MS Group Holdings Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong 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

(Provisional Liquidators Appointed) 佑威國際控股有限公司[*] (已委任臨時清盤人)

(Incorporated in Bermuda with limited liability) (Stock Code: 00627)

VERY SUBSTANTIAL ACQUISITION INVOLVING ISSUE OF PROMISSORY NOTE ACQUISITION OF ALL ISSUED SHARES IN SINO HILL GROUP LIMITED AND

NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser

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A notice convening the special general meeting of the Company (“SGM”) to be held at Room 704, 3 Lockhart Road, Wanchai, Hong Kong, on 19 September 2011 at 10:00 a.m. or any adjournment thereof is set out on pages 109 to 111 of this circular. If you are not able to attend the SGM in person, please complete the form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at the 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event, not less than 48 hours before the time fixed for holding of the SGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting (as the case may be) or upon the poll concerned should you so wish. In such event, the instrument appointing a proxy shall be deemed to be revoked.

For identification purposes only

25 August 2011

CONTENTS

			Pages
Definitions . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Appendix I	–	Financial Information of the Group . . . . . . . . . . . . . . . . . .	49
Appendix II	–	Financial Information of the Target Group . . . . . . . . . . . .	64
Appendix III	–	Unaudited Pro Forma Financial Information of the
		Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	93
Appendix IV	–	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	102
Notice of SGM . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	109

– i –

DEFINITIONS

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

“Acquisition”

the sale and purchase of the Sale Share and waiver of the Sale Loan pursuant to the S&P Agreement

“Actual Profit” actual consolidated net profit before tax and any extraordinary or exceptional items of the Target Company for the Guaranteed Period
“associate(s)” has the meaning ascribed to it in the Listing Rules
“Board”
the board of Directors
“Business Day”
a day (other than a Saturday, Sunday or public holiday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Company”

U-RIGHT International Holdings Limited (Provisional Liquidators appointed), a company incorporated in Bermuda with limited liability and the Shares of which are listed on the main board of the Stock Exchange

“connected person(s)”
has the meaning ascribed to it in the Listing Rules
“Consideration”
HK$40 million, being the aggregate consideration for the sale and purchase of the Sale Share
“Dateng”
廈門大騰工貿有限公司 (Xiamen Dateng Industry Trade Limited*), a company established in the PRC with limited liability, being one of the Joint Venture Partners
“Deposit”
the HK$10 million paid by the Purchaser to the Vendor as refundable deposit and shall be used as partial payment to settle the Consideration on completion of the Acquisition
“Directors”
directors of the Company
“Dongguan Factory”
東莞市虎門利來時裝廠 (Dongguan Li Lai Fashion
Factory*), an Independent Third Party
“Enlarged Group” the Group immediately after completion of the Acquisition, including the Target Group

– 1 –

DEFINITIONS

“Further Deposit” HK$5 million paid by the Purchaser to the Vendor as further refundable deposit and shall be used as partial payment to settle the Consideration on completion of the Acquisition
“FY10/11” the 12-month period ended 31 March 2011
“Group” the Company and its subsidiaries
“Guaranteed Amount” not less than HK$8 million of consolidated net profit before tax and any extraordinary or exceptional items of the Target Company for the Guaranteed Period as warranted by the Vendor to the Purchaser
“Guaranteed Period” the financial year ended 31 March 2011
“High Court” the High Court of Hong Kong
“HK$” and “cents” Hong Kong dollars and cents, the lawful currency of Hong Kong
“HK Fancy” Stand Fancy Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Target Company
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)”
the Company confirms that, to the best of the Directors’ and the Provisional Liquidators’ knowledge, information and belief, having made all reasonable enquiries, each of the party(ies) and its ultimate beneficial owner(s) is a/are third party(ies) independent of the Group and connected person(s) of the Group
“Investor”
Advance Lead International Limited, a company incorporated with limited liability under the laws of the British Virgin Islands and is beneficially owned as to 40% by Mr. Chau Pak Chuen, as to 30% by Ms. Au Tsui Yee, Maggie and as to 30% by Mr. Cheung Lam Hung
“Joint Venture Partners”

Yilking and Dateng, the joint venture partners with U-Right Trading in connection with the joint venture of Xiamen U-Right under the JV Contracts

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DEFINITIONS

“JV Contracts”
(i) the contract entered into between U-RIGHT Trading and the Joint Venture Partners for establishing Xiamen U-Right; and (ii) the constitution of Xiamen U-Right, both dated 24 January 2010
“Latest Practicable Date”
23 August 2011, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
30 September 2011, or such other date as the parties to the S&P Agreement may agree in writing
“PRC”
the People’s Republic of China, for the purposes of this circular and for geographical reference only, excluding Taiwan, the Macao Special Administrative Region and Hong Kong (unless otherwise indicated)
“Promissory Note”
the promissory note in the amount of HK$20 million for the purpose of settling part of the Consideration of the Sale Share
“Provisional Liquidators”
Messrs. Lai Kar Yan, Derek and Yeung Lui Ming of Deloitte Touche Tohmatsu have been appointed jointly and severally as provisional liquidators of the Company
“Purchaser” or “Right Season”
Right Season Limited, a company incorporated in the British Virgin Islands and an indirectly wholly-owned subsidiary of the Company
“Resumption”
the resumption of trading in the Shares on the Stock Exchange
“Resumption Proposal”
the proposal submitted to the Stock Exchange on 9 August 2010 for the purpose of seeking approval of the Stock Exchange on the resumption of trading in the Shares on the Stock Exchange
“RMB”

Renminbi, the lawful currency of the PRC

– 3 –

DEFINITIONS

“S&P Agreement” the sale and purchase agreement dated 9 August 2010, as amended and supplemented by the supplemental agreements dated 31 December 2010 and 4 April 2011, both entered into between the Vendor and the Purchaser in relation to the Acquisition

“Sale Loan” the loan owed to the Vendor by the Target Group as at the date of completion of the Acquisition
“Sale Share” 1 share of the Target Company, being the entire issued share capital of the Target Company
“SFO” Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
“SGM” the special general meeting of the Company to be held and convened for the purpose of considering and, if thought fit, approving by the Shareholders, amongst other things, the S&P Agreement and the transactions contemplated thereunder
“Share(s)” ordinary share(s) of the Company
“Shareholder(s)” holder(s) of the Shares “Shenzhen Fancy” 立宜服裝(深圳)有限公司 (Stand Fancy Garment (Shenzhen) Company Limited*), a wholly-foreign-owned enterprise established in the PRC and a direct whollyowned subsidiary of HK Fancy
“Shortfall” the amount of shortfall of the Actual Profit from the Guaranteed Amount
“Stock Exchange” The Stock Exchange of Hong Kong Limited “Subcontracting Agreement” the sub-contracting agreement dated 11 February 2010 entered into between Xiamen U-Right and the Joint Venture Partners regarding the retail and trading business of the Group
“Suspension” the suspension of trading in the Shares since 17 September 2008

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DEFINITIONS

“Target Company” Sino Hill Group Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly and beneficially owned by the Vendor before completion of the Acquisition
“Target Group” Target Company and its subsidiaries, namely HK Fancy and Shenzhen Fancy
“U-Right Trading” U-RIGHT Trading Development Limited, a company incorporated in Hong Kong and an indirectly whollyowned subsidiary of the Company
“Vendor” Mr. Tse Ho Ming, an Independent Third Party and the sole owner of the Sale Share
“Xiamen U-Right” Xiamen U-Right Garment Co. Ltd. (廈門優威服飾有限公司), a limited liability company established in the PRC which is a subsidiary of U-Right Trading
“Yilking” 石獅市意利王製衣發展有限公司 (Shishi City Yiliwang Clothes Development Co., Ltd.*), a company established in the PRC with limited liability, being one of the Joint Venture Partners
“%” per cent
For identification purposes only

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LETTER FROM THE BOARD

U-RIGHT INTERNATIONAL HOLDINGS LIMITED (Provisional Liquidators Appointed) 佑威國際控股有限公司[*]

(已委任臨時清盤人)

(Incorporated in Bermuda with limited liability)

(Stock Code: 00627)

Executive Directors: Mr. Tang Kwok Hung Mr. Ng Cheuk Fan, Keith

Independent non-executive Directors:

Mr. Chung Wai Man Mr. Mak Ka Wing, Patrick Mr. Chan Chi Yuen

Joint and several Provisional Liquidators: Mr. Lai Kar Yan, Derek Mr. Yeung Lui Ming (35th Floor, One Pacific Place 88 Queensway, Hong Kong)

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: 35th Floor, One Pacific Place 88 Queensway Hong Kong

25 August 2011

To the Shareholders and for information purpose only, the holders of outstanding convertible notes

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION INVOLVING ISSUE OF PROMISSORY NOTE ACQUISITION OF ALL ISSUED SHARES IN SINO HILL GROUP LIMITED

INTRODUCTION

On 31 August 2010, the Company announced that on 9 August 2010, the Purchaser entered into the S&P Agreement with the Vendor, whereby the Vendor agreed to sell the Sale Share and waive the Sale Loan and the Purchaser agreed to purchase the Sale Share, representing the entire issued share capital of the Target Company, at a consideration of HK$40

* For identification purposes only

– 6 –

LETTER FROM THE BOARD

million by way of cash and the Promissory Note. Upon completion of the Acquisition, the Target Company will become a wholly-owned subsidiary of the Company.

The Acquisition constitutes a very substantial acquisition of the Company and is subject to the requirements under Chapter 14 of the Listing Rules. The S&P Agreement and the transactions contemplated thereunder will be subject to reporting, announcement and Shareholders’ approval at the SGM by way of poll.

To the best of the Directors’ and the Provisional Liquidators’ knowledge, information and belief, having made all reasonable enquiries and as at the Latest Practicable Date, no Shareholder has a material interest in the Acquisition or other transactions which forms part of the Resumption Proposal. Accordingly, no Shareholder is required to abstain from voting on the relevant resolutions to approve the S&P Agreement and the transactions contemplated thereunder at the SGM.

The purpose of this circular is to provide you with, among other things, further details of the S&P Agreement and the notice of SGM and other information as required under the Listing Rules.

THE S&P AGREEMENT

Date: 9 August 2010 (as amended and supplemented by supplemental agreements dated 31 December 2010 and 4 April 2011)

Parties: (1) Vendor Mr. Tse Ho Ming

The Vendor is an Independent Third Party.

To the best of the Directors’ and the Provisional Liquidators’ knowledge, information and belief, having made all reasonable enquiries, the Vendor does not have any relationship with the Investor in the Resumption Proposal, Advance Lead International Limited or its beneficial owners Mr. Chau Pak Chuen, Ms. Au Tsui Yee, Maggie or Mr. Cheung Lam Hung.

(2) The Purchaser Right Season Limited, a company incorporated in the British Virgin Islands and an indirectly wholly-owned subsidiary of the Company.

Assets to be acquired and waiver of the Sale Loan

The Sale Share, representing the entire issued share capital of the Target Company, is wholly owned by the Vendor before completion of the Acquisition. The Vendor shall waive the Sale Loan at completion of the Acquisition.

Consideration

The Consideration of HK$40 million for the sale and purchase of Sale Share was determined after arm’s length negotiation between the Vendor and the Purchaser and the basis

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LETTER FROM THE BOARD

of determining and arriving at the Consideration was by making reference to, among other things, (i) the ratio of price to earnings before tax of 5 times based on the Consideration over the Guaranteed Amount, which is within the range of the ratios of price to earnings before tax of companies listed on the Stock Exchange engaging in the fashion garments business; (ii) the Guaranteed Amount on the Target Group provided by the Vendor for the Guaranteed Period; and (iii) the prospect and scale of the business operation in which the Target Company operates.

The Consideration of HK$40 million shall be payable in the following manners:

(a) the Deposit and Further Deposit paid to the Vendor shall be deemed to have satisfied part of the Consideration on a dollar-to-dollar basis;
(b) HK$5 million in cash or cheque drawn against a licensed bank in Hong Kong (or any other place as may be agreed between the Vendor and the Purchaser) and made payable in favour of the Vendor or its nominee upon completion of the Acquisition (or such later date as may be agreed between the Vendor and the Purchaser); and
(c) HK$20 million by way of the Purchaser or the Company issuing the Promissory Note to the Vendor or its nominee upon completion of the Acquisition.

Conditions precedent

Completion of the Acquisition is conditional in all respects upon:

(1) the Purchaser being satisfied with the results of the due diligence review to be conducted;
(2) legal opinion issued by a firm of PRC lawyers acceptable to the Purchaser covering such matters of the PRC laws relevant to the transactions contemplated under the S&P Agreement in such form and substance to the absolute satisfaction of the Purchaser having been obtained;
(3) the passing by the Shareholders at the SGM the necessary resolutions to approve the S&P Agreement and the transactions contemplated thereunder, as required by the Listing Rules, its constitutional documents and all applicable laws and regulations;
(4) all other approvals, consents, authorisations and licenses (so far as necessary) in relation to the transactions contemplated under the S&P Agreement having been obtained from banks, third parties, and relevant governmental or judicial authorities;
(5) there being no matter adversely affecting the legal standing or continued existence of any member of the Target Group to continue to carry on their business; and
(6) the warranties remaining true and accurate in all respects.

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LETTER FROM THE BOARD

The Purchaser may at any time by notice in writing to the Vendor waive conditions (1), (2), (5) or (6) set out above. If any of the conditions set out above has not been satisfied (or, as the case may be, waived by the Purchaser) on or before 12:00 noon (Hong Kong time) on the Long Stop Date or such later date as the Purchaser and the Vendor may agree, the Vendor shall forthwith return the Deposit and the Further Deposit to the Purchaser in cash without set-off and without interest, and the S&P Agreement shall cease and determine and neither party hereto shall have any obligations and liabilities hereunder save for any antecedent breaches of the terms thereof.

As at the Latest Practicable Date, the Purchaser has no current intention to exercise its right to waive any of the conditions (1), (2), (5) or (6) if such condition is incapable of being fulfilled.

Consideration adjustment

Pursuant to the S&P Agreement, the Vendor has irrevocably warranted to the Purchaser that the consolidated net profit before tax and any extraordinary or exceptional items of the Target Company for the Guaranteed Period will not be less than the Guaranteed Amount of HK$8 million.

If the Actual Profit is less than the Guaranteed Amount, the Vendor shall pay the Shortfall to the Target Company in cash on a dollar-to-dollar basis.

As set out in the accountants’ report on the Target Group in appendix II to this circular, the Target Company has met the Guaranteed Profit for the year ended 31 March 2011 and recorded consolidated profit before tax of approximately HK$9.6 million.

Completion

Completion of the Acquisition is expected to take place on the fifth Business Day after all the conditions precedent are satisfied in full (subject to those conditions having been waived), or such later date as the Vendor and the Purchaser may agree. Upon completion of the Acquisition, the Target Company will become a wholly-owned subsidiary of the Company and the consolidated financial statements of the Target Company will be consolidated in the accounts of the Group.

Terms of the Promissory Note

Issuer:	Company (or the Purchaser)
Principal amount:	HK$20 million
Interest:	0%
Date of issue:	Date of completion of the Acquisition
Duration:	(i) 2 years from the date of issue; or (ii) one year after
	Resumption, whichever is earlier
Transferability:	Freely transferable

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LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

The Target Company was incorporated in the British Virgin Islands on 10 January 2008 with limited liability. The principal business of the Target Group is design, distribution and sales of fashion apparel under the brands of “ LeRoi ” and “ Meridow ” which is in line with and complementary to the existing principal business of the Group in relation to the wholesale and retail trading of fashion garments.

On 1 April 2008, the Target Company acquired HK Fancy and its subsidiary, Shenzhen Fancy. HK Fancy was incorporated in Hong Kong in October 2004 while Shenzhen Fancy was a wholly-foreign-owned enterprise established in the PRC in December 2004. Both HK Fancy and Shenzhen Fancy are engaged in design, distribution and sales of fashion apparel mainly under the brand names of “ LeRoi ” and “ Meridow ”.

The Target Group emphases on good quality and well designed products which are critical factors for the success of the brand name “ LeRoi ”. The Target Group will continue to put efforts on product designs catering the fashion trends by attending more fashion shows, sharing ideas with other designers, and further marketing “ LeRoi ” by launching small scale advertising campaign with the cooperation from self-operated shops, franchise shops and distributors and participating in fashion expos held in the PRC. Advertising in fashion magazines and on e-shopping platforms launched by international or the PRC internet companies are other ways to draw the customers’ awareness of the brand name of “ LeRoi ”.

Apart from the sale of fashion apparel of “ LeRoi ”, the Target Group has obtained an exclusive right from the Dongguan Factory for sales and distribution of ladies apparel under the brand name of “ Meridow ” which was originally registered in the PRC by the Dongguan Factory. On 26 July 2010, the trademark of “ Meridow ” was assigned from Dongguan Factory to HK Fancy in consideration of HK$1.00 pursuant to an assignment agreement signed between Dongguan Factory and HK Fancy. According to the assignment agreement dated 26 July 2010, Dongguan Factory and HK Fancy applied to change the name of the registrant of the trademark “ Meridow ”. As at Latest Practicable Date, application for change of registrant of the trademark to HK Fancy is in progress. The product range of both “ Meridow ” and “ LeRoi ” ranges from coats, dresses, skirts, pants, blouses and cardigans.

As at 31 March 2011, the Target Group had 52 franchise shops and 9 self-operated sales counters in department stores in the PRC, covering 21 cities mainly in Pearl River Delta, including but not limited to, Guangzhou, Foshan, Zhongshan, Dongguan, Shenzhen and Meizhou.

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LETTER FROM THE BOARD

A summary of the results and of the assets and liabilities of the Target Group for the period from 10 January 2008 to 31 March 2009 and the two years ended 31 March 2010 and 2011, as extracted from the accountant’s report of the Target Group is set out below.

Results

	Period from
	10 January
	2008 to	Year ended	Year ended
	31 March	31 March	31 March
	2009	2010	2011
	HK$	HK$	HK$
Revenue	45,618,766	39,439,846	50,456,940
Profit before tax	7,107,442	4,926,745	9,612,238
Profit after taxation	5,477,820	3,712,543	7,202,566
ts and Liabilities
	As at	As at	As at
	31 March	31 March	31 March
	2009	2010	2011
Total assets	20,924,079	22,317,514	29,330,267
Total liabilities	15,416,788	13,077,070	12,253,326
Net assets	5,507,291	9,240,444	17,076,941

Assets and Liabilities

INFORMATION OF THE ENLARGED GROUP

The Enlarged Group has two major business segments, retailing and wholesales trading. They are operated by three key subsidiaries – Target Company, U-Right Trading and Xiamen U-Right.

Overview of the Group’s operation since Suspension

After the appointment of the Provisional Liquidators on 6 October 2008, the then management of the Company together with the Provisional Liquidators used their best endeavor to maintain the business of the Group both in Hong Kong and the PRC. Notwithstanding changes in personnel subsequently as the Provisional Liquidators gradually replaced the management team, the total turnover achieved by the Group according to the audited financial statements of the Group for the year ended 31 March 2011 was approximately HK$331 million.

Due to the lack of working capital, the Provisional Liquidators decided to close down the retail operations for the time being. The Company has built up a new management team to reactivate its garment wholesale trading business and formulate the overall business

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LETTER FROM THE BOARD

development strategies of the Group in August 2009. In order to reactivate the garment retail business (another principal business of the Group) and expand its garment trading business both in the PRC and other countries, on 24 January 2010, U-Right Trading entered into the JV Contracts with the Joint Venture Partners and agreed all the material terms of, and procured Xiamen U-Right to enter into the Subcontracting Agreement specifying the operations, rights, duties and obligations between Xiamen U-Right and the Joint Venture Partners when it was established. The business licence of Xiamen U-Right was issued on 11 February 2010 and hence Xiamen U-Right was established. The Subcontracting Agreement was entered into between Xiamen U-Right and the Joint Venture Partners on the same date. Xiamen U-Right is principally engaged in the garment retail and trading businesses in the PRC and trading of textiles overseas.

The Group is currently engaged in (i) wholesale trading of garments and textile products in the PRC, the Middle East and South-east Asia region through U-Right Trading and Xiamen U-Right; and (ii) retail trading of menswear fashion garments under the brand name of “Yilking” in the PRC through Xiamen U-Right. The Group proposes to acquire the retail trading of ladieswear fashion garments under the brand names of “LeRoi” and “ Meridow ” in the PRC through the Acquisition.

Details of the Enlarged Group’s organizational structure are set out below:

==> picture [364 x 207] intentionally omitted <==

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

Company
(Bermuda)
100% 100%
Alfreda Limited UR Group Limited
(BVI) (BVI)
100% 100% 100% 100%
Right Season Fame Ace Limited Nano Garment U-Right Trading Joint Venture Partners
(BVI) (BVI) Holdings Limited (HK) (note 1) (PRC)
(HK)
100% 80% 20%
Target Company
(BVI) Xiamen U-Right [(note 2)]
(PRC)
100%
HK Fancy
(HK)
100%
Shenzhen Fancy
(PRC)
----- End of picture text -----

Notes:

The Joint Venture Partners are companies established in the PRC which are principally engaged in garment retail and trading businesses in the PRC.
Xiamen U-Right is owned as to 80% by U-Right Trading and as to 10% by each of the Joint Venture Partners and accordingly, it is a non wholly-owned subsidiary of the Company.

The activities of the principal subsidiaries of the Group are as follows:

(i) U-Right Trading

U-Right Trading, incorporated in Hong Kong on 17 July 2009 with limited liability, with businesses commenced in August 2010, is primarily engaged in the wholesale

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LETTER FROM THE BOARD

trading of garments and textile products. The major customers include wholesalers and distributors in the South-east Asia region and Middle East area whereas the supplies are mainly sourced from suppliers in Xiamen, Shishi and Jinjiang in Fujian province, the PRC.

(ii) Xiamen U-Right

Xiamen U-Right, established in the PRC on 11 February 2010 with limited liability and owned as to 80% by U-Right Trading, 10% by Yilking and 10% by Dateng, is primarily engaged in i) the retailing of fashion garments under the brand name of “Yilking” and ii) the wholesale trading of raw materials and textile in the PRC. Retail sales of fashion garments are marketed and distributed to the PRC domestic market through self-operated shops, franchise shops and distribution agents. The customer group of wholesale trading business includes domestic textile processing and dying factories as well as garment distributors and wholesalers where the suppliers range from local PRC suppliers to overseas such as those located in Brazil, Italy, Turkey, South Africa and the United Kingdom.

Brand history and developments

The Group (“U-Right”)

In October, 1983, Mr. Leung Ngok and Mr. Leung Shing, the co-founders of the Group established retail shops under the name of SEVENTY-SEVEN MEN’S SHOP to engage in the retail of casual wear of various brand names in Hong Kong.

In 1987, Mr. Leung Ngok and Mr. Leung Shing established Sky Fox Investment Limited for the purpose of property holding. In 1989, the Group registered the “ U-Right ” trademark in Hong Kong to develop its “ U-Right ” brand name. In 1992, the Group set up its own production facilities in Hong Kong.

The Group registered “ U-Right ” trademark in 1992 and “佑威” trademark in 1994 in the PRC. In 1994, the Group acquired from Mr. Leung Ngok and Mr. Leung Shing the business of SEVENTY-SEVEN MEN’S SHOP, which at that time had 19 retail outlets, and integrated such retail outlets into the Group’s retail network in Hong Kong. After the acquisition, the Group gradually ceased selling products under other brand names and concentrated on products under the “ U-Right ” brand name. The business of SEVENTY-SEVEN MEN’S SHOP has then ceased to operate and the relevant retail shops’ business registration certificates have not been renewed upon their expiry since 1996.

In 1994, the Group introduced the franchise concept to its business and, as in 1996, the Group had 53 franchise shops in the PRC. The Directors considered the franchise concept could increase the awareness of the “ U-Right ” brand name among customers. Through the “ U-Right ” brand name, the Group aimed to offer its customers trendy and quality casual wear at competitive prices so as to achieve high level of turnover and promote customer loyalty. Under the Group’s franchise system, the franchisees were granted the right to use “ U-Right ” as the name of the franchise shops.

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LETTER FROM THE BOARD

Notwithstanding changes in personnel subsequently as the Provisional Liquidators gradually replaced the management team, the total turnover achieved by the Group according to the audited financial statements of the Group for the year ended 31 March 2011 was approximately HK$331 million. Due to the lack of working capital, the Provisional Liquidators decided to close down the retail operations for the time being. The Company has built up a new management team to reactivate its U-Right retail business and formulate the overall business development strategies of the Group in August 2009.

According to the management of the Company, the retail business of products under “U-Right” brand name to be launched will succeed the original “U-Right” products prior to Suspension. The business will be operated in Xiamen U-Right with an aim to recapture the market in the PRC. The garment products trading under “ U-Right ” brand name will cover men’s outerwear, women’s outerwear and children’s outerwear and focus on fashionable family collection casual wear. Further details of the re-launch of “ U-Right ” retail business will be discussed under the section headed “Business model on retailing”.

Xiamen U-Right (“Yilking”)

Yilking was founded in 1990 at Strait West-coast Economic Region on the coast of the East China Sea, and is principally engaged in the sales of menswear. Since its incorporation, the company has been pursuing modern scientific management and specializing in the sale of high quality business casual wear with natural designs in accordance with International Organization for Standardization (“ISO”) standards.

In 1993, “ Yilking ” trademark was officially registered and enjoyed legal protection. “ Yilking ” has become a professional menswear brand, including suits, casual trousers, T-shirts, sweaters, shirts, purses, belts and so on, instead of the then single causal jackets. In 1995, the jacket and casual wear collections of “ Yilking ” was granted Gold Award at the International Leisure Products & Technologies China Exhibition. And up to 1997, “ Yilking ” had become China’s renowned brand for its casual jackets, T-shirts and shirts collection, as evidenced by a survey made nationwide.

“ Yilking ” products focus on business casual wear and target its customer group on successful business elite aged 25 to 50, catering to their demands with quality products at affordable prices. The company has set up its R&D centers in certain cities including Hong Kong, Shanghai and Guangzhou. “ Yilking ” products were also certified by the ISO9000 international quality system in 2000.

In 2005 and 2007, “ Yilking ” differentiated from competitors and was selected as “Famous Trademark in Fujian Province” and “Well-known Brand in China”. The company has set up franchised stores and shop counters of menswear branded “ Yilking ” in major cities, such as Beijing, Chengdu, Kunming, Guiyang, Wuhan, Zhuzhou, Hangzhou, Harbin and Shenyang.

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LETTER FROM THE BOARD

With dedication for two decades, “ Yilking ” has effectively updated its brand and strategically transformed marketing mode, the then single man’s jacket wholesale in 1980s being superseded by franchised stores sale of collections in 2004. Initially, the company set up regional sole agents in provincial garment distributing centers which then developed franchised stores. Gradually, it established branches in regional markets and developed chain stores, achieving a smooth progress of sales channel revolution.

On 24 January 2010, U-Right Trading entered into the JV Contracts with the Joint Venture Partners and agreed all the material terms of, and procured the equity joint venture to enter into the Subcontracting Agreement specifying the operations, rights, duties and obligations including the use and transfer of rights and business of “ Yilking ” brand name between the equity joint venture and the Joint Venture Partners when it was established. The business licence of Xiamen U-Right was issued on 11 February 2010 and hence Xiamen U-Right was established. The Subcontracting Agreement was entered into between Xiamen U-Right and the Joint Venture Partners on the same date.

Pursuant to the terms of the JV Contracts and the Subcontracting Agreement, Yilking has agreed to transfer its existing garment trading business under the brand name of “ Yilking ” to Xiamen U-Right for nil consideration at the option of Xiamen U-Right when Xiamen U-Right has obtained the necessary retail licenses and approval under relevant PRC laws and regulations. As there will be a time lag before the transfer of legal title could be completed, Yilking has been appointed as the agent for and on behalf of Xiamen U-Right to operate the said garment business in return for a management fee for so long as Yilking is managing the said garment business for Xiamen U-Right. The Company intended that such transfer to take place by the financial year ending 31 March 2012.

The Target Group (“LeRoi” and “Meridow”)

The manufacturing operation of the then LeRoi group was first established in 1979 when Mr. So Chi Hiu established a small factory, Leyland Fashion Company, in Hong Kong to manufacture ladies’ wear with a total manpower of 12 workers to manufacture garments for import and export companies or trading companies.

In July 1985, Godlap Company Limited (“GCL”) was set up. Its principal activities were trading of garments and property investments.

In May 1987, the then LeRoi group set up its first retail shop in Hong Kong.

Due to the rapid growth in the then LeRoi group’s business and in order to overcome the limited amount of textile quota allocated to Hong Kong manufacturers and to take advantage of the lower production costs in the PRC, the then LeRoi group decided to set up manufacturing facilities in the PRC. A sino-foreign joint venture company, namely Dongguan Leyland Fashion Company Limited (“DLF”) was established in the PRC in April 1989.

The then LeRoi group identified that a vertical integration of business was the key success of the ladies’ fashion wear and, therefore, GCL registered “ LeRoi ” as the brand name for retailing the then LeRoi group’s products in the PRC and Hong Kong in September 1991 and May 1996 respectively.

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LETTER FROM THE BOARD

Thereafter, the then LeRoi group expanded quickly and the number of staff of the then LeRoi group increased to about 443 in December 1998.

In late 1990’s, the management realised that product design and quality were the key success factors to the then LeRoi group’s success. With a view to focusing on product design and quality control of “ LeRoi ” products, GCL decided to close DLF and to subcontract the manufacturing process of “ LeRoi ” products to other independent garment manufacturers in December 1998. DLF was closed and dissolved in April 1999 and GCL took over all the assets and liabilities of DLF in compliance with the relevant laws and regulations.

In May 1999 and September 1999 respectively, the then LeRoi group signed a 20-year subcontracting agreement with each of its two subcontractors. Under the subcontracting arrangements, the then LeRoi group maintained the product design, quality control and marketing functions of the garment manufacturing process and subcontracted all other manufacturing procedures to these two subcontractors. By such subcontracting arrangements, the directors believed that the then LeRoi group could focus its resources on product design, quality control and marketing whilst the costs of its production could be controlled more effectively.

In November 2000, the then LeRoi group discontinued its retail operation in Hong Kong due to economic downturn and intense competition.

The above subcontracting arrangements were proven sound as the turnover and the number of franchisees had been increased from approximately HK$86.5 million and 31 respectively for the year ended 31 March 2000 to approximately HK$126.3 million and 68 respectively for the year ended 31 March 2002.

Since February 1999, the trading affairs of the then LeRoi group had been performed by LeRoi Trading International Limited and the quality control and design services had been performed by Sincere Jade Limited.

On 1 April 2008, the Vendor through the Target Company acquired HK Fancy and Shenzhen Fancy.

Apart from fashion apparel of “ LeRoi ” brand, the Target Group has obtained an exclusive right from Dongguan Factory, an Independent Third Party, to sell and distribute ladies apparel under the brand name of “ Meridow ”. The brand name of “ Meridow ” was originally registered in the PRC by Dongguan Factory. The product range of “ Meridow ” products is more or less the same as “ LeRoi ” products.

Products

The Group is currently engaged in (i) wholesale trading of garments and textile products in the PRC, the Middle East and South-east Asia region; (ii) retail trading of menswear fashion garments under the brand name of “ Yilking ” in the PRC; and (iii) the Group proposes to acquire the retail trading of ladieswear fashion garments under the brand names of “ LeRoi ” and “ Meridow ” in the PRC through the Acquisition.

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LETTER FROM THE BOARD

	U-Right Trading	Xiamen U-Right	The Target Group
Principal	Trading and design	Design, distribution	Design, distribution
activities		and sales	and sales
Type of business	Wholesale	Retail	Retail
Market segment	Garments and textile	Fashion garments	Fashion garments
		and menswear	and ladieswear
Product range	Menswear,	Menswear market	Business casual
	ladieswear and	which includes	ladieswear
	childrenswear	business formal,
		casual wear and
		other accessories
Major	Middle East and	PRC	PRC
geographical	South-east Asia
coverage	region
Sales and	Indent sales	Self-operated shops,	Self-operated shops
distribution		franchise shops and	and franchise shops
channels		distributors

Business model on retailing

The Enlarged Group’s retail garment products include menswear under “ Yilking ” brand and ladieswear under “ LeRoi ” and “ Meridow ” brands. The product portfolio of the Enlarged Group will be widely diversified as it covers menswear, womenswear, formal wear, sportswear and casual wear for all seasons. According to the management of the Company, the Group will resume the previous U-Right retail business upon Resumption.

Xiamen U-Right (“U-Right”)

The management aims to re-launch “ U-Right ” branded jeans through online sales in the third quarter of 2011. The management of the Company considers that e-commerce is a cost-effective way to rebuild and increase the recognition of the “ U-Right ” brand name without incurring a huge amount of advertising expenses and capital expenditure prior to Resumption. Assuming that the Resumption takes place in January 2012, upon such time the Company will have capital injection for resuming U-Right’s retail business, from subscription proceeds arising from Investor’s share subscription. The management targets to expand the business by broadening the product range, including men’s outwear, women’s outwear and children’s outwear and focusing on fashionable family collection casual wear. The overall product portfolio will be family collection. The lack of other mature brands in this market segment in the PRC creates great opportunities for the Company, it will be easier for the Company to enter the market, rebuild its brand name and strengthen its brand loyalty with less competition. Moreover, family is an important part of Chinese culture, with continuous growth in economy and urbanization of the PRC, it is expected that the purchasing power of the PRC’s households as well as their cultural awareness will increase.

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LETTER FROM THE BOARD

Upon Resumption, with the availability of funds, the management expected that 20 self-operated and franchise shops will be opened in tier-two and tier-three cities of the PRC. The market for the upper middle groups in the rural area is expanding at a faster rate and U-Right retail business will position itself to target the wealthier urban upper middle income group and at the same time to open the higher-growth upper mid-range market in the rural area. The management decided to increase brand awareness through promotions in schools or television variety shows.

The U-Right retail business expansion plan is considered to be achievable for the several reasons: 1) the management and operating teams are experienced in the garment retail industry, this helps the Company to build customer loyalty within a short period of time; 2) Since both Xiamen U-Right and the Target Group possess solid supplier network and downstream retail network, U-Right retail business can make use of resources available from them for sourcing garments and establishing sales points; 3) The expansion plan is considered as reasonable and achievable, the management will expand the U-Right retail business through successive stages.

Shareholders should note that the Resumption Proposal is currently under review by the Stock Exchange, which the Stock Exchange has not indicated or confirmed that approval (with or without further conditions) for Resumption may be granted. In case the approval for Resumption is not granted, the debt restructuring of the Group by way of a proposed scheme of arrangement will be terminated. It is probable that the Company and the Enlarged Group will be liquidated and the assets of the Group may not be sufficient to pay off all the debts due and owing by the Group and there may not be any return to Shareholders.

Xiamen U-Right (“Yilking”)

“ Yilking ” products focus on men’s outerwear, segregated into business formal and business casual, ranging from shirts, T-shirts, cardigans, jeans to suits, jackets, light coats and heavy coats, covering spring/summer and autumn/winter collections. “ Yilking ” products are designed with style, comfort and quality.

The target customer group of “ Yilking ” is the upper middle income group in the rural area and the overall pricing of the garment products from Yilking is set at the high end of the rural consumer group.

The Target Group (“LeRoi” and “Meridow”)

“ LeRoi ” and “ Meridow ” products focus on ladies’ outerwear market in the PRC and their products include coats, dresses, skirts, pants, blouses and cardigans in business formal, business casual and fashion casual styles. “ LeRoi ” and “ Meridow ” products are notable for their high quality, comfort and feminine style. The target customers of “ LeRoi ” and “ Meridow ” products are primarily female urbanites in the age range between 20 to 40 in the middle to upper middle income group in the PRC.

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LETTER FROM THE BOARD

Product design and development

Xiamen U-Right (“Yilking”)

Initial market survey and product strategy

Design team gathers information by researching, understanding the latest European design trends in the latest fashion shows and receiving suggestions from the distribution agents and the franchisees. Product design Producing design sketches.

==> picture [39 x 31] intentionally omitted <==

Product development

New designs from the product design stage are developed into product prototypes which are tailored according to the specifications and quality standards.

==> picture [39 x 31] intentionally omitted <==

Sales fairs

Sales fairs are held twice a year to showcase the autumn/winter and spring/summer collections to the existing and potential customers, sub-distributors and store managers. Respective distributors will place orders after the sales fairs.

==> picture [39 x 32] intentionally omitted <==

Mass production

Ordered products will be mass produced based upon their respective designs.

The product design team for the “ Yilking ” brand will start the design by researching and understanding the latest European design trends in the latest fashion shows and also receiving suggestion from the distribution agents and the franchisees. Once a sketch is developed, the designer will illustrate the design through the assistance of a computer program and arrange the sewing of different pieces of cloth components with different color, quality and texture of textile materials, and apply different stitching techniques and accessories before the design becomes a finished garment. The team also possesses a collection of fabrics and textiles to facilitate the making of a prototype. Normally a prototype will be available in approximately 15 days, starting from the first day of design. The designer will further alter the prototype and decide for production when a design is acceptable. The length of time to design a garment varies, ranging from one design per week to several designs in a day. Currently, there are 2 employees responsible for the design and product development in “ Yilking ” brand.

– 19 –

LETTER FROM THE BOARD

The Target Group (“LeRoi” and “Meridow”)

The product design function of the Target Group is similar to that of “ Yilking ” brand, except that in addition to its in-house design team, the Target Group also outsources part of its design function to an external design house to fully incorporate designs from various angles. Currently, seven designers are working for the design and product development of the Target Group.

Material sourcing

The major raw materials used in the Group’s products are fabrics which are mainly sourced in the PRC. The Group and the Target Group employ independent subcontractors in the PRC to manufacture the garment products and exert control over the quality and cost of the products through the Subcontracting Agreements.

Xiamen U-Right (“Yilking”)

Xiamen U-Right purchases raw materials from local suppliers and passes the materials to independent subcontractors for further processing. The finished goods will be delivered to Xiamen U-Right’s respective downstream sales channels. Apart from that, part of the finished products will be sourced from local garment manufacturers and Xiamen U-Right will insert its own labels onto the garment products.

The Target Group (“LeRoi” and “Meridow”)

The manufacturing process of products under the brand names of “ LeRoi ” and “ Meridow ” is subcontracted to Dongguan Factory. The Target Group does not have any interest in Dongguan Factory. The Target Group will supply raw materials, specifications and standards while Dongguan Factory will manufacture with its own utilities, facilities and manpower. The subcontracting relationship could be traced back to 1999.

Merchandise management

Xiamen U-Right (“Yilking”)

Xiamen U-Right organises merchandising meetings of its retail products for every spring/summer and autumn/winter seasons. All distributors and franchisees are invited to preview the latest garment collections and order for batch production. Through these meetings, an estimate of quantity demand for each product can be determined. Xiamen U-Right can then prepare a precise ordering of the required textile materials and negotiate with subcontractors for production. Obsolete stock or excess inventory level could be diminished.

The Target Group (“LeRoi” and “Meridow”)

The Target Group calls for meetings of bulk ordering of apparels for every spring/summer and autumn/winter seasons. All franchisees and heads of sales counters and self-operated shops are invited to preview the forthcoming season’s fashion collections and provide their advices on the designs. The Target Group will obtain their estimated order quantity for each product and such information is essential for the coming production plan.

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LETTER FROM THE BOARD

All sales counters, self-operated shops and franchise shops of the Target Group are equipped with computerized inventory management and control system. A real time management of the inventory level can be performed by the management of the Target Group, and the system assists them to promptly respond to customer needs and to arrange for follow-up ordering and production.

Logistic management

Xiamen U-Right (“Yilking”)

Xiamen U-Right monitors every stage of receipt, transfer and return of its inventories on hand. With respect to receipt, the day of delivery, name of supplier and details and quantity of goods are recorded and the goods are matched against a packing list by a supervisor. Stock-in and stock-out notices will be prepared when the goods are allocated in and out between the subcontractors and customers. Any returned defective goods will be delivered back to the subcontractors separately.

The Target Group (“LeRoi” and “Meridow”)

The logistic management control of all finished goods for the Target Group is similar to that of Xiamen U-Right, except that the movement of goods is supervised and controlled by a computerized inventory management and control system. Responsible staffs are employed in the warehouse of the Target Group, all stock in (produced by the subcontractor or returned from the shops) and out are recorded in the system using the barcode reader. Prior notices and confirmations from the responsible staffs of the sales department are required for all stock movements between the warehouse and franchise shops and self-operated shops.

Quality control

Xiamen U-Right (“Yilking”) and the Target Group (“LeRoi” and “Meridow”)

To ensure that the manufactured products from the subcontractors meeting high quality standard, the Group and the Target Group employ quality control and product control staffs to monitor the manufacturing process of the subcontractors on regular basis. Random samplings on the raw materials, work-in-progress, finished products at different stages of production are performed by the quality control staff of subcontractors, who are supervised by the quality control and product control staffs of the Group and the Target Group to ensure the products are in compliance with the specifications and standards required by the Group and the Target Group. In addition, random inspections of finished products are conducted before they are packed for delivery to the retail outlets so as to assure that the products are sold in good conditions.

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LETTER FROM THE BOARD

Business model on indent sale

Products sourcing

The wholesale trading business of the Group is principally operated on an indent basis. The inventories are sourced from several channels including referrals from business partners and contacts from the Xiamen Chamber of Commerce for Textile & Apparel. The Group also trades with the local suppliers in the Shishi District in Xiamen, Jiangsu and Xiamen. Apart from the PRC suppliers, the Group also trades with suppliers from overseas such as Brazil, Italy, Turkey, South Africa and the United Kingdom.

Delivery

Xiamen U-Right (“Yilking”)

For textile products, Xiamen U-Right will source from a fabric manufacturer for the production of plain fabric, based on the specification provided by the textile customers. Inspection of the manufacturing process will be performed to ensure a suitable manufacturer is engaged. All of the fabric manufacturers under Xiamen U-Right’s network are located in the PRC. Some fabric manufacturers would deliver the fabric directly to the processing factories while some would send to Xiamen U-Right for further delivery. After the receipt of the plain fabric, the processing factory will further process the plain fabric including dyeing, strength enhancement, heat treatments, etc. The textiles will be delivered to either the customers directly or Xiamen U-Right for further delivery.

For leather products, Xiamen U-Right will import semi-processed leather from other countries, such as from Brazil and Italy. A sample of the semi-processed leather will be requested by Xiamen U-Right to ensure the products to be purchased meeting the specification requested by the customers. Upon checking the product sample, mass order will be placed. The settlement of the semi-processed leather will be done at the ports in the PRC. Xiamen U-Right will prepare the related documents and arrange with the local custom authorities for the clearance of the products. After obtaining the clearance from the local custom authorities, Xiamen U-Right will deliver the semi-processed leather to the customers.

U-Right Trading (“U-Right”)

Upon receiving an order from the customers, mainly wholesalers and distributors in the Middle East and South-east Asia region, U-Right Trading will sign a sale and purchase agreement with the customer on the proposed purchase. Upon receipt of customer’s general orders, U-Right Trading would establish understandings with the prospective supplier on the garment products. Samples from the suppliers will be delivered to U-Right Trading for quality checking. If the samples comply with the quality and product requirement demanded by the customer, orders will be made for mass shipments.

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LETTER FROM THE BOARD

Payment

Sales personnel will prepare the summary of sales and sales invoices according to the sales contracts and purchase list, invoices and copies of custom declaration forms provided by the purchasing department. Upon receipt of a sales invoice, the customer will arrange payment. The finance department will then acknowledge receipt of the payment and notify the sales department to issue a bill of lading. If the customer is unable to make payment within the specified time frame, the finance department will confirm the status of shipment/delivery with the sales department. The finance department will prepare a monthly aging analysis which will be used by the sales department to keep track on the overdue payments.

Credit terms

Different types of products are subject to different credit policy. In general, customers are granted credit periods of 0 to 60 days, depending on their credit history, payment pattern and on-going relationship with Xiamen U-Right and U-Right Trading.

Sales cycles

Xiamen U-Right (“Yilking”)

==> picture [388 x 222] intentionally omitted <==

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

Distributors/Franchisees Self-operated shops
1 4
Review of sample
Deliver garments/
made by in-house
labeled garments
design team and
products
place order
Xiamen U-RIGHT
2a 3a 2b 3b
Deliver
Provide design, place Deliver Place order on
labeled
order and supply garments unlabeled garments
garments
textile materials products products
products
Subcontractors
Garments Manufacturer (for labeling)
----- End of picture text -----

The Target Group (“LeRoi” and “Meridow”)

The sales cycle of the Target Group is similar to that of Xiamen U-Right’s “ Yilking ” brand.

Sales and Marketing

The Group holds sales fairs twice a year to showcase the autumn/winter and spring/summer collections to the existing and potential customers. The Group will invite sub-distributors and retail store managers, who place orders through their respective distributors, to attend these sales fairs. The Group can obtain feedback in the sales fairs in order to fine-tune their future merchandising strategy.

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LETTER FROM THE BOARD

Xiamen U-Right (“Yilking”)

Xiamen U-Right has adopted various marketing strategies, including engaging an actor as brand spokesperson in the PRC, advertising the brand name through sponsorship of stage performance and television and distribution of flyers and promotional brochures to franchisees and authorised distributors.

The Target Group (“LeRoi” and “Meridow”)

A club membership scheme has been launched to encourage customer recurrence and to develop brand loyalty. Club members are entitled to a 10% discount on their purchases made throughout the year as an incentive and are also invited to promotional sales which are held in most of the shops in the larger cities in the PRC.

In addition to advertisements in magazines and newspapers, the shops are provided with posters and promotional brochures. These are amongst the effective promotion strategies currently adopted so as to enhance public awareness of the “ LeRoi ” and “ Meridow ” brand names.

Sales network

The breakdown of forecasted number of sales points in different distribution networks for the retail business of the Enlarged Group for the year ended 31 March 2011 and the years ending 2012 and 2013 respectively are as follows:

		The Target
		Group
	Xiamen U-Right	(“LeRoi” and	Xiamen U-Right
	(“Yilking”)	“Meridow”)	(“U-Right”)
End of financial year ended 31 March 2011
Self-operated shops	5	–	–
Franchise shops	13	52	–
Distribution agents	115	–	–
Sales counters	–	9	–
End of financial year ending 31 March 2012
Self-operated shops	5	–	–
Franchise shops	13	64	–
Distribution agents	125	–	–
Sales counters	–	9	–
End of financial year ending 31 March 2013
Self-operated shops	11	1	20
Franchise shops	19	75	–
Distribution agents	155	–	–
Sales counters	–	9	–

The forecasted numbers of sales points are prepared based on the assumption that the Group will gain access to additional funding upon Investor subscription to the shares of the Company for the expansion of existing business scale. The subscription will be conditioned upon successful debt restructuring, capital restructuring and resumption of trading of the shares of the Company.

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LETTER FROM THE BOARD

Xiamen U-Right (“Yilking”)

The major retail network for Xiamen U-Right is through distributors, and thus good relationship with the local distributors is essential to the expansion of the Xiamen U-Right retail business. The operation of the distributors is bounded by distribution agreements and Xiamen U-Right has no other form of apparent control over the distributors. Should a distributor fails to comply with the requirements addressed in the distribution agreements, Xiamen U-Right will have the right to terminate the agreements.

Xiamen U-Right has closely managed relationships with its distributors and has required the distributors to operate the retail outlets according to Xiamen U-Right’s retail guidelines. Xiamen U-Right also works closely with the distributors and their sub-distributors on site selection and store renovation for new shops, and cash and inventory management, retail operations and staff training on regular basis to ensure each retail outlet has the resources and knowledge to run the business.

Employing distributors as downstream sales model is very common in the PRC. By selling directly to the distributors, revenue is recognized upfront and the responsibilities of product distribution are delegated to the distributors. This allows Xiamen U-Right to establish presence in a wide geographical region and to penetrate markets through distributors’ local knowledge, while minimizing sales risks.

The Target Group (“LeRoi” and “Meridow”)

The sales network of the Target Group mainly includes the sales counters in the department stores, self-operated shop operated by the Target Group and franchise shops.

The Target Group has worked closely with the department stores in various promotion functions and try its best to cope with their requirements so as to maintain good relationship with the department stores.

The operation of the franchise shops is bounded by the detailed terms and guidelines in the franchise agreements. Regular shop visits are performed by the senior sales staff of the Target Group without prior notice to ensure the franchisees have complied with the guidelines and terms of the franchise agreements. On the other hand, the Target Group also provides supports and advices to the franchisees on staff training, store decoration and renovation as well as shop expansions. The Target Group has maintained good relationship and communication with franchisees through regular meetings. First priority will be given to the existing franchisees operating in the region if the Target Group considers increasing the number of franchise shops in that region.

Cash control, inventory control and information system management

Cash control

Xiamen U-Right (“Yilking”)

Xiamen U-Right retail business exerts a tight control on cash management. All payments are duly requested, checked and authorized by different personnel.

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LETTER FROM THE BOARD

Xiamen U-Right has adopted strict internal control procedures for handling cash received at its self-operated retail stores, which include the following:

All cash receipts for a week are deposited in the designated bank weekly.
Cash count is performed on every shift of staff, and cash count report is prepared and reviewed by separate staff.
All daily cash count reports and weekly cash deposit slips are faxed to the accounting department. The original copies will be collected by the regional accounting departments every month.
Weekly reconciliation is performed on the cash sales recorded in the point of sales system and the respective cash receipts in the bank statements.
Random checks on the sales receipts are performed by the accounting department to ensure that sales are properly recorded by the point of sales system.

Xiamen U-Right retail business may grant credit periods of 60 days to 180 days to the distributors, depending on the creditworthiness, payment pattern and on-going relationship with Xiamen U-Right.

Monthly bank reconciliation is prepared by an accounting staff and will be reviewed by the management regularly.

The Target Group (“LeRoi” and “Meridow”)

The Target Group also adopts strict internal control procedures on cash management which are set out as follows:

All payments are duly requested, prepared, checked and authorized by different personnel and the general manager.
Cash receipts from self-operated shops are required to be deposited to the designated bank on the following day.
Sales from sales counters are reconciled with the department stores on a monthly basis and monthly statements with respective department stores are confirmed within the first 10th to 15th days of the following month and settlements with the department stores will be made within 30 days upon the confirmation of the statements.
Sales of franchise shops are reconciled and confirmed on a monthly basis also, and settlements are required to be made within the 10th to 15th day of the following month.

Daily bank reconciliations are performed on the cash deposits or payments made by department stores, self-operated shop and the franchise shops.

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LETTER FROM THE BOARD

Inventory control

Xiamen U-Right (“Yilking”)

Regarding the inventories for the self-operated shops, Xiamen U-Right established a real time point of sales system in early 2010. With the assistance of the system, inventory level can be closely monitored to make replenishment if there is any shortage and to avoid stock obsolescence.

The Target Group (“LeRoi” and “Meridow”)

Information system management

Xiamen U-Right (“Yilking”)

Yilking’s information management system provides for invoice preparation, inventory tracking and customer account management. With the assistance of the system, inventory figures of the garment products can be closely monitored by relevant personnel and to track inventory levels in a real-time environment and forecast demand for garment products at the relevant sales points, so they can make replenishment if there is any shortage and to avoid stock obsolescence. At the same time, Yilking will be able to provide timely, complete and accurate data to subcontractors on the sales of their products, this improves the efficiency of the supply chain network and reduce costs.

As for internal control, firewall software has been installed to prevent unauthorized access to the system and Yilking also maintains copies of emails on a separate server and also back-up its work files of the primary system. The management will continue to strengthen the management and control of its distribution network by upgrading the information systems technology from time to time.

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LETTER FROM THE BOARD

The Target Group (“LeRoi” and “Meridow”)

Since its establishment in 2004, the subsidiary of the Target Group has operated a front point sales system for its franchisees and this is the main information system used by the Target Group. This system automatically updates the level of inventory of the Target Group and the relevant franchise shops, sales counters and self-operated shop. Under this system, the Target Group is able to obtain information on individual product performance at each sales point, thereby allowing prompt response to customers’ demand. This system also facilitates efficient stock replenishment by enabling the Target Group to promptly receive up-to-date information on stock required for each day.

Customers

“ Yilking ” products mainly target on customers in the age range of 25 to 45 of upper middle income group in tier-two to tier-three cities and continues to expand into the upper end of rural community. “ LeRoi ” and “ Meridow ” products, on the other hand, target on customers in the age range of 20 to 40 of middle to upper middle income group mainly in tier-one and tier-two cities in the PRC.

Set out below are the background information of top 5 customers in FY10/11, which are Independent Third Parties of the Group:

Xiamen U-Right (Wholesale trading)

			Number of
			years of	% to total
			business	sales in
Name of customer	Business	Location	relationship	FY10/11
Fujian Xingke Sportswear Company	Manufacture and	Fujian	3 years	7.55%
Limited* (福建省興克體育用品有	processing of
限公司)	casual wear
Jinjiang Anhai Xinyi Leather	Wholesale of	Jinjiang	2 years	5.32%
Manufacturing Company Limited*	leather products
(晉江市安海新藝製革有限公司)
Jinjiang Yongjian Leather Products	Wholesale of	Jinjiang	3 years	5.11%
Company Limited* (晉江市永建皮	leather products
革製品有限公司)
Fujian Huaxiang Apparel Company	Manufacture and	Fujian	2 years	4.59%
Limited* (福建華翔服飾有限公司)	processing of
	sportswear
Shishi Bierqi Apparel Company	Manufacture and	Shishi	3 years	4.49%
Limited* (石獅市比爾齊服飾有限	processing of
公司)	casual wear

English translation for identification purposes only

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LETTER FROM THE BOARD

U-Right Trading (Wholesale trading)

			Number of
			years of	% to total
			business	sales in
Name of customer	Business	Location	relationship	FY10/11
Tupe & Tiplop Store	Trading of	Philippines	1 year	33.04%
	garments
Qingxia General Trading LLC	Trading	Dubai	1 year	27.25%
Super Link General Trading LLC	Trading	Dubai	1 year	26.63%
Shishi City Peak Zone Sports	Trading of	Shishi	1 year	13.08%
Leisure Clothing Trading Co Ltd.	garments

All the abovementioned customers are Independent Third Parties.

Suppliers

The major raw materials used in the Group’s products are fabrics which are mainly sourced in the PRC. As confirmed by the management, the Group and the Target Group have not experienced any major problems and disruptions in sourcing the raw materials in the past. The Group and the Target Group employ independent subcontractors in the PRC to manufacture the garment products and exert control over the quality and cost of the products through the subcontracting agreements.

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LETTER FROM THE BOARD

Set out below are the background information of top five suppliers and sole subcontractor in FY10/11, which are Independent Third Parties of the Group:

Xiamen U-Right (“Yilking”)

				% to total
			Number of	purchase/
			years of	subcontracting
			business	fee in
Name of the companies	Business	Location	relationship	FY10/11
*Suppliers:*
Shishi Mengdiqiu Apparel Company	Manufacture and	Shishi	8 years	16.66%
Limited* (石獅市蒙狄丘服飾有限	retail of casual
公司)	wear
Puning Chiwei Hengqiang Garment	Manufacture and	Puning	6 years	6.15%
Factory* (普寧市池尾恒強製衣廠)	retail of textiles
	and garments
Shishi Jiulu Apparel Company	Manufacture and	Shishi	4 years	9.31%
Limited* (石獅市久鹿服飾有限	retail of casual
公司)	wear
Shishi Jingtian Textile Company	Fabrics and textile	Shishi	4 years	7.52%
Limited* (石獅市經天紡織有限	products
公司)
Xiamen Beina Apparel Company	Manufacture,	Xiamen	2 years	13.33%
Limited* (廈門貝納服飾有限公司)	processing and
	retail of
	garments
*Subcontractor:*
Shishi Dalun Yongbao Apparel	Manufacture and	Shishi	3 years	100.00%
Factory* (石獅市大侖永寶時裝廠)	processing of
	garments

English translation for identification purposes only

Currently, the major part of the wholesale trading business of the Group is operated on an indent basis. The inventories are sourced from several channels including referrals from business partners and contacts from the Xiamen Chamber of Commerce for Textile & Apparel. The Group trades with the textile and garment industry players in the local Shishi District and suppliers from Jiangsu and Xiamen, the PRC. Apart from the PRC suppliers, the Group also trades with overseas suppliers such as Brazil, Italy, Turkey, South Africa and the United Kingdom.

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LETTER FROM THE BOARD

The Target Group (“LeRoi” and “Meridow”)

				% to total
			Number of years	purchase/
			of business	subcontracting
Name of the companies	Products	Location	relationship	fee in FY10/11
*Suppliers:*
Shine Art Corporation
Limited
(尚雅有限公司)Note	Clothes	Hong Kong	Over 3 years	43.4%
Foshan Ao Luo Paper
Printing Co. Limited*
(佛山市奧洛紙印花
有限公司)	Clothes	Foshan	Over 5 years	20.9%
Dongguan Wei Ye Knitting
and Garment Factory*	Fashion
(東莞市偉業針織製衣廠)	products	Dongguan	Over 5 years	5.5%
Dongguan Tai Li Plastics
Manufacturing Factory*
(東莞市泰力塑膠製品廠)	Plastic bags	Dongguan	Over 3 years	4.4%
Dongguan Hou Jie Fu Jian
Mei Printing Factory*
(東莞市厚街富健美	Packaging
印刷製品廠)	materials	Dongguan	Over 3 years	2.2%
*Subcontractor:*
Dongguan Factory	–	Dongguan	Over 5 years	100%

English translation for identification purposes only

Note: The Vendor is the director of Shine Art Corporation Limited (“Shine Art”), therefore Shine Art is a related party of the Target Company. Aside from Shine Art, all the abovementioned suppliers and subcontractor of the Target Group are Independent Third Parties.

Stores

Xiamen U-Right (“Yilking”)

As at 31 March 2011, there were 5 self-operated stores, 11 franchise shops and 113 authorized agency shops of “ Yilking ” brand name covering 53 cities and 15 provinces of the PRC, including but not limited to Shandong Province, Sichuan Province, Anhui Province, Hunan Province, Hainan Province, Zhejiang Province, Guizhou Province, Fujian Province, Guangdong Province and Heilongjiang Province.

The Target Group (“LeRoi” and “Meridow”)

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LETTER FROM THE BOARD

Employment

As at 31 March 2011, the Group had a total of 60 employees and the Target Group had a total of 82 employees. The breakdown of head count of employees by departments is exhibited in the following table.

		The Target
Department/Role	The Group	Group
Director/Management	9	4
Retail	25.5	36
Wholesales	3.5	−
Supply Management	7	18
Administration/Finance	12	16
Business/Product Development	3	8
	60	82

If an employee is responsible for a role in two different departments, a head count of “0.5” will be used to indicate the employee’s head count in the respective departments.

Intellectual property right

The Company will procure the transfer of U-Right mix X, U mix X, URX, U+, Q4U, U zone, U:mf, M concept, and 佑威 trademarks in Hong Kong and the PRC held by U-Right International Limited (in Liquidation) to Fame Ace Limited, one of the subsidiaries of the Group, subject to the agreement of the liquidators of U-Right International Limited (in Liquidation). If it is suitable, the Company will also devise, design and register new U-Right trademark(s) in Hong Kong and the PRC for U-Right’s retail business, with a view to reactivate and revitalise the U-Right brand name, in addition to using the existing U-Right trademarks.

The Directors consider it to be important to protect the Group against any infringement of its trademarks. The Group will take appropriate legal action to defend its trademarks if its management finds any infringement of its trademarks.

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LETTER FROM THE BOARD

INDUSTRY OVERVIEW

Characteristics

In general, the performance of garment industry is driven primarily by the growth of the PRC economy and, through which, the increase in disposable income of the people. The industry has benefited from the rapid economic growth of the PRC in the past decade, along with the increase in disposable income and the shifting toward consumerism behaviour from the affluent urban consumers in the PRC.

Opportunities

According to the National Bureau of Statistics of China, the GDP grew at a compound annual growth rate (“CAGR”) of approximately 18.4% per annum from 2001 to 2008, from approximately US$1,324.8 billion to approximately US$4,327.6 billion. GDP per capita at the same period has tripled and grown at a CAGR of approximately 17.7%, from approximately US$1,041.6 in 2001 to approximately US$3,258.8 in 2008. It is projected that the PRC’s nominal GDP per capita may experience continuous growth in the coming years.

Together with the continuous growth in economy and urbanization, the average income level of the PRC’s households has also increased continuously in recent years. According to the National Bureau of Statistics of China, in 2008, per capita disposable income of urban households increased by 8.4% in real terms to RMB15,781 while per capita net income of rural households rose by 8.0% in real terms to RMB4,761. Furthermore, in terms of consumption expenditure between first-tier, second-tier and third-tier cities, the annual per capita consumption expenditure of urban households in tier one cities have experienced rapid growth since 1995. However, in recent years, the growth rate in tier one cities has slowed down while that of tier two and/or tier three cities inched up, which is mainly driven by the PRC’s continuous economic growth.

Since joining the World Trade Organization in 2002, the PRC has benefited from freer trade and liberalization from many trade restrictions on textile and apparel products. These liberalizations are expected to result in a steady upward growth trend in apparel sales over the next few years.

2002-2011 Annual apparel sales in the PRC

==> picture [325 x 146] intentionally omitted <==

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

1,400
1,173
1,200
1,027
1,000 897
784
800 684
598
600 518
391 449
344
400
200
0
2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E
RMB Billion
----- End of picture text -----

Source: Euromonitor International

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LETTER FROM THE BOARD

Retail sales for consumer goods in the PRC market expanded rapidly in the past few years amid the PRC’s strong economy, accelerating urbanization, growing per capita annual disposable income and increasing affluence, these have contributed to the development of the retail industry.

According to the Economic Intelligence Unit, the annual expenditure for the clothing and apparel market in the PRC is estimated to experience a three-folded increase from US$30,000 million in 2009 to approximately US$90,000 million in 2014 as shown below figure: 2005-2014 PRC Estimated Annual Expenditure on Clothing and Apparel Products (USD’M)

==> picture [304 x 147] intentionally omitted <==

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

100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(USD’M)
PRC Estimated Annual Expenditure
----- End of picture text -----

Based on the statistics and analyses, it is expected that the clothing and apparel market in the PRC is expanding and will continue to expand.

The retail sales of consumer goods in the PRC have experienced rapid growth amid the PRC’s strong economy, growing middle class and increasing affluence. These changing demographics have coincided with the increase in disposable income per capita, suggesting that the consumption power of consumers in the PRC has risen. Consumer spending, as measured by the total value of retail sales of consumer goods, has grown from approximately RMB5,950 billion in 2004 to approximately RMB12,534 billion in 2009, with a CAGR of approximately 16.1%.

The annual consumption expenditure on clothing per urban household capita has grown from approximately RMB687 in 2004 to approximately RMB1,166 in 2008, with a CAGR of approximately 14.1%, which suggests that an expanding target customer base is interested in apparel products. Besides, the increasing size of the PRC’s middle class and growing affluence in the PRC overall have greatly contributed to the increasing consumption. As the level of disposable income increases among these people, their purchase decisions become increasingly less driven by price and functionality, but more by brand image, product design and cycle.

With the rapid growth of the PRC economy, the income levels of urban households have increased and the living standards have also elevated. Most of the famous clothing brands focus on the upper middle income groups in the urban area. However, the market for the upper middle

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LETTER FROM THE BOARD

groups in the rural area is expanding at a faster rate. The Group has deliberately positioned itself to target the wealthier urban upper middle income group and at the same time to open the high-growth upper mid-range market in the rural area.

Based on the statistics and analyses, the management of the Group considers the clothing and apparel market in the PRC is expanding and will continue to expand. Urban consumers in the first and second tier cities in the PRC have adapted to consumerism, while consumers in the third and fourth tier cities lag behind with average per capita spending on clothing below the average in the PRC. As industrialisation brings the migration of rural populations to urban areas and certain towns transform into cities, urban development and rising disposable income will stimulate demand for clothing and apparel in the third and fourth tier cities and expand the overall clothing and apparel market in the PRC. In view of that, the Group could obtain a share of the expanding pie with its exposure in the rural market in the third and fourth tier cities as well as maintain its sustainable growth in the urban areas when adopting an appropriate business model and strategy.

Despite the huge market opportunity, the market of retailing and wholesale trading in the PRC is competitive and the profit margin is low due to relative low market entry barrier. The Group and the Target Group’s competitors include both local and overseas trading companies and they compete primarily on product quality, brand recognition, service and price. The Group and the Target Group will continue to put emphasis on product quality to remain competitive. Accordingly, in order to remain profitable, companies have to expand their scale of operations to achieve economies of scale or to offer products which can differentiate themselves from other companies.

Challenges

The major challenge of running the business is to maintain margins in the face of rising inflationary pressure in the supply chain such as the impact of rising purchase price of garment products, salaries and rental costs, as a result, the running costs of retail business have increased rapidly in the recent years.

According to a research titled “Fashion & Apparel Retailing in China 2010: A Market Analysis” (the “Access Asia’s Research”) executed by Access Asia Limited in 2010, the 2009 annual growth of average retail staff salary bill per outlet for the total retail industry is 9.34% (2004: 18.54%) while the 2009 annual growth rate of national average retail property rental price is 23.5% (2004: 2%).

Entry barriers

Barriers to enter into the fashion garments industry are mainly related to the time and capital investment required to build and develop a premium brand. A brand’s history, reputation and quality combined with creativity, innovation and brand recognition are key elements of success. As such, new entrants need to invest heavily in research and development, marketing and advertising.

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LETTER FROM THE BOARD

Lack of an established distribution network presents another entry barrier for potential players as there is an intense competition for prime locations for retail stores. Specific sales channels are required to enable suppliers to reach their target customers. Boutiques and e-businesses have recently emerged as new sales channels.

Fluctuation in prices

Fluctuation in prices of fashion garments products is mainly driven by seasonality. Companies usually record higher sales around holiday seasons such as the Chinese New Year. In addition, the unit selling price for winter apparel is generally higher than those for spring and summer apparel. Changes in the weather patterns may also affect consumer spending behavior to seasonality effects. In addition, prices will also be affected by the overall economic condition. For example, during economic boom, prices are usually higher due to higher manufacturing and rental costs and consumers’ purchase decisions are more driven by brand image, product design and style and less driven by price.

COMPETITION

The Enlarged Group is engaged in a highly competitive and fragmented market in the wholesale and retail trading of fashion garments business and that the Enlarged Group faces competitions from international and domestic brands which compete in, among others, brand loyalty, product variety, product design, product quality, marketing and promotion, distribution network coverage and price, etc. In addition, the PRC’s accession to the World Trade Organisation may result in further changes to and developments in the industry, such as the removal of entry barriers for international brands so that foreign-invested enterprises may engage in the retail business and import tariffs may be reduced significantly. Significant changes in international distribution channels or in the pricing of imported competing products could materially and adversely affect the business, financial condition and prospects of the Enlarged Group.

The Enlarged Group may adopt various strategies to enlarge its market share in the industry including price reduction and provision of more sales incentives to distributors which may in turn materially and adversely affect the profit margins of the Enlarged Group and other results of operations.

On the other hand, with the well-established business relationship with suppliers and sub-contractors, the provision of comprehensive range of garment products shall be obtained in a timely and costs efficient manner and enable the sales of high quality, trendy and stylish garments to the customers.

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LETTER FROM THE BOARD

LEGAL AND REGULATORY REQUIREMENTS

PRC regulations on foreign investors investing in commercial sectors

Pursuant to the Provisions for Management of Foreign-invested Business Domains (外商投資商業領域管理辦法) which was issued by the Ministry of Commerce on 16 April 2004 and took effect on 1 June 2004, wholesale means the sales of products and related services to retailers and industrial, commercial and institutional customers or other wholesalers; retail means the sales of goods for individual or group consumption or related services at fixed location or through television, telephone, post, the internet and auto vending machines. Pursuant to the above provisions, foreign investors who wish to engage in wholesale and retail operating activities in the PRC could establish foreign-invested commercial enterprises.

Pursuant to the Notice of the Ministry of Commerce on Matters Relating to Additions to Distribution Business Scope of Foreign Invested Non-commercial Enterprises (關於外商投資非商業企業增加分銷經營範圍有關問題的通知) which was issued by the Ministry of Commerce on 2 April 2005 and took effect on the same day, foreign-invested non-commercial enterprises who wish to engage in wholesale and retail operating activities should apply for the additions to distribution business scope, report to the authority according to the related legal procedures of the extended business scope of the enterprise and apply for approval certificate for foreign-invested enterprises. The foreign-invested non-commercial enterprises should clearly detail their distribution methods (wholesale, retail and commission agent) for the additions to distribution business scope and submit their list of products upon application.

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China is the Foreign Exchange Administration Rules of the PRC (中華人民共和國外匯管理條例) (the “ Foreign Exchange Administration Rules ”), which was promulgated by the State Council on 29 January 1996, became effective on 1 April 1996 and was subsequently amended on 14 January 1997 and 1 August 2008. Under these rules, RMB is freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as direct investment, loan or investment in securities outside China unless prior approval of the State Administration of Foreign Exchange (“SAFE”) is obtained.

Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE for paying dividends by providing certain supporting documents (such as board resolutions, tax certificates), or for trade and services-related foreign exchange transactions by providing commercial documents evidencing such transactions. They are also allowed to retain their recurrent exchange earnings according to their needs of operation and the sums retained may be deposited into foreign exchange bank accounts maintained with the designated banks in the PRC. In addition, foreign exchange transactions involving overseas direct investment or investment and exchange in securities, derivative products abroad are subject to registration with SAFE and approval from or filing with the relevant PRC government authorities (if necessary).

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LETTER FROM THE BOARD

RISK FACTORS

Production process

The Group’s ability to meet demands of, and contractual obligations with, the distributors and franchisee and the ability to expand the business of the Group are heavily dependent on efficient, proper and uninterrupted operations of the suppliers. Power failures or disruptions, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment and the destruction of buildings, equipment and other facilities due to fire or natural disasters such as hurricanes, severe winter storms or earthquakes would severely affect the supplies to the Group.

Business in the PRC

Political and economic policies of the PRC government and social conditions and legal developments of the PRC could affect our business.
The government control of currency conversion could affect our business operations.
Uncertainties regarding interpretation and enforcement of the PRC laws and regulations may impose adverse impact on our business, operations and profitability and limit the legal protections available to investors.
Our labour costs may increase for reasons such as the implementation of the Labour Contract Law of the PRC or a labour shortage in the places we operate.
Non-compliance with PRC laws and regulations relating to housing fund contributions may adversely affect our financial condition.
Any changes in our tax treatment, including an unfavourable change in preferential enterprise income tax rates in the PRC, may have a material adverse impact on our financial condition and results of operations.
Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may limit our ability to acquire PRC companies and adversely affect the implementation of our strategy as well as our business and prospects.
A shortage of electricity and water supply in the PRC would affect our production and affect our business and financial performance.
Changes in government regulations such as environmental laws and regulations could affect our results of operations.

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LETTER FROM THE BOARD

Risk relating to business operations of the Enlarged Group:

Strong competition

The Enlarged Group is engaged in a competitive and fragmented market and is facing a strong competition from competitors in the PRC. There is no assurance that the competition within the industry will not further intensify which could result in price reduction, diminution of the market share of the Enlarged Group and have an adverse impact on the profitability of the Enlarged Group’s business.

Economic downturns

Demand for fashion apparel may be adversely affected by economic downturns in the PRC. Most of the Enlarged Group’s customers are based in the PRC. In the event of the PRC economic downturn or any financial crisis, turnover and profitability of the Enlarged Group may be adversely affected.

Reliance on PRC market

Revenues of the Enlarged Group are mainly generated in the PRC and thus the sales and business growth of the Enlarged Group are affected by economic conditions of the PRC and consumer spending habits. Factors affecting the level of consumer spending also include but not limited to interest rates, currency exchange rates, recession, inflation, deflation, political uncertainty, taxation, stock market performance, unemployment level and general consumer confidence. Fluctuations in the abovementioned factors may have impacts in the business of the Enlarged Group.

Industry concentration

All the products of the Enlarged Group are garments. The performance of the Enlarged Group could be adversely affected by fluctuations in the demand for, and changes in the market conditions for, such products.

We rely on “Yilking”, “LeRoi” and “Meridow” brands, and there is no guarantee that the re-launch of our “U-Right” brand will be successful.
We cannot guarantee that that we will continue to be successful in developing the “Yilking”, “LeRoi”, “Meridow” and “U-Right” branded products and expanding our product lines and offerings.
We may not be able to accurately anticipate or respond in a timely manner to changes in continually evolving consumer tastes and preferences for menswear and ladieswear products.
The sales of the Enlarged Group may be affected by seasonality and a number of other factors.

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LETTER FROM THE BOARD

We rely on our distributors who either directly or through third party retail outlet operators, operate authorized “Yilking”, “LeRoi” and “Meridow” retail outlets for the sales of our products in the PRC.
The Enlarged Group has limited control over the ultimate retail sales by our distributors. Our brand image and business may be adversely affected if the distributors fail to adhere to, or fail to cause the third party retail outlet operators to adhere to, our retail policies and standards.
We may not be able to accurately monitor the inventory levels at our distributors and third party authorized “Yilking”, “LeRoi” and “Meridow” retail outlet operators, and we cannot determine the proportion of products sold to end-users.
Our distributors may accumulate excess or obsolete inventory and any excessive build-up of inventory could affect the volume of future orders from our distributors and have a material adverse impact on our business.
Unauthorized use of our trademarks and the sale of counterfeit products carrying our brands or third party-owned brands could result in an erosion of goodwill and loss of sales.
Third party may assert or claim that we have infringed their intellectual property rights.
The acquisition of other companies or businesses or entering into joint ventures could result in operating difficulties and other harmful consequences.

COMPETITIVE ADVANTAGES

Experience and expertise of the management

The management of the Enlarged Group has over 20 years of experience in both the wholesale and retail trading. With the management’s extensive experience and business networks, the Enlarged Group has edge and knowledge to provide valuable advices and customer oriented services or comprehensive sale services. The competitive advantage derived from wide-ranging customer oriented services would be a major attraction to customers and hence customers retention.

High quality product

The Enlarged Group has established stringent quality control procedures for procurement and inspection of the products from sub-contractors.

Quality control staffs have been employed to ensure the merchandise in compliance with the specifications and standards required by the Enlarged Group. In addition, to further ensure that products are sold in good condition, random final inspections of finished products are conducted before they are delivered to the retail outlets.

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LETTER FROM THE BOARD

Wide variety of product mix

Diversified product portfolio could help to reduce the dependence on any specific consumer group in a business and minimize risk of demand shocks. The Enlarged Group has strategically diversified its products to womenswear, menswear, childrenswear (by gender) with formal wear, casual wear and sportswear (by functionality) by different brand names.

Business strategies

The Group intends to expand the sales network through authorized distributor channel in the medium to long run. Through this strategy, the Group mainly employs distributors to expand the number of retail outlets but operate less than approximately 10% of their total number of retail outlets. The business model is to first develop a well recognized brand name and then to maximize the cash flow through wide distributor retail network.

The Group is also considering alternative sales channel including e-commerce. Despite that e-commerce in the PRC is in its growth stage with plenty potential for growth, the dynamics of and operational risks embedded in e-commerce are still unknown to many firms in the region. Many players in the region are more than cautious when considering e-commerce for their business, as traditional Chinese garment and apparel traders are not familiar to the market in the internet world. Given that the newly set up retail business of the Group would consider online sales of the products, the Group is in an advantage that the Investor is the pioneer of setting up brand electronic platform.

MANAGEMENTS

Executive Directors

Mr. Tang Kwok Hung (“Mr. Tang”)

Mr. Tang, aged 44, was the financial controller in Tarrant Company Limited, whose parent company, Tarrant Apparel Group, Inc., is a company listed on NASDAQ and the group finance manager in SEA Holdings Limited (Stock code: 0251), a company listed on the main board of the Stock Exchange. He has over 20 years of experience in the strategic management, business development, corporate finance, and investment management in garment, retail, real estate development, hotel, high-tech business, logistics, international trade and manufacturing industries.

Mr. Tang holds a Master’s degree in Business Administration from Manchester Business School (MBS) of the University of Manchester in the United Kingdom and a Bachelor’s degree in Business Administration from Chinese University of Hong Kong. He is a fellow member of the Hong Kong Institute of Certified Public Accountants, a Certified Public Accountant of the American Institute of Certified Public Accountants and a Certified Management Accountant of the Institute of Management Accountants in the United States of America, a member of Hong Kong Securities Institute and a member of Hong Kong Institute of Real Estate Administrators.

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LETTER FROM THE BOARD

Mr. Ng Cheuk Fan, Keith (“Mr. Ng”)

Mr. Ng, aged 50, was appointed as an executive Director and Company Secretary of the Company in January 2011.

Mr. Ng graduated from the University of Alberta, Canada with a Bachelor’s degree in Commerce, majoring in Accounting. He also received a Master of Commerce degree in Professional Accounting from the University of New South Wales, Australia. Mr. Ng is a member of the CPA Australia and an associate member of the Hong Kong Institute of Certified Public Accountants.

Mr. Ng has over 20 years of experience in corporate development, corporate restructuring, management and accounting. He is an independent non-executive director of Hong Kong Building and Loan Agency Limited (stock code: 0145), executive director of Hao Tian Resources Group Limited (stock code: 0474) and managing director of China Fortune Group Limited (stock code: 0290), all companies are listed on the main board of the Stock Exchange. Mr. Ng was an executive director of New Environmental Energy Holdings Limited (stock code: 3989), a company listed on the main board of the Stock Exchange, for the period from 16 August 2010 to 26 May 2011.

Independent non-executive Directors

Mr. Chung Wai Man (“Mr. Chung”)

Mr. Chung, aged 53, holds a Diploma in Business Management and a Certificate of Bank of China Banking Course. He started working in The Kwangtung Provincial Bank in 1976, and his last position before leaving the bank in 1996 was a manager in charge of the Tai Po sub-branch. After leaving The Kwangtung Provincial Bank, Mr. Chung established “Raymond Chung Company”, a finance and business consulting firm for corporations in Hong Kong and China. In 2004, he set up another consulting firm, Excel Linker Capital (Asia) Limited, which focuses on providing financial services to corporations in China.

Mr. Chung is an independent non-executive director of FUJI Food and Catering Services Holdings Limited (stock code: 1175). He was an independent non-executive director of United Gene High-Tech Group Limited (stock code: 0399) (formerly known as Far East Pharmaceutical Technology Company Limited) from March 2007 to May 2009.

Mr. Mak Ka Wing, Patrick (“Mr. Mak”)

Mr. Mak, aged 46, is a registered solicitor of the High Court of Hong Kong and a senior partner of Patrick Mak & Tse Solicitors.

Mr. Mak has over 10 years’ legal experience as a practising solicitor. He was awarded the Common Professional Examination Certificate in Laws by the University of Hong Kong in 1995 and was awarded his Postgraduate Certificate in Laws (P.C.LL) by the University of Hong Kong in 1998.

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LETTER FROM THE BOARD

Mr. Mak worked in Dublin, Ireland with Messrs. Donald T. McAuliffe & Co., Solicitors of Ireland from 1990 to 1991 and worked in London, England with Messrs. Sparrow & Trieu, Solicitors from 1991 to 1992.

Mr. Chan Chi Yuen (“Mr. Chan”)

Mr. Chan, aged 44, obtained his Bachelor’s degree with honours in Business Administration and his Master of Science degree in Corporate Governance and Directorship both from Hong Kong Baptist University. He is a fellow of The Hong Kong Institute of Certified Public Accountants and The Association of Chartered Certified Accountants and is an associate of The Institute of Chartered Accountants in England and Wales. Mr. Chan is a practicing certified public accountant and has extensive experience in financial management, corporate finance and corporate governance.

Mr. Chan is currently an executive director of Sam Woo Holdings Limited (stock code: 2322), a non-executive director of New Times Energy Corporation Limited (stock code: 0166) and is also an independent non-executive director of China Sciences Conservational Power Limited (stock code: 0351), China Gamma Group Limited (stock code: 0164), China Gogreen Assets Investment Limited (stock code: 0397), China Grand Forestry Green Resources Group Limited (stock code: 0910) and Rojam Entertainment Holdings Limited (stock code: 8075). Mr. Chan was an executive director of Kong Sun Holdings Limited (stock code: 0295) from February 2007 to November 2009, Amax Holdings Limited (stock code: 959) from August 2005 to January 2009 and China E-Learning Group Limited (stock code: 8055) from July 2007 to September 2008 and an independent non-executive director of The Hong Kong Building and Loan Agency Limited (stock code: 0145) from October 2009 to February 2011, Richly Field China Development Limited (stock code: 0313) from February 2009 to August 2010 and Superb Summit International Timber Company Limited (stock code: 1228) from April 2007 to June 2010 (all aforesaid companies are listed on the main board of the Stock Exchange, except for Rojam Entertainment Holdings Limited and China E-Learning Group Limited which are companies listed on the GEM board of the Stock Exchange).

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is currently engaged in wholesale trading of garments and textile products in the PRC, the Middle East and South-east Asia region and retail trading of menswear fashion garments under the brand name of “ Yilking ” in the PRC. The principal business of the Target Group is design, distribution and sales of fashion apparel under the brand names of “ LeRoi ” and “ Meridow ” which is in line with and complementary to the existing principal business of the Group in relation to the wholesale and retail trading of fashion garments.

Taking into account the growth of the PRC economy as well as the expansion of the garment industry, the Directors (including the independent non-executive Directors and proposed Directors, if any), the Provisional Liquidators and the Investor considered that the Consideration, the terms of the S&P Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS

The Group

To further expand the Group’s existing business operations, U-Right Trading entered into the JV Contracts with the Joint Venture Partners and agreed all the material terms of, and procured the equity joint venture to enter into the Subcontracting Agreement specifying the operations, rights, duties and obligations including the use of rights of “ Yilking ” brand name between the equity joint venture and the Joint Venture Partners when it was established. The business license of Xiamen U-Right was issued on 11 February 2010 and hence Xiamen U-Right was established.

The Company believes that the Group will continue to benefit from the Subcontracting Agreement since the retail business trading under the brand name of “ Yilking ” has been established for 18 years which possesses customer loyalty and the bargaining power to negotiate for sales point locations. This results in enhancement in turnover as well as cost efficiency.

The Target Group emphasizes on good quality and well-designed products which are the critical factors for the success of the brand names of “ LeRoi ” and “ Meridow ”. The Target Group is also equipped with research and development capability as well as production capability.

By further acquiring the Target Group, the Company can further expand vertically along the value chain and capture the benefits from the strong supplier network and downstream retail network of the Target Group. Accordingly, it is expected that the revenue and cash flow generated from the operation of the Target Group will contribute positively to the Group’s results and the management is optimistic about the future performance of the Target Group.

On 26 February 2010, the Company was placed in the third stage of the delisting procedures pursuant to Practice Note 17 of the Listing Rules and that the Company was required to submit a viable resumption proposal which demonstrates its compliance with the requirement stipulated under Rule 13.24 of the Listing Rules.

On 9 August 2010, the Resumption Proposal was submitted by the Company to the Stock Exchange to demonstrate to the Stock Exchange that when the Resumption Proposal is successfully implemented, the Group will have in place suitable structures and have a sufficient level of operations, tangible assets of sufficient value and intangible assets of a sufficient potential value and will be able to fully comply with Rule 13.24 of the Listing Rules.

The Company is confident that, with the Investor’s strong support, the Group will be able to regain a strong foothold in its principal fashion garments business and achieve a substantial level of operations within a reasonable period of time after the Resumption.

– 44 –

LETTER FROM THE BOARD

It is anticipated that the financial position of the Group will be substantially improved upon the completion of the Acquisition as all the liabilities arising from the creditors of the Company and creditors of its subsidiaries holding guarantees given by the Company will be compromised and discharged through the proposed scheme of arrangement, to be approved by the creditors of the Company and the High Court.

Upon the completion of the Acquisition, the Company’s shares will resume trading on the Stock Exchange subject to the approval of the Stock Exchange.

In order to improve the profit margin of the wholesale trading business, the Group determines to define its market position by providing its own designed fashion garments. The Group will expand its production development team in the year ending 31 March 2012 which works closely with both the suppliers and the distributors on product development to build up its own designs for suiting the local tastes. The Group will ensure that the operational arrangement and production requirements of suppliers are substantially of the same standard as required by the Group. The product development and the merchandising teams of the Group will also monitor the operations of the suppliers.

The Target Group

With the increasing GDP in the PRC, the management believes that national spending on fashion garments especially in tier-one cities around Guangdong Province will increase accordingly. In the coming two years, it is estimated that more franchise and self-operated shops will be opened in the more prestigious locations such as shopping malls in Guangdong Province, Fujian Province, Hunan Province and Guangxi Province in the PRC.

The Target Group emphasizes on good quality and well-designed products which are critical factors for the success of the brand names of “ LeRoi ” and “ Meridow ”. The Target Group will continue to put efforts on product designs catering the fashion trends by attending more fashion shows, sharing ideas with other designers, and further marketing the brand names of “ LeRoi ” and “ Meridow ” by launching small scale advertising campaign with the cooperation from self-operated shops, franchise shops and distributors and participating in fashion expos held in the PRC. Advertising in fashion magazines and on e-shopping platforms launched by international or the PRC internet companies are other ways to draw the customers’ awareness of the brand names of “ LeRoi ” and “ Meridow ”.

The management of the Target Group is proceeding with Dongguan Factory for the registration of the trademark “ Meridow ” under the name of the Target Group so as to further widen the product range. On 26 July 2010, the trademark of “ Meridow ” was assigned from Dongguan Factory to HK Fancy pursuant to an assignment agreement signed between Dongguan Factory and HK Fancy. As at Latest Practicable Date, application for change of registrants of the trademark to HK Fancy is in progress.

– 45 –

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

Following completion of the Acquisition, the Target Company will become a whollyowned subsidiary of the Company. The following sets out, for illustrative purposes only, the key financials of the unaudited pro forma financial information of the Enlarged Group as at and for the year ended 31 March 2011 as if completion of the Acquisition had taken place on 1 April 2010 and 31 March 2011 respectively. Please refer to Appendix III to this circular for basis of preparing the unaudited pro forma financial information on the Enlarged Group before and after completion of Acquisition.

Earnings

As extracted from the annual report of the Group for the year ended 31 March 2011, the Group recorded net profit of approximately HK$2.4 million. As set out in Appendix III to this circular, assuming completion of the Acquisition had taken place on 1 April 2010, the Enlarged Group is expected to make an unaudited pro forma net profit of approximately HK$9.6 million for the year ended 31 March 2011.

Net Assets

As at 31 March 2011, the Group has a consolidated net liabilities of approximately HK$1,597.2 million comprising total assets of approximately HK$72.4 million and total liabilities of HK$1,669.6 million. As set out in Appendix III to this circular, assuming completion of Acquisition had taken place on 31 March 2011, the Enlarged Group is expected to have the same unaudited pro forma net liabilities of approximately HK$1,597.2 million, comprising of pro forma total assets of approximately HK$105.7 million and pro forma total liabilities of approximately HK$1,702.9 million.

Gearing ratio

As at 31 March 2011, the Group’s total indebtedness amounted to HK$1,669.6 million.

As set out in Appendix III to this circular, assuming completion of the Acquisition had taken place on 31 March 2011, the pro forma total indebtedness of the Enlarged Group would have been HK$1,702.9 million.

The gearing ratio of the Group is measured on the basis of the Group’s borrowing net of bank and cash balances related to its net asset value and it was not applicable as both the Group and the Enlarged Group had net liabilities as at 31 March 2011.

The Company is currently proposing a debt restructuring by means of a scheme of arrangement, upon the effect of which much of the current indebtedness of the Company would be compromised and discharged. The proposed scheme of arrangement is subject to the approval by the creditors of the Company and the High Court.

– 46 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

THE SGM

The SGM will be held at Room 704, 3 Lockhart Road, Wanchai, Hong Kong on 19 September 2011 at 10:00 a.m. to consider, and if thought fit, to pass the resolution(s) to approve the S&P Agreement and the transactions contemplated thereunder by the Shareholders. The resolution(s) will be carried out by way of poll.

A notice convening the SGM is set out on pages 109 to 111 of this circular. A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at the 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event no later than 48 hours before the time fixed for holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so desire.

SUBMISSION OF THE RESUMPTION PROPOSAL

The Company submitted the Resumption Proposal to the Stock Exchange on 9 August 2010 and is preparing replies to the queries from the Stock Exchange on the Resumption Proposal. Further announcement(s) on the latest development will be released as and when appropriate.

SUSPENSION OF TRADING

Trading in the Shares was suspended at the request of the Company since 17 September 2008 and will remain to be suspended until further notice.

Shareholders and investors of the Company should note that, (i) the Company is currently in the third stage of delisting procedures; (ii) the Acquisition forms part of the Company’s Resumption Proposal which may or may not be approved by the Stock Exchange; and (iii) the publication of this circular does not mean that the Shares will be resumed trading on the Stock Exchange.

– 47 –

LETTER FROM THE BOARD

RECOMMENDATION

The Board and the Provisional Liquidators consider that the terms of the S&P Agreement and the transactions contemplated thereunder are fair and reasonable and are beneficial to and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors and the Provisional Liquidators recommend the Shareholders to vote in favour of the relevant resolutions at the SGM.

ADDITIONAL INFORMATION

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

By Order of the Board

U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) Tang Kwok Hung

Director

For and on behalf of

U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) Lai Kar Yan, Derek

Yeung Lui Ming

Joint and Several Provisional Liquidators acting as agents for and on behalf of U-RIGHT International Holdings Limited without personal liability

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF AUDITED FINANCIAL INFORMATION OF THE GROUP

Financial information on the Group for each of the three years ended 31 March 2009, 2010 and 2011 are disclosed in the annual reports of the Company for the years ended, 31 March 2009 at http://www.hkexnews.hk/listedco/listconews/sehk/20100212/LTN20100212172.pdf; 31 March 2010 at http://www.hkexnews.hk/listedco/listconews/sehk/20101011/LTN20101011501.pdf; and 31 March 2011 at http://www.hkexnews.hk/listedco/listconews/sehk/20110705/LTN20110705013.pdf respectively, which are published on both the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (http://www.uright-627.info).

The following table summarises the results, and the assets and liabilities of the Group for each of three years ended 31 March:

	For the	years ended 31	March
	2011	2010	2009
	HK$’000	HK$’000	HK$’000
RESULTS
Revenue	331,084	92,305	124,377


Profit/(loss) before tax	4,196	(430)	(3,078,321)
Income tax	(1,754)	(161)	–
Profit/(loss) for the year	2,442	(591)	(3,078,321)
Other comprehensive income	146	–	–
Total comprehensive
income/(loss) for the year	2,588	(591)	(3,078,321)
Attributable to:
Owners of the Company	1,885	(660)	(3,078,321)
Non-controlling interests	703	69	–
	2,588	(591)	(3,078,321)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		As at 31 March	As at 31 March
	2011		2010	2009
	HK$’000		HK$’000	HK$’000
ASSETS AND LIABILITIES
Non-current assets	33		–	–
Current assets	72,351		19,951	6,627
Current liabilities	(1,669,582)	(1,620,228)		(1,606,313)
Non-current liabilities	–		–	–

Net assets/(liabilities)	(1,597,198)	(1,600,277)		(1,599,686)


Attributable to:
Owners of the Company	(1,598,461)	(1,600,346)		(1,599,686)
Non-controlling interests	1,263		69	–
Total equity	(1,597,198)	(1,600,277)		(1,599,686)

2. INDEBTEDNESS STATEMENT

Statement of Indebtedness

As at the close of business on 30 June 2011, being the latest practicable date for the purpose of ascertaining the indebtedness of the Enlarged Group prior to the printing of this circular, the Enlarged Group had convertible notes with liability component of approximately HK$71,577,000, amounts due to deconsolidated subsidiaries of approximately HK$416,323,000, amount due to the Investor of approximately HK$19,800,000 . The loan from the Investor is secured by the entire issued share capital of indirectly wholly-owned subsidiaries of the Company, U-Right Trading and Right Season.

As at the close of business on 30 June 2011, in addition to the above, the Enlarged Group had financial guarantee liabilities of approximately HK$1,118,325,000, arising from the corporate guarantees provided by the Company to its deconsolidated subsidiaries over the bank loans maintained by the deconsolidated subsidiaries which was deconsolidated from the consolidated financial statements of the Group since 1 April 2008.

As at the close of business on 30 June 2011, the Enlarged Group did not have any significant contingent liability.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of the business, as at the close of business on 30 June 2011, based on the books and records currently available to the Directors and the Provisional Liquidators, the Directors and the Provisional Liquidators confirmed that there is no material change in its indebtedness position since 30 June 2011 and are not aware of the Enlarged Group having other outstanding mortgages, charges, debentures or other loan capital, bank overdrafts or loans, other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptance or acceptance credits, guarantees or other material contingent liabilities.

3. WORKING CAPITAL SUFFICIENCY

The Directors have taken into account that:

(a) should the creditors of the Company be compromised and discharged through the proposed scheme of arrangement and debt restructuring be implemented and the Resumption Proposal be approved by the Stock Exchange; or
(b) the proposed scheme of arrangement will not proceed and all the indebtedness of the Company incurred and repayment to the Investor regarding the restructuring cost will be deferred beyond the forecast period,

after considering the Enlarged Group’s present available internal resources and in the absence of unforeseen circumstances, the Directors are of the view that the Enlarged Group has sufficient working capital for the 12-month period from the date of this circular.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2011, being the date to which the latest published audited financial statements of the Group were made up.

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

(a) For the year ended 31 March 2011

Principal activities

The principal activity of the Company is investment holding and the principal activities of its subsidiaries are wholesale and retail of fashion garments and trading of garment materials.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Results and appropriations

For the year ended 31 March 2011, the Group’s revenue was approximately HK$331.08 million (2010: approximately HK$92.31 million), representing a significant increase of approximately 258.66% from the last financial year. The results of the Group for the year ended 31 March 2011 are set out in the consolidated statement of comprehensive income on page 25 of the annual report of the Company for the year 2011.

The consolidated profit attributable to owners of the Company and noncontrolling interests amounted to approximately HK$2.44 million for the year ended 31 March 2011 (2010: loss of approximately HK$0.59 million). Earning per share was approximately 0.05 HK cents as compared with loss per share of approximately 0.02 HK cents for the preceding year.

The Directors do not recommend the payment of a final dividend for the year ended 31 March 2011 (2010: nil).

Liquidity, financial resources and funding

Bank and cash balances as at 31 March 2011 was approximately HK$14.80 million (2010: approximately HK$3.37 million). The Group’s gearing ratio measured on the basis of the Group’s borrowings net of bank and cash balances (net borrowing) related to the net asset value as at 31 March 2010 and 2011 is not applicable as the Group had net liabilities.

Capital structure

Details of the capital structure of the Company are set out in notes 25, 27 and 28 to the financial statements of the annual report of the Company for the year 2011.

Foreign currency exposure

Most of the Group’s transactions were denominated in Hong Kong Dollars, Renminbi and US Dollars. Given that the exchange rate of Hong Kong Dollars against Renminbi has been and is likely to remain stable, and the Hong Kong government’s policy of linking the Hong Kong Dollars to the US Dollars remains in effect, the Directors consider that the Group’s risk on foreign exchange will remain minimal and no hedging or other alternative measures have been adopted by the Group. As at 31 March 2011, the Group had no significant risk exposure in regard to foreign exchange contracts, interest rates, currency swaps, or other financial derivatives.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Winding-up petition and appointment of Provisional Liquidators

On 6 October 2008, Deutsche Bank A.G., Hong Kong Branch (the “Petitioner”) presented petitions (the “Petitions” and each referred to as “Petition”) to the High Court (the “High Court”) of the Hong Kong Special Administrative Region (“Hong Kong”) for the winding up of each of the Company and Uni-Capital Limited (in Liquidation) (“Uni-Capital”), an indirectly wholly-owned subsidiary of the Company, as the Company and Uni-Capital could not meet demands made against the Company and Uni-Capital for the repayment of outstanding debts. Upon the application of the Petitioner, Messrs. LAI Kar Yan, Derek and YEUNG Lui Ming of Deloitte Touche Tohmatsu were appointed jointly and severally as provisional liquidators of the Company (the “Provisional Liquidators”) and Uni-Capital pursuant to the orders both dated 6 October 2008 made by the High Court.

The Provisional Liquidators are empowered, inter alia, to take possession of the assets of the Group, to close or cease or operate all or any part of the business operations of the Group, to take control of such of the subsidiaries of the Company, joint ventures, associated companies or other entities in which the Company or any of its subsidiaries holds an interest and to consider if thought to be in the best interests of creditors of the Company, to enter into discussions and negotiations for and on behalf of the Company for the purpose of, but not limited to, restructuring of the Company’s business, operations, or indebtedness or to implement a scheme of arrangement between the Company and its creditors and/or shareholders for such restructuring.

After the appointment of the Provisional Liquidators on 6 October 2008, the then management of the Company together with the Provisional Liquidators used their best endeavours to maintain the business of the Group both in Hong Kong and the PRC. Notwithstanding the subsequent changes in personnel as the Provisional Liquidators gradually replaced the management team, the total revenue achieved by the Group according to the financial statements of the Group for the year ended 31 March 2011 was approximately HK$331.08 million.

The hearing of the Petition against the Company was originally scheduled on 10 December 2008 and the High Court adjourned the hearing of the Petition against the Company to 26 September 2011. A winding up order against Uni-Capital was granted by the High Court on 9 November 2009.

Restructuring of the Group

On 16 May 2009, the Provisional Liquidators, Advance Lead International Limited (the “Investor”), the Company and an escrow agent entered into an escrow agreement (as supplemented by the three supplementary agreements and hereinafter collectively referred as the “Escrow Agreement” unless otherwise specified) in anticipation of the implementation of the restructuring proposal. Pursuant to the

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Escrow Agreement, the Provisional Liquidators granted the Investor an exclusivity for a period up to 31 December 2010 by undertaking not to offer to any other party the opportunity to negotiate any terms for the restructuring of the outstanding indebtedness and/or share capital of the Company and setting out certain key terms of the debt and capital restructuring of the Company.

The exclusivity period was subsequently extended to 31 March 2012 pursuant to the third supplemental agreement to the Escrow Agreement. On 2 July 2009, UR Group Limited (“UR Group”), a new directly wholly-owned subsidiary of the Company was incorporated in the British Virgin Islands. UR Group is an investment holding company which beneficially owns 100% interest in both U-RIGHT Trading Development Limited (“URTDL”) and Nano Garment Holdings Limited (“NGHL”). URTDL and NGHL were both incorporated in Hong Kong on 17 July 2009. Since August 2009, the Group’s garments trading business has been carried out through URTDL.

On 24 January 2010, URTDL entered into a joint venture contract with 石獅市意利王制衣發展有限公司 (for identification purpose, Shishi City Yiliwang Clothes Development Co., Ltd.) (“Shishi Yiliwang”) and 廈門大騰工貿有限公司 (for identification purpose, Xiamen Dateng Industry Trade Limited) (“Xiamen Dateng”) (collectively the “Joint Venture Partners”) for the establishment of an equity joint venture company, Xiamen U-Right Garment Co. Ltd. (“Xiamen U-Right”) and subscribed to the constitution of Xiamen U-Right, all dated 24 January 2010. The Joint Venture Partners have also agreed all the material terms of, and procured Xiamen U-Right to enter into the subcontracting agreement (as further explained below) when Xiamen U-Right was established.

On 11 February 2010, Xiamen U-Right was established. The subcontracting agreement was entered into between Xiamen U-Right and the Joint Venture Partners on the same date delineating the operations, rights, duties and obligations between Xiamen U-Right and the Joint Venture Partners. Xiamen U-Right is principally engaged in the garment retail and trading business and also trading of garment materials.

On 6 August 2010, the Investor entered into secured loan facility arrangements with UR Group and a directly wholly-owned subsidiary of the Company, Alfreda Limited respectively, for the provision of general working capital and part of the consideration for the acquisition (the “Acquisition”) of the entire share capital of Sino Hill Group Limited (“Sino Hill”).

On 9 August 2010, an indirectly wholly-owned subsidiary of the Company, Right Season Limited (“Right Season”), entered into a sale and purchase agreement (the “S&P Agreement”) for the Acquisition, at a consideration of HK$40 million by way of cash and the promissory note. Details of the S&P Agreement are set out in the Company’s announcement dated 31 August 2010.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 31 December 2010, Right Season entered into a supplemental agreement to the S&P Agreement (the “1st Supplemental Agreement”) to extend the long stop date to 31 March 2011 and amend certain terms and conditions as set out in the S&P Agreement.

As more time is needed for the fulfillment of the conditions precedent of the S&P Agreement, on 4 April 2011, Right Season entered into the second supplemental agreement to the S&P Agreement (the “2nd Supplemental Agreement”) to further extend the long stop date to 30 September 2011.

Details of the 1st Supplemental Agreement and the 2nd Supplemental Agreement are set out in the Company’s announcements dated 4 January 2011 and 4 April 2011 respectively.

The principal elements of the Escrow Agreement are, inter alia, as follows:

(a) Capital Restructuring

The Company will undergo, inter alia, a capital restructuring, involving a capital cancellation, a share consolidation, a capital reduction, an authorized share capital increase and a full discharge of the existing convertible notes subject to the provisions of a scheme of arrangement (the “Scheme”).

(b) Share Subscription

The Company will raise new funds by way of the ordinary share subscription and the issue of the convertible preference shares to the Investor.

(c) Provision of Loan Facilities

The Investor will continue to provide secured loan facilities without any interest to the Company as general working capital and part of the consideration for the Acquisition.

(d) Scheme and Debt Restructuring

During this reporting period, taking into considerations of the comments made by the Stock Exchange, the Provisional Liquidators and the Investor have further negotiated on the terms of the Escrow Agreement. It is expected that the put options proposed to be granted to the creditors by the Investor in respect of the approximately 5% of issued shares of the Company as enlarged by the share subscription, which was mentioned as part of the Scheme proposed to be implemented by the Provisional Liquidators, will not be part of the Scheme. The Company will issue such number of shares representing about 5% of the issued share capital of the Company on a fully diluted basis (the “Creditors Shares”) immediately upon completion of (1) the capital restructuring; and (2) the Scheme and debt restructuring.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Provisional Liquidators propose to implement the Scheme to settle the debts owed to the creditors by (i) HK$50 million cash (from the proceeds of subscription for shares by the Investor); and (ii) the Creditors Shares. However, the terms of the Scheme will be subject to further negotiations between the Provisional Liquidators and the Scheme creditors and/or the Investor and subject to final sanction of the Scheme by the High Court and approval by shareholders of the Company.

The Investor would become a controlling shareholder of the Company upon completion of the proposed restructuring of the Group (the “Completion”) as contemplated under the Escrow Agreement.

(b) For the year ended 31 March 2010

Principal activities

The principal activity of the Company is investment holding and the principal activities of its subsidiaries are wholesale and retail of fashion garments and trading of garment materials.

Results and appropriations

For the year ended 31 March 2010, the Group’s turnover was approximately HK$92.31 million (2009: approximately HK$124.38 million), representing a decrease of approximately 25.78% from the last financial year. The decrease of turnover was due to the lack of working capital affecting a continued flow of new products for the retail market, and against the high shop rental costs, the Provisional Liquidators decided to close down the retail operations for a short period of time in 2010. Furthermore, in order to reactivate the Group’s garments retail and trading businesses both in the PRC and other countries, on 24 January 2010, U-Right Trading entered into the JV Contracts with the Joint Venture Partners for the establishment of an equity joint venture company, Xiamen U-Right. Since Xiamen U-Right was established on 11 February 2011, therefore the contribution from the garment retail and trading businesses of Xiamen U-Right, which commenced on 11 February 2011 and accounted for less than 2 full months, has not been fully captured in FY2010. The results of the Group for the year ended 31 March 2010 are set out in the consolidated statement of comprehensive income on page 24 of the annual report of the Company for the year 2010.

The consolidated loss attributable to equity holders of the Company and minority interests amounted to approximately HK$0.59 million for the year ended 31 March 2010 (2009: approximately HK$3,078.32 million). Loss per share was approximately HK0.02 cents as compared with loss per share of approximately HK86.24 cents for the preceding year.

The Directors do not recommend the payment of a final dividend for the year ended 31 March 2010 (2009: nil).

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity, financial resources and funding

Bank and cash balances as at 31 March 2010 was approximately HK$3.37 million (2009: approximately HK$2.63 million). The Group’s gearing ratio measured on the basis of the Group’s borrowings net of bank and cash balances (net borrowing) related to the net asset value as at 31 March 2009 and 2010 is not applicable as the Group had net liabilities.

Capital structure

Details of the capital structure of the Company are set out in notes 27, 28 and 29 to the financial statements of the annual report of the Company for the year 2010.

Foreign currency exposure

The Group has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are principally denominated in the functional currencies of the Group entities or United States dollars for Hong Kong dollar functional currency Group entities.

The Group currently does not have a foreign currency hedging policy in respect of foreign currency assets and liabilities. The Group will monitor its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

Employment

As at 31 March 2010, the Group had 28 (2009: nil) full-time employees, most of whom were working in the Company’s subsidiaries in the PRC. During the year under review, the total employees’ costs including directors’ remuneration were approximately HK$151,000 (2009: nil). It is the Group’s policy that remuneration of the employees is in line with the market and commensurate with the level of pay for similar responsibilities within the industry. Discretionary year-end bonuses are payable to the employees based on individual performance. Other benefits to the employees include medical insurance, retirement schemes, training programmes and education subsidies.

Charges on Group’s Assets

As at 31 March 2010, there were no charges on the Group’s assets.

Winding-up petition and appointment of provisional liquidators

On 6 October 2008, the Petitioner presented Petitions (the “Petitions” and each referred to as “Petition”) to the High Court for the winding-up of each of the Company and Uni-Capital, an indirectly wholly-owned subsidiary of the Company,

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

as the Company and Uni-Capital could not meet demands made against the Company and Uni-Capital for the repayment of outstanding debts. Upon the application of the Petitioner, Messrs. LAI Kar Yan, Derek and YEUNG Lui Ming of Deloitte Touche Tohmatsu were appointed jointly and severally as the Provisional Liquidators and Uni-Capital pursuant to the orders both dated 6 October 2008 made by the High Court.

After the appointment of the Provisional Liquidators on 6 October 2008, the then management of the Company together with the Provisional Liquidators used their best endeavours to maintain the business of the Group both in Hong Kong and the PRC. Notwithstanding the subsequent changes in personnel as the Provisional Liquidators gradually replaced the management team, the total turnover achieved by the Group according to the financial statements of the Group for the year ended 31 March 2010 was approximately HK$92.31 million.

Due to the lack of working capital affecting a continued flow of new products for the retail market, and against the high shop rental costs, the Provisional Liquidators decided that the more appropriate course was to close down the retail operations at least for the time being.

The hearing of the Petition against the Company was originally scheduled on 10 December 2008 and the High Court adjourned the hearing of the Petition against the Company to 18 October 2010. A winding-up order against Uni-Capital was granted by the High Court on 9 November 2009.

It is expected that the Petition against the Company will be withdrawn upon the successful implementation of the restructuring of the Company.

Prospects

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 9 August 2010, a resumption proposal was submitted by the Company to the Stock Exchange to demonstrate to the Stock Exchange that when the Resumption Proposal is successfully implemented, the Group will have in place suitable structures and have a sufficient level of operations, tangible assets of sufficient value and intangible assets of a sufficient potential value and will be able to fully comply with Rule 13.24 of the Listing Rules.

It is anticipated that the financial position of the Group will be substantially improved upon the Completion as all the liabilities arising from the creditors of the Company and creditors of its subsidiaries holding guarantees given by the Company will be compromised and discharged through the proposed scheme of arrangement, to be approved by the creditors of the Company and the High Court.

Upon the Completion, the Company’s shares will resume trading on the Stock Exchange subject to the approval of the Stock Exchange

(b) For the year ended 31 March 2009

Principal activities

The principal activity of the Company is investment holding and the principal activities of its subsidiaries are engaged in fashion garments business.

Results and appropriations

For the year ended 31 March 2009, the Group’s turnover was approximately HK$124.38 million (2008: approximately HK$2,079.71 million), representing a decrease of approximately 94.02% from the last financial year. The results of the Group for the year ended 31 March 2009 are set out in the consolidated income statement on page 26 of the annual report of the Company for the year 2009.

The consolidated loss attributable to equity holders of the Company amounted to approximately HK$3,078.32 million (2008: profit attributable to shareholders of the Company of approximately HK$61.37 million). Loss per share was approximately HK86.24 cents as compared with earnings per share of approximately HK1.81 cents for the preceding year.

The Directors do not recommend the payment of dividend for the year ended 31 March 2009 (2008: nil).

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity, financial resources and funding

Bank and cash balances as at 31 March 2009 was approximately HK$2.63 million (2008: approximately HK$439.35 million). The Group’s gearing ratio measured on the basis of the Group’s borrowings net of bank and cash balances (net borrowing) related to the net asset value as at 31 March 2008 was 27.7% while it is not applicable as at 31 March 2009 as the Group had net liabilities.

Capital Structure

Details of the capital structure of the Company are set out in notes 32, 33 and 35 to the financial statements of the annual report of the Company for the year 2009.

Foreign currency exposure

The Group has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are principally denominated in the functional currencies of the Group entities.

Charges on Group’s assets

As at 31 March 2009, there were no charges on the Group’s assets.

Pre-emptive rights

There are no provisions for pre-emptive rights under the Company’s bye-laws or the laws of Bermuda which would oblige the Company to offer new shares on a prorate basis to existing shareholders.

Significant investments

On the basis of the available books and records, the Group did not have any significant investment throughout the year.

Winding-up petition and appointment of provisional liquidators

On 6 October 2008, the Petitioner presented Petitions to the High Court for the winding-up of each of the Company and Uni-Capital, a wholly-owned subsidiary of the Company, as the Company and Uni-Capital could not meet demands made against the Company and Uni-Capital for the repayment of outstanding debts. Upon the application of the Petitioner, Messrs. LAI Kar Yan, Derek and YEUNG Lui Ming of Deloitte Touche Tohmatsu were appointed jointly and severally as the Provisional Liquidators and Uni-Capital pursuant to the orders both dated 6 October 2008 made by the High Court.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Provisional Liquidators are empowered, inter alia, to take possession of the assets of the Company and its subsidiaries, to close or cease or operate all or any part of the business operations of the Company and its subsidiaries, to take control of such of the subsidiaries of the Company, joint ventures, associated companies or other entities in which the Company or any of its subsidiaries holds an interest and to consider if thought to be in the best interests of creditors of the Company, to enter into discussions and negotiations for and on behalf of the Company for the purpose of, but not limited to, restructuring of the Company’s business, operations, or indebtedness or to implement a scheme of arrangement between the Company and its creditors and/or shareholders for such restructuring.

After the appointment of the Provisional Liquidators on 6 October 2008, the then management of the Company together with the Provisional Liquidators used their best endeavours to maintain the business of the Group both in Hong Kong and the PRC. Notwithstanding the subsequent changes in personnels as the Provisional Liquidators gradually replaced the management team, the total turnover achieved by the Group according to the financial statements of the Group for the year ended 31 March 2009 was approximately HK$124 million.

Due to the lack of working capital affecting a continued flow of new products for the retail market, and against the high shop rental costs, the Provisional Liquidators decided to close down the retail operations pro tem.

Currently, the only business carried out by the Company is garment wholesale trading, which was resumed from early August 2009. The garment trading business carried out by the Group is in the same line with the original principal trading business of the Company prior to the suspension of the trading in its shares on the Stock Exchange. As shown in the interim report of the Group for the six months ended 30 September 2009, total garment trading turnover achieved by the Group was approximately HK$21 million.

In mid December 2009, the Group started a discussion with two potential joint venture partners in relation to the establishment of a PRC joint venture to recommence its garment retail business in the PRC and to expand its garment trading business both in the PRC and other countries. It is expected that the PRC joint venture can be set up by early March 2010.

The hearing of the Petition against the Company was originally scheduled on 10 December 2008 and was adjourned by the High Court to 9 February 2009, 11 May 2009, 9 November 2009 and further adjourned to 10 May 2010.

The Petition against the Company will be withdrawn upon the successful implementation of the restructuring of the Company as referred to in the section headed “Restructuring of the Group” below.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

It is anticipated that the financial position of the Group will be substantially improved upon Completion as all the liabilities arising from the creditors of the Company and creditors of its subsidiaries holding guarantees given by the Company will be compromised and discharged through the proposed scheme of arrangement, to be approved by the creditors of the Company and the High Court.

Upon Completion, the Company’s shares will resume trading on the Stock Exchange subject to the approval of the Stock Exchange. As at the Latest Practicable Date, the Stock Exchange has yet to grant approval for resumption of trading of Shares on the Stock Exchange.

It is the Group’s intention to expand its trading of fashion garments currently conducted through U-Right Trading and to form a joint venture with two parties to carry out PRC retailing business of fashion garments. In mid December 2009, the Group started a discussion with two potential joint venture partners in relation to the establishment of a PRC joint venture to recommence its garment retail business in the PRC and to expand its garment trading business both in the PRC and other countries. It is expected that the PRC joint venture can be set up by the early of March 2010.

On 30 July 2009, the Stock Exchange issued a letter (the “Letter”) to the Provisional Liquidators to state that the Stock Exchange had placed the Company in the second stage of the delisting procedures under Practice Note 17 of the Listing Rules after taking into consideration that the Company had not submitted any resumption proposal to the Stock Exchange before 20 July 2009 and it did not have an operation in compliance with Rule 13.24 of the Listing Rules as of the date of the Letter. The Company is required to submit a viable resumption proposal to the Stock Exchange at least 10 business days before 29 January 2010, the expiry of the six months period from the date the Company was placed in the second stage of the delisting procedures. At the end of this six months period and after considering any resumption proposal the Company may have submitted, the Stock Exchange will determine whether or not it would be appropriate to place the Company in the third stage of the delisting procedures.

In placing the Company in the second stage of the delisting procedures, the Stock Exchange also set out, in the Letter, that a viable resumption proposal should enable the Company to meet the following conditions:

demonstrate that the Company has a sufficient level of operations or has assets of sufficient value as required under Rule 13.24 of the Listing Rules;
demonstrate that the Company has adequate financial reporting system and internal control procedures to enable the Company to meet its obligations under the Listing Rules;

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

publish all outstanding financial results and address any concerns that may be raised by auditors through qualification of their audit reports; and
withdraw and/or dismiss the Petition, and discharge the Provisional Liquidators.

The Group is now finalizing a resumption proposal and will make submission to the Stock Exchange in due course.

The Company is confident that, with the Investor’s strong support, the Group will be able to gain a strong foothold in the fashion garments business and achieve a substantial level of operations within a reasonable period of time after the resumption of trading in the Company’s shares on the Stock Exchange.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

1. ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the independent reporting accountants, ALLAN IP & CO., Certified Public Accountants (Practising), Hong Kong. As described in the section headed “Documents available for inspection” in Appendix IV, a copy of the following accountants’ report is available for inspection.

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The Directors and the Provisional Liquidators U-RIGHT International Holdings Limited (Provisional Liquidators Appointed)

25 August 2011

Dear Sirs,

We set out below our report on the consolidated financial information regarding Sino Hill Group Limited (the “Target Company”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”) which comprises the consolidated and company statements of financial position of the Target Company as at 31 March 2009, 2010 and 2011, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for each of the period from 10 January 2008 to 31 March 2009 and the two years ended 31 March 2010 and 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory notes (the “Financial Information”) for inclusion in the circular of U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) (the “Company”) dated 25 August 2011 issued in connection with the Company’s proposed acquisition of the 100% equity interest in the Target Company by the Company (the “Circular”).

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The Target Company was incorporated in British Virgin Islands with limited liability on 10 January 2008 and its registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The Target Group is principally engaged in design, distribution and sale of fashion apparel during the Relevant Periods. As at the date of this report, the Target Company has direct and indirect interests in the following subsidiaries, all of which are private companies:

			Proportion of	Proportion of
			ownership	interest
				Held by a
		Particulars of	Held by the	subsidiary
Name of	Place and date of	issued shares and	Target	of	Target	Principal
company	incorporation	paid up capital	Company	Company		activity
Stand Fancy	Hong Kong,	Authorised, issued	100%		–	Investment
Limited	13 October 2004	and paid up				holding
		capital of
		HK$10,000
		(10,000 ordinary
		shares of HK$1
		each)
立宜服裝	The People’s	Registered and paid	–		100%	Design
（深圳）	Republic of	up capital of				distribution
有限公司	China (“PRC”)	HK$1,000,000				and sale
	22 December					of fashion
	2004					apparel

For the purpose of this report, the directors of the Target Company have prepared the consolidated financial statements of the Target Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) (the “HKFRS Financial Statements”).

The Financial Information of the Target Group for the Relevant Periods set out in this report have been prepared from the HKFRS Financial Statements of the Target Group.

The director of the Target Company is responsible for the preparation and true and fair presentation of the HKFRS Financial Statements of the Target Company in accordance with HKFRSs issued by the HKICPA. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the HKFRS Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the HKFRS Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement. In addition, we have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

We have not audited any financial statements of the Target Group in respect of any period subsequent to 31 March 2011.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Company and the Target Group as at 31 March 2009, 2010 and 2011 and of the Target Group’s results and cash flows for each of the Relevant Periods in accordance with HKFRSs.

– 66 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		From	From	From
		10 Jan 2008	1 Apr 2009	1 Apr 2010
		to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	Notes	HK$	HK$	HK$
Turnover	(6)	45,618,766	39,439,846	50,456,940
Cost of sales		(28,250,126)	(24,590,006)	(31,547,833)
Gross profit		17,368,640	14,849,840	18,909,107
Other income	(7)	49,508	63,286	72,403
Gain from bargain purchase	(20)	272,603	–	–
Selling and distribution
expenses		(5,779,273)	(5,456,939)	(4,744,595)
Administrative expenses		(4,804,036)	(4,529,442)	(4,624,677)
Profit before tax	(8)	7,107,442	4,926,745	9,612,238
Income tax expense	(9)	(1,629,622)	(1,214,202)	(2,409,672)
Profit for the year/period
attributable to equity
holders of the company		5,477,820	3,712,543	7,202,566
Other comprehensive
income
Exchange difference
on translating foreign
operations		29,463	20,610	633,931
Total comprehensive
income attributable
to equity holders
of the company		5,507,283	3,733,153	7,836,497

– 67 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		31 Mar 2009	31 Mar 2010	31 Mar 2011
	Notes	HK$	HK$	HK$
Non-current assets
Property, plant and equipment	(15)	829,276	577,561	376,762


Current assets
Cash and cash equivalents	(10)	1,434,371	959,401	8,376,927
Trade and other receivable	(11)	2,378,850	2,119,767	3,485,086
Inventories	(12)	16,281,582	18,660,785	17,091,492
		20,094,803	21,739,953	28,953,505
		- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Current liabilities
Trade and other payable	(16)	4,201,358	4,200,291	3,054,941
Tax payable		1,614,433	2,777,728	5,230,531
Amount due to a related
company	(17)	475,384	281,818	39,936
Amount due to a shareholder	(18)	9,125,613	5,817,233	3,927,918
		15,416,788	13,077,070	12,253,326
		- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Net current assets		4,678,015	8,662,883	16,700,179


Net assets		5,507,291	9,240,444	17,076,941


Equity
Share capital	(19)	8	8	8
Retained earnings		5,477,820	9,190,363	16,392,929
Translation reserve		29,463	50,073	684,004

		5,507,291	9,240,444	17,076,941

– 68 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

		31 Mar 2009	31 Mar 2010	31 Mar 2011
	Notes	HK$	HK$	HK$
Non-current assets
Investment in a subsidiary	(14)	10,000	10,000	10,000
Property, plant and equipment	(15)	568,045	394,537	230,845
		578,045	404,537	240,845
		- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Current assets
Cash and cash equivalents	(10)	1,120,601	703,935	5,522,935
Trade and other receivable	(11)	1,006,989	926,285	2,500,718
Inventories	(12)	12,022,402	13,525,185	11,012,371
Amount due from a shareholder	(13)	–	–	1,495,065
		14,149,992	15,155,405	20,531,089
		- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Current liabilities
Trade and other payable	(16)	2,203,552	2,495,530	2,317,050
Tax payable		1,380,242	2,355,303	4,603,735
Amount due to a related
company	(17)	475,384	281,818	39,936
Amount due to a shareholder	(18)	6,528,127	3,361,376	–
		10,587,305	8,494,027	6,960,721
		- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -
Net current assets		3,562,687	6,661,378	13,570,368


Net assets		4,140,732	7,065,915	13,811,213


Equity
Share capital	(19)	8	8	8
Retained earnings		4,140,724	7,065,907	13,811,205
		4,140,732	7,065,915	13,811,213

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Issued	Retained	Translation
	capital	earnings	reserve	Total
	HK$	HK$	HK$	HK$
Issued of shares	8	–	–	8
Profit for the period	–	5,477,820	–	5,477,820
Exchange difference on translation
of financial statement of foreign
subsidiaries	–	–	29,463	29,463

At 31 March 2009 and
1 April 2009	8	5,477,820	29,463	5,507,291
Profit for the year	–	3,712,543	–	3,712,543
Exchange difference on translation
of financial statement of foreign
subsidiaries	–	–	20,610	20,610

At 31 March 2010 and
1 April 2010	8	9,190,363	50,073	9,240,444
Profit for the year	–	7,202,566	–	7,202,566
Exchange difference on translation
of financial statement of foreign
subsidiaries	–	–	633,931	633,931

At 31 March 2011	8	16,392,929	684,004	17,076,941

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Cash flow from operating
activities
Profit before tax	7,107,442	4,926,745	9,612,238
Adjustment for:
Bank interest income	(15,771)	(4,382)	(7,556)
Gain from bargain purchase	(272,603)	–	–
Impairment loss on trade and other
receivable	22,037	39,760	96,021
Exchange difference	29,463	20,610	633,931
Depreciation of property, plant and
equipment	230,405	286,404	294,323
Net cash generated from
operating activities before
changes
in working capital	7,100,973	5,269,137	10,628,957
Increase in inventories	(13,224,132)	(2,379,203)	1,569,293
Decrease/(increase) in trade and
other receivable	(2,020,127)	219,323	(1,461,340)
(Decrease)/increase in trade and
other payable	3,040,683	(1,067)	(1,145,350)
(Decrease)/increase in amount due
to a shareholder	6,552,425	(3,308,380)	(1,889,315)
(Decrease)/increase in amount due
to a related company	475,384	(193,566)	(241,882)
Cash (used in)/generated from
operation	1,925,206	(393,756)	7,460,363
Income tax (paid)/credit	(15,189)	(50,907)	43,131
Net cash generated from/(used in)
operating activities	1,910,017	(444,663)	7,503,494

– 71 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Investing activities
Bank interest income	15,771	4,382	7,556
Payment for the purchase of
equipment	(897,310)	(34,689)	(93,524)
Acquisition of assets through
purchase of subsidiaries, net of
cash and cash equivalents
acquired	405,885	–	–
Net cash used in investing
activities	(475,654)	(30,307)	(85,968)


Financing activities
Issue of share capital	8	–	–
Net cash generated from
financing activities	8	–	–


Net (decrease)/increase in cash
and cash equivalents	1,434,371	(474,970)	7,417,526
Cash and cash equivalents at
beginning of the year/period	–	1,434,371	959,401
Cash and cash equivalent at end
of the year/period	1,434,371	959,401	8,376,927

– 72 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Sino Hill Group Limited (the “Target Company”) is a limited company incorporated in British Virgin Islands. The address of its registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The Group’s principal activities are the design, distribution and sale of fashion apparel.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Target Company has consistently adopted, throughout the Relevant Periods, the HKFRSs, Hong Kong Accounting Standards (“HKASs”), Amendments and Interpretations (hereinafter collectively referred to as the (“HKFRSs”) issued by the HKICPA that are effective for the Target Company’s financial year ended 31 March 2011.

The following new or revised HKFRSs, potentially relevant to the Target Company’s operations, have been issued but are not yet effective and have not been early adopted by the Target Group.

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] Amendments to HKFRS 1 Limited Exemption from Comparative HKFRS 7 for First-time Adopters[2] Amendment to HK(IFRIC) Prepayments of a Minimum Funding Requirement[3] – Interpretation 14 HK(IFRIC) Extinguishing Financial Liabilities with Equity Instruments[2] – Interpretation 19 HKAS 24 (Revised) Related Party Disclosures[3] HKFRS 7 (Amendments) Disclosures – Transfers of Financial Assets[4] HKFRS 9 Financial Instruments[5]

1 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate.
2 Effective for annual periods beginning on or after 1 July 2010
3 Effective for annual periods beginning on or after 1 January 2011
4 Effective for annual periods beginning on or after 1 July 2011
5 Effective for annual periods beginning on or after 1 January 2013

The Target Group is in the process of making an assessment of the potential impact of the above new/revised HKFRSs and the director so far concluded that the application of the above new/revised HKFRSs will have no material impact on the results and financial position of the Target Group.

3. BASIS OF PREPARATION

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “HKFRSs”) issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the disclosure requirements of the Hong Kong Companies Ordinance.

(b) Basis of measurement

The Financial Information has been prepared on the historical cost basis.

(c) Functional and presentation currency

The functional currency of the Target Company is Renminbi (“RMB”). For convenience of readers of Accountants’ Report, the presentation currency of the Accountants’ Report is Hong Kong dollars (“HK$”).

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

4. SIGNIFICANT ACCOUNTING POLICY

(a) Basis of consolidation

The consolidated financial statements include the financial statements of the Target Company and its subsidiaries for the Relevant Periods. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Target Group obtains control, and continue to be consolidated until the date that such control ceases.

All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Target Group are eliminated on consolidation in full. Accounting policies of subsidiaries have been adjusted when necessary to ensure consistency with the policies adopted by the Target Group.

(b) Subsidiaries

A subsidiary is an entity over which the Target Company is able to exercise control. Control is achieved where the Target Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights presently exercisable are taken into account.

(c) Foreign currency translation

Transactions entered into by group entities in currencies other than the currency of the primary economic environment in which they operate (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income.

On consolidation, the income and expense items of foreign operations are translated into the presentation currency of the Target Group (i.e. Hong Kong dollars) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of the reporting period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity as foreign exchange reserve. Exchange differences recognised in profit or loss of group entities separate financial statements on the translation of long-term monetary items forming part of the Target Group’s net investment in the foreign operation concerned are reclassified to the foreign exchange reserve.

(d) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, demand deposits and other short-term highly liquid investments with original maturities of three months or less. Bank overdraft is shown within borrowings in current liabilities on the statement of financial position.

(e) Trade receivables

Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables.

– 74 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(f) Financial instruments

(i) Financial assets

The Target Group has one category of financial assets being loans and receivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), and also incorporate other types of contractual monetary asset. At initial recognition, loans and receivables are measured at fair value plus directly attributable costs. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

An impairment loss is recognised in profit or loss through the use of an allowance account when there is objective evidence that a financial asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of an impaired financial asset is reduced through the use of an allowance account. When any part of a financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

The Target Group assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of the debtor’s financial difficulty; and
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(ii) Financial liabilities

The Target Group has one category of financial liabilities being financial liabilities at amortised cost which include trade and other payables. They are initially recognised at fair value, net of directly attributable transaction costs incurred, and are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised within “finance costs” in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iii) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(iv) Equity instruments

Equity instruments issued by the Target Company are recorded at the proceeds received, net of direct issue costs.

(v) Derecognition

The Target Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(g) Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(h) Property, plant and equipment

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

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance costs are expensed in the profit or loss during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost or valuation net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

Office equipment

10-30%

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(i) Trade and other payable

Trade and other payable are recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(j) Taxation

Income taxes for the year comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax arises from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences.

– 76 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realized based on tax rates that have been enacted or substantively enacted at the end of the reporting period.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

(k) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The total rentals payable under an operating lease are charged to profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

(l) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is shown net of discounts, rebates, returns, sales-related taxes and after eliminating sales within the Group.

Revenue is recognised in profit or loss provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, as follows:

(i) Revenue from the sales of goods

Revenue from the sales of goods is recognised when the Target Group has transferred to the buyer the significant risks and rewards of ownership of the goods and the Target Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.

(ii) Interest income

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

(m) Related parties

For the purpose of these financial information, parties considered to be related to the Target Group if:

(1) the party has the ability, directly or indirectly through one or more intermediaries, to control the Target Group or exercise significant influence over the Target Group in making financial and operating policy decisions, or has joint control over the Target Group;
(2) the Target Group and the party are subject to common control;
(3) the party is an associate of the Target Group or a joint venture in which Target Group is a venturer;
(4) the party is a member of key personnel of the Target Group or the Target Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence or such individuals;
(5) the party is a close family member of a part referred to in (1) or is an entity under the control, joint control or significant influence of such individuals;
(6) the party is a post-employment benefit plan which is for the benefit of employees of the Target Group or of any entity that is a related party of the Target Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

– 77 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

5. SEGMENT REPORTING

The Target Group conducts its business within one business segment, that is the business of design, distribution and sale of fashion apparel. Accordingly, no business segment information is presented. The Target Group operates within one geographical segment which in PRC. All of segment assets, liabilities and capital expenditure are located in the PRC and therefore no geographical segments are presented.

6. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

		From	From	From
		10 Jan 2008	1 Apr 2009	1 Apr 2010
		to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
		HK$	HK$	HK$
	Sale of goods	45,618,766	39,439,846	50,456,940


7.	OTHER INCOME

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Bank interest income	15,771	4,382	7,556
Sundry income	33,737	58,904	64,847
	49,508	63,286	72,403

8. PROFIT BEFORE TAX

The following items have been recognised as expenses/(income) in determining profit before tax:

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Auditor’s remuneration	100,000	100,000	100,000
Impairment loss on trade and other receivable	22,037	39,760	96,021
Cost of inventories recognised as an expense	28,250,126	24,590,006	31,547,833
Depreciation of property, plant and equipment	230,405	286,404	294,323
Operating lease charges on property rental	978,222	960,011	953,599
Staff costs (including directors’ remuneration)	4,637,245	3,795,984	4,013,392
Bank interest income	(15,771)	(4,382)	(7,556)

– 78 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

9. INCOME TAX EXPENSE

Taxation in the consolidated statement of income and retained earnings represents:

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Target Group
Current tax
– Hong Kong profits tax	–	–	–
– PRC enterprise income tax	1,629,622	1,214,202	2,409,672

No provision for Hong Kong profits tax has been made as the Target Group did not generate any assessable profit arising from and derived in Hong Kong during the Relevant Periods.

Taxation arising in other jurisdictions in the PRC is calculated at the rates prevailing in the relevant jurisdiction.

No provision for deferred taxation has been made as there are no temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computation.

(a) Reconciliation between tax expense and accounting profit at applicable tax rates:

	From	From	From
	10 Jan 2008	1 Apr 2009	1 Apr 2010
	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
	HK$	HK$	HK$
Profit before tax	7,107,442	4,926,745	9,612,238


Notional tax on profit before tax,
calculated at the rate applicable to
profit in PRC	1,629,622	1,214,202	2,409,672
Tax expense	1,629,622	1,214,202	2,409,672

– 79 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

10. CASH AND CASH EQUIVALENTS

Target Group

			As at	As at	As at
			31 Mar 2009	31 Mar 2010	31 Mar 2011
			HK$	HK$	HK$
	Cash at	bank and on hand	1,434,371	959,401	8,376,927


	Target Company
			As at	As at	As at
			31 Mar 2009	31 Mar 2010	31 Mar 2011
			HK$	HK$	HK$
	Cash at	bank and on hand	1,120,601	703,935	5,522,935


11.	TRADE AND	OTHER RECEIVABLE
	Target Group
			As at	As at	As at
			31 Mar 2009	31 Mar 2010	31 Mar 2011
			HK$	HK$	HK$
	Trade receivable		1,371,761	1,194,965	2,816,441
	Other receivable		968,868	821,514	681,165
	Less: impairment loss on trade and
		other receivable	(22,037)	(39,760)	(96,021)
	Prepayment		60,258	143,048	83,501
			2,378,850	2,119,767	3,485,086

In general, the credit terms granted by the Target Group are normally within 60 days.

The ageing analysis of trade receivable, net of impairment, prepared based on delivery date is as follow:

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Within 30 days	1,020,868	999,912	1,528,766
31 to 60 days	165,087	109,084	967,948
61 to 90 days	83,146	34,920	293,819
91 to 180 days	102,660	6,059	6,812
Over 180 days	–	44,990	19,096
	1,371,761	1,194,965	2,816,441

– 80 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Target Company

			As at	As at	As at
		31	Mar 2009	31 Mar 2010	31 Mar 2011
			HK$	HK$	HK$
Trade	receivable		494,910	515,074	2,130,024
Other	receivable		512,079	411,211	370,694

			1,006,989	926,285	2,500,718

In general, the credit terms granted by the Target Company are normally within 60 days.

The ageing analysis of trade receivable, net of impairment, prepared based on delivery date is as follow:

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Within 30 days	400,204	430,068	1,135,621
31 to 60 days	62,412	40,016	686,969
61 to 90 days	23,401	–	281,527
91 to 180 days	8,893	–	6,812
Over 180 days	–	44,990	19,095
	494,910	515,074	2,130,024

12. INVENTORIES

Target Group

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Raw material	4,266,190	3,786,061	3,859,916
Work in progress	161,791	362,405	389,443
Finished goods	11,853,601	14,512,319	12,842,133
	16,281,582	18,660,785	17,091,492

– 81 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Target Company

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Raw material	3,641,294	3,172,006	3,187,325
Work in progress	161,791	362,405	389,443
Finished goods	8,219,317	9,990,774	7,435,603
	12,022,402	13,525,185	11,012,371

13. AMOUNT DUE FROM A SHAREHOLDER

Target Company

	As at	As at	As at
Name of shareholder	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Mr. TSE Ho Ming	–	–	1,495,065

The balance is unsecured, non-interest bearing and repayable on demand.

14. INVESTMENT IN A SUBSIDIARY

Target Company

					As at	As at	As at
				31	Mar 2009	31 Mar 2010	31 Mar 2011
					HK$	HK$	HK$
Unlisted	shares,	at	cost		10,000	10,000	10,000

At 31 March 2009, 31 March 2010 and 31 March 2011, the Company had interest in the following subsidiaries:

	Place of incorporation	Particulars of issued shares and	Proportion of ownership interest	Proportion of ownership interest
	and	paid up	Held by the	Held by a	Principal
Name of company	operation	capital	Company	subsidiary	activity
Stand Fancy	Hong Kong	10,000	100%	–	Investment
Limited		shares of			holding
		HK$1 each
立宜服裝（深圳）	PRC	HK$1,000,000	–	100%	Design,
有限公司					distribution
					and sale of
					fashion apparel

– 82 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

15. PROPERTY, PLANT AND EQUIPMENT

	Target Group	Target Company
	Office	Office
	equipment	equipment
	HK$	HK$
Cost
Additions	1,059,681	751,327

31 March 2009 and
1 April 2009	1,059,681	751,327
Additions	34,689	30,235

31 March 2010 and
1 April 2010	1,094,370	781,562
Additions	93,524	54,774

31 March 2011	1,187,894	836,336


Accumulated depreciation and impairment loss
Charge for the period	230,405	183,282
31 March 2009 and
1 April 2009	230,405	183,282
Charge for the year	286,404	203,743
31 March 2010 and
1 April 2010	516,809	387,025
Charge for the year	294,323	218,466
31 March 2011	811,132	605,491

Net carrying amount
31 March 2009	829,276	568,045


31 March 2010	577,561	394,537


31 March 2011	376,762	230,845

– 83 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

16. TRADE AND OTHER PAYABLE

Target Group

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Trade payable	2,242,770	1,882,606	514,483
Other payable	1,482,150	1,963,768	2,061,140
Accrued expense	476,438	353,917	479,318
	4,201,358	4,200,291	3,054,941

In general, the credit terms granted by suppliers ranged from 30 to 180 days.

The ageing analysis of trade payables prepared based on delivery date is as follows:

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Within 30 days	712,142	497,233	415,533
31 to 60 days	437,129	158,148	94,660
61 to 90 days	367,024	495,293	3,153
91 to 180 days	726,475	731,932	1,137
	2,242,770	1,882,606	514,483

Target Company

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Trade payable	965,996	540,880	145,821
Other payable	963,195	1,761,160	1,869,068
Accrued expense	274,361	193,490	302,161
	2,203,552	2,495,530	2,317,050

In general, the credit terms granted by suppliers ranged from 60 to 180 days.

The ageing analysis of trade payables prepared based on delivery date is as follows:

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Within 30 days	361,432	165,150	113,368
31 to 60 days	237,640	12,836	28,165
61 to 90 days	91,301	184,745	3,150
91 to 180 days	275,623	178,149	1,138
	965,996	540,880	145,821

– 84 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

17. AMOUNT DUE TO A RELATED COMPANY

The balance is unsecured, non-interest bearing and repayable on demand.

18. AMOUNT DUE TO A SHAREHOLDER

The balance is unsecured, non-interest bearing and repayable on demand.

19. SHARE CAPITAL

(i) Authorised and issued share capital

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Authorised:
50,000 ordinary shares of US$1 each	390,000	390,000	390,000

Issued and fully paid:
1 ordinary share of US$1 each	8	8	8

(ii) Capital management policy

The Target Company’s objectives when managing capital are:

to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The capital structure of the Target Group consists of equity attributable to owners of the Target Company only, comprising share capital and reserves.

The Target Company sets the amount of capital in proportion to risk. The Target Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Target Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debts.

20. ACQUISITION OF SUBSIDIARIES

On 1 April 2008, the Company acquired 100% equity interests in Stand Fancy Limited at a consideration of HK$10,000. The consideration was satisfied in cash. The gain from bargain purchase arising as a result of the acquisition was HK$272,603.

– 85 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The net assets acquired in the transaction and the gain from bargain purchase arising are as follow:

	Stand Fancy
	Limited
	HK$
Net assets acquired:
Property, plant and equipment	162,371
Inventories	3,057,450
Trade and other receivable	380,760
Cash and cash equivalents	415,885
Trade and other payable	(1,160,675)
Amount due to a shareholder	(2,573,188)

	282,603
Gain from bargain purchase	(272,603)
Consideration	10,000

	Stand Fancy
	Limited
	HK$
Total consideration satisfied by:
Cash consideration	10,000

Analysis of the net cash inflow in respect of the acquisition of subsidiaries:

	HK$
Cash paid	(10,000)
Cash and bank balances acquired	415,885
Net cash inflow in respect of the acquisition of subsidiaries	405,885

21. RELATED PARTY TRANSACTIONS

The Company had the following transactions with a related party during the year/ periods:

		From	From	From
	Nature of	10 Jan 2008	1 Apr 2009	1 Apr 2010
Name of related party	transactions	to 31 Mar 2009	to 31 Mar 2010	to 31 Mar 2011
		HK$	HK$	HK$
Shine Art Corporation	Purchases	2,971,490	1,469,044	1,631,496
Limited	Design fee	1,464,398	1,286,232	1,254,108
	Management fee	480,000	480,000	480,000

During the Relevant Periods, Mr. Tse Ho Ming was both the director of Shine Art Corporation Limited and the Target Company.

The purchases, design fee and management fee represent the ordinary business transactions with the Company and the above party. The transactions were carried out at terms agreed by both parties.

– 86 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

22. OPERATING LEASE COMMITMENT

The Target Group rent several offices under operating leases. The leases are for an average period of three years, with fixed rentals over the same period.

		From		From		From
	10 Jan 2008 to		1 Apr 2009 to		1 Apr 2010 to
	31 Mar 2009		31	Mar 2010	31	Mar 2011
		HK$		HK$		HK$
Minimum lease payments under operating
leases recognised as an expense during the
year/period	978,222			960,011		953,599

At 31 March 2009, 31 March 2010 and 31 March 2011, the Target Group had outstanding commitments under non-cancellable operating leases that fall due as follows:

	As at	As at	As at
	31 Mar 2009	31 Mar 2010	31 Mar 2011
	HK$	HK$	HK$
Within one year	594,010	933,113	1,409,039
Later than one year but within five years	972,816	991,980	806,242
	1,566,826	1,925,093	2,215,281

23. FINANCIAL RISK MANAGEMENT

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

The main risks arising from the Target Group’s financial instruments are market risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

(a) Market risk

(i) Interest rate risk

The Target Group has no significant interest bearing liabilities. The Target Group’s exposure to market risk for changes in interest rates relates primarily to the cash and bank balances. Floating-rate interest income is credited to the income statement as earned.

(ii) Foreign currency risk

The Target Group is not exposed to material foreign exchange risk since all operating transactions were denominated in RMB.

(b) Liquidity risk

The Target Group’s financial liabilities are mature in less than one year or repayable on demand. The contractual undiscounted cash flows equal to their carrying amounts on the statement of financial position as the impact of discounting is insignificant.

The Target Group’s policy is to maintain sufficient cash and cash equivalents and have available funding through funds from shareholders to meet its working capital requirements, where necessary.

(c) Credit risk

During the financial period, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position after deducting any impairment allowance.

– 87 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

There is no significant concentration of credit risk in relation to the existing Group’s financial assets, other than trade receivables.

(d) Fair value

The fair values of all financial assets and liabilities are not materially different from their carrying values.

24. CONTINGENT LIABILITIES

The Target Group had no significant contingent liabilities at the end of each reporting period.

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group, Target Company or any of the companies comprising the Target Group have been prepared in respect of any period subsequent to 31 March 2011.

Yours faithfully,

Allan Ip & Co.

Certified Public Accountants

– 88 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2. MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

For the year ended 31 March 2011

Business and financial review

For the year ended 31 March 2011, the Target Group recorded turnover and gross profit of approximately HK$50.5 million and HK$18.9 million respectively. Profit for the year of the Target Group was approximately HK$7.2 million. The Target Group’s total turnover represented an increment of approximately 28.0% as compared to last year.

Prospects

With the increasing GDP in the PRC, the management believes that national spending on fashion garments especially in tier-one cities around Guangdong Province will increase accordingly. In the coming 2 years, it is estimated that more franchise and self-operated shops will be opened in the more prestigious locations such as shopping malls in Guangdong Province, Fujian Province, Hunan Province and Guangxi Province in the PRC.

The Target Group emphases on good quality and well designed products which are critical factors for the success of the brand name “ LeRoi ” and “ Meridow ”. The Target Group will continue to put efforts on product designs catering the fashion trends by attending more fashion shows, sharing ideas with other designers, and further marketing “ LeRoi ” and “ Meridow ” by launching small scale advertising campaign with the cooperation from self-operated shops, franchise shops and distributors and participating in fashion expos held in the PRC. Advertising in fashion magazines and on e-shopping platforms launched by international or the PRC internet companies are other ways to draw the customers’ awareness of the brand name “ LeRoi ” and “ Meridow ”.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 March 2011, the audited total assets, total liabilities and net assets of the Target Group amounted to approximately HK$29.3 million, HK$12.2 million and HK$17.1 million respectively (31 March 2010: approximately HK$22.3 million, HK$13.1 million and HK$9.2 million respectively). The cash and bank balances as at 31 March 2011 amounted to approximately HK$8.4 million (31 March 2010: approximately HK$1.0 million).

The gearing ratio of the Target Group, being calculated as total liabilities over total equity was approximately 0.7 (31 March 2010: approximately 1.4).

Exposure to exchange rate

Most of the transactions, monetary assets and liabilities of the Target Group were denominated in RMB and the management considered the exposure to foreign currency risk is minimal.

– 89 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Capital commitment

As at 31 March 2011, the Target Group had no material capital commitment.

Contingent liabilities

As at 31 March 2011, the Target Group did not have any significant contingent liabilities.

Significant investments, material acquisitions and disposals

The Target Company had no significant investment, material acquisition and disposal for the year ended 31 March 2011.

Segmental information

The Target Group generated the entire revenue from the sales of fashion apparel which was mainly derived from the PRC during the year.

Human Resources

As at 31 March 2011, the Target Group had 82 (31 March 2010: 92) employees.

Remuneration was determined by reference to market terms and the qualifications and experience of the staff concerned.

Pledged of assets

As at 31 March 2011, the Target Group did not have any pledge of assets.

For the year ended 31 March 2010

Business and financial review

For the year ended 31 March 2010, the Target Group recorded turnover and gross profit of approximately HK$39.4 million and HK$14.8 million respectively. Net profit for the year of the Target Group was approximately HK$3.7 million. The Target Group’s total turnover represented a decrease of approximately 13.5% as compared to 2009, which was due to the close of certain shops and sales counters during the year under review.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 March 2010, the audited total assets, total liabilities and net assets of the Target Group amounted to approximately HK$22.3 million, HK$13.1 million and HK$9.2 million respectively (31 March 2009: approximately HK$20.9 million, HK$15.4 million and HK$5.5 million respectively). The cash and bank balances as at 31 March 2010 amounted to approximately HK$1.0 million (31 March 2009: approximately HK$1.4 million).

– 90 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

As at 31 March 2010, the gearing ratio of the Target Group, being calculated as total liabilities over total equity was approximately 1.4 (31 March 2009: approximately 2.8).

Exposure to exchange rate

Most of the transactions, monetary assets and liabilities of the Target Group were denominated in RMB and the management considered the exposure to foreign currency risk is minimal.

Capital commitment

As at 31 March 2010, the Target Group had no material capital commitment.

Contingent liabilities

As at 31 March 2010, the Target Group did not have any significant contingent liabilities.

Significant investments, material acquisitions and disposals

The Target Company had no significant investment, material acquisition and disposal for the year ended 31 March 2010.

Segmental information

The Target Group generated the entire revenue from the sales of fashion apparel which was mainly derived from the PRC during the year.

Human Resources

As at 31 March 2010, the Target Group had 92 (31 March 2009: 111) employees.

Remuneration was determined by reference to market terms and the qualifications and experience of the staff concerned.

Pledged of assets

As at 31 March 2010, the Target Group did not have any pledge of its assets.

For the period from 10 January 2008 to 31 March 2009

Business and financial review

The Target Company was incorporated in the British Virgin Islands on 10 January 2008. The Target Group are engaged in design, distribution and sale of fashion apparel.

– 91 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

For the period from 10 January 2008 to 31 March 2009, the Target Group recorded turnover and gross profit of approximately HK$45.6 million and HK$17.4 million respectively. Net profit for the period of the Target Group was approximately HK$5.5 million.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 March 2009, the audited total assets, total liabilities and net assets of the Target Group amounted to approximately HK$20.9 million, HK$15.4 million and HK$5.5 million respectively. The cash and bank balances as at 31 March 2009 amounted to approximately HK$1.4 million.

As at 31 March 2009, the gearing ratio of the Target Group, being calculated as total liabilities over total equity was approximately 2.8.

Exposure to exchange rate

Most of the transactions, monetary assets and liabilities were denominated in RMB and the management considered the exposure to foreign currency risk is minimal.

Capital commitment

As at 31 March 2009, the Target Group had no material capital commitment.

Contingent liabilities

As at 31 March 2009, the Target Group did not have any significant contingent liabilities.

Significant investments, material acquisitions and disposals

On 1 April 2008, the Target Company acquired HK Fancy and its subsidiary, Shenzhen Fancy.

Segmental information

The Target Group generated the entire revenue from the sales of fashion apparel which was mainly derived from the PRC during the period.

Human Resources

As at 31 March 2009, the Target Group had 111 employees.

Remuneration was determined by reference to market terms and the qualifications and experience of the staff concerned.

Pledged of assets

As at 31 March 2009, the Target Group did not have any pledge of its assets.

– 92 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the Acquisition of the Target Company might have affected the financial information of the Group.

The unaudited pro forma consolidated statement of comprehensive income and consolidated statement of cash flows of the Enlarged Group for the year ended 31 March 2011 are prepared based on the audited consolidated statement of comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 March 2011 as extracted from the annual report of the Company for the year ended 31 March 2011 and the audited consolidated statement of comprehensive income and consolidated statement of cash flows of the Target Group for the year ended 31 March 2011 as extracted from the accountants’ report set out in Appendix II to this circular as if the Acquisition had been completed on 1 April 2010.

The unaudited pro forma consolidated statement of financial position of the Enlarged Group as at 31 March 2011 is prepared based on the audited consolidated statement of financial position of the Group as at 31 March 2011 as extracted from the annual report of the Company for the year ended 31 March 2011 and the audited consolidated statement of financial position of the Target Group as at 31 March 2011 as extracted from the accountants’ report set out in Appendix II to this circular as if the Acquisition had been completed on 31 March 2011.

The unaudited pro forma financial information of the Enlarged Group is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the unaudited pro forma financial information of the Enlarged Group, it may not give a true picture of the actual financial position, results of operation or cash flows of the Enlarged Group that would have been attained had the Acquisition actually occurred on the dates indicated herein. Furthermore, the unaudited pro forma financial information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position, results of operation or cash flows.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I, the financial information of the Target Group as set out in Appendix II and other financial information included elsewhere in this circular.

– 93 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

B. Unaudited Pro Forma Consolidated Statement of Comprehensive Income For the Year Ended 31 March 2011

		The Target	Pro Forma		Adjusted
	The Group	Group	adjustments		total
	HK$’000	HK$’000	HK$’000	Notes	HK$’000
Turnover	331,084	50,457	–		381,541
Cost of sales	(311,766)	(31,548)	–		(343,314)
Gross profit	19,318	18,909	–		38,227
Other income	2,013	72	–		2,085
Selling and distribution costs	(4,167)	(4,744)	–		(8,911)
Administrative expenses	(9,029)	(4,625)	–		(13,654)
Profit from operations	8,135	9,612	–		17,747
Finance costs	(3,939)	–	–		(3,939)
Profit before tax	4,196	9,612	–		13,808
Income tax expense	(1,754)	(2,410)	–		(4,164)
Profit for the year	2,442	7,202	–		9,644
Other comprehensive income:
Exchange difference on
translation of foreign
operations	146	634	–		780
Total comprehensive income
for the year	2,588	7,836	–		10,424


Profit for the year
attributable to:
Owners of the Company	1,739	7,202	–		8,941
Non-controlling interests	703	–	–		703
	2,442	7,202	–		9,644


Total comprehensive income
for the year attributable to:
Owners of the Company	1,885	7,836	–		9,721
Non-controlling interests	703	–	–		703
	2,588	7,836	–		10,424

– 94 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

C. Unaudited Pro Forma Consolidated Statement of Financial Position As At 31 March 2011

		The Target	Pro Forma		Adjusted
	The Group	Group	adjustments		total
	HK$’000	HK$’000	HK$’000	Notes	HK$’000
Non-current assets
Property, plant and equipment	33	377	–		410
Deferred tax assets	–	–	–		–
Goodwill	–	–	18,995	c	18,995

	33	377	18,995		19,405

Current assets
Inventories	3,305	17,091	–		20,396
Trade receivables	33,084	2,816	–		35,900
Prepayments, deposits and
other receivables	21,162	669	(15,000)	c	6,831
Bank and cash balances	14,800	8,377	–		23,177

	72,351	28,953	(15,000)		86,304
Current liabilities
Trade payables	20,815	514	–		21,329
Accruals and other payables	20,843	2,541	40	a	23,424
Due to deconsolidated
subsidiaries	416,323	–	–		416,323
Due to the Investor	19,800	–	5,000	c	24,800
Financial guarantee liabilities	1,118,325	–	–		1,118,325
Convertible notes	71,577	–	–		71,577
Current tax liabilities	1,899	5,230	–		7,129
Amount due to a related
company	–	40	(40)	a	–
Amount due to a shareholder	–	3,928	(3,928)	c	–
	1,669,582	12,253	1,072		1,682,907

Net current (liabilities)/assets	(1,597,231)	16,700	(16,072)		(1,596,603)
Total assets less current
liabilities	(1,597,198)	17,077	2,923		(1,577,198)
Non-current liabilities
Promissory note	–	–	20,000	c	20,000
NET (LIABILITIES)/ASSETS	(1,597,198)	17,077	(17,077)		(1,597,198)


Capital and reserves
Share capital	356,936	–	–		356,936
(Deficiency)/Reserve	(1,955,397)	17,077	(17,077)	c	(1,955,397)
Equity attributable to owners of
the Company	(1,598,461)	17,077	(17,077)		(1,598,461)
Non-controlling interests	1,263	–	–		1,263
TOTAL EQUITY	(1,597,198)	17,077	(17,077)		(1,597,198)

– 95 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

D. Unaudited Pro Forma Consolidated Statement of Cash Flows For the Year Ended 31 March 2011

		The Target	Pro Forma		Adjusted
	The Group	Group	adjustments		total
	HK$’000	HK$’000	HK$’000	Notes	HK$’000
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before tax	4,196	9,612	–		13,808
Adjustments for:
Impairment on inventories	118	–	–		118
Impairment on other receivables	–	96	–		96
Depreciation of property, plant
and equipment	2	294	–		296
Interest income	–	(8)	–		(8)
Exchange difference	–	634	–		634
Finance cost	3,939	–	–		3,939

Operating cash flows before
working capital changes	8,255	10,628	–		18,883
Change in inventories	(3,423)	1,569	–		(1,854)
Change in prepayments, deposits
and other receivables	1,160	160	–		1,320
Change in trade receivables	(23,828)	(1,621)	–		(25,449)
Change in trade payables	14,408	(1,368)	–		13,040
Change in accruals and other
payables	14,293	223	(242)	a	14,274
Change in amount due to a
shareholder	–	(1,889)	–		(1,889)
Change in amount due to related
company	–	(242)	242	a	–
Change in due to deconsolidated
subsidiaries	(24)	–	–		(24)
Cash generated from operations	10,841	7,460	–		18,301
Tax paid	(16)	43	–		27
Net cash generated from
operating activities	10,825	7,503	–		18,328

– 96 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

		The Target	Pro Forma		Adjusted
	The Group	Group	adjustments		total
	HK$’000	HK$’000	HK$’000	Notes	HK$’000
CASH FLOWS FROM
INVESTING ACTIVITIES
Payment for the purchase of
equipment	(35)	(93)	–		(128)
Acquisition of a subsidiary	–	–	(19,041)	b	(19,041)
Interest received	–	8	–		8

Net cash generated used in
investing activities	(35)	(85)	(19,041)		(19,161)
CASH FLOWS FROM
FINANCING ACTIVITIES
Contribution from non-
controlling interests	491	–	–		491
Issue of promissory note	–	–	20,000	b	20,000
Fund from the investor	–	–	–		–

Net cash generated from
financing activities	491	–	20,000		20,491
NET INCREASE IN CASH
AND CASH EQUIVALENTS	11,281	7,418	959		19,658
Effect of foreign exchange
rate changes	146	–	–		146
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR	3,373	959	(959)	b	3,373
CASH AND CASH
EQUIVALENTS AT END
OF YEAR	14,800	8,377	–		23,177


ANALYSIS OF CASH AND
CASH EQUIVALENTS
Bank and cash balances	14,800	8,377	–		23,177

– 97 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

E. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(a) The adjustment represents the reclassifications of the amounts due to a related company of the Target Group to the accruals and other payables.
(b) The adjustment represents the proposed Acquisition of the entire issued share capital of the Target Company as if the proposed Acquisition had been completed on 1 April 2010. The consideration of HK$40 million shall be payable by cash of HK$20 million (will be financed by Advance Lead International Limited, the Investor, which HK$15 million had been paid and the remaining HK$5 million will be paid upon the completion of the Acquisition), plus a promissory note of HK$20 million (the fair value is assumed to be HK$20 million) issued by the Company. The Target Group’s cash and cash equivalents of approximately HK$959,000 as at 1 April 2010 will also be acquired through the proposed Acquisition. This adjustment does not have a continuing effect on the Company.
(c) The adjustment represents the recognition of goodwill of approximately HK$18,995,000 which is the excess of the cost of acquisition over the Group’s share of the net fair value of the Target Group’s identifiable assets and liabilities as a result of the proposed Acquisition as if it had taken place on 31 March 2011. The goodwill of approximately HK$18,995,000 represents the excess of the cost of acquisition of approximately HK$36,072,000 (the consideration of HK$40 million less the waiver of the Sale Loan of approximately HK$3,928,000) over the net fair value of approximately HK$17,077,000 shared by the Group. This adjustment does not have a continuing effect on the Company.

After assessment, the Company considered that there was not any indication that the goodwill may be impaired.

– 98 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

F. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, ANDA CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [158 x 34] intentionally omitted <==

25 August 2011

The Directors and the Provisional Liquidators U-RIGHT International Holdings Limited (Provisional Liquidators Appointed)

Dear Sirs,

We report on the unaudited pro forma financial information of U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the Provisional Liquidators and the Directors of the Company, for illustrative purposes only, to provide information about how the proposed acquisition for the entire issued share capital (the “Acquisition”) of Sino Hill Group Limited (the “Target Company”) might have affected the financial information of the Group presented, for inclusion in Appendix III to the circular of the Company dated 25 August 2011 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on page 93 to the Circular.

Respective Responsibilities of Provisional Liquidators and Directors of the Company and Reporting Accountants

It is the responsibilities solely of the Provisional Liquidators and the Directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by Rule 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 99 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Provisional Liquidators and the Directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the Provisional Liquidators and the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

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

the financial position of the Group as at 31 March 2011 or any future date; or
the results and cash flows of the Group for the year ended 31 March 2011 or any future periods.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the Provisional Liquidators and the Directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and

– 100 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

ANDA CPA Limited

Certified Public Accountants

Sze Lin Tang Practising Certificate Number P03614 Hong Kong

– 101 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors and the Provisional Liquidators collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors and the Provisional Liquidators, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS OF DIRECTORS

(a) Interests of Directors

As at the Latest Practicable Date, none of the Directors or the chief executive of the Company had or was deemed to have any interest or short position in any Share, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest or short position which they had or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules.

As at the Latest Practicable Date, none of the Directors or proposed directors of the Company (if any) had any interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed pursuant to Divisions 2 and 3 of part XV of the SFO.

– 102 –

GENERAL INFORMATION

APPENDIX IV

(b) (i) Interests of substantial shareholders of the Company

As at the Latest Practicable Date, save as disclosed below and so far as is known to the Directors or the chief executive of the Company, no parties (other than Directors and the chief executive of the Company) had an interest or short position in the Shares and underlying shares of the Company which would need to be disclosed to the Company or the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

			Approximate %
			of the Company’s
		Number of	issued
Name	Type of interest	Shares	share capital
Mr. Leung Ngok	Beneficial owner	109,221,000	3.06%
	Founder of	1,094,541,179	30.66%
	a discretionary trust	(Note 1)
ACE Target (PTC) Inc.	Trustee	1,094,541,179	30.66%
		(Note 1)
Trident Trust Company	Trustee	1,094,541,179	30.66%
(B.V.I.) Limited		(Note 1)
Trident Corporate Services	Trustee	1,094,541,179	30.66%
(B.V.I.) Limited		(Note 1)
Ms. Yim Yuk Lam	Interest of spouse	1,203,762,179	33.72%
		(Note 2)
Kingston Securities	Other	1,203,762,179	33.72%
Limited		(Note 3)
Ms. Chu Yuet Wah	Interest of corporation	1,216,614,179	34.08%
	controlled by the	(Note 3)
	substantial shareholder

– 103 –

GENERAL INFORMATION

APPENDIX IV

			Approximate %
			of the Company’s
		Number of	issued
Name	Type of interest	Shares	share capital
Ms. Ma Siu Fong	Interest of corporation	1,203,762,179	33.72%
	controlled by the	(Note 3)
	substantial shareholder
Deutsche Bank	Beneficial owner	222,066,624	6.22%
Aktiengesellschaft

Notes:

(1) These shares were owned by ACE Target (PTC) Inc. as trustee of The Target Unit Trust, a unit trust of which all of the units in issue are owned by Trident Trust Company (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 (PTC) Inc. in its capacity as the trustee of The Target Unit Trust under Part XV of the SFO.
(2) Ms. Yim Yuk Lam was deemed to be interested in the 1,203,762,179 shares of the Company through interest of her spouse, Mr. Leung Ngok.
(3) On 20 October 2008, Mr. Leung Ngok, the then executive Director and chairman of the Company, surrendered all his voting rights and other rights and powers attaching to 109,221,000 shares of the Company to Kingston Securities Limited; and Ace Target (PTC) Inc. surrendered all its voting rights and other rights and powers attaching to 1,094,541,179 shares of the Company to Kingston Securities Limited. Accordingly, Ms. Chu Yuet Wah and Ms. Ma Siu Fong, holding 51% and 49% interests respectively in Kingston Securities Limited, were deemed to retain the voting rights and other rights and powers surrendered by Mr. Leung Ngok and Ace Target (PTC) Inc. Ms. Chu Yuet Wah also owned the 12,852,000 shares of the Company through Best China Limited, a wholly-controlled company of Ms. Chu Yuet Wah.

(ii) Interest in other members of the Group

		Percentage
Name of subsidiary of the	Name of substantial	of
Group	shareholders	shareholding
Xiamen U-Right Garment Co.	Shishi City Yiliwang Clothes	10%
Ltd. (廈門優威服飾有限公司)	Development Co. Ltd.*
	(石獅市意利王制衣發展
	有限公司)
	Xiamen Dateng Industry Trade	10%
	Limited*
	(廈門大騰工貿有限公司)

For identification purposes only

Save as disclosed above, the Company has not been notified of any other relevant interests or short positions in the Shares and underlying shares of the Company as at the Latest Practicable Date.

– 104 –

GENERAL INFORMATION

APPENDIX IV

3. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware of, none of the Directors and his respective associates had any interest in a business, which competes or may compete with the business of the Enlarged Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, save as disclosed above, none of the Directors had entered or proposed to enter into any service contract with the Company or any other member of the Enlarged Group which is not determinable by the Enlarged Group within one year without payment of compensation, other than statutory compensation.

5. LITIGATION

On 6 October 2008, Deutsche Bank A.G., Hong Kong Branch (the “Petitioner”) presented petitions (the “Petitions”, and each of it the “Petition”) to the High Court of Hong Kong (“High Court”) for the winding up of the Company and one of its indirectly wholly-owned subsidiaries (which is now in liquidation), as the Company and that particular subsidiary could not meet demands for the repayment of outstanding debts. The hearing of the Petition against the Company was originally scheduled on 10 December 2008, and was adjourned by the High Court to 9 February 2009, 11 May 2009, 9 November 2009, 10 May 2010, 18 October 2010, 4 April 2011 and further adjourned to 26 September 2011.

As at the Latest Practicable Date, save as disclosed above, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened against any member of the Enlarged Group.

6. INTEREST IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, none of the Directors has any direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Enlarged Group or is proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2011, being the date to which the latest published audited accounts of the Company were made up.

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to the business of the Enlarged Group.

– 105 –

GENERAL INFORMATION

APPENDIX IV

7. MATERIAL CONTRACTS

As at the Latest Practicable Date, save as disclosed below, there were no contracts, not being contracts entered into in the ordinary course of business, entered into by members of the Group within the two years immediately preceding the Latest Practicable Date and which are or may be material:

(a) the escrow agreement dated 16 May 2009 (as supplemented by the first supplemental escrow agreement dated 14 January 2010, the second supplemental escrow agreement dated 30 June 2010 and the third supplemental escrow agreement dated 27 June 2011) entered into among the Company, the Provisional Liquidators, the Investor and Deloitte Touche Tohmatsu (acting in its capacity as an escrow agent of the escrow agreement), in consideration of the Investor providing funds to the Company, granting the Investor an exclusivity period till 31 March 2012 to negotiate with the Provisional Liquidators a legally binding restructuring agreement for the implementation of the restructuring proposal first submitted by the Investor to the Provisional Liquidators on 8 May 2009 (which are subject to further amendments);
(b) the joint venture agreement dated 24 January 2010 entered into between the indirect wholly-owned subsidiary of the Company U-Right Trading, and the Joint Venture Partners, establishing Xiamen U-Right, a limited liability company established in the PRC which is owned as to 80% by U-Right Trading, 10% by Dateng and 10% by Yilking;
(c) the constitution of Xiamen U-Right dated 24 January 2010 entered into between U-Right Trading, Dateng and Yilking;
(d) the subcontracting agreement dated 11 February 2010 entered into between Xiamen U-Right, Dateng and Yilking in relation to the operations, rights, duties and obligations between Xiamen U-Right, Dateng and Yilking;
(e) the loan agreement dated 6 August 2010 entered into between the direct whollyowned subsidiary of the Company, UR Group Limited and the Investor in respect of the advancement of a loan in the principal amount of HK$15 million by the Investor to UR Group Limited for meeting the working capital requirements for U-Right Trading and Xiamen U-Right;
(f) the share charge dated 6 August 2010 executed by UR Group Limited in favour of the Investor as security for the loan in the principal amount of HK$15 million;
(g) the loan agreement dated 6 August 2010 entered into between the direct whollyowned subsidiary of the Company, Alfreda Limited and the Investor in respect of the advancement of a loan in the principal amount of HK$20 million by the Investor to Alfreda Limited for meeting the working capital requirements for the Purchaser;
(h) the share charge dated 6 August 2010 executed by Alfreda Limited in favour the Investor as security for the loan in the principal amount of HK$20 million;

– 106 –

GENERAL INFORMATION

APPENDIX IV

(i) the S&P Agreement;
(j) the first supplemental agreement to the S&P Agreement dated 31 December 2010; and
(k) the second supplemental agreement to the S&P Agreement dated 4 April 2011.

8. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinion or advice, which are contained in this circular.

Name Qualification ALLAN IP & CO. Certified public accountants ANDA CPA Limited Certified public accountants

As at the Latest Practicable Date, none of the above experts had direct or indirect shareholdings in any member of the Enlarged Group, or any right to subscribe for or to nominate persons to subscribe for shares in any member of the Enlarged Group, or any interests, directly or indirectly, in any assets which have been acquired, disposed of or leased to or which are proposed to be acquired, disposed of or leased to any member of the Enlarged Group.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its reports and references to its name in the form and context in which they appear.

9. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Ng Cheuk Fan, Keith, who is a certified public accountant and an executive Director.
(b) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
(c) The head office and principal place of business of the Company in Hong Kong is at the 35th Floor, One Pacific Place, 88 Queensway, Hong Kong.
(d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at the 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The English text of this circular, the notice of the SGM and the accompanying form of proxy shall prevail over their respective Chinese text.

– 107 –

GENERAL INFORMATION

APPENDIX IV

10. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the 35th Floor, One Pacific Place, 88 Queensway, Hong Kong during 10:00 a.m. to 4:00 p.m. (Hong Kong time) on any Business Day, from the date of this circular up to and including the date of the SGM:

(i) the memorandum and articles of association of the Company;
(ii) the letter from the Board, the text of which is set out on pages 6 to 48 of this circular;
(iii) the annual reports of the Company for the years ended 31 March 2009, 2010 and 2011 respectively;
(iv) the accountants’ report of the Target Company, the text of which is set out in Appendix II to this circular;
(v) the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(vi) the accountants’ report on unaudited pro forma financial information, the text of which is set out in Appendix III to this circular;
(vii) the letters of consent referred to in the paragraph headed “Experts and Consents” in this Appendix;

(viii)the material contracts which are set out in paragraph 7 of this Appendix; and

(ix) this circular.

– 108 –

NOTICE OF SGM

U-RIGHT INTERNATIONAL HOLDINGS LIMITED (Provisional Liquidators Appointed) 佑威國際控股有限公司[*]

(已委任臨時清盤人)

(Incorporated in Bermuda with limited liability)

(Stock Code: 00627)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ Meeting ”) of U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) (the “ Company ”) will be held at Room 704, 3 Lockhart Road, Wanchai, Hong Kong on 19 September 2011 at 10:00 a.m. for the purposes of considering and, if thought fit, passing (with or without modifications), the following resolution (“ Resolution ”) as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT the sale and purchase agreement dated 9 August 2010, as amended and supplemented by the supplemental agreements dated 31 December 2010 and 4 April 2011 (collectively, the “ Agreements ”), and entered into between Right Season Limited (the “ Purchaser ”) as the purchaser (an indirectly wholly-owned subsidiary of the Company) and Mr. Tse Ho Ming as the vendor (a copy of which have been produced to the Meeting and marked “A” and signed by the Chairman of the Meeting for the purpose of identification) pursuant to which the Purchaser shall acquire the entire issued share capital of Sino Hill Group Limited in consideration of HK$40,000,000 to be satisfied as to HK$20,000,000 in cash and as to the balance of HK$20,000,000 by the issue of a promissory note subject to and upon the terms and conditions contained in the Agreements and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and any directors of the Company and the joint and several Provisional Liquidators of the Company appointed pursuant to an order dated 6 October 2008 made by the Deputy High Court Judge Au of the Court of First

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NOTICE OF SGM

Instance of the High Court of Hong Kong be and are hereby authorised to do on behalf of the Company all such acts, deeds and things and to effect all necessary actions as they may consider necessary, desirable or expedient in order to effect, implement, amend and complete the Agreements and the transactions contemplated thereunder.”

Yours faithfully, By Order of the Board U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) Tang Kwok Hung Director

For and on behalf of

U-RIGHT International Holdings Limited (Provisional Liquidators Appointed) Lai Kar Yan, Derek Yeung Lui Ming

Joint and Several Provisional Liquidators acting as agents for and on behalf of

U-RIGHT International Holdings Limited without personal liability

Hong Kong, 25 August 2011

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business in Hong Kong: 35th Floor One Pacific Place 88 Queensway Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint one or more proxies to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company. A member who is the holder of two or more shares of the Company may appoint more than one proxy to represent him to attend and vote on his behalf. Any corporation which is a shareholder of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such person or persons as it thinks fit to act as its corporate representative or representatives provided that if more than one person is so authorised, the authority shall specify the number and class of shares held by the relevant shareholder in respect of which each such person is authorised to act as corporate representative.
In order to be valid, the instrument appointing a proxy, together with the power of attorney or other authority, if any, under which it is signed or a certified copy thereof, must be deposited with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at the 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or at any adjournment thereof (as the case may be).
A form of proxy for use by the shareholders at the Meeting is enclosed with the circular of the Company dated 25 August 2011 (the “ Circular ”). Completion and return of the form of proxy shall not preclude any member from attending and voting in person at the Meeting or any adjournment thereof. Such form of proxy and the Circular are also published on the website of the Stock Exchange at www.hkexnews.hk.

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NOTICE OF SGM

Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint registered holders are present at the Meeting personally or by proxy, then one of the registered holders so present whose name stands first on the register of members of the Company in respect of such share, or his proxy, shall alone be entitled to vote and will be accepted to the exclusion of other joint registered holders in respect thereof.
Further information relating to the Agreements and the transactions contemplated thereunder and further information relating to the Company are set out in the Circular.
The votes for approving the Resolution shall be taken by poll.
For identification purpose only

As at the Latest Practicable Date, the Company has two executive Directors, Mr. Tang Kwok Hung and Mr. Ng Cheuk Fan, Keith; and three independent non-executive Directors, namely Mr. Chung Wai Man, Mr. Mak Ka Wing, Patrick and Mr. Chan Chi Yuen.

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AI assistant

MS Group Holdings Limited — Proxy Solicitation & Information Statement 2011

49932_rns_2011-08-24_13541e6b-4f06-4617-bcde-32e59400f1c1.pdf

U-RIGHT INTERNATIONAL HOLDINGS LIMITED

VERY SUBSTANTIAL ACQUISITION INVOLVING ISSUE OF PROMISSORY NOTE ACQUISITION OF ALL ISSUED SHARES IN SINO HILL GROUP LIMITED AND

NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL ACQUISITION INVOLVING ISSUE OF PROMISSORY NOTE ACQUISITION OF ALL ISSUED SHARES IN SINO HILL GROUP LIMITED

INTRODUCTION

THE S&P AGREEMENT

Assets to be acquired and waiver of the Sale Loan

Consideration

LETTER FROM THE BOARD

Conditions precedent

Consideration adjustment

Completion

Terms of the Promissory Note

INFORMATION OF THE TARGET GROUP

Results

Assets and Liabilities

INFORMATION OF THE ENLARGED GROUP

Overview of the Group’s operation since Suspension

(i) U-Right Trading

(ii) Xiamen U-Right

Brand history and developments

LETTER FROM THE BOARD

Xiamen U-Right (“Yilking”)

LETTER FROM THE BOARD

The Target Group (“LeRoi” and “Meridow”)

Products

Business model on retailing

Xiamen U-Right (“U-Right”)

LETTER FROM THE BOARD

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

Product design and development

Initial market survey and product strategy

Product development

Sales fairs

Mass production

Material sourcing

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

Merchandise management

The Target Group (“LeRoi” and “Meridow”)

Logistic management

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

Quality control

Xiamen U-Right (“Yilking”) and the Target Group (“LeRoi” and “Meridow”)

Business model on indent sale

Products sourcing

Delivery

Xiamen U-Right (“Yilking”)

U-Right Trading (“U-Right”)

Payment

Credit terms

Sales cycles

Sales and Marketing

Xiamen U-Right (“Yilking”)

Sales network

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

Cash control, inventory control and information system management

Cash control

The Target Group (“LeRoi” and “Meridow”)

Inventory control

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

Information system management

Customers

Suppliers

Stores

Xiamen U-Right (“Yilking”)

The Target Group (“LeRoi” and “Meridow”)

MS Group Holdings Limited Proxy Solicitation & Information Statement 2011