THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about 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 adviser.

If you have sold or transferred all your shares in U-RIGHT International Holdings Limited , you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank, licensed securities dealer, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited and the Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 627)

(Warrant Code: 2367)

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; (2) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE; AND (3) APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

Financial adviser to U-RIGHT International Holdings Limited

Underwriter

ACE Target Inc.

Independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Whitewash Waiver

CSC Asia Limited

If at any time on or before 6:00 p.m. on the second Business Day following the latest date for the acceptance of Offer Shares:

(A) the Underwriter shall become aware of the fact that, or shall have reasonable cause to believe that any of the warranties in the Underwriting Agreement was untrue, inaccurate, misleading or breached, and in each case the same is (in the reasonable opinion of the Underwriter) material in the context of the Open Offer; or

(B) there shall be:
(i) any new law or regulation is enacted, or there is any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong or elsewhere;
(ii) any change in local, national or international financial, political, industrial or economic conditions; (iii) any change of an exceptional nature in local, national or international equity securities or currency markets;
(iv) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict;
(v) any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange;
(vi) any suspension in the trading of the Shares on the Stock Exchange for a continuous period of seven (7) business days (as defined in the Listing Rules) save for the clearance of the announcement of the Open Offer;
(vii) any change or development involving a prospective change in taxation or exchange controls in Hong Kong or elsewhere

which is or are, in the reasonable opinion of the Underwriter:-

(a) likely to have a material adverse effect on the business, financial position or prospects of the Group taken as a whole; or
(b) likely to have a material adverse effect on the success of the Open Offer or the level of Offer Shares to be taken up; or (c) so material as to make it inappropriate, inadvisable or inexpedient to proceed further with the Open Offer,

then and, in such case, the Underwriter may, by notice in writing given to the Company on or before 6:00 p.m. on the second Business Day after the latest date for the acceptance of Offer Shares, rescind the Underwriting Agreement and thereupon all obligations of the Underwriter under the Underwriting Agreement shall cease and determine and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with the Underwriting Agreement and the Open Offer shall not proceed.

If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

Existing Shares will be dealt in on an ex-entitlement basis commencing from Wednesday, 22 June 2005, and that dealings in such Shares will take place while the conditions to which the Open Offer is subject remain unfulfilled. Any Shareholder or other person dealing in the Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled will accordingly bear the risk that the Open Offer may not become unconditional or may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares during such period who is in any doubt about his or her position is advised to consult his or her professional adviser.

A letter of advice from CSC Asia Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its opinion regarding the Whitewash Waiver is set out on pages 21 to 34 of this circular.

A notice convening a special general meeting of U-RIGHT International Holdings Limited to be held at 10:00 a.m. on Tuesday, 28 June 2005 at Montparnasses Room I-II, 2/F, Regal Kowloon Hotel, Hong Kong, 71 Mody Road, Tsimshatsui, Kowloon, Hong Kong is set out on page 109 of this circular. If you are not able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to the branch share registrar of the Company, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong and in any event not less than 48 hours before the time for holding the meeting or any adjourned meeting (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish and in such case the proxy form shall be deemed to be revoked.

10 June 2005

* For identification only

TERMINATION OF UNDERWRITING AGREEMENT

If at any time on or before 6:00 p.m. on the second Business Day following the latest date for the acceptance of Offer Shares:

(A) the Underwriter shall become aware of the fact that, or shall have reasonable cause to believe that any of the warranties in the Underwriting Agreement was untrue, inaccurate, misleading or breached, and in each case the same is (in the reasonable opinion of the Underwriter) material in the context of the Open Offer; or

(B) there shall be:

(i) any new law or regulation is enacted, or there is any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong or elsewhere;
(ii) any change in local, national or international financial, political, industrial or economic conditions;
(iii) any change of an exceptional nature in local, national or international equity securities or currency markets;
(iv) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict;
(v) any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange;
(vi) any suspension in the trading of the Shares on the Stock Exchange for a continuous period of seven (7) business days (as defined in the Listing Rules) save for the clearance of the announcement of the Open Offer;
(vii) any change or development involving a prospective change in taxation or exchange controls in Hong Kong or elsewhere

which is or are, in the reasonable opinion of the Underwriter:-

(a) likely to have a material adverse effect on the business, financial position or prospects of the Group taken as a whole; or
(b) likely to have a material adverse effect on the success of the Open Offer or the level of Offer Shares to be taken up; or
(c) so material as to make it inappropriate, inadvisable or inexpedient to proceed further with the Open Offer,

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Proposed increase in authorised share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Proposed Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Conditions of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Warning of risks of dealing in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Reasons for the Open Offer and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Fund raising activities of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Whitewash Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Information on ACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Maintaining the listing of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Procedures for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from CSC Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix I – Financial information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	109

ii -

DEFINITIONS

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

“ACE” or “the Underwriter”

ACE Target Inc., a company incorporated in the British Virgin Islands with limited liability, and the issued share capital of which is beneficially owned by Mr. Leung as to 50% and Ms. Yim Yuk Lam, spouse of Mr. Leung, as to 50% and is the trustee of The Target Unit Trust

“Announcement” the announcement of the Company issued on 23 May 2005 in relation to, inter alia, (i) the proposed increase in authorised share capital; (ii) proposed Open Offer; and (iii) application for the granting of the Whitewash Waiver

“Application Form(s)”	the application form(s) for use by the Qualifying Holders to apply
	for the Offer Shares in relation to their respective entitlements
“associates”	has the meaning ascribed thereto in the Listing Rules
“Board”	the board of Directors
“Business Day”	a day, other than Saturday, on which banks in Hong Kong are
	open for business
“CCASS”	the Central Clearing and Settlement System established and
	operated by HKSCC
“CSC Asia” or “Independent	CSC Asia Limited, a licensed corporation to carry on business
Financial Adviser”	in type 6 regulated activity (advising on corporate finance) under
	the SFO, which has been appointed as the independent financial
	adviser to advise the Independent Board Committee and the
	Independent Shareholders in relation to the Whitewash Waiver
“Company”	U-RIGHT International Holdings Limited, a company incorporated
	in Bermuda with limited liability, the issued Shares of which are
	listed on the main board of the Stock Exchange
“Companies Act”	The Companies Act 1981 of Bermuda
“Companies Ordinance”	Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“concert parties”	in respect of a person, means parties acting in concert (as defined
	in the Takeovers Code) with such person in relation to the voting
	rights of the Shares or the Offer Shares
“Dealing Date”	the date on which the Offer Shares commence dealings on the
	Stock Exchange

DEFINITIONS

“Director(s)”	the director(s) of the Company, including the independent non-
	executive directors of the Company
“Excess Application Form(s)”	the excess application form(s) for use by the Qualifying Holders
	to apply for excess Offer Shares not initially taken up under the
	Open Offer
“Excluded Shareholders”	the Shareholders who are excluded from the Open Offer as
	mentioned in the paragraph headed “Rights of Excluded
	Shareholders” in the section headed “Letter from the Board” of
	this circular
“Executive”	Executive Director of the Corporate Finance Division of the
	Securities and Futures Commission of Hong Kong or any of his
	delegates
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	a committee of the Board comprising Mr. Jia Luqiao, Mr. Wong
	Kong Hon and Mr. Wong Kai Cheong
“Independent Shareholders”	Shareholders other than ACE, Mr. Leung and their concert parties
	and their respective associates and those Shareholders who are
	interested in or involved in the Open Offer
“Mr. Leung”	Mr. Leung Ngok, the chairman and an executive Director
“Latest Practicable Date”	8 June 2005, being the latest practicable date for ascertaining
	certain information for inclusion in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Open Offer”	the proposed issue of the Offer Shares by way of open offer to the
	Qualifying Holders on the terms to be set out in the Prospectus
	Documents and summarised herein
“Offer Shares”	not less than 888,952,750 new Shares and not more than
	893,492,750 new Shares, to be issued pursuant to the Open Offer
“PRC”	the People’s Republic of China
“Prospectus”	the Open Offer prospectus
	- 2 -

DEFINITIONS

“Prospectus Documents”	the Prospectus, the Application Form and the Excess Application
	Form
“Qualifying Holders”	the Shareholders whose names appear on the register of members
	of the Company on the Record Date and not being the Excluded
	Shareholders
“Record Date”	28 June 2005, being the date by reference to which entitlements
	under the Open Offer will be determined
“Registrar”	Tengis Limited of Ground Floor, Bank of East Asia Harbour
	View Centre, 56 Gloucester Road, Wanchai, Hong Kong, the
	Company’s branch share registrar in Hong Kong
“SFO”	Securities and Futures Ordinance (Chapter 571 of the laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened to
	approve, among others, (i) increase in authorised share capital of
	the Company; and (ii) Whitewash Waiver
“Shares”	share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)”	holder(s) of Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	the subscription price of HK$0.25 per Offer Share under the Open
	Offer
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“The Target Unit Trust”	a unit trust of which all of the units in issue are owned by
	Trident Corporate Services (B.V.I.) Limited as trustee of The
	Leung Ngok Family Trust, a discretionary trust of which the
	objects include Mr. Leung’s family members (excluding Mr.
	Leung)
“Underwriting Agreement”	the underwriting agreement dated 23 May 2005 between the
	Company and ACE in relation to the Open Offer
“Underwritten Shares”	up to 893,492,750 new Shares to be underwritten by the
	Underwriter
“Warrants”	outstanding warrants of the Company conferring right in registered
	form to holder to subscribe for Share(s) at an initial subscription
	price of HK$0.20, subject to adjustment at any time from on 18
	June 2004 until 23 June 2005 inclusive

DEFINITIONS

“Whitewash Waiver” the whitewash waiver applied by ACE to the Executive for waiving the obligation of ACE and its concert parties to make a general offer to acquire the issued Shares not already owned or agreed to be acquired by ACE or Mr. Leung or their concert parties under Rule 26 of the Takeovers Code arising from the Open Offer “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

EXPECTED TIMETABLE

The expected timetable for the Open Offer is set out below: Last day of dealings in Shares on cum-entitlement basis . . . . . . . . . . . . . . . Tuesday, 21 June 2005 First day of dealings in Shares on ex-entitlement basis . . . . . . . . . . . . . . . Wednesday, 22 June 2005 Latest time for lodging transfers of Shares in order to be entitled to the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 23 June 2005 Latest time for the holders of the Warrants to exercise their respective Warrants and to be entitled to the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 23 June 2005 Register of members closes (both dates inclusive) . . . . . . . . . . . . . . . . . . . . . . . Friday, 24 June 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . to Tuesday, 28 June 2005 Latest time for lodging forms of proxy for the purpose of the SGM (not less than 48 hours before the SGM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Sunday, 26 June 2005 SGM to be held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Tuesday, 28 June 2005 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 28 June 2005 Expected date on which the increase in authorised share capital become effective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 28 June 2005 Register of members reopens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 29 June 2005 Announcement of results of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 29 June 2005 Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 30 June 2005 Latest time for lodging application for the Offer Shares and payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 15 July 2005 Expected time for the Open Offer to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6:00 p.m. on Tuesday, 19 July 2005 Announcement of results of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 21 July 2005 Despatch of certificates for the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 21 July 2005 Dealings in Offer Shares commence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 25 July 2005

Dates stated in this circular for events mentioned in the timetable are indicative only and may be extended or varied. Any change to the expected timetable for the Open Offer will be announced as appropriate.

LETTER FROM THE BOARD

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 627) (Warrant Code: 2367)

Executive Directors:

Mr. Leung Ngok (Chairman) Mr. Leung Shing (Deputy Chairman)

Mr. Lee Ka Yiu, Andy

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent non-executive Directors:

Mr. Jia Luqiao Mr. Wong Kong Hon Mr. Wong Kai Cheong

Head office and principal place of business in Hong Kong:

32nd Floor, Billion Plaza

8 Cheung Yue Street Cheung Sha Wan Kowloon Hong Kong

10 June 2005

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL;

(2) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE; AND (3) APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

INTRODUCTION

On 23 May 2005, the Company announced that the Board proposed to increase its authorised share capital from HK$200,000,000 divided into 2,000,000,000 shares of HK$0.10 each to HK$500,000,000 divided into 5,000,000,000 shares of HK$0.10 each by the creation of an additional 3,000,000,000 unissued shares of HK$0.10 each.

In addition, the Company proposed to raise not less than approximately HK$222 million, before expenses, by issuing not less than 888,952,750 Offer Shares and not more than 893,492,750 Offer Shares at a price of HK$0.25 per Offer Share by way of the Open Offer, payable in full on application, on the basis of one Offer Share for every two Shares held on the Record Date. The Open Offer will not be available to the Excluded Shareholders.

* For identification only

LETTER FROM THE BOARD

ACE and its concert parties, including Mr. Leung, in aggregate are interested in 639,089,000 Shares as at Latest Practicable Date. ACE has agreed to underwrite up to 893,492,750 Offer Shares pursuant to the Underwriting Agreement. Assuming ACE has taken up its maximum obligation of 893,492,750 Offer Shares pursuant to the Underwriting Agreement, ACE and its concert parties will increase their aggregate shareholding interest from approximately 35.95% of the existing issued share capital of the Company to approximately 57.18% of the issued share capital of the Company as enlarged by the issue of Offer Shares (assuming all the outstanding Warrants have been exercised before the Record Date and the completion of the Open Offer). Under Rule 26 of the Takeovers Code, ACE and its concert parties, including Mr. Leung, will be required to make an unconditional mandatory general offer for all the issued Shares not already owned or agreed to be acquired by ACE or Mr. Leung or their concert parties. An application has been made by ACE to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders on a vote taken by way of a poll. If the Whitewash Waiver is approved by the Independent Shareholders, the obligation of ACE and its concert parties, including Mr. Leung, to make an unconditional mandatory offer under Rule 26 of the Takeovers Code, will be waived.

The Independent Board Committee has been established to consider the Whitewash Waiver. CSC Asia has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Whitewash Waiver.

The purpose of this circular is to provide you with further information, among other things, on (i) the proposed increase in authorised share capital; (ii) the proposed Open Offer; (iii) the application for the granting to the Whitewash Waiver; (iv) the recommendation of the Independent Board Committee in relation to the Whitewash Waiver; (v) the letter of advice from CSC Asia to the Independent Board Committee and Independent Shareholders in relation to the Whitewash Waiver, and (vi) the notice of SGM at which resolutions will be proposed to consider and, if thought fit, approve the increase in authorised share capital of the Company and the Whitewash Waiver.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company is HK$200,000,000 divided into 2,000,000,000 Shares, of which 1,777,905,500 Shares had been issued and fully paid or credited as fully paid. In order to accommodate future expansion and growth of the Group and facilitate the Open Offer, the Directors propose to increase its authorised share capital from HK$200,000,000 divided into 2,000,000,000 Shares to HK$500,000,000 divided into 5,000,000,000 Shares by the creation of an additional 3,000,000,000 unissued Shares.

The increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM and no Shareholder is required to abstain from voting for such resolution.

PROPOSED OPEN OFFER

Issue statistics:

Basis of the Open Offer

: One Offer Share for every two Shares held on the Record Date

LETTER FROM THE BOARD

Number of Shares in issue as at : 1,777,905,500 Shares the Latest Practicable Date Number of Shares upon the : 9,080,000 Shares exercise of the outstanding Warrants in full Number of Offer Shares : Not less than 888,952,750 Offer Shares and not more than 893,492,750 Offer Shares Number of Shares in issue upon : Not less than 2,666,858,250 Shares and not more than completion of the Open Offer 2,680,478,250 Shares Number of Offer Shares : Up to 893,492,750 Offer Shares underwritten by ACE

As at the Latest Practicable Date, the Company has outstanding warrants for the holders of Warrants to subscribe for a total of 9,080,000 Shares, at any time from 18 June 2004 until 23 June 2005 inclusive, at the exercise price of HK$0.20 per Share, subject to adjustment.

Save for the Warrants, the Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible into Shares as at the Latest Practicable Date.

Qualifying Holders:

The Company will send (i) the Prospectus Documents to the Qualifying Holders; and (ii) the Prospectus, for information only, to the Excluded Shareholders. To qualify for the Open Offer, Shareholders must be registered as members of the Company on the register of members of the Company on the Record Date and the holders of the Warrants must exercise their respective Warrants on or before 23 June 2005 in accordance with the relevant procedures specified in the instrument of the Warrants, and be registered as members of the Company on the register of members of the Company on the Record Date and not be Excluded Shareholders.

In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfer of Shares (with the relevant Share certificates) for registration with the Registrar by 4:00 p.m. on Thursday, 23 June 2005. The Registrar is:

Tengis Limited

Ground Floor, Bank of East Asia Harbour View Centre 56 Gloucester Road, Wanchai, Hong Kong

The invitation to subscribe for the Offer Shares to be made to the Qualifying Holders will not be transferable.

LETTER FROM THE BOARD

Application for excess Offer Shares:

Under the Open Offer, Qualifying Holders may apply for any entitlements of the Excluded Shareholders and any Offer Shares not be taken up by the Qualifying Holders. Application can be made by completing the Excess Application Form for the excess Offer Shares and lodging the same with a separate remittance for the excess Offer Shares being applied for.

The Directors will allocate the excess Offer Shares at their discretion, on a fair and equitable basis, in proportion to the number of excess Offer Shares applied for by the respective Qualifying Holders under the Excess Application Forms, but will give preference to topping-up odd lots to whole board lots. The detailed allocation basis for the excess applications is expected to be announced in the announcement of results of the Open Offer on Thursday, 21 July 2005.

Fractions of Offer Shares:

The Company will not allot fractions of the Offer Shares. Any Offer Shares created from the aggregation of fractions of Offer Shares will be taken up by the Underwriter and/or by the Qualifying Holders who have applied for the excess Offer Shares.

Closure of register of members:

The register of members of the Company will be closed from Friday, 24 June 2005 to Tuesday, 28 June 2005 (both dates inclusive) to determine the eligibility of Shareholders to the Open Offer. No transfer of Shares will be registered during this period.

Subscription Price:

HK$0.25 per Offer Share, payable in full on application. The Subscription Price represents:

(i) a discount of approximately 31.5% to the closing price of HK$0.365 per Share as quoted on the Stock Exchange on 12 May 2005, being the last trading day before the date of the Announcement;
(ii) a discount of approximately 23.48% to the theoretical ex-entitlement price of approximately HK$0.3267 per Share based on the aforesaid closing price per Share;
(iii) a discount of approximately 31.88% to the average closing price of HK$0.367 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including 12 May 2005, being the last trading day before the Announcement;
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LETTER FROM THE BOARD

(iv) a discount of approximately 31.22% to the average closing price of HK$0.3635 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 12 May 2005, being the last trading day before the Announcement;
(v) a discount of approximately 10.33% to the net tangible asset value per Share of approximately HK$0.2788 with reference to the unaudited net tangible asset value of the Group of approximately HK$495.7 million as at 30 September 2004 as shown in the interim report of the Company for the six months ended 30 September 2004 and 1,777,905,500 Shares in issue as at the Latest Practicable Date; and
(vi) a discount of approximately 18.03% to the closing price of HK$0.305 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Board considers the terms of the Open Offer, including the Subscription Price, are fair and reasonable. The Subscription Price has been determined based on arm’s length negotiations between the Company and ACE, with reference to the prevailing market conditions. The Board considers that the discount of the Subscription Price as compared to the recent market prices of Shares would encourage Shareholders to participate in the Open Offer and accordingly maintain their shareholdings in the Company and participate in the future growth of the Group.

Status of the Offer Shares:

The Offer Shares, when allotted and issued, will rank pari passu in all respects with the Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid in respect thereof on or after the date of allotment and issue of such Offer Shares.

Certificates for the Offer Shares:

Subject to fulfillment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted on or before Thursday, 21 July 2005 to those Qualifying Holders who have validly applied and paid for the Offer Shares at their own risks.

Rights of Excluded Shareholders:

The Prospectus Documents are not intended to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda.

Based on the register of members of the Company as at the Latest Practicable Date, there is one Shareholder located in Taiwan. If such Shareholder remains as a member on the register of members of the Company on the Record Date, the Company will make enquiry on the feasibility of extending the Open Offer to such Shareholder.

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LETTER FROM THE BOARD

The Company will comply with all necessary requirement specified in rule 13.36(2)(a) (including notes 1 & 2) of the Listing Rules and will only exclude from the Open Offer Shareholders whose addresses on the register of members of the Company on the Record Date are outside Hong Kong and who the Directors, after making enquiry regarding the legal restrictions under the laws of the relevant places and the requirements of the relevant regulatory bodies or stock exchanges, consider it necessary or expedient to do so. The basis of exclusion of such Shareholders from the Open Offer, if any, will be disclosed in the Prospectus.

The Company will send the Prospectus to the Excluded Shareholders for their information only. The Company will not send the Application Forms and the Excess Application Forms to the Excluded Shareholders. Those entitlements of the Excluded Shareholders under the Open Offer will be taken up by the Underwriter and/or the Qualifying Holders who have applied for the excess Offer Shares. The Excluded Shareholders will be entitled to attend and vote at the SGM.

Application for listing:

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. Dealings in the Offer Shares will be subject to the payment of stamp duty in Hong Kong.

Subject to the granting of listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Underwriting Agreement:

Pursuant to the Underwriting Agreement, ACE has agreed to underwrite up to 893,492,750 Offer Shares.

Mr Leung, the chairman and the director of the Company, who is deemed to be interested in the Shares held by ACE. ACE and its concert parties, including Mr. Leung, have an aggregate of 639,089,000 Shares in issue, representing about 35.95% of the existing issued share capital of the Company as at the Latest Practicable Date. ACE is considered to be a connected person (as defined in the Listing Rules) of the Company by virtue of its shareholding and the directorship of Mr. Leung. The main reason for ACE to engage in underwriting the Underwritten Shares is to give a vote of its confidence in the future of the Group. ACE’s business does not include underwriting in general but managing its investment in the Company is its core business. Participating in the underwriting of the Open Offer is considered as part of ACE’s business in managing its investment in the Company.

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LETTER FROM THE BOARD

The Open Offer is fully underwritten by ACE, the controlling Shareholder, and arrangement has been made for the Qualifying Holders to subscribe for any Offer Shares in excess of their respective entitlements. Pursuant to Rule 14A.31(3)(c) of the Listing Rules, provided that Rule 7.26A(2) of the Listing Rules have been complied with, the Open Offer will be a connected transaction exempt from the reporting, announcement and independent shareholders’ approval requirements contained in chapter 14A of the Listing Rules.

The Company will pay to ACE an underwriting commission calculated at 2.0 % of the aggregate Subscription Price of the number of the Underwritten Shares.

Termination of the Underwriting Agreement:

If at any time on or before 6:00 p.m. on the second Business Day following the latest date for the acceptance of Offer Shares:

(A) the Underwriter shall become aware of the fact that, or shall have reasonable cause to believe that any of the warranties in the Underwriting Agreement was untrue, inaccurate, misleading or breached, and in each case the same is (in the reasonable opinion of the Underwriter) material in the context of the Open Offer; or
(B) there shall be:
(i) any new law or regulation is enacted, or there is any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong or elsewhere;
(ii) any change in local, national or international financial, political, industrial or economic conditions;
(iii) any change of an exceptional nature in local, national or international equity securities or currency markets;
(iv) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict;
(v) any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange;
(vi) any suspension in the trading of the Shares on the Stock Exchange for a continuous period of seven (7) business days (as defined in the Listing Rules) save for the clearance of the announcement of the Open Offer;
(vii) any change or development involving a prospective change in taxation or exchange controls in Hong Kong or elsewhere
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LETTER FROM THE BOARD

which is or are, in the reasonable opinion of the Underwriter:-

(a) likely to have a material adverse effect on the business, financial position or prospects of the Group taken as a whole; or
(b) likely to have a material adverse effect on the success of the Open Offer or the level of Offer Shares to be taken up; or
(c) so material as to make it inappropriate, inadvisable or inexpedient to proceed further with the Open Offer,

CONDITIONS OF THE OPEN OFFER

The Open Offer is conditional upon:

(a) the passing of the requisite resolution by the Independent Shareholders (by way of poll) at the SGM approving the Whitewash Waiver;
(b) the Executive granting the Whitewash Waiver;
(c) the passing of a resolution by Shareholders at the SGM approving the increase of the authorised share capital of the Company from HK$200,000,000 to HK$500,000,000;
(d) the delivery to the Stock Exchange and filing and registration with the Registrar of Companies in Hong Kong respectively of one copy of each of the relevant documents each duly certified by any two Directors (or by their agents duly authorised in writing) in compliance with section 342C of the Companies Ordinance (and all other documents required to be attached thereto) and otherwise complying with the requirements of the Companies Ordinance and the Listing Rules one Business Day before the date of the Prospectus;
(e) the filing and registration with the Registrar of Companies in Bermuda in compliance with the Companies Act (and all other documents required to be attached thereto) and otherwise complying with the requirements of the Companies Act one Business Day before the date of the Prospectus;
(f) the posting of copies of the Prospectus Documents to the Qualifying Holders and the posting of the Prospectus stamped “For information only” to the Excluded Shareholders, in each case, on the date of the Prospectus;
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LETTER FROM THE BOARD

(g) the Listing Committee of the Stock Exchange (a) agreeing to grant the listing of, and permission to deal in, the Offer Shares, either unconditionally or subject to such conditions which the Underwriter in its opinion accepts and the satisfaction of such conditions (if any); and (b) not having withdrawn or revoked such listing and permission on or before dealing date of the Offer Shares on the Stock Exchange;
(h) if required, the Bermuda Monetary Authority having granted the permission in respect of the issue of the Offer Shares;
(i) the obligations of the Underwriter under the Underwriting Agreement not being terminated by the Underwriter in accordance with the terms of the Underwriting Agreement; and
(j) the Shares remained listed on the Stock Exchange at all times prior to the Dealing Date, and the current listing of the Shares not having been withdrawn or the trading of the Shares not having been suspended for a consecutive period of more than 10 trading days (other than any suspension pending clearance of the announcement in relation to the Open Offer) and no indication being received before 8:00 a.m. on the Dealing Date from the Stock Exchange to the effect that such listing may be withdrawn or objected to (or conditions will or may be attached thereto) including but not limited to as a result of the Open Offer or in connection with the terms of the Underwriting Agreement or for any other reason.

and so that in the event of the said conditions not being fulfilled or waived on or before the respective dates aforesaid (or such later date or dates as may be agreed between the Company and the Underwriter) or if the Underwriting Agreement shall be rescinded pursuant to the terms of the Underwriting Agreement, all obligations and liabilities of the parties thereunder shall forthwith cease and determine and no party shall have any claim against the others (save for any antecedent breaches hereof).

Neither the Company nor the Underwriter may waive conditions of paragraphs (a) to (e), (g) and (h) above.

WARNING OF RISKS OF DEALING IN SHARES

The Open Offer is conditional upon the obligations of the Underwriter under the Underwriting Agreement having become unconditional and the Underwriter not having terminated the Underwriting Agreement in accordance with the terms thereof. Shareholders and potential investors should therefore exercise caution when dealing in Shares, and if they are in any doubt about their positions, they should consult their professional advisers.

Shareholders should note that Shares will be dealt in on an ex-entitlement basis commencing from Wednesday, 22 June 2005 and that dealings in Shares will take place while the conditions to which the Open Offer is subject remain unfulfilled. Any Shareholder or other person dealing in Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled, will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer (assuming none of the outstanding Warrants will be exercised before the Record Date):

ACE_(Note)_ Mr. Leung ACE and its concert parties Public Shareholders Total	Immediately before completion of the Open Offer Shares Per cent. (approximately) 566,275,000 31.86 72,814,000 4.10 639,089,000 35.95 1,138,816,500 64.05 1,777,905,500 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up their entitlement) Shares Per cent. (approximately) 1,455,227,750 54.57 72,814,000 2.73 1,528,041,750 57.30 1,138,816,500 42.70 2,666,858,250 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) Shares Per cent. (approximately) 849,412,500 31.86 109,221,000 4.10 958,633,500 35.95 1,708,224,750 64.05 2,666,858,250 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) Shares Per cent. (approximately) 849,412,500 31.86 109,221,000 4.10 958,633,500 35.95 1,708,224,750 64.05 2,666,858,250 100.00
				35.95 64.05
				100.00

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer (assuming all the outstanding Warrants will have been exercised before the Record Date):

ACE_(Note)_ Mr. Leung ACE and its concert parties Public Shareholders Total	Immediately before completion of the Open Offer Shares Per cent. (approximately) 566,275,000 31.69 72,814,000 4.07 639,089,000 35.76 1,147,896,500 64.24 1,786,985,500 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up their entitlement) Shares Per cent. (approximately) 1,459,767,750 54.46 72,814,000 2.72 1,532,581,750 57.18 1,147,896,500 42.82 2,680,478,250 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) Shares Per cent. (approximately) 849,412,500 31.69 109,221,000 4.07 958,633,500 35.76 1,721,844,750 64.24 2,680,478,250 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) Shares Per cent. (approximately) 849,412,500 31.69 109,221,000 4.07 958,633,500 35.76 1,721,844,750 64.24 2,680,478,250 100.00
				35.76 64.24
				100.00

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LETTER FROM THE BOARD

Note: These Shares are owned by ACE as trustee of The Target Unit Trust, a unit trust of which all of the units in issue are owned by Trident Corporate Services (B.V.I.) Limited as trustee of The Leung Ngok Family Trust, a discretionary trust of which the objects include Mr. Leung’s family members (excluding Mr. Leung).

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The Group is principally engaged in the business of design, manufacture, distribution and sales of men and ladies casual wear for the PRC market and in Hong Kong.

The Board considers that the Open Offer will enable the Group to strengthen its capital base and to enhance its financial position. Since the Open Offer will allow the Qualifying Holders to maintain their shareholdings in the Company, the Board considers raising capital through the Open Offer is in the interests of the Company and the Shareholders as a whole.

The estimated net proceeds from the Open Offer will be approximately HK$217 million, of which as to approximately HK$167 million and HK$50 million will be used to fund the expansion of the Group’s retail network in Hong Kong and PRC respectively.

The estimated expense of the Open Offer is about HK$5 million, which will be borne by the Company.

FUND RAISING ACTIVITIES OF THE COMPANY

There has not been any rights issue or open offer of Shares in the last 24 months immediately before the date of the Announcement and the Latest Practicable Date. The following table summaries the capital raising activities of the Group since 31 March 2004, being the date to which the latest published audit consolidated accounts of the Group were made up:

				Actual use of
				proceeds as at
Date of		Net proceeds	Intended use of	the Latest
announcement	Event	(approximately)	proceeds	Practicable Date
20 May 2004	Private placing of	HK$24.2 million	General working	General working
	259,000,000 warrants		capital	capital
	in registered form
	to subscribe for shares
	in the capital of the
	Company at an issue
	price of HK$0.097
	per warrants and at the
	subscription price of
	HK$0.20 per share

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LETTER FROM THE BOARD

WHITEWASH WAIVER

Assuming ACE has taken up its maximum obligation of 893,492,750 Offer Shares pursuant to the Underwriting Agreement, ACE and its concert parties will increase their aggregate shareholding from approximately 35.95% of the existing issued share capital of the Company to approximately 57.18% of the issued share capital of the Company as enlarged by the issue of Offer Shares (assuming all the outstanding Warrants have been exercised before the Record Date and the completion of the Open Offer). Under Rule 26 of the Takeovers Code, ACE and its concert parties, including Mr. Leung, will be required to make an unconditional mandatory general offer for all the issued Shares not already owned or agreed to be acquired by ACE or Mr. Leung or their concert parties. An application has been made by ACE to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders on a vote taken by way of a poll. If the Whitewash Waiver is approved by the Independent Shareholders, the obligation of ACE and its concert parties, including Mr. Leung to make an unconditional mandatory offer under Rule 26 of the Takeovers Code, will be waived. Completion of Open Offer is conditional upon, among other things, the granting of the Whitewash Waiver by the Executive. Therefore, if the Whitewash Waiver is not approved, the Open Offer will be lapsed and the Open Offer will not proceed.

Neither ACE nor its concert parties have dealt in Shares for the past six months before the date of the Underwriting Agreement save for Mr. Leung Shing, an executive Director who is a brother of Mr. Leung, has sold 6,508,000 Shares and 6,292,000 Shares on 25 February 2005 and 28 February 2005, respectively. Reference was made to the Company’s announcement dated 28 February 2005. In the event that ACE’s shareholding interest in the Company exceeds 50% upon completion of the Open Offer, ACE may increase their holding without incurring any further obligation under Rule 26 to make a general offer.

INFORMATION ON ACE

ACE is a company incorporated in the British Virgin Islands with limited liability, and the issued share capital of which is beneficially owned by Mr. Leung as to 50% and Ms. Yim Yuk Lam, spouse of Mr. Leung, as to 50% and is the trustee of The Target Unit Trust. As at the Latest Practicable Date, the board of directors of ACE consists of two directors, namely Mr. Leung and Ms. Yim Yuk Lam, the spouse of Mr. Leung.

MAINTAINING THE LISTING OF THE COMPANY

It is the intention of the Directors to maintain the listing of the Shares on the Stock Exchange after the Open Offer becomes unconditional. ACE intends that the Group will continue its existing business and has no intention or any specific plans to inject any assets into the Group or dispose of any of the Group’s assets as at the Latest Practicable Date. The implementation of any future injection/disposal of assets of the Group will be subject to the relevant provisions of the Listing Rules. ACE and its concert parties have no intention to make any major changes to the continued employment of the employees of the Company and of its subsidiaries.

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LETTER FROM THE BOARD

GENERAL

The SGM will be held to consider and, if thought fit, passing the resolutions to approve the (i) the increase in authorised share capital; and (ii) the Whitewash Waiver. The Whitewash Waiver is subject to, among other things, the approval of the Independent Shareholders on a vote taken by way of a poll.

No Shareholder is required to abstain from voting in respect of the resolution regarding the increase in authorised share capital at the SGM and ACE, Mr. Leung and its concert parties, including Mr. Leung, and their respective associates are required to abstain from voting in respect of the resolution relating to the Whitewash Waiver at the SGM.

SGM

You will find on page 109 of this circular a notice convening the SGM to be held at 10:00 a.m. on Tuesday, 28 June 2005 at Montparnasses Room I-II, 2/F, Regal Kowloon Hotel, Hong Kong, 71 Mody Road, Tsimshatsui, Kowloon, Hong Kong.

Resolutions will be proposed as ordinary resolutions to approve (i) the increase authorised share capital; and (ii) the Whitewash Waiver.

Voting at the SGM in respect of the resolution relating to the Whitewash Waiver will be taken on a poll and the results of the SGM will be announced by publication in both an English language and a Chinese language newspapers in Hong Kong on the Business Day following the SGM.

A form of proxy for use at the SGM is enclosed with this circular. If you do not intend to attend the meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the branch share registrar of the Company, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the meeting. Delivery of a form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so desire.

PROCEDURES FOR DEMANDING A POLL

According to the bye-laws of the Company, before or on declaration by the chairman of the meeting of the result of voting on a show of hands on a resolution at the SGM, a poll may be demanded by the chairman of such meeting or by:

(a) at least three members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy entitled to vote at the meeting; or
(b) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than 10% of the total voting rights of all the members having the right to vote at the meeting; or
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LETTER FROM THE BOARD

(c) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee comprising three independent non-executive Directors set out on page 20 of this circular which contains its recommendation to the Independent Shareholders as to voting at the SGM as regards the resolution relating to the Whitewash Waiver and the letter of advice from CSC Asia which contains its advice to the Independent Board Committee and the Independent Shareholders as regards the Whitewash Waiver with the principal factors and reasons considered by it in arriving at such advice. The full text of the letter from CSC Asia is set out on pages 21 to 34 of this circular.

The Directors are of the opinion that the proposals of (i) the increase in authorised share capital; and (ii) the Whitewash Waiver are in the interests of the Company. Accordingly, the Directors recommend you to vote in favour of the ordinary resolutions to be proposed at the SGM.

Your attention is also drawn to the information contained in the Appendices to this circular.

By Order of the Board U-RIGHT International Holdings Limited Leung Ngok Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 627)

(Warrant Code: 2367)

10 June 2005

To the Independent Shareholders

Dear Sir or Madam,

APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

As the Independent Board Committee, we have been appointed to advise you in connection with the Whitewash Waiver, details of which are set out in the letter from the Board contained in the circular of the Company to the Shareholders dated 10 June 2005 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms and conditions of the Whitewash Waiver and the letter of advice from and principal factors and reasons considered by CSC Asia in relation thereto as set out on pages 21 to 34 of the Circular, we are of the opinion that the Whitewash Waiver is in the interest of the Company and the Shareholders as a whole and the terms of the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned. We therefore recommend that you vote in favour of the ordinary resolution to be proposed at the SGM in relation to the Whitewash Waiver.

Yours faithfully,

Jia Luqiao Wong Kong Hon Wong Kai Cheong Independent non-executive Director Independent non-executive Director Independent non-executive Director

* For identification only

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LETTER FROM CSC ASIA

The following is the text of the letter of advice to the Independent Board Committee and the Independent Shareholders from CSC Asia dated 10 June 2005 prepared for incorporation in this circular.

CSC Asia Limited Units 3204-3207 32/F., Cosco Tower Grand Millennium Plaza 183 Queen’s Road Central Hong Kong

10 June 2005

To the Independent Board Committee

and the Independent Shareholders of

U-RIGHT International Holdings Limited

Dear Sirs,

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE

AND APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the proposed Open Offer and the grant of the Whitewash Waiver, details of which are set out in the circular to the Shareholders dated 10 June 2005 (the “Circular”), of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

On 23 May, 2005, the Board announced, among other things, the Company’s proposal to raise not less than approximately HK$222 million, before expenses, by issuing not less than 888,952,750 Offer Shares and not more than 893,492,750 Offer Shares at a price of HK$0.25 per Offer Share by way of the Open Offer, payable in full on application, on the basis of one Offer Share for every two Shares held on the Record Date. The Open Offer will not be available to the Excluded Shareholders.

ACE and its concert parties, including Mr. Leung, in aggregate are interested in 639,089,000 Shares as at the Latest Practicable Date. ACE has agreed to underwrite up to 893,492,750 Offer Shares pursuant to the Underwriting Agreement. Assuming ACE has taken up its maximum obligation of 893,492,750 Offer Shares pursuant to the Underwriting Agreement, ACE and its concert parties will increase their aggregate shareholding interest from approximately 35.95% of the existing issued share capital of the Company to approximately 57.18% of the issued share capital of the Company as enlarged by the issue of Offer Shares (assuming all the outstanding Warrants have been exercised before the Record Date and the completion of the Open Offer). Under Rule 26 of the Takeovers Code, ACE and its

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LETTER FROM CSC ASIA

concert parties, including Mr. Leung, will be required to make an unconditional mandatory general offer for all the issued Shares not already owned or agreed to be acquired by ACE or Mr. Leung or their concert parties. An application has been made by ACE to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders on a vote taken by way of poll.

The Independent Board Committee has been established to consider the Whitewash Waiver and make recommendation to the Independent Shareholders on the voting of the ordinary resolution in relation to the grant of the Whitewash Waiver. The Independent Board Committee comprising Mr. Wong Kong Hon, Mr. Jia Luqiao and Mr. Wong Kai Cheong, all being independent non-executive Directors, has been formed to advise the Independent Shareholders in this respect. Mr. Leung is a salaried Director and is deemed to be the beneficial owner of ACE, being the Underwriter. Mr. Leung Shing, being the younger brother of Mr. Leung is also a salaried Director and so is Mr. Lee Ka Yiu, Andy. Accordingly, Mr. Leung, Mr. Leung Shing and Mr. Lee Ka Yiu, Andy are not considered sufficiently independent so far as the Whitewash Waiver is concerned and therefore they have not participated in formulating a recommendation to the Independent Shareholders.

In formulating our recommendation, we have relied upon the accuracy of the information and representations contained in the Circular and have assumed that all information and representations made by the Group and the Directors were true, accurate and complete at the time they were made and continue to be so as at the date of the SGM.

We have reviewed, among other things, the published information of the Group, including its unaudited interim report for the six months ended 30 September 2004 (“Interim Report 2004”), annual reports for the years ended 31 March 2003 and 2004 (“Annual Report 2003” and “Annual Report 2004” respectively), the Underwriting Agreement, the application for the Whitewash Waiver, and other information provided by the Company.

We consider that we have reviewed sufficient information, to reach an informed view, to justify reliance on the accuracy of the information in the Circular and to provide a reasonable basis of our recommendation. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular, nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Company. We have not, however, conducted an independent in-depth investigation into the business affairs of the Group, nor have we carried out any independent verification of the information supplied.

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LETTER FROM CSC ASIA

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our advice in respect of the terms of the proposed Open Offer and the grant of the Whitewash Waiver, we have considered the following principal factors and reasons:

(1) Reasons and benefits for the Open Offer

(a) Financial and Business Highlights

The Group is principally engaged in the business of design, manufacture, distribution and sales of men and ladies causal wear for the PRC market and in Hong Kong (“Apparel Business”).

For the two financial years ended 31 March 2004 and 31 March 2003, the Group reported a turnover of approximately HK$739.7 million and HK$579.7 million, respectively, representing a growth of approximately 27.6%. As stated in the Annual Report 2004, its strong growth in the Swedish Texcote Technology business helped offset the negative impact of the beleaguered global economy and SARS in the first half of 2003. For the year ended 31 March 2004, the Group’s net profit attributable to shareholders of approximately HK$113.9 million, representing an increase of approximately 377.9% as compared to the corresponding period last year. The Group’s gross profit margin also improved from approximately 28.7% for the year ended 31 March 2003 to approximately 34.3% for the year ended 31 March 2004.

The growth trend in sales continued in 2004. For the six months ended 30 September 2004, the Group recorded a turnover of approximately HK$398.0 million, represents an increase of approximately 26.4% as compared to approximately HK$314.9 million in the corresponding period last year. As stated in the Interim Report 2004, such an increase was driven by the solid growth in the Group’s Texnology Nano Group business and its continuous improvement in apparel distribution and retail business in Hong Kong, PRC as well as the overseas market. The Group’s net profit attributable to shareholders increased by approximately 37.2% from approximately HK$37.8 million for the six months ended 30 September 2003 to approximately HK$51.9 million for the six months ended 30 September 2004. As stated in the Interim Report 2004, the Group’s retail performance was benefited from the “Individual Visit Scheme” for mainland visitors which has stimulated the overall retail sector in Hong Kong and improved the retail atmosphere. During the six months ended 30 September 2004, the Group’s apparel manufacturing and distribution businesses remained its core revenue generator, recording a turnover of approximately HK$273.7 million or approximately 68.8% of the Group’s total revenue. In addition to the Group’s concerted efforts in expanding the PRC network in second-tier and third-tier cities such as Shenzhen, Fuzhou, Suzhou, Hangzhou, Foshan, Jinagmen, etc. the Group also launched self-owned “concept” stores to deepen the brand awareness of “U-Right” and its presence in the Mainland China market. As a result, the Group continued to have a steady growth in the Mainland

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LETTER FROM CSC ASIA

China apparel distribution and retail segment, recording a turnover of approximately HK$221.6 million, surging by approximately 13.7% from approximately HK$194.9 million in the corresponding period last year. Despite the reduction of 3 retail outlets as a result of increasing rental expenditure during re-negotiation of lease agreements during the six months ended 30 September 2004, retail sales generated from around 19 existing retail outlets in Hong Kong reached to approximately HK$52.2 million, representing an increase of approximately 0.3% comparing to the corresponding period last year.

It is the intention of the Group to capture the rebounding local retail market in Hong Kong and to increase its market penetration in the PRC.

(b) Recent performance of the Retail Markets in Hong Kong and the PRC

In order to understand the recent performance of Hong Kong and the PRC retail markets, we have taken reference to the latest relevant press release issued by the Census and Statistics Department, its statistics as well as the relevant survey conducted by the National Bureau Statistics of China. According to the press release issued by the Census and Statistics Department on 6 May 2005 (the “Press Release”), the value of total retail sales in March 2005 in Hong Kong increased by approximately 6.4% over a year earlier whereas the sales of wearing apparel recorded an increase of approximately 8.3% comparing to the corresponding period a year earlier. The Press Release also mentioned that “the overall volume of retail sales continued to record a solid growth in March 2005, on the back of improved labour market conditions and generally positive sentiment”. Furthermore, the statistics from the Census and Statistics Department (the “Statistics”) shows that the volume index (October 1999 to September 2000 = 100) of retail sales of wearing apparel in Hong Kong was approximately 94.7 in 2003 and such index recovered to approximately 103.1 (provisional figure) in 2004.

According to the survey conducted by the National Bureau Statistics of China, the quarterly retail sales volume of clothing registered a negative growth rate from the first quarter of 2001 to the third quarter of 2003, but it rebounded and recorded positive growth rate in the fourth quarter of 2003. Moreover, the quarterly retail sales volume growth rate of clothing increased rapidly in the last three quarters of 2004. The monthly survey conducted by the National Statistics Bureau of China also indicated that the monthly private consumption expenditure on clothing in urban area increased by approximately 7.7% in 2004 as compared to 2003. Monthly private consumption expenditure on clothing in urban area rose by approximately 15.7% for the first four months in 2005 as compared to the corresponding period in 2004. We note that growth rate of the Group’s revenue generated from the Apparel business in Hong Kong and the PRC is generally in line with the consumers’ sentiment of wearing apparel in Hong Kong and the PRC.

As mentioned in the letter from the Board, the net proceeds of approximately HK$217 million (assuming no outstanding warrants are exercised before the Record Date) received upon the completion of the Open Offer, of which as to approximately HK$167 million and HK$50 million will be used to fund the expansion of the Group’s retail network in Hong Kong and PRC respectively.

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LETTER FROM CSC ASIA

In view of the above, we are of the opinion that by allocating the additional funds raised through the Open Offer to the expansion of its retail distribution network, the Group will benefit from the recent performance of the retail markets in Hong Kong and the PRC based on the historical growth trends in the retail sales of clothing and the monthly private consumption expenditure on clothing as mentioned above.

(c) Strengthening the overall financial position of the Group

The completion of the Open offer would allow the Group to raise not less than approximately HK$222 million. Such proceeds of the Open Offer after deducting relevant expenses will amount to approximately HK$217 million and immediately strengthen the financial position of the Group by increasing its bank balances and cash by approximately HK$217 million. With reference to the latest sentiment of the retail markets in Hong Kong and PRC as supported by the information stated in the Press Release, the Statistics and the survey conducted by the National Bureau Statistics of China as mentioned above, we are of the view that upon completion of the Open Offer, the Group will have the capacity to capture the opportunities arising from the recent sentiments in the retail markets in Hong Kong and the PRC and possible positive impacts on the overall financial position of the Group will be brought about in the future.

(d) Enhancing the future development of the Group’s business

As stated in the letter from the Board, the Group intends to apply the net proceeds from the Open Offer for the expansion of its retail network distribution in Hong Kong and the PRC. At present, the Group has operated around 19 retail outlets in Hong Kong and around 29 retail outlets in the PRC. The Directors further advised that the Group intends to apply around HK$167 million from the net proceeds of the Open Offer to fund the purchase of retail properties in Hong Kong either to replace existing retail outlets under lease agreements and/or setting up new shops with targeted locations in Tsuen Wan, Kwun Tong, Shatin, Taiwai, Chaiwan and Tinhau, etc in the coming two years. The Directors are of the view that such an acquisition of retail shops in Hong Kong will help to reduce the Group’s future rental expenditure since most lease agreements of the Group’s retail outlets will expire in near future. The Directors anticipate that the Group will face higher rental costs in Hong Kong in near term when re-negotiating new lease agreements and it would be beneficial for the Group to reduce reliance on operating under lease agreements, as rental payments of which is one of the key cost components for operating the Apparel Business.

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LETTER FROM CSC ASIA

In addition, the Directors advised that around HK$50 million will be used to fund the expansion of retail network in the PRC with focus on setting up new “Concept” stores, being the flagship stores to strengthen the Group’s brand image of “U-Right”, in second tier cities in the PRC such as Wuhan, Hanzhou, Nanning, Chengdu, Chongqin, Nanjing, Hefai, etc, most of which being the capitals of various provinces in the PRC. As a result, the retail outlets operated by the Group in the PRC will be increased from around 29 to around 35 in the PRC within two years. The Directors believe that the Group’s brandname and market share can be strengthened as well as the Group’s business can benefit from the rebounding local retail market and better employment environment together with the respective positive effects on the Hong Kong economy and the PRC market by continual expansion of retail business of the Group.

As such, we are of the view that the additional funding raised by the Open Offer will enhance the future development of the Group’s business through future rental cost reduction, increasing number of retails outlets as well as strengthening the Group’s brand image.

(e) Opportunity for the Shareholders

According to the letter from the Board, the Open Offer is proposed to be made to all Shareholders whose names appear on the register of members of the Company on the Record Date and not the Excluded Shareholders, on the basis of one Offer Share for every two Shares held on that date. We believe that such Open Offer provides an opportunity for all Shareholders, including Independent Shareholders, to further invest in the Company and to participate the future growth of the Group. Furthermore, it is an alternative way to enable the Shareholders to share the possible positive effects that may be brought about by the Group’s future expansion in its retail network distribution while the Company can reserve its capital for future use should other future business opportunities arise.

(2) Alternatives to the Open Offer

The Directors advised that they have considered other methods of fund raising, such as bank financing, placement of new Shares and rights issue. However, the Directors intend to maintain a healthy balance sheet and a low interest level for the Group rather than to affect its existing low gearing ratio and interest burden by increasing the level of bank financing. Moreover, since the placing of new Shares would dilute the shareholdings of the Shareholders, the Directors therefore consider that it will not be the best interest of the Shareholders. Although both open offer and rights issue allow Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Company, the Directors consider that the Open Offer, which does not require time for trading of nil-paid rights shares and will not incur additional costs in respect of the trading of nil-paid rights, is more time and cost effective and is in the interest of the Company and the Shareholders as a whole to raise capital.

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LETTER FROM CSC ASIA

Hence, compared with bank financing, placement of new Shares and rights issue, we are of the view that the Open Offer under the prevailing arrangement will be a better alternative of fund raising to finance the Group’s business expansion plans and enable the Shareholders to maintain their proportionate interests in the Company should they wish to do so.

(3) Principal terms of the Open Offer

(a) Basis of the Open Offer

The Company will make the Open Offer on a basis of one Offer Share for every two Shares held on the Record Date at the Subscription Price, payable in full on application. Based on the issued Shares as at the Latest Practicable Date, not less than 888,952,750 Offer Shares and not more than 893,492,750 Offer Shares at a price of HK$0.25 per Offer Shares will be offered for subscription under the Open Offer.

(b) Share price performance

Chart 1 below sets out the historical closing Share price and trading volume of the Company commencing from 1 March 2004 up to and including the Latest Practicable Date (the “Review Period”):

Chart 1 – Closing prices and trading volume of the Company

==> picture [362 x 213] intentionally omitted <==

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

Price
HKD
0.44
0.42
0.4
0.38
0.36
0.34
0.32
0.3
0.28
Vol
0.15B
0.1B
50M
0
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2004 2005
----- End of picture text -----

Sources: Reuters

As shown in Chart 1 above, the Shares were traded on a decreasing price trend during the Review Period from the highest of HK$0.47 per Share in July 2004 to the lowest of HK$0.275 in May 2005. The Share price was recorded at HK$0.365 before the release of the Announcement and it has dropped to HK$0.28 immediately after the release of the Announcement, representing an approximately 23.3% drop in the Share price.

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LETTER FROM CSC ASIA

The following chart sets out the relative performance of the historical closing Share price against HSI and Hang Seng Composite Index – Consumer Goods (“HSCICG”).

Chart 2 – The Company vs HSI vs HSCICG

==> picture [376 x 208] intentionally omitted <==

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

Red
HKD
105
102
99
96
93
90
87
84
81
78
75
72
69
The Company 66
HSCICG 63
HSI
60
57
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2004 2005
----- End of picture text -----

Index: Rebased to 100 as at 1 March 2004 Sources: Reuters

As shown in Chart 2 above, the prices of the Shares initially underperformed both HSI and HSCICG but, since June 2004, largely outperformed both HSI and HSCICG until October 2004, underperformed HSI and since January 2005, seriously underperformed both HSI and HSCICG during the Review Period.

(c) Subscription price

The Subscription Price represents:

(i) a discount of approximately 31.5% to the closing price of HK$0.365 per Share as quoted on the Stock Exchange on 12 May 2005, being the last trading day before the date of the Announcement;
(ii) a discount of approximately 23.48% to the theoretical ex-entitlement price of approximately HK$0.3267 per Share based on the aforesaid closing price per Share;
(iii) a discount of approximately 31.88% to the average closing price of HK$0.367 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including 12 May 2005, being the last trading day before the Announcement;
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LETTER FROM CSC ASIA

(iv) a discount of approximately 31.22% to the average closing price of HK$0.3635 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 12 May 2005, being the last trading day before the Announcement;
(v) a discount of approximately 10.33% to the net tangible asset value per Share of approximately HK$0.2788 with reference to the unaudited net tangible asset value of the Group of approximately HK$495.7 million as at 30 September 2004 as shown in the Interim Report 2004 and 1,777,905,500 Shares in issue as at the Latest Practicable Date.
(vi) a discount of approximately 18.03% to the closing price of HK$0.305 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Subscription Price has been determined based on arm’s length negotiations between the Company and ACE, with reference to the prevailing market conditions. The Board considers that the discount of the Subscription Price as compared to the recent market prices of Shares would encourage Shareholders to participate in the Open Offer and accordingly maintain their shareholdings in the Company and participate in the future growth of the Group.

In order to compare the Subscription Price with the market price of the Shares, we have identified, to the best of our knowledge, all the open offers announced by the companies that are listed on the main board of the Stock Exchange in a year prior to the date of the Announcement (the “Comparable Companies”). Details of which are summarised in the table below:

			Subscription	Discount I	Discount II
Company name	Date of		Price	(Note 1)	(Note 2)
(Stock Code)	announcement	Basis	(HK$)	(%)	(%)
Ngai Hing Hong	11 May 2005	1 for 5	0.60	6.25	5.21
Company Ltd. (1047)
Omnicorp Ltd. (94)	7 April 2005	1 for 2	0.38	63.10	53.30
Orient Industries	21 February 2005	1 for 2	0.20	60.00	50.00
Holdings Ltd. (353)
Northern International	28 January 2005	1 for 1	0.02	33.33	20.00
Holdings Ltd. (736)
Maxx Bioscience	6 January 2005	2 for 1	0.11	41.50	19.10
Holdings Ltd. (512)
Xin Corporation Ltd. (1141)	14 January 2005	1 for 2	0.04	25.90	18.90

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LETTER FROM CSC ASIA

			Subscription	Discount I	Discount II
Company name	Date of		Price	(Note 1)	(Note 2)
(Stock Code)	announcement	Basis	(HK$)	(%)	(%)
Jackin International	3 December 2004	1 for 2	0.10	50.00	40.00
Holdings Ltd. (630)
Radford Capital Investment	28 October 2004	1 for 2	0.02	4.80	3.20
Limited (901)
Tse Sui Luen Jewellery	6 October 2004	1 for 5	1.03	80.19	77.00
(International) Ltd. (417)
Theme International	17 September 2004	1 for 1	0.03	42.31	26.83
Holdings Ltd. (990)
Maximum				80.19	77.00
Minimum				4.80	3.20
Median				41.91	23.42
Mean				40.74	31.35
The Company	23 May 2005	1 for 2	0.25	31.50	23.48

Notes:

Being the discount of the subscription price to the closing price per share on the last trading day prior to the relevant press announcement.
Being the discount of the subscription price to the theoretical ex-entitlement price per share based on the closing price per share on the last trading day prior to the relevant press announcement.

Source: Stock Exchange Website

As illustrated above, the discounts of the ten sample companies’ subscription prices to their respective closing prices on the last trading day prior to the announcements of their open offers (the “Closing Price Range”) ranged from a discount of 4.80% to 80.19%, with the mean and median of discounts of 40.74% and 41.91% respectively. The discounts of the ten sample companies’ subscription prices to their respective theoretical ex-entitlement price per share based on the closing price per share on the last trading day prior to the date of announcement (the “Theoretical Price Range”) ranged from a discount of 3.20% to 77.00%, with the mean and median of discounts of 31.35% and 23.42%, respectively.

We note that the discount of the Subscription Price to the closing Share price on the last trading day prior to the announcement of the Open Offer of approximately 31.5% falls within the Closing Price Range and is lower than the mean of the Closing Price Range.

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LETTER FROM CSC ASIA

Besides, the discount of the Subscription Price to the theoretical ex-entitlement price per share based on the closing price per share on the last trading day prior to the date of announcement of approximately 23.48% also falls within the Theoretical Price Range and is lower than the mean of the Theoretical Price Range.

Given that both the discounts of the Subscription Price of 31.5% and 23.48% are lower than the means of the Closing Price Range and Theoretical Price Range respectively and fall within the Closing Price Range and the Theoretical Price Range respectively, we consider that the Subscription Price is fair and reasonable so far as the Shareholders are concerned.

(4) Financial Effects of the Open Offer

(a) Net asset value

The effect on the unaudited pro forma consolidated net tangible assets of the Group immediately after completion of the Open Offer are set out on page 96 in Appendix I to this circular.

Following completion of the Open Offer, the unaudited pro forma consolidated net tangible assets of the Group as at 30 September 2004 is estimated to increase from approximately HK$495.7 million to approximately HK$712.7 million, representing an increase of approximately HK$217.0 million or approximately 43.8%. The unaudited pro forma consolidated net tangible assets per Share of the Group as at 30 September 2004 is estimated to decrease from approximately HK$0.2792 to approximately HK$0.2675 immediately after completion of the Open Offer, representing a decrease of approximately 4.2%.

The Directors are of the view that the discount of the Subscription Price of approximately 10.5% to the net tangible asset value per Share and approximately 6.5% to the unaudited pro forma consolidated net tangible assets per Share of approximately HK$0.2675 represents a valuable opportunity for Qualifying Holders to take up the Offer Shares at a more attractive price while providing the Company with the necessary funding for the Group’s business expansion. At a cost of only 4.2% reduction in the net tangible assets per Share of the Group, however would enable the Group and its Shareholders to share the future benefits that may be brought about by the expansion of Group’s business as mentioned above, we therefore consider that such a reduction in net tangible asset value per Share upon completion of the Open Offer to be acceptable.

(b) Gearing ratio

As at 30 September 2004, the Group had outstanding bank borrowings less cash and bank deposits of approximately HK$44.5 million, resulting in a gearing ratio of approximately 6.4%. We noted that the Group raised bank borrowings of approximately HK$247.4 million for the seven months ended 30 April 2005 and thus the gearing ratio increased to approximately 42.3% assuming other factors remain unchanged. Upon completion of the Open Offer, the Group’s gearing ratio will be reduced to approximately 32.2% since the net

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LETTER FROM CSC ASIA

asset value increased without corresponding increase in any debts. Such a gearing ratio of 32.2% is reached on the assumption that the cash amount of approximately HK$217 million raised is reserved for the acquisition of retail properties for the Company’s retail business instead of using for repayment of interest-bearing borrowings from financial institutions, therefore, the interest-bearing borrowings will not be reduced and the gearing ratio will not drop further as a result.

(c) Dilution effect on the Shareholders

Given that the Offer Shares is on the basis of one Offer Share for every two existing Shares held, the attributable interest in the Company (in terms of percentage shareholding) of Qualifying Holders who do not elect to subscribe for in full their assured entitlements under the Open Offer will be diluted after completion of the Open Offer to a maximum dilution of approximately 33.3%, assuming no outstanding Warrants are exercised on or before the Record Date. On the other hand, for those Shareholders who wish to increase their shareholding in the Company, they may apply for the Offer Shares in excess of their assured entitlements. Despite such a maximum dilution effect of approximately 33.3%, it enables the Group and its shareholders to share the future benefits that may be brought about by the expansion of the Group’s business as mentioned above. Also having taken into account that the Open Offer under the existing arrangement will be a better alternative of fund raising to finance the Group’s business expansion plans and enabling all Shareholders to maintain their proportionate interests in the Company should they wish to do so, we therefore consider that the possible dilution effect on the Shareholders under the Open Offer acceptable.

(5) Underwriting Arrangements

Notwithstanding that ACE, being the controlling shareholder of the Company, is entitled to the underwriting commission of 2.0% for its Underwritten Shares, the Directors (including the independent non-executive directors) consider the Underwriting Agreement to be on normal and reasonable commercial terms based on market practice. The Directors also consider that ACE is assisting the Company to raise the required funds under the Open Offer and the above underwriting arrangements also demonstrate the financial commitment of ACE to the Group’s future development.

(6) The Whitewash Waiver

Mr. Leung, the Chairman and the Director, who is deemed to be interested in the Shares held by ACE. ACE and its concert parties, including Mr. Leung, in aggregate are interested in 639,089,000 Shares, representing about 35.95% of the existing issued share capital of the Company as at the Latest Practicable Date. Assuming ACE has taken up its maximum obligation of 893,492,750 Offer Shares pursuant to the Underwriting Agreement, ACE and its concert parties will increase their aggregate shareholding from approximately 35.95% of the existing issued share capital of the Company to approximately 57.18% of the issued share capital of the Company as enlarged by the issue of Offer Shares (assuming all the outstanding Warrants have been exercised before the

32 -

LETTER FROM CSC ASIA

Record Date and the completion of the Open Offer). Under Rule 26 of the Takeovers Code, ACE and its concert parties, including Mr. Leung, will be required to make an unconditional mandatory general offer for all the issued Shares not already owned or agreed to be acquired by ACE or Mr. Leung or their concert parties.

An application has been made by ACE to the Executive for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders on a vote taken by way of poll. If the Whitewash Waiver is granted and approved by the Independent Shareholders, the obligation of ACE and its concert parties, including Mr. Leung to make an unconditional mandatory offer under Rule 26 of Takeover Code, will be waived. Completion of Open Offer is conditional upon, among other things, the granting of the Whitewash Waiver by the Executive. Therefore, if the Whitewash Waiver is not obtained, the Open Offer will not proceed.

An independent board committee has been established to make recommendations to the Independent Shareholders in relation to the Whitewash Waiver.

RECOMMENDATION

In forming our recommendation to the Independent Board Committee in respect of the grant of the Whitewash Waiver, we have taken into account of all the aforementioned factors and reasons in particular:

The recent performance of the retail markets in Hong Kong and the PRC;
The improvement in the overall financial position and gearing position of the Group upon completion of the Open Offer;
The net proceeds received from the Open Offer provide funding for the future expansion of the Group’s retail network in Hong Kong and the PRC, which is in line with the Group business strategy and is in the interest of the Group;
The Open Offer as (i) an opportunity for all Shareholders, including the Independent Shareholders to further invest in the Company and to participate the future growth of the Group and (ii) an alternative way to enable the Shareholders to share the possible positive effects that may be brought about by the Group’s future expansion in its retail network distribution while the Company can reserve its capital for future use;
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LETTER FROM CSC ASIA

The Subscription Price is fair and reasonable so far as the Shareholders are concerned;
The cost of approximately 4.2% reduction in the net tangible assets per Share of the Group upon completion of the Open Offer being acceptable; and
The possible maximum dilution effect of approximately 33.3% on the interest in the Company of those Qualifying Holders who do not elect to subscribe for in full their assured entitlements under the Open Offer being acceptable.

After all, having considered the principal factors and reasons set out above, we conclude, on balance, that the terms of the Open Offer are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole. Given that the Whitewash Waiver is a condition precedent to the Open Offer which will not proceed if the Whitewash Waiver is rejected, we consider that the grant of the Whitewash Waiver is in the interests of the Company and is fair and reasonable. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the relevant resolution in relation to the Whitewash Waiver to be proposed at the SGM.

Yours faithfully, For and on behalf of CSC Asia Limited Andrew Chiu Winnie Yau Managing Director Director

34 -

FINANCIAL INFORMATION

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company at the Latest Practicable Date were as follows:

Authorised: 2,000,000,000 Shares as at the Latest Practicable Date Issued and fully paid: 1,777,905,500 Shares as at the Latest Practicable Date	HK$ 200,000,000.00

	177,790,550.00

All the Shares in issue and Offer Shares to be issued rank and will rank pari passu in all respects with each other including as regards to dividends, voting and return of capital.

As at the Latest Practicable Date, the Company had outstanding warrants for the holders of Warrants to subscribe for a total of 9,080,000 Shares at the exercise price of HK$0.20 per Share, subject to adjustment. Save for the Warrants, the Company has no other derivatives, options, warrants and conversion rights or other similar rights which are convertible into Shares.

There are a total of 326,720,000 Shares issued since 31 March 2004, being the date to which the latest published audited consolidated accounts of the Group were made up, to and including the Latest Practicable Date.

The Shares are listed on the Stock Exchange. No part of the securities of the Company is listed or dealt, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

There are no arrangements under which future dividends will be waived or agreed to be waived.

Save as disclosed in this circular, no share or loan capital of the Company or any member of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

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FINANCIAL INFORMATION

APPENDIX I

2. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following table summarised the results, assets, liabilities and minority interests of the Group for the last three financial years, as extracted from the published audited financial statements for the three years ended 31 March 2004.

Consolidated Income Statement

For the three years ended 31 March 2004

Turnover
Cost of sales
Gross profit
Other revenue
Gains on disposals of interests in subsidiaries
Selling and distribution costs
Administrative expenses
Amortisation of intangible assets
Other operating expenses
Profit from operating activities
Finance costs
Share of profits (losses) of
Jointly-controlled entities
Associates
Amortisation of goodwill arising
on acquisition of
jointly-controlled entities
Profit before taxation
Taxation
Profit before minority interests
Minority interests
Net profit attributable to shareholders
Dividends
Earnings per share
Basic
Diluted

2004
2003
2002
HK$’000
HK$’000
HK$’000
739,677
579,652
459,059
(485,965)
(413,314)
(283,422)
253,712
166,338
175,637
4,267
3,934
2,586
45,294
10,326
–
(79,358)
(70,116)
(69,985)
(62,030)
(62,327)
(48,909)
(8,146)
(6,651)
–
–
–
(3,489)
153,739
41,504
55,840
(10,471)
(9,958)
(10,917)
1,348
(489)
(529)
–
–
(360)
(7,500)
(6,532)
(420)
137,116
24,525
43,614
(10,832)
(2,793)
(6,015)
126,284
21,732
37,599
(12,412)
2,095
–
113,872
23,827
37,599
36,664
7,773
–
HK8.76 cents
HK2.22 cents
HK4.52 cents
N/A
HK2.19 cents
N/A

There were neither extraordinary nor exceptional items existing during each of the three years ended 31 March 2004.

No qualified opinion has been issued by the Company’s auditors for each of the three years ended 31 March 2004.

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FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2004

Non-current assets Fixed assets Investment properties Intangible assets Interests in jointly-controlled entities Interests in associates Investment securities Deposits for acquisition of long-term assets Rental deposits Current assets Inventories Trade receivables Prepayments, deposits and other receivables Amounts due from jointly-controlled entities Amounts due from associates Investment securities Pledged bank deposits Bank and cash balances Current liabilities Trade and bills payables Accruals and other payables Amounts due to a jointly-controlled entity Provision for taxation Interest-bearing borrowings Finance lease payables Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing borrowings Finance lease payables Minority interests Net assets	2004 HK$’000 122,273 9,430 116,212 62,146 – 47,333 – 3,718 361,112 90,711 55,504 25,845 – – 2,513 – 383,800 558,373 26,647 12,853 70 18,555 84,981 5,305 148,411 409,962 771,074 192,310 6,064 198,374 10,536 562,164	2003 HK$’000 125,230 11,940 19,998 86,058 – – 37,336 6,890 287,452 87,176 69,801 60,278 1,534 – 980 – 108,327 328,096 25,428 14,195 – 18,090 98,209 8,054 163,976 164,120 451,572 92,857 7,280 100,137 (2,383) 353,818	2002 HK$’000 91,971 12,980 – 19,921 32,719 71 12,000 7,328
			176,990 59,675 51,171 29,262 7,254 9,958 980 52,880 22,353
			233,533
			28,595 13,290 – 28,487 69,190 4,581
			144,143
			89,390
			266,380
			19,858 2,931
			22,789
			–
			243,591

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FINANCIAL INFORMATION

APPENDIX I

Capital and reserves Share capital Reserves Shareholders’ funds	2004 HK$’000 145,119 417,045 562,164	2003 HK$’000 110,658 243,160 353,818	2002 HK$’000 94,604 148,987
			243,591

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FINANCIAL INFORMATION

APPENDIX I

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is the financial statements for the Group for the years ended 31 March 2004 and 31 March 2003, together with accompanying notes as extracted from the annual report of the Company for the year ended 31 March 2004:

Consolidated Income Statement

For the year ended 31 March 2004

Note Turnover 3 Cost of sales Gross profit Other revenue 3 Gains on disposals of interests in subsidiaries Selling and distribution costs Administrative expenses Amortisation of intangible assets Profit from operating activities 4 Finance costs 6 Share of profits (losses) of jointly-controlled entities Amortisation of goodwill arising on acquisition of jointly-controlled entities Profit before taxation Taxation 7 Profit before minority interests Minority interests Net profit attributable to shareholders 8 Dividends 9 Earnings per share 10 Basic Diluted	2004 HK$’000 739,677 (485,965) 253,712 4,267 45,294 (79,358) (62,030) (8,146) 153,739 (10,471) 1,348 (7,500) 137,116 (10,832) 126,284 (12,412) 113,872 36,664 HK8.76 cents N/A	2003 HK$’000 579,652 (413,314) 166,338 3,934 10,326 (70,116) (62,327) (6,651) 41,504 (9,958) (489) (6,532) 24,525 (2,793) 21,732 2,095 23,827 7,773 HK2.22 cents HK2.19 cents

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FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

At 31 March 2004

Note Non-current assets Fixed assets 11 Investment properties 12 Intangible assets 13 Interests in jointly-controlled entities 15 Investment securities 16 Deposits for acquisition of long-term assets 17 Rental deposits Current assets Inventories 18 Trade receivables 19 Prepayments, deposits and other receivables Amounts due from jointly-controlled entities 15 Investment securities 16 Bank and cash balances Current liabilities Trade and bills payables 20 Accruals and other payables Amounts due to a jointly-controlled entity 15 Provision for taxation Interest-bearing borrowings 21 Finance lease payables 22 Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing borrowings 21 Finance lease payables 22 Minority interests 23 Net assets	2004 HK$’000 122,273 9,430 116,212 62,146 47,333 – 3,718 361,112 90,711 55,504 25,845 – 2,513 383,800 558,373 26,647 12,853 70 18,555 84,981 5,305 148,411 409,962 771,074 192,310 6,064 198,374 10,536 562,164	2003 HK$’000 125,230 11,940 19,998 86,058 – 37,336 6,890 287,452 87,176 69,801 60,278 1,534 980 108,327 328,096 25,428 14,195 – 18,090 98,209 8,054 163,976 164,120 451,572 92,857 7,280 100,137 (2,383) 353,818

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FINANCIAL INFORMATION

APPENDIX I

Note Capital and reserves Share capital 24 Reserves Shareholders’ funds	2004 HK$’000 145,119 417,045 562,164	2003 HK$’000 110,658 243,160
		353,818

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FINANCIAL INFORMATION

APPENDIX I

Balance Sheet

At 31 March 2004

Note Non-current assets Fixed assets 11 Investments in subsidiaries 14 Current assets Prepayments, deposits and other receivables Amounts due from subsidiaries 14 Investment securities 16 Bank balances Current liabilities Accruals and other payables Amounts due to subsidiaries 14 Provision for taxation Interest-bearing borrowings 21 Finance lease payables 22 Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing borrowings 21 Net assets Capital and reserves Share capital 24 Reserves 26 Shareholders’ funds	2004 HK$’000 – 81,310 81,310 4,040 546,886 1,533 292 552,751 1,177 720 1,500 25,446 – 28,843 523,908 605,218 192,310 412,908 145,119 267,789 412,908	2003 HK$’000 114 81,310
		81,424 2,100 338,851 – 19
		340,970
		3,090 3,894 – 37,143 114
		44,241
		296,729
		378,153 92,857
		285,296

		110,658 174,638
		285,296

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FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2004

Share capital HK$’000 (note 24) At 1 April 2002 94,604 Shares issued on exercise of warrants 11,554 Issue of subscribed shares 4,500 Shares issue expenses – Deficits on revaluation – Profit for the year – At 31 March 2003 110,658 Representing: At 31 March 2003 after proposed final dividend Proposed final dividend_(note 9)_ Shareholders’ funds Attributable to: Company and subsidiaries 110,658 Jointly-controlled entities – 110,658	Share premium HK$’000 68,739 40,440 31,950 (1,144) – – 139,985 139,985 – 139,985	Properties revaluation reserve HK$’000 24,133 – – – (900) – 23,233 23,233 – 23,233	Statutory reserve HK$’000 (note (a)) 220 – – – – – 220 220 – 220	Exchange fluctuation reserve HK$’000 (945) – – – – – (945) (945) – (945)	Capital reserve HK$’000 (note (b)) 585 – – – – – 585 585 – 585	Retained profits HK$’000 56,255 – – – – 23,827 80,082 88,052 (7,970) 80,082	Total HK$’000 243,591 51,994 36,450 (1,144) (900) 23,827 353,818 346,045 7,773 353,818 361,788 (7,970) 353,818

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APPENDIX I

FINANCIAL INFORMATION

At 1 April 2003 Issue of shares Exercise of share options (note 24(a)) Exercise of warrants (note 24(b)) Subscribed shares (note 24(c), (d)) Share issue expenses Deficits on revaluation Profit for the year Dividends paid_(note 9)_ At 31 March 2004	Share capital HK$’000 (note 24) 110,658 12,360 1 22,100 – – – – 145,119	Share premium HK$’000 139,985 27,382 2 57,630 (1,966) – – – 223,033	Properties revaluation reserve HK$’000 23,233 – – – – (750) – – 22,483	Statutory reserve HK$’000 (note (a)) 220 – – – – – – – 220	Exchange fluctuation reserve HK$’000 (945) – – – – – – – (945)	Capital reserve HK$’000 (note (b)) 585 – – – – – – – 585	Retained profits HK$’000 80,082 – – – – – 113,872 (22,285) 171,669	Total HK$’000 353,818 39,742 3 79,730 (1,966) (750) 113,872 (22,285) 562,164

Representing: At 31 March 2004 after proposed final dividend Proposed final dividend_(note 9)_ Shareholders’ funds Attributable to: Company and subsidiaries 145,119 Jointly -controlled entities – 145,119	223,033 – 223,033	22,483 – 22,483	220 – 220	(945) – (945)	585 – 585	185,791 (14,122) 171,669	540,012 22,152 562,164 576,286 (14,122) 562,164

(a) In accordance with the relevant PRC regulations, the subsidiaries of the Group established in the PRC are required to transfer a certain percentage of the profit after tax, if any, to a statutory reserve. Subject to certain restrictions as set out in the relevant PRC regulations, the statutory reserve may be used to offset the accumulated losses, if any, of the subsidiaries.

(b) The Group has adopted the transitional provision of SSAP 30 that permits negative goodwill on acquisitions which occurred prior to 1 January 2001 to remain credited to the Group’s capital reserve. The amount of the negative goodwill remains credited to the Group’s capital reserve arising from the acquisition of a subsidiary prior to 1 January 2001 was HK$585,000 as at 31 March 2003 and 2004.

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FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2004

Note CASH FLOWS FROM OPERATING ACTIVITIES Profit from operating activities Adjustments for: Depreciation Interest income Deficits on revaluation of leasehold land and buildings Deficits on revaluation of investment properties Gains on disposals of interests in subsidiaries Gains on sales of investment securities Loss on disposal of fixed assets Loss on disposal of an investment property Unrealised loss on other investments Amortisation of intangible assets Impairment loss on interest in a jointly-controlled entity Operating profit before working capital changes Increase in inventories Decrease (Increase) in trade receivables Decrease (Increase) in prepayments, deposits and other receivables Decrease in amounts due from jointly-controlled entities Increase in amounts due to a jointly controlled entity Decrease in amounts due from associates Increase (Decrease) in trade and bills payables (Decrease) Increase in accruals and other payables Increase in trust receipt loans Cash generated from operations Interest paid Interest element on finance lease rental payments Taxes paid Dividends paid Net cash inflow (outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets Proceeds from disposal of an investment property Proceeds from disposals of interests in subsidiaries 27(b) Refund of deposits (Deposits) for acquisition of long-term assets Purchases of investment securities Proceeds from sales of investment securities Purchase of intangible assets Capital contribution to a jointly-controlled entity Acquisition of additional interests in subsidiaries 27(a) Decrease (Increase) in other receivables Decrease in pledged bank deposits Interest received Net cash outflow from investing activities	2004 HK$’000 153,739 22,020 (2,453) 3,090 160 (45,294) (17,930) 925 500 – 8,146 17,760 140,663 (3,535) 14,237 34,108 1,534 70 – 1,219 (1,532) 3,505 190,269 (9,840) (631) (946) (22,285) 156,567 (26,239) 1,100 45,500 37,336 (93,360) 62,424 (12,617) – (94,265) 3,172 – 2,453 (74,496)	2003 HK$’000 41,504 20,271 (565) 576 240 (10,326) – – – 71 6,651 1,921 60,343 (27,501) (18,496) (27,942) 5,720 – 9,958 (6,748) 785 15,336 11,455 (9,242) (716) (2,870) – (1,373) (39,878) – 12,000 (37,336) – – – (42,000) (12,899) (13,520) 52,880 565 (80,188)

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FINANCIAL INFORMATION

APPENDIX I

Note CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Expenses on issue of shares Drawdown of bank loans 27(c) Repayment of bank loans 27(c) Capital element of finance lease rental payments 27(c) Net cash inflow from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank and cash balances Bank overdrafts	2004 HK$’000 119,475 (1,966) 217,766 (131,967) (6,827) 196,481 278,552 105,248 383,800 383,800 – 383,800	2003 HK$’000 88,444 (1,144) 160,123 (74,431) (6,447) 166,545 84,984 20,264 105,248 108,327 (3,079) 105,248

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FINANCIAL INFORMATION

APPENDIX I

Notes to the Financial Statements

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

(a) Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of leasehold land and buildings and investment properties, as further explained below.

(b) Adoption of revised Statements of Standard Accounting Practice

The accounting policies used in the preparation of the financial statements are consistent with the previous year except that the Group has adopted the Hong Kong Statement of Standard Accounting Practice (“SSAP”) 12 (revised) “Income taxes” which became effective for the current financial year.

The principal effect of the implementation of the revised standard is in relation to deferred tax. In previous years partial provision was made for deferred tax using income statement liability method, that is, a liability was recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. The revised standard requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements, the new accounting policy has been adopted retrospectively, but the adoption of the Standard has not had any material effect on the results for the current year or prior accounting periods.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

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

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

The gain or loss on the disposal of interests in a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/negative goodwill taken to reserves and which was not previously charged or recognised in the consolidated income statement and any related exchange fluctuation reserve.

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

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FINANCIAL INFORMATION

APPENDIX I

(b) Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less any impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(c) Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company 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 activities of the joint venture company, the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’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:

(i) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture company;
(ii) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, with other joint venture parties over the joint venture company;
(iii) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company; or
(iv) a long term investment, if the Group holds, directly or indirectly, less than 20% of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

(d) Jointly-controlled entities

A jointly-controlled entity is a joint venture company which is subject to joint control by the Group and other joint venture parties, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves respectively. The Group’s interests in jointly-controlled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of jointly-controlled entities is included as part of the Group’s interests in jointlycontrolled entities.

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FINANCIAL INFORMATION

APPENDIX I

(e) Related parties

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

(f) Foreign currencies

Foreign currency transactions are recorded at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at exchange rates ruling at the balance sheet date. Exchange differences are dealt with in the income statement.

On consolidation, the income statements of overseas subsidiaries and jointly-controlled entities are translated at the weighted average rates for the year and their balance sheets are translated at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

(g) Intangible assets

(i) Technical know-how

Technical know-how acquired by the Group are stated at cost less accumulated amortisation and impairment losses. The cost of technical know-how acquired is amortised on a straightline basis over its estimated useful life of 10 years.

(ii) Goodwill

Goodwill arising on the acquisition of subsidiaries and jointly-controlled entities represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of 5 to 15 years. In the case of associates and jointly-controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

On disposal of subsidiaries and jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

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FINANCIAL INFORMATION

APPENDIX I

(iii) Negative goodwill

Negative goodwill arising on the acquisition of subsidiaries and jointly-controlled entities represents the excess of the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition, over the cost of the acquisition.

To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated income statement when the future losses and expenses are recognised.

To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated income statement on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately.

In the case of jointly-controlled entities, any negative goodwill not yet recognised in the consolidated income statement is included in the carrying amount thereof, rather than as a separately identified item on the consolidated balance sheet.

SSAP 30 “Business combinations” was adopted as at 1 January 2001. Prior to that date, negative goodwill arising on acquisitions was credited to the capital reserve in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provision of SSAP 30 that permitted negative goodwill arising from acquisitions prior to 1 January 2001 to remain credited to the capital reserve. Negative goodwill on acquisitions subsequent to 1 January 2001 is treated according to the accounting policy above.

On disposal of subsidiaries and jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of negative goodwill which has not been recognised in the consolidated income statement and any relevant reserves, as appropriate.

(h) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential, any rental income being negotiated at arm’s length. Such properties are not depreciated and are stated at their open market values on the basis of annual professional valuations performed at the end of each financial year.

Changes in the values of investment properties are dealt with as movements in the properties revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of an investment property, the relevant portion of the properties revaluation reserve realised in respect of previous valuations is released to the income statement.

(i) Fixed assets

Fixed assets, other than investment properties and construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses.

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FINANCIAL INFORMATION

APPENDIX I

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the year 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 fixed asset, the expenditure is capitalised as an additional cost of that asset.

Changes in the values of fixed assets, other than investment properties, are dealt with as movements in the fixed asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged. On the disposal or retirement of a revalued asset, the attributable revaluation surplus realised is transferred directly to retained profits as a movement in reserves.

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

Medium term leasehold land and buildings	Over the lease terms
Leasehold improvements	Over the shorter of the lease terms and 5 years
Machinery and equipment	3 to 4 years
Furniture and fixtures	5 years
Motor vehicles	4 years

The gain or loss on disposal or retirement of a fixed asset recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use.

(j) Impairment of assets

An assessment is made at each balance sheet date to determine 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 asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the year 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 year in which it arises unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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FINANCIAL INFORMATION

APPENDIX I

(k) Leased assets

(i) Finance leases

Leases that transfer substantially all the risks and rewards of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

(l) Investment securities

Investment securities, which are securities held for an identified long-term strategic purpose, are stated at cost less impairment losses, if any. The carrying amounts of individual investment securities are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such investment securities is reduced to its fair value. The amount of the reduction is recognised as an expense in the income statement. The reduction is written back to income statement when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

Investment securities, which are either held-for-trading or available-for-sale, are measured at fair value at the balance sheet date. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-forsale securities, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period.

(m) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the firstin, first-out basis and, in the case of finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposed.

(n) 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.

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FINANCIAL INFORMATION

APPENDIX I

(o) Provisions and contingent liabilities

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

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

(p) 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:

(i) Sales of goods

Revenue from the sales of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers.

(ii) Licensing income

Licensing income is recognised in accordance with the substance of the relevant licensing agreements.

(iii) Rental income

Rental income is recognised on a time proportion basis in accordance with the terms and conditions of the tenancy agreement.

(iv) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the effective interest rates applicable.

(v) Management fee income

Management fee income is recognised when the services are rendered.

(vi) Dividend income

Dividend income is recognised when the right to receive payment is established.

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FINANCIAL INFORMATION

APPENDIX I

(q) Employee benefits

(i) Retirement benefits scheme

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

Pursuant to the relevant regulations of the People’s Republic of China government, the subsidiaries of the Group operating in the People’s Republic of China participate in municipal government retirement benefits scheme (the “PRC Scheme”) whereby the subsidiaries are required to contribute a certain sum of money as calculated under the relevant rules specified by the relevant municipal government authorities to the PRC Scheme to fund the employees’ retirement benefits. The Group is required to pay the ongoing contributions under the PRC Scheme, which are charged to the income statement as incurred.

(ii) Share option scheme

The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time when the options are exercised, and no charge is recorded in the income statement or balance sheet for their cost. Upon the exercise of share options, equity is increased by the amount of the proceeds received. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

(r) Deferred taxation

Deferred taxation is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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

Deferred taxation is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

(s) Segment reporting

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

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FINANCIAL INFORMATION

APPENDIX I

Inter-segment pricing is based on similar terms as those available to other external parties.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, results, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.

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

3. TURNOVER, REVENUE AND SEGMENT INFORMATION

Turnover Sales of goods Processing income Licensing income Other revenue Gross rental income from investment properties Interest income Management fee income Guaranteed profit received from a joint venture partner of a jointly-controlled entity Others Total revenue Segment information	2004 HK$’000 673,030 17,863 48,784 739,677 1,096 2,453 548 – 170 4,267 743,944	2003 HK$’000 579,652 – –
		579,652 1,139 565 658 1,193 379
		3,934
		583,586

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

The Group’s geographical segments comprise Hong Kong and the People’s Republic of China (excluding Hong Kong) (the “PRC”).

The Group’s business segments comprise manufacturing and sale of fashion garments business and the Swedish Texcote Technology business. The Swedish Texcote Technology is a material processing technology based on the principles of nanotechnology.

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FINANCIAL INFORMATION

APPENDIX I

Geographical segments

The following tables present revenue, results and certain assets, liabilities and expenditures information for the Group’s geographical segments.

Segment revenue: Sales to external customers Intersegment sales Total revenue Segment results Interest income Other unallocated revenue Unallocated expenses Profit from operating activities Finance costs Share of profits (losses) of jointly-controlled entities Amortisation of goodwill arising on acquisition of jointly controlled entities Profit before taxation Taxation Minority interests Net profit attributable to shareholders	Hong Kong 2004 2003 HK$’000 HK$’000 103,845 100,330 – – 103,845 100,330 11,193 1,575	PRC 2004 2003 HK$’000 HK$’000 635,832 479,322 69,924 148,570 705,756 627,892 160,144 38,787	Elimination 2004 2003 HK$’000 HK$’000 – – (69,924) (148,570) (69,924) (148,570) – –	Consolidated 2004 2003 HK$’000 HK$’000 739,677 579,652 – – 739,677 579,652 171,337 40,362 – 565 – 13,695 (17,598) (13,118) 153,739 41,504 (10,471) (9,958) 1,348 (489) (7,500) (6,532) 137,116 24,525 (10,832) (2,793) (12,412) 2,095 113,872 23,827	Consolidated 2004 2003 HK$’000 HK$’000 739,677 579,652 – – 739,677 579,652 171,337 40,362 – 565 – 13,695 (17,598) (13,118) 153,739 41,504 (10,471) (9,958) 1,348 (489) (7,500) (6,532) 137,116 24,525 (10,832) (2,793) (12,412) 2,095 113,872 23,827
					579,652

					40,362 565 13,695 (13,118)
					41,504 (9,958) (489) (6,532)
					24,525 (2,793) 2,095
					23,827

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FINANCIAL INFORMATION

APPENDIX I

Segment assets Interests in jointly-controlled entities Minority interests Unallocated assets Total assets Segment liabilities Other segment information: Capital expenditure Depreciation Deficits on revaluation of leasehold land and buildings Deficits on revaluation of investment properties Loss on disposal of fixed assets Unrealised loss on other investments	Hong Kong 2004 2003 HK$’000 HK$’000 136,393 87,850 254,701 191,600 1,999 15,192 9,744 8,163 3,090 536 160 240 925 – – 71	PRC 2004 2003 HK$’000 HK$’000 720,946 427,098 102,620 72,513 27,102 40,207 12,276 12,108 – 40 – – – – – –	Consolidated 2004 2003 HK$’000 HK$’000 857,339 514,948 62,146 86,058 – 2,383 – 14,542 919,485 617,931 357,321 264,113 29,101 55,399 22,020 20,271 3,090 576 160 240 925 – – 71	Consolidated 2004 2003 HK$’000 HK$’000 857,339 514,948 62,146 86,058 – 2,383 – 14,542 919,485 617,931 357,321 264,113 29,101 55,399 22,020 20,271 3,090 576 160 240 925 – – 71
				617,931

				264,113

				55,399 20,271 576 240 – 71

Business segments

The following table presents revenue, assets and capital expenditure information for the Group’s business segments.

Segment revenue Sales to external customers Intersegment sales Total revenue Segment assets Capital expenditure	Manufacturing and sales of fashion garments 2004 2003 HK$’000 HK$’000 590,847 564,049 – – 590,847 564,049 702,922 481,723 3,137 28,999	Swedish Texcote Technology 2004 2003 HK$’000 HK$’000 148,830 15,603 18,483 6,463 167,313 22,066 154,417 33,225 25,964 26,400	Elimination 2004 2003 HK$’000 HK$’000 – – (18,483) (6,463) (18,483) (6,463)	Consolidated 2004 2003 HK$’000 HK$’000 739,677 579,652 – – 739,677 579,652 857,339 514,948 29,101 55,399	Consolidated 2004 2003 HK$’000 HK$’000 739,677 579,652 – – 739,677 579,652 857,339 514,948 29,101 55,399
					579,652

					514,948

					55,399

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FINANCIAL INFORMATION

APPENDIX I

4. PROFIT FROM OPERATING ACTIVITIES

The Group’s profit from operating activities is arrived at after charging (crediting):

Charging Auditors’ remuneration – Current year – Under-provision in prior year Cost of inventories sold Deficits on revaluation of leasehold land and buildings_(note 11) Deficits on revaluation of investment properties(note 12) Loss on disposal of an investment property Depreciation Owned fixed assets Leased fixed assets Impairment loss on interest in a jointly-controlled entity Minimum lease payments under operating leases in respect of land and buildings Staff costs (excluding directors’ remuneration –_note 5) Wages and salaries Retirement benefits scheme contributions Unrealised loss on other investments Loss on disposal of fixed assets Crediting Gains on sales of investment securities	2004 HK$’000 700 111 485,965 3,090 160 500 17,001 5,019 22,020 17,760 26,113 36,600 1,319 37,919 – 925 (17,930)	2003 HK$’000 680 500 413,314 576 240 –
		14,060 6,211
		20,271 1,921 26,938
		36,757 1,552
		38,309 71 –

		–

5. REMUNERATION OF DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

Directors’ remuneration

The directors’ remuneration disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance is as follows:

Fees for independent non-executive directors Salaries, allowances and benefits in kind for executive directors Retirement benefits scheme contributions for executive directors	2004 HK$’000 284 3,703 48 4,035	2003 HK$’000 266 3,960 48
		4,274

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During the year, no remuneration was paid by the Group to any of the directors as an inducement to join, or upon joining the Group or as compensation for loss of office.

There was no arrangement under which the directors waived or agreed to waive any remuneration during the year.

The number of the directors whose remuneration fell within the following bands is as follows:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of 2004 5 2 7	directors 2003 5 2
		7

During the year, 51,200,000 share options were granted to the directors in respect of their services to the Group, details of which are set out in note 25. No value in respect of the share options granted during the year has been charged to the income statement, or is otherwise included in the above directors’ remuneration disclosures.

The deemed benefits arising from the exercise of shares options during the year have not been included in the above directors’ remuneration disclosures.

Five highest paid individuals’ remuneration

The five highest paid individuals during the year included three (2003: four) directors, details of whose remuneration are set out above. Details of the remuneration of the remaining two (2003: one) highest paid individuals are as follows:

Salaries, allowances and benefits in kind Retirement benefits scheme contributions	2004 HK$’000 1,946 24 1,970	2003 HK$’000 1,244 9
		1,253

During the year, no remuneration was paid by the Group to any of the highest paid individuals as an inducement to join, or upon joining the Group, or as compensation for loss of office.

The number of the five highest paid individuals whose remuneration fell within the following bands is as follows:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of individuals 2004 2003 1 – 1 1 2 1	Number of individuals 2004 2003 1 – 1 1 2 1
		1

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FINANCIAL INFORMATION

APPENDIX I

During the year, no share option was granted to these two highest paid individuals in respect of their services to the Group (2003: 10,000,000 share options were granted). No value in respect of the share options granted has been charged to the income statement, or is otherwise included in the above five highest paid individuals’ remuneration disclosures.

The deemed benefits arising form the exercise of share options during the year have not been included in the above highest paid individuals’ remuneration disclosures.

6. FINANCE COSTS

Interest expenses on: Bank loans and overdrafts wholly repayable within five years Finance leases	2004 HK$’000 9,840 631 10,471	2003 HK$’000 9,242 716
		9,958

7. TAXATION

Current year provision: Hong Kong Elsewhere Over provision in previous year Tax charge for the year	2004 HK$’000 1,500 9,492 (160) 10,832	2003 HK$’000 1,791 1,002 –
		2,793

(a) Hong Kong profits tax is provided at the rate of 17.5% (2003: 16%) on the estimated assessable profits arising in Hong Kong for the year. In 2003, the Government of the Hong Kong Special Administrative Region enacted a change in the profits tax rate from 16% to 17.5% for the fiscal year 2003/2004. Taxes on profits assessable elsewhere are calculated at the rates of tax prevailing in the respective jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.
(b) In accordance with the applicable corporate income tax law of the PRC, Shunde U-Right Garment Company Limited (“Shunde U-Right”), a subsidiary of the Group operating in the PRC, was exempted from enterprise income tax for the first two profitable calendar years of operation from 1 January 1999 to 31 December 2000, and is entitled to a 50% relief on the enterprise income tax for the following three years from 1 January 2001 to 31 December 2003. Accordingly, Shunde U-Right is subject to a reduced tax rate of 12% for the years from 1 January 2001 to 31 December 2003. Upon expiry of the tax relief period, the standard PRC enterprise income tax rate applicable to Shunde U- Right will be 24%.
(c) No provision for deferred taxation has been made in the financial statements as the tax effect of temporary differences is immaterial to the Group and the Company.

At the balance sheet date the Group has unused tax losses of HK$61 million (2003: HK$32 million) available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future taxable profit streams. All losses may be carried forward indefinitely.

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APPENDIX I

(d) The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate of the home country of the Group as follows:

Profit before taxation Tax at the applicable tax rate of 17.5% (2003: 16%) Tax effect of income that is not taxable Tax effect of expenses that is not deductible Temporary timing difference not recognised Tax effect of utilisation of tax losses not previously recognised Tax effect of unused tax losses not recognised Over provision of taxation charges Effect of different tax rates of subsidiaries operating in other jurisdictions Taxation charges	2004 HK$’000 137,116 23,995 (28,884) 14,476 (76) (450) 4,062 71 (2,362) 10,832	2003 HK$’000 24,525
		3,924 (8,638) 3,908 (1,372) (47) 4,674 395 (51)
		2,793

8. NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

Included in net profit attributable to shareholders for the year ended 31 March 2004 is a net profit of HK$32,388,000 (2003: net loss of HK$2,715,000) dealt with in the financial statements of the Company.

9. DIVIDENDS

Interim dividend paid – HK1 cent (2003: Nil) per ordinary share Proposed final dividend – HK1.5 cents (2003: HK0.6 cent) per ordinary share	2004 HK$’000 14,512 22,152 36,664	2003 HK$’000 – 7,773
		7,773

The previously recorded proposed final dividend for the year ended 31 March 2003 was HK$7,113,000. The additional amount of approximately HK$660,000 paid was as a result of the exercise of share options and warrants prior to approval at the annual general meeting.

The final dividend for the year was proposed by the directors on 12 July 2004. The proposed final dividend is not recognised as a liability at 31 March 2004 as it is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

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APPENDIX I

10. EARNINGS PER SHARE

The calculations of basic and diluted earnings per share are based on:

Earnings Net profit attributable to shareholders, used in the basic and diluted earnings per share calculation Number of shares Weighted average number of ordinary shares in issue during the year used in basic earnings per share calculation Effect of dilutive potential ordinary shares in respect of share options Weighted average number of ordinary shares used in diluted earnings per share calculation	2004 HK$’000 113,872 1,300,075,061 N/A N/A	2003 HK$’000 23,827

		1,073,251,910 16,029,479
		1,089,281,389

Diluted earnings per share for the year ended 31 March 2004 has not been disclosed as the share options outstanding had an anti-dilutive effect on the basic earnings per share for the year.

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FINANCIAL INFORMATION

APPENDIX I

11. FIXED ASSETS

Group

Medium term leasehold Machinery land and Construction Leasehold and buildings in progress improvements equipment HK$’000 HK$’000 HK$’000 HK$’000 Cost or valuation At 1 April 2003 56,948 14,241 30,222 49,526 Additions – 10,046 1,301 15,917 Revaluation deficits (3,240) – – – Transfer 2,982 (2,982) – – Disposals of subsidiaries – – – (10,838) Disposals – – (3,606) (13) Exchange adjustments 54 (43) (22) 5 At 31 March 2004 56,744 21,262 27,895 54,597 Accumulated depreciation At 1 April 2003 – – 12,633 19,619 Charge for the year 1,236 – 8,435 9,040 Disposals of subsidiaries – – – (4,815) Disposals – – (2,714) – Reversal upon revaluation (150) – – – Exchange adjustments – – 3 9 At 31 March 2004 1,086 – 18,357 23,853 Net book value At 31 March 2004 55,658 21,262 9,538 30,744 At 31 March 2003 56,948 14,241 17,589 29,907 The analysis of the cost or valuation at 31 March 2004 of the above assets is as follows: At cost 2,982 21,262 27,895 54,597 At valuation – 2004 11,160 – – – – 2003 42,602 – – – 56,744 21,262 27,895 54,597	Furniture, fixtures and motor vehicles HK$’000 17,667 1,837 – – (1) – 7 19,510 11,122 3,309 (1) – – 9 14,439 5,071 6,545 19,510 – – 19,510	Total HK$’000 168,604 29,101 (3,240) – (10,839) (3,619) 1 180,008 43,374 22,020 (4,816) (2,714) (150) 21 57,735 122,273 125,230 126,246 11,160 42,602 180,008

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FINANCIAL INFORMATION

APPENDIX I

An analysis of the cost or valuation of the leasehold land and buildings of the Group at the balance sheet date is as follows:

Held under medium term leases in Hong Kong Held under medium term leases in the PRC	2004 HK$’000 11,160 45,584 56,744	2003 HK$’000 14,400 42,548
		56,948

The Group’s medium term leasehold land and buildings situated in Hong Kong were revalued as at 31 March 2004 by Castores Magi (Hong Kong) Limited (“Castores”), an independent firm of professional valuers, at HK$11,160,000 on an open market, existing use basis.

The Group’s medium term leasehold land and buildings situated in the PRC were revalued as at 31 March 2003 by Castores at HK$42,548,000 on a depreciated replacement cost basis.

Revaluation deficits of HK$3,090,000 have been charged to the income statement.

Had the Group’s leasehold land and buildings been stated at cost less accumulated depreciation, their carrying amounts as at 31 March 2004 would have been HK$38,656,000 (2003: HK$36,909,000).

At 31 March 2004, the Group’s leasehold land and buildings situated in the PRC with an aggregate carrying value of HK$41,695,722 were pledged to secure certain banking facilities granted to the Group (note 21(a) (iii)) .

The net book value of the fixed assets of the Group held under finance leases included in leasehold improvements, machinery and equipment and furniture, fixtures and motor vehicles at 31 March 2004 amounted to HK$3,787,000 (2003: HK$10,569,000), HK$7,638,000 (2003: HK$6,197,000) and HK$2,104,000 (2003: HK$2,697,000) respectively.

Company

Equipment HK$’000

Cost At 1 April 2003 and 31 March 2004 Accumulated depreciation At 1 April 2003 Charge for the year At 31 March 2004 Net book value At 31 March 2004 At 31 March 2003	922
	808 114
	922
	–

	114

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FINANCIAL INFORMATION

APPENDIX I

12. INVESTMENT PROPERTIES

Valuation At 1 April 2003 Disposal Revaluation deficits At 31 March 2004	Group HK’000 11,940 (1,600) (910)
	9,430

The Group’s investment properties are situated in Hong Kong and held under medium term leases.

At 31 March 2004, the investment properties were revalued by Castores on an open market, existing use basis at HK$9,430,000. Revaluation deficits of HK$750,000 and HK$160,000 arising therefrom has been charged to the properties revaluation reserve and the income statement respectively.

13. INTANGIBLE ASSETS

Cost At 1 April 2003 Additions At 31 March 2004 Accumulated amortisation At 1 April 2003 Amortisation for the year At 31 March 2004 Net book value At 31 March 2004 At 31 March 2003	Technical know-how HK’000 – 12,617 12,617 – 631 631 11,986 –	Group Goodwill HK’000 26,649 91,743 118,392 6,651 7,515 14,166 104,226 19,998	Total HK’000 26,649 104,360
			131,009
			6,651 8,146
			14,797
			116,212

			19,998

The amounts of the goodwill capitalised as an asset during the year are arising from the acquisition of additional interests in subsidiaries.

As detailed in note 2(g)(iii) to the financial statements, on the adoption of SSAP 30, the Group applied the transitional provision of SSAP 30 that permitted negative goodwill in respect of acquisitions which occurred prior to 1 January 2001 to remain credited to the capital reserve.

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APPENDIX I

14. INVESTMENTS IN SUBSIDIARIES

	Company
	2004	2003
	HK$’000	HK$’000
Unlisted investments, at cost	81,310	81,310

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment, except as disclosed in note 28(c).

Particulars of the Company’s principal subsidiaries at 31 March 2004 are as follows:

		Nominal value of
	Place of	issued and paid-up	Percentage of
	incorporation/	ordinary share/	equity attributable
Company	registration	registered capital	to the Company	Principal activities
*Directly held:*
Lucky Formosa International	British Virgin Islands	US$10,000	100%	Investment holding
Group Limited
*Indirectly held:*
Hing Yun Industries	Hong Kong	HK$100	95%	Trading of fashion
Company Limited				garments
Radix Development	Hong Kong	HK$1,000	100%	Property holding
Company Limited
Shunde U-Right Garment	The PRC	US$2,000,000	100%	Manufacturing and sale
Company Ltd.				of fashion garments
Sky Fox Investment Limited	Hong Kong	HK$10,000,000	100%	Property holding
U-Right Garments Limited	Hong Kong	HK$10,000,000	100%	Retailing of
				fashion garments
U-Right (HK) Limited	Hong Kong	HK$1,000,000	100%	Provision of
				management services
U-Right International Limited	Hong Kong	HK$20	100%	Provision of
				management services
U-Right Macau Commercial	Macau	MOP25,000	100%	Manufacturing and sale
Offshore Limited				of fashion garments
New Asia Associates Limited	British Virgin Islands	US$1	90%	Investment holding
Texnology Nano (BVI) Limited	British Virgin Islands	US$100	76%	Investment holding
(Formerly known as U-Right
Nano (BVI) Limited

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FINANCIAL INFORMATION

APPENDIX I

		Nominal value of
	Place of	issued and paid-up	Percentage of
	incorporation/	ordinary share/	equity attributable
Company	registration	registered capital	to the Company	Principal activities
Texnology Nano	British Virgin Islands	US$1,000	78%	Sub-licensing of
International Limited				proprietary rights
(Formerly known as Outclass				over Swedish Texcote
Associates Limited)				Technology and trading
				of related raw materials
Texnology Nano Textile	Hong Kong	HK$1,000	78%	Processing
(China) Limited				of textile products
(Formerly known as U-Right
Nano Textile (China) Limited
U-Right Nano Textile	The PRC	US$2,500,000	78%	Processing
(Shunde) Limited				of textile products

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

The principal places of operations of the subsidiaries are the same as their places of incorporation/registration, except for Texnology Nano Textile (China) Limited which operates in the PRC.

15. INTERESTS IN JOINTLY-CONTROLLED ENTITIES

Share of net assets Impairment loss Goodwill on acquisition Goodwill: At 1 April 2003 Amortisation for the year At 31 March 2004	Group 2004 2003 HK$’000 HK$’000 16,459 15,111 (17,760) – 63,447 70,947 62,146 86,058 HK$’000 70,947 (7,500) 63,447	Group 2004 2003 HK$’000 HK$’000 16,459 15,111 (17,760) – 63,447 70,947 62,146 86,058 HK$’000 70,947 (7,500) 63,447
		86,058

The amounts due from/to jointly-controlled entities are unsecured, interest-free and have no fixed terms of repayment.

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APPENDIX I

Particulars of the Group’s principal jointly-controlled entities at 31 March 2004 are as follows:

		Place of	Percentage
		incorporation/	of ownership
		registration and	interest attributable
Company	Business structure	operations	to the Group	Principal activities
Texcote International	Corporate	British Virgin	46%	Licensing of proprietary
Limited		Islands		rights over Swedish
				Texcote Technology
Texcote Technology	Corporate	Hong Kong	46%	Investment holding
(International) Limited
Hong Kong Green Nature	Corporate	Hong Kong	30%	Environmental
Environmental Engineering				protection projects
Limited

Pursuant to a shareholders’ agreement dated 7 June 2002 entered into by the Group and the joint venture partner, the Group is unable to exercise unilateral control over Texcote International Limited (“TIL”). Accordingly, TIL and its subsidiaries have been classified as jointly-controlled entities, in which the Group had 51% equity interest through New Asia Associates Limited (“NAA”) as at 31 March 2003. During the year, the Group disposed of certain interests in NAA to an independent party, thus, the Group had 46% equity interest in TIL as at 31 March 2004.

16. INVESTMENT SECURITIES

Non-current Unlisted investments, at cost Current Unlisted investments, at market value Trading securities, at market value	Group 2004 2003 HK$’000 HK$’000 47,333 – 980 980 1,533 – 2,513 980	Company 2004 2003 HK$’000 HK$’000 – – – – 1,533 – 1,533 –	Company 2004 2003 HK$’000 HK$’000 – – – – 1,533 – 1,533 –

			– –
			–

All of the Group’s investments in trading securities are listed on The Stock Exchange of Hong Kong Limited and are carried at market value.

17. DEPOSITS FOR ACQUISITION OF LONG-TERM ASSETS

Deposit paid for acquisition of a subsidiary	Group 2004 2003 HK$’000 HK$’000 – 37,336

The deposit paid for acquisition of a subsidiary was refunded together with interests upon termination of the agreement during the year.

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APPENDIX I

18. INVENTORIES

Raw materials Finished goods	Group 2004 2003 HK$’000 HK$’000 69,607 70,041 21,104 17,135 90,711 87,176	Group 2004 2003 HK$’000 HK$’000 69,607 70,041 21,104 17,135 90,711 87,176
		87,176

No inventories of the Group were carried at net realisable value (2003: Nil).

19. TRADE RECEIVABLES

Other than cash and credit card sales, invoices are normally payable within 30 days of issuance, except for certain well established customers where the terms are extended up to 90 days. Trade receivables are recognised and carried at their original invoiced amounts less provision against doubtful debts when collection of the full amount is no longer probable. Bad debts are written off as incurred.

An aged analysis of the trade receivables as at the balance sheet date, based on invoice dates, is as follows:

Within 30 days Between 31 days to 60 days Between 61 days to 180 days Provision against doubtful debts	Group 2004 2003 HK$’000 HK$’000 18,876 19,148 10,203 19,669 28,174 32,731 57,253 71,548 (1,749) (1,747) 55,504 69,801	Group 2004 2003 HK$’000 HK$’000 18,876 19,148 10,203 19,669 28,174 32,731 57,253 71,548 (1,749) (1,747) 55,504 69,801
		71,548 (1,747)
		69,801

20. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payables as at the balance sheet date, based on invoice dates, is as follows:

Within 30 days Between 31 days to 60 days Between 61 days to 180 days Over 180 days	Group 2004 2003 HK$’000 HK$’000 15,613 4,733 7,461 3,027 3,278 17,668 295 – 26,647 25,428	Group 2004 2003 HK$’000 HK$’000 15,613 4,733 7,461 3,027 3,278 17,668 295 – 26,647 25,428
		25,428

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FINANCIAL INFORMATION

APPENDIX I

21. INTEREST-BEARING BORROWINGS

Bank overdrafts Bank loans_(notes (a)(i) and (ii)) Trust receipt loans(note (a)(i)) Term and syndicated loans(note (b))_ Bank overdrafts repayable on demand Bank loans repayable within one year Trust receipt loans repayable within one year Term and syndicated loans repayable: Within one year In the second year In the third to fifth years, inclusive Portion classified as current liabilities Non-current portion	Group 2004 2003 HK$’000 HK$’000 – 3,079 15,831 10,032 51,460 47,955 210,000 130,000 277,291 191,066 – 3,079 15,831 10,032 51,460 47,955 17,690 37,143 67,310 74,286 125,000 18,571 210,000 130,000 277,291 191,066 (84,981) (98,209) 192,310 92,857	Company 2004 2003 HK$’000 HK$’000 – – 7,756 – – – 210,000 130,000 217,756 130,000 – – 7,756 – – – 17,690 37,143 67,310 74,286 125,000 18,571 210,000 130,000 217,756 130,000 (25,446) (37,143) 192,310 92,857

At 31 March 2004 the Group had total banking facilities of approximately HK$442 million (2003: HK$279 million), of which approximately HK$382 million were committed banking facilities, which comprised the following:

(a) General banking facilities

(i) Banking facilities of approximately HK$141 million (2003: HK$248 million) which were secured by corporate guarantees executed by the Company. At 31 March 2004, bank loans of approximately HK$15 million (2003: HK$2 million) and trust receipt loans were drawn under these facilities.
(ii) A banking facility of approximately HK$0.5 million (2003: HK$0.5 million) which were secured by corporate guarantees executed by certain unrelated parties. At 31 March 2004, the facility was fully utilised.
(iii) Banking facilities of approximately HK$15 million (2003: HK$23 million) which were secured by the Group’s leasehold land and buildings situated in the PRC with an aggregate carrying value of approximately HK$42 million (2003: HK$42 million) (note 11) . At 31 March 2004, none of these facilities were utilised (2003: Nil).
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FINANCIAL INFORMATION

APPENDIX I

(iv) A standby letter of credit facility of approximately HK$7.8 million (2003: HK$7.5 million) was guaranteed by a financial institution. The standby letter of credit facility was in turn guaranteed by the Company. At 31 March 2004, bank loan of approximately HK$7,477,000 (2003: HK$7,467,000) was fully drawn under this facility.

(b) Term and syndicated loan facilities

During the year, the Company was granted by certain banks a term loan facility of HK$50 million and a syndicated loan facility of HK$200 million. At 31 March 2004, these facilities were utilised to the extent of HK$10 million and HK$200 million respectively. These facilities were partly used for the repayment of the syndicated loan arranged in 2002 and other general banking facilities. Both the term and syndicated loans bear interest at Hong Kong Interbank Offered Rate plus 1.15% per annum. The syndicated loan will be repayable by 8 equal successive quarterly instalments of HK$15 million commencing on 16 January 2005 and a final instalment of HK$80 million on 16 January 2007.

According to these loan agreements, the Company is required to comply with certain financial convenants throughout the term life of the facilities and in addition, the controlling shareholders (Leung Ngok, Leung Shing, ACE Target and any discretionary trust) are required to own in aggregate, either directly or indirectly, at least 35% of the total issued share capital of the Company during the term life of these facilities.

22. FINANCE LEASE PAYABLES

At 31 March 2004 the total future minimum lease payments under finance leases and their present values were as follows:

Amounts payable: Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities Non-current portion	Group Present value of Minimum lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 5,612 8,876 5,305 8,054 3,270 4,808 3,018 4,423 3,042 2,943 3,046 2,857 11,924 16,627 11,369 15,334 (555) (1,293) 11,369 15,334 (5,305) (8,054) 6,064 7,280	Group Present value of Minimum lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 5,612 8,876 5,305 8,054 3,270 4,808 3,018 4,423 3,042 2,943 3,046 2,857 11,924 16,627 11,369 15,334 (555) (1,293) 11,369 15,334 (5,305) (8,054) 6,064 7,280
		15,334

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FINANCIAL INFORMATION

APPENDIX I

As at 31 March 2004, the Group’s finance lease payables of approximately HK$10,223,000 (2003: HK$14,577,000) were secured by corporate guarantees executed by the Company.

Amounts payable: Within one year In the second year Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities Non-current portion	Company Present value of Minimum lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 – 136 – 114 – – – – – 136 – 114 – (22) – 114 – (114) – –	Company Present value of Minimum lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 – 136 – 114 – – – – – 136 – 114 – (22) – 114 – (114) – –
		114

23. MINORITY INTERESTS

Share of net liabilities by minority shareholders Share of net assets by minority shareholders	Group 2004 2003 HK$’000 HK$’000 – (2,707) 10,536 324 10,536 (2,383)	Group 2004 2003 HK$’000 HK$’000 – (2,707) 10,536 324 10,536 (2,383)
		(2,383)

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APPENDIX I

24. SHARE CAPITAL

Note Ordinary shares of HK$0.10 each Authorised: Issued and fully paid: At beginning of year Issue of shares Exercise of share options (a) Exercise of warrants (b) Subscribed shares (c)(d) At end of year	Number of shares 2004 2003 2,000,000,000 2,000,000,000 1,106,580,700 946,039,400 123,600,000 – 4,800 115,541,300 221,000,000 45,000,000 1,451,185,500 1,106,580,700	Ordinary 2004 HK$’000 200,000	share capital 2003 HK$’000 200,000

		110,658 12,360 1 22,100	94,604 – 11,554 4,500
		145,119	110,658

Notes:

(a) During the year, 123,600,000 (2003: Nil) ordinary shares of HK$0.10 were issued in relation to share options exercised by directors, employees and suppliers under the share option scheme as follows:
(i) 70,000,000 share options exercised at HK$0.2778 per share;
(ii) 10,000,000 share options exercised at HK$0.36 per share;
(iii) 30,800,000 share options exercised at HK$0.38 per share; and
(iv) 12,800,000 share options exercised at HK$0.39 per share.

The excess of the exercise price received over the nominal value of shares issued of HK$27,382,000 (before issuing expenses) was credited to the share premium account.

(b) During the year, 4,800 ordinary shares of HK$0.10 each in the Company were issued to certain warrant holders at a price of HK$0.45 per share, following the exercise of the warrants. The excess of the consideration received over the nominal value of the shares issued, in the amount of HK$1,680, was credited to the share premium account. The outstanding balance of 48,414,500 warrants not exercised were expired on 12 September 2003.
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APPENDIX I

(c) The placement of ordinary shares of HK$0.10 each in the Company held by Mr. Leung Ngok, a substantial shareholder of the Company, to independent third parties not connected with the directors, chief executives or substantial shareholders of the Company or any of its subsidiaries, or any of their associates as defined in the Listing Rules, and new subscriptions by Mr. Leung Ngok of the same number of shares and at the same price per share took place during the year as follows:
(i) on 17 July 2003, 49,000,000 ordinary shares of HK$0.10 each at a price of HK$0.33 per share; and
(ii) on 25 August 2003, 60,000,000 ordinary shares of HK$0.10 each at a price of HK$0.35 per share.

The excess of the consideration received over the nominal value of the shares issued of HK$26,270,000 (before issuing expenses), was credited to the share premium account.

(d) On 6 October 2003, 112,000,000 ordinary shares of HK$0.10 each in the Company were placed by the Company to independent third parties not connected with the directors, chief executives or substantial shareholders of the Company or any of its subsidiaries, or any of their associates as defined in the Listing Rules, at a price of HK$0.38 per share. The excess of the consideration received over the nominal value of the shares issued of HK$31,360,000 (before issuing expenses), was credited to the share premium account.

25. SHARE OPTION SCHEME

The share option scheme of the Company (the “Scheme”) was adopted at the special general meeting of the Company on 9 July 2002 for the purpose of providing incentives or rewards to eligible participants for their contribution to the Group and/or to enable the Group to recruit and retain high-calibre employees and attract human resources that are valuable to the Group and any entity in which the Group holds any equity interest (the “Invested Entity”). Eligible participants of the Scheme include the directors and employees of the Company, its subsidiaries or any Invested Entity, suppliers and customers of the Group or any Invested Entity, any person or entity that provides research, development or other technological support to the Group or any Invested Entity, and any shareholder of any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity. The Scheme should, unless otherwise terminated or amended, remain in force for ten years from 17 July 2002.

The maximum number of shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Scheme and any other share option schemes of the Company must not exceed 30% of the total number of shares in issue from time to time. The total number of shares which may be issued upon exercise of all share options to be granted under the Scheme and any other share option schemes of the Company shall not in aggregate exceed 10% of the total number of shares in issue on 25 September 2003 (i.e. not exceeding 129,558,550 shares of the Company). Share options lapsed in accordance with the terms of the Scheme or any other share option schemes of the Company will not be counted for the purpose of calculating the 10% limit. The Company may seek approval of the shareholders in general meeting for refreshing the 10% limit under the Scheme save that the total number of shares which may be issued upon exercise of all share options to be granted under the Scheme and any other share option schemes of the Company under the limit as refreshed shall not exceed 10% of the total number of shares in issue as at the date of approval of the limit as refreshed. Share options previously granted under the Scheme or any other share option schemes of the Company (including share options outstanding, cancelled, lapsed or exercised in accordance with the terms of the Scheme or any other share option schemes of the Company) will not be counted for the purpose of calculating the limit as refreshed. The total number of shares issued and to be issued upon exercise of the share options granted to each eligible participant (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue.

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FINANCIAL INFORMATION

APPENDIX I

Each grant of the share options to a director, chief executive or substantial shareholder of the Company, or to any of their associates, under the Scheme must comply with the requirements of Rule 17.04 of the Listing Rules and must be subject to approval by the independent non-executive directors to whom share options have not been granted. In addition, any grant of share options to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, which would result in the shares issued and to be issued upon exercise of all share options already granted and to be granted (including share options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant in excess of 0.1% of the total number of shares of the Company in issue and with an aggregate value (based on the closing price of the Company’s shares at the date of each grant) in excess of HK$5 million, are subject to prior approval from shareholders in a general meeting.

The offer of a grant of share options shall be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, save that such period shall not be more than ten years from the date of the offer of the share options subject to the provisions for early termination set out in the Scheme. There is no minimum period for which an option must be held before the exercise of the subscription right attaching thereto except otherwise imposed by the board of directors.

The exercise price of the share options is determinable by the directors, but may not be less than the highest of (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotation sheets on the date of the offer of the share options, which must be a trading day; (ii) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s shares.

During the year, 120,400,000 shares options were granted to directors, employees and suppliers of the Group. 123,600,000 share options were exercised by directors, employees and suppliers during the year, details of which are set out in note 24(a). No options were cancelled or lapsed during the year ended 31 March 2004 (2003: Nil).

At 31 March 2004, the Company had 76,800,000 share options outstanding under the Scheme. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 76,800,000 additional ordinary shares of the Company and additional share capital of HK$7,680,000 and share premium of HK$21,504,000 (before issuing expenses).

The total number of the Company’s shares currently available for issue under the Scheme is 9,158,550 shares, being 0.62% of the issued share capital of the Company as at the date of this annual report.

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FINANCIAL INFORMATION

APPENDIX I

A summary of the movement of share options granted under the Scheme during the year is as follows:

Closing price Name or Exercise before category of Date of Exercise price the date participants grant period per share of grant HK$ HK$ Directors Mr. Leung Ngok 23 Aug 2002 7 Aug 2002 0.2778 – – 6 Aug 2012 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013 Mr. Leung Shing 23 Aug 2002 7 Aug 2002 0.2778 – – 6 Aug 2012 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013 Mr. Lee Ka Yiu, 23 Aug 2002 7 Aug 2002 0.2778 – Andy – 6 Aug 2012 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013 Mr. Li Chung Hing 23 Aug 2002 7 Aug 2002 0.2778 – – 6 Aug 2012 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013 Other employees 23 Aug 2002 7 Aug 2002 0.2778 – (in aggregate) – 6 Aug 2012 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013 Suppliers 17 Oct 2002 10 Oct 2002 0.36 – (in aggregate) – 9 Oct 2012 22 Oct 2003 21 Oct 2003 0.39 0.405 – 20 Oct 2013 4 Nov 2003 10 Oct 2003 0.38 0.39 – 9 Oct 2013	Number of share options outstanding at 1 Apr 2003 10,000,000 – 10,000,000 – 10,000,000 – 10,000,000 – 30,000,000 – 10,000,000 – – 80,000,000	Number of share options granted during the year – 12,800,000 – 12,800,000 – 12,800,000 – 12,800,000 – 30,800,000 – 12,800,000 25,600,000 120,400,000	Number of share options exercised during the year (10,000,000) – (10,000,000) – (10,000,000) – (10,000,000) (12,800,000) (30,000,000) (18,000,000) (10,000,000) (12,800,000) – (123,600,000)	Number of share options outstanding at 31 Mar 2004 – 12,800,000 – 12,800,000 – 12,800,000 – – – 12,800,000 – – 25,600,000
				76,800,000

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FINANCIAL INFORMATION

APPENDIX I

26. RESERVES

Company

Share premium HK$’000 At 1 April 2002 68,739 Issue of new shares 72,390 Shares issue expenses (1,144) Loss for the year – At 31 March 2003 139,985 Representing: At 31 March 2003 after proposed final dividend Proposed final dividend_(note 9) At 1 April 2003 139,985 Issue of shares Exercise of share options(note 24(a)) 27,382 Exercise of warrants(note 24(b)) 2 Subscribed shares(note 24(c), (d)) 57,630 Shares issue expenses (1,966) Profit for the year – Dividends paid(note 9) – At 31 March 2004 223,033 Representing: At 31 March 2004 after proposed final dividend Proposed final dividend(note 9)_	Retained profits/ Contributed (Accumulated surplus losses) HK$’000 HK$’000 40,358 (2,990) – – – – – (2,715) 40,358 (5,705) 40,358 (5,705) – – – – – – – – – 32,388 – (22,285) 40,358 4,398	Total HK$’000 106,107 72,390 (1,144) (2,715) 174,638 166,865 7,773 174,638 174,638 27,382 2 57,630 (1,966) 32,388 (22,285) 267,789 245,637 22,152 267,789

The contributed surplus represents the excess of the then combined net assets of the subsidiaries acquired pursuant to the group reorganisation in preparation for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited completed on 16 October 2000 over the nominal value of the share capital of the Company issued in exchange therefor.

In accordance with the Companies Act 1981 of Bermuda (as amended), the Company’s contributed surplus is available for cash distribution and/or distribution in specie in certain circumstances.

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APPENDIX I

27. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Acquisition of additional interests in subsidiaries

Net assets acquired: Fixed assets Trade receivables Prepayments, deposits and other receivables Bank and cash balances Trade payables Accruals and other payables Minority interests Provision for taxation Goodwill Satisfied by: Cash consideration Deposit paid in previous year	2004 HK$’000 – – – – – – 2,522 – 91,743 94,265 94,265 – 94,265	2003 HK$’000 1,182 134 175 101 (2,881) (120) (52) (188) 26,649 25,000 13,000 12,000 25,000

Analysis of the net outflow of cash and cash equivalents in respect of the acquisition of additional interests in subsidiaries is as follows:

Bank and cash balances acquired Cash consideration Net outflow of cash and cash equivalents in respect of the acquisition of additional interests in subsidiaries	2004 HK$’000 – (94,265) (94,265)	2003 HK$’000 101 (13,000) (12,899)

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APPENDIX I

(b) Disposal of interests in subsidiaries

Net assets disposed of: Fixed assets Prepayments and other receivables Provision for taxation Minority interests Gain on disposal of interests in subsidiaries Satisfied by: Cash consideration	2004 HK$’000 6,023 358 (9,465) 3,290 206 45,294 45,500 45,500	2003 HK$’000 1,123 12,539 (11,988) – 1,674 10,326 12,000 12,000

The results of the interests in subsidiaries disposed of in the year ended 31 March 2004 had no significant impact on the Group’s consolidated turnover or profit after tax for the year.

(c) Analysis of cash flows from financing activities

Balance at 1 April 2002 New drawdown Repayment Balance at 31 March 2003 New drawdown Repayment Balance at 31 March 2004	Bank loans HK$ 54,340 30,123 (74,431) 10,032 7,766 (1,967) 15,831	Term and syndicated Finance loans lease payables HK$ HK$ – 7,512 130,000 14,269 – (6,447) 130,000 15,334 210,000 2,862 (130,000) (6,827) 210,000 11,369

(d) Major non-cash transaction

During the year, the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of HK$2,862,000 (2003: HK$14,269,000).

28. RELATED PARTY TRANSACTIONS

(a) During the year, the Group paid rental expenses of HK$910,000 (2003: HK$910,000) to Mr. Leung Ngok and Mr. Leung Shing for properties jointly owned by them. In addition, the Group paid rental expenses of HK$720,000 (2003: HK$720,000) and HK$50,000 (2003: HK$600,000) to Mr. Leung Shing and the wife of Mr. Leung Ngok respectively. Mr. Leung Ngok and Mr. Leung Shing are executive directors of the Company. The properties leased were occupied by the Group as retail outlets and directors’ quarters.
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FINANCIAL INFORMATION

APPENDIX I

(b) During the year, the Group had the following transactions with Texcote Technology (International) Limited, a jointly-controlled entity:

Purchases Sales Rental income received Management fee received Interest income received Licensing fees paid	2004 HK$’000 1,100 – 122 548 – 4,000	2003 HK$’000 777 8 – 658 26 –

(c) At 31 March 2004, certain wholly-owned subsidiaries of the Group provided advances totalling approximately HK$95,000,000 to a non-wholly owned subsidiary of the Group, with interest charged at 2% per annum. The advances are unsecured and have no fixed terms of repayment. The principal purpose of these advances is to finance the non-wholly owned subsidiary’s investment activities.

At 31 March 2003, certain wholly-owned subsidiaries of the Group provided advances totalling approximately HK$54,318,000 to a non-wholly-owned subsidiary of the Group, at 7% per annum. The advances are unsecured and have no fixed terms of repayment. The principal purpose of these advances is to finance the non-wholly-owned subsidiary’s operating activities.

29. CONTINGENT LIABILITIES

The Group did not have any significant contingent liabilities at 31 March 2004 (2003: Nil).

As at 31 March 2004, the Company had provided unlimited corporate guarantees for banking facilities granted to certain of its subsidiaries, which were utilised to the extent of HK$66,828,000 (2003: HK$52,360,000) as at that date, and corporate guarantees for finance lease payables of certain subsidiaries of HK$10,223,000 (2003: HK$14,577,000).

30. OPERATING LEASE ARRANGEMENTS

(a) As lessor

At 31 March 2004, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year	2004 HK$’000 740	2003 HK$’000 419

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FINANCIAL INFORMATION

APPENDIX I

(b) As lessee

At 31 March 2004, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2004 HK$’000 13,999 4,693 18,692	2003 HK$’000 28,571 13,913
		42,484

31. COMMITMENTS

(a) Capital commitments

The Group had the following capital commitments at the balance sheet date:

Contracted but not provided for (i) non-current investment (ii) purchases of plant and machinery (iii) construction of factory buildings	2004 HK$’000 11,000 – 4,587 15,587	2003 HK$’000 – 8,714 14,178
		22,892

The Company did not have any significant capital commitments as at the balance sheet date (2003: Nil).

(b) Commitment arising from a license agreement

Pursuant to the license agreement dated 2 April 2002 and the supplementary letter of amendment dated 28 October 2002 (collectively referred to as the “License Agreement”) entered into between Texnology Nano International Limited (“TNIL”), a subsidiary of the Company, and Texcote International Limited (“TIL”), a jointly-controlled entity of the Company (note 15) , TNIL has been granted exclusive rights over the Swedish Texcote Technology for the use in the textile and clothing industry in Mainland China, Hong Kong and Macau for a term of 28 years commencing on 2 April 2002. In addition, TNIL has the rights to sub-license the whole or part of its right to other parties during the term of the License Agreement.

In consideration of the rights granted, TNIL is required to pay an aggregate sum of HK$28,000,000 to TIL in the following manner:

(i) an annual fee of HK$2,000,000 for each of the years ended/ending 31 March 2003, 2004, 2005 and 2006; and
(ii) an amount equal to 10% of the annual profit after tax of TNIL commencing from the year ending 31 March 2006 until an aggregate total of HK$20,000,000 has been paid.
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APPENDIX I

32. POST BALANCE SHEET DATE EVENTS

(a) On 18 June 2004, 259,000,000 warrants were placed to independent third parties not connected with directors, chief executives or substantial shareholders of the Company or any of its subsidiaries or any of their associates as defined in the Listing Rules, at HK9.7 cents per warrant. Each warrant will entitle the holder thereof to subscribe for one share in the Company at an initial subscription price of HK$0.20 per share. The net proceeds of the placing of approximately HK$24 million, net of expenses, are intended to be used as general working capital of the Group.
(b) On 21 June 2004, a subsidiary of the Group entered into an agreement with an independent party for the purchase of a property, which is currently occupied by the Group for office purpose, at a consideration of approximately HK$41 million pursuant to the exercise of the option to purchase under the tenancy agreement.
(c) During the period from 1 April 2004 to 12 July 2004 an aggregate of 25,600,000 share options were exercised, resulting in the issue of 25,600,000 shares of HK$0.10 each for a total cash consideration, before expenses, of HK$9,728,000.
(d) On 12 July 2004, the directors proposed a final dividend for the year ended 31 March 2004, details of which are set out in note 9.

33. COMPARATIVE FIGURES

Certain comparative figures in the income statement and the notes thereto have been reclassified to conform with the current year’s presentation. The changes included the reclassification of geographical segment information, and the reclassification of expenses previously classified as other operating expenses to selling and distribution costs and administrative expenses. The new classification of the accounting items was considered to provide a more appropriate presentation of the Group’s operating results.

34. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 12 July 2004.

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FINANCIAL INFORMATION

APPENDIX I

4. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

Set out below is the unaudited condensed consolidated financial statements of the Group for the six months ended 30 September 2004 and 30 September 2003 extracted from the interim report 2004/ 2005 of the Company.

Condensed Consolidated Income Statement

Note
TURNOVER
2
Cost of sales
GROSS PROFIT
Other revenue
Gain on disposal of a subsidiary
Selling and distribution costs
Administrative expenses
Amortisation of goodwill
Other operating expenses
PROFIT FROM OPERATING ACTIVITIES
2,3
Finance costs
4
Share of profits/(losses) of jointly-controlled entities
Amortisation of goodwill arising on acquisition of
jointly-controlled entities and associates
PROFIT BEFORE TAXATION
Taxation
5
PROFIT BEFORE MINORITY INTERESTS
Minority interests
NET PROFIT ATTRIBUTABLE
TO SHAREHOLDERS
DIVIDEND
6
EARNINGS PER SHARE
7
Basic

For the six months ended
30 September
30 September
2004
2003
(Unaudited)
(Unaudited)
HK$’000
HK$’000
398,003
314,904
(253,028)
(199,751)
144,975
115,153
1,776
701
–
3,941
(40,622)
(33,593)
(29,166)
(26,158)
(7,087)
(2,400)
(1,133)
(2,719)
68,743
54,925
(4,611)
(5,109)
990
(367)
(3,750)
(3,895)
61,372
45,554
(4,720)
(3,720)
56,652
41,834
(4,750)
(4,009)
51,902
37,825
HK0.5 cent
HK1 cent
HK3.5 cent
HK3.3 cent

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FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Balance Sheet

30 September 2004 (Unaudited) Note HK$’000 NON-CURRENT ASSETS Fixed assets 8 224,483 Investment properties 9,430 Intangible assets 135,494 Interests in jointly-controlled entities 59,386 Other investments 94,853 Rental deposits 2,908 526,554 CURRENT ASSETS Inventories 174,315 Trade receivables 9 59,503 Prepayments, deposits and other receivables 59,827 Securities investments – Bank and cash balances 299,678 593,323 CURRENT LIABILITIES Trade and bills payables 10 17,648 Accruals and other payables 35,765 Amounts due to jointly-controlled entities 70 Provision for taxation 21,099 Interest-bearing borrowings 130,653 Finance lease payables 4,565 209,800 NET CURRENT ASSETS 383,523 TOTAL ASSETS LESS CURRENT LIABILITIES 910,077 NON-CURRENT LIABILITIES Interest-bearing borrowings 205,373 Finance lease payables 3,572 208,945 Minority interests 10,286 Net assets 690,846 CAPITAL AND RESERVES Share capital 11 177,501 Reserves 513,345 Shareholders’ funds 690,846	31 March 2004 (Audited) HK$’000 122,273 9,430 116,212 62,146 47,333 3,718
	361,112
	90,711 55,504 25,845 2,513 383,800
	558,373
	26,647 12,853 70 18,555 84,981 5,305
	148,411
	409,962
	771,074
	192,310 6,064
	198,374
	10,536
	562,164

	145,119 417,045
	562,164

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FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2004

		Share	Subscription	Subscription		Properties			Exchange
	Share	premium		right	revaluation			Statutory	fluctuation		Capital	Retained
	capital	account		reserve		reserve		reserve	reserve		reserve	profits		Total
	(Unaudited)	(Unaudited)	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
	HK$’000	HK$’000		HK$’000		HK$’000		HK$’000	HK$’000		HK$’000	HK$’000		HK$’000
At 1 April 2003	110,658	139,985		–		23,233		220	(945)		585	80,082		353,818
Shares issued on exercise of
share options	8,000	15,048		–		–		–	–		–	–		23,048
Issue of subscribed shares	10,900	26,270		–		–		–	–		–	–		37,170
Shares issue expenses	–	(877)		–		–		–	–		–	–		(877)
Final dividend in respect of the
previous year approved
and payables	–	–		–		–		–	–		–	(7,774)		(7,774)
Net profit for the period	–	–		–		–		–	–		–	37,825		37,825
At 30 September 2003	129,558	180,426		–		23,233		220	(945)		585	110,133		443,210
Shares issued on exercise of
share options	4,360	12,334		–		–		–	–		–	–		16,694
Shares issued on exercise of warrants	1	2		–		–		–	–		–	–		3
Issue of subscribed shares	11,200	31,360		–		–		–	–		–	–		42,560
Shares issue expenses	–	(1,089)		–		–		–	–		–	–		(1,089)
Deficits of revaluation	–	–		–		(750)		–	–		–	–		(750)
Interim dividend paid in the year	–	–		–		–		–	–		–	(14,511)		(14,511)
Net profit for the period	–	–		–		–		–	–		–	76,047		76,047
At 31 March 2004	145,119	223,033		–		22,483		220	(945)		585	171,669		562,164

Shares issued on exercise of
share options	7,680	21,504		–		–		–	–		–	–		29,184
Issue of warrants	–	–		25,123		–		–	–		–	–		25,123
Warrants issue expenses	–	–		(306)		–		–	–		–	–		(306)
Shares issued on exercise of warrants	24,702	48,663		(23,961)		–		–	–		–	–		49,404
Final dividend in respect of the
previous year approved
and payables	–	–		–		–		–	–		–	(26,625)		(26,625)
Net profit for the period	–	–		–		–		–	–		–	51,902		51,902
At 30 September 2004	177,501	293,200		856		22,483		220	(945)		585	196,946		690,846

Attributable to:
At 30 September 2003
Company and subsidiaries	129,558	180,426		–		23,233		220	(945)		585	88,993		422,070
Jointly-controlled entities	–	–		–		–		–	–		–	21,140		21,140
	129,558	180,426		–		23,233		220	(945)		585	110,133		443,210

At 30 September 2004
Company and subsidiaries	177,501	293,200		856		22,483		220	(945)		585	213,828		707,728
Jointly-controlled entities	–	–		–		–		–	–		–	(16,882)		(16,882)
	177,501	293,200		856		22,483		220	(945)		585	196,946		690,846

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FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Cash Flow Statement

	For the six months ended	For the six months ended	For the six months ended
	30 September	30 September
	2004		2003
	(Unaudited)		(Unaudited)
	HK$’000		HK$’000
Net cash (outflow)/inflow from operating activities	(55,452)		50,560
Net cash outflow from investing activities	(187,578)		(66,315)
Net cash inflow from financing activities	158,908		56,076
Net (decrease)/increase in cash and cash equivalents	(84,122)		40,321
Cash and cash equivalents at beginning of period	383,800		105,248
Cash and cash equivalents at end of period	299,678		145,569

ANALYSIS OF BALANCES OF CASH
AND CASH EQUIVALENTS
Bank and cash balances	299,678		145,569

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APPENDIX I

NOTES:

1. Basis of Presentation and Accounting Policies

The unaudited condensed consolidated interim financial statements have been prepared in accordance with the Hong Kong Statement of Standard Accounting Practice No. 25 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and with the disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The unaudited condensed consolidated interim financial statements should be read in conjunction with the annual audited financial statements for the year ended 31 March 2004.

The accounting policies and basis of presentation used in the preparation of the interim financial statements are the same as those used in the annual audited financial statements for the year ended 31 March 2004.

2. Turnover and Segment Information

Turnover comprises the invoiced value of goods sold, net of trade discounts and returns and licensing income.

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

The Group’s geographical segments comprise Hong Kong and the Mainland China.

The Group’s business segments comprise manufacturing and sale of fashion garments business and the Texnology Nano group business.

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FINANCIAL INFORMATION

APPENDIX I

(a) Geographical Segments

An analysis of the Group’s turnover and contributions to operating profit by geographical segments for the six months ended 30 September 2004, together with the comparative figures for the corresponding period in 2003, is as follows:–

	Hong Kong	Hong Kong	Mainland China	Mainland China	Elimination	Elimination	Elimination	Consolidated	Consolidated
	Six months	Six months	Six months	Six months	Six months		Six months	Six months	Six	months
	ended	ended	ended	ended	ended		ended	ended		ended
	30 September	30 September	30 September	30 September	30 September	30 September		30 September	30 September
	2004	2003	2004	2003	2004		2003	2004		2003
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)	(Unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external customers	52,150	52,000	345,853	262,904	–		–	398,003	314,904
Intersegment sales	–	56,206	36,324	32,519	(36,324)		(88,725)	–		–
Total revenue	52,150	108,206	382,177	295,423	(36,324)		(88,725)	398,003	314,904

Segment results	4,256	1,984	70,773	66,352	–		–	75,029		68,336

Interest income								801		675
Other unallocated revenue								–		3,967
Unallocated expenses								(7,087)		(18,053)
Profit from operating activities								68,743		54,925
Finance costs								(4,611)		(5,109)
Share of profits/(losses) of
jointly-controlled entities								990		(367)
Amortisation of goodwill
arising on acquisition of
jointly-controlled entities
and associates								(3,750)		(3,895)
Profit before taxation								61,372		45,554
Taxation								(4,720)		(3,720)
Minority interests								(4,750)		(4,009)
Net profit attributable to
shareholders								51,902		37,825

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FINANCIAL INFORMATION

APPENDIX I

(b) Business Segments

An analysis of the Group’s turnover by business segments for the six months ended 30 September 2004, together with the comparative figures for the corresponding period in 2003, is as follows:–

	Manufacturing	Manufacturing
	and Sale of		Texnology
	fashion	garments	Nano group business		Elimination		Consolidated
	Six months	Six months	Six months	Six months	Six months	Six months	Six months	Six months
	ended	ended	ended	ended	ended	ended	ended	ended
	30 September	30 September	30 September 30 September		30 September	30 September	30 September	30 September
	2004	2003	2004	2003	2004	2003	2004	2003
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external customers	273,720	261,879	124,283	53,025	–	–	398,003	314,904
Intersegment sales	–	–	5,760	12,501	(5,760)	(12,501)	–	–
Total revenue	273,720	261,879	130,043	65,526	(5,760)	(12,501)	398,003	314,904

3. Profit from Operating Activities

The Group’s profit from operating activities is arrived at after charging/(crediting):

Staff costs Minimum lease payments under operating leases in respect of land and buildings Depreciation Gain on disposal of a subsidiary Finance Costs Interest expenses on: Bank loans and overdrafts wholly repayable within five years Bank loans wholly repayable after five years Finance leases	For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 18,662 18,335 12,086 15,109 12,530 10,370 – (3,941) For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 4,336 4,887 82 – 193 222 4,611 5,109	For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 18,662 18,335 12,086 15,109 12,530 10,370 – (3,941) For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 4,336 4,887 82 – 193 222 4,611 5,109
		5,109

4. Finance Costs

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APPENDIX I

5. Taxation

Current period provision: Hong Kong Elsewhere Tax charge for the period	For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 383 425 4,337 3,295 4,720 3,720	For the six months ended 30 September 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 383 425 4,337 3,295 4,720 3,720
		3,720

Hong Kong profits tax is provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere are calculated at the rates of tax prevailing in the respective jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Deferred tax has not been provided as there were no significant timing differences to the Group at 30 September 2004 (2003: Nil).

6. Dividend

The Directors declared the payment of an interim dividend of HK0.5 cent per share in respect of the six months ended 30 September 2004 (2003: HK1 cent per share) payable to the shareholders whose names appear on the register of members of the Company on 3 February 2005. Dividend warrants will be despatched to the shareholders of the Company on or about 28 February 2005.

To cope with the rapid development of Texnology Nano group business, the Group in the current year will set aside more financial resources to boost the marketing initiatives and enhance the nano textile processing capacities in order to bring more significant returns to the shareholders in long run.

7. Earnings per Share

The calculation of basic earnings per share for the period ended 30 September 2004 is based on the Group’s net profit attributable to shareholders of HK$51,902,000 (2003: HK$37,825,000) and the weighted average number of 1,498,602,549 ordinary shares (2003: 1,159,286,667) in issue during the period.

No diluted earnings per share is presented as there was no material dilutive potential ordinary shares for the six months ended 30 September 2004 and 30 September 2003.

8. Fixed Assets

During the period, the Group spent approximately HK$115,400,000 (2003: HK$20,255,000) on addition of machinery mainly relating to Texnology Nano group business, the acquisition of leasehold land and buildings and addition of leasehold improvements.

9. Trade Receivables

Other than cash and credit card sales, invoices are normally payable within 30 days of issuance, except for certain well-established customers where the terms are extended up to 90 days. Trade receivables are recognised and carried at their original invoiced amounts less provision against doubtful debts when collection of the full amount is no longer probable. Bad debts are written off as incurred.

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APPENDIX I

An aged analysis of the trade receivables as at the balance sheet date, based on invoice date, is as follows:

Within 30 days Between 31 to 60 days Between 61 to 180 days Provision against doubtful debts	30 September 2004 (Unaudited) HK$’000 26,828 16,031 18,393 61,252 (1,749) 59,503	31 March 2004 (Audited) HK$’000 18,876 10,203 28,174
		57,253 (1,749)
		55,504

10. Trade and Bills Payables

An aged analysis of the trade and bills payables as at the balance sheet date, based on invoice date, is as follows:

Within 30 days Between 31 to 60 days Between 61 to 180 days Over 180 days Share Capital Authorised: 2,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 1,775,005,500 (31 March 2004: 1,451,185,500) ordinary shares of HK$0.10 each	30 September 2004 (Unaudited) HK$’000 8,736 5,930 2,982 – 17,648 30 September 2004 (Unaudited) HK$’000 200,000 177,501	31 March 2004 (Audited) HK$’000 15,613 7,461 3,278 295
		26,647

		31 March 2004 (Audited) HK$’000 200,000

		145,119

11. Share Capital

During the period, 76,800,000 shares of HK$0.10 each in the Company were issued at an average price of HK$0.38 per share as a result of the exercise of all share options of the Company by all the holders.

During the period, 247,020,000 ordinary shares of HK$0.10 each in the Company were issued to warrant holders at a price of HK$0.20 per share, following the exercise of 247,020,000 warrants.

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APPENDIX I

12. Warrants

On 20 May 2004, the Company entered into a placing and underwriting agreement with a placing agent in relation to the private placing of 259,000,000 warrants (“2005 Warrants”) conferring rights to subscribe up to HK$51,800,000 in aggregate in cash for shares of HK$0.10 each in the share capital of the Company at an initial subscription price of HK$0.20 per share during the period from 24 June 2004 to 23 June 2005, both days inclusive. The placing of 2005 Warrants was completed on 18 June 2004.

The net proceeds of the placing of approximately HK$24,817,000 was intended to be used for general working capital of the Group.

On 30 September 2004, the Company had 11,980,000 outstanding 2005 Warrants conferring rights to subscribe up to HK$2,396,000 in cash for shares of HK$0.10 each in the Company. Exercise in full of those outstanding warrants would, under the present share capital structure of the Company as at 30 September 2004, result in the issue of 11,980,000 additional shares of HK$0.10 each in the Company.

13. Related Party Transactions

During the period, the Group paid rental expenses of HK$42,000 (2003: HK$455,000) to Mr. Leung Ngok and Mr. Leung Shing for properties jointly owned by them. In addition, the Group paid rental expenses of HK$360,000 (2003: HK$360,000) to Mr. Leung Shing. Mr. Leung Ngok and Mr. Leung Shing are executive directors of the Company. The properties leased were occupied by the Group as retail outlets and directors’ quarters.

14. Operating Lease Arrangements

(a) As lessor

At 30 September 2004, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year	30 September 2004 (Unaudited) HK$’000 751	31 March 2004 (Audited) HK$’000 740

(b) As lessee

At 30 September 2004, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years inclusive	30 September 2004 (Unaudited) HK$’000 24,817 13,162 37,979	31 March 2004 (Audited) HK$’000 13,999 4,693
		18,692

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APPENDIX I

15. Contingent Liabilities

The Group did not have any significant contingent liabilities at 30 September 2004.

16. Comparative Figures

Certain comparative figures have been reclassified to conform with the presentation in the current period.

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FINANCIAL INFORMATION

APPENDIX I

5. PROSPECTS

The Group’s apparel distribution and retail business has long been focused on men’s and women’s casual wear in the past, and the Group has demonstrated that the “U-Right” brand offered wide market recognition. In response to the staggering economic growth and the enhanced customers’ purchasing power in the Mainland China market, the Group plan to upgrade the “U-Right” branded products and to adopt a multi-brand strategy in order to enlarge the market share. The new line of apparel collection is expected to be launched in autumn and winter of next year. Following the success in the Middle East market, the Group will continue to augment its international reach and extend its footholds in North America and Southeast Asia markets.

Nano-treated textile goods, through the Group’s collaboration with different partners, were wellreceived in the US market. To satisfy the growing market demand, the Group has changed its production expansion plan by relocating the previously-planned 5 nano textile processing lines from Shunde to Nanchang, Jiangxi Province. The expected annual production capacity will be over 12,000,000 units (in garment units). In anticipation of an increase in nano textile goods processing orders, the Group, in addition to the 5 planned nano textile processing lines, will further raise the nano textile goods processing capabilities and product varieties by establishing 5 more nano textile processing lines next year. Production capacities will thereby be doubled. The Group’s nano processing lines in Nanchang is expected to become the largest nano textile goods production base in the Mainland China.

The strategic redeployment will enhance the Group to capitalize on the advantages in the Pan Pearl River Delta region. The Group will enjoy a 40% lower labour cost, compared to that in Guangdong Province. In addition to the tax incentives and subsidies from the local government, the Group’s textile manufacturing capabilities will be greatly enhanced. The new production base will also provide a gateway for the Group to extend its tentacles in the Mainland China, US and European markets.

The Group will look for collaboration opportunities with well-established enterprises in the mainland and overseas markets to expand nano applications. The Group is on course to explore the feasibility of mass production of nano-treated materials such as leather and down products while keeping the texture unchanged. With the expanded applications, together with the partners’ overseas network, the overseas expansion initiatives will be accelerated.

“Technology weaving into quality lifestyle” has been the Group’s longstanding motto. The Group rides on its solid foothold in apparel business, to realize the benefits from the expansion of its highgrowth Texnology Nano group business. The Group is committed to empowering the products with valueadded features and enhancing their competitiveness. Forging ahead, the Group will continue to demonstrate our success in margin expansion through the commercialization of our proprietory nano processing technology into a myriad of raw materials and goods. The Group believes that the sustained momentum in Texnology Nano group will offer high potential for continuous growth and bring significant returns to the shareholders.

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APPENDIX I

6. INDEBTEDNESS

As at the close of business on 30 April 2005, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding total borrowings of approximately HK$591.6 million comprising syndicated loan of approximately HK$170.0 million, bank loans of approximately HK$127.7 million, trust receipt loans of approximately HK$264.4 million and finance lease payable of approximately HK$29.5 million.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-Group liabilities, no companies within the Group had outstanding, at the close of business on 30 April 2005, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, other loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills), acceptance credits, debentures, mortgages, charges, guarantees or other material contingent liabilities.

The Directors confirm that there is no material change in indebtedness of the Group as at 30 April 2005 up to the Latest Practicable Date.

7. WORKING CAPITAL

The Directors are of the opinion that, taking into account the cashflow generated from the operating activities, the financial resources available for the Group, including internally generated funds, the available credit facilities and the estimated net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

8. MATERIAL CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material change in the financial or trading position or prospects of the Group since 31 March 2004, the date to which the latest published audited financial statements of the Company were made up.

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FINANCIAL INFORMATION

APPENDIX I

9. PRO FORMA STATEMENT OF UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is a pro forma statement of unaudited adjusted consolidated net tangible assets of the Group which has been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Open Offer as if it has been completed on 30 September 2004. This statement has been prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Group on the completion of the Open Offer.

Interim report as at 30 September 2004 (Unaudited) (Note 1) HK$’000 Net tangible assets as at 30 September 2004 495,655	Adjustment (Note 2) HK$’000 217,000	Pro forma HK$’000 712,655	Unaudited pro forma adjusted net tangible assets per Share (Note 3) HK$ 0.2675

Notes:

The net tangible assets as at 30 September 2004 have been calculated based on financial information extracted without adjustment from the unaudited interim report of the Group as at 30 September 2004 as follows:

Net assets as at 30 September 2004 Less: intangible assets Net tangible assets as at 30 September 2004	HK$’000 690,846 (195,191)
	495,655

The expected gross amount of the Open Offer is HK$222 million. Expenses associated with the Open Offer are HK$5 million, resulting in a net cash inflow of HK$217 million.
The calculation of the unaudited pro forma adjusted net tangible assets of the Group per Share is based on 2,663,958,250 Shares, which is an aggregate of 1,775,005,500 Shares in issue as at 30 September 2004 and 888,952,750 Offer Shares after the completion of Open Offer (assuming none of the outstanding Warrants will be exercised before the Record Date at HK$0.20 each with a net proceeds of approximately HK$2.4 million in aggregate.
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FINANCIAL INFORMATION

APPENDIX I

10. COMFORT LETTER ON PRO FORMA STATEMENT OF UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

Set forth below is the text received by the Directors from RSM Nelson Wheeler, the auditors of the Company, in connection with the pro forma statement of unaudited adjusted consolidated net tangible assets of the Group:

==> picture [142 x 44] intentionally omitted <==

10 June 2005

The Directors U-RIGHT International Holdings Limited Kingston Corporate Finance Limited

Dear Sirs,

INTRODUCTION

We report on the pro forma net tangible assets (“pro forma NTA”) statement disclosed under section 4 of the “Financial Information of the Group” in the Prospectus of U-RIGHT International Holdings Limited (the “Company”) dated 10 June 2005 in connection with the Open Offer of not less than 888,952,750 new shares and not more than 893,492,750 new shares at HK$0.25 per share (the “Open Offer”), which has been prepared for illustrative purposes only and to provide information as to how the net tangible assets of the Company and its subsidiaries (collectively the “Group”) as at 30 September 2004 might have been affected by the Open Offer.

RESPONSIBILITIES

It is the sole responsibility of the directors of the Company to prepared the pro form NTA statement of the Group in accordance with rule 4.29 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion on the pro format NTA statement, as required by the Listing Rules, and to report our opinion to you.

BASIS OF OPINION

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

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FINANCIAL INFORMATION

APPENDIX I

Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the financial information with the source documents, considering the evidence supporting the adjustments and discussing the pro forma financial information with the directors and senior management of the Company.

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

The pro forma NTA statement of the Group has been prepared on the bases set out in the Prospectus for illustrative purposes only and, because of its nature, it may not indicate the financial position of the Group following the Open Offer.

OPINION

In our opinion:

a. the pro forma NTA 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 pro forma NTA as disclosed pursuant to rule 4.29(1) of the Listing Rules.

Yours faithfully, RSM Nelson Wheeler Certified Public Accountants Hong Kong

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GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. All the Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to ACE and its concert parties, including Mr. Leung in his capacity as ACE’s director and shareholder) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular (other than those expressed by ACE and its concert parties) have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

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.

The information contained herein relating to ACE and its concert parties, including Mr. Leung, has been supplied by the directors of ACE who accepts full responsibility for the accuracy of the information contained in this circular (other than information relating to the Group) and confirms, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this circular (other than those expressed by the Group) have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement in this document misleading.

CORPORATE INFORMATION

Registered office	Clarendon House
	2 Church Street
	Hamilton HM 11
	Bermuda
Head office and principal	32nd Floor, Billion Plaza
place of business in Hong Kong	8 Cheung Yue Street
	Cheung Sha Wan
	Kowloon
	Hong Kong
Company secretary	Mr. Ng Chi Yin
Qualified accountant	Mr. Ng Chi Yin

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GENERAL INFORMATION

APPENDIX II

Authorised representatives

Authorised representatives Mr. Leung Ngok 32nd Floor, Billion Plaza 8 Cheung Yue Street Cheung Sha Wan Kowloon Hong Kong Mr. Ng Chi Yin 32nd Floor, Billion Plaza 8 Cheung Yue Street Cheung Sha Wan Kowloon Hong Kong Auditor RSM Nelson Wheeler Certified Public Accountants 7th Floor, Allied Kajima Building 138 Gloucester Road Hong Kong Principal share registrar The Bank of Bermuda Limited and transfer office Bank of Bermuda Building 6 Front Street Hamilton HM 11 Bermuda

Branch share registrar & transfer office Tengis Limited in Hong Kong Ground Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

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GENERAL INFORMATION

APPENDIX II

Principal bankers

Legal advisers to the Company

Bangkok Bank Public Co. Ltd. Bank of China (Hong Kong) Ltd. The Bank of East Asia, Limited HSH Nord Bank Industrial and Commercial Bank of China (Asia) Ltd. KBC Bank N.V. Oversea-Chinese Banking Corporation Ltd. Shanghai Commercial Bank Ltd.

on Hong Kong law Sidley Austin Brown & Wood 39th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

on Bermuda law Conyers Dill & Pearman 2901 One Exchange Square 8 Connaught Place Hong Kong

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GENERAL INFORMATION

APPENDIX II

MARKET PRICES

The table below shows the closing prices of the Shares as recorded on the Stock Exchange on (i) the last day on which dealings took place in each of the six months immediately preceding the date of the Announcement; (ii) the last trading day of Shares prior to the date of the Announcement; and (iii) the Latest Practicable Date.

	Closing price
Date	of Shares
	(HK$)
30 November 2004	0.400
31 December 2004	0.415
31 January 2005	0.400
28 February 2005	0.445
31 March 2005	0.380
29 April 2005	0.345
12 May 2005 (last trading day of Shares prior to the date of the Announcement)	0.365
Latest Practicable Date	0.305

The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the period between 12 November 2004 to 8 June 2005, being the date six months preceding the date of the Announcement, and ending on the Latest Practicable Date were HK$0.445 on 28 February 2005 and HK$0.275 on 26 May 2005 and 27 May 2005 respectively.

DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the Directors and the chief executive of the Company and their respective associates had the following interests and short positions in the equity and debt securities of the Company and its associated corporations (within the meaning of Part XV of the SFO) which require i) notification to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors and chief executive of the Company was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors

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GENERAL INFORMATION

APPENDIX II

of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange; or ii) to be disclosed in this circular pursuant to the requirements of the Takeovers Code:

Long Positions in the Shares

			Approximate
		Number of	percentage of total
Name of Director	Nature of interest	Shares held	shareholding (%)
Mr. Leung Ngok	Beneficial owner	72,814,000	2.73
	Founder of a	1,455,227,750_(note)_	54.57
	discretionary trust

Note: These shares were owned by ACE Target Inc. as trustee of The Target Unit Trust, a unit trust of which all of the units in issue are owned by Trident Corporate Services (B.V.I.) Limited as trustee of The Leung Ngok Family Trust, a discretionary trust of which the objects include Mr. Leung Ngok’s family members.

Accordingly, Mr. Leung Ngok, as founder of The Leung Ngok Family Trust, was deemed to be interested in the Shares owned by ACE Target Inc. in its capacity as the trustee of The Target Unit Trust under Part XV of the SFO. Out of the 1,455,227,750 Shares, ACE Target Inc. is interested in 888,952,750 Shares by virtue of the Underwriting Agreement.

Save as disclosed under the paragraph headed “Additional disclosure of interests and dealings in Shares” in this Appendix and above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company were interested, or were deemed to be interested in the long and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules adopted by the Company to be notified to the Company and the Stock Exchange or (d) to be disclosed in this document pursuant to the requirements of the Takeovers Code.

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GENERAL INFORMATION

APPENDIX II

(b) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, according to the register of interests in long positions and short positions kept by the Company pursuant to Divisions 2 and 3 of Part XV and section 336 of the SFO and so far as the Directors were aware, the following persons (other than Directors and chief executive of the Company) had a long position or short position in the shares, underlying shares or debentures 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 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 member of the Group:

Long positions in the Shares

				Approximate
		Number of		percentage of
Name		ordinary shares of		the Company’s
of substantial		the Company		issued
shareholder	Capacity	interested	Note	share capital
ACE Target Inc.	Trustee	1,455,227,750	1	54.57%
Trident Corporate	Trustee	1,455,227,750	1	54.57%
Services
(B.V.I.) Limited
Ms. Yim Yuk Lam	Interest of	spouse 1,528,041,750	2	57.29%

Notes:

(1) Such interest was also disclosed as the interest of Mr. Leung Ngok in the above section headed “Directors’ interests and short positions in the securities of the Company and its associated corporations” in this Appendix”.
(2) Ms. Yim Yuk Lam was deemed to be interested in the 1,528,041,750 shares of the Company through interests of her spouse, Mr. Leung Ngok.

Save as disclosed in this circular, no person as at the Latest Practicable Date had a long position or short position in the shares, underlying shares or debentures 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 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 member of the Group.

(c) Save as disclosed in (a) above, as at the Latest Practicable Date, no other Directors 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 the subsidiaries of the Company or had any option in respect of such capital.
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APPENDIX II

(d) As at the Latest Practicable Date, none of the Directors has or has had any interest, direct or indirect, in any assets which since 31 March 2004, the date to which the latest published audited financial statements of the Company were made up, have been acquired or disposed of by or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by or leased to the Company or any of its subsidiaries.
(e) None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date, which is significant in relation to the business of the Company or any of its subsidiaries.
(f) Save as disclosed herein, no material contract had been entered into by the Underwriter or its concert parties in which any Director has a material personal interest.

MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group after the date two years before the date of the Announcement and are or may be material:

(a) a placing and underwriting agreement dated 20 May 2004 between Kingston Securities Limited, Kingston Corporation Finance Limited and the Company in relation to the placing of 259,000,000 warrants in the registered form to subscribe for Shares at subscription price of HK$0.2 (subject to adjustment) at any time during 18 June 2004 and 23 June 2005;
(b) an assignment dated 30 July, 2004 between Sunny Town Limited as vendor and New Asia Associates (HK) Limited, a subsidiary of the Company, as purchaser, in relation to the property at the whole 31st Floor, Billion Plaza, No. 8 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong at a consideration of HK$19,500,000;
(c) an assignment dated 30 July, 2004 between Sunny Town Limited as vendor and Sky Fox Investment Limited, a subsidiary of the Company, as purchaser, in relation to the property at the whole of 32nd Floor and parking spaces no, P.4, P.5, P.6, P.7, P.8, P,9 and P.10 on the 4th Floor, Billion Plaza, No. 8 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong at a consideration of HK$21,600,000; and
(d) the Underwriting Agreement.

LITIGATION

Neither the Company nor any of 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.

CONSENTS

Each CSC Asia and RSM Nelson Wheeler has given and has not withdrawn their respective written consents to the issue of this circular with copies of their letters and the references to their names included herein in the form and context in which they are respectively included.

QUALIFICATION OF EXPERTS

The qualifications of the experts who have given opinions in this circular are as follows:

Name Qualification

CSC Asia a licensed corporation to carry on business in type 6 regulated activity (advising on corporate finance) under the SFO RSM Nelson Wheeler Certified Public Accountants

105 -

GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, none of RSM Nelson Wheeler and CSC Asia have had any beneficial interest in the share capital of any member of the Group or had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the group and have any interest, either directly or indirectly, in any assets which have been, since 31 March 2004, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group or any of it subsidiaries.

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 its subsidiaries or associated companies which have more than 12 months to run after the Latest Practicable Date. In addition, no director’s service contract had been entered into or amended within 6 months prior to the date of the Announcement.

ADDITIONAL DISCLOSURE OF INTERESTS AND DEALINGS IN SHARES

(1) As at the Latest Practicable Date, the Company did not have any interest in shares of ACE and its concert parties, and had no dealings in shares of ACE and its concert parties during the period (the “Relevant Period”) beginning six months prior to 23 May 2005 (being the date of the Announcement) and ending on the Latest Practicable Date;
(2) As at the Latest Practicable Date, save for being interested in shares of 50% in ACE by each of Mr. Leung and Ms. Yim Yuk Lam, spouse of Mr. Leung, none of the Directors had any shareholding in ACE and its concert parties and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in ACE and its concert parties and had no dealings in shares of ACE and tis concert parties during the Relevant Period;
(3) As at the Latest Practicable Date, none of (i) the subsidiaries of the Company; (ii) the pension fund of the Company or of any of its subsidiaries; nor (iii) any adviser to the Company (as specified in class (2) of the definition of “associate” but excluding exempt principal traders under the Takeovers Code), had any interest in the shares, options, warrants, derivatives or convertible securities of the Company and no shares, options, warrants, derivatives or convertible securities of the Company were managed on a discretionary basis by fund managers connected with the Company as at the Latest Practicable Date and had no dealings in the shares, options, warrants, derivatives or convertible securities of the Company;
(4) There were no dealings in the Shares, options, Warrants, derivatives or securities convertible into Shares by each of the Directors, ACE, Mr. Leung and Ms. Yim Yuk Lam, spouse of Mr. Leung, and parties acting in concert with any one of them during the Relevant Period save for (i) Mr. Leung Shing, an executive Director who is a brother of Mr. Leung, has sold 6,508,000 Shares and 6,292,000 Shares on 25 February 2005 and 28 February 2005, respectively, details were set out in the Company’s announcement dated 28 February 2005; and (ii) Mr. Lee Ka Yiu, Andy, an executive Director, has sold 9,882,000 Shares and 2,918,000 Shares on 24 February 2005 and 25 February 2005, respectively, details were set out in the Company’s announcement dated 28 February 2005;
106 -

GENERAL INFORMATION

APPENDIX II

(5) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) exists between (i) ACE, Mr. Leung or any person acting in concert with any one of them; and (ii) any Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Open Offer;
(6) As at the Latest Practicable Date, save for the Underwriting Agreement, there was no agreement, arrangement or understanding between any of the Directors and any other person which is conditional or dependent on the completion of the Open Offer or otherwise connected with the Open Offer;
(7) As at the Latest Practicable Date, no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code exists between ACE, or any persons acting in concert with ACE, and other person;
(8) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate;
(9) As at the Latest Practicable Date, no persons who had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any persons who is an associate of the Company or with any other person by virtue of classes (1), (2), (3) and (4) of the definition of associate as described by the Takeovers Code had dealt in any securities of the Company save for (i) Mr. Leung Shing, an executive Director who is a brother of Mr. Leung, has sold 6,508,000 Shares and 6,292,000 Shares on 25 February 2005 and 28 February 2005, respectively; and (ii) Mr. Lee Ka Yiu, Andy, an executive Director, has sold 9,882,000 Shares and 2,918,000 Shares on 24 February 2005 and 25 February 2005, respectively, details were set out in the Company’s announcement dated 28 February 2005;
(10) As at the Latest Practicable Date, no Shares, options, Warrants, derivatives or convertible securities were managed on a discretionary basis by any fund managers connected with the Company, nor did any such fund managers deal in any Shares during the Relevant Period;
(11) As at the Latest Practicable Date, save for ACE being the underwriter to the Open Offer, no person had irrevocably committed themselves to accept or reject the Open Offer; and
(12) Save for the Underwriting Agreement, there is no agreement to, arrangement for or understanding of any transfer of Offer Shares acquired pursuant to the Open Offer to any other persons by ACE and its concert parties as at the Latest Practicable Date.

MISCELLANEOUS

(1) The registered address of ACE is at P.O. Box 3340, Road Town, Tortola, British Virgin Islands.
(2) The principal members of the ACE’s concert group comprise ACE, its directors and its ultimate beneficial owners, Mr. Leung as to 50% and Ms. Yim Yuk Lam, spouse of Mr. Leung, as to 50%.
107 -

GENERAL INFORMATION

APPENDIX II

(3) The registered office of Kingston Corporate Finance Limited, the finance adviser of the Company, is at 2801, 28th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.
(4) The English text of this document and of the proxy form shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at 32nd Floor, Billion Plaza, 8 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong during normal business hours up to and including 27 June 2005:

(1) the memorandum of association and the bye-laws of the Company and the memorandum and articles of association of ACE;
(2) the letter from the Independent Board Committee, the text of which is reproduced in the section headed “Letter from the Independent Board Committee” to this circular;
(3) the annual reports of the Company for the three years ended 31 March 2004 and the interim report of the Company for the six months ended 30 September 2004;
(4) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(5) the written consents referred to in the paragraph headed “Consents” in this appendix;
(6) the letter of advice from CSC Asia, the text of which is reproduced in the section headed “Letter from CSC Asia” to this circular;
(7) the comfort letter from RSM Nelson Wheeler, the text of which is reproduced in Appendix I to this circular;
(8) the Underwriting Agreement; and
(9) this circular.
108 -

NOTICE OF THE SGM

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

(Incorporated in Bermuda with limited liability) (Stock Code: 627) (Warrant Code: 2367)

NOTICE IS HEREBY GIVEN that a special general meeting of the above mentioned company (the “Company”) will be held at Montparnasses Room I-II, 2/F, Regal Kowloon Hotel, Hong Kong, 71 Mody Road, Tsimshatsui, Kowloon, Hong Kong on 28 June 2005 at 10:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT the authorised share capital of the Company be and is hereby increased from HK$200,000,000 divided into 2,000,000,000 shares of HK$0.10 each to HK$500,000,000 by the creation of an additional 3,000,000,000 shares of HK$0.10 each.”
“ THAT subject to the passing of resolution numbered 1 above, in pursuant to note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers, a waiver be and is hereby granted to ACE Target Inc. (the “Underwriter”) and parties acting in concert with it from the obligation to make a mandatory general offer for all the issued shares of the Company not already held by or to be allotted and issued to the Underwriter or parties acting in concert with it as a result of the Underwriter or such parties subscribing for or being allotted with any of the Offer Shares (as defined in the circular of the Company dated 10 June 2005) pursuant to the Open Offer (as defined in the circular of the Company dated 10 June 2005) as described in the circular of the Company dated 10 June 2005.”

By order of the Board

U-RIGHT International Holdings Limited Leung Ngok

Chairman

Hong Kong, 10 June 2005

Principal office:

32nd Floor, Billion Plaza

8 Cheung Yue Street Cheung Sha Wan Kowloon Hong Kong

* For identification only

109 -

NOTICE OF THE SGM

Notes :

(1) Any member entitled to attend and vote at the special general meeting of the Company (the “ SGM ”) is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares of the Company may appoint one or more proxies to attend and vote instead of him/her. A proxy need not be a member of the Company.
(2) A form of proxy for use at the meeting is enclosed herewith.
(3) The form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be under its seal or the hand of an officer, attorney or other person duly authorised.
(4) The form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be lodged at the Company’s branch share registrar in Hong Kong, Tengis Limited, at Ground Floor, Bank of East Asia Centre, 56 Gloucester Road, Wanchai, Hong Kong, not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting (as the case may be) and in default the proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the SGM or at any adjourned meeting (as the case may be) should they so wish.
(5) Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either in personal or by proxy, in respect of such share as if he/she was solely entitled thereto; but if more than one of such joint holders be present at the meeting in personal or by proxy, that the vote of one of the said persons so present whose name stands first on the register of members in respect of such share shall be accepted to the exclusion of the votes of the other joint holders.
110 -

AI assistant

MS Group Holdings Limited — Proxy Solicitation & Information Statement 2005

49932_rns_2005-06-10_11b2664f-6c03-4bac-abd6-a55598a1e0f0.pdf

U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]

Underwriter

CSC Asia Limited

(B) there shall be:

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL;

INTRODUCTION

LETTER FROM THE BOARD

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

PROPOSED OPEN OFFER

Issue statistics:

Qualifying Holders:

Tengis Limited

Application for excess Offer Shares:

Fractions of Offer Shares:

Closure of register of members:

Subscription Price:

Status of the Offer Shares:

Certificates for the Offer Shares:

Rights of Excluded Shareholders:

LETTER FROM THE BOARD

Application for listing:

Underwriting Agreement:

LETTER FROM THE BOARD

Termination of the Underwriting Agreement:

CONDITIONS OF THE OPEN OFFER

WARNING OF RISKS OF DEALING IN SHARES

SHAREHOLDING STRUCTURE OF THE COMPANY

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

FUND RAISING ACTIVITIES OF THE COMPANY

LETTER FROM THE BOARD

WHITEWASH WAIVER

INFORMATION ON ACE

MAINTAINING THE LISTING OF THE COMPANY

GENERAL

SGM

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]

APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

LETTER FROM CSC ASIA

U-RIGHT International Holdings Limited

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE

AND APPLICATION FOR THE GRANTING OF THE WHITEWASH WAIVER

INTRODUCTION

LETTER FROM CSC ASIA

PRINCIPAL FACTORS AND REASONS CONSIDERED

(1) Reasons and benefits for the Open Offer

(c) Strengthening the overall financial position of the Group

(d) Enhancing the future development of the Group’s business

(e) Opportunity for the Shareholders

(2) Alternatives to the Open Offer

(3) Principal terms of the Open Offer

(a) Basis of the Open Offer

(b) Share price performance

LETTER FROM CSC ASIA

(c) Subscription price

LETTER FROM CSC ASIA

(4) Financial Effects of the Open Offer

(b) Gearing ratio

LETTER FROM CSC ASIA

(c) Dilution effect on the Shareholders

(5) Underwriting Arrangements

(6) The Whitewash Waiver

LETTER FROM CSC ASIA

RECOMMENDATION

1. SHARE CAPITAL

2. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Consolidated Income Statement

Consolidated Balance Sheet

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

MS Group Holdings Limited Proxy Solicitation & Information Statement 2005

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**

**U-RIGHT INTERNATIONAL HOLDINGS LIMITED 佑威國際控股有限公司[*]**