Major Shareholder:

• Mr. Sun Li Yong & his wife Mrs. Fang Xiao Jian ¡V 37.5% interest

The Company is principally engaged in the research and development, manufacture, and sale of woven fabrics (the continuing operation). Products of the Company's continuing operation can be divided into two main categories, namely blended fabrics and stretch fabrics. In January, 2002, the Company sold its 70% equity interest in Zhejiang Hongxing Sabrina Garments Co., Ltd., which engaged in the manufacture and sale of knitted and woven garments (discontinued operation).

In May, 2002, the Company obtained approval from the Foreign Trade and Economic Cooperation Department of Zhejiang Province to conduct overseas sales directly under the Company's own name. The Directors believe that such export rights will help the Company to increase its sales to overseas markets.

Since 1998, the Company has also commenced the research and development of new fabrics with new features in strength, twist, luster, texture, and colour. The Company has entered into a technology co-development agreement with each of Donghua University and DuPont China for the research and development of these fabrics.

The Directors believe that the Group has the following competitive advantages:

• Accreditation with the ISO9001:2000 Certification issued by the Zhejiang Wantai Accreditation Centre in April, 2002, which enhances customers' confidence in the Company's products
• Well-equipped and advanced production facilities
• Professional management team with extensive experience and expertise in the fabrics industry
• Continuous efforts in enhancing its research and development capability

• Uncertainties regarding the establishment and the Reorganization of the company;
• High level of borrowings;
• Reliance on financing from related parties;
• Funding requirements of the Company;
• Rapid expansion may strain management and resources of the Company;
• Relationship with major suppliers;

The Group is required to settle approximately Rmb36.2 million and approximately Rmb33.7 million in November 2002 and February 2003 respectively. The production capacity will then be raised from a monthly production capacity of 1.8 million metres to 6.3 million metres of fabric. To sustain the expected business growth, the company plans to purchase another 100 sets of looms in the first quarter of 2004. The production capacity will then be raised to 7.3 million metres of fabric per month. The Directors believe that according to the current development of the Company, the additional installation of 100 sets of looms in the first quarter of 2004 will be sufficient to meet the sales orders.

To maintain its competitive edge, the Company strives to strengthen its research and development capabilities by recruiting more high calibre research personnel and by equipping its production facilities with more advanced technology to develop at least eight new fabrics annually to meet the demands of customers. Additionally, the Group will continue its cooperation with Donghua University and DuPont China to improve its existing products.

The Directors believe that the expansion of its sales network, both domestically and internationally, coupled with the PRC's accession to the WTO, will help increase its sales. To cope with this anticipated increase, the Company intends to increase its sales presence, in the PRC and overseas, by expanding its sales force (through setting up sales/representative offices and/or appointing authorised sales agents), marketing activities, and attending various trade fairs.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$50.5 million (based on the offer price HK$0.26 per share). The Group at present intends to apply the net proceeds as follows: