DAPAI INTERNATIONAL HOLDINGS CO. LTD. ANNUAL REPORT 2012

DAPAI INTERNATIONAL HOLDINGS CO. LTD. ANNUAL REPORT 2012

CONTENTS 01 02 04 09 11 12 13 27 30 31 33 34 35 36 37 69 71 Corporate Profile Chairman s Statement Financial & Operations Review Board of Directors Key Management Corporate Information Corporate Governance Directors Report Statement by Directors Independent Auditors Report Consolidated Statement of Comprehensive Income Statements of Financial Position Consolidated Statements of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statement Shareholdings Statistics Notice of Annual General Meeting

CORPORATE PROFILE Dapai International Holdings Co. Ltd. ( 达派国际控股有限公司 ) ( Dapai or the Group ), is the largest branded backpack company in the People s Republic of China (PRC). The Group designs, develops, manufactures and sells backpacks under the DAPAI ( 达派 ) brand. It was listed on the Mainboard of SGX-ST on 18 April 2008 as China Zaino International Ltd. Since its conceptualisation in 2001, DAPAI was named 2006 Top 12 Bag Brands in China by the China Leather Industry Association and Top 500 Asia Valuable Brand Award by the Supervision and Management Centre of Asia International Brand Certification in 2007. The Group had previously engaged Tian Liang, an Olympic gold medallist-turned celebrity, as its official brand ambassador. Leveraging on its expertise in producing backpacks, Dapai expanded into the luggage segment in September 2007 and this particular segment has contributed between 25% to 34% of the Group s revenue for the past three financial years. The Group s products are sold through distributor-owned concessionary retail outlets in different provinces, autonomous regions and municipalities across China located within department stores, supermarkets and hypermarkets in the PRC. The Group is the exclusive backpack sponsor for the 2007-2008 China Women s National Basketball Tournament, the China gymnastic team in the 2008 Beijing Olympic Games and 2010 Tour of Hainan international cycling event held in Hainan Province. Dapai is headquartered in Quanzhou City, Fujian Province, PRC. ANNUAL REPORT 2012 01

CHAIRMAN S STATEMENT Dear Shareholders, On behalf of the Board of Directors, I would like to present Dapai International Holdings Co. Ltd. s Annual Report and Audited Financial Statements of the Group and of the Company for the financial year ended 31 December 2012 ( FY 2012 ). FY 2012 had been a challenging year for the Group both economically and operationally. The China economic growth is slowing more quickly than initially hoped. The latest data of 2012 from the National Bureau of Statistics showed that China s GDP had experienced slow growth since 2009, and putting the economy on course for its slowest expansion. Uncertainties in economy have shaken consumer confidence and thus posed adverse impact in local consumer spending. Together with the indication of global economic depression, market sentiment and business confidence in China slump further. In FY 2012, intense competition and pricing pressure continued to plague the Group, leading to the continued adoption of the substantial downward pricing strategy on our Dapai s products for the first six months of the financial year. For the first quarter of FY 2012, the Group had given 50% discounts on all our products sold domestically so as to remain competitive. Subsequently, in the second quarter of FY 2012, these discounts were reduced to 30%, until the cessation of all such discounts with effect from 1 July 2012. Though a painful decision, the Management felt that it was necessary and essential. Owing to the substantial loss reported since first quarter ended 31 March 2012, and in view of the deteriorating market demand and the slow sales performance of our Dapai products, resulting in potential excess and idle production capacity, in accordance with the requirements of the Singapore Financial Reporting Standards No. 36 Impairment of Assets, the Board consequently conducted a comprehensive review of the carrying value of its non-current assets. The comprehensive review included appointing independent professional valuers to assess the value of the Group s land use rights, property, plant and equipment and construction-in-progress. Arising from the aforementioned review and after careful assessment, a substantial write-down of the book value of the non-current assets as at 31 December 2012 had to be made to comply with the relevant accounting standards and this had a significant impact on the results for FY2012. Factoring in the aforementioned incidences, the Group recorded a gross loss of RMB172.5 million and net loss attributed to shareholders of RMB865.8 million in the reporting year. In addition, I would also like to make reference to previous announcements made in relation to the unaudited full year financial statements for the year ended 31 December 2012 and the replies to the queries raised by SGX-ST, and would like to take this opportunity to update all shareholders that the subsequent appointment of the independent third party international valuation company, to conduct a separate valuation exercise, had been completed. The net valuation of the major classes of noncurrent assets fair value, namely, the Group s land use rights, and property, plant and machinery, did not yield any significant difference when compared to the initial assessment. Therefore, no adjustment had been made in relation to net impairment of RMB466.6 million that had already been charged to the profit and loss during the year. To conclude, the management has identified the major factors which will continue to affect the Group s performance in the near term, including: (i) changing market conditions (local and OEM); (ii) fluctuation of the raw materials and labour costs; (iii) consolidation of distributors and points of sales; and (iv) high finance costs resulting from the bank borrowings. In response, the Group has instituted a more stringent control on operating costs as an immediate measure to mitigate the above impacts. The Group will also continue to adjust its product mix to address the changing market conditions in order to maintain our revenue. In addition, the management will continue to re-strategise the distribution model and channel of our products to the mass market, the consolidation of our product range to better manage production costs and margins, and continue to implement costs cutting measures and step up its efforts in trade debts collection to ease the cashflow of the Group. Notwithstanding the credit tightening effects in the PRC, the Group is confident that we will not be facing any liquidity crunch as our principal bankers had indicated that they will continue supporting the Group and will roll over our facilities upon maturity. Pursuant to the Revised Code of Corporate Governance and Listing rules announced earlier in the reporting year, the Group is taking measures to strengthen its already transparent corporate governance. The Board will continue to work closely with the audit committee, external professionals and regulators to stringently administer the best practice and code of conduct to the executives, as well as maintaining an effective and standardized system of risk management and internal controls to safeguard our shareholders interests. Outlook and Strategy The past year had been a challenging one for the Group and I believe that 2013 will continue to present more challenges. I am cautious about the outlook for 2013 due to the ongoing challenging economic and operational environment. Notwithstanding this, I remain committed and will continue to focus on exploring new strategies to tackle the challenges ahead. With the cessation of the substantial downward pricing adjustments and the controlling and cutting down on expenditures, I believe that this will potentially lead to better cash conservation and limit the outflow of cash. We are also committed to maintaining the debt collection efforts and will devise better product mix to maximize profit margins. Appreciation I would like to take this opportunity to express my sincere appreciation to my fellow Board Directors, loyal customers, suppliers, business associates for your support. My heartfelt appreciation also extends to all staff for their hard work and commitment to the Group. Last but not least, I would like to extend my greatest gratitude to all the loyal shareholders for your belief and support. Chen Xizhong Executive Chairman 02 ANNUAL REPORT 2012

主席致辞 尊敬的各位股东, 我在此代表董事会, 呈现达派国际控股有限公司截至 2012 年 12 月 31 日的 ( 2012 财年 ) 年报及本集团, 及本公司经审计的财务报表 2012 财年集团在经济上和运作方面是个充满挑战的一年 中国经济放缓的速度比最初预计的还长 根据最新来自国家统计局的统计数据显示,2012 年中国的国内生产总值经历了自 2009 年以来最缓慢的增长, 导致经济发展最慢的扩张 由于经济上的不确定性, 动摇了消费者的信心, 从而在本地消费开支造成不利影响 加上全球经济衰退, 中国市场情绪和商业信心进一步下滑 在 2012 财年中, 激烈的竞争和价格压力持续困扰本集团, 导致集团继续采用大幅下调本财政年度首六个月的达派的产品定价策略 以保持产品的竞争力,2012 财年第一季度, 本集团提供了 50% 的折扣给与我们所有在国内销售的产品 随后, 在 2012 财年第二季度, 这些折扣降低到 30%, 直到 2012 年 7 月 1 日起, 本集团已经停止所有这样的折扣 虽然是一个痛苦的决定, 管理层认为, 这是必须的和必要的 由于截至 2012 年 3 月 31 日止的第一季度大幅亏损, 以及不断恶化的市场需求和我们达派产品缓慢的销售业绩增长, 导致潜在过剩和闲置产能, 根据新加坡财务的要求, 会计准则第 36 号 - 资产减值, 因此进行了全面非流动资产的账面价值评估 全面评估包括委任独立专业估值师, 以评估本集团的土地使用权, 物业, 厂房及设备和在建工程的价值 由于从上述审查和仔细的评估, 大量截至 2012 年 12 月 31 日的非流动资产账面价值, 根据相关会计准则必须减值, 因此显着影响了 2012 财年的业绩 考虑上述的因素, 本集团录得毛损 RMB1.73 亿, 净亏损在报告年度归属于股东的 RMB8.66 亿 此外, 我也想要参考之前所公布过有关未经审核截至年度 2012 年 12 月 31 日止的全年财务报表, 以及所答复新交所提出的疑问, 并想借此机会, 给各位股东汇报, 随后委任的独立第三方国际估值公司来进行独立的估值工作, 已完成 根据他们的报告, 非流动资产的公允净价值, 主要类别, 即包括本集团的土地使用权, 以及物业, 厂房及机器的, 跟最初的评估没有取得任何显着的差异相比, 因此, 没有作出任何调整本年内, 原先已确认的损益扣除的 RMB466.6 万元的净减值 总结而言, 管理层已确定了一些将继续影响本集团在短期内的表现的主要因素, 它们包括 :( 一 ) 不断变化的市场条件 ( 当地和 OEM),( 二 ) 波动 的原始材料和劳动力成本 ;( 三 ) 整合的分销商和销售点, 及 ( 四 ) 从银行借贷的财务利息高 为此, 本集团已经制定了更严格的控制运营成本的措施, 作为紧急措施, 以减轻上述问题的影响 本集团亦将继续调整其产品组合, 来满足不断变化的市场条件, 以保持我们的收入毛利 此外, 管理层将继续重新制定战略, 面向大众市场调整我们的产品的分销模式和渠道, 巩固我们的产品占有, 更好地管理生产成本和利润, 并继续实施成本削减措施, 并加紧努力收回应收债务, 以减轻本集团的现金流压力 尽管在中国的信贷紧缩政策的影响下, 本集团有信心, 我们将不会面临任何流动性紧缩, 我们的主要银行家们表示, 他们将继续支持本集团, 推动设备更新换代 根据经修订的守则早些时候宣布在报告年度的企业管治及上市规则, 本集团已采取措施, 加强其已经透明的公司治理 董事会将继续紧密合作, 与审计委员会, 外部专业人士和监管, 严格管理高管们遵循最佳实践和行为准则, 以及维持一个有效的风险管理和内部控制, 规范的制度, 以保障本公司股东 的利益 展望及策略过去的一年, 对于集团来说, 一直是个充满挑战性的一年, 我个人相信,2013 年将继续面临更多新的挑战 由于 2013 年持续的具有挑战性的经济和操作环境, 我个人对集团的前景持谨慎的态度 尽管如此, 我仍然承诺, 将继续专注于拓展新的战略空间, 克服这些挑战 随着本集团停止大幅下调价格的调整和控制及削减开销支出, 我相信, 这尽可能让本集团产生更多的现金结余和限制现金流出 我们还致力于维持债务的收款工作, 并设计出更好的产品组合, 以最大限度地提高利润率 致谢我想借此机会衷心的感谢我的董事们, 忠实的客户, 供应商, 业务伙伴给与集团的支持 我也衷心感谢集团所有工作人员付出的辛勤工作 最后, 我想向所有忠实的股东表达我最大的谢意, 感谢你们给与 达派 延长信念和支持 陈锡忠执行主席 ANNUAL REPORT 2012 03

FINANCIAL AND OPERATIONS REVIEW FINANCIAL REVIEW Consolidated Income Statement Revenue by products (RMB) 240.6m 24.7% 734.1m 75.3% 512.0m 34.0% 990.3m 66.0% Volume from the backpacks segment had declined in FY 2012, by approximately 3.1 million units or 18.1%. Similarly, volume from the luggage segment had declined in FY 2012, by approximately 1.4 million units or 45.4%. The decline in the overall volume of our backpacks and luggage was due largely to keen competition and slow consumption of our Dapai products. FY2012 Backpacks In FY 2012, the Group recorded a decline in revenue of approximately RMB527.6 million, a decrease of 35.1% from FY 2011. Both the backpack and luggage segments recorded declines of approximately RMB256.2 million and RMB271.4 million, respectively. The decline in sales revenue for our products was mainly due to the continued keen competition and and the slow down in consumption of our products. In addition, certain distributors had ceased their distribution agreements wit the Group, thus resulting in a reduction in the points of sales. In addition, during the first half of FY 2012, the Group continued the adoption the substantial downward pricing adjustment to our Dapai products. The substantial downward pricing adjustment was a 50% discount on the prices of our products during 1Q 2012 and was subsequently reduced to 30% in 2Q 2012 and all discounts had ceased with effect from 1 July 2012. These discounts contributed to the overall decline in the revenue recognised during the financial year. Backpacks Luggage Overall Luggage FY2011 Volume ( 000 units) FY2012 FY2011 Change 14,213 17,358-18.1% 1,706 3,126-45.4% 15,919 20,484-22.3% Average selling price (RMB) FY2012 FY2011 Change The Group s overall Average Selling Price ( ASP ) for FY 2012 had decreased by approximately RMB12.1 or 16.5%, to RMB61.2 per unit, as compared to RMB73.3 per unit for FY 2011. Decline in overall ASP for FY 2012 was due largely to the substantial downward pricing adjustments during the first six months of FY 2012 and the product mix in the second six months, which consisted mainly the lower price tier range products being sold to our distributors. The Group suffered gross losses of RMB172.5 million, while compared to a gross profit of RMB8.4 million in FY 2011. The gross loss as at FY 2012 was due to the significant gross loss brought about in the first half of 2012, which the gross profit in second half of 2012 had only partially offset the negative impact of the significant downward pricing adjustments for the first six months. Other income declined by RMB2.6 million in FY 2012 was due mainly to the decrease in the placement of deposits with our principal bankers for the year under review and a reduction in the grants received. The Group s selling and distribution expenses for FY 2012 had decreased by RMB143.3 million or 68.8% to RMB64.8 million, from RMB208.1 million in FY 2011. The significant decrease was due mainly to: to the cessation of amortization of deferred expenditure (prepaid rental) of RMB73.0 million and depreciation of leasehold improvements in relation to the 500 retail outlets of RMB41.9 million; Backpacks Luggage Overall 51.7 57.1-9.5% 141.0 163.8-13.9% 61.2 73.3-16.5% 04 ANNUAL REPORT 2012

to the decrease in advertising and promotion expenses of RMB24.4 million; to the decrease in other expenses of RMB4.0 million. The Group s administrative expenses had increased by approximately RMB10.5 million, from RMB108.5 million in FY 2011 to RMB119.0 million, in FY 2012. This was due mainly to an increase in: depreciation expenses of approximately RMB1.8 million; staff salaries and related expenses of approximately RMB1.0 million; and a provision of doubtful debts amounting to RMB25.3 million. However, the above increase was partially offset by a decrease in: the travelling and business expenses of RMB5.5 million; the repair and maintenance expenses of RMB4.9 million, which FY 2012 was nil; and other general and administrative expenses of approximately RMB7.2 million. Other expenses for the Group relate to allowances for impariment of certain classes of non-current assets. For FY 2012, an amount of RMB124.9 million and RMB341.7 million were allowances for impairment of land use rights, and property, plant and equipment, respectively. This impairment charge resulted from the valuation exercise conducted by the Group during the year to determine the carrying value as at 31 December 2012. This valuation exercise was carried out by an independent third party valuation company. For FY 2011, the allowances for impairment amounted to: impairment of property, plant and equipment of RMB50.6 million; impairment of prepaid rental of RMB26.1 million; leasehold improvements written off of RMB135.1 million; and prepaid rental written off of RMB57.3 million. The impairment charges and write-offs for FY 2011 were in relation to the Group s retails outlets being closed down and accordingly, the related prepaid rental and leasehold improvements being impaired and written off. The Group s finance costs increased by RMB2.6 million from RMB1.7 million in 4Q 11 to RMB4.3 million in 4Q 12 and had also increased by RMB9.1 million from RMB3.6 million in FY 2011 to RMB12.7 million in FY 2012. The significant increase in 4Q 12 and FY 2012 interest expense was due to the increase in the interest bearing bank borrowings outstanding as at end of the financial year. The Group s income tax expenses for FY 2012 amounted to RMB30.9 million. This was the direct result of the sales discounts due to the Downward Pricing Adjustments not being allowed/ permitted as deductibles by the local tax bureaus in the PRC during the filing of the quarterly income tax assessments by the Group, which amounted to approximately RMB204.3 million, and an underprovision of income tax of approximately RMB2.3 million, due to additional non-deductibles. In addition, the overall income tax expense had increased as compared to FY 2011 was also contributed to the lack of a reversal of deferred tax liability amounting to RMB35.7 million, that had partially offset FY 2011 s income tax expenses. Financial Position Non-current assets Our non-current assets comprise mainly land use rights, intangible assets, property, plant and equipment, construction in progress and deferred expenditures. Land use rights amounted to RMB28.0 million and RMB156.5 million as at 31 December 2012 ( FY 2012 ) and 31 December 2011 ( FY 2011 ), respectively. They comprise mainly the land use rights for Dapai (China) Bags Co., Ltd ( Dapai ), Dapai (China) Co., Ltd ( Dapai China ) and Dapai Anhui Co. Ltd ( Anhui ). The decrease was due mainly to the amortization of the land use rights and the impairment charge of approximately RMB124.9 million during the year. ANNUAL REPORT 2012 05

FINANCIAL AND OPERATIONS REVIEW Net book value of property, plant and equipment amounted to RMB232.4 million and RMB584.2 million as at 31 December 2012 and 31 December 2011, respectively. Property, plant and equipment comprise mainly buildings, plant and machinery, furniture, fixtures, office equipment, motor vehicles and construction in progress. The decrease was due mainly to: the depreciation charged amounting to RMB24.0 million during the year; an impairment charge of RMB341.7 million; and a write off amounting to RMB0.3 million. This impairment was the direct result of the annual assessment on the carrying value of the property, plant and equipment, which was conducted in accordance with FRS36 to determine the recoverable amount of the property, plant and equipment. Based on the independent third party valuation company s initial assessment, an impairment amounting to RMB341.7 million had been charged to profit and loss, therefore, resulting in the carrying value as at 31 December 2012. In addition, with reference to previous announcements made in relation to the unaudited full year financial statements for the year ended 31 December 2012 and the replies to the queries raised by SGX-ST, the Board of Directors would like to take this opportunity to update all shareholders that the subsequent appointment of the independent third party international valuation company, to conduct a separate valuation exercise, had been completed. The net valuation of the major classes of noncurrent assets fair value, namely, the Group s land use rights, and property, plant and machinery, did not yield any significant difference when compared to the initial assessment. Therefore, no adjustment had been made in relation to net impairment of RMB466.6 million that had already been charged to the profit and loss during the year. However, this decrease was partly offset by: additions of construction in progress of RMB10.7 million; and additions of plant and machinery amounting to RMB3.5 million. Current Assets Our current assets comprise mainly inventories, trade receivables, prepayments and other receivables and cash and bank balances. Inventories comprise mainly raw materials, work in progress and finished goods. Inventories amounted to RMB41.1 million and RMB33.1 million as at 31 December 2012 and 31 December 2011, respectively. The increase in inventories was to the Group holding on to slightly more finished goods. Trade receivables amounted to RMB51.8 million and RMB379.8 million as at 31 December 2012 and 31 December 2011, respectively. The reduction of approximately RMB327.8 million was due mainly: to the increase in efforts by the Group in collection of debts; and a provision of doubtful debts of RMB25.3 million. The overall slowdown in sales in the second half of the financial year further contributed to the overall decline in trade receivables. General credit terms remained unchanged at 90 days. Prepayments and other receivables amounted to RMB85.2 million and RMB48.0 million as at 31 December 2012 and 31 December 2011, respectively. The increase was due mainly to the increase in: VAT recoverable in FY 2012 amounting to RMB16.8; Deposits placed with 2 suppliers amounting to RMB30.0 million. These are security deposits placed for the securing of raw materials for production in FY 2013; and 06 ANNUAL REPORT 2012

an increase in other receivables of RMB0.3 million. However, this increase was partially offset by the expensing off of the prepaid billboard advertising campaign carried forward since FY 2011, in prepayments of RMB9.9 million. Cash and bank balances amounted to RMB32.9 million and RMB221.5 million as at 31 December 2012 and 31 December 2011, respectively. The decrease was due to net cash being used for operating activities. Current Liabilities Our current liabilities comprise mainly trade and bills payables, accrued liabilities and other payables, interest-bearing bank borrowings and income tax payable. Trade and bills payables amounted to RMB62.0 million and RMB343.7 million as at 31 December 2012 and 31 December 2011, respectively. The decrease was due mainly to more prompt settlement by the Group during the year. In addition, the reduction was partially contributed by lesser purchases of raw materials from our suppliers, due to the slowdown in sales in the second half of FY 2012. Accrued liabilities and other payables amounted to RMB10.7 million and RMB11.5 million as at 31 December 2012 and 31 December 2011, respectively. Accrued liabilities and other payables comprise mainly accrued liabilities (mainly accrued wages, insurance and staff welfare), other payables and advance payments from customers (mainly deposits received from overseas customers). The decrease of RMB1.6 million was due to lesser accrued liabilities at year end. Loan from a director, refers to a loan given by a director, Mr. Chen Xizhong to the Group. This loan is a unsecured, interest-free, and is to be repaid within 12 months. This loan is for the operational benefit of the Group. Interest-bearing bank borrowings amounted to RMB270.0 million and RMB79.0 million as at 31 December 2012 and 31 December 2011, respectively. The increase was due mainly to the additional drawdown of bank borrowings during the year, to maintain the Group s operational cashflow. There was no provision for income tax payables for the year ended 31 December 2012 as all tax liabilities had been paid. Commentary on Cash Flow Cash and cash equivalents amounted to RMB29.3 million and RMB221.5 million as at 31 December 2012 and 31 December 2011, respectively. For FY 2012, net cash used in operating activities amounted to approximately RMB359.1 million, which was due to the net cash used in operations of RMB327.2 million, coupled with payments for income taxes of approximately RMB31.8 million. Net cash used in investing activities amounted to approximately RMB13.9 million, which was the direct result of the acquisitions of:- property, plant and equipment of approximately RMB3.0 million; construction-in-progress (proposed production facility for Dapai Anhui) of approximately RMB11.2 million; and interest received of RMB0.3 million, which partially offset the above cash used in investing activities. ANNUAL REPORT 2012 07

FINANCIAL AND OPERATIONS REVIEW Partially offsetting the overall cash outflow was an increase in net bank borrowings obtained during the year, amounting to approximately RMB191.0 million and a loan from director of RMB6.0 million. However, the above cash flow were partially offset by an increase in the fixed deposits pledged of RMB3.5 million and an interest expense payment of RMB12.7 million. The overall decrease in cash and cash equivalents for FY 2012 amounted to approximately RMB180.8 million. For FY 2012, the Group had suffered negative working capital due largely to the substantial downward pricing adjustments and sluggish sales, coupled with continued operating expenses. The Group had and will be relying on costs cutting measures to curb unnecessary cash outflow. In the coming months, the Group will continue efforts to step up collection of debts and closely monitor and control expenditure. The short term interest-bearing bank borrowings are renewable yearly and our principal bankers had indicated that the bank borrowings will be rolled-over upon its maturity. The Group therefore, is confident that it will not be facing any liquidity crunch in the near future. OPERATIONS REVIEW Since FY 2011 till now, the Group had been experiencing a slowdown in the sales of our Dapai s products year on year. The operating environment had also turned more challenging as competition intensified and the Group had to adopt a substantial downward pricing adjustment to all our products in order to remain competitive from the period of July 2011 to June 2012. However, the Group had ceased all such discounts with effect from July 2012. The Group continued to be plagued by the poor market sentiment and sluggish consumption of Dapai s products, which led to cessation of distrubution agreements with certain distributors. This resulted in the withdrawal of points of sales from departmental stores, supermarts and hypermarts, operated by these respective distributors, thereby, resulting in the overall decline in the Group s results performance in FY 2012. Owing to the substantial loss reported since first quarter ended 31 March 2012, and in view of the deteriorating market demand and the slow sales performance of our Dapai products, which resulted in potential excess and idle production capacity within the Group s assets, in accordance with the requirements of the Singapore Financial Reporting Standards No. 36 Impairment of Assets, the above represents both internal and external indicators of impairment and therefore, the Board consequently conducted a comprehensive review of the carrying value of its non-current assets. The comprehensive review included appointing independent professional valuers to assess the value of the Group s land use rights, property, plant and equipment and construction-in-progress. After careful assessment, it was necessary to make a substantial write-down of the book value of the non-current assets as of the year ended 31 December 2012. The decision had brought a significant impact in the financials for the reporting year. 08 ANNUAL REPORT 2012

BOARD OF DIRECTORS Chen Xizhong Executive Chairman Chen Xizhong was appointed to our Board on 26 December 2007. He is the founder of our Group and is responsible for the strategic development of our Group. Chen Xizhong has over 20 years of experience in the backpack industry. He joined the Huian Leather Company, a state owned enterprise engaged in the manufacturing of backpacks in 1982 as an apprentice and was eventually promoted to the head of the sales department of Huian Leather Company. He left Huian Leather Company in December 1994 and went on to work in Dabao in 1995 and was subsequently made the executive director. After gaining much expertise, Chen Xizhong incorporated Dapai in April 2003. He has been in charge and responsible for Dapai s daily operations and was eventually made the executive director of Dapai, a position which he still holds today. Chen Xizhong graduated from Fujian Huian Province Number One Secondary School in 1980 with a certificate in Business. Throughout his years in the backpack industry, he has won many awards such as Chinese Entrepreneur Figures of the year 2000. He has also assumed leadership positions in a number of various organisations in China such as the Vice- Chairman of Quanzhou Fengze North Street Federation of Overseas Chinese Citizens since 2004, and Vice-Chairman of Quanzhou Sino-Foreign Enterprise Society since 2007. Chen Xizhong is also a member of various other associations in China such as being a committee member of the 12th Chinese People s Political Consultative Conference of Huian County in 2006. Chen Xizhong is the father of our non-executive and non-independent director, Chen Yong and our Sales and Marketing Manager, Chen Yi. Chen Yong Non-Executive and Non-Independent Director Chen Yong was appointed to our Board on 26 December 2007. He was responsible for the strategic development, the overall management and the sales and marketing of our Group. In October 2012, Chen Yong was redesignated as a non-executive and non-independent director. His previous duties were taken over by the Executive Chairman. Chen Yong joined our Group s sales and marketing department in August 2003. Although he only officially joined our Group in 2003, he had often assisted his father, Chen Xizhong, in the daily operations of our Group since young. Through his frequent involvement in our Group s daily operations since young, coupled with the experience he had gained when he officially joined our Group, he was made the assistant to the general manager of Dapai in 2004, the deputy general manager of Dapai in 2005, and eventually, the general manager of Dapai in 2006. Pursuant to the Restructuring Exercise, he was appointed the executive director of Dapai (HK) and Dapai. He was awarded Entrepreneur of the Year 2006 by the Luocheng Town Committee. Chen Yong graduated from King George International College with a specialised diploma in Business in July 2003. Chen Yong is the son of our Executive Chairman, Chen Xizhong and is also the brother of our Sales and Marketing Manager, Chen Yi. ANNUAL REPORT 2012 09

BOARD OF DIRECTORS Chua Meng Hing Lead Independent Director Chua Meng Hing was appointed to our Board on 2 April 2012 and appointed as the Lead Independent Director on 26 November 2012. Currently, Mr Chua is the Managing Director (PRC) for Transaction Origination of Sterling Coleman Capital Limited. Prior to joining the current appointment, Mr Chua was the Vice President and Director of Finance of Xylem China and India (a Company resulting from the spin-off of ITT Corporation). Mr Chua started his career since 1991 in various big auditing firms, namely, KPMG, PricewaterhouseCoopers and Arthur Andersen. Mr Chua was the Financial Controller of Compart Asia Pte Ltd from October 1995 to September 1997 and the Operations Director of Edgematrix Pte. Ltd in 2000. Mr Chua obtained his Bachelor of Accountancy from the National University of Singapore in 1991 and is also a Certified Public Accountant, Institute of Certified Public Accountants of Singapore. Hu Jirong Independent Director Hu Jirong, aged 55, is an independent non-executive Director of the Company. Mr Hu graduated from Jiangxi University of Finance and Economics in 1983 and obtained a master degree in Business Administration from the Open University of Hong Kong in 2000. He holds a Certified Public Accountant license in the PRC. Mr Hu has been the deputy head of Accounting Department in the College of Management of Fuzhou University. Mr Hu has taken up a number of public service positions including a specially contracted auditor of the Fujian Provincial Audit Office and a committee member of the Professional Conduct Committee of Fujian Institute of Certified Public Accountants. Mr Hu has published numerous articles and research reports in the PRC. He is also a member of each of the Audit Committee, the Remuneration Committee and the Nominating Committee of the Company. Richard Tan Kheng Swee Independent Director Mr Richard Tan Kheng Swee was appointed to our Board on 30 April 2012. Mr Tan is a partner at Messrs RHTLaw TaylorWessing LLP s Corporate and Securities Practice. Prior to Mr Tan s current appointment, he previously practised in a mid-sized Singapore law firm as well as in a mid-sized Australian law firm in the State of Victoria, where he advised on a range of matters in relation to corporate advisory, mergers and acquisitions, cross-border refinancing and intellectual property. Mr Tan has over 9 years experience working as a corporate lawyer, and is dually qualified as a Barrister and Solicitor in Victoria, Australia and as an Advocate and Solicitor in Singapore. He has experience advising and representing companies in a wide range of commercial transactions such as asset acquisitions, IPOs and other fund raising exercises, mergers and acquisitions, corporate advisory and compliance involving both listed and private companies. Mr Tan had worked on a number of notable capital markets and M&A transactions in Asia and Australia. Mr Tan obtained his Bachelor of Laws (Honours) from the National University of Singapore in 2003 and his Bachelor of Science (Honours) from the University of Melbourne in 2000 respectively. 10 ANNUAL REPORT 2012

KEY MANAGEMENT Ng Kiat Peen Chief Financial Officer Ng Kiat Peen joined our Group as Chief Financial Officer in July 2011. He oversees and coordinates the operation of our Group s finance department as well as manages all the financial and accounting functions of our Group. Prior to joining our Group, Mr Ng was the Chief Financial Officer of China Angel Food Limited from 2009 to 2011. Preceding this appointment, he was the Chief Financial Officer of China Oilfield Energy Co. Ltd from 2008 to 2009, and the Financial Controller of China Xiangge Land Pte Ltd from 2007 to 2008. Between 2006 and 2007, he was the Finance Manager of Federal Trust (Singapore) Pte Ltd. He has also worked in professional audit firm Ernst & Young from 1999 to 2006. Mr Ng graduated with a Bachelor degree in Accounting and Finance from Curtin University of Technology in 1998. He is a member of the Institute of Certified Public Accountants of Singapore. Wang Xin Min Vice President Wang Xin Min joined our Group in 2010. He held managerial positions in various companies and has over twenty years of experience in the accounting and general administrative matters since 1987. Wong Jin Zhong Production director Wang Jin Zhong joined our Group in 2003 as our procurement manager. He has over ten years of experience in the consumer goods industry. He joined the Zhongxin Tourism Products Co., Ltd as an apprentice in the company s procurement department from 1995 to 1999. Thereafter he joined Shi Meng Tui Si Da Bags and Company Private Limited as the company s deputy factory manager from 1999 to 2003. He graduated from Wuhan Polytechnic in 1995 with a degree in Business Administration. Wang Bin Administration director Wang Bin joined our Group in 2004 as our human resources and administration manager. Previously, he held managerial positions in various companies such as Liuan Transportation Company, Anhui Province, where he was responsible for the Company s general administrative and human resource matters from 1991 to 1995 before establishing his own human resource company in 1995. He graduated from Anhui Radio & TV University in 1991 with a degree in Business Administration. ANNUAL REPORT 2012 11

CORPORATE INFORMATION Directors Chen Xizhong (Executive Chairman) Chen Yong (Non-Executive and Non-Independent Director) Chua Meng Hing (Lead Independent Director) Hu Jirong (Independent Director) Richard Tan Kheng Swee (Independent Director) Joint Company Secretaries Abdul Jabbar Bin Karam Din, LLB (Hons) Loh Lee Eng, ACIS Codan Services Limited (Assistant Company Secretary) Registered Office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal Place of Business High Technology Zone of Fengze District Quanzhou City Fujian Province The People s Republic of China Governance Advisor CNP Compliance Pte Ltd 36 Carpenter Street Singapore 059915 Legal Advisers to the Company as to Singapore law Rajah & Tann LLP 9 Battery Road #25-01 Straits Trading Building Singapore 049910 Legal Advisers to the Company as to Bermuda law Conyers Dill & Pearman Pte. Ltd. 9 Battery Road #20-01 Straits Trading Building Singapore 049910 Auditors Moore Stephens LLP Public Accountants and Certified Public Accountants 10 Anson Road, #29-15 International Plaza Singapore 079903 Partner-in-charge: Ng Chiou Gee Willy (Appointed during the financial year ended 31 December 2012) Singapore Share Transfer Agent B.A.C.S. Private Limited 63 Cantonment Road Singapore 089758 Bermuda Share Registrar Codan Services Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal Bankers Industrial Bank Co., Ltd., Huian Branch No.154 Hudong Road Donghua Island, Luocheng Town, Huian County Quanzhou City Fujian Province The People s Republic of China Bank of China Co.,Ltd., Huian Branch No.1 Shi Ling Street, Luocheng Town, Huian County Quanzhou City Fujian Province The People s Republic of China Bank of Quanzhou No.3 Yun Lu Road, Fengze Town Quanzhou City Fujian Province The People s Republic of China China Citic Bank No.60 Louping Road, Gulou Town Fuzhou City Fujian Province The People s Republic of China China Merchant Bank No.99 Hudong Road, Gulou Town Fuzhou City Fujian Province The People s Republic of China 12 ANNUAL REPORT 2012

CORPORATE GOVERNANCE Dapai International Holdings Co. Ltd. (the Company ) is committed to ensuring and maintaining a high standard of corporate governance within the Company and its subsidiaries (the Group ). Good corporate governance establishes and maintains a legal and ethical environment for the Group, which helps to preserve and enhance the interests of all shareholders. This report describes the corporate governance framework and practices of the Company with specifi c reference to the principles of the Singapore Code of Corporate Governance introduced in April 2001 and amended in 2005 (the 2005 Code ). This Report should be read as a whole, instead of being read separately under the different principles of the 2005 Code. The Board has also considered certain corporate practices with reference to the Code of Corporate Governance 2012, which is only applicable to the Company with effect from the fi nancial year commencing 1 January 2013. (A) BOARD MATTERS Board s Conduct of its Affairs Principle 1 : Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. Role of the Board of Directors (the Board ) The Board assumes responsibility for stewardship of the Group and is primarily responsible for the protection and enhancement of long-term value and returns for the shareholders. It supervises the management of the business and affairs of the Group, provides corporate direction, monitors managerial performance and reviews fi nancial results of the Group. In addition, the Board is directly responsible for decision making in respect of the following matters: a. approve the business strategies including signifi cant acquisition and disposal of subsidiaries or assets and liabilities; b. approve the annual budgets, major funding proposals, signifi cant capital expenditures and investment and divestment proposals; c. approve the release of the Group s quarterly and full year s fi nancial results and interested person transactions; d. oversee the processes for risk management, fi nancial reporting and compliance and evaluate the adequacy of internal controls, as may be recommended by the Audit Committee; e. review the performance of Management, approve the nominees to the Board of Directors and appointment of key executives, as may be recommended by the Nominating Committee; f. review and endorse the framework of remuneration for the Board and key executives, as may be recommended by the Remuneration Committee; and g. renew and endorse corporate policies in keeping with good corporate governance and business practice. The Board provides shareholders with a balanced and understandable assessment of the Group s performance, position and prospects on a quarterly basis. To assist in the execution of its responsibilities, the Board has established a number of Board Committees which include an Audit Committee ( AC ), a Nominating Committee ( NC ) and a Remuneration Committee ( RC ), each of which functions within clearly defi ned terms of reference and operating procedures which are reviewed on a regular basis. ANNUAL REPORT 2012 13

CORPORATE GOVERNANCE All the Board Committees are actively engaged and play an important role in ensuring good corporate governance in the Company and within the Group. Board Meetings and Meetings of Board Committees The Board meets on a quarterly basis and whenever necessary for the discharge of their duties. Dates of the Board meetings are normally set by the Directors well in advance. Meetings of the Board and Board Committees may be conducted by way of telephone and video conferencing if necessary. The schedule of all the Board Committee meetings for the calendar year is usually given to all the Directors well in advance during each quarter. Besides the scheduled meetings, the Board meets on an ad-hoc basis as warranted by particular circumstances. The number of meetings held by the Board and Board Committees and attendance held in the fi nancial year ended 31 December 2012 are as follows: Directors Board AC NC RC Number Attended Number Attended Number Attended Number Attended Chen Xizhong 4 4 N/A N/A 1 1 N/A N/A Chen Yong 4 1 N/A N/A N/A N/A N/A N/A Hu Jirong 4 4 5 4 1 1 1 1 *Chua Meng Hing 4 3 5 4 N/A N/A N/A N/A **Richard Tan Kheng 4 2 5 4 N/A N/A N/A N/A Swee ***Wong Hung Khim 4 1 5 1 1 1 1 1 ****Lim Kern 4 1 5 1 1 1 1 1 *****Sam Kok Yin N/A N/A N/A N/A N/A N/A N/A N/A * Appointed as an Independent Director on 2 April 2012, as the Chairman of the AC and the RC and as a member of the NC on 30 April 2012. Mr Chua was also appointed as the Lead Independent Director on 26 November 2012. ** Appointed as an Independent Director, as the Chairman of the NC and as a member of the AC and the RC on 30 April 2012 *** Resigned as an Independent Director and ceased as the Chairman of the AC, NC and RC on 5 March 2012 **** Retired as an Independent Director and ceased as a member of the AC, NC and RC on 30 April 2012 ***** Resigned as an Independent Director and ceased as a member of the AC, NC and RC on 6 January 2012 Training The Board constantly examines its size and, with a view to determining the impact of its number upon effectiveness, decides on what it considers an appropriate size for itself. The composition of the Board is reviewed on an annual basis by the NC to ensure that the Board has the appropriate mix of expertise and experience. All Directors have many years of corporate experience and are familiar with their duties and responsibilities as directors. Upon appointment, each Director will receive a letter of appointment from the Board Chairman explaining his statutory duties and obligations as a member of the Board. In addition, newly appointed Directors will be given briefi ngs by the Board Chairman and/or top management of the Company on the business activities of the Group and its strategic directions, as well as their duties and responsibilities as Directors. The Directors are also briefed by professionals either during Board meetings or at separate meetings on regulatory changes which have an important bearing on the Company and the Directors obligations to the Company. Apart from keeping the Directors informed of all relevant new laws and regulations, the Directors are encouraged to attend training programmes conducted by the Singapore Institute of Directors in connection with their duties as Directors. The Company welcomes Directors to seek explanations or clarifi cations from and/or convene informal discussions with the Management on any aspect of the Group s operations or business. Necessary arrangements will be made for the informal discussions or explanations as and when required. 14 ANNUAL REPORT 2012

CORPORATE GOVERNANCE Board Composition and Balance Principle 2 : There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. The Board consists of fi ve (5) Directors, of whom, three (3) are non-executive and independent. The list of Directors are as follows: Executive Director Chen Xizhong (Executive Chairman) Non-Executive Directors Chen Yong Chua Meng Hing Richard Tan Kheng Swee Hu Jirong (Non-Executive and Non-Independent Director) (Non-Executive and Lead Independent Director) (Non-Executive and Independent Director) (Non-Executive and Independent Director) The current Board comprises persons with diverse expertise and experience in accounting, legal, business and management, fi nance and risk management who as a group provide core competencies necessary to meet the Company s requirements. The Directors objective judgement on corporate affairs and collective experience and knowledge are invaluable to the Group and allows for the useful exchange of ideas and views. Independence of Directors The NC reviews the independence of each Director on an annual basis based on the Code s defi nition of what constitutes an Independent Director. The NC is of the view that the three (3) Independent Directors (who represent more than half of the Board) are independent and that the independent element on the Board which is able to exercise objective judgement on corporate matters independently, in particular, from Management, and also ensures that key issues and strategies are critically reviewed, constructively challenged, fully discussed and thoroughly examined, taking into consideration the long-term interests of the Group and its shareholders. No individual or small group of individuals dominate the Board s decision-making process. The NC is responsible for examining the size and composition of the Board and Board Committees. Taking into account the nature of the Group s businesses, the Board considers a board size of between 3 to 5 members as appropriate. The Board believes that its current board size and composition effectively serves the Group. It provides suffi cient diversity without interfering with effi cient decision-making. The NC is satisfi ed that the Board has the appropriate mix of expertise and experience, and collectively possesses the necessary core competencies to lead and govern the Group effectively. Each Director has been appointed on the strength of his calibre, experience and stature and is expected to bring a valuable range of experience and expertise to contribute to the development of the Group s strategy and the performance of its business. The Independent Directors communicate regularly to discuss matters such as the Group s fi nancial performance, corporate governance initiatives, board processes, succession planning as well as leadership development and the remuneration of the Executive Directors. Where necessary, the Company co-ordinates informal meeting sessions for Independent Directors to meet without the presence of the Management to discuss matters such as Board effectiveness and Management s performance. ANNUAL REPORT 2012 15

CORPORATE GOVERNANCE Chairman and Chief Executive Officer Principle 3 : There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The Chairman of the Board is Mr Chen Xizhong. As the Executive Chairman, Mr Chen Xizhong, is responsible for, among others, the exercise of control over quantity, quality and timeliness of the fl ow of information between the management of the Company and the Board. He also schedules Board meetings, oversees the preparation of the agenda for Board meetings and assists in ensuring compliance with the Group s guidelines on corporate governance. Mr Chen Xizhong has taken over the duties of the Chief Executive Offi cer ( CEO ) since 20 October 2011. He together with the Management comprising each subsidiary s general managers and key senior managers, are responsible for the day-to-day management of the Group. All major decisions made by the Executive Chairman are reviewed by the AC. Their performance and appointment are reviewed periodically by the NC and their remuneration packages are reviewed periodically by the RC. As such, the Board believes that there are adequate safeguards in place to ensure a balance of power and authority such that no one individual represents a considerable concentration of power. As the Executive Chairman and CEO, he, with the assistance of the Company Secretary, schedules Board meetings as and when required and prepares the agenda for Board meetings. In addition, he sets guidelines on and ensures quality, quantity, accurateness and timeliness of information fl ow between the Board, the Management and shareholders of the Company. He encourages constructive relations between the Board and the Management and between the Executive Directors and the Independent Directors. He also takes a leading role in ensuring the Company s drive to achieve and maintain a high standard of corporate governance practices. The Board has appointed Mr Chua Meng Hing as the Non-Executive and Lead Independent Director to co-ordinate and to lead the Independent Directors to provide a non-executive perspective and contribute to a balance of viewpoints on the Board. He is the principal liaison on Board issues between the Independent Directors and the Chairman. He is available to shareholders where they have concerns which contact through the normal channels of the Executive Chairman and CEO or the Chief Financial Offi cer has failed to resolve or for which such contact is inappropriate. Board Membership Principle 4 : There should be a formal and transparent process for the appointment of new directors to the Board. The NC is chaired by Mr Richard Tan Kheng Swee (an Independent Director) with the following Directors as members: Chen Xizhong Chua Meng Hing Hu Jirong (Executive director) (Independent director) (Independent director) The primary functions of the NC are as follows: to identify candidates and review all nominations for the appointment or re-appointment of members of the Board, the CEO, and to determine the selection criteria therefor; to ensure that all Board appointees undergo an appropriate induction programme; to regularly review the Board structure, size and composition and make recommendations to the Board with regard to any adjustments that are deemed necessary; 16 ANNUAL REPORT 2012