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Lai Sun Garment _International_ Limited

VIEWS: 4 PAGES: 107

									                                   LAI SUN GARMENT ANNUAL REPORT 1998-99




      Contents

2     Corporate Profile

3     Corporate Information

4     Chairman's Statement

12    Report of the Directors

32    Report of the Auditors

34    Consolidated Profit and Loss Account

35    Consolidated Balance Sheet

36    Consolidated Cash Flow Statement

38    Company Balance Sheet

39    Notes to Financial Statements

104   Notice of Annual General Meeting




                                                                           1




      Lai Sun Garment (International) Limited
      11/F Lai Sun Commercial Centre
      680 Cheung Sha Wan Road
      Kowloon, Hong Kong
      Tel (852) 2741 0391 Fax (852) 2785 2775
      Internet http://www.laisun.com.hk
      E-mail advpr@laisun.com.hk
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




    Corporate Profile


             The Lai Sun Group was founded in 1947 as a garment manufacturer and obtained its
             first listing on the Hong Kong stock exchange in 1972. The Group has since evolved
             into a diversified conglomerate with seven business areas: garment manufacturing,
             property development, property investment, China property, fashion retailing, hotels
             and strategic investments. Lai Sun Garment (International) Limited is principally the
             holding company of the Group and is listed on The Stock Exchange of Hong Kong
             Limited.


                    LAI SUN GARMENT
                    (INTERNATIONAL)
                         LIMITED*




                                                                                       GARMENT
                  LAI SUN DEVELOPMENT                   CROCODILE GARMENTS
                                                                                    MANUFACTURING
                    COMPANY LIMITED*                         LIMITED*
                                                                                      & OTHERS




                                                                                       STRATEGIC
                         HOTELS                               PROPERTY
                                                                                      INVESTMENTS

2




                    LAI SUN HOTELS                     DEVELOPMENT PROPERTIES,       ASIA TELEVISION
                INTERNATIONAL LIMITED*                       HONG KONG                   LIMITED




                                                                                 SKY CONNECTION LIMITED
                     FURAMA HOTEL                      INVESTMENT PROPERTIES,
                                                                                  (CHEK LAP KOK AIRPORT
                   ENTERPRISES LIMITED                      HONG KONG
                                                                                     FREE DUTY SHOP)




                                                                                       MANDARIN
                                                         LAI FUNG HOLDINGS          COMMUNICATIONS
                                                          LIMITED*, CHINA                LIMITED
                                                                                    (PCS OPERATIONS)




              * Listed Companies
                                  LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                          Corporate Information


Place of Incorporation                               Auditors
Hong Kong                                            Ernst & Young
                                                     Certified Public Accountants
Directors                                            15th Floor, Hutchison House
Lim Por Yen (Chairman & Managing Director)           10 Harcourt Road
Lam Kin Ngok, Peter (Deputy Chairman)                Central
Lam Kin Ming (Deputy Chairman)                       Hong Kong
Chiu Wai
Shiu Kai Wah                                         Solicitors
Lee Po On, Mark                                      Vincent T.K. Cheung, Yap & Co.
U Po Chu                                             15th Floor, Alexandra House
Lai Yuen Fong                                        16-20 Chater Road
William Fung                                         Central
Wong Kai Cho, Kenneth                                Hong Kong

Secretary and Registered Office                      Allen & Overy
Yeung Kam Hoi                                        9th Floor, Three Exchange Square
11th Floor                                           8 Connaught Place
Lai Sun Commercial Centre                            Central
680 Cheung Sha Wan Road                              Hong Kong
Kowloon, Hong Kong
                                                     Bankers                                 3

Share Registrars                                     Citibank, N.A.
Tengis Limited                                       Dao Heng Bank Limited
1601 Hutchison House                                 Hang Seng Bank Limited
10 Harcourt Road                                     Standard Chartered Bank
Central                                              The Hongkong and Shanghai Banking
Hong Kong                                             Corporation Limited
                                                     The Bank of Tokyo-Mitsubishi, Limited
                   LAI SUN GARMENT ANNUAL REPORT 1998-99




    Chairman’s Statement




                       Chairman LIM Por Yen




                       Group Results
                       The Group reported a consolidated net loss attributable to
                       shareholders of approximately HK$3,635 million for the year
                       ended 31st July, 1999, a substantial deterioration compared with
4
                       the results for the previous year. Turnover for the year also
                       declined to HK$3,181 million from HK$5,100 million in the
                       previous year, reflecting the difficult market conditions
                       confronting various Group companies.


                       The bulk of the reported loss was derived from the loss recorded
                       by Lai Sun Development Company Limited, which announced a
                       loss attributable to shareholders for the year of HK$6,832
                       million. The final results had been further affected by losses
                       reported by Crocodile Garments.


                       Lai Sun Garment (International) Limited
                       For the year under review, the combined operating performance
                       of the manufacturing operation and export business of the
                       Company had seen a moderate improvement over the previous
                       year. The overall results of the Company had, however, been
                       affected by provisions made for bad and doubtful debts and an
                       adjustment for the values of investment in a subsidiary on a
                       conservative basis.
LAI SUN GARMENT ANNUAL REPORT 1998-99




                           Chairman’s Statement


    The Company had undertaken two fund-raising exercises during
    the year under review. On 4th January, 1999, the Company
    allotted and issued 31,500,000 new shares of HK$0.50 each to
    two independent third parties at the subscription price of
    HK$1.25 per share, raising approximately HK$39 million for use
    as general working capital.


    On 28th January, 1999, the Company completed a 4-for-1 rights
    issue at the subscription price of HK$0.50 per rights share.
    Funds raised in the exercise amounting to approximately
    HK$575 million were used to subscribe for the 1-for-1 rights
    issue of Lai Sun Development Company Limited. The interest of
    the Company in LSD has been maintained at 44.76 % of its
    enlarged issued ordinary share capital.


    Lai Sun Development Company Limited (“LSD”)
    Lai Sun Development reported a consolidated net loss
    attributable to shareholders of HK$6,832 million for the year
    ended 31st July, 1999 and no final dividend was recommended by
    the directors. The aforesaid loss included an operating loss before
    exceptional items of HK$1,001 million and an exceptional loss of
    HK$5,691 million. The exceptional loss represented provisions         5
    for diminution in value of the LSD Group’s property development
    landbank and loss on disposal of investments. This figure mainly
    comprises provisions of HK$2,375 million in respect of the LSD
    group’s investment in the Furama Hotel Hong Kong and Furama
    Shenyang, HK855 million for the put options relating to the
    disposal of the Majestic Hotel, HK$874 million for other
    properties under development, HK$228 million for the loss in
    relation to the LSD Group’s 50% interest in the “Free Duty”
    operation at Chek Lap Kok Airport, and HK$729 million for its
    long-term listed and unlisted investments.


    LSD continued to implement an aggressive disposal programme
    during the year and thus suffered from losses arising from
    property sales and disposal of selective long-term investments. A
    decline in recurrent rental income, higher interest charges,
    together with the absence of contributions from both its hotel
    and China property subsidiaries all adversely affected the
    operating loss of LSD.
                   LAI SUN GARMENT ANNUAL REPORT 1998-99




    Chairman’s Statement


                       The LSD Group continued to place a strong emphasis on cash
                       generation in order to improve the overall debt position. Total
                       debt of the LSD Group, excluding Lai Sun Hotels and Lai Fung
                       Holdings, has fallen by almost 19% to HK$7.6 billion as of the
                       end of this financial period.


                       The 3.l million square feet investment property portfolio of LSD
                       generated gross rental and related income of HK$607 million for
                       the year, representing a drop of 23% from the previous year.
                       Overall vacancy rates of commercial and office portfolio
                       continued to stay at single digit levels but industrial properties
                       registered further decline in rentals and occupancy.


                       With the absence of major property disposals during the year
                       under review, total sales turnover, including the attributable
                       share of that of associated companies, more than halved to
                       HK$1,265 million. Some of the key disposal items included,
                       amongst others, “The Panorama” in Tsuen Wan, “Tycoon Place”
                       in Tai Po, and various lots in Sai Kung and Yuen Long. The size
                       of the LSD Group’s landbank remained at around 1.6 million
                       sq.ft., made up of approximately 80% for residential use, and the
6                      remainder for commercial and industrial projects.


                       Furama Hotel Hong Kong, wholly-owned by LSD Group,
                       continued to provide meaningful contribution to LSD although
                       average room rate had recorded a drop of around 25% . As
                       announced by LSD, it would redevelop Furama Hotel into a
                       composite office, retail and hotel complex and had agreed to
                       dispose of the retail and hotel portion of the redeveloped
                       complex to Lai Sun Hotels International Limited. The proposal
                       was approved by independent shareholders in March 1999.


                       The LSD Group’s investments in Asia Television Limited and
                       Mandarin Communications Limited, which operates under the
                       successful brandname “Sunday”, have further consolidated their
                       presence in their respective markets despite incurring minor
                       losses at the operating level.
                   LAI SUN GARMENT ANNUAL REPORT 1998-99




    Chairman’s Statement


                       Lai Fung Holdings Limited (“Lai Fung”)
                       Lai Fung Holdings reported a net profit attributable to
                       shareholders of HK$10.8 million for the year, compared with the
                       corresponding figure of HK$144 million for the preceding year.
                       In April 1999, LSD granted an option to Sun Chun Estate
                       Company, Limited, a wholly-owned property investment
                       company of the Bank of China, whereby Sun Chung has been
                       granted the right to purchase up to 230 million existing shares in
                       Lai Fung held by LSD at the price of HK$0.65 per share. In June
                       1999, Lai Fung completed a HK$600 million convertible note
                       issue to Sun Chung.


                       For the coming year, Lai Fung will focus on the completion and
                       disposal of the Eastern Place Phase II and leasing of Hong Kong
                       Plaza. Construction works on the New Trend Plaza in
                       Guangzhou are progressing satisfactorily and management
                       expects the project to be substantially completed by early 2002.


                       Lai Sun Hotels International Limited (“LSHIL”)
                       The performance of Lai Sun Hotels, the 52.17% subsidiary of
                       LSD, was mixed during the period. Although occupancy rate at
8                      the 65%-owned Ritz-Carlton Hong Kong improved to 63% during
                       the year, the average daily rate dropped by 14% to HK$1,375.
                       The performance of the 25%-owned Regent Beverly Wilshire
                       Hotel had been helped by the buoyant state of the hospitality
                       sector in the U.S.A.


                       In March 1999, LSHIL completed the disposal of the Four
                       Seasons Hotel, New York for US$265 million, in which LSHIL
                       had an attributable interest of 49.995%. The exceptional gain was
                       largely offset by the losses resulted from the disposal of “The
                       Lions” in Vancouver in May 1999, the Hong Kong Plaza service
                       apartments in June 1999, and the Delta Whistler Resort, Canada
                       in August 1999. However, these disposal activities have
                       generated substantial liquidity for LSHIL, thus allowing it to
                       focus on opportunities in Asia-Pacific where asset prices remain
                       attractive.
                    LAI SUN GARMENT ANNUAL REPORT 1998-99




     Chairman’s Statement


                        Crocodile Garments Limited (“Crocodile”)
                        The unfavourable market conditions in Hong Kong continued to
                        affect the performance of Crocodile during the year. Crocodile
                        reported an operating loss before exceptional items of HK$170
                        million and an exceptional loss of HK$25 million on a turnover
                        of HK$653 million, which represented a fall of 28% compared
                        with the figure for the previous year.


                        Crocodile continued to actively improve the cost structure of its
                        retail operation in Hong Kong through reduction in staff and
                        retail premises expenses. The popular “Croco Kids” brand in the
                        children’s wear sector will be promoted to increase its market
                        share in Hong Kong and the Mainland.


                        The operation in the Mainland recorded a small operating loss
                        due to provisions for obsolete stocks. Greater emphasis will be
                        placed on developing the retail network through franchising.


                        Operating results of the imported labels “LACOSTE” and
                        “SANRIO” had also been adversely affected by the sluggish local
                        economy and the decline in consumer spending. Plans were on
10                      hand to increase the number of retail outlets for “SANRIO” by 6
                        or 7 in the coming year.


                        The garment export operation of Crocodile had reported a
                        noticeable decline in orders from North America. Management
                        will intensify its efforts to further reduce operating costs and to
                        develop other markets apart from Europe.


                        PROSPECTS
                        Lai Sun Development will devote its resources to conclude
                        satisfactory arrangements with all creditor groups. At the same
                        time, liquidity generation will be given priority by the company.
                        With the medium-term prospects of the local property market
                        becoming brighter, the capital value of the core property
                        portfolio of LSD should show reasonable appreciation.


                        With the local economy beginning to exhibit signs of a slow
                        recovery, consumer sentiments have gradually improved. This
                        should bode well for the local retail industry as a whole and in
                        particular the operations of Crocodile.
LAI SUN GARMENT ANNUAL REPORT 1998-99




                           Chairman’s Statement


    MANAGEMENT AND STAFF
    The challenges and difficulties that the Group had to tackle and
    overcome during the period had been highly demanding for both
    Management and staff. I would like to record my appreciation of
    the efforts put in by Management and all staff members of Group
    companies and the support given by shareholders and business
    associates during this period.




    Lim Por Yen
    Chairman


    Hong Kong, 12th November, 1999




                                                                       11
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     The directors herein present their report and the audited financial statements of the Company and its
     subsidiaries (the ``Group'') for the year ended 31st July, 1999.

     PRINCIPAL ACTIVITIES
     The Company's principal activities have not changed during the year and consisted of the manufacture and
     sale of garments, property investment for rental purposes and investment holding.

     The Group's principal activities have not changed during the year and consisted of the manufacture and sale
     of garments, property development for sale, property investment for rental purposes, investment in and
     operations of hotels and restaurants and investment holding.

     SEGMENTED INFORMATION
     An analysis of Group turnover and contribution/(absorption) to operating loss by activity and geographical
     area for the year ended 31st July, 1999 is as follows:

                                                                                                  Contribution/
                                                                                     Turnover      (absorption)
                                                                                      HK$'000          HK$'000

     By activity:
       Manufacture and sale of garments                                              1,434,242         (350,688)
       Property development and sale of properties                                     552,318       (5,489,824)
       Property rentals                                                                636,076           64,799
12     Long term investments                                                                Ð          (729,364)
       Hotel, restaurant and other operations                                          557,874         (538,655)
                                                                                     3,180,510       (7,043,732)

       Deficits on revaluation of investment properties                                      Ð         (309,226)

                                                                                     3,180,510       (7,352,958)


     By geographical area:
       Hong Kong                                                                     2,577,330       (5,944,133)
       People's Republic of China (``PRC''), excluding Hong Kong                       361,268         (449,222)
       Canada                                                                           83,768         (404,876)
       Others                                                                          158,144         (554,727)

                                                                                     3,180,510       (7,352,958)

     RESULTS AND DIVIDENDS
     The Group's loss for the year ended 31st July, 1999 and the state of affairs of the Company and of the Group
     as at that date are set out in the financial statements on pages 34 to 103.

     The directors do not recommend the payment of a final dividend for the year end 31st July, 1999.

     No interim dividend had been paid by the Company for the year.
                                     LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                            Report of the Directors


DIRECTORS
The directors of the Company who were in office during the year and those at the date of this report are as
follows:

Lim Por Yen (Chairman and Managing Director)
Lam Kin Ngok, Peter (Deputy Chairman)
Lam Kin Ming (Deputy Chairman)
Chiu Wai
Shiu Kai Wah
Lee Po On, Mark
U Po Chu
Lai Yuen Fong
Lam Wai Shan, Vanessa                                     (Appointed on 26th February, 1999 and resigned
  (alternate director to Madam Lai Yuen Fong)             on 27th April, 1999)
William Fung
Wong Kai Cho, Kenneth

In accordance with Article 102 of the Company's Articles of Association, Mr. Lam Kin Ming, Mr. Lee Po On,
Mark and Madam U Po Chu retire by rotation at the forthcoming Annual General Meeting and, being
eligible, offer themselves for re-election at the said meeting.

DIRECTORS' SERVICE CONTRACTS
                                                                                                                13
None of the directors proposed for re-election at the forthcoming Annual General Meeting has a service
contract with the Company and/or any of its subsidiaries, which is not determinable by the employing
company within one year without payment of compensation other than that of a statutory nature.

DIRECTORS' INTERESTS IN CONTRACTS
Save as disclosed in notes 4 and 16 to the financial statements, no director had a beneficial interest in any
contract of significance to the business of the Group to which the Company or any of its subsidiaries was a
party during the year.

CONNECTED TRANSACTIONS
The Group has conducted certain connected transactions (the ``Connected Transactions''), the details of
which are included in notes 15, 16, 36 and 38 to the financial statements. The Connected Transactions have
been approved by the Company's directors.

In the opinion of the Company's directors, the Connected Transactions have been entered into by the
Group:

(a)   in the ordinary and usual course of its business;

(b)   on normal commercial terms and on arm's length basis;
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     CONNECTED TRANSACTIONS (continued)
     (c)   where there are agreements governing such transactions, the transactions have been carried out in
           accordance with the terms of the agreements governing such transactions, or if there are no such
           agreements, the transactions have been entered into on terms no less favourable than terms available to
           or from independent third parties; and

     (d)   on terms that are fair and reasonable in so far as the shareholders of the Company are concerned.

     BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
     Directors
     Executive Directors
     Mr. Lim Por Yen, Chairman and Managing Director of the Company, aged 84, is the founder of the Lai Sun
     Group. He has been an executive director of the Company since October 1987. He is also the chairman of
     Lai Sun Development Company Limited and Crocodile Garments Limited, and an executive director of Lai
     Sun Hotels International Limited. Mr. Lim first became involved in the property and investment business in
     the mid-1950's and has over 59 years' experience in the garment business. He is an honorary citizen of the
     city of Guangzhou, the city of Swatow, the city of Xiamen and the city of Zhong Shan. Mr. Lim was also one
     of the Hong Kong Affairs Advisers to the People's Republic of China and is a founder member of The Better
     Hong Kong Foundation.

     Mr. Lam Kin Ngok, Peter, aged 42, is a Deputy Chairman of the Company. He has been an executive director
     of the Company since October 1987. Mr. Lam is also the deputy chairman and president of Lai Sun
14
     Development Company Limited, the chairman of both Lai Sun Hotels International Limited and Lai Fung
     Holdings Limited, and an executive director of Crocodile Garments Limited. Mr. Lam has extensive
     experience in the property and investment business. He is a director of the Real Estate Developers
     Association of Hong Kong, a member of the Hong Kong Hotel Owners Association and a council member of
     the Anglo Hong Kong Trust. Mr. Lam is a son of Mr. Lim Por Yen and is the younger brother of Mr. Lam Kin
     Ming.

     Mr. Lam Kin Ming, aged 62, is the Deputy Chairman of the Company. He has been a director of the
     Company since October 1987 and has been involved in the day-to-day management of the garment business
     since 1958. Mr. Lam is also the deputy chairman of Crocodile Garments Limited, a non-executive director of
     both Lai Sun Development Company Limited and Lai Sun Hotels International Limited, and is an executive
     director of Lai Fung Holdings Limited. Mr. Lam is a son of Mr. Lim Por Yen and is the elder brother of Mr.
     Lam Kin Ngok, Peter.

     Mr. Chiu Wai, aged 68, has been a director of the Company since October 1987. Mr. Chiu is also a non-
     executive director of Lai Sun Development Company Limited, Lai Sun Hotels International Limited and
     Crocodile Garments Limited. Mr. Chiu has over 40 years' experience in production management and is
     responsible for the operation and administration of the garment business of the Company. He has been
     working for the Lai Sun Group's garment business since 1955.
                                    LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                           Report of the Directors


BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
(continued)
Directors (continued)
Executive Directors (continued)
Mr. Shiu Kai Wah, aged 67, has been a director of the Company since December 1990. He is also a non-
executive director of Lai Sun Development Company Limited, Lai Sun Hotels International Limited and
Crocodile Garments Limited. Mr. Shiu has over 28 years' experience in the management of the garment
business.

Mr. Lee Po On, Mark, aged 44, has been a director of the Company since June 1991. He is a Fellow of the
Association of Chartered Certified Accountants with over 21 years' financial and commercial experience. Mr.
Lee joined the Lai Sun Group in November 1987.

Non-Executive Directors
Madam U Po Chu, aged 74, has been a director of the Company since December 1990. She is also a non-
executive director of Lai Sun Development Company Limited, Crocodile Garments Limited and Lai Sun
Hotels International Limited. Madam U has over 50 years' experience in the garment manufacturing business
and had been involved in the printing business in the mid-1960's. In the early 1970's, she started to expand
the business to fabric bleaching and dyeing, and also became involved in property development and
investment in the late 1980's. Madam U is Mr. Lim Por Yen's wife.

Madam Lai Yuen Fong, aged 85, has been a director of the Company since May 1992. Madam Lai is Mr. Lim
                                                                                                               15
Por Yen's wife.

Mr. William Fung, aged 75, is an independent non-executive director of the Company. Mr. Fung has more
than 34 years' experience in apparel merchandising and export sales business.

Mr. Wong Kai Cho, Kenneth, aged 74, is an independent non-executive director of the Company. Mr. Wong
was admitted and enrolled as a solicitor in England and Wales and in Hong Kong in 1960. He had been the
sole proprietor of Messrs. Kenneth K.C. Wong & Co., Solicitors, from January 1973 to 30th September,
1997 and is now a consultant to Messrs. Peter Mark & Co., Solicitors.

Senior Management
Mr. Lau Shu Yan, Julius, aged 43, joined the Lai Sun Group in July 1991 as an executive director of Lai Sun
Development Company Limited. Mr. Lau has over 10 years of experience of holding senior management
positions in the property and securities industries. He had been a director of Jones Lang Wootton Limited
and then Jardine Fleming Broking Limited prior to his current appointment. Mr. Lau is a director and a
member of the Executive Committee of Real Estate Developers Association of Hong Kong.
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
     (continued)
     Senior Management (continued)
     Dr. Tong Yuk Lun, Paul, aged 58, joined the Lai Sun Group in October 1997 as an executive director of Lai
     Sun Development Company Limited. He was also appointed as the vice chairman of Lai Fung Holdings
     Limited in June 1999. Prior to Dr. Tong's current appointments, he had been an executive director and the
     chief executive officer of Pacific Century Regional Developments Ltd. for the period from January 1995 to
     September 1997. From 1978 to 1994, Dr. Tong was employed by the New World Group. He had been an
     executive director of Hip Hing Construction Co., Ltd. and the general manager of New World Development
     Co., Ltd. Dr. Tong holds B.Sc., M.Sc. and Ph.D. degrees and has extensive experience in civil, structural and
     geotechnical engineering. He is a member of Institution of Civil Engineers, London and Hong Kong
     Institution of Engineers and has also worked with British and Hong Kong engineering consulting firms.

     Mr. Wu Shiu Kee, Keith, aged 36, joined the Lai Sun Group in November 1997 and was appointed as an
     executive director of Lai Sun Development Company Limited on 1st January, 1998. He has over 12 years'
     experience in investment research and asset management. Prior to his appointment with the Lai Sun Group
     in 1997, Mr. Wu served as a director and head of Hong Kong/ China Research for Peregrine Brokerage
     Limited. He holds a Bachelor in Science degree from the University of Toronto and a Master in Science
     degree from Stanford University.

     Mr. Liu Ngai Wing, aged 48, joined the Lai Sun Group in November 1998 as an executive director of Lai Sun
     Hotels International Limited, and has been the chief executive officer thereof since 10th February, 1999. He
16
     is also the chairman and a non-executive director of Yoshiya International Corporation, Limited, a listed
     company in Hong Kong. Mr. Liu had held senior management positions with a number of listed companies
     in Hong Kong before joining the Group in 1998. He is an Associate Member of both the Hong Kong Society
     of Accountants and the Institute of Chartered Secretaries and Administrators, and is also a Fellow of the
     Association of Chartered Certified Accountants.

     Mr. Kam Kin Yat, aged 47, joined the Lai Sun Group in 1991 and has been a director of the Lai Fung
     Holdings Limited since November 1993. He was appointed acting chief executive on 24th June, 1999. Mr.
     Kam has over 20 years' experience of trading with China. Prior to joining the Group in 1991, he worked for
     the People's Government of Jiangsu Province and was responsible for liaising with foreign investors. He was
     also a director and deputy general manager of King Leader Development Company Limited, a subsidiary of
     Fujian Enterprises Holdings Co. Limited, the official investment vehicle of the Fujian Province. Mr. Kam was
     previously a director of Far East Development Company Limited, a listed company in Hong Kong.
                                             LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                                          Report of the Directors


DIRECTORS' INTERESTS IN SHARE CAPITAL OR DEBENTURES
As at 31st July, 1999, the interests of the directors and the chief executive of the Company in the equity or
debt securities of the Company and its associated corporations (within the meaning of the Securities
(Disclosure of Interests) Ordinance (the ``SDI Ordinance'')) as recorded in the register required to be kept
pursuant to Section 29 of the SDI Ordinance or as otherwise notified to the Company and The Stock
Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of
Listed Companies (the ``Model Code'') were as follows:

(1)   The Company

      Ordinary Shares
                                                                          Number of Shares Held
                                                 Personal            Family         Corporate              Other
                                                 Interests         Interests         Interests          Interests                 Total

      Lim Por Yen                           420,381,750                    Nil               Nil                Nil      420,381,750
      Lam Kin Ngok, Peter                   110,794,951                    Nil               Nil                Nil      110,794,951
      Lam Kin Ming                            64,610,000                   Nil               Nil                Nil        64,610,000
      Chiu Wai                                   199,600                   Nil               Nil                Nil           199,600
      U Po Chu                                  3,669,000                  Nil               Nil                Nil         3,669,000
      Lai Yuen Fong                             4,451,790                  Nil               Nil                Nil         4,451,790

                                                                                                                                             17
(2)   Associated Corporations

(a)   Lai Sun Development Company Limited (``LSD'')

      Ordinary Shares (``LSD Shares'')
                                                                      Number of LSD Shares Held
                                                 Personal             Family  Corporate       Other
                                                 Interests         Interests         Interests          Interests                 Total

      Lim Por Yen                           197,859,550                    Nil               Nil                Nil      197,859,550
      Lam Kin Ngok, Peter                     10,099,585                   Nil               Nil                Nil        10,099,585
      Chiu Wai                                   195,500                   Nil               Nil                Nil           195,500
      U Po Chu                                    633,400                  Nil               Nil                Nil            633,400

      Note:   The Company and its wholly-owned subsidiary beneficially owned 1,582,869,192 LSD Shares, representing approximately
              44.76% of the issued ordinary share capital of LSD. Mr. Lim Por Yen (together with his spouses) held an interest of
              approximately 29.8% of the issued share capital of the Company. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin
              Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of approximately
              42% in aggregate of the issued share capital of the Company, thus controlling collectively more than one-third of the voting
              power at the Company's general meetings.
                                                   LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     DIRECTORS' INTERESTS IN SHARE CAPITAL OR DEBENTURES (continued)
     (2) Associated Corporations (continued)

     (b)    Lai Sun Hotels International Limited (``LSHIL'')

            Ordinary Shares (``LSHIL Shares'')
                                                                          Number of LSHIL Shares Held
                                                       Personal            Family  Corporate       Other
                                                       Interests         Interests  Interests   Interests                               Total

            Lim Por Yen                              5,522,890                   Nil               Nil               Nil         5,522,890
            Lam Kin Ngok, Peter                     11,421,890                   Nil               Nil               Nil        11,421,890
            U Po Chu                                   375,000                   Nil               Nil               Nil           375,000

            Note:   LSD and its wholly-owned subsidiaries beneficially owned 951,709,306 LSHIL Shares. The Company together with its
                    wholly-owned subsidiary held an interest of approximately 44.76% of the issued ordinary share capital of LSD. Mr. Lim Por
                    Yen (together with his spouses) held an interest of approximately 29.8% of the issued share capital of the Company. Mr. Lim
                    Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam U Po Chu and Madam Lai Yuen Fong were directors of the
                    Company and held an interest of approximately 42% in aggregate of the issued share capital of the Company, thus
                    controlling collectively more than one-third of the voting power at the Company's general meetings.


     As at 31st July, 1999, none of the directors or chief executive of the Company or their respective associates
     had in pursuance of the SDI Ordinance any interest in either Crocodile Garments Limited (``Crocodile'') or
     Lai Fung Holdings Limited (``Lai Fung''), the associated corporations of the Company. The interests of
     Messrs. Lim Por Yen, Lam Kin Ngok, Peter and Lam Kin Ming and their respective associates and the
18
     respective members of the Group in Crocodile and Lai Fung were as follows:

     (i)    Lai Fung
            LSD beneficially owned 779,958,912 shares in Lai Fung. The Company together with its wholly-
            owned subsidiary held an interest of approximately 44.76% of the issued ordinary share capital of
            LSD. Mr. Lim Por Yen (together with his spouses) held an interest of approximately 29.8% of the
            issued share capital of the Company. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming,
            Madam U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of
            approximately 42% in aggregate of the issued share capital of the Company, thus controlling
            collectively more than one-third of the voting power at the Company's general meetings.

     (ii)   Crocodile
            The Company and its wholly-owned subsidiary beneficially owned 338,982,809 shares in Crocodile.
            Mr. Lim Por Yen (together with his spouses) held an interest of approximately 29.8% of the issued
            share capital of the Company. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Mr. Lam Kin Ming, Madam
            U Po Chu and Madam Lai Yuen Fong were directors of the Company and held an interest of
            approximately 42% in aggregate of the issued share capital of the Company, thus controlling
            collectively more than one-third of the voting power at the Company's general meetings.

     In addition to the above, certain directors held non-beneficial interests in the share capital of some of the
     subsidiaries of the Company as nominee shareholders, mainly for the purpose of complying with the
     statutory requirement for a minimum number of shareholders for those subsidiaries.
                                             LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                                         Report of the Directors


DIRECTORS' INTERESTS IN SHARE CAPITAL OR DEBENTURES (continued)
Save as disclosed above, as at 31st July, 1999, none of the directors or chief executive of the Company or
their respective associates had any interest in the equity or debt securities of the Company or of any of its
associated corporations which were required to be notified to the Company and The Stock Exchange of
Hong Kong Limited pursuant to Section 28 of the SDI Ordinance or to the Model Code (including interests
which they were deemed or taken to have under Section 31 or Part 1 of the Schedule to that Ordinance) or
which were required, pursuant to Section 29 of that Ordinance, to be entered in the register referred to
therein.

At no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable a
director of the Company to acquire benefits by means of the acquisition of equity or debt securities of the
Company or any other body corporate.

SUBSTANTIAL SHAREHOLDERS
As at 31st July, 1999, the following person was interested in 10% or more of the total issued share capital of
the Company as recorded in the register required to be kept under Section 16(1) of the SDI Ordinance:

Name                                                                                                   Number of Shares Held

Mr. Lim Por Yen                                                                                                       428,502,540

Note:   Mr. Lim Por Yen's interest in the said 428,502,540 shares in the Company included 4,451,790 shares and 3,669,000 shares in the
        Company respectively held by Madam Lai Yuen Fong and Madam U Po Chu, the spouses of Mr. Lim, who were also deemed under
                                                                                                                                         19
        the SDI Ordinance to have interest in those of Mr. Lim Por Yen in the share capital of the Company.


PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
During the financial year ended 31st July, 1999, there was no purchase, sale or redemption by the
Company, or any of its subsidiaries, of the Company's listed securities.
                                          LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     DETAILS OF PROPERTIES
     The principal investment properties of the Group are as follows:

                                                Group
          Location                              interest       Tenure                            Use

     1.   Cheung Sha Wan Plaza,                 45%            The property is held              Office/
          833 Cheung Sha Wan Road,                             for a term expiring               commercial/
          Cheung Sha Wan, Kowloon,                             on 30th June, 2047                carpark
          Hong Kong (New Kowloon
          Inland Lot No. 5955)

     2.   Causeway Bay Plaza 1,                 45%            Inland Lot No. 2836               Office/
          489 Hennessy Road,                                   is held for a term                commercial
          Causeway Bay,                                        of 99 years
          Hong Kong                                            commencing on
          (The remaining portion of                            30th September, 1929
          Subsection 10 of Section A of                        and renewable for a
          Inland Lot No. 2836 and                              further 99 years
          Inland Lot Nos. 8659 and 8683)                       Inland Lot Nos. 8659
                                                               and 8683 are held
                                                               for a term commencing
20
                                                               on 18th June, 1987 and expiring
                                                               on 30th June, 2047

     3.   Causeway Bay Plaza 2,                 45%            The property is                   Office/
          463±483 Lockhart Road,                               held for a term of                commercial/
          Causeway Bay, Hong Kong                              99 years commencing               carpark
          (Section J, and the remaining                        on 15th April, 1929 and
          portions of Sections D, E, G, H,                     renewable for a further
          K, L, M and O, Subsection 4 of                       term of 99 years
          Section H and the remaining
          portion of Inland Lot No. 2833)

     4.   Lai Sun Commercial Centre,            45%            The property is                   Office/
          680 Cheung Sha Wan Road,                             held for a term of                commercial/
          Cheung Sha Wan, Kowloon,                             99 years less the                 carpark
          Hong Kong (New Kowloon Inland                        last 3 days thereof
          Lot No. 5984)                                        from 1st July, 1898, and was
                                                               renewed for a term of
                                                               another 50 years
                                   LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                          Report of the Directors


DETAILS OF PROPERTIES (continued)

                                         Group
     Location                            interest       Tenure                              Use

5.   Crocodile House 1,                  45%            Marine Lot No. 384                  Office/
     50 Connaught Road,                                 is held for a term                  commercial
     Central, Hong Kong                                 of 999 years from
     (Marine Lot Nos. 384±386)                          7th December, 1903.
                                                        Marine Lot Nos. 385
                                                        and 386 are held for a
                                                        term of 999 years from
                                                        20th November, 1903

6.   Crocodile House 2,                  45%            Marine Lot No. 388                  Office/
     54±56 Connaught Road,                              and the remaining                   commercial
     Central, Hong Kong                                 portion of Marine
     (Marine Lot Nos. 387, 388 and                      Lot No. 389 are held
     the remaining portion of                           for a term of 999
     Marine Lot No. 389)                                years from 6th November,
                                                        1903. Marine Lot No. 387
                                                        is held for a term of 999 years
                                                        from 20th November, 1903                         21

7.   Lai Sun Yuen Long Centre,           45%            The property is held for            Industrial
     27 Wang Yip Street East,                           a term of 99 years less the
     Yuen Long, New Territories,                        last 3 days thereof from
     Hong Kong (Yuen Long Town                          1st July, 1898, and was renewed
     Lot No. 362)                                       for a term of another 50 years


8.   Garment Centre,                     45%            The property is held for            Industrial
     576±586 Castle Peak Road,                          a renewed term of 24 years
     Cheung Sha Wan, Kowloon,                           less the last 3 days thereof from
     Hong Kong (The remaining                           1st July, 1973, and was renewed
     portion of Section C                               for a term of another 50 years
     of New Kowloon Inland
     Lot No. 1892)
                                            LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     DETAILS OF PROPERTIES (continued)

                                                   Group
           Location                                interest       Tenure                                Use

     9.    Commercial podium and                   20%            The property is held                  Office/
           certain office and service                             for a term of 50 years,               commercial/
           apartment units of                                     commencing on                         club/
           Hong Kong Plaza,                                       16th September, 1992                  service
           282 & 283 Huaihaizhong                                 and expiring on                       apartments
           Road, Luwan District,                                  15th September, 2042
           Shanghai,
           PRC

     10.   181 service apartment units of          33%            The property is held                  Service
           Hong Kong Plaza,                                       for a term of 50 years,               apartments
           North Tower,                                           commencing on
           282 & 283 Huaihaizhong Road,                           16th September, 1992
           Luwan District,                                        and expiring on
           Shanghai,                                              15th September, 2042
           PRC


22   All the Group's investment properties are situated in Hong Kong or the PRC and are held under medium or
     long term leases.

     The principal properties under development of the Group are as follows:

                                                                    Expected
                                        Group      Stage of         completion Expected
           Location                     interest   construction     date            use           Gross floor area

     1.    55±61 Carnarvon Road, 22%               Demolition       March           Commercial/ The total site area is
           38±40 Kimberley                         completed        2002            service       960 sq.m. The total
           Street and 24 & 26                                                       apartments    gross floor area will
           Kimberley Road,                                                                        be 10,610 sq.m.
           Tsim Sha Tsui,
           Kowloon,
           Hong Kong


     2.    789 Cheung Sha               45%        Foundation       December        Industrial/   The total site area is
           Wan Road,                               work             2000            office        1,224 sq.m.
           Cheung Sha Wan,                         completed                                      The total gross
           Kowloon,                                                                               floor area will
           Hong Kong                                                                              be 14,693 sq.m.
                                LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                       Report of the Directors


DETAILS OF PROPERTIES (continued)

                                                       Expected
                            Group      Stage of        completion Expected
     Location               interest   construction    date       use                 Gross floor area

3.   488 Jaffe Court,       45%        Foundation      November         Commercial/ The total site area is
     486±488 Jaffe Road,               work            2000             residential   159 sq.m. The total
     Causeway Bay,                     completed                                      gross floor area will
     Hong Kong                                                                        be 1,506 sq.m.

4.   The Waterfront         4.5%       Superstructure August            Residential   The total site area
     1 Austin Road West,               work in         2000                           is 16,815 sq.m.
     Tsim Sha Tsui,                    progress                                       The total gross
     Kowloon                                                                          floor area will
     Hong Kong                                                                        be 147,562 sq.m.

5.   Lot No. 2087 in        22%        Superstructure December          Residential   The total site area is
     DD105, Ngau Tam Mei,              work in         1999                           5,400 sq.m. The
     Yuen Long,                        progress                                       total gross floor area
     New Territories,                                                                 will be 2,160 sq.m.
     Hong Kong
                                                                                                               23

6.   Eastern Place,         33%        Phase II        Phase II         Commercial/ The total site area
     787 Dong Feng Road                interior        residential      residential/ for the development
     East, Guangzhou,                  decoration      late 1999        office for the is 52,073 sq.m.
     Guangdong Province,               work in                          whole          The total gross
     PRC                               progress                         development floor area for the
                                                                                      development will
                                                                                      be 261,945 sq.m.

7.   New Trend Plaza        33%        Basement        Early 2002       Commercial/ The total site area
     (previously known as              construction                     office        is 5,782 sq.m.
     Rili Shangsha),                   work in                                        The total gross
     32±80                             progress                                       floor area will
     Zhongshanwu Road,                                                                be 34,733 sq.m.
     5±15 Guang Da Road
     and 3±7 Guangzhou
     Yixiang, Yue Xiu,
     District,
     Guangzhou,
     Guangdong Province,
     PRC
                                        LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     DETAILS OF PROPERTIES (continued)

                                                                Expected
                                    Group      Stage of         completion Expected
           Location                 interest   construction     date       use                 Gross floor area

     8.    Guangli Building,        33%        Resettlement     2005            Commercial/ The total site area
           Chang Di Main Road,                 of original                      office         is 8,427 sq.m.
           Yue Xiu District,                   inhabitants in                                  The total gross
           Guangzhou,                          progress                                        floor area will
           Guangdong Province,                                                                 be 104,500 sq.m.
           PRC


     9.    Shanghai Baining         32%        Vacant site      2005            Residential/   The total site area
           Baba Plaza,                         and in                           commercial     is 36,149 sq.m.
           Junction of                         planning stage                                  The total gross
           Anhua Road                                                                          floor area will
           and Kaixuan Road,                                                                   be 166,285 sq.m.
           Changning District,
           Shanghai,
           PRC

24
     10.   Zhong Yue Garden,        28%        Phase I          Late 2000       Commercial/ The total site area
           Xujiahui Road,                      foundation                       residential    for the whole
           Luwan District,                     work in                                         development is
           Shanghai,                           progress                                        21,289 sq.m. The
           PRC                                                                                 total gross floor area
                                                                                               for the whole
                                                                                               development will be
                                                                                               106,445 sq.m.

     11.   Zhabei Plaza             16%        Interior         Late 1999       Commercial/ The total site area is
           (plot 130±3),                       decoration                       office         3,222 sq.m. The
           Zhabei,                             work in                                         total gross area will
           Shanghai,                           progress                                        be 17,609 sq.m.
           PRC

     12.   A piece of land          95%        Resettlement     2004            Commercial/ The total site area is
           at junction of Da Tong              of original                      residential 41,800 sq.m. The
           Road and Zhi Jiang                  inhabitants in                                  total gross floor area
           Xi Road, Su Jia Xiang,              progress                                        will be 194,000
           Zhabei, Shanghai, PRC                                                               sq.m.
                                     LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                            Report of the Directors


FIXED ASSETS AND INVESTMENT PROPERTIES
Details of movements in the fixed assets and investment properties of the Company and the Group during
the year are set out in notes 13 and 14, respectively, to the financial statements.

PROPERTIES UNDER DEVELOPMENT
Details of movements in the properties under development of the Group during the year are set out in note
15 to the financial statements.

SUBSIDIARIES
Details of the Company's principal subsidiaries at the balance sheet date are set out in note 16 to the
financial statements.

ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
Details of the Company's and the Group's principal associated companies and the Group's jointly controlled
entities are set out in notes 19 and 20, respectively, to the financial statements.

BORROWINGS
Details of bank loans, overdrafts and other borrowings of the Company and the Group at the balance sheet
date are set out in notes 23 and 26 to the financial statements.

BONDS PAYABLE
Details of bonds payable of the Group at the balance sheet date are set out in notes 23 and 27 to the financial
statements.                                                                                                       25


SHARE CAPITAL
Details of movements in the share capital of the Company during the year are set out in note 29 to the
financial statements.

RESERVES
Details of movements in the reserves of the Company and the Group during the year are set out in note 30 to
the financial statements.

DISTRIBUTABLE RESERVES
At 31st July, 1999, the Company's reserves available for distribution, calculated in accordance with the
provisions of Section 79B of the Companies Ordinance, amounted to HK$952,825,000.

CONVERTIBLE BONDS
Details of the convertible bonds of the Group at the balance sheet date are set out in note 31 to the financial
statements.

CONVERTIBLE NOTE
Details of the convertible note of the Group at the balance sheet date are set out in note 32 to the financial
statements.
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     DONATIONS
     During the year, the Group made charitable and other donations totalling HK$6,511,000.

     POST BALANCE SHEET EVENTS
     Details of the post balance sheet events are set out in note 38 to the financial statements.

     INTEREST CAPITALISED
     Interest capitalised by the Group during the year amounted to HK$625,143,000.

     SUMMARY FINANCIAL INFORMATION
     A summary of the results and of the assets and liabilities of the Group for the last five financial years, as
     extracted from the audited financial statements and reclassified as appropriate, is set out below.

     RESULTS
                                                                  Year ended 31st July,
                                                 1999           1998         1997        1996              1995
                                               HK$'000        HK$'000    HK$'000       HK$'000           HK$'000

     TURNOVER                                3,180,510      5,099,666      4,601,718     3,870,347     4,206,669


     PROFIT/(LOSS) BEFORE
       TAXATION                             (7,658,991)       385,429      1,053,318       939,715       994,867
26   Taxation                                  (49,758)      (143,515)      (147,887)     (155,063)     (200,621)


     PROFIT/(LOSS) BEFORE
       MINORITY INTERESTS                   (7,708,749)       241,914        905,431       784,652       794,246
     Minority interests                      4,074,093       (175,400)      (589,192)     (386,168)     (396,597)


     NET PROFIT/(LOSS)
       ATTRIBUTABLE TO
       SHAREHOLDERS                         (3,634,656)        66,514        316,239       398,484       397,649
                                   LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                          Report of the Directors


SUMMARY FINANCIAL INFORMATION (continued)

ASSETS AND LIABILITIES
                                                                As at 31st July,
                                       1999            1998              1997          1996          1995
                                     HK$'000         HK$'000          HK$'000        HK$'000       HK$'000

Fixed assets                       2,414,824       2,832,790        2,330,504       2,304,472     2,255,965
Investment properties             10,034,000      13,348,900       13,890,622      10,400,300    10,210,817
Properties under development       7,982,105      11,111,712        5,356,895       3,813,605     2,394,661
Goodwill on consolidation of
   subsidiaries                       258,544        519,314          526,007        475,746       485,368
Deferred pre-operating
   expenses                            10,718         32,256            6,068          11,331        17,629
Associated companies                1,124,655      2,396,143        2,748,367       2,794,719     2,229,728
Jointly controlled entities           188,572        183,219           79,919          33,088        25,332
Long term investments               1,018,389      2,073,429        2,479,810         899,196       705,346
Long term note receivable             245,000      1,100,000               Ð               Ð             Ð
Current assets                      2,613,982      2,984,506        4,781,788       3,504,035     2,944,867

TOTAL ASSETS                      25,890,789      36,582,269       32,199,980      24,236,492    21,269,713

Current liabilities                (5,133,268)     (5,024,203)     (3,438,342)     (2,865,596)   (2,157,207)
Long term rental deposits
                                                                                                               27
  received                           (102,635)      (124,527)        (108,868)        (97,860)      (93,200)
Provision for premium on bond
  redemption                         (249,554)      (135,915)         (23,023)        (87,795)      (53,575)
Provision for premium on note
  redemption                           (1,667)              Ð               Ð              Ð             Ð
Long term bank loans and other
  borrowings                       (3,195,936)     (5,479,975)     (2,905,528)     (2,241,455)   (1,902,959)
Long term bonds payable              (891,250)       (891,250)     (1,818,850)       (927,600)           Ð
Deferred taxation                        (188)         (1,534)        (34,805)           (404)         (404)

TOTAL LIABILITIES                  (9,574,498) (11,657,404)        (8,329,416)     (6,220,710)   (4,207,345)

MINORITY INTERESTS                 (9,123,369) (13,713,106) (14,369,492)           (8,574,556)   (8,040,248)
CONVERTIBLE BONDS                  (2,098,581) (2,102,757) (1,158,465)             (1,158,465)   (1,158,465)
CONVERTIBLE NOTE                     (600,000)          Ð            Ð                     Ð             Ð

NET ASSETS                          4,494,341      9,109,002        8,342,607       8,282,761     7,863,655

Certain items in the consolidated balance sheets and consolidated profit and loss accounts in prior years
have been restated, as appropriate, to conform with the provisions of Statement of Standard Accounting
Practice 2.121 ``Accounting for Interests in Joint Ventures'' (``SSAP 21''). The adoption of SSAP 21 has no
effect on the amount of the previously reported consolidated results attributable to shareholders or the
aggregate amounts of consolidated equity and retained profits.
                                          LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     MAJOR CUSTOMERS AND SUPPLIERS
     During the year, the Group's sales to its five largest customers accounted for less than 30% of the Group's
     combined sales and the Group's purchases from its five largest suppliers accounted for less than 30% of the
     Group's combined purchases.

     LIQUIDITY AND FINANCIAL RESOURCES
     The Group sustained a consolidated net loss attributable to shareholders of HK$3,635 million for the year
     ended 31st July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,519
     million, consolidated accumulated losses of HK$1,554 million and consolidated net assets of HK$4,494
     million.

     In order to reduce the overall level of indebtedness, the Group gave cash generation priority over
     profitability and implemented an aggressive disposal programme during the period thereby suffering losses
     arising from property sales and disposals of selective long-term investments.

     As at the balance sheet date, the Group's total bank and other borrowings, including amounts outstanding
     under bonds and a note, was HK$10,005 million. As a result of the LSD Group's losses and the deterioration
     in the LSD Group's financial position, the LSD Group has not complied with certain financial covenants
     given in relation to indebtedness amounting to HK$1,664 million. Further, the LSD Group has not
     maintained financial covenants in relation to bonds with principal and redemption premium aggregating
     HK$1,023 million. Accordingly, certain lending banks and bondholders have the right to require immediate
     repayment. This, in turn, will give rise to rights under cross-default provisions exercisable by certain lending
     banks and bondholders to serve notice requiring immediate repayment of further amounts aggregating
28
     approximately HK$5,139 million.

     On the basis of preliminary discussions, certain principal lending banks of the LSD Group have indicated
     their support in principle to grant waivers in respect of the LSD Group's failure to maintain loan covenants
     and, in addition, to defer repayment of amounts totalling approximately HK$3,545 million to 31st
     December, 2002, subject to all other LSD Group's lending banks and bondholders also agreeing to a similar
     repayment deferral.

     It is anticipated that further discussions with LSD's lending banks and bondholders will take place over the
     next few weeks, with a view to obtaining all necessary waivers in respect of the LSD Group's failure to
     maintain the relevant loan covenants and to agreeing the basis on which principal payments will be
     deferred.

     As part of these discussions, it is proposed to convene, as soon as practicable, meetings of the LSD Group's
     bondholders. Further announcements to shareholders and bondholders will be made as and when
     appropriate.

     The business of LSD is carrying on normally and based on initial discussions with LSD's principal lending
     banks, the directors of LSD are confident that satisfactory arrangements with all creditor groups will be
     agreed.

     The Group will continue to reorganise its property portfolio through the disposal of non-core assets as the
     basis for the Group to take advantage of an anticipated upturn in the Hong Kong property market in the
     medium term.
                                    LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                           Report of the Directors


EMPLOYEES AND REMUNERATION POLICIES
The Group employs a total of approximately 4,300 employees. Pay rates of employees are maintained at
competitive levels and salaries and bonuses are awarded on a performance related basis. Other staff benefits
include both contributory and defined benefit provident fund schemes, free hospitalisation insurance plan,
subsidised medical care and subsidies for external educational and training programmes.

YEAR 2000 COMPLIANCE
The Group has been carrying on the implementation of the Year 2000 Compliance Programme of which the
approach, structure, risk assessment and compliance definition have been well covered in the previous
Annual Report. In this respect, the Group has appointed independent consultants to advise on the
replacement or upgrading of the hardware and related software to ensure compliance.

The systems identified as requiring major upgrades were the accounting and hotel reservation systems. The
compliance programme and all necessary Year 2000 compliance projects have been completed. Total cost
incurred to date was approximately HK$2.8 million and no material further costs are expected. As the
amount involved is not material, the directors have not authorised any specific amounts in respect of the
Year 2000 modification costs.

The Group has formulated contingency plans to deal with any unforeseen problems that might arise at the
turn of the millennium. They mainly involve the backing up of all electronic data in multiple media at
intervals to enable the restoration of the same later when necessary; the engagement of external consultants
to oversee the transition of the computer systems through the turn of the millennium and having manual
                                                                                                               29
modes of the Group's vital functions ready to enable the continued operation of the Group without the need
for computers.

PRACTICE NOTE 19 TO THE LISTING RULES
(1)   Specific performance obligations on controlling shareholder
      A bank loan facility of HK$200 million was granted to Lai Sun Development Company Limited
      (``LSD''), a subsidiary of the Company, for a term of two years (the ``Loan Agreement'') from 19th
      February, 1999. The outstanding amount as at 31st July, 1999 was HK$183.9 million. According to
      the Loan Agreement, Mr. Lim Por Yen and members of the Lim Family (as defined in the Loan
      Agreement) should maintain control of the Company and the Company should maintain control of
      LSD.
                                            LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Directors


     PRACTICE NOTE 19 TO THE LISTING RULES (continued)
     (2)   Financial assistance and guarantees provided to affiliated companies (including associated
           companies and jointly controlled entities)
           As at 31st July, 1999, the Company and its subsidiaries (the ``Group'') had given financial assistance to,
           and guarantees to financial institutions for the benefit of, its affiliated companies amounting to, in
           aggregate, approximately 49.5% of the Group's net asset value. In compliance with Practice Note 19,
           the proforma combined balance sheet of affiliated companies as at the balance sheet date is disclosed
           as follows:

                                                                                                             HK$'000

           Fixed assets                                                                                     1,452,522
           Investment properties                                                                              145,673
           Properties under development                                                                     2,780,290
           Goodwill                                                                                            78,732
           Deferred expenses                                                                                   64,531
           Associated companies                                                                               353,059
           Net current liabilities                                                                           (169,062)


           Total assets less current liabilities                                                            4,705,745

           Long term borrowings                                                                            (1,009,498)
           Deferred income                                                                                    (87,080)
30
           Amounts due to shareholders                                                                     (3,323,895)


                                                                                                              285,272


           Capital and reserves
             Share capital                                                                                    897,113
             Capital reserve                                                                                   64,111
             Investment property revaluation reserve                                                          110,311
             Exchange fluctuation reserve                                                                       8,879
             Accumulated losses                                                                              (775,095)

                                                                                                              305,319

           Minority interests                                                                                 (20,047)


                                                                                                              285,272


     (3)   Breach of loan agreements
           Except for those disclosed in note 1 ``Basis of presentation'' to the financial statements, the directors of
           the Company are not aware of any breach of the terms of the loan agreements with respect to the
           Group's borrowings.
                                   LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                          Report of the Directors


CODE OF BEST PRACTICE
In the opinion of the directors, the Company has complied with the Code of Best Practice as set out in
Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
during the year ended 31st July, 1999. All the non-executive directors of the Company were not appointed
for a specific term as they are subject to retirement by rotation and re-election at the Company's Annual
General Meeting in accordance with the Articles of Association of the Company.

AUDITORS
Ernst & Young retire at the forthcoming Annual General Meeting and a resolution for their reappointment as
auditors of the Company will be proposed at the said meeting.

On Behalf of the Board




Lim Por Yen
Chairman

Hong Kong
12th November, 1999


                                                                                                             31
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




     Report of the Auditors




     To the members
     Lai Sun Garment (International) Limited
     (Incorporated in Hong Kong with limited liability)

     We have audited the financial statements on pages 34 to 103 which have been prepared in accordance with
     accounting principles generally accepted in Hong Kong.

     RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
     The Companies Ordinance requires the directors to prepare financial statements which give a true and fair
     view. In preparing financial statements which give a true and fair view it is fundamental that appropriate
     accounting policies are selected and applied consistently. It is our responsibility to form an independent
     opinion, based on our audit, on those statements and to report our opinion to you.

     BASIS OF OPINION
     We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong
     Society of Accountants. An audit includes an examination, on a test basis, of evidence relevant to the
     amounts and disclosures in the financial statements. It also includes an assessment of the significant
     estimates and judgments made by the directors in the preparation of the financial statements, and of
32   whether the accounting policies are appropriate to the Company's and the Group's circumstances,
     consistently applied and adequately disclosed.

     We planned and performed our audit so as to obtain all the information and explanations which we
     considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to
     whether the financial statements are free from material misstatement. In forming our opinion we also
     evaluated the overall adequacy of the presentation of information in the financial statements. We believe that
     our audit provides a reasonable basis for our opinion.

     FUNDAMENTAL UNCERTAINTIES RELATING TO THE GOING CONCERN
     BASIS OF A PRINCIPAL SUBSIDIARY OF THE GROUP
     In forming our opinion, we have considered the adequacy of the disclosures made in note 1 to the financial
     statements which explain the circumstances giving rise to the fundamental uncertainties relating to (1) the
     possible outcome of the discussions of Lai Sun Development Company Limited together with its subsidiaries
     (the ``LSD Group''), a publicly listed subsidiary of the Group, with the relevant lending banks in respect of
     borrowings that amounted to HK$5,525 million at 31st July, 1999 (the ``Bank Discussions'') with a view to
     obtaining waivers for the LSD Group's failure to maintain the relevant loan covenants ( the ``Waivers'') and/
     or to concluding formal agreements with them in respect of a deferral of the principal repayments to 31st
     December, 2002 (the ``Principal Repayment Deferral''); and (2) the possible outcome of the discussions of
     the LSD Group with the bondholders in respect of bonds payable with an aggregate principal amount of
     HK$2,052 million and an aggregate redemption premium of HK$249 million as at 31st July, 1999 (the
     ``Bondholder Discussions''), with a view to obtaining the Waivers and/or to securing their agreement to the
                                      LAI SUN GARMENT ANNUAL REPORT 1998-99




                                                                Report of the Auditors


FUNDAMENTAL UNCERTAINTIES RELATING TO THE GOING CONCERN
BASIS OF A PRINCIPAL SUBSIDIARY OF THE GROUP (continued)
Principal Repayment Deferral. The financial statements have been prepared on a going concern basis, the
validity of which depends upon the successful outcome of the Bank Discussions and the Bondholder
Discussions. The financial statements do not include any adjustments that would result from the failure of
the Bank Discussions and the Bondholder Discussions. We consider that appropriate disclosures and
estimates have been made in the financial statements and our opinion is not qualified in this respect.

OPINION
In our opinion the financial statements give a true and fair view, in all material respects, of the state of affairs
of the Company and of the Group as at 31st July, 1999 and of the loss and cash flows of the Group for the
year then ended and have been properly prepared in accordance with the Companies Ordinance.




Ernst & Young
Certified Public Accountants

Hong Kong
12th November, 1999

                                                                                                                       33
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Consolidated Profit and Loss Account
     For the year ended 31st July, 1999




                                                                                      1999         1998
                                                                         Notes      HK$'000      HK$'000

     TURNOVER                                                              3      3,180,510     5,099,666


     OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS                      5      (1,114,330)    368,816


     Exceptional items                                                     6      (6,238,628)         Ð


     OPERATING PROFIT/(LOSS)                                                      (7,352,958)    368,816

     Share of results of associated companies                                      (305,323)      16,613
     Share of results of jointly controlled entities                                   (710)          Ð


     PROFIT/(LOSS) BEFORE TAXATION                                                (7,658,991)    385,429


     Taxation                                                              9        (49,758)    (143,515)


     PROFIT/(LOSS) BEFORE MINORITY INTERESTS                                      (7,708,749)    241,914

34   Minority interests                                                           4,074,093     (175,400)


     NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS                      10, 30   (3,634,656)     66,514


     Dividend                                                              11             Ð       20,483


     EARNINGS/(LOSS) PER SHARE (HK$)                                       12
       Basic                                                                           (3.59)        0.12

       Diluted                                                                          N/A          0.11
                            LAI SUN GARMENT ANNUAL REPORT 1998±99




                                         Consolidated Balance Sheet
                                                                                    31st July, 1999




                                                                          1999             1998
                                                           Notes        HK$'000          HK$'000

FIXED ASSETS                                                 13       2,414,824        2,832,790
INVESTMENT PROPERTIES                                        14      10,034,000       13,348,900
PROPERTIES UNDER DEVELOPMENT                                 15       7,982,105       11,111,712
GOODWILL ON CONSOLIDATION OF SUBSIDIARIES                    17         258,544           519,314
DEFERRED PRE-OPERATING EXPENSES                              18          10,718            32,256
ASSOCIATED COMPANIES                                         19       1,124,655        2,396,143
JOINTLY CONTROLLED ENTITIES                                  20         188,572           183,219
LONG TERM INVESTMENTS                                        21       1,018,389        2,073,429
LONG TERM NOTE RECEIVABLE                                    22         245,000        1,100,000
NET CURRENT LIABILITIES                                      23       (2,519,286)      (2,039,697)

TOTAL ASSETS LESS CURRENT LIABILITIES                                20,757,521       31,558,066
LONG TERM RENTAL DEPOSITS RECEIVED                                     (102,635)         (124,527)
PROVISION FOR PREMIUM ON BOND REDEMPTION                               (249,554)         (135,915)
PROVISION FOR PREMIUM ON NOTE REDEMPTION                                  (1,667)               Ð
LONG TERM BANK LOANS AND OTHER BORROWINGS                    26       (3,195,936)      (5,479,975)
                                                                                                      35
LONG TERM BONDS PAYABLE                                      27        (891,250)         (891,250)
DEFERRED TAXATION                                            28            (188)           (1,534)

                                                                     16,316,291       24,924,865

CAPITAL AND RESERVES
 Share capital                                               29         718,855          128,021
 Reserves                                                    30       3,775,486        8,980,981

                                                                      4,494,341        9,109,002
MINORITY INTERESTS                                                    9,123,369       13,713,106

                                                                     13,617,710       22,822,108
CONVERTIBLE BONDS                                            31       2,098,581        2,102,757
CONVERTIBLE NOTE                                             32         600,000                 Ð

                                                                     16,316,291       24,924,865




Lim Por Yen                                                  Lam Kin Ngok, Peter
Director                                                     Director
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Consolidated Cash Flow Statement
     For the year ended 31st July, 1999




                                                                                     1999          1998
                                                                         Notes     HK$'000       HK$'000

     NET CASH INFLOW/(OUTFLOW) FROM OPERATING
      ACTIVITIES                                                         33(a)    (304,445)      852,812

     RETURNS ON INVESTMENTS AND SERVICING OF
       FINANCE
         Dividends received from associated companies                              113,304        18,657
         Dividends received from listed and unlisted investments                     4,456        10,707
         Dividends paid                                                                (53)      (71,630)
         Dividends paid to minority interests                                           Ð       (131,860)
         Interest received                                                         178,043       277,315
         Interest paid on bank loans, overdrafts and other borrowings             (635,550)     (843,817)
         Interest paid on bonds payable                                            (88,582)     (120,311)
         Interest paid on convertible bonds and note                               (80,759)     (110,007)

     Net cash outflow from returns on investments and
       servicing of finance                                                       (509,141)     (970,946)

     TAXATION
       Hong Kong profits tax paid                                                   (69,995)     (26,494)
       Taxes paid outside Hong Kong                                                 (19,314)     (34,551)

     Taxes paid                                                                     (89,309)     (61,045)

36   INVESTING ACTIVITIES
       Proceeds from disposal of fixed assets                                      322,292        120,842
       Proceeds from disposal of investment properties                             131,438        932,628
       Proceeds from disposal of partial interests in subsidiaries                      Ð          41,827
       Proceeds from disposal of associated companies                               98,423        704,626
       Proceeds from disposal of long term investments                             241,579        148,954
       Proceeds from disposal of properties under development                      116,938        267,140
       Acquisition of subsidiaries                                       33(e)         272     (6,098,328)
       Proceeds from disposal of subsidiaries                            33(f)     519,853      1,452,813
       Acquisition of additional interests in subsidiaries                        (169,104)      (201,500)
       Acquisition of long term investments                                        (31,059)      (366,136)
       Acquisition of additional interests in associated companies                  (5,846)            Ð
       Capital injection to a jointly controlled entity                             (5,153)       (73,300)
       Additions to properties under development                                  (183,272)    (1,921,323)
       Additions to deferred pre-operating expenses                                 (3,090)        (1,686)
       Reorganisation expenses paid                                                     Ð         (44,024)
       Additions to investment properties                                           (2,979)      (255,610)
       Purchases of fixed assets                                                  (103,213)      (115,007)
       Acquisition of associated companies                                         (42,043)      (284,159)
       Advances from associated companies                                          263,129         90,349
       Advances to investee companies                                              (75,730)      (100,788)
       Advances from/(to) jointly controlled entities                                1,298        (26,190)
       Return of capital from an associated company                                114,926         46,422
       Subsidiary excluded from consolidation                            33(g)          Ð         (20,633)

     Net cash inflow/(outflow) from investing activities                          1,188,659    (5,703,083)

     NET CASH INFLOW/(OUTFLOW) BEFORE
      FINANCING Ð page 37                                                          285,764     (5,882,262)
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




                                 Consolidated Cash Flow Statement
                                                                           For the year ended 31st July, 1999




                                                                                   1999              1998
                                                                   Notes         HK$'000           HK$'000

NET CASH INFLOW/(OUTFLOW) BEFORE
 FINANCING Ð page 36                                                             285,764         (5,882,262)

FINANCING
  Proceeds from the issue of rights shares                         33(b)         575,084                 Ð
  Proceeds from private placement of shares                        33(b)          39,375                 Ð
  Share issue expenses                                             33(b)          (7,260)                Ð
  Proceeds from the issue of rights issues by a subsidiary                       488,270            292,138
  Proceeds from private placement of shares by a subsidiary                      152,950                 Ð
  Share issue expenses of a subsidiary                                           (25,870)                Ð
  Proceeds from the issue of shares upon exercise of warrants by
    a subsidiary                                                                      19                725
  Proceeds from the issue of convertible bonds by a subsidiary     33(b)              Ð           1,161,375
  Proceeds from the issue of convertible note by a subsidiary      33(b)         600,000                 Ð
  Bond issue expenses incurred by a subsidiary                                        Ð             (51,423)
  Note issue expenses incurred by a subsidiary                                   (12,600)                Ð
  Repurchase of convertible bonds                                  33(b)          (3,542)           (69,415)
  Redemption of bonds                                              33(b)        (923,735)                Ð
  Repurchase of bonds                                              33(b)              Ð              (3,408)
  Proceeds from new borrowings                                     33(b)       1,625,365          5,363,178
  Release of bank deposits pledged                                 33(b)           2,214              3,348
  Repayment of borrowings                                          33(b)      (2,594,089)        (2,458,590)    37
  Advances from/(repayment to) minority interests                  33(b)         (19,313)            85,895
  Capital injection by minority interests of subsidiaries          33(b)             810            790,707

Net cash inflow/(outflow) from financing                                        (102,322)         5,114,530

INCREASE/(DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                                    183,442           (767,732)

Cash and cash equivalents at beginning of year                                   636,060          1,405,780
Exchange realignments                                                             (9,141)            (1,988)

CASH AND CASH EQUIVALENTS AT END OF YEAR                                         810,361            636,060

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
 Cash and bank balances                                                          832,278            702,696
 Bank overdrafts                                                                  (7,358)            (7,105)
 Trust receipt loans with less than three months to maturity at
   acquisition date                                                                (6,504)          (12,061)
 Bank deposits pledged                                                                 Ð             (2,214)
 Restricted cash and bank balances                                                 (8,055)          (45,256)

                                                                                 810,361            636,060
                                 LAI SUN GARMENT ANNUAL REPORT 1998±99




     Company Balance Sheet
     31st July, 1999




                                                                               1999         1998
                                                                Notes        HK$'000      HK$'000

     FIXED ASSETS                                                 13          40,767       48,617


     INVESTMENT PROPERTIES                                        14          12,100       13,900

     SUBSIDIARIES                                                 16       2,854,532     2,455,164

     ASSOCIATED COMPANIES                                         19              28        (1,481)


     NET CURRENT LIABILITIES                                      23           (6,266)   (167,272)


     TOTAL ASSETS LESS CURRENT LIABILITIES                                 2,901,161     2,348,928

     LONG TERM BANK LOANS AND OTHER BORROWINGS                    26         (65,000)    (150,353)


     DEFERRED TAXATION                                            28           (1,063)      (1,063)


                                                                           2,835,098     2,197,512
38

     CAPITAL AND RESERVES
       Share capital                                              29         718,855       128,021
       Reserves                                                   30       2,116,243     2,069,491

                                                                           2,835,098     2,197,512




     Lim Por Yen                                                  Lam Kin Ngok, Peter
     Director                                                     Director
                                      LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                                   31st July, 1999




1.    BASIS OF PRESENTATION
The Group sustained a net loss attributable to shareholders of HK$3,635 million for the year ended 31st
July, 1999. As at that date, the Group had consolidated net current liabilities of HK$2,519 million,
consolidated accumulated losses of HK$1,554 million and consolidated net assets of HK$4,494 million.

The deterioration in financial position was largely attributable to the provisions made, particularly those
made for diminutions in the values of the Group's properties as a result of the continued depressed property
market in Hong Kong.

The Group had consolidated bank and other borrowings of HK$6,415 million and bond and note payables,
which include the Exchangeable Bonds (note 27), the Convertible Bonds 2002 and the Lai Fung Convertible
Bonds (note 31), and the Convertible Note (note 32), of HK$3,590 million at 31st July, 1999.

Pursuant to the respective loan agreements and trust deeds, certain principal subsidiaries of the Group are
required to satisfy specific financial covenants. As a result of the losses and the deterioration in the financial
position of Lai Sun Development Company Limited (``LSD''), a publicly listed subsidiary of the Group, LSD
together with its subsidiaries (the ``LSD Group'') failed to comply with certain financial covenants in the
respective loan agreements (the ``Loan Agreements''). The total outstanding loans affected in this regard
amounted to HK$1,664 million as at 31st July, 1999 (the ``Loans''). Further, certain covenants specified in
the trust deed governing the issue of the Exchangeable Bonds (the ``Exchangeable Trust Deed'') were not
maintained. The principal and redemption premium in respect of the Exchangeable Bonds outstanding as at
31st July, 1999 were HK$891 million and HK$132 million, respectively.
                                                                                                                     39

Loan agreements with respect to certain LSD Group's other bank loans amounting to HK$3,861 million as at
31st July, 1999 (the ``Other Loans'') and the trust deed governing the issue of the Convertible Bonds 2002
with a principal of HK$1,161 million and a redemption premium of HK$117 million as at 31st July, 1999
(the ``Convertible Trust Deed'') contain cross default clauses. If any relevant borrowings, including the Loans
and the Exchangeable Bonds, become due and repayable prematurely because of an event of default, the
Other Loans and the Convertible Bonds 2002 will, in turn, become immediately due and repayable if the
relevant lending banks or trustee serve notice to the LSD Group for immediate repayment.

The remaining bank and other loans of HK$890 million, the Lai Fung Convertible Bonds of HK$938 million
and the Convertible Note of HK$600 million were obtained through the Company, and Crocodile Garments
Limited, Lai Fung Holdings Limited and Lai Sun Hotels International Limited, together the Other Principal
Subsidiaries of the Group. According to the respective loan agreements and trust deeds, the Company and
the Other Principal Subsidiaries are subject to different sets of covenants from those of the LSD Group. The
Company and the Other Principal Subsidiaries have maintained compliance with such covenants as at the
balance sheet date.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     1.    BASIS OF PRESENTATION (continued)
     Pursuant to the Loan Agreements and Exchangeable Trust Deed, as confirmed by the LSD Group's legal
     advisors, upon the breach of any covenants, the respective lending banks or trustee may (in the case of a
     trustee, the trustee must if so required by the bondholders) serve notice on the LSD Group to declare the
     Loans or the Exchangeable Bonds to be immediately due and repayable. However, unless and until such
     notice is served by the respective lending banks or the trustee, the Loans and the Exchangeable Bonds
     remain repayable in accordance with their original stated maturity dates.

     With respect to the Other Loans and the Convertible Bonds 2002, the respective lending banks or trustee
     may (in the case of a trustee, the trustee must if so required by bondholders) declare an event of default in
     respect of the LSD Group's respective borrowings by virtue of the cross default provisions contained in the
     respective agreements of the Other Loans or the Convertible Trust Deed.

     As at the current date, certain principal lending banks of the LSD Group of the Loans and the Other Loans
     have indicated their support in principle to waive any breach of covenants and to defer the repayment of the
     respective loan principals to 31st December, 2002 (the ``Principal Repayment Deferral'') provided that all
     other relevant lending banks of the Loans and Other Loans and the bondholders of the Exchangeable Bonds
     and the Convertible Bonds 2002 also agree to the same waivers and deferral terms. The amounts due to
     these principal lending banks as at 31st July, 1999 amounted to HK$3,545 million in aggregate.

     With regard the other lending banks of the Loans and Other Loans, the directors of LSD (the ``LSD
     Directors'') are confident that waivers in respect of the LSD Group's breach of certain loan covenants (the
40
     ``Waivers'') and/or the Principal Repayment Deferral can be arranged. Accordingly, the LSD Directors
     consider it appropriate to continue classifying the Loans and Other Loans as current or long term liabilities
     according to their original maturity terms under the respective loan agreements as at 31st July, 1999.

     The LSD Group will shortly conduct meetings with the bondholders of the Exchangeable Bonds and the
     Convertible Bonds 2002 with a view to obtaining the Waivers and/or to securing their agreement to the
     Principal Repayment Deferral (the ``Discussions''). The LSD Directors are optimistic that the Discussions will
     be successful. On such basis, the LSD Directors consider it appropriate to continue classifying the
     Exchangeable Bonds and the Convertible Bonds 2002 as long term liabilities according to their respective
     original maturity dates.

     On the bases that formal agreements with banks on the Waivers and/or the Principal Repayment Deferral
     can be arranged and the Discussions are successful, the directors of the Company are satisfied that it is
     appropriate to prepare the financial statements on a going concern basis.

     If the going concern basis is not appropriate, adjustments would have to be made to restate the values of the
     assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify
     non-current assets and liabilities as current assets and current liabilities, respectively.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                              31st July, 1999




2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries
for the year ended 31st July, 1999, except for Lai Sun Hotels International Limited (``LSHIL'') and Furama
Hotel Enterprises Limited (``Furama''), which prepare statutory consolidated accounts based on the financial
years ended 31st December and 31st March, respectively, of which the management accounts for the year
ended 31st July, 1999, after making appropriate adjustments, were included. The results of subsidiaries
acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or
disposal, respectively. All significant intercompany transactions and balances within the Group are
eliminated on consolidation.

Subsidiaries
A subsidiary is a company in which the Company, directly or indirectly, controls more than 50% of its
voting power or controls the composition of its board of directors.

Interests in subsidiaries are stated in the Company's balance sheet at cost unless, in the opinion of the
directors, there have been permanent diminutions in values, when they are written down to values
determined by the directors.

Associated companies
An associated company is a company, not being a subsidiary or a jointly controlled entity, in which the
Group has a long term interest of not less than 20% of the equity voting rights and over which it is in a
                                                                                                                41
position to exercise significant influence.

The Group's share of the post-acquisition results and reserves of associated companies is included in the
consolidated profit and loss account and consolidated reserves, respectively. The Group's investments in
associated companies are stated in the consolidated balance sheet at the Group's share of net assets under
the equity method of accounting less any provisions for permanent diminutions in values deemed necessary
by the directors, other than goodwill which is recorded in the associated company's own financial
statements, plus goodwill arising on the acquisition of interests in the associated companies in so far as it
has not already been written off or amortised.

The results of associated companies are included in the Company's profit and loss account to the extent of
dividends received. The interests in associated companies in the Company's balance sheet are stated at cost
unless, in the opinion of the directors, there have been permanent diminutions in values, when they are
written down to the directors' valuations.

Certain interest on loans borrowed for investments in associated companies engaging in property
development is capitalised in the Group's share of the net assets of the associated companies.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Jointly controlled entities
     A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership
     or other form of entity in which each venturer has an interest. A jointly controlled entity operates in the
     same way as other enterprises, except that a contractual arrangement between the venturers establishes joint
     control over the economic activities of the entity.

     The Group's share of the post-acquisition results and reserves of jointly controlled entities is included in the
     consolidated profit and loss account and consolidated reserves, respectively. Where the profit sharing ratios
     are different from the Group's equity interests therein, the share of post-acquisition results of the jointly
     controlled entities is determined based on the agreed profit sharing ratios. The Group's interests in jointly
     controlled entities are stated in the consolidated balance sheet at the Group's share of net assets under the
     equity method of accounting less any provisions for diminutions in values, other than temporary in nature,
     deemed necessary by the directors.

     In prior years, jointly controlled entities were accounted for and disclosed as subsidiaries or associated
     companies. The change in accounting policy has resulted from the adoption of Statement of Standard
     Accounting Practice No.2.121 ``Accounting for Interests in Joint Ventures'' (``SSAP 21'') issued by the Hong
     Kong Society of Accountants (``HKSA'') in March 1998. The change in accounting policy has been applied
     retrospectively, and accordingly the comparative amounts have been restated to conform with the current
     year's presentation. The change in accounting policy resulted in deconsolidation of two entities with an
     aggregate net asset value of HK$140,971,000 at 31st July, 1998 and their restatement as jointly controlled
42
     entities; and the reclassification of HK$42,248,000 at 31st July, 1998 from associated companies to jointly
     controlled entities. The adoption of SSAP 21 had no effect on the Group's consolidated results attributable
     to shareholders for the year ended 31st July, 1998 or the consolidated net assets as at 31st July, 1998.

     Certain interest on loans borrowed for investments in jointly controlled entities engaging in property
     development is capitalised in the Group's share of net assets of the jointly controlled entities.

     Goodwill
     Goodwill arising on consolidation of subsidiaries and on acquisition of associated companies represents the
     excess of the purchase consideration paid for subsidiaries/associated companies over the fair values ascribed
     to the net underlying assets acquired at the date of acquisition.

     Goodwill arising on the acquisition of a subsidiary, Crocodile Garments Limited, is amortised over a period
     of sixty years on the straight-line basis commencing 1988. Goodwill arising on the acquisition of the other
     three subsidiaries, Chains International Hotels Management Limited, Century International Hotels Limited
     and Delta Asia Limited, and of associated companies is amortised on the straight-line basis over a period of
     forty years. Such goodwill is stated at amortised balance adjusted for any permanent impairment in value
     considered necessary by the directors.

     Goodwill arising on the acquisition of other subsidiaries is eliminated against reserves at the time of
     acquisition.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                                 31st July, 1999




2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capital reserve
The capital reserve arising on consolidation of subsidiaries and on acquisition of associated companies
represents the excess of the fair values ascribed to the net underlying assets of subsidiaries/associated
companies acquired at the date of acquisition over the purchase consideration paid for subsidiaries/
associated companies.

Fixed assets and depreciation
No depreciation is provided for freehold land, hotel and investment properties, and construction in
progress. Other fixed assets are stated at cost or valuation less accumulated depreciation.

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

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over its
estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land                           Over the unexpired lease terms
Buildings                                2% ± 5%                                                                   43

Leasehold improvements                   2.5% ± 20%
Plant and machinery                      10%
Furniture, fixtures and equipment        5% ± 20%
Motor vehicles                           10% ± 25%
Computers                                10% ± 25%
Motor vessels                            25%

The transitional provision set out in paragraph 72 of Hong Kong Statement of Standard Accounting Practice
No. 17 ``Property, Plant and Equipment'' has been adopted for assets stated at valuation. As a result, those
assets stated at revalued amounts based on revaluations which were reflected in the financial statements in
periods ended before 30th September, 1995, have not been further revalued to fair value at subsequent
balance sheet dates. It is the directors' intention not to revalue these assets in the future.

Hotel properties are interests in land and buildings and their integral fixed plant which are collectively used
in the operation of hotels, and are stated at cost. It is the Group's policy to maintain the hotel properties in
such condition that their residual values are not currently diminished by the passage of time and, therefore,
any element of depreciation is insignificant. Accordingly, the directors consider that it is not necessary for
depreciation to be charged in respect of hotel properties. The related maintenance and repairs are charged to
the profit and loss account in the year in which they are incurred and the costs of significant improvements
are capitalised.
                                           LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Fixed assets and depreciation (continued)
     Construction in progress is not depreciated until such time when the relevant assets are completed and put
     into use.

     The gain or loss on disposal or retirement of a fixed asset, other than investment properties, recognised in
     the profit and loss account is the difference between the net sales proceeds and the carrying amount of the
     relevant asset. On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in
     respect of the previous valuations is transferred to retained profits as a movement in reserves.

     Investment properties
     Investment properties are interests in land and buildings in respect of which construction work and
     development have been completed and which are intended to be held on a long term basis for their
     investment potential. Such properties are not depreciated and are stated at their open market values on the
     basis of annual professional valuations. Changes in the values of investment properties are dealt with as
     movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover
     a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account.

     Where a deficit has previously been charged to the profit and loss account and a revaluation surplus
     subsequently arises, this surplus is credited to the profit and loss account to the extent of the deficit
     previously charged.

44   Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in
     respect of previous valuations is released to the profit and loss account.

     Properties under development
     Properties under development intended to be held for rental purposes are stated at their open market values
     on the basis of annual professional valuations.

     Changes in the values of properties under development which have been revalued are dealt with as
     movements in the revaluation reserve for properties under development held for rental purposes. If this
     reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit
     and loss account.

     Upon the disposal of a property under development which has been revalued, the relevant portion of the
     revaluation reserve for properties under development held for rental purposes realised in respect of previous
     valuations is released to the profit and loss account.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                                31st July, 1999




2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Properties under development (continued)
Properties under development held for purposes other than rental are stated at cost less any provisions for
permanent diminutions in values considered necessary by the directors. Cost includes the cost of land,
construction, financing and other related expenses.

Where pre-sale profit is recognised, the attributable profit on the pre-sold portion of the properties under
development is recognised over the course of the development after taking into account all further costs to
completion and due allowances for contingencies and is calculated on each project by reference to the lower
of:

(i)    the percentage which results from the proportion of the total construction cost incurred to the total
       estimated construction costs to completion; and

(ii)   the proportion of the actual cash received to the total sales consideration.

Completed properties for sale
Completed properties for sale are stated at the lower of cost and net realisable value. Net realisable value is
estimated by the directors based on prevailing market conditions. Cost includes all development
expenditure, applicable borrowing costs and other direct costs attributable to such properties. Cost is
determined by an apportionment of the total land and building costs attributable to unsold properties.

Deferred pre-operating expenses
                                                                                                                  45
Deferred pre-operating expenses represent expenses incurred prior to the commencement of operations of
certain subsidiaries. The pre-operating expenses are capitalised at cost and amortised on the straight-line
basis over a period of three to five years from the date of commencement of the operations of the relevant
subsidiaries.

Investments
Investments held on a long term basis are stated at cost less provisions for any permanent diminutions in
values considered necessary by the directors.

Short term investments comprise listed and unlisted investments. Listed investments are stated at the lower
of cost and market value at the balance sheet date. Unlisted investments are stated at cost less provisions for
diminutions in values considered necessary by the directors.

Certain interest on loans borrowed for long term investments engaging in property development is
capitalised.

Stocks
Stocks comprise food, beverages and supplies for hotel and restaurant operations, and raw materials, work
in progress and finished goods for the manufacture and sale of garments. They are stated at the lower of cost
and net realisable value after making due allowance for obsolete or slow-moving items. Cost is determined
using the first-in, first-out method. In the case of work in progress and finished goods, cost includes direct
materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the
estimated selling prices less any estimated costs to be incurred to completion and disposal.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Textile quota entitlements
     The Group is entitled to certain textile quotas. Temporary textile quota entitlements purchased from outside
     parties are written off to the profit and loss account at the time of utilisation, or in the absence of such
     utilisation upon the expiry of the relevant utilisation period. The profit on the transfer of temporary textile
     quota entitlements to a third party is recognised upon the execution of a legally binding, unconditional and
     irrevocable transfer form.

     Leased assets
     Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than
     legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the asset is
     capitalised at the present value of the minimum lease payments and recorded together with the obligation,
     excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance
     leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated
     useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to
     produce a constant periodic rate of charge over the lease terms.

     Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company
     are accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit
     and loss account on the straight-line basis over the lease terms.

     Revenue recognition
46
     Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the
     revenue can be measured reliably, on the following bases:

     (a)   sale of goods and transfer of quotas, when the significant risks and rewards of ownership have been
           transferred to the buyer, provided that the Group maintains neither managerial involvement to the
           degree usually associated with ownership, nor effective control over the goods sold;

     (b)   sale of completed properties developed for sale, upon the establishment of a binding contract in
           respect of the sale of properties, or upon the issue of an occupation permit by the Hong Kong
           Government or a completion certificate by the relevant government authorities, whichever is the later;

     (c)   income from pre-sale of certain properties under development, when the construction work has
           reached a stage where the ultimate realisation of profit can be reasonably determined on the basis set
           out under the heading ``Properties under development'' above;

     (d)   sale of investment properties, when all the conditions of a sale have been met and the risks and
           rewards of ownership have been transferred to the buyer;

     (e)   rental and property management fee income, in the period in which the properties are let out and on
           the straight-line basis over the lease terms;

     (f)   hotel and restaurant operations and other related service income, in the period in which such services
           are rendered;
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                Notes to Financial Statements
                                                                                                31st July, 1999




2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
(g) dealing of securities and sale of investments, on the transaction date when the relevant contract is
      entered into;

(h)   interest income, on a time proportion basis taking into account the principal outstanding and the
      effective interest rate applicable; and

(i)   dividend income, when the shareholders' right to receive payment is established.

Borrowing costs
Borrowing costs directly attributable to the acquisition or construction of an asset which takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. The
capitalisation rate for the year is based on the weighted average of the attributable borrowing costs of the
borrowings. All other borrowing costs are charged to the profit and loss account in the period in which they
are incurred.

Pension costs
The Group operates defined contribution pension schemes and defined benefit retirement schemes for its
employees, the assets of which are held separately from those of the Group in independently administered
funds.

Contributions to the defined contribution pension schemes are made based on a percentage of the eligible          47

employees' salaries and are charged to the profit and loss account as they become payable in accordance
with the rules of the schemes. When an employee leaves the scheme prior to his/her interest in the Group
employer contributions vesting fully, the ongoing contributions payable by the Group may be reduced by
the relevant amount of forfeited contributions.

Contributions to the defined benefit retirement schemes are charged to the profit and loss account so as to
charge the cost of the retirement benefits over the eligible employees' working lives within the Group. The
contribution rate is recommended by independent qualified actuaries on the basis of triennial valuations,
using the aggregate method.

Foreign currencies
Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the
profit and loss account.

On consolidation, the financial statements of subsidiaries, associated companies and jointly controlled
entities outside Hong Kong are translated to Hong Kong dollars at the applicable rates of exchange ruling at
the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Deferred taxation
     Deferred taxation is provided, using the liability method, on all significant timing differences to the extent it
     is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised
     until its realisation is assured beyond reasonable doubt.

     Related parties
     Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
     party, or exercise significant influence over the other party in making financial and operating decisions.
     Parties are also considered to be related if they are subject to common control or common significant
     influence.

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

     3.    TURNOVER
     Turnover comprises the net invoiced value of garments sold, commission and handling charges earned,
     proceeds from the sales of quotas, proceeds from the sales of properties, rental income and income from
     hotel, restaurant and other operations. Revenue from the following activities has been included in turnover.

48                                                                                                    Group
                                                                                             1999             1998
                                                                                           HK$'000          HK$'000

     Sales of garments and quotas                                                         1,434,242        1,567,366
     Sales of properties                                                                    552,318        2,042,298
     Property rentals                                                                       636,076          753,756
     Hotel, restaurant and other operations                                                 557,874          736,246


                                                                                          3,180,510        5,099,666
                                        LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                Notes to Financial Statements
                                                                                                 31st July, 1999




4.       RELATED PARTY TRANSACTIONS
In addition to the related party transactions and balances detailed elsewhere in the financial statements, the
Group had the following material transactions with related parties during the year.

                                                                                                Group
                                                                                        1999              1998
                                                                       Notes        HK$'000           HK$'000

Sales of garments to a company in which certain directors of
      the Company have beneficial interests                              (i)            1,138           20,161

Interest income received from associated companies                       (ii)         66,892           123,167

Project management and consultancy fees received from
      an associated company                                             (iii)              Ð            30,400

(i)      The consideration for each transaction was determined through negotiations between respective
         parties on a case by case basis.

(ii)     Interest income received from associated companies arose from advances thereto. Interest is charged at
         the prevailing market rates.

                                                                                                                   49
(iii) The project management and consultancy fees received from an associated company were based on
         terms mutually agreed.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     5.    OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS
     This is arrived at after charging/(crediting):

                                                                                              Group
                                                                                    1999            1998
                                                                                  HK$'000         HK$'000

     Rental income                                                                (636,076)       (753,756)
     Less: Outgoings                                                                93,311          85,667


     Net rental income                                                            (542,765)       (668,089)


     Interest from bank deposits                                                   (54,421)        (79,567)
     Other interest income                                                        (103,589)       (208,626)
     Gain on disposal of investment properties                                          Ð         (452,458)
     Gain on disposal of fixed assets                                                   Ð          (29,399)
     Gain on disposal of properties under development                                   Ð             (467)
     Gain on disposal of subsidiaries                                              (13,923)             Ð
     Gain on deemed disposal of a subsidiary                                            Ð          (56,871)
     Gain on disposal of associated companies                                      (15,138)             Ð
     Gain on disposal of interests in associated companies                              Ð         (158,893)
     Gain on cancellation of convertible bonds                                     (17,718)             Ð
50
     Dividend income from listed investments                                        (4,256)         (1,820)
     Dividend income from unlisted investments                                        (200)         (8,887)
     Write back of provision for premium on convertible bond redemption                 Ð         (121,922)
     Interest on bank loans, overdrafts and other borrowings:
       Wholly repayable within 5 years                                            640,236         814,982
       Not wholly repayable within 5 years                                            255          16,853

                                                                                  640,491         831,835

     Interest on bonds payable                                                     102,670         128,421
     Interest on convertible bonds and note                                        107,887         110,007
     Less: Amounts capitalised in properties under development                    (589,481)       (611,423)
           Amounts capitalised in construction in progress                              Ð           (1,245)
           Amounts capitalised in associated companies engaged
              in property development                                              (33,837)           (48,229)
           Amounts capitalised in long term investments engaged
              in property development                                                   Ð          (21,543)
           Amounts capitalised as acquisition cost of a subsidiary                      Ð         (212,491)
           Amounts capitalised in jointly controlled entities engaged
              in property development                                               (1,825)            (3,684)

                                                                                  225,905         171,648
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




                                           Notes to Financial Statements
                                                                                             31st July, 1999




5.   OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS
     (continued)
                                                                                             Group
                                                                                   1999             1998
                                                                                 HK$'000          HK$'000

Provision for premium on bond redemption                                          113,639          112,892
Provision for premium on note redemption                                            1,667               Ð
Amortisation of goodwill on acquisition of:
  Subsidiaries                                                                     10,159            11,137
  Associated companies                                                              1,396             6,161
Write off of deferred pre-operating expenses                                       18,974                Ð
Amortisation of deferred pre-operating expenses                                     5,690             8,540
Auditors' remuneration                                                              6,793             7,180
Depreciation:
  Owned fixed assets                                                               93,399          105,658
  Leased fixed assets                                                                 495              540
Provisions for trade debtors                                                        8,624           12,152
Provisions for diminutions in values of short term listed and unlisted
  investments                                                                       2,514             3,391
Provisions for diminutions in values of properties under development to net
  realisable value                                                                  9,527          155,874
Provisions for diminutions in values of completed properties for sale to net                                   51

  realisable value                                                                128,931            20,930
Provision for/(write back of) diminution in value of an associated company
  holding completed properties for sale                                          (110,910)         110,910
Provisions for diminutions in values of, and advances to, associated
  companies and investee companies engaged in hotel operations                     42,487               Ð
Provisions for deposits paid for acquisition of properties                             Ð            91,913
Loss on disposal of fixed assets                                                  162,113               Ð
Loss on disposal of properties under development                                  158,153               Ð
Loss on disposal of investment properties                                         153,940               Ð
Loss on disposal of subsidiaries                                                       Ð           131,339
Loss on dissolution of associated companies                                         1,808               Ð
Loss on disposal of partial interests in subsidiaries                                  Ð             2,752
Loss on disposal of short term listed investments                                  10,527          194,702
Loss on disposal of short term unlisted investments                               112,375            2,901
Loss on disposal of long term unlisted investments                                    431               Ð
Operating lease rentals in respect of land and buildings                          152,796          180,497
Foreign exchange losses, net                                                       13,697           15,814

The operating loss before exceptional items for the year includes costs of goods and properties sold and
services provided for property rentals, hotel, restaurant and other operations of HK$2,394,318,000 (1998 :
HK$2,539,592,000 included in operating profit before exceptional items).
                                                 LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     5.    OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS
           (continued)
     Such amount has not included provisions for diminutions in values of completed properties for sale to net
     realisable value of HK$128,931,000 (1998 : HK$20,930,000) or the provisions for diminutions in values of
     properties under development of HK$9,527,000 (1998 : HK$155,874,000).

     6.     EXCEPTIONAL ITEMS
                                                                                                                         Group
                                                                                                              1999               1998
                                                                                                            HK$'000            HK$'000

     Provisions for diminutions in values of properties under development                                 2,959,138                     Ð
     Provisions for diminutions in values of associated companies holding
       properties under development                                                                         311,000                     Ð
     Provisions for deposits paid for acquisition of properties                                             452,500                     Ð
     Provision for contingent loss in respect of the Put Options (note 22)                                  855,000                     Ð
     Provisions for contingent losses in respect of profit guarantees (1)                                   178,200                     Ð
     Provision for contingent loss in respect of a guarantee given to a bank (2)                            228,000                     Ð
     Loss on disposal of a long term listed investment                                                      302,382                     Ð
     Provisions for diminutions in values of long term unlisted investments                                 426,982                     Ð
     Deficits on revaluation of investment properties                                                       309,226                     Ð
     Adjustments for impairment in values of goodwill on consolidation of
52     subsidiaries                                                                                         216,200                     Ð


                                                                                                          6,238,628                     Ð

     (1)    These relate to certain guaranteed returns given to the respective independent third parties in connection with the disposal of
            certain investment properties and a subsidiary in prior years.


     (2)    This relates to a guarantee given to provide counter-indemnity to a bank for facilities granted by it to an associated company
            engaged in the operations of duty free merchandise.


     7.     DIRECTORS' AND EMPLOYEES' EMOLUMENTS
     (a)    Directors' emoluments
                                                                                                                         Group
                                                                                                                1999                1998
                                                                                                            HK$'000            HK$'000

     Fees                                                                                                         492                 532
     Basic salaries, housing and other allowances and benefits in kind                                        28,951              33,373
     Bonuses paid and payable                                                                                    185                 257
     Pension scheme contributions                                                                                   42                 97


                                                                                                              29,670              34,259
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




                                           Notes to Financial Statements
                                                                                                 31st July, 1999




7.    DIRECTORS' AND EMPLOYEES' EMOLUMENTS (continued)
(a) Directors' emoluments (continued)
Directors' emoluments paid to independent non-executive directors during the year were HK$51,600
(1998 : HK$51,600).

The emoluments of the directors fell within the following bands.

                                                                                                 Group
                                                                                       1999               1998
                                                                                 Number of          Number of
                                                                                   directors          directors

HK$Nil ± HK$1,000,000                                                                     7                   6
HK$1,000,001 ± HK$1,500,000                                                               Ð                   1
HK$3,500,001 ± HK$4,000,000                                                                  2                2
HK$4,500,001 ± HK$5,000,000                                                                  1               1
HK$16,000,001 ± HK$16,500,000                                                                1               Ð
HK$19,500,001 ± HK$20,000,000                                                             Ð                   1


                                                                                          11                 11


There were no arrangements under which a director waived or agreed to waive any emoluments.                        53


(b)   Employees' emoluments
The five highest paid employees during the year included 1 (1998 : 1) director, details of whose emoluments
are set out above. The details of the emoluments of the remaining 4 (1998 : 4) non-director, highest paid
employees are set out below.

                                                                                             Group
                                                                                      1999                1998
                                                                                  HK$'000             HK$'000

Basic salaries, housing and other allowances and benefits in kind                   33,485              19,785
Bonuses paid and payable                                                                Ð                4,500
Pension scheme contributions                                                             Ð                 472
Inducement fee                                                                           Ð               5,000


                                                                                    33,485              29,757
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     7.    DIRECTORS' AND EMPLOYEES' EMOLUMENTS (continued)
     (b) Employees' emoluments (continued)
     The emoluments of the non-director, highest paid employees fell within the following bands:

                                                                                                 Group
                                                                                        1999              1998
                                                                                  Number of        Number of
                                                                                  individuals      individuals

     HK$5,000,001 ± HK$5,500,000                                                            1                Ð
     HK$5,500,001 ± HK$6,000,000                                                            1                1
     HK$6,000,001 ± HK$6,500,000                                                           1                 Ð
     HK$6,500,001 ± HK$7,000,000                                                           Ð                 1
     HK$8,500,001 ± HK$9,000,000                                                           Ð                  2
     HK$16,000,001 ± HK$16,500,000                                                          1                Ð


                                                                                            4                 4


     8.    PENSION COSTS
                                                                                                 Group
                                                                                       1999            1998
54                                                                                   HK$'000         HK$'000

     Gross employer's contributions                                                     8,053            14,561
     Less: Forfeited contributions utilised to offset employer's
           contributions for the year                                                  (1,858)           (1,775)


                                                                                        6,195            12,786

     At 31st July, 1999, there were forfeited contributions of HK$141,000 (1998 : HK$39,000) available to the
     Group to reduce its contributions to the pension schemes in future years.
                                       LAI SUN GARMENT ANNUAL REPORT 1998±99




                                               Notes to Financial Statements
                                                                                                  31st July, 1999




9.     TAXATION
Hong Kong profits tax has been provided at the rate of 16% (1998 : 16%) on the estimated assessable profits
arising in Hong Kong during the year.

Taxes on profits assessable elsewhere have been calculated at the rates of taxation prevailing in the places, in
which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

                                                                                                  Group
                                                                                          1999              1998
                                                                                      HK$'000          HK$'000

Provision for taxation for the year:
     Hong Kong                                                                          35,894            90,333
     Outside Hong Kong                                                                  12,475            87,144
     Deferred Ð note 28                                                                 (5,403)           (33,651)

                                                                                        42,966          143,826
Prior year overprovision:
     Hong Kong                                                                          (2,282)            (8,482)

                                                                                        40,684          135,344

Rebates received relating to prior year                                                                              55

     provision in Hong Kong                                                             (9,983)                Ð

                                                                                        30,701          135,344
Associated companies:
     Hong Kong                                                                          16,563             1,779
     Outside Hong Kong                                                                   2,494             6,392

                                                                                        19,057             8,171

Taxation charge for the year                                                            49,758          143,515


10. N E T P R O F I T / ( L O S S ) A T T R I B U T A B L E T O S H A R E H O L D E R S
Net profit attributable to shareholders dealt with in the financial statements of the Company is
HK$32,187,000 (1998 : net loss of HK$16,256,000).

The Group's share of aggregate profits less losses retained by the associated companies for the year
amounted to losses of HK$195,867,000 (1998 : HK$10,215,000).
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     11.   DIVIDEND
                                                                                             1999          1998
                                                                                           HK$'000       HK$'000

     Interim dividend of HK$Nil (1998 : HK$0.08)                                                  Ð        20,483


     12. E A R N I N G S / ( L O S S ) P E R S H A R E
     The calculations of basic and diluted earnings/(loss) per share are based on:

                                                                                            1999           1998
                                                                                          HK$'000        HK$'000

     Earnings/(loss)
     Earnings/(loss) used in basic earnings/(loss) per share calculation               (3,634,656)         66,514
     Adjustment for the dilutive effect of Lai Fung Convertible Bonds                          N/A          (5,289)


     Earnings/(loss) used in diluted earnings/(loss) per share calculation (2)                 N/A         61,225


                                                                                              1999           1998
                                                                                               '000           '000


56   Number of shares
     Weighted average number of ordinary shares in issue during the year used in
      basic and diluted earnings/(loss) per share calculation (1)                       1,012,918         560,991


     (1)   The weighted average number of ordinary shares of the Company in issue during the year is arrived at
           by adjusting the number of ordinary shares in issue prior to the rights issue of 28th January, 1999 with
           a factor of 2.191. The weighted average number of ordinary shares of the Company in issue during
           1998 is arrived at by adjusting the number of ordinary shares in issue prior to the rights issue of 28th
           January, 1999 with a factor of 2.191.

     (2)   Diluted loss per share for current year has not been shown as the warrants, convertible bonds and
           convertible note of the Group outstanding during the year have an anti-dilutive effect on the basic loss
           per share.

           Diluted earnings per share for the year ended 31st July, 1998 has been restated in accordance with the
           provisions of the Statement of Standard Accounting Practice No. 5 (Revised) issued by the HKSA in
           May 1998.
                                        LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                 Notes to Financial Statements
                                                                                                          31st July, 1999




13.    FIXED ASSETS
Group
                                                        Transfer from
                                                        investment in
                                                             Whistler
                                                        Mountain Inn,
                                                              Limited               Arising on
                                  31st July,              Partnership               disposal of     Exchange    31st July,
                                      1998 Additions        (note 19) Disposals    subsidiaries realignments        1999
                                   HK$'000 HK$'000           HK$'000 HK$'000          HK$'000        HK$'000     HK$'000


Cost or valuation:
   Hotel properties               1,940,297    43,270             Ð    (253,272)            Ð         (2,455)   1,727,840
   Freehold land and buildings       5,546        Ð               Ð          Ð              Ð             Ð         5,546
   Leasehold land and buildings    589,364       403              Ð    (107,715)       (17,132)          49      464,969
   Leasehold improvements           48,792      9,476          2,358    (19,188)           (78)          66        41,426
   Construction in progress          1,975       320              Ð        (380)        (1,915)           Ð            Ð
   Plant and machinery              39,347       600              Ð        (601)            Ð             Ð        39,346
   Furniture, fixtures and
     equipment                     498,668     45,217          3,887    (39,486)       (32,274)        (610)     475,402
   Motor vehicles                   48,383       264              Ð      (1,427)          (315)            4       46,909
   Computers                        28,747      4,064             Ð      (1,150)          (606)          (32)      31,023
   Motor vessels                    51,149         3              Ð          Ð              Ð             Ð        51,152


                                  3,252,268   103,617          6,245   (423,219)       (52,320)       (2,978)   2,883,613


Accumulated depreciation:
   Freehold buildings                2,218       222              Ð          Ð              Ð             Ð         2,440    57
   Leasehold land and buildings     57,932     11,114             Ð      (8,168)        (1,821)            5       59,062
   Leasehold improvements           31,478      3,630             Ð      (2,610)           (16)           (1)      32,481
   Plant and machinery              33,613      2,109             Ð        (580)            Ð             Ð        35,142
   Furniture, fixtures and
     equipment                     217,837     55,283             Ð     (22,613)        (6,295)          (40)    244,172
   Motor vehicles                   30,114      5,882             Ð      (1,062)          (243)          10        34,701
   Computers                        19,245      3,612             Ð        (869)          (278)           (2)      21,708
   Motor vessels                    27,041     12,042             Ð          Ð              Ð             Ð        39,083


                                   419,478     93,894             Ð     (35,902)        (8,653)          (28)    468,789


Net book value                    2,832,790                                                                     2,414,824


The net book value of assets held under finance leases included in the total amount of fixed assets at 31st
July, 1999 amounted to HK$1,002,000 (1998 : HK$1,439,000). The depreciation charge for the year in
respect of such assets amounted to HK$495,000 (1998 : HK$540,000).

Certain land and buildings were pledged to banks to secure banking facilities granted to the Group.
                                        LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     13.   FIXED ASSETS (continued)
     The Group's hotel properties and freehold and leasehold land and buildings at cost or valuation, included
     above, are held under the following terms:

                                                                                          Outside
                                                                     Hong Kong          Hong Kong         Total
                                                                        HK$'000          HK$'000       HK$'000

     Freehold                                                                   Ð           5,546         5,546
     Long term                                                             38,742          17,778        56,520
     Medium term                                                        1,479,718         656,571     2,136,289


                                                                        1,518,460         679,895     2,198,355

     Company
                                                           31st July,                                 31st July,
                                                                1998      Additions       Disposals        1999
                                                            HK$'000        HK$'000         HK$'000     HK$'000

     Cost or valuation:
       Medium term leasehold land and buildings
         situated in Hong Kong                                38,483                Ð           Ð        38,483
58
       Plant and machinery                                     9,632                Ð         (115)       9,517
       Furniture, fixtures and equipment                      12,443             318            (8)      12,753
       Motor vehicles                                          9,547              Ð             Ð         9,547
       Motor vessels                                          16,951                Ð           Ð        16,951

                                                              87,056             318          (123)      87,251

     Accumulated depreciation:
       Medium term leasehold land and buildings
         situated in Hong Kong                                  5,644           1,147           Ð         6,791
       Plant and machinery                                      8,054             485         (115)       8,424
       Furniture, fixtures and equipment                        8,185           1,457           Ð         9,642
       Motor vehicles                                           7,464           1,142           Ð         8,606
       Motor vessels                                            9,092           3,929           Ð        13,021

                                                              38,439            8,160         (115)      46,484

     Net book value                                           48,617                                     40,767
                                      LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                                   31st July, 1999




13.   FIXED ASSETS (continued)
Certain leasehold land and buildings held by the Group were revalued on 31st July, 1992 or on 31st July,
1994 by Chesterton Petty Limited, independent chartered surveyors, on an open market value basis.

The analysis of cost or valuation of the hotel properties, freehold and leasehold land and buildings is as
follows:

                                                                           Group                      Company
                                                                         Freehold      Leasehold      Leasehold
                                                              Hotel      land and       land and        land and
                                                         properties     buildings      buildings       buildings
                                                          HK$'000       HK$'000        HK$'000         HK$'000

At cost                                                  1,727,840             5,546      84,947           3,583
At 1992 valuation                                                Ð               Ð      345,122                Ð
At 1994 valuation                                                Ð               Ð        34,900          34,900


                                                         1,727,840             5,546    464,969           38,483

If the carrying values of the revalued assets were reflected in these financial statements at cost less
accumulated depreciation, the following figures would have been shown:
                                                                                                                     59
                                                                      Group                   Company
                                                              1999             1998        1999      1998
                                                          HK$'000        HK$'000        HK$'000         HK$'000

Hotel properties situated:
  In Hong Kong                                           1,093,569      1,180,303            Ð                 Ð
  Outside Hong Kong                                        634,271        846,728            Ð                 Ð
Freehold land and buildings situated
  outside Hong Kong                                           3,106            3,328         Ð                 Ð
Leasehold land and buildings situated:
  In Hong Kong                                              59,970            91,159      3,465            3,724
  Outside Hong Kong                                         30,921            47,755         Ð                Ð
                                                         1,821,837      2,169,273         3,465            3,724

All other fixed assets are stated at cost.
                                           LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     14.   INVESTMENT PROPERTIES
                                                                          Group                 Company
                                                                  1999             1998      1999      1998
                                                              HK$'000         HK$'000     HK$'000     HK$'000

     At beginning of year, at valuation                     13,348,900     13,890,622      13,900      23,200
     Additions, at cost                                          2,979         313,154          Ð          Ð
     Disposals                                                (198,430)     (1,689,303)         Ð      (8,000)
     Arising on acquisition of subsidiaries                         Ð          701,472          Ð             Ð
     Transfer from/(to) completed properties for sale         (244,961)        665,005          Ð             Ð
     Transfer from properties under development                      Ð       1,943,241          Ð             Ð
     Deficits on revaluation                                (2,874,488)     (1,975,198)    (1,800)     (1,300)
     Arising on disposal of subsidiaries                            Ð         (500,093)        Ð           Ð


     At end of year, at valuation                           10,034,000     13,348,900      12,100      13,900

     The analysis by lease terms of the carrying values of the investment properties is as follows:

                                                                          Group                 Company
                                                                  1999             1998      1999      1998
                                                              HK$'000         HK$'000     HK$'000     HK$'000
60
     Long term, situated in Hong Kong                        2,113,300       3,159,900          Ð             Ð
     Medium term:
      Situated in Hong Kong                                  4,964,700       6,952,000     12,100      13,900
       Situated outside Hong Kong                            2,956,000       3,237,000          Ð             Ð

                                                            10,034,000     13,348,900      12,100      13,900

     At 31st July, 1999, the investment properties were revalued by Chesterton Petty Limited, independent
     chartered surveyors, on an open market value basis.

     Certain investment properties were pledged to banks to secure banking facilities granted to the Group.
                                    LAI SUN GARMENT ANNUAL REPORT 1998±99




                                               Notes to Financial Statements
                                                                                           31st July, 1999




15.   PROPERTIES UNDER DEVELOPMENT
                                                                                           Group
                                                                                  1999               1998
                                                                               HK$'000          HK$'000

Properties under development held for rental purposes, at cost/valuation:
At beginning of year                                                         2,855,400        1,222,094
Interest capitalised, net                                                       21,025           37,707
Other additions, at cost                                                        94,445           427,608
Reclassified from properties under development held for purposes other
  than rental, at cost                                                               Ð           863,430
Reclassified to properties under development held for purposes other than
  rental, at cost                                                                    Ð             (14,995)
Transfer to investment properties                                                   Ð         (1,679,335)
Surplus/(deficits) on revaluation                                              (55,340)        1,997,221
Exchange relignments                                                             5,924              1,670


At end of year                                                               2,921,454        2,855,400


Properties under development held for purposes other than rental, at cost:
At beginning of year                                                         8,256,312        4,134,801
Interest capitalised, net                                                      568,456          573,716       61

Other additions, at cost                                                        88,827        1,504,264
Arising on acquisition of subsidiaries                                         236,590        5,537,523
Transfer to completed properties for sale                                     (160,059)        (410,488)
Transfer to investment properties                                                    Ð          (263,906)
Transfer of hotel properties to fixed assets                                        Ð           (367,918)
Disposals                                                                     (275,091)         (266,673)
Arising on disposal of subsidiaries                                           (697,377)       (1,161,159)
Reclassified from properties under development held for rental purposes,
  at cost                                                                            Ð             14,995
Reclassified to properties under development held for rental purposes,
  at cost                                                                            Ð          (863,430)
Exchange realignments                                                           11,658             (19,539)


                                                                             8,029,316        8,412,186
Provisions for diminutions in values                                         (2,968,665)        (155,874)


At end of year                                                               5,060,651        8,256,312


Total balance at end of year                                                 7,982,105       11,111,712
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     15.   PROPERTIES UNDER DEVELOPMENT (continued)
     The analysis by lease terms of the carrying values of the properties under development held for rental
     purposes and held for purposes other than rental is as follows:

                                                                                                   Group
                                                                                            1999           1998
                                                                                        HK$'000         HK$'000

     Properties under development held for rental purposes, at valuation:
       Long term, situated outside Hong Kong                                          1,729,827       1,682,400
       Medium term, situated outside Hong Kong                                        1,191,627       1,173,000

                                                                                      2,921,454       2,855,400

     Properties under development held for purposes other than rental, at cost:
       Long term:
           Situated in Hong Kong                                                      3,620,791       5,581,159
        Situated outside Hong Kong                                                      799,568         809,992
       Medium term:
        Situated in Hong Kong                                                           527,381       1,108,775
           Situated outside Hong Kong                                                   112,911         756,386

62                                                                                    5,060,651       8,256,312

                                                                                      7,982,105      11,111,712

     At 31st July, 1999, properties under development held for rental purposes were revalued by Chesterton
     Petty Limited, independent chartered surveyors, on an open market value basis.

     Properties under development held for purposes other than rental which are carried at net realisable value
     and included in the above balance amounted to HK$703,810,000 (1998 : HK$174,677,000).

     Certain properties under development were pledged to banks to secure banking facilities granted to the
     Group.

     On 18th November, 1998, Winfield Properties Limited (``Winfield'') and Faith Lot Limited (``Faith Lot''),
     both wholly-owned subsidiaries of LSD, entered into a provisional sales and purchase agreement (the
     ``Agreement'') with Fine Smart Development Limited ('Fine Smart'), a wholly-owned subsidiary of Nan Fung
     Textiles Consolidated Limited (``Nan Fung''), pursuant to which Winfield and Faith Lot would sell to Fine
     Smart two pieces of adjacent land located at Sections E, F, G, H, I, J, K and the Remaining Portion of New
     Kowloon Inland Lot No. 2855 (the ``Properties'') for a total consideration of approximately HK$88.7 million.
     The consideration was arrived at based on negotiations between LSD and Nan Fung. The book value of the
     Properties was approximately HK$242 million. The disposal resulted in a loss of approximately HK$153
     million. The transaction was completed during the year.
                                      LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                               31st July, 1999




15.   PROPERTIES UNDER DEVELOPMENT (continued)
The net proceeds from the disposal were used by LSD for repayment of bank borrowings and for its general
working capital purposes.

As at 18th November, 1998, Nan Fung owned approximately 18.18% of the issued share capital of LSD. By
virtue of the interest of Nan Fung in the Agreement and its shareholdings in LSD, the transaction constituted
a connected transaction for the Group as defined under the Rules Governing the Listing of Securities
(``Listing Rules'') on The Stock Exchange of Hong Kong Limited.

16.   SUBSIDIARIES
                                                                                          Company
                                                                                       1999       1998
                                                                                   HK$'000          HK$'000

Shares listed in Hong Kong, at cost                                               2,026,691       1,668,247
Warrants listed in Hong Kong, at cost                                                     Ð           42,183


                                                                                  2,026,691       1,710,430

Amounts due from subsidiaries                                                       950,365          912,687
Amounts due to subsidiaries                                                        (122,524)        (125,770)
                                                                                                                 63
                                                                                    827,841          786,917


                                                                                  2,854,532       2,497,347
Provisions for diminutions in values                                                     Ð          (42,183)


                                                                                  2,854,532       2,455,164


Market value of listed shares at the balance sheet date                             918,233          667,109

Balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.
                                               LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     16.   SUBSIDIARIES (continued)
     Details of the principal subsidiaries are as follows:


                              Place of                                                 Equity interest
                              incorporation or                            Class of   attributable to the
                              registration/place      Issued/registered    shares         Company
     Name of company          of operations                     capital      held     Direct    Indirect    Principal activities
                                                                                          (%)         (%)

     Centico Investment       Hong Kong                          HK$2     Ordinary         Ð       44.76 Property investment
       Limited

     Chains Caravelle Hotel   Vietnam                   US$16,326,000           *          Ð        6.15 Hotel investment
       Joint Venture
       Company Limited

     Chains International     Hong Kong                  HK$3,000,000     Ordinary         Ð       23.35 Hotel management
       Hotels Management
       Limited

     Concrest Limited         British Virgin                      US$1    Ordinary         Ð       44.76 Investment holding
                                 Islands

     Costroll Company         Hong Kong                         HK$20     Ordinary         Ð       54.93 Property letting
       Limited

     Creative Fashions        Hong Kong                    HK$500,000     Ordinary     100.00         Ð Garment trading
64     Limited

     Crocodile (China)        Hong Kong                          HK$4     Ordinary         Ð       54.93 Garment trading
       Limited

     Crocodile Development    Hong Kong                      HK$9,996     Ordinary         Ð       44.76 Property investment
       Limited                                                  HK$4      Deferred

     Crocodile Garments       Hong Kong                HK$154,281,783     Ordinary       0.43      54.50 Garment
       Limited                                                                                             manufacturing

     Crocodile Garments       People's Republic of      HK$17,200,000           *          Ð       49.44 Garment
       (Zhong Shan) Limited     China                                                                      manufacturing
                                                                                                           and trading

     Crocodile Investment     Hong Kong                         HK$20     Ordinary         Ð       54.93 Investment holding
       Limited

     Crocodile Marketing      Hong Kong                          HK$2     Ordinary         Ð       54.93 Advertising agency
       System Limited

     Dackart Trading          Hong Kong                         HK$20     Ordinary         Ð       54.93 Property holding
       Company Limited

     Delta Asia Limited       Cayman Islands                    US$70      Class A         Ð       23.35 Hotel management
                                Limited

     Diamond String Limited   Hong Kong                     HK$10,000     Ordinary         Ð       15.18 Hotel investment
                                                                                                           and restaurant
                                                                                                           operations
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                 Notes to Financial Statements
                                                                                                        31st July, 1999




16.   SUBSIDIARIES (continued)

                        Place of                                                Equity interest
                        incorporation or                           Class of   attributable to the
                        registration/place     Issued/registered    shares         Company
Name of company         of operations                    capital      held     Direct    Indirect    Principal activities
                                                                                   (%)         (%)

Euroscot Enterprises    British Virgin                   US$10     Ordinary         Ð       44.76    Property investment
  Limited                  Islands/Hong
                           Kong

Faith Lot Limited       Hong Kong                         HK$2     Ordinary         Ð       44.76    Property
                                                                                                       development

Faithful Properties     Hong Kong                    HK$10,000     Ordinary         Ð       44.76    Property investment
   Limited

Fordspace               Hong Kong                         HK$2     Ordinary         Ð       44.76    Investment holding
  Development
  Limited

Franklin Development    Hong Kong                       HK$700     Ordinary         Ð       44.76    Property investment
   Limited

Furama Hotel            Bermuda                 HK$102,880,454     Ordinary         Ð       44.76    Hotel operation
  Enterprises Limited

Gilroy Company          Hong Kong                    HK$10,000     Ordinary         Ð       44.76    Property investment
   Limited
                                                                                                                            65
Global Planner          Hong Kong                         HK$2     Ordinary         Ð       44.76    Property investment
  Investment Limited

Gold Nation             Hong Kong                         HK$2     Ordinary         Ð       54.93    Property investment
  Development
  Limited

Good Strategy Limited   British Virgin                     US$1    Ordinary         Ð       33.43    Investment holding
                           Islands

Guangzhou Jieli Real    People's Republic of    HK$168,000,000           *          Ð       26.62** Property
  Estate Development      China                                                                        development and
  Company Limited                                                                                      investment

Guangzhou Guong Bird    People's Republic of      US$14,600,000          *          Ð       33.43** Property
  Property                China                                                                        development and
  Development                                                                                          investment
  Limited

Guangzhou Grand         People's Republic of    HK$128,000,000           *          Ð       33.43** Property
  Wealth Properties       China                                                                        development and
  Limited                                                                                              investment

Heathfield Limited      British Virgin                  US$100     Ordinary         Ð       23.35    Hotel investment
                           Islands/Canada

Joy Mind Limited        Hong Kong                         HK$2     Ordinary      100.00        Ð     Investment holding

JSP Limited             British Virgin                  US$100     Ordinary         Ð       23.35    Investment holding
                           Islands
                                             LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     16.   SUBSIDIARIES (continued)

                                Place of                                               Equity interest
                                incorporation or                          Class of   attributable to the
                                registration/place    Issued/registered    shares         Company
     Name of company            of operations                   capital      held     Direct    Indirect    Principal activities
                                                                                          (%)         (%)

     Kenjacky Limited           British Virgin                 US$100     Ordinary         Ð       23.35 Investment holding
                                   Islands
     Kingscord Investment       Hong Kong                        HK$2     Ordinary         Ð      100.00 Investment holding
       Limited

     Kingscord Real Estate      People's Republic        US$1,500,000           *          Ð      100.00 Investment holding
       (Shanghai) Co. Ltd.        of China

     Kentpark Development       Hong Kong                        HK$2     Ordinary         Ð       54.93 Property holding
       Limited

     Kolot Property Services    Hong Kong                        HK$2     Ordinary         Ð       44.76 Property
       Limited                                                                                             management

     Lai Fung Holdings          Cayman Islands        HK$104,447,379      Ordinary         Ð       33.43 Investment holding
        Limited

     Lai Fung Overseas          Cayman Islands                 HK$0.2     Ordinary         Ð       33.43 Bond issue
        Finance Limited

     Lai Sun Development        Hong Kong            HK$1,768,001,000     Ordinary      40.55       4.21 Property investment
66      Company Limited***

     Lai Sun Hotels             Bermuda               HK$182,413,136      Ordinary         Ð       23.35 Investment holding
        International Limited

     Lai Sun International      Cayman Islands                   US$2     Ordinary         Ð       44.76 Bond issue
        Finance Limited

     Lai Sun International      Cayman Islands                   US$2     Ordinary         Ð       44.76 Bond issue
        Finance (Cayman
        Islands) Limited

     Lai Sun International      Cayman Islands                   US$2     Ordinary         Ð       44.76 Bond issue
        Finance (1997)
        Limited

     Lai Sun Real Estate        Hong Kong                        HK$2     Ordinary         Ð       44.76 Property
        Agency Limited                                                                                     management and
                                                                                                           real estate agency

     Lucky Strike Investment    Hong Kong                   HK$10,000     Ordinary         Ð       44.76 Property investment
       Limited

     Lycon Investment           Hong Kong                        HK$2     Ordinary         Ð       44.76 Investment holding
       Limited

     Maxgear Investment         Hong Kong                      HK$100     Ordinary         Ð       44.76 Property investment
       Limited
                                           LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                   Notes to Financial Statements
                                                                                                           31st July, 1999




16.   SUBSIDIARIES (continued)

                          Place of                                                 Equity interest
                          incorporation or                            Class of   attributable to the
                          registration/place      Issued/registered    shares         Company
Name of company           of operations                     capital      held     Direct    Indirect    Principal activities
                                                                                      (%)         (%)

Main Crown                Hong Kong                          HK$2     Ordinary         Ð       44.76 Property investment
  Development Limited

Milirich Investment       Hong Kong                          HK$2     Ordinary         Ð       44.76 Property investment
  Limited

New Page Limited          British Virgin                      US$5    Ordinary         Ð       18.68 Investment holding
                             Islands

Richman International     British Virgin                      US$1    Ordinary         Ð       44.76 Investment holding
   Limited                   Islands

Real Genius Company       Hong Kong                     HK$10,000     Ordinary         Ð       44.76 Property
  Limited                                                                                              development

Shanghai Hu Xin Real      People's Republic of        US$6,000,000          *          Ð       95.00 Property
  Estate Development        China                                                                       development and
  Co. Ltd.                                                                                              investment

Shanghai Li Xing Real     People's Republic of      US$36,000,000           *          Ð       19.96 Property
  Estate Development        China                                                                       development and        67
  Company Limited                                                                                       investment

Shanghai Wa Yee Real      People's Republic of      US$10,000,000           *          Ð       31.76 Property
  Estate Development        China                                                                       development and
  Co., Ltd.                                                                                             investment

Shenton Investment        Hong Kong                          HK$2     Ordinary         Ð       54.93 Property holding
  Limited

Sinoking Investment       Hong Kong                          HK$2     Ordinary         Ð       44.76 Property investment
   Limited

Smart Leader Limited      British Virgin                      US$1    Ordinary         Ð       44.76 Investment holding
                             Islands

Sonics Development        Hong Kong                          HK$2     Ordinary         Ð       44.76 Property
  Limited                                                                                              development

Sunlite Investment        Hong Kong                          HK$2     Ordinary         Ð       30.71 Investment holding
  Limited

Surearn Profits Limited   British Virgin                      US$1    Ordinary         Ð       23.35 Investment holding
                             Islands

Target Power Limited      Hong Kong                     HK$10,000     Ordinary         Ð       44.76 Property investment

Tiger Hill Limited        British Virgin                      US$1    Ordinary         Ð       44.76 Real estate agency
                             Islands
                                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     16.   SUBSIDIARIES (continued)

                                   Place of                                                        Equity interest
                                   incorporation or                                  Class of    attributable to the
                                   registration/place        Issued/registered        shares          Company
     Name of company               of operations                       capital          held      Direct    Indirect       Principal activities
                                                                                                      (%)         (%)

     The Palm Restaurant           Hong Kong                            HK$100      Ordinary             Ð        54.93 Restaurant
       Limited                                                                                                            operations

     Top Town Enterprises          Hong Kong                         HK$1,000       Ordinary             Ð        44.76 Property investment
       Limited

     Transtrend Canada             Canada                        C$37,500,000       Ordinary             Ð        23.35 Hotel investment
       Limited

     Village Gate Resorts          Canada                                 C$100     Ordinary             Ð        23.35 Investment holding
        Limited

     Winfield Properties           Hong Kong                              HK$2      Ordinary             Ð        44.76 Property
       Limited                                                                                                            development

     Winpet Investment             Hong Kong                              HK$2      Ordinary             Ð        44.76 Property
       Limited                                                                                                            development

     World Classic                 Hong Kong                              HK$2      Ordinary             Ð        44.76 Property investment
      Development Limited
68
     World Trend                   Hong Kong                              HK$2      Ordinary             Ð        44.76 Property
      Development Limited                                                                                                 development

     *     These subsidiaries have registered rather than issued share capital.


     **    These subsidiaries are co-operative joint ventures of which the partners' profit sharing ratios and the distribution of net assets upon
           the expiration of the joint venture periods are not in proportion to their equity ratios but are as defined in the joint venture
           contracts.


     ***   Pursuant to a letter from Mr Lim Por Yen, Mr Lam Kin Ngok, Peter and Mr Lam Kin Ming and their respective associates (together,
           the ``Lim Family''), who directly owned approximately 5.94% of the share capital of Lai Sun Development Company Limited (``LSD'')
           at 31st July, 1999, the Lim Family agreed to vote unconditionally in favour of the Group in all future shareholders' meetings of LSD
           concerning the composition of the board of directors of LSD. Accordingly, LSD is treated as a subsidiary of the Group throughout
           the year, and its results, assets and liabilities are consolidated into the Group's financial statements.


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

     The subsidiaries acquired and disposed of during the year did not have any material effect on the Group's
     turnover or loss after taxation.

     The shares of certain subsidiaries held by the Group have been pledged to banks to secure banking facilities
     granted to the Group.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                                31st July, 1999




16. S U B S I D I A R I E S ( c o n t i n u e d )
Certain of the Group's subsidiaries had the following transactions during the year and subsequent to the
year end date.

(1)   On 11th February, 1999, LSD and its wholly-owned subsidiary, Furama, entered into an agreement
      (the ``Furama Agreeement'') with LSHIL and its wholly-owned subsidiary, Golden Pool Enterprises
      Limited (``GPEL''), with respect to the redevelopment of the Furama Hotel, which is a property situated
      in Hong Kong. Pursuant to the Furama Agreement, the Furama Hotel will be redeveloped into a
      composite retail, hotel and office building (the ``New Building'') which is expected to be completed in
      or around May 2004.

      Upon the completion of the redevelopment of the New Building, GPEL will purchase the hotel
      portions (the ``Hotel Portions'') from Furama for a consideration of HK$1,900 million. The
      consideration for the Hotel Portions was determined by reference to valuations carried out by
      independent valuers. In addition, GPEL may request LSD to carry out the possible fitting out works for
      the Hotel Portions for a consideration of HK$250 million, subject to LSD's agreeing to carry out such
      works.

      The Furama Agreement provided that upon the occurrence of certain events, if Furama notifies GPEL
      in writing that it does not intend to carry out the redevelopment works or the progress of the
      redevelopment is not in accordance with the timetable as stated in the Furama Agreement, at a
      consideration of HK$10, Furama will grant to GPEL an option to purchase the Furama Hotel (the
      ``Furama Option''). The Furama Option will only be valid for a period of six months commencing from
                                                                                                                  69
      the date on which the relevant event occurs. The purchase price will equal to the open market value of
      the Furama Hotel as at the date of exercise of the Furama Option, as determined by independent
      valuers who will be appointed jointly by GPEL and Furama. The exercise of the Furama Option is
      subject to the approval of the independent shareholders of the respective companies as required under
      the Listing Rules.

      The acquisition of the Hotel Portions by GPEL has been approved by the independent shareholders of
      the Company, LSD and LSHIL in their respective special general meetings held on 22nd March, 1999.
      The consideration for the Hotel Portions has been fully paid by GPEL to Furama in the form of a
      deposit of approximately HK$965 million (the ``Deposit'') and a prepayment of approximately HK$935
      million (the ``Prepayment'') as at the balance sheet date. According to the Furama Agreement, the
      prepaid consideration is interest bearing with interest charged at the higher of 8% or LIBOR plus 2%
      per annum for the Deposit, and at the three month deposit rate offered by LSHIL's principal bank plus
      1% per annum for the Prepayment.

      In the opinion of LSD's directors, the disposal of the Hotel Portions by Furama to LSHIL will create
      synergy and efficiencies of scale upon the integration and joint operation of the Hotel Portions with the
      Ritz-Carlton Hotel held by LSHIL. As such, the value of LSHIL's investments in the Hotel Portions and
      the Ritz-Carlton Hotel will be enhanced, which will ultimately be beneficial to LSD as a major
      shareholder of LSHIL. Part of the prepaid consideration was used by LSD to release its obligation to
      reimburse LSHIL for the repayment of certain of LSHIL's bank loans which arose from the Group's
      assets restructuring in 1997. The remaining balance of the prepaid consideration was used as general
      working capital of LSD.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     16.   SUBSIDIARIES (continued)
           As at 3rd March, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the
           Company, the Company, in turn owned approximately 44.76% of the issued share capital of LSD, and
           LSD owned approximately 52.17% of the issued share capital of LSHIL. The Lim Faimily also directly
           owned approximately 5.94% of the issued share capital of LSD and approximately 0.95% of the issued
           share capital of LSHIL. The transaction therefore constituted a connected transaction of the Company,
           LSD and LSHIL as defined under the Listing Rules.

     (2)   On 7th April, 1999, LSD entered into an option agreement, supplemented on 12th April, 1999 by a
           supplemental agreement (collectively the ``Option Agreement'') with Sun Chung Estate Company,
           Limited (``Sun Chung''), a wholly-owned subsidiary of the Bank of China. Pursuant to the Option
           Agreement, LSD, at a consideration of HK$10, granted a right (the ``Option'') to Sun Chung to
           purchase 230,000,000 shares (the ``Option Shares'') in Lai Fung held by LSD.

           The Option is exerciseable in whole or in part, and from time to time, upon Sun Chung giving LSD at
           least seven days' notice during the period commencing on 7th April, 1999 and ending on 7th October,
           2002, at a price of HK$0.65 per Option Share, subject to adjustments in certain events as defined in
           the Option Agreement.

     (3)   On 11th May, 1999, Goldthorpe Limited (``Goldthorpe''), a wholly-owned subsidiary of Lai Fung,
           entered into a conditional sales and purchase agreement (the ``Acquisition Agreement'') with LSHIL
           whereby Goldthorpe would acquire from LSHIL the entire interest in Good Strategy Limited, at a
70
           consideration of HK$475 million. The principal assets held by Good Strategy Limited are the 181
           service apartment units in the North Tower of Hong Kong Plaza in Shanghai, the People's Republic of
           China. The consideration was determined by reference to the valuations of the said properties
           performed by independent property valuers.

           This transaction allowed Lai Fung to consolidate its interests in Hong Kong Plaza, thereby enhancing
           its position in generating recurring rental income. In addition, LSHIL was able to realise its interest in
           the Hong Kong Plaza units with the net proceeds used as its general working capital and as additional
           funding to capture any potential investment opportunities.

           As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the
           Company, the Company owned approximately 44.76% of the issued share capital of LSD, and LSD
           owned approximately 52.17% of the issued share capital of LSHIL and approximately 74.67% of the
           issued share capital of Lai Fung. The Lim Family also directly owned approximately 5.94% of the
           issued share capital of LSD and 0.95% of the issued share capital of LSHIL. As such, this transaction
           constituted a connected transaction of the Company, LSD, LSHIL and Lai Fung under the Listing
           Rules. The transaction was approved by the independent shareholders of the Company, LSD, LSHIL
           and Lai Fung at their respective extraordinary general meetings held on 22nd June, 1999 and was
           completed on 2nd July, 1999.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                               31st July, 1999




16.   SUBSIDIARIES (continued)
(4)   On 11th May, 1999, Lycon Investment Limited (``LIL''), a wholly-owned subsidiary of LSD, entered
      into a conditional agreement with Lai Fung Overseas Finance Limited (``LFO''), a wholly-owned
      subsidiary of Lai Fung, whereby LIL would sell certain Lai Fung Convertible Bonds (as defined in note
      31) with an aggregate principal amount of US$11,700,000 (approximately HK$90,675,000) to LFO at
      a consideration of HK$50 million. The consideration represented a discount of approximately 45% on
      the initial issue price of the bonds.

      With the repurchase and cancellation of these bonds, the Group would have an annual saving of the
      bond interest expense. In addition, LSD would cease to be liable to redeem or mandatorily convert the
      bonds upon maturity.

      As at 27th May, 1999, the Lim Family owned approximately 42.00% of the issued share capital of the
      Company, the Company owned approximately 44.76% of the issued share capital of LSD, and LSD
      owned approximately 74.67% of the issued share capital of Lai Fung. Accordingly, this transaction
      constituted a connected transaction for the Company, LSD and Lai Fung under the Listing Rules. The
      transaction was approved by the independent shareholders of the Company, LSD and Lai Fung at their
      respective extraordinary general meetings held on 22nd June, 1999. The transaction was completed
      during the year. The related bonds were cancelled upon repurchase, resulting in a profit before
      minority interests of HK$17,718,000.

(5)   On 8th June, 1999, LSD entered into another option agreement (the ``Second Option Agreement'') with
                                                                                                                 71
      a third party (the ``Optionholder''). Pursuant to the Second Option Agreement, LSD, at a consideration
      of HK$10, granted a right (the ``Second Option'') to the Optionholder to purchase 20,000,000 ordinary
      shares in Lai Fung (the ``Second Option Shares'') held by LSD.

      The Second Option is exercisable in whole or in part, and from time to time, upon the Optionholder
      giving LSD at least seven days' notice during the period from 1st December, 2000 to 8th September,
      2002, at a price of HK$0.63 per Second Option Share, subject to adjustments in the occurrence of
      certain events as defined in the Second Option Agreement.

(6)   In connection with the spin off of Lai Fung, LSD entered into an agreement with Lai Fung on 12th
      November, 1997 which stated, inter alia, that for any of the Property Interests (as defined in note 28)
      valued in the Valuation (as defined in note 28), if, within two years of Lai Fung's date of listing, (as
      defined in note 28), the land use rights certificate of these Property Interests or the business licence
      which is required to set up a company for the purposes of developing these Property Interests have not
      been obtained, Lai Fung, within six months after the second anniversary of the date of Listing, is
      entitled to require LSD to buy back all direct or indirect interests of Lai Fung in these Property
      Interests. The buy back consideration would be in cash, equal to the net asset value of these Property
      Interests based on the Valuation, discounted to the same extent as the discount applied to the net asset
      value of Lai Fung under the initial public offer of its shares.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     16.   SUBSIDIARIES (continued)
     (7)   During the year, the Group advanced approximately HK$130,137,000 (1998 : HK$210,435,000) to
           Shanghai Li Xing Real Estate Development Company Limited (``Li Xing''), a subsidiary of the Group, as
           working capital. The Group had not made any advances to other unrelated minority shareholders of Li
           Xing during the year (1998 : HK$10,680,000). The above advances are unsecured, interest-bearing
           with interest charged at various rates ranging from 10% to 14% per annum, and have no fixed terms of
           repayment. Interest income received from the minority shareholders with respect to these advances
           was HK$10,632,000 for the year (1998 : HK$9,651,000).

     (8)   Pursuant to an agreement dated 3rd September, 1997, LSD leased certain units of Lai Sun Commercial
           Centre, a property situated in Hong Kong, to Lai Fung and its subsidiaries for a term of two years
           which commenced on 11th March, 1997 and expired on 10th March, 1999. The lease agreement was
           not renewed upon its expiry on 10th March, 1999.

           Pursuant to a licence agreement dated 16th March, 1997, Crocodile Development Limited, a wholly-
           owned subsidiary of LSD, leased certain units of Crocodile House 1, a property situated in Hong Kong,
           to Lai Fung and its subsidiaries. The licence had no fixed terms and was terminated during the year.

           The rentals in relation to these properties were calculated on the basis determined by reference to the
           floor area of the properties. The aggregate rental and management charges from these properties
           amounted to HK$1,249,000 for the year ended 31st July, 1999 (1998 : HK$1,259,000).

72   (9)   On 27th August, 1999, Lai Fung and Li Xing entered into the following agreements (collectively the
           ``Rental Agreements'') with the Bank of China (``BOC'').

           (i)    BOC leases certain units of the Bank of China Tower, a property situated in Hong Kong, to Lai
                  Fung for a term of three years commencing on 1st September, 1999 and expiring on 31st August,
                  2002. The rental and service charges are approximately HK$177,000 per month.

           (ii)   BOC leases certain car parking spaces of the Bank of China Tower to Lai Fung on a month to
                  month basis commencing on 1st September, 1999. The license agreement can be terminated
                  upon one month's written notice by either party. The licence fee is HK$15,000 per month.

           (iii) Li Xing leases certain units of the North Tower of Hong Kong Plaza, a property situated in
                 Shanghai, PRC, to BOC for a term of ten years commencing on 1st November, 1999 and expiring
                  on 31st October, 2009. The rental is US$19,503 per month and the service charge is initially
                  US$6,999 per month. The rental income will increase by 10% in the fourth year and again in the
                  seventh year of the tenancy or otherwise agreed between Li Xing and BOC.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                               31st July, 1999




16.     SUBSIDIARIES (continued)
        The Rental Agreements were entered into based on negotiations between Lai Fung/Li Xing and BOC.
        The leased properties are used by the respective parties as office premises or for business use.

        In the opinion of the Company's directors, BOC is deemed to be a connected person of the Company,
        LSD and Lai Fung under the Listing Rules. Accordingly, the above transactions constituted connected
        transactions of the Company, LSD and Lai Fung under the Listing Rules.

17.     GOODWILL ON CONSOLIDATION OF SUBSIDIARIES
                                                                                               Group
                                                                                    1999              1998
                                                                                  HK$'000           HK$'000

Cost:
  At beginning of year                                                             626,184           621,740
  Additions during the year                                                             Ð               4,444
  Adjustments for impairment                                                      (216,200)                Ð
  Release on disposal of a subsidiary                                              (37,629)                Ð

                                                                                   372,355           626,184

Accumulated amortisation:
  At beginning of year                                                             106,870             95,733    73

  Charge for the year                                                               10,159             11,137
  Release on disposal of a subsidiary                                                (3,218)               Ð

                                                                                   113,811           106,870

Net book value                                                                     258,544           519,314
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     18.     DEFERRED PRE-OPERATING EXPENSES
                                                                                                   Group
                                                                                          1999              1998
                                                                                        HK$'000        HK$'000

     Cost:
       At beginning of year                                                              67,578            29,001
       Arising on acquisition of subsidiaries                                                Ð             36,889
       Additions during the year                                                          3,090             1,686
       Written off during the year                                                      (18,974)               Ð
       Exchange realignments                                                                 49                 2

                                                                                         51,743            67,578

     Accumulated amortisation:
       At beginning of year                                                              35,322            22,933
       Arising on acquisition of subsidiaries                                                Ð              3,846
       Charge for the year                                                                5,690             8,540
       Exchange realignments                                                                 13                 3

                                                                                         41,025            35,322

74
     Net book value                                                                      10,718            32,256

     19.     ASSOCIATED COMPANIES
                                                                        Group                     Company
                                                                1999             1998       1999            1998
                                                            HK$'000         HK$'000      HK$'000       HK$'000

     Share of net assets other than goodwill                  67,750         835,174          Ð                Ð
     Unamortised goodwill                                     25,650          37,602          Ð                Ð


                                                              93,400         872,776          Ð                Ð
     Amounts due from associated companies                 1,479,292       1,776,417       2,037               Ð
     Amounts due to associated companies                    (104,814)       (142,140)     (2,009)          (1,481)


                                                           1,467,878       2,507,053          28           (1,481)


     Provisions for diminutions in values                   (343,223)       (110,910)         Ð                Ð


                                                           1,124,655       2,396,143          28           (1,481)
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                               Notes to Financial Statements
                                                                                               31st July, 1999




19.   ASSOCIATED COMPANIES (continued)
The balances due are unsecured, interest-free and have no fixed terms of repayment, except for amounts
aggregating HK$377,168,000 (1998 : HK$1,135,800,000) due from associated companies which bear
interest at the prevailing market rates.

Details of the principal associated companies are as follows:

                                     Place of                Class of    Percentage
                                     incorporation/           shares      of capital
Name of company                      registration                held          held    Principal activities

B. W. Hotel Limited Liability        United States of               *          5.84    Investment in and
            #
  Company                                  America                                       operation of hotel

Barnwood Limited                     British Virgin         Ordinary          22.38    Investment holding
                                           Islands

Besto Investments Limited            Hong Kong              Ordinary           8.32    Investment holding

Bushell Limited                      Hong Kong              Ordinary          22.38    Property investment

CPL Investments Limited#             Hong Kong              Ordinary          14.92    Property development
                                                                                                                 75


Eagle Capital Investment Limited#    British Virgin         Ordinary          14.92    Investment holding
                                           Islands

Easlin Corporation#                  British Virgin         Ordinary           8.95    Investment holding
                                           Islands

Giant Riches Limited                 Hong Kong              Ordinary          22.38    Property development

Hankey Development Limited           Hong Kong              Ordinary          16.64    Investment holding

Lai Sun Textiles Company             Hong Kong              Ordinary          14.92    Property investment
  Limited

Naples Investment Limited            British Virgin         Ordinary          22.38    Investment holding
                                           Islands

Omicron International Limited        British Virgin         Ordinary          19.47    Investment holding
                                       Islands
                                                LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     19.   ASSOCIATED COMPANIES (continued)

                                                 Place of                    Class of       Percentage
                                                 incorporation/                 shares       of capital
     Name of company                             registration                     held              held     Principal activities

     P.S. Development Group of                   Thailand                    Ordinary              21.93     Investment in and
       Companies Limited                                                                                       operation of hotel


     Pengkalen Heights Sdn. Bhd.#                Malaysia                    Ordinary              13.43     Hotel operations and
                                                                                                              property investment

     Philippine Dream Company, Inc               Philippines                 Common                16.11     Hotel investment


     Rich Vision Limited                         British Virgin              Ordinary              22.38     Investment holding
                                                   Islands

     Sky Connection Ltd                          Hong Kong                   Ordinary              22.38     Retail

     #
           Audited by public accountants other than Ernst & Young.


     *     This company has no issued share capital. The Group's capital contribution and profit sharing ratio is not in proportion to its
           interest in this company but are as defined by mutual agreement among the owners.
76

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

     The shares of certain associated companies held by the Group have been pledged to banks to secure banking
     facilities granted to the Group.

     Included in the balance of ``Share of net assets other than goodwill'' is interest capitalised of approximately
     HK$134,083,000 (1998 : HK$100,252,000) on loans borrowed for investments in associated companies
     engaged in property development.
                                      LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                  Notes to Financial Statements
                                                                                                            31st July, 1999




19.   ASSOCIATED COMPANIES (continued)
Pursuant to a judgement rendered by the Court of Appeal of British Columbia in November 1997, the court
allowed the meeting to vote on the dissolution of Whistler Mountain Inn Limited Partnership (the
``Partnership'') of which Village Gate Resorts Limited, a subsidiary of the Group, is a general partner, to
proceed. On 14th November, 1997, the limited partners passed an extraordinary resolution to dissolve the
Partnership. The Partnership was put under receivership from 15th November, 1997. The Partnership was
effectively dissolved on 31st December, 1998. During the period of the receivership, the Group's investment
in the Partnership was accounted for using the equity method of accounting. Subsequent to the dissolution
on 31st December, 1998, the Group received its share of the Partnership's fixed assets of HK6,245,000 (note
13) and a distribution of the remaining other assets of HK$20,679,000 for the dissolution of the
Partnership.

20.   JOINTLY CONTROLLED ENTITIES
                                                                                                           Group
                                                                                                  1999             1998
                                                                                                HK$'000          HK$'000

Share of net assets                                                                             145,333           138,682
Amounts due from jointly controlled entities                                                     44,276            44,537
Amount due to a jointly controlled entity                                                        (1,037)                 Ð


                                                                                                188,572           183,219       77



The balances with jointly controlled entities are unsecured, interest-free and have no fixed terms of
repayment.

Details of the jointly controlled entities are as follows:

                                                                                      Equity           Profit
                                                                                     interest        sharing
                                      Business        Place of       Registered    shared by     ratio of the      Principal
Name of company                       structure   registration          capital   the Group           Group        activities



Qingyuan Grace Snow Properties Ltd.   Corporate          PRC      US$5,000,000       33.43%          24.07%         Property
                                                                                                                development

Shanghai Zhong Yue Real Estate        Corporate          PRC      US$8,000,000       28.41%          28.41%         Property
  Development Co., Ltd                                                                                          development

Zhong Shan Li Shan Properties         Corporate          PRC     RMB75,000,000       16.71%          16.71%         Property
  Development Limited                                                                                           development


Included in the balance of ``Share of net assets'' is interest capitalised of approximately HK$18,503,000
(1998 : HK$16,678,000) on borrowings for investments in jointly controlled entities engaged in property
development.
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     21.   LONG TERM INVESTMENTS
                                                                                                    Group
                                                                                             1999            1998
                                                                                         HK$'000         HK$'000

     Listed investments, at cost:
       In Hong Kong                                                                            Ð          461,473
       Outside Hong Kong                                                                    5,000           5,000
     Unlisted investments, at cost                                                        333,411         568,657
     Deposits paid                                                                             Ð          325,000
     Advances                                                                             679,978         713,299


                                                                                        1,018,389       2,073,429


     Market value of listed investments at the balance sheet date                           2,926         105,646

     22. L O N G T E R M N O T E R E C E I V A B L E
     On 18th December, 1997, a sales and purchase agreement (the ``Majestic Agreement'') was entered into
     between Furama and independent third parties (the ``Majestic Purchasers'') pursuant to which Furama
     agreed to sell the entire issued share capital of Fortune Sign Venture Inc (``Fortune Sign''), a then wholly-
     owned subsidiary of Furama, and to assign the shareholder's loan due from Fortune Sign of approximately
78
     HK$82 million to the Majestic Purchasers at a total consideration of HK$2,030 million. The major assets
     held by Fortune Sign are the properties, namely the Majestic Hotel and the Majestic Centre (the ``Majestic
     Properties''), which are situated in Hong Kong. The transaction was satisfied by cash of HK$930 million and
     a note of HK$1,100 million (the ``Note'').

     In accordance with the terms of the Majestic Agreement, the Note is interest-free, repayable on the earlier of
     31st March, 2001 or the lapse of the Put Options as detailed in note 35, and is secured by a charge over the
     Majestic Properties.

     In the opinion of the directors, due to the diminution in value of the Majestic Properties, the Majestic
     Purchasers will probably exercise the Put Options. Accordingly, a provision for the contingent loss for the
     Note receivable to its net realisable value of HK$855 million has been made.
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                   Notes to Financial Statements
                                                                                                             31st July, 1999




23.    NET CURRENT LIABILITIES
                                                                       Group                          Company
                                                                     1999            1998            1999             1998
                                                                HK$'000          HK$'000         HK$'000          HK$'000

Current assets:
    Cash and bank balances Ð note 37                             832,278         702,696           24,461           30,714
    Short term investments Ð note 24                              43,587          34,306               Ð                Ð
    Debtors, bills receivable and deposits                    1,297,405        1,762,758         133,265            92,781
    Completed properties for sale*                              218,145           95,647              Ð                 Ð
    Stocks Ð note 25                                             222,567         389,099           21,587           37,041
    Tax recoverable                                                     Ð               Ð                Ð           6,862

                                                              2,613,982        2,984,506         179,313           167,398

Current liabilities:
  Bank overdrafts:
      Secured                                                       2,502              42                Ð              Ð
      Unsecured                                                     4,856           7,063                Ð           1,802
    Bank loans and other borrowings due within
      one year Ð note 26                                      3,191,606        2,129,544           35,353          215,379
    Bonds payable due within one year Ð note 27                      Ð           923,735               Ð                Ð
                                                                                                                               79
    Trust receipt loans                                           19,737           32,147                Ð           1,171
    Creditors, deposits received, bills payable and
      accruals                                                1,688,947        1,639,708         147,726           116,318
    Taxation                                                     225,620         291,964            2,500                Ð

                                                              5,133,268        5,024,203         185,579           334,670

NET CURRENT LIABILITIES                                      (2,519,286) (2,039,697)               (6,266)        (167,272)

*      Completed properties for sale which are carried at net realisable value and included in the above balance amounted to
       HK$186,478,000 (1998 : HK$54,706,000).


Last year's debtors and deposits included balances of HK$471,401,000 due from associated companies
which arose from the ordinary course of business of the Group. Such balances were settled during the year.
                                        LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     24.   SHORT TERM INVESTMENTS
                                                                                                    Group
                                                                                           1999               1998
                                                                                         HK$'000        HK$'000

     Listed investments, at cost:
       In Hong Kong                                                                       70,653            72,595
       Outside Hong Kong                                                                   3,099             3,099

                                                                                          73,752            75,694
     Less: Provisions for diminutions in values                                          (39,999)           (51,222)


                                                                                          33,753            24,472


     Unlisted investments, at cost                                                        26,102            32,102
     Less: Provisions for diminutions in values                                          (16,268)           (22,268)


                                                                                           9,834             9,834


                                                                                          43,587            34,306

80
     Market value of listed investments at the balance sheet date                         34,646            31,283

     25.   STOCKS
                                                                    Group                     Company
                                                              1999            1998          1999          1998
                                                            HK$'000         HK$'000       HK$'000       HK$'000

     Raw materials                                            29,722            44,275      7,890           10,581
     Work in progress                                         24,944            33,604     13,697           26,460
     Finished goods                                          167,758        310,890            Ð                 Ð
     Goods in transit                                            143            330            Ð                 Ð


                                                             222,567        389,099        21,587           37,041

     Stocks which are carried at net realisable value and included in the above balance amounted to
     HK$28,261,000 (1998 : HK$3,722,000).
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                               31st July, 1999




26.   BANK LOANS AND OTHER BORROWINGS
                                                               Group                     Company
                                                             1999            1998       1999            1998
                                                         HK$'000        HK$'000      HK$'000        HK$'000

Bank loans:
  Secured                                               6,380,128      7,312,882     100,000         150,000
  Unsecured                                                 4,688        293,891          Ð          215,000

                                                        6,384,816      7,606,773     100,000         365,000

Other loan:
  Secured                                                       Ð            1,558         Ð               Ð
  Unsecured                                                  1,875              Ð          Ð               Ð

                                                        6,386,691      7,608,331     100,000         365,000
  Obligations under finance leases                             851           1,188       353             732

                                                        6,387,542      7,609,519     100,353         365,732

  Portion due within one year classified as current
    liabilities Ð note 23                           (3,191,606) (2,129,544)          (35,353)       (215,379)
                                                                                                                 81
  Long term portion                                     3,195,936      5,479,975      65,000         150,353

  The long term portion of bank loans and other
   borrowings are repayable within periods of:
  More than one year but not exceeding two years        1,168,651      2,594,870      65,000          10,353
  More than two years but not exceeding five years 1,996,185           2,265,345           Ð         140,000
  More than five years                                     31,100        619,760           Ð               Ð

                                                        3,195,936      5,479,975      65,000         150,353

The secured bank loans are secured by fixed charges on certain properties and assets and floating charges on
certain assets held by the Group.

The unsecured other loan is interest bearing with interest charged at 7.67% per annum and is repayable
within one year.

Obligations under finance leases are repayable in various instalments up to the year 2002. Interest is
charged on the outstanding balances at rates ranging from 6.25% to 7.7% per annum.
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     26.   BANK LOANS AND OTHER BORROWINGS (continued)
     As more fully explained in note 1, at the balance sheet date, certain financial covenants given by the LSD
     Group in the Loan Agreements in relation to the Loans have not been complied with. Pursuant to the Loan
     Agreements, as confirmed by LSD's legal advisors, upon the breach of any covenants, the respective lending
     banks may serve notice on the LSD Group to declare the Loans to be immediately due and repayable.
     However, unless and until such notice is served by the respective lending banks, the Loans remain repayable
     in accordance with their original stated maturity dates.

     Loan agreements with respect to the Other Loans contain cross default clauses. As explained in note 1, if any
     relevant borrowings, including the Loans and the Exchangeable Bonds, become due and repayable
     prematurely because of an event of default, the Other Loans will, in turn, become immediately due and
     repayable if the relevant lending banks serve notice to the LSD Group for immediate repayment. The
     respective lending banks of the Other Loans have not to date declared an event of default in respect of any of
     the LSD Group's borrowings by virtue of the cross default provisions contained in the respective agreements
     of the Other Loans.

     For the reasons set out in note 1, the Loans and Other Loans have not become immediately due and
     repayable. Accordingly, the Loans and the Other Loans have continued to be classified as current or long
     term liabilities according to their original maturity dates under the respective loan agreements.

     27.   BONDS PAYABLE
                                                                                                    Group
82
                                                                                             1999            1998
                                                                                         HK$'000         HK$'000

     1999 Bonds                                                                                Ð          923,735
     Exchangeable Bonds                                                                   891,250         891,250


                                                                                          891,250       1,814,985
     Portion due within one year classified as current liabilities Ð note 23                    Ð        (923,735)


     Long term portion                                                                    891,250         891,250


     (1)   US$120,000,000 guaranteed bonds (the ``1999 Bonds'') were issued on 10th April, 1996 by a wholly-
           owned subsidiary of LSD, Lai Sun International Finance Limited. The 1999 Bonds were
           unconditionally and irrevocably guaranteed by LSD.

           In the prior year, part of the 1999 Bonds with a principal value of US$50,000 was repurchased and
           cancelled. The remaining balance of the 1999 Bonds was fully redeemed on 10th April, 1999 at 100%
           of the principal amount.

     (2)   US$115,000,000 exchangeable bonds (the ``Exchangeable Bonds'') were issued on 28th February,
           1997 by a wholly-owned subsidiary of LSD, Lai Sun International Finance (Cayman Islands) Limited.
           The Exchangeable Bonds are unconditionally and irrevocably guaranteed by LSD.
                                    LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                               31st July, 1999




27.   BONDS PAYABLE (continued)
      The Exchangeable Bonds bear interest from 24th February, 1997 at the rate of 5% per annum. Interest
      is payable semi-annually in arrears on 28th February and 28th August in each year.

      Unless previously redeemed or purchased and cancelled, each Exchangeable Bond will, at the option
      of the holder, be exchangeable for a pro rata share of the Exchange Property (as defined below) on or
      after the date which falls 90 days after the IPO listing date of Asia Television Limited (``ATV'') as
      defined in the related bond document, up to and including 30th January, 2004 or, if the Exchangeable
      Bonds have been called for redemption before then, up to the close of business on a date not later than
      five business days prior to the date fixed for redemption thereof. Upon electing to exchange, each
      bondholder shall have the right to require the redemption of all or any of its Exchangeable Bonds at
      their Early Redemption Price as defined in the related bond document and have that amount applied
      on its behalf in acquiring a pro rata share of such number of the equity shares in the capital of ATV as
      represents one-sixth of the total shares outstanding as at the IPO listing date from time to time for
      exchange (the ``Exchange Property'').

      Unless previously redeemed, purchased and cancelled or exchanged, the Exchangeable Bonds will be
      redeemed at 142.9171% of their principal amount on 28th February, 2004. The Exchangeable Bonds
      may be redeemed at the option of the relevant holders on 8th June, 2001 at 120.6984% of the
      principal amount in the event that either ATV's current licence to broadcast is not renewed or a
      complying IPO as defined in the related bond document has not occurred on or before 1st June, 2001.
      The Exchangeable Bonds may be redeemed at the option of the relevant holders on 28th February,
                                                                                                                 83
      2002 at 125.4520% of their principal amount. The Exchangeable Bonds may also be redeemed at any
      time during the period from 28th February, 1997 to 28th February, 2004 on the occurrence of any of
      certain other events as defined in the related bond document at various pre-determined rates ranging
      from 100% to 142.9171% of the principal amount.

      The Exchangeable Trust Deed contains specific covenants that the LSD Group is to comply with. At the
      balance sheet date, the LSD Group had not complied with certain of these covenants. As more fully
      explained in note 1, the terms of the Exchangeable Trust Deed stipulate that upon the breach of any
      covenants, the trustee may (the trustee must if so required by the bondholders) serve a notice to the
      LSD Group to declare the bonds to be immediately due and repayable. However, unless and until such
      notice is served by the trustee, the Exchangeable Bonds remain repayable in accordance with their
      original stated maturity dates. For the reasons set out in note 1, the LSD Directors consider that it is
      appropriate to continue classifying the Exchangeable Bonds as long term liabilities in accordance with
      the original maturity terms under the Exchangeable Trust Deed.
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     28.   DEFERRED TAXATION
                                                                   Group                       Company
                                                                 1999             1998        1999           1998
                                                             HK$'000        HK$'000        HK$'000     HK$'000

     At beginning of year                                        1,534           34,805       1,063          1,063
     Arising on acquisition of subsidiaries                         Ð             1,780          Ð             Ð
     Arising on disposal of subsidiaries                         4,096           (1,400)         Ð             Ð
     Taxation Ð note 9                                          (5,403)       (33,651)           Ð             Ð
     Exchange realignment                                          (39)            Ð             Ð             Ð


     At end of year                                                188            1,534       1,063          1,063

     The principal components of the deferred tax assets/(liabilities) are as follows:

     Group
                                                                   Provided                   Not provided
                                                                 1999             1998        1999           1998
                                                             HK$'000        HK$'000        HK$'000     HK$'000

     Accelerated capital allowances on fixed assets             (1,534)          (1,534)    (7,300)     (14,163)
84   Tax losses                                                  1,346               Ð      83,764      119,184
     Revaluation of investment properties in the PRC                Ð                Ð     (255,410)   (342,388)
     Revaluation of properties under development in
       the PRC                                                      Ð                Ð     (592,942) (1,073,240)
     Other timing differences                                       Ð                Ð         (952)         (800)


                                                                  (188)          (1,534)   (772,840) (1,311,407)

     Company
                                                                   Provided                   Not provided
                                                               1999           1998           1999        1998
                                                             HK$'000        HK$'000        HK$'000     HK$'000

     Accelerated capital allowances on fixed assets             (1,063)          (1,063)       906              Ð
     Tax losses                                                     Ð                Ð         188           9,004


                                                                (1,063)          (1,063)      1,094          9,004

     The revaluation of the Group's investment properties in Hong Kong does not constitute a timing difference
     and, consequently, the amount of potential deferred tax thereon has not been quantified.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                                   31st July, 1999




28.   DEFERRED TAXATION (continued)
The unprovided deferred tax liabilities at the balance sheet date which arise from the revaluation of the
Group's investment properties and properties under development in the PRC in respect of land appreciation
tax (``LAT'') and income tax are set out above. In the opinion of the directors, the deferred tax liabilities are
not expected to crystallise in the foreseeable future since the Group has no intention to dispose of these
revalued properties.

Pursuant to the indemnity deeds dated 12th November, 1997 entered into between LSD and Lai Fung, LSD
has undertaken to indemnify Lai Fung in respect of certain potential PRC income taxes and LAT payable or
shared by Lai Fung in consequence of the disposal of any of the property interests attributable to Lai Fung
through its subsidiaries and its associated companies as at 31st October, 1997 (``Property Interests''). These
taxation indemnities given by LSD apply in so far as such taxation is applicable to the difference between (i)
the value of the Property Interests in the valuation thereon by Chesterton Petty Limited as at 31st October,
1997 (the ``Valuation''), and (ii) the aggregate costs of such Property Interests incurred up to 31st October,
1997 together with the amount of unpaid land costs, unpaid land premium and unpaid costs of
resettlement, demolition and public utilities and other deductible costs in respect of the Property Interests.
The indemnity deeds assume that the Property Interests are disposed of at the values attributed to them in
the Valuation, computed by reference to the rates and legislation governing PRC income tax and LAT
prevailing at the time of the Valuation.

The indemnities given by LSD do not cover (i) new properties acquired by Lai Fung subsequent to the listing
of the shares of Lai Fung on the Stock Exchange of Hong Kong Limited (the ``Listing''); (ii) any increase in
                                                                                                                     85
the relevant tax which arises due to an increase in tax rates or changes to the legislation prevailing at the
time of the Listing; and (iii) any claim to the extent that provision for deferred taxation on the revaluation
surplus has been made in the calculation of the adjusted net tangible asset value of Lai Fung as set out in Lai
Fung's prospectus dated 18th November, 1997.

Lai Fung had no LAT payable during the year. No income tax payable by Lai Fung was indemnifiable by LSD
during the year.

29.   SHARE CAPITAL
                                                                                          1999            1998
                                                                                        HK$'000         HK$'000

Authorised:
  4,000,000,000 (1998 : 360,000,000) ordinary shares of HK$0.50 each                  2,000,000          180,000


Issued and fully paid:
  1,437,709,710 (1998 : 256,041,942) ordinary shares of HK$0.50 each                     718,855         128,021


(1)   During the year, the authorised ordinary share capital of the Company was increased from
      360,000,000 shares to 4,000,000,000 shares by the creation of an additional 3,640,000,000 ordinary
      shares of HK$0.50 each, ranking pari passu in all respects with the existing ordinary shares of the
      Company.
                                                            LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     29.      SHARE CAPITAL (continued)
     (2)      On 4th January, 1999, the Company allotted and issued 31,500,000 new ordinary shares of HK$0.50
              each to Kingpower Far East Limited, a wholly-owned subsidiary of Yoshiya International Corporation
              Limited and Singford Holdings Limited, a wholly-owned subsidiary of Far East Consortium
              International Limited, at a subscription price of HK$1.25 per ordinary share. The net proceeds of
              approximately HK$39 million were used as general working capital for the Group.

     (3)      On 28th January, 1999, the Company completed a rights issue of 1,150,167,768 ordinary shares
              (``Rights Shares'') of HK$0.50 each on the basis of four Rights Shares for every existing share of the
              Company at the subscription price of HK$0.50 per Rights Share. The net proceeds of approximately
              HK$575 million were used to subscribe for the rights shares of LSD and to repay the Group's
              borrowings.

     30.      RESERVES
     Group
                                                                                         Revaluation
                                                                                          reserve for
                                                                      Investment    properties under                                              Retained
                                              Share     Fixed asset      property       development                               Exchange          profits/
                                           premium      revaluation   revaluation     held for rental     Capital    General    fluctuation   (accumulated
                                            account         reserve       reserve           purposes      reserve     reserve       reserve         losses)       Total
                                           HK$'000         HK$'000       HK$'000             HK$'000     HK$'000     HK$'000       HK$'000         HK$'000      HK$'000


     At beginning of year                  1,103,373       136,677       997,935             718,386    4,013,887        201          (473)      2,010,995     8,980,981
     Arising on issue of shares               23,625            Ð             Ð                   Ð            Ð          Ð             Ð               Ð         23,625
     Share issue expenses                     (7,260)           Ð             Ð                   Ð            Ð          Ð             Ð               Ð         (7,260)
     Share issue expenses incurred by a
86       subsidiary                               Ð             Ð             Ð                   Ð       (10,964)        Ð             Ð                Ð      (10,964)
     Deficits on revaluations                     Ð             Ð       (909,541)            (18,414)          Ð          Ð             Ð                Ð     (927,955)
     Share of reserves in associated
         companies                                Ð             Ð             Ð                   Ð            Ð        (144)           Ð                Ð          (144)
     Share of revaluation deficits of
         associated companies                     Ð             Ð         (6,487)            (11,710)          Ð          Ð             Ð                Ð       (18,197)
     Release upon disposal of fixed
         assets                                   Ð        (49,380)           Ð                   Ð            Ð          Ð         22,671           49,380      22,671
     Release upon disposal of investment
         properties                               Ð             Ð         38,918                  Ð            Ð          Ð             Ð                Ð       38,918
     Release upon disposal of
         subsidiaries                             Ð             Ð             Ð                   Ð        4,367          Ð          6,334               Ð       10,701
     Release upon transfer of investment
         properties to completed
         properties for sale                      Ð             Ð         23,583                  Ð            Ð          Ð             Ð                Ð       23,583
     Release upon deemed disposal of
         interests in subsidiaries                Ð             Ð       (100,846)            (65,493)   (534,653)         Ð            434               Ð     (700,558)
     Release upon cancellation of Lai
         Fung Convertible Bonds                   Ð             Ð             Ð                   Ð        (7,647)        Ð             Ð                Ð        (7,647)
     Release upon expiry of warrants
         issued by a subsidiary                   Ð             Ð             Ð                   Ð       (11,375)        Ð             Ð            19,975        8,600
     Exchange realignments:
       Subsidiaries                               Ð             Ð             Ð                   Ð            Ð          Ð          2,673               Ð         2,673
       Associated companies                       Ð             Ð             Ð                   Ð            Ð          Ð          1,104               Ð         1,104
       Jointly controlled entities                Ð             Ð             Ð                   Ð            Ð          Ð            128               Ð           128
     Goodwill arising on acquisition of
         associated companies                     Ð             Ð             Ð                   Ð       (12,533)        Ð             Ð                Ð       (12,533)
     Goodwill arising on acquisition of
         additional interests in
         subsidiaries                             Ð             Ð             Ð                   Ð       (17,584)        Ð             Ð               Ð      (17,584)
     Net loss for the year                        Ð             Ð             Ð                   Ð            Ð          Ð             Ð       (3,634,656) (3,634,656)

     At end of year                        1,119,738        87,297        43,562             622,769    3,423,498         57        32,871      (1,554,306)    3,775,486
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




                                            Notes to Financial Statements
                                                                                                  31st July, 1999




30.   RESERVES (continued)
Reserves retained by:

                                                                                        Jointly
                                                     Company and      Associated     controlled
                                                      subsidiaries    companies        entities            Total
                                                          HK$'000       HK$'000       HK$'000          HK$'000

Share premium account                                   1,119,738              Ð            Ð        1,119,738
Fixed asset revaluation reserve                            87,297              Ð            Ð            87,297
Investment property revaluation reserve                        Ð           43,562           Ð            43,562
Revaluation reserve for properties under
  development held for rental purposes                    622,769              Ð            Ð           622,769
Capital reserve                                         3,423,498              Ð            Ð        3,423,498
General reserve                                                57             Ð             Ð                57
Exchange fluctuation reserve                               33,169            475          (773)          32,871
Accumulated losses                                      (1,414,989)     (139,081)         (236) (1,554,306)


                                                        3,871,539        (95,044)       (1,009)      3,775,486

Company
                                                                      Investment                                    87
                                            Share     Fixed asset       property
                                      premium         revaluation     revaluation     Retained
                                       account            reserve         reserve       profits            Total
                                       HK$'000           HK$'000        HK$'000       HK$'000          HK$'000

At beginning of year                 1,103,373            32,145           13,335      920,638       2,069,491
Arising on issue of shares                 23,625              Ð               Ð            Ð            23,625
Share issue expenses                       (7,260)             Ð               Ð            Ð            (7,260)
Deficits on revaluation of
  investment properties                        Ð               Ð           (1,800)          Ð            (1,800)
Net profit for the year                        Ð               Ð               Ð        32,187           32,187


At end of year                       1,119,738            32,145           11,535      952,825       2,116,243
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     31.   CONVERTIBLE BONDS
                                                                                                    Group
                                                                                                 1999           1998
                                                                                  Notes      HK$'000        HK$'000

     Lai Fung Convertible Bonds:                                                   (1)
       At beginning of year                                                                   941,382      1,158,465
       Converted during the year                                                                   Ð        (130,584)
       Repurchased during the year                                                             (4,176)       (86,499)

                                                                                              937,206        941,382

     Convertible Bonds 2002 :                                                      (2)
       At beginning of year                                                                1,161,375               Ð
       Issued during the year                                                                       Ð      1,161,375

                                                                                           1,161,375       1,161,375

     At end of year                                                                        2,098,581       2,102,757

     (1)   Lai Fung Convertible Bonds
88
           On 5th January, 1994, a subsidiary of the Group, LFO issued US$150,000,000 (HK$1,158,465,000)
           of convertible guaranteed bonds (``Lai Fung Convertible Bonds''). The Lai Fung Convertible Bonds
           were unconditionally guaranteed by LSD up to 28th November, 1997, the date of the Listing, and
           thereafter by Lai Fung.

           The Lai Fung Convertible Bonds bear interest at the rate of 5.25% per annum payable in arrears on 5th
           January, 1995, 5.5% per annum payable in arrears on 5th January, 1996 and 5.75% per annum
           payable in arrears on 5th January, 1997, and each 5th January, thereafter.

           Unless previously redeemed or purchased and cancelled, the Lai Fung Convertible Bonds are
           convertible into fully paid ordinary shares of Lai Fung at the option of the holders on or after the date
           falling three calendar months after the date of Listing up to the close of business on the date seven days
           prior to the third anniversary of the date of Listing. Upon conversion, the Lai Fung Convertible Bonds
           will be converted into a number of shares determined by dividing the principal amount of such Bonds
           by HK$2.94, being 105% of the initial public offer price of the shares of Lai Fung.

           On the third anniversary of the date of Listing, LFO may elect to redeem the outstanding Lai Fung
           Convertible Bonds in cash at their principal amount, or to mandatorily convert the outstanding Bonds
           into shares of Lai Fung at a conversion price that is equal to the average closing price of the shares over
           a period of thirty consecutive dealing days prior to such date.
                                    LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                               31st July, 1999




31.   CONVERTIBLE BONDS (continued)
(1)   Lai Fung Convertible Bonds (continued)

      Subsequent to the date of Listing, the Lai Fung Convertible Bonds may also be redeemed at their
      principal amount at any time on the occurrence of any of the events of default as defined in the related
      bond document. LFO may also elect to redeem the outstanding Lai Fung Convertible Bonds at any
      time in whole, but not in part, in the event of certain changes relating to the Cayman Islands or Hong
      Kong taxation, at their principal amount multiplied by 103%.

      Subsequent to the balance sheet date, 2,639,795 ordinary shares of HK$0.10 each in the share capital
      of Lai Fung were issued upon the conversion of the Lai Fung Convertible Bonds with a principal value
      of US$1,000,000 (approximately HK$7,748,000) by certain bondholders at a conversion rate of
      HK$2.94 per share.

(2)   Convertible Bonds 2002

      US$150,000,000 4% convertible guaranteed bonds due in 2002 (the ``Convertible Bonds 2002'') were
      issued on 4th August, 1997 by Lai Sun International Finance (1997) Limited (``LSIF 1997''), a wholly-
      owned subsidiary of LSD. The Convertible Bonds 2002 are unconditional and irrevocably guaranteed
      by LSD.

      The Convertible Bonds 2002 were issued at 100% of their principal amount and bear interest at a rate
      of 4% per annum payable annually in arrears on 4th August of each year.                                    89


      Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 are
      convertible into fully paid ordinary shares of HK$0.50 each of LSD at the option of the holder at a
      conversion price of, initially, HK$11.50 per share at a fixed rate of exchange on conversion of
      HK$7.751 = US$1.00, at any time from 4th September, 1997 to 24th June, 2002, both dates inclusive.
      In the event that the average of the closing price of the ordinary shares of LSD for the 30 dealing days
      ending on the dealing day prior to 4th August, 1998 or the dealing day immediately preceeding the
      day falling 30 days prior to 4th August, 2000 is less than the conversion price, then in effect the
      conversion price will be reduced, with effect from 4th August, 1998 or 4th August, 2000, as the case
      may be, to such average price, or if higher, a price equal to 90% of the then conversion price.

      The conversion price will be subject to adjustment upon the occurrence of certain events as defined in
      the document pertaining to the issue of the Convertible Bonds 2002.

      As a result of the rights issue completed on 27th July, 1998, the conversion price was adjusted from
      HK$11.50 to HK$10.64 per share with effect from 27th July, 1998.

      Pursuant to the terms of the related bond document, the conversion price was reset from HK$10.64
      per share to HK$9.50 per share with effect from 4th August, 1998.

      As a result of the rights issue completed on 3rd February, 1999, the conversion price was adjusted
      from HK$9.50 per share to HK$6.70 per share with effect from 3rd February, 1999.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     31.   CONVERTIBLE BONDS (continued)
     (2)   Convertible Bonds 2002 (continued)

           Unless previously redeemed, purchased and cancelled, or converted, LSIF 1997, under certain
           conditions as defined in the related documents, may redeem all or some of the Convertible Bonds
           2002 on or at any time after 4th August, 1999 at their Early Redemption Price together with accrued
           interest, with the calculation based on a formula as defined in the related bond document.

           Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 may
           be redeemed at the option of the holders on 4th August, 2000 at 115.2249% of their principal amount
           plus accrued interest.

           Unless previously redeemed, purchased and cancelled, or converted, the Convertible Bonds 2002 will
           be redeemed at their principal amount plus accrued interest on 4th August, 2002. The Convertible
           Bonds 2002 may also be redeemed at any time upon the occurrence of any of the events as defined in
           the document pertaining to the issue of the bonds, at their Early Redemption Price plus accrued
           interest.

           As stated in notes 26 and 27, at the balance sheet date, the LSD Group had not complied with certain
           loan covenants in respect of the Loans and the Exchangeable Bonds. As more fully explained in note 1,
           the Convertible Trust Deed contains a cross default clause to the effect that if any relevant borrowings,
           including the Loans and the Exchangeable Bonds, become due and repayable prematurely by reason of
           an event of default, the Convertible Bonds 2002, in turn, will become immediately due and repayable
90
           if the trustee serves notice to the LSD Group for immediate repayment. The trustee (the trustee must if
           so required by the bondholders) has not to date declared an event of default in respect of any of the
           LSD Group's borrowings by virtue of the cross default provisions contained in the Convertible Trust
           Deed. For reasons set out in note 1, the Convertible Bonds 2002 have not become immediately due
           and repayable and have continued to be classified as long term liabilities according to their original
           maturity terms.

     32. C O N V E R T I B L E N O T E
     On 11th May, 1999, Lai Fung entered into a conditional subscription agreement (the ``Note Agreement'')
     with Sunny Group Investment Limited (``Sunny Group''), a wholly-owned subsidiary of Sun Chung which in
     turn is wholly owned by the Bank of China, whereby Lai Fung would issue a HK$600 million convertible
     note (the ``Convertible Note'') to the Sunny Group. The transaction was approved by the shareholders of the
     Company, LSD and Lai Fung at their respective extraordinary general meeting on 22nd June, 1999. The
     Convertible Note was issued on 2nd July, 1999.

     The Convertible Note was issued at 100% of its principal amount and bears interest at the rate of 5% per
     annum payable quarterly in arrears on 2nd January, 2nd April, 2nd July and 2nd October of each year.

     Pursuant to the Note Agreement, unless previously redeemed, the Convertible Note is convertible at 105%
     of the principal amount, in whole or in part, into fully paid ordinary shares of HK$0.10 each of Lai Fung at a
     conversion price of HK$0.65 per share (the ``Conversion Price''), at any time from 1st December, 2000 to
     2nd July, 2002, being the third anniversary of the date of the issue of the Convertible Note. The Conversion
     Price is subject to certain adjustments as defined in the Note Agreement.
                                   LAI SUN GARMENT ANNUAL REPORT 1998±99




                                           Notes to Financial Statements
                                                                                            31st July, 1999




32. C O N V E R T I B L E N O T E ( c o n t i n u e d )
Unless previously redeemed or converted, the Convertible Note will be redeemed at 110% of the principal
amount plus accrued interest on 2nd July, 2002. The Convertible Note may also be redeemed at any time
upon the occurrence of any of the events as defined in the Note Agreement at 110% of the principal amount
plus accrued interest up to and including the date of repayment.

33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a)   Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities

                                                                                    1999           1998
                                                                                  HK$'000        HK$'000

Operating profit/(loss)                                                        (7,352,958)        368,816
Interest expense                                                                  225,905         171,648
Interest income                                                                  (158,010)       (288,193)
Bond issue expenses incurred by a subsidiary                                           Ð           51,423
Gain on disposal of interests in associated companies                                  Ð         (158,893)
Loss on disposal of partial interests in subsidiaries                                  Ð            2,752
Dividend income from listed investments                                            (4,256)         (1,820)
Dividend income from unlisted investments                                            (200)         (8,887)
Depreciation                                                                       93,894         106,198
Amortisation of goodwill on acquisition of subsidiaries and associated
  companies                                                                        11,555          17,298     91
Amortisation of deferred pre-operating expenses                                     5,690           8,540
Provision for premium on bond redemption                                          113,639         112,892
Deficits on revaluation of investment properties                                  309,226              Ð
Provisions for diminutions in values of long term unlisted investments            426,982              Ð
Gain on cancellation of convertible bonds                                         (17,718)             Ð
Loss/(gain) on disposal of long term investments                                  302,813         (10,019)
Loss on dissolution of associated companies                                         1,808              Ð
Loss/(gain) on disposal of fixed assets                                           162,113         (29,399)
Loss/(gain) on disposal of subsidiaries                                           (13,923)        131,339
Loss/(gain) on disposal of properties under development                           158,153            (467)
Loss/(gain) on disposal of investment properties                                  153,940        (452,458)
Gain on deemed disposal of a subsidiary                                                Ð          (56,871)
Gain on disposal of associated companies                                          (15,138)             Ð
Provisions for trade debtors                                                        8,624          12,152
Provisions for diminutions in values of properties under development            2,968,665         155,874
Provisions for diminutions in values of completed properties for sale to net
  realisable value                                                                128,931          20,930
Provisions for deposits paid for acquisition of properties                        452,500          91,913
Write back of provision for premium on convertible bond redemption                     Ð         (121,922)
Discount on repurchase of bonds                                                        Ð             (457)
Provisions for contingent losses in respect of profit guarantees                  178,200              Ð
                                         LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
     (a)   Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities
           (continued)

                                                                                         1999        1998
                                                                                       HK$'000     HK$'000

     Provision for potential loss arising from exercise of Put Options                 855,000           Ð
     Provisions for contingent loss in respect of a guarantee given to a bank          228,000           Ð
     Provisions for diminutions in values of associated companies holding
       properties under development                                                    311,000           Ð
     Provision for/(write back of) diminution in value of an associated company
       holding completed properties for sale                                           (110,910)   110,910
     Provisions for diminutions in values of and advances to, associated companies
       and investee companies engaged in hotel operations                                42,487          Ð
     Provision for premium on note redemption                                             1,667          Ð
     Write-off of deferred pre-operating expenses                                        18,974          Ð
     Adjustments for impairment in values of goodwill                                   216,200          Ð
     Decrease/(increase) in restricted cash and bank balances                            37,201     (45,256)
     Decrease/(increase) in short term investments                                       (9,281)    385,606
     Decrease/(increase) in stocks                                                      160,337     (36,086)
     Decrease in completed properties for sale                                          206,279     471,023
92   Decrease/(increase) in debtors, bills receivable and deposits                        5,468    (375,649)
     Increase/(decrease) in creditors, deposits received, bills payable and accruals   (400,449)    199,789
     Increase/(decrease) in trust receipt loans with greater than three months to
       maturity at acquisition date                                                      (6,853)    20,086


     Net cash inflow/(outflow) from operating activities                               (304,445)   852,812
                                            LAI SUN GARMENT ANNUAL REPORT 1998±99




                                                      Notes to Financial Statements
                                                                                                              31st July, 1999




33.    NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(b)    Analysis of changes in financing during the year

                                                                   Bank loans,
                                                         Share           other
                                                        capital    borrowings
                                                           and    and deposits Convertible Convertible     Bonds       Minority
                                                      premium         pledged      bonds         note     payable      interests
                                                      HK$'000         HK$'000    HK$'000     HK$'000      HK$'000      HK$'000


Balance at 1st August, 1997                           1,231,394     4,823,847    1,158,465         Ð     1,818,850 14,369,492
Net cash inflow/(outflow) from financing                     Ð      2,907,936    1,091,960         Ð        (3,408)   876,602
Share of net profit for the year                             Ð             Ð            Ð          Ð            Ð     175,400
Dividends paid to minority interests                         Ð             Ð            Ð          Ð            Ð    (131,860)
Share of deficits on revaluation of investment
   properties                                               Ð              Ð           Ð           Ð           Ð       (674,981)
Share of surplus on revaluation of properties under
   development held for rental purposes                     Ð              Ð           Ð           Ð           Ð      1,292,379
Share of surplus on revaluation of properties under
   development of associated companies                      Ð              Ð           Ð           Ð           Ð        19,144
Share of capital reserve                                    Ð              Ð           Ð           Ð           Ð        14,441
Purchases of fixed assets under finance leases              Ð             481          Ð           Ð           Ð            Ð
Arising on acquisition of subsidiaries                      Ð         295,401          Ð           Ð           Ð       186,408
Arising on acquisition of additional interests in
   subsidiaries                                             Ð              Ð           Ð           Ð           Ð (1,995,652)
Disposal of partial interests in subsidiaries               Ð              Ð           Ð           Ð           Ð     44,579
Arising on deemed disposal of a subsidiary                  Ð              Ð           Ð           Ð           Ð   (100,174)
Disposal of subsidiaries                                    Ð        (409,552)         Ð           Ð           Ð         Ð
Subsidiary excluded from consolidation                      Ð              Ð           Ð           Ð           Ð    (10,101)
Conversion of convertible bonds                             Ð              Ð     (130,584)         Ð           Ð    130,584
Discount on repurchase of convertible bonds                 Ð              Ð      (17,084)         Ð           Ð         Ð
                                                                                                                                   93
Discount on repurchase of bonds                             Ð              Ð           Ð           Ð         (457)       Ð
Arising on issue of rights shares of a subsidiary           Ð              Ð           Ð           Ð           Ð    179,537
Arising on exercise of warrants of a subsidiary by
   minority interests                                       Ð              Ð           Ð           Ð           Ð            725
Share of general reserve                                    Ð              Ð           Ð           Ð           Ð           (187)
Share of exchange fluctuation reserve                       Ð              Ð           Ð           Ð           Ð         (9,332)
Release of investment property revaluation reserve
   upon disposal of investment properties                   Ð              Ð           Ð           Ð           Ð       (620,343)
Release of investment property revaluation reserve
   upon disposal of a subsidiary                            Ð              Ð           Ð           Ð           Ð        (15,431)
Exchange realignments                                       Ð         (10,808)         Ð           Ð           Ð        (18,124)


Balance at 31st July, 1998 Ð page 94                  1,231,394     7,607,305    2,102,757         Ð     1,814,985   13,713,106
                                                  LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     33.    NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
     (b)    Analysis of changes in financing during the year (continued)

                                                                          Bank loan,
                                                               Share           other
                                                              capital    borrowings
                                                                 and    and deposits Convertible Convertible     Bonds     Minority
                                                            premium         pledged      bonds         note     payable    interests
                                                            HK$'000         HK$'000    HK$'000     HK$'000      HK$'000    HK$'000


     Balance at 1st August, 1998 Ð page 93                  1,231,394     7,607,305    2,102,757         Ð     1,814,985 13,713,106
     Net cash inflow/(outflow) from financing                 607,199      (966,510)      (3,542)   600,000     (923,735)   (18,503)
     Share of net loss for the year                                Ð             Ð            Ð          Ð            Ð (4,074,093)
     Share of deficits on revaluation of investment
        properties                                                Ð              Ð            Ð          Ð           Ð    (1,663,727)
     Share of deficits on revaluation of properties under
        development held for rental purposes                      Ð              Ð            Ð          Ð           Ð      (60,408)
     Share of reserves in associated companies                    Ð              Ð            Ð          Ð           Ð         (454)
     Arising on acquisition of additional interests in
        subsidiaries                                              Ð              Ð            Ð          Ð           Ð     (151,520)
     Disposal of subsidiaries                                     Ð        (258,007)          Ð          Ð           Ð      (37,405)
     Share of capital reserve arising on acquisition of
        associated companies                                      Ð              Ð            Ð          Ð           Ð      (48,313)
     Share of exchange fluctuation reserve on disposal of
        fixed assets                                              Ð              Ð            Ð          Ð           Ð       74,417
     Discount on repurchase of convertible bonds                  Ð              Ð          (634)        Ð           Ð           Ð
     Release of investment property revaluation reserve
        upon disposal of investment properties                    Ð              Ð            Ð          Ð           Ð       48,030
     Inception of finance lease contracts                         Ð             404           Ð          Ð           Ð           Ð
     Arising on issue of rights shares of a subsidiary            Ð              Ð            Ð          Ð           Ð      474,737
     Release of investment properties reserve upon
94
        transfer of investment properties to completed
        properties for sale                                       Ð              Ð            Ð          Ð           Ð       29,105
     Share of exchange fluctuation reserve                        Ð              Ð            Ð          Ð           Ð        4,917
     Release upon cancellation of convertible bonds               Ð              Ð            Ð          Ð           Ð       (9,437)
     Release upon expiry of warrants issued by a
        subsidiary                                                Ð              Ð            Ð          Ð           Ð       (8,600)
     Arising on deemed disposal of a subsidiary                   Ð              Ð            Ð          Ð           Ð      852,150
     Exchange realignments                                        Ð           4,350           Ð          Ð           Ð         (633)


     Balance at 31st July, 1999                             1,838,593     6,387,542    2,098,581    600,000     891,250   9,123,369


     (c)    Major non-cash transactions
     During the year, the Group entered into finance lease arrangements in respect of assets with a total capital
     value at the inception of the leases of HK$404,000. In addition, part of the considerations for the disposal of
     subsidiaries during the year with an amount of HK$165,208,000 was satisfied by receivables.

     (d)    Exceptional items
     The exceptional items for the year resulted in a cash inflow from investing activities of HK$159,091,000
     (1998 : Nil).
                                      LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                          31st July, 1999




33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(e)   Acquisition of subsidiaries
                                                                                  1999             1998
                                                                               HK$'000         HK$'000

Net assets acquired:
  Fixed assets                                                                       Ð       1,811,887
  Investment properties                                                              Ð         701,472
  Properties under development                                                 236,590       5,537,523
  Deferred pre-operating expenses                                                   Ð           33,043
  Associated companies                                                               Ð           21,223
  Long term investments                                                              Ð            3,413
  Cash and bank balances                                                            272         190,961
  Short term investments                                                             Ð           11,502
  Debtors and deposits                                                              105          85,252
  Completed properties for sale                                                      Ð            4,908
  Stocks                                                                             Ð            9,568
  Bank loans and other borrowings                                                    Ð         (295,401)
  Creditors, deposits received and accruals                                   (123,787)        (412,693)
  Taxation                                                                          Ð           (32,956)
  Deferred taxation                                                                  Ð           (1,780)
  Minority interests                                                                 Ð         (186,408)    95



                                                                               113,180       7,481,514

Goodwill                                                                             Ð              709


                                                                               113,180       7,482,223
Carrying value of interests in subsidiaries acquired originally held by
  the Group as:
  Interests in associated companies                                           (113,180)        (167,209)
  Interests in long term investments                                                Ð          (813,234)

                                                                                     Ð       6,501,780

Satisfied by:
  Cash                                                                               Ð       6,501,780

The subsidiaries acquired during the year utilised HK$1,223,000 (1998 : HK$14,211,000) of the Group's
net operating cash flows, paid HK$5,825,000 (1998 : HK$31,358,000) in respect of the net returns on
investments and servicing of finance, nil amount paid in respect of taxation (1998 : HK$33,692,000),
contributed HK$88,700,000 (1998 : HK$852,799,000) for investing activities and utilised HK$81,926,000
(1998 : HK$193,780,000) for financing activities.
                                           LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
     (e) Acquisition of subsidiaries (continued)
     Analysis of net outflow/(inflow) of cash and cash equivalents in respect of the acquisition of subsidiaries:

                                                                                           1999           1998
                                                                                         HK$'000        HK$'000

     Cash consideration                                                                         Ð      6,501,780
     Cash and bank balances acquired                                                          (272)     (190,961)
     Interest capitalised as acquisition costs of a subsidiary                                  Ð       (212,491)


     Net outflow/(inflow) of cash and cash equivalents in respect of the acquisition
       of subsidiaries                                                                        (272)    6,098,328

     (f)   Disposal of subsidiaries
                                                                                           1999           1998
                                                                                         HK$'000        HK$'000

     Net assets disposed of:
       Fixed assets                                                                        43,667      1,563,699
       Investment properties                                                                   Ð         500,093
96     Properties under development                                                       697,377      1,161,159
       Goodwill                                                                            34,411              Ð
       Interests in associated companies                                                  311,735             Ð
       Long term investments                                                                   Ð         140,081
       Cash and bank balances                                                               9,349            839
       Debtors and deposits                                                                27,055         17,283
       Stocks                                                                                5,702         1,658
       Bank loans and other borrowings                                                   (258,007)      (409,552)
       Creditors, deposits received and accruals                                         (157,356)       (51,249)
       Taxation                                                                           (10,838)        (7,930)
       Deferred taxation                                                                    4,096         (1,400)
       Minority interests                                                                 (72,530)             Ð
       Release of investment property revaluation reserve                                      Ð         (25,234)
       Release of exchange reserve                                                         27,126             Ð
       Release of capital reserve                                                          18,700              Ð

                                                                                          680,487      2,889,447
     Profit/(loss) on disposal                                                             13,923       (131,339)


                                                                                          694,410      2,758,108
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                               31st July, 1999




33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
(f)   Disposal of subsidiaries (continued)
                                                                                        1999            1998
                                                                                     HK$'000        HK$'000

Net assets disposed of                                                               694,410      2,758,108
Reclassification of carrying value of interests in subsidiaries disposed of as
  interests in associated companies                                                        Ð        (204,456)


                                                                                     694,410      2,553,652


Satisfied by:
  Cash                                                                               529,202      1,453,652
  Promissory note                                                                         Ð       1,100,000
  Receivables                                                                        165,208             Ð

                                                                                     694,410      2,553,652

The subsidiaries disposed of during the year utilised HK$13,346,000 (1998 : contributed HK$10,017,000)
of the Group's net operating cash flows, paid HK$1,537,000 (1998 : HK$28,234,000) in respect of returns
on investment and servicing of finance, paid HK$13,640,000 (1998 : HK$1,115,000) in respect of taxation,
utilised HK$28,924,000 (1998 : HK$54,466,000) for investing activities and utilised HK$9,207,000 (1998 :         97

contributed HK$396,075,000) for financing activities.

Analysis of net inflow of cash and cash equivalents in respect of the disposal of subsidiaries:

                                                                                       1999           1998
                                                                                     HK$'000        HK$'000

Cash consideration received                                                          529,202      1,453,652
Cash and bank balances disposed of                                                    (9,349)          (839)


Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries   519,853      1,452,813
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




     Notes to Financial Statements
     31st July, 1999




     33.   NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)
     (g)   Subsidiary excluded from consolidation
                                                                                               1999           1998
                                                                                             HK$'000        HK$'000

     Net assets excluded from consolidation:
       Fixed assets                                                                                 Ð          7,923
       Cash                                                                                         Ð         20,633
       Debtors and deposits                                                                         Ð          4,553
       Stocks                                                                                       Ð          2,924
       Creditors, deposits received and accruals                                                    Ð         (6,021)
       Minority interests                                                                           Ð        (10,101)

                                                                                                    Ð         19,911

     Satisfied by:
       Reclassification to interests in associated companies                                        Ð         19,911


     Analysis of net outflow of cash and cash equivalents in respect of the exclusion
       of the subsidiary from consolidation:

                                                                                               1999           1998
98                                                                                           HK$'000        HK$'000

       Cash balances being excluded from consolidation and the net outflow of cash
         and cash equivalents in respect of the exclusion of the subsidiary from
         consolidation                                                                              Ð         20,633

     34. L I T I G A T I O N
     (a) Litigation related to the Four Seasons Hotel, New York
     An action was commenced in December 1998 against certain Group companies and the other shareholders
     of Hotel 57 LLC (the ``Shareholders'') by Art 57 Properties, Inc. (the ``Plaintiff'') in the Supreme Court of the
     state of New York (the ``New York Court''), alleging breach of contract, fraud and promissory estoppel. The
     Plaintiff's case was based on a claim that it had made a down payment of US$2 million and signed a letter of
     intent to purchase the Four Seasons Hotel, New York (``FSNY''). By way of relief, the Plaintiff sought specific
     performance requiring the sale of shares (the `` FSNY Shares'') in the ownership entities, the effect of which
     would convey beneficial ownership of the FSNY to the Plaintiff or, in the alternative, damages in an amount
     of not less than US$80 million. Simultaneously, the Plaintiff filed a motion for a preliminary injunction
     seeking to prevent the sale of the FSNY Shares, or to attach the proceeds from any sale of the FSNY Shares
     pending final disposition of the case.

     In early 1999, the Plaintiff applied to discontinue the New York proceedings and commenced a separate suit
     in the United States District Court in Texas (the ``Texas Court'') against Milewood International Inc.
     (``Milewood''), a subsidiary of the Group, the other shareholders of FSNY and 57 BB Property, LLC, the
     purchaser of FSNY, for similar claims as above.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                                31st July, 1999




34. L I T I G A T I O N ( c o n t i n u e d )
(a) Litigation related to the Four Seasons Hotel, New York (continued)
In February 1999, the New York Court denied the motion to discontinue the New York proceedings and
dismissed all claims against the companies of the Group, except for Milewood and certain shareholders of
FSNY. In March 1999, the Texas Court dismissed all claims against all defendants. An appeal has been filed
by the Plaintiff.

In March 1999, the Group's interest in FSNY was disposed of to 57 BB Property, LLC.

Having regard to the advice from legal counsel, the directors consider that the Group has substantive
defences to the current litigation such that they consider the remaining claims should be dismissed and that
the litigation should have no material adverse effect on the Group.

(b) Litigation related to La Chemise Lacoste S.A.
Crocodile Garments Limited (``Crocodile'') is involved in a legal dispute with a supplier, La Chemise Lacoste
S.A., who alleges that Crocodile has infringed its trademark in the People's Republic of China and is seeking
a court order for an unspecified amount of compensation and to prohibit Crocodile from registering certain
trademarks in the People's Republic of China.

In the opinion of the directors, having taken legal advice, the action against Crocodile is unlikely to be
successful and, therefore, no provision has been made in the financial statements of the Group.

35. C O M M I T M E N T S
Commitments not provided for in the financial statements at the balance sheet date were as follows:
                                                                                                                  99
(a)
                                                              Group                       Company
                                                           1999       1998              1999      1998
                                                         HK$'000    HK$'000           HK$'000   HK$'000

Authorised capital expenditure:
  Contracted, but not provided for
    Subsidiaries                                          852,605      1,167,226            Ð               Ð
    Jointly controlled entities                           141,816        151,381            Ð               Ð
                                                          994,421      1,318,607            Ð               Ð

  Not contracted for
   Subsidiaries                                           234,920            46,729         Ð               Ð

                                                        1,229,341      1,365,336            Ð               Ð

Annual commitments payable in the following year
  under non-cancellable operating leases in
  respect of land and buildings expiring:
    Within one year                                        40,013            30,334       648           1,010
    Within two to five years                               64,133            83,495        Ð               Ð
    After five years                                        1,587             1,588        Ð               Ð

                                                          105,733        115,417          648           1,010
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




      Notes to Financial Statements
      31st July, 1999




      35.   COMMITMENTS (continued)
      (b) Pension commitments
      The Group operates defined benefit retirement schemes for the eligible employees of Crocodile and Furama
      which are non-contributory. The assets of the schemes are held separately from those of the Group in
      independently administered funds.

      The contributions to the schemes are determined with the advice of independent, qualified actuaries on the
      basis of triennial valuations, being the minimum requirement under the Occupational Retirement Schemes
      Ordinance, using the aggregate method. Based on the most recent valuation carried out on 1st August, 1997
      by The Prudential Assurance Company Limited, qualified consulting actuaries, the level of funding for the
      Crocodile scheme is 7% of employee costs with no material surplus or deficiency. Based on the most recent
      valuation carried out on 30th September, 1998 by Watson Wyatt Hong Kong Limited, qualified consulting
      actuaries, the level of funding of the Furama scheme ranged from 0% to 8.3% of employee costs with no
      material surplus or deficiency.

      The principal assumption used by the actuaries of Crocodile was that the long-term average return on
      investments would be equal to the average increase in salary. The principal assumption used by the actuaries
      of Furama was that the average salary inflation and the average return on investments would be 8% and 9%
      per annum, respectively.

      The differences between the market value of the schemes' assets and the present value of the past service
      liabilities on an on-going basis at the date of the actuarial valuations, are taken into consideration when
100
      determining future funding rates in order to ensure that the schemes will be able to meet these liabilities as
      they become due. The current funding rates are those recommended by the actuaries to ensure that the
      schemes will be able to meet their future liabilities.

      (c) Grant of put options
      Upon the completion of the sales and purchase agreement of Fortune Sign (the ``Completion'') as further
      detailed in note 22, Furama entered into an option deed (the ``Option Deed'') with the Majestic Purchasers,
      pursuant to which Furama granted a share put option and a loan put option (together the ``Put Options'') to
      the Majestic Purchasers to require Furama to acquire the entire issued share capital of Fortune Sign and the
      related shareholder's loan owing from Fortune Sign, respectively, at a total consideration of approximately
      HK$1,930 million. The Put Options cannot be exercised by the Majestic Purchasers unless they are
      exercised simultaneously.

      The Put Options are each for a term of approximately 3 years commencing from the date of the Completion
      and expiring on 28th February, 2001 (both dates inclusive) (the ``Option Period'') and may be exercised at
      any time and from time to time, during the period from 1st February, 2001 to 28th February, 2001 (both
      dates inclusive) (the ``Exercise Period''), by the Majestic Purchasers giving notice in writing to Furama of
      their intention to do so.
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                              Notes to Financial Statements
                                                                                                   31st July, 1999




35.   COMMITMENTS (continued)
(c) Grant of put options (continued)
At any time before the Exercise Period, upon the occurrence of certain events specified in the Option Deed,
inter alia, the Lim Family ceases to beneficially own, whether directly or indirectly, at least 35% of the issued
share capital of the Company from time to time or the Company, together with the Lim Family, cease to
beneficially own, whether directly or indirectly, at least 35% of the issued share capital of LSD from time to
time, the Majestic Purchasers shall be entitled to exercise the Put Options by giving notice in writing to
Furama of their intention to do so within one month after the occurrence of such events.

The Put Options will lapse automatically and will not be exercisable upon the earlier of the expiry of the
Option Period, or the occurrence of certain events specified in the Option Deed.

Furama will be entitled to set off the outstanding principal amount of the Note against the total
consideration payable to the Majestic Purchasers upon exercise of the Put Options.

36. C O N T I N G E N T L I A B I L I T I E S
Contingent liabilities not provided for in the financial statements at the balance sheet date were as follows:

                                                                Group                        Company
                                                              1999            1998          1999            1998
                                                          HK$'000        HK$'000        HK$'000         HK$'000

Guarantees given to banks in connection with                                                                         101

  facilities granted to:
     Associated companies                                  297,935        633,600          2,000           2,000
      Investee companies                                   278,613        307,900              Ð               Ð

                                                           576,548        941,500          2,000           2,000

Bills discounted with recourse                                   Ð           11,519            Ð          11,519


                                                           576,548        953,019          2,000          13,519

In addition to the above, as at 31st July, 1999, the Group has the following contingent liabilities:

(1)   A guarantee of HK$771,000 (1998 : HK$1,531,000) has been given to third parties in connection with
      the Group's restaurant operations.

(2)   A guarantee of interest payment has been given to banks on attributable share of bank loans in the
      amount of US$25,662,000 (1998 : US$76,900,000) in an associated company.

(3)   Guaranteed rental returns (``Rental Guarantees'') of 13% per annum, calculated based on the sale
      consideration, have been given to certain purchasers of the Hong Kong Plaza office and serviced
      apartment units. The Rental Guarantees are effective for two years commencing in the fourth month
      after the month in which the notice of occupation of the Hong Kong Plaza is issued.
                                          LAI SUN GARMENT ANNUAL REPORT 1998±99




      Notes to Financial Statements
      31st July, 1999




      36.   CONTINGENT LIABILITIES (continued)
      (4)   Under a mortgage loan facility provided by a bank to the end-buyers of the office and apartment units
            of the Hong Kong Plaza, Lai Fung had agreed to guarantee up to 95% of the liabilities of Li Xing for the
            due performance of its undertaking to buy back the relevant properties in case of default by the
            borrowers.

      (5)   Under a mortgage loan facility provided by another bank to the end-buyers of Eastern Place Phase I
            and Phase II, the Group has agreed to provide guarantees to the bank to buy back the relevant
            properties in case of default by the borrowers.

      37. R E S T R I C T E D C A S H A N D B A N K B A L A N C E S
      As at 31st July, 1999, approximately HK$8,055,000 (1998 : HK$45,256,000) included in the Group's cash
      and bank balances were pledged to banks to secure mortgage loans granted by banks to certain end buyers
      of the Group's completed properties for sale. The pledge of such balances will be released upon the
      completion of the relevant mortgage arrangements.

      38.   POST BALANCE SHEET EVENTS
      On 14th October, 1999, Lai Fung announced the following matters which constitute connected transactions
      and required the approval of the independent shareholders.

      (1)   Li Xing entered into a conditional loan agreement (``Loan Arrangement'') with BOC on 30th September,
            1999, whereby BOC agreed to extend a loan in an amount of RMB80,000,000 to Li Xing for its
102         repayment of bank borrowings and settlement of construction costs. The Loan Arrangement is secured
            by the first four floors of the North Tower of Hong Kong Plaza, which is valued at approximately
            RMB407,000,000.

            Such security is provided with the intention that a new bank loan of approximately RMB150,000,000
            will be granted by BOC in replacement of the said loan of RMB80,000,000 in the near future.

      (2)   BOC, being one of the principal banks of Lai Fung, is expected to continue to provide secured loan
            financing (the ``Financing Transactions'') and other financial and banking services (the ``Other
            Transactions'') to Lai Fung. Such transactions, if entered into, may constitute connected transactions
            for Lai Fung in accordance with the Listing Rules (by reasons detailed below), and may need full
            disclosure and/or prior approval of the shareholders of the Company, LSD and Lai Fung.

            On this basis, it is proposed that Lai Fung's entering into any future Financing Transactions or Other
            Transactions with BOC, which are expected to be entered into in the ordinary course of business of Lai
            Fung and on normal commercial terms, to be subject to the following maximum limits:

            i.    the aggregate amount of all loans outstanding under any Financing Transactions not to exceed
                  70% of the consolidated net tangible assets of Lai Fung as published in its latest audited
                  accounts; and
                                     LAI SUN GARMENT ANNUAL REPORT 1998±99




                                             Notes to Financial Statements
                                                                                               31st July, 1999




38.   POST BALANCE SHEET EVENTS (continued)
      ii.   the aggregate amount of all fees payable by Lai Fung in respect of any Other Transactions in any
            financial year of Lai Fung not to exceed 3% of the consolidated net tangible assets of Lai Fung as
            published in its latest audited accounts.

      On 7th April, 1999, LSD entered into an option agreement with Sun Chung, a wholly-owned
      subsidiary of BOC which was supplemented by a supplemental agreement dated 12th April, 1999 (the
      ``Option Agreement''). Pursuant to the Option Agreement, LSD granted the right (the ``Option'') to Sun
      Chung to purchase 230,000,000 shares in Lai Fung held by LSD.

      As detailed in note 32, Lai Fung issued the Convertible Note to the Sunny Group. Upon exercise in
      full, the Convertible Note is convertible into approximately 969,000,000 shares in Lai Fung. As Sun
      Chung and Sunny Group are both wholly-owned subsidiaries of BOC, in the opinion of the directors,
      the BOC Group is deemed to be a connected person of the Company, LSD and Lai Fung. Accordingly,
      the above transactions constitute connected transactions for the Company, LSD and Lai Fung pursuant
      to the Listing Rules.

      The above two matters were approved by independent shareholders in the respective extraordinary
      meetings of the Company, LSD and Lai Fung on 30th October, 1999.

39.   COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform with the current year's presentation, In
particular, as detailed in note 2 under ``Jointly controlled entities'', the jointly controlled entities were    103

accounted for as subsidiaries or associated companies in previous year.

40.   APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 12th November, 1999.
                                          LAI SUN GARMENT ANNUAL REPORT 1998-99




      Notice of Annual General Meeting


      NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of the Company will be held
      at Victoriana Room, 4th Floor, Furama Hotel, Hong Kong, 1 Connaught Road Central, Hong Kong on
      Thursday, 23rd December, 1999 at 11 : 45 a.m for the following purposes:

      1.   To receive and consider the audited Financial Statements and the Reports of the Directors and of the
           Auditors for the year ended 31st July, 1999;

      2.   To re-elect retiring Directors and to fix Directors' remuneration;

      3.   To appoint Auditors and to authorise the Directors to fix their remuneration; and

      4.   As special business, to consider and, if thought fit, pass with or without amendments, the following
           resolutions as Ordinary Resolutions:

           (A)   ``THAT:

                 (a)   subject to paragraph (b) of this Resolution, the exercise by the Directors during the
                       Relevant Period (as hereinafter defined) of all the powers of the Company to purchase
                       shares of HK$0.50 each in the share capital of the Company on The Stock Exchange of
                       Hong Kong Limited (``the Stock Exchange'') or on any other stock exchange on which the
                       shares of the Company may be listed and recognised by the Securities and Futures
                       Commission and the Stock Exchange for this purpose, subject to and in accordance with all
104                    applicable laws and the requirements of the Rules Governing the Listing of Securities on
                       the Stock Exchange or any other stock exchange as amended from time to time, be and is
                       hereby generally and unconditionally approved;

                 (b)   the aggregate nominal amount of the shares to be purchased pursuant to the approval in
                       paragraph (a) of this Resolution shall not exceed 10% of the aggregate nominal amount of
                       the share capital of the Company in issue as at the date of this Resolution, and the said
                       approval shall be limited accordingly; and

                 (c)   for the purposes of this Resolution, ``Relevant Period'' means the period from the passing of
                       this Resolution until whichever is the earlier of:

                       (i)    the conclusion of the next Annual General Meeting of the Company;

                       (ii)   the revocation or variation of the authority given under this Resolution by an
                              ordinary resolution of the shareholders of the Company in general meeting; or

                       (iii) the expiration of the period within which the next Annual General Meeting of the
                              Company is required by law to be held.''
                               LAI SUN GARMENT ANNUAL REPORT 1998-99




                               Notice of Annual General Meeting


(B)   ``THAT:

      (a)   subject to paragraph (c) of this Resolution, the exercise by the Directors during the
            Relevant Period (as hereinafter defined) of all the powers of the Company to issue, allot
            and deal with additional shares in the Company, and to make or grant offers, agreements
            and options (including warrants, bonds, debentures, notes and any securities which carry
            rights to subscribe for or are convertible into shares in the Company) which would or
            might require the exercise of such power be and is hereby generally and unconditionally
            approved;

      (b)   the approval in paragraph (a) of this Resolution shall authorise the Directors during the
            Relevant Period to make or grant offers, agreements and options (including warrants,
            bonds, debentures, notes and any securities which carry rights to subscribe for or are
            convertible into shares of the Company) which would or might require the exercise of such
            power after the end of the Relevant Period;

      (c)   the aggregate nominal amount of share capital allotted or agreed conditionally or
            unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by
            the Directors pursuant to the approval in paragraph (a) of this Resolution, otherwise than
            pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) an issue of shares in the
            Company upon the exercise of rights of subscription or conversion under the terms of any
            of the warrants or securities which are convertible into shares of the Company; or (iii) an
                                                                                                           105
            issue of shares in the Company as scrip dividends pursuant to the Articles of Association of
            the Company from time to time; or (iv) an issue of shares in the Company under any
            option scheme or similar arrangement for the grant or issue to employees of the Company
            and/or any of its subsidiaries of shares in the Company or rights to acquire shares in the
            Company, shall not exceed 20% of the aggregate nominal amount of the issued share
            capital of the Company as at the date of this Resolution, and the said approval shall be
            limited accordingly; and

      (d)   for the purposes of this Resolution:

            ``Relevant Period'' shall have the same meaning as those ascribed to it under paragraph (c)
            of the Ordinary Resolution No.4 (A) in the Notice convening this Meeting; and

            ``Rights Issue'' means an offer of shares in the Company, open for a period fixed by the
            directors to the holders of shares, whose names appear on the Register of Members of the
            Company on a fixed record date in proportion to their then holdings of such shares as at
            that date (subject to such exclusions or other arrangements as the directors may deem
            necessary or expedient in relation to fractional entitlements or having regard to any
            restrictions or obligations under the laws of, or the requirements of any recognised
            regulatory body or any stock exchange in, any territory applicable to the Company).''
                                         LAI SUN GARMENT ANNUAL REPORT 1998-99




      Notice of Annual General Meeting


           (C)   ``THAT subject to the passing of the Ordinary Resolutions Nos.4(A) and 4(B) in the Notice
                 convening this Meeting, the general mandate granted to the Directors and for the time being in
                 force to exercise the powers of the Company to allot shares and to make or grant offers,
                 agreements and options which might require the exercise of such powers be and is hereby
                 extended by addition thereto of an amount representing the aggregate nominal amount of shares
                 in the share capital of the Company which has been purchased by the Company since the
                 granting of such general mandate pursuant to the exercise by the Directors of the powers of the
                 Company to purchase such shares, provided that such amount shall not exceed 10% of the
                 aggregate nominal amount of the share capital of the Company in issue as at the date of this
                 Resolution.''

                                                                                          By Order of the Board
                                                                                             Yeung Kam Hoi
                                                                                            Company Secretary

      Hong Kong, 12th November, 1999

      Notes:

      1.   A Member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more
           proxies to attend and, on a poll, vote on his behalf. A proxy need not be a Member of the Company.

106   2.   To be valid, a form of proxy, together with the power of attorney or other authority (if any) under
           which it is signed, or a notarially certified copy of such power or authority, must be lodged with the
           Company's Registrars, Tengis Limited, at 1601 Hutchison House, 10 Harcourt Road, Central, Hong
           Kong, not less than 48 hours before the time appointed for holding the Annual General Meeting or
           adjourned meeting (as the case may be). Completion and return of the form of proxy shall not
           preclude members from attending and voting in person at the Annual General Meeting or at any
           adjourned meeting should they so wish.

      3.   A circular containing details regarding Ordinary Resolutions Nos.4(A) to 4(C) above will be sent to
           shareholders together with the 1998/1999 Annual Report.

								
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