Wah Estate, Ngau Tau Kok, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

27. Yuen Kit Yee (Assistant merchandising manager of FG International)

Flat �04, Koon Ming Court, Chung Ming House, Junk Bay, Hong Kong

Note 2 �00,000 Shares [•••]

28. Leung Kin Pong (Assistant merchandising manager of FG International)

Room ��3, Wo Muk House, Lei Cheng Uk Estate, Cheung Sha Wan, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

29. Poon Chi Lok (Assistant merchandising manager of FG International)

Room ��0�, ��/F, Tak Lok House, Tak Tin Estate, Lam Tin, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

30. Cheung Kit Man (Shipping supervisor of FG International)

Rm 2308, 23/F, Siu Cheong Hse, Siu Hong Court, Tuen Mun, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

3�. Chan Tin Wai, Grace (Senior shipping clerk of FG International)

Room 2902, Block E, Wah Yan House, Ching Wah Court, Tsing Yi, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

- V-26 -





exercise period








scheme (Note1)

32. To, Kam Lun Brian (Group MIS manager of VC)

Flat F, 20/F, Block 2, Seaview Crescent, Tung Chung, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

33. Li Wai Man (Senior accountant of FG International)

Flat A, 3/F, Hayon Building, 8 Tak Cheong Lane, Yaumatei, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

34. Ho Wai Kuong (Accountant of FG International)

Flat �2, 26/F, Hiu Ching House, Hiu Lai Court, Kwun Tong, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

35. Wong Sai Yuen (Accountant of FG International)

Flat 505, 4/F, Block C, I-Feng Mansion, 237-239 Tokwawan Road, Tokwawan, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

36. Ng Kar Wah (Merchandiser I of FG International)

G/F, No �90 Mong Tseng Estate, DD�29 Lot �495, Lau Fou Shan, Yuen Long, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

37. Choi Kai Chung (Merchandiser I of FG Shenzhen)

Room 403, Shun Hei House, Siu Hei Court, Tuen Mun, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

38. Yau King Wai (Assistant merchandising manager of FG Shenzhen)

Flat A, 8/F, Block 7, Cherry Mansions, Whampoa Garden, Hung Hom, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

39. Cheung Lai Wan (Senior merchandiser of FG Shenzhen)

Room �80�, �8/F Yue King House, Siu Shan Court, Tuen Mun, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

- V-27 -





exercise period








scheme (Note1)

40. Leung Pui Fan (Senior merchandiser of FG Shenzhen)

Flat F, �0/F, Block ��, Glorious Garden, Tuen Mun, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

4�. Lau, Tak Sing Ricky (QC manager of FG Shenzhen)

Room 6�0, Block B, Yee Ngai Court, Tai Po, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

42. Kiang Yee Leung (Manager of FG International)

2/F, Block 2, Lin Fa Court, 203 Wong Nai Tun Tsuen, Yuen Long, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

43. Ng Kar Ki, Sam (Assistant merchandiser of FG International)

G/F, No �90 Mong Chan Estate, DD�29 Lot �495, Lau Fou Shan, Yuen Long, New Territories, Hong Kong

Note 2 �00,000 Shares [•••]

44. Chan Tin Yee (QC manager of Jiangmen Factory)

Room 2804, 28/F, Po Wo House, Po Pui Court, Kwun Tong, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

45. Cheng Po Yuk (General manager of PT. Victory Apparel Semarang)

Rm 6, �3/F, Shun Shing House, Shun Chi Court, Kwun Tong, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

46. Ho Mun Yee, Vienn (Merchandising manager of FG International)

Room 2��0, 2�/F Hong Shui Court, �33 Pik Wan Road, Lam Tin, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

47. Lai Ming Hin (Assistant merchandising manager of FG International)

Rm 380�, Kwan Ming House, Yuk Ming Court, Junk Bay, Kowloon, Hong Kong

Note 2 �00,000 Shares [•••]

- V-28 -





exercise period








scheme (Note1)

48. Wong Yuet Sin (Sample co-ordinator of FG International)

Room �802, �8/F, Block C, Allway Garden, Tsuen Wan, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

49. Hui Mei Wah (Chief graphic designer of FG International)

Flat C, 4�/F, Tower 5, Sorrento, � Austin Road West, Tsim Sha Tsui, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

50. Au Yeung Che Wing (Manager of FG Shenzhen)

Room 2��, 2/F Magnolia House, Matauwei Estate, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

5�. Ng Tze Yin (Driver of FG International)

Flat A, 22/F, Block �, Aqua Marine, Cheung Sha Wan, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

52. Chung Wing Yam (Driver of FG International)

RM �809, �8/F, Lung Fuk House, Lower Wong Tai Sin Estate, Wong Tai Sin, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

53. Chan Chuen Ho (Senior personnel & administrative assistant of FG International)

Flat 24�5, 24/F, Shui Kwok House, Tin Shui Wai, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

54. Lo Kai Chi (Senior personnel & administrative assistant of FG International)

Flat �756, Shek Yuk Hse, Chun Shek Estate, Shatin, New Territories, Hong Kong

Note 3 50,000 Shares [•••]

55. Wong Ka Man (Merchandiser II of FG International)

Flat H, 45/F, Tower 2 Royal Green, Sheung Shui, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

- V-29 -





exercise period








scheme (Note1)

56. Pang Chik Keung, Samuel (Senior merchandiser of FG International)

Flat A2, �5/F, Block A, Belcher Court, 2 Sai Cheung Street, Kennedy Town, Hong Kong

Note 2 50,000 Shares [•••]

57. Hui Chi Ping, Daisy (Merchandising manager of FG International)

4A Carlton Court, 5 Marconi Road, Kowloon, Hong Kong

Note 4 50,000 Shares [•••]

58. Lo Siu Wai (Assistant merchandising manager of FG International)

Room �908, �9/F Shing Chung House, Mei Chung Court, Tai Wai, New Territories, Hong Kong

Note 5 50,000 Shares [•••]

59. Chan Yuk Wah (Senior merchandiser of FG International)

Room 390�, Chung Ying House, Tin Chung Court, Tin Shui Wai, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

60. So Chi Wai (Assistant merchandising manager of FG International)

Room G, 9/F, Block 6, Belair Monte, 3 Ma Sik Road, Fanling, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

6�. Wang Ping Ping (Merchandiser I of FG International)

Flat B, 26/F Fu Kar Court, 32 Fortress Hill Road North Point, Hong Kong

Note 2 50,000 Shares [•••]

62. Tse Ching Suen, Venus (Merchandiser II of FG International)

Flat G, 42/F, Block 8, Metro Harbour View, 8 Fuk Lee Street, Tai Kok Tsui, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

63. So Tsz Ying (Merchandiser II of FG International)

Room 2706, ong King House, Hong Yat Court, Lam Tin, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

- V-30 -





exercise period








scheme (Note1)

64. Lai Wing Kit (Assistant merchandiser II of FG International)

Flat 3507, 35/F., Ming Kok House, Ming Tak Estate, Tseung Kwan O, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

65. Wong Siu Tong (System administrator of FG International)

Flat C, �0/F Top View Mansion, �0 Canal Road West, Wanchai, Hong Kong

Note 2 50,000 Shares [•••]

66. Tang Ho Kwan, Tammy (Assistant accountant of FG International)

Flat 8, �6/F Hang Sam House, King Tin Court, Shatin, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

67. Wong Kam Wah (Accountant of FG International)

Flat D, 26/F, Tower 2, Ocean Pointe, 8 Sham Tsz Street, Sham Tseng, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

68. Lau Chung Wa, Lucy (Accountant assistant of FG International)

Flat 33, 2/F Chung Ying Building, �63 Tai Kok Tsui Road, Tai Kok Tsui, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

69. Chan Yi Hung (Merchandiser II of FG Shenzhen)

Flat B, 4/F, Block 5, Yuet Wu Villa, Tuen Mun, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

70. Chan Chi Ho (Merchandiser I of FG Shenzhen)

Room �5�2, Choi Wu House, Choi Yuen Estate, Sheung Shui, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

7�. Chan Sau Wai (Senior merchandiser of FG Shenzhen)

Flat D, �/F, Block 5, Tsui Ning Garden, Tuen Mun, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

- V-3� -





exercise period








scheme (Note1)

72. Man Pui Yee (Merchandiser I of FG Shenzhen)

Room 3005, 30/F Tin Yee House, Tin Ping Estate, Sheung Shui, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

73. Tsui Yau Tak (Assistant compliance manager of FG Shenzhen)

�7B Kelly House, Gresson Street, Wan Chai, Hong Kong

Note 2 50,000 Shares [•••]

74. Law, Yuk Bing Oliver (Technical officer of FG Shenzhen)

25 Yung Shue Long Old Village, Yung Shue Wan, Lamma Island, Hong Kong

Note 2 50,000 Shares [•••]

75. Lai Wai Yuk (Shipping supervisor of FG Shenzhen)

Room �929, �9/F Kwai Yuen House, Chuk Yuen South Estate, Wong Tai Sin, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

76. Yeung Yuk Wan (Senior shipping clerk of FG Shenzhen)

Room B, 30/F, Block 4, Saddle Ridge Garden, Ma On Shan, New Territories, Hong Kong

Note 2 50,000 Shares [•••]

77. Cheng Chor Kam (Assistant merchandising manager of FG International)

Room 3�04, 3�/F Choi Man House, Homantin Estate, Kowloon, Hong Kong

Note 2 50,000 Shares [•••]

78. Karolyn Kiu Sai Kong (Office administrator of CSG Apparel Inc.)

76 John Button Blvd., Markham, Ontario, Canada

Note 2 50,000 Shares [•••]

79. Im Tong (Director of Value Plus (Macao Commercial Offshore) Limited)

No.83, Bl.2. Edif. Ko Fong, 2� Andar-H, Avenda General Castelo Dranco, Macau

Note 2 50,000 Shares [•••]

total 41,900,000 shares [•••]

- V-32 -



Notes:

�. [•••]

2. These options are exercisable by the relevant grantees during the period commencing from [•••] and

ending on 3� May 2020.

3. These options are exercisable by Mr. Lo Kai Chi during the period commencing from 3 January 20�2

and ending on 3� May 2020.

4. These options are exercisable by Ms. Hui Chi Ping, Daisy during the period commencing from � May

20�� and ending on 3� May 2020.

5. These options are exercisable by Mr. Lo Siu Wai during the period commencing from � May 20�� and

ending on 3� May 2020.

16. estate duty, tax and other indemnity

VC (the “Indemnifier”) has entered into a deed of indemnity with and in favour of the Company

(for itself and as trustee for each of our present subsidiaries) (being the material contract (y) referred

to in paragraph 9 above) to provide indemnities in respect of, among other matters:

(a) any liability for Hong Kong estate duty which might be incurred by any member of our

Group by reason of any transfer of property (within the meaning of sections 35 and 43

of the Estate Duty Ordinance (Chapter �� of the Laws of Hong Kong) or the equivalent

thereof under the laws of any jurisdiction outside Hong Kong) to any member of our

Group on or before [•••]; and

(b) tax liabilities (including all fines, penalties, costs, charges, expenses and interests incidental

or relating to taxation) which might be payable by any member of our Group in respect

of any income, profits, gains, transactions, events, matters or things earned, accrued,

received, entered into or occurring on or before [•••], whether alone or in conjunction with

any other circumstances whenever occurring and whether or not such tax liabilities are

chargeable against or attributable to any other person, firm, company or corporation.

The Indemnifier is under no liability under the deed of indemnity in respect of any taxation:

(a) to the extent that provision has been made for such taxation in the audited accounts of

any member of our Group for any accounting period up to 3� March 20�0;

(b) to the extent that such taxation or liability falling on any of the members of our Group

- V-33 -



in respect of any accounting period commencing on � April 20�0 and ended on [•••],

where such taxation or liability would not have arisen but for some act or omission of,

or transaction voluntarily entered into by, any member of our Group (whether alone or in

conjunction with some other act, omission or transaction, whenever occurring) without

the prior written consent or agreement of the Indemnifier, otherwise than any such act,

omission or transaction:

(i) carried out or effected in the ordinary course of business or in the ordinary course

of acquiring and disposing of capital assets after � April 20�0; or

(ii) carried out, made or entered into pursuant to a legally binding commitment created

on or before � April 20�0 or pursuant to any statement of intention made in this

document; or

(c) to the extent that such taxation liabilities or claim arises or are incurred as a result of the

imposition of taxation as a consequence of any retrospective change in the law, rules and

regulations or the interpretation or practice thereof by the Hong Kong Inland Revenue

Department or the taxation authority of the PRC, or any other relevant authority (whether

in Hong Kong or the PRC or any other part of the world) coming into force after the date

of the deed of indemnity or to the extent such claim arises or is increased by an increase

in rates of taxation after the date of the deed of indemnity with retrospective effect; or

(d) to the extent that any provision or reserve made for taxation in the audited accounts of

any member of our Group up to 3� March 20�0 which is finally established to be an

over-provision or an excessive reserve, in which case the Indemnifier’s liability (if any)

in respect of such taxation shall be reduced by an amount not exceeding such provision

or reserve, provided that the amount of any such provision or reserve applied referred to

in this paragraph to reduce the Indemnifier’s liability in respect of taxation shall not be

available in respect of any such liability arising thereafter.

17. litigation

Save as disclosed in this document, no member of our Group is engaged in any litigation,

arbitration or claim of material importance, and no litigation, arbitration or claim of material importance

is known to our Directors to be pending or threatened by or against our Company, that would have a

material adverse effect on our results of operations or financial condition of our Company.

18. [•••]

19. promoter

(a) Our Company does not have any promoter.

(b) Within the two years preceding the [•••], no amount or benefit has been paid or given to

any promoters of our Company in connection with the [•••] or the related transactions

described in this document.

20. [•••]

- V-34 -



21. [•••]

22. [•••]

23. [•••]

24. [•••]

25. taxation of holders of shares

Dealings in Shares registered on our Company’s Hong Kong branch register of members will

be subject to Hong Kong stamp duty. Intending holders of Shares are recommended to consult their

professional advisers if they are in any doubt as to the taxation implications of subscribing for,

purchasing, holding or disposing of or dealing in Shares. It is emphasised that none of our Company,

our Directors or the other parties involved in the [•••] can accept responsibility for any tax effect on,

or liabilities of, holders of Shares resulting from their subscription for, purchase, holding or disposal

of or dealing in Shares.

Profits from dealings in our Shares arising in or derived from Hong Kong may also be subject

to Hong Kong profits tax.

The sale, purchase and transfer of Shares are subject to Hong Kong stamp duty, the current rate of

which is 0.2% of the consideration or, if higher, the value of our Shares being sold or transferred.

Under present Bermuda law, transfers and other dispositions of Shares are exempt from Bermuda

stamp duty.

26. miscellaneous

(a) Save as disclosed in this document:

(i) within two years preceding the date of this document:

(aa) no share or loan capital of our Company or of any of our subsidiaries has

been issued, agreed to be issued or is proposed to be issued fully or partly

paid either for cash or for a consideration other than cash; and

(bb) no commissions, discounts, brokerages or other special terms have been

granted in connection with the issue or sale of any share or loan capital of

our Company or any of our subsidiaries;

(cc) no commission has been paid or payable for subscribing or agreeing to

subscribe, or procuring or agreeing to procure the subscriptions, for any

shares in our Company or any of our subsidiaries;

(ii) no share or loan capital of our Company or any of our subsidiaries is under option

- V-35 -



or is agreed conditionally or unconditionally to be put under option;

(b) our Directors confirm that there has been no material adverse change in the financial or

trading position or prospects of our Group since 3� March 20�0 (being the date to which

the latest audited combined financial statements of our Group were made up); and

(c) our Directors confirm that there has not been any interruption in the business of our

Group which may have or has had a significant effect on the financial position of our

Group in the �2 months preceding the [•••].

27. Bilingual document

The English language and Chinese language versions of this document are being published

separately.