Qiniu Limited — Proxy Solicitation & Information Statement 2008

Mar 28, 2008

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your shares in Rontex International Holdings Limited (the “Company”), you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

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RONTEX INTERNATIONAL HOLDINGS LIMITED 朗迪國際控股有限公司 [*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1142)

VERY SUBSTANTIAL ACQUISITION OF 51% EQUITY INTEREST IN DTV CHINA INC. INVOLVING THE ISSUE OF CONSIDERATION SHARES AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

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The notice convening the extraordinary general meeting of the Company to be held at 19th Floor, Chun Wo Commercial Centre, 23-29 Wing Wo Street, Central, Hong Kong on 21 April 2008 (Monday) at 3:30 p.m. (the “EGM”) is set out on pages 141 to 142 of this circular. A form of proxy for the EGM is enclosed with this circular of the Company. Whether or not you propose to attend the EGM, you are requested to complete the form of proxy and return the same to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon no later than 48 hours before the time appointed for the EGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM if you so wish.

31 March 2008

* For identification purpose only

CONTENTS

			Page
Definitions. . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Appendix I	—	Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix II	—	Accountants’ report of the Target Group . . . . . . . . . . . . . . . . . . . . . .	99
Appendix III	—	Management discussion and analysis of the Target Group. . . . . . . .	121
Appendix IV	—	Unaudited pro forma financial information
		of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	124
Appendix V	—	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	133
Notice of EGM	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	141

– i –

DEFINITIONS

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

“Acquisition”	the acquisition of the Sale Shares and Sale Loan under the
	Agreement and the transactions contemplated thereunder
“acting in concert”	has the meaning ascribed thereto under the Takeovers Code
“Agreement”	an agreement dated 29 January 2008 and entered into among
	the Purchaser, the Vendor and the Guarantor for the sale and
	purchase of the Sale Shares and the Sale Loan
“Announcement”	the announcement of the Company dated 10 March 2008 in
	relation to the Acquisition
“Articles of Association”	articles of association of the Company, and “Article” shall mean
	an article of the articles of association of the Company
“associates”	has the meaning ascribed thereto under the Listing Rules
“Board”	the board of Directors
“business day”	a day (other than a Saturday, Sunday or public holiday) on which
	licensed banks are generally open for business in Hong Kong
	throughout their normal business hours
“BVI”	British Virgin Islands
“Company”	Rontex International Holdings Limited, a company incorporated
	in the Cayman Islands with limited liability, the issued Shares
	of which are listed on the main board of the Stock Exchange
“Completion”	completion of the Agreement in accordance with the terms and
	conditions thereof
“Completion Date”	the date of completion, being the date falling the third business
	day after all the conditions of the Agreement having been
	fulfilled (or waived as the case may be)
“connected person(s)”	has the meaning ascribed thereto under the Listing Rules
“Consideration”	HK$357,000,000 for the acquisition of the Sale Shares and the
	Sale Loan
“Consideration Shares”	790,000,000 new Shares to be allotted and issued at the Issue
	Price for partial settlement of the Consideration

– 1 –

DEFINITIONS

“Directors”	directors of the Company
“EGM”	an extraordinary general meeting of the Company to be convened
	and held to approve the Agreement and the transactions
	contemplated thereunder
“Enlarged Group”	the Group immediately after the Completion
“EnReach”	影蒞馳信息技術(上海)有限公司(EnReach Information
	Technology (Shanghai) Company Limited#), a wholly owned
	foreign enterprise established in Shanghai, the PRC
“Executive”	the Executive Director of the Corporate Finance Division of
	the SFC or any delegates of the Executive Director
“Existing Controlling Group”	Star Master and parties acting in concert with it
“Full-Year Actual Profit”	the actual aggregate audited consolidated net profits before tax
	and minority interests and any extraordinary or exceptional items
	of the Target Group for the Full-Year Period
“Full-Year Guaranteed Profit”	the audited net profits before tax and minority interests and any
	extraordinary or exceptional items of the Target Group for the
	Full-Year Period will not be less than RMB70,000,000
	(equivalent to approximately HK$71.67 million)
“Full-Year Period”	the twelve months commencing from the Completion Date
“Group”	the Company and its subsidiaries
“Guarantor”	Mr. Li Yi Nan
“Half-Year Actual Profit”	the actual aggregate audited consolidated net profits before tax
	and minority interests and any extraordinary or exceptional items
	of the Target Group for the six months commencing from the
	Completion Date
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Third Party”	any party independent of the Company and the connected
	persons of the Company and is not connected person of the
	Company
“Issue Price”	the issue price of HK$0.30 per Consideration Share

– 2 –

DEFINITIONS

“Last Trading Day”	29 January 2008, being the last trading day prior to entering
	into of the Agreement
“Latest Practicable Date”	26 March 2008, being the latest practicable date prior to the
	printing of this circular for inclusion of certain information in
	this circular
“Listing Committee”	the listing sub-committee of the board of directors of the Stock
	Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Long Stop Date”	31 July 2008
“PRC”	the People’s Republic of China, which, for the purpose of this
	circular, shall exclude Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Promissory Note”	the promissory note in the agreed form to be executed on the
	Completion Date by the Purchaser in favour of the Vendor in
	the sum of HK$80,000,000 for partial settlement of the
	Consideration
“Purchaser”	Century Power (China) Limited, an indirect wholly-owned
	subsidiary of the Company incorporated in Hong Kong with
	limited liability
“SFC”	the Securities and Futures Commission
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Sale Loan”	the amount indebted by the Target Company to the Vendor on
	or at any time prior to Completion whether actual, contingent
	or deferred and irrespective of whether or not the same is due
	and payable on Completion, which as at 31 December 2007,
	amounted to approximately US$145,256 (equivalent to
	approximately HK$1,133,000 as at 31 December 2007 as stated
	in the consolidated balance sheet of the Target Group as
	contained in Appendix II to this circular)
“Sale Shares”	the 5,100 shares of US$1.00 each in the issued share capital of
	the Target Company, representing 51% of the total issued share
	capital of the Target Company

– 3 –

	DEFINITIONS
“Share(s)”	ordinary share(s) of HK$0.01 each in the issued share capital
	of the Company
“Shareholder(s)”	holder(s) of the Shares
“Star Master”	Star Master International Limited, the controlling Shareholder,
	which is interested in approximately 41.45% of the issued share
	capital of the Company as at the Latest Practicable Date
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Target Company”	DTV China Inc. (formerly known as EnReach DTV China Inc.),
	a company incorporated in the BVI with limited liability and is
	owned as to 51% by the Vendor and as to 49% by an Independent
	Third Party
“Target Group”	Target Company and its wholly-owned subsidiary, EnReach
“Vendor”	DTV China Holdings Limited, a company incorporated in the
	BVI with limited liability
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United States
	of America
“%”	per cent.

For the purpose of this circular, unless otherwise indicated, conversion of US$ to HK$ and RMB to HK$ are calculated at the approximate exchange rate of US$1.00 to HK$7.80 and RMB0.9767 to HK$1.00. This exchange rate is adopted for the purpose of illustration only and do not constitute a representation that any amounts have been, could have been, or may be, exchanged at this or any other rate at all.

the English translations of Chinese names or words in this circular, where indicated, are included for information purpose only, and should not be regarded as the official English translation of such Chinese names or words.

– 4 –

LETTER FROM THE BOARD

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RONTEX INTERNATIONAL HOLDINGS LIMITED 朗迪國際控股有限公司 [*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1142)

Executive Directors: Mr. Cheung Keng Ching (Chairman) Ms. Chou Mei Mr. Li Wing Sang

Independent Non-executive Directors: Mr. Lo Siu Tong, Alfred Mr. Tam Tak Wah Ms. Wong Lai Wah, Ada

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: 23/F, Chun Wo Commercial Centre 23-29 Wing Wo Street Central, Hong Kong

31 March 2008

To the Shareholders and

for information only, the Company’s option holders and the warrant holders

Dear Sirs or Madams,

VERY SUBSTANTIAL ACQUISITION OF 51% EQUITY INTEREST IN DTV CHINA INC. INVOLVING THE ISSUE OF CONSIDERATION SHARES

INTRODUCTION

Reference is made to the Announcement in relation to which, amongst other things, entering into of the Agreement by the Purchaser with the Vendor and the Guarantor, pursuant to which the Purchaser has conditionally agreed to acquire at the consideration of HK$357,000,000 for the Sale Shares and the Sale Loan. The Sale Shares comprise 51% of the issued share capital of the Target Company and the Sale Loan amounted to approximately US$145,256 (equivalent to approximately HK$1,133,000 as at 31 December 2007 as stated in the consolidated balance sheet of the Target Group as contained in Appendix II to this circular).

The Consideration will be satisfied by the Purchaser (i) as to HK$40 million in cash; (ii) as to HK$80 million by way of issuing the Promissory Note; and (iii) as to HK$237 million by procuring the Company to allot and issue 790,000,000 Consideration Shares at the issue price of HK$0.30 per Consideration Share credited as fully paid to the Vendor on Completion.

* For identification purpose only

– 5 –

LETTER FROM THE BOARD

According to the Listing Rules, the Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is subject to the approval of the Shareholders at the EGM.

The purpose of this circular is to provide the Shareholders with, among other things, (i) information of the Agreement; (ii) financial information of the Group; (iii) accountants’ report and financial information of the Target Group; (iv) unaudited pro forma financial information of the Enlarged Group; and (v) a notice of the EGM and other information as required under the Listing Rules.

THE AGREEMENT

Date of the Agreement

29 January 2008 (after trading hours)

Parties

• (a) The Purchaser;

• (b) The Vendor; and

• (c) The Guarantor (to guarantee to the Purchaser the due and punctual performance of the Vendor)

To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner and the Guarantor is an Independent Third Party. Save for the entering into of the Agreement, the Vendor and its ultimate beneficial owners did not have any prior transactions or relationship with the Group.

The Company has made an application to the Executive to rebut the presumption that the Vendor and the Existing Controlling Group are parties acting in concert under the Takeovers Code. The Board would like to confirm that ruling has been granted by the Executive that such presumption is rebutted.

Assets to be acquired

The Sale Shares and the Sale Loan. The Sale Shares represent 51% of the issued share capital of the Target Company and the Sale Loan amounted to approximately US$145,256 (equivalent to approximately HK$1,133,000 as at 31 December 2007 as stated in the consolidated balance sheet of the Target Group as contained in Appendix II to this circular).

Consideration and payment terms

The consideration of HK$357,000,000 was on normal commercial terms and arrived at after arms’ length negotiations among the parties to the Agreement. The Consideration was determined with reference to the industrial prospects of digital television technology services and related business in the PRC and the Full-Year Guaranteed Profit. Based on the Full-Year Guaranteed Profit of RMB70 million (equivalent to approximately HK$71.67 million) and the Acquisition of the Sale Shares and the Sale Loan, the Consideration represents a price earnings multiple (based on profit before tax and minority interests and any extraordinary or exceptional items) of approximately 9.74 times. Taking

– 6 –

LETTER FROM THE BOARD

into account the matters above and the reasons and benefits as stated in the paragraph below headed “Reasons for and benefits of the Acquisition”, the Directors (including the independent non-executive Directors) consider the Consideration to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The consideration of HK$357,000,000 had been/will be settled in the following manner:—

• (a) HK$3,500,000 had been paid to the Vendor or its nominee on the date of the memorandum of understanding dated 3 January 2008 in relation to the Acquisition;

• (b) HK$6,500,000 had been paid to the Vendor or its nominee upon signing of the Agreement;

• (c) HK$10,000,000 shall be paid to the Vendor or its nominee upon the Purchaser being reasonably satisfied with the results of the due diligence review to be conducted on the Target Group;

• (d) HK$20,000,000 shall be paid to the Vendor or its nominee upon Completion;

• (e) HK$80,000,000 shall be paid by the Purchaser by issue and execution of the Promissory Note to the Vendor upon Completion ; and

• (f) the balance of HK$237,000,000 shall be satisfied by procuring the Company to allot and issue the Consideration Shares credited as fully paid at the Issue Price to the Vendor on Completion.

As stated in the Announcement, payment for the Consideration in cash had been/will be financed by the internal resources of the Group. After further assessment by the Directors, it is intended that the balance of HK$30,000,000 of the Consideration in cash will be settled by internal resources and external financing of the Group.

Promissory Note

For the purpose of settling HK$80 million out of the Consideration, the Purchaser shall upon Completion issue and execute the Promissory Note in favour of the Vendor.

The following is a summary of the key terms of the Promissory Note:

• (1) Principal amount : HK$80 million (2) Interest rate : Nil (3) Maturity : 5 years (4) Repayment : The Promissory Note is repayable in one lump sum or any part of it (in amounts of not less than HK$10 million or should the outstanding principal amount of the Promissory Note is less than HK$10 million, the whole (but not part only) of the Promissory Note may be repaid) at any time from the date falling six months of the date of issue of the Promissory Note up to the date immediately prior to the maturity date of the Promissory Note

– 7 –

LETTER FROM THE BOARD

Consideration Shares

As at the Latest Practicable Date, the Company has 2,047,501,200 Shares in issue. The 790,000,000 Consideration Shares represent approximately 38.58% of the issued share capital of the Company and approximately 27.84% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (assuming no Share will be issued by the Company before Completion). Based on the closing price of HK$0.168 per share as quoted on the Stock Exchange on the Last Trading Day, the Consideration Shares was valued at HK$132.72 million.

The Issue Price of HK$0.30 per Consideration Share represents:

• (a) a premium of approximately 78.57% over the closing price of HK$0.168 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (b) a premium of approximately 82.26% over the average closing price of approximately HK$0.1646 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day;

• (c) a premium of approximately 68.82% over the average closing price of approximately HK$0.1777 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day;

• (d) a premium of approximately 1,422.84% over the unaudited consolidated net asset value per Share attributable to the Shareholders of approximately HK$0.0197 per Share as at 30 September 2007; and

• (e) a premium of approximately 67.60% over the closing price of HK$0.179 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Consideration Shares will be allotted and issued pursuant to a specific mandate to be sought at the EGM and will be allotted and issued on the Completion Date.

Pursuant to the terms and conditions of the Agreement, the Vendor undertakes to the Purchaser that it will not dispose of any of the Consideration Shares within the period commencing on the Completion Date and ending on (i) the date falling four months after the last day of the Full-Year Period; or (ii), the delivery by the auditors of the Purchaser to the Purchaser the audited financial statement of the Group for the Full-Year Period, whichever is later.

Application for Listing

Application will be made by the Company to the Listing Committee for the listing of, and permission to deal in, the Consideration Shares. The Consideration Shares, when allotted and issued, will rank pari passu in all respects with the Shares in issue on the date of allotment and issue.

– 8 –

LETTER FROM THE BOARD

Conditions precedent

The Acquisition is conditional upon the satisfaction or waiver (as applicable) of the followings on or before the Long Stop Date, or such other date as the Vendor and the Purchaser may otherwise agree:

• (1) the Listing Committee granting the listing of, and permission to deal in, the Consideration Shares;

• (2) the Purchaser being reasonably satisfied with the results of the due diligence review to be conducted on the Target Group upon signing of the Agreement and to be completed at or before 12:00 noon on 29 February 2008 and subsequently agreed by the parties thereto be extended to 31 March 2008 at or before 12:00 noon (or such later date as the Purchaser may agree);

• (3) the Shareholders passing at the EGM the resolution approving the Agreement and the transactions contemplated thereunder including but not limited to the allotment and issue of the Consideration Shares to the Vendor credited as fully paid;

• (4) the agreement by the parties thereto for a profit guarantee on the net profit of the Group to be provided by the Vendor in favour of the Purchaser;

• (5) the warranties provided by the Vendor under the Agreement remaining true and accurate in all respects; and

• (6) all necessary consents, authorizations, licences and approvals for or in connection with the sale and purchase of the Sale Shares and the Sale Loan having been obtained.

The Purchaser may at any time waive in writing any of the conditions (2), (4) and (5) set out above. If any of the conditions set out above have not been satisfied (or waived by the Purchaser) at or before 12:00 noon on the Long Stop Date, or such later date as the Purchaser may agree, the Agreement shall cease and determine in which the deposits paid to the Vendor or its nominees (without interest) shall be refunded to the Purchaser in the manner provided in the Agreement and neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.

As at the Latest Practicable Date, condition (4) had been fulfilled.

Completion

Completion will take place at 4:00 p.m. on the Completion Date when all the acts and requirements set out in the Agreement are complied with or waived or any other date mutually agreed by the parties.

After Completion, the Target Company will become a non wholly-owned subsidiary of the Company while the financial statements of the Target Group will be consolidated in the accounts of the Group after Completion.

– 9 –

LETTER FROM THE BOARD

Profit guarantee

The Vendor has agreed to warrant and guarantee to the Purchaser the Full-Year Guaranteed Profit will not be less than RMB70 million (equivalent to approximately HK$71.67 million) for the Full Year Period. As security for the performance of the obligations of the Vendor under the Full-Year Guaranteed Profit, the Vendor and the Purchaser shall jointly appoint an escrow agent and to hold the share certificates in relation to 400,000,000 Consideration Shares and the Promissory Note of HK$80 million.

If the Half-Year Actual Profit for the six months commencing from the Completion Date shall exceed or equal to RMB35 million (equivalent to approximately HK$35.83 million), the Vendor and the Purchaser shall jointly procure the escrow agent to release the share certificates for the 200,000,000 Consideration Shares and a Promissory Note of HK$40 million. For the avoidance of doubt, if the Half-Year Actual Profit is less than RMB35 million (equivalent to approximately HK$35.83 million), the share certificates for the 200,000,000 Consideration Shares and a Promissory Note of HK$40 million shall continue to be held in escrow by the escrow agent, and the Vendor shall not be required to compensate any shortfall to the Purchaser unless and until the Full-Year Actual Profit is ascertained.

If the Full-Year Actual Profit shall exceed RMB70 million (equivalent to approximately HK$71.67 million), being the Full-Year Guaranteed Profit, the Vendor and the Purchaser shall jointly procure the escrow agent to release the share certificates for the 200,000,000 Consideration Shares and the Promissory Note of HK$40 million, or should no share certificate and Promissory Note have previously been released by the escrow agent as the Half-Year Actual Profit had not exceed or equal to RMB35 million (equivalent to approximately HK$35.83 million), the share certificates for the 400,000,000 Consideration Shares and the Promissory Note of HK$80 million, which are held in escrow by the escrow agent to the Vendor.

If the Full-Year Actual Profit is less than the Full-Year Guaranteed Profit, the Vendor shall pay to the Purchaser an amount calculated as follows:

A = (Full-Year Guaranteed Profit – Full-Year Actual Profit) x 2 x 51%

In such event, the Purchaser shall have the right to unilaterally instruct the escrow agent to return the Promissory Note then being held by the escrow agent to the Vendor to set off A, and if the amount of the Promissory Note is not sufficient to cover A, to release the share certificates in relation to the Consideration Shares to dispose of such number of Consideration Shares appropriately sufficient to pay the shortfall of the Full-Year Guaranteed Profit at the then best price reasonably obtainable, pay the net proceeds from such sale to the Purchaser after completion of such sale. The Vendor hereby undertakes to the Purchaser that it will, contemporaneously upon the payment of such net proceeds to the Purchaser, pay to the Purchaser any shortfall by subtracting such net proceeds from A. For the avoidance of doubt, should there be proceed after deducting A from the amount of the Promissory Note and the net proceeds generated from the sale of the Consideration Shares, the balance of the Promissory Note and/or the Consideration Shares (as the case may be) shall be released by the escrow agent to the Vendor. For the avoidance of doubt, should the Target Company record a loss in its audited financial statements for the Full-Year Period, the Full-Year Actual Profit shall for the purpose of calculating A be deemed as zero.

– 10 –

LETTER FROM THE BOARD

INFORMATION ON THE VENDOR

The Vendor is an investment holding company incorporated in the BVI and is wholly-owned by Mr. Li Yi Nan who will remain as a director of EnReach after Completion. As at the Latest Practicable Date, save as its 51% equity interest in the Target Company, the Vendor does not have any other material assets, liabilities and operations. Under the terms of the Agreement, the Vendor does not have the right to nominate and will not nominate any appointment of Directors to the Board upon Completion.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner is an Independent Third Party and none of these entities has any prior transaction with the Group which requires aggregating pursuant to the Listing Rules.

INFORMATION ON THE TARGET GROUP

The Target Company is an investment holding company incorporated in the BVI and holds the entire share capital of EnReach which is a wholly owned foreign enterprise established in Shanghai, the PRC and is principally engaged in the provision of digital television technology services, including cable video-on-demand (“VOD”) system, information broadcasting system and embedded television systems.

Currently, EnReach has gained about 70% of the market share in the VOD solution (including head-end server system and browser middleware in set-top box) in the PRC and of about 45% of the market share in set-top box’s browser middleware in the PRC. It is estimated that EnReach’s system and services are being used by nearly 18 million households (or about 72 million users). EnReach has achieved the following milestones in the cable television market in the PRC:

• being the first to invest in digital television VOD system;

• the largest system of digital television VOD in the PRC;

• first set of digital NPVR system in the PRC;

• first digital television SP receiver system in the PRC; and

• fastest OC data broadcasting system.

As at the Latest Practicable Date, save as its 100% equity interest in EnReach, the Target Company did not have any other material assets, liabilities and operations. Set out below is the audited results of the Target Company for the two years ended 31 December 2007 extracted from the consolidated income statements as contained in Appendix II to this circular:

	For the year ended	For the year ended
	31 December
	2006	2007
	HK$’000	HK$’000
Turnover	0	5,835
Profit before taxation	15	2,307
Profit after taxation	15	1,544
Net asset value as at year end	8	1,679

– 11 –

LETTER FROM THE BOARD

The biographical details of the key management of EnReach are set out as follows:

Mr. Li Yi Nan, director of EnReach, has extensive experiences in telecommunications and multimedia. Mr. Li Yi Nan is also the general manager of Gome Digital E-Commerce Technology Co., Ltd.

Mr. Wu Bo, founder and director of EnReach, is an expert in network digital video frequencies and services. He possesses various patents and copyrights within the media encryption decipher method, the network including P2P technology in information electrical appliances terminal application installation and usage method, the digital copyright protection method and system, realization of P2P in the information electrical appliances to broadcast the installment and the method on many objects of American and Chinese patents. Mr. Wu Bo is also the author of “Auto-dBase Data Management Entire Automatic Production System” and has published many related research articles.

Mr. Yuan Wei, president of EnReach, is well-experienced in digital television, cable television, mass storage, Unix and Internet. Mr. Yuan Wei had managed and planned numerous successful products and has managed companies within the digital television business.

Mr. Tom Lee Chao Tung, chief operating officer of Enreach, has over 20 years of business development and management experience in high-tech industry. He has extensive hands-on experience as co-owner and director of business development in the PRC.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in sourcing, manufacturing and sale of garment products and trading of a variety of premium items all over the world. The Directors have always been active in seeking investment opportunities. While keeping abreast with the core businesses, the Directors would look into investments, irrespective of whether they are in line with the principal businesses, in order to increase the value of Company, which is in the interests of Company and the Shareholders as a whole.

The Acquisition involves the acquisition of 51% equity interests in a digital television technology business, including cable VOD system, information broadcasting system and embedded television systems. The Directors believe that the Acquisition provides a good opportunity for the Group to diversify its business, which is in the commercial interest of the Group in the long run.

The Board considers that the Acquisition is in the interest of the Company for the following reasons:

• a. the Acquisition builds up the Company’s portfolio of digital television related technologies and expertise and positions the Company to be a leading provider of digital television technology business in the PRC;

• b. the Acquisition allows the Company to leverage on extensive range of technologies and experience of EnReach, which will place the Company in a good position to jumpstart the plans for its entry into the digital television technology business in the PRC; and

– 12 –

LETTER FROM THE BOARD

c. the Acquisition is in line with the Company’s growth strategy of acquiring strategic stakes in potential growth businesses, with a view to enhancing long-term value for the Shareholders.

The Directors, including the independent non-executive Directors, consider the terms and conditions of the Agreement to be fair and reasonable and on normal commercial terms and are in the best interests of the Company and the Shareholders as a whole.

EFFECT ON SHAREHOLDING STRUCTURE

To the best knowledge of the Directors, the existing shareholding structure of the Company and the shareholding structure of the Company upon the allotment and issue of the Consideration Shares are as follows:

Shareholders Star Master_(Note 1) Mr. Cheung Keng Ching (Note 2) Ms. Chou Mei(Note 2) Mr. Lo Siu Tong, Alfred (Note 3) Mr. Li Wing Sang(Note 4) The Vendor Public Shareholders — The holders of options of the Company — The holders of the warrants of the Company (Note 5)_ — Other public Shareholders Total	As at the Latest Practicable Date No. of Shares % 848,600,000 41.45 7,400,000 0.36 7,600,000 0.37 96,000 0.00 — — — — 1,183,805,200 57.82 — — — — 1,183,805,200 57.82 2,047,501,200 100	Upon allotment and issue of the Consideration Shares (Note 6) No. of Shares % 848,600,000 29.91 7,400,000 0.26 7,600,000 0.27 96,000 0.00 — — 790,000,000 27.84 1,183,805,200 41.72 — — — — 1,183,805,200 41.72 2,837,501,200 100	Upon exercise of all outstanding share options of the Company (Note 6) No. of Shares % 848,600,000 28.72 7,400,000 0.25 7,600,000 0.26 96,000 0.00 19,560,000 0.66 790,000,000 26.74 1,281,605,200 43.37 97,800,000 3.31 — — 1,183,805,200 40.06 2,954,861,200 100	Upon exercise of all outstanding warrants of the Company (Note 6) No. of Shares % 848,600,000 25.36 7,400,000 0.22 7,600,000 0.23 96,000 0.00 19,560,000 0.59 790,000,000 23.61 1,672,605,200 49.99 97,800,000 2.92 391,000,000 11.69 1,183,805,200 35.38 3,345,861,200 100	Upon exercise of all outstanding warrants of the Company (Note 6) No. of Shares % 848,600,000 25.36 7,400,000 0.22 7,600,000 0.23 96,000 0.00 19,560,000 0.59 790,000,000 23.61 1,672,605,200 49.99 97,800,000 2.92 391,000,000 11.69 1,183,805,200 35.38 3,345,861,200 100
					100

– 13 –

LETTER FROM THE BOARD

Notes:

1. The entire issued share capital of Star Master is legally and beneficially owned by Mr. Cheung Keng Ching and Ms. Chou Mei as to 50% and 50% respectively. As spouse, Mr. Cheung Keng Ching and Ms. Chou Mei are respectively deemed to be interested in the Shares held by each other in Star Master. 820,000,000 Shares are subject to an option deed entered into between Star Master and Plenty Holdings Limited on 15 October 2007, pursuant to which Plenty Holdings Limited shall have an option (the “ Option ”) to require Star Master to sell 820,000,000 Shares to Plenty Holdings Limited at an exercise price of HK$45 million during the period commencing from 15 October 2007 to 7 April 2008. As at the Latest Practicable Date, the Option has not been exercised. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner does not have any shareholding relationship and any prior transaction with the grantee of the Option and is independent of the grantee of the Option and its connected persons.

2. Being executive Directors.

3. Being an independent non-executive Director.

4. Being an executive Director and owns 19,560,000 share options of the Company granted pursuant to the share option scheme adopted by the Company on 19 October 2002.

5. None of the holders of the warrants will become a substantial Shareholder upon exercise of all outstanding warrants of the Company and none of them will become a connected person of the Company.

6. Assuming no Share will be issued by the Company before Completion.

As at the Latest Practicable Date, save as the 19,560,000 share options of the Company granted to Mr. Li Wing Sang, an executive Director, and 97,800,000 share options of the Company granted to other staffs pursuant to the share option scheme adopted by the Company on 19 October 2002 and the 391,000,000 warrants of the Company issued pursuant to a placing agreement entered into by the Company and a securities dealer dated 13 November 2007, there are no outstanding convertibles of the Company.

The Acquisition which involves the issue of Consideration Shares will not result in change of control (as defined in the Takeovers Code) of the Company.

The Company has made an application to the Executive to rebut the presumption under the Takeovers Code that the Vendor is a party acting in concert with the Existing Controlling Group. The Board would like to confirm that ruling has been granted by the Executive that such presumption is rebutted.

FINANCIAL EFFECTS OF THE ACQUISITION

The aggregate consideration for the Sale Shares and Sale Loan is HK$357,000,000. As at the Latest Practicable Date, HK$10,000,000 of the Consideration in cash had been paid by the Purchaser to the Vendor. The Group originally intended to settle the balance of HK$30,000,000 of cash from internal resources of the Group as stated in the Announcement. After further assessment by the Directors, it is intended that the balance of HK$30,000,000 of the Consideration in cash will be settled by internal resources and external financing of the Group. As shown in the unaudited pro forma financial information of the Enlarged Group contained in Appendix IV to the circular, the Group’s cash and bank balances as at 31 March 2007 in the amount of HK$5,426,000 was used to financed the cash

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LETTER FROM THE BOARD

portion of the Consideration. Subsequent to 31 March 2007, being the date to which the latest published audited consolidated accounts of the Group were made up and used in the unaudited pro forma financial information of the Enlarged Group, the Company obtained part of the proceeds in the amount of HK$8.75 million as at the Latest Practicable Date from a disposal of a property with details stated in the announcement of the Company dated 22 January 2008 and circular of the Company dated 11 February 2008 respectively. Proceeds from such incident, in addition to resources generated from the operating, investing and financing activities of the Group (as partly reflected in the interim report of the Company for the six months ended 30 September 2007), had been/will be also used for the cash payment of the Consideration.

Upon Completion, the Target Company will become a non wholly-owned subsidiary of the Company and the financial statements of the Target Company will be consolidated with those of the Group.

Net assets

The audited consolidated net assets of the Group as at 31 March 2007, as extracted from the annual report of the Company for the year ended 31 March 2007 was approximately HK$35,591,000. As set out in Appendix IV to this circular, assuming Completion had taken place on 31 March 2007, the pro forma net assets of the Enlarged Group would have been approximately HK$273,414,000. This is mainly due to the increase in capital base as a result of the issue of the Consideration Shares. In addition, given the significant premium of the Issue Price over the current net asset value per Share, the net asset value per Share is expected to be enhanced by the issue of the Consideration Shares as a result of the Acquisition.

Shareholders should note that the Acquisition will result in the Group recording a goodwill, representing the excess of the fair value of the Consideration over the fair value of the net assets of the Target Company and the Sale Loan as at the date of Completion. As shown in the unaudited pro forma financial information of the Enlarged Group contained in Appendix IV to the circular, such goodwill for accounting purposes is estimated to be approximately HK$333,050,000. Such a substantial amount of goodwill is a result of the substantial difference between the fair value of the Consideration and the fair value of the aggregate of the net assets of the Target Group and the Sale Loan. Based on the matters as stated in the paragraph headed “Consideration and payment terms” above, the Directors consider the Consideration to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Earnings

Following the Completion, the Target Group will become indirect non wholly-owned subsidiaries of the Company and the Group will be able to consolidate revenue from the provision of digital television technology services, including cable video-on-demand system, information broadcasting system and embedded television systems from the Target Group. The audited net loss of the Group for the year ended 31 March 2007 was approximately HK$39,354,000. According to the unaudited pro forma income statement of the Enlarged Group for the year ended 31 March 2007 as set out in Appendix IV to this circular, the pro forma net loss of the Enlarged Group would have been approximately HK$41,803,000.

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LETTER FROM THE BOARD

FUTURE PROSPECTS

It is expected that the Group will continue to focus on its core business in garment products and premium items. In addition, given the rising demand of digital television technology in the PRC during the recent years, the Board is optimistic about investment in the provision of digital television technology services, including cable VOD system, information broadcasting system and embedded television systems which the Target Group is focusing on. The Board is of the view that the entering into of the Acquisition will enrich the earning base of the Group by introducing an additional investment platform to the Group.

IMPLICATIONS UNDER THE LISTING RULES

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is subject to the approval of Shareholders at the EGM. There is currently no intention to change the composition of the Board after Completion. The Company intends to maintain its existing principal business after Completion.

The Company will seek the approval of its Shareholders at the EGM to be convened and held by the Company to approve the Agreement and the transactions contemplated thereunder including but not limited to the allotment and issue of the Consideration Shares. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, no Shareholder has material interest in the Acquisition other than their shareholding interests in the Shares, and accordingly no Shareholder is required to abstain from voting at the EGM.

Shareholders and investors should note that the Agreement is subject to various conditions as stated in the section headed “Conditions precedent” above and Shareholders and investors are urged to exercise caution when dealing in the Shares.

EGM

The notice of EGM is set out on pages 141 to 142 of this circular.

A form of proxy for the EGM is enclosed with this circular. Whether you intend to attend the EGM or not, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, no later than 48 hours before the time fixed for the EGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM in person if you so wish.

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

For your further information as required by the Listing Rules, set forth below are the procedures for demanding a poll at general meeting of the Company. Pursuant to Article 66 of the Articles of Association, every resolution put to the vote of a general meeting shall be decided on a show of hands unless (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for a poll) a poll is duly demanded:

– 16 –

LETTER FROM THE BOARD

• (a) by the chairman of such meeting; or

• (b) by at least three members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

• (c) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or

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

Notwithstanding any other provision of these Articles, (a) if the aggregate proxies held by the chairman of a particular meeting and the Directors account for 5 per cent. or more of the total voting rights at that meeting, and (b) if on a show of hands in respect of any resolution the members at the meeting vote in the opposite manner to that instructed in the proxies referred in (a) above, then the chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

A poll which is duly demanded shall be then held in such manner prescribed by the Articles of Association.

RECOMMENDATIONS

The Directors consider that the entering into of the Agreement is beneficial to and in the best interests of the Company and the Shareholders as a whole. The terms of the Agreement and the transactions contemplated thereunder are fair and reasonable to the Company and in the interests of the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution to approve the entering into of the Agreement at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of The board of directors of Rontex International Holdings Limited Cheung Keng Ching

Chairman

– 17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL INFORMATION

A summary of the published results and the assets and liabilities of the Group for the last three financial years, as extracted from the audited financial statements, is set out below. No qualified or modified opinion has been issued on the Group’s financial statements for the three years ended 31 March 2005, 2006 and 2007 respectively.

Consolidated Income Statement

For the years ended 31 March 2005, 2006 and 2007

Turnover Cost of sales Gross profit Other revenue and gains Impairment loss on property, plant and equipment Impairment loss on trade and other receivables Selling and distribution costs Administrative expenses Operating loss Finance costs Tax penalties and surcharges Impairment loss on available-for-sale investments Impairment loss on goodwill Impairment loss on investment Share of results of associates Share of results of a jointly-controlled entity Loss before taxation Income tax Loss for the year Attributable to: Equity holders of the Company Minority interest Loss per share attributable to equity holders of the Company Basic (HK cents) Diluted (HK cents)	Year ended 31 March 2007 2006 HK$’000 HK$’000 166,429 194,281 (140,060) (164,221) 26,369 30,060 801 654 — (4,831) (354) (858) (11,517) (11,108) (16,958) (24,301) (1,659) (10,384) (2,728) (3,651) (3,759) — — (23,657) (19,458) — — — (1,480) (915) (2,439) — (31,523) (38,607) (7,831) — (39,354) (38,607) (38,684) (36,945) (670) (1,662) (39,354) (38,607) 2.353 2.267 N/A N/A	2005 HK$’000 162,122 (129,562) 32,560 7,946 — — (9,069) (28,777) 2,660 (2,183) — — — (8,500) 595 — (7,428) (440) (7,868) (6,497) (1,371) (7,868) 0.404 N/A

Source: extracted from the published annual reports for the financial years ended 31 March 2007 and 2006 of the Company, with the reclassification of certain figures for the financial years ended 31 March 2006 and 2005 to conform with the presentation for the financial year ended 31 March 2007.

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2005, 2006 and 2007

ASSETS AND LIABILITIES Non-current assets Deposits and prepayment Leasehold land and land use rights Property, plant and equipment Interests in associates Interest in a jointly-controlled entity Goodwill Option to acquire an equity interest of a company Available-for-sale investments Current assets Inventories Trade receivables Other receivables, deposits and prepayments Current tax recoverable Amounts due from related parties Tax prepaid Cash and cash equivalents Current liabilities Interest-bearing bank borrowings, secured Trade payables Current portion of finance lease payables Other payables, accrued expenses and trade deposits received Current tax payable Tax penalty and surcharge payables Amounts due to related parties Net current (liabilities)/assets Non-current liabilities Interest-bearing borrowings, secured Net assets EQUITY Share capital Reserves Equity attributable to equity holders of the Company Minority interest Total equity	As at 31 March 2007 2006 HK$’000 HK$’000 — — 12,646 12,444 12,146 29,109 15,110 16,792 2,631 — — 19,458 — — 1,573 688 44,106 78,491 2,961 5,365 14,401 7,831 5,169 4,580 — 1,083 2,490 — — — 5,426 4,716 30,447 23,575 16,064 10,806 4,213 14,624 — — 7,657 8,201 3,833 — 2,939 — 4,256 5,387 38,962 39,018 (8,515) (15,443) — — 35,591 63,048 18,075 16,295 15,028 39,143 33,103 55,438 2,488 7,610 35,591 63,048	2005 HK$’000 27,721 12,532 30,544 5,547 — — 15,000 9,346
		100,690
		6,901 19,980 10,217 — — 643 5,107
		42,848
		20,035 16,895 79 3,893 — — —
		40,902
		1,946
		1,512
		101,124
		16,294 75,007
		91,301 9,823
		101,124

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. AUDITED CONSOLIDATION FINANCIAL INFORMATION

Consolidated Income Statement

For the year ended 31 March 2007

Notes Turnover 7 Cost of sales Gross profit Other revenue and gains 7 Impairment loss on property, plant and equipment Impairment loss on trade and other receivables Selling and distribution costs Administrative expenses Operating loss Finance costs 8 Tax penalties and surcharges 11(ii) Impairment loss on available-for-sale investments Impairment loss on goodwill 19 Share of results of associates Share of results of a jointly-controlled entity Loss before taxation 9 Income tax 11 Loss for the year Attributable to: Equity holders of the Company Minority interest Loss per share attributable to equity holders of the Company Basic (HK cents) 13 Diluted (HK cents) 13	2007 HK$’000 166,429 (140,060) 26,369 801 — (354) (11,517) (16,958) (1,659) (2,728) (3,759) — (19,458) (1,480) (2,439) (31,523) (7,831) (39,354) (38,684) (670) (39,354) 2.353 N/A	2006 HK$’000 194,281 (164,221) 30,060 654 (4,831) (858) (11,108) (24,301) (10,384) (3,651) — (23,657) — (915) — (38,607) — (38,607) (36,945) (1,662) (38,607) 2.267 N/A

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 March 2007

Notes ASSETS AND LIABILITIES Non-current assets Leasehold land and land use rights 14 Property, plant and equipment 15 Interests in associates 17 Interest in a jointly-controlled entity 18 Goodwill 19 Available-for-sale investments 20 Current assets Inventories 21 Trade receivables 22 Other receivables, deposits and prepayments Current tax recoverable Amounts due from related parties 11(ii), 34(c) Cash and cash equivalents 23 Current liabilities Interest-bearing bank borrowings, secured 24 Trade payables 25 Other payables, accrued expenses and trade deposits received Current tax payable Tax penalty and surcharge payables Amounts due to related parties 34(b) Net current liabilities Net assets	2007 HK$’000 12,646 12,146 15,110 2,631 — 1,573 44,106 2,961 14,401 5,169 — 2,490 5,426 30,447 16,064 4,213 7,657 3,833 2,939 4,256 38,962 (8,515) 35,591	2006 HK$’000 12,444 29,109 16,792 — 19,458 688 78,491 5,365 7,831 4,580 1,083 — 4,716 23,575 10,806 14,624 8,201 — — 5,387 39,018 (15,443) 63,048

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet (Continued)

At 31 March 2007

Notes EQUITY Share capital 26 Reserves Equity attributable to equity holders of the Company Minority interest Total equity	2007 HK$’000 18,075 15,028 33,103 2,488 35,591	2006 HK$’000 16,295 39,143
		55,438 7,610
		63,048

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 March 2007

Notes ASSETS AND LIABILITIES Non-current assets Interests in subsidiaries 16 Current assets Other receivables, deposits and prepayments Cash and cash equivalents 23 Current liabilities Other payables and accured expenses Due to subsidiaries 16 Net current liabilities Net assets EQUITY Share capital 26 Reserves 27 Total equity	2007 HK$’000 49,207 4,242 3,232 7,474 328 23,152 23,480 (16,006) 33,201 18,075 15,126 33,201	2006 HK$’000 111,115 60 24 84 19 23,144 23,163 (23,079) 88,036 16,295 71,741 88,036

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2007

At 1 April 2005 Issue of new shares on exercise of bonus warrants Exchange differences arising on translation of overseas operations Net loss for the year At 31 March 2006 and 1 April 2006 Contributions from equity holders of the company (note 11(ii)) Premium received on issue of warrants (note 29(a)) Issue of new shares on exercise of warrants Issue of share options (note 28) Issue of new shares on exercise of share options Reclassification of interest in a subsidiary into a jointly-controlled entity_(note 31)_ Change in fair value of available-for-sale investments Exchange differences arising on translation of overseas operations Net loss for the year At 31 March 2007	Share capital HK$’000 (note 26) 16,294 1 — — 16,295 — — 900 — 880 — — — — 18,075	Share Contributed Translation premium surplus reserve HK$’000 HK$’000 HK$’000 (note a) 15,282 918 (7) 12 — — — — 1,069 — — — 15,294 918 1,062 — — — — — — 3,765 — — — — — 3,535 — — — — — — — — — — 393 — — — 22,594 918 1,455	Capital reserve HK$’000 (note b) — — — — — 4,233 2,296 (795) 800 (543) — — — — 5,991	Available- for-sale (Accumulated investment losses)/ revaluation retained reserve profits HK$’000 HK$’000 — 58,814 — — — — — (36,945) — 21,869 — — — — — — — — — — — — 885 — — — — (38,684) 885 (16,815)	Sub-total HK$’000 91,301 13 1,069 (36,945) 55,438 4,233 2,296 3,870 800 3,872 — 885 393 (38,684) 33,103	Minority interest HK$’000 9,823 — (551) (1,662) 7,610 — — — — — (4,544) — 92 (670) 2,488	Total equity HK$’000 101,124 13 518 (38,607)
							63,048 4,233 2,296 3,870 800 3,872 (4,544) 885 485 (39,354)
							35,591

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity (Continued)

For the year ended 31 March 2007

• Note a: As at the balance sheet date, the contributed surplus of the group represented the difference between the nominal value of share capital of the subsidiaries acquired pursuant to the group reorganisation during the year ended 31 March 2003, over the nominal value of the shares of the company issued in exchange therefor.

• Note b: As at the balance sheet date, the capital reserve of the group represented (i) the contributions from the equity holders of the company for indemnity of additional taxation liabilities, penalties, surcharges and other relevant costs of the group in respect of any accounting period ended on or before 31 March 2002, details of which are set out in note 11(ii) to the financial statements; (ii) premium received in respect of the outstanding warrants of the company; and (iii) the fair value at respective grant dates in respect of the outstanding share options of the company.

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2007

Operating activities Loss before taxation Adjustments for: Interest income Share option expense Depreciation Amortisation on leasehold land and land use rights Finance costs Share of results of associates Share of results of a jointly-controlled entity Loss on disposal of property, plant and equipment Taxation penalties and surcharges Impairment loss on inventories Impairment loss on property, plant and equipment Impairment loss on trade and other receivables Impairment loss on available-for-sale investments Impairment loss on goodwill Operating cash inflows/(outflows) before working capital changes (Increase)/decrease in inventories (Increase)/decrease in trade receivables (Increase)/decrease in other receivables, deposits and prepayments Decrease in trade payables (Decrease)/increase in other payables, accrued expenses and trade deposits received (Decrease)/increase in amounts due to related companies Cash (used in)/generated from operations Hong Kong profits tax paid Interest and bank charges paid Taxation penalties and surcharges paid Net cash (used in)/generated from operating activities	2007 HK$’000 (31,523) (44) 800 1,452 248 2,728 1,480 2,439 127 3,759 464 — 354 — 19,458 1,742 (368) (11,662) (1,737) (1,148) (544) (1,131) (14,848) (2,915) (2,728) (820) (21,311)	2006 HK$’000 (38,607) (133) — 1,845 121 3,651 915 — — — 713 4,831 858 23,657 — (2,149) 823 4,894 5,471 (2,271) 4,213 1,000 11,981 (440) (3,651) — 7,890

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement (Continued)

For the year ended 31 March 2007

Notes Investing activities Reclassification of interest in a subsidiary into a jointly-controlled entity 31 Interest received Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of land use rights Net cash used in investing activities Financing activities Proceeds from inception of bank loans and import and export loans Proceeds from issue of warrants Repayment of bank loans Capital element of finance lease rental payments Proceeds from issue of new shares on exercise of warrants Proceeds from issue of new shares on exercise of share options Contribution received from equity holders of the company_(note 11(ii))_ Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year Analysis of the balances of cash and cash equivalents Cash and bank balances Bank overdrafts	2007 HK$’000 (4,504) 44 (7,159) 55 (783) (12,347) 29,608 2,296 (7,305) — 3,870 3,872 1,743 34,084 426 3,777 (239) 3,964 5,426 (1,462) 3,964	2006 HK$’000 — 133 (4,586) — — (4,453) — 13 (2,404) (79) — — — (2,470) 967 2,394 416 3,777 4,716 (939) 3,777

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

(Expressed in Hong Kong dollars)

1. ORGANISATION AND OPERATIONS

The company is a public limited company incorporated in the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The registered office of the company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

The company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 16 to the financial statements.

2. BASIS OF PRESENTATION

The financial statements have been prepared on a going concern basis notwithstanding the fact that the group incurred consolidated loss before minority interest of approximately $39,354,000 during the year ended 31 March 2007 and, as of that date, the group reported consolidated net current liabilities of approximately $8,515,000.

As disclosed in note 36 to the financial statements, the company raised working capital of $6,126,000 in aggregate by way of issue of its new shares on exercise of certain warrants and share options of the company after the balance sheet date.

In April and May 2007, the group’s available-for-sale investments with an aggregate carrying value of $1,573,000 as at 31 March 2007 have been disposed of to independent third parties at a cash consideration of approximately $2,220,000.

The substantial shareholders of the company have agreed to provide adequate funds to the group to meet its liabilities as they fall due.

The group’s unutilised banking facilities as at 30 June 2007 amounted to approximately $3,500,000.

Based on the above, the directors of the company are satisfied that it is appropriate to prepare the group’s consolidated financial statements on a going concern basis.

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the group has adopted all the new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants that are relevant to its operations and effective for annual reporting periods beginning on or after 1 April 2006.

The adoption of the new and revised HKFRSs did not result in substantial changes to the accounting policies of the company and the group nor have affected the amounts reported for the current or prior years, except for HKAS 39 & HKFRS 4 (Amendments).

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. During the current and prior years, the company provided a guarantee to a bank in connection with bank loans and other banking facilities granted to its subsidiaries. The adoption of this amendment has had no material impact on these financial statements.

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(Continued)

At the date of authorisation of these financial statements, the following HKFRSs relevant to the group were in issue but not yet effective:

Effective for annual periods beginning on or after

HKAS 1 (Amendment) Capital Disclosures 1 January 2007 HKFRS 7 Financial Instruments: Disclosures 1 January 2007 HK(IFRIC) — Int 8 Scope of HKFRS 2 1 May 2006 HK(IFRIC) — Int 9 Reassessment of Embedded Derivatives 1 June 2006 HK(IFRIC) — Int 10 Interim Financial Reporting and Impairment 1 November 2006 HK(IFRIC) — Int 11 HKFRS 2 — Group and Treasury Share 1 March 2007 Transactions

The group is in the process of making an assessment of what the impact of these new or revised HKFRSs is expected to be in the period of initial application.

4. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable HKFRSs, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”).

(b) Basis of preparation of financial statements

The consolidated financial statements have been prepared under the historical cost convention, as modified for the revaluation of available-for-sale investments which are carried at fair value.

(c) Consolidation

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

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

All significant intercompany transactions, balances and unrealised gains on transactions between group enterprises are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment on the asset transferred.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the group.

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(c) Consolidation (Continued)

Minority interest in the net assets of consolidated subsidiaries is identified separately from the group’s equity therein. Minority interest consists of the amount of the interest at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

(d) Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities assumed in a business combination are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

(e) Subsidiaries

A subsidiary is an entity whose financial and operating policies the company controls, directly or indirectly, so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another enterprise.

Interests in subsidiaries are included in the company’s balance sheet at cost less any impairment losses. The results of subsidiaries are accounted for by the company on the basis of dividends received and receivable.

(f) Associates

An associate is an enterprise, not being a subsidiary nor an interest in a joint venture, over which the group is in a position to exercise significant influence, through participation in the financial and operating policy decisions of the investee.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, interests in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the group’s share of the net assets of the associates, less impairment in the value of individual investments. Losses of an associate in excess of the group’s interest in that associate are not recognised. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Where a group enterprise transacts with an associate of the group, unrealised gains and losses are eliminated to the extent of the group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the assets transferred.

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(g) Joint venture

A joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity which is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

Joint venture arrangement which involves the establishment of a separate entity in which each venturer has an interest is referred to as a jointly-controlled entity. The group reports its interest in a jointly-controlled entity using the equity method of accounting. Under the equity method, investment in a jointly-controlled entity is carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the group’s share of the net assets of the jointly-controlled entity, less impairment in the value of individual investments. Losses of a jointly-controlled entity in excess of the group’s interest in that jointly-controlled entity are not recognised. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Where a group enterprise transacts with a jointly-controlled entity of the group, unrealised gains and losses are eliminated to the extent of the group’s interest in the joint venture, except where unrealised losses provide evidence of an impairment of the assets transferred.

(h) Goodwill

Goodwill represents the excess of the cost of acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill on acquisitions of subsidiaries is presented separately.

For the purpose of impairment testing, goodwill is allocated to each of the group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Gain or loss on the disposal of a subsidiary or its underlying business includes the carrying amount of goodwill relating to the subsidiary or its underlying business sold.

(i) Property, plant and equipment

Buildings held for use in production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their historical cost, less any subsequent accumulated depreciation and accumulated impairment losses. Other property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost less any recognised impairment losses. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(i) Property, plant and equipment (Continued)

Historical 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 asset has been put into operation, such as repairs and maintenance and overhaul costs, is charged to profit or loss 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 assets, the expenditure is capitalised as an additional cost of the asset or a separate asset.

Depreciation is charged so as to write off the cost of assets, other than properties under construction, over their estimated useful lives, using the straight-line method. The useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The principal annual rates are as follows:

Buildings	2% to 5%
Leasehold improvements	20%
Plant and machinery	6.67%
Furniture and fixtures	20%
Office equipment	10% to 20%
Motor vehicles	10% to 30%

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss.

(j) Impairment of assets excluding goodwill

Assets that have an indefinite useful life are not subject to amortisation and tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit and loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes cost of purchase of materials computed using the first-in-first-out method and, in the case of work in progress and finished goods, direct labour and an appropriate proportion of production overheads. Net realisable value is determined by reference to the anticipated sales proceeds of items sold in the ordinary course of business less estimated selling expenses after the balance sheet date or to management estimates based on prevailing market conditions.

(l) Financial instruments

Financial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual provisions of the instrument.

(i) Trade and other receivables

Receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate provisions for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The provision recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

(ii) Investments

Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs.

Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss.

(iii) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(l) Financial instruments (Continued)

• (iv) Financial liabilities and equity

Financial liabilities and equity instruments issued by the group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

(v) Borrowings

Interest-bearing bank loans, import and export loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the group’s accounting policy for borrowing costs.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(vi) Warrants

The premium received on issue of warrants is included in capital reserve under equity of the company until the warrants expire when it is released directly to accumulated losses.

• (vii) Trade and other payables

Payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

• (viii) Equity instruments

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

(m) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term.

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(n) Provisions and contingent liabilities

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

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

(o) Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax liabilities are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. However, such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

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

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(p) Translation of foreign currencies

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are expressed in Hong Kong dollars which is the functional currency of the company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, foreign currency transactions are translated into Hong Kong dollars, being the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operation (including comparatives) are expressed in Hong Kong dollars using exchange rates prevailing on the balance sheet date. Income and expenses items (including comparatives) are translated at the average exchange rates at the dates of the transactions. Exchange differences arising, if any, are classified as equity and transferred to the group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

(q) Employees’ benefits

• i) Short term benefits

Employee entitlements to annual leave and long service payment are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

ii) Pension obligations

Contributions to the Mandatory Provident Fund scheme as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance are charged to profit or loss when incurred. The group has no further payment obligations once the contribution has been made.

The employees of the group’s subsidiary which operates in the People’s Republic of China (the “PRC”) are required to participate in a central pension scheme operated by the local municipal government. This subsidiary is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to the profit or loss as they become payable in accordance with the rules of the central pension scheme.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(q) Employees’ benefits (Continued)

iii) Share-based payments

The group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of nontransferability, exercise restrictions and behavioural considerations.

(r) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(s) Related parties

Two parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the group or of any entity that is a related party of the group.

(t) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and exclude value added tax.

• i) Revenue from the sale of products is recognised when the group entity has delivered products to the customer; the customer has accepted the products and collectibility of the related receivable is reasonably assured.

• ii) Interest income is accrued on a time-apportioned basis by reference to the principal outstanding using the effective interest rate method.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In determining whether an asset including goodwill is impaired or the event previously causing the impairment no longer exists, the group has to exercise judgment in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may effect the asset value or such event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

Estimation uncertainty

The group also makes estimates and assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are in relation to share option expense.

Share option expense is subject to the limitations of the option pricing models adopted and the uncertainty in estimates used by management in the assumptions. Should the estimates including limited early exercise behaviour, expected interval and frequency of open exercise periods in the share option life and the relevant parameters of the share option model be changed, there would be material changes in the amount of share option benefits recognised in the income statement and capital reserve.

6. SEGMENT INFORMATION

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

The group’s operating businesses are structured and managed separately according to the nature of their operations and the products they provide. Each of the group’s business segments represents a strategic business unit that offers products which are subject to risks and returns that are different from those of the other business segments. The business segments of the group are businesses of woven wear, knitwear, sweaters and premium products.

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

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

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. SEGMENT INFORMATION (Continued)

(a) Business segments

The following tables present revenue, results and certain assets, liabilities and expenditure information for the group’s business segments for the years ended 31 March 2007 and 2006.

SEGMENT REVENUE SEGMENT RESULTS Finance costs Tax penalties and surcharges Impairment loss on goodwill Share of results of associates Share of results of a jointly-controlled entity Loss before taxation Income tax Loss for the year Attributable to: Equity holders of the Company Minority interest	Woven wear HK$’000 71,333 (224)	For the year ended 31 March 2007 Consolidated Knitwear Sweaters Premium total HK$’000 HK$’000 HK$’000 HK$’000 52,949 35,283 6,864 166,429 (632) (1,704) 901 (1,659) (2,728) (3,759) (19,458) (1,480) (2,439) (31,523) (7,831) (39,354) (38,684) (670) (39,354)

	Woven					Consolidated
	Wear	Knitwear	Sweaters	Premium	Others	total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Assets and liabilities:
Segment assets	10,065	2,421	15,779	25	—	28,290
Unallocated assets	—	—	—	—	46,263	46,263
Total assets						74,553
Segment liabilities	2,787	1,578	10,592	13	—	14,970
Unallocated liabilities	—	—	—	—	23,992	23,992
Total liabilities						38,962
Other segment information:
Deprecation	—	575	675	—	202	1,452
Amortisation	—	—	162	—	86	248
Impairment loss on inventories	—	—	464	—	—	464
Impairment loss on trade
and other receivables	—	—	70	—	284	354
Impairment loss on goodwill	—	—	—	—	19,458	19,458
Capital expenditure	—	6,996	892	—	54	7,942
Loss on disposal of property,
plant and equipment	—	—	127	—	—	127

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. SEGMENT INFORMATION (Continued)

(a) Business segments (Continued)

Woven wear HK$’000 SEGMENT REVENUE 73,264 SEGMENT RESULTS (8,194) Finance costs Impairment loss on available-for-sale investments Share of results of associates Loss before taxation Income tax Loss for the year Attributable to: Equity holders of the Company Minority interest	For the year ended 31 March 2006 Consolidated Knitwear Sweaters Premium total HK$’000 HK$’000 HK$’000 HK$’000 100,526 12,431 8,060 194,281 (149) (1,002) (1,039) (10,384) (3,651) (23,657) (915) (38,607) — (38,607) (36,945) (1,662) (38,607)

	Woven					Consolidated
	wear	Knitwear	Sweaters	Premium	Others	total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Assets and liabilities:
Segment assets	3,744	30,054	11,788	462	—	46,048
Unallocated assets	—	—	—	—	56,018	56,018
Total assets						102,066
Segment liabilities	5,354	18,181	5,962	1,778	—	31,275
Uallocated liabilities	—	—	—	—	7,743	7,743
Total liabilities						39,018
Other segment information:
Deprecation		679	675		491	1,845
Amortisation		35			86	121
Impairment loss on property,
plant and equipment					4,831	4,831
Impairment loss on inventories		713				713
Impairment loss of trade and
other receivables		858				858
Impairment loss on
available-for-sale investments					23,657	23,657
Capital expenditure		4,309			276	4,585

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. SEGMENT INFORMATION (Continued)

(b) Geographical segments

Segment revenue Segment results Other segment information: Segment assets Unallocated assets Total assets Capital expenditure Segment revenue Segment results Other segment information: Segment assets Unallocated assets Total assets Capital expenditure

For the year ended 31 March 2007 Chile PRC Others Consolidated HK$’000 HK$’000 HK$’000 HK$’000 93,322 24,492 48,615 166,429 (1,034) (1,789) 1,164 (1,659) 7,035 14,588 — 21,623 — — 52,930 52,930 74,553 — 7,888 54 7,942 For the year ended 31 March 2006 Chile PRC Others Consolidated HK$’000 HK$’000 HK$’000 HK$’000 93,396 19,387 81,498 194,281 (5,058) (1,586) (3,740) (10,384) 2,455 41,548 — 44,003 — — 58,063 58,063 102,066 — 4,309 276 4,585

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. TURNOVER, OTHER REVENUE AND GAINS

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

An analysis of the group’s turnover, other revenue and gains is as follows:

Turnover: Sale of goods Other revenue and gains: Interest income Sale of scrap inventories, net Sundry income Net exchange gains FINANCE COSTS Interest expense: Bank loans and overdrafts wholly repayable within five years Import and export loans wholly repayable within five years Amount due to a related party Bank charges	2007 HK$’000 166,429 44 470 269 18 801 2007 HK$’000 654 551 120 1,325 1,403 2,728	2006 HK$’000 194,281
		133 145 — 376
		654
		2006 HK$’000 1,243 212 40
		1,495 2,156
		3,651

8. FINANCE COSTS

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging:— Employees benefit expenses (excluding directors’ remuneration_(note 10(a))_):— Wages and salaries Pension fund contributions Share option expense Depreciation Amortisation of leasehold land and land use rights Auditor’s remuneration Rental payment in respect of premises under operating leases Loss on disposal of property, plant and equipment Impairment loss on inventories (included in cost of sales)	2007 HK$’000 3,881 158 281 4,320 1,452 248 680 346 127 464	2006 HK$’000
		5,476 340 —
		5,816 1,845 121 449 582 — 713

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ remuneration

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors	Salaries and Pension Employee benefits Name of directors Fees allowances fund contributions share options Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Executive directors Cheung Keng Ching — 520 1,430 216 12 12 34 — 1,476 748 Chou Mei — 260 1,170 166 12 12 34 — 1,216 438 Lau Ka Man, Kevin — 331 — — — 7 — — — 338 Chan Ching Kee, William — — 115 — 2 — — — 117 — Chung Kam Fung, Kennis — — 196 — 5 — 49 — 250 — — 1,111 2,911 382 31 31 117 — 3,059 1,524 Independent non-executive directors
										1,524
	s
Chow Chi Kit To Yan Ming, Edmond Hung Muk Ming Wong Lai Fong Wong Kin Tak Lo Siu Tong, Alfred Wan Ngar Yin, David Wong Lai Wah, Ada	— — — — — 12 78 72 162 162	9 9 66 48 48 3 19 8 210 1,321	— — — — — — — — — 2,911	— — — — — — — — — 382	— — — — — — — — — 31	— — — — — — — — — 31	— — — — — — 9 — 9 126	— — — — — — — — — —	— — — — — 12 87 72 171 3,230	9 9 66 48 48 3 19 8
										210
										1,734

During the year, certain directors were granted share options, in respect of their services to the group, under the share option scheme of the company, further details of which are set out in note 28 to the financial statements. The fair value of such options which has been expensed the income statement over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above directors’ remuneration disclosures.

During the year, no remuneration was paid by the group to the directors as an inducement to join or upon joining the group or as compensation for loss of office. There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (Continued)

(b) Five highest paid individuals

The five highest paid employees during the year included two (2006: three) directors, details of whose remuneration are set out in note (a) above. Details of the remuneration of the remaining three (2006: two) non-director, highest paid employees for the year are as follows:

Salaries and other benefits Pension fund contributions	2007 HK$’000 752 32 784	2006 HK$’000 567 11
		578

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

Nil to $1,000,000 INCOME TAX Current year provision for Hong Kong profits tax Under provision in prior years_(note ii)_	2007 3 2007 HK$’000 474 7,357 7,831	2006 2
		2006 HK$’000 — —
		—

11. INCOME TAX

Provision for Hong Kong profits tax is calculated at 17.5% on the estimated assessable profits for the year ended 31 March 2007. In prior year, no provision had been made for Hong Kong profits tax as the group companies sustained losses during the year ended 31 March 2006. Taxation for overseas subsidiaries is similarly charged at the appropriate current rates of taxation ruling in the relevant countries.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. INCOME TAX (Continued)

• (i) Taxation for the year can be reconciled to the accounting loss as follows:

For the year ended 31 March 2007

Loss before taxation Tax calculated at the statutory tax rate Tax effect of expenses not deductible for taxation purposes Tax effect of income not taxable for taxation purposes Profits and losses attributable to associates and a jointly – controlled entity Under provision in prior years Tax effect of tax losses not recognised Income tax for the year For the year ended 31 March 2006 Loss before taxation Tax calculated at the statutory tax rate Tax effect of expenses not deductible for taxation purposes Tax effect of income not taxable for taxation purposes Tax effect of tax losses and other deferred tax assets not recognised Income tax for the year	Hong Kong HK$’000 (26,080) (4,564) 4,272 (3) — 7,357 769 7,831 Hong Kong HK$’000 (34,282) (5,999) 6,822 (2,998) 2,175 —	The PRC HK$’000 (5,443) (1,797) — — 1,337 — 460 — The PRC HK$’000 (4,325) (1,038) — — 1,038 —	Total HK$’000 (31,523) (6,361) 4,272 (3) 1,337 7,357 1,229 7,831 Total HK$’000 (38,607) (7,037) 6,822 (2,998) 3,213 —

At 31 March 2007, the group has unused tax losses of $22,300,000 (2006: $16,512,000) available for offset against future profits and temporary differences of $4,831,000 (2006: $4,831,000). No deferred tax asset has been recognised as at 31 March 2006 and 2007 in respect of such losses and temporary differences due to the unpredictability of future profit streams.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. INCOME TAX (Continued)

• (ii) Since December 2002, Rontex Holdings Limited (“RHL”) and Ronco Trading Company Limited (“Ronco”), subsidiaries of the company, had been queried by the Inland Revenue Department of the Hong Kong Special Administrative Region Government (the “IRD”) in respect of sales and marketing support service expenses claimed by RHL and Ronco as deductible expenses in their profits tax computations. As at 31 March 2006, the IRD raised queries to RHL and Ronco for the years of assessments 2000/2001, 2001/2002, 2002/2003, and 2003/2004.

During the year ended 31 March 2007, IRD disallowed certain deduction of sales and marketing support services expenses of RHL and Ronco in their profits tax computations for the aforementioned years of assessment and raised additional tax assessments of $6,903,000 and $454,000 respectively. Moreover, tax penalties and surcharges of $3,559,000 and $200,000 were imposed by IRD on RHL and Ronco respectively. The above amounts were agreed to be settled by instalments until fully settled in October 2007.

Pursuant to a deed of indemnity dated 25 October 2002 from Star Master, Cheung Keng Ching and Chou Mei, shareholders of the company (collectively referred as the “Indemnifiers”), who agreed to indemnify, on a joint and several basis, the group against all additional taxation liabilities, penalties, surcharges and other relevant costs falling on any members of the group in respect of any accounting period ended or before 31 March 2002, which amounted to $4,233,000. The indemnified amount of $4,233,000 obligated by the Indemnifiers is accounted for as contributions from equity holders of the company, and credited to capital reserve of the group during the year.

During the year ended 31 March 2007, the Indemnifiers had settled $1,743,000. Accordingly, as at 31 March 2007, the group’s receivable from the Indemnifiers amounted to $2,490,000, which was unsecured, interest free and fully settled by 31 May 2007.

12. LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss from ordinary activities attributable to equity holders of the company for the year ended 31 March 2007 includes a loss of $65,673,000 (2006: a profit of $16,037,000) which has been dealt with in the financial statements of the company (note 27).

13. LOSS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The calculation of basic loss per share is based on the loss for the year attributable to equity holders of the company of $38,684,000 (2006: $36,945,000) and the weighted average number of ordinary shares in issue during the year of 1,644,208,433 shares (2006: 1,629,468,661 shares).

Diluted loss per share for the years ended 31 March 2006 and 2007 have not been disclosed, as the warrants and the share options outstanding during these years had an anti-dilutive effect on the basic loss per share for both years.

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. LEASEHOLD LAND AND LAND USE RIGHTS

The group Note Cost: At beginning of year Reclassified from property plant and equipment 15 Additions Reclassification of interest in a subsidiary into a jointly-controlled entity 31 Exchange realignment At end of year Accumulated amortisation: At beginning of year Charge for the year Reclassification of interest in a subsidiary into a jointly-controlled entity 31 Exchange realignment At end of year Net book value: At 31 March Current portion included in other receivables, deposits and prepayments Non-current portion	2007 HK$’000 13,509 1,073 783 (1,747) 49 13,667 783 248 (138) 4 897 12,770 124 12,646 12,770	2006 HK$’000 13,476 — — — 33
		13,509
		662 121 — —
		783
		12,726
		282 12,444
		12,726

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. LEASEHOLD LAND AND LAND USE RIGHTS (Continued)

The group’s leasehold land and land use rights represent prepaid operating lease payments and their net book value is analysed as follows:

Current portion Located in Hong Kong, held under long-term leases Located in PRC, held under medium-term leases Non-current portion Located in Hong Kong, held under long-term leases Located in PRC, held under medium-term leases	2007 HK$’000 86 161 247 10,944 1,579 12,770	2006 HK$’000 86 35
		121 11,030 1,575
		12,726

At 31 March 2007, certain of the group’s leasehold land and land use rights with an aggregate net book value of approximately $11,030,000 (2006: $12,726,000) were pledged to secure banking facilities granted to the group (notes 24 and 32(a)).

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

15. PROPERTY, PLANT AND EQUIPMENT

The group At cost: At 1 April 2005 Additions Transfer from construction in progress Exchange realignment At 31 March 2006 and 1 April 2006 Additions Reclassified to leasehold land and land use rights (note 14) Disposal Reclassification of interest in a subsidiary into a jointly- controlled entity_(note 31) Exchange realignment At 31 March 2007 Accumulated depreciation and impairment: At 1 April 2005 Charge for the year Impairment Exchange realignment At 31 March 2006 and 1 April 2006 Charge for the year Written back on disposal Reclassification of interest in a subsidiary into a jointly- controlled entity(note 31)_ Exchange realignment At 31 March 2007 Net book value: At 31 March 2007 At 31 March 2006	Construction Leasehold Buildings in progress improvements HK$’000 HK$’000 HK$’000 22,638 2,019 5,871 535 3,363 100 386 (386) — 331 53 112 23,890 5,049 6,083 142 3,678 — (1,073) — — — — — (4,510) (8,799) (2,997) 360 72 60 18,809 — 3,146 3,101 — 2,578 801 — 270 4,830 — — 23 — 8 8,755 — 2,856 700 — 131 — — — (949) — (550) 45 — 8 8,551 — 2,445 10,258 — 701 15,135 5,049 3,227	Plant and Furniture machinery and fixtures HK$’000 HK$’000 3,526 2,185 411 129 — — 119 46 4,056 2,360 2,399 11 — — (217) — (5,364) (1,434) 94 25 968 962 513 1,035 283 247 — — 11 8 807 1,290 359 53 (35) — (903) (533) 17 10 245 820 723 142 3,249 1,070	Office equipment HK$’000 947 47 — — 994 367 — — (312) 2 1,051 935 11 — — 946 50 — (33) — 963 88 48	Motor vehicles HK$’000 2,415 — — 51 2,466 562 — — (2,084) 36 980 895 233 — 7 1,135 159 — (560) 12 746 234 1,331	Total HK$’000 39,601 4,585 — 712 44,898 7,159 (1,073) (217) (25,500) 649 25,916 9,057 1,845 4,830 57 15,789 1,452 (35) (3,528) 92 13,770 12,146 29,109

As at 31 March 2007, the group’s buildings with a carrying amount of approximately $10,258,000 (2006: $15,135,000) were pledged to banks under fixed charges for banking facilities granted to the group (notes 24 and 32(a)).

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Less: Impairment loss Amounts due to subsidiaries	The company 2007 2006 HK$’000 HK$’000 42,779 42,769 68,728 68,346 111,507 111,115 (62,300) — 49,207 111,115 (23,152) (23,144) 26,055 87,971

The amounts due from subsidiaries are unsecured, interest free and are not repayable within twelve months after the balance sheet date. The carrying amount of the amounts due from subsidiaries approximates their fair value and in substance represents the company’s interests in the subsidiaries in the form of quasiequity loans.

The amounts due to subsidiaries are unsecured, interest free and have no fixed terms of repayment. The carrying amount of the amounts due to subsidiaries approximates their fair value.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. INTERESTS IN SUBSIDIARIES (Continued)

Particulars of the principal subsidiaries during the year ended 31 March 2007 are as follows:—

	Place of	Particulars of issued
	incorporation/	and paid-up share	Percentage of
	establishment	capital/	equity attributable
Name of company	and operation	registered capital	to the company		Principal activities
			2007	2006
Falcon Vision Limited	The British Virgin	Ordinary US$1,000	100	100	Investment holding
	Islands
Keen Choice Technology	Hong Kong	Ordinary HK$10,000	100	100	Investment holding
Limited
Rontex Apparel Limited	Hong Kong	Ordinary HK$1	100	100	Trading of garment and
					premium products
Rontex Holdings Limited	Hong Kong	Ordinary HK$100,000	100	100	Trading of garment
					products
Ronco Trading Company	Hong Kong	Ordinary HK$1,000,000	100	100	Trading of garment and
Limited					premium products and
					investment holding
Take Luck Development	Hong Kong	Ordinary HK$10,000	100	100	Property holding and
Limited					investment holding
Wisefull International	Hong Kong	Ordinary HK$10,000	100	100	Investment holding
Limited (“Wisefull”)
寧波朗迪紡織品有限公司	The PRC	USD1,209,100	51	51	Manufacture and sale of
(Rontex Co., Ltd.)			(Note 1)		garment products
湖洲朗迪毛衫有限公司	The PRC	USD1,380,000	52	52	Manufacture and sale of
(Huzhou Ronco Sweater					garment products
Co., Ltd.)(Note 2)

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. INTERESTS IN SUBSIDIARIES (Continued)

Notes:

1. Commencing from 1 October 2006, the group has lost its unilateral control over Rontex Co., Ltd., a 51%owned subsidiary of the company as at 31 March 2006 and 30 September 2006 but has joint control over it. Accordingly, Ronco Co., Ltd. became a jointly-controlled entity of the group since 1 October 2006. Further details are set out in notes 18 and 31 to the financial statements.

2. Huzhou Ronco Sweater Co., Ltd. (“Huzhou Ronco”) was established as a Sino-foreign equity joint venture in the PRC.

Except for Falcon Vision Limited and Valuepoint Holdings Limited, which are directly held by the company, all other subsidiaries are indirectly held.

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

17. INTERESTS IN ASSOCIATES

Share of net assets Advance to an associate	The group 2007 2006 HK$’000 HK$’000 14,053 15,735 1,057 1,057 15,110 16,792	The group 2007 2006 HK$’000 HK$’000 14,053 15,735 1,057 1,057 15,110 16,792
		16,792

Advance to the associate is unsecured, interest free and in substance represents the group’s interest in the associate in the form of a quasi-equity loan. The carrying amount of the advance to the associate approximates to its fair value.

Particulars of the group’s associates, all of which are unlisted entities, are as follows:—

			Percentage of	Percentage of	Percentage of
	Form of	Place of	equity	interest	voting power
	business	establishment	attributable		held by
Name of company	structure	and operation	to the company		the company	Principal activities
北京朗迪服裝有限公司	Corporate	The PRC		40	40	Manufacture and sale
(Beijing Rontex						of garment products
Garments Co., Ltd.)
北京朗坤服裝有限公司	Corporate	The PRC		30	30	Manufacture and sale
(Beijing Longkun						of garment products
Garments Co., Ltd.
(“Beijing Longkun”))

The above companies are not audited by Shu Lun Pan Horwath Hong Kong CPA Limited.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTERESTS IN ASSOCIATES (Continued)

Summarised financial information in respect of the group’s associates is set out below:

Turnover Loss for the year Loss attributable to the group Total assets Total liabilities Net assets Net assets attributable to the group INTEREST IN A JOINTLY-CONTROLLED ENTITY Share of net assets	2007 2006 HK$’000 HK$’000 117,760 83,788 (3,108) (2,966) (1,480) (915) 116,560 108,429 (66,075) (54,836) 50,485 53,593 14,053 15,735 The group 2007 2006 HK$’000 HK$’000 2,631 —

18. INTEREST IN A JOINTLY-CONTROLLED ENTITY

Particulars of the group’s jointly-controlled entity are as follows:—

			Percentage of
		Place of	equity interest
	Form of	establishment	indirectly held
Name of company	business structure	and operation	by the company	Principal activity
Rontex Co., Ltd.	Corporate	The PRC	51	Manufacture and
				sale of garment products

The above company is not audited by Shu Lun Pan Horwath Hong Kong CPA Limited.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. INTEREST IN A JOINTLY-CONTROLLED ENTITY (Continued)

Summarised financial information on jointly controlled entity — group’s effective interest is as follows:

Non-current assets Current assets Current liabilities Net assets Income Expenses Loss for the year	2007 HK$’000 14,634 7,964 (19,967)
	2,631
	10,589 (13,028)
	(2,439)

Commencing from 1 October 2006, Rontex Co., Ltd., a 51%-owned subsidiary of the company as at 31 March 2006 and 30 September 2006, became a jointly-controlled entity of the group. In the opinion of the directors of the company, the group could no longer exercise unilateral control over the financial and operating activities of Rontex Co., Ltd. following the loss of its controlling voting power over Rontex Co., Ltd., whereas the group has joint control thereon since 1 October 2006. Further details are set out in note 31 to the financial statements.

19. GOODWILL

Cost: At beginning of year Acquisition of a subsidiary Impairment during the year At end of year	2007 HK$’000 19,458 — (19,458) —	2006 HK$’000 — 19,458 —
		19,458

The goodwill arose from the acquisition of Wisefull in previous year.

The directors reassessed the recoverable amount of goodwill as at 31 March 2007 by reference to the valuation as at 31 March 2007 performed by BMI Appraisals Limited, an independent firm of professional valuers. The recoverable amount of the cash generating unit (“CGU”) of Wisefull are determined by the professional valuers based on the present value of the expected future revenue arising from the operation of the underlying assets of the CGU. These calculations resulted a nil value-in-use amount on the value of goodwill.

The CGU has therefore been reduced to its nil recoverable amount through recognition of a full impairment loss on goodwill of $19,458,000.

The directors believe that due to increasing competition in the textile industry in the PRC, the growth rate for Beijing Longkun is expected to be levelled off, resulting in the significant impairment loss for the year.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. GOODWILL (Continued)

Key assumptions used for value-in-use calculation:

Growth rate Discount rate 20. AVAILABLE-FOR-SALE INVESTMENTS Listed equity securities — Hong Kong, at fair value	2007 2006 % % 10 22.3 11.12 17.65 The group 2007 2006 HK$’000 HK$’000 1,573 688	2006 % 22.3 17.65

The investments included above represented investments in listed equity securities that offered the group the opportunity for return through dividend income and fair value gains. They had no fixed maturity or coupon rate and were disposed of after the year end. The fair values of these securities were based on quoted market prices.

21. INVENTORIES

Inventories comprise:— Raw materials Work in progress Finished goods	The group 2007 2006 HK$’000 HK$’000 1,552 1,561 1,065 1,799 344 2,005 2,961 5,365	The group 2007 2006 HK$’000 HK$’000 1,552 1,561 1,065 1,799 344 2,005 2,961 5,365
		5,365

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. TRADE RECEIVABLES

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

Within 30 days 31 to 60 days 61 to 90 days Over 90 days Less: Impairment loss on trade receivables	The group 2007 2006 HK$’000 HK$’000 2,278 7,049 6,828 41 4,071 103 1,578 1,330 14,755 8,523 (354) (692) 14,401 7,831	The group 2007 2006 HK$’000 HK$’000 2,278 7,049 6,828 41 4,071 103 1,578 1,330 14,755 8,523 (354) (692) 14,401 7,831
		8,523 (692)
		7,831

The directors consider that the carrying amount of the group’s trade receivables approximates their fair value.

23. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits	The group 2007 2006 HK$’000 HK$’000 5,426 3,573 — 1,143 5,426 4,716	The company 2007 2006 HK$’000 HK$’000 3,232 24 — — 3,232 24	The company 2007 2006 HK$’000 HK$’000 3,232 24 — — 3,232 24
			24

At the balance sheet date, the cash and cash equivalents of the group denominated in Renminbi (“RMB”) amounted to $914,000 (2006: $732,000). The RMB is not freely convertible into other currencies; However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the group, and earn interest at the respective short term time deposit rates. The carrying amount of the cash and cash equivalents approximates their fair value.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. INTEREST-BEARING BANK BORROWINGS, SECURED

The following bank borrowings are repayable on demand or within one year:

Bank loans Import and export loans Bank overdrafts	2007 HK$’000 5,767 8,835 1,462 16,064	2006 HK$’000 7,843 2,024 939
		10,806

All the bank borrowings are floating-rate borrowings, thus exposing the group to cash flow interest rate risk. The effective interest rates range from 5.58% to 7.26% (2006: 5.22% to 7.40%) per annum.

The group’s bank loans, import and export loans and overdrafts are denominated in RMB, United States dollars and Hong Kong dollars, respectively. The directors consider that the carrying amount of the bank borrowings approximates their fair value.

The group’s bank borrowings are secured by the leasehold land and buildings held by the group with carrying values of approximately $11,030,000 (2006: $12,726,000) (note 14) and $10,258,000 (2006: $15,135,000) (note 15), respectively.

25. TRADE PAYABLES

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

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	The group 2007 2006 HK$’000 HK$’000 1,161 7,569 1,358 2,519 427 4,256 1,267 280 4,213 14,624	The group 2007 2006 HK$’000 HK$’000 1,161 7,569 1,358 2,519 427 4,256 1,267 280 4,213 14,624
		14,624

The trade payables are interest free and normally settled on 90-day terms.

The directors consider that the carrying amount of the group’s trade payables approximates their fair value.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. SHARE CAPITAL

Authorised: 10,000,000,000 ordinary shares of $0.01 each Issued and fully paid: 1,807,497,200 (2006: 1,629,497,200) ordinary shares of $0.01 each	2007 HK$’000 100,000 18,075	2006 HK$’000 100,000
		16,295

A summary of the movements in the issued and fully paid share capital of the company during the year is as follows:

Ordinary shares of $0.01 each: Authorised Issued and fully paid: At beginning of the year Exercise of bonus warrants Exercise of warrants (note (i)) Exercise of share options (note (ii)) At end of the year	Number of shares 2007 2006 10,000,000,000 10,000,000,000 1,629,497,200 1,629,364,000 — 133,200 90,000,000 — 88,000,000 — 1,807,497,200 1,629,497,200	Nominal value 2007 2006 HK$’000 HK$’000 100,000 100,000 16,295 16,294 — 1 900 — 880 — 18,075 16,295	Nominal value 2007 2006 HK$’000 HK$’000 100,000 100,000 16,295 16,294 — 1 900 — 880 — 18,075 16,295
			16,294 1 — —
			16,295

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

Note:

• (i) During the year ended 31 March 2007, 90,000,000 new ordinary shares of par value $0.01 each were issued at a subscription price of $0.043 each on exercise of 90,000,000 warrants with an aggregate consideration of $3,870,000, of which $900,000 was credited to share capital and the remaining balance of $2,970,000 was credited to the share premium account. In addition, the related net premium of $795,000 received on issue of warrants has been transferred from capital reserve to the share premium account (note 29(b)).

• (ii) During the year ended 31 March 2007, 88,000,000 new ordinary shares of par value $0.01 each were issued at a subscription price of $0.044 each on exercise of 88,000,000 share options at an aggregate consideration of $3,872,000, of which $880,000 was credited to share capital and the remaining balance of $2,992,000 was credited to the share premium account. In addition, amount of $543,000 attributable to the related share options of $543,000 has been transferred from capital reserve to the share premium account.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. RESERVES

The company At 1 April 2005 Issue of shares on exercise of bonus warrants Profit for the year (note 12) At 31 March 2006 and 1 April 2006 Premium received on issue of warrants (note 29(a)) Issue of new shares on exercise of warrants Issue of share options (note 28) Issue of new shares on exercise of share options Loss for the year_(note 12)_ At 31 March 2007	Share premium HK$’000 15,282 12 15,294 — 3,765 — 3,535 — 22,594	Contributed surplus HK$’000 (note a) 42,569 — — 42,569 — — — — — 42,569	(Accumulated losses)/ Capital retained reserve profits HK$’000 HK$’000 (note b) — (2,159) — — — 16,037 — 13,878 2,296 — (795) — 800 — (543) — — (65,673) 1,758 (51,795)	Total HK$’000 55,692 12 16,037 71,741 2,296 2,970 800 2,992 (65,673) 15,126

Note a: At the balance sheet date, the contributed surplus of the company represents the excess of the fair value of the subsidiaries acquired pursuant to the group reorganisation over the nominal value of the shares of the company issued in exchange therefor.

Under the Companies Law (2001 Second Revision) of the Cayman Islands, the contributed surplus account is distributable to the shareholders of the company under certain circumstances.

Note b: At the balance sheet date, the capital reserve of the company represents (i) premium received in respect of the outstanding warrants of the company; and (ii) the fair value at respective grant dates in respect of the outstanding share options of the company.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. SHARE OPTION SCHEME

The company operates a share option scheme (the “Scheme”) for the purpose of providing incentives or rewards to eligible persons for their contributions to the group. Eligible persons of the Scheme include any full-time or part-time employees of the company or any member of the group, including any directors, advisors or consultants of the group. The Scheme became effective upon the listing of the company’s shares on the Stock Exchange on 8 November 2002, and unless otherwise cancelled or amended, will remain in force for a period of 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Scheme must not exceed 30% of the shares in issue from time to time.

Share options granted to a director, chief executive or substantial shareholder of the company, or to any of their associates (as defined under the Listing Rule), are subject to approval by all independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the company, or to any of their associates, in excess of 0.1% of the shares of the company in issue at any time or with an aggregate value (based on the closing price of the company’s shares at the date of the grant) in excess of $5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted for a period of 28 days from the date of the offer, upon payment of a nominal consideration of $1 in total by the grantee. The exercisable period of the share options granted is determined by the directors, which the share options must be exercised in any event not later than 10 years or a shorter period as specified, from the date of grant. The Scheme does not require a minimum period for which the share options must be held or a performance target which must be achieved before the share options can be exercised.

The exercise price of the share options granted is not recorded in the balance sheet of the company nor the group until such time as the options are exercised. Upon the exercise of the share options, the resulting shares issued are recorded by the company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the company in the share premium account. Options which are cancelled prior to their exercisable date are deleted from the register of outstanding options.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

– 61 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

28. SHARE OPTION SCHEME (Continued)

The following is the movement of share options outstanding under the Scheme during the period from 1 April 2006 to 31 March 2007:

Name or category of participant At 01/04/2006 Number Directors Cheung Keng Ching 7,400,000 (“Mr Cheung”) — Chou Mei (“Mrs Cheung”) 7,400,000 — Chung Kam Fung, Kennis — Wan Ngar Yin, David — Employees other than directors In aggregate 19,224,000 — Consultants In aggregate — 34,024,000	Granted during the year Number — 5,500,000 — 5,500,000 8,000,000 1,500,000 — 25,000,000 84,000,000	Exercised during the year Number — — — (5,500,000) (8,000,000) (1,500,000) — (25,000,000) (48,000,000) (88,000,000)	Lapsed during the year Number (note 1) — — — — — — (5,520,000) — — (5,520,000)	Adjusted closing price of the company’s share on 3 November 2003 Adjusted immediately Date of Exercise exercise before grant At grant of period of price of date of share 31/03/2007 share options share options share option options Number HK$ HK$ (note 2) (note 3) (note 4) 7,400,000 04/11/2003 01/11/2003 to 0.3325 0.35 03/11/2008 5,500,000 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 7,400,000 04/11/2003 04/11/2003 to 0.3325 0.35 03/11/2008 — 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 — 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 — 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 13,704,000 04/11/2003 04/11/2003 to 0.3325 0.35 03/11/2008 — 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 36,000,000 20/01/2007 20/01/2007 to 0.044 N/A 19/01/2010 70,004,000
	129,500,000

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. SHARE OPTION SCHEME (Continued)

Note:

1. Options lapsed during the year refer to share options held by employees who resigned during the year.

2. The vesting period of the share options is from the date of grant until the commencement of the exercise period.

3. The number of issuable shares and the exercise price of the share options are subject to adjustment in the case of capitalisation issue, rights issue, sub-division or consolidation of the company’s shares or reduction of capital of the company. On 20 February 2004, an ordinary resolution was passed in an extraordinary general meeting in connection with the bonus issue of shares on the basis of three bonus shares for every one existing share. The exercise price before adjustments was $1.33 per share.

4. Before the adjustment for the bonus issue of shares on 20 February 2004, the closing price of the company’s share immediately before the grant date of the share option was $1.40 per share.

At 31 March 2007, the company has 70,004,000 share options outstanding under the Scheme. The exercise of the entire outstanding share options would, under the capital structure of the company as at 31 March 2007, result in the issue of 70,004,000 additional ordinary shares of $0.01 each of the company and additional share capital of $700,040 and share premium account of $3,010,000 (before issue expense).

Valuation of share options

In respect of the share options granted before 1 April 2006, the directors do not consider it appropriate to disclose a theoretical value of the options granted, because a number of factors crucial for the valuation cannot be determined. Accordingly, the directors believe that any valuation of the share options based on various speculative assumptions would be meaningless and misleading the shareholders of the company.

The fair value of the share options granted during the year ended 31 March 2007 was estimated at $800,000 which was recognised as a share option expense during the year.

The above fair value was estimated as at the date of grant, using a Black Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Exercise price	$0.044
Expected volatility (%)	74.57
Risk-free interest rate (%)	3.795
Expected life of option (year)	0.24

The expected life of the options is based on the historical data over the past three years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. WARRANTS

On 23 January 2007, the Company entered into a placing agreement with VC Brokerage Limited, the placing agent to procure no less than six Placees to subscribe for an aggregate of 320,000,000 unlisted warrants (”Warrants”), on a best effort basis, at the issue price. Each Warrant was issued at a premium price of $0.01 in registered form and entitles the holder thereof to subscribe for fully-paid new shares at the initial subscription price of $0.043 per share, subject to adjustment from the date of issue, which was on 12 February 2007, to the date of expiry of one year from the date of issue, which is 11 February 2008 (both days inclusive in accordance with the terms of Warrants). The movements of the Warrants during the year are set out as follows:

• (a) On 1 February 2007, 260,000,000 Warrants were issued and subscribed by independent investors at a premium price of $0.01 each and the aggregate premium, net of issue expense, of approximately $2,296,000 was received. The amount was credited to capital reserve.

• (b) During the year ended 31 March 2007, 90,000,000 Warrants were exercised for 90,000,000 ordinary shares of $0.01 each at a subscriptions price of $0.043 per share and a net premium of $795,000 was transferred from capital reserve to the share premium account (note 26(i)). At the balance sheet date, the company has 170,000,000 Warrants outstanding. As disclosed in note 36(a) to the financial statements, 100,000,000 Warrants have been exercised subsequent to the balance sheet date.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. ACQUISITION OF A SUBSIDIARY

In August 2005, the group acquired 10,000 shares of $1.00 each in the issued share capital of Wisefull from independent vendors. Wisefull is an investment holding company and holds 30% interest in the issued share capital of Beijing Longkun which is principally engaged in the manufacture and sales of men’s suits. This transaction was accounted for by the acquisition method of accounting.

The fair value of the net assets acquired on the date of the transaction, and the goodwill arising, were as follows:

Net assets acquired: Investment in an associate Amounts due to shareholders Goodwill Satisfied by: Deposits	HK$’000 12,479 (4,216) 19,458
	27,721
	27,721

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of subsidiary was as follows:

Deposits and prepayment under non-current assets Net outflow of cash and cash equivalents in respect of the acquisition of subsidiary	2006 HK$’000 27,721
	—

Since the acquisition, Wisefull and Beijing Longkun had no turnover and contributed $1,255,000 to the group’s loss after tax and minority interest for the year ended 31 March 2006.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. RECLASSIFICATION OF INTEREST IN RONTEX CO., LTD. FROM A SUBSIDIARY INTO A JOINTLY-CONTROLLED ENTITY

As disclosed in notes 16 and 18 to the financial statements, the group accounted for the interest in Rontex Co., Ltd. as an interest in a jointly-controlled entity with effect from 1 October 2006. Accordingly, the group ceased to consolidate its results, assets and liabilities as a subsidiary since that date. The net assets of Rontex Co., Ltd. as at 30 September 2006 were as follows:—

Note Net assets reclassified: Land use rights 14 Property, plant and equipment 15 Inventories Trade receivables Other receivables Cash and cash equivalents Interest-bearing bank borrowings Trade payables Minority interest Reclassified as an interest in a jointly-controlled entity Analysis of the net cash outflow: Cash and cash equivalents	HK$’000 1,609 21,972 2,342 4,738 990 4,504 (17,568) (9,263) (4,544) 4,780 (4,780) — (4,504)

32. PLEDGE OF ASSETS

As at 31 March 2007, the group’s banking facilities were secured by the following:

• (a) Pledge of certain of the group’s leasehold land and buildings with aggregate net book values of approximately $11,030,000 (2006: $12,726,000) (note 14) and $10,258,000 (2006: $15,135,000) (note 15), respectively;

• (b) Cross guarantees among the subsidiaries of the company;

• (c) Assignment of documentary credit issued in favour of a subsidiary;

• (d) Corporate guarantee executed by a third party; and

• (e) Corporate guarantee executed by the company.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. CONTINGENT LIABILITIES

As at 31 March 2007, there were contingent liabilities in respect:

	2007	2006
	HK$’000	HK$’000
Long service payment	204	195

The group is liable to make long service payments upon the termination of employment of certain employees who have completed the required number of years of services and met the required circumstances under the Employment Ordinance. No provision has been made therefor in the financial statements as it is not probable that the amount will crystallise in the foreseeable future.

34. RELATED PARTY TRANSACTIONS

• (a) During the year and in the ordinary course of business, the group had the following material transaction with its jointly-controlled entity:

	2007	2006
	HK$’000	HK$’000
Purchase of goods	5,308	—

• (b) As at 31 March 2007, the group has aggregate amounts due to directors and their close family member of approximately $4,256,000 (2006: $5,387,000). The amounts are unsecured, interest free and have no fixed terms of repayment except for an amount of $1,000,000 due to the directors’ close family member as at 31 March 2006 bore interest at the rate of 12% per annum which was fully repaid during the year ended 31 March 2007. Interest expense paid to this related party during the year amounted to approximately $120,000 (2006: $40,000) (note 8).

• (c) During the year, the group enforced the tax indemnity of $4,233,000 from the Indemnifiers and amounts due from the Indemnifiers were approximately $2,490,000 as at 31 March 2007, details of which are set out in note 11(ii) to the financial statements.

• (d) Members of key management during the year comprised only of the executive directors whose remuneration is set out in note 9 to the financial statements.

35.

FINANCIAL RISK MANAGEMENT

The main risks arising from the group’s financial instruments in the normal course of the group’s business are credit risk, liquidity risk, interest rate risk and currency risk. These risks are limited by the group’s financial management policies and practices described below. Generally, the group introduces conservative strategies on its risk management. The group has not used any derivatives and other instruments for hedging purposes nor does it hold or issue derivative financial instruments for trading purposes.

(a) Credit risk

The group’s principal financial assets are cash and cash equivalents, trade receivables, prepayments, deposits and other receivables, and available-for-sale investments.

The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of provisions for doubtful receivables. A provision for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. FINANCIAL RISK MANAGEMENT (Continued)

(b) Liquidity risk

The group will consistently maintain a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements. Details of the measures undertaken by the group to improve its working capital are set out in note 2 to the financial statements.

(c) Fair value and cash flow interest rate risk

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

As the group has no significant interest-bearing assets, the group’s income and operating cash flows are substantially independent of changes in market interest rates.

The group’s interest-rate risk arises from its borrowings which are issued at variable rates, thus exposing the group to cash flow interest rate risk. The group considers that its exposure to interest rate risk is normal.

(d) Foreign exchange risk

The group’s monetary assets and transactions are principally denominated in Hong Kong dollars (“HKD”), United States dollars (“USD”) and RMB. The group is exposed to foreign exchange risk arising from the exposure of HKD against USD and RMB, respectively. Considering that the exchange rate between HKD and USD is pegged, and that there is insignificant fluctuation in the exchange rate between HKD and RMB, the group believes its exposure to exchange rate risk is normal. At present, the group does not intend to seek to hedge its exposure to foreign exchange risk profile, and will consider appropriate hedging measure in future as may be necessary.

The group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the group’s operations in the PRC is managed primarily through borrowings denominated in RMB.

(e) Fair values estimation

All financial instruments are carried at amounts not materially different from their fair values as at 31 March 2007.

Fair value of securities is based on quoted market prices at the balance sheet date without any deduction from transaction costs. Fair values for the unlisted equity investments are estimated using the applicable price/earning ratios for similar listed companies adjusted for the specific circumstances of the issuer.

The fair value of interest-bearing loans and borrowings is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. SIGNIFICANT POST BALANCE SHEET EVENTS

• (a) In April, June and July 2007, a total of 100,000,000 new ordinary shares of par value $0.01 each were issued at a subscription price of $0.043 each on exercise of 100,000,000 Warrants at an aggregate consideration of $4,300,000 of which $1,000,000 was credited to share capital and the remaining balance of $3,300,000 was credited to the share premium account. In addition, the related net premium of $883,000 received on issue of Warrants has been transferred from capital reserve to the share premium account. At the date of this report, the company has 70,000,000 Warrants outstanding.

• (b) In May 2007, 41,500,000 new ordinary shares of par value $0.01 each were issued at a subscription price of $0.044 each on exercise of 41,500,000 share options at an aggregate consideration of $1,826,000 of which $415,000 was credited to share capital and the remaining balance of $1,411,000 was credited to the share premium account. In addition, the amount attributable to the related share options of $256,000 has been transferred from the capital reserve to the share premium account. At the date of this report, the company has 28,504,000 share options outstanding.

37. COMPARATIVE FIGURES

Certain comparative amounts have been reclassified to conform with the current year’s presentation.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INTERIM RESULTS

The following are the unaudited consolidated results of the Group as extracted from the interim report of the Group for the six months ended 30 September 2007.

Condensed Consolidated Income Statement

For the six months ended 30 September 2007

Notes Turnover 2 Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses (Loss)/profit from operations 3 Finance costs 4 Gain on disposal of available-for-sale investments 3 Impairment loss on available-for-sale investments Share of results of associates Share of results of a jointly-controlled entity Loss before taxation Taxation 5 Loss for the period Attributable to: Equity holders of the Company Minority interest Dividend 6 Loss per share attributable to equity holders of the Company 7 Basic Diluted

Six months ended 30 September 2007 2006 (unaudited) (unaudited and restated) HK$’000 HK$’000 65,543 88,392 (54,300) (75,520) 11,243 12,872 167 471 (4,228) (4,288) (12,929) (8,167) (5,747) 888 (1,090) (1,505) 1,536 — — (205) 34 633 (711) — (5,978) (189) 129 (10,025) (5,849) (10,214) (5,918) (9,154) 69 (1,060) (5,849) (10,214) — — (0.30) cents (0.56) cents N/A N/A

Source: extracted from the published interim report for the six months ended 30 September 2007 of the Company.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

Notes ASSETS AND LIABILITIES Non-current assets Leasehold land and land use rights Properties, plant and equipment Interests in associates 8 Interest in a jointly-controlled entity Available-for-sale investments 3 Current assets Inventories Trade receivables 9 Amounts due from related parties 16(a)(iii) Prepayments, deposits and other receivables Cash and cash equivalents Current liabilities Interest-bearing bank borrowings, secured Current tax payable Tax penalty and surcharge payables Trade payables 10 Other payables and accrued expenses Amounts due to related parties 16(a)(ii) Net current assets/(liabilities) Net assets Equity Share capital 11 Reserves Equity attributable to equity holders of the Company Minority interest	As at 30 September 2007 (unaudited) HK$’000 12,629 11,993 14,817 1,992 — 41,431 3,371 19,213 — 1,123 10,933 34,640 11,220 474 469 11,147 5,232 4,487 33,029 1,611 43,042 20,190 20,224 40,414 2,628 43,042	As at 31 March 2007 (audited) HK$’000 12,646 12,146 15,110 2,631 1,573 44,106 2,961 14,401 2,490 5,169 5,426 30,447 16,064 3,833 2,939 4,213 7,657 4,256 38,962 (8,515) 35,591 18,075 15,028 33,103 2,488 35,591

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Change in Equity

For the six months ended 30 September 2007

						Available-
						for-sale
						investments
	Share	**Share **	**Contributed **	Translation	Capital	**revaluation **	Accumulated		Minority	Total
The Group	capital	premium	surplus	reserve	reserve	reserve	losses	Sub-total	interest	equity
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 11)		(Note below)
As at 1 April 2007	18,075	22,594	918	1,455	5,991	885	(16,815)	33,103	2,488	35,591
Recognised in the income
statement on disposal
of available-for-sale
investments	—	—	—	—	—	(885)	—	(885)	—	(885)
Issue of new shares on
exercise of warrants	1,700	7,099	—	—	(1,501)	—	—	7,298	—	7,298
Issue of new shares on
exercise of share options	415	1,668	—	—	(257)	—	—	1,826	—	1,826
Grant of share options	—	—	—	—	4,566	—	—	4,566	—	4,566
Exchange difference arising
on translation of overseas
operations	—	—	—	424	—	—	—	424	71	495
Net loss for the period	—	—	—	—	—	—	(5,918)	(5,918)	69	(5,849)
As at 30 September 2007	20,190	31,361	918	1,879	8,799	—	(22,733)	40,414	2,628	43,042

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Change in Equity (Continued) For the six months ended 30 September 2006

						Available-
						for-sale
						investments
	Share	**Share **	**Contributed **	Translation	Capital	revaluation	Retained		Minority	Total
The Group	capital	premium	surplus	reserve	reserve	reserve	profits	Sub-total	interest	equity
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited	(unaudited)	(unaudited	(unaudited)	(unaudited)	(unaudited)
					and restated)		and restated)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Note below)
As at 1 April 2006	16,295	15,294	918	1,062	—	—	21,869	55,438	7,610	63,048
Exchange difference arising
on translation of overseas
operations	—	—	—	255	—	—	—	255	103	358
Contributions from equity
holders of the Company
(note 1.2)	—	—	—	—	9,632	—	—	9,632	—	9,632
Net loss for the period (restated)	—	—	—	—	—	—	(9,154)	(9,154)	(1,060)	(10,214)
As at 30 September 2006
(restated)	16,295	15,294	918	1,317	9,632	—	12,715	56,171	6,653	62,824

Note: As at the balance sheet date, the contributed surplus of the Group represents the difference between the nominal value of share capital of the subsidiaries acquired pursuant to the Group reorganisation during the year ended 31 March 2003, over the nominal value of the shares of the Company issued in exchange therefor.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

Net cash (outflow)/inflow from operating activities Net cash inflow/(outflow) from investing activities Net cash inflow from financing activities Effect on foreign exchange rate changes Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of the balance of cash and cash equivalents Cash and bank balances Fixed deposits Bank overdrafts

Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 (4,019) 7,366 2,876 (7,102) 8,232 5,645 (120) (193) 6,969 5,716 3,964 3,777 10,933 9,493 7,625 9,568 3,308 — — (75) 10,933 9,493

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Unaudited Condensed Consolidated Financial Statements

1.1 BASIS OF PREPARATION AND ACCOUNTING POLICIES

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

The unaudited condensed consolidated financial statements have been prepared under the historical cost basis modified by the revaluation of available-for-sale investments which are carried at fair value.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended 31 March 2007. The accounting policies and method of computation used in the preparation of unaudited condensed consolidated financial statements are consistent with those used in the preparation of the Group’s annual financial statements for the year ended 31 March 2007.

In the current interim period, the Group has applied, for the first time, new Hong Kong Financial Reporting Standards (“HKFRSs”) (which also included HKASs and Interpretations) issued by the HKICPA, which are effective for the current accounting period. The adoption of the new standards, amendments and interpretations had no material effect on how the results for the current or prior accounting periods are prepared and presented. Accordingly, no prior period adjustment has been required arising from adoption of these new HKFRSs.

Impact of issued but not yet effective Hong Kong Financial Reporting Standards

The Group has not early applied the following new HKFRSs that have been issued but are not yet effective. The directors of the Company anticipate that the application of these HKFRSs will have no material impact on the financial statements of the Group.

HKFRS 8 Operating segments[1] HKAS 23 (Revised) Borrowing Costs[1] HK(IFRIC)-INT 12 Service Concession Arrangments[2]

1 Effective for accounting periods beginning on or after 1 January 2009.

2 Effective for accounting periods beginning on or after 1 January 2008.

These unaudited condensed consolidated interim financial statements have not been audited by the Company’s auditor, but have been reviewed by the Audit Committee of the Company and were approved by the Board on 20 December 2007.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1.2 PRIOR PERIOD ADJUSTMENT

During the period, the Board obtained additional information about the accounting treatment on the tax liabilities indemnified by the equity holders (the “indemnifiers”) and considered that there was an overstatement of other income for the six months ended 30 September 2006 and an understatement of capital reserve of the Group as at 30 September 2006 by the amount of approximately HK$9,632,000. A prior period adjustment has been made in restating the financial statements of the Group. The effect is to increase the consolidated loss for the six months ended 30 September 2006 and the consolidated capital reserve as at that date by approximately HK$9,632,000, and to reduce the consolidated retained profits of the Group as at 30 September 2006 by the same amount. There is no tax effect in respect of this adjustment.

2. TURNOVER AND SEGMENT INFORMATION

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

In accordance with the Group’s internal financial reporting system, the Group has determined that business segments as the primary reporting format and geographical segment information as the secondary reporting format.

In determining the Group’s geographical segments, revenues and results are based on the location in which the customer is located.

(a) Business segments

The following table provides an analysis of the Group’s sales by its business segments:

	Six months ended	Six months ended	30 September	2007
	Woven	Knitting	Sweater	Premium	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue	25,921	15,520	18,844	5,258	65,543
Segment results	(2,847)	(1,477)	(1,194)	(229)	(5,747)
Finance costs					(1,090)
Gain on disposal of available-for-sale investments					1,536
Share of results of associates					34
Share of results of a jointly-controlled entity					(711)
Loss before taxation					(5,978)
Taxation					129
Loss for the period					(5,849)

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. TURNOVER AND SEGMENT INFORMATION (Continued)

(a) Business segments (Continued)

	Six	months ended	30 September	2006
	Woven	Knitting	Sweater	Premium	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited
					and restated)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue	31,777	39,056	12,706	4,853	88,392
Segment results	1,185	(147)	(891)	741	888
Finance costs					(1,505)
Impairment loss on available-for-sale investments					(205)
Share of results of associates					633
Loss before taxation					(189)
Taxation					(10,025)
Loss for the period					(10,214)

(b) Geographical segments

Segment revenue Segment results Segment revenue Segment results	Six months ended 30 September 2007 The People’s Republic of China Chile (the “PRC”) Others (unaudited) (unaudited) (unaudited) HK$’000 HK$’000 HK$’000 34,449 15,972 15,122 (3,893) (1,038) (816) Six months ended 30 September 2006 Chile PRC Others (unaudited) (unaudited) (unaudited) HK$’000 HK$’000 HK$’000 43,644 13,069 31,679 1,120 (1,016) 784	Total (unaudited) HK$’000 65,543 (5,747) Total (unaudited) HK$’000 88,392 888

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. (LOSS)/PROFIT FROM OPERATIONS AND GAIN ON DISPOSAL OF AVAILABLE-FOR-SALE INVESTMENTS

(Loss)/profit from operations has been arrived at after charging/(crediting) the following:

	Six months	ended
	30 September
	2007	2006
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Amortisation	63	61
Depreciation	428	965
Interest income	(112)	(40)
Employees’ expenses — share option expense	4,566	—
Exchange (gains)/losses, net	(11)	24
Loss on disposal of property, plant and equipment	—	121

During the period, the Group disposed of its available-for-sale investments, resulting in a gain on disposal of approximately HK$1,536,000.

4. FINANCE COSTS

Interest expenses on Bank loans and overdrafts wholly repayable within five years Import and export loans wholly repayable within five years Other interest Bank charges Exchange losses, net	Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 218 579 275 161 5 60 498 800 592 681 — 24 1,090 1,505	Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 218 579 275 161 5 60 498 800 592 681 — 24 1,090 1,505
		800 681 24
		1,505

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. TAXATION

Current tax: Hong Kong Provision for the period (Over)/under-provision in prior periods Deferred tax	Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 — 378 (129) 9,643 (129) 10,021 — 4 (129) 10,025

No provision had been made for Hong Kong profits tax as the Group sustained a loss for the current period. Provision for Hong Kong profits tax was calculated at 17.5% on the estimated assessable profits for the prior period. No provision for overseas taxation has been made in the financial statements as the overseas subsidiaries sustained losses during the current and prior periods.

6. DIVIDEND

The Board do not recommend payment of a dividend for the six months ended 30 September 2007 (2006: Nil).

7. LOSS PER SHARE

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

	Six months	Six months	ended
	30 September
	2007		2006
	(unaudited)		(unaudited
			and restated)
	HK$’000		HK$’000
Loss attributable to equity holders of
the Company	(5,918)		(9,154)
	30 September
Number of shares	2007		2006
Weighted average number of ordinary shares for
the purpose of basic loss per share	1,943,413,867	1,629,497,200

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. LOSS PER SHARE (Continued)

Diluted loss per share amount for the six months ended 30 September 2007 and 2006 have not been disclosed, as the warrants and the share options outstanding during these periods had an anti-dilutive effect on the basic loss per share for both periods.

8. INTERESTS IN ASSOCIATES

As at 30 September 2007 (unaudited) HK$’000 Share of net assets 14,817 Advance to an associate — 14,817	As at 31 March 2007 (audited) HK$’000 14,053 1,057
	15,110

Advance to the associate was unsecured, interest free and in substance represented the Group’s interest in the associate in the form of a quasi-equity loan. The carrying amount of the advance to the associate approximated to its fair value.

Particulars of the Group’s associates, all of which are unlisted entities, are as follows:—

			Percentage of equity	Percentage of equity
	Form of	Place of	interest and voting
	business	incorporation	power held by
Name	structure	and operation	the Company		Principal activity
			30 September 30 September
			2007	2006
			%	%
Beijing Rontex Garments	Corporate	The PRC	44	40	Manufacturing and
Co., Ltd.					sales of garment
					products
Rontex Longkun	Corporate	The PRC	30	30	Manufacturing and
Garments Co., Ltd.					sales of garment
					products

In June 2007, the Group acquired an additional 4% equity interest in Beijing Rontex Garments Co. Ltd. at a consideration of HK$455,000 from an independent third party.

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. TRADE RECEIVABLES

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

As at 30 September 2007 (unaudited) HK$’000 0 – 30 days 11,402 31 – 60 days 3,457 61 – 90 days 2,796 Over 90 days 1,903 19,558 Less: Provision of impairment loss of trade receivables (345) 19,213	As at 31 March 2007 (audited) HK$’000 2,278 6,828 4,071 1,578 14,755 (354) 14,401

The Board considers that the carrying amounts of the Group’s trade receivables approximate to their fair value.

10. TRADE PAYABLES

The Group receives an average credit period of 90 days from its trade suppliers. The aged analysis of trade payables of the Group at the balance sheet date is as follows:

As at 30 September 2007 (unaudited) HK$’000 0 – 30 days 10,111 31 – 60 days 220 61 – 90 days 705 Over 90 days 111 11,147	As at 31 March 2007 (audited) HK$’000 1,161 1,358 427 1,267 4,213

The Board considers that the carrying amounts of the Group’s trade payables approximate to their fair value.

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: Issued and fully paid: At beginning of the period/year Exercise of warrants_(note (i)) Exercise of share options(note (ii))_ At end of the period/year	Number of shares As at As at 30 September 31 March 2007 2007 (unaudited) (audited) 10,000,000,000 10,000,000,000 1,807,497,200 1,629,497,200 170,000,000 90,000,000 41,500,000 88,000,000 2,018,997,200 1,807,497,200	Nominal value As at As at 30 September 31 March 2007 2007 (unaudited) (audited) HK$’000 HK$’000 100,000 100,000 18,075 16,295 1,700 900 415 880 20,190 18,075	Nominal value As at As at 30 September 31 March 2007 2007 (unaudited) (audited) HK$’000 HK$’000 100,000 100,000 18,075 16,295 1,700 900 415 880 20,190 18,075
			16,295 900 880
			18,075

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

Note:

• (i) During the period ended 30 September 2007, 170,000,000 new ordinary shares of par value HK$0.01 each were issued at a subscription price of HK$0.043 each on exercise of 170,000,000 warrants with an aggregate consideration of HK$7,298,000 (net of issue expenses), of which HK$1,700,000 was credited to share capital and the remaining balance of HK$5,598,000 was credited to the share premium account. In addition, the related net premium of HK$1,501,000 received on issue of warrants has been transferred from capital reserve to the share premium account.

• (ii) During the period ended 30 September 2007, 41,500,000 new ordinary shares of par value HK$0.01 each were issued at a subscription price of HK$0.044 each on exercise of 41,500,000 share options with an aggregate consideration of HK$1,826,000, of which HK$415,000 was credited to share capital and the remaining balance of HK$1,411,000 was credited to the share premium account. In addition, amount of HK$257,000 attributable to the related share options has been transferred from capital reserve to the share premium account.

12. OPERATING LEASE ARRANGEMENTS

As at 30 September 2007 and 31 March 2007, the Group did not have any significant operating lease commitments.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PLEDGE OF ASSETS

As at 30 September 2007, the Group’s banking facilities were secured by the following:

• (1) Pledge of certain of the Group’s leasehold land and buildings with aggregate net book values of approximately HK$10,987,000 (31 March 2007: HK$11,030,000) and HK$5,515,000 (31 March 2007: HK$10,258,000) respectively;

• (2) Cross guarantees among the subsidiaries of the Company;

• (3) Assignment of documentary credit issued in favour of a subsidiary;

• (4) Corporate guarantee executed by a third party; and

• (5) Corporate guarantee executed by the Company.

14. CONTINGENT LIABILITIES

As at 30 September 2007, there were contingent liabilities in respect:

		As at	As at
	30	September	31 March
		2007	2007
		(unaudited)	(audited)
		HK$’000	HK$’000
Long service payments		229	204

The Group is liable to make long service payments upon the termination of employment of certain employees who have completed the required number of years of services and met the required circumstances under the Employment Ordinance. No provision has been made therefor in the financial statements as it is not probable that the amounts will crystallise in the foreseeable future.

15. CAPITAL COMMITMENTS

As at 30 September 2007 and 31 March 2007, the Group did not have any significant capital commitments.

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. RELATED PARTY TRANSACTIONS

(a) Transactions and amounts with related parties

• (i) During the period, the Group purchased goods of HK$200,000 (six months ended 30 September 2006: HK$Nil).

• (ii) As at 30 September 2007, the Group has aggregate amounts due to directors of approximately HK$4,284,000 (31 March 2007: HK$4,256,000). The amounts are unsecured, interest free and have no fixed terms of repayment.

• (iii) During the year ended 31 March 2007, the Group enforced the tax indemnity of HK$4,233,000 from the indemnifiers which are shareholders of the Company with the unsettled amount of HK$2,490,000 as at 31 March 2007. The indemnifiers had fully settled this amount as at 30 September 2007.

(b) Compensation of key management personnel of the Group

Directors’ remuneration — Executive directors — Independent non-executive directors	Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 1,393 372 97 81 1,490 453	Six months ended 30 September 2007 2006 (unaudited) (unaudited) HK$’000 HK$’000 1,393 372 97 81 1,490 453
		453

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. SIGNIFICANT POST BALANCE SHEET EVENTS

• (a) The controlling shareholder of the Company has granted an option over the shares it holds in the Company to the extent of 820,000,000 shares. Exercise of the option may lead to a change in control of the Company, details of which are disclosed in the announcements of the Company dated 16 October 2007 and 20 December 2007.

• (b) As disclosed in the announcement of the Company dated 15 November 2007, the Company entered into a placing agreement with the placing agent on 13 November 2007 pursuant to which the Company appointed the placing agent as sole and exclusive placing agent to procure not less than six placees to subscribe for 391,000,000 warrants, on a fully underwritten basis, at the issue price of HK$0.01 each.

The warrants entitle the placees to subscribe for the subscription shares at an initial subscription price of HK$0.21 per subscription share for a period of 24 months commencing from the date of issue of the warrants. Each warrant carries the right to subscribe for one subscription share. The subscription shares will be issued under the general mandate.

It is expected that the net proceeds of approximately HK$3,600,000 will be raised by the placing and the same will be utilised by the Group as its general working capital.

Assuming the full exercise of the subscription rights attaching to the warrants, it is expected an additional amount of HK$82,110,000 will be raised. The net proceeds of approximately HK$82,110,000 will be utilised by the Group for its general working capital and as funds for future development of the existing business of the Group and other businesses when investment opportunities arise.

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION & ANALYSIS

C-1 Financial period ended 30 September 2007

Financial Review

For the six months ended 30 September 2007, the Group recorded a turnover of approximately HK$65,543,000 (2006: HK$88,392,000), a decrease of approximately 25.8% as compared to the corresponding period in previous year. Intense competition in the garment industry has made the Group having to face a general trend of fall in the selling prices of garment products which reduced its turnover. The overall gross profit also fell by 12.7%. It is expected that the trends will continue.

Loss from operations was recorded at approximately HK$5,747,000 (2006: profit of HK$888,000). The increase in operational loss was mainly due to an increase in staff costs and other administrative expenses.

During the period under review, the Group recorded a net loss attributable to equity holders of HK$5,918,000 (2006: loss of HK$9,154,000). The improvement was mainly because there is a gain on disposal of available-for-sale investments in the current period and there was an under-provision of tax in prior period which was an isolated event and did not recur again in the current period.

Operation Review

Garment products

Garment products continue to be the major business of the Group, which are responsible for 92.0% (2006: 94.5%) of the Group’s turnover. Revenue derived from the garment product business decreased by 27.8% to HK$60,285,000. The decrease in turnover was mainly due to (1) the reduction of garment products’ selling prices resulting from the keen competition with competitors and (2) the change in accounting treatment as a result of the change of status of Rontex Co., Ltd from a subsidiary into a jointly-controlled entity since 1 October 2006. The turnover of Rontex Co. Ltd was not incorporated in the Group’s turnover since that date. However, profit margin of garment products improves slightly during the period.

Premium products

For the six months ended 30 September 2007, premium products accounted for approximately 8.0% (2006: 5.5%) of the Group’s turnover. The revenue and loss from operations of premium products business were approximately HK$5,258,000 (2006: HK$4,853,000) and HK$229,000 (2006: profit HK$741,000) respectively.

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

The global economic environment is improving which provides an opportunity for the Group to grow. Apart from focusing on its core business, the Group will explore new business opportunities with a view to enhance the return to equity and provide a longterm stable income to the Group. The Group will adopt a conservative investment strategy and will keep the business risks at a manageable level.

The Board also noted that the high operating costs in both Hong Kong and the PRC are eroding our profit margin. The Group will continue to tighten its cost control measures so as to improve the efficiency in operation and minimize operating costs.

Liquidity and Financial Resources

As at 30 September 2007, the Group had net current assets of HK$1,611,000 (31 March 2007: net current liabilities of HK$8,515,000). The Group’s current ratio, as a ratio of current assets to current liabilities, increased to 104.9% (31 March 2007: 78.1%) and the Group’s gearing ratio, the ratio of total interest-bearing borrowings to total assets, reduced to the lowest level of 14.7% (31 March 2007: 21.5%).

The Group generally finances its operations with internally generated cash flow, facilities provided by its banks in Hong Kong and the PRC and through capital market available to listed companies in Hong Kong. During the period under review, the Group recorded a net cash inflow of HK$6,969,000 (2006: cash inflow HK$5,716,000), which increased its total cash and cash equivalents to HK$10,933,000 (2006: HK$9,493,000) as at 30 September 2007.

Exposure to Fluctuation in Exchange Rates and Related Hedges

Interest-bearing bank borrowings of the Group as at 30 September 2007 included bank loans of approximately HK$5.7 million (31 March 2007: HK$5.8 million), which were denominated in Renminbi. The bank borrowings are at interest rates of 5.58% to 7.26% per annum. As the Group’s transactions are mostly settled by Hong Kong dollars, Renminbi and United States dollars and the existing currency peg of Hong Kong dollars with United States dollars will likely to continue in the near future; the exposure to foreign exchange fluctuation is minimal, however, the use of financial instruments for hedging purpose will be considered when necessary.

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities

As at 30 September 2007, the Group had contingent liabilities arising from long service payments of approximately HK$0.2 million (31 March 2007: HK$0.2 million).

Capital Commitment

The Group had no material commitment as at 30 September 2007.

Employees and Remuneration Policies

As at 30 September 2007, the Group had 150 staff and workers (31 March 2007: 150) working in Hong Kong and the PRC. The Group remunerates its employees largely based on industry practice. Remuneration packages comprise salary, commissions and bonuses based on individual performance. Share options may also be granted to eligible employees of the Group.

Pledge of Assets

The Group’s banking facilities were secured against the Group’s land and buildings located in Hong Kong and the PRC with a total carrying value of approximately HK$16.5 million as at 30 September 2007 (31 March 2007: HK$21.3 million).

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C-2 Financial period ended 31 March 2007

Financial Review

For the year ended 31 March 2007, the Group recorded a turnover of approximately HK$166.4 million (2006: HK$194.3 million), representing a decrease of approximately 14.4% as compared to the previous year.

Despite the decrease in turnover, the Group was able to maintain the gross profit margin as compared with the previous year. The gross profit margin for the year under review was approximately HK$26.4 million or 15.8% of the turnover of the year while the corresponding amount in the preceding year was approximately HK$30.1 million or 15.5% of the turnover of the preceding year.

The operating loss was approximately HK$1.7 million (2006: HK$10.4 million) which was mainly attributable to (i) the relatively low profit margin of our PRC joint ventures in Ningbo and Huzhou, as both production plants were facing a higher cost of production in terms of raw materials, fuel and labor; (ii) the increase in costs of sales as a result of the appreciation in Renminbi and (iii) the general falling trend in selling prices of garment products under keen competition. Nevertheless, the loss for the year was improved as compared to the previous year.

During the year under review, the Group recorded a loss attributable to equity holders of the Company of approximately HK$38.6 million (2006: HK$36.9 million). This was mainly due to an impairment loss on goodwill of approximately HK$19.5 million and the agreed settlement with the Inland Revenue Department of the additional profits tax assessments, tax penalties and surcharges for the previous years for certain subsidiaries of the Group in an aggregate amount of approximately HK$11.1 million.

Operation Review

Garment products

Garment products business has continued to be the major source of revenue of the Group. For the year ended 31 March 2007, garment products accounted for approximately 95.9% (2006: 95.9%) of the Group’s turnover. Revenue derived from garment product businesses decreased by approximately 14.3% to approximately HK$160 million. The decrease in turnover was mainly due to the change in accounting treatment as a result of the change of status of Rontex Co., Ltd. from a subsidiary into a jointly-controlled entity since 1 October 2006. Thus, the turnover of Rontex Co. Ltd. was not incorporated in the Group’s turnover since then. Loss attributable to garment products was approximately HK$2.6 million (2006: HK$9.3 million). This was mainly due to the low profit margin in the PRC joint ventures, the general increase in cost of sales and the keen competition which drove down the selling prices of garment products.

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Premium products

For the year ended 31 March 2007, the revenue of premium products accounted for approximately 4.1% (2006: 4.1%) of the turnover of the Group. The revenue and operating profit of premium products were approximately HK$6.9 million (2006: HK$8.1 million) and HK$0.9 million (2006: loss HK$1.0 million) respectively.

Geographical

Chile continues to be the Group’s major market segment which accounted for approximately 56.1% (2006: 48.1%) of the total revenue. China market being the second largest market of the Group attributed to approximately 14.7% (2006: 10.0%) of total revenue. Other markets include various countries located in Europe, North America, South America and Australia.

Prospects

In view of the sustaining growth of the PRC market and the recovery of the global economy, the Directors have to reap the emerging opportunities by expanding to new markets. During the year under review, the Group has progressively developed in markets like Argentina, Brazil, Mexico and Poland etc. The Group will try to build up a close trading relationship in these newly explored markets and continue to explore other new markets such as the United States of America and Greece.

The Directors have noticed the high operating costs in both Hong Kong and the PRC which are eroding our profit margin. The Group will continue to carry out and reinforce stringent control measures so as to improve the efficiency in operation and to minimize the operating costs. The Group will also implement conservative strategies on new investments and assess the prospects of the existing investments in light of the current market environment.

Liquidity and Financial Resources

As at 31 March 2007, the Group had net current liabilities of approximately HK$8.5 million (2006: HK$15.4 million). The Group’s current ratio, being a ratio of current assets to current liabilities, was approximately 78.1% (2006: 60.4%) and the Group’s gearing ratio, being a ratio of total interest-bearing borrowings to total assets, was maintained at a level of approximately 21.5% (2006: 10.6%).

The Group generally finances its operations with internally generated cash flow, facilities provided by its banks in Hong Kong and the PRC and the capital market in Hong Kong available for listed companies. During the year under review, the Group recorded a net cash inflow of approximately HK$0.4 million (2006: HK$1.0 million), which increased the total cash and cash equivalents to approximately HK$4.0 million as at the balance sheet date.

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Exposure to Fluctuations in Exchange Rates and Related Hedges

Interest-bearing bank borrowings of the Group as at 31 March 2007 include bank loans of approximately HK$5.8 million (2006: HK$7.8 million), which were denominated in Renminbi. The bank borrowings are at interest rates of 5.58% to 7.26% per annum. As the Group’s transactions are mostly settled by Hong Kong dollars, Renminbi and United States dollars and the existing currency peg of Hong Kong dollars with United States dollars will likely to remain steady in the near future; the exposure to foreign exchange fluctuations is limited, however, the use of financial instruments for hedging purposes will be considered when necessary.

Investments, Acquisitions and Disposals

During the year under review, the Group did not acquire or dispose of any material investments or subsidiaries.

Contingent Liabilities

As at 31 March 2007, the Group had contingent liabilities arising from long service payment of approximately HK$0.2 million (2006: HK$0.1 million).

Capital Commitment

As at 31 March 2007, the Group had no material capital commitment.

Pledge of Assets

The Group’s banking facilities are secured by the Group’s land and buildings located in Hong Kong and the PRC with a total carrying value of approximately HK$21.3 million (2006: HK$27.9 million) as at 31 March 2007.

Share Option Scheme

The Group has adopted share option schemes whereby Directors, employees and consultants of the Group may be granted options to subscribe for the shares of the Company. Details of the share option scheme are set out in note 28 to the financial statements.

Employees and Remuneration Policies

As at 31 March 2007, the Group had approximately 150 staff and workers in Hong Kong and the PRC.

The Group remunerates its employees largely based on industry practice. Remuneration packages comprise salary, commissions and bonuses based on individual performance.

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C-3 Financial period ended 31 March 2006

Financial Review

For the year ended 31 March 2006, the Group recorded a turnover of approximately HK$194,281,000 (2005: HK$162,122,000), increased by approximately 19.8% as compared to the previous year.

Net loss from operations was recorded by approximately HK$10,384,000 (2005: net profit from operations of HK$2,660,000). This was mainly due to: Firstly, the PRC joint ventures at Ningbo and Huzhou are operating at low profit margin. Both production plants are facing higher cost of production in terms of raw materials, fuel and labour. Secondly, the costs of sales increased resulted from the increase in production costs for our products. Thirdly, the selling and distribution costs increased with the increase in sales. Fourthly, appreciation in Renminbi has resulted in the increase of the cost of operation. Finally, the Group is facing a general trend of falling in selling prices of garment products under keen competitions.

During the year, the Group recorded a net loss attributable to shareholders of approximately HK$36,945,000. This was mainly due to keen competitions in garment product market and higher cost of operation to erode our gross profit, impairment loss on available-for-sale financial assets of approximately HK$23,657,000 and impairment loss on other assets of approximately HK$6,402,000.

Operation Review

Garment products

Garment products business has continued to be the major source of revenue of the Group. For the year ended 31 March 2006, garment products accounted for approximately 95.9% (2005: 95.1%) of the Group’s turnover. Revenue derived from garment product business increased by approximately 20.7% to HK$186,221,000. The increase in turnover was mainly due to increase in demand resulted from the recovery of global economy. However, loss attributable to garment products was recorded by approximately HK$9,345,000 (2005: profit of HK$2,081,000) mainly due to low profit margin in the PRC joint ventures, higher cost of operation and impairment loss on non-financial assets of approximately HK$6,402,000. In addition to keen competition with competitors, the Group faces to the great pressure on the falling in selling price of garment products.

Premium products

For the year ended 31 March 2006, the revenue of premium products accounted for approximately 4.1% (2005: 4.8%) of the turnover of the Group. The revenue and operating loss of premium products were approximately HK$8,060,000 (2005: HK$7,832,000) and HK$1,039,000 (2005: profit of HK$579,000) respectively.

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical

Chile continues to be the Group’s largest market which accounted for 48.1% (2005: 50.5%). Other non-categorised markets accounted for 20.6% (2005: 14.6%) resulted from the efforts made by the Group in exploring new market during the year under review. The Group will continue the marketing strategy of exploring more potential new markets in future.

Development in PRC

The Group has acquired the entire share capital of Wisefull International Limited which owns 30% equity interests in 北京朗坤服裝有限公司(the “JV Co”) for total consideration of HK$27,720,000 on 31 August 2005. The JV Co is engaged in the sales and manufacture of woven garment products. The Directors anticipated that the production facilities of the JV Co will reinforce our production capacity to cope with the Group’s future development in the PRC market.

Prospects

In view of the sustaining growth of the PRC market and recovery of global economy, the Directors have to reap the emerging opportunities to expand new markets. During the year under review, the Group has entered into some new markets including Argentina, Poland, Spain and etc. The Group will try to build up a closely trading relationship with these newly explored markets and continue to explore other new markets.

The Directors have noticed the high operating costs in both Hong Kong and PRC which eroding our profit margin. The Group will continue to carry out and reinforce the stringent control measures to improve our efficiency in operation and to minimize the operating costs. The Group will also implement conservative strategies on new investments and review in-depth the continuity of the past investments.

Liquidity and Financial Resources

As at 31 March 2006, the Group had net current liabilities of approximately HK$15,443,000 (2005: net current assets of HK$1,946,000). The Group’s current ratio, as a ratio of current assets to current liabilities, was approximately 60% (2005: 105%) and the Group’s gearing ratio, as a ratio of total interest-bearing borrowings to total assets, was maintained at a lowest level of approximately 10.6% (2005: 14%).

The Group generally finances its operations with internally generated cash flow and facilities provided by its principal bankers in Hong Kong and the PRC. During the year under review, the Group recorded a net cash inflow of HK$967,000 (2005: outflow of HK$17,647,000), which increased the total cash and cash equivalents to HK$3,777,000 as at the balance sheet date.

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Exposure to Fluctuation in Exchange Rates and Related Hedges

Interest-bearing bank borrowings of the Group as at 31 March 2006 include bank loans of approximately HK$7,843,000 (2005: HK$10,247,000), which were denominated in Renminbi. The Renminbi bank borrowings are at fixed interest rates of 5.22% and 6.045% per annum respectively. As the Group’s transactions are mostly settled by Hong Kong dollars, Renminbi and United States dollars and the existing currency peg of Hong Kong dollars with United States dollars will likely to remain steady in the near future; the exposure to foreign exchange fluctuation is minimal, however, the use of financial instruments for hedging purposes will be considered when necessary.

Contingent Liabilities

As at 31 March 2006, the Group had contingent liabilities arising from long service payment of approximately HK$195,000 (2005: HK$139,000).

Since December 2002, Rontex Holdings Limited (“RHL”), a subsidiary of the Company, has been queried by the Inland Revenue Department of the Hong Kong Special Administrative Region Government (the “IRD”) in respect of sales and marketing support service expenses claimed by RHL as deductible expenses in its profit tax computation. As at 31 March 2006, the IRD raised queries to the RHL for the years of assessments 2000/2001, 2001/2002, 2002/2003, 2003/2004 in respect of its sales and marketing support service expenses of an aggregate total of HK$61,548,000. Up to the date of the approval of the financial statements, the Group was still in the process of answering queries from the IRD. The profits tax and penalties payable were subsequently finalised and recorded in the books in the year ended 31 March 2007.

Capital Commitment

As at 31 March 2006, the Group had no material capital commitment.

Employees and Remuneration Policies

As at 31 March 2006, the Group had approximately 549 staff and workers in Hong Kong and the PRC.

The Group remunerates its employees largely based on industry practice. Remuneration packages comprised salary, commissions and bonuses based on individual performance.

Pledge of Assets

The Group’s banking facilities were secured against the Group’s land and buildings located in Hong Kong and the PRC and motor vehicles in the PRC of approximately HK$27,861,000 (2005: HK$31,277,000) and HK$Nil (2005: HK$499,000).

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C-4 Financial period ended 31 March 2005

Financial Review

For the year ended 31st March 2005, the Group recorded a turnover of approximately HK$162,122,000 (2004: HK$144,561,000), increase 12.1% compared to the previous year.

Net profit from operations decreased by 84.1% from HK$16,715,000 to HK$2,660,000. This was mainly due to: First, the PRC joint ventures at Ningbo and Huzhou are operating at low profit margin. Both production plants are facing higher cost of production in terms of raw materials, fuel and labour cost. Second, in order to explore and broaden the client base; a new office was set up in Shanghai in September 2004 which directly increase the operating and administration expense. Third, the Group is facing a general trend of falling in selling prices of garment products. Finally, Rontex group has re-gain the Peru market which was vanished in 2004 because of the imposition of penalty tax tariff for the Peoples Republic of China (the “PRC”) manufactured garment product. However, the regain of Peru market is at the expense of considerable transportation cost are incurred which greatly eroded the profit margin.

During the year, the Group recorded a net loss attributable to shareholders of HK$6,497,000. This was due to a written off an investment with the amounts of approximately of HK$8,500,000. The investment is principally engaged in selling of men and woman suit by opening retail outlets in Beijing. However, because of lack of retail business experience and keen competition in garment retail business, the shops were operating at loss and finally closed down in February 2005.

Operation Review

Garment products

Garment products business has continued to be the major source of revenue of the Group. In respect of the business segment analysis, woven, knitwear, sweater and premium remain the same product mix as per last year. For the year ended 31st March 2005, garment products accounted for 95.1% (2004: 94.9%) of the Group’s turnover. Revenue derived from garment product business increased by 12.4% to HK$154,290,000. The increase in turnover was mainly contributed by the newly established joint venture in Huzhou which is principally engaged in manufacturing and selling of sweater. However, the profit attributable to garment segment was decrease by 87% as compared to last year. Increase in cost of raw material in garment manufacturing, high operating cost in our production plants in Ningbo and Huzhou, high exploring cost in develop new market, decreasing in selling price of garment products and competition in garment market is more fierce as more competitors emerge in PRC. All these factors impose a great pressure on our Group profit.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Premium products

For the year ended 31st March 2005, the results of premium products remained stable and accounted for 4.8% (2004: 5.0%) of the turnover of the Group. The revenue and operating profits of premium products were approximately HK$7,832,000 (2004: HK$7,281,000) and HK$579,000 (2004: HK$577,000) respectively. To recap the growth momentum of premium products, the management team of the Group devised specialised marketing strategies and cost control measures to boost the profitability of this business segments.

Geographical

Chile continues to be the Group’s largest market which accounted for 50.5% (2004: 68.1%). Peru market which was vanished in 2004 because of the imposition of penalty tax tariff for PRC manufactured garment product was regain in current year. However, the regain of Peru market is at the expense of considerable re-shipment cost are incurred which greatly eroded the profit margin. The Group is keen to explore new markets such as England, Spain, Germany and Italy.

Development in the PRC

The Group entered into an agreement with independent parties in respect of the acquisition of 30% equity interest in a JV Company at a consideration of HK$27,720,000. The JV is engaged in the sale and manufacture of woven garment products.

The consideration payable under the Agreement will be satisfied fully in cash. The terms and conditions under the Agreement were determined at arm’s length negotiation by reference to a valuation conducted by qualified valuer in Hong Kong.

Prospects

The sustaining growth of the PRC market has created opportunities for the Group. Global traders will frequently travel to the PRC and the demand for business partners in Asia who can cater retailer’s global need will increase. With the Group’s current establishment in the PRC and continuous development which cement our presence in garment and fashion market, the Group is keen to reap the emerging opportunities induced by the latest trend of global trade.

The directors of the Company have also noticed the high operating cost in both Hong Kong and PRCs which will pose impact on our profit margin. In response to these challenges, the Group will carry out reformation on marketing strategies which aims at market diversification and continue implementing stringent measures and contingencies in business operations, with a focus on quality-driven and cost efficient operations.

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and Financial Resources

As at 31st March 2005, the Group had net current assets of HK$1,946,000 (31st March 2004: HK$19,729,000). The Group’s current ratio, as a ratio of current assets to current liabilities, was approximately 105% (31st March 2004: 203%) and the Group’s gearing ratio, as a ratio of total interest-bearing borrowings to total assets, was maintained at a lowest level of 14% (31st March 2004: 9.5%).

The Group generally finances its operations with internally generated cash flow, facilities provided by its principal bankers in Hong Kong and the PRC. During the year under review, the Group recorded a net cash outflow of HK$17,647,000 (2004 inflow: HK$2,600,000), which decreased the total cash and cash equivalents to HK$5,107,000 (2004: HK$19,999,000) as at the balance sheet date.

Exposure to Fluctuation in Exchange Rates and Related Hedges

Interest-bearing bank borrowings of the Group as at 31st March 2005 include bank loans of approximately HK$10,247,000 (31st March 2004: HK$12,580,000), which were denominated in Hong Kong dollar, Renminbi and United States dollars. All of the Renminbi bank borrowings are at fixed interest rate of 5.46% per annum whilst the Hong Kong dollars borrowing are at variable interest rate ranging from 0.5% to 0.75% above the best lending rates. As the Group’s transactions are mostly settled by Hong Kong dollars, Renminbi and United States dollars and the existing currency peg of Hong Kong dollars with United States dollar will remain unchanged in the foreseeable future; the exposure to foreign exchange fluctuation is minimal, therefore the use of financial instruments for hedging purpose is considered not necessary.

Contingent Liabilities

As at 31st March 2005, the Group had contingent liabilities arising from long service payment of approximately HK$139,000 (2004: HK$137,000).

Employees and Remuneration Policies

As at 31st March 2005, the Group had approximately 480 staffs and workers in Hong Kong, Ningbo and Huzhou of PRC.

The Group remunerates its employees largely based on industry practice. Remuneration packages comprised salary, commissions and bonuses based on individual performance.

Pledge of Assets

The Group’s banking facilities were secured against the Group’s land and buildings located in Hong Kong and the PRC and motor vehicles in the PRC of approximately HK$31,277,000 (2004: HK$22,331,000) and HK$499,000 (2004: HK$700,000) respectively.

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

D. INDEBTEDNESS STATEMENT OF THE GROUP

As at the close of business on 31 January 2008, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group and the DTV Group had total outstanding secured bank loans of approximately HK$6,731,000, unsecured amounts due to directors of the Company of approximately HK$56,000, and unsecured amounts due to shareholders of DTV of approximately HK$7,897,000.

The Group’s secured bank borrowings are secured by the Group’s leasehold land and buildings with carrying value of approximately HK$20,696,000 as of 31 January 2008.

As at 31 January 2008, the Group and the DTV Group did not have any debt securities.

Save as aforesaid if any or as otherwise mentioned herein, and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business, at the close of business on 31 January 2008, the Group and the DTV Group did not have any outstanding indebtedness, loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debenture, mortgages, charges or loans or acceptance credits or hire purchase or finance lease commitment, guarantees or contingent liabilities.

The Directors confirm that, save as disclosed herein, there has not been any material change in the indebtedness or contingent liabilities of the Group and the DTV Group since 31 January 2008.

E. WORKING CAPITAL

Taking into consideration the financial resources available to the Group and the Target Group, including their internally generated funds, existing available banking facilities and other financial resources, and in the absence of unforeseen circumstances, we are satisfied that the statement in the Circular as to the sufficiency of the working capital for their present requirements, that is for at least twelve months from the date of this circular.

F. MATERIAL ADVERSE CHANGES

The Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 March 2007, being the date of which the latest published financial statements of the Group were made up.

– 98 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

A. ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Shu Lun Pan Horwath Hong Kong CPA Limited.

Shu Lun Pan Horwath Hong Kong CPA Limited 香港立信浩華會計師事務所有限公司 2001 Central Plaza 18 Harbour Road Wanchai, Hong Kong Teleophone : (852) 2526 2191 Facsimile : (852) 2810 0502 horwath@horwath.com.hk www.horwath.com.hk

31 March 2008

The Board of Directors Rontex International Holdings Limited 23rd Floor, Chun Wo Commercial Centre 23-29 Wing Wo Street Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of DTVChina Inc. (“DTV”) and its subsidiary (collectively referred as the “DTV Group”) for the period from 19 April 2005 (date of incorporation of DTV) to 31 December 2005 and the years ended 31 December 2006 and 2007 (the “Relevant Periods”), prepared for inclusion in the circular of Rontex International Holdings Limited (the “Company”) dated 31 March 2008 (the “Circular”) in connection with the Company’s proposed acquisition of (i) the 51% of the issued share capital of DTV; and (ii) the DTV Group’s amount due to DTV China Holdings Limited, the shareholder of DTV, as at 31 January 2008, which are collectively referred as the Acquisition.

DTV was incorporated on 19 April 2005 in the British Virgin Islands with limited liability. DTV is principally engaged in investment holding. On 22 March 2007, Enreach Information Technology (Shanghai) Company Limited was established in the People’s Republic of China (the “PRC”) as a wholly-owned subsidiary of DTV. It is principally engaged in the provision of digital television technology services, including sale of cable video-on-demand system, information broadcasting system and embedded television systems in the PRC.

No statutory audited financial statements of the DTV Group, DTV or its subsidiary have been issued for any of the Relevant Periods.

– 99 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

For the purpose of this report, the directors of DTV have prepared the consolidated financial statements of the DTV Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (the “HKFRS Financial Statements”). We have, for the purpose of this report, carried out appropriate audit procedures in respect of the HKFRS Financial Statements of the DTV Group, in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Directors’ responsibility

The directors of DTV are responsible for the preparation and the true and fair presentation of the HKFRS Financial Statements in accordance with HKFRSs. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Reporting accountants’ responsibility

For the Financial Information of the Relevant Periods, our responsibility is to express an opinion on the Financial Information based on our examination and to report our opinion to you. We examined the HKFRS Financial Statements and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the Financial Information of the Relevant Periods for the purpose of this report, gives a true and fair view of the state of affairs of the DTV Group as at 31 December 2005, 2006 and 2007 and of its results and cash flows for each of the period or years then ended.

– 100 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

B. FINANCIAL INFORMATION

The Financial Information of the DTV Group has been prepared on the basis set out in Note 1 of Section C, after making such adjustments as are appropriate.

Consolidated income statements

Note Turnover 5 Cost of sales Gross profit Other revenue Selling expenses Administrative expenses (Loss)/profit before taxation 7 Taxation 8(a) Net (loss)/profit for the period/year (Loss)/earnings per share attributable to the equity holder of DTV: 9 Basic_(HK$’000) Diluted(HK$’000)_	Period/year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 5,835 — — (848) — — 4,987 — 16 16 — — (1,350) (8) (1) (1,346) (8) 15 2,307 — — (763) (8) 15 1,544 (8) 15 1,544 N/A N/A N/A

– 101 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Consolidated balance sheets

Note ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 10 Current assets Inventories Trade and other receivables and deposits paid 11 Amount due from a related company 16(b)(i) Amount due from a director 16(b)(ii) Cash at banks Current liabilities Accounts payable 12 Other payables and accruals 12 Amount due to a shareholder 16(b)(iii) Tax payable Net current (liabilities)/assets NET (LIABILITIES)/ASSETS EQUITY Share capital 13 Reserves TOTAL EQUITY	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 62 — — 1,830 — — 4,378 — — 814 — — 26 — 1,498 1,713 — 1,498 8,761 — — 1,685 — — 3,563 7 1,490 1,133 — — 763 7 1,490 7,144 (7) 8 1,617 (7) 8 1,679 1 1 1 (8) 7 1,678 (7) 8 1,679	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 62 — — 1,830 — — 4,378 — — 814 — — 26 — 1,498 1,713 — 1,498 8,761 — — 1,685 — — 3,563 7 1,490 1,133 — — 763 7 1,490 7,144 (7) 8 1,617 (7) 8 1,679 1 1 1 (8) 7 1,678 (7) 8 1,679
		1,830 4,378 814 26 1,713 8,761
		1,685 3,563 1,133 763 7,144
		1,617
		1,679
		1 1,678
		1,679

– 102 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Consolidated statements of changes in equity

Issue of share capital upon incorporation of DTV Loss for the period At 31 December 2005 Profit for the year At 31 December 2006 Exchange differences arising on translation of overseas operation recognised directly in equity Profit for the year At 31 December 2007	(Accumulated Share Translation loss)/retained capital reserve profits HK$’000 HK$’000 HK$’000 (Note 13) 1 — — — — (8) 1 — (8) — — 15 1 — 7 — 127 — — — 1,544 1 127 1,551	Total HK$’000 1 (8) (7) 15 8 127 1,544 1,679

– 103 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Consolidated cash flow statements

	Period/year ended 31	Period/year ended 31	Period/year ended 31	Period/year ended 31	December
	2005		2006		2007
	HK$’000		HK$’000		HK$’000
Operating activities
(Loss)/profit before taxation	(8)		15		2,307
Adjustments for:
Depreciation	—		—		16
Interest income	—		(16)		(16)
Operating cash (outflow)/inflow before
working capital change	(8)		(1)		2,307
Increase in inventories	—		—		(1,830)
Increase in trade and other receivables
and deposits paid	—		—		(4,378)
Increase in amount due from a related company	—		—		(814)
Increase in amount due from a director	—		—		(26)
Increase in accounts payable	—		—		1,685
Increase in other payables and accruals	—		—		3,563
Cash (used in)/generated from operations	(8)		(1)		507
Interest received	—		16		16
Net cash (used in)/generated from operating
activities	(8)		15		523
Investing activities
Purchase of property, plant and equipment	—		—		(78)
Net cash used in investing activities	—		—		(78)
	-------------		-------------		-------------
Financing activities
Issue of share capital	1		—		—
Increase/(decrease) in amount due to
a shareholder	7		1,483		(357)
Net cash generated from/(used in)
financing activities	8		1,483		(357)
Net increase in cash and cash equivalents	—		1,498		88
Effect of changes in foreign exchange rate	—		—		127
Cash and cash equivalents at beginning of
period/year	—		—		1,498
Cash and cash equivalents at end of
period/year	—		1,498		1,713
Analysis of the balances of cash and cash
equivalents
Cash at banks	—		1,498		1,713

– 104 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

C. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION AND BASIS OF PRESENTATION

DTV was incorporated in the British Virgin Islands. The registered office of DTV is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the British Virgin Islands.

The Financial Information set out in this report has been prepared in accordance with all applicable HKFRSs (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) and accounting principles generally accepted in Hong Kong and have been consistently applied throughout the Relevant Periods.

The Financial Information also complies with the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Financial Information is presented in Hong Kong dollars and all values are rounded to the nearest thousand, except otherwise indicated.

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The DTV Group has not early applied the following new standards and interpretations relevant to its operations that have been issued but are not yet effective. The directors of DTV anticipate that the application of these standards or interpretations will have no material impact on the Financial Information of the DTV Group.

Effective for accounting periods beginning on or after

HKAS 23 (Revised) HKFRS 8

Borrowing Costs Operating segments

1 January 2009

1 January 2009

– 105 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

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

The preparation of the Financial Information in conformity with HKFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in Note 4 to the Financial Information.

(b) Consolidation

The consolidated financial statements incorporate the financial statements of DTV and its subsidiary made up during each of the Relevant Periods.

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

All significant intercompany transactions, balances and unrealised gains on transactions between group enterprises are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment on the asset transferred.

Where necessary, adjustments are made to the financial statements of the subsidiary to bring its accounting policies into line with those of DTV.

(c) Subsidiary

A subsidiary is an entity whose financial and operating policies DTV controls, directly or indirectly, so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the DTV controls another enterprise.

– 106 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Property, plant and equipment

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

Historical 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 asset has been put into operation, such as repairs and maintenance and overhaul costs, is charged to profit or loss 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 assets, the expenditure is capitalised as an additional cost of the asset or a separate asset.

Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method. The useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The annual rate of depreciation for furniture, fixtures and equipment is 10%.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

(e) Inventories

Inventories are finished goods and stated at the lower of cost and net realisable value. Cost includes cost of purchase of goods computed using the specific identification method. Net realisable value is determined by reference to the anticipated sales proceeds of items sold in the ordinary course of business less estimated selling expenses after the balance sheet date or to management estimates based on prevailing market conditions.

(f) Impairment of assets

Assets that are subject to amortisation are reviewed for impairment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the DTV Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

– 107 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g) Financial instruments

Financial assets and financial liabilities are recognised on the DTV Group’s consolidated balance sheet when the DTV Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The DTV Group’s financial assets are mainly classified into receivables and cash at banks. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

(i) Receivables

Receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate provisions for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The provision recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

(ii) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the DTV Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the DTV Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

(i) Payables

Payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

(ii) Equity instruments

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

– 108 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(h) Provisions and contingent liabilities

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

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

(i) Taxation

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

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The DTV Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax liabilities are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. However, such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Taxation rates enacted or substantively enacted by the balance sheet dates are used to determine deferred taxation.

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiary, except where the DTV Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the DTV Group intends to settle its current tax assets and liabilities on a net basis.

– 109 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the DTV Group is the lessee, rentals payable under the operating leases are charged to profit or loss on the straight-line basis over the lease terms. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

(k) Related parties

Two parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant equity holders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the DTV Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the DTV Group or of any entity that is a related party of the DTV Group.

(l) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and excluded value added tax or other sales related taxes.

• (i) Revenue from sale of cable video-on-demand systems, information broadcasting systems and embedded television systems is recognised when the DTV Group has delivered products to the customers, the customers have accepted the products and collectibility of the related receivables is reasonably assured;

• (ii) Provision of digital television technology services is recognised when the services are rendered; and

• (iii) Interest income is accrued on a time-apportioned basis by reference to the principal outstanding and the effective interest rate applicable.

(m) Translation of foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of the entity (foreign currencies) are recorded in its functional currency. The consolidated financial statements are expressed in Hong Kong dollars which is the functional currency of DTV, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, foreign currency transactions are translated into Hong Kong dollars, being the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period.

– 110 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m) Translation of foreign currencies (Continued)

For the purpose of presenting consolidated financial statements, the assets and liabilities of the DTV Group’s foreign operation (including comparatives) are expressed in Hong Kong dollars using exchange rates prevailing on the balance sheet date. Income and expenses items (including comparatives) are translated at the average exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the DTV Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

(n) Employees’ benefits

• (i) Short term benefits

Salaries and annual bonuses are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present value.

• (ii) Pension

The employees of the DTV Group are required to participate in a central pension scheme operated by the local municipal government of the PRC. The DTV Group is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used in preparing the Financial Information are evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The DTV Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant effect on the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Impairment on assets

If circumstances indicate that the carrying amount of an asset may not be recoverable, the asset may be impaired and an impairment loss may be recognised in accordance with accounting policy for impairment on asset as described in Note 3 (f) above. The carrying amounts of assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value, which requires significant judgment relating to the level of revenue and amount of operating costs. The DTV Group uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and amount of operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charge or reversal of impairment in future periods.

– 111 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

(b) Impairment for bad and doubtful debts

The policy for impairment of bad and doubtful debts of the DTV Group is based on the evaluation of collectibility and aging analysis of receivables and on management’s judgment. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of material debtor. If the financial conditions of debtors of the DTV Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

5. TURNOVER AND SEGMENT INFORMATION

The DTV Group derived income from the provision of digital television technology services, including sale of cable video-on-demand systems, information broadcasting systems and embedded television systems in the PRC.

During the period/year ended 31 December 2005 and 2006, the DTV Group was dormant and all of its assets were located in Hong Kong. During the year ended 31 December 2007, the DTV Group’s only business segment was the provision of digital television technology services, including sale of cable videoon-demand systems, information broadcasting systems and embedded television systems in the PRC, and all of its assets and operations were located in the PRC.

6. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

• (a) None of the directors received any fees or emoluments in respect of their services rendered to the DTV Group for the Relevant Periods. During the Relevant Periods, no emoluments were paid by the DTV Group to any of the directors of DTV as an inducement to join or upon joining the DTV Group or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

• (b) The emoluments payable to the five individuals whose emoluments were the highest in the DTV Group during the Relevant Periods were as follows:

Wages and salaries Contributions to retirement benefit scheme	Period/year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 92 — — 7 — — 99	Period/year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 92 — — 7 — — 99
		99

The emoluments of each individual were all below HK$1,000,000 for each of the Relevant Periods. During the Relevant Periods, no amount was paid by the DTV Group to any of the above individuals as an inducement to join or upon joining the DTV Group or as compensation for loss of office.

– 112 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

7. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/profit before taxation is arrived at after charging/(crediting):

	Period/year ended 31	Period/year ended 31	December	December
	2005	2006		2007
	HK$’000	HK$’000		HK$’000
Auditor’s remuneration	—	—		—
Minimum lease payments under operating
leases in respect of land and buildings	—	—		575
Interest income	—	(16)		(16)
Staff costs
— Wages and salaries	—	—		214
— Contributions to retirement benefit scheme	—	—		61
Depreciation	—	—		16

8. TAXATION

(a) Taxation in the income statement represents:

	Period/year ended 31	Period/year ended 31	December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Current tax — PRC	—	—	763

No provision has been made for Hong Kong profits tax as the DTV Group has no assessable profits arising in Hong Kong for the Relevant Periods.

PRC corporate income tax of Enreach Information Technology (Shanghai) Company Limited is subject to the PRC enterprise income tax at the statutory rate of 33% for the year ended 31 December 2007.

There was no material unprovided deferred tax in respect of the Relevant Periods and as at each of the balance sheet dates.

(b) Taxation for the Relevant Periods can be reconciled to the accounting (loss)/profit as follows:

(Loss)/profit before taxation Calculated at the PRC enterprise income tax rate of 33% Tax effect of income not taxable Tax effect of expenses not deductible Taxation for the period/year	Period/year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 (8) 15 2,307 (3) 5 761 — (5) — 3 — 2 — — 763	Period/year ended 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 (8) 15 2,307 (3) 5 761 — (5) — 3 — 2 — — 763
		761 — 2
		763

– 113 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

9. (LOSS)/EARNINGS PER SHARE

The calculation of basic (loss)/earnings per share is based on the net (loss)/profit attributable to ordinary equity holder for the period/years ended 31 December 2005, 2006 and 2007 of approximately HK$(8,000), HK$15,000 and HK$1,544,000, respectively, and the weighted average of 1 ordinary share in issue during each of the Relevant Periods.

Diluted earnings per share amount has not been disclosed as no dilutive event existed during each of the Relevant Periods.

10. PROPERTY, PLANT AND EQUIPMENT

Cost: At date of incorporation of DTV, and 1 January 2006 and 2007 Additions At 31 December 2007 Accumulated depreciation: At date of incorporation of DTV, and 1 January 2006 and 2007 Charge for the year At 31 December 2007 Net book value: At 31 December 2005 At 31 December 2006 At 31 December 2007	Furniture, fixtures and equipment HK$’000 — 78
	78
	— 16
	16
	—
	—
	62

– 114 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

11. TRADE AND OTHER RECEIVABLES AND DEPOSITS PAID

Trade receivables Other receivables and deposits paid	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 3,686 — — 692 — — 4,378	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 3,686 — — 692 — — 4,378
		4,378

All trade receivables are aged within 1 month.

The directors of DTV consider that the carrying amount of the DTV Group’s trade and other receivables and deposits paid approximate its corresponding fair value at each of the balance sheet dates due to their short term nature. Trade receivables are non-interest bearing.

12. ACCOUNTS PAYABLE, OTHER PAYABLES AND ACCRUALS

Accounts payables Other payables and accruals	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 1,685 — — 3,563 — — 5,248	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 — — 1,685 — — 3,563 — — 5,248
		5,248

All accounts payable are aged within 1 to 2 months.

The directors of DTV consider that the carrying amounts of accounts payable, other payables and accruals approximate their fair value at each of the balance sheet dates due to their short term nature.

Accounts and other payables are non-interest-bearing and settled according to the terms of the respective contracts.

– 115 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

13. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 1 ordinary share of US$1 each	As at 31 December 2005 2006 2007 HK$ HK$ HK$ 389,500 389,500 389,500 8 8 8	As at 31 December 2005 2006 2007 HK$ HK$ HK$ 389,500 389,500 389,500 8 8 8
		8

DTV was incorporated on 19 April 2005 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. 1 share of US$1 each was issued to a subscriber to the Memorandum of Association at par for cash on incorporation to provide the initial capital.

14. OPERATING LEASE ARRANGEMENTS

At each of the balance sheet dates, the DTV Group had outstanding minimum commitments under a noncancellable operating lease in respect of land and buildings, which fall due as follows:

		As at 31 December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Within one year	—	—	262

Operating lease payments represent rentals payable by the DTV Group for its office. The leases is negotiated for a term of two years at fixed rentals.

– 116 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

15. FINANCIAL RISK MANAGEMENT

(a) Financial risk factors

The main risks arising from the DTV Group’s financial instruments in the normal course of the DTV Group’s business are currency risk, credit risk and liquidity risk. These risks are evaluated and monitored by the DTV Group in accordance with the financial management policies and practices described below.

(i) Currency risk

Foreign exchange risk arises from current and future commercial transactions, recognised assets and liabilities. The DTV Group’s foreign currency transactions are mainly denominated in US dollars and Renminbi. At present, the DTV Group does not intend to seek to hedge its exposure to foreign exchange risk profile, and will consider appropriate hedging measure in future as may be necessary.

The following table details the DTV Group’s exposure at the balance sheet date to currency risk arising from forecast transactions or recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

United States Dollars Renminbi	2005 HK$’000 — —	Assets 2006 HK$’000 1,490 —	2007 HK$’000 27 8,767	Liabilities 2005 2006 HK$’000 HK$’000 — — — —	2007 HK$’000 1,133
					6,011

The following table indicates the approximate change in the DTV Group’s profit after taxation and retained profits in response to reasonably possible changes in the foreign exchange rates to which the DTV Group has significant exposure at the respective balance sheet dates. For a weakening of the Hong Kong dollars against the relevant currency, there would be an equal and opposite impact on the results, and the balance below would be negative.

			Period/years ended 31 December	Period/years ended 31 December
	2005		2006		2007
		Effect on		Effect on		Effect on
	Increase in	loss for the	Increase in	profit for the	Increase in	profit for the
	foreign	period and	foreign	year and	foreign	year and
	exchange	accumulated	exchange	retained	exchange	retained
	rates	loss	rates	profits	rates	profits
		HK$’000		HK$’000		HK$’000
United States dollars	—	—	—	—	—	—
Renminbi	N/A	—	N/A	—	7%	108

As the exchange rate between Hong Kong dollars and United States dollars is pegged, no significant increase in exchange rate is anticipated.

During the period/year ended 31 December 2005 and 2006, the DTV Group had no assets or liabilities denominated in Renminbi and therefore the approximate change is only presented for the year ended 31 December 2007.

– 117 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

15. FINANCIAL RISK MANAGEMENT (Continued)

(a) Financial risk factors (Continued)

• (ii) Credit risk

The DTV Group’s principal financial assets are trade and other receivables. The amounts presented in the consolidated balance sheet are net of provisions for doubtful receivables. A provision for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

The DTV Group has no significant concentration of credit risk, with exposure spread over various customers.

• (iii) Liquidity risk

The DTV Group will consistently maintain a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements.

(b) Fair value estimation

All financial instruments are carried at amounts not materially different from their fair values as at each of the balance sheet dates.

(c) Capital risk management

The DTV Group manages its capital to maintain a balance between continuity of funding and the flexibility through the use of financing from the shareholder of DTV. The DTV Group also monitors the current and expected liquidity requirements regularly to ensure it maintains sufficient working capital and adequate committed lines of funding to meet its liquidity requirements.

The capital structure of the DTV Group consists of debts, which include amount due to a shareholder, cash at banks, and equity, comprising of share capital, reserves and retained profits.

The management of the DTV Group reviews the capital structure on a regular basis. As part of this review, the management considers the cost of capital and the associated risks, and takes appropriate actions to adjust the DTV Group’s capital structure.

During the Relevant Periods, the DTV Group aimed at maintaining a gearing ratio of not more than 5-10%. The gearing ratios based on the DTV Group’s net debts (amount due to a shareholder less cash at banks) and its total equity as at 31 December 2005, 2006 and 2007 were 100%, Nil% and Nil% respectively.

– 118 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

16. RELATED PARTY TRANSACTIONS

Details of the transactions between the DTV Group and related parties are disclosed below:

• (a) During the year ended 31 December 2007, the DTV Group received service fees of approximately HK$2,222,000 from Enreach Information Technology (Beijing) Company Limited and made purchases of approximately HK$1,433,000 therefrom. Enreach Information Technology (Beijing) Company Limited and DTV have a common director.

Goods and services were provided to the above related party at the DVT Group’s normal list prices and charge notes. Purchases were made at market price discounted to reflect the quantity of goods purchased and the relationships between the parties.

• (b) (i) The amount due from a related company is trading in nature, unsecured, interest-free and has no fixed terms of repayment. The maximum amount due from the related company during the Relevant Periods was approximately HK$2,222,000.

• (ii) The amount due from a director is unsecured, interest-free and has no fixed terms of repayment. The maximum amount due from the director during the Relevant Periods is approximately HK$26,000.

• (iii) The amount due to a shareholder is unsecured, interest-free and has no fixed terms of repayment.

• (c) Members of key management of the DTV Group comprised of DTV’s directors only whose remuneration during the Relevant Periods is disclosed in Note 6(a) to the Financial Information.

17. POST BALANCE SHEET EVENTS

On 14 January 2008, the issued share capital of DTV was increased to approximately US$10,000 (equivalent to approximately HK$78,000) by the allotment of 9,999 shares of US$1 each (equivalent to approximately HK$7.8 each) at par for cash to broaden the capital base of DTV. Such shares rank pari passu in all respects with the existing share of DTV.

– 119 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the DTV Group in respect of any period subsequent to 31 December 2007 and up to the date of this report. No dividend or other distribution has been declared, made or paid by the DTV Group in respect of any period subsequent to 31 December 2007.

Yours faithfully, For and on behalf of

Shu Lun Pan Horwath Hong Kong CPA Limited

Certified Public Accountants Hong Kong

Shiu Hong Ng

Director Practising Certificate number P03752

– 120 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

FINANCIAL SUMMARY

Set out below is the management discussion and analysis on the Target Group for the period from 19 April 2005, being the date of incorporate, to 31 December 2005 and the two years ended 31 December 2006 and 2007.

	From	For the	For the
	19 April 2005 to	year ended	year ended
	31 December	31 December	31 December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Turnover	—	—	5,835
Gross profit	—	—	4,987
Net (loss)/profit for the period/ year	(8)	15	1,544

The Target Company was incorporated on 19 April 2005. On 22 March 2007, EnReach was established in the PRC as a wholly-owned subsidiary of the Target Company. As the Target Group was in the stage of establishment, there was no turnover recorded for the period from 19 April 2005 to 31 December 2005 and for the year ended 31 December 2006. The Target Group recorded a loss caused by the administrative expenses incurred during the period from 19 April 2005 to 31 December 2005 and a minimal profit of approximately HK$15,000 as other revenue exceeded expenses for the year ended 31 December 2006. For the year ended 31 December 2007, the Target Group recorded turnover of approximately HK$5,835,000 and a net profit of approximately HK$1,544,000 with the gross profit margin of 85.47% and net profit margin of 26.46%

Treasury policies

As at 31 December 2005, 2006 and 2007, there was no other borrowing from bank or financial institution.

BUSINESS DEVELOPMENT

The Target Company is principally engaged in the provision of digital television technology services, including cable video-on-demand (“VOD”) system, information broadcasting system and embedded television systems. Currently, EnReach has gained about 70% of the market share in the VOD solution (including head-end server system and browser middleware in set-top box) in the PRC and about 45% of the market share in set-top box’s browser middleware in the PRC. It is estimated that EnReach’s system and services are being used by nearly 18 million households (or about 72 million users).

In January 2008, the PRC government has announced for the encouragement on the development of digital television industry. Digitized TV broadcasting shall be greatly promoted through the global broadcast of Beijing Olympic 2008 programs. Basic technological facilities are expected to be in place to support the network coverage of most cities in eastern, middle and western regions of the PRC. Digital TV is targeted to be widely adopted throughout the PRC by 2015.

– 121 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

We see the trend of value-added services being a major development in digital TV, EnReach has attained substantial market share in cable television market and shall be dedicated to the development of digital television technology services. Television broadcasting technology has been revolving, the Target Group allows the Company to step into this prospering industry of the PRC market. We believe the Target Group shall generate a different source of income from the principal business of the Company and give the Company and Shareholders profitable return in the long run.

LIQUIDITY AND FINANCIAL RESOURCES

Net assets/liabilities

Set out below is a summary of the audited accountants’ report of the Target Group as at 31 December 2005, 2006 and 2007:

		As at 31 December
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Total assets	—	1,498	8,823
Total liabilities	(7)	(1,490)	(7,144)
Net assets/(liabilities)	(7)	8	1,679
Gearing ratio*	N/A	99.47%	80.97%

• The gearing ratio is calculated based on the total liabilities over total assets

Liquidity

The Target Group had current assets of nil, approximately HK$1,498,000 and approximately HK$8,761,000 as at 31 December 2005, 2006 and 2007 respectively. The current ratios were approximately 1.01 and approximately 1.23 as at 31 December 2006 and 2007 respectively.

ACQUISITIONS AND DISPOSALS

The Target Group had not made any acquisition and disposal during the relevant period under review.

SIGNIFICANT INVESTMENT HELD

The Target Group had 100% equity interest in EnReach.

SEGMENTAL INFORMATION

No business segment analysis and geographical segment analysis for the Target Group were prepared as there is only one business segment and the Target Group operates entirely in the PRC.

FUTURE PLANS FOR MATERIAL INVESTMENTS

There are no future plans for any significant investments in capital assets or future funding needs.

– 122 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

CONTINGENT LIABILITIES

As at 31 December 2005, 2006 and 2007, the Target Group did not have any contingent liabilities.

CHARGES ON ASSETS

As at 31 December 2005, 2006 and 2007, the Target Group had no interest-bearing borrowings and no assets were pledged.

FOREIGN EXCHANGE EXPOSURE

The Target Group does not hedge its foreign currency risks, as the management does not expect any significant movements in exchange rate between, United States Dollar, RMB and HK$, during the period under review, the Target Group did not use any hedging instrument.

EMPLOYEE

As at 31 December 2005 and 2006, the Target Group was in the stage of setting up the holding company and did not employ any employees during the period.

As at 31 December 2007, the Target Group has set up its operation team and had 22 employees based in the PRC. The total staff costs, excluding for directors, was approximately HK$275,000. The Target Group continues to provide remuneration packages to employees according to market practices and past performance. In addition to basic remuneration, the Group also provides employees with other benefits such as a mandatory provident fund, medical insurance scheme and staff training program.

– 123 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The following is the illustrative and unaudited pro forma financial information of the Group, and DTVChina Inc. (“DTV”) and its subsidiary (collectively referred as the “DTV Group”) after the completion of the Acquisition (as defined below) (the DTV Group together with the Group are hereinafter referred to as the “Enlarged Group”) which has been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the proposed acquisition of (i) the 51% of the issued share capital of DTV; and (ii) the DTV Group’s amount due to DTV China Holdings Limited, the shareholder of DTV, as at 31 January 2008, which are collectively referred as the Acquisition as if it had been taken place on 31 March 2007 for the pro forma balance sheet; and at the beginning of the year ended 31 March 2007 for the pro forma income statement and the pro forma cash flow statement.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 31 March 2007 as set out in the financial information of the Group in Appendix I; and the audited consolidated balance sheet of the DTV Group as at 31 December 2007 in Appendix II, after making pro forma adjustments as set out in the notes thereto. The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Enlarged Group are prepared based on the audited consolidated income statement and cash flow statement of the Group for the year ended 31 March 2007 as set out in the financial information of the Group in Appendix I; and the audited consolidated income statement and cash flow statement of the DTV Group for the year ended 31 December 2007 in Appendix II, after making pro forma adjustment as set out in the notes thereto.

As the unaudited pro forma consolidated financial information of the Enlarged Group was prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position, results of operations or cash flows of the Enlarged Group had the Acquisition been completed as at the respective dates to which it is made up to or at any future date.

– 124 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(I) Unaudited pro forma consolidated balance sheet

Audited consolidated balance sheet of the Group as at 31 March 2007 HK$’000 Non-current assets Leasehold land and land use rights 12,646 Property, plant and equipment 12,146 Interests in associates 15,110 Interest in a jointly-controlled entity 2,631 Available-for-sale investments 1,573 Goodwill — 44,106 Current assets Inventories 2,961 Trade and other receivables, deposits and prepayments 19,570 Amounts due from related parties 2,490 Cash and bank balances 5,426 30,447 Current liabilities Interest-bearing bank borrowings, secured (16,064) Trade payables (4,213) Other payables, accrued expenses and trade deposits received (7,657) Current tax payables (3,833) Amount due to a shareholder — Tax penalty and surcharge payables (2,939) Amounts due to related parties (4,256) (38,962) Net current (liabilities)/assets (8,515) Total assets less current liabilities 35,591 Non-current liability Promissory note — Net assets 35,591 Capital and reserves Share capital 18,075 Reserves 15,028 Minority interest 2,488 Total equity 35,591	Audited consolidated balance sheet of the DTV Group as at 31 December Pro forma 2007 adjustments HK$’000 HK$’000 Note — 62 — — — — 333,050 1 62 1,830 4,378 840 1,713 (5,426) 1 8,761 — (1,685) (3,563) (35,574) 2 (763) (1,133) 1,133 1 — — (7,144) 1,617 1,679 — (57,039) 1 1,679 1 7,899 3 1,678 227,422 3 — 823 1 1,679	Unaudited pro forma consolidated balance sheet of the Enlarged Group HK$’000 12,646 12,208 15,110 2,631 1,573 333,050
		377,218 4,791 23,948 3,330 1,713
		33,782 (16,064) (5,898) (46,794) (4,596) — (2,939) (4,256)
		(80,547) (46,765) 330,453 (57,039)
		273,414
		25,975 244,128 3,311
		273,414

– 125 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

1. Under Hong Kong Financial Standard 3 “Business Combinations” and Hong Kong Accounting Standard 27 “Consolidated and Separate Financial Statements”, the Group will apply the purchase method to account for the acquisition of the DTV Group as subsidiaries if the Group has the power, directly or indirectly, to govern the financial and operating policies of the DTV Group, so as to obtain benefits from its activities after the completion of the Acquisition. As of the date of this report, the directors of the Company consider that the Group will have the above control over the DTV Group pursuant to the completion of the Acquisition. In applying the purchase method, the identifiable assets, liabilities and contingent liabilities of the DTV Group will be recorded on the consolidated balance sheet of the Group at their fair values at the date of the completion of the Acquisition. Any goodwill or discount arising on the Acquisition will be determined as the excess or deficit of the purchase price to be incurred by the Group over the Group’s interests in the net fair value of the identifiable assets, liabilities and contingent liabilities of the DTV Group at the date of completion of the Acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

Since the net fair value of the identifiable assets, liabilities and contingent liabilities of the DTV Group and the share price of the Company (which form part of the consideration given by the Company for the Acquisition as mentioned in Note 1(i)(c) below) as at the date of the actual completion of the Acquisition may be different from the fair values used in the preparation of the unaudited pro forma consolidated balance sheet above, the goodwill arising from the Acquisition will be reassessed at time of actual completion.

The adjustments reflect the following:

• (i) The aggregation consideration of HK$357,000,000 for the Acquisition shall be satisfied upon the completion of the Acquisition in the following manner:

• (a) a sum of HK$40,000,000, which will be financed by the Group’s cash and bank balances as at 31 March 2007 of HK$5,426,000, and other short term payable of HK$34,574,000.

• (b) a sum of HK$80,000,000, which will be paid by issuing and executing a promissory note by the Company with the principal value of HK$80,000,000 (the “Promissory Note”) to the vendor. The Promissory Note is repayable in one lump sum on the fifth anniversary of the date of issue at no interest. The Promissory Note is classified as a financial liability and should be initially measured at fair value, and subsequently measured at amortised cost, using the effective interest rate method. The fair value of the Promissory Note is determined at HK$57,039,000 at the date of issue using the discount rate of 7% per annum, which is within the range of the effective interest rates of the Group’s existing financing facilities, over the entire term of the Promissory Note, i.e. 5 years. The shortfall of HK$22,961,000 of the fair value of HK$57,039,000 below the principal value of HK$80,000,000 will be recognised as an interest expense of the Group over a term of 5 years using the effective interest rate method. The effective interest expense of the Promissory Note amounts to HK$3,993,000 based on the applicable principal amount of HK$57,039,000 and interest rate of 7% per annum.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

• (c) a sum of HK$237,000,000, which will be satisfied by the Company allotting and issuing 790,000,000 ordinary shares of the Company to the vendor, credited as fully paid at an issue price of HK$0.30 per ordinary share upon the completion of the Acquisition, which is taken as the fair value of the Company’s to-be-issued ordinary shares for the purpose of preparing the unaudited pro forma consolidated balance sheet.

Taking into account the professional and legal costs of HK$1,000,000 as mentioned in Note 2 below and the fair value of the items as mentioned in Note 1(i)(a), (b) and (c) above, the aggregate fair value of Group’s purchase cost of the Acquisition amounted to HK$335,039,000.

• (ii) The DTV Group’s amount due to DTV China Holdings Limited, the shareholder of DTV, will also be acquired by the Group in the Acquisition. As a result, there will be an intragroup balance of HK$1,133,000 between the DTV Group and the Group which is eliminated on consolidation in the unaudited pro forma consolidated balance sheet.

• (iii) The adjustments represent goodwill of HK$333,050,000 arising from the Acquisition.

For the purpose of preparing the unaudited pro forma consolidated balance sheet, the net assets of the DTV Group of HK$1,679,000 as at 31 December 2007 is taken as its fair value. The goodwill represented the excess of the Group’s total purchase cost of the Acquisition of HK$335,039,000 as mentioned in Note 1(i)(c) above over the aggregate fair value of the assets acquired in the Acquisition of HK$1,989,000, comprising the Group’s 51% equity interest in the fair value of the DTV Group’s net assets of HK$856,000 and the DTV Group’s amount due to a shareholder of HK$1,133,000.

• (iv) The adjustment represents the 49% equity interest held by the minority shareholder of DTV in the fair value of the net assets of the DTV Group of approximately HK$823,000.

• The adjustment represents (i) the unsettled amount of cash consideration of HK$34,574,000 as mentioned in note 1(i)(a) above; and (ii) the professional and legal costs of HK$1,000,000 in aggregate to be incurred by the Group in relation to the Acquisition, which will also be capitalised in the Group’s goodwill arising from the Acquisition.

• The adjustments represent (i) the elimination of DTV’s share capital of HK$7.8 (presented as HK$1,000 on the consolidated balance sheet of the DTV Group), and (ii) an amount of HK$237,000,000 arising from issue of 790,000,000 new ordinary shares of par value HK0.01, at an issue price of HK$0.30 per ordinary share, upon the completion of the Acquisition as mentioned in Note 1(i)(c), of which HK$7,900,000 was credited to share capital and the remaining balance of HK$229,100,000 was credited to the share premium account.

After taking into account the elimination of the pre-acquisition reserves of the DTV Group of HK$1,678,000 on consolidation and the above movements in the share premium account, the adjustment on the reserves amounted to HK$227,422,000.

– 127 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(II) Unaudited pro forma consolidated income statement

Turnover Cost of sales Gross profit Other revenue and gains Impairment loss on trade and other receivables Selling expenses Administrative expenses Operating (loss)/profit Finance costs Tax penalties and surcharges Impairment loss on goodwill Share of results of associates Share of results of a jointly-controlled entity (Loss)/profit before taxation Income tax (Loss)/profit for the year Attributable to: Equity holders of the Company Minority interest Loss per share	Audited consolidated income statement of the Group for the year ended 31 March 2007 HK$’000 166,429 (140,060) 26,369 801 (354) (11,517) (16,958) (1,659) (2,728) (3,759) (19,458) (1,480) (2,439) (31,523) (7,831) (39,354) (38,684) (670) (39,354)	Audited consolidated income statement of the DTV Group for the year ended 31 December Pro forma 2007 Adjustments HK$’000 HK$’000 Note 5,835 (848) 4,987 16 — (1,350) (1,346) 2,307 — (3,993) 1 — — — — 2,307 (763) 1,544 1,544 (4,750) 1 and 4 — 757 4 1,544 5	Unaudited pro forma consolidated income statement of the Enlarged Group HK$’000 172,264 (140,908)
			31,356 817 (354) (12,867) (18,304)
			648 (6,721) (3,759) (19,458) (1,480) (2,439)
			(33,209) (8,594)
			(41,803)
			(41,890) 87
			(41,803)
			HK$0.0172

Notes:

1. The net profit attributable to the minority interest of approximately HK$757,000 is arrived at the net profit of the DTV Group for the year ended 31 December 2007 of approximately HK$1,544,000 and the 49% equity interest of the DTV Group held by the minority shareholder after the completion of the Acquisition.

2. The unaudited pro forma basic loss per share amount is calculated at HK$0.0172 based on the unaudited pro forma loss for the year attributable to ordinary equity holders of the Company of HK$41,890,000 as disclosed in Appendix IV (II) of the Circular, and the pro forma weighted average number of 2,434,208,433 ordinary shares in issue during the year, which is the sum of (i) the weighted average number of 1,644,208,433 shares in issue of the Company for the year ended 31 March 2007 as disclosed in Appendix I of this Circular; and (ii) the weighted average number of 790,000,000 new shares to be issued as part of the consideration of the Acquisition and such issue is assumed to be effected at the beginning of the year ended 31 March 2007 for the purpose of preparing the unaudited pro forma basic loss per share amount.

– 128 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

		Audited
	Audited	consolidated
	consolidated	cash flow			Unaudited
	cash flow	statement			pro forma
	statement	of the			consolidated
	of the Group	DTV Group			cash flow
	for the	for the			statement
	year ended	year ended			of the
	31 March	31 December	Pro forma		Enlarged
	2007	2007	Adjustments		Group
	HK$’000	HK$’000	HK$’000	Note	HK$’000
CASH FLOWS FROM OPERATING
ACTIVITES
(Loss)/profit before taxation	(31,523)	2,307	(3,993)	1	(33,209)
Adjustments for:
Interest income	(44)	16			(28)
Share option expense	800	—			800
Depreciation	1,452	(16)			1,436
Amortisation of leasehold land and
land use rights	248	—			248
Finance costs	2,728	—	3,993	1	6,721
Share of results of associates	1,480	—			1,480
Share of results of a jointly-controlled
entity	2,439	—			2,439
Loss on disposal of property, plant and
equipment	127	—			127
Taxation penalties and surcharges	3,759	—			3,759
Impairment loss on inventories	464	—			464
Impairment loss on trade and other
receivables	354	—			354
Impairment loss on goodwill	19,458	—			19,458
Operating cash flows before movements
in working capital	1,742	2,307			4,049
Increase in inventories	(368)	(1,830)			(2,198)
Increase in trade receivables, other
receivables, deposits and prepayments	(13,399)	(4,378)			(17,777)
(Decrease)/increase in trade payables	(1,148)	1,685			537
(Decrease)/increase in other payables,
accrued expenses and trade deposits
received	(544)	3,563			3,019
Decrease/(increase) in amounts due to
related companies	(1,131)	—			(1,131)
Increase in amounts due from related
companies	—	(840)			(840)
Cash (used in)/generated from operations	(14,848)	507			(14,341)
Hong Kong profits tax paid	(2,915)	—			(2,915)
Interest received	—	16			16
Interest and bank charges paid	(2,728)	—			(2,728)
Taxation penalties and surcharges paid	(820)	—			(820)
Net cash (used in)/generated from
operating activities	(21,311)	523			(20,788)

– 129 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited consolidated cash flow statement of the Group for the year ended 31 March 2007 HK$’000 CASH FLOWS FROM INVESTING ACTIVITIES Payment for the Acquisition — Reclassification of interest in a subsidiary into a jointly-controlled entity (4,504) Interest received 44 Purchase of property, plant and equipment (7,159) Proceeds from disposal of property, plant and equipment 55 Purchase of land use rights (783) Net cash used in investing activities (12,347) FINANCING ACTIVITIES Proceeds from inception of bank loans and import and export loans 29,608 Proceeds from issue of warrants 2,296 Repayment of bank loans (7,305) Proceeds from issue of new shares on exercise of warrants 3,870 Proceeds from issue of new shares on exercise of share options 3,872 Contribution received from equity holders of the Company 1,743 Increase/(decrease) in amount due to a shareholder — Net cash generated from financing activities 34,084 Net increase/(decrease) in cash and cash equivalents 426 Cash and cash equivalents at beginning of the year 3,777 Effect of foreign exchange rate changes (239) Cash and cash equivalent at the end of the year 3,964 Analysis of the balances of cash and cash equivalents Cash and bank balances 5,426 Bank overdrafts (1,462) 3,964	Audited consolidated cash flow statement of the DTV Group for the year ended 31 December Pro forma 2007 Adjustments HK$’000 HK$’000 Note — (5,426) 1 — — (78) — — (78) — — — — — — (357) (357) 88 1,498 127 1,713 1,713 (5,426) 1 — 1,713	Unaudited pro forma consolidated cash flow statement of the Enlarged Group HK$’000 (5,426) (4,504) 44 (7,237) 55 (783) (17,851) 29,608 2,296 (7,305) 3,870 3,872 1,743 (357) 33,727 (4,912) 5,275 (112)
		251
		1,713 (1,462)
		251

– 130 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Shu Lun Pan Horwath Hong Kong CPA Limited 香港立信浩華會計師事務所有限公司 2001 Central Plaza 18 Harbour Road Wanchai, Hong Kong Teleophone : (852) 2526 2191 Facsimile : (852) 2810 0502 horwath@horwath.com.hk www.horwath.com.hk

31 March 2008

The Board of Directors Rontex International Holdings Limited 23rd Floor, Chun Wo Commercial Centre 23-29 Wing Wo Street Central Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Rontex International Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and DTVChina Inc. (“DTV”) and its subsidiary (collectively referred as the “DTV Group”), after the completion of the Acquisition (as defined below) (together with the Group are hereinafter referred to as the “Enlarged Group”) as set out on pages 124 to 130 under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix IV to the Company’s circular (the “Circular”) dated 31 March 2008, which have been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the proposed acquisition of (i) the 51% of the issued share capital of DTV; and (ii) the DTV Group’s amount due to DTV China Holdings Limited, the shareholder of DTV, as at 31 January 2008, which are collectively referred as the Acquisition, might have affected the financial information of the Group. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 124 to 130 of the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

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

– 131 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Basis of Opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• the financial position of the Enlarged Group as at 31 March 2007 or any future date; or

• the financial results and cash flows of the Enlarged Group for the year ended 31 March 2007 or for any future period.

Opinion

In our opinion:

• a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

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

• c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, For and on behalf of

Shu Lun Pan Horwath Hong Kong CPA Limited

Certified Public Accountants

Hong Kong

Shiu Hong Ng

Director

Practising Certificate number P03752

– 132 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorized and issued share capital of the Company was, and immediately following issue of the Consideration Shares will be as follows:

Authorised 10,000,000,000 Shares as at the Latest Practicable Date Issued and credited as fully paid 2,047,501,200 Shares as at the Latest Practicable Date 790,000,000 Consideration Shares to be issued 2,837,501,200 Shares upon Completion	HK$ 100,000,000
	20,475,012 7,900,000
	28,375,012

All the Shares rank pari passu in all respects including as to dividends, voting and return of capital.

3. DIRECTORS’ INTERESTS IN SECURITIES

(i) Shares of HK$0.01 each in the Company

			Approximate
		Number of	percentage of
Name of director	Capacity	shares held	shareholding
Executive directors:
Mr. Cheung Keng Ching	Interests in	28,600,000	1.40%
(“Mr. Cheung”)(Note 1)	controlled	(Long position)
	corporation	820,000,000	40.05%
		(Short position)
	Beneficial owner	7,400,000	0.36%
		(Long position)
	Deemed	7,600,000	0.37%
		(Long position)

– 133 –

APPENDIX V

GENERAL INFORMATION

			Approximate
		Number of	percentage of
Name of director	Capacity	shares held	shareholding
Executive directors:
Ms. Chou Mei (“Ms. Chou”)	Interests in	28,600,000	1.40%
(Note 1)	controlled	(Long position)
	corporation	820,000,000	40.05%
		(Short position)
	Beneficial owner	7,600,000	0.37%
		(Long position)
	Deemed	7,400,000	0.36%
		(Long position)
Mr. Li Wing Sang (“Mr. Li”)	Beneficial owner	19,560,000	0.96%
(Note 2)		(Long position)
Independent non-executive director:
Mr. Lo Siu Tong, Alfred	Beneficial owner	96,000	0.005%
		(Long position)

• Note 1: These 848,600,000 Shares are beneficially owned by Star Master, of which 820,000,000 Shares are subject to an option deed entered into between Star Master and Plenty Holdings Limited (“Plenty”) on 15 October 2007, pursuant to which Plenty shall have an option to require Star Master to sell 820,000,000 Shares (representing 40.05% of the issued share capital of the Company as at the Latest Practicable Date) to Plenty at an exercise price of HK$45 million during the period commencing from 15 October 2007 to 7 April 2008. As at the Latest Practicable Date, the option has not been exercised. The entire issued share capital of Star Master is legally and beneficially owned by Mr. Cheung and Ms. Chou as to 50% and 50% respectively. As spouse, Mr. Cheung and Ms. Chou are respectively deemed to be interested in the shares held by each other in the Company. As such Mr. Cheung is deemed to be interested in the 7,600,000 Share beneficially owned by Ms. Chou and Ms. Chou is deemed to be interested in the 7,400,000 Shares beneficially owned by Mr. Cheung.

• Note 2: Mr. Li owns 19,560,000 shares options under the share option scheme adopted by the Company on 19 October 2002 which confer him the rights to acquire 19,560,000 shares, representing approximately 0.96% of the issued share capital of the Company, with the exercise period from 10 September 2007 to 9 September 2017 at an exercise price of HK$0.2226 per share option.

– 134 –

GENERAL INFORMATION

APPENDIX V

• (ii) Shares of US$1.00 each in the share capital of Star Master (“Star Master Share”), the associated corporation of the Company

		Number of	Approximate
		Star Master	percentage of
Name of director	Capacity	Shares held	shareholding
Executive director:
Mr. Cheung_(Note)_	Beneficial	500	50%
	Deemed	500	50%
Ms. Chou_(Note)_	Beneficial	500	50%
	Deemed	500	50%

Note: The entire issued share capital of Star Master is legally and beneficially owned by Mr. Cheung and Ms. Chou as to 50% and 50% respectively. As spouse, Mr. Cheung and Ms. Chou are respectively deemed to be interested in the shares held by each other in Star Master.

Save as disclosed above, none of the Directors or chief executive of the Company had, as at the Latest Practicable Date, any interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or chief executive was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by the Directors, to be notified to the Company and the Stock Exchange.

– 135 –

GENERAL INFORMATION

APPENDIX V

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or held any options in respect of such capital:

			Approximate
Name of		Number of	percentage of
shareholders	Capacity	shares held	shareholding
Star Master_(Note 1)_	Beneficial owner	28,600,000	1.40%
		(Long position)
		820,000,000	40.05%
		(Short position)
Cheong Phau Choo Yvonne	Deemed	820,000,000	40.05%
(Note 2)		(Long position)
Ho Yung Pedder (“Mr. Ho”)	Interests in	820,000,000	40.05%
(Note 2)	controlled corporation	(Long position)
Plenty Holdings Limited	Beneficial owner	820,000,000	40.05%
(“Plenty”)		(Long position)
DTV China Holdings	Beneficial owner	790,000,000	38.58%
Limited (“DTV”)(Note 3)		(Long position)
Li Yi Nan_(Note 4)_	Interests in	790,000,000	38.58%
	controlled corporation	(Long position)
Yao Gin Jhi (Note 4)	Deemed	790,000,000	38.58%
		(Long position)

Note 1: The entire issued share capital of Star Master is legally and beneficially owned by Mr. Cheung and Ms. Chou as to 50% and 50% respectively. 820,000,000 Shares are subject to an option deed entered into between Star Master and Plenty on 15 October 2007, pursuant to which Plenty shall have an option to require Star Master to sell 820,000,000 Shares (representing 40.05% of the issued share capital of the Company as at the Latest Practicable Date) to Plenty at an exercise price of HK$45 million during the period commencing from 15 October 2007 to 7 April 2008. As at the Latest Practicable Date, the option has not been exercised.

– 136 –

GENERAL INFORMATION

APPENDIX V

• Note 2: Plenty is wholly and beneficially owned by Mr. Ho. By virtue of the SFO, Mr. Ho and Ms. Cheong Phau Choo, Yvonne, being the wife of Mr. Ho are deemed to be interested in the 820,000,000 Shares which Plenty has beneficial interests in.

• Note 3: On 29 January 2008, the Company has entered into an agreement in relation to an acquisition of 51% of DTV China Inc., which 790,000,000 consideration shares to be issued upon completion shall be part of the consideration to DTV as being the vendor.

• Note 4: The entire issued share capital of DTV is beneficially owned by Mr. Li Yi Nan. By virtue of the SFO, Mr. Li Yi Nan and Ms. Yao Gin Jhi, being the wife of Mr. Li Yi Nan, are deemed to be interested in the 790,000,000 Shares (to be issued upon completion of the acquisition of 51% of DTV China Inc.) which DTV has beneficial interests in.

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

5. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

None of the Directors has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2007, being the date to which the latest published audited consolidated accounts of the Group were made up.

None of the Directors was materially interested in any asset, contract or arrangement entered into by any member of the Enlarged Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors or their respective associates was interested in any business apart from the business of the Enlarged Group, which competed or was likely to compete, either directly or indirectly, with that of the Enlarged Group.

6. COMPETING BUSINESS

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective associates were considered to have interest in any business which competes or may compete, either directly or indirectly, with the business of the Enlarged Group or have or may have any other conflicts of interest with the Enlarged Group pursuant to the Listing Rules.

– 137 –

GENERAL INFORMATION

APPENDIX V

7. DIRECTORS’ SERVICE CONTRACTS

Each of Mr. Cheung and Ms. Chou, being executive Director, has entered into a service contract with the Company for an initial fixed term of three years commencing from 19 October 2002 and which will continue thereafter until the contract is terminated by not less than three months’ notice in writing served by either party to the other.

Mr. Li, being an executive Director, has entered into a service contract with the Company for a term of two years commencing from 6 September 2007 and thereafter may be extended for such period as the Company and Mr. Li may agree in writing. The service may be terminated by either party by giving not less than one month’s prior notice in writing to the other party.

All Directors are subject to retirement by rotation and re-election at annual general meetings of the Company in accordance with the articles of association of the Company.

Save as disclosed above, no Directors has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

8. MATERIAL CONTRACTS

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

• (a) the placing agreement dated 23 January 2007 and supplemental agreements to the placing agreement on 26 January 2007 and 29 January 2007 entered into between the Company and VC Brokerage Limited in relation to the placing of up to 320,000,000 unlisted warrants at an issue price of HK$0.01 per warrant;

• (b) the placing agreement dated 13 November 2007 entered into between the Company and Enlighten Securities Limited in relation to the placing of 391,000,000 unlisted warrants at the issue price of HK$0.01 per warrant;

• (c) the provisional agreement dated 22 January 2008 entered into between Take Luck Development Limited (a wholly-owned subsidiary of the Company) and Grand Victor Investment Limited as purchaser in relation to the disposal of the property Flat B on 1st Floor and its flat roofs and car parking space 13 on ground floor, Haddon Court, No. 41C Conduit Road, Hong Kong at a consideration of HK$17,500,000;

• (d) the formal sale and purchase agreement dated 12 February 2008 in relation to the disposal of property as mentioned in (c) above; and

• (e) the Agreement.

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GENERAL INFORMATION

APPENDIX V

9. EXPERT AND CONSENT

• (a) Shu Lun Pan Horwath Hong Kong CPA Limited (“SLP Horwath”), Certified Public Accountants, has given its opinions and advice which are included in this circular.

• (b) SLP Horwath does not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) SLP Horwath has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.

10. LITIGATION

As at the Latest Practicable Date, so far as the Directors were aware, no member of the Enlarged Group was engaged in any litigation or arbitration or claim of material importance and the Directors were not aware of any litigation or claims of material importance pending or threatened against any member of the Enlarged Group.

11. MISCELLANEOUS

• (a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

• (b) The head office and principal place of business of the Company in Hong Kong is at 23/ F, Chun Wo Commercial Centre, 23-29 Wing Wo Street, Central, Hong Kong.

• (c) The branch share registrar of the Company is Tricor Tengis Limited, the address of which is at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (d) The company secretary and the qualified accountant of the Company is Ms. Lo Suet Fan, an associate member of the Hong Kong Institute of Certified Public Accountants, and a fellow member of The Association of Chartered Certified Accountants.

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

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GENERAL INFORMATION

APPENDIX V

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (public holidays excepted) at the office of the Company at 23/F, Chun Wo Commercial Centre, 23-29 Wing Wo Street, Central, Hong Kong from the date of this circular up to and including the date of the EGM:

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

• (b) the annual report of the Company for the two years ended 31 March 2007 and the interim report of the Company for the six months ended 30 September 2007 as set out in Appendix I;

• (c) the accountants’ report of the Target Group for the period from 19 April 2005 to 31 December 2005 and two years ended 31 December 2006 and 2007 issued by SLP Horwath as set out in Appendix II to this circular;

• (d) the unaudited pro forma financial information of the Enlarged Group issued by SLP Horwath as set out in Appendix IV to this circular;

• (e) the working capital comfort letter as provided by SLP Horwath to the Board pursuant to the requirements of rule 14.66(4) of the Listing Rules;

• (f) the letter of consent from SLP Horwath referred to under “Expert and Consent” in this appendix;

• (g) circular of the Company dated 11 February 2008; and

• (h) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

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NOTICE OF EGM

==> picture [57 x 32] intentionally omitted <==

RONTEX INTERNATIONAL HOLDINGS LIMITED 朗迪國際控股有限公司 [*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1142)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of the shareholders of Rontex International Holdings Limited (the “Company”) will be held at 19th Floor, Chun Wo Commercial Centre, 23-29 Wing Wo Street, Central, Hong Kong on 21 April 2008 (Monday) at 3:30 p.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolution of the Company:

ORDINARY RESOLUTION

“ THAT

• (a) the conditional sale and purchase agreement (the “ Agreement ”) (a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) dated 29 January 2008 and entered into among Century Power (China) Limited, an indirect wholly-owned subsidiary of the Company, as purchaser, DTV China Holdings Limited (the “ Vendor ”) as vendor and Mr. Li Yi Nan as guarantor in relation to the sale and purchase of 5,100 shares of US$1.00 each in the issued share capital of DTV China Inc. (the “ Target Company ”) and the shareholder’s loan owed by the Target Company to the Vendor at a total consideration of HK$357,000,000, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

• (b) the allotment and issue of an aggregate of 790,000,000 new shares (the “ Consideration Shares ” and each a “ Consideration Share ”) of HK$0.01 each in the share capital of the Company credited as fully paid at an issue price of HK$0.30 per Consideration Share to the Vendor in accordance with the Agreement be and is hereby approved; and

• (c) any one or more of the directors of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Agreement and the transactions contemplated thereunder.”

By order of the Board Rontex International Holdings Limited Cheung Keng Ching Chairman

Hong Kong, 31 March 2008

* For identification purpose only

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NOTICE OF EGM

Registered office: Head office and principal place Cricket Square of business in Hong Kong: Hutchins Drive 23rd Floor, Chun Wo Commercial Centre P.O. Box 2681 23-29 Wing Wo Street Grand Cayman KY1-1111 Central, Hong Kong Cayman Islands

Notes:

1. A member entitled to attend and vote at the EGM is entitled to appoint one or more than one proxy to attend and, subject to the provisions of the articles of association of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the EGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.

2. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM in person, you are encouraged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the EGM or any adjournment thereof, should he so wish.

3. In order to be valid, the form of proxy, together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority must be deposited at Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong no later than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

4. In the case of joint holders of shares, any one of such holders may vote at the EGM, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holder are present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

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