Design Capital Limited - M&A Activity 2005

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this document, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold all your shares in Swank International Manufacturing Company Limited, you should at once hand this document to the purchaser or to the bank, licensed securities dealer or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.

Swank International Manufacturing Company Limited

(incorporated in Hong Kong with limited liability)

(Stock code: 663)

RESPONSE DOCUMENT RELATING TO THE UNCONDITIONAL MANDATORY CASH OFFER BY DBS ASIA CAPITAL LIMITED ON BEHALF OF CHINA TIME INVESTMENT HOLDINGS LIMITED TO ACQUIRE ALL THE ISSUED SHARES OF HK$0.01 EACH IN THE SHARE CAPITAL OF SWANK INTERNATIONAL MANUFACTURING COMPANY LIMITED (OTHER THAN THOSE SHARES ALREADY OWNED OR AGREED TO BE ACQUIRED BY CHINA TIME INVESTMENT HOLDINGS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

Barits Securities (Hong Kong) Limited

A letter from the Independent Board Committee of Swank International Manufacturing Company Limited to the Independent Shareholders is set out on pages 16 to 17 of this document. A letter from Barits Securities (Hong Kong) Limited containing its advice to the Independent Board Committee in respect of the Offer is set out on pages 18 to 31 of this document.

20 June 2005

	Page
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from Barits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix I – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Appendix II – Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . .	68
Appendix III – Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71
Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	88

– i –

2005

EXPECTED TIMETABLE

Offer commence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 6 June 2005 Posting date of the Offer Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 6 June 2005 Posting date of this document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 20 June 2005

Latest time and date for acceptance . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 4 July 2005 of the Offer

First Closing Date (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 4 July 2005

Announcement of the results of the Offer to be posted . . . . . . . . . . . . . By 7:00 p.m. on Monday, on the website of the Stock Exchange 4 July 2005
Announcement of the results of the Offer to be published

in the newspapers in Hong Kong (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 5 July 2005

Latest date for posting of remittances to holders of the Shares who accept the Offer by

the First Closing Date (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 14 July 2005

Notes:

The latest time for acceptance of the Offer is 4:00 p.m. on Monday, 4 July 2005. The Offer, which is unconditional, will close on Monday, 4 July 2005 unless the Offeror revises or extends the Offer in accordance with the Takeovers Code. The Offeror reserves the right to extend the Offer until such date as it determines pursuant to the Takeovers Code. The Offeror will post an announcement on the Stock Exchange website by 7:00 p.m. on the First Closing Date to state whether the Offer has expired or in relation to any extension of the Offer, to state also either the next closing date or that the Offer will remain open until further notice. Such an announcement will be published in newspapers on the next Business Day thereafter. In the event that the Offeror decides that the Offer will remain open to those Independent Shareholders who have not accepted the Offer until further notice, at least 14 days’ notice in writing will be given, before the Offer is closed.
An announcement on the result of the Offer will be published in newspaper on Tuesday, 5 July 2005 or in the event of an extension of the Offer, on the next Business Day after the closing date of the extended Offer.
Pursuant to the Takeovers Code, consideration payable for the Shares tendered under the Offer will be paid as soon as possible but in any event within 10 days after the receipt by the registrar of the Company of all the valid requisite documents from the accepting Independent Shareholder.
Acceptances of the Offer shall be irrevocable and not capable of being withdrawn, except as permitted under the Takeovers Code.

All time references contained in this document refer to Hong Kong time.

– ii –

DEFINITIONS

In this document, the following expressions shall have the meanings set out below unless the context requires otherwise:

“Agency Agreement”
the agency agreement entered into between the Nominee and the Trading Company upon Completion, pursuant to which the Trading Company is engaged by the Nominee to provide agency services for the sale of the Products to the Territory
“Announcement” the joint announcement dated 18 April 2005 of the Offeror, the Company and TIHL
“associate” has the meaning ascribed to it in the Listing Rules
“Barits” Barits Securities (Hong Kong) Limited, a licensed corporation under the SFO to carry out types 1 (dealing in securities) and 6 (advising on corporate finance) regulated activities, and the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Offer
“Board” the board of Directors
“Business Day” a day (excluding Saturday and any day on which a tropical cyclone warning no. 8 or above is issued or remains issued between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a “black” rainstorm warning is issued or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are generally open for business
“Company” Swank International Manufacturing Company Limited, a company incorporated in Hong Kong whose securities are listed on the main board of the Stock Exchange
“Completion” completion of the Sale and Purchase Agreement
“DBS Asia”
DBS Asia Capital Limited, a licensed corporation under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) for type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) of the regulated activities and the financial adviser to the Offeror
“Debt”
the loan in the principal amount of HK$163,000,000 due and owing by the Company to Probest under the Previous Promissory Note

– 1 –

DEFINITIONS

“Director(s)” the director(s) of the Company
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director
“First Closing Date” 4 July 2005, being the 28th day after the date of the posting of the Offer Document
“First Sale Shares” 1,437,396,440 Shares, representing approximately 46% of the issued share capital of the Company as at the date of the Announcement and the Latest Practicable Date
“Fortune Dynamic” Fortune Dynamic Group Corp., a wholly-owned subsidiary of TIHL
“Group” the Company and its subsidiaries
“Guarantee” the guarantee executed by the Company in favour of Probest pursuant to the Loan Restructuring Agreement in respect of certain liabilities of Profitown under the Promissory Note
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Kingsway Group” SW Kingsway and its subsidiaries
“Kingsway Lion”
Kingsway Lion Spur Technology Limited, a company incorporated in the British Virgin Islands and a whollyowned subsidiary of SW Kingsway
“Independent Board Committee”
the independent board committee appointed by the Company to advise the Independent Shareholders in respect of the Offer comprising Mr. Hahn Ka Fai, Mark, and Ms. Shum Wai Ting, Rebecca, both independent nonexecutive Directors
“Independent Shareholders”
shareholders of the Company other than the Offeror, Probest, Rich Global, Kingsway Lion, their respective associates and parties acting in concert with any of them
“Last Trading Day”
20 January 2005, being the last trading day prior to the suspension of trading in the Shares from 9:30 a.m. on 21 January 2005, pending the issue of the Announcement
“Latest Practicable Date”
17 June 2005, being the latest practicable date prior to the printing of this document for ascertaining certain information referred to herein

– 2 –

DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Loan Restructuring Agreement” the conditional loan restructuring agreement dated 20 January 2005 as varied and supplemented by the supplemental loan restructuring agreement dated 13 April 2005 entered into between Probest, the Company and Profitown in relation to, inter alia, the restructuring of the Debt
“Model Code” Model Code for Securities Transactions by Directors of Listed Issuers (Appendix 10 to the Listing Rules)
“Mr. Wang” Mr. Wang An Kang (王安康 ), being the sole shareholder of the Offeror
“Nominee” Rightlink Trading Ltd., a company wholly owned by Mr. Wang
“Offer” the mandatory unconditional cash offer made by DBS Asia, on behalf of the Offeror, to acquire all the issued Shares at HK$0.03 per Share (other than those already owned or agreed to be acquired by the Offeror and parties acting in concert with it)
“Offeror” China Time Investment Holdings Limited, a company incorporated in the British Virgin Islands with limited liability
“Offer Document” the document dated 6 June 2005 issued by the Offeror to the shareholders of the Company in accordance with the Takeovers Code containing, among other things, details of the Offer and the related acceptance and transfer forms
“parties acting in concert” has the meaning ascribed thereto in the Takeovers Code
“PRC”
the People’s Republic of China which, for the purpose of this document, excludes Hong Kong, Macau Special Administrative Region and Taiwan
“Previous Promissory Note”

the promissory note dated 3 November 2003 issued by the Company in favour of Probest in the principal sum of HK$163,000,000 which was to be repaid by instalments, that is, as to HK$25,500,000 repayable on or before 1 June 2004, as to HK$62,500,000 repayable on or before 1 June 2005 and as to HK$75,000,000 repayable on or before 1 June 2006 (the instalment due on 1 June 2004 was in default)

– 3 –

DEFINITIONS

“Probest”
“Products”
“Profitown”
“Profitown Group”
“Promissory Note”
“Property Valuation”
“Put Option”
“Relevant Period”
“Rich Global”
“Sale and Purchase Agreement”
“Sale Shares”
Probest Holdings Inc., a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of TIHL
chemical products including red phosphorus, yellow phosphorus, phosphorus acid and related products
Prof itown Investment Corporation, a company incorporated in the British Virgin Islands and held as to 70% by the Company and as to 30% by Probest
Profitown and its subsidiaries
the promissory note dated 3 June 2005 issued by Profitown in favour of Probest in the principal sum of HK$112,285,435 pursuant to the Loan Restructuring Agreement
property valuations prepared by B. I. Appraisals Limited to the Company in respect of six PRC properties, five of which are owned by subsidiaries and one is owned by the associated company of the Company
the right granted to the Company to require Probest or an independent third party procured by Probest to purchase all (but not part only) of its shares, being 70% of all issued shares of Profitown, in Profitown exercisable at any time before the expiry of 30 months from the date of Completion at a price equal to the net tangible asset value of Profitown as at the date of exercise of such right under the Shareholders Agreement
the period from 19 October 2004, being the commencement of the six-month period before the date of the Announcement, up to and including the Latest Practicable Date
Rich Global Investments Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of SW Kingsway
the conditional agreement for the sale and purchase of the Sale Shares dated 20 January 2005 entered into between the Offeror, Probest, Rich Global, Kingsway Lion, TIHL and SW Kingsway
the First Sale Shares, the Second Sale Shares and the Third Sale Shares

– 4 –

DEFINITIONS

“Second Sale Shares” 156,283,205 Shares, representing approximately 5% of the issued share capital of the Company as at the date of the Announcement and the Latest Practicable Date
“SFC” Securities and Futures Commission
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)” the ordinary share(s) of HK$0.01 each in the issued share capital of the Company
“Shareholder(s)” holder(s) of the Shares
“Shareholders Agreement” the shareholders agreement dated 3 June 2005 entered into between the Company, Probest, TIHL and Profitown in respect of Profitown
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Agreement”
the supplemental agreement in relation to the Sale and Purchase Agreement dated 13 April 2005 entered into between the Offeror, Probest, Rich Global, Kingsway Lion, TIHL and SW Kingsway
“SW Kingsway” SW Kingsway Capital Holdings Limited, a company incorporated in Bermuda and whose securities are listed on the main board of the Stock Exchange
“Takeovers Code”
The Hong Kong Code on Takeovers and Mergers
“Territory”
Italy, Japan and Korea
“Third Sale Shares”
281,238,000 Shares, representing approximately 9% of the issued share capital of the Company as at the date of the Announcement and the Latest Practicable Date
“TIHL”
Tomorrow International Holdings Limited, a company incorporated in Bermuda and whose securities are listed on the main board of the Stock Exchange
“TIHL Deed”
the deed of indemnity dated 3 June 2005 executed by Probest and TIHL in favour of the Offeror pursuant to the Sale and Purchase Agreement
“TIHL Group”

TIHL and its subsidiaries other than the Swank Group

“Trading Company”
Anchorage Trading Limited, a wholly-owned subsidiary of the Company

– 5 –

DEFINITIONS

“Vendors”	collectively, Probest, Kingsway Lion and Rich Global
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of United
	States
“%”	per cent.

For the purpose of illustration only, amount(s) denominated in RMB and US$ have been translated into HK$ at the rates of RMB1.06 = HK$1.00 and US$1 = HK$7.80 respectively.

– 6 –

LETTER FROM THE BOARD

Swank International Manufacturing Company Limited

(incorporated in Hong Kong with limited liability) (Stock code: 663)

Executive Directors Yau Tak Wah, Paul Louie Mei Po Wong Shin Ling, Irene Tam Wing Kin Cheung Wah Hing

Independent Non-executive Directors Hahn Ka Fai, Mark Shum Wai Ting, Rebecca Wu Wang Li

To the Independent Shareholders

Registered Office: 27th Floor Henley Building 5 Queen’s Road Central Hong Kong

Head Office and Principal Place of Business Unit 3301, Level 33 Metroplaza Tower I 223 Hing Fong Road Kwai Fong, N.T. Hong Kong 20 June 2005

Dear Sir or Madam,

INTRODUCTION

On 20 January 2005, the Offeror entered into the Sale and Purchase Agreement with the Vendors for the acquisition of the Sale Shares for a cash consideration of HK$56,247,529.35 (ie. HK$0.03 per Share). On 30 May 2005, the Offeror and the Company jointly announced that all the conditions to the Sale and Purchase Agreement had been fulfilled and the Completion took place on 3 June 2005. As a result of the Completion, the Offeror and parties acting in concert with it own an aggregate of 2,187,323,230 Shares, representing approximately 70% of the entire issued share capital of the Company. Under Rule 26.1 of the Takeovers Code, the Offeror is required to make an unconditional mandatory cash offer for all the Shares not already owned or agreed to be acquired by the Offeror and parties acting in concert with it at HK$0.03 per Share.

– 7 –

LETTER FROM THE BOARD

Mr. Yau Tak Wah, Paul, Ms. Louie Mei Po, Ms. Wong Shin Ling, Irene and Mr. Tam Wing Kin are executive directors of both TIHL and the Company. Mr. Cheung Wah Hing is a salaried executive Director and had interest in 358,400 Shares. Therefore, none of them are considered to be independent so far as the Offer is concerned and therefore they shall not participate in formulating a recommendation to the Independent Shareholders to avoid any conflict of interest that may arise. Mr. Wu Wang Li is the independent non-executive director of both TIHL and the Company and is therefore considered to be not sufficiently independent to advise the Independent Shareholders on the terms of the Offer. Accordingly, the Independent Board Committee, comprising Mr. Hahn Ka Fai, Mark and Ms. Shum Wai Ting, Rebecca (both being independent non-executive Directors), has been appointed in accordance with Rules 2.1 and 2.8 of the Takeovers Code to advise the Independent Shareholders in respect of the Offer.

Barits has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders in respect of the Offer pursuant to Rule 2.1 of the Takeovers Code.

SHAREHOLDING STRUCTURE

The shareholding structures of the Company before and upon Completion are set out as follows:

Number of Shares directly and indirectly Approximate % held immediately of total before issued Name Completion Shares TIHL and its associates 1,593,599,230 51 SW Kingsway and its associates 593,724,000 19 Offeror and its associates – – Cheung Wah Hing, a Director 358,400 0.01 Public shareholders 937,181,104 29.99 Total 3,124,862,734 100	Number of Shares held Approximate % immediately of total after issued Completion Shares 156,202,790 5 156,202,795 5 1,874,917,645 60 358,400 0.01 937,181,104 29.99 3,124,862,734 100	Number of Shares held Approximate % immediately of total after issued Completion Shares 156,202,790 5 156,202,795 5 1,874,917,645 60 358,400 0.01 937,181,104 29.99 3,124,862,734 100
		100

Other than by entering into the Sale and Purchase Agreement and the on-market sale of an aggregate of 2,500,000 Shares by a company controlled by Mr. Ko Kam Chuen, Stanley, an independent non-executive director of SW Kingsway who had no knowledge of, and did not participate in any part of, the transactions contemplated under the Sale and Purchase Agreement, on 5 January 2005 (1,700,000 Shares sold) and 6 January 2005 (800,000 Shares sold) at a sale price of HK$0.061 per Share, neither TIHL nor SW Kingsway nor any of their respective concert parties has dealt in any Shares or any other securities convertible into Shares, including warrants, options, or subscription rights, during the six months prior to the date of the Announcement.

– 8 –

LETTER FROM THE BOARD

THE OFFER

DBS Asia, on behalf of the Offeror, is making the Offer to acquire all the Shares not already owned or agreed to be acquired by the Offeror and parties acting in concert with it on the following basis:

The Offer

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.03 in cash

The Offer is unconditional in all respects and is not conditional upon acceptances being received in respect of a minimum number of Shares.

As at the Latest Practicable Date, other than Mr. Cheung Wah Hing who has interest in 358,400 Shares, each of the Directors did not hold any Shares. There have been no dealings in any securities of the Company by any Directors and parties acting in concert with any of them during the Relevant Period other than entering into the Sale and Purchase Agreement.

There were no outstanding warrants, options or securities convertible into Shares as at the Latest Practicable Date.

Comparisons of value

The offer price of HK$0.03 per Share is equal to the consideration paid by the Offeror for each Sale Share and represents:

(a) a discount of approximately 52% and 59% over the closing price of HK$0.063 and HK$0.074 per Share as quoted on the Stock Exchange as at the date of the Announcement and the Latest Practicable Date respectively;
(b) a discount of approximately 52% to the closing price of HK$0.063 per Share as quoted on the Stock Exchange on the Last Trading Day;
(c) a discount of approximately 59% over the average closing price of HK$0.074 per Share for the five trading days up to and including the Latest Practicable Date;
(d) a discount of approximately 60% over the average closing price of approximately HK$0.075 per Share for the last 10 trading days up to and including the Latest Practicable Date;
(e) a discount of approximately 61% over the average closing price of approximately HK$0.077 per Share for the last 30 trading days up to and including the Latest Practicable Date;
(f) a discount of approximately 59% over the average closing price of approximately HK$0.074 per Share for the three months up to and including the Latest Practicable Date;
(g) a discount of approximately 52% over the average closing price of approximately HK$0.062 per Share for the six months up to and including the date of the Announcement;

– 9 –

LETTER FROM THE BOARD

(h) a discount of approximately 57% over the average closing price of approximately HK$0.069 per Share for the six months up to and including the Latest Practicable Date.

Highest and lowest Share prices

The highest and lowest prices at which Shares were traded on the Stock Exchange during the six-month period immediately preceding the date of the Announcement were HK$0.07 on 15 December 2004 and HK$0.056 on 22 November 2004 respectively.

The highest and lowest prices at which Shares were traded on the Stock Exchange during the six-month period immediately preceding the Latest Practicable Date were HK$0.098 on 22 April 2005 and HK$0.061 on 3, 4, 5 January 2005 and 28, 29, 30, 31 December 2004 respectively.

Total consideration

As at the Latest Practicable Date, there were 3,124,862,734 Shares in issue. As the Shares held by the Offeror and parties acting in concert with it, who owns approximately 70% of the entire issued share capital of the Company at Completion, will not form part of the Offer and the Offer will not be extended to Probest and Rich Global, the total number of Shares that are subject to the Offer is 937,539,504 as at the Latest Practicable Date, representing approximately 30% of the total issued share capital of the Company as at the Latest Practicable Date. Assuming the Offer is accepted in full, the consideration payable by the Offeror pursuant to the Offer with be approximately HK$28 million.

Financial resources (The paragraph below has been reproduced from the Offer Document)

DBS Asia is satisfied that there are sufficient financial resources available to the Offeror to meet full acceptance of the Offer. The Offer will be financed by the Offeror’s internal resources. The loan facilities provided by Kingsway Financial Services Group Limited will not be utilised by the Offeror to meet the acceptance of the Offer.

Effects of accepting the Offer

By accepting the Offer, Shareholders will sell their Shares to the Offeror free from all liens, claims and encumbrances and with all rights attached to them as at the date of the Offer Document, including the right to receive all dividends and distributions declared, paid or made on or after the date of the Offer Document.

Stamp duty

Stamp duty at the rate of HK$1.00 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptances will be payable by each Shareholder who accepts the Offer. The Offeror will pay for such amount of stamp duty on behalf of and for the account of the Shareholders who accept the Offer and such amount will be deducted from the amount payable to the relevant Shareholders on acceptance of the Offer.

– 10 –

LETTER FROM THE BOARD

Payment

Payment in cash by way of banker’s cheques in respect of acceptances of the Offer will be made within ten days of the date on which the relevant documents of title are received by the registrar of the Company to render each such acceptance complete and valid.

INFORMATION ON THE GROUP

The Group is principally engaged in the design, manufacture and marketing of frames, sunglasses and lenses. Its production facilities are located in Dongguan and Shenzhen. Products of the Group are mainly exported to the United States, Europe and Australia.

Financial and trading prospect of the Group

In 2004, the results of the Group were disappointing in revenue perspective. The turnover was HK$174.9 million, representing a decrease of 9% over 2003. Despite the decrease in sales orders and turnover, the net loss decreased from HK$7.1 million in 2003 to HK$5.8 million in 2004 due to the cost saving program. Facing the keen competition, the lower capacity utilization and the increase of production cost, the gross profit margin was decreased which was partly offset by the savings in selling and administrative expenses.

To counteract the decrease of profit margin and the increase in costs of fuel oil, raw materials and components, the Group will continue to increase the operational efficiency and implement other cost savings programs in the manufacturing plants and sampling department to reduce the operational cost. Moreover, the Group is targeting to improve the production flow in order to increase the operational efficiency and thus capture the growing optical market.

On 30 May 2005, the Offeror and the Company jointly announced that all the conditions to the Sale and Purchase Agreement had been fulfilled and the Completion took place on 3 June 2005. Following Completion, the Promissory Note and the Guarantee were executed. Pursuant to the Loan Restructuring Agreement, the financial burden of the Group was reduced as a result of the waiver of part of the principal amount, interests and default interests of the Debt amounting to approximately HK$67.7 million. Moreover, the Shareholders Agreement was executed to ensure that material issues of Profitown would be approved only after compromise has been obtained from all directors of Profitown to rationalise the operation of the Profitown Group. Also, under the Shareholders Agreement, the Put Option provides an opportunity to the Company to realise its investment in the Profitown Group and to safeguard the Company’s interest in the Profitown Group from future deterioration after Completion. The Agency Agreement enables the Group to leverage on Mr. Wang’s considerable experience in international trade in relation to the Products and such new agency business to be conducted by the Trading Company will supplement the Group’s existing business. At present, the Company has no intention to exercise the Put Option. For details, please refer to the circular of the Company dated 10 May 2005.

Financial information on the Group is set out in Appendix I to this document.

Property Valuation and land title issues of the Group as at 30 April 2005

The Property Valuation includes valuations of six PRC properties. Five of these properties are owned by subsidiaries, and one is owned by an associated company, of the Company. Of these properties there is only one property to which the relevant company has clear title.

– 11 –

LETTER FROM THE BOARD

The Property Valuation describes various factors affecting, and potential difficulties with, the title to (and consequently the marketability of) the properties. These title issues include that the title certificates for some of the properties and/or the buildings erected thereon are still subject to applications; or are not in the names of the relevant companies; or that their transferability cannot be ascertained; or that the land has been granted to the relevant company based on concessionary land use fees and its transferability is subject to further approval of the governmental authorities.

The properties have been occupied by the relevant subsidiaries or associated company as summarised in the Property Valuation, for at least eight years and during this time the Group has received no notices from any third party alleging that any of the relevant subsidiaries and associated companies have no right to carry on their existing operations (which are primarily manufacturing operations) from the properties. The Directors have taken steps to address these title issues with a view to perfecting (to the extent possible) their right to the properties and their ability to transfer the relevant properties to third parties. The steps taken by the Directors includes: maintaining contact with the relevant Land Administration Bureau with a view to monitoring the status of the land use rights applications; and observing the local policies for the property market in Shenzhen and Dongguan continuously. The Directors do not expect the titles can be perfected in the near future. At present, the Group has no intention to transfer any of the properties which has an aggregate carrying value of HK$47.8 million as at 31 December 2004.

INFORMATION ON THE OFFEROR (This section has been reproduced from the Offer Document)

The Offeror is a private investment company incorporated in the British Virgin Islands with limited liability on 1 July 2004, and Mr. Wang is the sole shareholder of the Offeror. The directors of the Offeror are Mr. Wang, Mr. Zhao Jun（趙俊）and Mr. Li Wei （李偉）. The Offeror, Mr. Wang, Mr. Zhao Jun and Mr. Li Wei are third parties independent of and not connected with TIHL or the Company or their respective connected persons (as defined in the Listing Rules). The parties acting in concert with the Offeror are Mr. Wang, Mr. Zhao Jun, Mr. Li Wei, the Vendors, TIHL and SW Kingsway.

Since its incorporation, the Offeror has not carried on any business other than entering into the Sale and Purchase Agreement, the Supplemental Agreement, the TIHL Deed and the transactions contemplated thereunder and the Offer.

Set out below is the biography and background of each of Mr. Wang, Mr. Zhao Jun and Mr. Li Wei:

Mr. Wang, aged 41. Mr. Wang has been engaged in the phosphorus industry through the import and export of the Products since 1990. In 1999, he restructured several state-owned enterprises on the verge of bankruptcy into Yunnan Phosphorous Group Co., Ltd. (“Yunphos”) and is currently the controlling shareholder holding over 51% equity interest in Yunphos. The remaining two shareholders of Yunphos are two of its directors. Over the last 13 years, Yunphos (including its predecessors) has evolved into a vertically integrated company engaged in the development, manufacturing, import and export of the Products. With Mr. Wang’s continuous efforts in exploring the international market, Yunphos has built strong relationships with numerous long-term international customers in Europe, America, Australia, Japan and South East Asia. He is currently the vice chairman of the Federation of Industry & Commerce of Yunnan Province, the vice chairman of the Yunnan Overseas Association and the vice chairman of the Chamber of Commerce for Import and Export of Yunnan Province. Mr. Wang is a PRC citizen.

– 12 –

LETTER FROM THE BOARD

Mr. Zhao Jun, aged 42. Mr. Zhao joined the chemical department of Kunming Import & Export Corporation, the predecessor of Yunphos, as the deputy general manager in 1993 and has gained extensive experience in international trade as a senior executive of Yunphos. Under the supervision and guidance of Mr. Zhao, the operations of Yunphos have been continuously improved and refined. Mr. Zhao has guided Yunphos’s move towards standardisation. With a heavy workload, he still managed to complete one year of MBA core courses. Mr. Zhao is a PRC citizen.

Mr. Li Wei, aged 38. In 1988, Mr. Li Wei became the deputy general manager of Golden Dragon Hotel in Kunming, a Hong Kong owned hotel, and accumulated extensive experience in hotel management. Mr. Li joined Yunnan Xinge Group（雲南鑫格集團）as its general manager, responsible for planning and investment, in 2000. Since 2002, Mr. Li has been the assistant to Mr. Wang. He possesses strong experience in international trade management. Mr. Li is a PRC citizen.

INTENTION OF THE OFFEROR REGARDING THE GROUP (This section has been reproduced from the Offer Document)

Business

It is the intention of the Offeror to initiate a detailed strategic review of the Group’s businesses and to formulate business plans and strategies for the Group with a view to consolidate the Company’s overall group operations and enhancing the shareholder value of the Company.

The Offeror believes that the Company will continue to keep abreast with the market trend by designing and producing fashionable optical products for its customers. Also, the Offeror will use its effort to lower the operating costs of the Company and thus improve its profit margin. Further, the Trading Company and the Nominee will commence the agency business pursuant to the terms of the Agency Agreement.

Save as disclosed above, the Offeror envisages that the Company will continue with the existing business of the Group and does not intend to propose or seek any major changes to the existing operations or management of the Group by reason only of the Offer. The Offeror does not intend to redeploy the fixed assets of the Company. As at the Latest Practicable Date, the Offeror did not have any intention of injecting any assets into the Group. The Offeror confirms that any future asset injections into the Group will be implemented in accordance with all applicable laws and regulations and the relevant provisions of the Listing Rules.

Directors and management

As at the Latest Practicable Date, the Company has 5 executive directors and 3 independent non-executive directors. It is intended that with effect from the earliest time permitted under (or pursuant to any dispensation from) the Takeovers Code or by the Executive, all of the existing directors of the Company will resign.

– 13 –

LETTER FROM THE BOARD

The Offeror expects that such persons nominated by the Offeror will be appointed as directors of the Company with effect from the time when the existing directors of the Company are permitted to resign under the Takeovers Code or by the Executive. The Offeror intends to nominate Mr. Wang, Mr. Zhao Jun, Mr. Li Wei and Ms. Zhou Jing as executive directors and Mr. Sammy T.K. Choi and Mr. Wu Bin as independent non-executive directors to the board of directors of the Company. The identity of another independent non-executive director to be nominated by the Offeror to the board of directors of the Company has not yet been determined, such information will be disclosed when the information is available by way of an announcement.

Mr. Choi Tze Kit, Sammy, aged 42, graduated from the Hong Kong Shue Yan College. He is an associate member of the Institute of Chartered Accountants in England and Wales, a fellow member of the Association of Chartered Certified Accountants and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants. He has over 19 years’ experience in finance and auditing and worked for a number of listed companies and international accounting firms in Hong Kong.

Mr. Wu Bin, aged 49, graduated from the California State University with a bachelor’s degree in management information system. He received his master’s degree in management from the Golden Gate University, San Francisco and has completed a management programme at the Stanford University, the USA. Mr. Wu is currently the general manager of Kunming Pantong Real Estates Co., Ltd.

Employees

The Offeror does not have any intention to make any major changes to the employment status of the employees of the Company and of its subsidiaries.

Maintaining the listing of the Company

It is the intention of the Offeror that the listing of the Shares on the Stock Exchange will be maintained. Accordingly, the Offeror will undertake to the Stock Exchange, to take appropriate steps as soon as practicable following the close of the Offer to ensure that at least 25% of all the Shares (based on the market capitalisation of the Company as at the relevant time) (or such other percentage as the Listing Rules may stipulate from time to time) are held by the public at all times in accordance with Rule 8.08 of the Listing Rules.

The Stock Exchange has stated that if there is less than 25% of all the Shares in public hands following the close of the Offer, or the Stock Exchange believes that a false market exists or may exist in Shares or that there are insufficient Shares in public hands to maintain an orderly market, then it will consider exercising its discretion to suspend trading in Shares until a level of sufficient public float is attained.

– 14 –

LETTER FROM THE BOARD

So long as the Company remains a listed company, the Stock Exchange will also closely monitor all future acquisitions or disposals of assets of the Company. Any acquisitions or disposals of assets by the Group will be subject to the provisions of the Listing Rules. Pursuant to the Listing Rules, the Stock Exchange has the discretion to require the Company to issue an announcement and a circular to the shareholders of the Company irrespective of the size of any proposed transactions, particularly when such proposed transactions represent a departure from the principal activities of the Company. The Stock Exchange also has the power to aggregate a series of acquisitions or disposals of the Company and any such transactions may result in the Company being treated as if it were a new listing applicant and subject to the requirements for new listing applicants as set out in the Listing Rules.

OVERSEAS SHAREHOLDERS

The making of the Offer to persons with a registered address in jurisdictions outside Hong Kong may be affected by the laws of the relevant jurisdictions. Independent Shareholders who are citizens or residents or nationals of jurisdictions outside Hong Kong should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such person who wishes to accept the Offer to satisfy himself/herself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental or other consent which may be required or the compliance with other necessary formalities and the payment of any transfer or other taxes due in respect of such jurisdiction.

GENERAL

Pursuant to Rule 8.2 of the Takeovers Code, the Offer Document containing, among other things, the terms of the Offer, together with forms of acceptance and transfer were posted to the Independent Shareholders on behalf of the Offeror on 6 June 2005.

ADDITIONAL INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee on pages 16 to 17 of this document, and the letter of advice from Barits on pages 18 to 31 of this document, which set out their respective advice in relation to the Offer, together with the additional information set out in the appendices to this document.

Yours faithfully, By order of the Board

Swank International Manufacturing Company Limited Yau Tak Wah, Paul Executive Director

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Swank International Manufacturing Company Limited

(incorporated in Hong Kong with limited liability)

(Stock code: 663)

Registered Address: 27th Floor Henley Building 5 Queen’s Road Central Hong Kong

Head Office and Principal Place of Business Unit 3301, Level 33 Metroplaza Tower I 223 Hing Fong Road Kwai Fong, N.T. Hong Kong 20 June 2005

To the Independent Shareholders of the Company

Dear Sir or Madam,

RESPONSE DOCUMENT RELATING TO THE UNCONDITIONAL MANDATORY CASH OFFER BY DBS ASIA CAPITAL LIMITED ON BEHALF OF CHINA TIME INVESTMENT HOLDINGS LIMITED TO ACQUIRE ALL THE ISSUED SHARES OF HK$0.01 EACH IN THE SHARE CAPITAL OF SWANK INTERNATIONAL MANUFACTURING COMPANY LIMITED (OTHER THAN THOSE SHARES ALREADY OWNED OR AGREED TO BE ACQUIRED BY CHINA TIME INVESTMENT HOLDINGS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

We refer to the response document dated 20 June 2005 issued by the Company (the “Document”) of which this letter forms part. Terms defined in the Document shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider the terms of the Offer. Barits has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the Offer.

Your attention is drawn to the letter from the Board and the letter of advice from Barits containing its advice to the Independent Board Committee and the Independent Shareholders as set out in the Document.

– 16 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Taking into account the terms of the Offer and the advice from Barits, we consider the terms of the Offer to be fair and reasonable so far as the Independent Shareholders are concerned, and recommend the Independent Shareholders to consider accepting the Offer. However, Independent Shareholders who wish to realise the whole or part of their Shares should closely monitor the liquidity and the market price of the Shares during the offer period and consider selling their Shares in the open market during the offer period, rather than accepting the Offer, if the proceeds from the sales of such Shares in the open market (after deducting all transaction costs) exceed the net amount receivable under the Offer.

Yours faithfully, Independent Board Committee Hahn Ka Fai, Mark Independent non-executive Director

Shum Wai Ting, Rebecca Independent non-executive Director

– 17 –

LETTER FROM BARITS

The following is the text of the letter of advice from Barits to the Independent Board Committee and the Independent Shareholders dated 20 June 2005 for incorporation in this document.

BARITS SECURITIES (HONG KONG) LIMITED

Room 3406, 34/F Edinburgh Tower, The Landmark 15 Queen’s Road Central Hong Kong

20 June 2005

To the Independent Board Committee and the Independent Shareholders

Dear Sir,

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Offer, details of which are set out in the Offer Document and this document of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in this document unless the context otherwise requires.

On 20 January 2005, the Offeror entered into the Sale and Purchase Agreement with the Vendors for the acquisition of the Sale Shares for a cash consideration of HK$56,247,529.35 (i.e. equivalent to HK$0.03 per Sale Share). On 30 May 2005, the Offeror and the Company jointly announced that all the conditions to the Sale and Purchase Agreement had been fulfilled and Completion took place on 3 June 2005. As a result of the Completion, the Offeror and parties acting in concert with it own an aggregate of 2,187,323,230 Shares, representing approximately 70% of the entire issued share capital of the Company. Under Rule 26.1 of the Takeovers Code, the Offeror is required to make an unconditional mandatory cash offer for all the Shares not already owned or agreed to be acquired by the Offeror and parties acting in concert with it at HK$0.03 per Share.

Composition of the Independent Board Committee

– 18 –

LETTER FROM BARITS

that may arise. Mr. Wu Wang Li is the independent non-executive director of both TIHL and the Company and is therefore considered to be not sufficiently independent to advise the Independent Shareholders on the terms of the Offer. Accordingly, the Independent Board Committee, comprising Mr. Hahn Ka Fai, Mark and Ms. Shum Wai Ting, Rebecca (both being independent non-executive Directors), has been appointed in accordance with Rules 2.1 and 2.8 of the Takeovers Code to advise the Independent Shareholders in respect of the Offer.

Basis of our opinion

In formulating our opinion and advice, we have relied on the accuracy of the information and representations contained in this document and information and facts provided to us by the Company, the Directors and the management of the Company. We have also assumed that all statements of belief and intention made by the Directors in this document were reasonably made after due enquiry. We have assumed that all statements and representations made or referred to in this document were true at the time they were made and continue to be true as at the Latest Practicable Date. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, the Directors and the management of the Company and have no reason to doubt that any relevant material facts have been withheld or omitted.

We have reviewed the published information of the Group including, amongst others, the Group’s audited financial statements for the three years ended 31 December 2004. We have also reviewed the past performance of the Share price since 1 January 2004 up to the Latest Practicable Date. We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in this letter and to provide a reasonable basis for our opinion. We have not, however, conducted an independent investigation into the business affairs, financial position or future prospects of the Group nor have we carried out any independent verification of the information supplied.

We have not considered any tax implications on the Independent Shareholders in respect of their acceptance or non-acceptance of the Offer since these will vary in accordance with their individual circumstances. The Independent Shareholders who reside outside of Hong Kong or are subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax positions and, if in any doubt, should consult their own professional advisers.

THE OFFER

In arriving at our opinion regarding the terms of the Offer, we have considered the following principal factors and reasons:

Business and financial performance of the Group

The Group is principally engaged in the design, manufacture and sales of optical products. Its major markets include the United States, Europe, Hong Kong and the PRC. In order to

– 19 –

LETTER FROM BARITS

demonstrate the business performance of the Group, a summary of the profit and loss accounts for each of the three years ended 31 December 2004 is set out as follows:

Turnover
Cost of sales
Gross profit
Other revenue
Selling expenses
Administrative expenses
Other operating expenses
Profit/ (loss) from operations
Finance cost
Share of profit/ (loss) of associates
Exceptional items
Profit/ (loss) before taxation
Taxation
Profit/ (loss) before minority
Minority interests
Profit/ (loss) attributable to shareholders
Dividend

For the year ended 31 December
2004
2003
2002
(HK$ ‘000)
(HK$ ‘000)
(HK$’ 000)
(Audited)
(Audited)
(Audited)
174,890
192,236
242,097
(156,632)
(168,484)
(193,189)
18,258
23,752
48,908
2,866
3,238
4,098
(14,304)
(18,516)
(13,554)
(14,220)
(20,675)
(27,875)
(1,033)
(10,288)
(4,360)
2,467
(22,489)
7,217
(13,567)
(15,076)
(15,611)
2,791
1,727
9,426
–
27,437
9,731
(8,309)
(8,401)
10,763
–
(151)
(1,000)
(8,309)
(8,552)
9,763
2,541
1,498
378
(5,768)
(7,054)
10,141
–
–
–

(i) For the year ended 31 December 2002

In 2002, the Group recorded a turnover of approximately HK$242.1 million, representing an insignificant increase of approximately 0.2% when compared with 2001. According to the 2002 annual report of the Company, although the Group enjoyed a 14% growth in sales orders when compared with the previous year, the sudden slow-down in customer delivery schedule towards the year end has offset such growth in sales orders. Notwithstanding that the Group managed to generate an operating profit of approximately HK$ 7.2 million in 2002, as opposed to a loss of approximately HK$ 11 million in 2001, a decreased gross profit margin of approximately 20.2% was reported in 2002, compared to approximately 25.1% in 2001 due to downward price pressure in the market.

– 20 –

LETTER FROM BARITS

Net profit of the Group in 2002 was approximately HK$10.1 million, compared to a net loss of approximately HK$58.9 million in 2001. Nevertheless, we understand from the 2002 annual report of the Company that such improvement was mainly attributable to the positive changes in exceptional items which were not recurrent in nature. Taking into consideration (i) the waiver of accrued interest on bank loans and overdrafts which amounted to approximately HK$16.9 million; (ii) the waiver of bank overdrafts which amounted to approximately HK$0.3 million as at 31 December 2002; and (iii) the surplus on revaluation of leasehold land and buildings, the Group realised an exceptional gain of approximately HK$9.7 million after deducting restructuring costs, compared to the exceptional loss of approximately HK$31.7 million in 2001. Apart from the positive changes in exceptional items, the bottom-line improvement in 2002 was also attributable to the reduction in finance costs and the increase in share of profits from associates.

(ii) For the year ended 31 December 2003

In 2003, the Group recorded a turnover of approximately HK$192.2 million, representing a decrease of approximately 20.6% when compared with 2002. Sales orders decreased by approximately 20.2% when compared with 2002. According to the 2003 annual report of the Company, the decrease in sales orders was mainly attributable to the lackluster demand in the United States and Europe and the deferral in product development programs with customers as a result of the outbreak of severe acute respiratory syndrome epidemic. Gross profit of the Group in 2003 was approximately HK$23.8 million, representing a significant decrease of approximately 51.4% when compared with approximately HK$48.9 million in 2002. Due to downward price pressure in the market and low capacity utilisation, the gross profit margin of the Group was further squeezed from approximately 20.2% in 2002 to approximately 12.4% in 2003.

Other operating expenses of the Group were approximately HK$10.3 million, representing an increase of 136.0% when compared with approximately HK$4.4 million in 2002. Such an increase was mainly attributable to the additional provision for slow moving inventories caused by cancellation of sales orders and the slow-down in the forecast sales orders. As a result, the Group recorded an operating loss of approximately HK$22.5 million in 2003, compared to an operating profit of approximately HK$7.2 million in 2002. In addition, the profit shared by the Group from its associates amounted to only approximately HK$1.7 million in 2003, compared to approximately HK$9.4 million in 2002. Notwithstanding that a gain arising from group reorganisation of approximately HK$29.6 million was realised as a result of Probest waiving part of the outstanding loans owed by the Company and the interests accrued thereon, the Group recorded a net loss of approximately HK$7.0 million in 2003, compared to a net profit of approximately HK$10.1 million in 2002.

(iii) For the year ended 31 December 2004

In 2004, the Group recorded a turnover of approximately HK$174.9 million, representing a decrease of approximately 9.0% or HK$17.3 million when compared with 2003. The gross profit margin of the Group was further squeezed to approximately 10.4% in 2003 from approximately 12.4% in 2003. According to the 2004 annual report of the Company, the decrease in gross profit margin was mainly due to the increase in prices of oil, raw materials and components.

– 21 –

LETTER FROM BARITS

The Group reported an operating profit of approximately HK$2.5 million as compared to the operating loss of approximately HK$22.5 million in 2003. Nonetheless, the operating profit in 2004 was mainly contributed by two non-recurring items including (i) the reversal of impairment loss upon disposal of interests in associates amounting to HK$4.7 million; and (ii) the waiver of amounts due to associates upon disposal of interests in associates amounting to approximately HK$6.2 million. Excluding such exceptional incomes, the Group would have reported an operating loss of approximately HK$8.4 million in 2004, compared to an operating loss of approximately HK$22.5 million in 2003. In 2004, the Group recorded a net loss of approximately HK$5.8 million as compared to the net loss of HK$7.1 million in 2003.

For better illustration purpose, we have extracted from the 2004 annual report of the Company and charted below the net profit/loss attributable to shareholders of the Group from 2000 to 2004:

==> picture [317 x 184] intentionally omitted <==

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

20,000
0
(20,000)
(40,000)
(60,000)
(80,000)
(100,000)
(120,000)
2000 2001 2002 2003 2004
(HK$'000)
----- End of picture text -----

As demonstrated in the above chart, the Group has displayed a general loss making trend during 2000 to 2004 despite that a turnaround was recorded in 2002. As mentioned above, the exceptional bottom-line improvement in 2002 was primarily attributable to the positive changes in exceptional items, reduction in finance costs and greater share of profits from associates. Without solid actions to fuel continuous operational improvement, the Group resumed its loss making record and reported turnover decline and net losses in 2003 and continued to record net losses and turnover decline for the year ended 2004.

To fully comprehend the recent financial performance of the Group, we would like to further draw the attention of Independent Shareholders to the opinion of the auditors of the Company regarding the basis of preparing the financial statements of the Group for the year ended 31 December 2004. We note from the 2004 annual report of the Company that the auditors of the Company had issued an opinion of fundamental uncertainty relating to the going concern basis of the Group. Based on the opinion of the auditors of the Company, the validity of the going concern basis for the preparation of the financial statements depends upon the generation of sufficient cash flows from the Group’s operations so as to meet its debts as and when they fall due in the foreseeable future.

– 22 –

LETTER FROM BARITS

Net asset value

According to the 2004 annual report of the Company, the Group had audited consolidated net liabilities of approximately HK$65.3 million as at 31 December 2004. We also note that the Group has been reporting consecutive net liabilities throughout the past five financial years ended 31 December 2004. Related figures are extracted from the 2004 annual report of the Company and summarised as below:

Year	2004	2003	2002	2001	2000
Net liabilities (HK$ ’000)	(65,352)	(60,035)	(89,942)	(398,607)	(322,928)

We understand that one of the common approaches for valuing an entity is making reference to the net asset value of an entity. However, given the net liability position of the Group as at 31 December 2004, we consider that net tangible assets should not represent an appropriate parameter to assess the terms of the Offer.

Further, as supplemental information for reference purpose, certain properties of the Group have title defects and subject to transfer and other kinds of limitation which are laid down in detail in Appendix III to this document. According to the Unaudited Pro Forma Financial Information as referred to in Appendix II to this document, the carrying value attributable to those property interests held by the Group in the PRC with title issues was approximately HK$47.8 million. In the event that the said title issues cannot be resolved and the related property interests held by the Group are required to be impaired in full, the estimated exposure to the Group's net tangible assets would be approximately HK$47.8 million. Taking into account also (i) the interest and default interest expenses of the Debt accrued from 1 January 2005 to 3 June 2005 of approximately HK$4.9 million; and (ii) the principal, interest and default interest of the Debt of approximately HK$67.7 million being waived upon the Loan Restructuring Agreement becoming effective, the unaudited pro forma adjusted consolidated net liabilities of the Group amounted to approximately HK$50.4 million (details of calculations are set out in the Unaudited Pro Forma Financial Information as referred to in Appendix II to this document).

Price-to-earnings multiple and dividends yield

Another common approach for valuing an entity is on a price-to-earnings multiple basis. However, given that the Group recorded an audited consolidated net loss for the financial year ended 31 December 2004, it is not feasible to make a meaningful assessment of the offer price per Share based on the price-to-earnings multiple. Besides, the Group has not declared any dividend for the past five financial years ended 31 December 2004. As such, we consider that it is not possible to evaluate the reasonableness of the offer price per Share based on either the price-to-earnings multiple or the historic dividend yield. In essence, it should be noted that the offer price per Share is determined for the Shares against the background of the Company with generally unprofitable trading record and zero dividend yield.

– 23 –

LETTER FROM BARITS

Liquidity of the Shares

The following chart sets out the daily trading volume of the Shares on the Stock Exchange during the period from 1 January 2004 to the Latest Practicable Date, excluding the period from 21 January 2005 to 18 April 2005 during which trading in Shares was suspended (the “Relevant Trading Period”):

==> picture [424 x 239] intentionally omitted <==

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

25,000,000
20,000,000
Trading in
15,000,000 Shares
resumed on
19 April 2005
10,000,000
Suspension of
trading in Shares
commenced on
21 January 2005
5 000,000
0
Latest
Practicable
Date
Period
Number of Shares
Jan 2004 Feb 2004 Mar 2004 Apr 2004 May 2004 Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005
----- End of picture text -----

Source: Bloomberg

– 24 –

LETTER FROM BARITS

The highest, lowest and average daily trading volume of Shares during the Relevant Trading Period and the percentage of average daily trading volume as compared with the total number of Shares in issue as at the Latest Practicable Date are tabulated below:

				Percentage of
				average daily
				trading volume
				to total number
	Highest daily	Lowest daily	Average daily	of Shares
Month	trading volume	trading volume	trading volume	in issue
	(in number	(in number	(in number	(%)
	of Shares)	of Shares)	of Shares)	(Note 1)
2004
January	15,710,000	0	4,379,152	0.140
February	22,684,200	0	7,614,471	0.244
March	11,506,000	0	3,761,800	0.120
April	3,000,000	0	689,632	0.022
May	2,240,000	0	312,728	0.010
June	4,060,000	0	822,886	0.026
July	540,000	0	116,714	0.004
August	5,700,000	0	700,136	0.022
September	3,040,000	0	625,238	0.020
October	2,060,000	0	184,368	0.006
November	4,044,000	0	591,500	0.019
December	2,000,000	0	578,682	0.019
2005
January_(Note 2)_	1,800,000	0	349,480	0.011
February_(Note 2)_	N/A	N/A	N/A	N/A
March_(Note 2)_	N/A	N/A	N/A	N/A
April_(Note 2)_	20,366,880	1,400,000	5,418,921	0.173
May	8,300,000	40,000	995,240	0.032
June_(Note 3)_	4,146,000	0	1,154,250	0.037

Source: Bloomberg

Notes:

based on the 3,124,862,734 Shares in issue as at the Latest Practicable Date
Trading was suspended on 21 January 2005 upon the request by the Company. There was no trading for the Shares since 21 January 2005 until 19 April 2005, on which trading in Shares was resumed. Relevant trading figures have been quoted during the period from (and inclusive of) 19 April 2005 to 30 April 2005.
up to and including the Latest Practicable Date

As shown in the above table, the average daily trading volume of the Shares in each month during the Relevant Trading Period was fairly thin and ranged from 116,714 Shares to 7,614,471 Shares, representing approximately 0.004% to approximately 0.244% of the total number of Shares in issue as at the Latest Practicable Date respectively. In addition, during the

– 25 –

LETTER FROM BARITS

same period, there were 96 trading days out of a total of 308 trading days on which no trading of the Shares on the Stock Exchange was recorded.

Price performance of the Shares

We summarise below the highest and the lowest closing prices of the Shares during the Relevant Trading Period:

	Highest	Lowest
	Closing	Closing
Month	Price	Price
	(HK$)	(HK$)
2004
January	0.060	0.036
February	0.080	0.049
March	0.078	0.071
April	0.072	0.060
May	0.061	0.048
June	0.065	0.047
July	0.059	0.047
August	0.058	0.043
September	0.072	0.050
October	0.068	0.060
November	0.065	0.056
December	0.070	0.058
2005
January_(Note 1)_	0.070	0.061
February_(Note 1)_	N/A	N/A
March_(Note 1)_	N/A	N/A
April_(Note 1)_	0.098	0.079
May	0.083	0.071
June_(Note 2)_	0.080	0.072
Source: Bloomberg
Notes:

Trading was suspended on 21 January 2005 upon the request by the Company. There was no trading for the Shares since 21 January 2005 until 19 April 2005, on which trading of the Shares was resumed. Both the highest and lowest closing prices have been quoted during the period from (and inclusive of) 19 April 2005 to 30 April 2005.
up to and including the Latest Practicable Date

During the Relevant Trading Period, the highest closing price and the lowest closing price of the Shares quoted on the Stock Exchange were HK$0.098 on 22 April 2005 and HK$0.036 on 2 January 2004 respectively. The offer price of HK$0.03 per Share falls beneath such range and represents a discount of approximately 69.4% and 16.7% to the highest and lowest closing price of the Shares during the Relevant Trading Period respectively.

– 26 –

LETTER FROM BARITS

The chart below shows the share performance of the Company during the Relevant Trading Period:

==> picture [411 x 228] intentionally omitted <==

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

0.12
0
0.08
0.06
Trading in
Shares
resumed on
0.04 Suspension of trading in 19 April 2005
Shares commenced on 21 January 2005
Offer
0.02 price (HK$0.03)
Latest
Practicable
Date
Period
HK$
Jan 2004 Feb 2004 Mar 2004 Apr 2004 May 2004 Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005
----- End of picture text -----

Source: Bloomberg

Immediately after the release of the Announcement, the closing price per Share surged to HK$ 0.092 on 19 April 2005, representing an increase of approximately 46.0% when compared to HK$ 0.063 per Share as quoted on the Stock Exchange on the Last Trading Day. However, the closing price per Share dropped by approximately 10% to HK$ 0.083 on the second trading day immediately after the release of the Announcement. It is considered that the substantial increase in the Share price right after the release of the Announcement might have been driven by speculation on the change of controlling Shareholder. As observed from the above chart, the closing price per Share was on general decline from HK$ 0.092 on 19 April 2005 to HK$0.074 on the Latest Practicable Date. Notwithstanding that the Shares have been traded at a price level substantially higher than the offer price since trading in the Shares resumed on 19 April 2005, there is no assurance of the sustainability of such level.

The offer price of HK$0.03 per Share represents:

(i) a discount of approximately 52.4% to the closing price of HK$0.063 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 52.4% to the average closing price of HK$0.063 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
(iii) a discount of approximately 53.1% to the average closing price of HK$0.064 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of approximately 51.6% to the average closing price of HK$0.062 per Share as quoted on the Stock Exchange for the last 60 trading days up to and including the Last Trading Day;

– 27 –

LETTER FROM BARITS

(v) a discount of approximately 61.5% to the highest closing price of HK$0.078 per Share for the period from 1 January 2004 to the Last Trading Day and a discount of 16.7% to the lowest closing price of HK$0.036 per Share during the same period; and
(vi) a discount of approximately 59.5% to the closing price of HK$0.074 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Taking into consideration that:

(i) the Shares have been consistently trading at price levels well above the offer price during the Relevant Trading Period, and
(ii) the deep discount of the offer price per Share relative to the closing prices per Share prior to the date of the Sale and Agreement,

we consider that the offer price per Share is seemingly not attractive to Independent Shareholders. However, in view of (i) the consistently low liquidity of the Shares during the Relevant Trading Period; (ii) the loss making track record of the Group in general; (iii) the zero dividend yield of the Company for the past five financial years; and (iv) the absence of net assets backing for each Share, we are of the view that the market price level of the Shares may not truly reflect the intrinsic value of each Share and hence may not be the most relevant parameter in assessing the offer price per Share.

Intention of the Offeror regarding the future prospect of the Group

The Group has been principally engaged in the design, manufacture and sales of optical products. Its major markets include the United States, Europe, Hong Kong and the PRC.

Immediately before Completion, the Profitown Group was the only operating vehicle of the Company. Save as the optical business conducted by the Profitown Group, the Company did not carry out other business. Upon Completion, the Trading Company and the Nominee entered into the Agency Agreement pursuant to which the Trading Company is engaged to provide agency services to the Nominee in relation to the sale of the Products to the Territory for an agency fee as referred to in the circular of the Company dated 10 May 2005.

Notwithstanding that the introduction of the new agency business to the Group is expected to broaden the income base of the Group, Independent Shareholders should note that Profitown will cease to be a subsidiary of the Company and revenue of the Group may be reduced in the event that the Put Option (details of which are set out in the circular of the Company dated 10 May 2005) is exercised by the Company. Nevertheless, the exercise of the Put Option is discretionary and the Company has the discretion to decide whether the Put Option is to be exercised. At present, the Company has no intention to exercise the Put Option.

When assessing whether to accept the Offer, Independent Shareholders are also advised to carefully consider the intention of the Offeror regarding the future prospect of the Company. Information on the Offeror is set out in the Letter from the Board and the Offer Document.

– 28 –

LETTER FROM BARITS

As set out in the Letter from the Board, it is the intention of the Offeror to maintain the existing business of the Group. The Offeror does not have any intention of injecting any assets into the Group. Nonetheless, the Offeror intends to initiate a detailed strategic review of the Group’s business and to formulate business plans and strategies for the Group with a view to consolidating the Company’s overall group operations and enhancing the shareholder value of the Company. The Offeror believes that the Company will endeavour to keep abreast with the market trend by designing and producing fashionable optical products for its customers. Further, the Offeror will put effort to lower the operating costs of the Company and thus improve its profit margin. However, without any concrete implementation plan or timetable formulated by the Offeror to review and strategise the business of the Group, and given that any substantial business decisions to be executed by the Group may be subject to regulatory and the Shareholders’ approval, Independent Shareholders (particularly those who are optimistic about the prospects of the Group and wish to retain part or all of their investment in the Company) should note that there is no assurance as to any exploration of new businesses for the Group (if ever identified or proposed) will become materialised.

As at the Latest Practicable Date, the Company has 5 executive Directors and 3 independent non-executive Directors. It is intended that with effect from the earliest time permitted under (or pursuant to any dispensation from) the Takeovers Code or by the Executive, all of the existing Directors will resign.

As set out in the Letter from the Board, the Offeror intends to nominate Mr. Wang, Mr. Zhao Jun, Mr. Li Wei and Ms. Zhou Jing as executive Directors and Mr. Sammy T.K. Choi and Mr. Wu Bin as independent non-executive Directors to the Board with effect from the time when the existing Directors are permitted to resign under the Takeovers Code by the Executive. The identity of another independent non-executive Director to be nominated by the Offeror to the Board has not yet been determined. As they are new to the operations, culture and environment of the Group, the performance of the new Board is yet to be demonstrated. Coupled with the general loss making track record of the Group from 2000 to 2004, Independent Shareholders are reminded that the Group’s profitability in the near future is highly dependent on the new Board’s performance and capability which cannot be ascertained at this moment.

For those Independent Shareholders who are not attracted by the future prospects of the Company and wish to dispose of part or all of their investments in the Company, they should consider selling their Shares in the market rather than accepting the Offer provided that the net proceeds of the sale would exceed the amount receivable under the Offer.

Listing status of the Company

As set out in the Letter from the Board, the Offeror has indicated its intention to maintain the listing of the Shares on the Stock Exchange. In this connection, the Offeror will undertake to the Stock Exchange, to take appropriate steps as soon as practicable following the close of the Offer to ensure that at least 25% of all the Shares (based on the market capitalisation of the Company as at the relevant time) (or such other percentage as the Listing Rules may stipulate from time to time) are held by the public at all times in accordance with Rule 8.08 of the Listing Rules.

– 29 –

LETTER FROM BARITS

Independent Shareholders should note that upon the closing of the Offer, if less than 25% of the Shares are held by the general public, the Offeror may be required to place down Shares to maintain sufficient number of Shares in public hands and any consequential placing down of Shares could have dampening effect on the price of the Shares.

RECOMMENDATION

Having considered the above principal factors, in particular,

the Group’s general loss making track record for the past five financial years from 2000 to 2004, notwithstanding the exceptional turnaround in 2002;
the Company’s zero dividend policy for the past five years ended 31 December 2004;
the continuing net liability position of the Group for the past five years ended 31 December 2004;
the consistently low average daily trading volume of the Shares which may render the Independent Shareholders difficult to dispose of their Shares in the market; and
the lack of solid plan by the Offeror to invest into, or divest from, or revitalise the Group’s business as at the Latest Practicable Date, which we consider critical provided the loss making record of the Group,

we are of the view that, despite the offer price per Share being deeply discounted to the market price of the Shares, the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned. Therefore, we recommend the Independent Board Committee to advise the Independent Shareholders to consider accepting the Offer. However, as the Shares have been trading at a price level substantially higher than the offer price per Share, as detailed in the section headed “Price performance of the Shares” in this letter, Independent Shareholders should closely monitor the market price and liquidity of the Shares

– 30 –

LETTER FROM BARITS

during the Offer period and consider selling their Shares in the market during the Offer period instead of accepting the Offer if the net sales proceeds would exceed the amount receivable under the Offer. Independent Shareholders should also take into account the uncertain sustainability of the trading price and volume of the Shares in the market after the close of the Offer.

For those Independent Shareholders who wish to retain part or all of their investments in the Shares, they should carefully consider the future intentions of the Offeror concerning the Group’s business and evaluate the prospects of the Group under the new Board and management after the close of the Offer.

Yours faithfully, For and on behalf of Barits Securities (Hong Kong) Limited Terence Hong Alfred Wong Managing Director Executive Director

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SUMMARY OF PUBLISHED RESULTS OF THE GROUP

For the year ended 31 December 2002, Ernst & Young was the auditor of the Group. For the two years ended 31 December 2004, the auditor of the Group was CCIF CPA Limited. It should be noted that the auditors of the Group issued qualified opinions in its report for each of the abovementioned financial years because the Group has not obtained land use right certificates or buildings ownership certificates for certain land and building located in the PRC and had fundamental uncertainty relating to the going concern basis. Please refer to the annual report for the Group for each of the respective years for further details.

The following is a summary of the published audited results of the Group for the three years ended 31 December 2004, as extracted from the respective annual reports of the Company:

TURNOVER (LOSS)/PROFIT BEFORE TAXATION Taxation (LOSS)/PROFIT BEFORE MINORITY INTERESTS Minority interests (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS FOR THE YEAR DIVIDENDS (LOSS)/EARNINGS PER SHARE Basic_(Note 1)_ Diluted DIVIDENDS PER SHARE (Basic)	Year 2004 HK$’000 (audited) 174,890 (8,309) – (8,309) 2,541 (5,768) – (0.2 cent) N/A_(Note 2)_ –	ended 31 December, 2003 2002 HK$’000 HK$’000 (audited) (audited) 192,236 242,097 (8,401) 10,763 (151) (1,000) (8,552) 9,763 1,498 378 (7,054) 10,141 – – (1 cent) 5 cents N/A_(Note 2) N/A(Note 2)_ – –

For each of the three years ended 31 December 2004, the Group did not have any extraordinary items or exceptional items in its consolidated income statement.

Notes:

The calculation of the basic (loss)/earnings per Share was based on the audited consolidated (loss)/profit attributable to shareholders for the year, divided by the weighted average number of Shares in issue for that year (2004: 3,124,862,734; 2003: 676,340,153; 2002: 198,957,905).
No amount had been presented for the diluted loss per Share for the three years ended 31 December 2004, as no dilutive events existed during these years.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2004

The following is the full text of the reproduced report of CCIF CPA Limited, the auditors of the Company, for the year ended 31 December 2004 extracted from page 23 to 25 of the 2004 annual report of the Company (the “Annual Report”). The page references contained in this reproduced report are the same as those stated in the Annual Report.

==> picture [87 x 61] intentionally omitted <==

To the shareholders of Swank International Manufacturing Company Limited

(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 26 to 64 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Companies Ordinance requires the directors to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion solely to you, as a body, in accordance with Section 141 of the Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, except that the scope of our work was limited as explained below.

An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However,

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

the evidence available to us was limited with respect to the beneficial title of the Group to certain land and buildings as at 31 December 2004, because the Group has not obtained land use right certificates or building ownership certificates for certain land and buildings located in the People’s Republic of China, with a net book value of approximately HK$48 million. Accordingly, we were unable to satisfy ourselves that the Group had beneficial title to such land and buildings as at 31 December 2004. The auditors’ report dated 26 April 2004 in respect of the previous financial year ended 31 December 2003 was also qualified on the Group’s beneficial title to such land and buildings as at 31 December 2003 on account of the same scope limitation.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Fundamental uncertainty relating to the going concern basis

In forming our opinion, we have considered the adequacy of the disclosures made in note 1(b) to the financial statements concerning the basis of preparation in view of the net loss for the year and net liabilities of the Group as at 31 December 2004. The financial statements have been prepared on a going concern basis, the validity of which depends upon the generation of sufficient cash flows from the Group’s operations so as to meet its debts as and when they fall due in the foreseeable future. The financial statements do not include any adjustments that would result should the Group fail to generate such funding. Details of the circumstances relating to this fundamental uncertainty are described in note 1(b). We consider that appropriate estimates and disclosures have been made and our opinion is not qualified in this respect.

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence relating to the beneficial title matters relating to the land and buildings discussed above, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the Companies Ordinance.

In respect alone of the limitation on our work as set out in the basis of opinion section of this report:

i) We have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
ii) We are unable to determine whether proper books of account have been kept.

CCIF CPA Limited

Certified Public Accountants

Hong Kong, 22 April 2005

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Set out below are the audited financial statements of the Group together with accompanying notes, as extracted from the published 2004 annual report of the Company for the year ended 31 December 2004:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December, 2004

Notes TURNOVER 5 Cost of sales Gross profit Other revenue 6 Selling and distribution costs Administrative expenses Reversal of impairment loss upon disposal of interests in associates 7(a) Waiver of amounts due to associates upon disposal of interests in associates 7(b) Other operating expenses PROFIT/(LOSS) FROM OPERATING ACTIVITIES 8 Finance costs 9 Share of profits less losses of associates Gain arising from group reorganisation 10 Restructuring costs LOSS BEFORE TAXATION TAXATION 13 LOSS AFTER TAXATION Minority interests LOSS ATTRIBUTABLE TO SHAREHOLDERS 14 DIVIDENDS 15 LOSS PER SHARE 16 – Basic – Diluted	2004 HK$’000 174,890 (156,632) 18,258 2,866 (14,304) (14,220) 4,700 6,200 (1,033) 2,467 (13,567) 2,791 (8,309) – – (8,309) – (8,309) 2,541 (5,768) – (0.2 cent) N/A	2003 HK$’000 192,236 (168,484) 23,752 3,238 (18,516) (20,675) – – (10,288) (22,489) (15,076) 1,727 (35,838) 29,638 (2,201) (8,401) (151) (8,552) 1,498 (7,054) – (1 cent) N/A

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31 December, 2004

Notes ASSETS Non-current assets Property, plant and equipment 17 Interests in associates 19 Other receivables 20 Current assets Trade receivables 21 Bills receivable Prepayments, deposits and other receivables Inventories 22 Fixed deposits Cash and bank balances LIABILITIES Current liabilities Amount due to a shareholder, Probest 24 Amounts due to associates 25 Trade payables 26 Other payables and accruals Current portion of promissory note payable 27 Tax payable Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Amount due to a shareholder, Probest 24 Non-current portion of promissory note payable 27 Provision for long service payments 28 MINORITY INTERESTS NET LIABILITIES CAPITAL AND RESERVES Issued capital 30 Reserves 32(a)	2004 HK$’000	2004 HK$’000	2003 HK$’000
	96,464 37,220 –		107,291 35,581 –
	133,684		142,872
	43,955 574 2,638 23,321 378 38,429		46,630 1,655 3,768 21,659 378 36,601
	109,295		110,691
	– 12,647 17,061 10,420 100,058 850		– 12,781 25,992 17,733 27,027 847
	141,036 (31,741) 101,943		84,380 26,311 169,183
	46,594 75,000 379		43,558 137,500 490
	121,973 45,322 (65,352) 31,249 (96,601) (65,352)		181,548 47,670 (60,035) 31,249 (91,284) (60,035)

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December, 2004

			Reserves		Total HK$’000 (89,942) – 37,721 (374) (459) 73
Share premium account HK$’000 715,132 – 8,704 (374) – – – – 723,462 – – – – – 723,462 723,462 – 723,462 723,462 – 723,462	Property revaluation reserve HK$’000 21,169 – – – – – – – 21,169 – – – – – 21,169 21,169 – 21,169 21,169 – 21,169	Exchange fluctuation reserve HK$’000 10,354 – – – (459) 73 (386) – 9,968 855 (211) (193) (404) – 10,419 10,371 48 10,419 10,775 (807) 9,968	Capital reserve HK$’000 8 – – – – – – – 8 – – – – – 8 8 – 8 8 – 8	Special Accumulated reserve losses (Note) HK$’000 HK$’000 – (1,283,014) 341,800 102,377 – – – – – – – – – – – (7,054) 341,800 (1,187,691) – – – – – – – – – (5,768) 341,800 (1,193,459) 341,800 (1,148,265) – (45,194) 341,800 (1,193,459) 341,800 (1,139,700) – (47,991) 341,800 (1,187,691)
					(386) (7,054)
					(60,035) 855 (211) (193)
					(404) (5,768)
					(65,352)

					(20,206) (45,146)
					(65,352)

					(11,237) (48,798)
					(60,035)

Note: In accordance with the judgement of the capital reduction of the Company approved by the High Count on 29 July 2003, the Company provided an undertaking that in the event of its making any future recoveries in respect of the assets of which provision for diminution in value or depreciation was made in the accounts of the Company for the accounting periods up to and including the period ending on 31 December 2002, beyond their written down value in the Company’s audited accounts as at 31 December 2002, all such recoveries beyond that written down value up to an amount of approximately HK$341,800,000 was credited to a special capital reserve in the accounting records of the Company (the “Special Reserve”) and that so long as there shall remain outstanding any debt of or claim against the Company which, if the date on which the reduction of capital became effective was the date of the commencement of the winding up of the Company, would be admissible to proof in such winding up and the persons entitled to the benefit of such debts or claims shall not have agreed otherwise, such reserve shall not be treated as realised profits for the purposes of Section 79B of the Companies Ordinance and shall be treated as an undistributable reserve of the Company for the purposes of Section 79C of the Companies Ordnance.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31st December, 2004

CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation Adjustments for: Finance costs Share of profits less losses of associates Gain arising from disposal of interests in associates Interest income Gain arising from group reorganisation Gain on disposal of property, plant and equipment Depreciation Provision for doubtful debts Provision against inventories Exchange differences Operating profit before working capital changes Decrease in trade receivables Decrease/(increase) in bills receivable Decrease in prepayments, deposits and other receivables (Increase)/decrease in inventories Decrease in net amounts due to associates (Decrease)/increase in trade payables (Decrease)/increase in other payables and accruals Decrease in provision for long service payments CASH (USED IN)/GENERATED FROM OPERATIONS CASH FLOWS FROM INVESTING ACTIVITIES Interest received Dividends received from associates Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of interests in associates NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES	2004 HK$’000 (8,309) 13,567 (2,791) (10,900) (66) – (29) 13,645 – 238 (143) 5,212 2,675 1,081 490 (1,900) 3,648 (8,931) (7,313) (111) (5,149)	2004 HK$’000 (8,309) 13,567 (2,791) (10,900) (66) – (29) 13,645 – 238 (143) 5,212 2,675 1,081 490 (1,900) 3,648 (8,931) (7,313) (111) (5,149)	2003 HK$’000 (8,401) 15,076 (1,727) – (71) (29,638) (81) 14,068 5,074 7,168 (453) 1,015 2,160 (752) 734 3,184 823 5,034 1,420 (222) 13,396
	66 5,000 (3,000) 211 4,700		71 – (1,053) 135 –
	6,977		(847)

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loan due to Probest Issue of new shares NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Time deposits with original maturity of less than three months when acquired	2004 HK$’000 – – – 1,828 36,979 38,807 38,429 378 38,807	2003 HK$’000 (37,000) 37,347 347 12,896 24,083 36,979 36,601 378 36,979

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

31 December, 2004

1. BASIS OF PREPARATION

a) Principal activities

The principal activity of the Company is investment holding. During the year, the Group’s principal activities are the design, manufacture and sale of optical products.

b) Going concern concept

The financial statements have been prepared by the directors with due care on a going concern basis, notwithstanding the fact that the Group had net loss of approximately HK$5,768,000 (2003: HK$7,054,000) for the year ended 31 December 2004 and net liabilities of HK$65,352,000 (2003: HK$60,035,000) as at 31 December 2004. The validity of the Group to carry on its business as a going concern is dependent upon future profitable operations of the Group and the funds being available to the Group and the waiver of amount payable by the Company to a shareholder, Probest as detailed in note 35(b) to the financial statements. Accordingly, the financial statements have been prepared on a going concern basis.

Should the Group be unable to continue its business as a going concern, adjustments would have to be made to restate the value of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these adjustments have not been reflected in the financial statements.

c) Group financial statements

The Group financial statements include the financial statements of the Company and its subsidiaries made up to 31 December. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any goodwill or capital reserve which was not previously charged or recognised in the consolidated income statement.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Hong Kong Institute of Certified Public Accountants has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

3. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally accepted accounting principles in Hong Kong and comply with Statements of Standard Accounting Practice (“SSAP”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Companies Ordinance. The financial statements are prepared under the historical cost convention as modified by the revaluation of certain properties. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). A summary of the principal accounting policies adopted by the Group is set out below.

a) Revenue recognition

i) Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed;
ii) Interest income from bank deposits is accrued on a time-apportioned basis by reference to the principal amounts outstanding and the interest rates applicable;
iii) Management fee is recognised when the services are rendered; and
iv) Dividend income is recognised when the shareholders’ rights to receive payment is established.

b) Borrowing costs

Borrowing costs are interests and other costs incurred in connection with the borrowings of funds. The borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are charged to the income statement in the year in which they are incurred.

c) Negative goodwill

Negative goodwill arising on acquisitions of controlled subsidiaries, associates and jointly controlled entities represents the excess of the Group’s share of the fair value of the identifiable assets and liabilities acquired over the cost of the acquisition. Negative goodwill is accounted for as follows:

for acquisitions before 1 January 2001, negative goodwill is credited to a capital reserve; and

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

for acquisitions on or after 1 January 2001, to the extent that negative goodwill relates to an expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognised in the consolidated income statement when the future losses and expenses are recognised. Any remaining negative goodwill, but not exceeding the fair values of the non-monetary assets acquired, is recognised in the consolidated income statement over the weighted average useful life of those non-monetary assets that are depreciable/ amortisable. Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised immediately in the consolidated income statement.

In respect of any negative goodwill not yet recognised in the consolidated income statement:

for controlled subsidiaries, such negative goodwill is shown in the consolidated balance sheet as a deduction from assets in the same balance sheet classification as positive goodwill; and
for associates and jointly controlled entities, such negative goodwill is included in the carrying amount of the interests in associates or jointly controlled entities.

On disposal of a controlled subsidiary, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill not previously amortised through the consolidated income statement or which has previously been dealt with as a movement on group reserves is included in the calculation of the profit or loss on disposal.

d) Property, plant and equipment

Property, plant and equipment other than other properties are stated at cost less accumulated depreciation and accumulated impairment losses.

Land and building held for own use are stated in the balance sheet at their revalued amount, being their open market value at the date of revaluation less any subsequent accumulated depreciation. Revaluations are performed by qualified valuers with sufficient regularity to ensure that the carrying amount of these assets does not differ materially from that which would be determined using fair values at the balance sheet date.

Changes arising on the revaluation of land and buildings held for own use are generally dealt with in reserves. The only exceptions are as follows:

when a deficit arises on revaluation, it will be charged to the income statement, if and to the extent that it exceeds the amount held in the reserve in respect of that same assets; and
when a surplus arises on revaluation, it will be credited to the income statement, if and to the extent that a deficit on revaluation in respect of that same asset, had previously been charged to the income statement.

Major costs incurred in restoring property, plant and equipment to their normal working condition are charged to the income statement. Improvements are capitalised and depreciated over their expected useful lives to the Group.

The gain or loss on disposal of property, plant and equipment other than other properties is the difference between the net sale proceeds and the carrying amount of the relevant asset, and is recognised in the income statement. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained profits and is shown as a movement in reserves.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

e) Depreciation

Depreciation is not provided for freehold land. Property, plant and equipment are depreciated at rates sufficient to write off their cost/valuation less accumulated impairment losses over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold land Over the lease term Buildings Over the lease term Plant and machinery 6.67% – 10% Furniture and fixtures 10% Motor vehicles 20%

f) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment (other than properties carried at revalued amounts); and
investments in subsidiaries, associates and joint ventures (except for those accounted for at fair value).

If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.

i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

ii) Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

g) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals payables under such operating leases are accounted for in the income statement on a straight-line basis over the periods of the respective lease.

h) Subsidiaries

A subsidiary is a company in which the Group or Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors. Subsidiaries are considered to be controlled if the company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities.

Investments in subsidiaries in the balance sheet are stated at cost less provision, if necessary, for any permanent diminution in value. The results of subsidiaries are accounted to the extent of dividends received and receivable.

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

i) Joint venture company

The Group’s joint venture company is an independent business entity established and operating in mainland China. The joint venture agreement and related constitution stipulate the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from operations and any distribution of surplus assets are shared in accordance with the terms of the joint venture agreement.

The Group’s joint venture company is accounted for a subsidiary as the Group has unilateral control over the joint venture company.

j) Associates

An associate is a company in which the Group or the Company has significant influence and which is neither a subsidiary nor a joint venture of the Group or the Company.

The investments in associates are stated at cost less provision, if necessary, for any impairment loss, such provision being determined for each associate individually. The results of associates are accounted for to the extent of dividends received and receivable.

The investments in associates are accounted for in the consolidated balance sheet under the equity method whereby the investments are initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s or the Company’s share of net assets of the associates. The results of the associates are accounted for in the consolidated income statement to the extent of the Group’s or the Company’s share of the associates’ results of operations.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

k) Related parties

Two parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

l) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on a weighted average basis, comprises all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

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

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

m) Trade receivable

Provision is made against trade receivable to the extent that they are considered to be doubtful. Trade receivable in the balance sheet is stated net of such provision.

n) Cash equivalents

Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash without notice and which were within three months of maturity when acquired. Cash equivalents include investments and advances denominated in foreign currencies provided that they fulfil the above criteria.

For the purposes of the cash flow statement, cash equivalents would also include bank overdrafts and advances from banks repayable within three months from the date of the investment and advance.

o) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company or has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

p) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

q) Translation of foreign currencies

Transactions in foreign currencies during the year are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the income statement.

The financial statements of subsidiaries and associates expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the income statement is translated at an average rate. Exchange differences arising are dealt with as movement in exchange fluctuation reserve.

r) Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A provision is recognised in respect of the probable future long service payments expected to be made. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Pension scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

The employees of the Group’s subsidiaries in the People’s Republic of China (the “PRC”) are members of the state-sponsored retirement scheme operated by the government of the PRC.

Share option scheme

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the income statement or balance sheet for their cost. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

s) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

Segment revenue, expenses, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

4. SEGMENT INFORMATION

In accordance with the requirements of SSAP 26 “Segment reporting”, the Group has determined that business segments are its primary reporting format and geographical segments are its secondary reporting format.

The Group is principally engaged in the manufacture and sale of optical products. The Company regards these segments as the primary source of the Group’s risks and returns. The secondary segment format, representing the principal markets of the Group’s products, is mainly divided into five geographical areas, namely the United States of America, Europe, Hong Kong, Mainland China and others.

i) Business segments

The Group has only one business segment and is the manufacture and sale of optical products. Therefore, no separate analysis of business segment information is prepared as all the information has been disclosed in the consolidated financial statements.

ii) Geographical segments

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to the third parties at the then prevailing market prices.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments.

United States

of America Europe Hong Kong Mainland China Others Eliminations Consolidated 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment revenue:

Sales to external customers	91,777	118,149	53,340	48,656	5,784	4,747	10,967	9,259	13,022	11,425	–	–	174,890	192,236

Other segment information:
Segment assets	24,661	32,404	12,596	11,541	40,513	38,025	122,871	132,763	5,118	3,249	–	–	205,759	217,982
Interests in associates	161	161	–	–	(10,165)	(9,376)	47,224	44,796	–	–	–	–	37,220	35,581
													242,979	253,563

Capital expenditure	–	–	–	–	49	136	2,951	917	–	–	–	–	3,000	1,053

5. TURNOVER

Turnover represents the net invoiced value of goods sold, net of returns and allowances.

6. OTHER REVENUE

Bank interest income Management fee received from an associate Sales of obsolete inventories Gain on disposal of property, plant and equipment Rental income Unclaimed dividend written back Others	2004 HK$’000 66 585 698 29 556 421 511 2,866	2003 HK$’000 71 2,346 350 81 – – 390
		3,238

7(a). REVERSAL OF IMPAIRMENT LOSS UPON DISPOSAL OF INTERESTS IN ASSOCIATES

On 30 April 2004, the Company entered into a disposal agreement with an independent third party whereby the Company agreed to dispose all of its 49% equity interests in Hanson International Industrial Company Limited (“Zhuhai Hanson”), a private company established in the PRC, and Hanson International Optical Co., Ltd (“Hong Kong Hanson”), a private company incorporated in Hong Kong, at the aggregate consideration of HK$4,700,000. Full provision for impairment loss against the Group’s interests in these associates had been made in the previous years.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7(b). WAIVER OF AMOUNTS DUE TO ASSOCIATES UPON DISPOSAL OF INTERESTS IN ASSOCIATES

As a precondition of the said disposals, on the same date, a supplemental agreement was also made between the Company, Zhuhai Hanson, Hong Kong Hanson, and all the other shareholders of Zhuhai Hanson and Hong Kong Hanson, under which Zhuhai Hanson and Hong Kong Hanson agreed to waive all the debts due by the Group amounted to approximately HK$6,200,000.

As a result, a net gain of approximately HK$10,900,000 arising from the disposal of the interests in the two associates, which represented the write back of the previous impairment loss provision for the interests in the associates of HK$4,700,000 and the write off of current accounts payable to these two associates of approximately HK$6,200,000, has been recorded in the current year's consolidated income statement.

8. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

Profit/(loss) from operating activities is stated after charging the following:

Cost of inventories* Depreciation Minimum lease payments under operating leases in respect of land and buildings Staff costs (including directors’ remuneration – note 10): Wages and salaries Pension contributions Less: Forfeited contributions Net pension contributions Exchange loss, net Auditors’ remuneration – Current year – (Over)/under provision Provision against inventories Provision for doubtful debts	2004 HK$’000 156,870 13,645 1,569 42,535	2004 HK$’000 156,870 13,645 1,569 42,535	2003 HK$’000 175,652 14,068 1,514 53,329
	532 (22)		812 (393)
	510 43,045 437		419 53,748 192
	570 (923)		550 65
	(353) 238 –		615 7,168 5,074

The cost of inventories includes HK$42,934,000 (2003: HK$51,775,000) relating to staff costs, provision against inventories and depreciation, which are also included in the respective total amounts disclosed above for each of these types of expenses.

At 31 December 2004, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years (2003: Nil).

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. FINANCE COSTS

Interest on loan from a shareholder Interest on promissory note	Group 2004 2003 HK$’000 HK$’000 3,036 13,549 10,531 1,527 13,567 15,076	Group 2004 2003 HK$’000 HK$’000 3,036 13,549 10,531 1,527 13,567 15,076
		15,076

10. GAIN ARISING FROM GROUP REORGANISATION

i) On 3 September 2003, the Company entered into a conditional Share Sale Agreement, pursuant to which the Company conditionally agreed to sell to Probest Holdings Inc. (“Probest”) 30% of the entire issued capital in Profitown Investment Corporation (“Profitown”), a company incorporated in the British Virgin Islands with limited liability on 19 November 2002 and a wholly-owned subsidiary of the Company, and 30% of the loan owing by Profitown to the Company at an aggregate consideration of HK$3 million. The agreement was completed on 4 November 2003. Such consideration was satisfied by Probest by offsetting an equivalent amount of HK$3 million outstanding loan due to Probest by the Company.
ii) On 3 September 2003, the Company entered into a Loan Settlement Agreement relating to the remaining principal of the loan of HK$247 million (the “Loan”) due to Probest, pursuant to which Probest agreed to waive the repayment of the outstanding principal of HK$47 million due by the Company and the loan interest of HK$26,506,000 accruing thereon since 1 March 2002 up to the effective date of the Loan Settlement Agreement which fell on 4 November 2003. The Company agreed to apply the net proceeds from the Open Offer to repay HK$37 million of the Loan due to Probest.
iii) Pursuant to the Loan Settlement Agreement, the remaining principal balance of HK$163 million due by the Company to Probest was restructured on terms which were governed by a promissory note as detailed in note 27 to the financial statements.

Further details of the above Share Sale Agreement, the Loan Settlement Agreement, the Open Offer and the issuance of the promissory note are set out in a joint announcement dated 3 September 2003, which superseded those transactions as referred to in the previous announcement dated 7 April 2003.

After completion of the above transactions with Probest, a net gain of HK$29,638,000 was earned and crediting to the consolidated income statement for the year ended 31 December 2003.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance is as follows:

		Group
	2004	2003
	HK$’000	HK$’000
Directors’ fees:
Executive	–	–
Independent non-executive	271	503
	271	503
Other emoluments:
Executive:
Salaries and other benefits	478	2,591
Compensation for loss of office	–	1,846
Pension contributions	5	71
Incentive paid on joining	–	–
Independent non-executive	–	–
	483	4,508
	754	5,011

Compensation for loss of office was paid and accrued by the following parties:
	2004	2003
	HK$’000	HK$’000
The Company	–	1,846
The Company’s subsidiaries	–	–
Others	–	–
	–	1,846

No directors receive remuneration from the Company’s associates in respect of their services to the Company and its subsidiaries (2003: Nil).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The remuneration of the directors fell within the following bands:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 HK$2,500,001 – HK$3,000,000 HK$3,000,001 – HK$3,500,000	Number of 2004 9 – – – – – 9	directors 2003 9 1 – – – 1
		11

There was no arrangement under which a director waived or agreed to waive any remuneration during the year (2003: Nil).

12. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year did not include any director (2003: two). Details of the remuneration of the remaining five (2003: three) non-directors, highest paid employees are as follows:

Salaries, allowances and benefits in kind Bonuses Compensation for loss of office Pension contributions	Group 2004 2003 HK$’000 HK$’000 1,226 1,807 – – – – 24 62 1,250 1,869	Group 2004 2003 HK$’000 HK$’000 1,226 1,807 – – – – 24 62 1,250 1,869
		1,869

The remuneration of above five non-directors, highest paid employees fell within the following bands:

Nil – HK$1,000,000	Number of employees 2004 2003 5 3 5 3	Number of employees 2004 2003 5 3 5 3
		3

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. TAXATION

No Hong Kong profits tax and overseas tax has been provided in the financial statements as the companies within the Group have neither accumulated tax losses brought forward, which exceed the estimated assessable profits for the year, nor assessable profits for the year.

The charge for the year can be reconciled to the loss per the consolidated income statement as follows:

Loss before taxation Calculated at a taxation rate of 17.5% (2003: 17.5%) Effect of different taxation rates in other countries Income not subject to taxation Expenses not deductible for taxation purposes Unrecognised tax losses Utilisation of previously unrecognised tax losses Taxation charge	2004 HK$’000 (8,309) (1,454) 634 (274) 2,238 4,305 (5,449) –	2003 HK$’000 (8,401) (1,470) (1,156) (8,492) 12,233 515 (1,479) 151

The tax charge for 2003 represented the share of tax of associates located outside Hong Kong of HK$151,000.

14. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The consolidated loss attributable to shareholders includes a profit of approximately HK$188,000 (2003: profit of HK$34,535,000) which has been dealt with in the financial statements of the Company.

15. DIVIDENDS

The directors did not recommend the payment of any dividend for the year (2003: Nil).

16. LOSS PER SHARE

a) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to shareholders for the year of HK$5,768,000 (2003: net loss of HK$7,054,000) and the weighted average of 3,124,862,734 (2003: 676,340,153) ordinary shares in issue during the year.

b) Diluted

Diluted loss per share for the years ended 31 December 2004 and 2003 have not been disclosed as no dilutive events existed during these years.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT

Group

Furniture, Leasehold fixtures land and Plant and and buildings machinery equipment HK$’000 HK$’000 HK$’000 Cost or valuation At 1/1/2004 68,900 166,365 63,029 Additions – 2,467 533 Disposals – (576) (5) At 31/12/2004 68,900 168,256 63,557 Accumulated depreciation and impairment At 1/1/2004 17,889 130,245 42,957 Charge for the year 3,088 5,396 5,111 Disposals – (437) – At 31/12/2004 20,977 135,204 48,068 Net book value At 31/12/2004 47,923 33,052 15,489 At 31/12/2003 51,011 36,120 20,072 An analysis of cost or valuation At cost – 168,256 63,557 At 1998 valuation 14,800 – – At 2002 valuation 54,100 – – 68,900 168,256 63,557	Motor vehicles HK$’000 2,521 – (332) 2,189 2,433 50 (294) 2,189 – 88 2,189 – – 2,189	Total HK$’000 300,815 3,000 (913) 302,902 193,524 13,645 (731) 206,438 96,464 107,291 234,002 14,800 54,100 302,902

The Group’s leasehold land and buildings are held on medium term and are situated in Mainland China.

Certain of the Group’s leasehold land and buildings, which are held for own use in Dongguan and Shenzhen in the PRC, have been valued on an open market value basis, based on their existing use by B.I. Appraisals Limited, an independent firm of professional valuers, on 31 December 2002 at HK$54,100,000. In the opinion of the directors, there was no significant change on the open market value for the leasehold land and buildings at 31 December 2004.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Had the Group’s land and buildings stated at valuation been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been approximately HK$64,377,148 (2003: HK$67,103,000).

The Group has not obtained land use right certificates or building ownership certificates for leasehold land and buildings situated in the Mainland China with a net book value of HK$47,923,000 at 31 December 2004 (2003: HK$51,011,000).

As at 31 December 2004, the Company had no property, plant and equipment.

18. INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment loss	Company 2004 2003 HK$’000 HK$’000 1,086 1,086 (1,081) (1,081) 5 5

The following is a list of the principal subsidiaries at 31 December 2004:

	Country/		Nominal
	place of		value of issued
	incorporation/		ordinary/
	establishment	Principal	registered	Interest		held
Name	and operation	activities	share capital	Directly	Indirectly
Profitown Investment	The British	Investment	US$1,000	70%		–
Corporation	Virgin Islands	holding
Dongguan De Bao	The PRC	Manufacture	HK$58,550,910	–		50%
Optical Co., Ltd.		of multi-coating	(Note i)			(Note iii)
(“De Bao”)		lenses
Dongguan Hamwell	The PRC	Manufacture of	HK$62,504,800	–		83%
Glasses Co., Ltd.		optical products	(Note ii)
(“Dongguan
Hamwell”)
Global Origin Limited	Hong Kong	Investment holding	HK$75,000,000	–		90%
Profit Trend	Hong Kong	Investment holding	HK$1,000,000	–		50%
International						(Note iii)
Limited
Prowin Commercial	Hong Kong	Property holding	HK$2	–		100%
& Industrial		in the PRC
Limited

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	Country/		Nominal
	place of		value of issued
	incorporation/		ordinary/
	establishment	Principal	registered	Interest held
Name	and operation	activities	share capital	Directly	Indirectly
Shenzhen Henggang	The PRC	Manufacture of	US$30,000,000	–	81%
Swank Optical		optical products
Industrial Co., Ltd.
(“Henggang”) (Note iv)
Swank International	Hong Kong	Trading of	HK$100,000	–	100%
Optical Company		optical products
Limited

Notes:

i) De Bao is registered as a wholly foreign owned enterprise under the PRC law. The registered capital of De Bao is HK$118,100,000. At the balance sheet date, plant and machinery amounting to HK$58,550,910 has been contributed by the Group towards meeting the registered capital requirement. The outstanding amount of approximately HK$59,549,000 was due for contribution on 18 March 1999 in accordance with De Bao’s articles of association. The Group has been in discussion with the relevant authorities to modify the original terms of the articles of association, including the amount of total registered capital. Up to the date of this Annual Report, the Group has not yet obtained the approval from the relevant authorities.
ii) Dongguan Hamwell is a sino-foreign owned joint venture enterprise under the PRC law. The registered capital of Dongguan Hamwell is HK$67,940,000. At the balance sheet date, plant and machinery amounting to approximately HK$62,505,000 has been contributed by the Group to Dongguan Hamwell, towards meeting the registered capital requirement. The remaining registered capital of HK$5,435,000 has not yet been contributed by the minority shareholder of Dongguan Hamwell as at 31 December 2004.
iii) The Company has the power to cast the majority of votes at meetings of the board of directors of these entities and therefore they are regarded as subsidiaries of the Company.
iv) Henggang is a sino-foreign owned joint venture enterprise under the PRC law. Subject to the payment of an annual amount of approximately HK$2,830,000 (2003: HK$2,830,000) to the joint venture party, the Group is entitled to all of the profits and bears all of the losses of Henggang.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. INTERESTS IN ASSOCIATES

Unlisted shares, at cost Share of net assets Less: Impairment loss Amounts due from associates	Group 2004 2003 HK$’000 HK$’000 – – 128,876 143,592 (100,029) (113,016 28,847 30,576 8,373 5,005 37,220 35,581	Group 2004 2003 HK$’000 HK$’000 – – 128,876 143,592 (100,029) (113,016 28,847 30,576 8,373 5,005 37,220 35,581
		30,576 5,005
		35,581

a) The amounts due from associates are unsecured, interest free and not repayable within the next twelve months from the balance sheet date.
b) The following is a list of the principal associates at 31 December 2004:

		Country/		Percentage of
		place of		interest in
		incorporation/		ownership/
	Business	establishment	Principal	voting power
Name	structure	and operations	activities	held indirectly
Dongguan Yueheng	Corporate	The PRC	Manufacture	50%
Optical Co., Ltd.			of optical
			lenses
Dongguan Yueheng	Corporate	Hong Kong	Trading of	50%
Optical (HK) Co.			optical products
Limited
Dongguan Yueheng	Corporate	The British	Financial	50%
Optical (BVI)		Virgin Islands	servicing and
Company Limited			marketing
			of optical
			products

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results for the year or formed as substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

Note : Dongguan Yueheng Optical Co., Ltd. is a sino-foreign owned joint venture enterprise under the PRC law.

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. OTHER RECEIVABLES

Other receivables Less: Impairment loss	Group 2004 2003 HK$’000 HK$’000 96,339 96,339 (96,339) (96,339 – –	Group 2004 2003 HK$’000 HK$’000 96,339 96,339 (96,339) (96,339 – –
		–

Other receivables represent the amounts owed by Hanmy (Holding) Limited and its related companies (collectively “Hanmy”) to the Group. The Group has commenced legal proceedings against Hanmy for recovery of the amounts due. The Group has fully provided for these debts as in the opinion of the directors, it is uncertain whether the debts will be recovered following the conclusion of the legal proceedings.

21. TRADE RECEIVABLES

The ageing analysis of the Group’s trade receivables, based on payment due date and net of provisions, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days More than 90 days	Group 2004 2003 HK$’000 HK$’000 41,248 42,703 2,693 3,479 3 444 11 4 43,955 46,630	Group 2004 2003 HK$’000 HK$’000 41,248 42,703 2,693 3,479 3 444 11 4 43,955 46,630
		46,630

The normal credit period granted by the Group to customers ranges from 30 days to 120 days.

22. INVENTORIES

Raw materials Work in progress Finished goods	Group 2004 2003 HK$’000 HK$’000 15,139 13,014 5,094 7,202 3,088 1,443 23,321 21,659	Group 2004 2003 HK$’000 HK$’000 15,139 13,014 5,094 7,202 3,088 1,443 23,321 21,659
		21,659

As at 31 December 2004, all inventories are stated at cost.

23. AMOUNTS DUE FROM/(TO) A SUBSIDIARY

The amounts are unsecured, interest free and repayable on demand.

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. AMOUNT DUE TO A SHAREHOLDER, PROBEST

The amount due to Probest is unsecured, bearing interest at a rate per annum equivalent to 1% over Hong Kong prime rate and has no fixed repayment terms. In the opinion of the directors of the Company, the amount due to Probest will not be repayable within the next 12 months.

Details of the subsequent restructuring for the amounts due to Probest are set out in note 35(b) to the financial statements.

25. AMOUNTS DUE TO ASSOCIATES

The amounts are unsecured, interest free and repayable on demand.

26. TRADE PAYABLES

The ageing analysis of the Group’s trade payables, based on payment due date, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days More than 90 days	2004 HK$’000 14,010 992 379 1,680 17,061	2003 HK$’000 24,205 602 188 997
		25,992

27. PROMISSORY NOTE

Interest repayable on demand Principal repayable: Within 1 year Payable after 1 year but within 2 years After 2 years but within 5 years Total Amount due to Probest under promissory note Portion classified as current liabilities Non-current portion	Group and Company 2004 2003 HK$’000 HK$’000 12,058 1,527 88,000 25,500 75,000 62,500 – 75,000 175,058 164,527 175,058 164,527 (100,058) (27,027 75,000 137,500	Group and Company 2004 2003 HK$’000 HK$’000 12,058 1,527 88,000 25,500 75,000 62,500 – 75,000 175,058 164,527 175,058 164,527 (100,058) (27,027 75,000 137,500
		164,527

		164,527 (27,027
		137,500

The promissory note payable to Probest is unsecured with maturity date on 1 June 2006 and bearing interest at the rate equivalent to 1% over the prevailing Hong Kong prime rate per annum.

Details of the subsequent restructuring for the amounts due to Probest are set out in note 35(b) to the financial statements.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. PROVISION FOR LONG SERVICE PAYMENTS

At 1 January Amount utilised during the year At 31 December Portion classified as current liabilities Non-current portion	Group 2004 2003 HK$’000 HK$’000 490 712 (111) (222 379 490 – – 379 490	Group 2004 2003 HK$’000 HK$’000 490 712 (111) (222 379 490 – – 379 490
		490 –
		490

The Group provides for the probable future long service payments expected to be made to employees under the Employment Ordinance, as further explained under the heading “Employee benefits” in note 3(r) to the financial statements. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

29. DEFERRED TAXATION

The principal component of the Group’s and the Company’s net deferred tax asset position not recognised in the financial statements is as follows:

Tax losses	Group 2004 2003 HK$’000 HK$’000 125,157 129,931	Company 2004 2003 HK$’000 HK$’000 32,046 33,902

The revaluation arising from the revaluation of the Group’s leasehold land and buildings does not constitute a temporary difference and, consequently, the amount of potential deferred tax thereon has not been quantified.

The Group and the Company have no significant potential deferred tax liabilities for which provision has not been made.

30. ISSUED CAPITAL

Authorised: 300,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 3,124,862,734 ordinary shares of HK$0.01 each	2004 HK$’000 3,000,000 31,249	2003 HK$’000 3,000,000

		31,249

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include the Company’s directors, including independent nonexecutive directors, other employees of the Group, suppliers of goods or services to the Group, customers of the Group, and any minority shareholder in the Company’s subsidiaries. The Scheme became effective on 28 May 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, up to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 21 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The share option may be exercised under the Scheme at any time during a period not exceeding 5 years after the date when the scheme option is granted and expiring on the last date of such period.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of an ordinary share.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

No share options have been granted during the year and no share options were outstanding as at the balance sheet date.

32. RESERVES

a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity in the financial statements.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

b) Company

At 1 January 2003 Issue of new shares Share issue expenses Capital Reorganisation Net profit for the year At 31 December 2003 and at 1 January 2004 Net profit for the year At 31 December 2004	Share premium amount HK$’000 715,132 8,704 (374) – – 723,462 – 723,462	Special Accumulated reserve losses HK$’000 HK$’000 – (1,299,513) – – – – 341,800 102,377 – 34,535 341,800 (1,162,601) – 188 341,800 (1,162,413)	Total HK$’000 (584,381 8,704 (374 444,177 34,535
			(97,339 188
			(97,151

33. OPERATING LEASE COMMITMENTS

At 31 December 2004, the Group and the Company had commitments for future minimum lease under non-cancellable operating leases in respect of land and buildings which fall due as follows:

Within one year In the second to fifth year inclusive	Group 2004 2003 HK$’000 HK$’000 1,323 1,004 – – 1,323 1,004	Company 2004 2003 HK$’000 HK$’000 – 912 – – – 912	Company 2004 2003 HK$’000 HK$’000 – 912 – – – 912
			912

The Group leases certain of its office properties and warehouses under operating lease arrangements. Leases for office properties and warehouses are negotiated for terms ranging from 1 to 2 years.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. RELATED AND CONNECTED PARTY TRANSACTIONS

In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related and connected parties during the year:

Notes
Sales of finished goods to associates
(i)
Purchases of raw materials and finished goods
from associates
(ii)
Management fee income from an associate
(iii)
Interest expense charged by a shareholder,
Probest
Annual rental to a joint venture partner
(iv)
Amount due to a shareholder, Probest
24
Promissory note payable to Probest
27
Loan principal and interests waived by Probest
10(ii)
Disposal of 30% equity interest in Profitown to
Probest
10(i)

Group
2004
2003
HK$’000
HK$’000
10,224
8,390
14,807
12,755
585
2,346
13,567
15,076
2,830
2,830
46,594
43,558
163,000
163,000
–
73,506
–
3,000

Notes:

i) The sales to associates were made according to the published prices, terms and conditions offered to the major customers of the Group.
ii) The purchases from associates were made according to the published prices, terms and conditions offered by the associates to their major customers.
iii) The management fee income was charged according to the management’s estimation on costs of office premises and utilities used by the associates.
iv) The annual rental paid to a joint venture partner in the PRC and accordingly the Group is entitled to all of the profits and bears all of the losses of Henggang.

35. POST BALANCE SHEET EVENTS

(a) On 20 January 2005, a conditional sale and purchase agreement (as amended by the supplemental agreement dated 13 April 2005) (“Share Disposal Agreement”) was made between Probest Holdings Inc (“Probest”) which is an intermediate holding company of the Company, Rich Global Investments Limited (“Rich Global”) and Kingsway Lion Spur Technology Limited (“Kingsway Lion”) which are subsidiaries of SW Kingsway Capital Holdings Limited, and an independent third party, China Time Investment Holdings Limited (“China Time”), pursuant to which Probest, Rich Global and Kingsway Lion agreed to dispose of 1,437,396,440, 156,283,205 and 281,238,000 existing issued shares of the Company, representing approximately 60% of the existing issued share of the Company, to China Time at the considerations of HK$43,121,893, HK$4,688,496 and HK$8,437,140, respectively.

Upon completion of the Share Disposal Agreement, Probest will hold approximately 5% of the existing issued shares of the Company which in turn owns 70% issued capital of Profitown. Probest currently holds 30% issued capital of Profitown at the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) On 20 January 2005, Probest, the Company and Profitown entered into a conditional loan restructuring agreement (“Loan Restructuring Agreement”), pursuant to which Probest conditionally agreed to waive an outstanding principal of the Debt under the promissory note due by the Company to Probest, as referred to note 27 above, over and above the Remaining Debt of HK$112,167,732 (as of 18 April 2005) due and owing by Profitown to the Company (“Profitown/Swank Loan”), the interest and the default interest on the Debt for the period from 5 November 2003 up to and inclusive of date of the Share Disposal Agreement as referred to (a) above, in the amount of approximately HK$12,669,995 and any further interest which may be accrued on the Debt up to and inclusive of the effective date when the conditions of the Loan Restructuring Agreement are fulfilled.

As part of the Loan Restructuring Agreement and on its effective date when all the stipulated conditions are fulfilled, Profitown will issue and deliver a new Promissory Note to Probest, in consideration of which the Company undertakes to waive a sum equivalent to the Remaining Debt (which amounts to HK$112,167,732 as of 18 April 2005) from Profitown/Swank Loan. In addition, the Company will execute a guarantee in favour of Probest (“Swank Guarantee”) that if and whenever Profitown defaults for any reason in payment of the principal sum due under the Promissory Note to be issued to Probest, the Company will upon demand by Probest unconditionally pay and satisfy all the interest which Profitown is liable to pay under the new Promissory Note on and after such default. The obligations of the Company under the Swank Guarantee are unsecured and will cease to be effective if the Put Option as referred to (c) below, is exercised and the transaction contemplated under the Put Option is completed.

As at 18 April 2005, the principal amount, interests and default interests of the Debt to be waived by Probest amounts to approximately HK$66 million.

(c) Both before and immediately after completion of the said Share Disposal Agreement (referred to in note (a) above), Profitown will be held as to 30% by Probest and as to 70% by the Company. On completion, the Company, Probest and its holding company Tomorrow International Holdings Limited, and Profitown will enter into a shareholder agreement to regulate the management of Profitown (“Profitown Shareholders Agreement”). Pursuant to principal terms of the Profitown Shareholders Agreement, the Company will have the right to request Probest or an independent third party procured by Probest to purchase (the “Put Option”) all (but not part of only) of its shares, being 70% of all the existing issued shares of Profitown exercisable at any time before the expiry of 30 months from the Completion Date of the Share Disposal Agreement at a price equal to the net tangible asset value of Profitown as at the date of exercise of such put option attributable to such shares and such purchaser will assume all the liabilities due from the Company to any member of the Profitown Group incurred prior to the date of Profitown Shareholders Agreement at nil consideration. If the net tangible asset value of Profitown as determined on the same basis and accounting policies adopted by Profitown in its latest audited accounts shall fall below zero during the 30-month period from the Completion Date, Probest will indemnify Profitown on demand for the deficit. The Put Option and such indemnity by Probest will cease and Probest shall have no further obligations in respect thereto if (i) the aggregate shareholding of China Time in the Company falls below 51%; (ii) there is any change to the majority of the board of directors of China Time since the date of and as disclosed in the Share Disposal Agreement; and (iii) Mr. Wang An Kang cease to be the legal and beneficial owner of at least 75% of and in China Time.

The further details and conditions for completion, where appropriate, of the said Share Disposal Agreement, Loan Restructuring Agreement and Shareholder Agreement are set out in the joint announcement dated 18 April 2005 made by Tomorrow International Holdings Limited, the Company and China Time.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

36. PARENT ENTERPRISES

The directors consider Probest to be its immediate parent enterprise and Winspark Venture Limited, of which Probest is subsidiary, to be its ultimate parent enterprise at the balance sheet date. Both companies are incorporated in the British Virgin Islands.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. INDEBTEDNESS

At the close of business on 30 April 2005 (being the latest practicable date for the purpose of this indebtedness statement prior to printing of this document), the Group had approximately HK$226.3 million outstanding borrowings. In accordance with the Loan Restructuring Agreement, Probest waived the principal amount, interests and default interests due by the Group amounting to approximately HK$67.7 million and the remaining debt was approximately HK$158.6 million.

In addition, as at 30 April 2005, the Company did not have contingent liabilities in respect of guarantees of banking facilities.

Save as set out in the preceding paragraph and apart from intra-group liabilities and normal trade payables amounted to approximately HK$19 million, none of the companies of the Group had outstanding as at the close of business of 30 April 2005 any mortgages, charges, debentures, loan capital, debt securities (whether issued and outstanding, and authorised or otherwise created but unissued), term loans and overdrafts, or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptances credits or other borrowings or indebtedness in the nature of borrowings or any guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 30 April 2005.

There has been no material change in the indebtedness or contingent liabilities of the Group since 30 April 2005 except for the waiver of the principal, interests and default interests of the Debt of approximately HK$67.7 million by Probest pursuant to the Loan Restructuring Agreement.

4. MATERIAL CHANGE

In accordance with the Loan Restructuring Agreement, Probest waived the principal amount, interests and default interests due by the Group amounting to approximately HK$67.7 million. Save as disclosed in this paragraph, up to the Latest Practicable Date, the Board were not aware of any material change in the financial or trading position or prospects of the Group since 31 December 2004, the date to which the latest audited consolidated financial statements of the Group were made up.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

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The Directors Swank International Manufacturing Company Limited 27th Floor Henley Building 5 Queen’s Road Central Hong Kong

20 June 2005

Dear Sirs

We report on the unaudited pro forma financial statement set out in pages 70 under the heading of “Unaudited pro forma financial information” in Appendix II of the response document dated 20 June 2005 (the “Document”) in connection with the unconditional cash offer on the acquisition of all the issued share capital in Swank International Manufacturing Company Limited, and which have been prepared for illustrative purpose only, to provide information about how the financial impact of the Loan Restructuring Agreement and the situation where the Group suffered total loss in value in respect of the PRC properties held under the Group which have title issues as summarised in the Property Valuation might have affected the relevant financial information presented.

RESPONSIBILITIES

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom,

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

where applicable. Our work, which involved on independent examination of any of the underlying financial information, consisted primarily of comparing the unaudited financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company.

Our work does not constitute an audit or review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such assurance on the unaudited pro forma financial information.

The unaudited pro forma financial information has been prepared on the bases set out on page 70 in the Document for illustrative purpose only and because of its nature, it may not be indicative of the financial position of the Group at any time.

OPINION

In our opinion:

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

Yours faithfully, CCIF CPA Limited Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

The following statement of unaudited pro forma adjusted consolidated net liabilities of the Group as at 31 December 2004 is included to reflect the financial impact of the Loan Restructuring Agreement and the situation where the Group suffered total loss in value in respect of the PRC properties held under the Group which have title issues as summarised in the Property Valuation.

		Less: Interests and
		default interests		Less: Carrying	Unaudited Pro
		expenses of the	Add:	value attributable	forma adjusted
	Audited net	Debt accrued from	waiver of principal,	to the Group’s	consolidated net
	liabilities as at	1 January 2005	interests and default	properties with	liabilities as at
31	December 2004	to 3 June 2005	interests of the Debt	title issues(Note)	31 December 2004
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
	(65.4)	(4.9)	67.7	(47.8)	(50.4)

Note: Property interest held by the Group and its associated companies in the PRC as summarized on page 75 of this document Less: Property interest held by the Group’s associated companies in the PRC (Property 4 as stated in the summary of valuation on page 75)

Carrying value attributable to property interest held by the Group in the PRC with title issues

HK$ million 58.9 (11.1) 47.8

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PROPERTY VALUATION

APPENDIX III

==> picture [63 x 47] intentionally omitted <==

==> picture [197 x 38] intentionally omitted <==

Registered Professional Surveyors, Valuers & Property Consultants

Unit B, 38th Floor, Bank of China Tower, No. 1 Garden Road, Hong Kong Tel:(852) 2127 7762 Fax:(852) 2137 9876 Email: [email protected] Website: www.bisurveyors.com.hk

20 June 2005

The Directors Swank International Manufacturing Company Limited 27th Floor, Henley Building 5 Queen’s Road Central Hong Kong

Dear Sirs,

In accordance with the instructions from Swank International Manufacturing Company Limited (hereinafter referred to as the “Company”) for us to value the property interests in the properties held by the Company and its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”) as listed in the attached summary of values, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of such property interests as at 30 April 2005 (hereinafter referred to as the “date of valuation”). It is our understanding that this valuation document is to be used for public disclosure purpose.

This letter, forming part of our valuation report, identifies the properties being valued, explains the basis and methodology of our valuation, and lists out the assumptions and the title investigation we have made in the course of our valuations, as well as the limiting conditions.

BASIS OF VALUATION

Our valuation of the property interest in each of the properties is our opinion of its 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.”

We have valued the property interests on the basis that each of them is considered individually. We have not allowed for any discount for the properties to be sold to a single party nor taken into account any effect on the values if the property interests are to be offered for sale at the same time as a portfolio.

Our valuations have been prepared in accordance with The HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors and under generally accepted valuation procedures and practices, which are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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PROPERTY VALUATION

APPENDIX III

VALUATION METHODOLOGY

In arriving at our opinions of values of the property interests in the properties, which are industrial complexes held by the Group in the PRC, owing to the nature to the buildings and structures erected thereon, there are no readily identifiable comparable sale transactions, the properties cannot be valued by comparison with open market transactions. Therefore, we have adopted the Depreciated Replacement Cost (“DRC”) Approach in arriving at the values of such property interests.

The DRC Approach is based on an estimate of the open market value for the existing use of the land in the property, and the costs to reproduce or replace in new conditions the buildings and structures being valued in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The DRC Approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the property interests are sold on the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement that would serve to affect the values of such property interests. In addition, no account has been taken of any option or right of preemption concerning or effecting sales of the property interests and no forced sale situation in any manner is assumed in valuations.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on any of the property interests valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoing of an onerous nature that could affect their values.

In the course of our valuations, we have neither verified nor taken into account any PRC tax liabilities. We have been advised by the Company that the properties are held as a factor of production for the business operation of individual subsidiaries and that the Company does not have the intention to sell any or all of these properties. However, should the properties be disposed, the potential tax liabilities arising, as advised by the Company, may include the stamp duty, the business tax, the city construction tax and the profit tax at the rate of 15% and 27% in Shenzhen and Dongguan respectively. Yet, unless and until the completion of the disposal of the properties, the amount of PRC tax liabilities would not be quantifiable nor crystallized.

TITLE INVESTIGATION

Due to the nature of the land registration system in the PRC, we are not able to investigate the title to or any liabilities against the property interest. However, we have been provided by the Group with extract copies of documents in relation to the title to the property interests. We have not examined the original documents to verify the ownership and to ascertain the existence of any amendments that may not appear on the copies handed to us. In the course of

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PROPERTY VALUATION

APPENDIX III

our valuations, we have relied on the advice given by the Group and the legal opinion dated 13 April 1999, which was prepared by King & Wood, the Group’s legal advisor on PRC law (hereinafter referred to as the “PRC Legal Advisor”), regarding the title to each of the property interests and the interests of the Group in the properties.

LIMITING CONDITIONS

We have inspected the exterior and, where possible, the interior of the properties. In the course of our inspections, we did not note any serious defects. However, no structural survey has been made nor have any tests been carried out on any of the building services provided in the properties. We are, therefore, not able to report that the properties is free from rot, infestation or any other structural defects.

We have not conducted detail on-site measurements to verify the site and floor areas of the properties but have assumed that the areas shown on the documents and official site and floor plans furnished to us are correct. Dimensions, measurements and areas included in the valuation certificates attached are based on information contained in the documents provided to us by the Group and are therefore approximations only.

Moreover, we have not carried out any site investigations to determine or otherwise the suitability of the ground conditions, the presence or otherwise of contamination and the provision of or otherwise suitability for serves etc. for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred in the event of any redevelopment.

We have relied to a considerable extent on the information provided by the Group and accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, completion date of buildings, particulars of occupancy, tenancy summary, site and floor areas and all other relevant matters in the identification of the properties in which the Group has valid interests.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

REMARKS

Unless otherwise stated, all monetary amounts stated in our valuation report are in Hong Kong dollars (HK$). The exchange rate adopted in our valuation of the properties is HK$1=RMB1.06 which was approximately the prevailing exchange rate as at the date of valuation. There has been no significant fluctuation in the exchange rate between the date of valuation and the date of this report.

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PROPERTY VALUATION

APPENDIX III

We hereby confirm that we have neither present nor prospective interests in the Group, the properties or the values reported herein.

Our valuations are summarized below and the valuation certificates are attached.

Yours faithfully, For and behalf of B. I. APPRAISALS LIMITED William C. K. Sham MHKIS, RPS (G.P.), MCIREA Executive Director

Note: Mr. William C. K. Sham is a Registered Professional Surveyor in General Practice and a Registered Real Estate Appraiser in the PRC who has more than 22 and 10 years’ experience in the valuation of properties in Hong Kong and in the PRC respectively.

– 74 –

PROPERTY VALUATION

APPENDIX III

SUMMARY OF VALUES

			Open market value
		Open market value	assuming with
		in existing state as at	good title as at
Property		30th April 2005	30th April 2005
		(HK$)	(HK$)
1.	A factory complex located at	No commercial value	5,000,000
	138 Industrial Area,		(See Note below)
	Henggang Town, Longgang District,
	Shenzhen, Guangdong Province, the PRC
2.	A factory complex located at	No commercial value	23,000,000
	168 Industrial Area,		(See Note below)
	Henggang Town, Longgang District,
	Shenzhen, Guangdong Province, the PRC
3.	A factory complex (known as District A)	No commercial value	5,800,000
	located at Zhanghui Expressway, Xiegang		(See Note below)
	Administration Zone, Xiegang Town,
	Dongguan, Guangdong Province, the PRC
4.	A factory complex (known as District C)	11,100,000	Not Applicable
	located at Zhanghui Expressway, Xiegang
	Administration Zone, Xiegang Town,
	Dongguan, Guangdong Province, the PRC
5.	A factory complex (known as District D)	No commercial value	5,200,000
	located at Zhanghui Expressway, Xiegang		(See Note below)
	Administration Zone, Xiegang Town,
	Dongguan, Guangdong Province, the PRC
6.	A factory complex (known as District E)	No commercial value	8,800,000
	located at Zhanghui Expressway, Xiegang		(See Note below)
	Administration Zone, Xiegang Town,
	Dongguan, Guangdong Province, the PRC
	Total:	11,100,000	47,800,000

Note: In accordance with the PRC Legal Opinion, we have noted that there are certain matters that constitute, or may constitute, defects in, or have adverse effects on, the title to the relevant properties. In the course of our valuations, we have assumed that the Group has obtained good title to each of these properties. For details of the PRC Legal Opinion, please refer to the respective valuation certificates attached herewith.

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PROPERTY VALUATION

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

A factory The property originally complex comprises a factory complex located at included ten blocks of 138 buildings and erected on an Industrial irregular-shaped site having a Area, site area of approximately Henggang 7,300.00 sq.m. (78,577 sq.ft.). Town, Longgang At the date of inspection, most District, of the buildings together with Shenzhen, the fencing walls thereof have Guangdong been demolished, except the Province, three 3-storey factory the PRC buildings (designated as Blocks 24, 25 and 26) erected at the rear portion of the site (hereinafter referred to as the “Buildings”). The Buildings were completed in 1984 and 1985 and were renovated in 2003.

Open market Open market value in existing value assuming Particulars of state as at with good title as occupancy 30 April 2005 at 30 April 2005 The property No commercial $5,000,000 is vacant, value (See Note (6) except for (See Note(5) ) and (7) ) Blocks 25 and 26 that are tenantoccupied for commercial use.

The total gross floor area of the Buildings is approximately 6,256.00 sq.m. (67,340 sq.ft.).

Notes:

(1) Pursuant to the Land Application Report dated 29 March 1994, Shenzhen Henggang Swank Optical Industrial Co., Ltd. (hereinafter referred to as “Henggang Swank”), which is a 80.73% owned subsidiary of the Company, has made an application to the People’s Government of Henggang Town, Henggang Town State-owned Land Administration Bureau and Longgang District State-owned Land Administration Bureau for the issuance of a Certificate for State-owned Land Use in respect of the land, having a site area of approximately 7,300 sq.m., in the property.
(2) Pursuant to three House Ownership Certificates (Yue Fang Zi Nos. 1678396, 1678397 and 1678969) issued by People’s Government of Baoan County on 9 November 1991 and 26 November 1991, the ownership of the Buildings having a total gross floor area of 6,256.00 sq.m. is vested in Henggang Economic Development Head Company (橫崗經濟發展總公司 ), which is a related company of the PRC partner in Henggang Swank.
(3) We have been advised by the Group that Blocks 25 and 26 having a total gross floor area of approximately 4,311 sq.m. have been leased to a third party for commercial use for a term of 10 years expiring on 30 September 2013 at monthly rent of RMB43,000 for the initial three years.
(4) It is our understanding the leasing of Blocks 25 and 26 is considered by the Group as a temporary measure. In the course of our valuation, we have not taken into consideration of the existing use of these two buildings.

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(5) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Under the current PRC law, no person can claim proper legal land use rights and/or ownership on any buildings before the appropriate Real Estate Ownership Certificates/House Ownership Certificates are issued by the competent authorities.
(b) Henggang Swank can claim proper land use rights and/or ownership on the buildings erected thereon only when appropriate Real Estate Ownership Certificates and/or House Ownership Certificates have been issued to it.
(c) The status and transferability of the land use rights or buildings under the Land Application Report cannot be ascertained.
(d) Henggang Economic Development Head Company lawfully and validly owns the Buildings in accordance with PRC laws.
(e) The PRC Legal Advisor did not have the chance to review the land title documents relating to the Buildings, and could not ascertain the transferability of such buildings.
(6) In accordance with the aforesaid PRC legal opinion, we have noted that there are certain matters that constitute or may constitute defects in, or have adverse effect on, the title to the property. In the course of our valuation, we have assumed that proper legal title documents of the property have been issued to the Group and the Group has obtained a good title to the property.
(7) We have relied on the opinion of the PRC Legal Advisor dated 13 April 1999 and the information provided by the Group and prepared our valuation on the following assumptions:
(a) The Certificate for State-owned Land Use or Certificate for Real Estate Title regarding the land in the property has been issued to the Group;
(b) The House Ownership Certificates regarding the Buildings in the property has been issued to the Group;
(c) The Group is in possession of a proper legal title to the property and is entitled to transfer the property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(d) The land use rights of the property have been granted for a term of 50 years;
(e) All land premium and costs of settlement and public utilities services have been fully settled;
(f) The design and construction of the buildings in the property are in compliance with the local planning and building regulations and have been approved by relevant government authorities;
(g) All consents, approvals and licences from relevant government authorities for the property have been granted without any onerous conditions or undue delay that might affect their values; and
(h) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to local and overseas purchasers.
(8) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Certificate for State-owned Land Use No House Ownership Certificates (in the name of Henggang Economic Development Head Company) Yes

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Property

Description and tenure

Open market Open market value in existing value assuming Particulars of state as at with good title as occupancy 30 April 2005 at 30 April 2005

A factory The property comprises a complex factory complex erected on an located at irregular-shaped site having a 168 site area of approximately Industrial 29,000.00 sq.m. (312,156 Area, sq.ft.). Henggang Town, The factory complex comprises Longgang sixteen blocks of buildings for District, workshop, warehouse, ancillary Shenzhen, office and other ancillary Guangdong facilities uses. The buildings Province, were completed in the period the PRC between 1985 and 1997.

The property No commercial $23,000,000 is occupied value (See Note (7) by the Group (See Note (6) ) and (8) ) for workshop, warehouse and other ancillary uses

The total gross floor area of the property is approximately 31,181.04 sq.m. (335,633 sq.ft.). (See Notes 2 to 5 below)

Notes:

(1) Pursuant to the Land Application Report dated 29 March 1994, Shenzhen Henggang Swank Optical Industrial Co., Ltd. (hereinafter referred to as “Henggang Swank”), which is a 80.73% owned subsidiary of the Company, has made an application to the People’s Government of Henggang Town, Henggang Town State-owned Land Administration Bureau and Longgang District State-owned Land Administration Bureau for the issuance of a Certificate for State-owned Land Use in respect of the land, having a site area of approximately 29,000 sq.m., in the property.
(2) Pursuant to nine House Ownership Certificates (Yue Fang Zi Nos. 1478211, 1478212, 1478243, 1478246, 1478247, 1478250, 1478254, 1478255 and 1678621) issued by People’s Government of Baoan County on 9 November 1991, 9 January 1992 and 10 January 1992, the ownership of nine blocks of building in the property having a total gross floor area of 20,668.91 sq.m. is vested in Henggang Economic Development Head Company (橫崗經濟發展總公司 ), which is a related company of the PRC partner in Henggang Swank.
(3) Pursuant to the House Ownership Certificate (Yue Fang Zi No. 1478126) issued by People’s Government of Baoan County on 10 April 1992, the ownership of another block of building in the property having a gross floor area of 604.00 sq.m. is vested in Baoan County Henggang Town Shareholding Investment Company Limited (寶安縣橫崗鎮股份投資有限公司 ), which is the PRC partner in Henggang Swank.
(4) As advised by the Group, the application for the House Ownership Certificates in respect of the remaining six blocks of building in the property, having a total gross floor area of 5,699.30 sq.m. is in progress.
(5) During our inspection, we noted that extensions with a total gross floor area of approximately 4,205.83 sq.m. has been constructed at nine blocks of building (designated as Blocks 1 to 9) in the property. In the course of our valuation, we have not taken into consideration such extensions.
(6) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Under the current PRC law, no person can claim proper legal land use rights and/or ownership on any buildings before the appropriate Real Estate Ownership Certificates/House Ownership Certificates are issued by the competent authorities.

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(b) Henggang Swank can claim proper land use rights and/or ownership on the buildings erected thereon only when appropriate Real Estate Ownership Certificates and/or House Ownership Certificates have been issued to it.
(c) The status and transferability of the land use rights or buildings under the Land Application Report cannot be ascertained.
(d) Henggang Economic Development Head Company lawfully and validly owns nine blocks of buildings in the property in accordance with PRC laws.
(e) Baoan County Henggang Town Shareholding Investment Company Limited lawfully and validly owns one block of building in the property in accordance with PRC laws.
(f) The PRC Legal Advisor did not have the chance to review the land title documents relating to the Buildings, and could not ascertain the transferability of such buildings.
(7) In accordance with the aforesaid PRC legal opinion, we have noted that there are certain matters that constitute or may constitute defects in, or have adverse effect on, the title to the property. In the course of our valuation, we have assumed that proper legal title documents of the property have been issued to the Group and the Group has obtained a good title to the property.
(8) We have relied on the opinion of the PRC Legal Advisor dated 13 April 1999 and the information provided by the Group and prepared our valuation on the following assumptions:
(a) The Certificate for State-owned Land Use or Certificate for Real Estate Title regarding the land in the property has been issued to the Group;
(b) The House Ownership Certificates regarding the buildings in the property has been issued to the Group;
(c) The Group is in possession of a proper legal title to the property and is entitled to transfer the property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(d) The land use rights of the property have been granted for a term of 50 years;
(e) All land premium and costs of settlement and public utilities services have been fully settled;
(f) The design and construction of the buildings in the property are in compliance with the local planning and building regulations and have been approved by relevant government authorities;
(g) All consents, approvals and licences from relevant government authorities for the property have been granted without any onerous conditions or undue delay that might affect their values; and
(h) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to local and overseas purchasers.
(9) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Certificate for State-owned Land Use No House Ownership Certificates (partial) (in the names of Henggang Economic Development Head Company and Baoan County Henggang Town Shareholding Investment Company Limited) Yes

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APPENDIX III

Property

Description and tenure

Open market Open market value in existing value assuming Particulars of state as at with good title as occupancy 30 April 2005 at 30 April 2005

A factory The property comprises a complex factory complex erected on a (known as roughly rectangular-shaped District site having a site area of A) located approximately 6,256.00 at sq.m. (67,340 sq.ft.). Zhanghui Expressway, The factory complex Xiegang comprises three blocks of Administration buildings for workshop and Zone, dormitory uses. The Xiegang buildings were completed in Town, about 1988. Dongguan, Guangdong The total gross floor area of Province, the property is approximately the PRC 7,782.00 sq.m. (83,765 sq.ft.). (See Note 1 below)

The property No commercial $5,800,000 is occupied value (See Note (4) by the Group (See Note (3) ) and (5) ) as staff quarters or vacant.

Notes:

(1) Pursuant to three House Ownership Certificates (Yue Fang Zi Nos. 0017613, 0017614 and 0152800) issued by Guangdong Provincial People’s Government on 25 May 1992, the ownership of the buildings in the property having a total gross floor area of 7,782.00 sq.m. is vested in Prowin Commercial and Industrial Limited (“Prowin”), which is a wholly owned subsidiary of the Company.
(2) As advised by the Group, the application for the Certificate for State-owned Land Use in respect of the land in the property, having a site area of 6,256.00 sq.m. is in progress.
(3) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Under the current PRC law, no person can claim proper legal land use rights before the appropriate Real Estate Certificates are issued by the competent authority.
(b) Pursuant to the House Ownership Certificates Yue Fang Zi Nos. 0017613 and 0017614, Prowin lawfully and validly owns the said two buildings.
(c) The PRC Legal Advisor did not have the chance to review the related land title documents but is of the opinion that the land use rights concerning such buildings are held by PRC person and that the transfer and mortgage of such buildings shall be subject to the consent of the authorized land users.
(d) Pursuant to the House Ownership Certificate Yue Fang Zi No. 0152800, Prowin lawfully and validly owns the said building. However, the land use rights relating to this building is held by Dongguan Yueheng Optical Co., Ltd. (“Dongguan Yueheng”), which is a 50% owned associated company of the Company, rather than Prowin, which is resulted from an unusual method adopted by Dongguan Municipal Government in a short term before the promulgation of the PRC Law on Administration for Urban Real Estate Properties to make the foreign investor and Chinese cooperator jointly enjoy the real estate property without establishment of Chinese-foreign joint venture enterprise. Conference of real estate property in such way is in violation of the PRC principles, however, both Dongguan Yueheng and Prowin shall validly and legally possess the land use rights and the housing ownership respectively so long as the relevant title certificates do not be withdrawn by the competent authorities in proper procedures. Practically, the building may be transferred or mortgaged or leased to other parties only on basis of the agreement of Prowin and Dongguan

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PROPERTY VALUATION

APPENDIX III

Yueheng, although it is expressly provided in Article 24 of the Interim Regulations of the PRC Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Area that the owner of the above-ground buildings and other attached objects shall have the right to the use of the land within the limits of the use of the buildings and objects.

(4) In accordance with the aforesaid PRC legal opinion, we have noted that there are certain matters that constitute or may constitute defects in, or have adverse effect on, the title to the property. In the course of our valuation, we have assumed that proper legal title documents of the property have been issued to the Group and the Group has obtained a good title to the property.
(5) We have relied on the opinion of the PRC Legal Advisor dated 13 April 1999 and the information provided by the Group and prepared our valuation on the following assumptions:
(a) The Certificate for State-owned Land Use regarding the land in the property has been issued to the Group;
(b) The Group is in possession of a proper legal title to the property and is entitled to develop, occupy, use, transfer, mortgage and dispose of the property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(c) The land use rights of the property have been granted for a term of 50 years;
(d) All land premium and costs of settlement and public utilities services have been fully settled;
(e) The design and construction of the buildings in the property are in compliance with the local planning and building regulations and have been approved by relevant government authorities;
(f) All consents, approvals and licences from relevant government authorities for the property have been granted without any onerous conditions or undue delay that might affect their values; and
(g) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to local and overseas purchasers.
(6) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Certificate for State-owned Land Use No House Ownership Certificates Yes

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PROPERTY VALUATION

APPENDIX III

Property

Description and tenure

Open market value in Particulars of existing state as at occupancy 30 April 2005

A factory The property comprises a complex (known factory complex erected on a as District C) roughly rectangular-shaped site located at having a site area of Zhanghui approximately 14,442.00 sq.m. Expressway, (155,454 sq.ft.). Xiegang Administration The factory complex comprises Zone, Xiegang two blocks of buildings for Town, workshop, warehouse and Dongguan, ancillary facilities uses. The Guangdong buildings were completed in Province, the about 1988. PRC

The property is $11,100,000 occupied by the Group for workshop and warehouse uses.

The total gross floor area of the property is approximately 14,907.62 sq.m. (160,466 sq.ft.). (See Notes 2 and 3 below)

The land use rights of the property have been granted for a term of 50 years from November 1993 to November 2043 for industrial use.

Notes:

(1) Pursuant to the Certificate for State-owned Land Use (Dong Fu Guo Yong (1993) Zi No. Te503) issued by Guangdong Provincial People’s Government in November 1993, the land use rights of the land in the property having a site area of 14,442.00 sq.m. have been granted to Dongguan Yueheng Optical Co., Ltd., which is a 50% owned associated company of the Company, for a term of 50 years from November 1993 to November 2043 for industrial use.
(2) Pursuant the Certificate for Real Estate Ownership (Yue Fang Di Zheng Zi No.1897264) issued by Guangdong Provincial People’s Government on 7 June 1999, the real estate ownership of a block of 6- storey building in the property occupying a land area of 6,021.49 sq.m. and having a gross floor area of 14,081.62 sq.m. is vested in Dongguan Yueheng Optical Co., Ltd. for a term from November 1993 to November 2043 for industrial use.
(3) Pursuant the House Ownership Certificate (Yue Fang Zi No. 0017637) issued by Guangdong Provincial People’s Government on 28 August 1992, the ownership of the remaining block of building in the property occupying a land area of 826.20 sq.m. and having a gross floor area of 826.20 sq.m. is vested in Prowin Commercial and Industrial Limited, which is a wholly owned subsidiary of the Company.
(4) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Dongguan Yueheng Optical Co., Ltd. validly and lawfully holds the land use rights of the property under the above-mentioned Certificate for State-owned Land Use and may transfer or mortgage or lease such land use rights in whole or in part to other parties.

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(b) Under the current PRC law, no person can claim proper legal ownership on buildings before the appropriate House Ownership Certificates or Real Estate Ownership Certificates are issued by the competent authority.
(c) Dongguan Yueheng Optical Co., Ltd. can claim proper land use rights and/or ownership on the buildings erected thereon only when appropriate Real Estate Ownership Certificates and/or House Ownership Certificates have been issued to it.
(5) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Contract for Grant of State-owned Land Use Rights Yes Certificate for State-owned Land Use Yes Certificate for Real Estate Ownership Yes House Ownership Certificate (in the name of Prowin Commercial and Industrial Limited) Yes

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APPENDIX III

PROPERTY VALUATION

Property

Description and tenure

Open market Open market value in existing value assuming Particulars of state as at with good title as occupancy 30 April 2005 at 30 April 2005

A factory The property comprises a complex factory complex erected on a (known as roughly rectangular-shaped District site having a site area of D) approximately 11,988.00 located at sq.m. (129,039 sq.ft.). Zhanghui Expressway, The factory complex Xiegang comprises three blocks of Administration buildings for workshop, Zone, warehouse and office uses. Xiegang The buildings were Town, completed in about 1988. Dongguan, Guangdong The total gross floor area of Province, the property is approximately the PRC 7,047.14 sq.m. (75,855 sq.ft.). (See Notes 3 to 5 below)

The property No commercial $5,200,000 is occupied value (See Note (7) by the Group (See Note (6) ) and (8) ) for workshop and ancillary office uses.

The land use rights of the property have been granted for a term from 15 August 1988 to 15 August 2038 for industrial use.

Notes:

(1) Pursuant to the Certificate for State-owned Land Use (Dong Fu Guo Yong Zong Zi No. 0001407/Zi No. (1988)19002300007) issued by Guangdong Provincial People’s Government on 15 December 1988, the land use rights of the land of the property having a site area of 11,988.00 sq.m. are vested in Xiegang Town Industrial Development Head Company (謝崗鎮工業發展總公司 ), which is the PRC partner in Dongguan Hamwell Glasses Co., Ltd (a 92% indirect owned subsidiary of the Company), for a term from 15 August 1988 to 15 August 2038 for industrial use.
(2) It is stated in the “Remark” of the said Certificate for State-owned Land Use that the land use rights of the subject parcel of land would be used by Prowin Commercial and Industrial Limited, which is a whollyowned subsidiary of the Company, for the entire land use term.
(3) Pursuant the House Ownership Certificate (Yue Fang Zi No. 0017639) issued by Guangdong Provincial People’s Government on 28 August 1992, the ownership of a block of building in the property having a gross floor area of 4,882.80 sq.m. is vested in Prowin Commercial and Industrial Limited.
(4) As advised by the Group, applications for the House Ownership Certificates in respect of the remaining two blocks of building (i.e. the office building and the dangerous goods building), having a total gross floor area of 1,129.96 sq.m. are in progress.
(5) During our inspection, we noted that an extension with a gross floor area of approximately 1,035.00 sq.m. has been constructed at the factory building. In the course of our valuation, we have not taken into consideration such improvements.

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(6) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Xiegang Town Industrial Development Head Company is the authorized holder of the land use rights of the property. It is recorded by the Land Administration Station of Xiegang Town therein that the land use rights area conferred to Prowin Commercial and Industrial Limited.
(b) The Land Administration Station of the Xiegang Town has no power to decide the user of stateowned land and the aforesaid record is illegal and invalid. Prowin Commercial and Industrial Limited has not legally obtained such land use rights.
(c) The land use rights under the above-mentioned Certificate for State-owned Land Use are of the nature of the status of allocated land use rights that may not be transferred or mortgaged without the prior approval of Dongguan Municipal Land Bureau.
(d) Pursuant to the available House Ownership Certificate, Prowin Commercial and Industrial Limited is the owner of a building erected on the property and lawfully and validly owns the said building. The PRC Legal Advisor did not have the chance to review the land title documents relating to the said building but is of the opinion that the land use rights of such building are held by a PRC person and the transfer or mortgage of such building shall be subject to the consent of the authorized land user.
(e) Under the current PRC law, no person can claim proper legal ownership on buildings before the appropriate House Ownership Certificates or Real Estate Ownership Certificates are issued by the competent authority.
(7) In accordance with the aforesaid PRC legal opinion, we have noted that there are certain matters that constitute or may constitute defects in, or have adverse effect on, the title to the property. In the course of our valuation, we have assumed that proper legal title documents of the property have been issued to the Group and the Group has obtained a good title to the property.
(8) We have relied on the opinion of the PRC Legal Advisor dated 13 April 1999 and the information provided by the Group and prepared our valuation on the following assumptions:
(a) The Certificates for Building Ownership regarding the buildings of the property have been issued to the Group;
(b) The Group is in possession of a proper legal title to the property and is entitled to develop, occupy, use, transfer, mortgage and dispose of the property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(c) All land premium and costs of settlement and public utilities services have been fully settled;
(d) The design and construction of the buildings in the property are in compliance with the local planning and building regulations and have been approved by relevant government authorities;
(e) All consents, approvals and licences from relevant government authorities for the property have been granted without any onerous conditions or undue delay that might affect their values; and
(f) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to local and overseas purchasers.
(9) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Certificate for State-owned Land Use

(in the name of Xiegang Town Industrial Development Head Company)
House Ownership Certificates (partial)

Yes

(in the name of Prowin Commercial and Industrial Limited) Yes

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PROPERTY VALUATION

APPENDIX III

Property Description and tenure

A factory The property comprises a complex factory complex erected on a (known as roughly rectangular-shaped District E) site having a site area of located at approximately 12,800.00 Zhanghui sq.m. (137,779 sq.ft.). Expressway, Xiegang The factory complex Administration comprises four blocks of Zone, buildings for dormitory, Xiegang ancillary office, canteen and Town, ancillary facilities uses. The Dongguan, buildings were completed in Guangdong about 1988. Province, the PRC The total gross floor area of the property is approximately 12,266.55 sq.m. (132,037 sq.ft.). (See Notes 3 to 5 below) The land use rights of the property have been granted for a term from 15 August 1988 to 15 August 2038.

Open market Open market value in existing value assuming Particulars of state as at with good title as occupancy 30 April 2005 at 30 April 2005 The property No commercial $8,800,000 is occupied value (See Note (7) by the Group (See Note (6) ) and (8) ) for staff quarters, ancillary office and canteen uses.

Notes:

(1) Pursuant to the Certificate for State-owned Land Use (Dong Fu Guo Yong Zong Zi No. 0001408/Zi No. (1988)19002300008) issued by Guangdong Provincial People’s Government on 15 December 1988, the land use rights of the property having a site area of 12,800.00 sq.m. are vested in Xiegang Town Industrial Development Head Company (謝崗鎮工業發展總公司 ), which is the PRC partner in Dongguan Hamwell Glasses Co., Ltd (a 92% indirect owned subsidiary of the Company), for a term from 15 August 1988 to 15 August 2038.
(2) It is stated in the “Remark” of the said Certificate for State-owned Land Use that the land use rights of the subject parcel of land would be used by Prowin Commercial and Industrial Limited, a wholly owned subsidiary of the Company, for the entire land use term.
(3) Pursuant two House Ownership Certificates (Yue Fang Zi Nos. 0017635 and 0017636) issued by Guangdong Provincial People’s Government on 28 August 1992, the ownership of two blocks of building (i.e. the canteen and the dormitory) in the property having a total gross floor area of 11,415.70 sq.m. is vested in Prowin Commercial and Industrial Limited.
(4) As advised by the Group, applications for the House Ownership Certificates in respect of the other two blocks of building (i.e. the workshop and the control room), having a total gross floor area of 375.65 sq.m. are in progress.
(5) During our inspection, we noted that an extension with a gross floor area of approximately 475.20 sq.m. has been constructed at the canteen. In the course of our valuation, we have not taken into consideration such improvement works.

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(6) The opinion of the PRC Legal Advisor dated 13 April 1999 stated, inter alia , that:
(a) Xiegang Town Industrial Development Head Company is the authorized holder of the land use rights of the property. It is recorded by the Land Administration Station of Xiegang Town therein that the land use rights area conferred to Prowin Commercial and Industrial Limited.
(b) The Land Administration Station of the Xiegang Town has no power to decide the user of stateowned land and the aforesaid record is illegal and invalid. Prowin Commercial and Industrial Limited has not legally obtained such land use rights.
(c) The land use rights under the above-mentioned Certificate for State-owned Land Use are of the nature of the status of allocated land use rights that may not be transferred or mortgaged without the prior approval of Dongguan Municipal Land Bureau.
(d) Under the current PRC law, no person can claim proper legal ownership on buildings before the appropriate House Ownership Certificates or Real Estate Ownership Certificates are issued by the competent authority.
(7) In accordance with the aforesaid PRC legal opinion, we have noted that there are certain matters that constitute or may constitute defects in, or have adverse effect on, the title to the property. In the course of our valuation, we have assumed that proper legal title documents of the property have been issued to the Group and the Group has obtained a good title to the property.
(8) We have relied on the opinion of the PRC Legal Advisor dated 13 April 1999 and the information provided by the Group and prepared our valuation on the following assumptions:
(a) The House Ownership Certificates regarding the buildings of the property have been issued to the Group;
(b) The Group is in possession of a proper legal title to the property and is entitled to develop, occupy, use, transfer, mortgage and dispose of the property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(c) All land premium and costs of settlement and public utilities services have been fully settled;
(d) The design and construction of the buildings in the property are in compliance with the local planning and building regulations and have been approved by relevant government authorities;
(e) All consents, approvals and licences from relevant government authorities for the property have been granted without any onerous conditions or undue delay that might affect their values; and
(f) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to local and overseas purchasers.
(9) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Certificate for State-owned Land Use

(in the name of Xiegang Town Industrial Development Head Company) Yes House Ownership Certificates (partial) (in the name of Prowin Commercial and Industrial Limited) Yes

– 87 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

The issue of this document has been approved by the Directors and includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. The information contained herein has been supplied by the Directors, who jointly and severally accept full responsibility for the accuracy of the information contained in this document and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this document have been arrived at after due and careful consideration and there are no other facts not contained in this document the omission of which would make any statement contained herein misleading.

2. SHARE CAPITAL

Share capital

Authorised share capital: HK$ 300,000,000,000 Shares 3,000,000,000

Issued and fully paid as at the Latest Practicable Date: 3,124,862,743 Shares 31,249,000

All the Shares rank pari passu in all aspects, including all rights as to dividend, voting and interests in the capital.

No Shares have been issued since 31 December 2004 (being the date to which the latest published audited accounts of the Group were made up) and up to the Latest Practicable Date.

As at the Latest Practicable Date, the Company did not have any outstanding warrants, options or securities convertible into Shares.

3. MARKET PRICES

This table below shows the closing market prices for the Shares as quoted by the Stock Exchange: (i) at the end of each of the six calendar months preceding the date of the Announcement; (ii) on the Last Trading Day; and (iii) on the Latest Practicable Date.

Date	Share price
	HK$
29 October 2004	0.064
30 November 2004	0.065
31 December 2004	0.061
Last Trading Day	0.063
31 January 2005	0.063
28 February 2005	0.063
31 March 2005	0.063
29 April 2005	0.079
31 May 2005	0.074
Latest Practicable Date	0.074

Trading in the Shares was suspended from 21 January to 18 April 2005.

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GENERAL INFORMATION

APPENDIX IV

The highest and lowest closing market prices for the Shares as quoted on the Stock Exchange during the Relevant Period were HK$0.098 recorded on 22 April 2005 and HK$0.056 recorded on 22 November 2004 respectively.

4. DISCLOSURE OF INTERESTS

Interests of the Directors

As at the Latest Practicable Date, the interests or short positions of each Director and the Company’s chief executive in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO); or (b) were required to pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) were required to pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) to be notified to the Company and the Stock Exchange were as follows:

	Nature of	Number of	Approximate
Directors	interest	Shares	Percentage
Mr. Cheung Wah Hing	Personal	358,400	0.01%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company were interested, or were deemed to be interested in the long and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Code for Securities Transactions by Directors adopted by the Company to be notified to the Company and the Stock Exchange.

Interests in the Offeror

(i) As at the Latest Practicable Date, the Company did not have any interest in any securities of the Offeror.
(ii) The Offeror is wholly and beneficially owned by Mr. Wang. The existing Directors did not have any interest or dealings in any securities of the Offeror during the Relevant Period.

Dealings in securities of the Company or the Offeror

During the Relevant Period, the Company had not dealt in any securities of the Offeror.

During the Relevant Period, none of the Directors had dealt for value in any securities of the Company or the Offeror.

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GENERAL INFORMATION

APPENDIX IV

During the Relevant Period, none of DBS Asia or Barits had dealt for value in any securities of the Company as principal.

Miscellaneous

(a) As at the Latest Practicable Date, no shareholding in the Company was owned or controlled by a subsidiary of the Company or by a pension fund of the Company or of a subsidiary of the Company, or by an adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code but excluding exempt principal traders. During the Relevant Period, there had been no dealing for value in any securities of the Company by any of the aforesaid persons as principals.
(b) As at the Latest Practicable Date, no person had any arrangement of the kind described in note 8 to Rule 22 of the Takeovers Code which existed with the Company or with any person who was an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code. During the Relevant Period, there had been no dealing for value in any securities of the Company by any of the aforesaid persons.
(c) As at the Latest Practicable Date, no shareholding in the Company was managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company. During the Relevant Period, there had been no dealing for value in any securities of the Company by any of the aforesaid persons.
(d) No benefit (other than statutory compensation) would be given to any Director as compensation for loss of office or otherwise in connection with the Offer.
(e) As at the Latest Practicable Date, save for the Sale and Purchase Agreement, no material contracts had been entered into by the Offeror in which any Director has a material personal interest.
(f) As at the Latest Practicable Date, there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Offer or otherwise connected with the Offer.
(g) As at the Latest Practicable Date, Mr. Cheung Wah Hing, the only Director holding Shares in the Company, had not expressed his intention, in respect of his shareholding in the Company, as to whether to accept or reject the Offer.

5. SUBSTANTIAL SHAREHOLDERS

(a) Interests in Shares of the Company

As at the Latest Practicable Date, so far as was known to any Director or chief executive of the Company, the following persons, other than the Directors or chief executive of the Company, have interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who was directly or indirectly,

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GENERAL INFORMATION

APPENDIX IV

interested in 10% of or more of the nominal value of any class of shares capital carrying rights to vote in all circumstances at general meeting of any member of the Group:

			Approximate
			percentage
Name	Capacity	Number of Shares	of interest (%)
The Offeror	Beneficial owner	1,874,917,645	60
	(note 1)	(note 3)
Mr. Wang	Interest in a controlled	1,874,917,645	60
	corporation_(note 1)_	(note 3)
Ms. Mu Yucun	Family interest_(note 2)_	1,874,917,645	60
		(note 3)
TIHL and its	Interest in a controlled	156,202,790	5
concert parties	corporation_(note 4)_
Probest	Beneficial owner_(note 4)_	156,202,790	5
SW Kingsway and	Interest in a controlled	156,202,795	5
its concert parties	corporation_(note 4)_
Rich Global	Beneficial owner_(note 4)_	156,202,795	5

Notes:

Mr. Wang is the sole shareholder of the Offeror.
Ms. Mu Yucun is Mr. Wang’s spouse and she is deemed to be interested in Mr. Wang’s interest in the Shares.
The Shares have been pledged to Kingsway Financial Services Group Limited by the Offeror as security for loan facilities granted to Mr. Wang.
Probest is an indirect wholly owned subsidiary of TIHL.
Rich Global is an indirect wholly-owned subsidiary of SW Kingsway.

(b) substantial shareholders of other members of the Group

As at the Latest Practicable Date, so far as is known to the directors of the Company, the following are parties, other than a director of the Company, who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital

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GENERAL INFORMATION

APPENDIX IV

carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		% of existing
	Name of Substantial	issued share
Name of Subsidiary	Shareholders	capital
Profitown Investment Corporation	Probest Holdings Inc.	30%
Global Origin Limited	Trade Bargain Limited	10%
Profit Trend International Limited	Wischance Investments Limited	50%
Shenzhen Henggang Swank Optical	Henggang Zheng Stock	19%
Industries Co. Ltd.	Investment Co. Ltd.

6. MATERIAL CONTRACTS

Save as disclosed below, the Company has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of the Announcement and up to the Latest Practicable Date:–

the underwriting agreement entered into between Probest, the Company and TIHL dated 3 September 2003 in relation to the underwriting of an open offer of 2,901,658,253 shares in the Company;
the loan settlement agreement dated 3 September 2003 entered into between the Company and Probest for the settlement of an unsecured loan in the principal sum of HK$250,000,000 owing by the Company to Probest;
the sale and purchase agreement dated 3 September 2003 entered into between Probest, the Company and TIHL relating to the sale by the Company to Probest of 30% of the entire issued share capital in Profitown and 30% of the loan due from Profitown to the Company;
Loan Restructuring Agreement dated 20 January 2005 as varied and supplemented by the supplemental loan restructuring agreement dated 13 April 2005 entered into between Probest, the Company and Profitown in relation to, inter alia , the restructuring of the Debt;
the Previous Promissory Note;
the Promissory Note;
the Guarantee; and
the Shareholders Agreement.

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GENERAL INFORMATION

APPENDIX IV

7. DIRECTORS’ SERVICE CONTRACTS

A service contact was entered between the Company and Mr. Wu Wang Li, an independent non-executive director of the Company, for a term of 1 year commencing from 27 September 2004 with a director fee of HK$120,000 per annum. Save for the director fee, the independent non-executive director is not entitled to receive any other remuneration.

Save as disclosed in the preceding paragraph, there is no existing or proposed service contract between any of the Directors and the Company or any of its subsidiaries which is not terminable within one year without payment of compensation (other than statutory compensation) and no service contract with any Director has been entered into or amended within six months before the date of the Announcement.

8. LITIGATION

Save as disclosed below, no member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group:

(a) Hanmy (Holding) Limited and its related companies (collectively “Hanmy”)

The Group commenced legal proceedings against Hanmy in February 1999 to recover the amounts owed by Hanmy to the Group of approximately HK$96 million in relation to certain loans and other advances by the Group to Hanmy, which included issuance of writ and petitions for winding-up. The Group has not yet obtained a judgement due to Hanmy’s defence. Legal proceedings are still in place and the Group is currently seeking legal opinion regarding the merits of continuing the case.

(b) Litigation against Mr. Lam Yin Sang and Ms. Chan Hoi Wo

The Group instigated legal proceedings in October 1999 against Mr. Lam Yin Sang and Ms. Chan Hoi Wo for the losses of HK$385,800,000 sustained as a result of various alleged breaches of fiduciary and other duties while acting formerly as directors of the Group. Legal proceedings are still in place and the Group is currently seeking legal opinion regarding the merits of continuing the case.

9. CONSENTS AND QUALIFICATIONS

The following are the qualifications of the experts who have given their respective opinions which are contained in this document:

Name	Qualification
Barits Securities	a licensed corporation under the SFO to conduct types 1
(Hong Kong) Limited	(dealing in securities) and 6 (advising on corporate
	finance) regulated activities
CCIF CPA Limited	Certified Public Accountants
B.I. Appraisals Limited	Independent Professional Valuer

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GENERAL INFORMATION

APPENDIX IV

Each of Barits, CCIF CPA Limited and B.I. Appraisals Limited have given and have not withdrawn their written consent to the issue of this document with the inclusion herein of their letter or report respectively and references to their name, in the form and context in which they appear herein.

10. GENERAL

(a) The registered office of the Company is at 27th Floor, Henley Building, 5 Queen’s Road Central, Hong Kong. As at the Latest Practicable Date, the executive directors of the Company comprises Mr. Yau Tak Wah, Paul, Ms. Louis Mei Po, Ms. Wong Shin Ling, Irene, Mr. Tam Wing Kin and Mr. Cheung Wah Hing and the independent non-executive directors of the Company comprises Mr. Hahn Ka Fai, Mark, Miss Shum Wai Ting, Rebecca and Mr. Wu Wang Li. The secretary of the Company is Mr. Tam Wing Kin, FCCA.
(b) The registered office of DBS Asia situated at 22/F, The Center, 99 Queen’s Road Central, Hong Kong.
(c) The registered office of Barits is at Room 3406, 34/F., Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong Kong.
(d) In the event of any inconsistency, the English text of this document shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:00 a.m. to 5:30 p.m. (Monday to Friday) or from 9:00 a.m. to 1:00 p.m. (Saturday) at the registered office of the Company at 27th Floor, Henley Building, 5 Queen’s Road Central, Hong Kong, while the Offer remain open for acceptance:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two years ended 31 December 2004;
(c) the letter from the Independent Board Committee contained in this document;
(d) the letter of advice from Barits contained in this document;
(e) the valuation report issued by B.I. Appraisals Limited contained in this document;
(f) the material contracts referred to in the section headed “Material contracts” in this appendix;
(g) the written consents referred to in the section headed “Consents and qualifications” in this appendix; and
(h) the service agreement referred to in the section headed “Directors’ service contracts” in this appendix.

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AI assistant

Design Capital Limited — M&A Activity 2005

49990_rns_2005-06-20_631edb4b-ac49-4cad-95da-7ff030f15d85.pdf

Swank International Manufacturing Company Limited

CONTENTS

EXPECTED TIMETABLE

Notes:

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Swank International Manufacturing Company Limited

INTRODUCTION

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE

THE OFFER

The Offer

Comparisons of value

LETTER FROM THE BOARD

Highest and lowest Share prices

Total consideration

Financial resources (The paragraph below has been reproduced from the Offer Document)

Effects of accepting the Offer

Stamp duty

Payment

INFORMATION ON THE GROUP

Financial and trading prospect of the Group

Property Valuation and land title issues of the Group as at 30 April 2005

LETTER FROM THE BOARD

INFORMATION ON THE OFFEROR (This section has been reproduced from the Offer Document)

LETTER FROM THE BOARD

INTENTION OF THE OFFEROR REGARDING THE GROUP (This section has been reproduced from the Offer Document)

Business

Directors and management

LETTER FROM THE BOARD

Employees

Maintaining the listing of the Company

OVERSEAS SHAREHOLDERS

GENERAL

ADDITIONAL INFORMATION

Swank International Manufacturing Company Limited

RECOMMENDATION

BARITS SECURITIES (HONG KONG) LIMITED

INTRODUCTION

Composition of the Independent Board Committee

LETTER FROM BARITS

Basis of our opinion

THE OFFER

Business and financial performance of the Group

LETTER FROM BARITS

LETTER FROM BARITS

(ii) For the year ended 31 December 2003

(iii) For the year ended 31 December 2004

LETTER FROM BARITS

Net asset value

Price-to-earnings multiple and dividends yield

Liquidity of the Shares

LETTER FROM BARITS

Price performance of the Shares

LETTER FROM BARITS

Intention of the Offeror regarding the future prospect of the Group

LETTER FROM BARITS

Listing status of the Company

LETTER FROM BARITS

RECOMMENDATION

LETTER FROM BARITS

1. SUMMARY OF PUBLISHED RESULTS OF THE GROUP

Notes:

2. AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2004

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

APPENDIX I

Fundamental uncertainty relating to the going concern basis

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

CCIF CPA Limited

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Design Capital Limited M&A Activity 2005