Melco International Development Limited — Proxy Solicitation & Information Statement 2006

May 2, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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.

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Crocodile Garments Limited

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0122)

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

DEVELOPMENT OF THE PROPERTY AT 79 HOI YUEN ROAD, KWUN TONG, HONG KONG

Independent Financial Advisor to the Independent Board Committee and the Independent Shareholders

SOMERLEY LIMITED

A letter from the Board is set out on pages 4 to 13 of this circular. A letter from the Independent Board Committee is set out on pages 14 to 15 of this circular. A letter from the Independent Financial Advisor to the Independent Board Committee and the Independent Shareholders containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 16 to 24 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at The Chater Room I, Function Room Level (B1), The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong on Wednesday, 17th May, 2006 at 10:00 a.m. is set out on pages 111 to 112 of this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Registrars, Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or at any adjourned extraordinary general meeting should you so wish.

29th April, 2006

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Development Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Financial Information on the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Reasons for and Benefits of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Financial Impact of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information on the Company, LSG and LSG SPV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Requirements under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appointment of Independent Board Committee and Independent Financial Advisor . . . . .	12
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I — Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix II — Financial Information on the Crocodile Building . . . . . . . . . . . . . . .	90
Appendix III — Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
Appendix IV — Additional Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .	95
Appendix V — Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	98
Appendix VI — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	103
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	111

— i —

DEFINITIONS

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

“Building Authority”	the Building Authority as defined in the Buildings Ordinance
	(Cap. 123);
“CGL Group”	the Company and its subsidiaries;
“CGL SPV”	Crocodile KT Investment Limited, a company incorporated in
	Hong Kong and an indirect wholly-owned subsidiary of the
	Company established for the purposes of holding the Property
	over the course of the development referred to in this circular;
“Company”	Crocodile Garments Limited, a company incorporated in
	Hong Kong, the shares of which are listed on the Stock
	Exchange;
“Completion”	the fulfillment of all the obligations of LSG SPV pursuant to
	the Development Agreement;
“connected transaction”	has the meaning ascribed thereto in the Listing Rules;
“Crocodile Building”	the existing building located on the Property;
“Development Agreement”	the conditional development agreement entered into by LSG,
	LSG SPV and the Company in relation to the joint
	development of the Property dated 28th February, 2006;
“Development Plans”	the preliminary plans for the development of the Property as
	agreed by LSG SPV and the Company (as amended from time
	to time by agreement by LSG, LSG SPV and the Company and
	approved by the Building Authority);
“EGM”	the extraordinary general meeting of the Company convened
	to consider and, if thought fit, approve, inter alia, the
	Development Agreement;
“Government”	the relevant government authority of Hong Kong;
“HK$”	Hong Kong dollar(s);
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC;
“Independent Board Committee”	an independent committee of the board of directors of the
	Company (comprising Mr. Yeung Sui Sang), which has been
	established by the board of directors of the Company for the
	purpose of advising the Independent Shareholders on the
	Development Agreement;

— 1 —

DEFINITIONS

“Independent Financial Advisor”	Somerley Limited, a corporation licensed under the SFO to
	conduct types 1 (dealing in securities), 4 (advising on
	securities), 6 (advising on corporate finance) and 9 (asset
	management) regulated activities and the Independent
	Financial Advisor to the Independent Board Committee and
	the Independent Shareholders in relation to the Development
	Agreement;
“Independent Shareholders”	the shareholders of the Company that have no material
	interest in the Development Agreement and the transactions
	contemplated thereby;
“Joy Mind”	Joy Mind Limited, a company incorporated in Hong Kong
	which is a wholly-owned subsidiary of LSG;
“Land Premium”	the total land premium payable by the Company to the
	Government in respect of the Lease Modification, being
	HK$274,070,000;
“Latest Practicable Date”	24th April, 2006, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular;
“Lease Modification”	the modification of conditions of the government lease of the
	Property, inter alia, to permit a change of use from industrial
	to non-industrial (excluding residential, godown, petrol
	filling station, hotel and cinema);
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“LSG”	Lai Sun Garment (International) Limited, a company
	incorporated in Hong Kong, the shares of which are listed on
	the Stock Exchange;
“LSG Group”	LSG and its subsidiaries;
“LSG SPV”	Unipress Investments Limited, a company incorporated in
	Hong Kong and an indirect wholly-owned subsidiary of LSG;
“New Building”	the building to be constructed on the Property following the
	demolition of the Crocodile Building, currently expected to
	be a commercial/office building of approximately 240,000
	square feet gross floor area with approximately 54 car parking
	spaces;
“PRC”	the People’s Republic of China;

— 2 —

DEFINITIONS

“Property”	the piece or parcel of land known as Kwun Tong Inland Lot
	No. 692 at 79 Hoi Yuen Road, Kwun Tong, Kowloon, as
	currently owned by the Company;
“Security”	the security to be provided by the Company or CGL SPV to
	the relevant lending institution(s) for the building
	construction finance to be obtained in relation to the
	development of the Property;
“SFO”	Securities and Futures Ordinance (Cap. 571);
“Share Purchase Agreement”	the conditional share purchase agreement entered into by
	LSG, Joy Mind, Rich Promise Limited and Mr. Lam Kin Ming
	in relation to the sale and purchase of an approximate 51.01%
	interest in the Company dated 28th February, 2006; and
“Stock Exchange”	The Stock Exchange of Hong Kong Limited.

— 3 —

LETTER FROM THE BOARD

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Crocodile Garments Limited

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0122)

Executive Directors: Lam Kin Ming (Chairman and Chief Executive Officer) Lam Kin Ngok, Peter Lam Kin Hong, Matthew Lam Wai Shan, Vanessa (Deputy Chief Executive Officer)

Registered Office: 11th Floor Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

Non-Executive Directors:

Shiu Kai Wah Chiu Wai Wan Yee Hwa, Edward Yeung Sui Sang Chow Bing Chiu*

• Independent Non-executive Directors

29th April, 2006

To the Shareholders

Dear Sir/Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

DEVELOPMENT OF

THE PROPERTY AT 79 HOI YUEN ROAD, KWUN TONG, HONG KONG

INTRODUCTION

By a joint announcement dated 4th March, 2006, the respective boards of directors of LSG and the Company announced that LSG and LSG SPV, an indirect wholly-owned subsidiary of LSG, had entered into a conditional Development Agreement with the Company on 28th February, 2006, whereby LSG SPV and the Company conditionally agreed to develop the Property and to construct the New Building thereon.

The purpose of this circular is to provide you with, among other things, further details of the Development Agreement and certain financial information of the CGL Group.

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LETTER FROM THE BOARD

DEVELOPMENT AGREEMENT

Date:

28th February, 2006

Parties:

• (1) LSG SPV

• (2) LSG as guarantor of LSG SPV

• (3) the Company

Background of the Development Agreement:

The existing Crocodile Building comprises two adjoining seven-storey and eleven-storey industrial buildings of approximately 154,098 square feet total gross floor area which were built in or about 1972. As at 31st July, 2005, the Property and the Crocodile Building thereon, currently owned by the Company, were valued at HK$63,000,000 (on the basis that it was for industrial use) with reference to a valuation performed by independent chartered surveyors for the purposes of the Company’s annual audited accounts. A portion of the Crocodile Building is currently sub-let to various third party tenants who are in the process of vacating the premises. The Company expects vacant possession of the premises to be obtained in May 2006. Pursuant to the Development Agreement, the existing Crocodile Building will be demolished and the New Building will be constructed on the Property. The redevelopment works of the New Building will commence as soon as practicable after vacant possession is obtained.

The New Building is expected to be of approximately 240,000 square feet gross floor area with approximately 54 car parking spaces. As currently envisaged, the New Building will be a commercial/office building. As the final specifications for the New Building will be subject to, inter alia, various consents from Governmental bodies including the Building Authority, the final building gross floor area and other specifications are subject to possible minor amendments.

The Crocodile Building is currently used by the Company for rental purposes and is accounted for as investment property in the accounts of the Company. The New Building will also be accounted for as investment property in the accounts of the CGL Group.

Obligations of the parties:

In connection with the development of the Property as described above, on 14th January, 2006 the Company accepted an offer from the Government to grant a Lease Modification in respect of the Property, which modification will permit a change of use of the Property from industrial to non-industrial (excluding residential, godown, petrol filling station, hotel and cinema) purposes. A Land Premium of a total sum of HK$274,070,000 was paid by the Company in two parts: HK$27,407,000 (representing 10% of the Land Premium) was paid to the Government in January

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LETTER FROM THE BOARD

2006, with the balance paid in March 2006. Based on the valuation report prepared by Savills Valuation and Professional Services Limited, independent property valuer, the value of the Property and the Crocodile Building thereon amounted to HK$240,000,000 as at 24th February, 2006. The valuation has taken into consideration the acceptance of the basic terms in respect of the Lease Modification and the payment of HK$27,407,000 representing 10% of the Land Premium as at the valuation date. The Company funded the balance of the Land Premium by way of internal resources and a bridging loan.

Subject to the Development Agreement becoming unconditional, LSG SPV shall pay the Company a sum of HK$137,035,000, representing 50% of the Land Premium, which is expected to be financed from the proceeds to be obtained by LSG from the sale of an approximate 51.01% interest in the Company by LSG to Rich Promise Limited (a company wholly-owned by Mr. Lam Kin Ming) under the Share Purchase Agreement. As mentioned in the paragraph headed “Conditions precedent” below, the Development Agreement is conditional upon, inter alia, the completion of the Share Purchase Agreement.

Following the payment of the balance of the Land Premium by the Company and the payment by LSG SPV for the sum of HK$137,035,000, the Company currently intends to transfer the Property to CGL SPV.

Under the Development Agreement, the Company has granted to LSG SPV the exclusive right to develop the Property, which right includes possession or access to the Property. LSG SPV shall be responsible for demolishing the existing Crocodile Building and constructing the New Building in accordance with the Development Plans (as may be amended by agreement by the Company, LSG SPV and LSG) and shall bear all development and construction costs (excluding finance costs and currently anticipated to amount to approximately HK$361 million) in connection with the construction and completion of the New Building. It is anticipated that LSG SPV will finance the development and construction costs and the quarterly payment from internal resources and/or building construction finance. If building construction finance is obtained, it is anticipated that LSG will provide a corporate guarantee, and the Company has agreed to provide or procure such security over or in relation to the Property as may reasonably be required by the relevant lending institution(s). The Company will not be providing any corporate guarantee to the relevant lending institution(s). If a project manager is appointed, LSG SPV will bear the project management fee (currently anticipated to be approximately HK$11 million). In consideration of the Company contributing the Property as security for the construction finance, LSG SPV will make a quarterly payment of HK$2,130,000 each (estimated to amount to approximately HK$28,000,000 in aggregate) to the Company during the period from delivery of vacant possession of the Property to completion of construction of the New Building. Such quarterly payments (calculated at a rate of 4% per annum of the value of the Property together with the Crocodile Building thereon of approximately HK$213 million (before payment of the Land Premium)) are intended to be financed from LSG’s internal resources, and will be recorded as a part of the cost of investment in the New Building in the consolidated accounts of LSG and as income in the consolidated accounts of the Company.

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LETTER FROM THE BOARD

Under the Development Agreement, prior to completion of the construction of the New Building, LSG SPV shall allow the Company access to the development works to inspect the New Building and to compile a list of defects or outstanding works so that LSG SPV shall complete all outstanding remedial works, and after completion, LSG SPV shall rectify and remedy all other defects and outstanding works identified by the Company.

It is in the common interests of LSG and the Company to have the construction of the New Building completed as soon as practicable and both parties are reasonably confident that the construction will be completed in time and therefore no provisions dealing with any delay in the Development Agreement are considered necessary by the respective directors of LSG and the Company. LSG and the Company will agree to an extension of the deadline should any need arise.

LSG has agreed to guarantee the obligations of LSG SPV under the Development Agreement and indemnify the Company against all losses, damages, costs and expenses which the Company may suffer through or arising from any breach by LSG SPV of any of its obligations under the Development Agreement. In addition, as security for the obligations of the Company under the Development Agreement, the Company has appointed or will procure the appointment of LSG as its attorney to do anything which the Company is required to do but failed to do under the Development Agreement.

Upon occurrence of any event of default on the part of the Company, LSG is entitled to call upon the Company forthwith to assign or procure assignment of the Property together with the development works thereon to LSG at a consideration equal to the assessed fair market value of the Property. The terms and conditions of the Development Agreement were negotiated at arm’s length between the parties thereto.

Conditions precedent:

The Development Agreement is conditional on the following:

• (a) the approval of the Independent Shareholders of the Company to all the transactions contemplated by the Development Agreement;

• (b) the approval of the Independent Shareholders of LSG to all the transactions contemplated by the Development Agreement; and

• (c) completion of the Share Purchase Agreement.

If any of the foregoing conditions precedent are not fulfilled on or before 31st December, 2006, the Development Agreement will terminate, save for any claims in respect of antecedent breaches, and an appropriate announcement will be made by both LSG and the Company.

Allocation of the New Building:

It is currently expected that the construction of the New Building will be completed in or around mid-2009. On completion of the construction of the New Building, the ownership of the New Building shall be allocated and distributed between LSG SPV and CGL SPV in the proportion of 1 to 1.4 in

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LETTER FROM THE BOARD

terms of the gross floor area. Accordingly, LSG SPV shall be entitled to, and CGL SPV shall execute an assignment to assign to LSG SPV, the ownership of such portion of the New Building with 100,000 square feet gross floor area, and CGL SPV shall be entitled to the remaining portion of the New Building with 140,000 square feet gross floor area, assuming a total gross floor area of 240,000 square feet as currently anticipated. The stamp duty payable on the assignment will be borne by LSG SPV. Following the execution of the assignment, LSG SPV and CGL SPV will execute a deed of mutual covenant which shall include mechanism(s) for calculating sharing and/or allocation of maintenance costs and expenses for all common areas and common facilities of the Property in line with usual methods, terms and conditions commonly entered into between owners of undivided shares in buildings similar to the completed New Building.

In addition, CGL SPV shall execute an assignment to assign the ownership of all car parking spaces to an investment holding company which will be owned in equal shares by LSG and the Company (or their respective nominees). The stamp duty payable on the assignment will be borne by the investment holding company.

Under the Development Agreement, LSG shall not be allowed to sell its portion of the New Building or any part thereof to a third party without first affording the Company a right to negotiate a potential sale and purchase in respect of that interest. No similar right is granted to LSG in the event of sale of any portion of the New Building by the Company.

It is currently planned that the portion of the New Building to which LSG SPV shall be entitled will comprise mainly retail and restaurant space and the portion of the New Building to which CGL SPV shall be entitled will comprise mainly office space. However, the final specifications for the New Building will be subject to, inter alia, various consents from Governmental bodies, therefore the final building gross floor area and other specifications are subject to possible minor amendments.

FINANCIAL INFORMATION ON THE PROPERTY

The audited net profit (both before and after taxation and extraordinary items) attributable to the Property and the Crocodile Building thereon for the financial year ended 31st July, 2005, as incorporated in the Company’s audited consolidated income statement for that year, was approximately HK$8.2 million. Included in the net profit generated from the Property and the Crocodile Building thereon was a surplus on the revaluation of the Property and the Crocodile Building thereon of HK$5 million.

The audited net loss (both before and after taxation and extraordinary items) attributable to the Property and the Crocodile Building thereon for the financial year ended 31st July, 2004 as incorporated in the Company’s audited consolidated income statement for that year, was approximately HK$8.9 million. Included in the net loss generated from the Property and the Crocodile Building thereon was a deficit on the revaluation of the Property and the Crocodile Building thereon of HK$12 million.

The audited carrying value of the Property and the Crocodile Building thereon as incorporated in the audited consolidated balance sheet of the Company as at 31st July, 2005 was HK$63 million.

— 8 —

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE TRANSACTION

The directors of the Company regard the re-development of the Property as a project of considerable potential benefit to the Company. The Property was originally used by the Company for its own garment manufacturing purposes, but having long since relocated its manufacturing operations to the PRC, the potential of the Property has been severely curtailed by its industrial use limitation. With the payment of the Land Premium and the resultant right to change the use to commercial/office, the directors of the Company believe the development will generate beneficial long-term returns to the Company. However, as the core business of the Company is garment business, the directors of the Company have concluded that the Company does not have the necessary expertise, resources or risk-appetite to undertake the development on its own and believe that it is in the best interests of the Company to conduct the project on a joint basis with LSG. LSG has greater experience in property development than the Company, with property development being one of LSG’s existing principal businesses. In addition, LSG has the resources to fund the development and service the interest on any construction finance obtained by it for the project.

The directors of the Company propose to focus the working capital resources of the Company towards the development of the CGL Group’s garment business and in particular towards developing and expanding its distribution channels and retail network in the PRC. The directors gave consideration to selling the Property as a vacant site by contrast to redeveloping it as a joint venture with LSG and concluded that the latter approach would generate better overall returns.

In addition to the above considerations, the directors of the Company have taken into account the following factors for determining the proposed apportionment of the New Building:

• (a) the contribution of LSG to the project, being its expertise and experience in property development, 50% of the Land Premium, its quarterly payments to the Company, the construction costs including interest on any construction finance to be obtained and the project management fee (if a project manager is appointed);

• (b) the contribution of the Company to the project, being the Property which can be re-developed into a non-industrial property and 50% of the Land Premium;

• (c) the estimated value and the estimated return on investment of the portions of the New Building of mainly retail and restaurant space to be allocated and distributed to LSG SPV; and

• (d) the estimated value and the estimated return on investment of the portions of the New Building of mainly office space to be allocated and distributed to the Company.

The directors of the Company are satisfied with the proposed apportionment of the New Building and believe that the apportionment fairly reflects the relative contributions of the Company and LSG to the project. In addition, the directors of the Company (including the independent non-executive directors) believe that the terms of the Development Agreement represent normal commercial terms that are in line with industry practice and are fair and reasonable and in the interests of the shareholders of the Company.

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LETTER FROM THE BOARD

FINANCIAL IMPACT OF THE TRANSACTION

No profit and loss impact on the CGL Group is expected as a result of the transaction and the demolition of the Crocodile Building and it is believed that ultimate assignment of part of the New Building to LSG SPV will not be accounted for as a disposal transaction. The cash and bank balances of the CGL Group as at 31st July, 2005 amounted to HK$276,796,000. The Company will apply HK$137,035,000 towards payment of part of the Land Premium, and therefore the cash and bank balances will be reduced by the same amount as a result of the transaction.

The value of the Property (together with the buildings erected thereon) as at 24th February, 2006, prepared by Savills Valuation and Professional Services Limited, independent property valuer, was approximately HK$240 million. After taking into account the audited carrying value of the Property (together with the buildings erected thereon) of HK$63 million, as included in the Company’s consolidated balance sheet as at 31st July, 2005, and a 10% deposit paid by the Company of approximately HK$27 million on 14th January, 2006 upon the acceptance of an offer from the Government to grant a lease modification of the Property (detailed in the joint announcement made by LSG and the Company on 14th January, 2006), there would be an increase in the value of the Property by HK$150 million. The consolidated net assets of the Company would be increased by approximately HK$124 million after taking into account a provision for deferred tax of HK$26 million for the increase in the value of the Property in compliance with the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants.

INFORMATION ON THE COMPANY, LSG AND LSG SPV

The Company is a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. The principal businesses of the Company include the manufacture and sale of garments and property investment.

LSG and Joy Mind, its wholly-owned subsidiary, together own approximately 54.93% of the issued share capital of the Company as at the date of this circular. On 28th February, 2006, LSG and Joy Mind, its wholly-owned subsidiary, entered into the Share Purchase Agreement with Rich Promise Limited, a company wholly owned by Mr. Lam Kin Ming (the chairman and chief executive officer of the Company and the chairman of LSG), whereby LSG and Joy Mind conditionally agreed to sell to Rich Promise Limited an aggregate of 314,800,000 shares in the Company, representing approximately 51.01% of the issued share capital of the Company as at the date of this circular. Immediately following completion of the Share Purchase Agreement, Rich Promise Limited will hold approximately 51.01% of the issued share capital of the Company, and LSG will hold approximately 3.92% of the issued share capital of the Company which will cease to be a subsidiary of LSG. A separate joint announcement in relation to the Share Purchase Agreement was made by LSG and the Company on 4th March, 2006.

— 10 —

LETTER FROM THE BOARD

LSG is the holding company of the LSG Group, which is principally engaged in investment holding, manufacture and sale of garments, property development and property investment. Apart from the interest in the Company which will be sold to Rich Promise Limited under the Share Purchase Agreement as mentioned above, LSG currently also holds approximately 45.13% in Lai Fung Holdings Limited, a company listed on the Stock Exchange with property interests principally in the PRC and approximately 12.42% in Lai Sun Development Company Limited, a company listed on the Stock Exchange with property and media-related interests. Following completion of the Share Purchase Agreement as mentioned above, manufacture and sale of garments will no longer be a core business of the LSG Group.

LSG SPV, being a wholly-owned subsidiary of LSG, is an investment holding company incorporated in Hong Kong.

REQUIREMENTS UNDER THE LISTING RULES

With regard to the Company’s obligations under the Development Agreement (including the Company’s obligation of providing the Security for the benefit of LSG SPV and of disposing of part of the New Building to LSG SPV on completion of the development), certain of the relevant percentage ratios under Rule 14.07 of the Listing Rules exceed 75%.

In addition, as mentioned in the section headed “Information on the Company, LSG and LSG SPV” above, immediately following completion of the Share Purchase Agreement, the Company will be owned by Rich Promise Limited as to approximately 51.01% and therefore will be an associate of Rich Promise Limited which is wholly owned by Mr. Lam Kin Ming. By virtue of Mr. Lam Kin Ming currently being a director of LSG, the Company will therefore be a connected person of LSG following completion of the Share Purchase Agreement. Also, since the counter-party to the Development Agreement is LSG, which, as at the date of this circular, is interested in approximately 54.93% of the Company’s issued share capital and is therefore a substantial shareholder and a connected person (both as defined in the Listing Rules) of the Company, the Development Agreement and the obligations of the Company thereunder including as regards the provision of Security, constitute connected transactions of the Company within the meaning of Chapter 14A of the Listing Rules.

The Company will make a further announcement as and when it is required to put up the Security in relation to any construction finance obtained from relevant lending institution(s). Accordingly, the Development Agreement (including the Company’s obligation of providing the Security for the benefit of LSG SPV and of disposing of part of the New Building to LSG SPV on completion of the development) constitutes a very substantial disposal and connected transaction for the Company.

Since the Development Agreement including all obligations thereunder constitutes a very substantial disposal and connected transaction for the Company, the Development Agreement will be subject to the approval of the Independent Shareholders under the Listing Rules. Voting on the Development Agreement will be conducted by way of poll. At the EGM of the Company, LSG and its associates (as defined in the Listing Rules) will abstain from voting on the resolution regarding the Development Agreement.

— 11 —

LETTER FROM THE BOARD

APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISOR

The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Development Agreement. The Company has appointed Somerley Limited as its independent financial advisor pursuant to Rules 14A.21 and 14A.22 of the Listing Rules, for the purposes of advising the Independent Board Committee and the Independent Shareholders in relation to the Development Agreement. The Independent Board Committee has considered the principal factors and reasons and the advice given by Somerley Limited which is set out in the section of this circular headed “Letter from the Independent Financial Advisor”. Details of the conclusions of the Independent Board Committee in respect of the Development Agreement are disclosed in the section of this circular headed “Letter from the Independent Board Committee”.

EXTRAORDINARY GENERAL MEETING

A notice of the EGM to be held at The Chater Room I, Function Room Level (B1), The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong on Wednesday, 17th May, 2006 at 10:00 a.m. is set out on pages 111 and 112 of this circular. An ordinary resolution will be proposed at the EGM to approve the Development Agreement. The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Development Agreement. LSG and its associates (as defined in the Listing Rules) will abstain from voting at the EGM on the resolution regarding the Development Agreement. To the best of the knowledge, information and belief of the directors of the Company, except for LSG and its associates no Shareholder has any interest in the Development Agreement which is different from that of any other Shareholder.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Registrars, Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM should you so wish.

So far as the directors of the Company are aware having made all reasonable enquiries, neither LSG nor any of its associate is a party to any voting trusts or other arrangements, agreements or understandings entered into by, or binding upon, any such party, nor is any party under any obligation or entitlement whereby it has, or may have, temporarily or permanently passed control over the exercise of the voting rights in respect of its shares in the Company to a third party.

RECOMMENDATION

Your attention is drawn to the text of the letter from the Independent Board Committee set out on pages 14 to 15 of this circular which contains its recommendation to the Independent Shareholders as to voting on the ordinary resolution to be proposed at the EGM for approving the Development Agreement, the letter from the Independent Financial Advisor set out on pages 16 to 24 of this circular which contains, amongst other matters, its advice to the Independent Board Committee and the Independent Shareholders as regards the Development Agreement.

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LETTER FROM THE BOARD

Having taken into account the advice from the Independent Financial Advisor and in particular the principal factors set out in the letter of advice from the Independent Financial Advisor, the Independent Board Committee considers that the terms of the Development Agreement and the transactions contemplated thereunder are fair and reasonable to the CGL Group and the Shareholders as a whole. The Independent Board Committee recommends, therefore, that the Independent Shareholders should vote in favour of the ordinary resolution to be proposed at the EGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the accountants’ report, financial information on the Crocodile Building, pro forma financial information, additional financial information, property valuation report and the general information set out in the Appendices to this circular.

Yours faithfully For and on behalf of the Board of Crocodile Garments Limited Lam Kin Ming Chairman and Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Crocodile Garments Limited

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0122)

29th April, 2006

To the Independent Shareholders

Dear Sir/Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

DEVELOPMENT OF THE PROPERTY AT 79 HOI YUEN ROAD, KWUN TONG, HONG KONG

INTRODUCTION

Reference is made to the circular dated 29th April, 2006 issued by the Company to the Shareholders, of which this letter forms part. The terms defined in the circular shall have the same meanings when used in this letter, unless the context requires otherwise.

The Independent Board Committee has been constituted by the Board to advise the Independent Shareholders in respect of the terms of the Development Agreement and to make a recommendation as to voting at the EGM. Somerley Limited has been appointed as independent financial advisor to advise the Independent Board Committee on the fairness and reasonableness of the terms of the Development Agreement so far as the Independent Shareholders are concerned.

The terms of the Development Agreement and the transactions contemplated thereunder are summarized in “Letter from the Board” set out on pages 4 to 13 of this circular. In addition, you are strongly urged to read Somerley Limited’s letter to the Independent Board Committee and the Independent Shareholders, which is set out on pages 16 to 24 of this circular. As referred to in “Letter from the Board”, LSG and its associates, as interested parties, will abstain from voting on the ordinary resolution to be proposed at the EGM for approving the terms of the Development Agreement and the transactions contemplated thereunder.

RECOMMENDATION

The Independent Board Committee has met with the management of the Company to discuss the Development Agreement and its reasons for entering into it and has considered Somerley Limited’s letter.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Taking into account the principal factors and reasons considered and the recommendation given by Somerley Limited, the Independent Board Committee considers that the terms of the Development Agreement and the transactions contemplated thereunder are in the best interests of the Independent Shareholders as a whole and are fair and reasonable insofar as the Independent Shareholders as a whole are concerned.

Accordingly, the Independent Board Committee recommends that you vote in favour of the ordinary resolution set out in the notice convening the EGM, set out in pages 111 to 112 of this circular, for approving the terms of the Development Agreement and the transactions contemplated thereunder and authorizing the Directors to enter into and implement the terms of the Development Agreement and the transactions contemplated thereunder.

Yours faithfully For and on behalf of the Independent Board Committee of Crocodile Garments Limited Yeung Sui Sang Independent Non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

The following is the full text of the letter of advice from Somerley Limited to the Independent Board Committee and the Independent Shareholders dated 29th April, 2006, which has been prepared for the purpose of incorporation in this circular.

Somerley Limited Suite 2201, 22nd Floor Two International Finance Centre 8 Finance Street Central Hong Kong 29th April, 2006

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION RELATING TO THE DEVELOPMENT OF THE PROPERTY AT 79 HOI YUEN ROAD, KWUN TONG, HONG KONG

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with a joint development project with LSG located at 79 Hoi Yuen Road, Kwun Tong, Kowloon (the “Development Project”). Details of the Development Agreement entered into among LSG, LSG SPV, an indirect wholly-owned subsidiary of LSG, and the Company in respect of the Development Project are contained in the circular to the shareholders of the Company (the “Shareholders”) dated 29th April, 2006 (the “Circular”), of which this letter forms a part. Unless otherwise defined, terms used in this letter shall have the same meanings as defined in the Circular.

LSG owns approximately 54.93% of the issued share capital of the Company and therefore is a connected person of the Company (as defined under the Listing Rules). Accordingly, the Development Agreement constitutes a connected transaction of the Company and is subject to the approval of the Independent Shareholders by way of poll. The Development Agreement, pursuant to which the Company is obligated, among other things, to deliver part of the New Building to be constructed on the Property to LSG SPV on completion of the Development Project, also constitutes a very substantial disposal for the Company under the Listing Rules.

Of the three independent non-executive Directors, two, namely Messrs Wan Yee Hwa, Edward and Chow Bing Chiu, are also independent non-executive directors of LSG. Therefore, the remaining independent non-executive Director, namely Mr. Yeung Sui Sang, has been appointed the sole member of the Independent Board Committee to advise the Independent Shareholders as regards the Development Project. We, Somerley Limited, have been appointed as the Independent Financial Advisor to advise the Independent Board Committee and the Independent Shareholders in this regard.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

In formulating our advice, we have relied on the information and facts supplied, and the opinions expressed, by the directors of the Company (the “Directors”), which we have assumed to be true, accurate and complete. We have sought and received confirmation from the Directors that all material relevant information has been supplied to us and to the best knowledge of the Directors, no material facts have been omitted from the information supplied and opinions expressed by them. We consider that the information we have received is sufficient for us to reach our advice and recommendation as set out in this letter and that it is justified for us to rely on such information. We have no reason to doubt the truth and accuracy of the information provided to us, or to believe that any material information has been omitted or withheld. However, we have not conducted any independent investigation into the business and affairs of the CGL Group. We have assumed that all information and representations contained or referred to in the Circular are true at the date of the Circular and will remain true up to the time of the holding of the EGM.

PRINCIPAL FACTORS AND REASONS TAKEN INTO ACCOUNT

In arriving at our opinion, we have taken into account the following principal factors and reasons:

1. Reasons for entering into the Development Agreement

The CGL Group is principally engaged in manufacturing and/or sale (both retail and wholesale) of garments under the “Crocodile” and “Lacoste” brands in Hong Kong and/or the PRC. The garment business contributed approximately 98% of the CGL Group’s turnover for the two years ended 31st July, 2005. The CGL Group is also engaged in property investment. Its current investment property portfolio comprises two shops rented to third parties and located in Tsimshatsui and North Point, and the Crocodile Building constructed on the Property. The Crocodile Building is an industrial building built in about 1972. It was used by the CGL Group for carrying out its own garment manufacturing operation in Hong Kong, which ceased in 2001. A portion of the Crocodile Building is currently rented out to various third party tenants. The potential of the Property has been curtailed by its being limited to industrial use. On 14th January, 2006, the CGL Group accepted an offer from the Government to grant a Lease Modification in respect of the Property. The Lease Modification will permit a change of use from industrial to non-industrial use (excluding residential, godown, petrol filling station, hotel and cinema), subject to, among other things, payment of a land premium of HK$274,070,000, which the Company has already paid.

The obtaining of the Lease Modification substantially enhances the value of the Property. The Directors have considered whether to sell the Property as a vacant site or to redevelop it into a commercial/office building and concluded that the latter will generate better returns to the CGL Group. However, the CGL Group’s policy is to focus its management time and working capital resources on developing its core garment business and in particular on developing and expanding its distribution channels and retail network in the PRC. The Directors have therefore concluded that it is in the Company’s interest to conduct the Development Project on a joint basis with LSG which has property development as one of its principal business activities. We concur with the Directors’ rationale to undertake the Development Project on a joint basis, in line with the CGL Group’s strategic planning.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

2. The Development Project

The existing Crocodile Building built on the Property comprises two adjoining seven-storey and eleven-storey industrial buildings of approximately 154,098 square feet gross floor area. Pursuant to the Development Project, the existing Crocodile Building will be demolished and the New Building will be constructed on the Property. The New Building is expected to be a 22-storey commercial building built over 2 car parking basements. It will have approximately 100,000 square feet gross floor area of retail and restaurant spaces, 140,000 square feet gross floor area of office spaces, 41 covered private car parking spaces, 8 covered light goods vehicle parking spaces and 5 covered heavy goods vehicle parking spaces. As the final specifications for the New Building will be subject to, inter alia, various consents from Government bodies including the Building Authority, the final building gross floor area and other specifications are subject to possible minor amendments. It is currently expected that the construction of the New Building will take around 3.25 years, with completion in 2009.

On completion of construction of the New Building, the ownership of the New Building will be allocated and distributed between LSG SPV and CGL SPV in the following manner:

	Gross floor area	Usage
	(sq. ft.)
CGL SPV	140,000	Office spaces
LSG SPV	100,000	Retail and restaurant spaces
CGL/LSG (note) (in equal share)		54 car parking spaces

Note: The CGL Group will, upon completion of the Development Project, assign the ownership of all car parking spaces to an investment holding company which will be owned in equal shares by LSG and the Company (or their respective nominees). The stamp duty payable on the assignment will be borne by the investment holding company.

In gross floor area, therefore, CGL SPV will have the majority, with the gross floor area being split 1.4:1 in CGL’s favour.

3. Total investment for the Development Project

The Company’s contribution

Pursuant to the Development Agreement, the Company shall contribute the Property and a sum of HK$137,035,000, representing 50% of the Land Premium, to the Development Project. A portion of the Crocodile Building is subject to tenancies which will soon expire. Pursuant to the Development Agreement, the Company shall deliver vacant possession of the Property to LSG SPV, which is expected to be in May 2006.

As to the Land Premium, prior to signing the Development Agreement, the Company paid HK$27,407,000 which represents 10% of the Land Premium. The remaining balance of the Land Premium of approximately HK$246,663,000 has been paid to the Government by the Company in March 2006. Subject to the Development Agreement becoming unconditional, LSG SPV shall

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

pay to the Company a sum of HK$137,035,000 which represents 50% of the Land Premium. The Company has taken out a bridging loan to finance HK$137,035,000 of the payment of the Land Premium. It is intended that the bridging loan shall be repaid upon receipt of the equivalent amount from LSG SPV.

The Company’s contribution to the Development Project may be summarised as follows:

	HK$ million
The Property (Notes 1 and 2)	213.0
Land Premium (50% share)	137.0
Stamp duty for the car parking spaces (Note 3)	0.4
Total contribution from the Company	350.4

Note

• (1) HK$213 million represents the market value of the Property less the 10% Land Premium paid prior to the valuation date and which was taken into account in the valuation.

• (2) The Company may provide the Property as security for a construction loan and, if so, will receive payments of approximately HK$28 million from LSG SPV (as discussed below).

• (3) Representing half share of the stamp duty calculated on the basis of the current rate of 3.75% and the assessed market value of the car parking space of HK$22 million.

LSG SPV’s contribution

Under the Development Agreement, LSG SPV shall have the exclusive right to develop the Property, which right includes possession or access to the Property. LSG SPV shall be responsible for demolishing the existing Crocodile Building and constructing the New Building in accordance with the Development Plans (as may be amended by agreement by the Company, LSG SPV and LSG) and shall bear all development and construction costs (estimated to amount to approximately HK$361 million by a qualified quantity surveyor) in connection with the construction and completion of the New Building. If a project manager is appointed, LSG SPV will bear the project management fee (currently anticipated to be approximately HK$11 million).

LSG SPV may finance the development and construction costs by a construction loan. If a construction loan is needed, it is anticipated that the loan will be taken out in name of CGL SPV and be secured by the Property which is CGL SPV’s sole major asset, but LSG SPV will be the primary obligor and LSG will provide a corporate guarantee. The Company will not provide any corporate guarantee in this regard.

In consideration for the Company agreeing to procure the Property as security for the construction loan, LSG SPV will make a quarterly payment of HK$2,130,000 (estimated to amount to approximately HK$28,000,000 in aggregate) to the Company during the period from

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

delivery of vacant possession of the Property to completion of construction of the New Building, which is expected to take 3.25 years. Such quarterly payments are calculated on the basis of the value of the Property of approximately HK$213 million (being the market value of the Property less the 10% Land Premium paid prior to the valuation date) and a fee of 4% p.a..

It is in the common interest of LSG and the Company that the construction of the New Building is completed. In addition, LSG has agreed to guarantee the obligations of LSG SPV under the Development Agreement, which include completion of the Development Project. Therefore the Directors consider it unlikely that any construction loan would not be repaid. If LSG SPV defaults in repaying the loan, the exposure of CGL SPV in respect of the construction loan would be limited to the Property which is its sole major asset. On the above basis, we consider a fee of 4% p.a. a reasonable compensation for allowing the Property to be used as security.

Under the Development Agreement, prior to completion of construction of the New Building, LSG SPV shall allow the Company access to the development works to inspect the New Building and to compile a list of defects or outstanding works. LSG SPV shall complete all outstanding remedial works, and after completion, LSG SPV shall rectify and remedy all other defects and outstanding works identified by the Company.

LSG SPV’s contribution to the Development Project may be summarised as follows:

	HK$ million
Development and construction costs (plus other professional fee)	361.0
Project management fee	11.0
Land Premium (50% share)	137.0
Payment to the Company (assuming a construction loan is obtained)	28.0
Finance charge for the construction loan (note 1)	35.2
Stamp duty for assignment of the retail and restaurant spaces (note 2)	26.3
Stamp duty for the car parking spaces (note 3)	0.4
Total contribution from LSG SPV	598.9

Note:

(1) Assuming a 6% interest rate per annum and that the construction loan will be drawn down evenly over the construction period.

• (2) Calculated on the basis of the current rate of 3.75% and the assessed market value of the retail and restaurant spaces of HK$700 million.

• (3) Representing half share of the stamp duty calculated on the basis of the current rate of 3.75% and the assessed market value of the car parking spaces of HK$22 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

The above estimates of LSG SPV’s contribution to the Development Project are based on professional or internal estimations and may differ from the actual costs. We understand that the estimates are made principally by reference to prevailing market costs and the general lending rate for construction loans of similar size. In our opinion, the estimates are made on a reasonable basis.

On the above bases, the relative contribution by the Company and LSG SPV to the Development Project may be analysed as follows:

			HK$ million	%
				(Note)
Contribution	from	the Company	350.4	36.9
Contribution	from	LSG SPV	598.9	63.1

Note: The percentages are approximate and calculated on the basis of the presently estimated costs and have not taken into account any additional professional fees which, if incurred, will be borne by LSG SPV.

4. Valuation

We have reviewed and discussed with the Savills Valuation and Professional Services Limited (the “Valuer”) the methodology and basis and assumptions for the valuation of the Property and the New Building, particulars of which are contained in Appendix V to the Circular. The Valuer has valued the Property at HK$240 million as a development site to be redeveloped in accordance with the development proposal as described in the “Letter from the Board” of the Circular . This value takes into account the 10% Land Premium already paid prior to the valuation date, and is consistent with the actual sale of a comparable development site identified by the Valuer.

The Valuer has also adopted the comparison method to value the developed New Building which, in our opinion, is a normal approach in establishing property market value. The Valuer has valued the developed New Building as follows:

Use	Gross floor area	Market value
	(sq. ft.)	(HK$ million)
Retail and restaurant spaces	100,000	700
Office spaces	140,000	560
Car parking spaces		22
Total		1,282

In assessing the above market values, the Valuer has made reference to the actual sales of comparable properties of similar size, type and location as the New Building and made adjustments to account for certain variances.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

5. Allocation of the New Building

Pursuant to the Development Agreement, on completion of construction of the New Building, LSG SPV shall be entitled to ownership of the retail and restaurant spaces and CGL SPV shall be entitled to ownership of the office spaces of the New Building. In respect of the car parking spaces, CGL SPV shall execute an assignment to assign the ownership of the car parking spaces to a company jointly owned by LSG and the Company (or their respective nominees).

Based on the valuation report as set out in Appendix V to the Circular, the values of the portions of the New Building attributable to the CGL Group and LSG SPV are as follows:

	HK$ million	%
The CGL Group’s share of the New Building
Office spaces	560
Car parking spaces	11
	571	44.5
LSG SPV’s share of the New Building
Retail and restaurant spaces	700
Car parking spaces	11
	711	55.5

The above allocation compares with the financial contributions from the CGL Group and LSG SPV to the Development Project of which set out in Section 3 above of this letter of approximately 36.9% and approximately 63.1%. On this basis, the CGL Group receives a slightly higher portion of the value of the completed New Building than it contributes.

In consideration for contributing approximately HK$350 million worth of investment value to the Development Project, as set out in Section 3 above of this letter, the CGL Group would be entitled to developed property with a market value of HK$571 million. This represents an approximate absolute return of 63% or an annual internal rate of return of approximately 16% over the project life, which we consider a reasonable return for a property development project with an estimated life of 3.25 years.

6. Financial effect of the Development Project on the CGL Group

(a) Earnings

The Crocodile Building will be delivered with vacant possession for redevelopment purpose pursuant to the Development Agreement. Therefore, the CGL Group will cease to be entitled to rental income derived from the Property, which amounted to approximately HK$4.2 million for the year ended 31st July, 2005.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

Pursuant to the terms of the Development Agreement, if the Company is required to provide the Property as security for a construction loan, the Company will receive annual payments in the sum of approximately HK$8.5 million.

(b) Assets and liabilities

The Development Agreement does not involve acquisition or disposal of property on the part of the CGL Group. The Property will continue to be held by the CGL Group and accounted for as an investment property in the CGL Group’s consolidated accounts until completion of the Development Project. It is expected that ultimate assignment of part of the New Building to LSG SPV will not be accounted for as a disposal transaction in the consolidated accounts of the CGL Group. On this basis, the Development Project will have no material impact on the asset position of the CGL Group.

Upon completion of the Development Agreement, the Company will receive from LSG SPV approximately HK$137 million (being 50% of the Land Premium) which will be applied to repay the bridging loan. In the event that the Development Agreement fails to complete, it is intended that the bridging loan would be refinanced.

The pro forma financial information as set out in Appendix III to the Circular has not taken into account the construction loan which may be needed to finance the Development Project. In the event that the construction loan is needed, it will be taken out in name of CGL SPV but it is intended that the relevant loan documents will incorporate terms that LSG SPV will be the primary obligor and LSG will provide a corporate guarantee. In such circumstances, the exposure of CGL SPV and the CGL Group to the loan would be limited to the value of the Property provided by CGL SPV as security for the construction loan.

DISCUSSION AND ANALYSIS

The CGL Group’s main business is in the manufacturing and retailing of garments. Its policy is to focus on this core activity, particularly in the PRC. In this context, the Directors have decided that the redevelopment of Crocodile Building, which appears a profitable opportunity for the CGL Group, is better undertaken on a joint basis. This will allow the CGL Group to concentrate its management and financial resources on expanding its retail business and developing its well-known “Crocodile” brand in the PRC. We concur with this view. LSG will be responsible for managing the entire development project and also for financing demolition and construction through to completion. If the CGL Group assists by allowing the Property to be used as security, it will be paid an appropriate fee.

Of the completed development, the CGL Group will receive approximately 58% in terms of gross floor area (the office portion) and approximately 45% in terms of value, while contributing approximately 37% of the cost as calculated above. This in our opinion is a reasonable basis from the Company’s perspective.

As the Property will continue to be included in the consolidated accounts of the CGL Group, the Development Project will not have a material effect on the CGL Group’s asset position. As the present rent from the Crocodile Building is low and the CGL Group will receive income if the Property is used as security, the effect on profit and loss over the next three years is likely to be broadly neutral.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

RECOMMENDATION

Based on the above principal factors and reasons, we consider that the Development Agreement is on normal commercial terms which are fair and reasonable to the Independent Shareholders. We further consider that the entering into of the Development Agreement is in the interests of the Company and the Shareholders as a whole. We therefore advise, and recommend that the Independent Board Committee advise, the Independent Shareholders to vote in favour of the ordinary resolution to approve the Development Agreement and the transactions contemplated thereunder to be proposed at the EGM.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M.N. Sabine Chairman

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ACCOUNTANTS’ REPORT

APPENDIX I

The following is the text of the accountants’ report from Ernst & Young, the auditors and reporting accountants of the Group for each of the three years ended 31st July, 2003, 2004 and 2005 and for the six months ended 31st January, 2006, prepared for the purpose of incorporation in this circular.

Ernst & Young

18/F, Two International Finance Centre 8 Finance Street Central Hong Kong

29th April, 2006

The Board of Directors Crocodile Garments Limited 11/F, Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Crocodile Garments Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31st July, 2003, 2004 and 2005, and the six months ended 31st January, 2006 (the “Relevant Periods”) and the comparative financial information of the Group for the six months ended 31st January, 2005, prepared on the basis as set out in Section 1.1 below, for inclusion in the circular of the Company dated 29th April, 2006 (the “Circular”) in connection with the proposed development of the property (the “Property”) at 79 Hoi Yuen Road, Kwun Tong, Hong Kong, pursuant to the conditional development agreement (the “Agreement”) dated 28th February, 2006 entered into between Lai Sun Garment (International) Limited (“LSG”), a company incorporated in Hong Kong and the ultimate holding company of the Company, Unipress Investments Limited, a company incorporated in Hong Kong and an indirect wholly-owned subsidiary of LSG, as developer, and the Company, the owner of the Property.

The Company was incorporated in Hong Kong on 12th May, 1961 as a limited company and is engaged in the manufacture and sale of garments and property investment and letting. The Group is engaged in the manufacture and sale of garments and property investment and letting.

The Group has adopted 31st July as its financial year end for statutory reporting purposes. The directors of the Company have prepared the consolidated financial statements of the Group for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong. We have audited the consolidated financial statements of the Group for the Relevant Periods in accordance with Statement of Auditing Standards (“SASs”) and Hong Kong Standards on Auditing (“HKSAs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

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ACCOUNTANTS’ REPORT

APPENDIX I

Procedures Performed in Respect of the Relevant Periods

For the purpose of this report, we have examined the audited consolidated financial statements of the Group for the Relevant Periods in accordance with the SASs and HKSAs and carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline No. 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Procedures Performed in Respect of the six months ended 31st January, 2005

For the purpose of this report, we have performed a review of the comparative financial information which includes the consolidated results and consolidated cash flows of the Group for the six months ended 31st January, 2005, together with the notes thereto, (the “31st January, 2005 Financial Information”), for which the directors of the Company are responsible, in accordance with SAS 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope and provides a lower level of assurance than our audit or examination procedures described in the preceding paragraph and, accordingly, we do not express an audit opinion on the 31st January, 2005 Financial Information.

The summaries of the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Group for the Relevant Periods and of the consolidated balance sheets of the Group and the balance sheets of the Company as at 31st July, 2003, 2004, 2005 and 31st January, 2006 (the “Financial Information”) as set out in this report have been prepared and are presented on the basis as set out in Section 1.1 below.

The Financial Information and the 31st January, 2005 Financial Information together with the notes thereto are the responsibility of the directors of the Company who approve their issuance. It is our responsibility to form an independent opinion and a review conclusion on such information in respect of the Relevant Periods and for the six months ended 31st January, 2005, respectively, and to report our opinion and review conclusion to you.

Opinion in Respect of the Financial Information for the Relevant Periods

In our opinion, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the consolidated results and cash flows of the Group for each of the Relevant Periods and of the state of affairs of the Group and of the Company as at 31st July, 2003, 2004 and 2005, and 31st January, 2006.

Review Conclusion in Respect of the 31st January, 2005 Financial Information

On the basis of our review, for the purpose of this report, which does not constitute an audit, we are not aware of any material modification that should be made to the consolidated results and consolidated cash flows of the Group as set out in the 31st January, 2005 Financial Information.

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ACCOUNTANTS’ REPORT

APPENDIX I

1.1 BASIS OF PREPARATION

The Financial Information and the 31st January, 2005 Financial Information have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations (“Int”)) issued by the HKICPA, accounting principles generally accepted in Hong Kong, the disclosure requirements of the Companies Ordinance and the Rules governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. The Financial Information and the 31st January, 2005 Financial Information have been prepared under the historical cost convention, except for investment properties which have been measured at fair value as further explained below. The Financial Information and the 31st January, 2005 Financial Information are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the Relevant Periods and for the six-month period ended 31st January, 2005. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

At 31st January, 2006, the Company had direct or indirect interests in the following principal subsidiaries, all of which are private companies (or, if incorporated outside Hong Kong, have characteristics substantially similar to a private company incorporated in Hong Kong), the particulars of which are set out below:

	Place and date of		Percentage
	incorporation/	Nominal value of	of equity
	registration and	issued ordinary	attributable to
Name of Company	operations	share capital	the Company	Principal activities
Crocodile (China) Limited	Hong Kong	HK$4	100	Garment trading
	20th September, 1985
Crocodile Garments	Mainland of China	HK$17,200,000	90	Garment manufacturing
(Zhong Shan) Limited*	26th November, 1988			and trading
Dackart Trading Company Limited	Hong Kong	HK$20	100	Property investment
	23rd April, 1985
Gold Nation Development	Hong Kong	HK$2	100	Property investment
Limited#	1st July, 1993
Shenton Investment Limited	Hong Kong	HK$2	100	Property investment
	18th December, 1990

• This subsidiary is a joint venture and is indirectly held by the Company. The paid-up capital represents the registered capital in Mainland of China. The subsidiary is registered as a sino-foreign owned enterprise under the law of the PRC.

• This subsidiary became dormant after it disposed of its investment property during the year ended 31st July, 2005.

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ACCOUNTANTS’ REPORT

APPENDIX I

All the above subsidiaries are held directly by the Company, except for Crocodile Garments (Zhong Shan) Limited which is held indirectly by the Company. The above summary lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the Relevant Periods or formed a substantial portion of the net assets and liabilities of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

1.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following applicable new and revised HKFRSs, that have been issued but are not yet effective, to these financial statements. Unless otherwise stated, these HKFRSs are effective for annual periods beginning on or after 1st January, 2006:

HKAS 1 Amendment	Capital Disclosures
HKAS 21 Amendment	Net Investment in a Foreign Operation
HKAS 39 Amendment	The Fair Value Option
HKAS 39 & HKFRS 4 Amendments	Financial Guarantee Contracts
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC)-Int 4	Determining whether an Arrangement contains a Lease

The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1st January, 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 incorporates the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for annual periods beginning on or after 1st January, 2007.

In accordance with the amendments to HKAS 39 regarding financial guarantee contracts, financial guarantee contracts are initially recognised at fair value and are subsequently measured at the higher of (i) the amount determined in accordance with HKAS 37 and (ii) the amount initially recognised, less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18.

Except as stated above, the Group expects that the adoption of the pronouncement listed above will not have any significant impact on the Group’s financial statements in the period of initial application.

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ACCOUNTANTS’ REPORT

APPENDIX I

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by the Group in arriving at the Financial Information and the 31st January, 2005 Financial Information set out in this report, which conform with accounting principles generally accepted in Hong Kong, are set out below.

Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Joint venture

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as a subsidiary when the Group has unilateral control, directly or indirectly, over the joint venture.

Business combination

Excess over the costs of business combination

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of the acquisition of subsidiaries (previously referred to as negative goodwill), after assessment, is recognised immediately in the income statement.

Negative goodwill (applicable to the accounting year ended 31st July, 2004 or before)

In prior periods, negative goodwill arising on acquisitions prior to 1st January, 2001 remained credited to the capital reserve pursuant to the transitional provisions of the relevant accounting standard. Upon the adoption of HKFRS 3, the carrying amount of negative goodwill was derecognised by way of a corresponding adjustment to the opening balance of accumulated losses as at 1st August, 2004.

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ACCOUNTANTS’ REPORT

APPENDIX I

Impairment of assets (other than financial assets)

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the assets recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s fair value less costs to sell and its value in use, and is determined on an individual asset basis, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Property, plant and equipment and depreciation

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

The cost of an item of property, plant and equipment comprises its purchase price, any directly attributable costs of bringing the asset to its working condition and location for its intended use and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the item of property, plant and equipment, the expenditure is capitalised as an additional cost of that asset or as a replacement.

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ACCOUNTANTS’ REPORT

APPENDIX I

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings 4.5% Plant and machinery 10% Furniture and fixtures, including 10% to 20% leasehold improvements Over the lease terms Computer equipment 20% Motor vehicles 20%

Upon a transfer of an asset to investment properties, a valuation is performed to determine the fair value of the asset to be transferred. Any revaluation surplus/deficit so arising, being the difference between the valuation and the net carrying value of the asset at the date of transfer, is credited/charged to the asset revaluation reserve of the related asset. The remaining asset revaluation reserve attached to that asset, if any, is frozen and remains as an asset revaluation reserve until that asset is sold.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on disposal or retirement of an item of property, plant and equipment recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for property which would otherwise meet the definition of an investment property) in respect of which construction work and development have been completed and which are owned by the Group or held by Group under finance leases to earn rentals or for capital appreciation or both. Such properties are not depreciated, and are measured initially at cost including all transaction costs and, after initial recognition, carried at fair values, being their open market values on the basis of annual professional valuations performed at the end of each financial year. Changes in the fair values of investment properties are recognised in the income statement in the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss arising from the retirement or disposal of an investment property, calculated as the differences between the net disposal proceeds and the carrying amount of the investment property, is recognised in the income statement in the period of the retirement or disposal.

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ACCOUNTANTS’ REPORT

APPENDIX I

Financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus directly attributable transaction costs. The Group determines the classification of its financial assets after the initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investment where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in profit or loss.

— 32 —

APPENDIX I

ACCOUNTANTS’ REPORT

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

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ACCOUNTANTS’ REPORT

APPENDIX I

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

When the land lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Inventories

Inventories are stated at the lower of cost and net realisable value after making due allowances for obsolete or slow-moving items. Cost includes the cost of materials computed using the first-in, first-out method and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate portion of production overheads. Net realisable value is determined by reference either to the net sales proceeds of items in the ordinary course of business subsequent to the balance sheet date, or to management estimates based on the prevailing market conditions.

Bank and other borrowings

All banks and other borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowings.

After initial recognition, bank and other borrowings are subsequently measured at amortised cost using the effective interest method.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

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ACCOUNTANTS’ REPORT

APPENDIX I

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

Borrowing costs

Borrowing costs represented interest on bank overdrafts, short term and long term borrowings. Borrowing costs are recognised as an expense in the period in which they are incurred.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised, except:

• where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries and joint venture, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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 deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

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ACCOUNTANTS’ REPORT

APPENDIX I

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) rental income, on the straight-line basis over the lease;

• (c) royalty income, when the right to receive the income has been established and on the straight-line basis over the terms of the relevant agreement; and

• (d) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Employee benefits

Paid leave carried forward

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

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Hong Kong Employment Ordinance. A provision is recognised in respect of the probable future long service payments expected to be made. The provision is based on the best estimates of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

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ACCOUNTANTS’ REPORT

APPENDIX I

Pension schemes

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

Employees of the subsidiaries operating in Mainland of China are members of the Central Pension Scheme operated by the PRC government. The subsidiaries are required to contribute a certain percentage of their covered payroll to the Central Pension Scheme to fund the benefits. The only obligation of the Group with respect to the Central Pension Scheme is to make the required contributions, which are charged to the income statement in the year to which they relate.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries are currencies other than the Hong Kong dollars. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the exchange rates ruling at the balance sheet date and, their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the Relevant Periods are translated into Hong Kong dollars at the weighted average exchange rates for the Relevant Periods.

— 37 —

ACCOUNTANTS’ REPORT

APPENDIX I

Related parties

A party is related to the Group if:

• (a) the party, directly or indirectly through one or more intermediaries:

• (i) controls, is controlled by, or is under common control with, the Group;

• (ii) has an interest in the Group that gives it significant influence over the Group; or

• (iii) has joint control over the Group;

• (b) the party is a joint venture in which the entity is a venturer;

• (c) the party is an associate;

• (d) the party is a member of the key management personnel of the Group or its parent;

• (e) the party is a close member of the family of any individual referred to in (a) or (d);

• (f) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

• (g) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

(a) Investment property

In distinguishing investment property from owner-occupied property, management has to exercise judgement by assessing (i) whether such property is held to earn rentals or for capital application; (ii) in case if the property is vacant, whether it is held to be leased out under one or more operating leases and (iii) whether the portion which is held for use in the production or supply of goods or services or for administrative purposes, is insignificant.

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ACCOUNTANTS’ REPORT

APPENDIX I

(b) Impairment of assets

In determining an asset is impaired or the event previously causing the impairment no longer exists, management has to exercise judgement in the area of asset impairment, particularly in assessing (i) whether an event has occurred that may affect asset value or such event affecting the asset value has not been in existence; (ii) whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate.

(c) Income tax

Deferred tax is provided using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax assets are recognised for unused tax losses carried forward to the extent it is probable (i.e., more likely than not) that future taxable profits will be available against which the unused tax losses can be utilised, based on all available evidence. Recognition primarily involves judgement regarding the future performance of the particular legal entity or tax group in which the deferred tax asset has been recognised. A variety of other factors are also evaluated in considering whether there is convincing evidence that it is probable that some portion or all of the deferred tax assets will ultimately be realised, such as the existence of taxable temporary differences, group relief, tax planning strategies and the periods in which the estimated tax losses can be utilised.

(d) Provision for obsolete and slow-moving inventories

The Group’s inventories are stated at the lower of cost and net realisable value. The Group makes provisions based on estimates of the realisable value with reference to the age and conditions of the inventories, together with the economic circumstances on the marketability of such inventories. Inventories are reviewed annually for obsolescence provisions, if appropriate.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(a) Estimate of fair value of investment properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, management determines the amount within a range of reasonable fair value estimates. In making such estimation, management considers information from current prices in an active market for properties of different nature, condition or locations. This conclusion is supported by an independent professional valuer who was engaged by the Group to perform a valuation on the Group’s investment properties.

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ACCOUNTANTS’ REPORT

APPENDIX I

(b) Impairment testing of assets

Management determines whether an asset is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units. Estimating the value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

(c) Income tax

The carrying amount of deferred tax assets and related financial models and budgets are reviewed by management at each balance sheet date. To the extent that there is insufficient convincing evidence that sufficient taxable profits will be available within the utilisation periods to allow utilisation of the tax losses carried forward, the asset balance will be reduced and charged to the income statement.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans, cash and short term time deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade receivables and trade and bills payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, commodity price risk, credit risk and liquidity risk. The directors of the Company meet periodically to analyse and formulate measures to manage the Group’s exposure to these risks. Generally, the Group introduces conservative strategies on its risk management. As the Group’s exposure to these risks is kept to a minimum, the Group has not used any derivatives and other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading purposes. The directors review and agree policies for managing each of these risks and they are summarised as follows:

(i) Fair value and cash flow interest rate risks

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to both interest rate risks. The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s short term debt obligations with floating interest rates.

Short term bank and other borrowings, note payable, cash and bank balances, and short term time deposits are stated at cost and are not revalued on a periodic basis. Floating rate interest income and expenses are charged to the income statement as incurred.

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ACCOUNTANTS’ REPORT

APPENDIX I

(ii) Foreign currency risk

A portion of the Group’s revenue is denominated in Renminbi (“RMB”) and the Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Hong Kong dollars. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group does not expect any significant movements in the exchange rate of RMB to Hong Kong dollar.

(iii) Commodity price risk

The Group’s exposure to commodity price risk is minimal.

(iv) Credit risk

The Group has no significant concentrations of credit risk. It has policies in place to ensure that the wholesale sales of products are made to customers with an appropriate credit history. Sales to retail customers are made in cash or via major credit cards.

(v) Liquidity risk

The Group’s objective is to maintain a balance between the continuity of funding and the flexibility through the use of bank overdrafts and bank loans. In addition, banking facilities have been put in place for contingency purposes.

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ACCOUNTANTS’ REPORT

APPENDIX I

5. CONSOLIDATED INCOME STATEMENT

The following is a summary of the consolidated income statements of the Group for each of the Relevant Periods and for the six months ended 31st January, 2005, which have been prepared on the basis set out in Section 1.1 above:

Notes REVENUE (a) Cost of sales Gross profit Other income and gains (a) Selling and distribution costs Administrative expenses Other operating income/(expenses) Fair value gains/(losses) on investment properties Gain on disposal of investment properties Section 6(b) Finance costs (c) PROFIT/(LOSS) BEFORE TAX (b) Tax (e) PROFIT/(LOSS) FOR THE YEAR/ PERIOD ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT - basic (HK$) (f)	Year ended 31st July, Six months ended 31st January, 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 484,063 459,562 396,862 212,656 198,240 (285,622) (239,156) (190,300) (103,376) (81,220) 198,441 220,406 206,562 109,280 117,020 7,440 20,085 39,835 16,774 16,368 (182,221) (148,932) (166,031) (78,812) (95,236) (54,361) (44,318) (47,987) (24,012) (27,886) (4,314) (2,824) 1,410 (157) (599) (22,000) 1,000 36,300 — 146,593 — — 77,009 — — (1,115) (876) (1,118) (471) (802) (58,130) 44,541 145,980 22,602 155,458 (638) 3,355 (18,775) (4,472) (22,686) (58,768) 47,896 127,205 18,130 132,772 (9.52 cents) 7.76 cents 20.61 cents 2.94 cents 21.51 cents	Year ended 31st July, Six months ended 31st January, 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 484,063 459,562 396,862 212,656 198,240 (285,622) (239,156) (190,300) (103,376) (81,220) 198,441 220,406 206,562 109,280 117,020 7,440 20,085 39,835 16,774 16,368 (182,221) (148,932) (166,031) (78,812) (95,236) (54,361) (44,318) (47,987) (24,012) (27,886) (4,314) (2,824) 1,410 (157) (599) (22,000) 1,000 36,300 — 146,593 — — 77,009 — — (1,115) (876) (1,118) (471) (802) (58,130) 44,541 145,980 22,602 155,458 (638) 3,355 (18,775) (4,472) (22,686) (58,768) 47,896 127,205 18,130 132,772 (9.52 cents) 7.76 cents 20.61 cents 2.94 cents 21.51 cents	Year ended 31st July, Six months ended 31st January, 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 484,063 459,562 396,862 212,656 198,240 (285,622) (239,156) (190,300) (103,376) (81,220) 198,441 220,406 206,562 109,280 117,020 7,440 20,085 39,835 16,774 16,368 (182,221) (148,932) (166,031) (78,812) (95,236) (54,361) (44,318) (47,987) (24,012) (27,886) (4,314) (2,824) 1,410 (157) (599) (22,000) 1,000 36,300 — 146,593 — — 77,009 — — (1,115) (876) (1,118) (471) (802) (58,130) 44,541 145,980 22,602 155,458 (638) 3,355 (18,775) (4,472) (22,686) (58,768) 47,896 127,205 18,130 132,772 (9.52 cents) 7.76 cents 20.61 cents 2.94 cents 21.51 cents	Year ended 31st July, Six months ended 31st January, 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 484,063 459,562 396,862 212,656 198,240 (285,622) (239,156) (190,300) (103,376) (81,220) 198,441 220,406 206,562 109,280 117,020 7,440 20,085 39,835 16,774 16,368 (182,221) (148,932) (166,031) (78,812) (95,236) (54,361) (44,318) (47,987) (24,012) (27,886) (4,314) (2,824) 1,410 (157) (599) (22,000) 1,000 36,300 — 146,593 — — 77,009 — — (1,115) (876) (1,118) (471) (802) (58,130) 44,541 145,980 22,602 155,458 (638) 3,355 (18,775) (4,472) (22,686) (58,768) 47,896 127,205 18,130 132,772 (9.52 cents) 7.76 cents 20.61 cents 2.94 cents 21.51 cents	Year ended 31st July, Six months ended 31st January, 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 484,063 459,562 396,862 212,656 198,240 (285,622) (239,156) (190,300) (103,376) (81,220) 198,441 220,406 206,562 109,280 117,020 7,440 20,085 39,835 16,774 16,368 (182,221) (148,932) (166,031) (78,812) (95,236) (54,361) (44,318) (47,987) (24,012) (27,886) (4,314) (2,824) 1,410 (157) (599) (22,000) 1,000 36,300 — 146,593 — — 77,009 — — (1,115) (876) (1,118) (471) (802) (58,130) 44,541 145,980 22,602 155,458 (638) 3,355 (18,775) (4,472) (22,686) (58,768) 47,896 127,205 18,130 132,772 (9.52 cents) 7.76 cents 20.61 cents 2.94 cents 21.51 cents
	198,441 7,440 (182,221) (54,361) (4,314) (22,000) — (1,115) (58,130) (638)	220,406 20,085 (148,932) (44,318) (2,824) 1,000 — (876) 44,541 3,355	206,562 39,835 (166,031) (47,987) 1,410 36,300 77,009 (1,118) 145,980 (18,775)	109,280 16,774 (78,812) (24,012) (157) — — (471) 22,602 (4,472)	117,020 16,368 (95,236 (27,886 (599 146,593 — (802
					155,458 (22,686
	(58,768) (9.52 cents)	47,896 7.76 cents	127,205 20.61 cents	18,130 2.94 cents

— 42 —

ACCOUNTANTS’ REPORT

APPENDIX I

Notes:

(a) Revenue, other income and gains

Revenue, which is also the Group’s turnover represents the net invoiced value of goods supplied to customers after allowances for returns, trade discounts and value-added tax and rental income.

An analysis of revenue, other income and gains is as follows:

					**Six months **	ended	ended
			**Year ended 31st **	July,	31st January,
	Note	2003	2004	2005	2005		2006
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
Revenue
Sale of goods		472,869	449,041	386,537	206,860	194,588
Gross rental income	(b)	11,194	10,521	10,325	5,796		3,652
		484,063	459,562	396,862	212,656	198,240
Other income
Royalty income		4,712	16,026	33,767	14,653		11,532
Interest income		427	551	1,675	466		2,951
Sale of miscellaneous materials		408	632	550	343		249
Sales of export quota		474	767	345	345		—
Others		1,419	2,109	2,252	967		1,636
		7,440	20,085	38,589	16,774		16,368
Gains
Exchange gains, net		—	—	1,246	—		—
		7,440	20,085	39,835	16,774		16,368

— 43 —

ACCOUNTANTS’ REPORT

APPENDIX I

(b) Profit/(loss) before tax

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

						**Six months **	ended
		**Year **	**ended 31st **	July,		31st January,
	Note	2003	2004		2005	2005	2006
		HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
						(Unaudited)
Cost of inventories sold		255,705	252,219	194,933		107,642	84,142
Depreciation		7,000	5,604		8,802	3,205	5,808
Auditors’ remuneration		850	870		1,100	—	836
Lease payments in respect of land and
buildings:
Minimum lease payments under operating
leases		60,668	52,301	61,630		28,254	37,286
Contingent rents		5,365	5,429		4,855	2,539	2,894
		66,033	57,730	66,485		30,793	40,180
Employee benefits expense (including
directors’ remuneration - note (d)):
Wages and salaries		76,471	62,604	63,187		30,893	38,436
Pension scheme contributions		2,139	1,851		1,958	956	1,076
Provision/(write-back of provision)
against long service payments		4,338	(353)		869	—	(550)
		82,948	64,102	66,014		31,849	38,962
Gross rental income	(a)	(11,194)	(10,521)	(10,325)		(5,796)	(3,652)
Less: Outgoings		289	308		1,771	867	751
Net rental income		(10,905)	(10,213)		(8,554)	(4,929)	(2,901)
Write-back of accrual for litigation claims,
overdue interest payments and legal costs		(3,653)	(163)		—	—	—
Provision/(write-back of provision) for slow-
moving inventories, net (included in cost
of sales)		29,917	(13,063)		(4,633)	(4,266)	(2,922)
Other operating (income)/expenses:
Severance payments		2,562	889		32	70	503
Foreign exchange losses, net		188	684		—	101	82
Impairment/(write-back of impairment)
on accounts receivable, net		523	—		(1,425)	—	—
Loss/(gain) on disposals/write-offs of
items of property, plant and equipment,
net		1,041	1,251		(17)	(14)	14
		4,314	2,824		(1,410)	157	599

— 44 —

ACCOUNTANTS’ REPORT

APPENDIX I

• (c) Finance costs

									Six months ended	Six months ended
						**Year **	**ended 31st **	July,	31st January,
						2003	2004	2005	2005	2006
						HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
									(Unaudited)
Interest	on	bank	loans	and	overdrafts	1,115	876	1,118	471	802

• (d) Directors’ remuneration and five highest paid employees

• (i) Directors’ remuneration

Directors’ remuneration for the Relevant Periods and for the six months ended 31st January, 2005, disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance, is as follows:

				**Six months **	ended
	**Year **	**ended 31st **	July,	31st January,
	2003	2004	2005	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Fees:
Executive directors	50	47	30	15	15
Non-executive directors	30	30	30	15	12
Non-executive independent directors	20	33	136	64	72
	100	110	196	94	99
Other emoluments to executive directors:
Salaries, allowances and benefits in kind	6,828	5,558	4,781	2,485	2,492
Pension scheme contributions	24	20	12	6	6
Bonuses paid and payable	1,730	858	1,656	—	—
	8,582	6,436	6,449	2,491	2,498
	8,682	6,546	6,645	2,585	2,597

The above balances included the remuneration paid to a director who passed away and directors who resigned during the Relevant Periods and for the six months ended 31st January, 2005.

There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods and for the six months ended 31st January, 2005.

During the Relevant Periods and the six months ended 31st January, 2005, no emoluments were paid by the Group to any of the directors as an inducement to join, or at upon joining the Group, or as compensation for loss of office.

— 45 —

ACCOUNTANTS’ REPORT

APPENDIX I

The remuneration of every director is set out below:

		Salaries,
		allowances	Pension	Bonuses
		and benefits	scheme	paid and
	Fees	in kind	contributions	payable	Total
Year ended 31st July, 2003	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors:
Lam Kin Ming	10	2,338	—	150	2,498
Lam Kin Ngok, Peter	10	—	—	—	10
Lam Kin Hong, Matthew	10	2,250	12	1,380	3,652
Lim Por Yen (note 1)	10	600	—	—	610
Lam Kin Ko, Stewart (note 4)	10	1,640	12	200	1,862
Non-executive directors:
U Po Chu (note 2)	10	—	—	—	10
Shiu Kai Wah	10	—	—	—	10
Chiu Wai	10	—	—	—	10
Non-executive independent directors:
Yeung Sui Sang	10	—	—	—	10
Wan Yee Hwa, Edward	10	—	—	—	10
	100	6,828	24	1,730	8,682
		Salaries,
		allowances	Pension	Bonuses
		and benefits	scheme	paid and
	Fees	in kind	contributions	payable	Total
Year ended 31st July, 2004	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors:
Lam Kin Ming	10	2,498	—	—	2,508
Lam Kin Ngok, Peter	10	—	—	—	10
Lam Kin Hong, Matthew	10	1,500	12	550	2,072
Lim Por Yen (note 1)	10	600	—	—	610
Lam Kin Ko, Stewart (note 4)	7	960	8	308	1,283
Non-executive directors:
U Po Chu (note 2)	10	—	—	—	10
Shiu Kai Wah	10	—	—	—	10
Chiu Wai	10	—	—	—	10
Non-executive independent directors:
Yeung Sui Sang	16	—	—	—	16
Wan Yee Hwa, Edward	17	—	—	—	17
	110	5,558	20	858	6,546

— 46 —

APPENDIX I

ACCOUNTANTS’ REPORT

		Salaries,
		allowances	Pension	Bonuses
		and benefits	scheme	paid and
	Fees	in kind	contributions	payable	Total
Year ended 31st July, 2005	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors:
Lam Kin Ming	10	2,759	—	1,656	4,425
Lam Kin Ngok, Peter	10	—	—	—	10
Lam Kin Hong, Matthew	10	1,772	12	—	1,794
Lim Por Yen (note 1)	—	250	—	—	250
Non-executive directors:
U Po Chu (note 2)	10	—	—	—	10
Shiu Kai Wah	10	—	—	—	10
Chiu Wai	10	—	—	—	10
Non-executive independent directors:
Yeung Sui Sang	48	—	—	—	48
Wan Yee Hwa, Edward	48	—	—	—	48
Chow Bing Chiu (note 3)	40	—	—	—	40
	196	4,781	12	1,656	6,645
		Salaries,
		allowances	Pension	Bonuses
		and benefits	scheme	paid and
	Fees	in kind	contributions	payable	Total
Six months ended 31st January, 2005 (unaudited)	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors:
Lam Kin Ming	5	1,349	—	—	1,354
Lam Kin Ngok, Peter	5	—	—	—	5
Lam Kin Hong, Matthew	5	886	6	—	897
Lim Por Yen (note 1)	—	250	—	—	250
Non-executive directors:
U Po Chu (note 2)	5	—	—	—	5
Shiu Kai Wah	5	—	—	—	5
Chiu Wai	5	—	—	—	5
Non-executive independent directors:
Yeung Sui Sang	24	—	—	—	24
Wan Yee Hwa, Edward	24	—	—	—	24
Chow Bing Chiu (note 3)	16	—	—	—	16
	94	2,485	6	—	2,585

— 47 —

APPENDIX I

ACCOUNTANTS’ REPORT

Six months ended 31st January, 2006 Executive directors: Lam Kin Ming Lam Kin Ngok, Peter Lam Kin Hong, Matthew Non-executive directors: U Po Chu (note 2) Shiu Kai Wah Chiu Wai Non-executive independent directors: Yeung Sui Sang Wan Yee Hwa, Edward Chow Bing Chiu (note 3)	Fees Salaries, allowances and benefits in kind Pension scheme contributions HK$’000 HK$’000 HK$’000 5 2,102 — 5 — — 5 390 6 2 — — 5 — — 5 — — 24 — — 24 — — 24 — — 99 2,492 6	Total HK$’000 2,107 5 401 2 5 5 24 24 24
		2,597

Notes:

1. Passed away on 18th February, 2005

2. Resigned on 6th October, 2005

3. Appointed on 30th September, 2004

4. Resigned on 1st April, 2004

— 48 —

ACCOUNTANTS’ REPORT

APPENDIX I

(ii) Five highest paid employees

The five highest paid employees included three directors for the year ended 31st July, 2003 and 2004, two directors for the year ended 31st July, 2005 and for the six months ended 31st January, 2005 and one director for the six months ended 31st January, 2006. Information relating to the emoluments of these directors has been disclosed above. The details of the remuneration of the remaining non-director, highest paid employees for the Relevant Periods and for the six months ended 31st January, 2005 are set out below:

Salaries, allowances and benefits in kind Pension scheme contributions Bonuses paid and payable	Year ended 31st 2003 2004 HK$’000 HK$’000 4,460 2,070 24 17 2,000 2,900 6,484 4,987	July, Six months ended 31st January, 2005 2005 2006 HK$’000 HK$’000 HK$’000 (Unaudited) 5,067 2,544 8,157 24 12 18 1,160 — — 6,251 2,556 8,175	July, Six months ended 31st January, 2005 2005 2006 HK$’000 HK$’000 HK$’000 (Unaudited) 5,067 2,544 8,157 24 12 18 1,160 — — 6,251 2,556 8,175
			8,175

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

				Six months ended	Six months ended	Six months ended
	**Year **	ended 31st July,		31st January,
	2003	2004	2005	2005	2006
				(Unaudited)
HK$500,001 - HK$1,000,000	—	—	—	2		2
HK$1,000,001 - HK$1,500,000	—	—	1	1		1
HK$1,500,001 - HK$2,000,000	—	1	—	—		—
HK$2,000,001 - HK$2,500,000	1	—	1	—		—
HK$2,500,001 - HK$3,000,000	—	—	1	—		—
HK$3,000,001 - HK$3,500,000	—	1	—	—		—
HK$3,500,001 - HK$4,000,000	1	—	—	—		—
HK$5,500,001 - HK$6,000,000	—	—	—	—		1
	2	2	3	3		4

(e) Tax

No Hong Kong profits tax has been provided as the Group had available tax losses brought forward from prior years to offset the estimated assessable profits arising in Hong Kong for 31st July, 2003, 2004 and 2005 and the six months ended 31st January, 2005. No Hong Kong profits tax has been provided for the six months ended 31st January, 2006 as the Group had no assessable profits arising in Hong Kong. The current and prior year’s/period’s tax charge/credit represented deferred tax.

— 49 —

APPENDIX I

ACCOUNTANTS’ REPORT

A reconciliation of the tax expense and credit applicable to profit/(loss) before tax using the statutory tax rates for the places in which the Group are domiciled to the tax position at the effective tax rates, and a reconciliation of the statutory tax rates to the effective tax rates, are as follows:

Year ended 31st July, 2003

Hong HK$’000 Group Profit/(loss) before tax 13,554 Tax at the statutory tax rate 2,372 Effect on opening deferred tax of increase in rates (1,001) Income not subject to tax (5,935) Expenses not deductible for tax 4,233 Increase in unprovided deferred tax assets 969 Tax charge at the Group’s effective rate 638 Year ended 31st July, 2004 Hong HK$’000 Group Profit/(loss) before tax 60,531 Tax at the statutory tax rate 10,593 Income not subject to tax (5,304) Expenses not deductible for tax 429 Decrease in unprovided deferred tax assets (9,073) Tax credit at the Group’s effective rate (3,355)	Hong HK$’000 Group Profit/(loss) before tax 13,554 Tax at the statutory tax rate 2,372 Effect on opening deferred tax of increase in rates (1,001) Income not subject to tax (5,935) Expenses not deductible for tax 4,233 Increase in unprovided deferred tax assets 969 Tax charge at the Group’s effective rate 638 Year ended 31st July, 2004 Hong HK$’000 Group Profit/(loss) before tax 60,531 Tax at the statutory tax rate 10,593 Income not subject to tax (5,304) Expenses not deductible for tax 429 Decrease in unprovided deferred tax assets (9,073) Tax credit at the Group’s effective rate (3,355)	Kong Mainland of China Total % HK$’000 % HK$’000 % (71,684) (58,130) 17.5 (19,355) 27.0 (16,983) 29.2 (7.4) — — (1,001) 1.7 (43.8) — — (5,935) 10.2 31.3 240 (0.3) 4,473 (7.7) 7.1 19,115 (26.7) 20,084 (34.5) 4.7 — — 638 (1.1) Kong Mainland of China Total % HK$’000 % HK$’000 % (15,990) 44,541 17.5 (4,317) 27.0 6,276 14.1 (8.8) — — (5,304) (11.9) 0.7 4,537 (28.4) 4,966 11.1 (14.9) (220) 1.4 (9,293) (20.8) (5.5) — — (3,355) (7.5)	Kong Mainland of China Total % HK$’000 % HK$’000 % (71,684) (58,130) 17.5 (19,355) 27.0 (16,983) 29.2 (7.4) — — (1,001) 1.7 (43.8) — — (5,935) 10.2 31.3 240 (0.3) 4,473 (7.7) 7.1 19,115 (26.7) 20,084 (34.5) 4.7 — — 638 (1.1) Kong Mainland of China Total % HK$’000 % HK$’000 % (15,990) 44,541 17.5 (4,317) 27.0 6,276 14.1 (8.8) — — (5,304) (11.9) 0.7 4,537 (28.4) 4,966 11.1 (14.9) (220) 1.4 (9,293) (20.8) (5.5) — — (3,355) (7.5)	Kong Mainland of China Total % HK$’000 % HK$’000 % (71,684) (58,130) 17.5 (19,355) 27.0 (16,983) 29.2 (7.4) — — (1,001) 1.7 (43.8) — — (5,935) 10.2 31.3 240 (0.3) 4,473 (7.7) 7.1 19,115 (26.7) 20,084 (34.5) 4.7 — — 638 (1.1) Kong Mainland of China Total % HK$’000 % HK$’000 % (15,990) 44,541 17.5 (4,317) 27.0 6,276 14.1 (8.8) — — (5,304) (11.9) 0.7 4,537 (28.4) 4,966 11.1 (14.9) (220) 1.4 (9,293) (20.8) (5.5) — — (3,355) (7.5)	Kong Mainland of China Total % HK$’000 % HK$’000 % (71,684) (58,130) 17.5 (19,355) 27.0 (16,983) 29.2 (7.4) — — (1,001) 1.7 (43.8) — — (5,935) 10.2 31.3 240 (0.3) 4,473 (7.7) 7.1 19,115 (26.7) 20,084 (34.5) 4.7 — — 638 (1.1) Kong Mainland of China Total % HK$’000 % HK$’000 % (15,990) 44,541 17.5 (4,317) 27.0 6,276 14.1 (8.8) — — (5,304) (11.9) 0.7 4,537 (28.4) 4,966 11.1 (14.9) (220) 1.4 (9,293) (20.8) (5.5) — — (3,355) (7.5)	Kong Mainland of China Total % HK$’000 % HK$’000 % (71,684) (58,130) 17.5 (19,355) 27.0 (16,983) 29.2 (7.4) — — (1,001) 1.7 (43.8) — — (5,935) 10.2 31.3 240 (0.3) 4,473 (7.7) 7.1 19,115 (26.7) 20,084 (34.5) 4.7 — — 638 (1.1) Kong Mainland of China Total % HK$’000 % HK$’000 % (15,990) 44,541 17.5 (4,317) 27.0 6,276 14.1 (8.8) — — (5,304) (11.9) 0.7 4,537 (28.4) 4,966 11.1 (14.9) (220) 1.4 (9,293) (20.8) (5.5) — — (3,355) (7.5)
	10,593 (5,304) 429 (9,073)	17.5 (8.8) 0.7 (14.9)	(4,317) — 4,537 (220)	27.0* — (28.4) 1.4	6,276 (5,304) 4,966 (9,293)	14.1 (11.9 11.1 (20.8
	(3,355)	(5.5)	—	—	(3,355)

— 50 —

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31st July, 2005

	**Hong **	Kong		Mainland of China	Mainland of China	Total
	HK$’000		%	HK$’000	%	HK$’000	%
Group
Profit/(loss) before tax	146,822			(842)		145,980
Tax at the statutory tax rate	25,694	17.5		(227)	27.0*	25,467	17.4
Income not subject to tax	(14,775)	(10.1)		(400)	47.5	(15,175)	(10.4)
Expenses not deductible for tax	500		0.4	7,848	(932.1)	8,348	5.7
Write-off of deferred tax assets	7,239		4.9	—	—	7,239	5.0
Tax losses utilised	(443)	(0.3)		(6,100)	724.5	(6,543)	(4.5)
Increase/(decrease) in unprovided deferred
tax assets	560		0.4	(1,121)	133.1	(561)	(0.4)
Tax charge at the Group’s effective rate	18,775	12.8		—	—	18,775	12.8

Six months ended 31st January, 2005 (unaudited)

	**Hong **	Kong		**Mainland **	of China	Total
	HK$’000		%	HK$’000	%	HK$’000	%
Group
Profit before tax	22,537			65		22,602
Tax at the statutory tax rate	3,944	17.5		18	27.0*	3,962	17.5
Income not subject to tax	(2,393)	(10.6)		—	—	(2,393)	(10.6)
Expenses not deductible for tax	269		1.2	3,439	5,290.8	3,708	16.4
Write-off of deferred tax assets	2,475	11.0		—	—	2,475	11.0
Tax losses utilised	—		—	(2,593)	(3,989.0)	(2,593)	(11.5)
Increase/(decrease) in unprovided deferred
tax assets	177		0.7	(864)	(1,328.8)	(687)	(3.0)
Tax charge at the Group’s effective rate	4,472	19.8		—	—	4,472	19.8

— 51 —

ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 31st January, 2006

	**Hong **	Kong	Mainland of China	Mainland of China	Total
	HK$’000	%	HK$’000	%	HK$’000	%
Group
Profit before tax	147,771		7,687		155,458
Tax at the statutory tax rate	25,860	17.5	2,075	27.0*	27,935	18.0
Income not subject to tax	(617)	(0.4)	—	—	(617)	(0.4)
Expenses not deductible for tax	69	—	3,728	48.5	3,797	2.4
Tax losses utilised	—	—	(4,749)	(61.8)	(4,749)	(3.1)
Decrease in unprovided deferred tax assets	(2,626)	(1.8)	(1,054)	(13.7)	(3,680)	(2.3)
Tax charge at the Group’s effective rate	22,686	15.3	—	—	22,686	14.6

* The Group’s operations on the Coastal Open Economic Zones of the Mainland of China are entitled to a preferential tax rate of 27%.

(f) Earnings/(loss) per share attributable to ordinary equity holders of the parent

Profit/(loss) for the year/period attributable to equity holders of the parent (HK$’000) Number of ordinary shares Earnings/(loss) per share (HK$)	Year ended 31st July, 2003 2004 2005 HK$’000 HK$’000 HK$’000 (58,768) 47,896 127,205 617,127,130 617,127,130 617,127,130 (9.52 cents) 7.76 cents 20.61 cents	Six months ended 31st January, 2005 2006 HK$’000 HK$’000 (Unaudited) 18,130 132,772 617,127,130 617,127,130 2.94 cents 21.51 cents	Six months ended 31st January, 2005 2006 HK$’000 HK$’000 (Unaudited) 18,130 132,772 617,127,130 617,127,130 2.94 cents 21.51 cents
			21.51 cents

Diluted earnings per share amounts for the Relevant Periods and for the six months ended 31st January, 2005 have not been calculated because no diluting events existed during these years/periods.

— 52 —

ACCOUNTANTS’ REPORT

APPENDIX I

(g) Related party transactions

In addition to the transactions and balances detailed elsewhere in this accountants’ report, the Group had the following transactions with related parties during the Relevant Periods and for the six months ended 31st January, 2005:

• (i) Transactions with related parties

					**Six months **	ended
		**Year **	**ended 31st **	July,	31st January,
	Notes	2003	2004	2005	2005	2006
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
Rental expenses and building management fee
paid and payable to:
Lai Sun Textiles Company Limited	1	—	59	2,010	1,060	1,060
Related companies	2	7,600	3,337	2,540	1,270	1,270
Purchase of a motor vehicle from
a related party	3	—	—	400	—	—

Notes:

1. Lai Sun Textiles Company Limited is a company beneficially owned by certain directors of the Company. Rental expenses and building management fee were paid to this related company pursuant to the respective lease agreements.

2. Rental expenses and building management fee were paid to these related companies, of which certain directors of the Company are also the directors of these related companies, based on the terms stated in the respective lease agreements.

3. The purchase of the motor vehicle was made at a price determined by the parties. The related party represented a close family member of a key management personnel.

— 53 —

APPENDIX I

ACCOUNTANTS’ REPORT

The Company’s directors consider that the above transactions have been conducted in the ordinary and usual course of the Group’s business.

(ii) Compensation of key management personnel of the Group

Short term employee benefits Post-employment benefits	Year ended 31st 2003 2004 HK$’000 HK$’000 8,608 6,463 24 20 8,632 6,483	July, 2005 HK$’000 6,467 12 6,479	Six months ended 31st January, 2005 2006 HK$’000 HK$’000 (Unaudited) 2,500 2,507 6 6 2,506 2,513	Six months ended 31st January, 2005 2006 HK$’000 HK$’000 (Unaudited) 2,500 2,507 6 6 2,506 2,513
				2,513

(iii) Apart from the above, subsequent to the balance sheet date, the Company entered into a conditional Development Agreement (the “Agreement”) with Lai Sun Garment (International) Limited (“LSG”), the ultimate holding company, which also constitutes a related party transaction. Further details of the agreement are set out in Section 10 to the accountants’ report.

— 54 —

ACCOUNTANTS’ REPORT

APPENDIX I

6. BALANCE SHEETS

The following is a summary of the consolidated balance sheets of the Group and the balance sheets of the Company as at the end of each of the Relevant Periods prepared on the basis set out in Section 1.1 above.

Group

Notes NON-CURRENT ASSETS Property, plant and equipment (a) Investment properties (b) Rental and utility deposits Deferred tax assets (c) Total non-current assets CURRENT ASSETS Inventories (e) Trade receivables, deposits and prepayments (f) Amount due from the ultimate holding company (j) Cash and cash equivalents (g) Total current assets CURRENT LIABILITIES Short term borrowings (h) Trade and other payables (i) Amount due to the ultimate holding company (j) Amounts due to related companies (j) Current tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for long service payments (k) Deferred tax liabilities (c) Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital (l) Reserves (m) Retained profits/(accumulated losses) Total equity	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 27,758 16,307 26,903 28,316 183,000 190,700 161,000 335,000 9,564 9,288 14,745 12,578 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 27,758 16,307 26,903 28,316 183,000 190,700 161,000 335,000 9,564 9,288 14,745 12,578 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 27,758 16,307 26,903 28,316 183,000 190,700 161,000 335,000 9,564 9,288 14,745 12,578 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 27,758 16,307 26,903 28,316 183,000 190,700 161,000 335,000 9,564 9,288 14,745 12,578 10,043 13,398 — —
	230,365 92,034 29,666 — 64,445 186,145 44,509 91,444 3 4 10,551 146,511 39,634 269,999 4,338 — 4,338	229,693 74,986 15,063 — 156,476 246,525 43,102 105,358 7 — 10,551 159,018 87,507 317,200 3,088 — 3,088	202,648 68,007 28,503 — 276,796 373,306 43,867 71,656 6 9 10,551 126,089 247,217 449,865 2,992 5,377 8,369	375,894
				84,769 29,857 5 243,348
				357,979
				36,965 79,425 — 159 10,551
				127,100
				230,879
				606,773
				4,442 28,063
				32,505
	265,661	314,112	441,496	574,268
	154,282 336,826 (225,447)	154,282 337,381 (177,551)	154,282 337,210 (49,996)	154,282 337,210 82,776
	265,661	314,112	441,496	574,268

— 55 —

APPENDIX I

ACCOUNTANTS’ REPORT

Company

Notes NON-CURRENT ASSETS Property, plant and equipment (a) Investment properties (b) Interests in subsidiaries (d) Rental and utility deposits Deferred tax assets (c) Total non-current assets CURRENT ASSETS Inventories (e) Trade receivables, deposits and prepayments (f) Amount due from the ultimate holding company (j) Cash and cash equivalents (g) Total current assets CURRENT LIABILITIES Short term borrowings (h) Trade and other payables (i) Amount due to the ultimate holding company (j) Amounts due to related companies (j) Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Provision for long service payments (k) Deferred tax liabilities (c) Total non-current liabilities Net assets EQUITY Issued capital (l) Reserves Retained profits/(accumulated losses) Total equity	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 6,177 2,590 12,430 13,466 70,000 58,000 63,000 240,000 207,674 219,538 99,278 112,037 9,530 9,077 14,348 11,657 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 6,177 2,590 12,430 13,466 70,000 58,000 63,000 240,000 207,674 219,538 99,278 112,037 9,530 9,077 14,348 11,657 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 6,177 2,590 12,430 13,466 70,000 58,000 63,000 240,000 207,674 219,538 99,278 112,037 9,530 9,077 14,348 11,657 10,043 13,398 — —	31st July, 31st January, 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 6,177 2,590 12,430 13,466 70,000 58,000 63,000 240,000 207,674 219,538 99,278 112,037 9,530 9,077 14,348 11,657 10,043 13,398 — —
	303,424 54,345 5,217 — 6,910 66,472 42,179 28,600 3 4 70,786 (4,314) 299,110 4,338 — 4,338	302,603 46,666 7,917 — 25,888 80,471 40,871 26,091 7 — 66,969 13,502 316,105 3,088 — 3,088	189,056 43,232 7,762 — 179,324 230,318 41,442 20,203 6 9 61,660 168,658 357,714 2,992 — 2,992	377,160
				47,147 12,306 5 133,877
				193,335
				34,185 24,741 — 159
				59,085
				134,250
				511,410
				4,442 23,204
				27,646
	294,772	313,017	354,722	483,764
	154,282 274,011 (133,521)	154,282 274,011 (115,276)	154,282 274,011 (73,571)	154,282 274,011 55,471
	294,772	313,017	354,722	483,764

— 56 —

ACCOUNTANTS’ REPORT

APPENDIX I

Notes:

(a) Property, plant and equipment

Group

31st July, 2003 Cost/valuation: At 1st August, 2002 Additions during the year Disposals/write-offs during the year At 31st July, 2003 Accumulated depreciation and impairment: At 1st August, 2002 Provided during the year Disposals/write-offs during the year At 31st July, 2003 Net book value: At 31st July, 2003 31st July, 2004 Cost/valuation: At 1st August, 2003 Additions during the year Disposals/write-offs during the year Revaluation upon transfer Transferred to investment properties (note 6(b)) At 31st July, 2004 Accumulated depreciation and impairment: At 1st August, 2003 Provided during the year Disposals/write-offs during the year Revaluation upon transfer At 31st July, 2004 Net book value: At 31st July, 2004	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 24,458 22,615 69,155 19,334 — 554 3,476 439 — (925) (13,320) (3,027)	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 24,458 22,615 69,155 19,334 — 554 3,476 439 — (925) (13,320) (3,027)	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 24,458 22,615 69,155 19,334 — 554 3,476 439 — (925) (13,320) (3,027)	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 24,458 22,615 69,155 19,334 — 554 3,476 439 — (925) (13,320) (3,027)	Motor vehicles HK$’000 3,236 456 (178)	Total HK$’000 138,798 4,925 (17,450) 126,273 107,909 7,000 (16,394) 98,515 27,758 126,273 1,621 (18,079) 20 (6,700) 103,135 98,515 5,604 (16,756) (535) 86,828 16,307
	24,458 8,097 894 — 8,991	22,244 19,360 802 (472) 19,690	59,311 60,861 3,873 (12,746) 51,988	16,746 16,865 1,302 (2,998) 15,169	3,514 2,726 129 (178) 2,677	126,273
						107,909 7,000 (16,394
						98,515
	15,467	2,554	7,323	1,577	837
	24,458 — — 20 (6,700) 17,778 8,991 894 — (535) 9,350	22,244 359 (4,484) — — 18,119 19,690 731 (4,292) — 16,129	59,311 837 (12,222) — — 47,926 51,988 2,724 (11,200) — 43,512	16,746 425 (1,063) — — 16,108 15,169 1,148 (954) — 15,363	3,514 — (310) — — 3,204 2,677 107 (310) — 2,474	126,273 1,621 (18,079 20 (6,700
						103,135
						98,515 5,604 (16,756 (535
						86,828
	8,428	1,990	4,414	745	730

— 57 —

ACCOUNTANTS’ REPORT

APPENDIX I

Group

31st July, 2005 Cost: At 1st August, 2004 Additions during the year Disposals/write-offs during the year Exchange realignments At 31st July, 2005 Accumulated depreciation and impairment: At 1st August, 2004 Provided during the year Disposals/write-offs during the year Exchange realignments At 31st July, 2005 Net book value: At 31st July, 2005 31st January, 2006 Cost: At 1st August, 2005 Additions during the period Disposals/write-offs during the period At 31st January, 2006 Accumulated depreciation and impairment: At 1st August, 2005 Provided during the period Disposals/write-offs during the period At 31st January, 2006 Net book value: At 31st January, 2006	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 17,778 18,119 47,926 16,108 — 75 14,401 1,860 — (88) (3,730) (4,530) — 48 62 15	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 17,778 18,119 47,926 16,108 — 75 14,401 1,860 — (88) (3,730) (4,530) — 48 62 15	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 17,778 18,119 47,926 16,108 — 75 14,401 1,860 — (88) (3,730) (4,530) — 48 62 15	Leasehold land and buildings Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment* HK$’000 HK$’000 HK$’000 HK$’000 17,778 18,119 47,926 16,108 — 75 14,401 1,860 — (88) (3,730) (4,530) — 48 62 15	Motor vehicles HK$’000 3,204 3,070 (1,333) 10	Total HK$’000 103,135 19,406 (9,681) 135 112,995 86,828 8,802 (9,601) 63 86,092 26,903 112,995 7,235 (1,136) 119,094 86,092 5,808 (1,122) 90,778 28,316
	17,778 9,350 800 — — 10,150	18,154 16,129 624 (72) 31 16,712	58,659 43,512 6,183 (3,677) 25 46,043	13,453 15,363 548 (4,519) 4 11,396	4,951 2,474 647 (1,333) 3 1,791	112,995
						86,828 8,802 (9,601 63
						86,092
	7,628	1,442	12,616	2,057	3,160
	17,778 — — 17,778 10,150 400 — 10,550	18,154 567 (544) 18,177 16,712 292 (532) 16,472	58,659 6,043 (506) 64,196 46,043 4,436 (506) 49,973	13,453 625 (86) 13,992 11,396 319 (84) 11,631	4,951 — — 4,951 1,791 361 — 2,152	112,995 7,235 (1,136
						119,094
						86,092 5,808 (1,122
						90,778
	7,228	1,705	14,223	2,361	2,799

* Since the land lease payment cannot be allocated reliably between the land and buildings elements, the entire lease payment is included in the cost of land and buildings as a finance lease in property, plant and equipment.

— 58 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2003 Cost: At 1st August, 2002 4,441 50,784 19,334 Additions during the year — 2,710 269 Disposals/write-offs during the year — (10,835) (3,027) At 31st July, 2003 4,441 42,659 16,576 Accumulated depreciation and impairment: At 1st August, 2002 4,156 45,640 16,865 Provided during the year 51 3,151 1,268 Disposals/write-offs during the year — (10,634) (2,998) At 31st July, 2003 4,207 38,157 15,135 Net book value: At 31st July, 2003 234 4,502 1,441 31st July, 2004 Cost: At 1st August, 2003 4,441 42,659 16,576 Additions during the year — 544 213 Disposals/write-offs during the year (4,441) (11,941) (1,063) At 31st July, 2004 — 31,262 15,726 Accumulated depreciation and impairment: At 1st August, 2003 4,207 38,157 15,135 Provided during the year 51 2,123 1,083 Disposals/write-offs during the year (4,258) (11,146) (954) At 31st July, 2004 — 29,134 15,264 Net book value: At 31st July, 2004 — 2,128 462	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2003 Cost: At 1st August, 2002 4,441 50,784 19,334 Additions during the year — 2,710 269 Disposals/write-offs during the year — (10,835) (3,027) At 31st July, 2003 4,441 42,659 16,576 Accumulated depreciation and impairment: At 1st August, 2002 4,156 45,640 16,865 Provided during the year 51 3,151 1,268 Disposals/write-offs during the year — (10,634) (2,998) At 31st July, 2003 4,207 38,157 15,135 Net book value: At 31st July, 2003 234 4,502 1,441 31st July, 2004 Cost: At 1st August, 2003 4,441 42,659 16,576 Additions during the year — 544 213 Disposals/write-offs during the year (4,441) (11,941) (1,063) At 31st July, 2004 — 31,262 15,726 Accumulated depreciation and impairment: At 1st August, 2003 4,207 38,157 15,135 Provided during the year 51 2,123 1,083 Disposals/write-offs during the year (4,258) (11,146) (954) At 31st July, 2004 — 29,134 15,264 Net book value: At 31st July, 2004 — 2,128 462	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2003 Cost: At 1st August, 2002 4,441 50,784 19,334 Additions during the year — 2,710 269 Disposals/write-offs during the year — (10,835) (3,027) At 31st July, 2003 4,441 42,659 16,576 Accumulated depreciation and impairment: At 1st August, 2002 4,156 45,640 16,865 Provided during the year 51 3,151 1,268 Disposals/write-offs during the year — (10,634) (2,998) At 31st July, 2003 4,207 38,157 15,135 Net book value: At 31st July, 2003 234 4,502 1,441 31st July, 2004 Cost: At 1st August, 2003 4,441 42,659 16,576 Additions during the year — 544 213 Disposals/write-offs during the year (4,441) (11,941) (1,063) At 31st July, 2004 — 31,262 15,726 Accumulated depreciation and impairment: At 1st August, 2003 4,207 38,157 15,135 Provided during the year 51 2,123 1,083 Disposals/write-offs during the year (4,258) (11,146) (954) At 31st July, 2004 — 29,134 15,264 Net book value: At 31st July, 2004 — 2,128 462	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2003 Cost: At 1st August, 2002 4,441 50,784 19,334 Additions during the year — 2,710 269 Disposals/write-offs during the year — (10,835) (3,027) At 31st July, 2003 4,441 42,659 16,576 Accumulated depreciation and impairment: At 1st August, 2002 4,156 45,640 16,865 Provided during the year 51 3,151 1,268 Disposals/write-offs during the year — (10,634) (2,998) At 31st July, 2003 4,207 38,157 15,135 Net book value: At 31st July, 2003 234 4,502 1,441 31st July, 2004 Cost: At 1st August, 2003 4,441 42,659 16,576 Additions during the year — 544 213 Disposals/write-offs during the year (4,441) (11,941) (1,063) At 31st July, 2004 — 31,262 15,726 Accumulated depreciation and impairment: At 1st August, 2003 4,207 38,157 15,135 Provided during the year 51 2,123 1,083 Disposals/write-offs during the year (4,258) (11,146) (954) At 31st July, 2004 — 29,134 15,264 Net book value: At 31st July, 2004 — 2,128 462	Motor vehicles HK$’000 2,265 — (178)	Total HK$’000 76,824 2,979 (14,040) 65,763 68,926 4,470 (13,810) 59,586 6,177 65,763 757 (17,623) 48,897 59,586 3,257 (16,536) 46,307 2,590
	4,441 4,156 51 — 4,207	42,659 45,640 3,151 (10,634) 38,157	16,576 16,865 1,268 (2,998) 15,135	2,087 2,265 — (178) 2,087	65,763
					68,926 4,470 (13,810
					59,586
	234	4,502	1,441	—
	4,441 — (4,441) — 4,207 51 (4,258) —	42,659 544 (11,941) 31,262 38,157 2,123 (11,146) 29,134	16,576 213 (1,063) 15,726 15,135 1,083 (954) 15,264	2,087 — (178) 1,909 2,087 — (178) 1,909	65,763 757 (17,623
					48,897
					59,586 3,257 (16,536
					46,307
	—	2,128	462	—

— 59 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2005 Cost: At 1st August, 2004 — 31,262 15,726 Additions during the year — 12,170 1,256 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 39,767 12,465 Accumulated depreciation and impairment: At 1st August, 2004 — 29,134 15,264 Provided during the year — 5,268 454 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 30,737 11,201 Net book value: At 31st July, 2005 — 9,030 1,264 31st January, 2006 Cost: At 1st August, 2005 — 39,767 12,465 Additions during the period — 4,597 191 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 43,858 12,574 Accumulated depreciation and impairment: At 1st August, 2005 — 30,737 11,201 Provided during the period — 3,284 201 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 33,515 11,320 Net book value: At 31st January, 2006 — 10,343 1,254	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2005 Cost: At 1st August, 2004 — 31,262 15,726 Additions during the year — 12,170 1,256 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 39,767 12,465 Accumulated depreciation and impairment: At 1st August, 2004 — 29,134 15,264 Provided during the year — 5,268 454 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 30,737 11,201 Net book value: At 31st July, 2005 — 9,030 1,264 31st January, 2006 Cost: At 1st August, 2005 — 39,767 12,465 Additions during the period — 4,597 191 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 43,858 12,574 Accumulated depreciation and impairment: At 1st August, 2005 — 30,737 11,201 Provided during the period — 3,284 201 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 33,515 11,320 Net book value: At 31st January, 2006 — 10,343 1,254	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2005 Cost: At 1st August, 2004 — 31,262 15,726 Additions during the year — 12,170 1,256 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 39,767 12,465 Accumulated depreciation and impairment: At 1st August, 2004 — 29,134 15,264 Provided during the year — 5,268 454 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 30,737 11,201 Net book value: At 31st July, 2005 — 9,030 1,264 31st January, 2006 Cost: At 1st August, 2005 — 39,767 12,465 Additions during the period — 4,597 191 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 43,858 12,574 Accumulated depreciation and impairment: At 1st August, 2005 — 30,737 11,201 Provided during the period — 3,284 201 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 33,515 11,320 Net book value: At 31st January, 2006 — 10,343 1,254	Plant and machinery Furniture and fixtures, including leasehold improvements Computer equipment HK$’000 HK$’000 HK$’000 31st July, 2005 Cost: At 1st August, 2004 — 31,262 15,726 Additions during the year — 12,170 1,256 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 39,767 12,465 Accumulated depreciation and impairment: At 1st August, 2004 — 29,134 15,264 Provided during the year — 5,268 454 Disposals/write-offs during the year — (3,665) (4,517) At 31st July, 2005 — 30,737 11,201 Net book value: At 31st July, 2005 — 9,030 1,264 31st January, 2006 Cost: At 1st August, 2005 — 39,767 12,465 Additions during the period — 4,597 191 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 43,858 12,574 Accumulated depreciation and impairment: At 1st August, 2005 — 30,737 11,201 Provided during the period — 3,284 201 Disposals/write-offs during the period — (506) (82) At 31st January, 2006 — 33,515 11,320 Net book value: At 31st January, 2006 — 10,343 1,254	Motor vehicles HK$’000 1,909 2,670 (1,333)	Total HK$’000 48,897 16,096 (9,515) 55,478 46,307 6,256 (9,515) 43,048 12,430 55,478 4,788 (588) 59,678 43,048 3,752 (588) 46,212 13,466
	— — — — —	39,767 29,134 5,268 (3,665) 30,737	12,465 15,264 454 (4,517) 11,201	3,246 1,909 534 (1,333) 1,110	55,478
					46,307 6,256 (9,515
					43,048
	—	9,030	1,264	2,136
	— — — — — — — —	39,767 4,597 (506) 43,858 30,737 3,284 (506) 33,515	12,465 191 (82) 12,574 11,201 201 (82) 11,320	3,246 — — 3,246 1,110 267 — 1,377	55,478 4,788 (588
					59,678
					43,048 3,752 (588
					46,212
	—	10,343	1,254	1,869

The leasehold land and buildings of the Group as at 31st January, 2006 are situated in the Mainland of China and are held under long term leases.

— 60 —

APPENDIX I

ACCOUNTANTS’ REPORT

During the year ended 31st July, 2004, certain leasehold land and buildings situated in Hong Kong were transferred to investment properties (note (b)) upon a change of use. These leasehold land and buildings were stated at revalued amounts based on a valuation carried out by Chesterton Petty Limited, independent chartered surveyors, on an open market value basis as at 31st July, 1992. At the date of transfer, a revaluation of the aforesaid land and buildings was carried out based on their open market value existing use basis with reference to a valuation performed by Centaline Surveyors Limited, independent chartered surveyors. The surplus arising therefrom was credited to the Group’s asset revaluation reserve for the year ended 31st July, 2004 which is presented in the consolidated statement of changes in equity of the Group.

As at 31st July, 2003, 31st July, 2004, 31st July, 2005 and 31st January, 2006, certain of the Group’s land and buildings were pledged to secure the Group’s bank borrowings, as further detailed in Section 6(h) to the accountants’ report.

(b) Investment properties

Group

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
At beginning of year/period, at valuation	205,000	183,000	190,700	161,000
Additions during the year/period	—	—	—	27,407
Disposed of during the year/period	—	—	(66,000)	—
Transfer from leasehold land and buildings (note (a))	—	6,700	—	—
Fair value gains/(losses) on revaluation	(22,000)	1,000	36,300	146,593
At end of year/period, at valuation	183,000	190,700	161,000	335,000
Company
		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
At beginning of year/period, at valuation	80,000	70,000	58,000	63,000
Additions during the year/period	—	—	—	27,407
Fair value gains/(losses) on revaluation	(10,000)	(12,000)	5,000	149,593
At end of year/period, valuation	70,000	58,000	63,000	240,000

At 31st July, 2003, 2004 and 2005, the investment properties were stated at their aggregate open market value of HK$183,000,000, HK$190,700,000 and HK$161,000,000, respectively, based on their existing use with reference to valuations performed by Centaline Surveyors Limited, an independent chartered surveyor. The revaluation deficit of HK$22,000,000, surplus of HK$1,000,000 and HK$36,300,000 so arising for the Group was (charged)/credited to the income statement for the year ended 31st July, 2003, 2004 and 2005 respectively.

— 61 —

ACCOUNTANTS’ REPORT

APPENDIX I

At 31st January, 2006, the investment properties were stated at their aggregate open market value of HK$335,000,000 based on their existing use with reference to valuations performed by Savills Valuation and Professional Services Limited, an independent chartered surveyor. The revaluation surplus of HK$146,593,000 so arising for the Group was credited to the income statement for the six months ended 31st January, 2006.

On 14th January, 2006, the Company accepted the offer made by the District Lands Office of Kowloon East of the Lands Department for the lease modification of an investment property situated at 79 Hoi Yuen Road, Kwun Tong, Kowloon. The lease modification will permit a change of use of the property from industrial to non-industrial purposes. The total amount of land premiums for the lease modification amounted to HK$274,070,000. On 14th January, 2006, the Company paid a 10% deposit which amounted to HK$27,407,000 and subsequent to the balance sheet date, on 28th March, 2006, the Company paid the remaining 90% of the land premium.

All the above investment properties are situated in Hong Kong. Apart from a property with a market value of HK$6,700,000, HK$11,000,000 and HK$12,000,000 at 31st July, 2004 and 2005 and 31st January, 2006, respectively, which is held under long term lease, other investment properties are held under medium term leases.

The investment properties are leased to third parties under operating leases, further summary details of which are included in Section 6(o)(i) to the accountants’ report.

The Group’s investment properties are pledged to secure the Group’s bank borrowings, as further detailed in Section 6(h) to the accountant’s report.

During the year ended 31st July, 2005, the Group disposed of one of its properties to an independent third party for a cash consideration of HK$145,000,000. A gain of approximately HK$77,009,000, after deducting expenses, was recognised upon disposal for that year.

— 62 —

ACCOUNTANTS’ REPORT

APPENDIX I

Details of the Group’s investment properties are disclosed as follows:

			Attributable
			interest of
Location	Use	Lease term	the Group
The whole basement,	Commercial rental	Medium	100%
Shop No. 24 on Ground and
Mezzanine Floors,
Shop No. 33B on Ground and
Mezzanine Floors,
Tsimshatsui Mansion,
Nos. 83-97 Nathan Road,
Nos. 36-50 Lock Road,
Tsimshatsui, Kowloon, Hong Kong
Crocodile Building,	Industrial rental*	Medium	100%
No. 79 Hoi Yuen Road,
Kwun Tong, Kowloon, Hong Kong
Shops 3 & 8 on G/F, Coronet Court,	Commercial rental	Long	100%
Nos. 321-333 King’s Road,
Nos. 1,3,5,7,7A, 9 & 9A North Point Road,
Hong Kong
#Shops G9/9A and G10 on Ground Floor,	Commercial rental	Medium	100%
Room No. 213A on 2nd floor
and Room No. 413A on 4th floor,
Hankow Centre,
Nos. 5-15 Hankow Road,
41-51 Peking Road,
Nos. 4, 4A and 4B Ashley Road
and Nos. 1, 1A-1E Middle Road,
Tsimshatsui, Kowloon, Hong Kong

• To be modified to non-industrial rental

Disposed of during the year ended 31st July, 2005.

— 63 —

ACCOUNTANTS’ REPORT

APPENDIX I

(c) Deferred tax

The movements in deferred tax assets/(liabilities) during the Relevant Periods are as follows:

Group

Losses available for offsetting against future taxable profits Accelerated capital allowance Revaluation of properties HK$’000 HK$’000 HK$’000 At 1st August, 2002 10,681 — — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — — Deferred tax credited during the year 3,355 — — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — — Deferred tax charged during the year (12,544) (404) (5,827) Net deferred tax assets/(liabilities) at 31st July, 2005 and 1st August, 2005 854 (404) (5,827) Deferred tax credited/(charged) during the period 16,147 (14) (38,819) Net deferred tax assets/(liabilities) at 31st January, 2006 17,001 (418) (44,646)	Losses available for offsetting against future taxable profits Accelerated capital allowance Revaluation of properties HK$’000 HK$’000 HK$’000 At 1st August, 2002 10,681 — — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — — Deferred tax credited during the year 3,355 — — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — — Deferred tax charged during the year (12,544) (404) (5,827) Net deferred tax assets/(liabilities) at 31st July, 2005 and 1st August, 2005 854 (404) (5,827) Deferred tax credited/(charged) during the period 16,147 (14) (38,819) Net deferred tax assets/(liabilities) at 31st January, 2006 17,001 (418) (44,646)	Losses available for offsetting against future taxable profits Accelerated capital allowance Revaluation of properties HK$’000 HK$’000 HK$’000 At 1st August, 2002 10,681 — — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — — Deferred tax credited during the year 3,355 — — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — — Deferred tax charged during the year (12,544) (404) (5,827) Net deferred tax assets/(liabilities) at 31st July, 2005 and 1st August, 2005 854 (404) (5,827) Deferred tax credited/(charged) during the period 16,147 (14) (38,819) Net deferred tax assets/(liabilities) at 31st January, 2006 17,001 (418) (44,646)	Losses available for offsetting against future taxable profits Accelerated capital allowance Revaluation of properties HK$’000 HK$’000 HK$’000 At 1st August, 2002 10,681 — — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — — Deferred tax credited during the year 3,355 — — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — — Deferred tax charged during the year (12,544) (404) (5,827) Net deferred tax assets/(liabilities) at 31st July, 2005 and 1st August, 2005 854 (404) (5,827) Deferred tax credited/(charged) during the period 16,147 (14) (38,819) Net deferred tax assets/(liabilities) at 31st January, 2006 17,001 (418) (44,646)	Total HK$’000 10,681 (638) 10,043 3,355 13,398 (18,775) (5,377) (22,686) (28,063)
	10,043 3,355 13,398 (12,544) 854 16,147	— — — (404) (404) (14)	— — — (5,827) (5,827) (38,819)	10,043 3,355
				13,398 (18,775
				(5,377 (22,686
	17,001	(418)	(44,646)

— 64 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

Losses available for offsetting against future taxable profits Revaluation of properties HK$’000 HK$’000 At 1st August, 2002 10,681 — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — Deferred tax credited during the year 3,355 — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — Deferred tax charged during the year (13,398) — Net deferred tax assets at 31st July, 2005 and 1st August, 2005 — — Deferred tax credited/(charged) during the period 16,140 (39,344) Net deferred tax assets/(liabilities) at 31st January, 2006 16,140 (39,344)	Losses available for offsetting against future taxable profits Revaluation of properties HK$’000 HK$’000 At 1st August, 2002 10,681 — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — Deferred tax credited during the year 3,355 — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — Deferred tax charged during the year (13,398) — Net deferred tax assets at 31st July, 2005 and 1st August, 2005 — — Deferred tax credited/(charged) during the period 16,140 (39,344) Net deferred tax assets/(liabilities) at 31st January, 2006 16,140 (39,344)	Losses available for offsetting against future taxable profits Revaluation of properties HK$’000 HK$’000 At 1st August, 2002 10,681 — Deferred tax charged during the year, including a credit of HK$1,001,000 due to the effect of a change in tax rates (638) — Net deferred tax assets at 31st July, 2003 and 1st August, 2003 10,043 — Deferred tax credited during the year 3,355 — Net deferred tax assets at 31st July, 2004 and 1st August, 2004 13,398 — Deferred tax charged during the year (13,398) — Net deferred tax assets at 31st July, 2005 and 1st August, 2005 — — Deferred tax credited/(charged) during the period 16,140 (39,344) Net deferred tax assets/(liabilities) at 31st January, 2006 16,140 (39,344)	Total HK$’000 10,681 (638) 10,043 3,355 13,398 (13,398) — (23,204) (23,204)
	10,043 3,355 13,398 (13,398) — 16,140	— — — — — (39,344)	10,043 3,355
			13,398 (13,398
			— (23,204
	16,140	(39,344)

At 31st July, 2003, 2004 and 2005 and 31st January, 2006, the Group had tax losses arising in Hong Kong of HK$296,120,000, HK$244,898,000, HK$168,545,000 and HK$78,135,000, respectively, that are available indefinitely for offsetting against future taxable profits of the Group in which losses arose.

At 31st July, 2003, 2004 and 2005 and 31st January, 2006, the Group had tax losses arising in the Mainland of China of HK$31,176,000, HK$47,439,000, HK$24,845,000 and HK$7,256,000, respectively, that are available for a period of five years for offsetting against future taxable profits of the respective Group companies in which the losses arose.

At 31st July, 2003, 2004 and 2005 and 31st January, 2006, the Company had tax losses arising in Hong Kong of HK$224,023,000, HK$164,114,000, HK$91,894,000 and HK$Nil that are available for offsetting against future taxable profits of the Company in which losses arose.

Deferred tax assets have not been recognised, to the extent that, in the directors’ opinion, it is uncertain that future taxable profits would arise to offset against these losses.

At 31st July, 2003, 2004 and 2005 and 31st January, 2006, there was no significant unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group has no liability to additional tax should such amounts be remitted.

— 65 —

ACCOUNTANTS’ REPORT

APPENDIX I

(d) Interests in subsidiaries

Company

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Unlisted shares, at cost	4,050	4,050	4,050	4,050
Amounts due from subsidiaries	323,768	375,942	267,019	278,582
Amounts due to subsidiaries	(8,934)	(8,934)	(32,414)	(31,218)
	318,884	371,058	238,655	251,414
Provision for impairment	(111,210)	(151,520)	(139,377)	(139,377)
	207,674	219,538	99,278	112,037

The amounts due from and to subsidiaries included in the Company are unsecured, interest-free and have no fixed terms of repayment. Included therein as at 31st July, 2003, 2004 and 2005 and 31st January, 2006 are amounts due from subsidiaries aggregating HK$128,175,000, HK$131,767,000, HK$16,008,000, HK$16,115,000, respectively, which bear interest at Hong Kong dollar prime rate plus 2% per annum . The carrying amounts of these amounts due from and to subsidiaries approximate to their fair values.

Details of the principal subsidiaries were set out in Section 1.1.

(e) Inventories

Group

Raw materials Work in progress Finished goods	2003 HK$’000 6,145 134 85,755 92,034	31st July, 2004 HK$’000 10,225 511 64,250 74,986	31st January, 2005 2006 HK$’000 HK$’000 9,511 7,809 342 301 58,154 76,659 68,007 84,769	31st January, 2005 2006 HK$’000 HK$’000 9,511 7,809 342 301 58,154 76,659 68,007 84,769
				84,769

— 66 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Raw materials	2,648	2,964	2,051	2,537
Finished goods	51,697	43,702	41,181	44,610
	54,345	46,666	43,232	47,147

(f) Trade receivables, deposits and prepayments

Other than cash sales made at retail outlets of the Group, trading terms with wholesale customers are largely on credit, except for new customers, where payment in advance is normally required. Invoices are normally payable within 30 days of issuance, except for certain well-established customers, where the term is extended to 90 days. Each customer has a maximum credit limit.

The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are regularly reviewed by senior management.

An aged analysis of trade receivables, net of provisions, based on the overdue date, and the balance of deposits and prepayment are as follows:

Group

Trade receivables: Current to 90 days 91 days to 180 days 181 days to 365 days Deposits and prepayments	2003 HK$’000 22,511 35 5	31st July, 2004 HK$’000 5,820 10 552	31st January, 2005 2006 HK$’000 HK$’000 6,028 8,561 5,239 3,463 201 79	31st January, 2005 2006 HK$’000 HK$’000 6,028 8,561 5,239 3,463 201 79
	22,551 7,115	6,382 8,681	11,468 17,035	12,103 17,754
	29,666	15,063	28,503	29,857

— 67 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Trade receivables:
Current to 90 days	376	276	646	1,107
91 days to 180 days	35	—	2	31
181 days to 365 days	5	98	—	79
	416	374	648	1,217
Deposits and prepayments	4,801	7,543	7,114	11,089
	5,217	7,917	7,762	12,306
(g) Cash and cash equivalents
Group
		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances	64,445	156,476	94,019	145,696
Time deposits	—	—	182,777	97,652
	64,445	156,476	276,796	243,348
Company
		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances	6,910	25,888	25,347	36,225
Time deposits	—	—	153,977	97,652
	6,910	25,888	179,324	133,877

At 31st July, 2003, 2004, and 2005 and 31st January, 2006, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to HK$56,448,000, HK$129,386,000, HK$65,748,000 and HK$108,549,000, respectively. At 31st July, 2005, the time deposits of the Group denominated in RMB amounted to HK$28,800,000. RMB is not freely convertible into other currencies. However, under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies in respect of approved transactions through banks to conduct foreign exchange business.

— 68 —

APPENDIX I

ACCOUNTANTS’ REPORT

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one week and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The carrying amounts of the cash and cash equivalents approximate to their fair values.

(h) Short term borrowings

Group

Current Bank overdrafts - secured Bank loans - secured Trust receipt loans - secured Trust receipt loans - unsecured Company Current Bank loans - secured Trust receipt loans - secured Trust receipt loans - unsecured	2003 HK$’000 2,330 24,250 12,785 5,144 44,509	31st July, 2004 HK$’000 2,231 24,250 14,322 2,299 43,102	31st January, 2005 2006 HK$’000 HK$’000 2,425 2,780 24,250 20,000 9,881 4,976 7,311 9,209 43,867 36,965	31st January, 2005 2006 HK$’000 HK$’000 2,425 2,780 24,250 20,000 9,881 4,976 7,311 9,209 43,867 36,965
				36,965
	24,250 12,785 5,144	24,250 14,322 2,299	24,250 9,881 7,311	20,000 4,976 9,209
	42,179	40,871	41,442	34,185

At 31st July 2003, 2004, 2005 and 31st January, 2006, bank borrowings of the Group were secured by its investment properties (note (b)) with an aggregate carrying amount of HK$183,000,000, HK$190,700,000, HK$161,000,000 and HK$335,000,000, respectively. At 31st July, 2003, the Group had also pledged certain land and buildings (note (a)) with a net book value of HK$6,239,000, to bankers to secure bank facilities granted to the Group.

All of the short term borrowings of the Group and the Company bear interest at floating interest rates and are denominated in Hong Kong Dollar.

The carrying amounts of the Group’s and the Company’s short term borrowings approximate to their fair values.

— 69 —

ACCOUNTANTS’ REPORT

APPENDIX I

(i) Trade and other payables

An aged analysis of trade payables, based on the date of receipt of the goods and services purchased, and the balance of deposits received and accruals and other payables are as follows:

Group

Trade payables: Current to 90 days 91 days to 180 days 181 days to 365 days Over 365 days Deposits received Accruals and other payables Company Trade payables: Current to 90 days 91 days to 180 days 181 days to 365 days Over 365 days Deposits received Accruals and other payables	2003 HK$’000 19,811 100 413 4,961	31st July, 2004 HK$’000 19,901 6,590 709 4,038	31st January, 2005 2006 HK$’000 HK$’000 17,576 20,179 1,180 1,733 1,049 332 3,826 4,182	31st January, 2005 2006 HK$’000 HK$’000 17,576 20,179 1,180 1,733 1,049 332 3,826 4,182
	25,285 32,468 33,691	31,238 47,068 27,052	23,631 22,619 25,406	26,426 28,334 24,665
	91,444 2003 HK$’000 16,559 403 446 1,386	105,358 31st July, 2004 HK$’000 14,697 632 459 1,063	71,656 79,425 31st January, 2005 2006 HK$’000 HK$’000 9,328 10,298 677 759 — 77 1,021 952	79,425
	18,794 809 8,997	16,851 1,236 8,004	11,026 738 8,439	12,086 762 11,893
	28,600	26,091	20,203	24,741

The trade payables are non-interest-bearing and are normally settled between 30 to 60 days.

— 70 —

ACCOUNTANTS’ REPORT

APPENDIX I

• (j) Balances with the ultimate holding company and related companies

Amount due from the ultimate holding company Lai Sun Garment (International) Limited Amounts due to: Ultimate holding company Lai Sun Garment (International) Limited Related companies	2003 HK$’000 — 3 4	Group and 31st July, 2004 HK$’000 — 7 —	Company 31st January, 2005 2006 HK$’000 HK$’000 — 5 6 — 9 159	Company 31st January, 2005 2006 HK$’000 HK$’000 — 5 6 — 9 159
				—
				159

The balances with the ultimate holding company and the balance due to related companies were derived from normal business activities and are unsecured, interest-free and repayable on terms similar to those granted to major customers or by major suppliers of the Group. Further details of the material transactions with the ultimate holding company and the related company are set out in Section 5(g) to the accountants’ report.

• (k) Provision for long service payments

At beginning of year/period Amounts provided/(written back) during the year/period Amounts utilised during the year/period At end of year/period	2003 HK$’000 — 4,338 — 4,338	Group and 31st July, 2004 HK$’000 4,338 (353) (897) 3,088	Company 31st January, 2005 2006 HK$’000 HK$’000 3,088 2,992 869 1,450 (965) — 2,992 4,442	Company 31st January, 2005 2006 HK$’000 HK$’000 3,088 2,992 869 1,450 (965) — 2,992 4,442
				4,442

The Group provides for probable future long service payments expected to be made to employees under the Hong Kong Employment Ordinance, as further explained under the heading “Employee benefits” in Section 2 to the accountants’ report. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group at the balance sheet date of each of the Relevant Periods.

— 71 —

ACCOUNTANTS’ REPORT

APPENDIX I

(l) Share capital

Authorised: 800,000,000 ordinary shares of HK$0.25 each Issued and fully paid: 617,127,130 ordinary shares of HK$0.25 each	2003 HK$’000 200,000 154,282	Company 31st July, 31st January, 2004 2005 2006 HK$’000 HK$’000 HK$’000 200,000 200,000 200,000 154,282 154,282 154,282	Company 31st July, 31st January, 2004 2005 2006 HK$’000 HK$’000 HK$’000 200,000 200,000 200,000 154,282 154,282 154,282
			154,282

(m) Reserves

The movements of the Group’s reserves therein for the Relevant Periods and for the six months ended 31st January, 2005 are presented in the consolidated statement of changes in equity in Section 7 below.

(n) Contingent liabilities

Group

In 2002, the Company was involved in legal disputes with a supplier, who alleged that the Company had infringed its trademark in Mainland of China and sought orders from the courts in Mainland of China for compensation of RMB3,500,000. Subsequent to the balance sheet date, on 23rd October, 2003, a joint declaration was announced by both parties pursuant to which the Company agreed to use a new trademark device to replace the existing device by 31st March, 2006 and the supplier agreed to abandon all of the claims against the Company. In the opinion of the directors, no significant losses have been arisen from this settlement and accordingly, no further costs have to be provided at the balance sheet date.

Except for the above, at each of the balance sheet date of the Relevant Periods, the Group had no significant contingent liabilities.

Company

At each of the balance sheet date of the Relevant Periods, the Company had guarantees amounted to HK$3,000,000 given to bank in connection with facilities granted to a subsidiary.

As at 31st July, 2003, 31st July, 2004, 31st July, 2005 and 31st January, 2006, the banking facility granted to a subsidiary subject to guarantee given to the banks by the Company were utilised to the extent of approximately HK$ 2.33 million, HK$2.23 million, HK$2.43 million and HK$2.78 million, respectively.

(o) Operating lease arrangements

(i) As lessor

The Group and the Company leases their investment properties (note (b)) under operating lease arrangements, with leases negotiated for terms ranging from one to six years. The terms of the leases generally also require the tenants to pay security deposits.

— 72 —

APPENDIX I

ACCOUNTANTS’ REPORT

An analysis of the Group and the Company’s total future minimum leases receivables under non-cancellable operating leases with tenants falling due as follows:

Group

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Within one year	9,964	6,938	5,309	4,172
In the second to fifth years, inclusive	7,617	1,184	9,669	8,663
After five years	—	—	644	—
	17,581	8,122	15,622	12,835
Company
		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Within one year	2,048	3,256	1,229	482
In the second to fifth years, inclusive	3,008	1,184	—	—
	5,056	4,440	1,229	482

(ii) As lessee

The Group and the Company leases their office premises, warehouses and retail outlets under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to five years.

An analysis of the Group and the Company’s total future minimum leases payments under non-cancellable operating leases falling due as follows:

Group

Within one year In the second to fifth years, inclusive	2003 HK$’000 47,169 32,462 79,631	31st July, 2004 HK$’000 49,499 39,392 88,891	31st January, 2005 2006 HK$’000 HK$’000 72,935 69,063 65,670 41,458 138,605 110,521	31st January, 2005 2006 HK$’000 HK$’000 72,935 69,063 65,670 41,458 138,605 110,521
				110,521

— 73 —

ACCOUNTANTS’ REPORT

APPENDIX I

Company

		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Within one year	45,064	46,552	66,200	62,316
In the second to fifth years, inclusive	31,720	37,266	60,369	35,360
	76,784	83,818	126,569	97,676

The operating lease rentals of certain retail shops are based on the higher of a fixed rental and a contingent rent based on sales of the retail shops pursuant to the terms and conditions as set out in the respective rental agreements. As the future sales of these retail shops could not be accurately determined, the relevant contingent rent has not been included above and only the minimum lease commitment has been included in the above table.

(p) Commitments

In addition to the operating lease commitments detailed in note (o)(ii) above, the Group and the Company had the following capital commitments at the balance sheet date:

		**Group and **	Company
		31st July,		31st January,
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Contracted, but not provided for:
Land and buildings	—	—	—	246,663

(q) Pledged assets

Details of the Group’s bank loans, bank overdrafts and trust receipt loans, which are secured by assets of the Group, are included in note (h) above.

— 74 —

ACCOUNTANTS’ REPORT

APPENDIX I

7. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The movements in the consolidated statements of changes in equity of the Group for each of the Relevant Periods and for the six months ended 31st January, 2005, which have been prepared on the basis set out in Section 1.1 above are as follows:

Attributable to equity holders of the parent

	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent
At 31st July 2002 and 1st August, 2002 Net loss for the year At 31st July, 2003 and 1st August, 2003 Surplus on revaluation and recognised directly in equity Net profit for the year At 31st July, 2004 At 1st August, 2004 As previously reported Effect of the adoption of HKFRS 3-derecognition of negative goodwill (note (i)) As restated Exchange difference on translating foreign operations recognised directly in equity Net profit for the year At 31st July, 2005 and 1st August, 2005 Net profit for the period At 31st January, 2006 At 1st August, 2004 Net profit for the period (unaudited) At 31st January, 2005 (unaudited)		Issue capital Share premium account Capital reserve Exchange fluctuation reserve Asset revaluation reserve Retained profits/ (accumulated losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note (i)) (note (ii)) 154,282 164,921 350 — 171,555 (166,679) — — — — — (58,768) 154,282 164,921 350 — 171,555 (225,447) — — — — 555 — — — — — — 47,896						Total HK$’000 324,429 (58,768
								265,661 555 47,896
		154,282	164,921*	350*	—*	172,110*	(177,551)
		154,282 — 154,282 — — 154,282 —	164,921 — 164,921 — — 164,921* —	350 (350) — — — —* —	— — — 179 — 179* —	172,110 — 172,110 — — 172,110* —	(177,551) 350 (177,201) — 127,205 (49,996) 132,772	314,112 —
								314,112 179 127,205
								441,496 132,772
		154,282	164,921*	—*	179*	172,110*	82,776
		154,282 —	164,921 —	— —	— —	172,110 —	(177,201) 18,130	314,112 18,130
		154,282	164,921	—	—	172,110	(159,071)

• (i) The amount of negative goodwill arose from the acquisition of a subsidiary prior to 1st August, 2001 of HK$350,000 represented the excess of the value of the assets and liabilities acquired over the cost of acquisition. Following the adoption of HKFRS 3, the amount was derecognised to the opening balance of accumulated losses as at 1st August, 2004.

• (ii) The Group’s asset revaluation reserve represents a frozen revaluation surplus in relation to certain leasehold land and buildings which were transferred to investment properties in prior years.

• These reserve accounts comprise the consolidated reserves of HK$336,826,000, HK$337,381,000, HK$337,210,000 and HK$337,210,000 in the consolidated balance sheet as at 31st July, 2003, 2004, and 2005, and 31st January, 2006.

— 75 —

ACCOUNTANTS’ REPORT

APPENDIX I

8. CONSOLIDATED CASH FLOW STATEMENTS

The consolidated cash flow statements of the Group for the Relevant Periods and the six months ended 31st January, 2005, which have been prepared on the basis set out in Section 1.1 above are as follows:

							**Six months **	ended
		**Year **	**ended 31st **	July,			31st January,
	Notes	2003	2004		2005		2005	2006
		HK$’000	HK$’000	HK$’000			HK$’000	HK$’000
						(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit/(loss) before tax		(58,130)	44,541	145,980			22,602	155,458
Adjustments for:
Finance costs	Section 5(c)	1,115	876		1,118		471	802
Interest income	Section 5(a)	(427)	(551)		(1,675)		(466)	(2,951)
Depreciation	Section 5(b)	7,000	5,604		8,802		3,205	5,808
(Gain)/loss on disposals/write-offs
of items of property, plant and
equipment, net	Section 5(b)	1,041	1,251		(17)		(14)	14
Gain on disposal of investment properties		—	—	(77,009)			—	—
Impairment/(write-back of impairment) on
accounts receivables		523	—		(1,425)		59	—
Provision/(write-back of provision) for
slow-moving inventories, net (included
in costs of sales)	Section 5(b)	29,917	(13,063)		(4,633)		(4,266)	(2,922)
Fair value (gains)/losses on investment
properties		22,000	(1,000)	(36,300)			—	(146,593)
Operating profit before working capital changes		3,039	37,658	34,841			21,591	9,616
Decrease/(increase) in inventories		16,613	30,111	11,612			(7,537)	(13,840)
Decrease/(increase) in trade receivables,
deposits and prepayments		11,048	14,879	(17,472)			(634)	813
Increase/(decrease) in trade and other payables		(41,962)	13,914	(33,702)			(11,388)	7,769
Movements in balance with the ultimate holding
company		(115)	4		(1)		59	(11)
Movements in balances with related companies		(1,244)	(4)		9		113	150
Increase/(decrease) in provision for long service
payments		4,338	(1,250)		(96)		—	1,450
Exchange differences on working capital		—	—		7		—	—
Cash generated from/(used in) operations		(8,283)	95,312		(4,802)		2,204	5,947
Interest paid		(1,115)	(876)		(1,118)		(471)	(802)
Taxes paid outside Hong Kong		(649)	—		—		—	—
Net cash inflow/(outflow) from operating
activities		(10,047)	94,436		(5,920)		1,733	5,145

— 76 —

ACCOUNTANTS’ REPORT

APPENDIX I

					**Six months **	ended
	**Year **	**ended 31st **	July,		31st January,
	2003	2004		2005	2005	2006
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
				(Unaudited)
CASH FLOWS FROM INVESTING
ACTIVITIES
Interest received	427	551		1,675	466	2,951
Purchase of items of property, plant and
equipment	(4,925)	(1,621)	(19,406)		(9,429)	(7,235)
Proceeds from disposal of investment properties	—	—	143,009		—	—
Proceeds from disposal of items of property,
plant and equipment	15	72		97	32	—
Increase in investment properties	—	—		—	—	(27,407)
Net cash inflow/(outflow) from investing
activities	(4,483)	(998)	125,375		(8,931)	(31,691)
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of bank loans	(2,288)	—		—	—	(4,250)
Draw down/ (repayment) of trust receipts loans	142	(1,308)		571	(7,271)	(3,007)
Net cash inflow/(outflow) from financing
activities	(2,146)	(1,308)		571	(7,271)	(7,257)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS	(16,676)	92,130	120,026		(14,469)	(33,803)
Cash and cash equivalents at beginning of
year/period	78,791	62,115	154,245		154,245	274,371
Effect of foreign exchange rate changes, net	—	—		100	—	—
CASH AND CASH EQUIVALENTS AT END
OF YEAR/PERIOD	62,115	154,245	274,371		139,776	240,568
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	64,445	156,476	94,019		142,658	145,696
Non-pledge time deposits with original maturity
of less than three months when acquired	—	—	182,777		—	97,652
Bank overdrafts, secured	(2,330)	(2,231)		(2,425)	(2,882)	(2,780)
	62,115	154,245	274,371		139,776	240,568

— 77 —

ACCOUNTANTS’ REPORT

APPENDIX I

9. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

• (a) the garment and related accessories segment engages in the manufacture and sale of garments and related accessories;

• (b) the property investment segment invests in land and buildings for its rental income potential; and

• (c) the corporate and others segment comprises the Group’s corporate income and expense items and other segment income and segment expense items.

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

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

— 78 —

ACCOUNTANTS’ REPORT

APPENDIX I

(a) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the Relevant Periods and six months ended 31st January, 2005.

Year ended 31st July, 2003

Group

	Garment
	and related	Property	Corporate
	accessories	investment	and others	Eliminations	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	472,869	11,194	—	—	484,063
Intersegment sales	—	3,999	—	(3,999)	—
Other revenue	6,802	211	—	—	7,013
Total	479,671	15,404	—	(3,999)	491,076
Segment results	(46,043)	(11,344)	(55)	—	(57,442)
Interest income					427
Finance costs					(1,115)
Loss before tax					(58,130)
Tax					(638)
Loss for the year attributable to equity
holders of the parent					(58,768)
Assets and liabilities:
Segment assets	150,125	191,897	—	—	342,022
Unallocated assets					74,488
Total assets					416,510
Segment liabilities	92,783	2,986	20	—	95,789
Unallocated liabilities					55,060
Total liabilities					150,849
Other segment information:
Depreciation	6,711	289	—	—	7,000
Impairment on accounts receivables	523	—	—	—	523
Provision for slow-moving inventories, net
(included in cost of sales)	29,917	—	—	—	29,917
Capital expenditure	4,679	246	—	—	4,925
Loss on disposals/write-offs of items of
property, plant and equipment	1,041	—	—	—	1,041
Fair value losses on investment properties	—	22,000	—	—	22,000

— 79 —

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31st July, 2004

Group

	Garment
	and related	Property	Corporate
	accessories	investment	and others	Eliminations	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external
customers	449,041	10,521	—	—	459,562
Intersegment sales	—	525	—	(525)	—
Other revenue	19,321	213	—	—	19,534
Total	468,362	11,259	—	(525)	479,096
Segment results	34,275	10,771	(180)	—	44,866
Interest income					551
Finance costs					(876)
Profit before tax					44,541
Tax					3,355
Profit for the year attributable to equity
holders of the parent					47,896
Assets and liabilities:
Segment assets	113,718	192,626	—	—	306,344
Unallocated assets					169,874
Total assets					476,218
Segment liabilities	105,455	2,989	9	—	108,453
Unallocated liabilities					53,653
Total liabilities					162,106
Other segment information:
Depreciation	5,312	292	—	—	5,604
Write-back of provision for slow-
moving inventories, net (included in
cost of sales)	(13,063)	—	—	—	(13,063)
Capital expenditure	1,595	26	—	—	1,621
Loss on disposals/write-offs of items of
property, plant and equipment	1,108	143	—	—	1,251
Fair value gains on investment
properties	—	(1,000)	—	—	(1,000)

— 80 —

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31st July, 2005

Group

	Garment
	and related	Property	Corporate
	accessories	investment	**and others **	**Eliminations **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	386,537	10,325	—	—	396,862
Intersegment sales	—	12	—	(12)	—
Other revenue	37,943	217	—	—	38,160
Total	424,480	10,554	—	(12)	435,022
Segment results	24,518	121,482	(577)	—	145,423
Interest income					1,675
Finance costs					(1,118)
Profit before tax					145,980
Tax					(18,775)
Profit for the year attributable to equity holders
of the parent					127,205
Assets and liabilities:
Segment assets	136,917	162,241	—	—	299,158
Unallocated assets					276,796
Total assets					575,954
Segment liabilities	71,642	3,011	10	—	74,663
Unallocated liabilities					59,795
Total liabilities					134,458
Other segment information:
Depreciation	8,622	180	—	—	8,802
Impairment/(write-back of impairment) on
accounts receivables	(1,484)	59	—	—	(1,425)
Write-back of provision for slow-moving
inventories, net (included in cost of sales)	(4,633)	—	—	—	(4,633)
Capital expenditure	19,406	—	—	—	19,406
Loss/(gain) on disposals/write-offs of items of
property, plant and equipment, net	(20)	3	—	—	(17)
Fair value gains on investment properties	—	(36,300)	—	—	(36,300)
Gain on disposal of investment properties	—	(77,009)	—	—	(77,009)

— 81 —

ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 31st January, 2005 (unaudited)

Group

	Garment
	and related	Property	Corporate
	accessories	investment	**and others **	**Eliminations **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	206,860	5,796	—	—	212,656
Intersegment sales	—	12	—	(12)	—
Other revenue	16,198	110	—	—	16,308
Total	223,058	5,918	—	(12)	228,964
Segment results	18,377	4,789	(559)	—	22,607
Interest income					466
Finance costs					(471)
Profit before tax					22,602
Tax					(4,472)
Profit for the period attributable to equity holders
of the parent					18,130
Other segment information:
Depreciation	3,115	90	—	—	3,205
Impairment on accounts receivable	—	59	—	—	59
Write-back of provision for slow-moving
inventories, net (included in cost of sales)	(4,266)	—	—	—	(4,266)
Gain on disposals/write-offs of items of
property, plant and equipment	(14)	—	—	—	(14)

— 82 —

ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 31st January, 2006

Group

	Garment
	and related	Property	Corporate
	accessories	investment	**and others **	**Eliminations **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	194,588	3,652	—	—	198,240
Other revenue	13,310	107	—	—	13,417
Total	207,898	3,759	—	—	211,657
Segment results	4,119	149,201	(11)	—	153,309
Interest income					2,951
Finance costs					(802)
Profit before tax					155,458
Tax					(22,686)
Profit for the period attributable to equity holders
of the parent					132,772
Assets and liabilities:
Segment assets	154,486	336,039	—	—	490,525
Unallocated assets					243,348
Total assets					733,873
Segment liabilities	82,018	1,998	10	—	84,026
Unallocated liabilities					75,579
Total liabilities					159,605
Other segment information:
Depreciation	5,718	90	—	—	5,808
Write-back of provision for slow-moving
inventories, net (included in cost of sales)	(2,922)	—	—	—	(2,922)
Capital expenditure	7,235	—	—	—	7,235
Loss on disposals/write-offs of items of
property, plant and equipment	14	—	—	—	14
Fair value gains on investment properties	—	(146,593)	—	—	(146,593)

— 83 —

ACCOUNTANTS’ REPORT

APPENDIX I

(b) Geographical segments

The following tables present revenue, certain asset and expenditure information for the Group’s geographical segments for the Relevant Periods and six months ended 31st January, 2005.

Year ended 31st July, 2003

Group

		Mainland
	Hong Kong	of China	Consolidated
	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	250,843	233,220	484,063
Other revenue	1,326	5,687	7,013
Total	252,169	238,907	491,076
Other segment information:
Segment assets	267,447	74,575	342,022
Unallocated assets			74,488
Total assets			416,510
Capital expenditure	3,046	1,879	4,925

— 84 —

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31st July, 2004

Group

		Mainland
	Hong Kong	of China	Consolidated
	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	241,648	217,914	459,562
Other revenue	1,271	18,263	19,534
Total	242,919	236,177	479,096
Other segment information:
Segment assets	261,007	45,337	306,344
Unallocated assets			169,874
Total assets			476,218
Capital expenditure	783	838	1,621

— 85 —

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31st July, 2005

Group

		Mainland
	Hong Kong	of China	Consolidated
	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	230,344	166,518	396,862
Other revenue	835	37,325	38,160
Total	231,179	203,843	435,022
Other segment information:
Segment assets	244,070	55,088	299,158
Unallocated assets			276,796
Total assets			575,954
Capital expenditure	16,496	2,910	19,406
Six months ended 31st January, 2005 (unaudited)
Group
		Mainland
	Hong Kong	of China	Consolidated
	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	117,799	94,857	212,656
Other revenue	730	15,578	16,308
Total	118,529	110,435	228,964

— 86 —

ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 31st January, 2006

Group

		Mainland
	Hong Kong	of China	Consolidated
	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to/income from external customers	126,877	71,363	198,240
Other revenue	145	13,272	13,417
Total	127,022	84,635	211,657
Other segment information:
Segment assets	423,683	66,842	490,525
Unallocated assets			243,348
Total assets			733,873
Capital expenditure	4,788	2,447	7,235

10. POST BALANCE SHEET EVENTS

• (a) On 28th February, 2006, the Company’s ultimate holding company, LSG, and Joy Mind Limited (“Joy Mind”), a wholly-owned subsidiary of LSG, entered into a conditional share purchase agreement with Rich Promise Limited (the “Purchaser”), a company wholly-owned by Mr. Lam Kin Ming, and Mr. Lam Kin Ming, acting as the guarantor of the Purchaser. Pursuant to the conditional share purchase agreement, LSG and Joy Mind agree to sell and the Purchaser agrees to purchase 314,800,000 ordinary shares of the Company, representing approximately 51.01% of the issued share capital of the Company, for a cash consideration of HK$192,028,000 (the “CGL Disposal”). Since Mr. Lam Kin Ming is a director of LSG and the Purchaser and the Purchaser is a wholly-owned company of Mr. Lam Kin Ming, the CGL Disposal constitutes a connected transaction of LSG under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). The completion of the CGL Disposal is subject to, inter alia, the approval of the independent shareholders of LSG at an extraordinary general meeting.

— 87 —

ACCOUNTANTS’ REPORT

APPENDIX I

• (b) On 28th February, 2006, the Company, LSG and Unipress Investments Limited (“Unipress”), a wholly-owned subsidiary of LSG, entered into a conditional development agreement (the “Development Agreement”) in connection with the redevelopment of a property at 79 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong (the “Property”), which is currently owned by the Company and used for industrial purposes. The redeveloped building (the “New Building”) on the Property is currently envisaged to be a commercial/office building.

Under the Development Agreement:

• (i) The Company shall be responsible for payment to the relevant government authority of the land premium of HK$274,070,000 in respect of a lease modification granted by the relevant government authority and accepted on 14th January, 2006. 10% of the land premium has been paid upon acceptance of the lease modification and subsequent to the balance sheet date, on 28th March, 2006, the Company paid the remaining 90% of the land premium;

• (ii) Subject to the Development Agreement becoming unconditional, Unipress shall pay the Company a sum of HK$137,035,000, representing 50% of the land premium;

• (iii) The Company grants to Unipress the exclusive right to develop the Property;

• (iv) Unipress shall be responsible for demolishing the existing building and constructing the New Building in accordance with the preliminary plans for the development of the Property as agreed by Unipress and the Company and shall bear all development and construction costs and project management fee in connection with the construction and completion of the New Building;

• (v) If construction finance is required by Unipress for financing the development and construction cost, the Company has agreed to provide or procure such security over or in relation to the Property as may reasonably be required by the relevant lending institution(s) and LSG is expected to provide a corporate guarantee as security for such finance; and

• (vi) In consideration of the Company contributing the Property as security for the construction finance, Unipress shall make a quarterly payment of HK$2,130,000 to the Company during the period from delivery of vacant possession of the Property to completion of construction of the New Building.

On completion of the construction of the New Building, the ownership of the New Building shall be allocated and distributed between Unipress and the Company in proportion of 1 to 1.4 in terms of the gross floor area. Assuming a total gross floor area of 240,000 square feet of the New Building as currently anticipated, Unipress shall be entitled to the ownership of such portion of the New Building with 100,000 square feet gross floor area, comprised mainly retail and restaurant space, and the Company shall be entitled to the remaining portion of the New Building with 140,000 square feet gross floor area, comprised mainly office space. In addition, the Company shall assign the ownership of all car parking spaces to an investment holding company which will be owned in equal shares by the Company and LSG.

— 88 —

APPENDIX I

ACCOUNTANTS’ REPORT

The Development Agreement is conditional on, inter alia, the completion of the CGL Disposal as mentioned in note (a) above. Following the completion of the CGL Disposal, the Company will be owned by the Purchaser as to approximately 51.01% and therefore will be an associate of the Purchaser which is owned by Mr. Lam Kin Ming under the Listing Rules. By virtue of Mr. Lam Kin Ming currently being a director of LSG, the Company will be a connected person of LSG following the completion of the CGL Disposal. Since LSG is also currently holding a 54.93% equity interests in the Company and is a substantial shareholder and a connected person of the Company, the Development Agreement also constitutes a connected transaction of the Company. Therefore, the Development Agreement is subject to approval of the respective independent shareholders of the Company and LSG at their respective extraordinary general meetings.

11. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of the companies now comprising the Group in respect of any period subsequent to 31st January, 2006.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

— 89 —

APPENDIX II FINANCIAL INFORMATION ON THE CROCODILE BUILDING

OPERATING RESULTS OF RENTAL BUSINESS ATTRIBUTABLE TO CROCODILE BUILDING

For illustrative purpose only, the following shows the operating results of the rental business attributable to the Crocodile Building for each of the three years ended 31st July, 2003, 2004 and 2005 and for the six months ended 31st January, 2006. As reported by Ernst and Young, the auditors and reporting accountants of the Group, such information has been extracted from the underlying books and records of the Company. In the opinion of the Directors, such information has been properly compiled.

					Six months
					ended
		Year ended 31st July,			31st January,
	Notes	2003	2004	2005	2006
		HK$’000	HK$’000	HK$’000	HK$’000
Rental income	(i)	3,419	3,681	4,211	1,682
Other income and gains	(ii)	211	213	213	107
Administrative expenses	(iii)	(715)	(759)	(1,223)	(883)
Profit for the year/period		2,915	3,135	3,201	906

Notes:

• (i) Rental income was derived from leasing out the Crocodile Building.

• (ii) Other income and gains comprised mainly building management fee income earned from the tenants.

• (iii) Administrative expenses comprised mainly rents and rates, repair and maintenance costs and other costs attributable to the Crocodile Building.

— 90 —

APPENDIX III

PRO FORMA FINANCIAL INFORMATION

The following is the text of the letter from Ernst & Young, the auditors and reporting accountants, in respect of the unaudited pro forma financial information of the Group, prepared for the purpose of incorporation in this circular.

Ernst & Young 18/F, Two International Finance Centre 8 Finance Street Central Hong Kong

29th April, 2006

The Board of Directors Crocodile Garments Limited 11/F., Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon

Dear Sirs

We report on the unaudited pro forma financial information of Crocodile Garments Limited (the “Company”) together with its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 93 to 94 in Appendix III to the circular dated 29th April, 2006 (the “Circular”) issued by the Company, in connection with the proposed redevelopment of the property at 79 Hoi Yuen Road, Kwun Tong (the “Crocodile Building”). The pro forma financial information is unaudited and has been prepared by the directors of the Company, solely for illustrative purposes, to provide information about how the Crocodile Building being surrendered for redevelopment might have affected the historical financial information in respect of the Group.

The historical financial information is derived from the audited historical financial information of the Group appearing elsewhere in the Circular. The basis of preparation of the unaudited pro forma financial information is set out in the accompanying introduction and notes to the unaudited pro forma financial information of the Group.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Listing Rules (as defined in the Circular) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

— 91 —

PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Basis of opinion

We conducted our work in accordance with the Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments, and discussing the unaudited pro forma financial information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of:

• the Group, had the Crocodile Building actually been surrendered for redevelopment as at the dates indicated therein; or

• the Group at any future dates or any future periods.

Opinion

In our opinion:

• (a) the accompanying unaudited pro forma financial information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully Ernst & Young

Certified Public Accountants Hong Kong

— 92 —

PRO FORMA FINANCIAL INFORMATION

APPENDIX III

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

For illustrative purpose only, the following is the unaudited pro forma consolidated financial information of the Group, based on the Group’s audited consolidated income statement for the six months ended 31st January, 2006 and the audited consolidated balance sheet of the Group as at 31st January, 2006.

• (i) Unaudited pro forma consolidated income statement of the Group for the six months ended 31st January, 2006 as if the Crocodile Building had been surrendered for the purpose of Joint Development on 1st August, 2005.

			Unaudited
	Audited		pro forma
	consolidated		consolidated
	income		income
	statement		statement
	for the six	Pro forma	for the six
	months ended	adjustment	months ended
	31st January, 2006	(Note)	31st January, 2006
	HK$’000	HK$’000	HK$’000
REVENUE	198,240	(1,682)	196,558
Cost of sales	(81,220)		(81,220)
Gross profit	117,020		115,338
Other income and gains	16,368	(107)	16,261
Selling and distribution costs	(95,236)		(95,236)
Administrative expenses	(27,886)	883	(27,003)
Other operating expenses	(599)		(599)
Fair value gains on investment properties	146,593		146,593
Finance costs	(802)		(802)
PROFIT BEFORE TAX	155,458		154,552
Tax	(22,686)		(22,686)
PROFIT FOR THE PERIOD	132,772		131,866

Note: The pro forma adjustment represents income and related expenses for the rental business attributable to the Crocodile Building.

— 93 —

PRO FORMA FINANCIAL INFORMATION

APPENDIX III

• (ii) Unaudited pro forma consolidated net assets statement of the Group as at 31st January, 2006 as if the Crocodile Building had been surrendered for the purpose of Joint Development on 31st January, 2006.

On the basis that the Crocodile Building was surrendered on 31st January, 2006, it would not affect the historical operations of the Crocodile Building prior to that date. Accordingly, it would not have any financial impact to the Group’s unaudited pro forma consolidated net assets statement as at 31st January, 2006.

Audited consolidated net assets statement 31st January, 2006 Unaudited pro forma consolidated net assets statement 31st January, 2006 HK$’000 HK$’000 NON-CURRENT ASSETS Property, plant and equipment 28,316 28,316 Investment properties 335,000 335,000 Rental and utility deposits 12,578 12,578 Total non-current assets 375,894 375,894 CURRENT ASSETS Inventories 84,769 84,769 Trade receivables, deposits and prepayments 29,857 29,857 Amount due from the ultimate holding company 5 5 Cash & cash equivalents 243,348 243,348 Total current assets 357,979 357,979 CURRENT LIABILITIES Short term borrowings 36,965 36,965 Trade and other payables 79,425 79,425 Amounts due to related companies 159 159 Current tax payable 10,551 10,551 Total current liabilities 127,100 127,100 NET CURRENT ASSETS 230,879 230,879 TOTAL ASSETS LESS CURRENT LIABILITIES 606,773 606,773 NON-CURRENT LIABILITIES Provision for long service payments 4,442 4,442 Deferred tax liabilities 28,063 28,063 Total non-current liabilities 32,505 32,505 Net assets 574,268 574,268	Audited consolidated net assets statement 31st January, 2006 Unaudited pro forma consolidated net assets statement 31st January, 2006 HK$’000 HK$’000 NON-CURRENT ASSETS Property, plant and equipment 28,316 28,316 Investment properties 335,000 335,000 Rental and utility deposits 12,578 12,578 Total non-current assets 375,894 375,894 CURRENT ASSETS Inventories 84,769 84,769 Trade receivables, deposits and prepayments 29,857 29,857 Amount due from the ultimate holding company 5 5 Cash & cash equivalents 243,348 243,348 Total current assets 357,979 357,979 CURRENT LIABILITIES Short term borrowings 36,965 36,965 Trade and other payables 79,425 79,425 Amounts due to related companies 159 159 Current tax payable 10,551 10,551 Total current liabilities 127,100 127,100 NET CURRENT ASSETS 230,879 230,879 TOTAL ASSETS LESS CURRENT LIABILITIES 606,773 606,773 NON-CURRENT LIABILITIES Provision for long service payments 4,442 4,442 Deferred tax liabilities 28,063 28,063 Total non-current liabilities 32,505 32,505 Net assets 574,268 574,268	Audited consolidated net assets statement 31st January, 2006 Unaudited pro forma consolidated net assets statement 31st January, 2006 HK$’000 HK$’000 NON-CURRENT ASSETS Property, plant and equipment 28,316 28,316 Investment properties 335,000 335,000 Rental and utility deposits 12,578 12,578 Total non-current assets 375,894 375,894 CURRENT ASSETS Inventories 84,769 84,769 Trade receivables, deposits and prepayments 29,857 29,857 Amount due from the ultimate holding company 5 5 Cash & cash equivalents 243,348 243,348 Total current assets 357,979 357,979 CURRENT LIABILITIES Short term borrowings 36,965 36,965 Trade and other payables 79,425 79,425 Amounts due to related companies 159 159 Current tax payable 10,551 10,551 Total current liabilities 127,100 127,100 NET CURRENT ASSETS 230,879 230,879 TOTAL ASSETS LESS CURRENT LIABILITIES 606,773 606,773 NON-CURRENT LIABILITIES Provision for long service payments 4,442 4,442 Deferred tax liabilities 28,063 28,063 Total non-current liabilities 32,505 32,505 Net assets 574,268 574,268
	375,894 84,769 29,857 5 243,348 357,979 36,965 79,425 159 10,551 127,100 230,879 606,773 4,442 28,063 32,505	375,894
		84,769 29,857 5 243,348
		357,979
		36,965 79,425 159 10,551
		127,100
		230,879
		606,773
		4,442 28,063
		32,505
	574,268	574,268

— 94 —

ADDITIONAL FINANCIAL INFORMATION

APPENDIX IV

1. LIQUIDITY, INDEBTEDNESS, CHARGES ON ASSETS, GEARING AND CAPITAL COMMITMENTS

Cash and cash equivalents held by the CGL Group amounted to HK$251 million as at 28th February, 2006 being the latest practicable date for the purpose of this statement and were mainly denominated in Hong Kong dollars, Renminbi and United States dollars.

As at 28th February, 2006, the CGL Group had outstanding borrowings of approximately HK$35.8 million, comprising secured short-term bank loans of approximately HK$20 million which are repayable within a period not exceeding one year, secured trust receipt loans of approximately HK$4.5 million, unsecured trust receipt loans of approximately HK$8.4 million and secured bank overdrafts of approximately HK$2.9 million. The trust receipt loans and bank overdrafts of the CGL Group are repayable on demand. All of the CGL Group’s bank borrowings are denominated in Hong Kong dollars. Interest on bank borrowing is charged at floating rates. Attention will be paid to the interest rate movements. Hedging instruments will be employed when necessary to hedge against unanticipated foreign exchange and interest rate volatilities.

As at 28th February, 2006, the above secured short-term bank loans and secured trust receipt loans were secured by certain investment properties with carrying values in an aggregate amount of approximately HK$335 million, based on an independent professional valuation on 24th February, 2006. The bank overdrafts were secured by corporate guarantee executed by the Company.

Save as aforesaid and apart from intra-group liabilities, the CGL Group did not, as at 28th February, 2006, have any outstanding debt securities, whether issued and outstanding, authorized or otherwise created but unissued, term loans, whether guaranteed, unguaranteed, secured (whether the security is provided by the issuer or by third parties) or unsecured, other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptable credits or hire purchase commitments, whether guaranteed, unguaranteed, secured or unsecured borrowings or debt, mortgages, charges, guarantees or other material contingent liabilities.

The CGL Group’s gearing was considered to be at a reasonable level, as the debt to equity ratio at 31st January, 2006 was only 6.4%, expressed as a percentage of total bank borrowings to total net assets.

The CGL Group had contracted capital commitments of HK$246,663,000 as at 28th February, 2006.

2. WORKING CAPITAL

The Directors are of the opinion that, following the completion of the Development Agreement and taking into account the present available banking facilities, internal resources of the CGL Group, the CGL Group has sufficient working capital for its present requirements (i.e. for at least the next twelve months from the date of this circular) in the absence of unforeseen circumstances.

— 95 —

ADDITIONAL FINANCIAL INFORMATION

APPENDIX IV

3. EMPLOYEES AND REMUNERATION POLICY

The total number of employees of the CGL Group, including part-time sales staff, was approximately 1,000 as at 28th February, 2006. Pay rate of the employees is largely based on industry practice and the performance of individual employees. In addition to salary and bonus payments, other staff benefits include subsidised medical care, free hospitalisation insurance plans, provident fund benefits, subsidised meals, staff discount on purchases, internal training for sales staff and external training programme subsidies.

4. MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS OF THE REMAINING CGL GROUP

a) Overview of Operating Results

For the 6 months ended 31st January, 2006, turnover for the CGL Group excluding rental income from Crocodile Building (“Remaining CGL Group”) decreased from HK$210,417,000 in 2005 to HK$196,558,000 in 2006, representing a period-on-period drop of 6.6%. Despite retail sales in Hong Kong seeing an increase of 10% over the period, this was not enough to offset a drop in sales in the PRC of 24.8% due to intense competition in that market.

The CGL Group excluding rental profit from Crocodile Building achieved an encouraging profit before tax of HK$154,552,000 for the 6 months ended 31st January, 2006 (2005: HK$20,753,000). Revaluation gains from its investment properties which amounted to HK$146,593,000 (2005: Nil) accounted for a major part of this profit.

Profit attributable to equity holders of the parent company excluding rental profit from Crocodile Building increased by 710% to HK$131,866,000 compared with the last corresponding period.

b) Operations in Hong Kong

Demolition of the Crocodile Building is going to reduce rental income of the CGL Group in the short term. Upon completion of the New Building, rental income will be on the rise.

The rebound in the Hong Kong property market has brought a significant revaluation surplus to the Remaining CGL Group during the six months ended 31st January, 2006, however, it has also driven up the rental expenses of the Remaining CGL Group’s retail shops. Rental expenses relating to the Remaining CGL Group’s retail shops in Hong Kong increased by 30% compared with the last corresponding period despite the fact that the Remaining CGL Group held back on renting outlets with unacceptably high rents.

The Remaining CGL Group currently operates 19 Crocodile outlets and 7 Lacoste outlets in Hong Kong. In order to further strengthen the image of the new Crocodile logo, ongoing promotional campaigns including billboard advertising and event sponsorships were undertaken during the period. The Lacoste line, which offers stylish and fashionable high-end products, also recorded an increase in sales during the period under review.

— 96 —

ADDITIONAL FINANCIAL INFORMATION

APPENDIX IV

c) Operations in China

During the period under review, the Remaining CGL Group continued to expand its retail network in major cities in the PRC in order to complement its nationwide franchising strategy. Overall sales dropped by 24.8% due to intense competition in the market. Furthermore, sales generated from the Remaining CGL Group’s new retail outlets could not offset the decrease in sales due to the closing of a number of outlets operated by the CGL Group’s franchisees.

The number of retail outlets run by the Remaining CGL Group increased from 11 as at 31st July, 2005 to approximately 36 as at 31st January, 2006. These retail outlets, incorporating a new image in line with the new Crocodile logo, will promote brand awareness.

Other income, representing mainly royalty income from licensees, decreased as a result of the termination of a licensee’s rights to produce polyamide garments during the second half of the last financial year. The annual increment in royalties paid by other licensees was partly negated by the decrease in royalties as a result of the termination.

Currently, there are a total of approximately 520 sales outlets in the PRC, including self-operated retail outlets and those operated by the Remaining CGL Group’s franchisees.

5. FINANCIAL AND TRADING PROSPECTS AND MATERIAL CHANGE

Subsequent to 28th February, 2006, the CGL Group obtained an unsecured bridging loan of HK$137,035,000 from a bank in March 2006 for the purpose of financing the payment of balance of the Land Premium for the Property. Such bridging loan will be repaid when CGL receives from Unipress HK$137,035,000 upon the Development Agreement becoming unconditional.

Taking into account the continuing improvement of garment retail spending and rebound of the property market in Hong Kong, the Directors expect the trading prospects of the CGL Group will continue to develop in a healthy condition. If the property market in Hong Kong continues to improve, the completed New Building is expected to contribute significantly in both rental revenue and profit to the CGL Group in the future.

Other than the above, the Directors are not aware of any material adverse change in the financial and trading position of the CGL Group since 31st January, 2006, being the date up to which the latest published audited consolidated interim accounts of the CGL Group were made.

— 97 —

APPENDIX V

PROPERTY VALUATION REPORT

The following is the text of the letter and valuation certificate received from Savills Valuation and Professional Services Limited, an independent property valuer, prepared for the purpose of incorporation in this circular, in connection with its valuation of the Property and the Crocodile Building as at 24th February, 2006.

T: (852) 2801 6100 F: (852) 2530 0756

23/F Two Exchange Square Central, Hong Kong EA Licence: C-023750 savills.com

The Directors Crocodile Garments Limited Room 1001 on 10th Floor Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

24 February 2006

Dear Sirs

Re: 79 Hoi Yuen Road, Kwun Tong, Kowloon

In accordance with your recent instructions for us to value the above property, we confirm that we have carried out inspection, made relevant enquiries and carried out searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property as at 24 February 2006.

Our valuation is our opinion of the market value of the property which we would define as intended to mean “the estimated amount for which a Property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

— 98 —

APPENDIX V

PROPERTY VALUATION REPORT

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

We have valued the property in its existing state and the completed values of the proposed development with reference to sales evidence as available on the market assuming that the vacant possession of the property would be readily available upon completion of a sale.

We have valued the property on the basis that the property will be redeveloped in accordance with the latest redevelopment proposal provided to us. We have assumed that all necessary approvals for the proposal will be obtained from the relevant Government authorities without onerous restrictions.

We have not been provided with any title document relating to the property but we have caused searches to be made at the Land Registry. We have not, however, searched the original documents to verify ownership or to verify any amendment which does not appear on the copies obtained by us.

We have relied to a very considerable extent on information given by you and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, site and floor areas, redevelopment proposal, proposed lease modification letter and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations.

We have inspected the exterior of the property but we have not carried out investigations on site to determine the suitability of the ground conditions and services etc for the proposed redevelopment scheme. Our valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during construction period. We have not been able to carry out detailed site measurements to verify the correctness of the site area of the property and we have assumed that the site area shown on the documents handed to us is correct.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the property nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

We enclose herewith our valuation certificate.

Yours faithfully

For and on behalf of

Savills Valuation and Professional Services Limited Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Managing Director

— 99 —

PROPERTY VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 24 February 2006 79 Hoi Yuen Road, The property comprises a rectangular level site with a The property is HK$240,000,000 Kwun Tong, registered site area of approximately 1,858.05 sq m subject various Kowloon (20,000 sq ft). tenancies with the latest expiry in Kwun Tong Inland Currently standing on the site are two adjoining April 2006 yielding Lot No. 692. industrial blocks (known as Crocodile Building) of 3 a total monthly and 7-storey built over a 4-storey common industrial income of podium completed in about 1972. approximately HK$305,000. According to the information supplied to us, the total gross floor area of the existing building is approximately 14,316.05 sq m (154,098 sq ft). Kwun Tong Inland Lot No. 692 is held under Conditions of Exchange No. 9893 for a term which expired on 27 June 1997 and had been extend upon expiry to 30 June 2047 at an annual rent equivalent to 3% of the rateable value for the time being of the lot.

Notes:

• (1) The registered owner of the property is Crocodile Garments Limited by virtue of Conditions of Exchange No. 9893 dated 31 March 1971.

• (2) The property is subject to a mortgage to secure general banking facilities in favour of Generale Belgian Bank carrying on the banking business in Hong Kong under the name of Belgian Bank.

• (3) The property is currently lies within an area zoned “Other Specified Use” annotated “Business” on Kwun Tong South Outline Zoning Plan No. S/K14S/12 dated 9 December 2005.

• (4) According to the letter dated 15 December 2005 from the District Lands Office, Kowloon East of the Lands Department offering basic terms in respect of the proposed lease modification for the property, we set out the salient basic terms which are material to this valuation:

Basic Terms:

• (a) Premium : HK$274,070,000

• (b) User : Non-industrial (excluding residential, godown, petrol filling station, hotel and cinema) purposes

• (c) Maximum Gross Floor Area : 22,296 sq m

— 100 —

PROPERTY VALUATION REPORT

APPENDIX V				PROPERTY VALUATION REPORT
(d)	Provision of Pedestrian	:	(i)	The Grantee shall at his own expense provide and maintain a
	Walkway and Internal Links			pedestrian walkway with a minimum width of 4.0 m and internal
				links so as to link up the covered footbridge shown and marked “FB”
				on the plan attached with Hoi Yuen Road; and
			(ii)	The Grantee shall throughout the whole lease term keep the
				pedestrian walkway and internal links open for the use by the public
				24 hours a day free of charge without any interruption.
(e)	Construction of Covered	:	(i)	The Grantee shall, when called upon to do so by the Director and
	Footbridge			within such time limit as shall be specified by the Director at the
				Grantee’s own expense, erect and construct a single storey covered
				footbridge in the position shown and marketed “FB” on the plan
				attached to the satisfaction of the Director with a minimum clear
				internal width of 4.0m, a minimum clear internal headroom of 2.5m
				and a minimum vertical clearance of 5.1m above finished street
				level;
			(ii)	The Grantee shall throughout the whole lease term manage and
				maintain the covered footbridge; and
			(iii)	The Grantee shall permit the public to pass and repass the covered
				footbridge throughout the period of its existence.
(f)	Motor Vehicles Parking	:	(i)	1 space for every 520sq m or part thereof GFA, each space shall
	Requirements			occupy 2.5m (width) and 5.0m (length) with a minimum headroom of
				2.4m;
			(ii)	The number of spaces calculated as per (i) above may be increased
				or reduced by not more than 5% or 50 numbers, whichever is the less;
				and
			(iii)	The spaces provided under (i) & (ii) above will not be taken into
				account in the GFA calculation.
(g)	Goods Vehicles Loading and	:	(i)	1 space for every 1,000 sq m or part thereof of retail GFA;
	Unloading Requirements		(ii)	1 space for every 5,000 sq m or part thereof office GFA;
			(iii)	The respective numbers of each type of space calculated as per (i) &
				(ii) above may be increase or reduced by not more than 5% or 50
				numbers, whichever is the less;
			(iv)	Of the spaces provided for loading and unloading purposes referred
				to in (i), (ii) & (iii) above, not less than 2/5 of the spaces shall each
				measure 3.5m (width) and 11.0m (length) with a minimum headroom
				of 4.1m and the remaining spaces shall each measure 3.5m (width)
				and 7.0m (length) with a minimum headroom of 4.1m; and
			(v)	The spaces provided under (i), (ii) & (iii) above will not be taken
				into account in the GFA calculation.
(h)	Vehicular Access	:	Between the points X and Y through Z as shown on the plan attached or at
			such	other points as may be approved in writing by the Director.

(5) We have been advised that 10% of the premium (HK$27,407,000) as described in (3)(a) above has been paid to the Government.

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APPENDIX V

PROPERTY VALUATION REPORT

• (6) We have valued the property on the basis that the property will be redeveloped in accordance with the latest development proposal provided to us. Upon completion and subject to market conditions, the proposed development will be a 22-storey commercial building built over two car parking basements. The proposed development will comprise the following gross floor areas:

Use Retail Office Total	Approximate Gross Floor Area sq m sq ft 9,290.23 100,000 13,005.77 139,994 22,296.00 239,994	Approximate Gross Floor Area sq m sq ft 9,290.23 100,000 13,005.77 139,994 22,296.00 239,994
		239,994

The proposed development will also comprise 41 covered private car parking spaces, 8 covered light goods vehicle parking spaces and 5 covered heavy goods vehicle parking spaces.

The estimated development period of the proposed development is about 3.25 years.

• (7) We have value the property as a development site in its existing physical state under the development constraints as stipulated in the said basic terms offer issued by the Government, town planning zoning and Buildings Ordinance etc. with the benefit of the proposed redevelopment scheme and vacant possession. It is assumed that the proposed development will be permitted by the proposed lease modification and that the outstanding premium (i.e. HK$246,663,000) for the lease modification has not yet been paid. It is also assumed that all consents, approvals and licences from relevant Government authorities for the proposed development of the property will be granted without any onerous conditions or undue time delay which might affect value.

• (8) The market value of the proposed development assuming it is fully completed and available for immediate occupation with vacant possession as at the date of valuation is set out below:

	Market Value of the
Use	Completed Project
Retail	HK$700,000,000
Office	HK$560,000,000
Carpark	HK$22,000,000
Total	HK$1,282,000,000

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GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, 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 DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the following directors and chief executive of the Company were interested, or were deemed to be interested in the following shares of the Company and of its associated corporations (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein (the “Register”); or (c) were required, pursuant to the Code for Securities Transactions by directors adopted by the Company to be notified to the Company and the Stock Exchange:

(a) The Company

		**Long positions **	**Long positions **	in the shares
	Personal	Family	Corporate
Name of Director	Interests	Interests	Interests	Capacity	Total	Percentage
Lam Kin Ming	Nil	Nil	314,800,000	Beneficial	314,800,000	51.01%
			(Note 1)	owner
Lam Kin Ngok, Peter	Nil	Nil	24,182,809	Beneficial	24,182,809	3.92%
			(Note 2)	owner

Notes:

1. Upon the completion of the Share Purchase Agreement, Mr. Lam Kin Ming will be deemed to be interested in 314,800,000 shares in the Company by virtue of his 100% interest in Rich Promise Limited which owns those shares in the Company.

2. Upon the completion of the Share Purchase Agreement, Mr. Lam Kin Ngok, Peter will be deemed to be interested in 24,182,809 shares in the Company by virtue of his personal interest of 124,644,319 shares in LSG and his 50% interest in Wisdoman Limited which held 484,991,750 shares in LSG, representing an aggregate of approximately 37.69% of the issued share capital of LSG.

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GENERAL INFORMATION

APPENDIX VI

(b) Associated corporation — LSG

		**Long positions **	**Long positions **	in the shares
	Personal	Family	Corporate
Name of Director	Interests	Interests	Interests	Capacity	Total	Percentage
Lam Kin Ming	5,008,263	Nil	Nil	Beneficial	5,008,263	0.31%
				owner
Lam Kin Ngok, Peter	124,644,319	Nil	484,991,750	Beneficial	609,636,069	37.69%
			(Note)	owner
Chiu Wai	199,600	Nil	Nil	Beneficial	199,600	0.01%
				owner

Note: Mr. Lam Kin Ngok, Peter was deemed to be interested in 484,991,750 shares by virtue of his interest of 50% in the issued share capital of Wisdoman Limited which directly owned 484,991,750 shares in LSG.

Save as disclosed above, as at the Latest Practicable Date, none of the directors or chief executive of the Company were interested, or were deemed to be interested in the long and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations which were required to be notified to the Company and the Stock Exchange or recorded in the Register as aforesaid.

3. SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS

As at the Latest Practicable Date, so far as was known to any director or chief executive of the Company, the following persons had an interest in the following long positions in the shares and 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 was 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 CGL Group:

		Long positions in the shares	Long positions in the shares
		Nature of	Number of
Name	Capacity	Interests	Shares	Percentage
Lam Kin Ming	Beneficial	Corporate	314,800,000	51.01%
	owner		(Note 1)
Lam Kin Ngok, Peter	Beneficial	Corporate	24,182,809	3.92%
	owner		(Note 2)
Joy Mind Limited	Beneficial	Corporate	21,516,809	3.49%
	owner		(Note 3)
LSG	Beneficial	Corporate	24,182,809	3.92%
	owner		(Note 3)

Notes:

1. Upon the completion of the Share Purchase Agreement, Mr. Lam Kin Ming will be deemed to be interested in 314,800,000 shares in the Company by virtue of his 100% interest in Rich Promise Limited which owns those shares in the Company.

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GENERAL INFORMATION

APPENDIX VI

1. Upon the completion of the Share Purchase Agreement, Mr. Lam Kin Ngok, Peter will be deemed to be interested in 24,182,809 shares in the Company by virtue of his personal interest of 124,644,319 shares in LSG and his 50% interest in Wisdoman Limited which held 484,991,750 shares in LSG, representing an aggregate of approximately 37.69% of the issued share capital of LSG.

2. Joy Mind Limited was a wholly-owned subsidiary of LSG. Its interest in the Company constituted part of the interest held by LSG in the Company. Upon the completion of the Share Purchase Agreement, Joy Mind Limited and LSG will respectively interest in 21,516,809 shares and 24,182,809 shares in the Company.

3. (“Zhongshan City Sha Xi County Economic Development Company”) is interested in HK$17,200,000 registered capital of Crocodile Garments (Zhong Shan) Limited, an indirect subsidiary of the Company, representing 10% of the total registered capital of that company.

Save as disclosed above, as at the Latest Practicable Date, according to the register of interests kept by the Company under section 336 of the SFO and so far as was known to any director or chief executive of the Company, no person had an interest or short position in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of the Part XV of the SFO, or who was interested, directly or indirectly, 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 CGL Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into, or was proposing to enter into, any service contract with the Company or any subsidiary of the Company which does not expire or is not determinable by the employing company within one year without payment of compensation other than statutory compensation.

5. DIRECTORS’ INTERESTS IN ASSETS

Save as disclosed below, none of the Directors have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the CGL Group or are proposed to be acquired or disposed of by or leased to any member of the CGL Group since 31st January, 2006, being the date up to which the latest published audited consolidated accounts of the CGL Group were made:

• (1) The Company as tenant entered into a tenancy agreement dated 29th June, 2004 with Lai Sun Textiles Company Limited as landlord (the “Landlord”) for the premises known as unit 1B, whole of 2nd floor, units 402-3 and units 407-10, Park Sun Building, Nos. 97-107 Wo Yi Hop Road, Kwai Chung, New Territories, (covering a gross floor area of approximately 60,400 square feet) (the “Building”) for a fixed term of two years commencing from 1st July, 2004 at a monthly rental of HK$169,120 per month (inclusive of management fees, rates and government rent).

• (2) On 29th June, 2004, the Company entered into a license agreement as the Licensee with Lai Sun Textiles Company Limited as the Licensor for the car parking space known as the portion of car parking spaces Nos. L5 and L6 and loading bay G2b on the Ground floor of

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GENERAL INFORMATION

APPENDIX VI

Park Sun Building, No. 97-107 Wo Yi Hop Road, Kwai Chung, N.T., at a license fee of HK$7,500.00 per month. The term of the license agreement was for two years commencing from 1st July, 2004 to 30th June, 2006 subject to early termination by one month’s written notice.

The entire issued share capital of Lai Sun Textiles Company Limited was held by Mr. Lam Kin Ngok, Peter (6.67%) and Mr. Lam Kin Ming (1.33%) respectively. The Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules in respect of the above transactions.

• (3) On 24th September, 2003, the Company entered into a tenancy agreement (the “Tenancy Agreement”) as the Tenant with Lai Sun Development Company Limited (“LSD”) as the Landlord for the premises known as unit 1001, 10th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong at a rental of HK$137,836 per month (exclusive of rates, government rent, air-conditioning and management charges and other outgoings). The term of the Tenancy Agreement was for three years commencing from 1st October, 2003.

Mr. Lam Kin Ngok, Peter has personal interests and corporate interests in LSD.

6. DIRECTORS’ INTERESTS IN CONTRACTS

None of the Directors are materially interested in any contract or arrangement entered into by any member of the CGL Group subsisting at the date of this circular which is significant in relation to the business of the CGL Group.

7. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by any member of the CGL Group, within the two years preceding the date of this circular and are or may be material:

• (1) the agreement constituted by the acceptance of the tender for the property by Gold Nation Development Limited, a wholly-owned subsidiary of the Company, on 25th January, 2005 at a total cash consideration of HK$145 million. The property comprises Units G-9, G-9A and G-10 on the Ground Floor and Utility Room 213A on the 2nd Floor and Utility Room 413A on the 4th Floor of Hankow Centre, Nos.5-15 Hankow Road, Nos.41-45, 47, 49-51 Peking Road, Nos. 4, 4A, 4B Ashley Road and Nos.1, 1A-E Middle Road, Tsim Sha Tsui, Kowloon, Hong Kong; and

• (2) the Development Agreement.

8. LITIGATION

Neither the Company or its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

— 106 —

GENERAL INFORMATION

APPENDIX VI

9. QUALIFICATION OF EXPERTS, CONSENTS AND EXPERTS’ INTERESTS

The following are the qualifications of the experts who have given their opinions or advice contained in this circular:

Name

Qualification

Somerley Limited

a corporation licensed under the SFO to conduct types 1 (dealing in securities), 4 (advising on securities), 6 (advising on corporate finance) and 9 (asset management) regulated activities

Savills Valuation and independent property valuer Professional Services Limited Ernst & Young certified public accountants

Each of Somerley Limited, Savills Valuation and Professional Services Limited and Ernst & Young has given and has not withdrawn its written consent to the issue of this circular and the inclusion of its letter and references to its name in the form and context in which it appears.

Each of Somerley Limited, Savills Valuation and Professional Services Limited and Ernst & Young has confirmed that as at the Latest Practicable Date it does not have any holding in shares, options, warrants, derivatives and convertible securities in the Company or any of its subsidiaries or any rights (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares, options, warrants, derivatives and convertible securities in any member of the CGL Group.

Each of Somerley Limited, Savills Valuation and Professional Services Limited and Ernst & Young further confirmed that as at the Latest Practicable Date it does not have any interest, direct or indirect, in any assets which have been, since 31st January, 2006 (being the date to which the latest published audited consolidated accounts of the CGL Group were made up), acquired or disposed of by or leased to any member of the CGL Group, or are proposed to be acquired or disposed of by or leased to any member of the CGL Group.

10. GENERAL

• (a) The secretary of the Company is Mr. Yeung Kam Hoi, who is an Associate Member of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries and a member of Hong Kong Securities Institute.

• (b) The qualified accountant of the Company is Miss Chan Lai Ping, Connie, who is a Fellow of the Hong Kong Institute of Certified Public Accountants and a Fellow of the Association of Chartered Certified Accountants of the United Kingdom.

• (c) The registered office of the Company is situated at 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong.

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GENERAL INFORMATION

APPENDIX VI

• (d) The Registrars and the transfer office of the Company are Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (e) Under the Articles of Association of the Company, at any general meeting of the Shareholders, a resolution 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 by:

• (i) the chairman of the meeting; or

• (ii) at least three shareholders present in person or by proxy for the time being entitled to vote at the meeting; or

• (iii) any shareholder or shareholders present in person 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) a shareholder or shareholders present in person 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.

• (f) The English text of this circular shall prevail over the Chinese text.

11. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial and trading position of the CGL Group since 31st January, 2006 (being the date up to which the latest published audited consolidated accounts of the Company were made up).

12. COMPETING BUSINESS INTERESTS

As at the Latest Practicable Date, the following Directors are considered to have interests in businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the CGL Group pursuant to the Listing Rules:

Mr. Lam Kin Ming, Mr. Lam Kin Ngok, Peter and Mr. Shiu Kai Wah hold directorships and/or interests (either as beneficiaries or nominees) in certain private companies which are engaged in related businesses of the garment industry.

Mr. Lam Kin Ming, Mr. Lam Kin Ngok, Peter and Mr. Lam Kin Hong, Matthew held interests and/or directorships in certain private companies (“Private Companies”) and/or Lai Sun Development Company Limited engaged in the business of property investment in Hong Kong.

— 108 —

APPENDIX VI

GENERAL INFORMATION

In view of the different locations and different uses of the properties owned by the Private Companies and Lai Sun Development Company Limited and those of the CGL Group, the directors do not consider the personal interests held by the abovementioned directors to compete in practice with those of the CGL Group.

As the above Directors do not control a majority vote of the Board which comprises nine directors, none of the above Directors of the Company can control the Board. The CGL Group is capable, therefore, of carrying on its businesses independent of, and at arm’s length from, the businesses of the aforesaid private companies.

Save as disclosed above, and as at the Latest Practicable Date, none of the Directors or their respective associates was interested in, apart from the CGL Group’s businesses, any business which competes or is likely to compete, either directly or indirectly, with businesses of the CGL Group.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during the normal business hours at Room 903, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong on any business day, for a period of 14 days from the date of this circular:

• (a) this circular;

• (b) the memorandum and articles of association of the Company;

• (c) the letter from the Independent Board Committee, the text of which is set out in the section of this circular headed “Letter from the Independent Board Committee”;

• (d) the letter from Somerley Limited, the text of which is set out in the section of this circular headed “Letter from the Independent Financial Advisor”;

• (e) the accountants’ report of Ernst & Young, the text of which is set out in Appendix I to this circular;

• (f) the letter from Ernst & Young concerning the unaudited pro forma financial information, the text of which is set out in Appendix III to this circular;

• (g) the letter and valuation certificate prepared by Savills Valuation and Professional Services Limited the texts of which are set out in Appendix V to this circular;

• (h) the written consents from each of Somerley Limited, Savills Valuation and Professional Services Limited and Ernst & Young as referred to in the paragraph headed “Qualification of Experts, Consents and Experts’ Interests” in this Appendix;

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GENERAL INFORMATION

APPENDIX VI

• (i) the material contracts as referred to in the paragraph headed “Material Contracts” in this Appendix including the Development Agreement and all other contracts referred to in this circular;

• (j) the consolidated audited accounts of the CGL Group for each of the two financial years immediately preceding the issue of this circular together with all notes, certificates or information required by the Companies Ordinance; and

• (k) the circulars issued since 31st January, 2006, being the date to which the latest published audited consolidated financial statements of the CGL Group were made up.

— 110 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [128 x 82] intentionally omitted <==

Crocodile Garments Limited

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0122)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Crocodile Garments Limited (the “Company”) will be held at The Chater Room I, Function Room Level (B1), The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong on Wednesday, 17th May, 2006 at 10:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution as an Ordinary Resolution:

“ THAT :

the development agreement dated 28th February, 2006 concerning the development of the property at 79 Hoi Yuen Road, Kwun Tong, Hong Kong (the “Agreement”) entered into by Lai Sun Garment (International) Limited, Unipress Investments Limited and the Company, 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, and all the transactions contemplated thereunder and any other ancillary documents, be and are hereby approved, ratified and confirmed; and the directors of the Company be and are hereby authorised for and on behalf of the Company to make or agree to such variations of a non-material nature in the terms of the Agreement as they may in their discretion consider to be desirable and in the interests of the Company and THAT the directors of the Company be and are hereby authorised for and on behalf of the Company to sign, seal, execute, perfect, perform and deliver all such documents and deeds, and do all such acts, matters and things as they may in their discretion consider necessary or desirable to give effect to the Agreement and the implementation of all transactions contemplated thereunder.”

By Order of the Board Crocodile Garments Limited Yeung Kam Hoi Company Secretary

Hong Kong, 29th April, 2006

Registered Office:

11th Floor Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

— 111 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll vote in his stead. A proxy need not be a member of the Company.

2. 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 shares 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, that one of the said persons so present whose name stands first on the register of members in respect of such shares shall alone be entitled to vote in respect thereof.

3. A form of proxy for use at the meeting is enclosed.

4. To be valid, the proxy form together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited with the Company’s Registrars, Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the extraordinary general meeting or adjourned meeting (as the case may be).

5. Completion and return of the form of proxy will not preclude members from attending and voting in person at the meeting or at any adjourned meeting should they so wish.

— 112 —