There is no assurance that we will be able to compete effectively against competitors who may have greater financial resources, greater scales of production, superior technology, better brand recognition and a wider, more diverse and established sales network. In order to maintain our market share and remain competitive, we may be forced to provide more sales incentives to our staff and distributors, and increase capital expenditures, which may in turn negatively affect our profit margins and our results of operations.

In addition, with the liberalisation measures adopted pursuant to the PRC’s accession to the World Trade Organisation, or WTO, foreign brands are permitted to expand their business in the PRC with fewer restrictions. Further, as the economy continues to grow in the PRC, consumers are expected to accumulate greater purchasing power and can more readily afford foreign brands. As a result, more foreign brands have entered, and are continuing to enter, the PRC market, which further increases competition in the ladies-wear industry in the PRC.

# Our sales volume is sensitive to seasonality effects and weather patterns

Our performance is subject to seasonal trends or fluctuations. Sales amounts may vary throughout the year with relatively higher levels of sales for our fall/winter collections and lower levels of sales for our spring/summer collections because the unit selling price for our fall/winter apparel products is generally higher than that for spring/summer apparel products. We also record higher sales typically around holiday and festive seasons such as the Chinese New Year and the Chinese National Day. As a result, comparisons of sales and operating results between different periods within a single financial year, or between different periods in different financial years, are not necessarily meaningful and cannot be relied on as indicators of our performance. In addition, since we operate largely on a seasonal cycle, if our outsourced OEM contractors fail to deliver on a timely basis as a result of extreme and unseasonable weather conditions, our sales in any season and our results of operations could be materially and adversely affected.

Extreme changes in weather patterns could also affect consumers’ purchasing behaviour, which may lead to fluctuations in our sales revenue. For example, extended periods of unseasonably warm weather during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with such unseasonable weather conditions. These extreme or unseasonable weather conditions could have a material adverse effect on our results of operations.

# Natural disasters, acts of war, political unrest and epidemics, which are beyond our control, may cause damage, loss or disruption to our business

Natural disasters, acts of war, political unrest and epidemics, which are beyond our control, may materially and adversely affect the economy, infrastructure and livelihood of the people of the PRC. Some cities in the PRC are particularly susceptible to floods, earthquakes, sandstorms, snowstorms and droughts. Our business, financial condition, results of operations and prospects may be materially and adversely affected if such natural disasters occur in places where we operate or where our products are sold, whether directly or indirectly. Political unrest, acts of war and terrorists attacks may cause damage or disruption to us, our employees, our self-operated retail stores, the distribution channels operated by our distributors and our markets, any of which could materially and adversely affect our sales, cost of sales, overall results of operations and financial condition. The potential for war or terrorists attacks may also cause uncertainty and cause our business to suffer in ways that we cannot currently predict. In addition, certain Asian countries, including the PRC, have encountered epidemics, such as SARS or