Unaudited Results for the First Quarter ended 31 March 2008

Profit & Loss

Balance Sheet

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Commentary on Financial Results

Revenue

For the first quarter ended 31 March 2008 ("Q1 08"), the Group recorded revenue of approximately RMB506.1 million, an increase of approximately RMB231.9 million or 84.6% over revenue of approximately RMB274.2 million for the first quarter ended ended 31 March 2007 ("Q1 07"). The increase in revenue was attributable to (i) the increase of the number of our concessionary retail outlets, (ii) increase in our marketing efforts, and (iii) launching of luggage to the market (no luggage sales for the Q1 07).

Our revenue of Q1 08 recorded an increase of approximately 6.5% over the fourth quarter ended 31 December 2007 ("Q4 07"). Q1 08 luggage sales recorded an increase of 110.2% over Q4 07..



As we build up our brand profile, we were able to increase the retail price and selling price of our DAPAI brand of products in Q1 08. Our ASP for backpacks increased by RMB6.8 or approximately 9.4% from RMB72.4 in Q1 07 to RMB79.2 in Q1 08.

We introduced luggage to the market in September 2007, as we expect the the increasing domestic travel to drive demand for luggage. In Q1 08, we sold approximately 782,000 units of luggage. In Q1 08, our ASP for luggage was approximately 2.6 times that of backpacks. Since luggage were newly launched in September 2007, there was no comparison to Q1 07.



For Q1 08, approximately 94.3% of our products were sold under DAPAI brand. All our DAPAI brand of products were sold in China. The rest were OEM sales and they were customers overseas such as the EU, US, Canada and Australia. Going forward, in line with our brand building strategy, we will be increasingly focused on sales under our own brand.

Cost of sales and gross profit margin

Our cost of sales increased by approximately RMB157.7 million or 84.6% from approximately RMB186.5 million in Q1 07 to approximately RMB344.2 million in Q1 08. The increase was in line with the increase in revenue.

Our gross profit increased by approximately RMB74.2 million or 84.5% from approximately RMB87.7 million in Q1 07 to approximately RMB161.9 million in Q1 08. The increase in gross profit was in line with the increase in revenue.

Our overall GP margin remained unchanged for the two periods. For backpacks, our GP margin decreased slightly by 0.2 percentage points from approximately 32.0% in Q1 07 to approximately 31.8% in Q1 08 due to different composition of product mix. Since luggage were newly launched in September 2007, there was no comparison to Q1 07.

Our overall GP margin of Q1 08 decresed by 0.4 percentage points over the Q4 07. The decrease was due mainly to changes in the product mix.

Other Income

Other income increased by approximately RMB362,000 from approximately RMB52,000 in Q1 07 to approximately RMB414,000 in Q1 08 due to increase in bank deposits. Our other income comprises mainly interest income from bank deposits.

Operating expenses

(a) Selling and distribution expenses

Our selling and distribution expenses increased by approximately RMB8.6 million or 57.1% from approximately RMB15.1 million in Q1 07 to approximately RMB23.7 million in Q1 08. The increase was in line with the expansion of our distribution network and our strategy to increase marketing efforts and to build brand awareness and was due mainly to an increase in entertainment expenses of approximately RMB3.3 million, in traveling expenses of approximately RMB0.5 million, in advertising expenses of approximately RMB1.4 million, in salaries and staff-related expenses of approximately RMB0.1 million , in exhibition expenses of approximately RMB1.7 million and in miscellaneous selling and distribution expenses of approximately RMB1.6 million.

In Q1 08, entertainment expenses increased by approximately RMB3.3 million as we stepped up our efforts to work more closely with our distributors.


(b) Administrative expenses

Our administrative expenses increased by approximately RMB2.5 million or 43.6% from approximately RMB5.8 million in Q1 07 to approximately RMB8.3 million in Q1 08.

The increase was due mainly to increases in salaries and staff-related expenses of approximately RMB0.7 million, in traveling and entertainment expenses of approximately RMB1.0 million and in general office and administrative expenses of approximately RMB0.8 million

In Q1 08, salaries and staff-related expenses increased by approximately RMB0.7 million, which was mainly attributable to an increase in social security fees and in line with the social welfare measures required by the Chinese government for the workers.


(c) Finance costs

Our finance costs increased by approximately RMB0.3 million or 74.9% from approximately RMB0.4 million in Q1 07 to approximately RMB0.7 million in Q1 08. This was due mainly to an increase in interest expenses as our average short-term bank borrowings increased from RMB18.4 million in Q1 07 to approximately RMB22.7 million in Q1 08. The increased bank borrowings in Q1 08 was undertaken for our working capital purpose.


(d) Income tax expenses

Our income tax expenses increased by approximately RMB10.8 million or 82.7% from approximately RMB13.1 million in Q1 07 to approximately RMB23.9 million in Q1 08. The increase was due mainly to the increase in profit before tax in Q1 08. Our income tax expenses represent the effective tax rates of approximately 19.7% in Q1 07 and approximately 18.4% in Q1 08. The applicable income tax rates for our two wholly owned subsidiaries in PRC were 15.0% for Dapai (China) Bags Co., Ltd (“Dapai”) and 27% for Quanzhou Dabao Light Industrial Co., Ltd (“Dabao”) in Q1 07, and 15.0% for Dapai and 25% for Dabao in Q1 08.

Commentary

Our comments below include forward-looking statements involving known and unknown risks (please refer to the section entitled “Risk Factors” in our prospectus dated 9 April 2008), uncertainties and unforeseen circumstances that may cause our actual results to be materially different from those contained in the forward-looking statements.

We expect that major events such as the upcoming 2008 Beijing Olympic Games, the 2010 Shanghai Expo and 2010 Guangzhou Asian Games, as well as the sustained growth of the PRC economy which resulted in higher purchasing power will continue to underpin demand for our products in the PRC. In view of these growth opportunities, we will continue to focus on our product development and network expansion, as well as enhancing our DAPAI brand value through advertising and promotion, particularly on TV media.

We will continue to leverage on various forms of advertising avenues to grow our DAPAI brand value and market share. We have signed agreements for sponsoring the China gymnastics team in the upcoming Olympic Games 2008, and the 2007 – 2008 China Women's' National Basketball Tournament. In late July or early August 2008, we will start to advertise through CCTV5 and Hunan TV. We anticipate that after the launching of our TV advertisements, our DAPAI brand visibility will be increased and our DAPAI brand image will be further strengthened.

We introduced luggage to the mass market in September 2007 through our existing distribution network used in distributing our backpacks, and have successfully sold approximately 782,000 units of luggage in Q1 08. We intend to continue to use our existing distribution network to expand our product offering by including a wider range of luggage. By tapping on our existing extensive distribution network in China, we are in the position to increase our sales of luggage.