Persistence Gold Group Ltd — Proxy Solicitation & Information Statement 2002

Mar 25, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular does not constitute an offer or invitation to subscribe for or purchase any securities of Ying Wing Holdings Limited nor is it calculated to invite any such offer or invitation.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your 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 Ying Wing Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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Ying Wing Holdings Limited

(Incorporated in Bermuda with limited liability)

MANDATORY GENERAL OFFER by

Kingsway SW Securities Limited on behalf of

ANGEL FIELD LIMITED

(Incorporated in the British Virgin Islands with limited liability)

to acquire all the issued Shares of Ying Wing Holdings Limited at a price of HK$0.418 per Share (other than those Shares already owned by Angel Field Limited or parties acting in concert with it)

Joint financial advisers to Ying Wing Holdings Limited

KIM ENG

BOOMWELL INVESTMENTS LIMITED

C A P I T A L

KIM ENG CAPITAL (HONG KONG) LIMITED

Joint independent financial advisers to the Independent Board Committee

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AMS CORPORATE FINANCE LIMITED

HANTEC CAPITAL LIMITED

A letter from the Board is set out on pages 5 to 10 of this circular.

A letter of advice from AMS Corporate Finance Limited and Hantec Capital Limited containing their opinion and advice to the Independent Board Committee is set out on pages 12 to 23 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on page 11 of this circular.

25th March, 2002

CONTENTS

	Page
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter of advice from AMS and Hantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix I – Financial information regarding the Group . . . . . . . . . . . . . . . . . . .	24
Appendix II – Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70

– i –

EXPECTED TIMETABLE

Offer commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 14th March, 2002

Latest time and date for acceptance of the Offer . . . . . 4:00 p.m. on Thursday, 11th April, 2002

Closing time and date of the Offer (Note 1) . . . . . . . . . . . . 9:30 a.m. on Friday, 12th April, 2002

Announcement of results of the Offer

to be published in newspapers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 12th April, 2002

Latest date for posting of remittances for the

amount due under the Offer in respect of valid

acceptances received on or before the latest time

for acceptances (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saturday, 20th April, 2002

Notes:

1. The Offer, which is unconditional, will be closed at 9:30 a.m. on Friday, 12th April, 2002 unless the Offeror revises or extends the Offer in accordance with the Takeovers Code. An announcement of the result of the Offer will be published on Friday, 12th April, 2002.

2. The consideration payable for the Shares tendered under the Offer will be paid within 10 days after the receipt by the Registrar of the requisite documents from the accepting Shareholders.

3. Although the Offeror does not intend to extend the Offer, it reserves the right to do so.

4. Acceptance of the Offer shall be irrevocable and not capable of being withdrawn, except as permitted under the Takeovers Code.

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

– ii –

DEFINITIONS

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

“AMS”	AMS Corporate Finance Limited, an investment adviser
	registered under the Securities Ordinance (Chapter 333
	of the Laws of Hong Kong) and one of the joint
	independent financial advisers to the Independent Board
	Committee
“associate(s)”	having the same meaning as defined in the Listing Rules
“Board”	the board of Directors
“Boomwell”	Boomwell Investments Limited, an investment adviser
	registered under the Securities Ordinance (Chapter 333
	of the Laws of Hong Kong) and one of the joint financial
	advisers to the Company
“Business Day”	a day (other than a Saturday) on which banks are open
	for business in Hong Kong
“BVI”	British Virgin Islands
“Company”	Ying Wing Holdings Limited, a company incorporated in
	Bermuda with limited liability, the shares of which are
	listed on the Stock Exchange
“Director(s)”	the director(s) of the Company
“Disposal”	the disposal of the Snack Food Business Companies by
	Park Well to Feng Lin pursuant to the Disposal Agreement
“Disposal Agreement”	the disposal agreement dated 22nd January, 2002 entered
	into between Feng Lin and Park Well relating to the
	disposal by Park Well of its entire interest in the Snack
	Food Business Companies to Feng Lin
“Executive”	the Executive Director of the Corporate Finance Division
	of the SFC or any delegate of the Executive Director
“Fabric Group”	the Group excluding the Snack Food Business Companies

– 1 –

DEFINITIONS

“Feng Lin”	Feng Lin Holdings Ltd., a company incorporated in the
	BVI with limited liability and which holds the Sale
	Shares, the entire issued share capital of which is
	beneficially owned as to 80%, 5%, 5%, 5% and 5%
	respectively by Mr. Tsoi Hon Chung (the Company’s
	chairman), Mr. Tsoi Chun Bun (a Director), Mr. Tsoi
	Chun Hung (a Director), Ms. Lin Feng Qing (the spouse
	of Mr. Tsoi Hon Chung) and Mr. Tsoi Chun Yau
“Group”	the Company and its subsidiaries
“Hantec”	Hantec Capital Limited, an investment adviser and a
	dealer registered under the Securities Ordinance (Chapter
	333 of the Laws of Hong Kong) and one of the joint
	independent financial advisers to the Independent Board
	Committee
“Hong Kong”	The Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	the independent board committee of the Company
	comprising Messrs. Wong Wing Hon, Clint and Wong
	Yiu Kwong, Eric, independent non-executive Directors,
	duly appointed by the Board for the purpose of advising
	the Independent Shareholders in respect of the Offer
“Independent Shareholders”	Shareholders other than the Offeror and its associates
	and parties acting in concert with any of them
“Kim Eng”	Kim Eng Capital (Hong Kong) Limited, an investment
	adviser registered under the Securities Ordinance (Chapter
	333 of the Laws of Hong Kong) and one of the joint
	financial advisers to the Company
“Kingsway Securities”	Kingsway SW Securities Limited, a dealer registered
	under the Securities Ordinance (Chapter 333 of the Laws
	of Hong Kong), which is making the Offer on behalf of
	Offeror
“Latest Practicable Date”	22nd March, 2002, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information referred to in this circular

– 2 –

DEFINITIONS

“Listing Rules”	The Rules Governing the Listing of Securities on the
	Stock Exchange
“Offer”	the mandatory unconditional cash offer being made by
	Kingsway Securities, on behalf of the Offeror, to acquire
	all the issued Shares not already owned by the Offeror or
	parties acting in concert with it at HK$0.418 per Offer
	Share on the terms and subject to the conditions
	contained in the Offer Document and the accompanying
	form of acceptance and transfer
“Offer Document”	the document dated 14th March, 2002 issued by the
	Offeror to the Shareholders and containing details of the
	Offer
“Offeror”	Angel Field Limited, a company incorporated in the BVI
	with limited liability on 16th August, 2001, which is
	wholly and beneficially owned by Mr. Chau Ching Ngai
“Offer Share(s)”	all the issued Share(s) (other than the Sale Shares)
“Park Well”	Park Well International Group Ltd., a company
	incorporated in the BVI with limited liability, a wholly-
	owned subsidiary of the Company and the holding
	company of the Snack Food Business Companies
“PRC”	the People’s Republic of China and for the purpose of
	this circular, excluding Hong Kong, Macau Special
	Administrative Region of the People’s Republic of China
“Registrar”	Secretaries Limited, the Hong Kong branch share registrar
	of the Company, at 5th Floor, Wing On Centre, 111
	Connaught Road, Central, Hong Kong
“Sale and Purchase Agreement”	the sale and purchase agreement dated 22nd January,
	2002 entered into between, among others, Feng Lin and
	the Offeror, relating to the sale and purchase of the Sale
	Shares
“Sale Shares”	a total of 148,000,000 Shares, representing 74.00% of
	the existing issued share capital of the Company, sold to
	the Offeror pursuant to the Sale and Purchase Agreement

– 3 –

DEFINITIONS

“SDI Ordinance”	Securities (Disclosure of Interests) Ordinance (Chapter
	396 of the Laws of Hong Kong)
“SFC”	the Securities and Futures Commission of Hong Kong
“Share(s)”	share(s) of HK$0.10 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Share(s)
“Snack Food Business Companies”	Cai Yi Feng Trading Limited, Hanover VCL Trading
	Limited, Transfit Garments Limited, Vastco (H.K.)
	Limited, VCL Business Development (USA) Inc. and
	Vastco (Shantou F.T.Z.) Industrial Limited, all of which
	are indirect subsidiaries of the Company prior to
	completion of the Disposal
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“HK$” or “cents”	Hong Kong dollars or cents respectively, the lawful
	currency of Hong Kong
“%”	per cent.

– 4 –

LETTER FROM THE BOARD

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Ying Wing Holdings Limited

(Incorporated in Bermuda with limited liability)

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Directors: Registered office: Tsoi Hon Chung Clarendon House Cai Han Peng 2 Church Street Tsoi Chun Bun Hamilton HM11 Tsoi Chun Hung Bermuda Cheung Chun Ying Shi Zhi Hong Head office and principal Wong Wing Hon, Clint place of business in Hong Kong: Wong Yiu Kwong, Eric Room 3101 31st Floor Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

* Independent non-executive Director

25th March, 2002

To the Shareholders

Dear Sir or Madam,

MANDATORY GENERAL OFFER

INTRODUCTION

On 25th January, 2002, the Offeror and the Company jointly announced that the Disposal Agreement was entered into between Park Well and Feng Lin on 22nd January, 2002 whereby Feng Lin has conditionally agreed to purchase and Park Well has conditionally agreed to sell its entire interest in the Snack Food Business Companies for a consideration of HK$24,600,000. Details of the Disposal Agreement are set out in the circular of the Company dated 22nd February, 2002. The resolution in relation to the Disposal Agreement was unanimously passed by way of a poll at the special general meeting of the Company held on 11th March, 2002. Completion of the Disposal Agreement took place on 12th March, 2002.

– 5 –

LETTER FROM THE BOARD

Simultaneously with the entering into of the Disposal Agreement, the Sale and Purchase Agreement was entered into between, amongst others, the Offeror and Feng Lin on 22nd January, 2002, pursuant to which the Offeror agreed to purchase and Feng Lin agreed to sell the Sale Shares, represent 74.00% of the issued share capital of the Company, at a consideration of HK$61,800,000, equivalent to approximately HK$0.418 per Sale Share. Completion of the Sale and Purchase Agreement took place on 12th March, 2002.

Following the completion of the Sale and Purchase Agreement, the Offeror became interested in 148,000,000 Shares, representing 74.00% of the issued share capital of the Company and is therefore obliged under Rule 26 of the Takeovers Code to make an offer to acquire all the issued Shares (other than those already owned by the Offeror or parties acting in concert with it). In compliance with the Takeovers Code, Kingsway Securities, on behalf of the Offeror, has made the Offer on Thursday, 14th March, 2002. Details of the Offer are set out in the Offer Document and the accompanying form of acceptance and transfer which were despatched to the Shareholders on Thursday, 14th March, 2002.

The Independent Board Committee comprising of Messrs. Wong Wing Hon, Clint and Wong Yiu Kwong, Eric, being all the independent non-executive Directors, has been established for the purpose of advising the Independent Shareholders as to whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned. Messrs. Tsoi Hon Chung, Tsoi Chun Bun and Tsoi Chun Hung, are executive Directors who own as to 80%, 5% and 5% respectively in the entire issued share capital of Feng Lin, the vendor of the Sale Shares. Mr. Cai Han Peng, the brother of Mr. Tsoi Hon Chung, and Mr. Cheung Chun Ying, both of whom are salaried employees of the Company and executive Directors, are nominated to the Board by Feng Lin and their decisions in the Board may be influenced by Feng Lin. As such, they are presumed to have indirect interest in the Offer. Mr. Shi Zhi Hong is nominated to the Board by the Offeror and his decisions in the Board may be influenced by the Offeror. Hence, he is also presumed to have indirect interest in the Offer. In view of the respective interests of the said Directors in the proposed Offer and/or the Company, none of them is considered to be independent for the purpose of giving recommendations to the Independent Shareholders regarding the terms of the Offer. AMS and Hantec have been appointed to advise the Independent Board Committee as to whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned.

The purpose of this circular is to provide you with, among other things, additional information relating to the Group and the Offer. Your attention is drawn to the letter from the Independent Board Committee on page 11 and the letter from AMS and Hantec on pages 12 to 23 of this circular.

– 6 –

LETTER FROM THE BOARD

THE OFFER

Kingsway Securities is making the Offer on behalf of the Offeror, subject to the terms set out in the Offer Document and in the accompanying form of acceptance and transfer, for all the issued Shares (other than those already owned by the Offeror or parties acting in concert with it) on the following basis:

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.418 in cash

The Offer is unconditional in all respects.

Under the Sale and Purchase Agreement, Feng Lin has undertaken to the Offeror that it will dispose of its remaining 964,000 Shares representing approximately 0.48% of the issued Shares through the Stock Exchange prior to close of the Offer or it will tender the remaining Shares held by it for acceptance under the Offer.

By accepting the Offer, Shareholders will sell their Shares free from all liens, claims and encumbrances and with all rights attached, including the right to receive all dividends and distributions declared, made or paid after the close of Offer. Acceptance of the Offer shall be irrevocable and not capable of being withdrawn, except as permitted under the Takeovers Code.

Seller’s ad valorem stamp duty at the rate of HK$1.00 for every HK$1,000 or part thereof of the consideration will be deducted from the consideration payable to the Shareholders who accept the Offer for the Offer Shares.

Further details of the terms of the Offer, including the procedures for acceptance, are set out in the Offer Document and in the accompanying form of acceptance and transfer.

INFORMATION ON THE COMPANY

Directors and management of the Group

The Offeror has nominated Mr. Shi Zhi Hong as executive Director to the Board and his appointment has taken effect on the despatch of the Offer Document to the Shareholders on 14th March, 2002. The Offeror intends to nominate Ms. Mo Yu Ping, Ms. Gong Bei Ying and Mr. Shan Zhenglin to the Board and their appointment will take effect on or about the date on which the Offer closes. Details of the background information of Mr. Shi Zhi Hong, Ms. Mo Yu Ping, Ms. Gong Bei Ying and Mr. Shan Zhenglin are set out in the paragraph headed “Directors and management of the Group” in the letter from Kingsway Securities contained in the Offer Document.

– 7 –

LETTER FROM THE BOARD

It is intended that the existing executive Directors including Messrs. Tsoi Hon Chung, Cai Han Peng, Tsoi Chun Bun, Tsoi Chun Hung, Cheung Chun Ying and the existing independent non-executive Directors including Messrs. Wong Wing Hon, Clint and Wong Yiu Kwong, Eric will resign following the closing of the Offer.

The other additional Directors, including two new independent non-executive Directors, whom the Offeror intends to nominate to the Board have not yet been determined.

Save as disclosed above, it is the intention of the Offeror that there will be no material change in the existing management and employees of the Group by reason only of the Offer.

Business of the Group

The principal activities of the Group are the processing of raw fabric and trading of fabric in the PRC market upon completion of the Disposal Agreement. It is the intention of the Offeror that the Group will continue to be engaged in such business.

As stated in the section headed “Intention of the Offeror regarding the Group” in the letter from Kingsway Securities contained in the Offeror Document, the new Directors nominated or to be nominated by the Offeror will review in detail the financial position of the Group and will formulate long-term business plans and management strategy for the business of the Group. These new Directors may consider expanding the capital base of the Company, if necessay, to enable the Company to capitalise on suitable investment opportunities as they may arise in the future. In this connection, the new Directors will explore other business opportunities and consider whether any asset disposals (including redeployment of fixed asset in the ordinary course of business), asset acquisitions, business rationalisation, divestment and/or diversification will be appropriate in order to enhance the long term growth potential of the Group. However, the Offeror at present has not formulated any detailed plan yet.

There is no plan for the Offeror to inject any of its existing assets or business into the Company or its subsidiaries.

The Board considers that the Group will benefit from the experience and business network of the new Directors nominated or to be nominated by the Offeror in expanding and improving the business operations of the Group.

Financial Results

As stated in the 2000 annual report of the Company, the turnover of the Group for the two years ended 31st December, 2000 were approximately HK$212.9 million and HK$124.7 million respectively. Over the same periods, the Group recorded loss attributable to Shareholders of approximately HK$27.5 million and profit attributable to Shareholders of approximately HK$13.6 million respectively. The audited net asset value of the Group was

– 8 –

LETTER FROM THE BOARD

approximately HK$111.1 million as at 31st December, 2000. Following the completion of the Disposal Agreement and taking into account the unaudited results of the Group for the 11 months ended 30th November, 2001, the proforma unaudited adjusted net tangible asset value of the Group was approximately HK$66.2 million as set out in appendix I to this circular.

Your attention is drawn to appendix I to this circular which contains a summary of financial information of the Group for the five years ended 31st December, 2000, the audited financial statements of the Group for the year ended 31st December, 2000 and the unaudited financial statements of the Group for the six months ended 30th June, 2001 and for the 11 months ended 30th November, 2001.

MAINTAINING THE LISTING STATUS OF THE COMPANY

According to the Offer Document, it is the intention of the Offeror to maintain the listing of the Company on the Stock Exchange after the close of the Offer. The Offeror has undertaken and the new Directors appointed and to be appointed to the Board will undertake to the Stock Exchange that appropriate steps following the close of the Offer will be taken to ensure that not less than 25% of the Shares will be held by the public. When the Offer closes, should there be less than 25% of the Shares in public hands, the directors of the Offeror presently intend to take appropriate steps, which may include placing down its shareholding interest in the Company to members of the public within one month after the close of the Offer. The Stock Exchange has stated that, if less than 25% of the issued Shares are in public hands following the completion of the Offer, or if the Stock Exchange believes that a false market exists or may exist in the trading of the Shares or that there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the Shares.

In this connection, it should be noted that upon completion of the Offer, there may be insufficient public float for the Shares and, therefore, trading in the Shares may be suspended until a sufficient level of public float is attained.

The Stock Exchange will also closely monitor all future acquisitions or disposals of assets by the Company. The Stock Exchange has indicated that it has the discretion to require the Company to issue a circular to its Shareholders irrespective of the size of any proposed transactions, particularly when such proposed transactions represent a departure from the principal activities of the Company. The Stock Exchange also has the power to aggregate a series of transactions of the Company and any such transactions may result in the Company being treated as if it were a new listing applicant.

FURTHER INFORMATION

Your attention is drawn to the letter from the Independent Board Committee on page 11 and the letter from AMS and Hantec on pages 12 to 23 of this circular which contain the

– 9 –

LETTER FROM THE BOARD

respective recommendations of the Independent Board Committee and the advice from AMS and Hantec as to whether the terms of the Offer are fair and reasonable so far as Independent Shareholders are concerned respectively.

Independent Shareholders are recommended to read the Offer Document and its accompanying form of acceptance and transfer. Your attention is also drawn to the information set out in the appendices to this circular.

Yours faithfully,

For and on behalf of the Board of Ying Wing Holdings Limited Tsoi Hon Chung Chairman

– 10 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Ying Wing Holdings Limited

(Incorporated in Bermuda with limited liability)

25th March, 2002

To the Independent Shareholders

Dear Sir or Madam,

MANDATORY GENERAL OFFER

We refer to the circular dated 25th March, 2002 issued by the Company (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to consider the Offer. AMS and Hantec have been appointed by the Independent Board Committee as the joint independent financial advisers to advise us in this respect.

Your attention is drawn to the letter from the Board and the letter of advice from AMS and Hantec containing their advice to us as set out in the Circular, and to the letter from Kingsway Securities set out in the Offer Document containing, among other things, the terms of the Offer.

RECOMMENDATION

Taking into account the terms of the Offer and the advice from AMS and Hantec, we consider that the terms of the Offer are fair and reasonable in so far as the Independent Shareholders are concerned and recommend the Independent Shareholders to accept the Offer. However, Independent Shareholders who wish to realise part or all of their holdings should monitor the movement of the prices of the Shares carefully before the close of the Offer and should consider selling their Shares if the net proceeds of such sale will be higher than the net amount receivable under the Offer.

Yours faithfully,

Wong Wing Hon, Clint Wong Yiu Kwong, Eric Independent Board Committee

– 11 –

LETTER OF ADVICE FROM AMS AND HANTEC

The following is the full text of the letter from AMS and Hantec dated 25th March, 2002 setting out their advice to the Independent Board Committee:

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AMS CORPORATE FINANCE LIMITED

• 20th Floor, Hong Kong Diamond Exchange Building, 8-10 Duddell Street, Central, Hong Kong Tel: 2230 0722 Fax: 2230 0733

HANTEC CAPITAL LIMITED

45th Floor, COSCO Tower 183 Queen’s Road Central, Hong Kong Tel: 2235 7888 Fax: 2973 0382

25th March, 2002

To the Independent Board Committee of

Ying Wing Holdings Limited

Dear Sirs,

MANDATORY GENERAL OFFER BY KINGSWAY SW SECURITIES LIMITED ON BEHALF OF ANGEL FIELD LIMITED TO ACQUIRE ALL THE ISSUED SHARES OF YING WING HOLDINGS LIMITED AT A PRICE OF HK$0.418 PER SHARE (OTHER THAN THOSE SHARES ALREADY OWNED BY ANGEL FIELD LIMITED OR PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

We refer to our appointment as the joint independent financial advisers to advise the Independent Board Committee in respect of the Offer, details of which are set out in the Offer Document; as well as in this circular (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

This letter contains our advice to the Independent Board Committee as to whether the terms of the Offer are fair and reasonable as far as the Independent Shareholders are concerned. Details of the Independent Board Committee and the independence of the Directors have been set out in the letter from the Board included in the Circular.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and representations contained or referred to in the Offer Document and the Circular and the information and representations provided to us by the Company and the Directors. We have assumed that all

– 12 –

LETTER OF ADVICE FROM AMS AND HANTEC

information and representations contained or referred to in the Offer Document and the Circular were true and accurate at the time when they were made and continue to be so at the date hereof. We have also assumed that all statements of belief, opinion and intention made in the Offer Document and the Circular have been arrived at after due and careful consideration and there are no other facts or representations the omission of which would make any statement in the Offer Document or the Circular, including this letter, misleading. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the information provided and the representations made to us untrue, inaccurate or misleading. We consider that we have been provided with sufficient information to reach an informed view. We have not, however, conducted any form of in-depth investigation into the business and affairs of the Group or the Offeror or their respective associates.

We have not considered the tax consequences on the Independent Shareholders of acceptance or non-acceptance of the Offer since these are particular to their individual circumstances. In particular, Independent Shareholders who are resident overseas or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax positions and, if in any doubt, should consult their own professional advisers.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the terms of the Offer, we have taken into consideration the following principal factors:

1. Offer price

Kingsway Securities is offering on behalf of the Offeror to acquire all the Offer Shares at the price of HK$0.418 per Offer Share (the “Offer Price”) in cash.

The Offer Price represents:

• (i) a discount of approximately 62% to the closing price of HK$1.10 per Share as quoted on the Stock Exchange on 21st January, 2002, being the last full trading day before the suspension of trading of the Shares on the Stock Exchange as from 10:00 a.m. on 22nd January, 2002 (the “Suspension Date”);

• (ii) a discount of approximately 62% to the average closing price of HK$1.10 per Share as quoted on the Stock Exchange for the ten consecutive full trading days before the Suspension Date;

• (iii) a discount of approximately 7% to the closing price of HK$0.45 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and

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LETTER OF ADVICE FROM AMS AND HANTEC

• (iv) a discount of approximately 25% to the average closing price of HK$0.56 per Share as quoted on the Stock Exchange for the period from 28th January, 2002 (being the first trading day immediately following the joint announcement by the Offeror and the Company dated 25th January, 2002 relating to, among other things, the terms of the offer (the “Announcement”)), to the Latest Practicable Date.

2. Price performance of the Shares

The following chart sets out the daily turnover and the closing price of the Shares on the Stock Exchange for the period from 19th January, 2001 (being the first trading day of the 12 months prior to the Suspension Date) to the Latest Practicable Date:

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

2.0 3,500,000
3,000,000
1.5
2,500,000
2,000,000
1.0
1,500,000
1,000,000
0.5
500,000
0.0 0
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 22
2001 2002
Closing price per Share
Daily turnover
Daily turnover (Shares)
Closing price per Share (HK$)
----- End of picture text -----

Source: TSCI Research (H.K.) Limited

– 14 –

LETTER OF ADVICE FROM AMS AND HANTEC

• (i) During the period from 19th January, 2001 to 21st January, 2002 (being the last full trading day before the Suspension Date), the highest closing price per Share was HK$1.8 which was recorded from 19th January, 2001 to 27th August, 2001. The lowest closing price per Share was HK$1.10 which was recorded on 5th September, 2001 and up to 21st January, 2002. The Offer Price represents a discount of approximately 77% and 62% respectively to such highest and lowest closing price.

Despite the fact that, during the period from 19th January, 2001 to 21st January, 2002 (being the last full trading day before the Suspension Date), the Offer Price represents a substantial discount in the range from approximately 62% to 77% to the prevailing closing prices per Share during such period, we consider that such substantial discount may not be relevant in forming an opinion as to whether or not the Offer Price is fair and reasonable. This is because during such twelve-month period there was trading in the Shares in only one day (i.e. 28th February, 2001) with a mere turnover of 8,000 Shares. The highest closing price at HK$1.8 was last recorded on 21st December, 2000 with a turnover of 4,000 Shares following the closing price of HK$2.0 on 20th December, 2000. We are not aware of any reason why the Share price remained at HK$1.8 for over eight months in the absence of any trading. In view of such insignificant trading volume, we consider that the prevailing closing prices may not reflect the fair value of the Shares. We are also of the view that such prevailing closing prices could not be sustained, given the fact that the market prices of the Shares dropped significantly following the Announcement.

• (ii) During the period from 28th January, 2002 (being the first trading day immediately following the Announcement) to the Latest Practicable Date, the highest and the lowest closing prices per Share were HK$0.83 and HK$0.45 respectively. The average closing price during this period was HK$0.56 per Share. The Offer Price represents a discount of approximately 25% to such average.

• (iii) The Offer Price represents a discount of approximately 7% to the closing price of HK$0.45 per Share on the Latest Practicable Date as quoted on the Stock Exchange.

Following the Announcement, the market prices of the Shares dropped gradually to levels close to the Offer Price. The Directors have stated that apart from the Offer, they were not aware of any other reasons for such price decreases. We concur with the Directors’ view on the fall of the Share prices as we consider that the fall in market prices of the Shares after the Announcement would have probably been stimulated by market responses to the substantial discount represented by the Offer Price to the prevailing market prices.

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LETTER OF ADVICE FROM AMS AND HANTEC

3. Liquidity

There was no trading recorded for the Shares on the Stock Exchange during the six months prior to the Suspension Date. The following table sets out the average daily trading volume of the Shares from 28th January, 2002 (being the first trading day immediately following the Announcement) to the Latest Practicable Date:

		Percentage
	Average daily	to Free Float
Month	trading volume	Shares*
	(in Shares)	(%)
January (from 28th January, 2002)	1,762,000	3.45
February	1,045,882	2.05
March (up to and including the Latest Practicable Date)	1,020,375	2.00

• Based on 51,036,000 Shares (the “Free Float Shares”), being the total number of Shares in issue as at the Latest Practicable Date after deducting 148,964,000 Shares held by Feng Lin as the controlling shareholder of the Company before entering into the Sale and Purchase Agreement. We consider the use of the Free Float Shares to be more relevant than the total outstanding Shares in issue in the above analysis of the Shares’ liquidity since Feng Lin or following the completion of the Sale and Purchase Agreement, Angel Field, owned at least 74% of the total number of Shares in issue.

Source: TSCI Research (H.K.) Limited

After the trading of Shares was resumed on 28th January, 2002, the trading of Shares appeared and recorded an average daily turnover of 1,762,000 Shares for the four remaining trading days of January 2002, representing approximately 3.45% of the Free Float Shares. The average daily turnover decreased to 1,045,882 Shares for February 2002, representing approximately 2.05% of the Free Float Shares. For the period from 1st March, 2002 to the Latest Practicable Date, the average daily turnover maintained at 1,020,375 Shares, representing approximately 2.00% of the Free Float Shares.

During the period from 19th January, 2001 to the Latest Practicable Date, the Shares were thinly traded. Out of a total of 285 trading days during such period, there was trading in the Shares in only 37 trading days with the daily turnover ranging from a low of 8,000 Shares to a high of 3,358,000 Shares. Independent Shareholders should note that the highest daily turnover during such period represented only approximately 6.6% of the Free Float Shares. Independent Shareholders should also note that during such period there was in fact a trading of only 8,000 Shares before the Announcement.

In view of the low liquidity of the Shares, we are of the opinion that it may be difficult for the Independent Shareholders to dispose of their Shares in the open market without adversely affecting the market price of the Shares. We therefore consider that the Offer provides an opportunity to the Independent Shareholders to realize their investment in the Company.

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LETTER OF ADVICE FROM AMS AND HANTEC

4. Financial performance of the Group

The principal business of the Group has been traditionally the processing of raw fabric and trading of fabric. In 2000, the Group began diversifying its business activities into the manufacture and sale of snack food in the PRC through the Snack Food Business Companies. However, following the completion of the Disposal Agreement on 12th March, 2002, the Group is no longer engaged in the manufacture and sale of snack food and its business operations remain to be the processing of raw fabric and trading of fabric. The principal processing services provided by the Group through its facilities in the PRC included bleaching, dyeing, printing, setting and finishing services. The major customers of the Group comprise mainly manufacturers of garment products based in the PRC.

A summary of the audited combined/consolidated results of the Group for each of the five financial years ended 31st December, 2000, the unaudited financial statements of the Group for the eleven months ended 30th November, 2001, the unaudited financial statements of the Group for the six months ended 30th June, 2001 and the audited financial statements of the Group for the year ended 31st December, 2000 are set out in Appendix I to the Circular.

For the year ended 31st December, 1998, the Group’s turnover and profit attributable to Shareholders amounted to approximately HK$293.7 million and HK$40.3 million respectively. As disclosed in the annual report for the year ended 31st December, 1998, the Group’s profit for the year was mainly attributable to the growth of the Group’s fabric processing business, as well as to the decrease in both of the cost of fabric and manufacturing overheads.

For the year ended 31st December, 1999, the Group’s turnover and profit attributable to Shareholders amounted to approximately HK$212.9 million and HK$27.5 million respectively, representing respective decrease of approximately 27.5% and 31.8% as compared to the year 1998. As disclosed in the annual report for the year ended 31st December, 1999, the drop of the Group’s turnover and net profit was mainly attributable to the intense competition in the raw fabric processing industry during the year.

As shown in the Group’s annual report for the year ended 31st December, 2000 (the “Annual Report”), the Group recorded a turnover with respect to the processing of raw fabric, the sale of finished fabric and trading of fabric of approximately HK$123.7 million, representing a drop of approximately 42% from HK$212.9 million of such business in 1999. Over the same period, contribution to loss before taxation by the processing of raw fabric, the sale of finished fabric and trading of fabric was approximately HK$8.2 million as compared to contribution to profit before taxation of approximately HK$30.2 million by such business in 1999. As explained in the Annual Report, the drop of turnover was mainly due to the fierce competition in the raw fabric processing industry, as well as the loss of the Group’s several major customers during the year. The difficult market conditions also resulted in substantial decrease in selling prices of the Group’s products which, together with the increase of prices of

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LETTER OF ADVICE FROM AMS AND HANTEC

raw materials, further compressed the Group’s overall gross profit margin. In particular, contribution to loss before taxation of approximately HK$8.2 million for the year ended 31st December, 2000 was mainly attributable to the (i) substantial decline in the Group’s overall gross profit margin from approximatley 21.0% to 1.4% as a result of both the increase of prices of raw materials and the decrease in the Group’s selling prices, (ii) disposal of certain obsolete processing machinery at a loss of approximately HK$3 million and (iii) provision for doubtful debts of approximately HK$3 million.

As shown in the Group’s interim report for the six months ended 30th June, 2001 (the “Interim Report”), the Group recorded a turnover with respect to the processing of raw fabric and sale of finished fabric of approximately HK$6.2 million for the six months ended 30th June, 2001, representing a significant decrease of approximately 87% as compared to the corresponding six months ended 30th June, 2000 of approximately HK$48.6 million in respect of the same business. Over the same period, contribution to loss before taxation by such business was approximately HK$10.4 million, representing a significant set-back as compared to contribution to profit before taxation by the same business of approximately HK$2.2 million for the corresponding six months ended 30th June, 2000. As disclosed in the Interim Report, the significant drop of the Group’s turnover with respect to the processing of raw fabric and sale of finished fabric was mainly due to the intense competition from state-owned enterprises in the PRC which had been offering substantial price cuts to boost sales. Contribution to loss before taxation by the processing of raw fabric and sale of finished fabric of approximately HK$10.4 million was mainly attributable to (i) substantial decline in the Group’s overall gross profit from approximately HK$7.4 million to a gross loss of approximately HK$1.1 million due to substantial decrease in selling prices and (ii) provision for doubtful debts of approximately HK$4.9 million. In addition, the Group did not have any trading of fabric during the six months ended 30th June, 2001 because the risk in collection of trade debts was not justified by the low gross profit margin.

As advised by the Directors, difficult market conditions and fierce competition for the fabric processing business continued to persist during the second half of year 2001. As shown in the unaudited consolidated income statements of the Group for the eleven months ended 30th November, 2001, the turnover of the Group for the eleven months ended 30th November, 2001 was approximately HK$38.6 million, of which approximately HK$19.7 million was attributable to the processing of raw fabric, the sale of finished fabric and trading of fabric. The balance of approximately HK$18.9 million was attributable to the Group’s snack food business which has recently been disposed of. Over the same period, contribution to loss before taxation by the processing of raw fabric, the sale of finished fabric and trading of fabric amounted to approximately HK$25.5 million, representing a further loss of approximately HK$15.1 million for the five-month period since July 2001. As advised by the Directors, such further loss was mainly due to the continuing fierce competition and difficult market conditions during the period and loss on disposal of certain old and idle fabric processing machinery of approximately HK$11.7 million.

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LETTER OF ADVICE FROM AMS AND HANTEC

Based on the above information, we consider that the Group’s financial performance has been deteriorated during the recent years. As mentioned in the letter from the Board, the Directors are of the view that the business operations in respect of processing of raw fabric and trading of fabric have suffered from difficult market conditions and fierce competition from the manufacturers in the PRC. As mentioned in the second sub-paragraph under the paragraph headed “Price earnings multiple” below, we have reviewed the financial performance of a listed company of which the principal business operations are comparable to those of the Company and found that the listed company has also faced similar market conditions and intense competition from state-owned enterprises in the PRC. Accordingly, we agree with the Directors’ view on the prevailing market conditions and competition for fabric processing business.

Given the substantial losses on the Group’s fabric business incurred during the recent years and the existing market conditions faced by the Group, we consider that the Offer provides an opportunity to the Independent Shareholders to realize their investments in the Company.

5. Net asset value

Based on the pro forma unaudited adjusted consolidated net tangible asset value of the Group upon completion of the Disposal Agreement as set out in Appendix I to the Circular, the pro forma unaudited adjusted consolidated net tangible asset value of the Group upon completion of the Disposal (the “Pro Forma NAV”) is approximately HK$66.2 million, representing approximately HK$0.331 per Share based on 200,000,000 Shares in issue as at 30th November, 2001. The Pro Forma NAV was prepared on the basis of the Group’s audited consolidated net asset value of the Group as at 31st December, 2000 amounted to approximately HK$111.1 million and adjusted for (i) the revaluation surplus of the Fabric Group’s land and buildings as at 31st December, 2001 of approximately HK$0.5 million, (ii) unaudited consolidated net loss attributable to Shareholders of the Group for the eleven months ended 30th November, 2001 amounted to approximately HK$45.4 million, (iii) consideration for the Disposal of HK$24.6 million and (iv) pro forma unaudited combined net tangible asset value of the Snack Food Business Companies as at 30th November, 2001 amounted to HK$24.6 million.

The Offer Price represents a premium of approximately 26.3% to the Pro Forma NAV of approximately HK$0.331 per Share. As the Offer Price is above the Pro Forma NAV per Share, we consider the Offer Price to be fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER OF ADVICE FROM AMS AND HANTEC

6. Dividend payment

For the three years ended 31st December, 2000, other than the dividends of HK$16,000,000 declared and paid by the Company for the year ended 31st December, 1999 (representing HK$0.08 per Share on the basis of 200,000,000 Shares in issue), the Company has not declared any dividend to Shareholders. On the basis of the Group’s currently unfavorable financial performance and its dividend payment record, we do not consider the Shares to be an attractive investment in terms of earnings or dividend yield.

7. Price earnings multiple

In general, we would consider it appropriate to assess the share value of industrial companies like the Company in terms of price/earnings multiple based on their historical earnings. In this case, however, since the Group has recorded losses for both the year ended 31st December, 2000 and the eleven months ended 30th November, 2001, the use of price earnings multiple as reference to assess the Offer Price would not be applicable.

We have also attempted to assess the value of the Company with reference to other similar companies listed on the Stock Exchange which have comparable business operations. In this case, we are able to find only one company, namely Ching Hing (Holdings) Limited, listed on the Stock Exchange whose principal activities include the provision of cotton fabric processing services through its facilities in the PRC, the sale of cotton fabric and trading of garment and of whom the majority of customers are Hong Kong based fabric traders (the “Comparable Company”). The main difference between the Company and the Comparable Company is the product type. The Company is principally engaged in the processing of nylon (synthetic fiber), whereas the Comparable Company is mainly engaged in the processing of cotton. As for markets, the major customers of the Company are PRC-based garment manufacturers, whereas the major customers of the Comparable Company are Hong Kong based fabric traders who directly supply finished fabric to the buying offices of overseas apparel companies and to garment manufacturers. The respective market capitalization of the Company and the Comparable Company are also different from each other. As at the Latest Practicable Date, the market capitalization of the Company was approximately HK$90 million, as compared to that of the Comparable Company of approximately HK$32 million.

Although the type of the fabric processing, the markets and the market capitalization of the Comparable Company are not exactly the same as those of the Company, we consider that the financial performance of the Comparable Company is able to provide a relevant and reasonable comparison since i) the Comparable Company is principally engaged in the fabric processing industry, ii) its processing facilities are all situated in the PRC, iii) it is operating in similar market conditions and iv) both the Company and the Comparable Company are considered to be small capitalization companies.

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LETTER OF ADVICE FROM AMS AND HANTEC

As in the case of the Group, the Comparable Company has reported a loss for both the year ended 31st December, 2000 and the six months ended 30th June, 2001 and such losses were mainly attributable to the fabric processing business. As disclosed in the Comparable Company’s annual report for the year ended 31st December, 2000, the directors of the Comparable Company considered that the market conditions for fabric processing business were adversely affected by the slow down of the economy in the United States, as well as the aggressive pricing policy adopted by the state-owned fabric processing factories in the PRC.

We have also attempted to perform an industry analysis on the fabric processing business in order to assess the general prospects of the fabric processing industry in which similar market participants based in Hong Kong are engaged in; however, we are unable to perform such analysis as market data on the industry of fabric processing is not available. Accordingly, we are not in a position to opine on the general prospects of the fabric processing industry in which the Company is principally engaged in.

In view of the above, we consider that it is not applicable, in this case, to assess the share value of the Company in terms of price earnings multiple. We also consider that, given the adverse market conditions faced by the Comparable Company which are similar to those encountered by the Group, the competition in the market will continue to be intense and the outlook on the Group’s operations is not optimistic in the short term. We are therefore of the view that the Offer provides an opportunity to the Independent Shareholders to realize their investments in the Company.

8. New management

Following the completion of the Sale and Purchase Agreement on 12th March, 2002, the Offeror has become the controlling shareholder (as defined in the Listing Rules) of the Company. Information relating to the Offeror is set out in the Offer Document.

As stated in the Offer Document, other than Mr. Shi Zhi Hong (“Mr. Shi”), who has been nominated by the Offeror and appointed as executive Director to the Board on 14th March, 2002, all of the existing Directors will resign from the Board following the close of the Offer. Independent Shareholders should refer to the Offer Document for details of the background information of Mr. Shi and the other Directors who will be appointed to the Board after the close of the Offer.

We note from the Offer Document that none of Mr. Shi and the new executive Directors to be appointed to the Board has experience in the management of business related to raw fabric processing. Whilst we have no reason to doubt the expertise and capability of the new Directors to operate the Group’s existing principal business, Independent Shareholders should note that the new executive Directors to be appointed do not have the relevant experience in the management of business related to raw fabric processing. Nevertheless, as disclosed in the

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LETTER OF ADVICE FROM AMS AND HANTEC

Offer Document, it is the intention of the Offeror that, except for the change of Directors, there will be no material change in the existing management and employees of the Group by reason only of the Offer. Based on the above, we are not in a position to opine on whether and to what extent there will be any effect of the new management on the Group’s operations in the future. However, Independent Shareholders should note that there is no assurance that the business operations of the Group would not be interrupted due to the resignation of all of the existing Directors, other than Mr. Shi, following the close of the Offer and the lack of the relevant experience of the new Directors.

9. Future intention

As stated in the Offer Document, it is the intention of the Offeror that the Company will continue to be engaged in the processing of raw fabric and trading of fabric. The new Directors will review in detail the financial position and operations of the Group and will formulate long term business plans and management strategy for the business of the Group. Given the substantial losses incurred recently by the Group on the processing of raw fabric and the difficult market conditions and fierce competition faced by the Group with respect to such business, we consider that the outlook on the Group’s operations with respect to the processing of raw fabric is not optimistic in the short term.

As mentioned in the Offer Document, the Offeror has not yet formulated any detailed plan and the new Directors of the Company will explore other business opportunities and consider whether asset disposals, asset acquisitions, business rationalization, divestment and/or diversification will be appropriate in order to enhance the long term growth potential of the Group. However, Independent Shareholders should note that there is no assurance as to the timing or whether or not such exploration will crystallize in any business plan. Accordingly, we are not in a position to form any opinions on the future business performance of the Group based on the likelihood that the Group would diversify its business into other area following the new management. Independent Shareholders should form their own judgment as to the commercial attractiveness of the effect of the new management on the Group.

Furthermore, Independent Shareholders should note that the Offeror may consider expanding the capital base of the Company, if necessary, to enable the Company to capitalize on suitable investment opportunities as they may arise in the future. In the event the Company calls for a right issue or other forms of equity financing, Shareholders, including Independent Shareholders, may have to increase equity investments in the Company, or their respective shareholdings will be diluted.

RECOMMENDATION

Having considered the above principal factors, particularly (i) the liquidity of the Shares before and after the Announcement, (ii) the substantial losses incurred by the Group for the year ended 31st December, 2000 and the eleven months ended 30th November, 2001, (iii) the

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LETTER OF ADVICE FROM AMS AND HANTEC

adverse market conditions and fierce competition for raw fabric processing business faced by the Group, (iv) the Offer Price representing a premium of approximately 26.3% to the Pro Forma NAV per Share of the Group as at 30th November, 2001 and (v) the new Directors’ lack of relevant experience in management of business related to processing of raw fabric, we consider the terms of the Offer to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders that they should consider accepting the Offer. Those Independent Shareholders who wish to take this opportunity to realize part or all of their Shares should have regard to the market prices of the Share before the close of the Offer and should sell their Shares in the open market rather than accepting the Offer if the net proceeds from the sale of Shares in the open market after deducting all transaction costs are more than the net amount to be receivable under the Offer. However, Independent Shareholders should be aware that there may or may not be sufficient trading volume of the Shares in the open market for them to dispose of their Shares.

Independent Shareholders should also note that it is the intention of the Offeror to maintain the listing of the Shares on the Stock Exchange following the completion of the Offer. The Listing Rules require that not less than the prescribed percentage of any class of listed securities, being generally 25% of the listed securities of an issuer, are held by the public and should the percentage of the listed securities held by the public fall below 25%, the Stock Exchange has the discretion to suspend trading in such securities.

Yours faithfully,

For and on behalf of For and on behalf of AMS Corporate Finance Limited Hantec Capital Limited Jinny Mok Thomas Lai Director Director

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

1. SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the audited combined/consolidated results of the Group for the last five financial years ended 31st December, 2000.

Turnover Profit (loss) before taxation Taxation Profit (loss) attributable to Shareholders Minority Interests Profit (loss) attributable to Shareholders Dividend_(Note 2) Profit (loss) for the year Earning per Share – basic(Note 1) – diluted Dividend per Share (Note 2) _Notes:	1996 HK$’000 257,580 25,863 (107) 25,756 – 25,756 – 25,756 cents 17.17 N/A N/A	Year ended 31st December, 1997 1998 1999 HK$’000 HK$’000 HK$’000 250,495 293,690 212,907 35,725 46,454 31,982 (417) (6,113) (4,468) 35,308 40,341 27,514 – – – 35,308 40,341 27,514 – (39,000) (16,000) 35,308 1,341 11,514 cents cents cents 23.54 26.67 13.76 N/A N/A N/A N/A N/A 8.00	2000 HK$’000 124,742 (14,531) – (14,531) 930 (13,601) – (13,601) cents (6.80) N/A –

1. The Company was incorporated in Bermuda on 23rd September, 1998 and became the holding company of its subsidiaries with effect from 10th December, 1998 as a result of a group reorganisation for the purpose of listing of the Shares on the Stock Exchange. The results of the Group for the three years ended 31st December, 1998 were prepared as if the companies comprising the Group for that year had been in existence for that whole year, which are extracted from the accountants’ report prepared by Deloitte Touche Tohmatsu, the auditors of the Group, contained in the prospectus of the Company dated 15th December, 1998 and the Company’s annual report for the year ended 31st December, 1998. The calculation of the earnings per Share for the two years ended 31st December, 1997 is based on the profit attributable to Shareholders for the relevant periods and on the 150,000,000 Shares in issue immediately preceding the issue of the prospectus in connection with the corporate reorganisation in preparation for the listing of the Company’s Shares on the Stock Exchange.

2. In respect of the dividends of HK$39,000,000 declared and paid for the year ended 31st December, 1998, HK$35,000,000 was declared and paid by a subsidiary of the Company to its then shareholder prior to the group reorganisation in 1998 for the purpose of listing the Shares on the Stock Exchange, and the remaining HK$4,000,000 was declared and paid to the then Shareholders after the listing of the Shares. As such, the calculation of dividend per Share for the year ended 31st December, 1998 is not applicable for the purpose of this circular.

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

2. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31ST DECEMBER, 2000

Set out below is the audited financial statements of the Group for the year ended 31st December, 2000 as extracted from pages 17 to 35 of the annual report 2000 of the Company. References to page numbers are to page numbers of such annual report of the Company for the year ended 31st December, 2000.

A. Consolidated income statement

Notes Turnover Cost of sales Gross profit Other revenue Distribution costs Administrative expenses Other operating expenses 3 (Loss) profit from operations 4 Interest on bank borrowings wholly repayable within five years (Loss) profit before taxation Taxation 7 (Loss) profit before minority interests Minority interests (Loss) profit attributable to Shareholders 8 Dividend 9 (Loss) profit for the year (Loss) earnings per share 10

Year ended 31st December, 2000 1999 HK$’000 HK$’000 124,742 212,907 (122,968) (168,128) 1,774 44,779 3,288 2,561 (1,168) (1,099) (10,629) (12,856) (6,390) (794) (13,125) 32,591 (1,406) (609) (14,531) 31,982 – (4,468) (14,531) 27,514 930 – (13,601) 27,514 – (16,000) (13,601) 11,514 (6.80)cents 13.76 cents

There were no recognised gains or losses other than the (loss) profit for the year.

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

B. Consolidated balance sheet

		As at		As at
		**31st December, **	31st December,
		2000		1999
	Notes	HK$’000		HK$’000
Non-current assets
Property, plant and equipment	11	112,581		85,556
Deposits paid for the acquisition
of property, plant and equipment	12	–		8,464
Intangible assets	14	1,583		–
		114,164		94,020
Current assets
Inventories	15	16,328		17,824
Trade and other receivables	16	8,654		33,923
Taxation recoverable		107		80
Pledged bank deposit		–		5,167
Bank balances and cash		22,953		30,915
		48,042		87,909
Current liabilities
Trade and other payables	17	11,476		6,104
Amount due to a director	18	5,462		12,420
Loan from minority shareholder
of a subsidiary	19	3,595		–
Proposed dividend		–		16,000
Taxation payable		12,708		12,708
Bank borrowings — due within one year	20	8,957		10,023
		42,198		57,255
Net current assets		5,844		30,654
Total assets less current liabilities		120,008		124,674
Minority interests		6,935		–
Non-current liabilities
Bank borrowings — due after one year	20	2,000		–
		111,073		124,674
Capital and reserves
Share capital	21	20,000		20,000
Share premium	23	37,164		37,164
Accumulated profits	23	68,889		82,490
Special reserve	23	(14,980)		(14,980)
		111,073		124,674

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

C. Balance sheet

		As at		As at
		**31st December, **	31st December,
		2000		1999
	Notes	HK$’000		HK$’000
Non-current asset
Investments in subsidiaries	13	119,094		114,719
Current assets
Other receivables	16	147		–
Dividends receivable		–		21,000
Bank balances		3		96
		150		21,096
Current liabilities
Other payables	17	687		158
Proposed dividends		–		16,000
		687		16,158
Net current (liabilities) assets		(537)		4,938
		118,557		119,657
Capital and reserves
Share capital	21	20,000		20,000
Share premium	23	37,164		37,164
Accumulated profits	23	1,119		2,219
Contributed surplus	23	60,274		60,274
		118,557		119,657

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

D. Consolidated cash flow statement

Notes NET CASH INFLOW FROM OPERATING ACTIVITIES 24 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Dividend paid Interest paid Interest received NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE TAXATION Hong Kong Profits Tax paid Hong Kong Profits Tax refunded NET CASH OUTFLOW FROM TAXATION INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of technical know-how Purchase of trademarks Decrease (increase) in pledged bank deposit Proceeds from disposal of property, plant and equipment Deposits paid for acquisition of property, plant and equipment NET CASH OUTFLOW FROM INVESTING ACTIVITIES NET CASH (OUTFLOW) INFLOW BEFORE FINANCING

Year ended 31st December, 2000 1999 HK$’000 HK$’000 29,177 27,541 (16,000) (4,000) (1,406) (609) 3,188 2,354 (14,218) (2,255) (27) (654) – 355 (27) (299) (31,644) (7,590) (1,877) – (101) – 5,167 (5,167) 125 888 – (8,464) (28,330) (20,333) (13,398) 4,654

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

D. Consolidated cash flow statement (continued)

Notes FINANCING 25 Bank loan raised Capital contribution from minority shareholders Amount advanced from minority shareholder of a subsidiary Amount repaid to a director NET CASH INFLOW (OUTFLOW) FROM FINANCING (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Trust receipt loans	2000 HK$’000 8,000 7,865 3,595 (6,958) 12,502 (896) 20,892 19,996 22,953 (2,957) 19,996	1999 HK$’000 – – – (3,840) (3,840) 814 20,078 20,892 30,915 (10,023) 20,892

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APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Notes to the financial statements

1. General

The Company was incorporated on 23rd September, 1998 as an exempted company with limited liability in Bermuda under the Companies Act 1981 of Bermuda (as amended) and its shares have been listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) with effect from 29th December, 1998. Its ultimate holding Company is Feng Lin Holdings Limited (“Feng Lin”), a company which is incorporated in the British Virgin Islands. The principal activities of the Company’s subsidiaries are set out in note 31 to the financial statements.

2. Significant accounting policies

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

Basis of consolidation

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

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

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary and is written off to reserves immediately on acquisition. Negative goodwill, which represents the excess of the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary over the purchase consideration is credited to reserves.

On disposal of a subsidiary, the attributable amount of goodwill previously eliminated against or credited to reserves is included in the determination of the profit or loss on disposal of the subsidiary.

Investment in subsidiaries

A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body.

Investments in subsidiaries are included in the Company’s balance sheet at cost, as reduced by any decline in value of the subsidiary that is other than temporary.

– 30 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Turnover

Turnover represents the net amounts received and receivable for goods sold by the Group to outside customers during the year, less returns and allowances.

Revenue recognition

Sale of goods is recognised when goods are delivered and title has passed.

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

Property, plant and equipment

Property, plant and equipment is stated at cost less depreciation and amortisation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset.

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

Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of assets, expected future cash flows are not discounted to their present values.

Depreciation and amortisation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land	2% or over the remaining period of
	the leases, if shorter
Leasehold buildings	Over the estimated useful lives of 50
	years or the period of the leases,
	if shorter
Leasehold improvements	20%
Plant and machinery	12%
Furniture, fixtures and equipment	20%
Motor vehicles	20 – 25%

Technical know-how

Technical know-how is stated at cost less amortisation and impairment loss that is other than temporary. The cost of technical know-how is amortised on a straight line basis over its expected useful life of five years.

– 31 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Trademarks

Trademarks are stated at cost less amortisation and provision for permanent diminution in value, if necessary. Amortisation is calculated to write off the cost of trademarks over a period of five years, using the straight line method.

Research and development costs

Expenditure on research and development is charged to the income statement in the year in which it is incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and where applicable, costs of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable 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.

Pension scheme

The amount of contributions payable to the state-managed pension schemes in the mainland People’s Republic of China (the “PRC”) are charged to the income statement when they become payable.

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated at the rates ruling on the dates of the transactions or at the contracted settlement rate. Monetary assets and liabilities denominated in currencies other than Hong Kong dollars are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

On consolidation, the financial statements of overseas operations which are denominated in currencies other than Hong Kong dollars are translated at the rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in reserves.

Taxation

The charge for taxation is based on the results for the year after adjusting for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Operating leases

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

– 32 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Cash equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which are within three months of maturity when acquired, less advances from banks which are repayable within three months from the dates of the advances.

3. Other operating expenses

Other operating expenses comprise the followings:

Loss on disposal of property, plant and equipment Provision for doubtful debts (Loss) profit from operations (Loss) profit from operations has been arrived at after charging: Amortisation of intangible assets Auditors’ remuneration – Current year – Underprovision in prior years Staff costs, including directors’ emoluments Depreciation and amortisation of property, plant and equipment Loss on disposal of property, plant and equipment Operating lease rentals payable in respect of land and buildings Research and development expenditure and after crediting: Interest income from bank deposits	2000 HK$’000 3,393 2,997 6,390 2000 HK$’000 395 504 29 9,120 9,565 3,393 1,302 3,887 3,188	1999 HK$’000 794 –
		794
		1999 HK$’000 – 458 72 14,708 8,412 794 1,379 – 2,354

4. (Loss) profit from operations

– 33 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

5. Directors’ emoluments

Fees: Executive directors Independent non-executive directors Other emoluments of executive directors: Basic salaries and allowances	2000 HK$’000 – 156 2,613 2,769	1999 HK$’000 – 240 2,438
		2,678

The emoluments of each of the Company’s directors were below HK$1,000,000 for each of the two years ended 31st December, 2000.

6. Employees’ emoluments

Of the five highest paid individuals in the Group, all (1999: four) were executive directors of the Company whose emoluments are included in note 5 above. The emoluments of the remaining one highest paid individual in 1999 were as follows:

	2000	1999
	HK$’000	HK$’000
Basic salaries and allowances	–	418

During the year, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office. In addition, none of the directors has waived any emoluments during the year.

7. Taxation

The charge comprises: Hong Kong Profits Tax calculated at 16% on the estimated assessable profit PRC enterprise income tax	2000 HK$’000 – – –	1999 HK$’000 215 4,253
		4,468

A substantial portion of the Group’s profit neither arises in, nor is derived from, Hong Kong. Accordingly, that portion of the Group’s profit is not subject to Hong Kong Profits Tax.

– 34 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Pursuant to the relevant laws and regulations in the PRC, the Company’s PRC subsidiaries are entitled to exemption from PRC enterprise income tax for two years commencing from its first profit-making year of operation, followed by a 50 per cent reduction in PRC enterprise income tax for the next three years. No provision for PRC enterprise income tax has been made in the financial statements as the Company’s PRC subsidiaries had no assessable profit for the current year. The charge for the year ended 31st December, 1999 represented provision for PRC enterprise income tax at the reduced rate of 12% on a PRC subsidiary’s estimated assessable profit.

The Group and the Company had no significant unprovided deferred taxation for the year or at the balance sheet date.

8. (Loss) profit attributable to Shareholders

Of the Group’s (loss) profit attributable to Shareholders for the year, a loss of approximately HK$1,100,000 (1999: profit of HK$17,900,000) has been dealt with in the financial statements of the Company.

9. Dividend

The dividend in 1999 represented a proposed final dividend of HK8 cents per share calculated by reference to 200,000,000 ordinary shares in issue.

10. (Loss) earnings per Share

The calculation of the (loss) earnings per Share is based on the loss attributable to Shareholders of HK$13,601,000 (1999: profit of HK$27,514,000) and on 200,000,000 (1999: 200,000,000) shares in issue during the year.

– 35 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

11. Property, plant and equipment

Leasehold Leasehold Furniture, land and improve- Plant and fixtures and buildings ments machinery equipment HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP COST At 1st January, 2000 51,692 851 56,972 3,863 Additions 3,017 – 36,451 638 Disposals – – (7,614) (52) At 31st December, 2000 54,709 851 85,809 4,449 DEPRECIATION AND AMORTISATION At 1st January, 2000 3,923 658 21,686 2,548 Provided for the year 1,084 93 7,600 646 Eliminated on disposals – – (4,148) – At 31st December, 2000 5,007 751 25,138 3,194 NET BOOK VALUE At 31st December, 2000 49,702 100 60,671 1,255 At 31st December, 1999 47,769 193 35,286 1,315	Motor vehicles HK$’000 3,151 2 – 3,153 2,158 142 – 2,300 853 993	Total HK$’000 116,529 40,108 (7,666
		148,971
		30,973 9,565 (4,148
		36,390
		112,581
		85,556

The leasehold land and buildings of the Group are situated in the PRC and are held under medium term leases.

12. Deposits paid for the acquisition of property, plant and equipment

The deposits were paid in 1999 by the Group in connection with the establishment of the production facilities for snack food in the PRC. The deposits were transferred to property, plant and equipment during the year.

13. Investments in subsidiaries

Unlisted shares Amounts due from subsidiaries	2000 HK$’000 75,274 43,820 119,094	1999 HK$’000 75,274 39,445
		114,719

– 36 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

The carrying value of the unlisted shares is based on the directors’ estimate of the underlying net assets of the subsidiaries at the time these subsidiaries were acquired by the Company.

Particulars of the Company’s subsidiaries at 31st December, 2000 are set out in note 31.

The amounts due from subsidiaries are unsecured, non-interest bearing and are repayable after one year.

14. Intangible assets

	Technical
	know-how	Trademarks	Total
	HK$’000	HK$’000	HK$’000
THE GROUP
COST
Acquired during the year and
at 31st December, 2000	1,877	101	1,978
AMORTISATION
Provided for the year and
at 31st December, 2000	375	20	395
NET BOOK VALUE
At 31st December, 2000	1,502	81	1,583
Inventories
		THE GROUP
		2000	1999
		HK$’000	HK$’000
Raw materials		6,327	16,115
Work in progress		3,372	829
Finished goods		6,629	880
		16,328	17,824

15. Inventories

At 31st December, 2000, all inventories were carried at cost. At 31st December, 1999, included in the above are raw materials of HK$1,260,000 and finished goods of HK$442,000 which were carried at net realisable value.

– 37 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

16. Trade and other receivables

The Group allows an average credit period of 45 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

Trade receivables 0 to 30 days 31 to 60 days Over 60 days Other receivables	THE GROUP 2000 1999 HK$’000 HK$’000 2,076 2,207 3,133 13,013 1,443 16,840 6,652 32,060 2,002 1,863 8,654 33,923	THE COMPANY 2000 1999 HK$’000 HK$’000 – – – – – – – – 147 – 147 –	THE COMPANY 2000 1999 HK$’000 HK$’000 – – – – – – – – 147 – 147 –
			– –
			–

17. Trade and other payables

The following is an aged analysis of trade payables at the balance sheet date:

Trade payables 0 to 30 days 31 to 60 days Over 60 days Other payables	THE GROUP 2000 1999 HK$’000 HK$’000 691 7 622 9 211 800 1,524 816 9,952 5,288 11,476 6,104	THE COMPANY 2000 1999 HK$’000 HK$’000 – – – – – – – – 687 158 687 158	THE COMPANY 2000 1999 HK$’000 HK$’000 – – – – – – – – 687 158 687 158
			– 158
			158

18. Amount due to a director

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

19. Loan from minority shareholder of a subsidiary

The loan from the minority shareholder of a subsidiary is unsecured, non-interest bearing and repayable on demand.

– 38 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

20. Bank borrowings

	THE GROUP
	2000 1999
	HK$’000 HK$’000
Trust receipt loans	2,957 10,023
Bank loan	8,000 –
	10,957 10,023
The borrowings are repayable as follows:
	THE GROUP
	2000 1999
	HK$’000 HK$’000
Within one year or on demand	8,957 10,023
Between one to two years	2,000 –
	10,957 10,023
Less: Amounts due within one year shown
under current liabilities	(8,957) (10,023)
Amounts due after one year	2,000 –
Share capital
	Number of
ordinary shares Value
	HK$’000
Authorised:
At 1st January, 1999, 31st December, 1999
and 31st December, 2000	1,000,000,000 100,000
Issued and fully paid:
At 1st January, 1999, 31st December, 1999
and 31st December, 2000	200,000,000 20,000

21. Share capital

– 39 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

22. Share option scheme

Pursuant to the share option scheme of the Company adopted on 10th December, 1998 (the “Scheme”), the directors of the Company may grant options to any executive director or full time employee of the Company or any of its subsidiaries to subscribe for shares in the Company at a price not less than the higher of the nominal value of the Company’s shares and 80% of the average of the closing prices of the Company’s shares on the Stock Exchange for the five trading days immediately preceding the date of grant of the options, subject to a maximum of 10% of the issued share capital of the Company from time to time.

No option has been granted or agreed to be granted under the Scheme since its adoption.

23. Reserves

Share premium Contributed account surplus HK$’000 HK$’000 THE GROUP At 1st January, 1999 37,164 – Profit attributable to Shareholders – – Dividends_(note 9) – – At 31st December, 1999 37,164 – Loss attributable to Shareholders – – At 31st December, 2000 37,164 – THE COMPANY At 1st January, 1999 37,164 60,274 Profit for the year(note 8) – – Dividends(note 9) – – At 31st December, 1999 37,164 60,274 Loss for the year(note 8)_ – – At 31st December, 2000 37,164 60,274	Special Accumulated reserve profits HK$’000 HK$’000 (14,980) 70,976 – 27,514 – (16,000) (14,980) 82,490 – (13,601) (14,980) 68,889 – 319 – 17,900 – (16,000) – 2,219 – (1,100) – 1,119	Total HK$’000 93,160 27,514 (16,000
		104,674 (13,601
		91,073
		97,757 17,900 (16,000
		99,657 (1,100
		98,557

The special reserve represents the difference between the nominal value of the shares of the subsidiaries acquired and the nominal value of the Company’s shares issued for the acquisition at the time of a group reorgansiation in 1998.

The contributed surplus represents the difference between the consolidated shareholders’ funds of the subsidiaries and the nominal value of the Company’s shares issued for the acquisition at the time of a group reorganisation in 1998.

– 40 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

In addition to accumulated profits, under the Companies Act 1981 of Bermuda (as amended), contributed surplus is also available for distribution to Shareholders. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:

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

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

In the opinion of the directors, the Company’s reserves available for distribution to Shareholders at 31st December, 2000 consisted of contributed surplus and accumulated profits totalling HK$61,393,000 (1999: HK$62,493,000).

24. Reconciliation of (loss) profit before taxation to net cash inflow from operating activities

(Loss) profit before taxation Interest expense Interest income Depreciation and amortisation Amortisation of intangible assets Loss on disposal of property, plant and equipment Provision for doubtful debts Decrease in inventories Decrease (increase) in trade and other receivables Increase (decrease) in trade and other payables Net cash inflow from operating activities	2000 HK$’000 (14,531) 1,406 (3,188) 9,565 395 3,393 2,997 1,496 22,272 5,372 29,177	1999 HK$’000 31,982 609 (2,354) 8,412 – 794 – 16,637 (19,099) (9,440) 27,541

– 41 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

25. Analysis of changes in financing during the year

Loan from minority shareholder of Bank loan a subsidiary HK$’000 HK$’000 At 1st January, 1999 – – Repayments during the year – – At 31st December, 1999 – – Borrowings raised 8,000 3,595 Repayments during the year – – Capital contributed by minority shareholders – – Share of losses by minority shareholders – – At 31st December, 2000 8,000 3,595	Minority interests HK$’000 – – – – – 7,865 (930) 6,935	Amount due to a director HK$’000 16,260 (3,840)
		12,420 – (6,958) – –
		5,462

26. Banking facilities

At 31st December, 2000, the Group’s banking facilities were secured by the following:

• (i) corporate guarantee of the Company to the extent of HK$31,100,000 (1999:HK$15,000,000); and

• (ii) personal guarantee given by certain directors of the Company.

At 31st December, 1999, the Group pledged bank deposits of HK$5,167,000 to a bank to secure general banking facilities granted by the bank to the Group. This security was released by the bank during the year.

27. Operating lease commitments

At the balance sheet date, the Group had outstanding commitments payable within the next year under non-cancellable operating leases for land and buildings as follows:

Operating leases which expire: Within one year In the second to fifth year inclusive	THE GROUP 2000 1999 HK$’000 HK$’000 292 – 1,171 1,202 1,463 1,202	THE GROUP 2000 1999 HK$’000 HK$’000 292 – 1,171 1,202 1,463 1,202
		1,202

The Company had no operating lease commitment at the balance sheet date.

– 42 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

28. Capital commitments

At the balance sheet date, the Group and the Company had the following capital commitments:

Capital expenditure in respect of the acquisition of property, plant and equipment contracted for but not provided in the financial statements Capital investment in respect of capital contribution in a subsidiary	THE GROUP 2000 1999 HK$’000 HK$’000 – 19,535 THE COMPANY 2000 1999 HK$’000 HK$’000 3,920 –

29. Pension scheme

The Company’s PRC subsidiary is required under the relevant regulations in Guangdong Province to set up a retirement benefits scheme for its employees. The relevant regulations were put into effect commencing on 1st July, 1998. The retirement benefits scheme was set up by the Company’s PRC subsidiary in accordance with the relevant regulations in December 1998. Under the scheme, the Company’s PRC subsidiary has to contribute 13% of the basic salaries of its employees to the retirement benefits scheme. During the year, the Group contributed approximately HK$133,000 (1999: HK$522,000) to the scheme.

Other than the above, the Company and its subsidiaries in Hong Kong and the PRC do not provide any other retirement benefits to their local permanent employees.

30. Related party transaction

During the year, the Group paid an agency fee of approximately HK$30,000 (1999: HK$134,000) to Sunico (H.K.) Limited (“Sunico”) in return for agency and letter of credit handling services. The fees were calculated at 1% of the value of transactions handled by Sunico. Mr. Tsoi Hon Chung, a director of the Company, has beneficial interest in Sunico.

Details of balances with related parties are set out in notes 18 and 19.

Details of guarantees given by related parties to the Company are set out in note 26.

– 43 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

31. Particulars of subsidiaries

Particulars of the subsidiaries of the Company as at 31st December, 2000 are as follows:

			Proportion of
		Issued and	nominal value of
	Place of	fully paid	issued capital/
	incorporation/	share capital/	registered capital held
Name of subsidiary	establishment	registered capital	by the Company	Principal activities
Cai Yi Feng Trading Limited	Hong Kong	HK$10,000	100%	Sourcing of raw
		ordinary shares		materials
Chaoyang Hua Long Textiles	PRC	US$6,000,000	100%	Fabric processing and
and Dyeing Limited		registered capital		manufacturing
Hanover Garments Limited	British Virgin	US$1	100%	Selling of finished
	Islands	ordinary share		fabric in the PRC
Hua Loong Textiles Limited	Hong Kong	HK$10,000	100%	Investment holding
		ordinary shares
Hua Loong Textiles Trading	Korea	50,000,000	100%	Inactive
(Korea) Company Limited		Korean Won
		ordinary shares
Park Well International	British Virgin	US$6	100%	Investment holding
Group Ltd. (“Park Well”)	Islands	ordinary shares
Transfit Garments Limited	British Virgin	US$1	100%	Trading of fabric in
	Islands	ordinary share		Hong Kong and
				the PRC
VCL Business Development	USA	US$1,000	100%	Holding of trademarks
(USA) Inc.		common stocks
Vastco (H.K.) Limited	Hong Kong	HK$10	100%	Investment holding
		ordinary shares
Vastco (Shantou F.T.Z.)	PRC	RMB42,000,000	80%	Manufacture and sale
Industrial Ltd.		registered capital		of snack foods
				in the PRC
Ying Wing (HK) Limited	Hong Kong	HK$10	100%	Trading of fabric
		ordinary shares

Notes:

1. The Company directly holds the interest in Park Well. All other interests shown above are indirectly held by the Company.

2. The principal activities are carried out in place of incorporation/establishment except as otherwise stated under principal activities above.

– 44 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.

32. Segment information

The Group’s turnover and segmental result for the year ended 31st December, 2000, analysed by principal activity, were as follows:

By principal activity: Processing of raw fabric and the sale of finished fabric Trading of fabric Manufacture and sale of snack food Add: Interest income — net (Loss) profit before taxation	Turnover 2000 1999 HK$’000 HK$’000 99,911 179,664 23,825 33,243 1,006 – 124,742 212,907	Contribution to (loss) profit 2000 1999 HK$’000 HK$’000 (7,099) 28,881 (1,126) 1,356 (8,088) – (16,313) 30,237 1,782 1,745 (14,531) 31,982	Contribution to (loss) profit 2000 1999 HK$’000 HK$’000 (7,099) 28,881 (1,126) 1,356 (8,088) – (16,313) 30,237 1,782 1,745 (14,531) 31,982
			30,237 1,745
			31,982

All of the activities of the Group are based in the PRC and more than 90% of the Group’s turnover and operating results are derived from the PRC.

– 45 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

3. UNAUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30TH JUNE, 2001

Set out below is the unaudited financial statements of the Group for the six months ended 30th June, 2001 as extracted from pages 6 to 13 of the interim report 2001 of the Company. References to page numbers are to page numbers of such interim report of the Company for the six months ended 30th June, 2001.

A. Condensed consolidated income statement

		Six months ended 30th June,	Six months ended 30th June,	Six months ended 30th June,
		2001		2000
		(Unaudited)	(Unaudited)
	Notes	HK$’000		HK$’000
Turnover	2	16,518		64,402
Cost of sales		(15,969)		(57,051)
Gross profit		549		7,351
Other revenue		824		1,095
Distribution costs		(2,868)		(299)
Administrative expenses		(4,529)		(5,384)
Other operating expenses	3	(5,849)		–
(Loss) profit from operations		(11,873)		2,763
Interest on banking borrowings wholly
repayable within five years		(613)		(626)
(Loss) profit before taxation		(12,486)		2,137
Taxation	5	–		(100)
(Loss) profit before minority interests		(12,486)		2,037
Minority interests		434		–
(Loss) profit attributable to Shareholders		(12,052)		2,037
Dividend	6	–		–
(Loss) earnings per share	7	(6.0 cents)		1.0 cent

As there are no recognized gains and losses other than the (loss) profit for the period, no separate statement of recognized gains and losses has been presented.

– 46 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

B. Condensed consolidated balance sheet

		As at		As at
		**30th June, **	31st December,
		2001		2000
		(Unaudited)		(Audited)
	Notes	HK$’000		HK$’000
Non-current assets
Property, plant and equipment		105,287		112,581
Intangible assets		1,419		1,583
		106,706		114,164
Current assets
Inventories		12,988		16,328
Trade and other receivables	8	12,346		8,654
Taxation recoverable		–		107
Bank balances and cash		15,563		22,953
		40,897		48,042
Current liabilites
Trade and other payables	9	12,815		11,476
Amount due to a director		2,473		5,462
Loan from minority shareholder
of a subsidiary		–		3,595
Taxation payable		12,708		12,708
Bank borrowings – due within one year	10	14,086		8,957
		42,082		42,198
Net current (liabilities) assets		(1,185)		5,844
Total assets less current liabilities		105,521		120,008
Minority interests		6,500		6,935
Non-current liabilities
Bank borrowings – due after one year	10	–		2,000
		99,021		111,073
Capital and reserves
Share capital	11	20,000		20,000
Share premium	12	37,164		37,164
Special reserve	12	(14,980)		(14,980)
Accumulated profits	12	56,837		68,889
		99,021		111,073

– 47 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

C. Condensed consolidated cash flow statement

	Six months
	ended
	30th June, 2001
	(Unaudited)
	HK$’000
NET CASH OUTNFLOW FROM OPERATING ACTIVITIES	(4,615)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received	789
Interest paid	(613)
NET CASH INFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE	176
TAXATION
Hong Kong Profits Tax refunded	107
NET CASH INFLOW FROM TAXATION	107
INVESTING ACTIVITIES
Purchase of property, plant an equipment	(15)
Purchase of trademarks	(38)
Proceeds from disposal of property, plant and equipment	449
NET CASH INFLOW FROM INVESTING ACTIVITIES	396
NET CASH OUTFLOW BEFORE FINANCING	(3,936)
FINANCING
Bank loan raised	3,081
Amount repaid to a minority shareholder of a subsidiary	(3,594)
Amount repaid to a director	(2,989)
NET CASH OUTFLOW FROM FINANCING	(3,502)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(7,438)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	19,996
CASH AND CASH EQUIVALENTS AT END OF PERIOD	12,558
ANALYSIS OF THE BALANCES OF CASH AND
CASH EQUIVALENTS
Bank balances and cash	15,563
Trust receipt loans	(2,985)
Bank overdrafts	(20)
	12,558

– 48 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Notes to the condensed financial statements

1. Principal accounting policies and basis of preparation

The condensed financial statements have been prepared in accordance with Statement of Standard Accounting Practice 25, “Interim Financial Reporting,” issued by the Hong Kong Society of Accountants (“SSAP 25”), except that comparative figures have not been presented for the first cash flow statement included in the interim financial statements relating to accounting periods ending on or after 1st July, 2000. Such departure from SSAP 25 is permitted under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The accounting policies adopted in the preparation of these condensed financial statements are consistent with those followed in the Group’s annual financial statements for the year ended 31st December, 2000.

2. Segmental information

The Group’s turnover and segmental result for the six months ended 30th June, 2001, analyzed by principal activity, were as follows:

By principal activity: Processing of raw fabric and sale of finished fabric Trading of fabric Manufacture and sale of snack food Add: Interest income - net (Loss) profit before taxation	Turnover Six months ended 30th June, 2001 2000 HK$’000 HK$’000 6,164 48,603 – 15,799 10,354 – 16,518 64,402	Contribution to (loss) profit before taxation Six months ended 30th June, 2001 2000 HK$’000 HK$’000 (10,438) 2,237 – (435) (2,224) – (12,662) 1,802 176 335 (12,486) 2,137

All of the activities of the Group are based in the mainland People’s Republic of China (the “PRC”) and more than 90% of the Group’s turnover and operating results are derived from the PRC.

– 49 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

3. Other operating expenses

	Six months ended 30th June,	Six months ended 30th June,
	2001	2000
	HK$’000	HK$’000
Other operating expenses comprise the followings:
Provision for doubtful debts	4,975	–
Loss on disposal of property, plant and equipment	874	–
	5,849	–

4. Depreciation and amortisation

During the period, depreciation and amortisation of HK$5,985,000 (2000: HK$3,014,000) were charged in respect of the Group’s property, plant and equipment and amortisation of HK$202,000 (2000:Nil) was charged in respect of the Group’s intangible assets.

5. Taxation

No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong during the six months ended 30th June, 2001 and the corresponding period last year.

Pursuant to the relevant laws and regulations in the PRC, the Company’s PRC subsidiaries are entitled to exemption from PRC enterprise income tax for two years commencing from their first profit-making year of operation, followed by a 50 per cent reduction in PRC enterprise income tax for the next three years. No provision for the PRC enterprise income tax has been made in the financial statements as the Company’s PRC subsidiaries had no assessable profits for the current period. The charge for the six months ended 30th June, 2000, which amounted to HK$100,000, represented provision for PRC enterprise income tax at the reduced rate of 12% on a PRC subsidiary’s estimated assessable profit for that period.

The Group had no significant unprovided deferred taxation for the period or at the balance sheet date.

6. Dividend

The Directors have resolved not to declare an interim dividend for the six months ended 30th June, 2001 (2000: Nil).

7. (Loss) earnings per share

The calculation of the (loss) earnings per share is based on the loss attributable to Shareholders of HK$12,052,000 (2000: profit of HK$2,037,000) and on 200,000,000 (2000: 200,000,000) shares in issue during the period.

– 50 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

8. Trade and other receivables

The Group allows an average credit period of 45 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

	30th June,	31st December,
	2001	2000
	HK$’000	HK$’000
Trade receivables
0 to 30 days	4,965	2,076
31 to 60 days	611	3,133
Over 60 days	773	1,443
	6,349	6,652
Other receivables	5,997	2,002
	12,346	8,654

9. Trade and other payables

The following is an aged analysis of trade payables at the balance sheet date:

	30th June,	31st December,
	2001	2000
	HK$’000	HK$’000
Trade payables
0 to 30 days	791	691
31 to 60 days	538	622
Over 60 days	3,166	211
	4,495	1,524
Other payables	8,320	9,952
	12,815	11,476

– 51 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

10. Bank borrowings

	30th June,	31st December,
	2001	2000
	HK$’000	HK$’000
Bank borrowings comprise:
Trust receipt loans	2,985	2,957
Bank loans	11,081	8,000
Bank overdrafts	20	–
	14,086	10,957
The borrowings are repayable as follows:
Within one year	14,086	8,957
Between one to two years	–	2,000
	14,086	10,957

A bank loan of Renminbi 3 million, equivalent to approximately HK$2.8 million, was secured by the Group’s land and buildings in the PRC with a total net book value of approximately HK$7.2 million at the balance sheet date.

11. Share capital

There were no movements in the share capital of the Company in either the current or the prior interim reporting period.

12. Reserves

Reserves
At 1st January, 2001 Loss attributable to Shareholders At 30th June, 2001	Share premium HK$’000 37,164 37,164	Special Accumulated reserve profits HK$’000 HK$’000 (14,980) 68,889 (12,052) (14,980) 56,837	Total HK$’000 91,073 (12,052)
			79,021

13. Related party transactions

There were no related party transactions during the period. During the six months ended 30th June, 2000, the Group paid an agency fee of HK$15,000 to a company in which Mr. Tsoi Hon Chung, a director of the Company, has beneficial interest.

14. Comparative figures

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

– 52 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

4. UNAUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE 11 MONTHS ENDED 30TH NOVEMBER, 2001

A. Unaudited consolidated income statement

Unaudited consolidated income statement
		11 months ended
		30th November, 2001
	Notes	HK$’000
Turnover	1	38,557
Cost of sales		(46,234)
Gross loss		(7,677)
Other revenue		836
Distribution costs		(7,121)
Administrative expenses		(11,213)
Other operating expenses	2	(20,629)
Loss from operations		(45,804)
Interest on bank borrowings wholly
repayable within five years		(1,132)
Loss before taxation		(46,936)
Taxation	3	–
Loss before minority interests		(46,936)
Minority interests		1,537
Loss attributable to Shareholders	4	(45,399)
Notes:
1. Turnover
Snack Food Business Companies		25,017
Fabric Group		13,540
		38,557
2. Other Operating expenses
Loss on disposal of fixed assets		11,654
Bad debt written off		4,975
Provision for doubtful debts		4,000
		20,629

– 53 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

3. Taxation

No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong during the 11 months ended 30th November, 2001.

No provision for the PRC enterprise income tax has been made as the Company’s PRC subsidiaries had no assessable profits for the 11 months ended 30th November, 2001.

The Group had no significant unprovided deferred taxation for the period or at the balance sheet date.

4. Loss attributable to Shareholders

Snack Food Business Companies Fabric Group	22,630 22,769
	45,399

5. Depreciation and amortisation

During the period, depreciation and amortisation of HK$8,978,000 was charged in respect of the Group’s property, plant and equipment and amortisation of HK$1,583,000 was charged in respect of the Group’s intangible assets.

– 54 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

B. Unaudited consolidated balance sheet

		As at
		30th November, 2001
	Notes	HK$’000
Non-current assets
Property, plant and equipment		99,961
Current assets
Inventories		4,317
Trade and other receivables	2	20,782
Bank balances and cash		341
		25,440
Current liabilites
Trade and other payables	3	21,569
Amount due to a director		48
Taxation payable		12,656
Bank borrowings – due within one year	4	20,057
		54,330
Net current liabilities		(28,890)
Total assets less current liabilities		71,071
Minority interests		5,397
		65,674
Capital and reserves
Share capital		20,000
Share premium	5	37,164
Special reserve	5	(14,980)
Accumulated profits	5	23,490
		65,674

Notes:

1. Principal accounting policies and basis of preparation

The accounting policies adopted in the preparation of this unaudited balance sheet are consistent with those followed in the Group’s audited annual financial statements for the year ended 31st December, 2000.

– 55 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

2. Trade and other receivables

During the period, the Group allows an average credit period of 90 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

Trade receivables 0 to 30 days 31 to 60 days Over 60 days Other receivables 3. Trade and other payables The following is an aged analysis of trade payables at the balance sheet date: Trade payables 0 to 30 days 31 to 60 days Over 60 days Other payables 4. Bank borrowings Bank borrowings comprise: Trust receipt loans Bank loans Bank overdrafts	HK$’000 13,540 6,036 –
	19,576 1,206
	20,782
	HK$’000 13,005 1,059 –
	14,064 7,505
	21,569
	HK$’000 2,951 17,094 12
	20,057

All the bank borrowings are repayable within one year.

Bank loans of Renminbi 9 million, equivalent to approximately HK$9.6 million, were secured by the Group’s land and buildings in the PRC.

– 56 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

5. Reserves

At 1st January, 2001 Loss attributable to Shareholders At 30th November, 2001	Share premium account HK$’000 37,164 – 37,164	Special Accumulated reserve profits HK$’000 HK$’000 (14,980) 68,889 – (45,399) (14,980) 23,490	Special Accumulated reserve profits HK$’000 HK$’000 (14,980) 68,889 – (45,399) (14,980) 23,490
			23,490

– 57 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

• C. Comfort letters from Deloitte Touche Tohmatsu, Kim Eng and Boomwell

• (1) Deloitte Touche Tohmatsu

==> picture [178 x 52] intentionally omitted <==

==> picture [71 x 49] intentionally omitted <==

25th March, 2002

The Directors

Ying Wing Holdings Limited Kim Eng Capital (Hong Kong) Limited Boomwell Investments Limited

Dear Sirs,

We have reviewed the unaudited results of Ying Wing Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for the 11 months ended 30th November, 2001 for which the directors of the Company are solely responsible. The unaudited results are set out in the section headed “Unaudited consolidated income statement for the 11 months ended 30th November, 2001” in appendix I to the Company’s circular dated 25th March, 2002 (the “Circular”).

Our review of the unaudited results was conducted in accordance with the International Standard on Auditing applicable to review engagements and consisted of applying analytical procedures to the underlying financial data, assessing whether accounting policies have been consistently applied and making inquiries of management. Our review was substantially less in scope than an audit performed in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, and, accordingly, we express no opinion as to whether the unaudited results give a true and fair view of the state of affairs of the Group as at 30th November, 2001 and of the results of the Group for the period then ended.

– 58 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Based on our review:

• so far as the accounting policies and arithmetic calculation are concerned, the unaudited results for the 11 months ended 30th November, 2001 have been prepared on a basis consistent in all material respects with the accounting policies normally adopted by the Group; and

• we are not aware of any material modifications that are required to be made to the unaudited results as presented in the Circular.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 59 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

(2) Kim Eng and Boomwell

KIM ENG

Boomwell Investments Limited

C A P I T A L

Kim Eng Capital (Hong Kong) Limited

8th Floor, Alexandra House 16-20 Chater Road, Central, Hong Kong

18th Floor, Wilson House 19-27 Wyndham Street, Central, Hong Kong

25th March, 2002

The Directors Ying Wing Holdings Limited Room 3101, 31st Floor Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We refer to the unaudited consolidated income statement of the Group for the period from 1st January, 2001 to 30th November, 2001 (the “Unaudited Consolidated Income Statement”) as set out in the section headed “Unaudited consolidated income statement for the 11 months ended 30th November, 2001” in appendix I to the circular dated 25th March, 2002 issued by the Company in connection with the Offer (the “Circular”). Terms used in this letter shall have the same meanings as terms defined in the Circular unless otherwise stated.

We have reviewed the Unaudited Consolidated Income Statement and have also considered the letter dated 25th March, 2002 addressed to yourselves from Deloitte Touche Tohmatsu, the auditors of the Group, regarding the review preformed by them in respect of the accounting policies and calculations adopted by the Directors in preparation of the Unaudited Consolidated Income Statement. The preparation of the Unaudited Consolidated Income Statement is the sole responsibility of and has been approved by the Directors.

Based on the above, we are satisfied that the Unaudited Consolidated Income Statement have been prepared by the Directors after due care and consideration.

Yours faithfully,	Yours faithfully,
For and on behalf of	For and on behalf of
Kim Eng Capital (Hong Kong) Limited	Boomwell Investments Limited
Michael Chum	Raymond Sun
Director	Director

– 60 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

5. STATEMENT OF PROFORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSET VALUE OF THE GROUP UPON COMPLETION OF THE SALE AND PURCHASE AGREEMENT AND THE DISPOSAL AGREEMENT

The following statement of the proforma unaudited adjusted consolidated net tangible asset value of the Group upon completion of the Sale and Purchase Agreement and the Disposal Agreement is prepared based on the audited consolidated net asset value of the Group as at 31st December, 2000.

HK$’000 Audited consolidated net asset value of the Group as at 31st December, 2000 Unaudited consolidated net loss attributable to Shareholders of the Group for the 11 months ended 30th November, 2001 Pro forma unaudited adjusted consolidated net asset value of the Group before the Disposal Consideration for the Disposal satisfied by repayment of certain liabilities of the Fabric Group Pro forma unaudited combined net asset value of the Snack Food Business Companies as at 31st December, 2000 (75,730) Dividend paid by one of the Snack Food Business Companies to its immediate holding company 28,500 Pro forma unaudited combined net loss of the Snack Food Business Companies for the 11 months ended 30th November, 2001_(Note 1) 22,630 Pro forma unaudited combined net tangible asset value of the Snack Food Business Companies as at 30th November, 2001 Profit / Loss on the Disposal Surplus arising from the revaluation of the Fabric Group’s land and buildings as at 31st December, 2001(Note 2) Pro forma unaudited adjusted consolidated net tangible asset value of the Group upon completion of the Disposal Pro forma unaudited adjusted consolidated net tangible asset value per Share of the Group upon completion of the Disposal(Note 3)_	HK$’000 24,600 (24,600)	HK$’000 111,073 (45,399) 65,674 – 523 66,197 HK$0.331

– 61 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Notes:

1. The pro forma unaudited combined net loss of the Snack Food Business Companies for the 11 months ended 30th November, 2001 includes the written off of intangible assets of the Snack Food Business Companies of approximately HK$1,583,000. Such intangible assets were the cost of technical knowhow and trademarks.

2. Based on the valuation of the Fabric Group’s land and buildings by an independent valuer, Castores Magi Surveyors Limited, the report of which is set out in appendix II to this circular, a surplus amounting to approximately HK$522,657 has arisen on the revaluation of the Fabric Group’s land and buildings as at 31st December, 2001. The Directors have confirmed that it is the accounting policy of the Group not to incorporate such surplus into the Group’s financial statements for the year ended 31st December, 2001.

3. The calculation of pro forma unaudited adjusted consolidated net tangible asset value per Share is based on 200,000,000 Shares in issue as at the Latest Practicable Date.

6. INDEBTEDNESS STATEMENT

Borrowings

At the close of business on 31st January, 2002, being the latest practicable date prior to the printing of this circular for the purpose of this indebtedness statement, the Group had the following outstanding borrowings:

Short-term bank loans – secured Trust receipt loans – secured Due to a director Bank overdraft	HK$’000 16,954 2,950 757 12
	20,673

Contingent liabilities

As at the close of business on 31st January, 2002, the Group had no material contingent liabilities.

– 62 –

APPENDIX I FINANCIAL INFORMATION REGARDING THE GROUP

Securities and guarantees

As at 31st January, 2002, the Group’s banking facilities were secured by the followings:

• (i) certain leasehold properties of the Group located in the PRC with a net book value of approximately HK$48,211,000;

• (ii) corporate guarantee of the Company; and

(iii) personal guarantees given by certain Directors of the Company.

Save as aforesaid and apart from intra-group liabilities, the Group did not, at the close of business on 31st January, 2002 have any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, charges or debentures, mortgages, loans, or other similar indebtedness or any finance leases commitments, hire purchase commitments, liabilities under acceptance (other than normal trade bills), acceptance credits or any guarantees or other material contingent liabilities.

The Directors have confirmed that there has been no material change in the indebtedness commitments and contingent liabilities of the Group since 31st January, 2002.

7. MATERIAL CHANGE

The results of the Group for the 11 months ended 30th November, 2001 have been adversely affected by (i) the decline in sales of the Fabric Group of approximately HK$110.2 million as compared to the year ended 31st December, 2000 as a result of keen fierce competition and the unfavourable economic condition in Asia; (ii) the loss on disposal of certain old and idle processing machinery of the Fabric Group of approximately HK$11.7 million; and (iii) provision for doubtful debts of approximately HK$4 million and written-off of obsolote inventories of approximately HK$4.5 million in respect of the Snack Food Business Companies. The Group’s unaudited turnover and net loss attributable to Shareholders for the 11 months ended 30th November, 2001 were approximately HK$38,557,000 and HK$45,399,000 respectively.

Save as disclosed in the above, the Directors are not aware of any material change in the financial and trading position or prospects of the Group since 31st December, 2000, the date to which its latest published audited accounts were made up.

– 63 –

PROPERTY VALUATION

APPENDIX II

==> picture [251 x 51] intentionally omitted <==

==> picture [51 x 47] intentionally omitted <==

Suites 402-3 Unicorn Trade Centre 131 Des Voeux Road Central Hong Kong

25th March, 2002

The Directors Ying Wing Holdings Limited Room 3101, 31st Floor Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

In accordance with your instruction to value the property in which Ying Wing Holdings Limited (the “Company”) and its subsidiaries (together the “Group”) have interests, we confirm that we have carried out inspection, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of the relevant property as at 31st December, 2001 (“date of valuation”).

Our valuation of the property is on the basis of depreciated replacement cost which is used for the valuation of specialised properties. It is a method of using net current replacement costs to arrive at the value to the undertaking in occupation of the property as existing at the valuation date.

In accordance with the Practice Statement of the RICS Appraisal and Valuation Manual issued by the Royal Institution of Chartered Surveyors (the “RICS”) and Standard 2 of the International Valuation Standards issued by The International Assets Valuation Standards Committee, the property belongs to the category of specialised, special purpose or specially designed property which, due to its specialised nature, has a utility restricted to particular uses or users, and is rarely, if ever, sold on the open market, except as part of a sale of the business in occupation.

– 64 –

PROPERTY VALUATION

APPENDIX II

As there are no readily identifiable market sales comparables, and the buildings cannot be valued on the basis of open market value. They have therefore been valued on the basis of its depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar property in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales.

In valuing the property, we have complied with all the requirements contained in the Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The current status of the property regarding major approvals, consents and licences required in the People’s Republic of China is as follows:–

Document/Approval

State-owned Land Use Rights Grant Contract	Nil
State-owned Land Use Rights Certificate	Yes
Realty Title Certificate	Yes
Business Licence	Yes

We have relied to a considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, rental, site and floor areas and all other relevant matters.

We have not carried out detailed site measurements to verify the correctness of the site area in respect of the property but have assumed that the site area shown on the documents and official site plans handed to us are correct. Based on our valuation experience of similar properties in the PRC, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurements have been taken.

We have inspected the exterior and, where possible, the interior of the property, in respect of which we have been provided with such information as we have required for the purpose of our valuation. However, no structural survey, investigation or examination have been made, but in the course of our inspection we did not note any serious defects. We are not, however, able to report that the property is free from rot, infestation or any other structural defects. No tests were carried out to any of the services.

– 65 –

PROPERTY VALUATION

APPENDIX II

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

We have been shown copies of various documents relating to the property. However, we have not searched the original documents to verify any amendments which may not appear on the copies handed to us. Due to defects of the land registration system in the PRC, we are unable to search the original documents to verify the existing title of the property or any material encumbrances that might be attached to the property. We are not in a position to advise on the title of the property. However, we have made reference to the opinion given by the Company’s legal advisers on PRC laws in respect to the Group’s title to the property.

The scope of valuation has been determined with reference to the property list provided by the Group. The property on the list has been included in this valuation certificate. The Group has confirmed to us that it has no property interests other than those specified on the list supplied to us. A property known as “a parcel of land and a factory building erected thereon of Shantou Crisps Plant located at Lot A11-6, Shantou Free Trade Zone, Shantou, Guangdong Province, the People’s Republic of China” has been removed from the scope of valuation since the Directors of the Company confirmed that Vastco (H.K.) Limited has been sold to Feng Lin under the Disposal Agreement.

We have had no reason to doubt the authenticity and accuracy of the information provided to us by the Group. We have also sought and received confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts stated are in Hong Kong Dollars. The exchange rate adopted in our valuation of the property interest is the exchange rate prevailing as at 31st December, 2001 being HK$1 = RMB1.06 and there has been no significant fluctuation in the exchange rate between the date of valuation and the date of this letter.

Our valuation is summarized below and the valuation certificate is attached.

Yours faithfully, For and on behalf of

Castores Magi Surveyors Limited Deret Au Chi Chung

B.Sc. MRICS AHKIS RPS MCIArb AHKIArb Director

Note: Deret Au Chi Chung is a Registered Professional Surveyor who has over 9 years of experience in valuing properties in Hong Kong and properties of private and state-owned enterprises in over 60 towns and cities in the PRC. He also possesses over 4 years of experience in valuing properties in the Asia-Pacific region.

– 66 –

PROPERTY VALUATION

APPENDIX II

SUMMARY OF VALUE

				Percentage
		100%		of interest	Capital value in
		Property		attributable	existing state as at
Property		interest	to the Group		31st December, 2001
		HK$				HK$
Property interest held and occupied by the Group in Shantou, the People’s Republic of
China
1.	A parcel of land and	45,840,000		100%	45,840,000
	various buildings and
	structures erected
	thereon of Chaoyang
	Hua Long Plant located at
	Chendian Industrial
	City Road,
	Chedian Town,
	Chaoyang,
	Shantou,
	Guangdong Province,
	The People’s Republic
	of China.
	Total:	45,840,000			45,840,000

– 67 –

PROPERTY VALUATION

APPENDIX II

VALUATION CERTIFICATE

Property interest held and occupied by the Group in Shantou, the People’s Republic of China

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31st December, 2001
				HK$
1.	A parcel of land and	The property comprises 15	The property is	45,840,000
	various buildings	various buildings and	currently occupied
	and structures	structures erected on a	by the Group for
	erected thereon	parcel of land having a site	production, storage,
	of Chaoyang Hua	area of 24,346 sq. m.	office and dormitory
	Long Plant located at Chendian	The buildings were 1-5	purposes.
	Industrial City Road, Chedian Town, Chaoyang, Shantou, Guangdong	storey in height and were completed from 1995 to 1998. The buildings have a total gross floor area of approximately 27,991.96
	Province,	sq.m.
	The PRC.	The property is subject to a
		land use rights for a term of
		50 years commencing from
		20th June, 1998 to 19th
		June, 2048 for industrial
		purpose.

Notes:

1. According to a State-owned Land Use Rights Certificate - Chao Fu Guo Yong (1998) Zi Di Te No. 80 (國 有土地使用証－潮府國用 (1998)字第特 80號 ) dated July, 1998 which was issued by the People’s Government of Guangdong Province (廣東省人民政府 ), the land use rights of a parcel of land was granted to Chaoyang Hua Long Textiles and Dyeing Limited(潮陽市華龍紡織染整有限公司 ) (“Chaoyang Hua Long”), a wholly-owned subsidiary of the Company, for a term of 50 years commencing from 20th June, 1998 to 19th June, 2048 for industrial purpose. This parcel of land has a site area of 24,346 sq.m. The land premium for this parcel of land is RMB6,495,401.

2. According to 9 Realty Title Certificates - Yue Fang Di Zheng Zi Di Nos. 1302201-1302209 (房地產權証 －粵房地証字第 1302201-1302209號 ) all dated 10th July, 1998 and issued by the People’s Government of Chaoyang City (潮陽市人民政府 ), the realty titles of the buildings are vested in Chaoyang Hua Long.

3. According to the opinion provided by the Company’s legal advisers on PRC laws, the followings, inter alia, were noted:–

4. i. According to a State-owned Land Use Rights Certificate (國有土地使用証－潮府國用 (1998)字 第特 80號 ) dated 7th July, 1998, the land use rights of the property is vested in Chaoyang Hua Long for a term of 50 years commencing from 20th June, 1998 to 19th June, 2048 for industrial purpose. This parcel of land has a site area of 24,346 sq.m.;

– 68 –

PROPERTY VALUATION

APPENDIX II

• ii. According to 9 Realty Title Certificates (房地產權証－粵房地証字第 1302201-1302209號 ) , the realty title of the buildings, having a total gross floor area of 27,991.96 sq.m., is vested in Chaoyang Hua Long;

• iii. The property is subject to a business licence (中華人民共和國企業法人營業執照－企獨粵汕 總字第 006677號 ) dated 17th April, 2000 which was issued by Shantou City Industrial and Commercial Administration Bureau (汕頭市工商行政管理局 );

• iv. Chaoyang Hua Long is the sole legal user of the property;

• v. Chaoyang Hua Long can use, transfer, let, exchange and mortgage the property without obtaining the prior permission or consent of any government authorities or payment of any additional premium.

• The property is subject to a pledge in favour of Bank of China Shantou Branch to secure a short term loan of RMB4,000,000 granted to Chaoyang Hua Long.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Company.

The information contained in this circular (other than that relating to the Offeror and its directors) is supplied by the Company. The Directors jointly and severally accept full responsibility for the accuracy of the information in relation to the Company contained in this circular (other than that relating to the Offeror and its directors) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, their opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts (other than that relating to the Offeror and its directors) not contained in the circular, the omission of which would make any statement in this circular misleading.

The information contained in this circular (other than that relating to the Group and the Directors) is supplied by the Offeror. The directors of the Offeror jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than that relating to the Group and the Directors) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, their opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts (other than that relating to the Group and the Directors) not contained in the circular, the omission of which would make any statement in this document misleading.

2. SHARE CAPITAL

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

Authorised: 1,000,000,000 Shares Issued and fully paid: 200,000,000 Shares	HK$ 100,000,000
	20,000,000

All the existing issued Shares rank pari passu in all respects including all rights as to dividends, voting and return of capital. There has been no change to the authorised and issued share capital of the Company since 31st December, 2000 (being the date to which its latest published accounts were made up).

The Company has no outstanding options, warrants and conversion rights convertible into Shares. No share or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital.

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APPENDIX III

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

3. DISCLOSURE OF INTERESTS

(a) Interest in the Company

• (i) Directors’ interest

As at the Latest Practicable Date, the interests of the Directors in the issued share capital of the Company and its associated corporations (within the meaning of the SDI Ordinance) which have to be notified to the Company and the Stock Exchange under Section 28 of the SDI Ordinance and including interests in which a Director has taken under Section 31 or Part I of the Schedule to the SDI Ordinance or required to be entered into the register under Section 29 of the SDI Ordinance or required pursuant to the Model Code for Securities Transaction by Directors of Listed Companies under the Listing Rules are as follow:

Name of Directors	Nature of interest	Number of Shares
Tsoi Hon Chung	Corporate_(Note)_	964,000
Tsoi Chun Bun	Other_(Note)_	964,000
Tsoi Chun Hung	Other_(Note)_	964,000

• Note: Feng Lin held 964,000 Shares, representing approximately 0.48% of the issued share capital of the Company. The issue share capital of Feng Lin is beneficially owned as to 80%, 5% and 5% by Messrs. Tsoi Hon Chung, Tsoi Chun Bun and Tsoi Chun Hung respectively. In addition, Madam Lin Feng Qing, the spouse of Mr. Tsoi Hon Chung owns 5% of the issued share capital of Feng Lin.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors has for the purposes of section 28 of SDI Ordinance, nor are they taken to or deemed to have under section 31 of, or Part 1 of the Schedule to, the SDI Ordinance, any interests in the equity or debt securities of the Company or any associated corporation within the meaning of the SDI Ordinance or any interests which are required to be entered in the register kept by the Company pursuant to section 29 of the SDI Ordinance or any interests which are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transaction by Directors of Listed Companies under the Listing Rules.

• (ii) As at the Latest Practicable Date, none of the subsidiary of the Company, the pension fund of the Company and of its subsidiaries and the advisers to the Company including Kim Eng, Boomwell, AMS and Hantec had any interest in the Shares.

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GENERAL INFORMATION

APPENDIX III

(b) Interest in the Offeror

As at the Latest Practicable Date, neither the Company nor any of the Directors had any beneficial interest in the shares of the Offeror.

(c) Other interests

• (i) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or the Offeror or with any party acting in concert with any of them.

• (ii) Under the Sale and Purchase Agreement, Feng Lin, the issued share capital of which is beneficially owned as to 80%, 5% and 5% respectively by Messrs. Tsoi Hon Chung, Tsoi Chun Bun and Tsoi Chun Hung, who are the Directors, has undertaken to the Offeror that it will dispose of its remaining 964,000 Shares (representing 0.48% of the issued share capital of the Company) through the Stock Exchange prior to the close of the Offer or it will tender the remaining Shares held by it for acceptance under the Offer. Save as disclosed above, no person, prior to the posting of this circular, has irrevocably committed himself to accept or reject the Offer.

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the register of substantial Shareholders maintained by the Company pursuant to Section 16(1) of the SDI Ordinance showed that the following company was interested in 10% or more in the issued share capital of the Company.

		Percentage of the
	Number of	total issued share
Name of Shareholder	Shares held	capital of the Company
The Offeror	148,000,000	74%
Mr. Chau Ching Ngai*	148,000,000	74%

• As at the Latest Practicable Date, Mr. Chau Ching Ngai was deemed under Sections 8(2), (3) and (4) of the SDI Ordinance to be interested in the 148,000,000 Shares held by the Offeror in which he can exercise one-third or more of its voting rights by virtue of his beneficial holding of the entire issued share capital of the Offeror.

Save as disclosed above, the Company had not been notified by any person who holds interests representing 10% or more in the issued share capital of the Company.

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GENERAL INFORMATION

APPENDIX III

5. DEALING IN SHARES

• (a) Other than the disposal of the Sale Shares under the Sale and Purchase Agreement, none of the Directors has dealt in any Share and share of the Offeror during the period commencing six months prior to the date of the Offer Document and ending on the Latest Practicable Date.

• (b) The Company has not dealt in any share of the Offeror during the period commencing six months prior to the date of the Offer Document and ending on the Latest Practicable Date.

• (c) None of the subsidiary of the Company, any pension fund of the Company and of its subsidiaries, any adviser to the Company including Kim Eng, Boomwell, AMS and Hantec has dealt in any Share during the period commencing six months prior to the date of the Offer Document and ending on the Latest Practicable Date.

6. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

7. MATERIAL CONTRACTS

Save for the Disposal Agreement and the Sale and Purchase Agreement, the Company had not entered into contracts (not being contracts entered into in the ordinary course of business) within two years preceding the commencement of the Offer, which are or may be material.

8. QUALIFICATION OF EXPERTS

The following are the qualification of the professional advisers whose opinions or advice are contained in this circular:

Name	Qualification
Kim Eng	an investment adviser registered under the
	Securities Ordinance (Chapter 333 of the Laws of
	Hong Kong)
Boomwell	an investment adviser registered under the
	Securities Ordinance (Chapter 333 of the Laws of
	Hong Kong)

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GENERAL INFORMATION

APPENDIX III

Qualification

Name Qualification AMS an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) Hantec an investment adviser and a dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) Deloitte Touche Tohmatsu Certified Public Accountants Castores Magi Surveyors Limited chartered surveyors

9. CONSENTS

Kim Eng, Boomwell, AMS, Hantec, Deloitte Touche Tohmatsu and Catores Magi Surveyors Limited have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their respective letters and/or reports and/or references to their names, as the case may be, in the form and context in which they respectively appear.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and principal place of business in Hong Kong of the Company at Room 3101, 31st Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong while the Offer remains open:

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

• (b) the letter of advice from AMS and Hantec;

• (c) the comfort letter from Deloitte Touche Tohmatsu, the text of which is set out in appendix I to this circular;

• (d) the comfort letter from Kim Eng and Boomwell, the text of which is set out in appendix I to this circular;

• (e) the Disposal Agreement;

• (f) the Sale and Purchase Agreement;

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GENERAL INFORMATION

APPENDIX III

• (g) the property valuation report dated 25th March, 2002 from Castores Magi Surveyors Limited, the texts of which is set out in appendix II to this circular;

• (h) the written consents referred to in the section headed “Consents” in this appendix;

• (i) the unaudited consolidated income statements of the Group for the 11 months ended 30th November, 2001;

• (j) the interim report of the Group for the six months ended 30th June, 2001; and

• (k) the annual report of the Group for the two years ended 31st December, 2000.

12. MISCELLANEOUS

• (a) The secretary of the Company is Mr. Cheung Chun Ying, who is a fellow member of the Hong Kong Society of Accountants and the Association of Chartered Certified Accountants.

• (b) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and its head office and principal place of business in Hong Kong is at Room 3101, 31st Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong.

• (c) The branch share registrar and transfer office of the Company in Hong Kong is Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

• (d) None of the existing Directors will be given any benefit as compensation for loss of office or otherwise in connection with the Offer.

• (e) There is no agreement or arrangement between any of the Directors and any other person which is conditional on the outcome of the Offer or otherwise connected with the Offer.

• (f) As at the Latest Practicable Date, save for the Sale and Purchase Agreement and the Disposal Agreement, there was no material contract entered into by the Offeror in which any of the Directors had a material personal interest.

• (g) None of the Directors has entered into any service contract with the Company or any of its subsidiaries or associated companies which have more than 12 months to run, or which have been entered into or amended within six months before the commencement of the Offer.

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

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