Shandong Gold Mining Co., Ltd. — Proxy Solicitation & Information Statement 2004

Sep 20, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Lee & Man Holding Limited (the “Company”), you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

LEE & MAN HOLDING LIMITED

(Incorporated in the Cayman Islands with limited liability) (Stock code: 746)

MAJOR TRANSACTION DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

A letter from the board of directors of the Company is set out on pages 3 to 8 of this circular.

20 September 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Reasons for the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Shareholder’s Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I: General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix II: Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15

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DEFINITIONS

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

• “Adjustment Accounts”

• the audited consolidated profit and loss accounts of Foreland’s operating subsidiaries for the accounting period from 1 April 2004 to 30 September 2004 and the audited consolidated balance sheet of Foreland's operating subsidiaries as at 30 September 2004, prepared by the auditors of Lee & Man Development;

• “Attributable Value” being 51% of the net book value, being the sum of the capital, reserves and retained earnings of Foreland's operating subsidiaries, as shown in the Adjustment Accounts;

• “Board” the board of Directors of the Company;

• “Business Day”

• a day (other than a Saturday or a Sunday) on which banks are generally open for business in Hong Kong;

• “Company”

• Lee & Man Holding Limited, a company incorporated in the Cayman Islands and the shares of which are listed on the Stock Exchange;

• “Completion” completion of the Disposal which shall take place on 5 October 2004 or on such other date as the parties thereto may agree;

• “Consideration” US$7,000,000 (approximately HK$54,600,000), subject to adjustments, being the amount of money payable by Silvergear for the purchase of the Sale Share pursuant to the Disposal Agreement;

• “Director(s)” the director(s) of the Company;

• “Disposal”

• the disposal of the Sale Share by Lee & Man Development to Silvergear pursuant to the terms of the Disposal Agreement;

• “Disposal Agreement”

• the disposal agreement dated 25 August 2004 entered into between Lee & Man Development and Silvergear pursuant to which Lee & Man Development agreed to sell and Silvergear agreed to purchase the Sale Share;

• “Foreland”

• Foreland Pacific Limited, a company incorporated in the British Virgin Islands and an indirect wholly-owned subsidiary of the Company;

• “Group” the Company and its subsidiaries;

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DEFINITIONS

• “HK$” the lawful currency of Hong Kong;

• “Hong Kong” The Hong Kong Special Administrative Region of the People’s Republic of China;

• “Independent Third Parties” persons who, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, are third parties independent of the Company and connected persons (as defined in the Listing Rules) of the Company;

• “Latest Practicable Date” 16 September 2004, being the latest practicable date for ascertaining information in this circular;

• “Lee & Man Development” Lee & Man Development Company Limited, a company incorporated in the British Virgin Islands and a whollyowned subsidiary of the Company;

• “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange;

• “PRC” the People’s Republic of China;

• “Sale Share” one share of US$1.00 in the issued share capital of the Foreland, an indirect wholly-owned subsidiary of the Company, representing the entire issued share capital of Foreland;

• “Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company;

• “Silvergear” Silvergear Holdings Limited, a company incorporated in the British Virgin Islands;

• “Stock Exchange” The Stock Exchange of Hong Kong Limited; “United States” the United States of America; and “US$” the lawful currency of the United States.

Unless otherwise specified in this circular, translations of US$ into HK$ are made in this circular, for illustration only, at the rate of US$1.00 to HK$7.80. No representation is made that any amounts in US$ or HK$ could have been or could be converted at that rate or at any other rate.

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LETTER FROM THE BOARD

LEE & MAN HOLDING LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 746)

Executive Directors: Wai Siu Kee Poon Lai Ming Lee Marina Man Wai Lee Lai Chu Lee Man Yan

Independent non-executive Directors: Wan Chi Keung, Aaron JP Heng Kwoo Seng Wong Kai Tung, Tony

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Principal place of business in Hong Kong: 8th Floor, Liven House 61-63 King Yip Street Kwun Tong Kowloon Hong Kong 20 September 2004

To the shareholders of the Company

Dear Sirs or Madam,

MAJOR TRANSACTION DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

INTRODUCTION

On 27 August 2004, the Board made an announcement that Lee & Man Development had, on 25 August 2004, entered into the Agreement to sell the Sale Share at the consideration of US$7,000,000 (approximately HK$54,600,000).

The purpose of this circular is to provide you with further information in relation to the Disposal.

THE AGREEMENT

Date: 25 August 2004

Parties: Vendor: Lee & Man Development, a wholly-owned subsidiary of the Company.

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LETTER FROM THE BOARD

Purchaser: Silvergear, being a company incorporated in the British Virgin Islands. Silvergear and its ultimate beneficial owners are Independent Third Parties. Silvergear is a special purpose vehicle purchased in connection with this transaction and immediately after Completion, is expected to be an investment holding company.

Asset:

the Sale Share

Consideration: The Consideration payable by Silvergear pursuant to the Disposal Agreement is US$7,000,000 (approximately HK$54,600,000), subject to adjustments as set out below, which shall be payable by Silvergear by US dollar bank draft in the following manner:–

• (a) US$2,000,000 (approximately HK$15,600,000), being the initial deposit, shall be paid to Lee & Man Development or its order upon the signing of the Disposal Agreement;

• (b) US$5,000,000 (approximately HK$39,000,000), being the balance of the Consideration, shall be paid to Lee & Man Development or its order on Completion; and

• (c) adjustments, if any, pursuant to the terms of the Disposal Agreement.

The Consideration will be subject to adjustments when the audited accounts of Foreland's operating subsidiaries for the period till 30 September 2004 are finalised and will be adjusted downwards or upwards by reference to the Attributable Value as follows:–

• (i) where the Consideration is less than the aggregate of US$4,000,000 (approximately HK$31,200,000) and the Attributable Value, Silvergear shall pay to Lee & Man Development an amount equal to such shortfall within 10 Business Days after the date on which the Adjustment Accounts are delivered to Silvergear; and

• (ii) where the Consideration is greater than the aggregate of US$4,000,000 (approximately HK$31,200,000) and the Attributable Value, Lee & Man Development shall pay to Silvergear an amount equal to such excess within 10 Business Days after the date on which the Adjustment Accounts are delivered to Silvergear.

The US$4,000,000 (approximately HK$31,200,000) as mentioned in (i) and (ii) above is based on the goodwill as shown in (4) below.

As at the Latest Practicable Date, the initial deposit in the amount of US$2,000,000 has already been paid to Lee & Man Development.

The Consideration has taken into account the estimated net book value of Foreland's operating subsidiaries as at 30 September 2004, being the date to which the Adjustment Accounts are made up and was derived by reference to the price to net book value ratio as follows:–

• (1) Price / net book value ratio of 2.32 (by reference to the ratio of the closing price as at 24 August 2004 / consolidated net book value of the Company as at 31 March 2004 = price per Share: HK$1.03 / consolidated net book value per Share: HK$0.444 = 2.32).

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LETTER FROM THE BOARD

• (2) Estimated net book value of Foreland and its operating subsidiaries as at 30 September 2004 = US$3,000,000 on the basis of confirmed shipments and/or contracts which Foreland and its operating subsidiaries currently have on hand.

• (3) Based on the price / net book value ratio of 2.32 and the estimated net book value of Foreland and its operating subsidiaries as at 30 September 2004 of US$3,000,000, the Consideration = 2.32 x US$3,000,000 = approximately US$7,000,000 (approximately HK$54,600,000).

• (4) Based on the difference between the Consideration of US$7,000,000 and the estimated net book value of Foreland and its operating subsidiaries as at 30 September 2004 of US$3,000,000, the goodwill is US$4,000,000 (approximately HK$31,200,000).

The Attributable Value of 51% of the net book value of Foreland’s operating subsidiaries represent Foreland's interest in its operating subsidiaries. The remaining 49% are owned by two other persons who are both directors of Foreland's operating subsidiaries. Other than their 49% interest in Foreland's operating subsidiaries and their directorship in the aforesaid subsidiaries, such 49% shareholders are Independent Third Parties.

The audited net book value of the Sale Share as recorded in the books of the Company as at 31 March 2004 is HK$17,279,402 and the consolidated net profits (before and after taxation, extraordinary items and minority interests) attributable to the Sale Share for the financial year immediately preceding the Disposal ended 31 March 2004 were HK$14,761,104 and HK$13,285,633 respectively. The corresponding figures for the year ended 31 March 2003 were HK$16,208,085 and HK$13,354,213 respectively.

The Sale Share is sold at a gain of approximately US$4,000,000 (approximately HK$31,200,000) over the consolidated net book value of the Sale Share as at 30 September 2004 (to be subject to an audit subsequent to Completion). The Company does not expect to recognise in its consolidated income statement a gain that is different from the aforesaid gain of approximately US$4,000,000. For comparison purposes and if the Company used the initial consideration of US$7,000,000, the gain over the consolidated net book value of the Sale Share as at 31 March 2004 would be approximately US$3,000,000 (approximately HK$23,400,000). The proceeds from the Disposal will be utilised to further develop the Company's direct sales operations (for example, by building up the Group’s own sales team for the market in the United States) and for general working capital purposes. The Group has not yet planned how the proceeds will be split between direct sales operations and general working capital. In this regard, the Group does not have any current intention to make any acquisitions in furthering this objective.

Conditions:

Completion of the Disposal Agreement is conditional upon the following:–

• (a) the approval of the Disposal Agreement and the transactions contemplated thereunder by shareholders of the Company holding a majority, i.e. over 50%, of the Shares;

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LETTER FROM THE BOARD

• (b) the warranties and representations contained in the Disposal Agreement being true and accurate up to and including the date of Completion;

• (c) Lee & Man Development having duly complied with the Disposal Agreement in all respects in so far as the same are to be complied with on or before Completion;

• (d) Silvergear is (in good faith) reasonably satisfied with its due diligence study of the affairs of the Group including without limitation the assets, liabilities, state and conditions (financial or otherwise) of the Group (including the Group's financial statements and accounts) on or before 8 September 2004 provided that Silvergear shall not unreasonably or in bad faith withhold, delay or refuse to give such satisfaction; and

• (e) all the loans (other than those payable for services provided by Lee & Man Development to Foreland in the ordinary course of business) advanced to Foreland by Lee & Man Development have been fully repaid by Completion. The Disposal Agreement does not specify an amount for these loans as it fluctuates from time to time.

Lee & Man Development shall use each and every effort to ensure that the conditions set out in paragraphs (b), (c) and (e) above shall be fulfilled by Completion. Silvergear may waive the conditions set out in (b) to (e) above at any time by notice in writing to Lee & Man Development. As permitted under Rule 14.44 of the Listing Rules, as no shareholder is required to abstain from voting in the event the Company convenes a meeting for the purpose of obtaining the approval of the Disposal Agreement and the transactions contemplated hereunder in (a) above and as Fortune Star Tradings Ltd., being the controlling shareholder of the Company holdings 74.79% of the issued share capital of the Company as at the Latest Practicable Date, has no interest in the Disposal save for its shareholding in the Company and has provided its irrevocable written consent to the Disposal Agreement, no meeting of the shareholders of the Company will be convened for this purpose and such condition is already fulfilled as at the Latest Practicable Date. As at the Latest Practicable Date, Silvergear has also confirmed that the condition set out in paragraph (d) has been fulfilled.

It is also a term of the Disposal Agreement that, after Completion, Lee & Man Development will continue to provide the following services to Foreland, subject to compliance by Foreland of the terms and conditions for the provision of such services:–

• (a) production of samples for Foreland by the factories of Lee & Man Development in the PRC until 31 March 2005;

• (b) the licence to the use of part of the office premises up to a maximum gross area of 6,000 square feet, at Liven House, 61-63 King Yip Street, Kwun Tong, Kowloon until 30 June 2005;

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LETTER FROM THE BOARD

• (c) provision of quality control services in the PRC until 31 March 2005; and

• (d) provision of book-keeping services and the preparation of shipping documents in relation to the business of Foreland in the PRC until 31 March 2005.

The terms and conditions (including the fees payable) for the provision of the services set out in (a) to (d) above shall be determined by Lee & Man Development at its sole discretion acting reasonably and Silvergear undertakes to pay, or procure Foreland to pay to Lee & Man Development the fees charged by Lee & Man Development for such services.

It was a commercial decision between the parties to the Disposal Agreement that post-completion services be provided by Lee & Man Development to Silvergear at cost for the period until 30 June 2005 for an estimated amount of HK$1,650,000 in order to facilitate a smooth transition of the change in ownership of Foreland.

Foreland will not be providing any services to Lee & Man Development after Completion.

REASONS FOR THE DISPOSAL

The Company is an investment holding company whose subsidiaries are engaged in the manufacture and sale of handbags and luggage.

Foreland is principally engaged in the import of handbags manufactured by Independent Third Parties for sale in the United States. Due to the relatively high operating costs attributable to businesses in the United States, the consolidated profit margin of Foreland for the year ended 31 March 2004 of 4.34% is comparatively low when compared with the profit margin of the Group for the year ended 31 March 2004 of 10.69%. The Directors expect Foreland to face increased competition in the near future as an increasing number of multi-national retailers and department stores have started placing sales orders directly with manufacturers in order to save costs. Hence, the Directors believe that Foreland's consolidated profit contribution to the Group is unlikely to grow in the near future. As Foreland is principally engaged in import and has no manufacturing capability, it does not have any direct sales operations. In view of the above, the Directors decided to reformulate the Group’s business strategy by disposing Foreland so that the Group can have more resources to further develop its operations of direct sales in the United States generally of handbags manufactured by the Group, which operations are currently more profitable.

The Directors, including the independent non-executive Directors, are of the view that the terms of the Disposal Agreement are fair and reasonable and in the interests of the shareholders of the Company as a whole and it is intended that the net sales proceeds from the Disposal will be utilised to further develop its direct sales operations and for the general working capital of the Group. The Group does not have any current intention to make any acquisitions in furthering this objective.

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LETTER FROM THE BOARD

SHAREHOLDER’S APPROVAL

The transaction has been approved by way of written shareholder's approval from Fortune Star Tradings Ltd., being the controlling shareholder of the Company holding 74.79% the issued share capital of the company as at the Latest Practicable Date, who has no interest in the Disposal save for its shareholding in the Company.

INFORMATION ON THE GROUP

The Company is an investment holding company whose subsidiaries are engaged in the manufacture and sale of handbags and luggage.

GENERAL

The Disposal constitutes a major transaction of the Company under Rule 14.06(3) of the Listing Rules.

The percentage turnover as shown in the consolidated profit and loss account of Foreland for the year ended 31 March 2004 which is attributable to the Group is 32.02%. Foreland is a major subsidiary of the Company. The Company will no longer have any interest in Foreland as a result of the Disposal. After the Disposal, the Group will continue with the manufacture and trading of handbags and the Directors are of the view that the Group's operations will not be materially and adversely affected by the Disposal . Although the turnover of the Group will decrease by 32.02% by reference to the aforesaid turnover figures and as a result of the Disposal only, the consolidated profit attributable to shareholders of the Company, according to the audited consolidated profit and loss account of Foreland for the year ended 31 March 2004, is only expected to decrease by 13% as a result of the Disposal only. To compensate for the expected decrease in turnover, the Group will, in addition to its plans for direct sales operations, continue to further expand and modernize its manufacturing and logistic facilities by computerizing equipment and machinery in the PRC as well as enhance its marketing and design capabilities by recruiting more staff and by attending trade shows and exhibitions.

The Company will make a further announcement in the event of any adjustments to the Consideration. Audited accounts of the consolidated results of Foreland as at 30 September 2004 (by reference to which the final Consideration will be determined) are expected to be available on or before the 180th day after Completion.

As at the date of this circular, the executive Directors are Ms. Wai Siu Kee, Ms. Poon Lai Ming, Ms. Lee Marina Man Wai, Ms. Lee Lai Chu and Mr. Lee Man Yan; and the independent nonexecutive Directors are Mr. Wan Chi Keung, Aaron JP, Mr. Heng Kwoo Seng and Mr. Wong Kai Tung, Tony.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of Lee & Man Holding Limited Wai Siu Kee

Chairman

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GENERAL INFORMATION

APPENDIX I

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 concerning the Group the omission of which would make any statement herein misleading.

1. DISCLOSURE OF INTERESTS

Interests and short positions of Directors in the share capital of the Company and its associated corporation

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which they have taken or deemed to have under Sections 344 and 345 of the SFO) or which would be required to be disclosed pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the register referred therein pursuant to Section 352 of the SFO.

Directors’ interests in the Shares

Name of Director	Number of	Capacity	Approximate
	Shares interested		percentage
	(Long Position)		of Shares
Wai Siu Kee	617,000,000	Beneficial owner	74.79%
	(Note 1)
Lee Lai Chu	1,000,000	Personal	0.12%
Lee Man Yan	617,000,000	Beneficial owner	74.79%
	(Note 1)

Note 1:

These shares are held by Fortune Star Tradings Ltd., a company wholly-owned by by Newcourt Trustees Limited as trustee for The Fortune Star 1992 Trust, a discretionary trust the discretionary objects of which include Wai Siu Kee and Lee Man Yan, both of whom are Directors, certain of their family members and other charitable objects.

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GENERAL INFORMATION

APPENDIX I

2. SUBSTANTIAL SHAREHOLDERS

Notifiable interests and short positions in Shares of persons under the provision of Divisions 2 and 3 of Part XV of the SFO and persons who are “substantial shareholders” in the Company for the purposes of the Listing Rules

Save as disclosed below, as at the Latest Practicable Date, none of the Directors are aware of any other person who had an interest or short position in the Shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO.

Notifiable interests in Shares

Name	Number of Shares	Capacity	% of issued
	on which interested		share capital
	(Long Position)
Fortune Star Tradings Ltd.	617,000,000	Beneficial owner	74.79%
(Note 2)
Value Partners Limited	62,498,000	Beneficial owner	7.58%
Note 2:

The entire issued share capital of Fortune Star Tradings Ltd. is owned by Newcourt Trustees Limited as trustee for The Fortune Star 1992 Trust, a discretionary trust the discretionary objects of which include Wai Siu Kee and Lee Man Yan, both of whom are Directors, and certain of their family members and other charitable objects.

None of the Directors have acquired or disposed of, or proposed to acquire or disposes of, by or leased to any member of the Group, any direct or indirect interest.

None of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

3. MATERIAL CONTRACTS

The following are material contracts (not being contracts entered into the ordinary course of business) entered into by the Group on or after 20 September 2002:–

• (a) On 20 November 2002, the Company entered into an agreement as purchaser to purchase 100 shares of Lee & Man Paper International Limited (the “Sale Company”), being the entire issued share capital of the Sale Company, and the debt due from the Sale Company to Fortune Star Tradings Ltd. (the vendor) as at the date of completion of the agreement. The conderation involved was US$100 for the shares and the face value of the loans owing by the Sale Company on the date of completion. This agreement was terminated on 11 December 2002.

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GENERAL INFORMATION

APPENDIX I

• (b) On 1 August 2003, an agreement was entered into between Foreland together with two management (together the “Shareholders”) and Cititower Pacific Limited (the “Corporation”) whereby the Shareholders agreed terms on which to manage, among other things, the affairs of the Corporation and its subsidiaries. The shares were issued to the Shareholders at a consideration of US$1.00 per share. Each of Foreland and these two management executives were issued 1,020,000 shares 980,000 shares respectively.

• (c) On 14 December 2001, the Company agreed to procure its subsidiaries to provide (i) use of office facilities and equipment, (ii) use of transportation facilities, and (iii) management service including administrative and financial services to Lee & Man Paper Products Company Limited, a subsidiary of Wisdom Venture Holdings Limited, and Lee And Man Manufacturing Company Limited for a monthly management fee on a cost basis.

Lee And Man Manufacturing Company Limited was a former subsidiary of Wisdom Venture Holdings Limited and was disposed of to a subsidiary of Fortune Star Tradings Ltd. (“Fortune Star”) on 14 June 2002 and then to Mr. Lee Wan Keung on 8 March 2003 and further to Ms. Lee Marina Man Wai, a Director, on 16 February 2004.

Mr. Lee Wan Keung is a director of certain subsidiaries of the Company.

• (d) Pursuant to two licence agreements dated 14 December 2001 entered into between Lee & Man Management Company Limited (“Lee & Man Management”), a whollyowned subsidiary of the Company, and Lee & Man Realty Investment Limited (“Lee & Man Realty”), which is beneficially owned by Mr. Lee Wan Keung and Mr. Lee Man Yan, a Director, Lee & Man Realty has agreed to grant licences to Lee & Man Management and subsidiaries of the Company to enter into possession of and occupy certain office space of Lee & Man Realty for a term of three years commencing 1 January 2002 for a total monthly licence fee of HK$156,750. The total monthly licence fee has been decreased to HK$114,000 effective from 1 June 2003 as mutually agreed.

Lee & Man Realty was disposed of to a subsidiary of Fortune Star on 14 June 2002 and it was subsequently disposed of to Mr. Lee Wan Keung and Mr. Lee Man Yan on 12 March 2003.

• (e) Pursuant to the management services agreement entered into between Lee & Man Management and Lee & Man Paper Manufacturing Limited, which is an associate (as defined in the Listing Rules) of Fortune Star, on 8 September 2003 and the current term being for one year from 1 September 2004, Lee & Man Management will provide administrative and secretarial services to Lee & Man Paper Manufacturing Limited and the right to use Lee & Man Management’s office as registered office at monthly services fee of HK$5,500.

4. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and, so far as the Directors are aware, no litigation or arbitration of material importance is pending or threatened against the Group.

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GENERAL INFORMATION

APPENDIX I

5. MATERIAL ADVERSE CHANGE

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

6. SERVICE CONTRACTS

Each of Ms. Wai Siu Kee, Ms. Poon Lai Ming, and Ms. Lee Marina Man Wai entered into a service contract with the Company for an initial term of three years from 1 January 2002. Ms. Lee Lai Chu and Mr. Lee Man Yan entered into a service contract with the Company for an initial term of three years from 1 September 2004 and 16 August 2004 respectively. Mr. Wong Kai Tung, Tony, Mr. Wan Chi Keung, Aaron JP and Mr. Heng Kwoo Seng's appointments are formalized by a letter of appointment with the Company for an initial term of one year from 16 August 2004. Their respective annual salaries under the service contracts and appointment letters are as follows:

Director	Salaries per annum
	(HK$)
Ms. Wai Siu Kee	60,000
Ms. Poon Lai Ming	60,000
Ms. Lee Marina Man Wai	60,000
Ms. Lee Lai Chu	496,600
Mr. Lee Man Yan	331,500
Mr. Wan Chi Keung, Aaron JP	80,000
Mr. Heng Kwoo Seng	80,000
Mr. Wong Kai Tung, Tony	80,000

The following documents are available for inspection at the office of the Company’s solicitors, Richards Butler, at 20/F, Alexandra House, 16-20 Chater Road, Central, Hong Kong for a period of up to 14 days after the date of this circular:

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

• (b) any service contracts as disclosed in this circular;

• (c) the material contracts as disclosed in this circular;

• (d) all reports, letters or other documents, balance sheets, and valuations extracted or referred to in this circular;

• (e) the consolidated audited accounts of the issuer and its subsidiaries for each of the two financial years immediately preceding the issue of this circular together with all notes, certificates or information required by the Companies Ordinance.

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GENERAL INFORMATION

APPENDIX I

7. COMPETING INTERESTS

None of the Directors of the Company (as defined in the Listing Rules) and their respective associates have any interest in a business, which competes or may compete with the business of the Group.

8. DEBT AND BORROWINGS

Bank borrowings and banking facilities

As at the close of business on 31 July 2004, the Group had outstanding bank borrowings of approximately HK$4 million comprising bank overdrafts and bills payable. As at 31 July 2004, the Group had total banking facilities of approximately HK$85 million, approximately HK$4 million of which had been utilised.

Security for bank borrowings

The Group’s bank borrowings are secured by corporate guarantees given by the Company.

Other borrowings

As at the close of business on 31 July 2004, the Group had a loan of approximately HK$34 million advanced from a factoring company in the United States. The loan is secured by certain property, plant and equipment and inventories of a subsidiary of the Company amounting to approximately HK$4 million and HK$17 million respectively.

Capital commitments

As at the close of business on 31 July 2004, the Group had capital commitments of approximately HK$900,000.

Contingent liability

As at 31 July 2004, the Group had contingent liabilities in respect of export bills discounted with recourse of approximately HK$2 million.

Disclaimer

Save as aforesaid and as otherwise mentioned herein and apart from intra-group liabilities and normal trade payables, the Group did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding at the close of business on 31 July 2004.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Group since 31 July 2004.

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GENERAL INFORMATION

APPENDIX I

9. FINANCIAL AND TRADING PROSPECTS

The Group has continued to carry on the manufacture and sale of handbags and luggage during the current financial year. Being one of the largest key manufacturers in the global handbag industry, the Group will continue to possess a strong competitive position in the market place. The Group decided to further develop its direct sales operations, continue to further expand and modernize its manufacturing and logistic facilities and to enhance its marketing and design capabilities. In this connection, the Directors expect the business will not be materially and adversely affected by the Disposal during the current financial year.

At 31 March 2004, being the date to which the Group’s latest published audited consolidated financial statements were made up, the Group had total shareholders’ funds of approximately HK$366 million. The Group ended the year had a current ratio of 2.9 and zero gearing ratio. The Group had a net cash surplus of approximately HK$106 million, which are mainly denominated in Hong Kong dollars and United States dollars as at 31 March 2004. The Directors expect that the Group will continue to maintain a very strong financial position to support the business operations with a very low level of debts and a high liquidity during the current financial year.

10. WORKING CAPITAL

Director’s opinion on working capital

The Directors are of the opinion that, taking into account of the financial resources available to the Group including internally generated funds and the available banking facilities, the Group has sufficient working capital to meet its present requirements for the period ending 31 August 2005.

11. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Cheung Kwok Keung. He is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants. The qualified accountant of the Group is Ms. Wong Yuet Ming who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.

• (b) The registered office of the Company is located at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies. The principle place of business of the Company in Hong Kong is located at 8th Floor, Liven House, 61-63 King Yip Street, Kwun Tong, Kowloon, Hong Kong.

• (c) In the event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

– 14 –

FINANCIAL INFORMATION

APPENDIX II

SUMMARY OF AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE THREE YEARS ENDED 31 MARCH 2004

• (A) Set out below is a summary of audited consolidated results of the Group for the three years ended 31 March 2004 extracted from the Group’s audited consolidated financial statements:

CONSOLIDATED INCOME STATEMENT

Turnover Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Profit from operations Finance costs Gain on partial disposal of interest in a subsidiary Profit before taxation Income tax expenses Profit before minority interests Minority interests Profit attributable to shareholders Dividends Earnings per share (HK cents)

For the year ended 31 March 2004 2003 2002 HK$000 HK$’000 HK$’000 955,750 919,261 703,791 (617,029) (595,560) (477,270) 338,721 323,701 226,521 17,996 11,794 10,245 (112,462) (79,842) (50,708) (132,106) (126,958) (99,211) 112,149 128,695 86,847 (777) (396) (934) 1,548 – – 112,920 128,299 85,913 (9,876) (12,616) (6,635) 103,044 115,683 79,278 (883) – – 102,161 115,683 79,278 (66,000) (66,000) (91,250) 12.4 14.0 9.6

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FINANCIAL INFORMATION

APPENDIX II

CONSOLIDATED BALANCE SHEET

NON-CURRENT ASSETS Property, plant and equipment Deposits paid on acquisition of property, plant and equipment CURRENT ASSETS Inventories Trade and other receivables Bills receivable Defined benefit assets Amount due from a related company Taxation recoverable Bank balances and cash CURRENT LIABILITIES Trade and other payables Bills payable Amounts due to related companies Taxation payable Land and buildings costs payable – due within one year Bank and other borrowings NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Land and buildings costs payable – due after one year MINORITY INTERESTS CAPITAL AND RESERVES Share capital Reserves	2004 HK$000 133,860 5,094 138,954 105,684 119,596 38,463 3,910 20 1,789 106,220 375,682 101,981 – 1,545 1,272 6,916 19,904 131,618 244,064 383,018 – 16,547 366,471 82,500 283,971 366,471	At 31 March 2003 2002 HK$’000 HK$’000 128,932 127,519 5,094 – 134,026 127,519 100,860 84,486 113,060 71,560 18,760 7,788 4,452 4,241 77 – – 178 65,679 18,951 302,888 187,204 90,398 69,135 149 1,282 1,127 812 7,618 1,148 2,932 – 228 7,555 102,452 79,932 200,436 107,272 334,462 234,791 6,916 – – – 327,546 234,791 82,500 82,500 245,046 152,291 327,546 234,791	At 31 March 2003 2002 HK$’000 HK$’000 128,932 127,519 5,094 – 134,026 127,519 100,860 84,486 113,060 71,560 18,760 7,788 4,452 4,241 77 – – 178 65,679 18,951 302,888 187,204 90,398 69,135 149 1,282 1,127 812 7,618 1,148 2,932 – 228 7,555 102,452 79,932 200,436 107,272 334,462 234,791 6,916 – – – 327,546 234,791 82,500 82,500 245,046 152,291 327,546 234,791
			127,519
			84,486 71,560 7,788 4,241 – 178 18,951
			187,204
			69,135 1,282 812 1,148 – 7,555
			79,932
			107,272
			234,791
			–
			–
			234,791
			82,500 152,291
			234,791

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FINANCIAL INFORMATION

APPENDIX II

• (B) Set out below are the audited financial statements of the Group as extracted from the annual report of the Group for the year ended 31 March 2004

The auditors of the Company were of the view that the financial statements gave a true and fair view of the state of affairs of the Company and the Group as at 31 March 2004 and of the profit and cash flows of the Group for the year then ended.

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2004

Notes Turnover Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Profit from operations 5 Finance costs 6 Gain on partial disposal of interest in a subsidiary 25 Profit before taxation Income tax expenses 9 Profit before minority interests Minority interests Profit attributable to shareholders Dividends 10 Earnings per share (HK cents) 11	2004 HK$’000 955,750 (617,029) 338,721 17,996 (112,462) (132,106) 112,149 (777) 1,548 112,920 (9,876) 103,044 (883) 102,161 (66,000) 12.4	2003 HK$’000 919,261 (595,560) 323,701 11,794 (79,842) (126,958) 128,695 (396) – 128,299 (12,616) 115,683 – 115,683 (66,000) 14.0

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FINANCIAL INFORMATION

APPENDIX II

CONSOLIDATED BALANCE SHEET AT 31 MARCH 2004

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Deposits paid on acquisition of property, plant and equipment 13 CURRENT ASSETS Inventories 15 Trade and other receivables 16 Bills receivable Defined benefit assets 31 Amount due from a related company 17 Taxation recoverable Bank balances and cash CURRENT LIABILITIES Trade and other payables 18 Bills payable Amounts due to related companies 19 Taxation payable Land and buildings costs payable – due within one year 20 Bank and other borrowings 21 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Land and buildings costs payable – due after one year 20 MINORITY INTERESTS CAPITAL AND RESERVES Share capital 22 Reserves	2004 HK$’000 133,860 5,094 138,954 105,684 119,596 38,463 3,910 20 1,789 106,220 375,682 101,981 – 1,545 1,272 6,916 19,904 131,618 244,064 383,018 – 16,547 366,471 82,500 283,971 366,471	2003 HK$’000 128,932 5,094
		134,026
		100,860 113,060 18,760 4,452 77 – 65,679
		302,888
		90,398 149 1,127 7,618 2,932 228
		102,452
		200,436
		334,462
		6,916
		–
		327,546
		82,500 245,046
		327,546

– 18 –

FINANCIAL INFORMATION

APPENDIX II

BALANCE SHEET AT 31 MARCH 2004

Notes NON-CURRENT ASSETS Investments in subsidiaries 14 CURRENT ASSETS Amount due from a subsidiary Bank balance CURRENT LIABILITIES Other payables NET CURRENT ASSETS CAPITAL AND RESERVES Share capital 22 Reserves 24	2004 HK$’000 215,145 41,700 86 41,786 324 41,462 256,607 82,500 174,107 256,607	2003 HK$’000 215,145
		41,700 53
		41,753
		275
		41,478
		256,623
		82,500 174,123
		256,623

– 19 –

FINANCIAL INFORMATION

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2004

Share capital HK$’000 At 1 April 2002 82,500 Surplus arising on revaluation of property, plant and equipment – Exchange differences arising from translation of financial statements of overseas operations – Gains not recognised in the consolidated income statement – 82,500 Realised on depreciation of property, plant and equipment – Realised on disposal of property, plant and equipment – Profit attributable to shareholders – Dividends_(note 10) – At 31 March 2003 82,500 Surplus arising on revaluation of property, plant and equipment – Exchange differences arising from translation of financial statements of overseas operations – Gains not recognised in the consolidated income statement – 82,500 Realised on depreciation of property, plant and equipment – Realised on disposal of property, plant and equipment – Profit attributable to shareholders – Dividends(note 10)_ – At 31 March 2004 82,500	Share premium HK$’000 20,307 – – – 20,307 – – – – 20,307 – – – 20,307 – – – – 20,307	Asset revaluation reserve HK$’000 12,152 1,600 – 1,600 13,752 (450) (47) – – 13,255 1,304 – 1,304 14,559 (575) (380) – – 13,604	Translation reserve HK$’000 (974) – 222 222 (752) – – – – (752) – 1,460 1,460 708 – – – – 708	Special Accumulated reserve profits HK$’000 HK$’000 (67,990) 188,796 – – – – – – (67,990) 188,796 – 450 – 47 – 115,683 – (24,750) (67,990) 280,226 – – – – – – (67,990) 280,226 – 575 – 380 – 102,161 – (66,000) (67,990) 317,342	Total HK$’000 234,791 1,600 222 1,822 236,613 – – 115,683 (24,750) 327,546 1,304 1,460 2,764 330,310 – – 102,161 (66,000) 366,471

– 20 –

FINANCIAL INFORMATION

APPENDIX II

The special reserve of the Group represents:

• (i) the difference between the nominal value of the share capital issued by the Company and the nominal value of the share capital of the subsidiaries acquired pursuant to the group reorganisation in December 2001; and

• (ii) the special reserve of a subsidiary, Lee & Man Development Company Limited (“Lee & Man Development”), and which represents the difference between the nominal value of the share capital issued by Lee & Man Development and the nominal amount of the share capital of subsidiaries acquired by it pursuant to a group organisation in 1993.

– 21 –

FINANCIAL INFORMATION

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2004

OPERATING ACTIVITIES Profit from operations Adjustments for: Interest income Depreciation and amortisation Loss on disposal of property, plant and equipment Bad debts written off (Surplus) deficit arising on revaluation of property, plant and equipment Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables Increase in bills receivable Decrease (increase) in defined benefit assets Decrease (increase) in amount due from a related company Increase in trade and other payables Decrease in bills payable Increase in amounts due to related companies Cash generated from operations Interest paid Hong Kong Profits Tax paid Hong Kong Profits Tax refunded Overseas taxation paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from partial disposal of interest in a subsidiary Interest received Proceeds from disposal of property, plant and equipment Deposits paid on acquisition of property, plant and equipment NET CASH USED IN INVESTING ACTIVITIES	2004 HK$’000 112,149 (799) 11,349 143 494 (2,648) 120,688 (4,824) (7,030) (19,703) 542 57 22,882 (149) 418 112,881 (777) (17,946) – (65) 94,093 (14,132) 5,850 799 255 – (7,228)	2003 HK$’000 128,695 (536) 10,786 3,181 925 1,962 145,013 (16,374) (42,425) (10,972) (211) (77) 21,263 (1,133) 315 95,399 (396) (6,110) 178 (36) 89,035 (5,686) – 536 14 (5,094) (10,230)

– 22 –

FINANCIAL INFORMATION

APPENDIX II

FINANCING ACTIVITIES Dividends paid Other borrowings raised Repayment of bank borrowings NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR Being: Bank balances and cash Bank overdrafts	2004 HK$’000 (66,000) 19,751 – (46,249) 40,616 65,451 106,067 106,220 (153) 106,067	2003 HK$’000 (24,750) – (4,936) (29,686) 49,119 16,332 65,451 65,679 (228) 65,451

– 23 –

FINANCIAL INFORMATION

APPENDIX II

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2004

1. GENERAL

The Company is incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Companies Law (Revised) Chapter 22 of the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is Fortune Star Tradings Ltd. (“Fortune Star”), a company which is incorporated in the British Virgin Islands.

The Company acts as an investment holding company and the principal activities of its principal subsidiaries are set out in note 33.

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARD

In the current year, the Group has adopted, for the first time, the following Hong Kong Financial Reporting Standard (“HKFRS”) issued by the Hong Kong Society of Accountants (“HKSA”). The term of HKFRS is inclusive of Statements of Standard Accounting Practice (“SSAP(s)”) and Interpretations approved by the HKSA.

SSAP 12 (Revised) Income taxes

The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively.

The adoption of SSAP 12 (Revised) has had no material effect on the results for the current or prior accounting periods and accordingly, no prior period adjustment is required.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of property, plant and equipment of the Group, and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

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

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

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

– 24 –

FINANCIAL INFORMATION

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

On consolidation, the assets and liabilities of the Group’s operations outside Hong Kong are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Turnover

Turnover represents the net amounts received and receivable for goods sold by the Group during the year.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

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

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Property, plant and equipment

Property, plant and equipment, other than buildings under construction, are stated in the balance sheet at their revalued amount, being the fair value on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation and amortisation and any subsequent impairment loss. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Buildings under construction are stated at cost which includes all construction costs and other direct costs, attributable to the buildings under construction. They are not depreciated or amortised until completion of construction. Costs of completed buildings under construction are transferred to the appropriate categories of property, plant and equipment.

Any surplus arising on revaluation of property, plant and equipment is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation deficit of the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is charged to the income statement to the extent that it exceeds the balance, if any, on the asset revaluation reserve relating to a previous revaluation of that asset. On the subsequent disposal or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated profits.

– 25 –

FINANCIAL INFORMATION

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment (continued)

The valuation of freehold land is not amortised.

The valuation of leasehold land and land use rights is amortised over the period of the lease or rights respectively using the straight line method.

Depreciation and amortisation is provided to write off the valuation of buildings and leasehold improvements over their estimated useful lives, using the straight line method, at the rate of 5% per annum.

Depreciation is provided to write off the valuation of other property, plant and equipment over their estimated useful lives, using the reducing balance method, at the following rates per annum:

Furniture, fixtures and equipment	20%
Motor vehicles	25%
Moulds	331/3%
Plant and machinery	20%

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

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the impairment loss is treated as a revaluation decrease under that SSAP.

Where an impairment loss subsequently reverses, the carrying amount of the asset 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 in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the reversal of impairment loss is treated as a revaluation increase under that SSAP.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Retirement benefit costs

Payments to the Mandatory Provident Fund Scheme (the “MPF Scheme”) are charged as an expense as they fall due.

– 26 –

FINANCIAL INFORMATION

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Retirement benefit costs (continued)

For defined retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out annually. Actuarial gains and losses which exceed 10% of the greater of the present value of the defined benefit obligations and the fair value of plan assets are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the average period until the amended benefits become vested. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

The amount recognised in the balance sheet represents the fair value of plan assets as adjusted for unrecognised actuarial gains and losses, and as reduced by the present value of the defined benefit obligation.

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 net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, 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.

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Operating leases

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

– 27 –

FINANCIAL INFORMATION

APPENDIX II

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

No business segment analysis is provided as all of the Group’s turnover and contribution to results were derived from the manufacture and sales of handbags and luggage for both years.

Geographical segments

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

United States of America (“USA”) Europe Hong Kong South America Others Surplus (deficit) arising on revaluation of property, plant and equipment Interest income Finance costs Profit before taxation Income tax expenses Profit before minority interests Minority interests Profit attributable to shareholders	Sales revenue by geographical market 2004 2003 HK$’000 HK$’000 746,534 690,788 172,970 176,588 16,112 23,311 8,321 11,324 11,813 17,250 955,750 919,261	Contribution to profit from operations 2004 2003 HK$’000 HK$’000 84,868 93,548 22,582 29,726 994 3,033 1,400 2,050 406 1,764 110,250 130,121 2,648 (1,962) 799 536 (777) (396) 112,920 128,299 (9,876) (12,616) 103,044 115,683 (883) – 102,161 115,683

Since the goods sold to various geographical markets were produced from the same production facilities, an analysis of assets and liabilities by geographical market is not presented.

– 28 –

FINANCIAL INFORMATION

APPENDIX II

4. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Geographical segments (continued)

The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment, analysed by the geographical area in which the assets are located:

Hong Kong People’s Republic of China (the “PRC”) USA Thailand	Carrying amount of segment assets 2004 2003 HK$’000 HK$’000 219,031 175,705 197,965 188,560 76,412 52,540 21,228 20,109 514,636 436,914	Additions plant and 2004 HK$’000 155 8,137 2,908 – 11,200	to property, equipment 2003 HK$’000 864 13,729 941 –
			15,534

5. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging: Directors’ emoluments_(note 7)_ Other staff costs Other retirement benefits scheme contributions Total staff costs Auditors’ remuneration Bad debts written off Deficit arising on revaluation of property, plant and equipment Depreciation and amortisation Loss on disposal of property, plant and equipment and after crediting: Interest income Surplus arising on revaluation of property, plant and equipment	2004 HK$’000 2,998 142,826 1,005 146,829 612 494 – 11,349 143 799 2,648	2003 HK$’000 4,434 132,504 923
		137,861
		558 925 1,962 10,786 3,181 536 –

– 29 –

FINANCIAL INFORMATION

APPENDIX II

6. FINANCE COSTS

Interest on: – bank borrowings wholly repayable within five years – other borrowings wholly repayable within five years 7. DIRECTORS’ EMOLUMENTS Directors’ fees: Executive Independent non-executive Other emoluments of executive directors: Salaries and other benefits Bonuses Retirement benefits scheme contributions The emoluments of the directors were within the following bands: Up to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2004 HK$’000 117 660 777 2004 HK$’000 – 173 2,739 38 48 2,998 2004 Number of directors 7 1	2003 HK$’000 396 –
		396
		2003 HK$’000 – 340 3,990 46 58
		4,434
		2003 Number of directors 8 2

During the year ended 31 March 2003 and 31 March 2004, no emoluments were paid by the Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments for both years.

– 30 –

FINANCIAL INFORMATION

APPENDIX II

8. EMPLOYEES’ EMOLUMENTS

The aggregate emoluments of the five highest paid individuals did not include any executive director of the Company for both years. The emoluments of the five highest paid individuals for both years were as follows:

Salaries and other benefits Bonuses The emoluments were within the following bands: HK$1,500,001 to HK$2,000,000 HK$4,000,001 to HK$4,500,000 HK$7,000,001 to HK$7,500,000 HK$8,000,001 to HK$8,500,000 HK$15,000,001 to HK$15,500,000 INCOME TAX EXPENSES The charge comprises: Hong Kong Profits Tax Overseas taxation	2004 HK$’000 10,546 7,187 17,733 2004 Number of employees 3 1 – 1 – 2004 HK$’000 9,811 65 9,876	2003 HK$’000 9,642 17,735
		27,377
		2003 Number of employees 3 – 1 – 1
		2003 HK$’000 12,586 30
		12,616

9. INCOME TAX EXPENSES

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

Hong Kong Profits Tax is calculated at 17.5% (2003: 16%) of the estimated assessable profit for the year. The Profits Tax rate has been increased with effect from the 2003/2004 year of assessment.

Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.

– 31 –

FINANCIAL INFORMATION

APPENDIX II

9. INCOME TAX EXPENSES (continued)

The charge for the year can be reconciled to the profit per the income statement as follows:

Profit before taxation Tax at the domestic income tax rate of 17.5% (2003: 16%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of income that is not taxable in determining taxable profit Tax effect of deferred taxation asset not recognised Tax effect of tax losses not recognised Tax effect of offshore income not subject to tax Utilisation of tax loss not previously recognised Effect of different tax rates of operation in other jurisdictions Tax expense and effective tax rate for the year	HK$’000 112,920 19,761 490 (1,963) 204 1,146 (9,280) (701) 219 9,876	2004 % 17.5 0.4 (1.7) 0.2 1.0 (8.3) (0.6) 0.2 8.7	HK$’000 128,299 20,527 4,069 (2,831) 347 284 (9,762) (108) 90 12,616	2003 %
				16.0 3.1 (2.2 0.3 0.2 (7.6 (0.1 0.1
				9.8

At the balance sheet date, the Group had unutilised tax losses of HK$34,106,000 (2003: HK$31,559,000) available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams. Included in unutilised tax losses of HK$21,824,000 (2003: HK$25,639,000) that will expire before 2023. Other losses may be carried forward indefinitely.

10. DIVIDENDS

Interim dividend paid of HK$0.03 (2003: HK$0.03) per share Final dividend proposed of HK$0.05 (2003: HK$0.05) per share	2004 HK$’000 24,750 41,250 66,000	2003 HK$’000 24,750 41,250
		66,000

The final dividend of HK$0.05 (2003: HK$0.05) per share has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting.

11. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the profit attributable to shareholders of HK$102,161,000 (2003: HK$115,683,000) and 825,000,000 (2003: 825,000,000) shares in issue during the year.

– 32 –

FINANCIAL INFORMATION

APPENDIX II

12. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST OR VALUATION At 1 April 2003 Currency realignment Additions Disposals Adjustment arising on revaluation At 31 March 2004 Comprising: At cost At valuation DEPRECIATION AND AMORTISATION At 1 April 2003 Provided for the year Eliminated on revaluation At 31 March 2004 NET BOOK VALUES At 31 March 2004 At 31 March 2003	Buildings Furniture, Land and under fixtures and buildings construction equipment HK$’000 HK$’000 HK$’000 94,198 – 8,818 1,328 – 1 – 4,261 1,429 – – (36) (1,480) – (1,767) 94,046 4,261 8,445 – 4,261 – 94,046 – 8,445 94,046 4,261 8,445 – – – 5,041 – 2,002 (5,041) – (2,002) – – – 94,046 4,261 8,445 94,198 – 8,818	Leasehold improve- ments HK$’000 10,767 – 2,112 – (1,499) 11,380 – 11,380 11,380 – 1,119 (1,119) – 11,379 10,767	Motor vehicles HK$’000 1,822 1 725 (279) (508) 1,761 – 1,761 1,761 – 520 (520) – 1,762 1,822	Moulds HK$’000 179 – – – (39) 140 – 140 140 – 60 (60) – 140 179	Plant and machinery HK$’000 13,148 122 2,673 (83) (2,033) 13,827 – 13,827 13,827 – 2,607 (2,607) – 13,827 13,148	Total HK$’000 128,932 1,452 11,200 (398) (7,326) 133,860 4,261 129,599 133,860 – 11,349 (11,349) – 133,860 128,932

The Group’s property, plant and equipment, other than property interests situated in Thailand, were revalued at 31 March 2004 by Sallmanns (Far East) Limited, an independent firm of professional property, plant and machinery valuers, on the basis of fair market value in continued use as part of an on-going business.

The Group’s property interests situated in Thailand were revalued at 31 March 2004 by Thai Property Appraisal Vigers (Thailand) Co., Ltd., an independent firm of professional property valuers, on the basis of open market value in existing use.

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APPENDIX II

12. PROPERTY, PLANT AND EQUIPMENT (continued)

The net surplus of HK$4,023,000 (2003: deficit of HK$362,000) arising on the above revaluation has been dealt with as follows:

• (i) a surplus of HK$1,375,000 (2003: HK$1,600,000) of which HK$1,304,000 (2003: HK$1,600,000), net of minority interests’ share of HK$71,000 (2003: nil) has been credited to the asset revaluation reserve; and

• (ii) a surplus of HK$2,648,000 (2003: deficit of HK$1,962,000) has been credited to the consolidated income statement.

If the above property, plant and equipment had not been revalued, they would have been included in these financial statements on a historical cost basis at the following amounts:

			Furniture,		Leasehold
	**Land and **		fixtures and		improve-		Motor				Plant and
	buildings		equipment		ments		vehicles		Moulds		machinery		Total
	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
THE GROUP
Cost	124,650		17,905		20,075		7,758		887		38,892		210,167
Accumulated depreciation
and amortisation	(33,151)		(12,900)		(9,080)		(6,897)		(887)		(31,243)		(94,158)
Net book values
At 31 March 2004	91,499		5,005		10,995		861		–		7,649		116,009
At 31 March 2003	95,420		5,427		9,995		566		5		6,997		118,410
											THE GROUP
									2004				2003
									HK$’000				HK$’000
The net book value of the Group’s property interests comprises:
Properties
– freehold in Thailand									19,246				17,998
– held under medium-term land use			rights in	the PRC					74,800				76,200
									94,046				94,198

13. DEPOSITS PAID ON ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT

The deposits were paid by the Group in connection with the acquisition of property, plant and equipment for future expansion. The related capital commitments are included in note 28.

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APPENDIX II

14. INVESTMENTS IN SUBSIDIARIES

	THE COMPANY
	2004 & 2003
	HK$’000
Unlisted shares_(Note)_	215,145

Note : The carrying value of the unlisted shares is based on the underlying net tangible assets of the subsidiaries at the time when they became members of the Group pursuant to the group reorganisation in December 2001.

Details of the Company’s principal subsidiaries at 31 March 2004 are set out in note 33.

15. INVENTORIES

Raw materials Work in progress Finished goods	THE 2004 HK$’000 46,658 27,221 31,805 105,684	GROUP 2003 HK$’000 45,387 29,239 26,234
		100,860

16. TRADE AND OTHER RECEIVABLES

The Group allows an average credit period of 30 to 60 days to its trade customers.

Included in trade and other receivables are trade receivables of HK$103,698,000 (2003: HK$94,947,000). The aged analysis of trade receivables at the balance sheet date is as follows:

Less than 30 days 31 – 60 days 61 – 90 days Over 90 days	THE 2004 HK$’000 62,933 18,588 5,543 16,634 103,698	GROUP 2003 HK$’000 44,685 16,787 10,317 23,158
		94,947

17. AMOUNT DUE FROM A RELATED COMPANY

The amount represents trading balance due from Lee And Man Manufacturing Company Limited (“Lee & Man Manufacturing”), which is beneficially owned by Ms. Lee Marina Man Wai, a director of the Company. The amounts for both years are aged less than 30 days.

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APPENDIX II

18. TRADE AND OTHER PAYABLES

Included in trade and other payables are trade payables of HK$71,093,000 (2003: HK$49,399,000). The aged analysis of trade payables at the balance sheet date is as follows:

Less than 30 days 31 – 60 days 61 – 90 days Over 90 days	THE 2004 HK$’000 52,580 17,820 533 160 71,093	GROUP 2003 HK$’000 37,791 11,083 14 511
		49,399

19. AMOUNTS DUE TO RELATED COMPANIES

The amounts represent trading balances due to certain subsidiaries of Wisdom Venture Holdings Limited (“Wisdom Venture”), which is an associate (as defined in the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”)) of Fortune Star. The amounts for both years are aged less than 60 days.

20. LAND AND BUILDINGS COSTS PAYABLE

The balance represents the amount payable for the acquisition of land and buildings and is payable as follows:

Within one year More than one year but not exceeding two years Less: Amount due within one year shown under current liabilities Amount due after one year	THE 2004 HK$’000 6,916 – 6,916 (6,916) –	GROUP 2003 HK$’000 2,932 6,916
		9,848 (2,932
		6,916

21. BANK AND OTHER BORROWINGS

Other loan Bank overdrafts	THE 2004 HK$’000 19,751 153 19,904	GROUP 2003 HK$’000 – 228
		228

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APPENDIX II

21. BANK AND OTHER BORROWINGS (continued)

Other loan represents advances from a factoring company in the USA. The loan bears interest at United States Prime rate minus 2% per annum and is repayable on demand. The loan is secured by certain property, plant and equipment and inventories of a subsidiary of the Company amounting to HK$3,955,000 and HK$20,791,000 respectively.

22. SHARE CAPITAL

SHARE CAPITAL
Number of ordinary shares Ordinary shares of HK$0.10 each: Authorised: At 1 April 2002, 31 March 2003 and 31 March 2004 5,000,000,000 Issued and fully paid: At 1 April 2002, 31 March 2003 and 31 March 2004 825,000,000	Amount HK$’000 500,000
	82,500

There was no movement in the Company’s share capital for both years.

23. SHARE OPTION SCHEME

The Company’s share option scheme (the “Scheme”) was adopted pursuant to a resolution passed on 14 December 2001 for the purpose of providing incentives to directors and eligible persons. The Scheme will remain in force for a period of 10 years from adoption of such scheme and will expire on 13 December 2010.

Under the Scheme, the Board of Directors of the Company (the “Directors”) may at their discretion grant options to (i) any director, employee or consultant of the Group or a company in which the Group holds an equity interest or a subsidiary of such company (“Affiliate”); or (ii) any discretionary trust whose discretionary objects include any director, employee or consultant of the Group or an Affiliate; or (iii) a company beneficially owned by any director, employee or consultant of the Group or an Affiliate; or (iv) any customer, supplier or adviser as may be determined by the Directors from time to time to subscribe for the shares of the Company (the “Shares”).

Options granted must be taken up within 21 days of the date of grant. The maximum number of Shares in respect of which options may be granted under the Scheme shall not exceed 10% of the issued share capital of the Company at any point in time. The maximum number of Shares in respect of which options may be granted to any individual in any 12-month period shall not exceed 1% of the Shares in issue on the last date of such 12-month period unless approval of the shareholders of the Company has been obtained in accordance with the Listing Rules.

Options may be exercised during such period (including the minimum period, if any, for which an option must be held before it can be exercised) as may be determined by the Directors (which shall be less than ten years from the date of issue of the relevant option). Options may be granted without initial payment. The exercise price is equal to the highest of (i) nominal value of the Shares; (ii) the closing price per share as stated in the Stock Exchange’s daily quotations sheets on the date of the grant of the options; and (iii) the average closing price per share as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of the grant of the options.

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FINANCIAL INFORMATION

APPENDIX II

23. SHARE OPTION SCHEME (continued)

The financial impact of share options granted is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recognised in the income statement in respect of the value of options granted in the year. 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 lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

No options were granted by the Company under the Scheme since its adoption.

24. RESERVES

THE COMPANY At 1 April 2002 Profit attributable to shareholders Dividends_(note 10) At 31 March 2003 Profit attributable to shareholders Dividends(note 10)_ At 31 March 2004	Share premium HK$’000 20,307 – – 20,307 – – 20,307	Contributed Accumulated surplus (losses) profits HK$’000 HK$’000 112,338 (5,467) – 71,695 – (24,750) 112,338 41,478 – 65,984 – (66,000) 112,338 41,462	Total HK$’000 127,178 71,695 (24,750) 174,123 65,984 (66,000) 174,107

The contributed surplus of the Company represents the difference between the aggregate net tangible assets of the subsidiaries acquired by the Company pursuant to the group reorganisation in December 2001 and the nominal value of the Company’s shares issued for the acquisition.

The Company’s reserves available for distribution to its shareholders comprise share premium, contributed surplus and accumulated profits which in aggregate amounted to approximately HK$174.1 million as at 31 March 2004 (2003: HK$174.1 million). Under the Companies Law (Revised) of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum and Articles of Association and provided that immediately following the payment of distributions or dividends, the Company is able to pay its debts as they fall due in the ordinary course of business. In accordance with the Company’s Articles of Association, dividends shall be payable out of the profits or other reserves, including the share premium account, of the Company.

25. PARTIAL DISPOSAL OF INTEREST IN A SUBSIDIARY

During the year, the Group disposed of 49% equity interest in Cititower Pacific Limited (“Cititower”) for a consideration of HK$17,141,000 to a director and an employee of a subsidiary of the Company (collectively the “Purchasers”). The disposal resulted in a gain of HK$1,548,000 to the Group for the year ended 31 March 2004.

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APPENDIX II

26. MAJOR NON CASH TRANSACTION

Among the total consideration of HK$17,141,000 for the disposal of Cititower, HK$11,291,000 was offset with the bonuses payable to the Purchasers during the year.

27. OPERATING LEASES

Minimum lease payments paid under operating leases in respect of – land and buildings – equipment	THE 2004 HK$’000 5,801 1,724 7,525	GROUP 2003 HK$’000 4,261 293
		4,554

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	THE GROUP Land and buildings Equipment 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 3,708 3,610 418 239 5,930 6,232 543 222 191 638 – – 9,829 10,480 961 461	THE GROUP Land and buildings Equipment 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 3,708 3,610 418 239 5,930 6,232 543 222 191 638 – – 9,829 10,480 961 461
		461

Operating lease payments represent rentals payable by the Group for office properties and equipment. Leases are negotiated for an average term of five years and fixed for three years for office properties and negotiated for an average term of two years for office equipment. Rentals are based on the terms specified in the lease agreements.

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

28. CAPITAL COMMITMENT

THE 2004 HK$’000 Capital expenditure contracted for but not provided in the financial statements in respect of the acquisition of property, plant and equipment 1,232	GROUP 2003 HK$’000 794

The Company had no capital commitments at the balance sheet date.

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APPENDIX II

29. FORWARD CONTRACT COMMITMENTS

At the balance sheet date, the Group had forward contract commitments as follows:

Principal amounts of a forward contract held for hedging purposes against trade and other receivables – sale of Euro – purchase of United States dollar	2004 – –	2003 EUR550,000 USD586,000

The Company had no forward contract commitments at the balance sheet date.

30. CONTINGENT LIABILITIES

Export bills discounted with recourse Guarantees given to banks in respect of credit facilities extended to subsidiaries	THE 2004 HK$’000 2,225 –	GROUP 2003 HK$’000 22,778 –	THE COMPANY 2004 2003 HK$’000 HK$’000 – – 93,300 57,500	THE COMPANY 2004 2003 HK$’000 HK$’000 – – 93,300 57,500
				57,500

At 31 March 2004, the subsidiaries of the Company has not utilised any of the facilities granted by the bank which are guaranteed by the Company.

31. RETIREMENT BENEFIT SCHEMES

Defined benefit scheme

The Group is a member of a defined benefit scheme which was open to qualified employees of companies under the control of Fortune Star. In December 2000, all the then existing members of the defined benefit scheme were enrolled into a MPF Scheme and their accrued benefits for the past services under the defined benefit scheme were frozen as at 30 November 2000. The defined benefit scheme was closed to new employees from December 2000 onwards.

Under the defined benefit scheme, employees are entitled to retirement benefits varying between 0 and 100% of their salary as at 30 November 2000 multiplied by the pensionable service up to 30 November 2000 on attainment of a retirement age of 55. No other post-retirement benefits are provided.

The most recent SSAP 34 actuarial valuation of the plan assets and the present value of the defined benefit obligation was carried out as at 31 March 2004 by HSBC Life (International) Limited. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method.

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FINANCIAL INFORMATION

APPENDIX II

31. RETIREMENT BENEFIT SCHEMES (continued)

Defined benefit scheme (continued)

The main actuarial assumptions used were as follows:

Discount rate Expected return on plan assets Expected rate of salary increases	2004 per annum 5.0% 5.0% 0%	2003 per annum 5.0% 5.0% 0%

The SSAP 34 actuarial valuation shows that the market value of plan assets at 31 March 2004 was HK$10,700,000 (2003: HK$10,322,000) and that the actuarial value of these assets represented 150% (2003: 173%) of the benefits that were accrued to members.

The charge (credit) recognised in the consolidated income statement in respect of the defined benefit scheme is as follows:

Current service cost Interest cost Expected return on plan assets Past service cost Net actuarial gains Total, included in administrative expenses (other operating income)	2004 HK$’000 – 294 (513) 765 (4) 542	2003 HK$’000 – 289 (500) – – (211)

The actual return on plan assets for the year was HK$510,000 (2003: HK$507,000).

The amount included in the balance sheet in respect of the Group’s defined benefit scheme is as follows:

Fair value of plan assets Unrecognised actuarial losses Present value of funded obligations	2004 HK$’000 10,700 366 (7,156) 3,910	2003 HK$’000 10,322 85 (5,955) 4,452

The fair value of the plan assets does not include any equity shares in the Company or property held by the Group.

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APPENDIX II

31. RETIREMENT BENEFIT SCHEMES (continued)

Defined benefit scheme (continued)

Movements in the net asset in the year were as follows:

At beginning of the year Amounts (charged) credited to income At end of the year	2004 HK$’000 4,452 (542) 3,910	2003 HK$’000 4,241 211
		4,452

Defined contribution scheme

The Group operates a MPF Scheme for all qualifying employees. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes the lower of HK$1,000 or 5% of the relevant monthly payroll costs to the MPF Scheme, which contribution is matched by employees.

32. CONNECTED TRANSACTIONS AND BALANCES

The Group had significant transactions and balances with related parties, some of which are also deemed to be connected persons pursuant to the Listing Rules, during the year and at the balance sheet date as follows:

Name of party Nature of transactions/balance Wisdom Venture and Corrugated cardboard and carton boxes its subsidiaries purchased_(note a) (“Wisdom Venture Group”) Management fee income received(note b) Licence fee paid(note c) Balance due to the Wisdom Venture Group Lee & Man Manufacturing Management fee income received(note b) Balance due from Lee & Man Manufacturing Lee & Man Paper Manufacturing Management fee income received(note d) Limited (“Lee & Man Paper Manufacturing”) Lee & Man Realty Investment Licence fee paid(note c) Limited (“Lee & Man Realty”) Subsidiaries of Fortune Star Management fee income received(note b) Licence fee paid(note c)_

THE GROUP 2004 2003 HK$’000 HK$’000 7,309 7,445 737 871 – 314 1,545 1,127 269 77 20 77 505 – 1,454 157 – 360 – 1,411

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APPENDIX II

32. CONNECTED TRANSACTIONS AND BALANCES (continued)

Notes :

• a. The Group has agreed to purchase corrugated cardboard and carton boxes from time to time from the Wisdom Venture Group. The purchase prices are negotiated on a case by case basis in the ordinary course of business by reference to the prevailing market conditions.

• b. The Group has agreed to procure its subsidiaries to provide (i) use of office facilities and equipment, (ii) use of transportation facilities, and (iii) management service including administrative and financial services to Lee & Man Paper Products Company Limited, a subsidiary of Wisdom Venture, and Lee & Man Manufacturing for a monthly management fee on a cost basis.

Lee & Man Manufacturing was a former subsidiary of Wisdom Venture and was disposed of to a subsidiary of Fortune Star in June 2002 and then to Mr. Lee Wan Keung in early March 2003 and further to Ms. Lee Marina Man Wai, a director of the Company, in February 2004.

Mr. Lee Wan Keung is a director of certain subsidiaries of the Company.

• c. Pursuant to two licence agreements entered into between Lee & Man Management Company Limited (“Lee & Man Management”), a wholly-owned subsidiary of the Company, and Lee & Man Realty, which is beneficially owned by Mr. Lee Wan Keung, Lee & Man Realty has agreed to grant licences to Lee & Man Management and subsidiaries of the Company to enter into possession of and occupy certain office space of Lee & Man Realty for a term of three years commencing 1 January 2002 for a total monthly licence fee of HK$156,750. The total monthly licence fee has been decreased to HK$114,000 effective from 1 June 2003 as mutually agreed.

Lee & Man Realty was disposed of to a subsidiary of Fortune Star in June 2002 and it was subsequently disposed of to Mr. Lee Wan Keung in early March 2003.

• d. Pursuant to the management services agreement entered into between Lee & Man Management and Lee & Man Paper Manufacturing, which is an associate (as defined in the Listing Rules) of Fortune Star, on 8 September 2003 for a term of one year from 1 September 2003, Lee & Man Management will provide administrative and secretarial services to Lee & Man Paper Manufacturing and the right to use Lee & Man Management’s office as registered office at monthly services fee of HK$72,077.

On 1 August 2003, the Group disposed of 32.67% equity interest in Cititower for a consideration of HK$11,427,000. Cititower is formerly a wholly-owned subsidiary of the Company.

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APPENDIX II

33. PRINCIPAL SUBSIDIARIES

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

		Nominal value
		of issued and	Attributable
	Place of	fully paid	equity
Name of subsidiary	incorporation	share capital	interest	Principal activities #
Cititower	British Virgin	Shares	51%	Investment holding
	Islands	– US$2,000,000
Lee & Man Development	British Virgin	Shares	100%	Investment holding
	Islands	– US$90
Lee & Man Company	Hong Kong	Ordinary shares	100%	Manufacture and sales of
Limited		– HK$1,000,000		handbags and luggage
		Non-voting
		deferred shares
		– HK$1,000,000
Lee & Man Handbag	Hong Kong	Ordinary shares	100%	Manufacture and sales of
Manufacturing		– HK$10,000		handbags and luggage
Company Limited		Non-voting
		deferred shares
		– HK$500,000
Lee & Man Management	Hong Kong	Ordinary shares	100%	Provision of management
		– HK$2		and administration
				services
Lee & Man Handbag	Thailand	Shares	100%	Manufacture of handbags
(Thailand) Co., Ltd.		– 30,000,000 Baht		and luggage in Thailand

# The principal activities are carried out in the PRC and Hong Kong except as otherwise stated under principal activities above.

Only Lee & Man Development is directly held by the Company.

The deferred shares practically carry no rights to participate in profits or surplus assets or to receive notice of or to attend or vote at any general meeting of the respective companies or to participate in any distribution on winding up.

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

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

– 44 –