Eminence Enterprise Limited — Proxy Solicitation & Information Statement 2005

Dec 22, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular.

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

If you have sold or transferred all your shares in Asia Alliance Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Asia Alliance Holdings Limited

(Incorporated in Bermuda with limited liability) (Stock Code: 616)

VERY SUBSTANTIAL ACQUISITION

FURTHER SUPPLEMENTAL AGREEMENT IN RELATION TO THE PROJECT

A notice convening the SGM of the Shareholders to be held at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong at 9:00 a.m. on Monday, 9 January 2006 is set out on pages 85 to 86 of this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

* for identification only

22 December 2005

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Further Supplemental Agreement dated 25 November 2005 . . . . . . . . . . . . . . . . . . .	5
Recent progress of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial effects of the Capital Commitment on the Group . . . . . . . . . . . . . . . . . . . . . . .	8
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Right to demand a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix I — Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix II — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85

— i —

DEFINITIONS

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

“Acquisition”	the proposed acquisition of the Property pursuant to the
	Agreement and the Supplemental Agreement
“Agreement”	the agreement dated 24 December 2004 entered into between
	the Vendor and the Subsidiary in respect of the Transaction as
	amended by the Supplemental Agreement
“Announcement”	the announcement of the Company dated 3 January 2005 in
	respect of the entering into the Agreement relating to the
	Project
“Board”	the board of Directors
“Capital Commitment”	the capital commitment of the Subsidiary of approximately
	RMB519 million (about HK$499 million) in respect of the
	Project pursuant to the Further Supplemental Agreement
“Circular”	the circular of the Company dated 21 February 2005,
	containing, inter alia, the details of the Agreement (as
	supplemented by the Supplemental Agreement) and the
	Project
“Company”	Asia Alliance Holdings Limited, an exempted company
	incorporated in Bermuda with limited liability, the shares of
	which are listed on the Main Board of the Stock Exchange
“Construction”	the construction of the Plant
“Director(s)”	the director(s) of the Company
“Further Supplemental	the supplemental agreement dated 25 November 2005 entered
Agreement”	into between the Vendor and the Subsidiary varying certain
	terms in the Agreement as amended by the Supplemental
	Agreement
“Group”	the Company and it subsidiaries
“HK$”	Hong Kong Dollars, the lawful currency of Hong Kong
“Hong Kong”	The Hong Kong Special Administrative Region of PRC

— 1 —

DEFINITIONS

“Independent Third Party(ies)”	any person(s) who and whose ultimate beneficial owner(s) are
	independent of and not connected to the Company, any
	director, chief executive or substantial shareholder of the
	Company or any of its subsidiaries or any of their respective
	associates (as defined in the Listing Rules) and is not a
	connected person of the Company (as defined in the Listing
	Rules)
“Latest Practicable Date”	19 December 2005, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Plant”	waste water treatment plant to be built on the Property
“PRC” or “China”	The People’s Republic of China (other than, for the purpose of
	this circular only, Hong Kong, the Macau Special
	Administrative Region of PRC and Taiwan)
“PRC Entities”	three wholly owned foreign enterprises incorporated in PRC
	and held by the Subsidiary for the purposes of holding
	different assets in connection with the development
	of the manufacturing operations under the Project, and
	the aggregate registered capital of which is US$64,000,000
	(about HK$499 million)
“Project”	the Acquisition, the proposed development of manufacturing
	operations in Huzhou City, Zhejiang Province, PRC on the
	Property to be held through the PRC Entities, including
	garment manufacturing, bleaching and dyeing and knitting
	and the Construction
“Property”	the land situate at the West of Dongliang Road, Zhili Town,
	Wuxing District, Huzhou City, Zhejiang Province, PRC and
	the South of Hengtang Harbour, PRC
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	Securities and Futures Ordinance (Chapter 571 of the laws of
	Hong Kong)
“SGM”	a special general meeting of the Company to be held to
	approve, among other things, the Further Supplemental
	Agreement
“Share(s)”	ordinary share(s) of the Company of HK$0.01 each

— 2 —

DEFINITIONS

“Shareholder(s)”	the shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary”	Easyknit (Mauritius) Limited, a company incorporated in the
	Republic of Mauritius and a wholly owned subsidiary of the
	Company
“Supplemental Agreement”	the supplemental agreement dated 28 December 2004 entered
	into between the Vendor and the Subsidiary varying certain
	terms in the Agreement
“Transaction”	phase 1 of the Project, prior to the Further Supplemental
	Agreement, in Huzhou City, Zhejiang Province, PRC which
	was intended to include the Acquisition, the Construction and
	the setting up of manufacturing operations initially
	comprising garment manufacturing, bleaching and dyeing
	capabilities
“US$”	United States dollars, the lawful currency of the United States
	of America
“Vendor”	The People’s Government of Zhili Town, Wuxing District,
	Huzhou City, Zhejiang Province, PRC
“%”	per cent

In this circular, the exchange rates of HK$1.00 to RMB1.04 and HK$7.80 to US$1.00 are adopted for illustration purpose only.

— 3 —

LETTER FROM THE BOARD

Asia Alliance Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 616)

Executive Directors: Principal place of business in Hong Kong: Koon Wing Yee (Chairman and 7th Floor Chief Executive Officer) Hong Kong Spinners Building Phase 6 Tse Wing Chiu Ricky (Vice Chairman) 481-483 Castle Peak Road Lui Yuk Chu Cheung Sha Wan, Kowloon Hong Kong

Independent Non-Executive Directors:

Kan Ka Hon Kwong Jimmy Cheung Tim Lau Sin Ming

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

22 December 2005

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION

FURTHER SUPPLEMENTAL AGREEMENT IN RELATION TO THE PROJECT

INTRODUCTION

On 3 January 2005, the Company made an announcement in relation to the Project, which was divided into two phases. Phase 1 of the Project, namely the Transaction, was intended to include: (i) the acquisition of the Property; (ii) the development of the manufacturing operations on the Property which would initially comprise garment manufacturing and bleaching and dyeing capabilities; and (iii) the construction of the Plant. Phase 2 of the Project was intended to principally comprise the development of knitting capability on the Property, which would commence construction upon completion of phase 1. Further details of the Project are set out in the Announcement and the Circular.

• for identification only

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LETTER FROM THE BOARD

At the special general meeting of the Company held on 11 March 2005, the Transaction which involved investment of up to HK$200 million was approved.

On 30 November 2005, the Board announced that the Further Supplemental Agreement was entered into between the Vendor and the Subsidiary in respect of certain material changes to the Project.

One of the material changes to the Project is that the capital commitment of the Project has increased from HK$40 million as stated in the Announcement and the Circular to approximately RMB519 million (about HK$499 million). The Capital Commitment constitutes a very substantial acquisition of the Company, where the approval by the Shareholders at the SGM is required pursuant to Rule 14.49 of the Listing Rules. To the best of knowledge of the Directors, as at the Latest Practicable Date, no Shareholder has any material interest in the Project. Therefore, no Shareholder and its associates will be required to abstain from voting at the SGM.

The purpose of this circular is to give you further information regarding the Further Supplemental Agreement and to give you the notice of the SGM and other information required under the Listing Rules.

THE FURTHER SUPPLEMENTAL AGREEMENT DATED 25 NOVEMBER 2005

On 25 November 2005, the Vendor and the Subsidiary entered into the Further Supplemental Agreement, pursuant to which the following changes, among other things, have been made to the Project:

Size of the Property

As disclosed in the annual report of the Company for the financial year ended 31 March 2005, subsequent to the Announcement and the Circular, in April 2005, the Vendor and the Company agreed that the size of the Property be reduced from about 670 mu to about 632 mu. The Directors confirm that the reason for the reduction in the size of the Property was because the sections reduced were deemed not suitable for the manufacturing operations of the Group. The price per mu of the Property remains at RMB15,000 (equivalent to approximately HK$14,423 per mu). Therefore, the consideration for the Acquisition is reduced from approximately RMB10.1 million (equivalent to approximately HK$9.7 million) to approximately RMB$9.5 million (equivalent to approximately HK$9.1 million) accordingly. The consideration for the Acquisition has been fully paid on 7 April 2005.

Capital Commitment of the Project

It was previously stated in the Circular that the Project would be divided into two phases and the investment in phase 1 was expected to be up to HK$200 million. Furthermore, the Subsidiary has made capital commitment of HK$40 million previously in respect of the Acquisition and the Construction, of which an aggregate of approximately HK$25.7 million has been paid as at the Latest Practicable Date. For details, please refer to the section headed “Funding” of this circular.

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LETTER FROM THE BOARD

Save as the above, the total investment of the Project (being phase 1 and phase 2) was not determined previously and no commitment has been made in respect of other parts of the Project. Under the Further Supplemental Agreement, the capital commitment of the Subsidiary in respect of the Project has been agreed to be approximately RMB519 million (about HK$499 million), which has been determined based on arm’s length negotiation with the Vendor and by reference to the approval granted to, in effect, the Vendor by the Huzhou Municipal Economic Commission, Zhejiang Province, PRC on 8 November 2005 in respect of the Project.

The approval is granted for the estimated total investment amount of approximately RMB519 million and if such amount is to be exceeded in future, the Vendor and the Subsidiary are required to obtain further approval from the relevant authority. In such event, the Company will obtain further approval from Shareholders as required under the Listing Rules. The final capital to be invested in the Project is subject to adjustments within the Capital Commitment, depending on the development of the Project and market conditions. The Group’s investment in phase 1 is expected to be approximately RMB301.0 million (about HK$289.4 million) compared with the HK$200 million previously estimated.

To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiry, the Vendor and its ultimate beneficial owner(s) are Independent Third Parties.

RECENT PROGRESS OF THE PROJECT

Land of about 184 mu comprised in the Property was transferred to the Group by the Vendor on 12 August 2005. The certificate of land use right was issued on 17 October 2005. It is expected that land of about 193 mu and the remaining land comprised in the Property will be transferred to the Group by 31 December 2005 and 30 June 2006 respectively. The Directors confirm that the reason for the transfer of land in stages is to be in line with the recent PRC government policy on land supply.

Construction work for phase 1 of the Project has commenced in November 2005 and the Vendor has been appointed as an agent to handle the various matters in relation to the construction of the Plant. It is expected that completion of phase 1 of the Project will take place in approximately 18 months from its commencement, which is expected to be around mid-2007. Capital injection for phase 2 of the Project will commence upon completion of phase 1. As at the date hereof, the Property has not generated any revenue nor profit.

It was previously stated in the Circular that phase 1 of the Project, which was originally expected to be completed by early 2006, involved the Acquisition, the Construction and the development of manufacturing operations which would initially comprise garment manufacturing and bleaching and dyeing capabilities. Phase 2 of the Project was originally intended to commence construction upon completion of phase 1 and the development of knitting capability, which was previously expected to be completed by the end of 2006, would form phase 2 of the Project.

As disclosed above, land comprising the Property is now being transferred in stages to the Subsidiary, which inevitably delays the construction of phase 1 of the Project. After taking into consideration the previously intended timeline for the development of phase 2, the scope of phase 1

— 6 —

LETTER FROM THE BOARD

of the Project has been amended to also include the development of knitting capability, comprising, among others, equipment and machinery, factories, employee quarters and storages in order for the Group to fully benefit from the vertical integration as described under the section headed “Financial and trading prospects of the Group” below.

IMPLICATIONS UNDER THE LISTING RULES

The Shareholders had approved the Transaction which involves investment of up to HK$200 million at the special general meeting of the Company held on 11 March 2005. As a result of the Further Supplemental Agreement, there have been material changes in the terms of the Project including the increase in the Group’s aggregate investment amount of the Project. The Further Supplemental Agreement is therefore subject to approval by the Shareholders.

The Capital Commitment constitutes a very substantial acquisition of the Company, where the approval by the Shareholders at a special general meeting is required pursuant to Rule 14.49 of the Listing Rules. To the best knowledge of the Directors, as at the Latest Practicable Date, no Shareholder has material interests in the Project. Therefore, no Shareholder and its associates will be required to abstain from voting at the SGM in respect of the Capital Commitment.

FUNDING

For its commitment to phase 1 of the Project of approximately RMB301.0 million (about HK$289.4 million), the Company has made aggregate payments of approximately HK$25.7 million as at the Latest Practicable Date, which include (a) the consideration for the Acquisition of approximately HK$9.1 million; (b) the deposit for the Construction of HK$15.0 million; and (c) the remaining of approximately HK$1.6 million as other expenses.

The funding arrangements of the Project for the periods from 1 December 2005 to 31 March 2006 and from 1 April 2006 to 31 March 2007 are expected to be as follows:

	**1 December **	**2005 **	—	1 April 2006 —	1 April 2006 —
	**31 March **	2006		**31 March **	2007
	RMB	HK$		RMB	HK$
	(million)	(million)		(million)	(million)
Land cost and related expenses1	3.2		3.1	—	—
Construction of production plants	10.9	10.5		80.7	77.6
General preparation costs2	2.0		1.9	20.9	20.1
Machineries and installation costs	—		—	79.9	76.8
PRC tax refund to the Subsidiary on the 80%
land acquisition tax paid or to be paid	—		—	(1.6)	(1.5)
Total	16.1	15.5		179.9	173.0

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LETTER FROM THE BOARD

Notes:

1. Land cost and related expenses include taxation and site development fee payable to the PRC government.

2. General preparation costs include professional fees, site clearance fee and deposit for the Construction.

The arrangement of the remaining capital commitment of approximately HK$284.8 million, after deducting the aggregate payments of approximately HK$25.7 million made by the Company as at the Latest Practicable Date and the capital commitment of approximately HK$15.5 million and HK$173.0 million for the four months ending 31 March 2006 and the year ending 31 March 2007 respectively, will be subject to the progress and development of the Project.

The Company intends to finance its remaining capital commitment of approximately HK$473.3 million, after deducting the aggregate payments of approximately HK$25.7 million made by the Company as at the Latest Practicable Date, through internal resources, bank borrowings or other forms of financing available to the Group. As at the Latest Practicable Date, the Group had cash and bank balances of approximately HK$109.1 million. The Company is currently in negotiation with banks for additional facilities and may also explore other forms of capital market financing available to the Group such as placing of securities and issue of convertible securities. As at the Latest Practicable Date, the Company had not entered into any financing arrangement in respect thereof.

FINANCIAL EFFECTS OF THE CAPITAL COMMITMENT ON THE GROUP

There will not be any impact on the assets and liabilities of the Group arising from phase 1 of the Project based on financial resources committed under the Further Supplemental Agreement. The payment of approximately HK$25.7 million for the acquisition of the Property and the deposit paid for the Construction was financed by bank loans, which was subsequently repaid by the net proceeds from the rights issue of the Company in September 2005. The total assets of the Group as at 30 September 2005 as stated in the interim report of the Company for the six months ended 30 September 2005 have already reflected the payment of approximately HK$25.7 million for acquisition of the Property and the deposit paid for the Construction. As at 30 September 2005, the Group did not have any bank loan.

The Further Supplemental Agreement does not entail the acquisition of any new assets as the Property is the same asset referred to in the Acquisition. Save as disclosed herein, there is no material change to the Property and the Acquisition. Therefore, a valuation report on the enlarged Group’s interests in land or building as required under Rule 14.69(3) of the Listing Rules will not be applicable to the Capital Commitment.

As at the Latest Practicable Date, no revenues have been generated by the Property and the Plant. There was no profit and loss statement prepared on the Property or the Plant for the three preceding financial years, including the year ended 31 December 2002, the 15 months ended 31 March 2004 and the year ended 31 March 2005, as required under Rule 14.69(4)(b)(i) of the Listing Rules. In addition, save for the Property, the Group has not acquired any other material assets that have an identifiable income stream or assets valuation as at the Latest Practicable Date. As the interim report of the

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LETTER FROM THE BOARD

Company for the six months ended 30 September 2005 has already reflected the payment of approximately HK$25.7 million for the acquisition of the Property and the deposit paid for the Construction, a pro forma net asset statement on the enlarged Group as required under Rule 14.69(4)(b)(ii) will not be applicable to the Capital Commitment.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is principally engaged in the businesses of bleaching, dyeing and knitting.

As stated in the interim report of the Company (“ Interim Report ”) for the six months ended 30 September 2005 (the “ Period ”), the Group recorded a turnover of approximately HK$26.9 million, representing an increase of approximately 22.2% from the same period last year. Gross profit dropped approximately 42.9% to approximately HK$2.0 million (six months ended 30 September 2004: approximately HK$3.5 million). Net loss attributable to Shareholders for the Period amounted to approximately HK$18.9 million as compared to the net profit of approximately HK$6.2 million for the same period in 2004. The Directors attributed such loss to the impairment loss recognised in respect of goodwill of approximately HK$12.4 million as well as increase in cost of sales and services, operating expenses and finance costs. The cost of sales and services rose by approximately 34.4% to approximately HK$24.9 million (six months ended 30 September 2004: approximately HK$18.5 million), primarily due to the growth in sales, increase in depreciation costs on fixed assets and upsurge in production costs such as staff wages and prices of other raw materials.

The bleaching and dyeing business continued to be the principal business of the Group and contributed to approximately 99.4% of the Group’s total turnover for the Period, whereas the knitting business of the Group accounted for the remaining approximately 0.6% of the total turnover of the Group.

As stated in the Interim Report, the Group with its bleaching and dyeing factory as well as knitting mill located in the Pearl River Delta Region continues to be affected by the adverse impact of shortage of skilled labour. The Directors are of the view that this will not only result in increased salaries and wages, but also high labour turnover and reduced production efficiency. The rising energy costs are likely to reduce the profit margins of the Group.

The Group will use its best endeavour to improve its cost and inventory control measures in order to mitigate the impact of any price increases in raw materials. Measures are being devised to attract and retain workers and to combat rising production costs.

The Company believes that the Project will: (i) consolidate and significantly increase its manufacturing capabilities by developing vertically integrated operations ranging from knitting, bleaching and dyeing and garment manufacturing, which in turn provides further economy of scale; (ii) help minimise cost and maximise efficiency by taking advantage of the inexpensive land price and low cost base, including low labour costs, in Huzhou; and (iii) enhance its working relationship and cooperation with the Vendor which will assist in the smooth running of its operation, including the provision of infrastructure support.

— 9 —

LETTER FROM THE BOARD

The Directors believe that the terms of the Further Supplemental Agreement are fair and reasonable and are in the interests of the Shareholders as a whole.

THE SGM

A notice convening the SGM to be held at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong at 9:00 a.m. on Monday, 9 January 2006 is set out on pages 85 to 86 of this circular at which an ordinary resolution will be proposed to consider and, if thought fit, to approve the Capital Commitment. The Capital Commitment is conditional upon, inter alia, the approval of the Shareholders at the SGM.

To the best of knowledge of the Directors, as at the Latest Practicable Date, no Shareholder has any material interest in the Project. Therefore, no Shareholder and its associates will be required to abstain from voting at the SGM.

A form of proxy for use at the SGM is enclosed. If you are not able to attend the SGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the principal place of business of the Company at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjourned meeting (as the case may be) should you so wish.

RIGHT TO DEMAND A POLL

Pursuant to bye-law 70 of the bye-laws of the Company, at a general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

• (i) by the chairman of the meeting; or

• (ii) by at least three Shareholders present in person or by duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any Shareholder or Shareholders present in person or by duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or

• (iv) by any Shareholder or Shareholders present in person or by duly authorised corporate representative or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

— 10 —

LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider that the terms of the Further Supplemental Agreement and the Capital Commitment are fair and reasonable and are in the interests of the Company and Shareholders as a whole. Accordingly, the Directors recommend that all the Shareholders should vote in favour of the ordinary resolution as set out in the notice of the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in appendices to this circular.

The Directors note that if the Company cannot obtain sufficient financing for the Project in the future, the Project may or may not proceed. Shareholders and investors are advised to exercise caution in dealing with the Shares.

Yours faithfully, For and on behalf of Asia Alliance Holdings Limited Koon Wing Yee

Chairman and Chief Executive Officer

— 11 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. INTERIM RESULTS

Set out below are the extracts of the unaudited interim results for the six months ended 30 September 2005 of the Group with comparative figures for the six months ended 30 September 2004. These interim financial statements have been reviewed by the Company’s audit committee.

CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

NOTES Turnover 3 Cost of sales and services Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Impairment loss recognised in respect of goodwill 10 Allowance for a loan to Acme Landis Operations Holdings Limited, a former subsidiary Write-back of allowance for doubtful debts Loss from operations 4 Gain on disposal of subsidiaries Finance costs 5 (Loss) profit for the period Basic (loss) earnings per share 7	Six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 26,858 21,981 (24,874) (18,504) 1,984 3,477 147 123 (256) (149) (4,919) (4,191) (2,134) (1,757) (12,445) — — (198) — 17 (17,623) (2,678) — 9,042 (1,253) (138) (18,876) 6,226 HK$(0.37) HK$0.18	Six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 26,858 21,981 (24,874) (18,504) 1,984 3,477 147 123 (256) (149) (4,919) (4,191) (2,134) (1,757) (12,445) — — (198) — 17 (17,623) (2,678) — 9,042 (1,253) (138) (18,876) 6,226 HK$(0.37) HK$0.18
	1,984 147 (256) (4,919) (2,134) (12,445) — — (17,623) — (1,253)	3,477 123 (149 (4,191 (1,757 — (198 17
		(2,678 9,042 (138
	(18,876) HK$(0.37)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET AT 30 SEPTEMBER 2005

30 Septmber 2005 NOTES HK$’000 (Unaudited) Non-current assets Property, plant and equipment 9 22,634 Goodwill 10 8,677 Prepaid lease payments 11 9,007 Deposits paid for acquisition of property, plant and equipment 16,081 56,399 Current assets Inventories 5,435 Trade and other receivables 12 23,881 Consideration receivable on acquisition of subsidiaries — Bank balances and cash 116,466 145,782 Current liabilities Trade and other payables 13 11,186 Bills payable 14 1,687 Bank loans - amount due within one year — 12,873 Net current assets 132,909 189,308 Capital and reserves Share capital 15 3,927 Reserves 185,381 189,308 Non-current liabilities Bank loans - amount due after one year — 189,308	30 Septmber 2005 NOTES HK$’000 (Unaudited) Non-current assets Property, plant and equipment 9 22,634 Goodwill 10 8,677 Prepaid lease payments 11 9,007 Deposits paid for acquisition of property, plant and equipment 16,081 56,399 Current assets Inventories 5,435 Trade and other receivables 12 23,881 Consideration receivable on acquisition of subsidiaries — Bank balances and cash 116,466 145,782 Current liabilities Trade and other payables 13 11,186 Bills payable 14 1,687 Bank loans - amount due within one year — 12,873 Net current assets 132,909 189,308 Capital and reserves Share capital 15 3,927 Reserves 185,381 189,308 Non-current liabilities Bank loans - amount due after one year — 189,308	31 March 2005 HK$’000 (Audited) 23,661 21,122 — —
	56,399 5,435 23,881 — 116,466 145,782 11,186 1,687 — 12,873 132,909	44,783
		4,646 25,766 11,120 33,352
		74,884
		8,040 1,200 30,985
		40,225
		34,659
	189,308	79,442
	3,927 185,381 189,308 —	35,701 28,320
		64,021 15,421
	189,308	79,442

— 13 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

At 1 April 2004 Exchange differences on translation of overseas operations and net income recognised directly in equity Realised on disposal of subsidiaries Profit for the year Total recognised income and expense for the year At 31 March 2005 Exchange differences on translation of overseas operations and net income recognised directly in equity Loss for the period Total recognised income and expense for the period Reduction of share capital upon capital reorganisation (see note 15(a)) Rights issue of shares (see note 15(b)) At 30 September 2005 At 1 April 2004 Realised on disposal of subsidiaries and net income recognised directly in equity Profit for the period Total recognised income and expense for the period At 30 September 2004	Share capital HK$’000 35,701	Share premium HK$’000 61,344	Capital reserve Contributed surplus Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 17,850 714 (16) (57,737)	Capital reserve Contributed surplus Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 17,850 714 (16) (57,737)	Capital reserve Contributed surplus Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 17,850 714 (16) (57,737)	Capital reserve Contributed surplus Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 17,850 714 (16) (57,737)	Total HK$’000 57,856 45 16 6,104 6,165 64,021 1,360 (18,876) (17,516) — 142,803 189,308 57,856 16 6,226 6,242 64,098
	— — — — 35,701 — — — (35,344) 3,570	— — — — 61,344 — — — — 139,233	— — — — 17,850 — — — 35,344 —	— — — — 714 — — — — —	45 16 — 61 45 1,360 — 1,360 — —	— — 6,104 6,104 (51,633) — (18,876) (18,876) — —	45 16 6,104
							6,165
							64,021
							1,360 (18,876
							(17,516
							— 142,803
	3,927	200,577	53,194	714	1,405	(70,509)
	35,701 — — —	61,344 — — —	17,850 — — —	714 — — —	(16) 16 — 16	(57,737) — 6,226 6,226	57,856
							16 6,226
							6,242
	35,701	61,344	17,850	714	—	(51,511)

— 14 —

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

Net cash used in operating activities Net cash used in investing activities Net cash from financing activities Proceeds from issue of new shares Bank loans raised Repayment of bank loans Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at end of the period, represented by bank balances and cash	Six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) (237) (5,188) (14,137) (61,815) 142,803 — 25,000 5,000 (71,406) — 96,397 5,000 82,023 (62,003) 33,352 66,131 1,091 — 116,466 4,128	Six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) (237) (5,188) (14,137) (61,815) 142,803 — 25,000 5,000 (71,406) — 96,397 5,000 82,023 (62,003) 33,352 66,131 1,091 — 116,466 4,128
	(14,137) 142,803 25,000 (71,406) 96,397 82,023 33,352 1,091	(61,815
		— 5,000 —
		5,000
		(62,003 66,131 —
	116,466

— 15 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

1. GENERAL AND BASIS OF PREPARATION

The condensed financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention.

The principal accounting policies used in the condensed financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2005 except as described below.

In the current period, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRS(s)”), Hong Kong Accounting Standards (“HKAS(s)”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2005 except for HKFRS 3 “Business Combinations”, which is applicable for business combinations for which the agreement date is on or after 1 January 2005. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current accounting period are prepared and presented.

Business combinations

In the current period, the Group has applied the transitional provisions of HKFRS 3 “Business Combinations” to goodwill arising on business combinations for which the agreement date was before 1 January 2005. The principal effects of the application of the transitional provisions of HKFRS 3 to the Group are summarised below:

Goodwill

In previous periods, goodwill arising on business combinations for which the agreement date was before 1 January 2005 was capitalised and amortised over its estimated useful life. With respect to goodwill arising on business combinations for which the agreement date was before 1 January 2005 and previously capitalised on the balance sheet, the Group has discontinued amortising such goodwill from 1 April 2005 onwards and goodwill will be tested for impairment at least annually. Goodwill arising on business combinations for which the agreement date is on or after 1 January 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. As a result of this change in accounting policy, no amortisation of goodwill has been charged in the current period. This change in accounting policy has resulted in a decrease in loss for the current period of approximately HK$1,152,000 other than the impairment loss recognised in respect of goodwill of approximately HK$12,445,000. Comparative figures for 2004 have not been restated.

Share-based payments

In the current period, the Group has applied HKFRS 2 “Share-based Payment”, which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of directors’ and employees’ share options of the Company determined at the date of grant of the share options

— 16 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. As all share options of the Group were granted before 7 November 2002 and the Group did not have share options granted after 7 November 2002, there is no financial effect on the loss or profit for the current or prior accounting periods.

Owner-occupied leasehold interests in land

In the current period, the Group has applied HKAS 17 “Leases”. Under HKAS 17, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight line basis.

3. SEGMENT INFORMATION

The Group’s primary format for reporting segment information is business segments. For management purposes, the Group is currently organised into two main operating divisions - bleaching and dyeing and knitting. These divisions are the bases on which the Group reports its primary segment information. The divisions of wireless communication business and communication solutions consultancy services were discontinued by the management in view of the inactiveness of the relevant businesses during the period. The discontinued operations during the period did not have any significant impact on the results of the Group for the current and prior accounting periods.

For the six months ended 30 September 2005

Bleaching and dyeing HK$’000 Turnover External 26,707 Inter-segment — Total 26,707 Segment result (487) Interest income Impairment loss recognised in respect of goodwill (12,445) Unallocated corporate expenses Loss from operations	Knitting Eliminations Consolidated HK$’000 HK$’000 HK$’000 151 — 26,858 2,157 (2,157) — 2,308 (2,157) 26,858 (1,091) — (1,578) 90 (12,445) (3,690) (17,623)

— 17 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the six months ended 30 September 2004

Turnover Segment result Interest income Unallocated corporate expenses Loss from operations	Continuing operations Bleaching and dyeing Knitting HK$’000 HK$’000 20,892 1,089 1,176 (2,169)	Discontinued operations Wireless communication business Communication solutions consultancy services Consolidated HK$’000 HK$’000 HK$’000 — — 21,981 70 (11) (934) 3 (1,747) (2,678)	Discontinued operations Wireless communication business Communication solutions consultancy services Consolidated HK$’000 HK$’000 HK$’000 — — 21,981 70 (11) (934) 3 (1,747) (2,678)
	Bleaching and dyeing HK$’000 20,892 1,176
			(934) 3 (1,747)
			(2,678)

4. LOSS FROM OPERATIONS

	Six months ended	Six months ended
	30 September
	2005	2004
	HK$’000	HK$’000
Loss from operations has been arrived at after charging:
Amortisation of goodwill, included in other operating expenses	—	1,639
Depreciation	1,677	1,120
Total staff costs (including directors’ emolument)	3,233	2,214

5. FINANCE COSTS

The amount represents interest on bank loans wholly repayable within five years.

6. TAXATION

No provision for Hong Kong Profits Tax has been made as the Company and its subsidiaries had no assessable profit for both periods.

— 18 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. BASIC (LOSS) EARNINGS PER SHARE

The calculation of the basic (loss) earnings per share is based on the following data:

	Six months ended	Six months ended
	30 September
	2005	2004
	HK$’000	HK$’000
(Loss) profit for the purposes of basic (loss) earnings per share	(18,876)	6,226
	Six months ended
	30 September
	2005	2004
Number of shares
Weighted average number of shares for the purposes of basic (loss) earnings
per share	50,529,148	34,886,708

The denominator for the purposes of calculating basic earnings per share for the six months ended 30 September 2004 has been adjusted to reflect the consolidation of shares on the basis that ten shares were consolidated into one share and the rights issue of shares in September 2005.

No diluted loss per share has been presented for the six months ended 30 September 2005 as the exercise of the Company’s outstanding share options would reduce the loss per share for the period.

No diluted earnings per share was presented for the six months ended 30 September 2004 as the exercise prices of the Company’s outstanding share options were higher than the average market price for that period.

8. DIVIDENDS

No dividend was paid by the Company during the period. The directors do not recommend the payment of an interim dividend for both periods.

9. PROPERTY, PLANT AND EQUIPMENT

During the period, the Group spent approximately HK$381,000 on acquisition of property, plant and equipment (six months ended 30 September 2004: HK$26,022,000 of which approximately HK$14,529,000 was related to acquisition of subsidiaries).

— 19 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. GOODWILL

COST At 1 April 2005 Elimination of accumulated amortisation upon the application of HKFRS 3 (see note 2) At 30 September 2005 AMORTISATION At 1 April 2005 Elimination of accumulated amortisation upon the application of HKFRS 3 At 30 September 2005 IMPAIRMENT At 1 April 2005 Impairment loss recognised for the period At 30 September 2005 CARRYING AMOUNTS At 30 September 2005 At 31 March 2005	HK$’000 23,042 (1,920) 21,122 1,920 (1,920) — — 12,445 12,445 8,677 21,122

Impairment loss was recognised based on the recoverable amounts of the subsidiaries acquired which were determined by the estimated discounted net future cash flows from these subsidiaries using market borrowing rates.

11. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise land use rights situated in the People’s Republic of China (the “PRC”) held under medium-term leases. At 30 September 2005, an amount of approximately HK$102,000 (31 March 2005: nil) was included in other receivables in the condensed consolidated balance sheet.

— 20 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. TRADE AND OTHER RECEIVABLES

The Group allows an average credit period of up to 100 days to its customers. The aged analysis of trade receivables at the reporting date, based on invoice date, is as follows:

30 September 2005 HK$’000 0 - 60 days 8,029 61 - 90 days 2,415 Over 90 days 12,520 Trade receivables 22,964 Other receivables 917 23,881	31 March 2005 HK$’000 7,150 3,398 13,883
	24,431 1,335
	25,766

13. TRADE AND OTHER PAYABLES

The aged analysis of trade payables at the reporting date is as follows:

30 September 2005 HK$’000 0 - 60 days 6,244 61 - 90 days 1,281 Over 90 days 256 Trade payables 7,781 Other payables 3,405 11,186	31 March 2005 HK$’000 4,615 961 277
	5,853 2,187
	8,040

14. BILLS PAYABLE

At the reporting date, the bills payable is aged within 60 days.

— 21 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. SHARE CAPITAL

NOTES Nominal value per share HK$ Authorised: At 1 April 2005 0.10 Effect of the Capital Reduction referred to below (a)(i) 0.001 Effect of the share consolidation referred to below (a)(iii) At 30 September 2005 0.01 Issued and fully paid: At 1 April 2005 0.10 Effect of the Capital Reduction referred to below (a)(i) 0.001 Effect of the share consolidation referred to below (a)(iii) 0.01 Rights issue of shares at a price of HK$0.40 per rights share (b) 0.01 At 30 September 2005 0.01	Number of shares 6,500,000,000 —	Amount HK$’000 650,000 (643,500) 6,500 — 6,500 35,701 (35,344) 357 — 357 3,570 3,927
	6,500,000,000 (5,850,000,000)	6,500 —
	650,000,000
	357,006,840 — 357,006,840 (321,306,156) 35,700,684 357,006,840	35,701 (35,344
		357 —
		357 3,570
	392,707,524

Notes:

• (a) In September 2005, the Company underwent a capital reorganisation (the “Capital Reorganisation”). Details of the Capital Reorganisation are set out in the circular dated 15 August 2005 issued by the Company.

At the special general meeting of the Company held on 6 September 2005, a special resolution approving the Capital Reorganisation was passed and the following capital reorganisation became effective on 9 September 2005:

• (i) the par value of the authorised, issued and unissued share capital of the Company was reduced from HK$0.10 each to HK$0.001 each (the “Capital Reduction”);

• (ii) the amount of the cancelled paid-up capital in the sum of approximately HK$35,344,000 arising from the Capital Reduction was credited to a capital reserve account of the Company; and

• (iii) every ten issued and unissued reduced shares of HK$0.001 each were consolidated into one share of HK$0.01 each (the “Consolidated Share”).

• (b) Rights issue of 357,006,840 shares of HK$0.01 each at a subscription price of HK$0.40 per rights share were allotted on 27 September 2005 to the shareholders of the Company in the proportion of ten rights shares for every

— 22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Share then held. The net proceeds of the rights issue amounted to approximately HK$140.3 million of which approximately HK$69.9 million was used for repayment of all outstanding bank loans, and the balance for general working capital purposes. All shares issued rank pari passu with the then existing shares in issue in all respects.

16. RELATED PARTY TRANSACTIONS/CONNECTED TRANSACTIONS

• (a) During the period, the Group had the following transactions carried out at prices determined by reference to market prices for similar transactions with related parties/persons deemed to be “connected persons” by the Stock Exchange, being entities controlled by certain relatives of Mr. Koon Wing Yee and his spouse, Ms. Lui Yuk Chu, both of whom are directors of the Company:

	Six months ended 30 September	Six months ended 30 September
	2005	2004
	HK$’000	HK$’000
Sales of bleached and dyed fabrics	2,738	13,047
Bleaching and dyeing charges received	1,255	166

At the reporting date, amounts due from the above entities comprise:

		**30 **	September	31 March
			2005	2005
			HK$’000	HK$’000
Trade	receivables		249	5,809

• (b) During the period, the Group received administrative services from Easyknit International Trading Company Limited (“EITC”), a company in which Mr. Koon Wing Yee, Mr. Tsang Yiu Kai and Ms. Lui Yuk Chu, all are directors of the Company, have beneficial interests and paid services fee of approximately HK$120,000 (six months ended 30 September 2004: HK$121,000). The services fee is determined based on mutually agreed terms.

• (c) During the period, a director of the Company provided a personal guarantee for HK$55,000,000 to a bank in respect of general banking facilities granted to a wholly-owned subsidiary of the Company. The relevant bank loans of the subsidiary were fully repaid by applying the net proceeds from the rights issue of the Company in September 2005.

— 23 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. CAPITAL COMMITMENTS

30 September 2005 HK$’000 Capital expenditure contracted but not provided for in respect of: - construction of plants 4,647 - acquisition of property, plant and equipment 10 - acquisition of land use rights — - capital injection for interests in a jointly controlled entity and a non wholly-owned subsidiary 20,904 25,561 Capital expenditure authorised but not contracted for in respect of acquisition of property, plant and equipment (note) 169,693	31 March 2005 HK$’000 19,080 — 9,538 20,904
	49,522
	171,382

Note:

In December 2004, the Group entered into agreements in connection with the acquisition of the land use rights, the construction of the plants and the proposed development of manufacturing operations in Huzhou City, Zhejiang Province, the PRC (the “Project”) with the People’s Government of Zhili Town, Wuxing District, Huzhou City, Zhejiang Province, the PRC (the “Vendor”). The Project was divided into two phases and the investment in phase 1 was expected to be up to HK$200,000,000. The related capital commitment has been presented above. The total investment of the Project (being phase 1 and phase 2) was not determined. Details of the agreements are set out in the circular issued by the Company dated 21 February 2005.

18. POST BALANCE SHEET EVENT

In November 2005, the Group entered into a supplemental agreement (the “Supplemental Agreement”) in respect of the Project with the Vendor. The total investment of the Project (being phase 1 and phase 2), which is subject to shareholders’ approval, as agreed by the parties in the Supplemental Agreement is estimated to be approximately HK$499,000,000 (equivalent to RMB519,000,000), out of which approximately HK$25,660,000 has been paid before the balance sheet date. The Group intends to finance the Project through internal resources, bank borrowings and other forms of financing available to the Group. Details of the above are set out in the announcement dated 30 November 2005 issued by the Company.

— 24 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the audited consolidated income statement of the Group for the year ended 31 December 2002, the 15 months ended 31 March 2004 and the year ended 31 March 2005, the audited consolidated balance sheet of the Group as at 31 December 2002, 31 March 2004 and 31 March 2005, the balance sheet of the Company as at 31 March 2004 and 31 March 2005, the consolidated statement of changes in equity and the consolidated cash flow statement for the 15 months ended 31 March 2004 and the year ended 31 March 2005. The information upon which the summary is based has been fully extracted from the annual reports of the Company for the relevant years/period.

During the period of 15 months ended 31 March 2004, the Company changed its financial year-end date from 31 December to 31 March to align with the financial year-end date with that of Easyknit International Holdings Limited, a controlling Shareholder. Therefore, the financial statements of the Group of such period covered the period from 1 January 2003 to 31 March 2004.

CONSOLIDATED INCOME STATEMENT

		1.4.2004 to	1.1.2003 to	1.1.2002 to
	NOTES	31.3.2005	31.3.2004	31.12.2002
		HK$’000	HK$’000	HK$’000
Turnover	5	53,662	5,083	70,354
Cost of sales and services		(43,700)	(3,352)	(52,216)
Gross profit		9,962	1,731	18,138
Other operating income	7	265	709	2,398
Distribution costs		(303)	(6,948)	(19,942)
Administrative expenses		(9,773)	(26,597)	(55,775)
Other operating expenses		(2,279)	(5,417)	(5,399)
Impairment loss recognised in respect
of property, plant and equipment		—	(9,971)	(785)
Impairment loss recognised in respect
of long term investments		—	(3,900)	—
Allowance for a loan to Acme Landis Operations
Holdings Limited, a former subsidiary		(403)	(3,297)	(42,115)
Allowance for doubtful debts		17	(1,155)	(6,082)
Allowance for amounts due from associates		—	(317)	—
Loss from operations	8	(2,514)	(55,162)	(109,562)
Gain/(loss) on disposal of subsidiaries/discontinued
operations	30	9,042	(539)	(4,615)
Finance costs	9	(424)	(1,960)	(37)
Share of results of an associate		—	(4)	(13,991)
Impairment loss recognised in respect of
goodwill of an associate		—	—	(48,807)
Allowance for loans to an associate		—	—	(14,216)
Share of results of jointly controlled entities		—	(72)	(65)
Profit/(loss) before taxation		6,104	(57,737)	(191,293)
Taxation		—	—	309
Profit/(loss) before minority interests		6,104	(57,737)	(190,984)
Minority interests		—	—	(440)
Net profit/(loss) for the period/year		6,104	(57,737)	(191,424)
Basic earnings (loss) per share	12	HK$0.02	HK$(0.97)	HK$(4.98)*

• The basic loss per share as stated above has been adjusted for the effect of the consolidation of shares in September 2003 and rights issue of shares in September 2003 and March 2004, details of which are set out in the respective circulars.

— 25 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

	NOTES	31.3.2005	31.3.2004	31.12.2002
		HK$’000	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	14	23,661	665	5,999
Goodwill	15	21,122	—	388
Interests in jointly controlled entities		—	—	1,253
Long term investments	17	—	—	3,900
Loan to Acme Landis Operations
Holdings Limited	18	—	403	3,700
		44,783	1,068	15,240
Current assets
Inventories, at cost	19	4,646	—	137
Trade and other receivables	20	25,766	1,935	2,669
Consideration receivable on acquisition of
subsidiaries	29	11,120	—	—
Bank balances and cash		33,352	66,131	1,822
		74,884	68,066	4,628
Current liabilities
Trade and other payables	21	8,040	7,069	6,915
Bill payable	22	1,200	—	—
Bank loans - amount due within one year	23	30,985	—	—
Amounts due to jointly controlled entities		—	—	1,234
Other loan, secured	24	—	4,000	—
		40,225	11,069	8,149
Net current assets (liabilities)		34,659	56,997	(3,521)
		79,442	58,065	11,719
Capital and reserves
Share capital	25	35,701	35,701	110,187
Reserves		28,320	22,155	(98,468)
		64,021	57,856	11,719
Minority interests		—	209	—
Non-current liabilities
Bank loans - amount due after one year	23	15,421	—	—
		79,442	58,065	11,719

— 26 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

Notes 2005 2004 HK$’000 HK$’000 Non-current assets Interests in subsidiaries 16 61,626 2,116 Current assets Other receivables 125 109 Bank balances and cash 459 65,856 584 65,965 Current liabilities Other payables 545 1,322 Net current assets 39 64,643 61,665 66,759 Capital and reserves Share capital 25 35,701 35,701 Reserves 27 25,964 27,942 61,665 63,643 Non-current liabilities Amounts due to subsidiaries 28 — 3,116 61,665 66,759	Notes 2005 2004 HK$’000 HK$’000 Non-current assets Interests in subsidiaries 16 61,626 2,116 Current assets Other receivables 125 109 Bank balances and cash 459 65,856 584 65,965 Current liabilities Other payables 545 1,322 Net current assets 39 64,643 61,665 66,759 Capital and reserves Share capital 25 35,701 35,701 Reserves 27 25,964 27,942 61,665 63,643 Non-current liabilities Amounts due to subsidiaries 28 — 3,116 61,665 66,759	Notes 2005 2004 HK$’000 HK$’000 Non-current assets Interests in subsidiaries 16 61,626 2,116 Current assets Other receivables 125 109 Bank balances and cash 459 65,856 584 65,965 Current liabilities Other payables 545 1,322 Net current assets 39 64,643 61,665 66,759 Capital and reserves Share capital 25 35,701 35,701 Reserves 27 25,964 27,942 61,665 63,643 Non-current liabilities Amounts due to subsidiaries 28 — 3,116 61,665 66,759
	125 459 584 545 39	109 65,856
		65,965 1,322
		64,643
	61,665	66,759
	35,701 25,964 61,665 —	35,701 27,942
		63,643 3,116
	61,665	66,759

— 27 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share capital HK$’000 110,187 35,260 7,272 (117,018) — — —	Share premium HK$’000 255,030 52,890 8,454 (255,030) — — —	Capital reserve Contributed surplus HK$’000 HK$’000 — — — — — — 17,850 354,198 — (353,484) — — — —	Capital reserve Contributed surplus HK$’000 HK$’000 — — — — — — 17,850 354,198 — (353,484) — — — —	Exchange reserve Accumulated losses HK$’000 HK$’000 (14) (353,484) — — — — — — — 353,484 (2) — — (57,737)	Exchange reserve Accumulated losses HK$’000 HK$’000 (14) (353,484) — — — — — — — 353,484 (2) — — (57,737)	Exchange reserve Accumulated losses HK$’000 HK$’000 (14) (353,484) — — — — — — — 353,484 (2) — — (57,737)
35,701 — — —	61,344 — — —	17,850 — — —	714 — — —	(16) 16 45 —	(57,737) — — 6,104	57,856 16 45 6,104

The capital reserve of the Group represents the credit arising from the reduction of share capital of the Company in March 2004 and can be applied in the future for distribution to the shareholders.

The contributed surplus of the Group represents the credit arising from the reduction of share capital of the Company in February 2003 which may then be utilised by the directors in accordance with the Company’s Bye-laws and all applicable laws, including to eliminate the accumulated losses of the Company.

— 28 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Cash flows from operating activities
Net profit (loss) for the year/period	6,104	(57,737)
Adjustments for:
Share of results of an associate	—	4
Share of results of jointly controlled entities	—	72
Interest income	(45)	(70)
Interest expense	424	1,960
Depreciation	2,744	6,495
Amortisation of goodwill	1,920	—
(Gain) loss on disposal of subsidiaries	(9,042)	539
Allowance for a loan to Acme Landis Operations Holdings
Limited, a former subsidiary	403	3,297
Allowance for inventories	94	—
(Write-back of) allowance for doubtful debts	(17)	1,155
Allowance for amounts due from associates	—	317
Loss on disposal of property, plant and equipment	—	379
Loss on waiver of amount due from a minority
shareholder of a subsidiary	—	117
Loss on waiver of loan to a jointly controlled entity	—	7
Impairment loss recognised in respect of property,
plant and equipment	—	9,971
Impairment loss recognised in respect of long term investments	—	3,900
Impairment loss recognised in respect of goodwill of
subsidiaries	—	492
Operating cash inflows (outflows) before movements in
working capital	2,585	(29,102)
(Increase) decrease in inventories	(1,730)	137
Increase in trade and other receivables	(4,127)	(864)
(Decrease) increase in trade and other payables	(4,211)	132
Decrease in bills payable	(637)	—
Cash used in operations	(8,120)	(29,697)
Interest paid	(275)	(1,534)
Net cash used in operating activities	(8,395)	(31,231)

— 29 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

		1.4.2004 to	1.1.2003 to
	Notes	31.3.2005	31.3.2004
		HK$’000	HK$’000
Cash flows from investing activities
Interest received		45	70
Proceeds from disposal of property, plant and equipment		—	227
Purchase of property, plant and equipment		(11,779)	(12,125)
Investment in an associate		—	(4)
Advances to associates		—	(317)
Acquisition of subsidiaries/a subsidiary,
net of cash and cash equivalents acquired	29	(39,191)	(72)
Excess payment on acquisition of subsidiaries		(11,120)	—
Disposal of subsidiaries, net of cash and
cash equivalents disposal of	30	(15)	(115)
Net cash used in investing activities		(62,060)	(12,336)
Cash flows from financing activities
Bank loans raised		40,000	—
Proceeds from issue of new shares		—	103,876
Other loans raised		—	34,270
Repayment of bank loans		(2,369)	—
Repayment of other loans		—	(30,270)
Net cash from financing activities		37,631	107,876
Net (decrease) increase in cash and cash equivalents		(32,824)	64,309
Cash and cash equivalents at beginning of the year/period		66,131	1,822
Effect of foreign exchange rate changes		45	—
Cash and cash equivalents at end of the year/period,
represented by bank balances and cash		33,352	66,131

— 30 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2005

1. GENERAL

The Company is incorporated in Bermuda as an exempted company with limited liability. Its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company is an investment holding company. Its subsidiaries are principally engaged in bleaching, dyeing and knitting.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The consolidated financial statements for the current period cover the twelve month period ended 31 March 2005. The corresponding amounts shown for the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and related notes cover a fifteen month period from 1 January 2003 to 31 March 2004 and therefore may not be comparable with amounts shown for the current period. The period covered by the preceding consolidated financial statements was greater than twelve months because the directors of the Company determined to bring the balance sheet date in line with that of the controlling shareholder, Easyknit International Holdings Limited (“Easyknit”). No further changes to reporting dates are anticipated.

3. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

In 2004, the Hong Kong Institute of Certified Public Accountants issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards (“HKFRSs”) (herein collectively referred to as “new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005 except for HKFRS 3 Business Combinations. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 March 2005.

HKFRS 3 is applicable to business combinations for which the agreement date is on or after 1 January 2005. The Group has not entered into any business combination for which the agreement date is on or after 1 January 2005. Therefore, HKFRS 3 did not have any impact on the Group for the year ended 31 March 2005.

The Group has commenced considering the potential impact of the other new HKFRSs but is not yet in a position to determine whether these new HKFRSs would have a significant impact on how its results of operations and financial position are prepared and presented. These new HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented.

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention and have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to the balance sheet date.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from or up to the effective date of acquisition or disposal, as appropriate.

— 31 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition.

Goodwill arising on acquisitions is capitalised and amortised on a straight line basis over its useful economic life. Goodwill arising on the acquisition of an associate or jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a separate intangible asset.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year/period. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates plus goodwill in so far as it has not already been amortised, less any identified impairment loss.

Jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Group’s interests in jointly controlled entities are included in the consolidated balance sheet at the Group’s share of the net assets of the jointly controlled entities plus the goodwill in so far as it has not already been amortised, less any identified impairment loss. The Group’s share of the post-acquisition results of its jointly controlled entities is included in the consolidated income statement.

Revenue recognition

Telecommunications revenue for services provided for fixed periods is recognised on a straight line basis over the respective periods. Other telecommunications revenue is recognised when products are delivered or services are rendered.

Sales of goods are recognised when goods are delivered and title has passed.

Service income is recognised when bleaching, dyeing and knitting services are rendered.

Commission income is recognised when services are provided.

Dividend income from investments is recognised when the Group’s rights to receive payment have been established.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

— 32 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and any accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight line method, at the following rates per annum:

Plant and machinery	9% to 18%
Furniture, fixtures and equipment	9% to 30%
Motor vehicles	9% to 20%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

At subsequent reporting dates, debt securities that the Group intends to hold to maturity, which are held-to-maturity debt securities, are measured at amortised cost less any identified impairment losses. Any discount or premium on the acquisition of a held-to-maturity debt security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments, as appropriate.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost less any identified impairment losses.

Other investments are measured at fair value, with unrealised gains and losses included in the profit or loss for the period.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

— 33 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are included in the income statement.

On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s exchange reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight line basis over the relevant lease term.

Retirement benefits costs

The amount of the Group’s contributions payable under the Group’s retirement benefits schemes is charged to the income statement as and when incurred.

— 34 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. TURNOVER

Turnover represents the aggregate of the amounts received and receivable for goods sold, net of returns, and services rendered by the Group during the year/period. An analysis of the Group’s turnover is as follows:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Bleaching and dyeing
— sales of goods	43,908	—
— service income	9,310	—
	53,218	—
Knitting services	444	—
Wireless communication services	—	3,982
Communication solutions consultancy services	—	1,101
	53,662	5,083

— 35 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into four main operating divisions -bleaching and dyeing, knitting, wireless communication business and communication solutions consultancy services. These divisions are the bases on which the Group reports its primary segment information.

Segment information about these businesses is presented below:

For the year ended 31 March 2005

(i) Income statement

Turnover External Inter-segment Total Segment result Interest income Unallocated corporate expenses Loss from operations Gain on disposal of subsidiaries Finance costs Net profit for the year	Bleaching and dyeing HK$’000 53,218 —	Knitting Wireless communication business Communication solutions consultancy services Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 444 — — — 53,662 2,945 — — (2,945) — 3,389 — — (2,945) 53,662 (2,370) 56 (11) — 1,770 45 (4,329) (2,514) 9,042 (424) 6,104	Knitting Wireless communication business Communication solutions consultancy services Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 444 — — — 53,662 2,945 — — (2,945) — 3,389 — — (2,945) 53,662 (2,370) 56 (11) — 1,770 45 (4,329) (2,514) 9,042 (424) 6,104	Knitting Wireless communication business Communication solutions consultancy services Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 444 — — — 53,662 2,945 — — (2,945) — 3,389 — — (2,945) 53,662 (2,370) 56 (11) — 1,770 45 (4,329) (2,514) 9,042 (424) 6,104
	53,218			53,662
	4,095			1,770
				45 (4,329)
				(2,514) 9,042 (424)
				6,104

— 36 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Balance sheet

	Bleaching
	and dyeing	Knitting	Consolidated
	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	71,022	11,747	82,769
Unallocated corporate assets			36,898
Consolidated total assets			119,667
LIABILITIES
Segment liabilities	8,225	306	8,531
Unallocated corporate liabilities			47,115
Consolidated total liabilities			55,646

(iii) Other information

			Communication	Communication
	Bleaching		Wireless	solutions
	and		communication	consultancy
	dyeing	Knitting	business	services	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Addition of goodwill	23,042	—	—	—	23,042
Amortisation of goodwill	1,920	—	—	—	1,920
Capital additions	84	11,695	—	—	11,779
Depreciation	1,717	1,011	6	10	2,744
Allowance for inventories	94	—	—	—	94
Write back of allowance for
doubtful debts	—	—	(17)	—	(17)

In addition, allowance for a loan to Acme Landis Operations Holdings Limited (“ALOH”), a former subsidiary of the Company, amounting to HK$403,000 charged to the consolidated income statement is related to the segments of sanitary fixtures and fittings, hardware, industrial and consumer products, and drainage, plumbing and engineering contracting services, the businesses of which were discontinued by the Group in 2002.

— 37 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the fifteen months ended 31 March 2004

(i) Income statement

Wireless communication business Communication solutions consultancy services HK$’000 HK$’000 Turnover 3,982 1,101 Segment result (31,873) (2,856) Interest income Allowance for amounts due from associates (317) Unallocated corporate expenses Loss from operations Loss on disposal of subsidiaries Finance costs Share of results of an associate Share of results of jointly controlled entities (72) Net loss for the period	Internet operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 — — 5,083 (304) — (35,033) 70 (317) (19,882) (55,162) (539) (1,960) (4) (4) (72) (57,737)	Internet operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 — — 5,083 (304) — (35,033) 70 (317) (19,882) (55,162) (539) (1,960) (4) (4) (72) (57,737)	Internet operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 — — 5,083 (304) — (35,033) 70 (317) (19,882) (55,162) (539) (1,960) (4) (4) (72) (57,737)
			(35,033)
			70 (317) (19,882)
			(55,162) (539) (1,960) (4) (72)
			(57,737)

— 38 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Balance sheet

		Communication
	Wireless	solutions
	communication	consultancy	Internet
	business	services	operations	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	76	59	2	137
Unallocated corporate assets				68,997
Consolidated total assets				69,134
LIABILITIES
Segment liabilities	3,189	558	80	3,827
Unallocated corporate liabilities				7,242
Consolidated total liabilities				11,069
Other information
		Communication
	Wireless	solutions
	communication	consultancy	Internet
	business	services	operations	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	12,125	—	—	12,125
Depreciation	5,863	434	198	6,495
Impairment loss in respect of property,
plant and equipment	9,971	—	—	9,971
Impairment loss in respect of long term
investments	3,900	—	—	3,900
Allowance for doubtful debts	1,045	110	—	1,155
Allowance for amounts due from associates	317	—	—	317
Impairment loss in respect of goodwill of
subsidiaries	104	388	—	492
Loss (gain) on disposal of property, plant
and equipment	323	58	(2)	379

(iii) Other information

In addition, allowance for a loan to ALOH, a former subsidiary of the Company, amounting to HK$3,297,000 charged to the consolidated income statement is related to the segments of sanitary fixtures and fittings, hardware, industrial and consumer products, and drainage, plumbing and engineering contracting services, the business of which were discontinued by the Group in 2002.

— 39 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

An analysis of the Group’s turnover by geographical market for the year/period is as follows:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Hong Kong	—	5,083
The People’s Republic of China, excluding Hong Kong (the “PRC”)	53,662	—
	53,662	5,083

An analysis of the carrying amount of segment assets and additions to property, plant and equipment and goodwill, analysed by the geographical area in which the assets are located is as follows:

Hong Kong PRC OTHER OPERATING INCOME An analysis of the Group’s other operating income is Interest income Commission income Others	Carrying amount of segment assets Additions to property, plant and equipment and goodwill 31.3.2005 31.3.2004 1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 HK$’000 HK$’000 11,718 67,425 — 12,229 107,949 1,709 34,821 — 119,667 69,134 34,821 12,229 1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 as follows: 45 70 — 471 220 168 265 709	Carrying amount of segment assets Additions to property, plant and equipment and goodwill 31.3.2005 31.3.2004 1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 HK$’000 HK$’000 11,718 67,425 — 12,229 107,949 1,709 34,821 — 119,667 69,134 34,821 12,229 1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 as follows: 45 70 — 471 220 168 265 709
		709

7. OTHER OPERATING INCOME

— 40 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. LOSS FROM OPERATIONS

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Loss from operations has been arrived at after charging:
Directors’ remuneration (note 10(a))	253	868
Other staff costs, including retirement benefits costs	4,868	11,869
Total staff costs	5,121	12,737
Allowance for inventories	94	—
Amortisation of goodwill (note)	1,920	—
Auditors’ remuneration	545	350
Cost of inventories recognised as an expense	32,345	378
Depreciation	2,744	6,495
Impairment loss recognised in respect of goodwill of subsidiaries (note)	—	492
Loss on disposal of property, plant and equipment	—	379
Loss on waiver of amount due from a minority shareholder of a subsidiary
(note)	—	117
Loss on waiver of loan to a jointly controlled entity (note)	—	7

Note: The amounts are included in other operating expenses.

9. FINANCE COSTS

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Interest on borrowings wholly repayable within five years:
— loan of HK$30,270,000 from Planetic International Limited
(the “Easyknit Loan”), a wholly-owned subsidiary of Easyknit
(note 13(e))	—	1,515
— bank borrowings	339	—
— other borrowings	85	445
	424	1,960

— 41 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Information regarding directors’ emoluments

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Directors’ fees:
Executive	—	—
Independent non-executive	253	200
	253	200
Other emoluments paid to executive directors:
Salaries and other benefits	—	664
Retirement benefits costs	—	4
	—	668
Total directors’ emoluments	253	868
The emoluments of the directors fall within the following band:
	Number of directors
	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
Nil to HK$1,000,000	6	15

• (b) Information regarding employees’ emoluments

The five highest paid individuals of the Group did not include any director (1.1.2003 to 31.3.2004: included one director). The emoluments of the five (1.1.2003 to 31.3.2004: four) highest paid individuals, not being directors, are as follows:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Salaries and other benefits	1,175	4,028
Retirement benefits costs	47	62
Severance payments	—	37
Total employees’ emoluments	1,222	4,127

— 42 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Their emoluments were within the following bands:

	Number of employees	Number of employees
	1.4.2004 to	**1.1.2003 **	to
	31.3.2005	31.3.2004
Nil to HK$1,000,000	5		3
HK$1,000,001 to HK$1,500,000	—		1
	5		4

During the year/period, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss in office. In addition, during both periods, no director waived any emoluments.

11. TAXATION

No provision for Hong Kong Profits Tax has been made as the Company and its subsidiaries had no assessable profit for the year ended 31 March 2005 and for the fifteen months ended 31 March 2004.

The tax charge (credit) for the year/period can be reconciled to the results per the consolidated income statement as follows:

1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 Net profit (loss) for the year/period 6,104 (57,737) Tax charge (credit) of Hong Kong Profits Tax at 17.5% (1.1.2003 to 31.3.2004: 17.5%) 1,068 (10,104) Tax effect of share of results of associates — 1 Tax effect of share of results of jointly controlled entities — 13 Tax effect of income not taxable for tax purposes (1,654) (22) Tax effect of expenses not deductible for tax purposes 818 3,575 Tax effect attributable to tax exemption granted to a PRC subsidiary (1,276) — Tax effect of tax losses not recognised 885 5,929 Others 159 608 Taxation for the year/period — —	1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 Net profit (loss) for the year/period 6,104 (57,737) Tax charge (credit) of Hong Kong Profits Tax at 17.5% (1.1.2003 to 31.3.2004: 17.5%) 1,068 (10,104) Tax effect of share of results of associates — 1 Tax effect of share of results of jointly controlled entities — 13 Tax effect of income not taxable for tax purposes (1,654) (22) Tax effect of expenses not deductible for tax purposes 818 3,575 Tax effect attributable to tax exemption granted to a PRC subsidiary (1,276) — Tax effect of tax losses not recognised 885 5,929 Others 159 608 Taxation for the year/period — —	1.4.2004 to 31.3.2005 1.1.2003 to 31.3.2004 HK$’000 HK$’000 Net profit (loss) for the year/period 6,104 (57,737) Tax charge (credit) of Hong Kong Profits Tax at 17.5% (1.1.2003 to 31.3.2004: 17.5%) 1,068 (10,104) Tax effect of share of results of associates — 1 Tax effect of share of results of jointly controlled entities — 13 Tax effect of income not taxable for tax purposes (1,654) (22) Tax effect of expenses not deductible for tax purposes 818 3,575 Tax effect attributable to tax exemption granted to a PRC subsidiary (1,276) — Tax effect of tax losses not recognised 885 5,929 Others 159 608 Taxation for the year/period — —
	1,068 — — (1,654) 818 (1,276) 885 159	(10,104) 1 13 (22) 3,575 — 5,929 608
	—	—

Pursuant to Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises, the Company’s subsidiaries are entitled to preferential tax treatment with full exemption from PRC enterprise income tax for two years starting from the first profitable year of operations, after offsetting all tax losses brought forward from the previous years (for a maximum period of five years), followed by a 50% reduction in tax rate for the next three years.

— 43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. EARNINGS (LOSS) PER SHARE

The calculation of the basic earnings (loss) per share is based on the following data:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Profit (loss) for the purposes of basic earnings (loss) per share	6,104	(57,737)
	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
Number of shares
Number/weighted average number of shares for the purposes
of basic earnings (loss) per share	357,006,840	59,376,993

The denominator for the purposes of calculating basic loss per share for the fifteen months ended 31 March 2004 has been adjusted to reflect the consolidation of shares in September 2003 on the basis that forty shares were consolidated into one share and the rights issue of shares in September 2003 and March 2004.

No diluted earnings per share has been presented for the year ended 31 March 2005 as the exercise prices of the Company’s outstanding share options were higher than the average market price for the year.

No diluted loss per share was presented for the fifteen months ended 31 March 2004 as the exercise of the Company’s outstanding share options would reduce the loss per share for that period.

13. RELATED PARTY TRANSACTIONS/CONNECTED TRANSACTIONS

• (a) During the year/period, the Group had the following transactions carried out at prices determined by reference to market prices for similar transactions with related parties/persons deemed to be “connected persons” by the Stock Exchange, being entities controlled by certain relatives of Mr. Koon Wing Yee and his spouse, Ms. Lui Yuk Chu, both of whom are directors of the Company:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Sales of bleached and dyed fabrics	23,647	—
Bleaching and dyeing charges received	167	—

— 44 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At the balance sheet date, amounts due from the above entities comprise:

		1.4.2004 to	1.1.2003 to
		31.3.2005	31.3.2004
		HK$’000	HK$’000
Trade	receivables	5,809	—

• (b) During the year, the Group received administrative services from Easyknit International Trading Company Limited (“EITC”), a company in which Mr. Koon Wing Yee, Mr. Tsang Yiu Kai and Ms. Lui Yuk Chu, all are directors of the Company, have beneficial interests and paid services fee of approximately HK$241,000 (1.1.2003 to 31.3.2004: nil). The services fee is determined based on mutually agreed terms.

• (c) The Group purchased the entire issued shares of Po Cheong International Enterprises Limited (“Po Cheong”) from a wholly-owned subsidiary of Easyknit at a consideration of HK$65,000,000 (note 29), subject to adjustment, as described in the circular of the Company dated 23 April 2004. Po Cheong, together with its subsidiary, is principally engaged in the business of bleaching and dyeing. The acquisition of Po Cheong constituted a major and connected transaction of the Group and was approved by the shareholders at the special general meeting of the Company held on 10 May 2004. The consideration for the acquisition has been subsequently adjusted downwards to HK$38,880,000 on 16 June 2005.

• (d) During the year, a director of the Company provided a personal guarantee for HK$55,000,000 to a bank in respect of general banking facilities granted to a wholly-owned subsidiary of the Company.

• (e) During the fifteen months ended 31 March 2004, the Group obtained the Easyknit Loan for working capital purposes. The loan was unsecured, bore interest at prevailing market rates and was repaid in full during the fifteen months ended 31 March 2004. Interest paid by the Group during the fifteen months ended 31 March 2004 amounted to HK$1,514,500.

— 45 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 THE GROUP COST At 1 April 2004 — 27,808 Additions 10,369 1,044 On acquisition of subsidiaries 12,339 1,422 On disposal of subsidiaries — (27,792) Disposals — (15) At 31 March 2005 22,708 2,467 DEPRECIATION AND IMPAIRMENT LOSS At 1 April 2004 — 27,376 Provided for the year 1,945 606 On disposal of subsidiaries — (27,430) Eliminated on disposals — (15) At 31 March 2005 1,945 537 NET BOOK VALUES At 31 March 2005 20,763 1,930 At 31 March 2004 — 432	Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 THE GROUP COST At 1 April 2004 — 27,808 Additions 10,369 1,044 On acquisition of subsidiaries 12,339 1,422 On disposal of subsidiaries — (27,792) Disposals — (15) At 31 March 2005 22,708 2,467 DEPRECIATION AND IMPAIRMENT LOSS At 1 April 2004 — 27,376 Provided for the year 1,945 606 On disposal of subsidiaries — (27,430) Eliminated on disposals — (15) At 31 March 2005 1,945 537 NET BOOK VALUES At 31 March 2005 20,763 1,930 At 31 March 2004 — 432	Plant and machinery Furniture, fixtures and equipment HK$’000 HK$’000 THE GROUP COST At 1 April 2004 — 27,808 Additions 10,369 1,044 On acquisition of subsidiaries 12,339 1,422 On disposal of subsidiaries — (27,792) Disposals — (15) At 31 March 2005 22,708 2,467 DEPRECIATION AND IMPAIRMENT LOSS At 1 April 2004 — 27,376 Provided for the year 1,945 606 On disposal of subsidiaries — (27,430) Eliminated on disposals — (15) At 31 March 2005 1,945 537 NET BOOK VALUES At 31 March 2005 20,763 1,930 At 31 March 2004 — 432	Motor vehicles HK$’000 539 366 768 (539) —	Total HK$’000 28,347 11,779 14,529 (28,331) (15) 26,309 27,682 2,744 (27,763) (15) 2,648 23,661 665
	22,708 — 1,945 — — 1,945	2,467 27,376 606 (27,430) (15) 537	1,134 306 193 (333) — 166	26,309
				27,682 2,744 (27,763 (15
				2,648
	20,763 —	1,930 432	968 233

— 46 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. GOODWILL

	THE GROUP
	HK$’000
COST
At 1 April 2004	589
On acquisition of subsidiaries	23,042
On disposal of subsidiaries	(589)
At 31 March 2005	23,042
AMORTISATION AND IMPAIRMENT LOSS
At 1 April 2004	589
Provided for the year	1,920
On disposal of subsidiaries	(589)
At 31 March 2005	1,920
CARRYING AMOUNTS
At 31 March 2005	21,122
At 31 March 2004	—

Goodwill is amortised over ten years.

16. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment loss recognised Amounts due from subsidiaries	THE COMPANY 2005 2004 HK$’000 HK$’000 334,470 334,470 (334,470) (334,470) — — 61,626 2,116 61,626 2,116	THE COMPANY 2005 2004 HK$’000 HK$’000 334,470 334,470 (334,470) (334,470) — — 61,626 2,116 61,626 2,116
	— 61,626	— 2,116
	61,626

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the directors, repayment of the amounts will not be demanded by the Company within the twelve months from the balance sheet date. Accordingly, the amounts are shown as non-current assets in the balance sheet.

— 47 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Particulars of the Company’s principal subsidiaries at 31 March 2005 are as follows:

				Proportion of nominal	Proportion of nominal
		Place of	Nominal value of	value of issued share
		incorporation/	issued share/	capital/ registered
		establishment	registered	capital/ stated capital
Name of subsidiary		and operation	capital/stated capital	**held by the **	Company	Principal activities
				Directly	Indirectly
Copplestone Limited		Cayman Islands/	Ordinary	100%	—	Investment holding
		Hong Kong	US$42,880,770
Easyknit (Mauritius) Limited		Republic of Mauritius/	Stated US$1	100%	—	Investment holding
		Hong Kong
Good Fine Technology Limited		Hong Kong	Ordinary HK$2	—	100%	Wireless communication
						business, communication
						solutions consultancy
						services and Internet
						operations
Po Cheong International		Hong Kong	Ordinary HK$90	—	100%	Investment holding
Enterprises Limited
Tat Cheong International		Hong Kong	Ordinary HK$2	—	100%	Investment holding
(HK) Limited		PRC	Registered	—	100%	Bleaching and dyeing
(“Wing Yiu”)*		PRC	HK$11,260,000 Registered	—	100%	Knitting
(“He Yuan”)**			US$1,000,000

Notes:

• Wing Yiu is a wholly foreign owned enterprise established in the PRC, to be operated for 10 years up to 20 August 2011.

• ** He Yuan is a wholly foreign owned enterprise established in the PRC, to be operated for 15 years up to 7 March 2019.

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

None of the subsidiaries had issued any debt securities at 31 March 2005.

— 48 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. LONG TERM INVESTMENTS

Investment securities: Unlisted equity investments, at cost Less: Impairment loss recognised	THE GROUP 2005 2004 HK$’000 HK$’000 — 3,900 — (3,900) — —	THE GROUP 2005 2004 HK$’000 HK$’000 — 3,900 — (3,900) — —
		—

The investment securities were disposed of by the Group on disposal of subsidiaries during the year ended 31 March 2005.

18. LOAN TO ACME LANDIS OPERATIONS HOLDINGS LIMITED (“ALOH”)

Loan to ALOH Less: Allowance	THE GROUP 2005 2004 HK$’000 HK$’000 45,815 45,815 (45,815) (45,412) — 403	THE GROUP 2005 2004 HK$’000 HK$’000 45,815 45,815 (45,815) (45,412) — 403
		403

The loan to ALOH is interest-free and has no fixed repayment terms. In the opinion of the directors, repayment of the loan due from ALOH is not probable. Accordingly, an allowance was made to reduce the carrying amount of the loan to zero at 31 March 2005.

19. INVENTORIES

Raw materials Work-in-progress Finished goods	THE GROUP 2005 2004 HK$’000 HK$’000 4,097 — 391 — 158 — 4,646 —	THE GROUP 2005 2004 HK$’000 HK$’000 4,097 — 391 — 158 — 4,646 —
		—

At 31 March 2005, raw materials of HK$3,745,000 were carried at net realisable value.

— 49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. TRADE AND OTHER RECEIVABLES

The Group allows an average credit period of up to 90 days to its customers. The aged analysis of trade receivables at the balance sheet date is as follows:

0 - 60 days 61 - 90 days Over 90 days Trade receivables Other receivables	THE GROUP 2005 2004 HK$’000 HK$’000 7,150 — 3,398 — 13,883 — 24,431 — 1,335 1,935 25,766 1,935	THE GROUP 2005 2004 HK$’000 HK$’000 7,150 — 3,398 — 13,883 — 24,431 — 1,335 1,935 25,766 1,935
		— 1,935
		1,935

21. TRADE AND OTHER PAYABLES

The aged analysis of trade payables at the balance sheet date is as follows:

0 - 60 days 61 - 90 days Over 90 days Trade payables Other payables	THE GROUP 2005 2004 HK$’000 HK$’000 4,615 — 961 — 277 101 5,853 101 2,187 6,968 8,040 7,069	THE GROUP 2005 2004 HK$’000 HK$’000 4,615 — 961 — 277 101 5,853 101 2,187 6,968 8,040 7,069
		101 6,968
		7,069

22. BILLS PAYABLE

At the balance sheet date, the bills payable is aged within 30 days.

— 50 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. BANK LOANS

The bank loans are unsecured, bear interest at prevailing market rates and are repayable as follows: Within one year Between one to two years Between two to five years Less: Amount due within one year shown under current liabilities Amount due after one year	THE GROUP 2005 2004 HK$’000 HK$’000 30,985 — 5,985 — 9,436 — 46,406 — (30,985) — 15,421 —	THE GROUP 2005 2004 HK$’000 HK$’000 30,985 — 5,985 — 9,436 — 46,406 — (30,985) — 15,421 —
		— —
		—

An amount of HK$25,000,000 of the bank loans which are due within one year, is guaranteed personally by a director of the Company.

24. OTHER LOAN, SECURED

On 25 June 2004, the Group entered into a settlement agreement with the lender for the full settlement of the loan of HK$4,000,000 and accrued interest of HK$511,000 (up to the date of the agreement) by way of transferring all the issued shares of i100 Wireless Corporation, a wholly-owned subsidiary of the Company, to the lender. i100 Wireless Corporation and its subsidiaries are principally engaged in the wireless communication business (note 30).

— 51 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. SHARE CAPITAL

Notes Nominal value per share HK$ Authorised: At 1 January 2003 0.10 Effect of the First Reorganisation referred to below (a)(i) 0.01 Effect of the Share Consolidation referred to below (b) 0.40 Effect of the Second Reorganisation referred to below (f)(i) 0.10 Increase of authorised share capital (f)(iii) At 31 March 2004 and 31 March 2005 0.10 Issued and fully paid: At 1 January 2003 0.10 Reduction of share capital (a)(ii) 0.01 Effect of the Share Consolidation referred to below (b) 0.40 Rights issue of shares at a price of HK$1.00 per rights share (c) 0.40 Issue of new shares by private placements (d) & (e) 0.40 0.40 Reduction of share capital (f)(ii) 0.10 Rights issue of shares at a price of HK$0.25 per rights share (g) 0.10 At 31 March 2004 and 31 March 2005 0.10	Number of shares 3,000,000,000 27,000,000,000	Amount HK$’000 300,000 — 300,000 — 300,000 — 300,000 350,000 650,000 110,187 (99,168) 11,019 — 11,019 5,509 7,272 23,800 (17,850) 5,950 29,751 35,701
	30,000,000,000 (29,250,000,000) 750,000,000 2,250,000,000 3,000,000,000 3,500,000,000	300,000 —
		300,000 —
		300,000 350,000
	6,500,000,000
	1,101,873,000 — 1,101,873,000 (1,074,326,175) 27,546,825 13,773,412 18,180,903 59,501,140 — 59,501,140 297,505,700	110,187 (99,168
		11,019 —
		11,019 5,509 7,272
		23,800 (17,850
		5,950 29,751
	357,006,840

— 52 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

• (a) In February 2003, the Company underwent a capital reorganisation (the “First Reorganisation”). Details of the First Reorganisation are set out in the circular dated 16 January 2003 issued by the Company.

At the special general meeting of the Company held on 7 February 2003, a special resolution approving the First Reorganisation was passed and the following capital reorganisation took effect on 10 February 2003:

• (i) unissued shares of HK$0.10 each in the authorised share capital of the Company were subdivided into ten shares of HK$0.01 each;

• (ii) nominal value of issued shares in the share capital of the Company was reduced from HK$0.10 each to HK$0.01 each (the “First Capital Reduction”);

• (iii) the entire amount of HK$255,030,000 standing to the credit of the share premium account of the Company was cancelled (the “Share Premium Cancellation”); and

• (iv) the credit amounts arising from the First Capital Reduction and the Share Premium Cancellation were credited to the contributed surplus account of the Company where such amounts were utilised to eliminate the accumulated losses of the Company as at 31 December 2002 to the extent of HK$353,484,000.

• (b) As announced by the Company on 1 August 2003, the Company proposed to effect a share consolidation pursuant to which every forty issued and unissued then existing shares of HK$0.01 each were consolidated into one consolidated share of HK$0.40 each (“Share Consolidation”). Details of the Share Consolidation are set out in the circular dated 20 August 2003 issued by the Company. The ordinary resolution approving the Share Consolidation was passed at the special general meeting of the Company held on 8 September 2003.

• (c) Rights issue of 13,773,412 shares of HK$0.40 each at a subscription price of HK$1.00 per rights share were allotted on 25 September 2003 to the shareholders of the Company in the proportion of one rights share for every two existing shares then held. The net proceeds of the rights issue were used for general working capital purposes.

• (d) As announced by the Company on 14 October 2003, the Company conditionally agreed to place through its placing agent, Get Nice Investment Limited, 8,264,047 new shares of HK$0.40 each in the capital of the Company (the “2003 First Placing Shares”) at a price of HK$0.865 per share which represents a discount of approximately 19.9% to the closing price of HK$1.08 per share quoted on the Stock Exchange on 13 October 2003, being the last full trading day of the Company’s shares prior to the date of the announcement.

The 2003 First Placing Shares were placed to not less than six placees. The placees and their respective ultimate beneficial owners are independent individuals, corporate and/or institutional investors who are not connected persons (as defined in the Listing Rules) of the Company. The placing agent is not a connected person (as defined in the Listing Rules) and does not own any shares of the Company. The 2003 First Placing Shares represented approximately 20.0% of the then existing issued capital of the Company and approximately 16.7% of the Company’s then enlarged capital. The net proceeds from the placement amounted to approximately HK$6.9 million of which HK$5.0 million was used for the partial repayment of the Easyknit Loan and the balance as general working capital.

The placement was completed in November 2003.

— 53 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

• (e) As announced by the Company on 27 November 2003, the Company conditionally agreed to place through its placing agent, Kingston Securities Limited, 9,916,856 new shares of HK$0.40 each in the capital of the Company (the “2003 Second Placing Shares”) at a price of HK$0.865 per share which represents a discount of approximately 2.8% to the closing price of HK$0.89 per share quoted on the Stock Exchange on 21 November 2003, being the last full trading day of the Company’s shares prior to the date of the announcement.

The 2003 Second Placing Shares were placed to not less than six placees. The placees and their respective ultimate beneficial owners are independent individuals, corporate and/or institutional investors who are not connected persons (as defined in the Listing Rules) of the Company. The placing agent is not a connected person (as defined in the Listing Rules) and does not own any shares of the Company. The 2003 Second Placing Shares represented approximately 20.0% of the then existing issued capital of the Company and approximately 16.7% of the Company’s then enlarged capital. The net proceeds from the placement amounted to approximately HK$8.4 million of which HK$4.0 million was used for the further repayment of the Easyknit Loan and the balance as general working capital.

The placement was completed in December 2003.

• (f) In March 2004, the Company underwent another capital reorganisation (the “Second Reorganisation”). Details of the Second Reorganisation are set out in the circular dated 10 February 2004 issued by the Company.

At the special general meeting of the Company held on 4 March 2004, resolutions approving the Second Reorganisation were passed and the following capital reorganisation took effect on 4 March 2004:

• (i) unissued shares of HK$0.40 each in the authorised share capital of the Company were subdivided into four shares of HK$0.10 each;

• (ii) nominal value of issued shares in the share capital of the Company was reduced from HK$0.40 each to HK$0.10 each (the “Second Capital Reduction”);

• (iii) authorised share capital of the Company was increased from HK$300,000,000 to HK$650,000,000 by the creation of an additional 3,500,000,000 shares of HK$0.10 each; and

• (iv) the credit amount arising from the Second Capital Reduction was transferred to a capital reserve account of the Company where such amount may be applied in the future for distribution to the shareholders.

• (g) Rights issue of 297,505,700 shares of HK$0.10 each at a subscription price of HK$0.25 per rights share were allotted on 24 March 2004 to the shareholders of the Company in the proportion of five rights shares for every share then held. The net proceeds of the rights issue amounted to approximately HK$73.2 million of which HK$21,270,000 was used for repayment of the balance of the Easyknit Loan, HK$50,000,000 for partial payment for the acquisition of the entire issued share capital of Po Cheong from a wholly-owned subsidiary of Easyknit, and for general working capital purposes.

All shares issued rank pari passu with the then existing shares in issue in all respects.

— 54 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. SHARE OPTION SCHEMES

(a) Share option schemes of the Company:

On 21 August 1991, the Company approved a share option scheme (the “1991 Share Option Scheme”) which was terminated by an ordinary resolution of its shareholders at the annual general meeting held on 22 May 2001 but the subsisting options granted thereunder prior to its termination remain valid and exercisable in accordance with the terms of the 1991 Share Option Scheme.

On 22 May 2001, the Company approved a share option scheme (the “2001 Share Option Scheme”) which was terminated by an ordinary resolution of its shareholders at the annual general meeting held on 6 June 2002 but the subsisting options granted thereunder prior to the termination remain valid and exercisable in accordance with the terms of the 2001 Share Option Scheme.

On 6 June 2002, a new share option scheme (the “2002 Share Option Scheme”) was approved by the shareholders of the Company. Under the terms of the 2002 Share Option Scheme, the board of directors of the Company may, at its absolute discretion, offer options to any employee (full-time and part-time), director, supplier, consultant or advisor of any member of the Group to subscribe for shares in the Company subject to the terms and conditions stipulated therein. No share options have been granted under the 2002 Share Option Scheme since its adoption.

The purposes of the 2002 Share Option Scheme are to attract and retain the best available personnel, to provide additional incentives to eligible participants and to promote the success of the business of the Company and its subsidiaries.

The maximum number of shares which may be issued under the 2002 Share Option Scheme must not (when aggregate with any shares to be issued under any other share option schemes of the Company) exceed 10% of the shares in issue at the date of adoption of the 2002 Share Option Scheme.

The maximum number of shares issuable upon the exercise of the share options granted to each eligible participant of the 2002 Share Option 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 of the Company with such grantee and his associate(s) abstaining from voting.

The exercise period of the share options is determined by the board of directors of the Company and shall end on a date which is not later than 10 years from the date of the grant of the option. There is no specific requirement under the 2002 Share Option Scheme that an option must be held for any minimum period before it can be exercised, but its terms provide that the board of directors of the Company has the discretion to impose a minimum period at the time of offer of any particular option. The offer of a grant of share options may be accepted within 14 days from the date of the offer, with the payment of a nominal consideration of HK$1 in total by the offeree.

The exercise price in respect of any particular option of the 2002 Share Option Scheme may be determined by the board of directors of the Company in its absolute discretion and notified to each offeree but may not be less than the highest of (i) the closing price of the Company’s shares on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheet on the date of offer, which must be a business day; (ii) the average closing price of the Company’s shares on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of offer; and (iii) the nominal value of the Company’s shares on the date of offer.

The 2002 Share Option Scheme is valid during the period of 10 years commencing 6 June 2002, unless otherwise cancelled or amended.

— 55 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

A summary of the movements of the outstanding share options during the year ended 31 March 2005 is as follows:

Grantee Share option scheme Date of grant Exercise period Exercise price HK$ (note iii) Former employees 1991 2 August 2000 2 August 2001 to 1 August 2010 (note i) 3.333 1991 26 March 2001 26 March 2002 to 25 March 2011 (note i) 1.711 2001 31 August 2001 31 August 2002 to 30 August 2011 (note i) 1.792 2001 31 August 2001 31 August 2001 to 30 August 2011 (note ii) 1.792	Number of share options At 1 April 2005 Lapsed during the year At 31 March 2005 45,000 (45,000) — 56,250 (56,250) — 238,050 (238,050) — 5,625,000 — 5,625,000 5,964,300 (339,300) 5,625,000	Number of share options At 1 April 2005 Lapsed during the year At 31 March 2005 45,000 (45,000) — 56,250 (56,250) — 238,050 (238,050) — 5,625,000 — 5,625,000 5,964,300 (339,300) 5,625,000
		5,625,000

— 56 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

A summary of the movements of the outstanding share options during the fifteen months ended 31 March 2004 is as follows:

Grantee Share option scheme Date of grant Exercise period Exercise price HK$ (note iii) Former director 2001 31 August 2001 31 August 2001 to 30 August 2011 (note ii) 0.4032 Former employees 1991 2 August 2000 2 August 2001 to 1 August 2010 (note i) 0.75 20.00 3.333 1991 6 October 2000 6 October 2001 to 5 October 2010 (note i) 0.47 1991 26 March 2001 26 March 2002 to 25 March 2011 (note i) 0.385 10.267 1.711 2001 31 August 2001 31 August 2002 to 30 August 2011 (note i) 0.4032 10.752 1.792 2001 31 August 2001 31 August 2001 to 30 August 2011 (note ii) 0.4032 10.752 1.792	Nu At 1 January 2003 Rec 25,000,000 2,075,000 — — — 290,000 3,775,000 — — — 7,068,000 — — — — — — — 38,208,000	mber of share options (adjusted as appropriate) lassification Adjustments Lapsed during the period At 31 March 2004* (25,000,000) — — — — — — — (245,000) 9,187 (7,500) 45,000 (1,830,000) (1,687) — — — — — 45,000 — — (290,000) — — — — — (275,000) 10,312 (9,375) 56,250 (3,500,000) (937) — — — — — 56,250 — — — — (1,128,000) 42,300 (39,675) 238,050 (5,940,000) (2,625) — — — — — 238,050 25,000,000 — — — (25,000,000) 937,500 (937,500) 5,625,000 — — — — — — — 5,625,000 — (20,678,451) (11,565,249) 5,964,300	mber of share options (adjusted as appropriate) lassification Adjustments Lapsed during the period At 31 March 2004* (25,000,000) — — — — — — — (245,000) 9,187 (7,500) 45,000 (1,830,000) (1,687) — — — — — 45,000 — — (290,000) — — — — — (275,000) 10,312 (9,375) 56,250 (3,500,000) (937) — — — — — 56,250 — — — — (1,128,000) 42,300 (39,675) 238,050 (5,940,000) (2,625) — — — — — 238,050 25,000,000 — — — (25,000,000) 937,500 (937,500) 5,625,000 — — — — — — — 5,625,000 — (20,678,451) (11,565,249) 5,964,300
			5,964,300

• The number of share options and the corresponding exercise price have been adjusted as a result of share consolidation and rights issue of shares of the Company during the fifteen months ended 31 March 2004.

Notes:

• (i) The vesting period is the period of three years after the date of grant. One-third of the share options become exercisable after 12 months from the date of grant, and after the subsequent 18 months, 24 months, 30 months and 36 months from the date of grant, further one-sixth of the options become exercisable.

• (ii) The vesting period is the period from the date of grant to six months after the date of grant. Half of the share options are exercisable from the date of grant and the remaining half becomes exercisable after 6 months from the date of grant.

• (iii) The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the share capital of the Company.

No share options were granted, exercised or cancelled during both accounting periods.

— 57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (b) Share option schemes of subsidiaries:

• (i) solution100 Corporation

On 22 May 2001, solution100 Corporation adopted a share option scheme under which options to subscribe for shares in the share capital of solution100 Corporation may be granted to the qualifying persons from time to time subject to the terms and conditions stipulated therein. No share options have been granted under the share option scheme of solution100 Corporation since its adoption.

solution100 Corporation ceased to be a subsidiary of the Company on 25 June 2004.

• (ii) i100 Wireless Corporation

On 6 June 2002, i100 Wireless Corporation adopted a share option scheme pursuant to the then requirements of Chapter 17 of the Listing Rules and under which options to subscribe for shares in the share capital of i100 Wireless Corporation may be granted to the qualifying persons from time to time subject to the terms and conditions stipulated therein. No share options have been granted under the share option scheme of i100 Wireless Corporation since its adoption.

i100 Wireless Corporation ceased to be a subsidiary of the Company on 25 June 2004.

The financial impact of share options granted 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 recognised in the income statement in respect of the value of options in the year/period. Upon the exercise of the 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 as share premium. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

27. RESERVES

	Share	Capital	Contributed	Accumulated
	premium	reserve	surplus	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2003	255,030	—	46,962	(408,157)	(106,165)
Premium arising from issue of new
shares	61,344	—	—	—	61,344
Reduction of share capital and share
premium upon capital reorganisations	(255,030)	17,850	354,198	—	117,018
Elimination of accumulated losses	—	—	(353,484)	353,484	—
Net loss for the period	—	—	—	(44,255)	(44,255)
At 31 March 2004	61,344	17,850	47,676	(98,928)	27,942
Net loss for the year	—	—	—	(1,978)	(1,978)
At 31 March 2005	61,344	17,850	47,676	(100,906)	25,964

The capital reserve of the Company represents the credit arising from the reduction of share capital of the Company in March 2004 and can be applied in the future for distribution to the shareholders.

— 58 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The contributed surplus of the Company represents the difference between the nominal value of the share capital issued by the Company and the fair value of the subsidiaries’ shares acquired under the group reorganisation in August 1991 and the credit arising from the reduction of share capital of the Company in February 2003 which may then be utilised by the directors in accordance with the Company’s Bye-laws and all applicable laws, including to eliminate the accumulated losses of the Company.

Under the laws in Bermuda, the contributed surplus account of a company is also available for distribution. However, the company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

• (a) it is, or would after the payment be, unable to pay its liabilities as they become due; or

• (b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

The Company has no reserves available for distribution at 31 March 2005 and 2004.

28. AMOUNTS DUE TO SUBSIDIARIES

THE COMPANY

The amounts due to subsidiaries were unsecured and non-interest bearing. The amounts were fully repaid during the year.

29. ACQUISITION OF SUBSIDIARIES/A SUBSIDIARY

On 17 May 2004, the Group acquired the entire issued shares of Po Cheong at a consideration of HK$65,000,000, subject to adjustment, as described in the circular of the Company dated 23 April 2004. Po Cheong, together with its subsidiary, is principally engaged in the business of bleaching and dyeing. Acquisition of the subsidiaries was accounted for by the acquisition method of accounting. The total consideration of HK$65,000,000 shall be satisfied in cash, of which HK$50,000,000 was paid on 13 May 2004. Details of the arrangement of the consideration should be referred to the circular and the adjustment was finalised on 16 June 2005 (see note 36). The revised consideration was determined to be HK$38,880,000 and accordingly, an amount of HK$11,120,000 was recognised as consideration receivable in the consolidated balance sheet.

During the fifteen months ended 31 March 2004, the Group acquired an additional interest of 45% of the issued share capital of Vector Entertainment Corporation (“Vector”) for a cash consideration of approximately HK$1,000,000. Vector was previously a jointly controlled entity of the Group in which the Group had a 45% equity interest amounting to HK$954,000. Acquisition of the subsidiary was accounted for by the acquisition method of accounting.

— 59 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Net assets acquired:
Property, plant and equipment	14,529	—
Inventories	3,010	—
Amounts due from shareholders	—	1,131
Trade and other receivables	19,973	—
Bank balances and cash	423	971
Trade and other payables	(10,751)	—
Bills payable	(1,837)	—
Bank loans	(8,775)	—
Minority interests	—	(209)
	16,572	1,893
Goodwill on acquisition	23,042	104
Total consideration	39,614	1,997
	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Satisfied by:
Cash paid	38,880	1,043
Expenses incurred in connection with acquisition	734	—
Reclassification of interest in a jointly controlled entity	—	954
	39,614	1,997
Net cash outflow arising on acquisition:
Cash consideration paid	(38,880)	(1,043)
Expenses incurred in connection with acquisition	(734)	—
Bank balances and cash acquired	423	971
Net cash outflow of cash and cash equivalents in respect of the purchase of
subsidiaries/a subsidiary	(39,191)	(72)

The subsidiaries acquired during the year contributed HK$53,218,000 to the Group’s turnover and HK$6,018,000 to the Group’s profit from operations.

— 60 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. DISPOSAL OF SUBSIDIARIES

In April 2004, the Group disposed of the entire issued shares in Photo2U Company Limited, a then wholly-owned subsidiary of the Company, for a cash consideration of HK$2. In addition, as referred to in note 23, the Group disposed of i100 Wireless Corporation to the lender of the other loan on 25 June 2004.

During the fifteen months ended 31 March 2004, the Group disposed of the entire issued shares in i100Onair Limited, a then wholly-owned subsidiary of the Company, for a cash consideration of US$1. In February 2004, the Group also disposed of the entire issued shares of Golden Throne Holdings Limited and Rainer Capital Limited which were then wholly-owned subsidiaries of the Company for a cash consideration of HK$10.

The effect of the disposal is summarised as follows:

	1.4.2004 to	1.1.2003 to
	31.3.2005	31.3.2004
	HK$’000	HK$’000
Net liabilities released/assets disposed of:
Property, plant and equipment	568	387
Trade and other receivables	286	443
Bank balances and cash	15	115
Trade and other payables	(5,207)	(404)
Minority interests	(209)	—
	(4,547)	541
Exchange reserve realised on disposal of subsidiaries	16	(2)
Gain (loss) on disposal of subsidiaries	9,042	(539)
Total consideration	4,511	—
Satisfied by:
Loan principal waived	4,000	—
Accrued interest thereof waived	511	—
	4,511	—
Net cash outflow arising on disposal:
Bank balances and cash disposed of	(15)	(115)

The subsidiaries disposed of during the year did not have any significant impact on the results and cash flows of the

Group.

— 61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. DEFERRED TAXATION

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods:

THE GROUP Accelerated tax depreciation Tax losses HK$’000 HK$’000 At 1 January 2003 359 (359) (Credit) charge to income statement for the period (389) 389 Effect of change in tax rate 34 (34) At 31 March 2004 4 (4) (Credit) charge to income statement for the year on disposal of subsidiaries (4) 4 At 31 March 2005 — —	THE GROUP Accelerated tax depreciation Tax losses HK$’000 HK$’000 At 1 January 2003 359 (359) (Credit) charge to income statement for the period (389) 389 Effect of change in tax rate 34 (34) At 31 March 2004 4 (4) (Credit) charge to income statement for the year on disposal of subsidiaries (4) 4 At 31 March 2005 — —	THE GROUP Accelerated tax depreciation Tax losses HK$’000 HK$’000 At 1 January 2003 359 (359) (Credit) charge to income statement for the period (389) 389 Effect of change in tax rate 34 (34) At 31 March 2004 4 (4) (Credit) charge to income statement for the year on disposal of subsidiaries (4) 4 At 31 March 2005 — —	Total HK$’000 — — —
	4 (4)	(4) 4	— —
	—	—	—

At the balance sheet date, deductible temporary differences and tax losses not recognised in the financial statements were analysed into:

Tax losses Others	THE GROUP 2005 2004 HK$’000 HK$’000 11,968 189,674 — 2,179 11,968 191,853	THE GROUP 2005 2004 HK$’000 HK$’000 11,968 189,674 — 2,179 11,968 191,853
		191,853

No deferred tax asset has been recognised in respect of such deductible temporary differences due to the unpredictability of future profit streams. The tax losses at 31 March 2005 may be carried forward indefinitely. The tax losses at 31 March 2004, which amounted to approximately HK$4,105,000, can only be carried forward for a maximum period of five years, other losses may be carried forward indefinitely.

At 31 March 2005 and 2004, the Company has unrecognised tax losses of approximately HK$7,544,000 and HK$5,205,000 respectively. No deferred tax asset has been recognised due to the unpredictability of future profit streams.

32. CONTINGENT LIABILITIES

At 31 March 2005, the Company has given unlimited corporate guarantee to banks in respect of general banking facilities granted to its subsidiaries (2004: nil).

— 62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

33. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the financial statements in respect of: — acquisition of land use rights — construction of plants — acquisition of property, plant and equipment — acquisition of the entire issued shares of Po Cheong — capital injection for interests in a jointly controlled entity and a non wholly-owned subsidiary	THE GROUP 2005 2004 HK$’000 HK$’000 9,538 — 19,080 — — 9,923 — 65,000 20,904 20,904 49,522 95,827	THE GROUP 2005 2004 HK$’000 HK$’000 9,538 — 19,080 — — 9,923 — 65,000 20,904 20,904 49,522 95,827
		95,827

The Company had no significant capital commitments at the balance sheet date.

34. OPERATING LEASE ARRANGEMENTS

		**THE **	GROUP
		1.4.2004 to	1.1.2003 to
		31.3.2005	31.3.2004
		HK$’000	HK$’000
Minimum	lease payments recognised in the consolidated income statement
during	the year/period	1,097	1,855

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	THE GROUP 2005 2004 HK$’000 HK$’000 1,376 654 5,470 1,695 3,246 2,870 10,092 5,219	THE GROUP 2005 2004 HK$’000 HK$’000 1,376 654 5,470 1,695 3,246 2,870 10,092 5,219
		5,219

Operating lease payments represent rentals payable by the Group for certain of its office and factory premises. Leases are negotiated for lease terms ranging from two to ten years.

Under the leases entered into by the Group, the lease payments are fixed and no arrangements have been entered into for contingent rental payments.

The Company had no significant lease commitments at the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. RETIREMENT BENEFITS SCHEMES

The Group operates defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance. Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries or up to a maximum of HK$1,000 and they can choose to make additional contributions. The employer’s monthly contributions are calculated at 5% of the employee’s monthly salaries or up to a maximum of HK$1,000 (the “mandatory contributions”). The employees are entitled to 100% of the employer’s mandatory contributions upon their retirement at the age of 65, death or total incapacity.

Prior to the MPF Scheme becoming effective, the Group operates a defined contribution retirement benefits scheme (the “ORSO Scheme”) under the Occupational Retirement Schemes Ordinance, for those employees who were eligible to participate. The ORSO Scheme operates in a similar way to the MPF Scheme, except that when an employee leaves the ORSO Scheme before his/her interest in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group are reduced by the relevant amount of the forfeited contributions. With effect from 1 December 2000, the Group operates both schemes and those employees who are not eligible to participate in the ORSO Scheme are eligible to participate in the MPF Scheme.

The assets of both schemes are held separately from those of the Group in independently administered funds.

Employees of the subsidiaries in the PRC are members of the state-sponsored pension scheme operated by the PRC government. The subsidiaries are required to contribute a certain percentage of their payroll to the pension scheme to fund the benefits. The only obligation of the Group with respect to the pension scheme is to make the required contributions.

There were no forfeited contributions utilised to offset employers’ contributions for the period/year. The employers’ contributions which have been dealt with in the income statement of the Group were as follows:

								**THE **	GROUP
								1.4.2004 to	1.1.2003 to
								31.3.2005	31.3.2004
								HK$’000	HK$’000
Employers’	contributions	charged	to	the	consolidated	income	statement	87	410

At the balance sheet date, there was no forfeited contributions available to reduce the contributions payable in the future years.

36. POST BALANCE SHEET EVENT

On 16 June 2005, the Company announced that the consideration of the acquisition of the entire issued shares of Po Cheong from EITC, a wholly-owned subsidiary of Easyknit, was adjusted downwards from the original amount of HK$65,000,000 to HK$38,880,000 based on the adjustment mechanism as described in the circular of the Company dated 23 April 2004. According to the adjustment mechanism, when seven times of the audited consolidated results of the Po Cheong group is less than HK$65,000,000, the consideration of the acquisition shall be adjusted downwards by the amount of such shortfall. As a result, instead of receiving the balance of the consideration of HK$15,000,000, EITC shall compensate Best Ability Limited, a wholly-owned subsidiary of the Company for an amount of HK$11,120,000. The adjusting post balance sheet event has already been reflected in the consolidated financial statements of the Company for the year ended 31 March 2005.

— 64 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Financial Summary

RESULTS

	1.1.2000	1.1.2001	1.1.2002	1.1.2003	1.4.2004
	to	to	to	to	to
	31.12.2000	31.12.2001	31.12.2002	31.3.2004	31.3.2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	247,003	198,134	70,354	5,083	53,662
(Loss) profit before taxation	(130,111)	(119,299)	(191,293)	(57,737)	6,104
Taxation (charge) credit	(3,056)	570	309	—	—
(Loss) profit before minority interests	(133,167)	(118,729)	(190,984)	(57,737)	6,104
Minority interests	587	269	(440)	—	—
Net (loss) profit for the year/period	(132,580)	(118,460)	(191,424)	(57,737)	6,104
ASSETS AND LIABILITIES
	**At **	31 December		At 31 March
	2000	2001	2002	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Total assets	306,387	167,124	19,868	69,134	119,667
Total liabilities	(59,783)	(39,442)	(8,149)	(11,069)	(55,646)
Minority interests	(1,437)	(829)	—	(209)	—
Shareholders’ funds	245,167	126,853	11,719	57,856	64,021

3. INDEBTEDNESS

At the close of business on 30 November 2005, being the latest practicable date for ascertaining this indebtedness prior to the printing of this circular, the Group had in aggregate import bank loans of approximately HK$1,067,000.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have at the close of business on 30 November 2005 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance leases, hire purchase commitments, guarantees or other material contingent liabilities.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Foreign currency amounts for the purpose of the calculations in respect of the indebtedness have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 30 November 2005.

4. WORKING CAPITAL

Taking into account the financial and trading prospects for the Group discussed in the section headed “Financial and trading prospects of the Group” set out on pages 9 to 10 of this circular, the Directors are of the opinion that, with the internal resources and existing banking facilities available, the Group has sufficient working capital for its day to day operations for a period of at least 12 months commencing from the date of this circular.

5. MATERIAL ADVERSE CHANGE

Apart from the acquisition of the Property and the deposit paid for the Construction as disclosed in the unaudited interim results for the six months ended 30 September 2005 of the Group and as set out in this circular, as at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial and trading position of the Group since 31 March 2005, the date to which the latest published audited consolidated financial statements were made up.

6. BUSINESS REVIEW OF THE GROUP

Set out below are the reproduction of the “management discussion and analysis” section of the Group for the year ended 31 December 2002, the 15 months ended 31 March 2004 and the year ended 31 March 2005 contained in the Company’s annual reports for the corresponding years/period.

For the year ended 31 December 2002

Financial review

Revenue

Turnover of the Group was HK$70 million, a 64% decrease from the previous year. The decrease in revenue was due to the disposal of the Group’s entire shareholding in (i) Acme Sanitary Engineering Company Limited, which is engaged in the business of the provision of drainage, plumbing and engineering contracting services, on 4 May 2002 and (ii) Acme Landis Operations Holdings Limited, which is engaged in the business of trading of sanitary fixtures and fittings and a range of hardware, industrial and consumer products, on 29 May 2002. Save for the disposal of Acme Landis business disclosed above, there is no change in market segment. It is the Group’s strategy to concentrate on its wireless communication business. There are no material changes in other industry segment nor material developments within the segment other than wireless communication business.

Gross Margin

Gross margin increased to 26%, compared to 14% in the previous year, primary due to an overall increase in gross margin from Acme Sanitary Engineering Company Limited and Acme Landis Operations Holdings Limited before the disposals in May 2002.

— 66 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Operating expenses

The Group’s loss was HK$191.4 million which included provision of HK$42.1 million for a loan to Acme Landis Operations Holdings Limited (“Acme Landis”), provision of HK$14.2 million for loans to an associate, impaired goodwill of an associate of HK$48.8 million, loss on discontinued operations of HK$4.6 million, impairment loss of fixed assets of HK$0.8 million, provision for bad debts of HK$6.1 million (net) and share of loss of an associate of HK$14.0 million. The outstanding loan balance due from Acme Landis as at 31 December 2002 was HK$45.8 million which is secured by a pledge in respect of 76 million shares of the Company. On prudence basis, provision of HK$42.1 million is made to reflect the market value of the pledged shares as at 31 December 2002. The provision of HK$14.2 million for loans to an associate is made because the proposed listing exercise of that associate is delayed. Loans were advanced to that associate mainly for its working capital requirements. Full provision is made because that associate has limited tangible assets and is unlikely to have sufficient funding to repay the outstanding amount in the near future. An impairment of goodwill on acquisition of an associate which was previously eliminated against consolidated reserves was recognized amounting to HK$48.8 million in the fiscal 2002. The Group has the opinion that the associate is unlikely to generate sufficient profit and cashflow in the near future to match with the related goodwill because the proposed listing exercise of one of the subsidiary of that associate was delayed. The loss on discontinued operations of HK$4.6 million arose from the disposal of Acme Landis Division in May 2002. Impairment loss of fixed assets of HK$0.8 million was for furniture, fixtures, and equipment. The net provision of bad debt of HK$6.1 million included a provision for bad debt of HK$7.2 million which was made for other receivables because the debtor requested a change of selling price after the transaction was completed and the Group refused. Full provision is made on prudence basis. The share of loss of an associate of HK$14.0 million was related to an associate which the Group owns 49%.

The Group has capital commitments of HK$24.2 million related to the Group’s interests in jointly-controlled entities and non-wholly-owned subsidiaries. Save as disclosed above, the Group has no other plans for material investments or capital assets, except for the Group’s development of the wireless business.

Liquidity, Financial Resources and Capital Structure

As at 31 December 2002, the total shareholders’ equity of the Group was approximately HK$11.7 million, a decrease of 90.8% over that as at 31 December 2001. At the balance sheet date, the cash and cash equivalents stood at HK$1.8 million. The Group’s cash is primarily in Hong Kong and US Dollars, and placed in leading commercial banks as time deposits with various maturities. There was no bank borrowing as at the balance sheet date, compared with that of HK$4.3 million last year. The Group has no material exposure to fluctuations in exchange rates and any related hedges.

During the year, the group acquired the business of Digital Empires Company Limited for a consideration of HK$502,500 which was satisfied by the issuance of 2,500 ordinary shares of solution100 Limited of HK$1 each, a wholly-owned subsidiary of the Company, and cash of HK$500,000. The consolidated net assets acquired were approximately HK$18,000.

— 67 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Charges on Group Assets

There was no charge on the Group’s assets as at 31 December 2002.

Contingent Liabilities

As at 31 December 2002, the Group had contingent liabilities of approximately HK$87.1 million in respect of bank guarantees given to secure banking facilities granted to certain subsidiaries which were disposed of by the Group in May 2002. Such guarantees were released by the relevant banks subsequent to the close of business on 31 December 2002. There are no other contingent liabilities of the Group.

Employees and Remuneration Policies

As at 31 December 2002, the Group employed approximately 80 full time management, technical and administrative staff in Hong Kong and elsewhere in the People’s Republic of China (the “PRC”). The Group remunerates its employees based on their performance, experience and prevailing industry standards. The Group has a share option scheme to motivate valued employees.

Placing of New Shares

On 4 June 2002, the Group announced that i100 Capital Corporation, a substantial shareholder of the Company, placed 124 million shares of the Company to more than six independent professional and/or institutional investors at a price of HK$0.3 per share (“Placing Price”). The Placing Price represented a discount of approximately 24.1% to the closing price of HK$0.395 per share on 3 June 2002.

On the same date, i100 Capital Corporation agreed to subscribe for 100 million new shares issued by the Company at the price equal to the Placing Price less all expenses incurred in connection with the private placement. The new shares issued represented approximately 10% of the Group’s issued share capital immediately before the private placement and approximately 9.1% of the enlarged issued share capital. The net proceeds of the subscription of approximately HK$29 million were used for development in wireless data service and as general working capital of the Group. All shares issued rank pari passu with the existing shares in issue in all respects.

— 68 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Review of operations

solution100

The Group has redirected the extensive technological and market expertise of its wireless solutions arm, solution100, to support the wireless data service. This is a contingency tactic for solution100, as its traditional business environment remains subdued from reduced corporate IT spending.

Wireless Data Service

The Group’s wholly-owned subsidiary, i100 Wireless (Hong Kong) Limited, is principally engaged in the provision of a branded wireless data services as a full service mobile operator using MVNO (Mobile Virtual Network Operator) business structure in Hong Kong. The key principle of the service is a GPRS-driven and entertainment focus wireless data service supported by international content providers, leading wireless games companies and major telecommunication carriers that fits with our target audience’s mobile lifestyle. We believe the future of the mobile data business remains promising and we will continue to strive to become a leader in this market.

Legacy Businesses

Resources from legacy business Ask100 and OnAir100 continue to be adapted and utilized to develop the wireless data business. The subscriber data base, community base, content links and technical expertise of the team have been put to full use in Wireless data services.

Acme Landis

The Acme Landis business, which is engaged in the business of the provision of drainage, plumbing and engineering contracting services, trading of sanitary fixtures and fittings and a range of hardware, industrial and consumer products, suffered negative growth in turnover and consequently higher losses were recorded. The Group sold its entire shareholding in Acme Landis in May 2002.

For the 15 months ended 31 March 2004

Financial results

The Group’s turnover and net loss for the fifteen months ended 31 March 2004 were approximately HK$5,083,000 (for the year ended 31 December 2002: approximately HK$70,354,000) and approximately HK$57,737,000 (for the year ended 31 December 2002: approximately HK$191,424,000), respectively, representing a decrease of approximately 92.8% and approximately 69.8% respectively when compared to the year ended 31 December 2002.

— 69 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The decrease in turnover was mainly due to the disposal of the Group’s entire shareholding in (i) Acme Sanitary Engineering Company Limited (“Acme Sanitary”), formerly a wholly-owned subsidiary of the Company which was engaged in the business of the provision of drainage, plumbing and engineering contracting services, on 4 May 2002 and (ii) Acme Landis Operations Holdings Limited (“Acme Landis”), formerly a wholly-owned subsidiary of the Company which was engaged in the business of trading of sanitary fixtures and fittings and a range of hardware, industrial and consumer products, on 29 May 2002.

The Group’s net loss for the fifteen months ended 31 March 2004 amounted to approximately HK$57,737,000 which includes impairment loss recognised in respect of long term investments of approximately HK$3,900,000 and impairment loss recognised in respect of property, plant and equipment of approximately HK$9,971,000. The Group’s operating expenses for the period under review were approximately HK$38,962,000 compared to approximately HK$81,116,000 for the year ended 31 December 2002 and the decrease was mainly due to the disposal of Acme Sanitary and Acme Landis.

Business review

During the fifteen months ended 31 March 2004, the Group was principally engaged in wireless communication business, provision of communication solutions consultancy services and internet operations.

During the period under review, the Company’s former wholly-owned subsidiary, i100 Wireless (Hong Kong) Limited, was engaged in the provision of a branded wireless data services in Hong Kong. The key principal service was a GPRS (general packet radio service)-driven and entertainment focused wireless data service supported by international content providers, leading wireless games companies and major telecommunication carriers that accommodated the lifestyle of the Group’s target users.

The Group launched its 2.5G MVNO (mobile virtual network operator) business in October 2002, under the trade name Noodle. Noodle’s technical platform was based on GPRS, the most popular 2.5G data technology used in Hong Kong. It offered its customers a wide array of mobile content such as games, up-to-date news, horoscopes, sports and other entertainment topics. Noodle mainly targeted the younger market for its services.

In June 2003, Noodle transferred all the active customer accounts of its 2.5G MVNO business to SUNDAY. Hence, i100 Wireless (Hong Kong) Limited became a content provider to SUNDAY. However, the wireless communication business still suffered from huge losses.

Prospects

The general economic climate affected the mobile communication business of the Group in Hong Kong. The Group will continue to streamline its operation in this business segment.

— 70 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

After the completion of the Po Cheong Acquisition (as defined in the section headed “Significant Corporate Events” below) on 17 May 2004, the bleaching and dyeing business of Po Cheong and its subsidiary is expected to contribute positively to the Group’s profitability.

The Group will continue to explore potential investment projects or businesses with a view to diversify and expand its source of income.

Significant corporate events

On 28 January 2003, Easyknit, through its wholly-owned subsidiary, Landmark Profits Limited, acquired approximately 55.27% equity interest of the Company and subsequently made a mandatory general offer for the shares that it did not own. The general offer resulted in Easyknit holding approximately 55.30% equity interest of the Company as at 14 April 2003. A series of disposal of the Company’s shares in June 2003 brought Easyknit’s interest in the Company down to approximately 51.73% as at 30 June 2003.

As a result of the capital reorganisation which came into effect on 10 February 2003, the then issued share capital of the Company was reduced from HK$110,187,300 to HK$11,018,730 comprising 1,101,873,000 shares of HK$0.01 each.

On 8 September 2003, every 40 issued and unissued shares of the Company of HK$0.01 each were consolidated into one consolidated share of HK$0.40 each. Immediately following the share consolidation, the share capital of the Company comprised 27,546,825 issued shares of HK$0.40 each and 722,453,175 unissued shares of HK$0.40 each.

On 25 September 2003, the Company issued 13,773,412 rights shares at a price of HK$1.00 per rights share (the “First Rights Issue”) and raised net proceeds of approximately HK$13,300,000 for general working capital purposes.

On 17 November 2003, 8,264,047 shares of HK$0.40 each were issued and allotted by the Company at a price of HK$0.865 per placing share by way of placing (the “First Placing”). The net proceeds of the First Placing were approximately HK$6,900,000 of which HK$5,000,000 has been used for partial repayment of an unsecured interest-bearing loan of HK$30,270,000 (“Easyknit Loan”) extended by Planetic International Limited (a wholly owned subsidiary of Easyknit) to the Group in February 2003 and approximately HK$1,900,000 are used as general working capital.

On 22 December 2003, the Company issued and allotted 9,916,856 shares of HK$0.40 each at a price of HK$0.865 per placing share by way of placing (the “Second Placing”). Out of the net proceeds of the Second Placing of approximately HK$8,400,000, HK$4,000,000 has been used for partial repayment of Easyknit Loan. The remaining net proceeds of approximately HK$4,400,000 are for general working capital purposes.

— 71 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As a result of the First Rights Issue, the First Placing and the Second Placing, the then issued share capital of the Company were increased to HK$23,800,456 comprising 59,501,140 shares of HK$0.40 each. Subsequent to the completion of the First Placing and the Second Placing, Easyknit’s interest in the Company has been diluted to approximately 35.93% of the then issued share capital of the Company.

With effect from 19 November 2003, the name of the Company has been changed from “i100 Limited” to “Asia Alliance Holdings Limited” and the Chinese name “ ” has been adopted by the Company for identification purposes.

On 4 March 2004, the then issued share capital of the Company was reduced to HK$5,950,114 consisting of 59,501,140 shares of HK$0.10 each and the authorised share capital of the Company was increased to HK$650,000,000 comprising 6,500,000,000 shares of HK$0.10 each.

On 24 March 2004, the Company raised approximately HK$73,200,000 (net of expenses) by way of the rights issue of 297,505,700 rights shares at a price of HK$0.25 per rights share on the basis of five rights shares for every share held (the “Second Rights Issue”). Out of such proceeds, approximately HK$22,000,000 has been used to repay the Easyknit Loan and the remaining balance of approximately HK$51,000,000 has been applied for partial payment in respect of the Po Cheong Acquisition (as defined below). As a result of the Second Rights Issue, the issued share capital of the Company has been increased to HK$35,700,684 comprising 357,006,840 shares of HK$0.10 each.

On 17 May 2004, the acquisition of the entire issued share capital of Po Cheong International Enterprises Limited (“Po Cheong”) at a total consideration of HK$65,000,000 (subject to adjustment) (the “Po Cheong Acquisition”) by Best Ability Limited, a wholly-owned subsidiary of the Company, from Easyknit International Trading Company Limited, a wholly-owned subsidiary of Easyknit, was completed and Po Cheong has become a wholly-owned subsidiary of the Company. Po Cheong and its subsidiary are principally engaged in the business of bleaching and dyeing.

On 15 June 2004, the Company entered into an agreement (the “Agreement”) with each of Mr. Louie Tsz Chung and Ms. Koon Po Fun, pursuant to which, amongst other things, the Group has agreed to sell fabrics and provide bleaching and dyeing services to the companies controlled by Mr. Louie Tsz Chung/companies controlled by Ms. Koon Po Fun respectively for the period from 17 May 2004 to 31 March 2007 subject to respective caps. The respective transactions (the “Ongoing Connected Transactions”) contemplated under the Agreement with each of Mr. Louie Tsz Chung and Ms. Koon Po Fun constitute non-exempt continuing connected transactions of the Company under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and are subject to reporting and independent shareholders’ approval at the special general meeting of the Company to be held on 25 August 2004. Details of the Ongoing Connected Transactions are set out in the circular of the Company dated 26 July 2004.

On 25 June 2004, Copplestone Limited (“Copplestone”), a wholly owned subsidiary of the Company, and Arco Consulting Inc. (“Arco”), a third party independent of the Company, entered into a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, inter alia, the facility agreement entered into on 6 January 2003 between Copplestone as borrower and Arco as lender relating to a term loan facility of up to HK$4,000,000 (the “Facility Loan”) secured by all

— 72 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

the shares in the share capital of i100 Wireless Corporation held by Copplestone was terminated and Copplestone transferred the entire issued share capital of i100 Wireless Corporation to Arco. The disposal of i100 Wireless Corporation constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules. Details of the Settlement Agreement and the disposal of i100 Wireless Corporation are set out in the announcement of the Company dated 14 July 2004.

Liquidity and financial resources

During the period under review, the Group obtained the Easyknit Loan of HK$30,270,000 which has been fully repaid in March 2004 and the Facility Loan of HK$4,000,000. Both loans bore interest at market rate and were repayable on demand. The Group’s total borrowings at 31 March 2004 were HK$4,000,000. During the period under review, the Group raised aggregate net proceeds of approximately HK$101,800,000 from the First Rights Issue, the First Placing, the Second Placing and the Second Rights Issue. As at 31 March 2004, the remaining balance of the net proceeds was approximately HK$65,856,000. During the fifteen months ended 31 March 2004, the Group’s operation was mainly financed by the Easyknit Loan, the Facility Loan and the net proceeds of the aforesaid fund raising exercises.

As at 31 March 2004, the Group had net current assets of approximately HK$56,997,000 (net current liabilities as at 31 December 2002: approximately HK$3,521,000) and cash and cash equivalents of approximately HK$66,131,000 (31 December 2002: approximately HK$1,822,000). The Group’s cash is primarily in Hong Kong and US dollars and placed in leading commercial banks as time deposits with various maturities.

As at 31 March 2004, the Group had a gearing ratio of 6.9%. The gearing ratio is calculated on the basis of the Group’s total borrowings of HK$4,000,000 over the shareholders’ fund of HK$57,856,000. As the Group had no borrowings as at 31 December 2002, no gearing ratio of the Group is presented at 31 December 2002.

The directors believe that the Group has sufficient working capital for its operations.

Exposure to fluctuations in exchange rates and related hedges

As at 31 March 2004, the Group had no significant exposure to fluctuations in exchange rates and any related hedges.

Capital structure

The Group had no debt securities or other capital instruments as at 31 March 2004 and up to the date of this report.

Material acquisitions and disposals

Save as the Po Cheong Acquisition as set out in “Significant Corporate Events” above, the Group had no material acquisitions and disposals of subsidiaries or associates during the fifteen months ended 31 March 2004.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Charges on Group assets

As at 31 March 2004, the Facility Loan of HK$4,000,000 from an independent third party was secured by all the issued shares of i100 Wireless Corporation, a former wholly-owned subsidiary of the Company.

Capital expenditure

During the fifteen months ended 31 March 2004, the Group spent approximately HK$12,125,000 on acquisition of property, plant and equipment.

Contingent liabilities

As at 31 March 2004, the Group did not have any contingent liabilities.

Significant investment

As at 31 March 2004, the Group did not have any significant investment held or any significant investment plans.

Employees and remuneration policies

As at 31 March 2004, the Group employed approximately 29 full time management, technical and administrative staff in Hong Kong and elsewhere in the People’s Republic of China. Employees’ cost (including directors’ emoluments) amounted to approximately HK$12,737,000 for the period under review. The Group remunerates its employees based on their performance, experience and prevailing industry practice. The Group has share option schemes to motivate valued employees.

For the year ended 31 March 2005

Financial results

For the year under review, the Group attained notable growth in both turnover and profit. Turnover soared more than ninefold from approximately HK$5,083,000 for the fifteen months ended 31 March 2004 (the “Last Period”) to approximately HK$53,662,000 for the year ended 31 March 2005. This drastic increase was predominately due to the acquisition of the bleaching and dyeing business in May 2004.

Gross profit for the year ended 31 March 2005 shot up nearly five times to approximately HK$9,962,000 from approximately HK$1,731,000 in the Last Period. Net profit attributable to shareholders amounted to approximately HK$6,104,000, reversing the net loss of approximately HK$57,737,000 in the Last Period. This remarkable change resulted largely from a gain of approximately HK$9,042,000 on the disposal of the persistent loss-making wireless communication

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

business in June 2004 and a profit of approximately HK$4,095,000 derived from the bleaching and dyeing business during the year. This was partly offset by the loss of approximately HK$2,370,000 recorded in the knitting business. Earnings per share were approximately HK$0.02 (Last Period: loss per share of approximately HK$0.97).

Cost of sales and services leaped twelve times to approximately HK$43,700,000 for the year compared to approximately HK$3,352,000 in the Last Period, reflecting the robust growth in sales. The Group’s total operating expenses were down approximately 68.3% to approximately HK$12,355,000 for the year from approximately HK$38,962,000 in the Last Period. This was mainly on account of the savings in salaries, rentals and other operating expenses following the disposal of the wireless communication business in June 2004, which was partly offset by the costs of running the garment related businesses.

Finance costs declined significantly by approximately 78.4% to approximately HK$424,000 from approximately HK$1,960,000 in the Last Period, principally by reason of repayment of a loan of HK$30,270,000 from Easyknit International Holdings Limited (“Easyknit”) in March 2004 and settlement of the Facility Loan (as defined in “Business Review” below) of HK$4,000,000 in June 2004, which was partly offset by the bank loans drawn by the Group during the year.

Business review

During the year ended 31 March 2005, the Group experienced major changes in operations following the acquisition of Po Cheong International Enterprises Limited (“Po Cheong”) in May 2004 which has introduced bleaching and dyeing business to the Group, the streamling of the wireless communication business, communication solutions consultancy services and internet operations of the Group, which continued to suffer substantial losses in the past few years, and the commencement of production of a knitting mill in the People’s Republic of China (the “PRC”) in May 2004. As a result of the above events, the Group became principally engaged in the business of bleaching, dyeing and knitting during the year under review.

On 5 March 2004, Best Ability Limited, a wholly-owned subsidiary of the Company, as purchaser entered into an agreement with Easyknit International Trading Company Limited, a wholly-owned subsidiary of Easyknit, a controlling shareholder of the Company, as vendor whereby Best Ability Limited conditionally agreed to purchase from Easyknit International Trading Company Limited all the issued shares of Po Cheong at a consideration of HK$65,000,000 (the “Acquisition”). The consideration of the Acquisition has been subsequently adjusted down to HK$38,879,778 (the “Adjustment”). The Acquisition constituted a major and connected transaction of the Company under the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Details of the Acquisition and the Adjustment are set out in the circular of the Company dated 23 April 2004 and the joint announcement of Easyknit and the Company dated 16 June 2005 respectively.

On 25 June 2004, Copplestone Limited (“Copplestone”), a wholly-owned subsidiary of the Company, and Arco Consulting Inc. (“Arco”), a third party independent of the Company, entered into a settlement agreement (the “Settlement Agreement”) for the full settlement of a loan of HK$4,000,000 (the “Facility Loan”) provided by Arco to Copplestone pursuant to a facility agreement

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

dated 6 January 2003 between both parties together with the accrued interest of HK$511,000 (up to the date of the Settlement Agreement) by way of transferring all the issued shares of i100 Wireless Corporation, a then wholly-owned subsidiary of Copplestone, to Arco. i100 Wireless Corporation and its subsidiaries were principally engaged in the wireless communication business. The disposal of i100 Wireless Corporation (the “Disposal”) constituted a discloseable transaction of the Company under the Listing Rules. Details of the Settlement Agreement and the Disposal are set out in the circular of the Company dated 4 August 2004.

To strengthen its manufacturing operations and the capability of its existing main business, the Group has decided to develop a multi-functional base in Huzhou City, Zhejiang Province, the PRC. On 24 December 2004 and 28 December 2004, Easyknit (Mauritius) Limited, a wholly-owned subsidiary of the Company, and the People’s Government of Zhili Town, Wuxing District, Huzhou City, Zhejiang Province, the PRC (the “Vendor”) entered into an agreement and a supplemental agreement respectively in relation to the acquisition by Easyknit (Mauritius) Limited of land of about 670 mu situated at the West of Dongliang Road, Zhili Town, Wuxing District, Huzhou City, Zhejiang Province, the PRC and the South of Hengtang Harbour, the PRC (the “Property”) at a consideration of RMB10,050,000 (the “Land Acquisition”), the construction of a waste water treatment plant on the Property at a cost of not more than HK$30,000,000 (the “Construction”) and the proposed development of manufacturing operations on the Property, including garment manufacturing, bleaching and dyeing and knitting (the “Development”) (the Land Acquisition, the Construction and the Development are together, the “Huzhou Project”). Phase 1 of the Huzhou Project which involves the Land Acquisition, the Construction and the setting up of garment manufacturing and bleaching and dyeing capabilities constituted a very substantial acquisition of the Company under the Listing Rules. Details of phase 1 of the Huzhou Project are set out in the circular of the Company dated 21 February 2005. On 18 April 2005, a second supplemental agreement was entered into between Easyknit (Mauritius) Limited and the Vendor in relation to the reduction of the size of the Property to 632.289 mu and the consideration of the Land Acquisition to RMB9,484,335, the way in which the Construction be held, and the appointment of the Vendor as an agent to deal with matters in relation to the Construction subject to the terms contained therein. The consideration of the Land Acquisition of RMB9,484,335 and a deposit for the Construction of HK$15,000,000 were paid in April 2005. According to an indicative timetable, the Group will strive to complete the garment manufacturing and bleaching and dyeing capabilities by early 2006 and the knitting capability by the end of 2006.

During the year ended 31 March 2005, the bleaching and dyeing business contributed to approximately 99.2% of the Group’s total turnover, amounting to approximately HK$53,218,000. The Group’s bleaching and dyeing factory located in Dongguan, the PRC currently has a daily production capacity of about 30,000 pounds.

The knitting mill in Heyuan, the PRC commenced production in May 2004 with a daily production capacity of about 20,000 pounds. Turnover in the knitting services only accounted for approximately 0.8% of the Group’s total turnover for the year ended 31 March 2005 and its share is expected to grow going forward.

Geographically, almost all the Group’s customers were located in the PRC.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Prospects

To stem a rising tide of the Chinese textile imports following the lifting of the global trade quotas on textiles on 1 January 2005, the United States of America (the “US”), in May 2005, imposed safeguard quotas limiting the increase in 7 categories of Chinese textile imports to 7.5 % this year by relying upon the terms of the PRC’s accession to World Trade Organisation (the “WTO”). The PRC abolished its self-imposed export tariffs on 81 categories of textile products in June 2005, escalating trade tensions with the US. In June 2005, the European Union (the “EU”) and the PRC also agreed to limit the growth of 10 categories of Chinese textile products to the EU to between 8% and 12.5% a year until the end of 2007. Our customers whose garment products are mainly sold to the US and the EU member countries are likely to be affected and may in turn impact the business of the Group. We will constantly monitor the market conditions and adjust accordingly.

The directors are of the view that the long-term prospect of the textile and apparel industry is promising as the WTO China textile safeguard mechanism will be in effect only until 31 December 2008 and progressive liberalisation of textile trade is inevitable. More importantly, the PRC is experiencing strong economic growth which has elevated the living standard for part of its population and will in turn spur the domestic demand for high quality textile products. We believe that the setting up of a multi-functional base in Huzhou City, Zhejiang Province, the PRC for developing vertical integrated operations ranging from knitting, bleaching and dyeing and garment manufacturing will not only consolidate and significantly increase the Group’s manufacturing capabilities, but will also help to minimise cost, maximise efficiency and increase the Group’s competitivity so as to pave the way for future business growth in the challenging but expanding textile industry.

The management remains cautiously optimistic about the results for the first half year ended 30 September 2005 based on the orders on hand. It is believed that the bleaching and dyeing business will continue to make positive contribution to the Group. We also anticipate the production of the knitting mill in Heyuan, the PRC will grow steadily. Coupled with our stable clientele, improved efficiency, advanced production facilities and experienced management team, we are confident that the Group will eventually benefit from the booming economy.

The Group will endeavour to provide high quality fabric products to its customers, further expand its sourcing network and customer base and implement an effective control in production cost and pricing strategy in order to generate higher returns to its shareholders.

Liquidity and Financial Resources

During the year ended 31 March 2005, the Group financed its operations mainly by net proceeds from the fund raising exercises conducted in 2003 and 2004, the Facility Loan of HK$4,000,000, bank borrowings and internally generated resources. In June 2004, the Facility Loan together with its accrued interests was settled. As at 31 March 2005, the Group’s total bank borrowings amounted to approximately HK$46,406,000 (31 March 2004: Nil), of which approximately 66.8% being short-term borrowings and approximately 33.2% being long-term borrowings. All the loans are unsecured, denominated in Hong Kong dollars and charged at prevailing market interest rates. Approximately HK$21,406,000 of the bank borrowings are repayable in instalments over a period of four years and approximately HK$25,000,000 are repayable within one year and guaranteed by a personal guarantee

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

from Mr. Koon Wing Yee, who is a director of the Company. They are mostly event driven, with little seasonality. Shareholders’ fund of the Group as at 31 March 2005 was approximately HK$64,021,000 (31 March 2004: approximately HK$57,856,000). The Group’s gearing ratio, which was calculated based on the total borrowings to the shareholders’ fund, rose from approximately 0.069 as at 31 March 2004 to approximately 0.725 as at 31 March 2005.

The Group continued to sustain a liquidity position. As at 31 March 2005, the Group had net current assets of approximately HK$34,659,000 (31 March 2004: approximately HK$56,997,000) and cash and cash equivalents of approximately HK$33,352,000 (31 March 2004: approximately HK$66,131,000). The Group’s cash and cash equivalents are mainly denominated in Hong Kong dollars and Renminbi. As at 31 March 2005, the Group’s current ratio was approximately 1.9 (31 March 2004: approximately 6.1), which was calculated on the basis of current assets of approximately HK$74,884,000 (31 March 2004: approximately HK$68,066,000) to current liabilities of approximately HK$40,225,000 (31 March 2004: approximately HK$11,069,000). The current ratio deteriorated during the year, primarily as a result of the acquisition of the bleaching and dyeing business, setting up of the knitting mill and investment in the Huzhou Project which not only reduced the bank and cash balance but also increased the Group’s liabilities. During the year under review, the Group serviced its debts primarily through cash earned from its operations.

The directors believe that the Group has sufficient financial resources for its operations.

Exposure to Fluctuations in Exchange Rates and Related Hedges

Most of the Group’s revenues and payments are in Hong Kong dollars and Renminbi. During the year under review, the Group had no significant exposure to fluctuations in exchange rates and thus, no financial instrument for hedging purposes was employed.

Capital Structure

The Group had no debt securities or other capital instruments as at 31 March 2005 and up to the date of this report.

Material Acquisitions and Disposals

Apart from the acquisition of Po Cheong and the disposal of i100 Wireless Corporation as disclosed in “Business Review” above, the Group had no material acquisitions or disposals of subsidiaries or associates during the year ended 31 March 2005.

Charges on Group Assets

The Group did not have any charges on assets as at 31 March 2005.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Capital Expenditure and Capital Commitments

During the year ended 31 March 2005, the Group spent approximately HK$26,308,000 (Last Period: approximately HK$12,125,000) on acquisition of property, plant and equipment, of which approximately HK$14,529,000 (Last Period: Nil) was related to the acquisition of subsidiaries.

As at 31 March 2005, the Group had capital commitments of approximately HK$49,522,000 (31 March 2004: approximately HK$95,827,000).

Contingent Liabilities

As at 31 March 2005, the Group’s banking facilities of approximately HK$47,606,000 (31 March 2004: Nil) were supported by the Company’s unlimited guarantee and unlimited cross guarantee provided by two of its subsidiaries in favour of the bank.

Save as disclosed above, the Group did not have any significant contingent liabilities as at 31 March 2005.

Significant Investment

Apart from the Huzhou Project as disclosed in “Business Review” above, the Group did not have any significant investment plans or any significant investment held as at 31 March 2005. The Group will make use of its existing bank facilities for the Construction if further funding is required. The costs for the Development in the sum of HK$160,000,000 will be financed through bank borrowing or other forms of financing available. As at the date hereof, no member of Group is a party to any financing arrangement in respect thereof.

Employment and Remuneration Policy

As at 31 March 2005, the Group employed approximately 300 full time management, technical, administrative staff and workers in Hong Kong and elsewhere in the PRC. Employees’ cost (including directors’ emoluments) amounted to approximately HK$5,121,000 for the year under review (Last Period: approximately HK$12,737,000). The Group remunerates its employees based on their performance, experience and prevailing industry practice. The Group has adopted the Mandatory Provident Fund for the Hong Kong employees and has made contributions to the stated-sponsored pension scheme operated by the PRC government for the PRC employees. The Group has a share option scheme to motivate valued employees.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS OF DIRECTORS

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company and their respective associates in the shares, underlying shares and debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he is taken or deemed to have under such provisions of the SFO), or recorded in the register maintained by the Company pursuant to Section 352 of the SFO or which were notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of the Listed Issuers in Appendix 10 of the Listing Rules are as follows:

		Number of
		ordinary	Approximate
		Shares held	percentage
Name of Director	Nature of interest	(long position)	of interest
Mr. Koon Wing Yee (Note)	Interest of spouse	141,085,252	35.93%
Ms. Lui Yuk Chu (Note)	Beneficiary of a trust	141,085,252	35.93%

Note: The 141,085,252 Shares relate to the same block of Shares in the Company. These Shares were registered in the name of and were beneficially owned by Landmark Profits Limited which was a wholly-owned subsidiary of Easyknit International Holdings Limited (“Easyknit”). Magical Profits Limited was interested in approximately 36.74% of the issued share capital of Easyknit. Magical Profits Limited was wholly-owned by Accumulate More Profits Limited which in turn was wholly-owned by Trustcorp Limited as trustee of The Magical 2000 Trust (the beneficiaries of which include Ms. Lui Yuk Chu and her family members other than spouse). Mr. Koon Wing Yee, being the spouse of Ms. Lui Yuk Chu, was deemed to be interested in the 141,085,252 Shares by virtue of the SFO.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company and their respective associates had any interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he is taken or deemed to have under such provisions of the SFO), or recorded in the register maintained by the Company pursuant to Section 352 of the SFO or which were notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of the Listed Issuers.

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GENERAL INFORMATION

APPENDIX II

Save as disclosed in the section headed “Material Contracts” in this appendix, none of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 March 2005 (the date to which the latest published audited accounts of the Company were made up), (i) acquired or disposed of by; or (ii) leased to; or (iii) proposed to be acquired or disposed of by; or (iv) proposed to be leased to any member of the Group.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the persons (other than the Directors or the chief executive of the Company) who had an 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 Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group, or had any options in respect of such capital are set out below:

		Number of
		ordinary	Approximate
Name of		Shares held	percentage
substantial Shareholder	Nature of interest	(long position)	of interest
Landmark Profits Limited	Beneficial owner	141,085,252	35.93%
(Notes 1 & 2)
Easyknit (Notes 1 & 3)	Interest of controlled	141,085,252	35.93%
	corporation
Magical Profits Limited	Interest of controlled	141,085,252	35.93%
(Notes 1 & 4)	corporation
Accumulate More Profits Limited	Interest of controlled	141,085,252	35.93%
(Notes 1 & 5)	corporation
Trustcorp Limited (Note 1)	Trustee	141,085,252	35.93%
Au Yeung Man Yin	Beneficial owner	29,762,413	7.58%

Notes:

1. The 141,085,252 Shares relate to the same block of Shares in the Company. These Shares were registered in the name of and were beneficially owned by Landmark Profits Limited which was a wholly-owned subsidiary of Easyknit. Magical Profits Limited was interested in approximately 36.74% of the issued share capital of Easyknit. Magical Profits Limited was wholly-owned by Accumulate More Profits Limited which in turn was wholly-owned by Trustcorp Limited as trustee of The Magical 2000 Trust (the beneficiaries of which include Ms. Lui Yuk Chu, a Director, and her family members other than spouse).

2. Mr. Koon Wing Yee and Ms. Lui Yuk Chu, being the Directors, are also directors of Landmark Profits Limited.

3. Mr. Koon Wing Yee, Mr. Tse Wing Chiu Ricky and Ms. Lui Yuk Chu, being the Directors, are also directors of Easyknit.

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GENERAL INFORMATION

APPENDIX II

1. Ms. Lui Yuk Chu, being a Director, is also a director of Magical Profits Limited.

2. Ms. Lui Yuk Chu, being a Director, is also a director of Accumulate More Profits Limited.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company are not aware of any other persons who had an 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 Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any options in respect of such capital.

4. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company and its subsidiaries within the two years immediately preceding the date of this circular and are or may be material:

• (a) an underwriting agreement dated 2 January 2004 entered into among the Company, Get Nice Investment Limited, Kingston Securities Limited and Cheer Union Securities Limited in relation to the underwriting of a rights issue of not less than 297,505,700 rights shares at a price of HK$0.25 per rights share;

• (b) a sale and purchase agreement dated 5 March 2004 between Best Ability Limited, a wholly owned subsidiary of the Company, as purchaser and Easyknit International Trading Company Limited, a wholly owned subsidiary of Easyknit, as vendor in relation to the acquisition of entire issued share capital of Po Cheong International Enterprises Limited at a consideration of HK$65,000,000, which has been subsequently adjusted downwards to HK$38,879,778 (for details, please refer to the announcements dated 5 March 2004, 26 March 2004, 2 April 2004, 8 April 2004, 21 April 2004, 10 May 2004 and 16 June 2005, and the circular dated 23 April 2004 of the Company);

• (c) a settlement agreement dated 25 June 2004 between Copplestone Limited (“Copplestone”), a wholly owned subsidiary of the Company and Arco Consulting Inc. (“Arco”) in relation to the full settlement of a loan of HK$4,000,000 provided by Arco to Copplestone and the accrued interest of HK$511,000 (up to the date of the agreement) by way of transferring all the issued shares of i100 Wireless Corporation, a then wholly owned subsidiary of Copplestone, to Arco (for details, please refer to the announcement dated 14 July 2004 and the circular dated 4 August 2004 of the Company);

• (d) an agreement dated 24 December 2004 and two supplemental agreements dated 28 December 2004 and 18 April 2005 between the Subsidiary and the Vendor in relation to the Project (for details, please refer to the Company’s announcements dated 3 January 2005, 24 January 2005, 8 February 2005 and 21 February 2005 and the Circular;

• (e) an underwriting agreement dated 18 July 2005 entered into between the Company and Get Nice Investment Limited in relation to the underwriting of a rights issue of not less than 357,006,840 rights Shares at a price of HK$0.40 per rights Share; and

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GENERAL INFORMATION

APPENDIX II

• (f) the Further Supplemental Agreement.

5. LITIGATION

As at the Latest Practicable Date, there was no litigation or claims of material importance pending or threatened against any member of the Group.

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors or their respective associates had any interest in businesses which are considered to compete or are likely to compete, either directly or indirectly, with the businesses of the Group as required to be disclosed pursuant to the Listing Rules.

7. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any member of the Group which is not expiring or terminable by the Group within one year without payment of compensation (other than statutory compensation).

8. MISCELLANEOUS

• (a) The secretary of the Company is Chan Po Cheung, FCPA, FCCA, ACA.

• (b) The qualified accountant of the Company is Hsu Kei Leung, CPA, FCCA, ACMA, ASA.

• (c) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton, HM12, Bermuda and the principal place of business of the Company in Hong Kong is at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong.

• (d) The Hong Kong branch share registrar and transfer office of the Company is Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (e) The English text of this circular and form of proxy shall prevail over the Chinese text in the case of inconsistency.

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GENERAL INFORMATION

APPENDIX II

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong up to and including 9 January 2006:

• (a) the memorandum of association and bye-laws of the Company;

• (b) the material contracts referred to in the section headed “Material Contracts” in this appendix;

• (c) the annual reports of the Company for the fifteen months ended 31 March 2004 and for the year ended 31 March 2005; and

• (d) the interim report of the Company for the six months ended 30 September 2005.

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NOTICE OF THE SGM

Asia Alliance Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 616)

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of Asia Alliance Holdings Limited (the “Company”) will be held at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong on 9 January 2006 at 9:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution with or without amendment as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“THAT

• (1) the supplemental agreement dated 25 November 2005 (the “Supplemental Agreement”), a copy of which has been produced to this meeting marked “A” and signed by the Chairman of this meeting for the purpose of identification, made between the People’s Government of Zhili Town, Wuxing District, Huzhou City, Zhejiang Province, the People’s Republic of China and Easyknit (Mauritius) Limited (the “Subsidiary”), a wholly owned subsidiary of the Company, and the transactions contemplated thereunder including the capital commitment of the Subsidiary of approximately RMB519 million in respect of the Project (as defined in the circular of the Company dated 22 December 2005), upon the terms and subject to the conditions therein contained, be and are hereby approved, confirmed and ratified; and

• (2) the directors of the Company be and are hereby authorised to do all acts or execute all documents which in their opinion are necessary, desirable or expedient to give effect to or in connection with the Supplemental Agreement or the Project.”

By order of the board of Asia Alliance Holdings Limited

Koon Wing Yee Chairman and Chief Executive Officer

Hong Kong, 22 December 2005

• for identification only

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NOTICE OF THE SGM

Notes:

1. Any shareholder entitled to attend and vote at the meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A shareholder who is the holder of two or more shares may appoint more than one proxy to attend on the same occasion. A proxy need not be a shareholder of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised.

3. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be delivered to the Company’s principal place of business in Hong Kong at 7th Floor, Hong Kong Spinners Building, Phase 6, 481-483 Castle Peak Road, Cheung Sha Wan, Kowloon, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting (as the case may be) at which the person named in the instrument proposes to vote, and in default the instrument of proxy shall not be treated as valid.

4. Completion and return of the instrument appointing a proxy will not preclude shareholders from attending and voting in person at the meeting convened by the above notice or at any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the instrument appointing the proxy shall be deemed to be revoked.

5. Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, then one of the said persons so present whose name stands first to the register of members in respect of such share shall alone be entitled to vote in respect thereof.

As of the date hereof, the executive directors of the Company are Mr. Koon Wing Yee, Mr. Tse Wing Chiu Ricky and Ms. Lui Yuk Chu and the independent non-executive directors are Mr. Kan Ka Hon, Mr. Kwong Jimmy Cheung Tim and Mr. Lau Sin Ming.

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