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TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on February 11, 2011

Registration No. 333-171534

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



AMENDMENT NO. 5 TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Zuoan Fashion Limited
(Exact Name of Registrant as Specified in Its Charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or Other Jurisdiction of
Incorporation or Organization)
  2320
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Rooms 213 to 215, Block 8
No. 1150 Luochuan Middle Road
Shanghai 200072, China
(86) 21-5653-5557
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)



Name of Agent for Service

CT Corporation System
111 Eighth Avenue, 13th Floor
New York, New York 10011
(212) 604-1666

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)



Copies to:

James C. Lin, Esq.
Davis Polk & Wardwell LLP
c/o 18th Floor, The Hong Kong Club Building
3A Chater Road
Hong Kong
(852) 2533-3300
  David Roberts, Esq.
O'Melveny & Myers LLP
37/F, Yin Tai Centre Office Tower
No. 2 Jianguomenwai Avenue, Chaoyang District
Beijing 100022, China
(86) 10-6563-4200



          Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                   

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                   

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                   

CALCULATION OF REGISTRATION FEE

               
 
Title of each class
of securities to be registered

  Amount to be
Registered

  Proposed Maximum
Offering Price Per
Share(3)

  Proposed maximum
aggregate offering price(3)

  Amount of
registration fee

 

Ordinary shares, par value US$0.00025 per share(1)(2)

  27,600,000   US$1.75   US$48,300,000   US$5,607.63(4)

 

(1)
American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered pursuant to a separate registration statement on Form F-6 (Registration No. 333-171669). Each American depositary share represents four ordinary shares.

(2)
Includes ordinary shares represented by American depositary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These ordinary shares are not being registered for the purposes of sales outside the United States. Also includes ordinary shares represented by American depositary shares that are issuable upon the exercise of the underwriters' over-allotment option to purchase additional shares.

(3)
Estimated solely for the purpose of computing the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.

(4)
Previously paid.

          The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS (Subject to Completion)   Dated February 11, 2011
 

LOGO

Zuoan Fashion Limited

6,000,000 American Depositary Shares

Representing 24,000,000 Ordinary Shares



This is an initial public offering of our American depositary shares, or ADSs. We are offering 6,000,000 ADSs. Each ADS represents four ordinary shares, par value $0.00025 per share. The ADSs are evidenced by American depositary receipts, or ADRs.

Prior to this offering, there has been no public market for our ADSs or our ordinary shares. We expect that the initial public offering price will be US$7.00 per ADS. Our ADSs have been approved for listing on the New York Stock Exchange, or NYSE, under the symbol "ZA."

Our business and an investment in our ADSs involve significant risks. These risks are described under the caption "Risk Factors" beginning on page 9 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


 
  Per ADS   Total  

Public offering price

  US$               US$              

Underwriting discount

  US$               US$              

Proceeds, before expenses, to us

  US$               US$              

The underwriters may also purchase up to an additional 900,000 ADSs from the selling shareholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. We will not receive any proceeds from the sale of ADSs by the selling shareholders.

Four unaffiliated investors have indicated to the underwriters and us their interest in subscribing for an aggregate of up to 3,000,000 ADSs offered in this offering, representing up to 50% of the total ADSs offered by us.

The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on                  , 2011.


Cowen and Company



RBC Capital Markets   Samsung Securities (Asia) Limited



Janney Montgomery Scott

                        , 2011


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TABLE OF CONTENTS



 
  Page

Prospectus Summary

  1

The Offering

  5

Summary Consolidated Financial and Operating Data

  7

Risk Factors

  9

Special Note Regarding Forward-Looking Statements

  30

Corporate Structure

  31

Use of Proceeds

  32

Dividend Policy

  33

Capitalization

  34

Dilution

  35

Exchange Rate Information

  37

Enforceability of Civil Liabilities

  38

Selected Consolidated Financial and Operating Data

  39

Management's Discussion and Analysis of Financial Condition and Results of Operations

  41

Our Industry

  67

Our Business

  71

Regulation

  89

Management

  94

Principal and Selling Shareholders

  101

Related Party Transactions

  103

Description of Share Capital

  106

Description of American Depositary Shares

  115

Shares Eligible for Future Sale

  125

Taxation

  127

Underwriting

  132

Expenses Relating to This Offering

  138

Legal Matters

  139

Experts

  139

Where You Can Find Additional Information

  140



        You should rely only on the information contained in this prospectus or in any related free writing prospectus filed with the Securities and Exchange Commission, or the SEC. We have not, and the selling shareholders and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the selling shareholders and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any related free writing prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

        We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY

        This summary highlights selected information appearing elsewhere in this prospectus. This summary may not contain all of the information you should consider before investing in our ADSs. You should carefully read this prospectus, including our financial statements and related notes appearing elsewhere in this prospectus, and the registration statement of which this prospectus is a part in their entirety before investing in our ADSs, especially the risks of investing in our ADSs, which we discuss under "Risk Factors." This prospectus contains statistical data extracted from two reports which we commissioned Frost & Sullivan, an independent market research firm, to prepare for the purpose of providing information on China's menswear market. The reports, publicly issued in March 2010 and in August 2010, are entitled "China Menswear Market Study, 2009" and "China Consumers' Environmental Protection Awareness Survey, 2010," respectively, and are referred to as the Frost & Sullivan Report and Frost & Sullivan Survey, respectively, in this prospectus. "We," "us," "our company," "our" and "Zuoan" refer to Zuoan Fashion Limited, a Cayman Islands company, and its predecessor entities and subsidiaries.

Overview

        We are a leading design-driven fashion casual menswear company in China. According to the Frost & Sullivan Report, sales of our "Zuoan" branded products ranked second in China's fashion casual menswear market, with a 5.4% market share, in terms of retail sales in 2009. Our products are designed in-house and sold under our Zuoan brand, which means "left bank" in Chinese, referring to the Left Bank district of Paris and embodying our design philosophy of "fashionable elegance." We offer a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle.

        Our design team is led by Mr. James Jinshan Hong, or Mr. James Hong, our chairman and chief executive officer. Mr. James Hong is recognized as one of China's top designers with more than 15 years of industry experience. He was nominated one of the "Top Three Fashion Designers" by the China Fashion Association in November 2009 and one of "China's Top 10 Fashion Designers" by the China Fashion Association for two consecutive years in 2006 and 2007. Our marketing strategy focuses on promoting an overall brand image that embodies a lifestyle of "fashionable elegance," rather than individual products. Unlike many of our competitors, we do not rely on large-scale, blanket television advertising, but instead adopt a targeted multi-channel marketing strategy through our sponsorship of selective public events and activities, participation in major fashion shows and exhibitions and national advertising through television, internet, billboards, magazines and newspapers. We outsource the production of most of our products to selected contract manufacturers. For our most exclusive and fashion-forward products, we produce them in our own secure production facility in Jinjiang City, Fujian Province to retain maximum control over quality and prevent unauthorized disclosure of our new collection before its scheduled release.

        We sell our products through an extensive distribution network covering 27 of China's 32 provinces and centrally administered municipalities, as well as through our direct stores. Our products are primarily sold to customers through retail stores operated by our distributors and their sub-distributors. As of September 30, 2010, we appointed 10 distributors which, directly or through their sub-distributors, operated 1,044 retail stores across China. All of the retail stores are operated under our Zuoan brand and are required to sell only our products. As part of our expansion strategy, in April 2009, we started building up our direct stores in selected cities where we already have an established presence and believe that there is potential for additional growth. As of September 30, 2010, we had 31 direct stores in seven provinces and centrally administered municipalities in China.

        To further promote our brand and improve the performance of Zuoan retail stores, since early 2010 we have adopted a strategy of opening flagship stores, both distributor-operated and directly

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operated, at prime locations in major cities in China. These flagship stores are significantly larger than most of our existing stores and sell the complete line of our collections. Our distributors have opened seven flagship stores in Henan, Jiangxi, Jilin and Liaoning Provinces. In line with our flagship store strategy, in January 2011, we transferred all of our direct stores, which were located in department stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores at prime commercial areas.

        Our business has grown rapidly in recent years. Our revenues increased from RMB434.5 million in 2007 to RMB598.3 million in 2008 and RMB693.1 million (US$103.6 million) in 2009, representing a CAGR of 26.3% from 2007 to 2009. Our profit after taxation increased from RMB91.4 million in 2007 to RMB132.7 million in 2008 and RMB153.9 million (US$23.0 million) in 2009, representing a CAGR of 29.8% from 2007 to 2009. For the nine months ended September 30, 2010, we achieved revenues of RMB613.9 million (US$91.8 million) and profit after taxation of RMB127.7 million (US$19.1 million) compared to revenues of RMB489.7 million and profit after taxation of RMB115.4 million for the nine months ended September 30, 2009.

Industry Background

        China is one of the largest and fastest-growing menswear markets in the world, driven primarily by a rapidly growing economy and increasing disposable income of consumers. According to the Frost & Sullivan Report, total retail sales of menswear in China increased from RMB147.2 billion in 2004 to RMB300.3 billion (US$44.9 billion) in 2009 and are estimated to reach RMB627.1 billion in 2014, representing a 10-year CAGR of 15.8%.

        Along with increased purchasing power, male consumers in China are becoming more conscious of and sensitive to the branding, design and quality of menswear. As a result, fashion casual menswear, a sub-sector of casual menswear, has become increasingly popular in China because it caters to consumers who desire variety and fashion that highlight an individual's personality while participating in recreational, social or leisure activities. According to the Frost & Sullivan Report, total retail sales of fashion casual menswear in China grew from RMB13.9 billion in 2004 to RMB36.8 billion (US$5.5 billion) in 2009. Frost & Sullivan estimates that total retail sales of fashion casual menswear will grow to RMB111.9 billion by 2014, representing a 10-year CAGR of 23.2%, and account for 40.7% of the casual menswear market in China.

        The fashion casual menswear market in China is relatively fragmented, with more than 500 fashion casual menswear providers, according to the Frost & Sullivan Report. Among them, only a small number of providers have in-house design capabilities that enable them to provide branded fashion casual menswear products and to retain leading market positions.

Our Competitive Strengths

        We believe that the following strengths differentiate us from our competitors:

    Strong focus on design and product innovation;

    Established and leading designer brand for fashion casual menswear in China;

    Creative multi-channel brand marketing strategies;

    Extensive and well-managed nationwide distribution network; and

    Socially conscious corporate culture supported by experienced management team.

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Our Strategies

        We intend to further strengthen our position as a leading fashion casual menswear brand in China by pursuing the following strategies:

    Open additional retail and flagship stores across China;

    Continue to raise the profile of our Zuoan brand through enhanced advertising and promotional activities;

    Expand and build upon our design and product development capabilities; and

    Expand and diversify our product offerings.

Summary of Risk Factors

        Investing in our ADSs involves a high degree of risk. You should consider carefully the risks and uncertainties summarized below, the risks described under "Risk Factors," beginning on page 9, and the other information contained in this prospectus before you decide whether to purchase our ADSs.

    Our dependence on our Zuoan brand and our ability to promote our brand based on consumer preference or demand;

    Our reliance on a small number of distributors for the sale of our products and independent third-party contract manufacturers for the production of a significant portion of our products;

    Our control over the ultimate retail sales by our distributors and exposure to the credit risks of our distributors;

    Competition in the fashion casual menswear industry;

    Our compliance with a complex set of laws, rules and regulations governing our business in China; and

    Our ability to manage our growth effectively and efficiently.

Corporate Structure and History

        We commenced our garment manufacturing operations in June 1999. Our Zuoan trademark was originally registered in 2001 by Fujian Aidu Industry and Trading Co., Ltd., a company wholly owned by the family of Mr. James Hong, our founder. In April 2002, Zuoan Dress Co., Ltd., Shishi, or Shishi Zuoan, was incorporated and commenced operations as a foreign-invested enterprise. The then sole shareholder of Shishi Zuoan was Ms. Siu Fong Or, wife of Mr. James Hong and a Hong Kong resident. Shishi Zuoan subsequently migrated to our current business as a designer and seller of fashion casual menswear.

        In February 2008, we set up a holding company structure by establishing Fast Boost Holdings Limited, or Fast Boost, in the British Virgin Islands. Fast Boost established a wholly owned subsidiary, Champion Goal Holdings Limited, or Champion Goal, in July 2008 in Hong Kong. Champion Goal then acquired all the equity interests in Shishi Zuoan in September 2008.

        We incorporated Zuoan Fashion Limited, or Zuoan Cayman, in connection with this offering in August 2010. On October 5, 2010, Fast Boost became the wholly owned subsidiary of Zuoan Cayman through a share exchange through which Zuoan Cayman acquired all of the issued and outstanding shares of Fast Boost, and issued ordinary shares to the shareholders of Fast Boost. Upon completion of the share exchange, Zuoan Cayman became our ultimate holding company.

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        In August 2010, Shishi Zuoan incorporated a wholly owned subsidiary, Shanghai Mingfu Fashion Limited, or Shanghai Mingfu, in Shanghai. After its incorporation, we relocated our headquarters and design and product development team to Shanghai.

        The following diagram illustrates our corporate structure, the place of formation and the ownership interests of our subsidiaries as of the date of this prospectus:

GRAPHIC

Corporate Information

        Our principal executive offices are located at Rooms 213 to 215, Block 8, No. 1150 Luochuan Middle Road, Shanghai, China. Our telephone number at this address is +86 21-5653-5557. Our registered office in the Cayman Islands is located at the offices of Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, 13th Floor, New York, New York 10011.

        Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is http://www.zuoancn.com. The information contained on our website does not constitute a part of this prospectus.

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THE OFFERING

Total ADSs offered:    
 
by us

 

6,000,000 ADSs

Total

 

6,000,000 ADSs

Price per ADS

 

We currently estimate that the initial public offering price will be US$7.00 per ADS.

Overallotment option

 

The selling shareholders have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase an additional 900,000 ADSs to cover overallotments.

ADSs

 

Each ADS represents four ordinary shares. The depositary will hold the shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

 

You may surrender your ADSs to the depositary to be cancelled in exchange for ordinary shares. The depositary will charge you fees for any cancellation.

 

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

ADSs outstanding immediately after this offering

 

6,000,000 ADSs (or 6,900,000 ADSs if the underwriters exercise the overallotment option in full).

Ordinary shares outstanding immediately after this offering

 

110,722,500 ordinary shares.

Use of proceeds

 

We intend to use the net proceeds we receive from this offering primarily for the following purposes:

 

•       approximately 35% to expand our network of directly operated flagship stores in China;

 

•       approximately 35% to support our distributors in opening new Zuoan retail stores;

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•       approximately 24% to establish a logistics center in Shishi for the purpose of stocking our finished products; and

 

•       the remaining amount to fund working capital and for other general corporate purposes.


 

 

See "Use of Proceeds" for more information.

 

 

We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

Listing

 

Our ADSs have been approved for listing on the NYSE. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system.

Proposed NYSE symbol

 

"ZA"

Depositary

 

Deutsche Bank Trust Company Americas

Lock-up

 

We, our directors and executive officers, and all of our existing shareholders have agreed with the underwriters for a period of 180 days after the date of this prospectus not to sell, transfer or otherwise dispose of, and not to announce an intention to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities.

 

 

In addition, four unaffiliated investors have indicated to the underwriters and us their interest in subscribing for an aggregate of up to 3,000,000 ADSs offered in this offering, representing up to 50% of the total ADSs offered by us. Each of these investors has agreed with the underwriters that, to the extent such investor purchases any ADSs in this offering, such investor will not, directly or indirectly, transfer or dispose of any of such ADSs for a period of 180 days after the first day our ADSs are traded on the NYSE.

 

 

See "Underwriting" for more information.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

        Unless otherwise indicated, the number of ordinary shares that will be outstanding immediately after this offering:

    assumes the conversion of all outstanding amounts on the 2008 convertible loan and 2010 convertible loan into 6,722,500 ordinary shares, which conversion will occur prior to the completion of this offering; and

    assumes that the underwriters do not exercise their overallotment option to purchase additional ADSs.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

        The following summary consolidated financial data for the periods and as of the dates indicated are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," both of which are included elsewhere in this prospectus.

        The summary consolidated statements of comprehensive income data and summary consolidated statements of cash flow data for the years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2010 and the summary consolidated statements of financial position data as of December 31, 2007, 2008 and 2009 and September 30, 2010 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of comprehensive income data and summary consolidated statements of cash flow data for the nine months ended September 30, 2009 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or IASB.

        Unless otherwise indicated, all historical share and per-share data contained in this prospectus has been restated to give retroactive effect to a 4,000-for-1 share split effected in December 2010.

        The results for the nine months ended September 30, 2010 may not be indicative of our results for the full year ending December 31, 2010. Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.

Consolidated Statements of Comprehensive Income Data:

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  RMB
 

  RMB
 

  RMB
 

  US$
 

  RMB
(unaudited)

  RMB
 

  US$
 

 
 
  (in thousands, except for per share and per ADS data)
 

Revenues

    434,472     598,344     693,089     103,593     489,693     613,878     91,754  

Cost of sales

    (262,281 )   (355,640 )   (411,165 )   (61,455 )   (293,561 )   (360,790 )   (53,926 )
                               

Gross profit

    172,191     242,704     281,924     42,138     196,132     253,088     37,828  

Other income

    381     1,783     898     134     381     606     91  

Selling and distribution expenses

    (32,954 )   (49,666 )   (53,373 )   (7,977 )   (28,012 )   (44,217 )   (6,609 )

Administrative expenses

    (12,700 )   (18,572 )   (22,176 )   (3,315 )   (13,631 )   (27,885 )   (4,168 )

Finance costs

    (230 )   (360 )   (1,018 )   (152 )   (690 )   (6,063 )   (906 )
                               

Profit before taxation

    126,688     175,889     206,255     30,828     154,180     175,529     26,236  

Income tax expense

    (35,277 )   (43,206 )   (52,357 )   (7,826 )   (38,824 )   (47,846 )   (7,151 )
                               

Profit after taxation

    91,411     132,683     153,898     23,002     115,356     127,683     19,084  
                               

Earnings per ordinary share

                                           
 

Basic and diluted

    1.14     1.66     1.92     0.29     1.44     1.60     0.24  

Earnings per ADS

                                           
 

Basic and diluted

    4.57     6.63     7.69     1.15     5.77     6.38     0.95  

Pro forma earnings per ordinary share, diluted (unaudited)

                1.85     0.28     1.39     1.53     0.23  

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Consolidated Statements of Financial Position Data:

 
  As of December 31,   As of September 30,  
 
  2007   2008   2009   2010  
 
  RMB
  RMB
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Non-current assets

                                     

Property, plant and equipment

    2,983     2,559     2,043     305     2,895     433  

Deferred offering cost

                    4,362     652  
                           

Total non-current assets

    2,983     2,559     2,043     305     7,257     1,085  

Current assets

                                     

Inventories

    50,554     8,319     17,409     2,602     25,876     3,868  

Trade and other receivables

    103,127     142,066     215,454     32,203     314,597     47,021  

Prepayments

    22,600         2,409     360     1,800     269  

Fixed deposits—pledged

        5,905     2,175     325     775     116  

Cash and cash equivalents

    23,642     70,625     141,569     21,160     238,483     35,645  
                           

Total current assets

    199,923     226,915     379,016     56,650     581,531     86,919  

Total assets

    202,906     229,474     381,059     56,955     588,788     88,004  

Total current liabilities

    78,261     104,198     101,912     15,232     181,172     27,079  
                           

Net assets

    124,645     125,276     279,147     41,723     407,616     60,925  
                           

Consolidated Statements of Cash Flow Data:

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  RMB
 

  RMB
 

  RMB
 

  US$
 

  RMB
(unaudited)

  RMB
 

  US$
 

 
 
  (in thousands)
 

Net cash generated from operating activities

    53,245     174,782     41,272     6,169     2,731     46,426     6,939  

Net cash generated from/(used in) investing activities

    (391 )   (284 )   233     35     303     (718 )   (107 )

Net cash generated from/(used in) financing activities

    (55,000 )   (127,515 )   29,439     4,400     31,265     51,206     7,654  

Cash and cash equivalents at period end

    23,642     70,625     141,569     21,160     104,924     238,483     35,645  

Selected Operating Data:(1)

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2007   2008   2009   2009   2010  

Revenues (in thousands of RMB)

    434,472     598,344     693,089     489,693     613,878  

Units sold (in thousands)

    3,503     4,723     5,325     4,141     5,108  

Average selling price (RMB per unit(2))

    124     127     130     118     120  

Cost of sales (in thousands of RMB)

    262,281     355,640     411,165     293,561     360,790  

Unit cost (RMB per unit)

    75     75     77     71     71  

Gross margin (%)

    39.6     40.6     40.7     40.1     41.2  

(1)
Units sold and average selling price as used in this prospectus represent the number of units and average selling price of items that we have sold to our distributors and sold to end-consumers in our direct stores, and do not include units sold at retail by our distributors or the average selling price of those units.

(2)
A "unit" as used in this prospectus refers to a single item of our products, which may be a coat, a jacket, a tie, a pair of shoes or socks, a pair of pants or any other menswear item. The average selling price for a given period represents revenues divided by the units sold for that period.

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RISK FACTORS

        Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our ADSs. If any of the following risks actually occur, they may materially harm our business, financial condition, results of operations and prospects. In this event, the market price of our ADSs could decline, and you could lose some or all of your investment.

Risks Related to Our Business

    We are dependent on our Zuoan brand, and failure to successfully promote our brand may materially and adversely affect our business and results of operations.

        Brand image is a key factor in consumer purchasing decisions for menswear products. We are committed to building our Zuoan brand through the introduction of stylish and quality designs as well as through our promotional activities. We derive substantially all of our revenues from sales of our Zuoan products in China, and our success depends on market perception and acceptance of the Zuoan brand and the "fashionable elegance" culture, lifestyle and images associated with the brand. We have limited control over our distributors that we rely upon to sell our products, which may limit our ability to ensure a consistent brand image. See "—Risks Related to Our Business—We have limited control over the ultimate retail sales by our distributors, their sub-distributors and the retail stores which they operate and our business may be negatively affected if our distributors or their sub-distributors fail to comply with our retail policies and brand management." If we are unable to successfully promote and maintain our Zuoan brand, our business and results of operations may be materially and adversely affected. Any negative publicity or disputes in China regarding our Zuoan brand, our products, our company, our management, our sponsored organizations or individuals, or our distributors or sub-distributors could materially and adversely affect public perception of our Zuoan brand, which in turn could materially and adversely affect our business and results of operations.

    We may not be able to accurately predict or fulfill consumer preferences or demand.

        Our success largely depends on our ability to identify, anticipate and influence the fashion preferences of our consumers and deliver products in a timely manner to meet changing market demands. Our target market of consumers comprises urban males between the ages of 20 and 40 with moderate-to-high levels of disposable income. Our business is particularly sensitive to their fashion preferences, which cannot be predicted with certainty and are subject to rapid change. Sales of our products will be adversely affected if we fail to identify, anticipate and respond effectively to changing consumer preferences and fashion trends. If this occurs, we and our distributors and sub-distributors may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory. In a distressed economic and retail environment, many of our competitors may engage in aggressive promotional activities, making it all the more important to react appropriately to changing consumer preferences and fashion trends. Failure to do so could adversely affect the level of acceptance of our products, our brand image and our relationship with our distributors, and therefore have a material adverse effect on our financial condition or results of operations.

    We may not be successful in expanding our product offerings.

        As part of our strategy, we plan to expand our product offerings for each of our product lines. The development of new products requires us to allocate significant operational and financial resources. We cannot assure you that we will have the requisite resources and expertise to undertake such product development efforts. If our efforts are unsuccessful, our brand image could be damaged, and our financial condition and results of operations could be adversely affected.

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    We rely on a small number of distributors for the sale of our products.

        We sell the substantial majority of our products in China through our distributors, who in turn sell our products to consumers through retail stores directly operated by them or by their sub-distributors. As of September 30, 2010, we had 31 direct stores as compared to 1,044 retail stores operated by our distributors and their sub-distributors. Sales to our top three distributors accounted for 50.1%, 48.2%, 46.8% and 45.6% of our revenues in 2007, 2008, 2009 and the nine months ended September 30, 2010, respectively. Our distributors are not contractually obligated to purchase minimum quantities of our products or to work with us on an exclusive basis. Our dependence on distributors increases their bargaining power with us and the need for us to maintain good relationships with them. To the extent that any distributor ceases to cooperate with us for any reason and we are not able to find a suitable replacement in a timely manner, we may lose significant business. To the extent that our large distributors significantly reduce their purchases from us due to the deterioration of their financial position or other reasons, our sales would be materially and adversely affected. In addition, we may have to offer volume-based discounts or more favorable credit terms to our distributors in the future, which may lower our operating profit. As we rely to a large extent on our distributors for the sale of our products, our future growth will also depend on the performance of our distributors and their ability to expand their business and sales networks. In addition, any consolidation, restructuring, reorganization or other ownership change in our distributors may have a material adverse effect on our sales.

        We generally enter into agreements with our distributors for a term of three years. There is no assurance that we will be able to renew our distribution agreements or renew such agreements on terms that are favorable to us. In addition, there is no assurance that one or more of our major distributors will not breach their distribution agreements or fail to comply with their obligations thereunder. In such event or events, our results of operations may be materially and adversely affected.

    We have limited control over our distributors, their sub-distributors and the retail stores that they operate, and our business may be negatively affected if our distributors or their sub-distributors fail to comply with our retail policies and brand management.

        We collaborate with our distributors and sub-distributors to implement our retail and brand management policies in the retail stores which they operate. See "Our Business—Our Zuoan Brand." As of September 30, 2010, 1,044 of a total of 1,075 Zuoan stores were operated by our distributors or their sub-distributors. We rely on agreements with our distributors to impose our retail policies on the stores operated by such distributors and their sub-distributors. We do not own any interest in any of our distributors, their sub-distributors or the retail stores they operate. The distribution agreements we typically enter into with our distributors do not allow us to be involved in the daily operating, financing or other activities of the distributors, except that our distributors need to comply with our brand management policies and pricing and store management guidelines. In addition, we do not have direct contractual relationships with the sub-distributors, and we rely on our distributors to oversee these sub-distributors. As a result, we have limited control over ultimate retail sales by our distributors, their sub-distributors and the retail stores that they operate. If our distributors or their sub-distributors fail to comply with our retail policies, we may not be able to effectively manage our sales network or maintain a uniform brand image, which may negatively impact how our brand is perceived by consumers. In addition, if our distributors fail to meet our retail targets either because they are unable to open a sufficient number of new retail stores or are otherwise unsuccessful in selling our products, our results of operations may be materially and adversely affected. Although we have the right to impose penalties, suspend supplies of our products, or replace any of our distributors for breach of retail policies, we may be unable to find replacement distributors in a timely manner. As a result, our business and results of operations may be materially and adversely affected.

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    Our financial performance in a given period may not be fully indicative of the sales performance of our distributors and sub-distributors or the market reception of our products.

        We sell our products to our distributors upon their orders and recognize revenue upfront based on the contract amount regardless of the actual sales performance of the distributors. Consequently, our financial performance and results of operations may not be fully indicative of the sales performance of our distributors and sub-distributors or the market reception of our products. Although we obtain sales and operational data from our distributors from time to time, we cannot assure you that such data are accurate. In addition, we do not have an enterprise resource planning system, or ERP system, to receive real-time sales data from our distributors, sub-distributors and the retail stores operated by them. As a result, we may not be able to effectively monitor and control excess inventory buildup. See "Our Business—Sales—Our Distributors." Our distributors, their sub-distributors, and the retail stores which they operate may, for various reasons, experience difficulties in selling our products. Our distributor may close the retail store operated by a sub-distributor and repurchase the products if that retail store experiences extreme difficulties in selling our products. However, we cannot assure you that our distributors and their sub-distributors will not resort to liquidating their excess inventory through aggressive discounts in the future, thereby having an adverse effect on the value and reputation of our brand.

    We may be unable to effectively manage our network of retail and flagship stores.

        We have grown rapidly over recent years. The number of retail stores operated by our distributors or their sub-distributors increased from 843 as of December 31, 2007 to 861 as of December 31, 2008, to 978 as of December 31, 2009 and to 1,044 as of September 30, 2010. We intend to continue to expand our network of retail stores, and we rely to a large extent on our distributors and their sub-distributors for such expansion. Previously, we coordinated with our distributors to establish annual targets for the number of new retail stores, and our distributors have met such targets. However, there is no assurance that our distributors will meet our expansion targets in the future. We also intend to open new direct stores as flagship stores, which will place significant strain on our managerial, operational and financial resources. In addition, we may not be able to secure desirable locations for our flagship stores on economically viable terms. We plan to introduce a new generation layout and design for Zuoan retail stores and flagship stores, and we will need to bear the costs of such upgrades. In connection with our expansion plans, we may also need to establish information systems across our flagship store distribution network. We cannot assure you that our personnel, systems, procedures and controls will be adequate to implement our business plans or support our future growth. Additionally, we may not be able to obtain sufficient funds to finance our expansion plans. If our expansion efforts are unsuccessful or our management systems insufficient, our financial condition and results of operations could be materially and adversely affected.

    We are exposed to the credit risks of our distributors.

        We generally provide credit terms of up to 90 days to our distributors. As of September 30, 2010, we have not experienced any significant difficulty in collections or made any provision for bad or doubtful debts. However, our sales going forward may rely more heavily on credit, and we may be unable to collect these accounts receivable in full or at all. Failure by our distributors to pay us in a timely manner or at all could have a material adverse effect on our financial condition and results of operations.

    We operate in a highly competitive market.

        The PRC market for fashion casual menswear products is highly competitive. We compete with various domestic brands with similar business models and target markets. We also compete with a growing number of international brands trying to expand their market share in China to take advantage of rising consumer spending on fashion casual menswear. In addition, certain business formal menswear

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brands have been seeking to expand into fashion casual menswear market and if they are successful, it may intensify the competition in the fashion casual menswear market that we engage in.

        Our products compete on the basis of brand image, design and concept, product mix, quality, price, customer service and the breadth of our retail network. Some of our competitors may have greater financial, management, human resources, distribution, development, marketing or other resources or better brand recognition than we do. We face a variety of competitive challenges, including:

    strong brand recognition of many of our competitors;

    relatively low entry barriers to the menswear industry;

    competitive pricing strategies of our competitors;

    established relationships between our competitors and their distributors;

    expansion by existing competitors;

    innovative sales methods adopted by our competitors; and

    better product designs from or better branding efforts of our competitors.

        We cannot assure you that we will be able to continue to successfully compete with other domestic or international brands. Failure to do so could have a material adverse effect on our business and results of operations.

    Our business is susceptible to seasonal fluctuations and extreme or unexpected weather conditions.

        Our business is affected by seasonal trends. Generally, the third and fourth quarters, during which our fall/winter collections are sold, account for a higher portion of our annual revenues than the first and second quarters because our fall/winter collections are generally priced higher than our spring/summer collections and consist of more types of products. The sales in our direct stores are also affected by local spending behavior, which are typically affected by seasonal shopping patterns during major Chinese holidays. As a result, comparisons of sales and operating results between different periods within a single fiscal year, or between different periods in different fiscal 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 raw material suppliers or contract manufacturers fail to deliver on a timely basis for any reason, sales for the season and our results of operations could be materially and adversely affected.

        Our business is also susceptible to extreme or unexpected changes in weather conditions. For example, extended periods of unusually warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with such unusual weather conditions. These extreme or unusual weather conditions could have a material adverse effect on our results of operations.

    We rely on independent third-party contract manufacturers for the production of a significant portion of our products and any material disruption to the supply of the products from such manufacturers would materially and adversely affect our results of operations.

        We outsource the production of a significant portion of our products to third-party contract manufacturers. Contract manufacturing costs represented 85.5%, 90.7%, 91.6% and 93.8% of our total cost of sales in 2007, 2008, 2009 and the nine months ended September 30, 2010, respectively. In addition, most of our outsourced products are produced by a small number of contract manufacturers. In 2009 and the nine months ended September 30, 2010, contract manufacturing costs attributable to our top five contract manufacturers represented 37.5% and 44.2%, respectively, with contract manufacturing costs attributable to our largest contract manufacturer accounting for 10.1% and 12.7%, respectively, of our total cost of sales. As a result, our continued success is tied to our timely receipt of

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quality finished products from our contract manufacturers, especially our major contract manufacturers, which may be affected by various factors, including those beyond our control, such as production failures, labor strikes, riots, public disorders and other similar events. A contract manufacturer's failure to ship orders in a timely manner or meet our quality standards could negatively impact our ability to fulfill our sales orders and result in the cancellation of orders or price reductions, which in turn could damage our relationships with our distributors. We cannot assure you that we will not face material disruptions to the supply of products from our contract manufacturers in the future. In the event of such disruptions, especially disruptions with respect to our major contract manufacturers, we may not be able to find suitable alternative contract manufacturers on a timely basis or offset such disruptions by increasing production at our own production facilities. Our financial condition or results of operations may be adversely affected.

    Our results of operations may be adversely affected by an increase in the cost of raw materials or labor costs for our in-house production and outsourced contract manufacturing.

        We price our products based on each item's production costs and a targeted product margin, while also taking into account other important factors, such as the price ranges offered by comparable fashion casual menswear companies, our market position and consumer spending power. Cost of raw materials, such as fabrics and accessories, and labor costs constitute important components in the production costs for both our in-house production and outsourced contract manufacturing. We do not maintain long-term contracts with our raw material suppliers or contract manufacturers, and prices that we pay for such materials and outsourced products may increase due to increased raw material or labor costs as a result of greater industry demand or supply shortages. If we are unable to reduce the costs of our own or outsourced production, or pass on such increase in the cost of raw materials, labor or outsourced products to our customers, our profitability may be materially and adversely affected.

    Any significant damage to our sole production facility or our primary warehousing facility could have a material adverse effect on our results of operations.

        We have only one production facility located in Fujian, China. We produce our most exclusive and fashion-forward products at this facility in order to retain maximum control of quality and prevent unauthorized disclosure of our new collection before its scheduled release. In addition, we have only one primary warehousing facility located in Fujian, China, in which we store substantially all of our finished products procured from third-party contract manufacturers. Our ability to meet the market demands of, and our contractual obligations to, our distributors for our in-house produced or outsourced products depend on efficient, proper and uninterrupted operations at our production facility or warehousing facility. Power failures or disruptions, the breakdown, failure or substandard performance of equipment, and the destruction of buildings and other facilities due to fire or natural disasters such as hurricanes, severe winter storms, flood, droughts or earthquakes would severely affect our ability to continue our operations. In the event of such disruptions, we may not be able to find suitable alternatives on a timely basis and at reasonable cost, which could have a material adverse effect on our business and results of operations.

    Our product designs may not be adequately protected.

        The success of our business depends on our product designs and other proprietary information. Our standard employment agreements for members of our product design and development team and our executive officers contains confidentiality provisions. We typically limit access to our new season collections to a small number of distributors prior to our sales fair. In addition, we produce our most exclusive and fashion-forward products at our own production facility instead of outsourcing to our contract manufacturers in order to ensure maximum confidentiality. However, there is no assurance that our measures to maintain confidentiality will be effective and there will be no unauthorized disclosure of our proprietary information. Any breach of confidentiality may adversely affect our business and results of operations.

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    We face possible infringement of our trademarks and other intellectual property rights and counterfeiting of our products.

        We believe our trademarks and other intellectual property rights are important to our success and competitive position and recognize the importance of registering the trademarks related to our Zuoan brand for protection against infringement. As of September 30, 2010, we had 23 registered trademarks in China in the classes relevant to our business. See "Our Business—Intellectual Property." We are not aware of any material violations or infringements of our trademarks and intellectual property rights. However, third parties may in the future attempt to challenge the ownership and/or validity of our intellectual property rights. In addition, our business is subject to the risk of third parties counterfeiting our Zuoan brand products or otherwise infringing our intellectual property rights. Such unauthorized use of our brand in counterfeit products could not only result in potential revenue loss, but also an adverse impact to our brand equity and perceptions of our products quality. We may not always be successful in securing protection for our intellectual property rights, in preventing the production and sale of counterfeit products and preventing other infringements of our intellectual property rights. Protections offered by PRC intellectual property laws and the enforcement of these protections may not be as effective as in some other countries. We may need to resort to litigation in the future to enforce our intellectual property rights. Any such litigation could result in substantial costs and a diversion of our resources. Our failure to protect and enforce our intellectual property rights could have a material adverse impact on our reputation, business and results of operations.

    We may be involved in intellectual property rights infringement litigation initiated by others.

        During the course of our operations, we may design products that include elements that may inadvertently infringe third-party copyright and other intellectual property rights, as a result of which other parties may initiate litigation or other proceedings against us. It is also possible that third parties may seek to initiate proceedings against us for infringement of their intellectual property rights through the use of our trademarks. Responding to and defending these proceedings may require substantial costs and diversion of resources, and the result of these proceedings may be uncertain. Our reputation may also be adversely affected.

    Our success depends on our ability to retain our senior management team and our ability to attract and retain additional management, design talent and other qualified personnel.

        Many of our senior management team have been with us for over five years. Their talent, effort, experience and leadership are critical to the success of our business. In particular, the leadership of Mr. James Hong, our chairman and chief executive officer, in the design, marketing and operational areas of our business has been a critical element of our success since the inception of our company. The loss of services of Mr. James Hong or any negative market or industry perception with respect to him could have a material adverse effect on our business. In addition, Mr. Chaoshen Wang, our chief operating officer, and other members of our senior management also have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also have a material adverse effect on us. We have entered into three-year contracts, including non-compete undertakings, with all of our executive officers and senior management. However, there can be no assurance that such contracts will not be terminated or breached, nor can there be assurance that the contracts will be enforceable. In addition, we are not protected by any key-man or similar life insurance covering Mr. James Hong and other members of senior management.

        Our success also depends upon the continued service of our design and sales personnel and our ability to continue to attract, retain and motivate such personnel. There is intense competition to recruit competent personnel with expertise in China's menswear industry. We may also need to offer better compensation and other benefits in order to attract and retain these personnel in the future, and

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we cannot assure you that we will have the resources to meet our staffing needs. These difficulties could limit our development capacity or reduce our operating efficiency and product quality, which could reduce our profitability and limit our ability to grow.

    In the course of preparing our consolidated financial statements for the years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2010, several significant deficiencies in our internal control over financial reporting were noted. We expect to incur extra costs in implementing measures to address such deficiencies. If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected. As a result, investor confidence and the trading price of our ADSs may be adversely impacted.

        Upon the completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2011. In addition, our independent registered public accounting firm must report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to the effectiveness of our internal control over financial reporting or may issue a report that is qualified if it is not satisfied with our internal control or the level at which our control is documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations as a public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future.

        Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audits of our consolidated financial statements for the years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2010, our independent registered public accounting firm identified several "significant deficiencies" in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board (United States). The significant deficiencies identified related to (i) the control procedures relating to payroll, a significant portion of which is currently paid in cash, and (ii) our approval policies, limits and procedures regarding petty cash reimbursements. In response, we have implemented procedures to ensure that we maintain a minimum amount of petty cash and all reimbursements are supported by documents approved in accordance with our internal payment approval policies and limits. We are also in the process of implementing a number of measures to address the deficiencies relating to payroll, including: (i) establishing employee individual bank accounts for all employees other than factory workers for payment of salaries through direct deposit; and (ii) establishing policies and procedures to prevent misappropriation relating to payment of salaries in cash to factory workers. We are working to implement these measures, although we cannot assure you that our efforts to remedy these significant deficiencies will be successful.

        During the course of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, we may identify other deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal

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control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could harm our operating results and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the NYSE, regulatory investigations and civil or criminal sanctions.

    We may fail to secure retail space for our direct stores on commercially reasonable terms.

        We began operating direct stores in April 2009. The revenue generated by our direct stores was 2.8% and 3.8% of our total revenues in 2009 and the nine months ended September 30, 2010, respectively. We intend to lease or acquire retail space in prime shopping areas for our directly operated flagship stores. Given the scarcity of prime locations and the relatively high rental rates in major cities in China, we may be unable to obtain retail space on commercially acceptable terms for our direct stores in the future, nor can we assure you that we will be able to renew our existing lease agreements upon expiry on terms and conditions acceptable to us or at all. If any of these situations occur, we may not be able to find alternative premises located in areas that offer similar retail environments, and our competitors may move into such retail spaces previously occupied by us. As a result, our operating costs may increase, which may lead to a decline in our profitability and adversely affect our results of operations.

    We may be exposed to product liability or personal injury claims, which may materially and adversely affect our reputation and business.

        As of September 30, 2010, all of our products were sold in China. We may be exposed to product liability claims, such as excessive pH values in our products, that may be harmful to consumers. As a result, we may have to expend significant financial and managerial resources to defend against such claims. We believe that such product liability claim risks will increase as legal concepts in product liability claims begin to develop and mature in China. We currently outsource the manufacturing of most of our products, and may not have effective or sufficient control over the quality of those products. We cannot give any assurance that our reputation, business, financial condition, results of operations and prospects will not be materially and adversely affected by a successful product liability claim against us. We may incur significant costs and expenses to defend against such claims or enter into settlement agreements. We may be fined or sanctioned and our reputation and brand may be negatively impacted, which could materially and adversely affect our reputation, business, prospects, financial condition and results of operations.

    We may not have insurance coverage that is adequate to cover potential liability or losses.

        We face various risks in connection with our businesses and may lack adequate insurance coverage or may not have the relevant insurance coverage. We maintain insurance coverage for our equipment, raw materials and inventory. However, as is typical in China, we do not maintain product liability insurance, business interruption insurance or third-party liability insurance against claims for property damage, personal injury and environmental liabilities. If we incur substantial losses or liabilities and our insurance coverage is unavailable or inadequate to cover such losses or liabilities, our financial condition and results of operations may be materially and adversely affected.

    Deterioration in general economic and financial conditions could decrease consumer demand for our products, which may have a material adverse effect on our business, results of operations and liquidity.

        Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other periods where disposable income is adversely affected. Our performance is subject to factors that affect the general economy in China, including worldwide economic conditions,

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individual income levels, interest rates, currency exchange rates, recession, inflation, deflation, political uncertainty, taxation, stock market performance, unemployment level, general consumer confidence, consumer debt and other macroeconomic factors. The combination of these factors may cause consumer spending to deteriorate significantly, which may result in consumers purchasing products from lower priced competitors or to defer purchases of fashion apparel products altogether. For instance, although we sustained our growth in 2008, our growth rate was not as high as projected due to the negative impact of the global economic downturn on general market demand. Economic uncertainty could also have a material adverse effect on the market demand for our products, sales and results of operations.

    We face risks related to severe weather conditions, natural disasters, health epidemics and other similar events, any of which could adversely affect our business.

        Our business could be disrupted or otherwise adversely affected by severe weather conditions, such as snowstorms or typhoons, natural disasters, such as earthquakes, health epidemics, such as an outbreak of avian influenza or severe acute respiratory syndrome, and other similar events. The occurrence of any such event could significantly change the living and consumption patterns of the people in the affected area. Our business and production activities, contract manufacturers, and distributors and sub-distributors may also be disrupted. In particular, a lower consumption level or reduced traffic in the affected area may decrease sales at our direct stores and the retail stores operated by our distributors and sub-distributors, which in turn may lead to reduced orders from our distributors. Such changes and disruptions could adversely affect our business, results of operations and financial condition.

Risks Related to Doing Business in China

    Adverse changes in the economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

        We conduct substantially all our business operations in China. Accordingly, our results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. China's economy differs from the economies of developed countries in many aspects, including the level of development, growth rate and degree of government control over foreign exchange and allocation of resources. While China's economy has experienced significant growth in the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. We cannot assure you that China's economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business and results of operations.

        The PRC government exercises significant control over China's economic growth through the allocation of resources, control over payment of foreign currency-denominated obligations, implementation of monetary policy, and preferential treatment to particular industries or companies. Certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in statutory deposit reserve ratio and lending guidelines for commercial banks by the People's Bank of China, or PBOC. These current and future government actions could materially affect our liquidity, access to capital, and ability to operate our business.

        In response to the global financial crisis and economic downturn in 2008, the PRC government adopted various measures aimed at expanding credit and stimulating economic growth, such as decreasing the PBOC statutory deposit reserve ratio and lowering benchmark interest rates. However, since January 2010, the PBOC has begun to increase the statutory reserve ratio in response to rapid domestic growth, which may have a negative impact on the stability of China's economy. It is unclear whether the PRC economic policies will be effective in sustaining stable economic growth in the future.

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Any slowdown in the economic growth of China could lead to reduced demand for our products, which could materially and adversely affect our business, financial condition and results of operations.

    Uncertainties presented by the PRC legal system could limit the legal protections available to us and to our investors, which may have a material adverse effect on our business and results of operations.

        Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are foreign-invested enterprises and are subject to laws and regulations applicable to foreign investment in China. China has a civil law legal system based on written statutes. Unlike the common law system, previous court decisions in China may be cited for reference but have limited precedential value. Although the overall effect of legislation over the past 30 years has significantly enhanced the protections afforded to various forms of foreign investments in China, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. Such uncertainties may limit the legal protections available to us and to other foreign investors, including you as an investor.

        In addition, the PRC legal system is based in part on government policies and certain internal rules, some of which are not published on a timely basis or at all and which may have retroactive effect. As a result, we may not be aware of our violation of these policies and internal rules until some time after the violation. Also, any administrative or court proceedings may be protracted, resulting in substantial costs and diversion of resources and management attention if we seek to enforce our legal rights through administrative or court proceedings. Moreover, compared to more developed legal systems, the PRC administrative and court authorities have significantly wider discretion in interpreting and implementing statutory and contractual provisions. As a result, it may be more difficult to evaluate the outcomes of the administrative and judicial proceedings as well as the level of legal protections we are entitled to. These uncertainties may impede our ability to enforce our contracts, which could in turn materially and adversely affect our business and operations.

    Government control over currency conversion may limit our ability to issue dividends to our shareholders in foreign currencies, and may therefore adversely affect the value of your investment.

        The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural requirements. But approval from or registration with appropriate government authorities is required where Renminbi are to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

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    Fluctuations in the value of the Renminbi may have a material adverse effect on your investment.

        Substantially all of the revenues and costs of our PRC subsidiaries are denominated in Renminbi. The net proceeds from this offering will be denominated in U.S. dollars. Fluctuations in the U.S. dollar-Renminbi exchange rate will affect the relative value of these proceeds in Renminbi terms. Fluctuations in the exchange rate will also affect the relative value in Renminbi terms of earnings from and the value of any U.S. dollar-denominated investments we make in the future.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in the political and economic conditions and foreign exchange policies of China. In July 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. From July 2008 to June 2010, the Renminbi traded within a narrow range against the U.S. dollar. Since June 2010 the Renminbi has further appreciated against the U.S. dollar, from approximately RMB6.83 per U.S. dollar as of June 1, 2010 to approximately RMB6.56 per U.S. dollar as of February 4, 2011. It is difficult to predict how Renminbi exchange rates may change going forward.

        The hedging options available in China to reduce our exposure to exchange rate fluctuations are quite limited. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

    The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering, which may delay or create other uncertainties for this offering.

        In 2006, six PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. See "Regulation—Regulations on Overseas Listing." Under this regulation, the prior approval of the CSRC is required for the overseas listing of offshore special purpose vehicles that are directly or indirectly controlled by the PRC companies or individuals and used for the purpose of listing PRC onshore interests on an overseas stock exchange. The application of the M&A Rules remains unclear. Currently, there is no consensus among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. Our PRC counsel, Trend Associates, has advised us that the CSRC approval is not required in the context of this offering and the listing and trading of the ADSs on the NYSE because we established our PRC subsidiaries as foreign-invested enterprises and started to operate our business through this subsidiary before September 8, 2006, the effective date of the M&A Rules. We are also not a special purpose vehicle as defined under the M&A Rules. However, we cannot assure you that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel does.

        If the CSRC or other PRC regulatory agencies subsequently determine that we need to obtain the CSRC's approval for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays or restrictions on the repatriation of the proceeds from this offering into China, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that could have a material adverse effect on our business, financial

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condition, results of operations, reputation and prospects, as well as this offering and the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

    The M&A Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in China.

        The M&A Rules also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more complex and time-consuming. If the relevant PRC government authorities deem such activities to be transactions subject to the M&A Rules, we will be required to obtain approval for such transactions from the Ministry of Commence, or the MOC, and may be required to divest the subsidiaries. If we do not seek the necessary approval, we could be subject to administrative fines or other penalties imposed by the relevant PRC authorities. However, because there are no specific provisions of the fines or penalties for such violations under current PRC laws and regulations, it is uncertain what penalties we may face. In the future, we may grow our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming and any approval procedures, including obtaining approval from the MOC, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

    PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liabilities or penalties, limit our ability to contribute capital to our PRC subsidiaries, limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

        SAFE has promulgated regulations, including the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents' Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or Circular 75, effective on November 1, 2005 and its implementation rules, requiring PRC residents and corporate entities to register with and obtain approval from provincial SAFE branches in connection with their direct or indirect offshore investment activities. See "Regulation—Regulations on Offshore Financing." These regulations and rules apply to our shareholders who are PRC residents or citizens and may apply to any offshore acquisitions that we make in the future.

        Under these foreign exchange regulations and rules, a PRC resident or citizen who makes, or had previously made, direct or indirect investments in offshore companies will be required to register those investments. In addition, any PRC resident or citizen who is a direct or indirect shareholder of an offshore company is required to update the previously filed registration with the relevant provincial SAFE branch to reflect any material change with respect to the offshore company's roundtrip investment, capital variation, merger, division, long-term equity or debt investment or creation of any security interest. Moreover, the PRC subsidiaries of that offshore company are required to cause its PRC resident or citizen shareholders to update their registration with the provincial SAFE branch. If any PRC resident or citizen shareholder fails to make the required registration or update the previously filed registration, the PRC subsidiaries of that offshore company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company, and the offshore parent company may also be prohibited from contributing additional capital into its PRC subsidiaries. Furthermore, failure to comply with the various foreign exchange registration requirements described above could result in liability under the PRC laws for evasion of applicable foreign exchange restrictions.

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        We believe, based on the advice of our PRC counsel, Trend Associates, that Circular 75 currently does not apply to us since none of our shareholders is a PRC resident or citizen. However, we cannot assure you that any PRC resident or citizen who becomes our shareholder or the beneficial owner of our shares in the future will be able to comply with Circular 75 in a timely manner or at all. A failure by any of our shareholders or beneficial owners of our shares who are PRC residents or citizens to comply with these regulations and rules in the future could subject us to fines or legal sanctions, including restrictions on our PRC subsidiaries' ability to pay dividends or make distributions to, or obtain foreign currency-dominated loans from, us, and our ability to increase our investment in China. As a result, our business and results of operations and our ability to distribute profits to you could be materially and adversely affected.

    We rely principally on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitations on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.

        As a holding company, we rely principally on dividends from our subsidiaries in China for our cash requirements, including any debt we may incur. Current PRC regulations permit our subsidiary to pay dividends to us only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. As of September 30, 2010, a total of RMB16.7 million (US$2.5 million) was not distributable in the form of dividends to us due to these PRC regulations. Furthermore, in the future, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. The inability of our PRC subsidiaries to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.

    PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from this offering to make loans or additional capital contributions to our PRC operating subsidiaries.

        To utilize the proceeds from this offering in the manner described in "Use of Proceeds," as an offshore holding company of our PRC operating subsidiaries, we may extend loans to our PRC subsidiaries or make additional capital contributions to them. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to finance the operations of our PRC subsidiaries, which are foreign-invested enterprises, may not exceed statutory limits and are required to be registered with SAFE. We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be approved by the MOC or its local counterparts. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to obtain such approvals, our ability to use the proceeds from this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

        On August 29, 2008, SAFE promulgated Circular 142, which requires that the registered capital of a foreign-invested company converted from foreign currencies only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments in China. In addition, a foreign-invested company may not change the use of its Renminbi-denominated registered capital that is converted from foreign currencies without SAFE's prior approval. Violations of Circular 142 could result in severe penalties, including fines and confiscation of

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illegal gains. Also, we may not be able to convert the net proceeds from this offering into Renminbi to invest in or acquire any other PRC companies, or establish other subsidiaries in China.

    A failure to comply with PRC regulations regarding the registration of shares and share options held by our employees who are PRC citizens may subject such employees or us to fines and other legal or administrative sanctions.

        Pursuant to the Implementation Rules of the Administrative Measures on Individual Foreign Exchange promulgated on January 5, 2007 by SAFE and a relevant guidance issued by SAFE in March 2007, PRC citizens who are granted shares or share options by an overseas-listed company according to its employee share option or share incentive plan are required, through the PRC subsidiaries of such overseas-listed company or other qualified PRC agents, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan. In addition, the overseas-listed company or its PRC subsidiaries or other qualified PRC agent is required to appoint an asset manager or administrator and a custodian bank, and open special foreign currency accounts to handle transactions relating to the share option or other share incentive plan. Under the Foreign Exchange Administration Regulations, as amended in 2008, the foreign exchange proceeds of domestic entities and individuals can be remitted into China or deposited abroad, subject to the terms and conditions to be issued by SAFE. However, the implementation rules in respect of depositing the foreign exchange proceeds abroad have not been issued by SAFE. Currently, foreign exchange proceeds from the sale of shares or dividends distributed by the overseas-listed company can be converted into Renminbi or transferred to such individuals' foreign exchange savings account after the proceeds have been remitted back to the special foreign currency account opened at a PRC domestic bank. If share options are exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to special foreign currency accounts. We and our PRC citizen employees who have been granted share options, or PRC option holders, will be subject to these rules upon the listing and trading of our ADSs on the NYSE. If we or our PRC option holders fail to comply with these rules, we or our PRC option holders may be subject to fines and legal or administrative sanctions. See "Regulations—Regulations on Foreign Currency Exchange."

    Under the New EIT law, we may be considered a PRC "resident enterprise." As a result, we may be subject to 25% PRC enterprise income tax on our worldwide income, and holders of our ADSs or ordinary shares may be subject to PRC tax on dividends paid by us and gains realized on their transfer of our ADSs or ordinary shares.

        Under the PRC Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both effective from January 1, 2008, an enterprise established outside of China with "de facto management bodies" within China is considered a "resident enterprise" and will be subject to enterprise income tax at the rate of 25% on its worldwide income. The implementing rules define the term "de facto management bodies" as "establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise." The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the "de facto management body" of a Chinese-controlled offshore incorporated enterprise is located in China, which include: (1) the location where senior management members responsible for an enterprise's daily operations discharge their duties; (2) the location where financial and human resource decisions are made or approved by organizations or persons; (3) the location where the major assets and corporate documents are kept; and (4) the location where more than half (inclusive) of all directors with voting rights or senior management have their habitual residence. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in Circular

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82 may reflect the State Administration of Taxation's general position on how the "de facto management body" test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by the PRC enterprises or individuals or by foreign individuals. Accordingly, we may be considered a "resident enterprise" and may therefore be subject to the enterprise income tax at 25% on our worldwide income, which could significantly increase our tax burden in the future. If we are treated as a PRC "resident enterprise," although under the New EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as "tax-exempted income," we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the State Administration of Taxation, which enforces the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes and also because the dividends of our PRC subsidiaries are made to our Hong Kong subsidiary in the first instance.

        In addition, it is uncertain whether, if we were considered a PRC "resident enterprise," any dividends to be distributed by us to our non-PRC enterprise shareholders and ADS holders would be subject to a 10% PRC withholding tax and whether any sale of our shares or ADSs would be subject to a 10% PRC withholding tax. If we are required under the New EIT Law to withhold such withholding tax with respect to dividends, or if sales of our shares or ADSs would be subject to PRC tax, your investment in our ADSs or ordinary shares may be materially and adversely affected.

        The PRC Individual Income Tax Law, or the Individual Tax Law, imposes tax at the rate of 20% on dividends and gains realized by overseas individuals who are neither domiciled nor tax resident in China, to the extent that such dividends or gains are sourced within China. Pursuant to the Individual Tax Law, although the matter is unclear, if we were considered a PRC resident enterprise, dividends or gains realized by our non-PRC individual shareholders or ADS holders may be treated as income derived from sources within China and may be subject to PRC tax (which in the case of dividends may be required to be withheld) at a rate of 20%.

    The New EIT Law will affect tax exemptions on dividends to be paid by our PRC subsidiaries to us through our Hong Kong subsidiary and we may not able to obtain certain treaty benefits under the relevant tax treaty.

        Under the applicable PRC tax laws in effect before January 1, 2008, dividend payments to foreign investors made by foreign-invested enterprises in China, such as Shishi Zuoan, our PRC subsidiary, were exempt form PRC withholding tax. Under the New EIT Law, starting from 2008, dividends paid by a PRC foreign-invested enterprise to its immediate parent company outside the PRC are subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to a special tax arrangement between Hong Kong and China, such rate may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise. In October 2009, the State Administration of Taxation further issued the Circular on How to Interpret and Recognize the "Beneficial Owner" in Tax Agreements, or Circular 601, and certain other related rules. According to Circular 601, non-resident enterprises that cannot provide valid supporting documents as "beneficiary owners" may not be approved to enjoy tax treaty benefits and "beneficial owners" refer to individuals, enterprises or other organizations which are normally engaged in substantive operations. These rules also set forth certain adverse factors on the recognition of a "beneficial owner." Specifically, they expressly exclude a "conduit company," or any company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in actual operations such as manufacturing, sales or management, from being a "beneficial owner." As a result, although Shishi Zuoan is currently wholly owned by our Hong Kong subsidiary, we may not be able to enjoy the preferential withholding tax rate of 5% under the tax treaty and therefore be subject to withholding tax at a rate of 10% with respect to dividends to

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be paid by Shishi Zuoan to our Hong Kong subsidiary because our Hong Kong subsidiary may not qualify as a beneficial owner of Shishi Zuoan.

    Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

        In connection with the New EIT Law, the Ministry of Finance and the State Administration of Taxation jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008.

        By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment. We acquired Shishi Zuoan in September 2008 as part of our restructuring to establish a holding company structure. Although we currently have no plans to pursue new acquisitions in China or elsewhere in the world, we cannot assure you that we will not pursue acquisitions in the future that may involve complex corporate structures. If we are considered a "non-resident enterprise" under the New EIT Law and if the PRC tax authorities make adjustments under Circular 59 or Circular 698, our income tax costs associated with such potential acquisitions will be increased.

    The enforcement of the Labor Contract Law and other labor-related regulations in China may adversely affect our business and our results of operations.

        On June 29, 2007, the National People's Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. The Labor Contract Law established more restrictions and increased costs for employers to dismiss employees under certain circumstances, including specific provisions relating to fixed-term employment contracts, non-fixed-term employment contracts, task-based employment, part-time employment, probation, consultation with the labor union and employee representative's council, employment without a contract, dismissal of employees, compensation upon termination and for overtime work, and collective bargaining. Under the Labor Contract Law, unless otherwise provided by law, an employer is obligated to sign a labor contract with a non-fixed term with an employee, if the employer continues to hire the employee after the expiration of two consecutive fixed-term labor contracts, or if the employee has worked for the employer for 10 consecutive years. Severance pay is required if a labor contract expires and is not renewed because of the employer's refusal to renew or seeking to renew with less favorable terms. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for an employer are entitled to a paid vacation for five to 15 days, depending on the employee's number of years of employment. Employees who waive such vacation at the request of employers are entitled to compensation that equals to three times their regular daily salary for each waived vacation day. As a result of these new labor protection measures, our labor costs and those of our third-party contract manufacturers are expected to increase, which may adversely affect our business and our results of operations. It is also possible that the PRC government may enact additional labor-related legislations in the future, which would further increase our labor costs and affect our operations and those of our third-party contract manufacturers.

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Risks Related to This Offering

    There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

        Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. Our ADSs have been approved for listing on the NYSE. Our ordinary shares will not be listed or quoted for trading on any exchange. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected. Immediately following this offering and assuming the underwriters do not exercise their overallotment option, we will have 6,000,000 ADSs listed on the NYSE for trading, which will limit the aggregate market value of our publicly held ADSs at the time to US$42.0 million, based on the estimated initial offering price of US$7.00 per ADS. In addition, four unaffiliated investors have indicated to the underwriters and us their interest in subscribing for an aggregate of up to 3,000,000 ADSs offered in this offering, representing up to 50% of the total ADSs offered by us. Each of these investors has agreed with the underwriters that, to the extent such investor purchases any ADSs in this offering, such investor will not, directly or indirectly, transfer or dispose of any of such ADSs for a period of 180 days after the first day our ADSs are traded on the NYSE. Such lock-up restrictions could reduce the average trading volume of our ADSs during this 180-day lock-up period. Limited trading volume may subject our ADSs to greater price volatility and may make it difficult for you to sell your ADSs at a price that is attractive to you.

        The initial public offering price for our ADSs will be determined by negotiations between us and the representatives of the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. We cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

    The market price for our ADSs may be volatile.

        The market price for our ADSs may be volatile and subject to wide fluctuations in response to various factors, many of which are beyond our control, including the following:

    actual or anticipated fluctuations in our quarterly operating results;

    changes in financial estimates by securities research analysts;

    conditions in the fashion casual menswear industry;

    changes in the economic performance or market valuations of other menswear companies;

    announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;

    addition or departure of key personnel;

    fluctuations of exchange rates between the Renminbi and U.S. dollar or other foreign currencies;

    potential litigation or administrative investigations;

    release of lock-up or other transfer restrictions on our outstanding ADSs or ordinary shares or sales of additional ADSs; and

    general economic or political conditions in China.

        In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

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    Because the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        The initial public offering price per ADS is substantially higher than the net tangible book value per ADS prior to the offering. Accordingly, if you purchase our ADSs in this offering and assuming no exercise of the underwriters' overallotment option, you will incur immediate dilution of approximately US$3.24 in the net tangible book value per ADS from the price you pay for our ADSs, representing the difference between:

    the estimated initial public offering price of US$7.00 per ADS set forth on the front cover of this prospectus, and

    the pro forma as adjusted net tangible book value per ADS of US$3.76 as of September 30, 2010, assuming the conversion of our 2008 convertible loan and 2010 convertible loan and after giving effect to this offering.

        You may find additional information in the section entitled "Dilution" in this prospectus. If we issue additional ADSs in the future, you may experience further dilution. In addition, you may experience further dilution to the extent that ordinary shares are issued upon the exercise of share options to be granted under our 2010 Equity Incentive Plan.

    We may need additional capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders and the incurrence of additional indebtedness could increase our debt service obligations.

        We believe that our current cash and cash equivalents, anticipated cash flow from operations, the remaining funds available under our credit facilities and the proceeds from this offering will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity and equity-linked securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all, particularly in light of the current global economic crisis.

    Future sales or issuances, or perceived future sales or issuances, of substantial amounts of our ordinary shares or ADSs could adversely affect the price of our ADSs.

        If our existing or future shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares or ADSs, including those issued upon the exercise of our share options to be granted under our 2010 Equity Incentive Plan, following this offering, the market price of our ADSs could fall. Such sales, or perceived potential sales, of our ordinary shares or ADSs might make it more difficult for us to issue new equity or equity-related securities in the future at a time and place we deem appropriate. The ADSs offered in this offering will be eligible for immediate resale in the public market without restrictions, except for any ADSs that may be sold to any of the four unaffiliated investors who have agreed with the underwriters to certain lock-up restrictions. See "—There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all" above. In addition, shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions contained in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and the applicable lock-up agreements. If any existing or future shareholder or shareholders sell a substantial amount of ordinary shares or ADSs after the expiration of the lock-up period, the prevailing market price for our ADSs could be adversely affected. See "Shares Eligible for Future Sale" and "Underwriting" for additional information regarding resale restrictions.

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    Your interest in our ADSs will be diluted as a result of our 2010 Equity Incentive Plan or other stock option grants.

        In December 2010, we established the 2010 Equity Incentive Plan to help us recruit and retain key employees, directors or consultants by providing incentives through the granting of equity awards. Under the 2010 Equity Incentive Plan, we may issue equity awards in the form of share options, restricted shares, or share appreciation rights. The maximum aggregate number of shares that may be issued pursuant to all awards shall not exceed 3% of our issued share capital immediately following the completion of this offering, assuming full exercise of all awards that may be granted under the plan. For a description of this plan, see "Management—Equity Incentive Plan." As of the date of this prospectus, our board of directors has authorized to grant restricted shares in the amount of 0.5% of our issued and outstanding share capital immediately after the completion of this offering to Mr. Chi Hon Tsang, our chief financial officer. The issuance of such restricted shares or the exercise of options granted under the 2010 Equity Incentive Plan would result in a reduction in the percentage of ownership of the holders of ordinary shares and of ADSs, and therefore would result in a dilution in the earnings per ordinary share and per ADS. You may face difficulties in protecting your interests, and your ability to protect your rights through the United States federal courts may be limited, because we are incorporated under Cayman Islands law.

    Mr. James Hong, our founder, beneficially holds a majority interest in our company and has significant influence over our management and his interests may not be aligned with our interests or the interests of our other shareholders.

        Currently, our founder, Mr. James Hong, who is also our chairman and chief executive officer, beneficially owns 71.07% of our outstanding ordinary shares on an as-converted basis. See "Principal and Selling Shareholders." Upon completion of this offering, Mr. James Hong will beneficially own 56.75% of our outstanding ordinary shares. The interests of this shareholder may conflict with the interests of our other shareholders. Our founder has significant influence over us, including on matters relating to mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of us, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of us or of our assets and might reduce the price of our ADSs.

    You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote. Under certain circumstances, you may be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us.

        Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. If we ask for your instructions and notify the depositary of such request at least 21 business days in advance of the meeting date, the depositary will notify you of the upcoming vote and arrange to deliver to you our voting materials, which will contain, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given, or deemed given if no instructions are received by the depositary from you on or before the date established by the depositary for such purpose, to the depositary to give a discretionary proxy to a person designated by us. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if we inform the depositary we do not wish such proxy given, substantial opposition from ADS holders (as determined by us or the depositary)

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exists against the outcome for which the person designated by us would otherwise vote, or the matter materially and adversely affects the rights of holders of the ordinary shares.

    You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act with respect to all holders of ADSs. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

    You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary, unless otherwise restricted by any lock-up arrangements. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or government body, or under any provision of the deposit agreement, or for any other reason.

    Our articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

        Our new amended and restated articles of association that will become effective upon the completion of this offering contain provisions limiting the ability of others to acquire control of our company. These provisions could have the effect of depriving our shareholders of opportunities to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.

        For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may decline and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

    You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law and conduct substantially all of our operations in China, and the majority of our officers reside outside the United States.

        We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our wholly owned subsidiaries in China. All of our officers reside outside the United

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States, and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind outside the Cayman Islands or China, the laws of the Cayman Islands and of the PRC may render you unable to effect service of process upon, or to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. A judgment of a court of another jurisdiction may be reciprocally recognized or enforced if the jurisdiction has a treaty with China or if judgments of the PRC courts have been recognized before in that jurisdiction, subject to the satisfaction of other requirements. However, China does not have treaties providing for the reciprocal enforcement of judgments of courts with Japan, the United Kingdom, the United States and most other Western countries. For more information regarding the relevant laws of the Cayman Islands and the PRC, see "Enforceability of Civil Liabilities."

        Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (2010 Revision) and the common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

        As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

    Our management will have considerable discretion as to the use of the net proceeds from this offering.

        Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds received by us may be used for corporate purposes that do not improve our efforts to maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or that lose value.

    We will incur increased costs as a result of being a public company.

        As a public company, we will incur a significantly higher level of legal, accounting and other expenses than we did as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the NYSE, have required changes in corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in, but not limited to, the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Industry" and "Our Business." These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

    our anticipated growth strategies, including our strategy to expand our distribution network, our flagship stores and our design and product development capabilities;

    our future business development, results of operations and financial condition;

    expected changes in our revenues and certain cost or expense items;

    our ability to promote our brand based on consumer preference or demand;

    our ability to control the ultimate retail sales by our distributors and their sub-distributors; and

    trends and competition in the fashion casual menswear industry.

        In some cases, you can identify forward-looking statements by terms such as "may," "could," "will," "should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading "Risk Factors" and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Although we will become a public company after this offering and have ongoing disclosure obligations under United States federal securities laws, we do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise.

        This prospectus also contains statistical data and estimates that we obtained from industry publications and reports generated by third-party market research firms, including the Frost & Sullivan Report and Frost & Sullivan Survey, both of which were commissioned by us for purposes of this offering. Although we believe that these publications, reports and surveys are reliable, we have not independently verified the data. Statistical data in these industry publications and reports also include projections based on a number of assumptions. The consumer industry in China, particularly the menswear market, may not grow at the projected rates or at all. The failure of China's consumer industry and the menswear market to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. Furthermore, if any one or more of the assumptions underlying the statistical data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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CORPORATE STRUCTURE

Corporate Structure

        The following diagram illustrates our corporate structure, including the place of formation of each entity and the ownership interests of our subsidiaries as of the date of this prospectus:

GRAPHIC

Corporate History

        We commenced our garment manufacturing operations in June 1999. Our Zuoan trademark was originally registered in 2001 by Fujian Aidu Industry and Trading Co., Ltd., a company wholly owned by the family of Mr. James Hong, our founder. In April 2002, Zuoan Dress Co., Ltd., Shishi, or Shishi Zuoan, was incorporated and commenced operations as a foreign-invested enterprise. The then sole shareholder of Shishi Zuoan was Ms. Siu Fong Or, wife of Mr. James Hong and a Hong Kong resident. Shishi Zuoan subsequently migrated to our current business as a designer brand of fashion casual menswear.

        In February 2008, we set up a holding company structure by establishing Fast Boost Holdings Limited, or Fast Boost, in the British Virgin Islands. Fast Boost established a wholly owned subsidiary, Champion Goal Holdings Limited, or Champion Goal, in July 2008 in Hong Kong. Champion Goal then acquired all the equity interests in Shishi Zuoan in September 2008.

        We incorporated Zuoan Fashion Limited, or Zuoan Cayman, in connection with this offering in August 2010. On October 5, 2010, Fast Boost became the wholly owned subsidiary of Zuoan Cayman through a share exchange through which Zuoan Cayman acquired all of the issued and outstanding shares of Fast Boost, and issued ordinary shares to the shareholders of Fast Boost. Upon completion of the share exchange, Zuoan Cayman became our ultimate holding company.

        In August 2010, Shishi Zuoan incorporated a wholly owned subsidiary, Shanghai Mingfu Fashion Limited, or Shanghai Mingfu, in Shanghai. After its incorporation, we relocated our headquarters and design and product development team to Shanghai.

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USE OF PROCEEDS

        Based upon an estimated initial offering price of US$7.00 per ADS, we expect that we will receive net proceeds from this offering of approximately US$36.8 million after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. A US$1.00 increase (decrease) in the estimated initial offering price would increase (decrease) the net proceeds to us from this offering by US$5.6 million after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

        We intend to use the net proceeds we receive from this offering primarily for the following purposes:

    approximately 35% to expand our network of directly operated flagship stores in China;

    approximately 35% to support our distributors in opening new Zuoan retail stores;

    approximately 24% to establish a logistics center in Shishi for the purpose of stocking our finished products; and

    the remaining amount to fund working capital and for other general corporate purposes.

        In using the proceeds of this offering, as an offshore holding company, under PRC laws and regulations, we are permitted to provide funding to our PRC subsidiaries only through loans or capital contributions. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund their capital expenditures or working capital. We intend to invest the proceeds of this offering into our PRC subsidiaries and thereafter convert such proceeds into Renminbi promptly upon completion of relevant PRC government registration or receipt of the relevant approval. If we provide funding to a PRC subsidiary through capital contribution or loans, we will need to increase the PRC subsidiary's approved registered capital and total investment amount, which requires approval from the MOC or its local counterparts. Such approval process typically takes 30 to 90 days, and sometimes longer, from the time the MOC receives the application documents. If we provide funding to a PRC subsidiary through loans, we will also need to register such loans with SAFE, which usually requires no more than 20 working days to complete. We cannot assure you that we will be able to complete these government registrations or obtain the relevant approvals on a timely basis, if at all. See "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from this offering to make loans or additional capital contributions to our PRC operating subsidiaries."

        Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest-bearing debt instruments or bank deposits.

        The foregoing represents our current intentions with respect of the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds of this offering. The occurrence of unforeseen events or changed business conditions may result in application of the proceeds of this offering in a manner other than as described in this prospectus.

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DIVIDEND POLICY

        We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. We declared and paid dividends in the aggregate amount of RMB55.0 million and RMB140.0 million in 2007 and 2008, respectively. We have not declared or paid any dividends since January 1, 2009 and we do not have any plan to declare or pay any additional dividends in the foreseeable future.

        Our board of directors has complete discretion in deciding whether to distribute dividends. Even if our board of directors decides to pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.

        If we pay any dividends, our ADS holders will be entitled to such dividends to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

        We are a holding company with no material operations of our own. We conduct our operations primarily through our subsidiaries in China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid to us by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Pursuant to laws applicable to entities incorporated in the PRC, our subsidiaries in the PRC must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual appropriation of 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the subsidiaries' discretion. These reserve funds can only be used for the specific purposes of enterprise expansion, staff bonus and welfare, and are not distributable as cash dividends. For more details, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Restrictions on Cash Transfers to Us."

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CAPITALIZATION

        The table below sets forth our total capitalization as of September 30, 2010:

    on an actual basis;

    on a pro forma basis to give effect to (i) the conversion of our 2008 convertible loan to 3,562,164 ordinary shares, based on a conversion price of US$0.8539 per ordinary share, which, pursuant to the 2008 convertible loan agreement, is calculated by discounting the estimated initial public offering price of US$7.00 per ADS on a per ordinary share basis by 50%, subject to a cap on the conversion price of US$0.8539 per ordinary share; (ii) the conversion of our 2010 convertible loan to 3,160,336 ordinary shares, based on a conversion price of US$0.9625 per ordinary share, which, pursuant to the 2010 convertible loan agreement, is calculated by discounting the estimated initial public offering price of US$7.00 per ADS on a per ordinary share basis by 45%, subject to a cap on the conversion price of US$1.3634 per ordinary share; and (iii) a decrease in the related accrued interest of RMB4,581,000 as the convertible loans do not bear interest if they are converted.

    on a pro forma as adjusted basis to further reflect the issuance and sale of 24,000,000 ordinary shares in the form of ADSs by us in this offering, assuming an initial public offering price of US$7.00 per ADS, after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

        You should read this table together with our consolidated financial statements, the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of September 30, 2010  
 
  Actual   Pro Forma   Pro Forma
as Adjusted
 
 
  (in thousands of RMB)
 

Debt:

                   

Short-term debt:

                   
 

Bank borrowings, secured and guaranteed

    47,000     47,000     47,000  
 

Convertible loans

    40,695          
               

Total short-term debt

    87,695     47,000     47,000  
               

Total debt

    87,695     47,000     47,000  
               

Equity:

                   

Share capital
(500,000,000 shares authorized, 80,000,000 shares issued and outstanding, 86,722,500 issued and outstanding on a pro forma basis and 110,722,500 issued and outstanding on a pro forma as adjusted basis)

    1     11     185  

Share premium

    129,599     174,865     420,854  

Reserves

    17,439     17,439     17,439  

Retained profits

    260,577     260,577     260,577  
               

Total equity of the Company

    407,616     452,892     699,055  
               

Total capitalization

   
495,311
   
499,892
   
746,055
 
               

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DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the pro forma net tangible book value per ordinary share.

        Our net tangible book value as of September 30, 2010 was approximately RMB407.6 million (US$60.9 million), or approximately US$0.76 per ordinary share or US$3.05 per ADS. Net tangible book value represents the amount of our total consolidated assets, less the amount of our total consolidated liabilities, intangible assets and goodwill. Dilution is determined by subtracting pro forma as adjusted net tangible book value per ordinary share or per ADS, after giving effect to (i) the conversion of our 2008 convertible loan and 2010 convertible loan; and (ii) the proceeds from this offering after deducting estimated underwriting discounts and commissions and offering expenses payable by us, from the estimated initial public offering price per ADS set forth on the cover page of this prospectus.

        Without taking into account any other changes in net tangible book value after September 30, 2010, other than to give effect to the conversion of our 2008 convertible loan and 2010 convertible loan, our sale of the ADSs offered in this offering at the estimated initial public offering price of US$7.00 per ADS, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at September 30, 2010 would have been US$104.5 million, or US$0.94 per ordinary share, and US$3.76 per ADS. This represents an immediate increase in pro forma as adjusted net tangible book value of US$0.18 per ordinary share and US$0.71 per ADS, to the existing shareholders and an immediate dilution in net tangible book value of US$0.81 per ordinary share and US$3.24 per ADS, to new investors purchasing ADSs in this offering.

        The following table illustrates such dilution:

 
  Per Ordinary
Share
  Per ADS

Assumed initial public offering price

  US$1.75   US$7.00

Net tangible book value as of September 30, 2010

  0.76   3.05

Pro forma net tangible book value

  0.78   3.12

Pro forma as adjusted net tangible book value

  0.94   3.76
         

Increase in pro forma as adjusted net tangible book value

  0.18   0.71
         

Dilution in pro forma as adjusted net tangible book value to new investors in this offering

  0.81   3.24
         

        The following table summarizes, on the pro forma as adjusted basis described above, the number of ordinary shares (in the form of ADSs or shares) purchased from us as of September 30, 2010 and the total consideration and the average price per ordinary share/ADS paid by our existing shareholders and new investors before deducting estimated underwriting discounts and the estimated offering

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expenses. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the overallotment option granted to the underwriters.

 
  Ordinary Shares
Purchased
   
   
   
   
 
 
  Total Consideration    
   
 
 
  Average Price
Per Ordinary
Share
  Average
Price Per
ADS
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

    80,000,000     72.2   US$ 19,371,000     28.4   US$ 0.24   US$ 0.97  

Phillip Ventures

    6,722,500     6.1   US$ 6,767,000     9.9   US$ 1.01   US$ 4.03  

New investors

    24,000,000     21.7   US$ 42,000,000     61.7   US$ 1.75   US$ 7.00  
                               
 

Total

    110,722,500     100.0   US$ 68,138,000     100.0              
                               

        A US$1.00 increase (decrease) in the estimated initial public offering price of US$7.00 per ADS would increase (decrease) our pro forma as adjusted net tangible book value by US$5.6 million, or by US$0.05 per ordinary share and US$0.20 per ADS, and the dilution in pro forma as adjusted net tangible book value to new investors in this offering by US$1.00 per ordinary share, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

        The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

        The preceding discussion and tables exclude the 556,394 restricted shares to be granted to Mr. Chi Hon Tsang upon the completion of this offering. The preceding discussion and tables will not be impacted by any exercise of the overallotment option granted to the underwriters as such shares will be purchased from existing shareholders, no additional new shares will be issued, and no proceeds will be received by us.

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EXCHANGE RATE INFORMATION

        Our business is primarily conducted in China and substantially all of our revenues and expenses are denominated in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.6905 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board for September 30, 2010. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government exercises control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through intervention in the foreign exchange market on foreign trade.

        The following table sets forth information concerning exchange rates between Renminbi and U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

 
  Exchange Rate  
Period
  Period End   Average(1)   Low   High  
 
  (RMB per US$1.00)
 

2005

    8.0702     8.1826     8.2765     8.0702  

2006

    7.8041     7.9579     8.0702     7.8041  

2007

    7.2946     7.5806     7.8172     7.2946  

2008

    6.8225     6.9193     7.2946     6.7800  

2009

    6.8259     6.8295     6.8470     6.8176  

2010

                         
 

Nine-month period ended September 30, 2010

    6.6905     6.7984     6.8330     6.6869  
 

August

    6.8069     6.7873     6.8069     6.7670  
 

September

    6.6905     6.7396     6.8102     6.6869  
 

October

    6.6707     6.6678     6.6912     6.6397  
 

November

    6.6670     6.6538     6.6892     6.6330  
 

December

    6.6000     6.6497     6.6745     6.6000  

2011

                         
 

January

    6.6017     6.5964     6.6364     6.5809  
 

February (through February 4)

    6.5560     6.5654     6.5937     6.5560  

(1)
Annual averages and averages for the nine-month period ended September 30, 2010 were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages were calculated by using the average of the daily rates during the relevant month.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We were incorporated in the Cayman Islands in order to enjoy certain benefits, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions, and the availability of professional and support services. Certain disadvantages, however, accompany incorporation in the Cayman Islands. These disadvantages include a less developed body of Cayman Islands securities laws that provide significantly less protection to investors as compared to the laws of the United States, and the potential lack of standing by Cayman Islands companies to sue in the federal courts of the United States.

        Our organizational documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed CT Corporation System as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        Conyers Dill & Pearman, our special Cayman Islands counsel, and Trend Associates, our special PRC counsel, have advised us that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Conyers Dill & Pearman has advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation. However, Conyers Dill & Pearman has advised us that it is uncertain whether a U.S. court judgment based on the civil liability provisions of the U.S. federal securities laws would be enforceable in the Cayman Islands because a Cayman Islands court may determine that such judgment is in the nature of a "penalty" and therefore not subject to enforcement proceedings as a debt. Conyers Dill & Pearman has further advised us that U.S. shareholders may originate actions in the Cayman Islands based upon Cayman Islands law.

        Trend Associates has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other agreements with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States. Trend Associates has further advised us that according to the PRC Civil Procedures Law, U.S. shareholders may originate actions in China based upon PRC laws.

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

        The selected consolidated financial data for the periods and as of the dates indicated below are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," both of which are included elsewhere in this prospectus.

        The selected consolidated statements of comprehensive income data and selected consolidated statements of cash flow data for the fiscal years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2010 and the selected consolidated statements of financial position data as of December 31, 2007, 2008 and 2009 and September 30, 2010 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected statements of comprehensive income data and selected consolidated statements of cash flow data for the nine months ended September 30, 2009 have been derived from our unaudited financial statements included elsewhere in this prospectus. The selected statements of comprehensive income data and selected consolidated statements of cash flow data for the years ended December 31, 2005 and 2006 and the selected statements of financial position data as of December 31, 2005 and 2006 have been derived from our unaudited financial statements, which are not included in this prospectus.

        The results for the nine months ended September 30, 2010 may not be indicative of our results for the full year ending December 31, 2010. Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.

Consolidated Statements of Comprehensive Income Data:

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2005   2006   2007   2008   2009   2009   2010  
 
  RMB
(unaudited)

  RMB
(unaudited)

  RMB
 

  RMB
 

  RMB
 

  US$
 

  RMB
(unaudited)

  RMB
 

  US$
 

 
 
  (in thousands, except for per share and per ADS data)
 

Revenues

    181,235     332,388     434,472     598,344     693,089     103,593     489,693     613,878     91,754  

Cost of sales

    (120,302 )   (206,660 )   (262,281 )   (355,640 )   (411,165 )   (61,455 )   (293,561 )   (360,790 )   (53,926 )
                                       

Gross profit

    60,933     125,728     172,191     242,704     281,924     42,138     196,132     253,088     37,828  

Other income

    67     258     381     1,783     898     134     381     606     91  

Selling and distribution expenses

    (15,878 )   (31,893 )   (32,954 )   (49,666 )   (53,373 )   (7,977 )   (28,012 )   (44,217 )   (6,609 )

Administrative expenses

    (7,374 )   (10,192 )   (12,700 )   (18,572 )   (22,176 )   (3,315 )   (13,631 )   (27,885 )   (4,168 )

Finance costs

    (112 )   (125 )   (230 )   (360 )   (1,018 )   (152 )   (690 )   (6,063 )   (906 )
                                       

Profit before taxation

    37,636     83,776     126,688     175,889     206,255     30,828     154,180     175,529     26,236  

Income tax expense

    (4,502 )   (10,199 )   (35,277 )   (43,206 )   (52,357 )   (7,826 )   (38,824 )   (47,846 )   (7,151 )
                                       

Profit after taxation

    33,134     73,577     91,411     132,683     153,898     23,002     115,356     127,683     19,084  
                                       

Earnings per ordinary share

                                                       
 

Basic and diluted

    0.41     0.92     1.14     1.66     1.92     0.29     1.44     1.60     0.24  

Earnings per ADS

                                                       
 

Basic and diluted

    1.66     3.68     4.57     6.63     7.69     1.15     5.77     6.38     0.95  

Pro forma earnings per ordinary share, diluted (unaudited)

                            1.85     0.28     1.39     1.53     0.23  

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Consolidated Statements of Financial Position Data:

 
  As of December 31,   As of September 30,  
 
  2005   2006   2007   2008   2009   2010  
 
  RMB
(unaudited)

  RMB
(unaudited)

  RMB
 

  RMB
 

  RMB
 

  US$
 

  RMB
 

  US$
 

 
 
  (in thousands)
 

Non-current assets

                                                 

Property, plant and equipment

    4,038     3,145     2,983     2,559     2,043     305     2,895     433  

Deferred offering cost

                            4,362     652  
                                   

Total non-current assets

    4,038     3,145     2,983     2,559     2,043     305     7,257     1,085  

Current assets

                                                 

Inventories

    21,428     38,881     50,554     8,319     17,409     2,602     25,876     3,868  

Trade and other receivables

    38,465     74,025     103,127     142,066     215,454     32,203     314,597     47,021  

Prepayments

        12,200     22,600         2,409     360     1,800     269  

Fixed deposits—pledged

                5,905     2,175     325     775     116  

Cash and cash equivalents

    17,731     25,788     23,642     70,625     141,569     21,160     238,483     35,645  
                                   

Total current assets

    77,624     150,894     199,923     226,915     379,016     56,650     581,531     86,919  

Total assets

    81,662     154,039     202,906     229,474     381,059     56,955     588,788     88,004  

Total current liabilities

    28,489     65,805     78,261     104,198     101,912     15,232     181,172     27,079  
                                   

Net assets

    53,173     88,234     124,645     125,276     279,147     41,723     407,616     60,925  
                                   

Consolidated Statements of Cash Flow Data:

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2005   2006   2007   2008   2009   2009   2010  
 
  RMB
(unaudited)

  RMB
(unaudited)

  RMB
 

  RMB
 

  RMB
 

  US$
 

  RMB
(unaudited)

  RMB
 

  US$
 

 
 
  (in thousands)
 

Net cash generated from operating activities

    14,720     45,211     53,245     174,782     41,272     6,169     2,731     46,426     6,939  

Net cash generated from/
(used in) investing activities

    67     251     (391 )   (284 )   233     35     303     (718 )   (107 )

Net cash generated from/
(used in) financing activities

    1,390     (37,405 )   (55,000 )   (127,515 )   29,439     4,400     31,265     51,206     7,654  

Cash and cash equivalents at period end

    17,731     17,731     23,642     70,625     141,569     21,160     104,924     238,483     35,645  

Selected Operating Data:(1)

 
  For the Year Ended
December 31,
  For the Nine
Months Ended
September 30,
 
 
  2007   2008   2009   2009   2010  

Revenues (in thousands of RMB)

    434,472     598,344     693,089     489,693     613,878  

Units sold (in thousands)

    3,503     4,723     5,325     4,141     5,108  

Average selling price (RMB per unit(2))

    124     127     130     118     120  

Cost of sales (in thousands of RMB)

    262,281     355,640     411,165     293,561     360,790  

Unit cost (RMB per unit)

    75     75     77     71     71  

Gross margin (%)

    39.6     40.6     40.7     40.1     41.2  

(1)
Units sold and average selling price as used in this prospectus represent the number of units and average selling price of items that we have sold to our distributors and sold to end-consumers in our direct stores, and do not include units sold at retail by our distributors or the average selling price of those units.

(2)
A "unit" as used in this prospectus refers to a single item of our products, which may be a coat, a jacket, a tie, a pair of shoes or socks, a pair of pants or any other menswear item. The average selling price for a given period represents revenues divided by the units sold for that period.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial and Operating Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are a leading design-driven fashion casual menswear company in China. According to the Frost & Sullivan Report, sales of our "Zuoan" branded products ranked second in China's fashion casual menswear market, with a 5.4% market share, in terms of retail sales in 2009. Our products are designed in-house and sold under our Zuoan brand, which means "left bank" in Chinese, referring to the Left Bank district of Paris and embodying our design philosophy of "fashionable elegance." We offer a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle.

        Our design team is led by Mr. James Hong, our chairman and chief executive officer. Mr. James Hong is recognized as one of China's top designers with more than 15 years of industry experience. He was nominated one of the "Top Three Fashion Designers" by the China Fashion Association in November 2009 and one of "China's Top 10 Fashion Designers" by the China Fashion Association for two consecutive years in 2006 and 2007. Our marketing strategy focuses on promoting an overall brand image that embodies a lifestyle of "fashionable elegance," rather than individual products. Unlike many of our competitors, we do not rely on large-scale, blanket television advertising, but instead adopt a targeted multi-channel marketing strategy through our sponsorship of selective public events and activities, participation in major fashion shows and exhibitions and national advertising through television, internet, billboards, magazines and newspapers. We outsource the production of most of our products to selected contract manufacturers. For our most exclusive and fashion-forward products, we produce them in our own secure production facility in Jinjiang City, Fujian Province to retain maximum control over quality and prevent unauthorized disclosure of our new collection before its scheduled release.

        We sell our products through an extensive distribution network covering 27 of China's 32 provinces and centrally administered municipalities, as well as through our direct stores. Our products are primarily sold to customers through retail stores operated by our distributors and their sub-distributors. As of September 30, 2010, we appointed 10 distributors which, directly or through their sub-distributors, operated 1,044 retail stores across China. All of the retail stores are operated under our Zuoan brand and are required to sell only our products. As part of our expansion strategy, in April 2009, we started building up our direct stores in selected cities where we already have an established presence and believe that there is potential for additional growth. As of September 30, 2010, we had 31 direct stores in seven provinces and centrally administered municipalities in China.

        To further promote our brand and improve the performance of Zuoan retail stores, since early 2010 we have adopted a strategy of opening flagship stores, both distributor-operated and directly operated at prime locations in major cities in China. These flagship stores are significantly larger than most of our existing stores and sell the complete line of our collections. Our distributors have opened seven flagship stores in Henan, Jiangxi, Jilin and Liaoning Provinces. In line with our flagship store strategy, in January 2011, we transferred all of our direct stores, which were located in department

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stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores at prime commercial areas.

        Our business has grown rapidly in recent years. Our revenues increased from RMB434.5 million in 2007 to RMB598.3 million in 2008 and RMB693.1 million (US$103.6 million) in 2009, representing a CAGR of 26.3% from 2007 to 2009. Our profit after taxation increased from RMB91.4 million in 2007 to RMB132.7 million in 2008 and RMB153.9 million (US$23.0 million) in 2009, representing a CAGR of 29.8% from 2007 to 2009. For the nine months ended September 30, 2010, we achieved revenues of RMB613.9 million (US$91.8 million) and profit after taxation of RMB127.7 million (US$19.1 million) compared to revenues of RMB489.7 million and profit after taxation of RMB115.4 million for the nine months ended September 30, 2009.

Factors Affecting Our Results of Operations

        Our business and results of operations are affected by general factors affecting the fashion casual meanswear industry, including China's overall economic growth, per capita disposable income and consumer spending, market demand for fashion casual menswear in China, fashion trends and competition among companies to introduce the most popular fashions each year. Unfavorable changes in any of these economic or general industry conditions could negatively affect demand for our products and materially affect our results of operations.

        Our results of operations are also affected by company-specific factors, including, among others:

    Brand Recognition.  We derive all of our revenues from sales of our Zuoan branded products in China, and our success depends on the market perception and acceptance of the Zuoan brand and the culture, lifestyle and images associated with this brand. Market acceptance of our brand may affect the selling prices and market demand for our products, the profit margin we can achieve, and our ability to grow.

    Our Relationship with Distributors.  We rely heavily on third-party distributors and their sub-distributors to market and sell our products. Most of our branded products are distributed through a retail distribution network across 27 provinces and centrally administrated municipalities in China. As of September 30, 2010, this distribution network comprised 1,044 Zuoan retail stores operated by our 10 distributors and their sub-distributors, with sales to distributors accounting for 96.2% of our revenues. We appointed three new distributors in January 2011 in order to diversify our distributor base and reduce our reliance on current distributors. We intend to increase our sales by expanding our network of retail stores and will therefore rely to a large extent on our distributors and their sub-distributors for such expansion. We also depend to a large extent on our distributors to maintain a consistent brand image through the retail stores operated by them and their sub-distributors.

    Contract Manufacturing Costs.  As we outsource most production to contract manufacturers, changes in our contract manufacturing costs will significantly affect our results of operations. In particular, as our contract manufacturing costs reflect the cost of raw materials and labor costs incurred by our contract manufacturers used in producing our products, changes in the cost of the raw materials and labor will affect our outsourcing costs. We typically maintain good relationships with our contract manufacturers and are able to control contract manufacturing costs through improving production workflow or renegotiating the contract terms. Increases in our contract manufacturing costs could negatively affect our gross profit margins and results of operations to the extent that we are unable to pass these costs on to customers.

    Ratio of Retail Stores to Direct Stores in Our Sales Network.  The ratio of retail stores to direct stores in terms of floor area in our sales network affects our results of operations in a given

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      period. The retail stores operated by our distributors have been and will continue to be the main contributor to our revenue for the foreseeable future. Under the distribution business model, we sell directly to our distributors and recognize revenues upon delivery of our products to them. Such distribution network has enabled us to accelerate sales growth at a much lower cost than opening direct stores and has limited our inventory and sales risks. Direct stores, despite incurring more significant capital expenditures as compared with retail stores, allow us more control over our brand and the consumer's shopping experience, which are important factors for the overall success of our business. In addition, our direct store sales generally have a higher gross profit margin than sales to distributors because we are able to sell the products at retail prices directly to the end-consumers and because we recognize expenses relating to our direct stores as selling and distribution expenses. Therefore, the ratio of retail stores to direct stores in our sales network will affect our gross profit margin.

    Expansion of Network of Flagship Stores.  We intend to expand, either directly or through our distributors, our network of flagship stores with significantly larger store areas at prime commercial locations in major cities. We believe that flagship stores can help further promote our brand awareness, showcase our complete product collections, stimulate sales in Zuoan stores in nearby regions and improve our overall business performance. Opening directly operated flagship stores requires large upfront capital expenditures relating to property lease and renovation costs, as well as high working capital requirements to maintain sufficient inventories in these enlarged stores, which may adversely affect our liquidity and financial condition. In addition, although operating stand-alone, directly operated flagship stores without a commission arrangement may achieve a higher gross profit margin, our net profit margin may not increase and may even decrease in 2011 due to the increase in lease expenses and other operating costs such as salaries incurred by additional store employees.

    In connection with our flagship store strategy, in January 2011, we transferred all of our direct stores, which were located in department stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores. As a result, we expect that revenues generated by our direct stores will be minimal until we have built up a scalable network of directly operated flagship stores. Such transfer will not significantly affect our overall gross profit margin in the short term due to the relatively small portion of our total revenues contributed by our direct store sales. However, the sale of inventory for our direct stores to our distributors in connection with such transfer will result in a slight increase in our trade receivables in the first quarter of 2011.

    Competition.  The fashion casual menswear industry in China is subject to intense competition with an increasing number of local and international fashion casual menswear companies. We compete principally on the basis of brand image, design and concept, product mix, quality, price, size and coverage of distribution network, and proximity to target customers. We may need to reduce our prices, enhance our sales and marketing activities or adjust our production process to lower costs in order to remain competitive.

    Seasonality.  As is common in the fashion industry, our results of operations are subject to seasonal fluctuations. Generally, the third and fourth quarters, during which we offer our fall/winter collection, account for a higher portion of our annual revenues than other quarters because our fall/winter collections are generally priced higher than our spring/summer collections and consist of more types of products. As a result, comparisons of our sales and results of operations between different periods within a single year or between different periods in different years, are not necessarily indicative of our performance. See "Risk Factors—Risks Related to Our Business—Our business is susceptible to seasonal fluctuations and extreme or unexpected weather conditions."

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        Revenues.    We derive revenues from the sale of men's apparel and accessories under our "Zuoan" brand through retail stores operated by distributors and sub-distributors, and through our direct stores. Our revenues are stated net of VAT, discounts, rebates and returns. The following table sets forth the revenues generated by sales to our distributors and direct store sales, units sold and average selling price for the periods indicated:

 
  For the Year Ended
December 31,
  For the
Nine Months
Ended September 30,
 
 
  2007   2008   2009   2009   2010  

Revenues (in thousands of RMB)

                               
 

Sales to distributors

    434,472     598,344     673,860     489,659     590,298  
 

Direct store sales

            19,229     9,034     23,579  

Units sold (in thousands)

    3,503     4,723     5,325     4,141     5,108  

Average selling price (RMB per unit)

    124     126     130     118     120  

Unit cost (RMB per unit)

    75     75     77     71     71  

        Our revenues have grown rapidly over the three-year period ended December 31, 2009 and the nine months ended September 30, 2010, primarily driven by the increase of our sales volume. To a lesser extent, the moderate increase of the average selling price also contributed to such growth.

        Units sold to our distributors and in our direct stores increased by 34.8%, 12.7% and 23.4% in 2008, 2009 and the nine months ended September 30, 2010, respectively, compared to the units sold in 2007, 2008 and the nine months ended September 30, 2009, respectively, primarily driven by an increase of the number of and aggregate floor area of the stores as a result of the improvement and expansion of our sales network.

        The average selling price for our products increased slightly during the three-year period ended December 31, 2009, due in part to slight increase of our unit costs during the same periods as a result of an increase in raw material prices for both our in-house production and contract manufacturers' production. Our average selling price increased slightly in the nine months ended September 30, 2010 from the nine months ended September 30, 2009, primarily due to the increased cost for our apparel products. Due to the annual seasonal pattern in our industry, the average selling price for our products in the first six months of a year is typically slightly lower than the annualized average selling price because our spring/summer collections generally are priced lower than our fall/winter collections due to the slightly lower costs of raw materials for our spring/summer collections.

        The fluctuations of the unit cost in the periods presented in the table above in general reflected the fluctuations in raw material prices over the relevant periods.

        Sales to Distributors.    We sell substantially all of our products to third-party distributors and sub-distributors who then sell the products to end-consumers through Zuoan retail stores operated by them. We expect that sales to distributors will continue to constitute a substantial majority of our total revenues for the foreseeable future. We recognize these revenues when the risk or ownership of our products is transferred to the distributors, which is typically when our products are delivered to them. Our distributors are generally not allowed to return our products except where defective. We sell products to our distributors at a discount from our suggested retail prices, which historically has been set at 65% off of the suggested retail prices. In determining the suggested retail prices of our products, we usually take into account, among other factors, the prevailing market conditions, cost of design, cost of raw materials and production, and prices set by competitors operating comparable domestic or international brands for similar products. Distributors must adopt, and are required to procure their sub-distributors to adopt, a uniform suggested retail price for each of our products across the market in China, provided, however, that individual distributors or sub-distributors may launch special offers with our prior consent. We generally allow distributors and sub-distributors to offer up to 15% discount for

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in-season products. We also generally give distributors and sub-distributors the discretion to set their own discounted prices to promote sales of out-of-season products. As of September 30, 2010, there were a total of 1,044 Zuoan retail stores operated by 10 distributors and 258 sub-distributors.

        Revenues generated from sales to distributors are primarily driven by:

    the aggregate number of the retail stores operated by our distributors and sub-distributors under our brand;

    the aggregate floor area of the retail stores operated by our distributors and sub-distributors under our brand; and

    the sales volume achieved by the retail stores operated by our distributors and sub-distributors under our brand.

        Future growth of revenues generated from our sales to distributors will depend significantly upon our ability to expand Zuoan retail stores into new locations in China and further increase same store sales. We plan to coordinate with our distributors to renovate up to 100 of their stores each year at our cost. We expect to incur approximately RMB24 million (US$3.6 million) in expenses each year over the next three years in connection with the completion of the renovation and improvements of these retail stores. We intend to fund this planned expansion in part from the proceeds of this offering.

        Direct Store Sales.    We also derive revenues from sales through our direct stores. We recognize revenues from sales of our products in our direct stores at the end of each month in which such products are sold to the end-consumers. Direct store sales are comprised of sales proceeds from end-consumers less, in the case of direct stores located in department stores or shopping malls, certain surcharges collected by the department store or shopping mall. Our direct stores are directly operated and managed by us. As a result, compared with the retail stores operated by our distributors, we have better control over our direct stores, including marketing strategies, store lay-out and decoration, services, quality of sales personnel and retail prices. We are able to achieve higher gross margins from our direct store sales because we do not need to go through a distributor or sub-distributor to sell our products and because we recognize expenses relating to our direct stores as selling and distribution expenses.

        Cost of Sales.    Cost of sales comprises costs of contract manufacturing, in-house production and provision for slow-moving inventory. Cost of sales is recognized when revenues from the corresponding product are recognized.

        Contract Manufacturing Costs.    Contract manufacturing costs comprise fees paid to contract manufacturers for the production of finished apparel and accessories purchased by us. We outsource the production of most of our products to third-party contract manufacturers. We anticipate that our contract manufacturing costs will increase as sales volume increases and as we shift to more contract manufacturing. Our contract manufacturing costs are dependent on the volume and the product mix of the products ordered. We are able to manage our contract manufacturing costs by maintaining relations with multiple contract manufacturers. In addition, we typically order in large volumes from our contract manufacturers to obtain volume-based discounts. We anticipate that our contract manufacturers' costs may increase in 2011 due to the general increase in labor costs and raw material costs in China, which may be passed on to us by the contract manufacturers. However, we believe that we will be able to offset the negative impact of such increase by passing the increased costs on to our customers, as we have done in the past. In addition, as our sales are expected to grow, we expect to be able to negotiate more favorable prices with our contract manufacturers as we increase the volume of our purchases.

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        In-house Production Costs.    In-house production costs comprise primarily direct material costs, direct labor costs and production overhead.

    Direct Material Costs.  Direct materials comprise raw materials, such as fabrics (including cotton, denim and synthetic materials) and fasteners (including zips, buttons and buckles) and are sourced from various suppliers located in Fujian Province and Guangdong Province in China.

    Direct Labor Costs.  Direct labor costs primarily consist of compensation to our production workers at our production facility in Jinjiang, Fujian Province.

    Production Overhead.  Production overhead includes costs relating to our in-house production such as compensation costs for production management personnel, rental expenses for our production facility, utility and maintenance expenses, social security costs for our in-house production workers and staff, and depreciation of plant and machinery.

        Provision for Slow-moving Inventory.    We make provisions for slow-moving inventory for any products that remain unsold after their respective sale seasons. We typically produce approximately 5% more products than orders we received during sales fairs in order to meet any unscheduled demands. We have not made any provisions for slow-moving inventory in 2009 and the nine months ended September 30, 2010. In 2007 and 2008, we made provisions in the amount of RMB2.6 million and RMB0.2 million for slow-moving inventory, respectively, for our products that remained unsold after their respective sale seasons, because we over-produced by 10% for unscheduled demand in 2006 and 2007. We subsequently disposed of those inventories at cost and realized utilization of provision for slow-moving inventory upon disposal in 2008 and 2009.

        Other Income.    Other income comprises mainly interest income from bank balances. In addition, our other income was substantially higher in 2008, primarily due to our receipt of a one-time payment of RMB1.4 million from Fujian Aidu Garment Manufacturing Co., Ltd. or Fujian Aidu, in July 2008 as compensation for the termination of the agreement relating to the purchase of our production facility in Jinjiang, Fujian Province.

        Operating Expenses.    Operating expenses comprise selling and distribution expenses and administrative expenses.

        Selling and Distribution Expenses.    Selling and distribution expenses comprise compensation and benefits for our sales and marketing personnel, travel and entertainment expenses, exhibition and fashion fair expenses, advertising and marketing promotion expenses, reimbursement to distributors for regional advertisements and the cost of renovation and fittings such as shelving, mannequins and hangers for Zuoan retail stores and expenses relating to our direct stores such as rental expenses, administrative expenses, staff salaries, utilities expenses and transportation charges.

        Administrative Expenses.    Administrative expenses comprise compensation and related expenses for our management and administrative personnel, depreciation of plant and equipment, rental expenses of our administrative office in Shishi City, Fujian Province, or Shishi, and our design and product development centers in Shanghai and Zhongshan, office-related expenses and loss on disposal of raw material inventory.

        We expect our operating expenses will generally increase over time as we continue to expand our business. Our selling and distribution expenses are expected to increase as we continue to grow Zuoan retail stores and flagship stores. Our administrative expenses are expected to increase, reflecting the hiring of additional personnel and other costs related to the anticipated growth of our business, as well as the higher costs of operating as a public company.

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        Finance Costs.    Finance costs comprise interest expenses on interest-bearing bank borrowings in relation to working capital purposes.

Taxation

        Cayman Islands.    Our holding company in the Cayman Islands is not subject to income or capital gains tax.

        British Virgin Islands.    Our wholly owned subsidiary, Fast Boost Group Holdings Limited, formed in the British Virgin Islands, is not subject to income or capital gains tax.

        Hong Kong.    Our wholly owned subsidiary, Champion Goal Holdings Limited, or Champion Goal, held through Fast Boost Group Holdings Limited, was incorporated in Hong Kong. Champion Goal is an investment holding company without assessable profit, and has not been subject to any Hong Kong taxation since its incorporation.

        China.    On March 16, 2007, the National People's Congress, the PRC legislature, enacted the New EIT Law. On December 6, 2007, the State Council promulgated the Implementation Regulations to the PRC Enterprise Income Tax Law, or the New EIT Law Implementation Regulations. Both the New EIT Law and the New EIT Law Implementation Regulations became effective on January 1, 2008. Under the New EIT Law and the New EIT Law Implementation Regulations, foreign-invested enterprises, or FIEs, and domestic companies are subject to a uniform income tax rate of 25% unless otherwise specified. There is a transition period for enterprises, whether foreign-invested or domestic, which currently receive preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transfer to the new tax rate within five years of the effective date of the New EIT Law. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term under the relevant tax law and regulations prior to promulgation of the New EIT Law may continue to enjoy such treatment until the fixed term expires.

        Our wholly owned subsidiary, Shishi Zuoan, held through Champion Goal, was incorporated in Shishi on April 29, 2002. Shishi Zuoan is currently the only operating subsidiary of our group. The normal PRC enterprise income tax applicable to Shishi Zuoan was 33% in 2007. However, since Shishi Zuoan is located in one of the Coastal Economic Open Zones, the applicable tax rate to Shishi Zuoan in 2007 was 27%. In accordance with the New EIT Law, the enterprise income tax rates for both domestic and foreign enterprise have been set at 25%. As such, the applicable tax rate for Shishi Zuoan in 2008 and 2009 was 25%.

        The New EIT Law provides that PRC "resident enterprises" are generally subject to the uniform 25% enterprise income tax rate on their worldwide income. Therefore, if we are treated as a PRC "resident enterprise," we will be subject to PRC income tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations. In addition, if we are treated as a PRC "resident enterprise," although under the New EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as "tax-exempted income," we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. The New EIT Law provides that enterprises established outside of China with "de facto management bodies" located in China are considered "resident enterprises." Currently, there are no detailed rules or precedents governing the procedures and specific criteria for determining "de facto management body." See "Risk Factors—Risks Related to Doing Business in China—Under the New EIT law, we may be considered a PRC 'resident enterprise.' As a result, we may be subject to 25% PRC enterprise

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income tax on our worldwide income, and holders of our ADSs or ordinary shares may be subject to PRC tax on dividends paid by us and gains realized on their transfers of our ADSs or ordinary shares."

        In addition, under the New EIT Law and its implementation regulations, dividends payable to foreign investors are subject to PRC withholding tax at the rate of 10% unless the foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding tax rate. Pursuant to a bilateral arrangement between Hong Kong and China, dividends paid by Shishi Zuoan to Champion Goal, its immediate holding company, may be subject to reduced withholding tax at the rate of 5% because Shishi Zuoan is 100% (more than 25%) held by Champion Goal. According to relevant subsequent rules promulgated by the State Administration of Taxation, non-resident enterprises that cannot provide valid supporting documents as "beneficiary owners" of the relevant dividends that derived from China are not be entitled to the tax treaty benefits. We may not be able to enjoy the preferential withholding tax rate of 5% under the tax treaty and therefore will be subject to withholding tax at a rate of 10% with respect to dividends to be paid by Shishi Zuoan to Champion Goal because Champion Goal may not qualify as a beneficial owner of such dividends. See "Risk Factors—Risks Related to Doing Business in China—The New EIT Law will affect tax exemptions on dividends to be paid by our PRC subsidiaries to us through our Hong Kong subsidiary and we may not able to obtain certain treaty benefits under the relevant tax treaty."

        Our overall effective tax rate was 27.8%, 24.6%, 25.4% and 27.3% in 2007, 2008, 2009 and the nine months ended September 30, 2010, respectively.

        Pursuant to the PRC Value-Added Tax Provisional Regulations, promulgated by the State Council on December 13, 1993, as amended on November 5, 2008 (effective on January 1, 2009), and the Detailed Rules for the Implementation of the PRC Interim Regulations on Value-Added Taxes, promulgated on December 25, 1993 and amended on December 15, 2008 (effective on January 1, 2009), all entities and individuals engaged in selling goods, providing repair and placement services or importing goods into the PRC are generally subject to a value-added tax, or VAT, at a rate of 17% (with the exception of certain goods subject to a rate of 13% or lower) of the gross sales proceeds received, less any VAT already paid or borne by the taxpayer on goods or services purchased and utilized in the production of goods or provision of services that have generated the gross sales proceeds.

Critical Accounting Policies

        Critical accounting policies are defined as those that involve significant judgment and uncertainty and that could potentially result in materially different results under different assumptions and conditions. We prepare financial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods reported. Our principal accounting policies and information about critical estimates are set forth in Notes 3 and 26 to our audited consolidated financial statements. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations of the future changes based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

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        We believe that the following critical accounting estimates and related assumptions and uncertainties inherent in our accounting policies have a more significant impact on our consolidated financial statements, either because of the significance of the financial statement elements to which they relate or because they require judgment and estimation.

    Financial Instruments

        We evaluate financial instruments, including convertible loans and other debt instruments, according to the substance of the contractual agreements and in consideration of International Accounting Standards, or IAS, No. 32 and No. 39. These standards require us to make judgments about liability and equity features of the instruments, and also to evaluate if any element of the instrument, including embedded features, is a derivative. We have determined that that none of our current financial instruments contain derivatives.

    Impairment of Trade Receivables

        We assess the collectability of trade receivables on an ongoing basis. This estimate is based on the credit history of customers and current market conditions. We reassesses the impairment losses at each balance sheet date and make provisions, if necessary. Historically, we have not experienced material losses and have not determined it necessary to record any significant provisions.

    Net Realizable Value of Inventories

        Net realizable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on current market conditions and the historical expense of selling products of a similar nature. Changes in selling price could be significant as a result of increasing or decreasing competition. Additionally, changes in fashion and other competitive challenges could impact our estimates. Historically, we have experienced limited obsolescence and therefore, our estimated provisions have been limited. Allowances for inventory obsolescence amounting to RMB2.6 million, RMB0.2 million and nil are recorded in our financial statements as of December 31, 2007, 2008 and 2009, respectively.

    Income Tax

        We are liable for income taxes in China. Significant judgment is required in determining the provision for income taxes. There are also claims for which the ultimate tax determination is uncertain during the ordinary course of business. We recognize liabilities for expected tax issues based on estimates of whether additional taxes will be due. When the final outcome of these tax matters is different from the amounts that were initially recognized, such differences will impact the current and deferred tax provisions in the period in which such determination is made. In the event that our estimates of projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are enacted that would impact matters related to timing or utilization of tax benefits or deductions, adjustments to the recorded amount of net current and deferred tax assets and tax expense would be made.

    Share-Based Compensation

        In December 2010, we established the 2010 Equity Incentive Plan to help us recruit and retain key employees, directors or consultants by providing incentives through the granting of equity awards. Under the 2010 Equity Incentive Plan, we may issue equity awards in the form of share options, restricted shares, or share appreciation rights. The maximum aggregate number of shares that may be issued pursuant to all awards shall not exceed 3% of our issued share capital immediately following the completion of this offering, assuming full exercise of all awards that may be granted under the plan. In December 2010, our board authorized the grant of restricted shares to Mr. Chi Hon Tsang, our chief financial officer, in the amount of 0.5% of our issued share capital immediately following the

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completion of this offering on a fully diluted basis under the 2010 Equity Incentive Plan, effective upon the completion of this offering.

        Additionally, in November 2010, Fame Brilliant, which is wholly owned by Ms. Siu Fong Or, wife of Mr. James Hong, our chairman and chief executive officer, entered into a share purchase agreement with Mr. Chaoshen Wang whereby Fame Brilliant agreed to sell our ordinary shares held by it in an amount of up to 3% of the issued and outstanding shares of our company after this offering, or the aggregate purchase shares, to Mr. Wang in recognition of his contribution to our growth in the past and in order to give him an equity-based incentive to encourage his continued employment with us. Under this agreement, Mr. Wang will have the right to purchase from Fame Brilliant the aggregate purchase shares at 85% of the public offering price for our ordinary shares in this offering. Such right will vest in installments over a period of three years commencing from the completion of the offering, contingent upon Mr. Wang's continued employment with our company. The first installment, equal to one-sixth of the aggregate purchase shares, will vest six months after the completion of this offering, and the second installment, equal to one-sixth of the aggregate purchase shares, will vest one year after the completion of this offering. The remaining purchase shares will vest pro rata each month thereafter over a period of two years.

        We will recognize share-based compensation in relation to awards issued under the 2010 Equity Incentive Plan and the share purchase agreement between Fame Brilliant and Mr. Wang in our statements of comprehensive income based on the fair value of the equity awards on the date of the grant, with compensation expense recognized over the period in which the recipient is required to provide service to us in exchange for the equity award.

        The estimation of share awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We will consider various factors when estimating expected forfeitures, including historical experience. Actual results may differ substantially from these estimates.

        We will determine the fair value of share options granted to employees and directors under the 2010 Equity Incentive Plan using option pricing models, which consider the exercise price relative to the market value of the underlying shares, the expected share price volatility, the risk-free interest rate and the dividend yield, and the estimated period of time option grants will be outstanding before they are ultimately exercised.

        For shares granted to employees, the fair value of the shares will be measured as the difference between the market price of our ordinary shares, adjusted to take into account the terms and conditions upon which the shares were granted (except for vesting conditions that are excluded from the measurement of fair value) and the purchase price of the grant. Adjustments to the market price of our ordinary shares could arise, for example, if the employee is not entitled to receive dividends during the vesting period.

        The share-based compensation expenses will be categorized as cost of sales, selling and distribution expenses, or administrative expenses, depending on the job functions of the grantees.

Results of Operations

        The following table sets forth a summary of our consolidated results of operations as a percentage of total revenues for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical

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results presented below are not necessarily indicative of the results that may be expected for any future period.

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  % of Total
Revenues
  % of Total
Revenues
  % of Total
Revenues
  % of Total
Revenues
  % of Total
Revenues
 

Revenues:

                               
 

Sales to distributors

    100.0     100.0     97.2     98.2     96.2  
 

Direct store sales

            2.8     1.8     3.8  
                       

Total revenues

    100.0     100.0     100.0     100.0     100.0  

Cost of sales

    (60.4 )   (59.4 )   (59.3 )   (59.9 )   (58.8 )

Gross profit

    39.6     40.6     40.7     40.1     41.2  

Other income

    0.1     0.3     0.1     0.2     0.1  

Selling and distribution expenses

    (7.6 )   (8.3 )   (7.7 )   (5.7 )   (7.2 )

Administrative expenses

    (2.9 )   (3.1 )   (3.2 )   (2.8 )   (4.5 )

Finance costs

    (0.1 )   (0.1 )   (0.1 )   (0.1 )   (1.0 )
                       

Profit before taxation

    29.2     29.4     29.8     31.5     28.6  

Income tax expense

    (8.1 )   (7.2 )   (7.6 )   (7.9 )   (7.8 )
                       

Profit after taxation

    21.0     22.2     22.2     23.6     20.8  
                       

    Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

        Revenues.    Total revenues increased by 25.4% from RMB489.7 million for the nine months ended September 30, 2009 to RMB613.9 million (US$91.8 million) for the nine months ended September 30, 2010.

    Sales to Distributors.  Sales to distributors increased by 22.8% from RMB480.7 million for the nine months ended September 30, 2009 to RMB590.3 million (US$88.2 million) for the nine months ended September 30, 2010. This growth was primarily driven by increased sales volume to distributors, which rose by 22.0% from 4.1 million units for the nine months ended September 30, 2009 to 5.0 million units for the nine months ended September 30, 2010, as well as a slight increase in the average selling price per unit due to higher costs for raw materials used in our 2010 fall/winter collection. The increase in sales volume was primarily driven by the expansion of our sales network as a result of the increase in the number and aggregate floor area of Zuoan retail stores. The number of Zuoan retail stores increased by 9.5% from 953 as of September 30, 2009 to 1,044 as of September 30, 2010, with aggregate floor area increasing from 63,332 square meters to 70,745 square meters.

    Direct Store Sales.  We started operating our direct stores in April 2009. Direct store sales increased significantly from RMB9.0 million for the nine months ended September 30, 2009 to RMB23.6 million (US$3.5 million) for the nine months ended September 30, 2010, primarily driven by increased sales volume in our direct stores as well as an increase in the average selling price per unit due to higher costs for raw materials used in our 2010 fall/winter collection. The sales volume in our direct stores rose by 119.6% from 56,000 units for the nine months ended September 30, 2009 to 123,000 units for the nine months ended September 30, 2010, primarily due to an increase in the number and aggregate floor area of our direct stores. The number of our direct stores increased from 15 stores as of September 30, 2009 to 31 stores as of September 30, 2010, with aggregate floor area increasing from 1,264 square meters to 2,512 square meters.

        Cost of Sales.    Cost of sales increased by 22.9% from RMB293.6 million for the nine months ended September 30, 2009 to RMB360.8 million (US$53.9 million) for the nine months ended

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September 30, 2010. Cost of sales as a percentage of our revenues decreased slightly from 59.9% for the nine months ended September 30, 2009 to 58.8% for the nine months ended September 30, 2010.

    Contract Manufacturing Costs.  Contract manufacturing costs increased by 25.1% from RMB270.4 million for the nine months ended September 30, 2009 to RMB338.3 million (US$50.6 million) for the nine months ended September 30, 2010. This increase was primarily due to the increased volume of purchases from contract manufacturers as a result of increased sales volume. As a percentage of total cost of sales, contract manufacturing costs increased slightly from 92.1% for the nine months ended September 30, 2009 to 93.8% for the nine months ended September 30, 2010.

    In-house Production Costs.  In-house production costs decreased by 3.8% from RMB23.4 million for the nine months ended September 30, 2009 to RMB22.5 million (US$3.4 million) for the nine months ended September 30, 2010. This decrease was primarily due to the slight decrease in our in-house production. As a percentage of total cost of sales, in-house production costs decreased from 8.0% for the nine months ended September 30, 2009 to 6.2% for the nine months ended September 30, 2010.

        Gross Profit and Gross Profit Margin.    As a result of the foregoing, gross profit increased by 29.0% from RMB196.1 million for the nine months ended September 30, 2009 to RMB253.1 million (US$37.8 million) for the nine months ended September 30, 2010. Gross profit margin increased from 40.1% to 41.2% during the same periods.

        Other Income.    Other income increased by 59.1% from RMB0.4 million for the nine months ended September 30, 2009 to RMB0.6 million (US$0.1 million) for the nine months ended September 30, 2010. This increase was primarily due to the increased interest income from our bank balances.

        Selling and Distribution Expenses.    Selling and distribution expenses increased by 57.9% from RMB28.0 million for the nine months ended September 30, 2009 to RMB44.2 million (US$6.6 million) for the nine months ended September 30, 2010. This increase was primarily due to a RMB13.1 million increase in advertising and promotion expenses in China following our participation in a 2009 environmental protection campaign in Copenhagen, Denmark, as well as RMB9.4 million increases of retail store shelving expenses and direct store-related expenses as a result of the expansion of our sales network, partially offset by the termination of the 3% brand promotion allowance to our distributors beginning in 2010. As a percentage of our revenues, selling and distribution expenses increased from 5.7% for the nine months ended September 30, 2009 to 7.2% for the nine months ended September 30, 2010.

        Administrative Expenses.    Administrative expenses increased by 104.6% from RMB13.6 million for the nine months ended September 30, 2009 to RMB27.9 million (US$4.2 million) for the nine months ended September 30, 2010. This increase was primarily due to (i) professional fees of RMB5.0 million (US$0.7 million) in connection with our previously proposed listing in Singapore, (ii) exchange loss of RMB2.9 million (US$0.4 million) related to the translation of our convertible loans from Singapore dollar to Renminbi, and (iii) a one-time payment of S$0.6 million (US$0.4 million) to Phillip Ventures Enterprise Fund 2 Ltd., or Phillip Ventures, as consideration for extending the maturity of the 2008 convertible loan. Administrative expenses as a percentage of our revenues increased from 2.8% for the nine months ended September 30, 2009 to 4.5% for the nine months ended September 30, 2010.

        Finance Costs.    Finance costs increased significantly from RMB0.7 million for the nine months ended September 30, 2009 to RMB6.1 million (US$0.9 million) for the nine months ended September 30, 2010. This increase was primarily due to the increase in the interest-bearing bank borrowings for working capital purposes to fund our business expansion and the accrued interest on our convertible loans with a private investor amounting to RMB4.6 million.

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        Income Tax Expense.    Income tax expense increased by 23.2% from RMB38.8 million for the nine months ended September 30, 2009 to RMB47.8 million (US$7.1 million) for the nine months ended September 30, 2010. This increase was primarily due to increases in our revenue and pre-tax income. Our effective tax rate was 25.2% and 27.3% for the nine months ended September 30, 2009 and 2010, respectively.

        Profit after Taxation.    As a result of the foregoing, we had profit after taxation of RMB127.7 million (US$19.1 million) for the nine months ended September 30, 2010, representing an increase of 10.7% from profit after taxation of RMB115.4 million for the nine months ended September 30, 2009.

    Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

        Revenues.    Total revenues increased by 15.8% from RMB598.3 million in 2008 to RMB693.1 million (US$103.6 million) in 2009.

    Sales to Distributors.  Sales to distributors increased by 12.6% from RMB598.3 million in 2008 to RMB673.9 million (US$100.7 million) in 2009. This growth was primarily driven by increased sales volume to our distributors, which rose by 10.7% from 4.7 million units in 2008 to 5.2 million units in 2009, slightly enhanced by an increase in the average selling price per unit primarily due to an increase in our unit cost. The increase in sales volume was primarily driven by the expansion of our sales network as a result of the increase in the number and aggregate floor area of Zuoan retail stores. The number of Zuoan retail stores increased by 13.6% from 861 as of December 31, 2008 to 978 as of December 31, 2009, with the aggregate floor area increasing from 56,352 square meters to 64,687 square meters.

    Direct Store Sales.  We started operating our direct stores in April 2009. We generated revenues of RMB19.2 million (US$2.9 million) from our direct stores in 2009. The aggregate floor area for our direct stores as of December 31, 2009 was 1,865 square meters.

        Cost of Sales.    Total cost of sales increased by 15.6% from RMB355.6 million 2008 to RMB411.2 million (US$61.5 million) in 2009. Cost of sales as a percentage of our revenues decreased slightly from 59.4% in the year ended December 31, 2008 to 59.3% in 2009.

    Contract Manufacturing Costs.  Contract manufacturing costs increased by 16.8% from RMB322.5 million in 2008 to RMB376.5 million (US$56.3 million) in 2009. This increase was primarily due to the increased volume of purchase from our contract manufacturers as a result of increased sales volume. As a percentage of total cost of sales, contract manufacturing costs increased from 90.7% in 2008 to 91.6% in 2009.

    In-house Production Costs.  In-house productions costs decreased by 3.9% from RMB36.2 million in 2008 to RMB34.8 million (US$5.2 million) in 2009. This decrease was primarily due to the decrease in our in-house production. As a percentage of total cost of sales, in-house production costs decreased from 10.2% in, 2008 to 8.5% in 2009.

        Gross Profit and Gross Profit Margin.    As a result of the foregoing, gross profit increased by 16.2% from RMB242.7 million in 2008 to RMB281.9 million (US$42.1 million) in 2009. Gross profit margin increased slightly from 40.6% in the year ended December 31, 2008 to 40.7% in 2009.

        Other Income.    Other income decreased by 49.6% from RMB1.8 million in 2008 to RMB0.9 million (US$0.1 million) in 2009. This decrease was primarily due to receipt of a one-time payment of RMB1.4 million from Fujian Aidu in July 2008 as compensation for the termination of the agreement relating to the purchase of our production facility in Jinjiang, Fujian Province.

        Selling and Distribution Expenses.    Selling and distribution expenses increased by 7.5% from RMB49.7 million in 2008 to RMB53.4 million (US$8.0 million) in 2009. This increase was primarily due to an RMB4.8 million increase in advertising and promotion expenses in connection with the

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environmental protection campaign in Copenhagen, Denmark in 2009, as well as increases of and direct store-related expenses as a result of the expansion of our sales network. As a percentage of our revenues, selling and distribution expenses decreased from 8.3% in 2008 to 7.7% in 2009.

        Administrative Expenses.    Administrative expenses increased by 19.4% from RMB18.6 million in 2008 to RMB22.2 million (US$3.3 million) in 2009. This was primarily due to professional fees of RMB2.3 million incurred in connection with our previously proposed listing in Singapore and the exchange loss of RMB1.1 million (US$0.2 million) related to the translation of our convertible loans from Singapore dollars into Renminbi. Administrative expenses as a percentage of revenues increased slightly from 3.1% in the year ended December 31, 2008 to 3.2% in 2009.

        Finance Costs.    Finance costs increased by 182.8% from RMB0.4 million in 2008 to RMB1.0 million (US$0.1 million) in 2009. This was primarily due to the increase in interest-bearing bank borrowings for working capital purposes to fund our business expansion.

        Income Tax Expense.    Income tax expense increased by 21.2% from RMB43.2 million in 2008 to RMB52.4 million (US$7.8 million) in 2009. This increase was primarily due to increases in our revenue and pre-tax income.

        Profit after Taxation.    As a result of the foregoing, we had profit after taxation of RMB153.9 million (US$23.0 million) in 2009, representing an increase of 16.0% from profit after taxation of RMB132.7 million in 2008.

    Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

        Revenues.    Total revenues increased by 37.7% from RMB434.5 million in 2007 to RMB598.3 million in 2008. This growth was primarily driven by increased sales volume to our distributors, which rose by 34.8% from 3.5 million units in 2007 to 4.7 million units in 2008, slightly enhanced by an increase in the average selling price per unit primarily due to an increase in unit cost. We opened 109 new retail stores through our distributors in 2008. With the cooperation of our distributors, we renovated 119 existing retail stores to expand the floor area and implement our new layout and design in 2008. As a result, the aggregate floor area of Zuoan retail stores operated by our distributors increased from approximately 50,690 square meters in 2007 to approximately 56,352 square meters in 2008.

        Cost of Sales.    Total cost of sales increased by 35.6% from RMB262.3 million in 2007 to RMB355.6 million in 2008. Cost of sales as a percentage of our revenues decreased slightly from 60.4% to 59.4% during the same periods.

    Contract Manufacturing Costs.  Contract manufacturing costs increased by 43.8% from RMB224.2 million in 2007 to RMB322.5 million in 2008. This increase was primarily due to an increase in our purchase volume from our contract manufacturers as a result of the increased market demand for our products. As a percentage of total cost of sales, contract manufacturing costs increased from 85.5% in 2007 to 90.7% in 2008.

    In-house Production Costs.  In-house productions costs increased by 2.2% from RMB35.4 million in 2007 to RMB36.2 million in 2008. This increase was primarily due to the increase in our in-house production. As a percentage of total cost of sales, in-house production costs decreased from 13.5% in 2007 to 10.2% in 2008.

        Gross Profit and Gross Profit Margin.    As a result of the foregoing, gross profit increased by 41.0% from RMB172.2 million in 2007 to RMB242.7 million in the year ended December 31, 2008. Gross margin increased slightly from 39.6% in the year ended December 31, 2007 to 40.6% in the year ended December 31, 2008.

        Other Income.    Other income increased significantly from RMB0.4 million in 2007 to RMB1.8 million in 2008. This increase was primarily due to our receipt of a one-time payment of

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RMB1.4 million from Fujian Aidu in July 2008 as compensation for the termination of the agreement relating to the purchase of our production facility in Jinjiang, Fujian Province.

        Selling and Distribution Expenses.    Selling and distribution expenses increased by 50.7% from RMB33.0 million in 2007 to RMB49.7 million in 2008. This increase was primarily due to increased sales and marketing activities, the opening of new retail stores and the renovation and expansion of our existing stores. As a percentage of revenues, selling and distribution expenses increased from 7.6% in 2007 to 8.3% in 2008.

        Administrative Expenses.    Administrative expenses increased by 46.2% from RMB12.7 million in 2007 to RMB18.6 million in 2008. This increase was primarily due to the hiring of additional personnel and other increased expenses as a result of our business expansion and a general increase in employee salaries in the amount of RMB2.5 million, a loss of RMB1.0 million on disposal of obsolete plant, equipment and raw materials and an increase in rental expenses of RMB1.6 million. Administrative expenses as a percentage of revenues increased from 2.9% in 2007 to 3.1% in 2008.

        Finance Costs.    Finance costs increased by 56.5% from RMB0.2 million in 2007 to RMB0.4 million in 2008. This increase was primarily due to the increase of the average interest-bearing bank borrowings balances.

        Income Tax Expense.    Income tax expense increased by 22.5% from RMB35.3 million in 2007 to RMB43.2 million in 2008. This increase was primarily due to increases in revenues and pre-tax income.

        Profit after Taxation.    As a result of the foregoing, we had profit after taxation of RMB132.7 million in 2008, representing an increase of 45.1% from profit after taxation of RMB91.4 million in 2007.

Our Selected Quarterly Results of Operations

        The following table sets forth our unaudited condensed consolidated quarterly results of operations for each of the seven quarters in the period from January 1, 2009 to September 30, 2010. You should read this table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated quarterly financial information on the same basis as our audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Quarter-to-quarter comparison of operating results should not be relied upon as being indicative of future performance.

 
  Three Months Ended  
 
  March 31,
2009
  June 30,
2009
  September 30,
2009
  December 31
2009
  March 31,
2010
  June 30,
2010
  September 30,
2010
 
 
  (unaudited)
(in thousands of RMB)

 

Revenues

    103,924     129,977     255,792     203,396     146,822     155,999     311,057  

Cost of sales

    (62,576 )   (78,676 )   (152,309 )   (117,604 )   (85,750 )   (92,049 )   (182,991 )
                               

Gross profit

    41,348     51,301     103,483     85,792     61,072     63,950     128,066  

Other income

    93     155     133     517     150     201     255  

Selling and distribution expenses

    (1,687 )   (6,422 )   (19,903 )   (25,361 )   (17,076 )   (12,858 )   (14,283 )

Administrative expenses

    (5,630 )   (3,938 )   (4,065 )   (8,543 )   (8,145 )   (5,717 )   (14,023 )

Finance costs

    (168 )   (173 )   (349 )   (328 )   (1,739 )   (1,883 )   (2,441 )
                               

Profit before taxation

    33,956     40,923     79,299     52,077     34,262     43,693     97,574  

Income tax expenses

    (8,775 )   (10,448 )   (19,601 )   (13,533 )   (13,086 )   (8,094 )   (26,666 )
                               

Profit after taxation

    25,181     30,475     59,698     38,544     21,176     35,599     70,908  

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        As is common in the fashion industry, seasonality is a significant factor affecting our results of operations. Generally, the third and fourth quarters, during which our fall/winter collections are sold, account for a higher portion of our annual revenues than the first and second quarters. Other factors, however, may cause our quarterly operating results to fluctuate, including, among others, general demand in the menswear market, general and administrative expenses and finance costs.

    Revenues

        Our quarterly revenues experienced seasonal fluctuations in the period from January 1, 2009 to September 30, 2010, with significantly higher revenues generated in the third and fourth quarters of 2009 and the third quarter of 2010 than the other quarters. See "Risk Factors—Risks Relating to Our Business—Our business is susceptible to seasonal fluctuations and extreme or unexpected weather conditions." Our significant increases in revenues in the third and fourth quarters of 2009 and the third quarter of 2010 were primarily attributable to sales of our fall/winter collections, which are typically priced higher than our spring/summer collections and consist of more types of products. Our revenues decreased from the fourth quarter of 2009 to the first and second quarters of 2010 primarily as a result of typical seasonal revenue patterns.

    Gross Profit

        Our quarterly gross profit in the six quarters from January 1, 2009 to September 30, 2010 generally followed the trend of our revenues in these quarters and reflected the annual seasonal pattern.

    Selling and Distribution Expenses

        Selling and distribution expenses increased significantly starting from the second quarter of 2009, generally due to increased retail store shelving expenses as a result of the expansion and renovation of Zuoan retail stores and direct store-related expenses as we started operating our direct stores in April 2009. The increases in selling and distribution expenses in the third and fourth quarters of 2009 also reflected the cost to us in reimbursing our distributors for their promotional expenses in the amount of RMB7.5 million and RMB5.8 million, respectively, which reimbursement was terminated from the beginning of 2010. In addition, we incurred RMB10.3 million and RMB13.4 million, respectively, in advertising expenses in the fourth quarter of 2009 and the first quarter of 2010 due to our sponsorship of the environmental protection campaign in Copenhagen, Denmark.

    Administrative Expenses

        Administrative expenses increased significantly in the fourth quarter of 2009 and the first and third quarters of 2010. The increase in the fourth quarter of 2009 was primarily due to professional fees of RMB1.2 million incurred in connection with our previously proposed listing in Singapore and an RMB1.1 million loss on the convertible loan, due to translation of the loan amount from Singapore dollars to Renminbi. The increase in the first quarter of 2010 was primarily due to a one-time payment of S$0.6 million (US$0.4 million) to Phillip Ventures as consideration for extending the maturity of the 2008 convertible loan. The significant increase in our administrative expenses in the third quarter of 2010 was primarily due to professional fees in the amount of RMB4.9 million in connection with our previously proposed listing in Singapore and an RMB2.3 million exchange loss on the convertible loans due to translation of the loan amount from Singapore dollars to Renminbi.

        We may experience fluctuations in our quarterly results of operations after this offering, for the reasons given above or other reasons, which may be significant.

Our Liquidity and Capital Resources

        Our primary cash requirements are to finance working capital requirements and capital expenditures, including the opening of new, directly operated flagship stores, renovating our existing retail stores, establishing our new logistics center in Shishi and upgrading and expanding our existing

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production facilities. Historically, our principal sources of liquidity have been cash generated from our operating activities, sale of our ordinary shares and convertible loans through private placements and borrowings from the PRC commercial banks.

        We had cash and cash equivalents, consisting of cash on hand and cash at bank of RMB141.6 million (US$21.2 million) and RMB238.5 million (US$35.6 million) as of December 31, 2009 and September 30, 2010, respectively. We had bank facilities of RMB33.0 million (US$4.9 million) and RMB67.9 million (US$10.1 million) as of December 31, 2009 and September 30, 2010, respectively. As of September 30, 2010, we have unutilized bank facilities of RMB20.9 million (US$3.1 million). We had no material capital commitments as of September 30, 2010.

        We have been able to meet our working capital needs, and we believe that we will be able to meet our working capital needs in the foreseeable future, with our operating cash flow, existing cash balance, the remaining funds available under our credit facilities and proceeds from this offering.

        The following table sets forth a summary of our cash flows for the periods indicated:

 
  For the Year Ended December 31,   For the Nine Months Ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  RMB   RMB   RMB   US$   RMB   RMB   US$  
 
   
   
   
   
  (unaudited)
   
   
 
 
  (in thousands)
 

Operating profit before working capital changes

    130,064     177,124     207,556     31,022     155,085     181,458     27,122  

Trade and other receivables

    (29,102 )   (38,926 )   (73,388 )   (10,969 )   (122,564 )   (98,357 )   (14,701 )

Prepayments

    (10,400 )   22,600     (2,436 )   (364 )   (2,242 )   (3,753 )   (561 )

Fixed deposits pledged

        (5,905 )   3,730     558     3,270     1,400     209  

Inventory

    (14,266 )   42,068     (9,090 )   (1,359 )   (6,738 )   (8,467 )   (1,266 )

Trade and other payables

    4,527     22,503     (35,238 )   (5,267 )   5,854     10,280     1,537  
                               

Cash generated from operations

    80,823     219,464     91,134     13,621     32,665     82,561     12,340  

Interest paid

    (230 )   (360 )   (1,018 )   (152 )   (690 )   (1,422 )   (213 )

Income tax paid

    (27,348 )   (44,322 )   (48,844 )   (7,301 )   (29,244 )   (34,713 )   (5,188 )
                               

Net cash from operating activities

    53,245     174,782     41,272     6,169     2,731     46,426     6,939  

Net cash from/(used in) investing activities

    (391 )   (284 )   233     35     303     (718 )   (107 )

Net cash from/(used in) financing activities

    (55,000 )   (127,515 )   29,439     4,400     31,265     51,206     7,654  
                               

Net increase/(decrease) in cash and cash equivalents

    (2,146 )   46,983     70,944     10,604     34,299     96,914     14,485  

Cash and cash equivalents at beginning of the period

    25,788     23,642     70,625     10,556     70,625     141,569     21,160  
                               

Cash and cash equivalents at end of the period

    23,642     70,625     141,569     21,160     104,924     238,483     35,645  
                               

    Operating Activities

        Historically, we have financed our operating activities primarily through cash generated from operations and financing activities.

        Net cash provided by operating activities was RMB46.4 million (US$6.9 million) for the nine months ended September 30, 2010. This was primarily attributable to (i) our profit before taxation of RMB175.5 million (US$26.2 million) and (ii) the increase in trade and other payables of RMB10.3 million (US$1.5 million) due to unpaid value-added tax for the third quarter of 2010 and accrual of professional fees in connection with this offering, partially offset by (i) the increase in our trade and other receivables of RMB98.4 million (US$14.7 million) in connection with the delivered products for our 2010 fall/winter collection, the payments for which were not due before September 30,

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2010, and (ii) the increase of inventory of RMB8.5 million (US$1.3 million) due to the stocking of finished products for our direct stores and undelivered products for our 2010 fall/winter collection. We also paid an income tax in the amount of RMB34.7 million (US$5.2 million).

        Net cash from operating activities was RMB41.3 million (US$6.2 million) in 2009. This was primarily attributable to our profit before taxation of RMB206.3 million (US$30.8 million) due to increases in sales volume of our products and the decrease in pledging of fixed deposits of RMB3.7 million (US$0.6 million) for the purpose of securing bills payable, partially offset by (i) the increase of trade and other receivables of RMB73.4 million (US$11.0 million), which reflected the overall increase in market demand for our products, (ii) the increase of inventory of RMB9.1 million (US$1.4 million) as a result of the stocking of finished products for our direct stores, (iii) the increase of other current assets of RMB2.4 million (US$0.4 million) as a result of the prepayment of professional fees incurred in connection with the preparation for our previously proposed listing in Singapore, and (iv) the decrease of trade and other payables of RMB35.2 million (US$5.3 million), which reflected the early delivery of our 2009 fall/winter collection from contract manufacturers and early settlement of the trade and other payables due to the early arrival of winter in China in 2009. In addition, we paid an income tax in the amount of RMB48.8 million (US$7.3 million).

        Net cash provided from operating activities was RMB174.8 million in 2008. This was primarily attributable to (i) our profit before taxation of RMB175.9 million due to increases in sales volume of our products, (ii) the decrease of other current assets of RMB22.6 million as a result of the refund of the deposit paid to Fujian Aidu for the purchase of the production facility in Jinjiang, Fujian Province, (iii) the decrease of inventory of RMB42.1 million, which reflected the late delivery of our products by our contract manufacturers, and (iv) the increase in trade and other payables of RMB22.5 million in line with the expansion of our business activities. This was partially offset by (i) the increase of trade and other receivables of RMB38.9 million, which reflected the overall increase in market demand for our products, (ii) the increase in pledging of fixed deposits in the amount of RMB5.9 million for the purpose of securing bills payable, and (iii) income tax in the amount of RMB44.3 million.

        Net cash from operating activities was RMB53.2 million in 2007. This was primarily attributable to (i) our profit before taxation of RMB126.7 million due to increases in sales volume of our products and (ii) the increase of trade and other payables of RMB4.5 million in line with the expansion of our business activities, partially offset by (i) the increase of trade and other receivables of RMB29.1 million, which reflected the overall increase in market demand for our products, (ii) the increase of other current assets of RMB10.4 million as a result of the payment of deposit to Fujian Aidu for the purchase of the production facility in Jinjiang, Fujian Province, (iii) the increase of inventory of RMB14.3 million due to the earlier delivery of our products by our contract manufacturers before the end of the fiscal year, and (iv) an income tax in the amount of RMB27.3 million.

    Investing Activities

        Cash used in investing activities is primarily related to acquisition of property, equipment and motor vehicles for office and internal production use. Our cash generated from investing activities is primarily related to bank interests. We experienced net cash outflows from investing activities in 2007, 2008 and the nine months ended September 30, 2010, and generated cash inflows from investing activities in 2009.

        Net cash used in investing activities was RMB0.7 million (US$0.1 million) for the nine months ended September 30, 2010, primarily due to purchase of property, plant and equipment in the amount of RMB1.3 million (US$0.2 million).

        Net cash from investing activities was RMB0.2 million (US$0.03 million) in 2009, primarily due to bank interest income of RMB0.5 million (US$0.07 million), partially offset by the payments for acquisition of office equipment and motor vehicles in the amount of RMB0.3 million (US$0.04 million).

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        Net cash used in investing activities was RMB0.3 million in 2008, primarily due to the payment of RMB0.7 million for the acquisition of property, plant and equipment, which was partially offset by (i) the interest of RMB0.4 million received from bank deposits and (ii) the proceeds of RMB32,000 received from disposal of plant and equipment.

        Net cash used in investing activities was RMB0.4 million in 2007, due primarily to the payment of RMB0.8 million for the acquisition of plant and equipment for office use and in-house production, which was partially offset by the interest of RMB0.4 million received from bank deposits.

    Financing Activities

        Cash from financing activities primarily consists of proceeds from the sale of our ordinary shares, borrowings from the PRC commercial banks, and borrowing of convertible loans from a private investor. Cash used in financial activities primarily consists of dividend payments. We declared and distributed dividends in 2007 and 2008.

        Net cash from financing activities was RMB51.2 million (US$7.7 million) for the nine months ended September 30, 2010, primarily attributable to (i) bank loans of RMB48.0 million (US$7.2 million) for working capital purposes and (ii) convertible loans of RMB21.3 million (US$3.2 million) obtained from a private investor. This was partially offset by the repayment of RMB18.1 million (US$2.7 million) of our bank loans.

        Net cash provided from financing activities was RMB29.4 million (US$4.4 million) in 2009, primarily due to (i) bank loans of RMB18.6 million (US$2.8 million) for working capital purposes and (ii) convertible loans of RMB19.4 million (US$2.9 million) obtained from a private investor. This was partially offset by the repayment of RMB8.6 million (US$1.3 million) of our bank loans.

        Net cash used in financing activities was RMB127.5 million in 2008, due primarily to (i) the payment of RMB140.0 million as dividends to our shareholders and (ii) repayment of bank loans in the amount of RMB2.5 million. This was partially offset by (i) proceeds of RMB7.9 million from the issuance of new shares and (ii) a bank loan of RMB7.1 million.

        Net cash used in financing activities was RMB55.0 million in 2007, due primarily to (i) the payment of RMB55.0 million as dividends to our shareholders and (ii) the repayment of a bank loan in the amount of RMB2.5 million, partially offset by a bank loan of RMB2.5 million for working capital purposes.

Capital Expenditures

        We have incurred capital expenditures primarily in connection with the acquisition of plant, machinery, office equipment and motor vehicles for office use and our in-house productions. Our capital expenditures totaled RMB0.8 million, RMB0.7 million, RMB0.3 million (US$0.04 million) and RMB1.3 million (US$0.2 million) in 2007, 2008, 2009 and the nine months ended September 30, 2010, respectively. We will continue to make capital expenditures and expect cash generated from our operating activities will meet our capital expenditure needs in the foreseeable future.

        We expect to incur the following capital expenditures in 2011 and 2012, which we expect to fund primarily from the proceeds of this offering, cash on hand and cash generated from our operating activities:

    opening 50 directly operated flagship stores by the end of 2012, for which we expect to spend an aggregate amount of approximately RMB165 million; and

    establishing a logistics center in Shishi of approximately 15,000 square meters by the end of 2011, for which we expect to spend approximately RMB60 million.

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        We anticipate that our inventory level will increase due to the expansion of our directly operated flagship stores and the total volume of finished products will also increase due to our overall growth. We believe that the logistics center will facilitate and centralize the storage, packaging, inspection and delivery of our finished products and enable us to meet the enhanced requirements for our logistics capacity.

Contractual Obligations

        The following table sets forth our contractual obligations as of December 31, 2009:

 
  Payment Due by Period  
 
  Total   Less than 1
year
  1-3 years   3-5 years   More than 5
years
 
 
  (in thousands of RMB)
 

Convertible loan

    19,439     19,439              

Short-term debt

    17,050     17,050              

Operating lease obligations

    17,234     5,474     11,760          
                           

Total

    53,723     41,963     11,760          
                           

        As of September 30, 2010, the operating lease obligations related to our obligations under lease agreements for our plants for internal production, office spaces, and direct stores. We intend to finance the above lease commitments by cash generated from our operating activities.

Outstanding Indebtedness

        As of December 31, 2009 and September 30, 2010, we had aggregate bank borrowings, consisting of short-term loans and credit facilities, of RMB17.1 million (US$2.5 million) and RMB47.0 million (US$7.0 million), respectively. Our fixed-rate borrowings carried an effective interest rate ranging from 5.8% to 8.5% per annum during 2009 and from 4.9% to 8.5% during the nine months ended September 30, 2010. Our variable-rate borrowings carried an effective interest rate ranging from 9.2% to 9.8% per annum during 2009 and during the nine months ended September 30, 2010.

        In December 2008, Fast Boost entered into a convertible loan agreement with Phillip Ventures, Mr. James Hong, our chairman and chief executive officer, and certain other parties. Pursuant to this agreement, Phillip Ventures extended to Fast Boost a loan, or the 2008 convertible loan, denominated in Singapore dollars, or S$, in the amount of S$4.0 million (approximately RMB19,439,000). In January 2010, Fast Boost entered into a second convertible loan agreement with Phillip Ventures, Mr. James Hong, and certain other parties, pursuant to which Phillip Ventures extended an additional loan of S$4.0 million, or the 2010 convertible loan to Fast Boost. In December 2010 and January 2011, the parties entered into supplemental agreements to amend certain terms of the 2008 convertible loan and 2010 convertible loan. As of September 30, 2010, the amounts outstanding under the two convertible loans were S$8 million (approximately RMB38,943,000). The maturity date of each convertible loan is February 28, 2011. Each of the 2008 convertible loan and 2010 convertible loan will be converted in its entirety into our ordinary shares prior to the completion of this offering. For each convertible loan, the number of ordinary shares to be issued to Phillip Ventures equals its principal amount divided by a conversion price equal to a discounted price to the preliminary offering price of our ordinary shares, which is based on the estimated offering price for this offering on a per ordinary share basis. The discount for the 2008 convertible loan is 50% of the preliminary offering price, subject to a cap on the conversion price of US$0.8539 per ordinary share, while the discount for the 2010 convertible loan is 45% of the preliminary offering price, subject to a cap on the conversion price of US$1.3634 per ordinary share. The convertible loans will not bear any interest if they are converted prior to the maturity date. Otherwise, Fast Boost must pay interest of 15% per annum calculated from the

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drawdown date to the date of actual repayment for each of the 2008 convertible loan and 2010 convertible loan.

        In May 2010, we entered into a credit facility with Bank of Quanzhou under which we can borrow up to RMB5.0 million during the term of the facility, which will expire on May 11, 2011. As of September 30, 2010, we had an outstanding borrowing balance of such credit facility of RMB4.2 million, with RMB0.8 million available for future drawdown. The weighted average interest rate was 7.4% for the nine months ended September 30, 2010. Mr. James Hong, Mr. Chaojie Hong, uncle of Mr. James Hong, and Fujian Aidu, which is wholly controlled by Mr. Chaojie Hong, have provided guarantees for such credit facility. See "Related Party Transactions—Transactions with Our Chairman and Chief Executive Officer and His Affiliated Persons or Entities."

        In May 2010, we entered into a loan agreement with China Citic Bank for a short-term loan with the principal amount of RMB35.0 million. The maturity date of this loan is May 21, 2011. The weighted average interest rate was 6.4% for the nine months ended September 30, 2010. Mr. James Hong and certain other parties have provided guarantees for this loan.

        In June 2010, we entered into a loan agreement with Industrial Bank Co., Ltd., or Industrial Bank, under which we borrowed RMB4.9 million for working capital purposes. The maturity date of this loan is May 28, 2011. The weighted average interest rate was 6.9% for the nine months ended September 30, 2010. Mr. James Hong and certain other parties have provided guarantees and collateral for this loan. See "Related Party Transactions—Transactions with Our Chairman and Chief Executive Officer and His Affiliated Persons or Entities."

        In addition, we have from time to time entered into short-term financing agreements with Industrial and Commercial Bank of China, or ICBC, for working capital purposes. The total amount of loans outstanding was RMB2.9 million as of September 30, 2010 and RMB12.6 million as of the date of this prospectus. The term of these loans is typically six months. The interest rate is determined by reference to the PBOC benchmark lending rate, and the interest rate was 4.9% for the nine months ended September 30, 2010. We have assigned to ICBC the rights to certain of our accounts receivable to serve as security for these loans. In addition, Fujian Aidu agreed to guarantee our obligations of up to RMB18.0 million under these loans and any other loans that we may obtain from ICBC during the period from September 2010 to August 2012.

        Under certain of these loans and credit facilities, our subsidiary borrower has agreed, among other things, not to take the following actions without first obtaining the lenders' prior consent:

    create encumbrances on any part of its properties or assets or deal with its assets in a way that may adversely affect its ability to repay its loans;

    grant guarantees to any third parties that may adversely affect its ability to pay its loans;

    make any major changes to its corporate structures, such as entering into joint ventures, mergers, and acquisitions and reorganizations or change its corporate status, such as liquidation and dissolution; and

    change the nature or scope of its businesses in any material respect.

Inventory Analysis

        Inventory primarily consists of raw materials (mainly fabrics and fasteners), work-in-progress and finished products (including products manufactured by us and our contract manufacturers). We generally plan purchases of raw materials and outsourced products after our seasonal sales fairs, where we confirm sales orders with our distributors. Sales orders from such sales fairs and top-up orders enable us to manage our inventory of raw materials and finished products more efficiently. We typically produce approximately 5% more products than orders we receive during trade fairs in order to meet

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unscheduled demand. We generally do not allow our distributors to return purchased products unless such products are defective. For our direct stores, we maintain a suitable level of finished products based on expected customer demand at those locations. As a result, we have a low inventory level of unused raw materials and unsold or obsolete finished products at the end of the year.

        Along with the establishment of more directly owned flagship stores, we expect that our inventory will increase due to the stocking of unsold finished products in these flagship stores. We are in the process of establishing more efficient inventory management procedures based on the experiences of our current direct stores. Particularly, our senior management will determine the inventory level of our directly owned flagship stores based on the historical sales performance of each store and expected customer demand at those locations.

        As of September 30, 2010, we had inventory of RMB25.9 million (US$3.9 million) and nil allowance for inventory obsolescence. We had inventory of RMB50.6 million, RMB8.3 million, and RMB17.4 million (US$2.6 million) as of December 30, 2007, 2008 and 2009, respectively. We had a significantly higher inventory level as of December 30, 2007 primarily because we, anticipating rapid growth of market demand in 2006 and 2007, over-produced by 10% (compared with approximately 5% in prior years) for unscheduled demand in 2006 and 2007. Allowances for inventory obsolescence amounted to RMB2.6 million, RMB167,000 and nil as of December 30, 2007, 2008 and 2009, respectively.

Trade and Other Receivables

        Trade and other receivables primarily consist of trade receivables, advances to directors and employees relating to business travel, rental deposits and amounts due from shareholders. We generally extend to our distributors credit terms of up to 90 days following their receipt of the delivery of our products. The exact credit terms extended to a specific distributor is subject to the review and approval of our senior management, depending on the aggregate amount of credit line granted to such distributor and such distributor's credit history, purchase volume in the past, payment track record and the length of relationship with us. We monitor the payment status of our distributors on a monthly basis and typically stop making any further deliveries to any distributor delinquent in its payments until all of its overdue payments have been fully paid. As of December 31, 2007, 2008 and 2009, we had trade and other receivables of RMB103.1 million, RMB 142.1 million and RMB215.5 million (US$32.2 million). As of September 30, 2010, we had trade and other receivables of RMB314.6 million (US$47.0 million), of which RMB145.9 million was attributable to our top three distributors.

        We make specific provisions based on the management's judgment on the collectability of the outstanding debts. We take into account the credit history and payment track record of our distributors as well as their relationship with us in determining bad and doubtful debt. In 2007, 2008, 2009 and the nine months ended September 30, 2010, we did not make any provisions for bad and doubtful debts.

Off-Balance Sheet Commitments and Arrangements

        In May 2009, Shishi Zuoan, our PRC subsidiary, agreed to provide a corporate guarantee, up to an aggregate amount of RMB6.0 million, with respect to Fujian Aidu's obligations under the loan agreements entered or to be entered between Fujian Aidu Garment Manufacturing Co., Ltd., or Fujian Aidu, a company controlled by Mr. Chaojie Hong, uncle of Mr. James Hong, and Agriculture Bank of China from May 11, 2009 to May 10, 2012. As of September 30, 2010, nil was outstanding under this guarantee. Other than this guarantee, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or

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market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Restrictions on Cash Transfers to Us

        We are a holding company with no material operations of our own. We conduct our operations primarily through our subsidiaries in China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid to us by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Pursuant to laws applicable to entities incorporated in the PRC, our subsidiaries in the PRC must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual appropriation of 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the subsidiaries' discretion. These reserve funds can only be used for the specific purposes of enterprise expansion, staff bonus and welfare, and are not distributable as cash dividends. In addition, due to restrictions on the distribution of share capital from our PRC subsidiaries, the share capital of our PRC subsidiaries is considered restricted. As a result of the PRC laws and regulations, as of December 31, 2009, approximately RMB16.7 million (US$2.5 million) was not available for distribution to us by our PRC subsidiaries in the form of dividends, loans or advances.

        Furthermore, under SAFE regulations, Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval of SAFE or its local branches is obtained and prior registration with SAFE or its local branches is made.

        Subject to preferential tax treatments otherwise set forth by tax treaty, the New EIT Law imposes a withholding tax of 10% on dividends distributed by a foreign-invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered a "non-resident enterprise" or if the received dividends have no connection with the establishment or place of such immediate holding company within China. See "—Taxation." Holding companies in Hong Kong, for example, are subject to a 5% withholding tax rate. Thus, dividends paid to us through our Hong Kong immediate holding company Champion Goal by our subsidiaries in China may be subject to the 5% withholding tax if Champion Goal is considered a beneficial owner of such dividends. See "Risk Factors—Risks Related to Doing Business in China—The New EIT Law will affect tax exemptions on dividends to be paid by our PRC subsidiary to us through our Hong Kong subsidiary and we may not able to obtain certain treaty benefits under the relevant tax treaty."

        We do not expect any of such restrictions or taxes to have a material impact on our ability to meet our cash obligations.

Quantitative and Qualitative Disclosure About Market Risk

    Foreign Exchange Risk

        Substantially all of our revenues and expenses are denominated in Renminbi. Our exposure to foreign exchange risk primarily relates to our convertible loans denominated in Singapore dollars and our cash and cash equivalents denominated in U.S. dollars as a result of the proceeds from this offering. As of September 30, 2010, we had S$8.0 million (US$6.1 million) convertible loans denominated in Singapore dollars. For more information regarding the convertible loans, see "Related

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Party Transactions—Convertible Loans." We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general our exposure to foreign exchange risks is limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and Renminbi because the value of our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars.

        In addition, changes in the exchange rate between the U.S. dollar and Renminbi will affect the value of the proceeds from this offering in Renminbi terms. We estimate that we will receive net proceeds of approximately US$36.8 million from this offering, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on an estimated initial offering price of US$7.00 per ADS shown on the cover page of this prospectus. Assuming that we convert the full amount of the net proceeds from this offering into Renminbi, a 10% appreciation of the Renminbi against the U.S. dollar, from a rate of RMB6.6905 to US$1.00 to a rate of RMB6.0823 to US$1.00, will result in a decrease of RMB22.4 million (US$3.3 million) of the net proceeds from this offering. Conversely, a 10% depreciation of the Renminbi against the U.S. dollar, from a rate of RMB6.6905 to US$1.00 to a rate of RMB7.3596 to US$1.00, will result in an increase of RMB24.6 million (US$3.7 million) of the net proceeds from this offering.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in the political and economic conditions and foreign exchange policies of China. In July 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Since July 2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. As a consequence, the Renminbi has fluctuated significantly since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current situation may last and when and how Renminbi exchange rates may change going forward.

    Interest Rate Risk

        Our exposure to interest rate risk primarily relates to the interest rates for our outstanding debt and the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits and pledged fixed deposits.

        As of September 30, 2010, our total outstanding bank borrowings, consisting of short-term loans and credit facilities, amounted to RMB47.0 million (US$7.0 million) with interest rates varying from 4.860% to 7.965%. Assuming the principal amount of the outstanding loans remains the same as of September 30, 2010, a 1% increase in each applicable interest rate would add RMB470,000 (US$70,249) to our interest expense in 2010. We have not used any derivative financial instruments to manage our interest risk exposure.

        Interest-earning instruments carry a degree of interest rate risk. We had bank balances, consisting of cash at bank of RMB238.3 million (US$35.6 million) as of September 30, 2010. Bank interest income was RMB0.6 million (US$0.09 million) for the nine months ended September 30, 2010. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.

    Inflation

        Inflation in China has not materially impacted our results of operations in recent years. However, China has recently experienced a significant increase in inflation levels, which may materially impact

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our results of operations. According to the National Bureau of Statistics of China, the rate of increase in the consumer price index in China was 4.8% and 5.9% in 2007 and 2008, respectively. The consumer price index in China decreased by 0.7% in 2009. For the nine months ended September 30, 2010, the consumer price index in China increased by 2.9%.

Recent Accounting Pronouncements

        As of the date of this prospectus, certain new International Financial Reporting Standards, or IFRS, or International Accounting Standards, or IAS, and amendments or interpretations to the existing IFRS or IAS that are relevant to us have been published.

    New or Amended Standards, or Interpretation of Existing Standards Effective in 2009

        Revised IAS 1, "Presentation of financial statements"

        Revised IAS 1 prohibits the presentation of items of income and expenses that constitute "non-owner changes in equity" in the statement of changes in equity. Instead, items of income and expenses that constitute "non-owner changes in equity" are required to be presented in the statement of comprehensive income, separately from owner changes in equity. We have elected to adopt Revised IAS 1 and prepared our financial statements in accordance with such revised standard. Historically, we have had limited elements of other comprehensive income and these elements have not been significant to our consolidated financial statements. For 2009, our only element of other comprehensive income was the exchange difference arising from translation of foreign currency financial statements. Therefore, the adoption of Revised IAS 1 does not have any material impact on our results of operations and financial position.

        IFRS 8, "Operating Segments"

        IFRS 8 replaces International Accounting Standards 14, or IAS 14, which relates to "Segment Reporting" and aligns segment reporting with the requirements of US GAAP. According to IFRS 8, segment reporting in the financial statements should be based on an entity's internal reporting to its chief operating decision maker, and upon which decisions on the allocation of resources and assessment of performance of the reportable segments are made. This standard is effective for annual periods beginning on or after January 1, 2009. We currently report only one operating segment. Therefore, the adoption of IFRS 8 is not expected to have any immediate effect on our consolidated financial statements. During 2009, we began to operate retail stores for the sale of our menswear products. For 2009, revenues from such retail sales were less than 3% of our total revenues. If these retail operations expand to a point whereby our management determines that segment reporting is appropriate, we will apply the provisions of IFRS 8.

    New and Amended Standards, and Interpretation to Existing Standards not Effective or Adopted by us as of September 30, 2010

        Revised IFRS 3, "Business Combinations" (2008)

        Revised IFRS 3 harmonizes business combination accounting with US GAAP. Among other items, the standard adopts a broader definition of "business" and requires all payments to purchase a business to be recorded at fair value at the acquisition date (including contingent consideration and any pre-existing interest in the acquired entity), some contingent payments to be subsequently remeasured at fair value through income, and transaction costs to be expensed as incurred. We will adopt Revised IFRS 3 to our financial statements for the year ending December 31, 2010. Although Revised IFRS 3 will be applied prospectively, because we do not have business combinations during the first nine months of 2010, it will not impact our results of operations and financial position for periods as of and

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for the period ended September 30, 2010. This standard will have an impact on our consolidated financial statements if we enter into any future business combinations.

        Amended IAS 27, "Consolidated and Separate Financial Statements" (2008)

        Amended IAS 27 requires accounting for changes in ownership interests by companies in their subsidiaries, while maintaining control, to be recognized as an equity transaction. These transactions will no longer result in the recognition of goodwill in the case of acquisition transactions, or the recognition of gains and losses in the case of disposal transactions. Furthermore, when a company loses control of a subsidiary, any interest retained in such subsidiary will be measured at fair value with the gain or loss recognized as profit or loss. Amended IAS 27 will be applicable to our financial statements for the year ending December 31, 2010. Currently, all of our subsidiaries are 100% owned, we do not have any non-controlling interests recorded in our financial statements, and we have not historically had transactions with non-controlling interests. Therefore, the adoption of Amended IAS 27 is not expected to have a material effect on our consolidated financial statements, unless we enter into such non-controlling interest transactions.

        Revised IAS 24, "Related Party Disclosures" (2009)

        Revised IAS 24 clarifies and simplifies the definition of "related party" and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The governmental portion of this standard will not impact us as we are not a government-related entity. The previous definition of "related party" was complicated and contained a number of inconsistencies. These inconsistencies meant, for example, that there were situations in which only one party to a transaction was required to make related-party disclosures. The definition has been amended to remove the inconsistencies and to make it simpler and easier to apply. The standard is effective for annual periods on or after January 1, 2011. We do not believe that the adoption of IAS 24 will have a material impact on our consolidated financial statements.

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OUR INDUSTRY

Overview of China's Economy

        China's economy has been growing rapidly for decades. According to the National Bureau of Statistics of China, or NBSC, China's gross domestic product, or GDP, grew from RMB15,988 billion in 2004 to RMB34,051 billion (US$5,090 billion) in 2009, representing a CAGR of 16.3% during the period.

        In addition to the growth in total GDP, China's GDP per capita has also continued to rise. This has driven strong growth in per capita disposable income for both urban and rural residents. The per capita annual disposable income of urban residents in China increased from RMB9,422 in 2004 to RMB17,175 (US$2,567) in 2009, representing a CAGR of 12.8%. According to the Frost & Sullivan Report, per capita annual disposable income of urban residents is expected to continue to grow at a CAGR of 9.8% from 2009 to 2014.


Disposable Income per Capita in China

GRAPHIC

Source: NBSC; Estimates by Frost & Sullivan

        Rising per capita disposable income has resulted in an increase in purchasing power and spurred the growth of the retail sector in China. According to NBSC, total retail sales of consumer goods grew from RMB5,950 billion in 2004 to RMB12,534 billion (US$1,873 billion) in 2009, representing a CAGR of 16.1%.

Overview of Menswear Market in China

    Rapid Growth in the Menswear Market

        China has one of the largest and fastest-growing menswear markets in the world, driven primarily by a rapidly growing economy and increasing disposable income of consumers. According to the Frost & Sullivan Report, the menswear market in China exceeded the U.S. market in terms of retail sales in 2009, with total retail sales of menswear in China increasing from RMB147.2 billion in 2004 to RMB300.3 billion (US$44.9 billion) in 2009, and is estimated to reach RMB627.1 billion in 2014, representing a 10-year CAGR of 15.6%. Per capita spending on menswear has also grown from RMB892 in 2004 to RMB1990 (US$297) in 2009, representing a CAGR of 17.4%, according to the Frost & Sullivan Report.

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Total Retail Sales of the Menswear Industry

GRAPHIC

Source: Frost & Sullivan

    Fast-growing Branded Fashion Casual Menswear

        The menswear market in China consists of three major sectors: business formal, casual and others. Although business formal menswear still accounts for the majority of total menswear sales, casual menswear continues to gain share in the rapidly growing menswear market, primarily because it provides consumers with more style choices for different occasions. According to the Frost & Sullivan Report, sales of casual menswear in China grew from 40.2% of the menswear market in 2004 to 41.8% in 2009 and are estimated to account for up to 43.8% of total sales of menswear products in China by 2014.

        In addition, male consumers in China have become more conscious of and sensitive to the branding, design and quality of menswear. As a result, fashion casual menswear, a sub-sector of casual menswear, has become increasingly popular in China because it caters to consumers who desire variety and fashion that highlight individual personality while participating in recreational, social or leisure activities. According to the Frost & Sullivan Report, total retail sales of the fashion casual menswear market, defined as adult menswear for casual or non-formal occasions offered by top 100 branded menswear companies in terms of retail sales in China, grew from RMB13.9 billion in 2004 to RMB36.8 billion (US$5.5 billion) in 2009. In addition to the sales growth, fashion casual menswear continues to account for a growing share of the menswear market. According to the Frost & Sullivan Report, the fashion casual menswear market in China has grown from 9.4% of the total menswear market in 2004 to 12.2% in 2009. Frost & Sullivan estimates that total retail sales of the fashion casual menswear market will grow to RMB111.9 billion by 2014, representing a 10-year CAGR of 23.2%, and account for 17.8% of the total menswear market in China.

Breakdown of the Menswear Market in China   Fashion Casual Menswear Market as Percentage
of Total Menswear Market in China

CHART

 

CHART

Source: Frost & Sullivan

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Total Retail Sales of Fashion Casual Menswear Market in China

GRAPHIC

Source: Frost & Sullivan

    Competitive Landscape of the Fashion Casual Menswear Market

        The fashion casual menswear market in China is relatively fragmented, with more than 500 fashion casual menswear providers, according to the Frost & Sullivan Report. Only a small number of such providers have in-house design capabilities that enable them to provide branded fashion casual menswear products and to retain market-leading positions.

        According to the Frost & Sullivan Report, the top 10 branded players in China's fashion casual menswear market in terms of retail sales revenues in 2009 accounted for 32.1% of the total fashion casual menswear market. According to the Frost & Sullivan Report, we ranked second in terms of retail sales revenues in 2009 in the fashion casual menswear market in China, with an estimated market share of 5.4%. In addition, we were the largest domestic fashion casual menswear player in terms of retail sales revenues in 2009. The table below illustrates the top ten players in the fashion casual menswear market in China in terms of estimated market share based on the estimated retail sales revenue in 2009:

Rank   Company   Estimated
Market Share(1)
 
1   Jack & Jones     11.22 %
2   Zuoan     5.38 %
3   Mark Fairwhale     2.83 %
4   Jeep     2.23 %
5   Jodoll     2.15 %
6   Tony Jeans     2.01 %
7   Cabbeen     1.74 %
8   Canudilo     1.68 %
9   EVE de UOMO     1.49 %
10   Goldpool     1.33 %
           
    Total of Top 10 Branded Companies     32.07 %

Source: Frost & Sullivan

(1)
Estimated market share of the top ten companies in the fashion casual menswear market is based on the estimated retail sales of each of such companies in 2009, divided by the aggregate retail sales in the fashion casual menswear market estimated by Frost & Sullivan. Each company's estimated retail sales were primarily based on such company's estimated or reported revenue and the average discount rate to its suggested retail price. The estimated revenues and average discount rates of these companies (except Zuoan) were collected by Frost & Sullivan through its interviews with the companies' senior employees. Zuoan's estimated retail sales amount is based on our revenues of RMB693.1 million in 2009, as adjusted for a discount of 65% off of our suggested retail prices, which is the actual historical discount given to Zuoan's distributors.

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    The estimated retail sales and market share indicated in the table above were primarily based on the following assumptions: (i) the source data for the estimated or reported revenue of each company is accurate; (ii) the average discount rate to suggested retail price reported by or derived from each company is accurate; and (iii) each company and its distributors and sub-distributors, if any, sell its products to end-consumers at its suggested retail prices. If any of these assumptions is inaccurate, the actual retail sales may differ materially from the estimated retail sales described in the table above and therefore impact the market share and relative ranking of each company. Therefore, you are cautioned not to place undue reliance on such data.

        According to the Frost & Sullivan Report, we ranked fourth in the fashion casual menswear market in terms of the number of retail stores as of December 31, 2009. However, according to the Frost & Sullivan Report, our average retail sales revenue per store in 2009 ranked third within the fashion casual menswear segment in China and were the highest among domestic brands of fashion casual menswear.

Trend towards Environmentally Friendly Products in China's Apparel Industry

        The apparel industry in China is experiencing a change in attitudes toward environmental protection that will increasingly influence the apparel industry including the use of raw materials, production process, and sales and marketing. This evolution has been driven by the following factors:

    Government Support and Initiatives

        The PRC government has initiated several mandates recently in order to protect the environment and reduce energy consumption in China. In November 2009, in anticipation of the UN Climate Change Conference in Copenhagen, the PRC government launched a "voluntary action" in order to encourage people to reduce the intensity of carbon emissions. The PRC government has also taken actions to raise the profile of environmentally friendly themes among consumers in China. For instance, the Shanghai municipal government issued the "Green Guidelines" for the 2010 Shanghai Expo in order to save energy and control pollution in connection with the 2010 Shanghai Expo to promote the theme of "better city, better life." In addition, in August 2010, the Ministry of Industry and Information Technology, or MIIT, mandated the closure of production facilities with energy consumption and pollution above certain defined levels. Of the companies impacted, 10.8% are textile-related companies, including companies engaged in the printing and dying businesses and companies using synthetic fibers in their production processes.

    Consumers' Environmental Awareness

        Along with the rapid growth of disposable incomes, consumers in China are demanding more environmentally friendly products. According to the Frost & Sullivan Survey, 96.5% of those interviewed acknowledge that they were aware of the significance of environmental protection. In addition, approximately 84.2% of the interviewees believe their awareness of environmental protection will be strengthened in the future. We believe that such a high level of awareness indicates that a significant portion of consumers may intend to use environmentally friendly products in the future.

        According to the Frost & Sullivan Survey, environmental protection has become an important factor in the purchasing decisions of consumers in China. Of those interviewed, 73.2% indicated that they would purchase environmentally friendly products if the price and quality were similar to comparable products. On average, interviewees thought that paying an 11.7% premium was acceptable for environmentally friendly apparel. We believe that consumers' wide acceptance of environmentally friendly products, and willingness to pay a premium for such products, present opportunities for companies that choose to incorporate environmentally friendly themes and products into their businesses.

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OUR BUSINESS

Overview

        We are a leading design-driven fashion casual menswear company in China. According to the Frost & Sullivan Report, sales of our "Zuoan" branded products ranked second in China's fashion casual menswear market, with a 5.4% market share, in terms of retail sales in 2009. Our products are designed in-house and sold under our Zuoan brand, which means "left bank" in Chinese, referring to the Left Bank district of Paris and embodying our design philosophy of "fashionable elegance." We offer a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle.

        Our design team is led by Mr. James Hong, our chairman and chief executive officer. Mr. James Hong is recognized as one of China's top designers with more than 15 years of industry experience. He was nominated one of the "Top Three Fashion Designers" by the China Fashion Association in November 2009 and one of "China's Top 10 Fashion Designers" by the China Fashion Association for two consecutive years in 2006 and 2007. Our marketing strategy focuses on promoting an overall brand image that embodies a lifestyle of "fashionable elegance," rather than individual products. Unlike many of our competitors, we do not rely on large-scale, blanket television advertising, but instead adopt a targeted multi-channel marketing strategy through our sponsorship of selective public events and activities, participation in major fashion shows and exhibitions and national advertising through television, internet, billboards, magazines and newspapers. We outsource the production of most of our products to selected contract manufacturers. For our most exclusive and fashion-forward products, we produce them in our own secure production facility in Jinjiang City, Fujian Province to retain maximum control over quality and prevent unauthorized disclosure of our new collection before its scheduled release.

        We sell our products through an extensive distribution network covering 27 of China's 32 provinces and centrally administered municipalities, as well as through the direct stores that are owned and operated by us. Our products are primarily sold to customers through the retail stores operated by our distributors and their sub-distributors. As of September 30, 2010, we appointed 10 distributors which, directly or through their sub-distributors, operated 1,044 retail stores across China. All of the retail stores are operated under our Zuoan brand and are required to sell only our products. In order to maintain a consistent brand image across the retail stores, we impose uniform and mandatory standards for, among other things, in-store display of our products, marketing activities and daily operations. As part of our expansion strategy, in April 2009, we started building out our direct stores in selected cities where we already have an established presence and believe that there is potential for additional growth. As of September 30, 2010, we had 31 direct stores in seven provinces and centrally administered municipalities in China.

        To further promote our brand and improve the performance of Zuoan retail stores, since early 2010, we have adopted a strategy of opening flagship stores, both distributor-operated and directly operated, at prime locations in major cities in China. These flagship stores are significantly larger than most of our existing stores and sell the complete line of our collections. Our distributors have opened seven flagship stores in Henan, Jiangxi, Jilin and Liaoning Provinces. In line with our flagship store strategy, in January 2011, we transferred all of our direct stores, which were located in department stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores at prime commercial areas.

        Our business has grown rapidly in recent years. Our revenues increased from RMB434.5 million in 2007 to RMB598.3 million in 2008 and RMB693.1 million (US$103.6 million) in 2009, representing a CAGR of 26.3% from 2007 to 2009. Our profit after taxation increased from RMB91.4 million in 2007 to RMB132.7 million in 2008 and RMB153.9 million (US$23.0 million) in 2009, representing a CAGR

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of 29.8% from 2007 to 2009. For the nine months ended September 30, 2010, we achieved revenues of RMB613.9 million (US$91.8 million) and profit after taxation of RMB127.7 million (US$19.1 million) compared to revenues of RMB489.7 million and profit after taxation of RMB115.4 million for the nine months ended September 30, 2009.

Our Strengths

        We believe the following competitive strengths have contributed to our leadership position in the fashion casual menswear market in China and will continue to drive our future growth.

    Strong focus on design and product innovation

        We believe that our in-house design and product development capabilities allow us to create innovative products that appeal to our customers. Under the leadership of our chairman and chief executive officer, Mr. James Hong, we design all of our products in-house to create men's casual wear with quality tailoring that aims to set trends for fashion casual menswear in China. Mr. James Hong has been a leader in China's fashion industry for over 15 years and was nominated one of the "Top Three Fashion Designers" by China Fashion Association in November 2009 and one of "China's Top 10 Fashion Designers" by China Fashion Association for two consecutive years in 2006 and 2007.

        We have established a strong in-house design and product development team of 65 employees as of September 30, 2010. Our team identifies new fashion trends by attending fashion shows and exhibitions as well as by drawing from creative ideas in magazines and other media. Each spring and fall, we carefully plan and create a new product line for our fall/winter and spring/summer collections of 400 to 600 products that encompasses our full range of product offerings, including outerwear, tops, bottoms and accessories. We introduce new design elements into our product lines each season. With our highly skilled and creative team of designers, we have extensive experience in creating innovative designs to meet the preferences and needs of our target customer base.

        In June 2010, we relocated our design and product development center to Shanghai. By attracting the best local talent in one of China's preeminent fashion centers and promoting our designing team's exposure to national and international fashion trends, we intend to further enhance our design and product development capabilities.

    Established and leading designer brand for fashion casual menswear in China

        We have established Zuoan as a leading designer brand in China for fashion casual menswear. We created our brand in 2001 and we have received many awards from fashion associations and organizations. For example, in 2007, our Zuoan brand was awarded one of "China's Famous Brands" and one of "China's Most Influential Famous Brands" by the International Famous Brand Association.

        Our brand strategy is guided by Mr. James Hong, who oversees all of our product development and applies a consistent design philosophy to our products. Each product under our brand embraces our "fashionable elegance" design philosophy. We believe that our products are suitable for various off-work occasions, such as gatherings with friends and family, cafe and bar socials and outdoor activities. Our products are designed to appeal to fashionable men while at the same time remain elegant enough to convey a certain level of financial success. We believe our typical customers are urban males between the ages of 20 and 40 with moderate-to-high disposable income.

        Our brand's history and strong focus on design has allowed us to establish a leading market position in China's fashion casual menswear market. According to the Frost & Sullivan Report, we were ranked second in China's fashion casual menswear market in terms of retail sales in 2008 and 2009. We believe our well-recognized national brand is essential to our success in the highly fragmented

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menswear market in China and has provided us with a competitive advantage in further expanding our operations and increasing sales volumes.

    Creative multi-channel brand marketing strategies

        Active and effective marketing and promotion of our brand has been central to strengthening our brand name and image in China. Our marketing strategy focuses on promoting an overall brand image that embodies a "fashionable elegance" lifestyle, rather than individual products.

        Unlike many of our competitors, we do not rely on large-scale, blanket television advertising, but instead, adopt a targeted multi-channel marketing strategy through our sponsorship of selective public events and activities, participation in major fashion shows and exhibitions and national advertising through television, internet, billboards, magazines and newspapers. For example, we sponsored the Ferrari Car Owner's Gathering in Beijing in 2008, the 2008 Beijing Borui Lexus Golf Competition and the "Save Our Planet, China's Contribution" campaign in Copenhagen, Denmark in 2009. We believe such sponsorships are effective in targeting our potential customers and promoting market awareness of Zuoan brand and products. We also publish our own fashion and lifestyle magazine "LEFT" semi-annually, in which we present our newest collections, update our target customers on global fashion trends and introduce our recent marketing activities and upcoming promotional activities. The magazine is distributed at Zuoan retail stores, major airports, fashion shows and exhibitions as well as events we sponsor. We also support our distributors' advertising efforts at a regional level by providing them with ready-to-use promotional and marketing materials and assisting them in developing regional marketing strategies. In addition, we believe we benefit from strong word-of-mouth referrals from our customers.

    Extensive and well-managed nationwide distribution network

        We have an extensive distribution network throughout China. As of September 30, 2010, we had 10 distributors who operated, by themselves or through sub-distributors, 1,044 Zuoan branded retail stores across 27 of China's 32 provinces and centrally administered municipalities. The Zuoan branded retail stores are required to sell only our products.

        We have established long-term relationships with most of our distributors. Except for our three new distributors appointed in January 2011, we have been working with each distributor for more than five years. We select our distributors based on a number of criteria, including experience in the men's apparel retail industry, sales channels, business resources, brand promotion capabilities and ability to help us implement our broader business strategies. Our distributors help us respond to changing consumer tastes in a timely manner by providing regular feedback on our products at our semi-annual sales fairs and frequent communications. The financial resources of our distributors allow us to expand our retail network with less working capital investment from us than would be required for establishing direct stores, as our distributors are responsible for the store rentals and cost of inventories in their stores.

        We sell the substantial majority of our products directly to our distributors, which allows us to distribute our products to a wide geographic area and penetrate markets by leveraging the local market knowledge of our distributors and their sub-distributors. We believe our distribution network has enabled us to expand our business and increase our sales efficiently and with less operational risk. This model also minimizes our operational risk because we typically start production after we receive orders from our distributors. We believe that using a distribution network to sell the vast majority of Zuoan products enables us to devote our resources to our core competitive strengths of design, brand management and product development.

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    Socially conscious corporate culture supported by experienced management team

        We are led by an experienced and dedicated management team that not only has a proven track record in the fashion industry, but is also keen to build a socially conscious corporate culture. Our chairman and chief executive officer, Mr. James Hong, our director and chief operating officer, Mr. Chaoshen Wang, and our director, Mr. Tianzhen Hong, have over 25 years of combined experience in the fashion industry. In addition, most of our executive management team has, on average, over 10 years of experience in their respective areas of responsibility. Our management team has been instrumental in creating a firm culture committed to raising awareness of environmental protection among our customers. As such, we have launched a series of environmentally friendly products in our collections and are incorporating environmentally friendly design elements into our next generation store layout, including using recycled materials. We also initiated and sponsored the "Save Our Planet, China's Contribution" campaign in Copenhagen, Denmark in 2009 to help promote the concept of environmental protection. We believe that our commitment to corporate social responsibility and the promotion of our brand philosophy on environmental protection both resonates with our core customer base and distinguishes us from our competitors. According to the Frost & Sullivan Survey, 55.7% of those interviewed preferred vendors that promote environmental protection and social responsibility. In another group of 300 interviewees, 84.7% stated they would be more inclined to purchase our apparel due to our environmental policies and would be willing to pay a slight premium for environmentally friendly apparel.

Our Strategies

        We intend to further strengthen our position as a leading fashion casual menswear brand in China by implementing the following strategies:

    Open additional retail and flagship stores across China

        We intend to continue to strengthen and expand our brand awareness by opening additional retail and direct stores, especially our flagship stores, to showcase our expanding product portfolio. We intend to increase our store coverage by:

    strengthening our relationship with our existing distributors through greater support, such as providing on-going training, conducting site visits and working closely to select sites and manage additional store openings;

    identifying new distributors to broaden our presence in existing and new markets; and

    expanding the number and geographic coverage of our directly owned flagship stores, which we believe will assist us in achieving higher gross margins and better brand management.

        In particular, we intend to focus on building up our network of flagship stores across China, which we believe can help further promote our brand awareness, showcase our complete product collections, stimulate sales in Zuoan stores in nearby regions and improve our overall business performance. We plan to continue working with our distributors and encouraging them to open more flagship stores at prime locations in major cities in China. We also intend to establish our own directly operated flagship stores by leasing space in prime commercial areas or acquiring properties in prime locations if acquisition is financially more attractive than leasing. In line with this strategy, in January 2011, we transferred all of our direct stores, which were located in department stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores located at prime commercial areas. By the end of 2012, we plan to gradually open approximately 100 flagship stores directly operated by us or through our distributors.

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    Continue to raise the profile of our Zuoan brand through enhanced advertising and promotional activities

        We believe that the strong association of Zuoan brand with our design philosophy of "fashionable elegance" has helped drive our brand positioning and customers' receptivity to our products. We intend to further build our brand and deliver a consistent brand image from product design to sales and marketing. We seek to promote and enhance our presence as a brand leader in China's menswear market by continuing to adopt proactive marketing strategies and produce high-quality, well-designed menswear for our target market. In particular, we aim to increase our brand awareness through:

    multi-channel advertising strategies through national television, fashion magazines, billboards and other media channels;

    further assisting our distributor's regional advertising efforts;

    distinctive store and product launch campaigns, including special events for new product launches and large-scale grand opening events for new stores, particularly new flagship stores;

    update of the decoration and layout of a number of existing stores which have been in operation for years to improve the shopping experience;

    participation in both domestic and international fashion shows;

    sponsorships of selected high-impact events;

    participation in campaigns and sponsorships to promote environmental protection; and

    continued introduction of environmentally friendly products or elements in our collections and new generation store layout.

        We believe that these advertising and promotional activities will help to further strengthen the brand awareness in our target market and enhance customer loyalty.

    Expand and build upon our design and product development capabilities

        We intend to further strengthen our design and product development capabilities by accelerating the commercialization of design concepts, expanding our product offerings and continuing to develop what we believe are innovative menswear and accessories. We have relocated our design and product development center to Shanghai and plan to further invest in design and product development and expand our design and product development team by attracting talented designers, either domestic or international, and training young graduates from leading fashion design institutes. We also intend to cooperate with major design institutes to attract new talent. For example, we hired three designers from Paris, France in 2007 and intend to continue such hiring in the future. We believe that combining western fashion design experience with our local designer's understanding of the China market and aesthetic will enable us to create fashionable yet popular men's apparel and accessories for consumers in China.

        We also intend to cooperate with our suppliers to develop new materials and fabrics which we believe will give customers a unique fashion product and create new market opportunities. In particular, we believe that there is a growing trend to embrace an environmental friendly lifestyle in China. For example, according to the Frost & Sullivan Survey, 73.2% of those interviewed were willing to purchase environmentally friendly products if the price and quality were similar to comparable products. As such, we recently launched a line of organic cotton jeans and clothes made of recycled paper. We plan to introduce more products made of environmentally friendly materials to capture the market opportunity as a result of consumers' wide acceptance of environmentally friendly products, and willingness to pay a modest premium for such products. We believe that our focus on designing innovative and quality menswear will allow us to maintain our competitiveness and help to enhance our sales and overall profitability.

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    Expand and diversify our product offerings

        We plan to continue to capitalize on our brand to further enhance sales and profit growth through continued refinement and expansion of our existing product lines. We intend to further refine our existing product lines by offering more styles within our existing apparel and accessories categories and to introduce additional, complementary apparel and accessories categories into our product line. We currently introduce 400 to 600 different styles of products each season and intend to increase the number of our product offerings in the future.

Our Zuoan Brand

        We are engaged in a highly competitive industry in which brand image and recognition is critical to attracting customers to purchase our products. We have adopted Zuoan as a uniform brand name and image for all stores in our distribution network and our direct stores and on all products sold in those stores. We also use the "James Hong" brand for our customized special line of products. Our Zuoan brand was created by Mr. James Hong, our chairman and chief executive officer in 2001. Zuoan, meaning "left bank" in Chinese, refers to the Left Bank district of Paris and embodies our design philosophy of "fashionable elegance." We have received many awards from fashion associations and organizations. For example, in 2007, our Zuoan brand was awarded one of "China's Famous Brands" and one of the "China's Most Influential Famous Brands" by International Famous Brand Association. We believe that our Zuoan brand has become a recognized brand name in the cities where our products are sold.

        To promote our brand, we have developed and implemented brand management policies in all of our direct stores and Zuoan retail stores. Our brand management policies set out detailed requirements for store decorations and display of products. This enables us to project a consistent brand image. In addition, each season our design and product development team develops display concepts, including the presentation of our collections in the stores and the color schemes for the backdrops. We also work closely with our distributors to supervise the daily operations of retail stores through unscheduled visits to ensure that our brand management policies are properly followed. We may suspend the supply of our products or terminate distribution agreements in the event that any of our distributors or their sub-distributors consistently fails to comply with our brand management policies.

Our Products

        We focus on the design and distribution of fashion menswear, including apparel and accessories. Our apparel products include blazers, jackets, sweaters, shirts, T-shirts, leather jackets, down jackets, pants and jeans. Accessories include shoes, bags, ties, belts, socks and scarves. Most of our products are designed to appeal to urban males between the ages of 20 and 40 with moderate-to-high disposable incomes. In 2009, the suggested retail prices of our products ranged from RMB254 to RMB3,335 for our apparel products and RMB79 to RMB790 for our accessory products.

        Our products feature innovative and stylish design, as well as quality fabrics and materials. Since 2002, we have launched two collections of new products each year with a different theme to highlight the current trends in menswear for the season. We also devote substantial resources to the development and application of new materials and fabrics which we believe will bring our customers a unique experience and create new market opportunities. For example, we recently launched a series of organic cotton jeans and clothes made of recycled paper.

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Sales

    General

        We sell the substantial majority of our products to our distributors who in turn sell them to retail customers through Zuoan branded retail stores operated by our distributors or their sub-distributors. We believe that our distribution business model which depends primarily on wholesale distributors is commonly adopted by brand owners in China. By selling directly to our distributors, we can recognize revenues upon delivery to our distributors and delegate the distribution responsibilities to our distributors and, through them, to sub-distributors. This allows us to distribute our Zuoan merchandise to a wide geographic area and penetrate markets by leveraging the local market knowledge of our distributors and their sub-distributors. This also minimizes our inventory and sales risks while allowing us to allocate our resources to our core competitive strengths of design, brand management and product development. We believe that our cooperation with distributors has enabled us to expand our business and accelerate our sales growth at much lower costs and operational risk and achieve brand recognition throughout China. Over the years, we have established a nationwide distribution network covering 27 of China's 32 provinces and centrally administered municipalities as of September 30, 2010.

        The map below illustrates our market presence in each of the provinces and centrally administered municipalities where we had Zuoan branded retail stores as of September 30, 2010:

GRAPHIC

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        The following diagram illustrates the relationship among our company, distributors and sub-distributors, retail stores and end-consumers as of September 30, 2010:

GRAPHIC

    Our Distributors

        Network of Distributor-Operated Retail Stores

        As of September 30, 2010, we had 10 distributors who operated 1,044 retail stores directly or through their sub-distributors, all of which were stand-alone stores, which were typically located in commercial centers, including department stores or shopping malls, in their cities. We appointed three new distributors in January 2011 in order to diversify our distributor base and reduce our reliance on current distributors. The average floor area of Zuoan retail stores was approximately 67.8 square meters as of September 30, 2010. We do not have any ownership in, or contractual relationship with, these retail stores, but in the distribution agreements, we require distributors and their sub-distributors to sell only Zuoan products in these retail stores. Distributors are responsible for selecting and ordering products from us and overseeing the sales in the retail stores operated by them and their sub-distributors. The number of Zuoan retail stores has grown significantly in recent years from 643 as of December 31, 2006 to 843, 861 and 1,000 as of December 31, 2007, 2008 and 2009, respectively, with the aggregate floor area increasing from 37,045 square meters as of December 31, 2006 to 50,690 square meters, 56,352 square meters and 64,687 square meters as of December 31, 2007, 2008 and 2009, respectively. In 2007, 2008, 2009 and nine months ended September 30, 2010, sales to distributors accounted for 100.0%, 100.0%, 97.2% and 96.2% of our revenues, respectively.

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        The following table lists by region the number of Zuoan retail stores operated by distributors and sub-distributors as of the dates indicated:

 
  As of December 31,   As of September 30,  
 
  2007   2008   2009   2010  
 
  Operated
by
Distributors
  Operated
by
Sub-
Distributors
  Operated
by
Distributors
  Operated
by
Sub-
Distributors
  Operated
by
Distributors
  Operated
by
Sub-
Distributors
  Operated
by
Distributors
  Operated
by
Sub-
Distributors
 

Anhui

          3           3           4           8  

Beijing

    32           19     3     21     15     21     15  

Chongqing

    17           16     2     16     8     16     8  

Fujian

          24           23           25           28  

Gansu

                                  2           3  

Guangdong

                                  2           2  

Guangxi

                                              1  

Guizhou

    15     17     15     18     19     15     19     17  

Heilongjiang

          34           34           34           34  

Hebei

          25           28           30           31  

Henan

    19           3     23     9     23     9     28  

Hubei

    12     54     8     56     17     59     17     62  

Hunan

    13     75     19     81     23     89     24     96  

Inner Mongolia

          16           21           21           21  

Jiangsu

    5     82     8     85     18     91     18     96  

Jiangxi

                      2           2           6  

Jilin

          30           32           37     1     39  

Liaoning

    22     77     21     65     22     78     23     83  

Shaanxi

          16           15           17           19  

Shandong

          72           73           74           76  

Shanxi

          12           9           10           14  

Sichuan

          85           91           98           102  

Tianjin

                                  1           1  

Tibet

          7           7           7           7  

Xinjiang

    13     11     14     10     14     13     14     17  

Yunnan

                                        1        

Zhejiang

    15     40     11     46     11     53     11     56  
                                   

Subtotal

    163     680     134     727     170     808     173     871  
                   

Total

    843     861     978     1,044  
                   

        To further promote our brand image and improve the performance of Zuoan retail stores, since early 2010 we have begun to encourage distributors to open flagship stores at prime locations in major cities in China. These flagship stores are significantly larger than most of the existing retail stores and direct stores and offer the complete line of our collections. Our distributors have opened seven flagship stores in Henan, Jiangxi, Jilin and Liaoning Provinces as of September 30, 2010. We plan to continue the opening of flagship stores either through distributors or through our own investments and significantly expand our network of flagship stores in the future.

        Management of Distributors and Retail Stores

        We are highly selective in appointing distributors. We maintain good relationships with many regional or local distributor candidates which we identify through our internal research and external referrals but only appoint a handful of them to become our distributors. We evaluate the relevant experience of the distributor candidates in operating retail stores, their financial condition and sources of funding required for the establishment of a regional distribution network and their ability to develop a network of retail stores in the designated distribution region of a given distributor before we make any appointment.

        Once appointed, each distributor must enter into a distribution agreement with us. We do not own any interest in any of our distributors, their sub-distributors or the retail stores they operate. The distribution agreements we typically enter into with distributors do not allow us to be involved in the daily operating, financing or other activities of the distributors, except that distributors need to comply

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with our brand management policies and pricing and store management guidelines. Key terms of our standard distribution agreement include:

    Geographic Coverage.  Distributors are granted exclusive rights to distribute our products (directly and indirectly through their sub-distributors) in the retail stores within the specified geographic area with no overlapping of distributors within our distribution network. However, we retain the right to operate direct stores anywhere regardless of whether we have appointed distributors there.

    Duration.  The distribution agreements generally have an initial term of three years and are renewable at our discretion after taking into account factors such as compliance with our brand management policies and sales performance.

    Distributor Pricing.  Distributors agree to order our products at a discount from our suggested retail prices. The applicable discount rate is typically determined at sales fairs where we collect orders from the distributors. Historically, we have set the discount rate at 65% off of our suggested retail prices.

    Retail Pricing.  Other than at times when we launch promotional campaigns or adjust our strategies, distributors must adopt, and are required to procure their sub-distributors to adopt, our suggested retail prices for products. Distributors must obtain our consent before launching any distributor-specific special offers.

    Payment and Delivery.  We are entitled to require distributors to pay us before delivery of our products. We may also accept payment on credit terms to the extent requested by distributors experiencing working capital difficulties. Nonetheless, in line with industry practice, we generally provide credit terms of up to 90 days to our distributors. The amount and duration of credit granted to each distributor will depend on its financial position and creditworthiness. We handle the arrangements for delivery of our products, but the distributors are required to bear the related costs and expenses.

    Brand Management.  Distributors must comply with our brand management policies and store management guidelines. We may impose penalties, suspend supply of products and terminate the agreement in the event of any breach of such policies.

    Brand Promotion Allowance.  Prior to 2010, as an incentive to promote our brand in order to facilitate the expansion of our sales network and enhance sales, distributors were entitled to a brand promotion allowance equal to 3% of the total purchase orders from us. Such allowance was terminated beginning in 2010 as we adopted a strategy to increase our spending on centralized nationwide marketing activities while continuing to encourage our distributors to pursue their own marketing initiatives in line with our guidelines.

    Termination.  We can terminate the distribution agreements and seek indemnification in the event of breach by distributors.

        When opening new retail stores, our distributors conduct research on the market potential of the proposed retail sites, after which they will provide us with an application for opening a new retail store. In reviewing applications, we consider factors including the store location, store layout, available area, market opportunities, competitors and estimated sales. We conduct selected on-site investigations to verify applications filed by our distributors. Such on-site investigations are mandatory for opening new flagship retail stores by distributors. Our retail stores are generally located in prime retail locations in their respective cities and thus benefit from high volumes of pedestrian traffic.

        Effective monitoring of distributors and their retail stores is critical to our success. We have a team in our marketing, sales and distribution department to monitor our distributors' and their sub-distributors' performance, who conduct on-site inspections of selected retail stores each quarter without prior notice to ensure compliance with our store management guidelines. According to the results of our inspections, we, from time to time, make suggestions to our distributors with respect to the opening or closure of their retail stores. Distributors also need to submit to us their annual/

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semi-annual plans to estimate their orders for the next season and their plan to improve the performance of existing retail stores or expand by opening new retail stores. This reporting system enables us to access up-to-date sales projections of our distributors and their sub-distributors, which reflects the overall level of retail sales of our products. It also provides us with the expansion plan of each distributor which helps us prepare our overall development plan in a more accurate manner.

        We invite our distributors, as well as a select number of their sub-distributors and retail store managers, to attend our sales fairs, which are held twice a year. During the sales fairs, we discuss with our distributors and their sub-distributors the upcoming product line. Apart from participating in two sales fairs each year, our distributors visit us from time to time and contact us as necessary, which allows us to have access to updated market information. We also provide training for distributors and their sub-distributors in the areas of sales techniques, customer service and product knowledge, typically prior to the launch of our new collections each year. We believe that these investments help to improve the operations of the sales network and provide additional value-added services to retain our distributors and their sub-distributors. We have established long-term relationships with our key distributors and except for our three new distributors appointed in January 2010, all of our current distributors have been with us for more than five years. We have not encountered any material dispute or financial difficulty with our key distributors.

    Direct Stores

        We started establishing direct stores in April 2009. As of September 30, 2010, we had 31 direct stores in seven provinces in China. These stores are all located in department stores or shopping malls, where we typically pay a certain percentage of the revenue that our direct stores achieve in any given period as our rental payment. Compared with standalone stores where a higher fixed amount of rent is typically demanded, operating direct stores in the form of cooperation commission enables us to minimize the upfront cash outflows from opening these direct stores and to control the cost of operation at a relative stable level of the revenue generated by them.

        We typically enter into concession agreements to obtain retail space in department stores and shopping malls for our direct stores. Most of these agreements have a term of one year and are renewable upon mutual consent. In line with our strategy to expand our sales network of flagship stores, in January 2011, we transferred all of our direct stores, which were located in department stores or shopping malls, to our distributors and intend to open our new directly operated flagship stores located at prime commercial areas.

    Collection of Orders and Distributor Pricing

        We collect orders from our distributors primarily at our large sales fairs twice a year. We have a private viewing to showcase our new product collections for our distributors in advance of these sales fairs, at which distributors can preview and evaluate our new product collections. The private viewings are also a good platform for us to exchange information with our distributors about the current and future trends in the menswear market in China, as well as the theme of our new collections. We then organize sales fairs for our distributors, sub-distributors and direct store managers, and collect their orders from the distributors or our direct store managers. Our sales fairs are generally held in spring for our fall/winter collections, and fall for our spring/summer collections. We collect most of our orders from these two large sales fairs. We also hold two small sales fairs in summer and winter to enable our distributors sub-distributors and direct stores to add to their orders for the subsequent winter and summer season, respectively. Historically, approximately 95% of the total purchase orders for our products are placed at these sales fairs. We sell products to our distributors at a discount from our suggested retail prices, which historically has been set at 65% off of the suggested retail prices. We grant a uniform discount rate to all distributors for any purchases made, regardless of the size of their orders. We believe that the orders coming from sales fairs allow us to efficiently utilize our production facilities and contract manufacturers, respond quickly to market demand and manage our inventory more efficiently.

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    Our Retail Pricing Strategy

        To maintain brand equity, we set suggested retail prices and work closely with our distributors in coordinating sales and promotional activities such as loyalty programs for the end-consumers. In determining the suggested retail prices of our products, we usually take into account, among other factors, the prevailing market conditions, cost of design, cost of raw materials and production, and prices set by competitors operating comparable domestic or international brands for similar products. Distributors must adopt, and are required to procure their sub-distributors to adopt, a uniform suggested retail price for each of our products across the market in China, provided, however, that individual distributors or sub-distributors may launch special offers with our prior consent. We generally allow distributors and sub-distributors to offer up to 15% discounts for in-season products. We also generally give distributors and sub-distributors the discretion to set their own discounted prices to promote sales of out-of-season products.

        In 2009, the suggested retail prices of our products ranged from RMB254 to RMB3,335 for our apparel products and RMB79 to RMB790 for our accessory products.

Our Design

        We believe that innovative and fashionable design drives the success of our brand and is one of the key factors in creating and maintaining the popularity of our products in the market. Our design philosophy is to create fashionable and elegant menswear with quality tailoring. By focusing on product design, we aim to become a fashion trend leader in the casual menswear market in China and supply products that consistently meet customers' demands. The following diagram illustrates our design process:

GRAPHIC

        Our design and product development team conceptualizes each season's collections through an interactive process, taking into account our brand strategy, product image and market feedback, drawing inspirations from domestic and international fashion trends and collaborating with both our suppliers and distributors to fine-tune our designs. In particular, we collaborate with our suppliers to develop a variety of materials and fabrics for our products. We also involve distributors in our product selection process to take advantage of their market intelligence, which helps us to adapt to constantly changing customer preferences in local markets. Our designers also attend various domestic and international fashion shows to keep abreast of the latest fashion trends.

        As of September 30, 2010, our design and product development team comprised 65 members. We believe that our design and product development team is innovative and passionate and that the individual experience of each of our designers helps bring new and exciting products to our customers. In a typical season, we design and make 1,200 to 1,500 prototypes. After the initial product selection, internal cost analysis of approved prototypes and final selection by distributors at the sales fairs, we eventually select approximately 400 to 600 designs for mass production. Final design of all of our products will be approved by our product development committee.

        In June 2010, we relocated our design and product development centre from Zhongshan, Guangdong Province to Shanghai for product design and market research and analysis. Shanghai is one of the fashion centers in China with some of the top fashion institutes and designers. We believe that this strategic relocation will enable us to quickly adapt to domestic and international fashion trends and to have better access to a high quality pool of designer which, in turn, will strengthen our product design capabilities and our ability to compete more effectively against our competitors.

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Our Product Development

    Contract Manufacturing

        We outsource the production of most of our products to selected contract manufacturers who are able to produce products to our satisfaction in terms of product quality, delivery schedule and price. All of our outsourced products are produced under our Zuoan brand. We believe that our outsourcing arrangements optimize our production flow, allow us to leverage the expertise and resources of these contract manufacturers, and enable us to focus on the products design and brand management which we believe to be our core competitive strength. We also believe that these arrangements are helpful in responding to tight schedules, especially during peak production seasons.

        We maintain relationships with many apparel and accessories manufacturers and engage a select group of them each year. We select our contract manufacturers based on the quality of their products, their previous business relationship with us, pricing, reliability, track record in the industry, production capacity and the ability to meet our delivery schedules. Most of our contract manufacturers have had established business relationships with us for more than five years.

        We enter into framework agreements with our contract manufacturers. Detailed terms such as product types, unit price, purchase quantity and delivery schedules are included in the purchase orders that we place with our contract manufaturers. We typically pay our contract manufacturers a deposit of up to 30% of the purchase price upon the placement of our orders and settle the balance of the purchase price upon the delivery of the products following the final quality control inspection. We may use multiple contract manufacturers for any given product and are not bound to place any minimum order with any contract manufacturers.

        Purchases from our contract manufacturers accounted for 85.5%, 90.7%, 91.6% and 93.8%, respectively, of our total cost of sales in 2007, 2008, 2009 and the nine months ended September 30 2010. Purchases from our largest contract manufacturer accounted for 11.6%, 9.4%, 10.1% and 12.7%, respectively, of our total cost of sales for the same periods.

    In-house Production

        For our most exclusive and fashion-forward products, we use our own production facility in order to retain maximum control of quality and prevent unauthorized disclosure of new collection before its scheduled release. We also have in-house production for made-to-order products on an ad hoc basis for selected customers under the James Hong private label brand. Our production facility is located in Jinjiang, Fujian Province with a total floor area of approximately 18,300 square meters and an annual capacity of producing approximately 500,000 units of apparel. We believe that in-house production allows us to have better control over our proprietary designs while also balancing efficiency and flexibility in meeting orders and time schedules. We also produce prototypes in-house to showcase at our seasonal sales fairs for our distributors.

        The raw materials that we use to produce our products include fabrics (including cotton, denim and synthetic materials) and fasteners (including zips, buttons and buckles), which are sourced from various suppliers mainly located in Fujian and Guangdong provinces. Our procurement department is responsible for, among other things, selecting raw material suppliers based on criteria such as the quality of raw materials supplied, the length of their business relationship with us, pricing, reliability and track record as well as the ability to meet required delivery schedules. We have a pool of approximately 20 raw material suppliers from whom we procure raw materials for our in-house production.

        Random inspection and sample testing of incoming raw materials are carried out by our quality assurance personnel to ensure that the procured raw materials conform to our quality standards and specifications. Raw materials that do not meet our requirements are rejected or returned to the suppliers for replacement.

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    Packaging, Warehousing and Delivery

        Finished products undergo a final inspection to ensure that they meet our quality standards and specifications. Products that have passed the final inspection are then packed and sorted according to colors and sizes before being sent for warehousing. We store substantially all of our finished products procured from contract manufacturers in our primary warehousing facility in Fujian and then deliver products to third-party logistics service providers designated by our distributors who will then arrange for subsequent delivery to the retail stores. Shipping and handling expenses related to sales to distributors are incurred by, and paid directly by, our distributors.

Marketing

        We believe our brand name plays a significant role in attracting customers and driving our sales and the overall success of our business. Accordingly, our marketing activities focus primarily on enhancing our Zuoan brand as a designer brand for fashion casual menswear. To promote greater awareness of our Zuoan brand and products, we have adopted various marketing approaches which aim to generate interest and recognition not only among retail customers, but also among distributors, salespeople and the media.

    Seasonal Sales Fairs

        We typically organize two large sales fairs each year, usually four to six months prior to the launch of our spring/summer and fall/winter collections for the subsequent season. We hold such sales fairs in different cities in China, such as Beijing, Shenyang, Xiamen and Shishi, and invite our distributors, certain sub-distributors as well as potential distributors and direct store managers to our sales fairs where we showcase our latest designs and collections. We also hold two small sales fairs in summer and winter to enable our distributors, sub-distributors and direct stores to add their orders for the subsequent winter and summer season, respectively. Historically, approximately 95% of the total purchase orders for our products are placed during these sales fairs.

    Fashion Shows and Exhibitions

        To promote our Zuoan brand among fashion industry leaders, we participate in major domestic fashion shows and exhibitions including, among others, China Fashion Week, Beijing International Fashion Week and Dalian International Fashion Festival. We present our latest designs and products to increase market awareness of our Zuoan brand and products, establish and maintain relationships with the fashion media and develop sales leads customers.

    Advertisements

        Our national advertising focuses on building our Zuoan brand image and lifestyle, rather than on individual products. We primarily promote our Zuoan brand and products through advertisements on television, in print media such as magazines and newspapers, on billboards at train stations, bus stops, shopping centers and along highways, and through radio, and on the Internet. We carefully craft the content of our advertisements to attract our target customers: urban males in China between the ages of 20 and 40 with moderate-to-high levels of disposable income.

        We publish our own fashion and lifestyle magazine "LEFT" semi-annually. We present our newest collections, update our target customers on the global fashion trends and introduce our recent marketing activities and upcoming promotional activities in this magazine. We also produce product catalogues featuring our designs and products for each season. Copies of our magazines and product catalogues are available to customers for free in Zuoan retail stores, direct stores, major airports, fashion shows and exhibitors as well as events we sponsor.

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    Sponsorships

        From time to time, we selectively sponsor events to promote the recognition and public image of our Zuoan brand. For example, we sponsored tailored menswear for the Ferrari Car Owners' Gathering in Beijing in April 2008 and the 2008 Beijing Borui Lexus Golf Competition. We also initiated and sponsored the "Save Our Planet, China's Contribution" campaign in Copenhagen, Denmark in 2009 to help promote the concept of environment protection.

    Management of Promotional and Marketing Activities of Our Distributors

        Our internal marketing team is responsible only for our national promotional activities as mentioned above and we depend on our distributors and sub-distributors to conduct regional and local promotions and marketing activities in areas where their sales networks are located. These regional and local promotional activities include advertisements through local television, radio, newspapers and magazine, as well as small fashion shows. We encourage our distributors' advertising efforts by providing them with ready-to-use promotional and marketing materials and assisting them to develop marketing strategies. Prior to 2010, we also provided our distributors a brand promotion allowance equal to 3% of their total purchases. Such allowance was terminated beginning in 2010 as we adopted a strategy to increase our spending on centralized nationwide marketing activities while continuing to encourage our distributors to pursue their own marketing initiatives in line with our guidelines. Through our overall supervision of, and our support to, the regional promotional and marketing activities by our distributors, we aim to present to our retail customers across China a consistent brand image. In 2007, 2008, 2009 and the nine months ended September 30, 2010, the brand promotion allowance that we provided to our distributors were RMB13.0 million, RMB17.9 million, RMB13.3 million and nil, respectively. To ensure a consistent store image, we also provide fixtures and fittings such as goods shelves, mannequins and hangers at our cost before our distributors open a new store, and from January 2010, we agreed to reimburse part of the renovation expenses in the amount of RMB1,500 per square meter for new stores opened by most of our distributors. As of September 30, 2010, we incurred expenses relating to such reimbursement in the amount of RMB17.0 million.

    Loyalty Programs

        We believe that building customer loyalty towards our Zuoan Brand products is important to our success. With our encouragement, a number of our distributors or their sub-distributors offer VIP programs under which a member enjoys a discount from the retail price of a product and may also take advantage of promotional services such as rewards points and holiday discount offers. These VIP programs are managed independently by distributors and sub-distributors and as a result, each member of the VIP program is entitled to discounts or other privileges only in certain designated stores which are controlled by the relevant distributors. We have not established a nationwide VIP program and do not provide any monetary support to distributors or sub-distributors who offer VIP programs to customers.

Quality Control

        The quality of our Zuoan products is critical to our business and our brand and is key to our continued growth and success. As such, we place great emphasis on quality assurance and have an established quality control system. We obtained the ISO 9001: 2000 certification for our design, production, sales and service processes for jackets with a term of three years commencing from July 2008. This certification is evidence that our quality control management system meets international standards.

        As of September 30, 2010, we had a team of 15 staff members in our quality assurance department which is responsible for the quality control of our products. Most of our quality assurance personnel are based in our production facility in Jinjiang and the design and product development centers in

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Zhongshan and Shanghai, while the remaining staff are located at our contract manufacturers' production facilities.

        For products we produce in-house, our quality assurance team monitors each stage of our production process. We start our quality control process from the time when we select our suppliers, in which a key factor is the quality of their materials. We inspect each batch of shipped raw materials according to our quality standards and certain national health, safety and environmental standards, and return defective materials and components to the suppliers for replacement. We carry out inspections at each stage of our production process to identify and rectify defects. We also carry out regular checks of our machinery and equipment to ensure they are well maintained and in good working condition. All finished products are subject to a final quality inspection to ensure that they are in good condition and conform to the specifications of our quality standards before they are sent to the warehouse for storage in preparation for delivery to our distributors.

        With respect to products that are produced by contract manufacturers, we have implemented stringent quality control policies to ensure the products they produce will meet our product specifications and quality standards. We conduct on-site inspections at our contract manufacturers before we enter into a business relationship. We provide technical training to our contract manufacturers and assist them with quality control in the production process. Once a contract manufacturer is appointed, we will send our quality assurance staff to stay in their facilities or visit them on a monthly basis to carry out on-site quality checks and supervision during the production process. We also inspect finished products produced by our contract manufacturers and return defective products for rectification or replacement.

        Under our return of products policy, our distributors are required to conduct quality inspections upon receipt of our products and are allowed to return defective goods at the time of delivery. Once the distributors have completed the inspection and accepted the products, they are deemed to have considered the products as satisfactory in the absence of such complaint. Where some defects are not obvious, we may, on a case-by-case basis, allow return of products from distributors even though the notice of complaint is not promptly served.

Competition

        We operate in a highly competitive industry. We compete intensively with various domestic brands with similar business models and target markets. We also compete with a growing number of international brands trying to expand their market share in China to take advantage of rising consumer spending on fashion casual menswear. International brands traditionally dominate the high-end market, but domestic brands have advantages in price and distribution and are increasingly competitive in the mid- to high-end markets. In addition, certain business formal menswear brands have been seeking to expand into fashion casual menswear market and if they are successful, it may intensify the competition in the fashion casual menswear market that we engage in. Our major competitors include, among others, international brands such as Jack & Jones, and local brands such as Mark Fairwhale and Jeep.

        Our products compete on the basis of brand image, design and concept, product mix, quality, price, customer service and the breadth of our retail network. Some of our competitors may have greater financial, management, human, distribution, development, marketing or other resources or better brand recognition than we do. We face a variety of competitive challenges, including:

    strong brand recognition among many of our competitors;

    relatively low entry barriers to the menswear industry;

    competitive pricing strategies of our competitors;

    established relationships between our competitors and their distributors;

    expansion by existing competitors;

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    innovative sales methods adopted by our competitors; and

    better product designs from or better branding efforts of our competitors.

        We believe that our primary competitive advantages are our well-known Zuoan brand, our strong design capability, the style and quality of our apparel and accessories, and our extensive distribution network across China. However, some of our existing and potential competitors may have more retail stores and products or more financial resources than we do. Accordingly, there can be no assurance that we will be able to compete successfully with them in the future.

Employees

        As of September 30, 2010, December 31, 2009, December 31, 2008 and December 31, 2007, we had 641, 600, 566 and 546 full-time employees, respectively. The following table sets forth the number of our employees by department as of September 30, 2010:

 
  Number of
Employees
  % of Total  

Management and administration

    27     4.2  

Marketing, sales and distribution

    166     25.9  

Design and product development

    65     10.1  

Production

    350     54.6  

Procurement, warehousing and logistics

    18     2.8  

Quality assurance

    15     2.3  
           

Total

    641     100.0  
           

        We generally enter into standard employment contracts with our officers, managers and other employees with a term of three years. According to these contracts, all of our employees are prohibited from engaging in any other employment during the period of their employment with us. In addition, the standard employment agreements for our product design and development department and our executive officers contain confidentiality provisions which aim at protecting our designs, collections and trademarks and other intellectual property rights.

        None of our employees are represented by collective bargaining arrangements or are members of a labor union, and we consider our relations with our employees to be good.

Intellectual Property

        Our trademarks, trade names, trade secrets and other intellectual property rights, such as design and technical know-how, distinguish our products from those of our competitors, and contribute to our competitive advantage in our target market. To protect our brand and other intellectual property, we rely on a combination of trademark, trade secret and other intellectual property laws as well as confidentiality agreements with our employees, suppliers, distributors and others.

        We take the following steps to protect and prevent infringement of our intellectual property rights:

    manufacture in-house products with proprietary designs to minimize counterfeit products;

    obtain intellectual property registrations to the extent possible; and

    prohibit our distributors and sub-distributors from selling counterfeit products and require them to report instances of counterfeit products in the market.

        We have registered 23 trademarks and logos relating to our business, including GRAPHIC , GRAPHIC , GRAPHIC , and GRAPHIC . Our main website is located at www.zuoancn.com, our registered domain name.

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        We cannot be certain that our efforts to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate these rights. In addition, there can be no assurance that competitors will not independently develop similar intellectual property. If others are able to copy our designs, produce counterfeit products or successfully challenge the proprietary rights of any of our brand name or image, we may not be able to maintain our competitive position. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving and could involve substantial risk to us. If litigation is necessary to enforce our intellectual property rights or determine the scope of the proprietary rights of others, we may have to incur substantial costs or divert other resources, which could harm our business.

Insurance

        We maintain insurance coverage for our equipment, raw materials and inventory and standard insurance for our directors and officers. However, as is typical in China, we do not maintain general product liability insurance, business interruption insurance or third-party insurance.

        As required by regulations in China, we participate in various employee social security plans that are administered by municipal and provincial governments, including housing, pension, medical insurance and unemployment insurance. We are required under relevant PRC laws to make contributions to employee benefit plans at specified percentages of the total salaries, bonuses and certain allowance of our employees, up to a maximum amount specified by the relevant local governments from time to time.

Facilities

        We currently lease all of the properties we use to operate our business. Our operational headquarters and design and product development center are both located in Shanghai, China, where we lease approximately 2,170 square meters of office space. We have a marketing headquarters in Shishi, Fujian, China, where our leased office space is approximately 1,336 square meters.

        Our production facility in Jinjiang, Fujian Province occupies a total floor area of approximately 18,300 square meters. Our production facility has an annual production capacity of 500,000 units of men's apparel.

        Our 31 direct stores are operated through leased retail spaces in department stores and shopping malls. A typical direct store occupies an average area of 81 square meters. We implement a standardized interior design at our direct stores across the country. We have recently developed a new interior design style and plan to renovate our existing direct store to reflect such new interior design over time.

Environmental Matters

        As required under the environmental laws and regulations in China, we have carried out the relevant environmental impact assessments before commencing construction or renovation of our production facility and have obtained all the required permits and environmental approvals for our production facility.

Legal Proceedings

        We are not currently a party to any material legal proceeding or investigation, and, to our knowledge, there are no material legal proceedings threatened against us. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business.

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REGULATION

Regulations on Product Quality

        The principal legal provisions governing product liability are set forth in the PRC Product Quality Law, which was promulgated in February 1993 by the SCNPC and amended in July 2000.

        The PRC Product Quality Law stipulates the responsibilities and obligations of product sellers and producers. Violations of the PRC Product Quality Law may result in the imposition of fines. In addition, the seller or producer may be ordered to suspend its operations, and its business license may be revoked. There may also be criminal liability in serious cases.

        According to the PRC Product Quality Law, consumers or other victims who suffer injury or property losses due to product defects may demand compensation from the manufacturer as well as the seller. After compensating the consumer, the seller may recover the corresponding amount from the manufacturer if the manufacturer is responsible for the product defects, and vice versa.

Regulations on Consumer Protection

        The principal legal provisions for the protection of consumer interests are set forth in the Law of the PRC on Protection of Consumer Rights and Interests, or the Consumer Protection Law, which was promulgated in October 1993 and became effective in January 1994. The Consumer Protection Law sets forth standards of behavior that businesses must observe in their dealings with consumers.

        Violations of the Consumer Protection Law may result in the imposition of fines. In addition, the violating entity may be ordered to suspend its operations, and its business license may be revoked. There may also be criminal liability in serious cases.

        According to the Consumer Protection Law, if the legal rights and interests of a consumer are injured during the purchase or use of goods, the consumer may seek compensation from the seller. If the manufacturer or an upstream distributor is responsible, after compensating the consumer, the seller may recover the corresponding amount from the manufacturer or the upstream distributor. Consumers or other persons who suffer personal injury or property damages due to defects in products may seek compensation from the manufacturer as well as the seller. After compensating the consumer, the seller may recover the corresponding amount from the manufacturer if the manufacturer is responsible for the product defects, and vice versa.

Regulations on Foreign Currency Exchange

        The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, promulgated by the State Council, as amended on August 5, 2008, or the Foreign Exchange Regulations. Under the Foreign Exchange Regulations, the Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange, or SAFE, is obtained and prior registration with SAFE is made. Violation of the Foreign Exchange Regulations will result in penalties including fines, confiscation of illegal gains and revocation of business license. It may also lead to criminal liabilities.

        On August 29, 2008, SAFE promulgated the Notice on Perfecting Practices Concerning Foreign Exchange Settlement Regarding the Capital Contribution by Foreign-invested Enterprises, or Circular 142, regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 142 requires that the registered capital of a foreign-invested enterprise settled in Renminbi and converted from foreign currencies may only be

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used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments in China. In addition, SAFE strengthened its oversight of the flow and use of the registered capital of foreign-invested enterprises settled in Renminbi and converted from foreign currencies. The use of such RMB capital may not be changed without SAFE's approval, and may not be used to repay unused RMB loans. Violations of Circular 142 will result in severe penalties, such as confiscation of illegal gains and additional fines up to the amount of such illegal gains.

        Pursuant to the Implementation Rules of the Administrative Measures on Individual Foreign Exchange, promulgated on January 5, 2007 by SAFE, and the Operating Procedures for Administration of Domestic Individuals Participating in the Employee Share Option Plan or Share Option Plan of An Overseas Listed Company, issued by SAFE on March 28, 2007, or the Share Option Rules, PRC citizens who are granted shares or share options by an overseas-listed company according to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas-listed company or other qualified PRC agents, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan. In addition, the overseas-listed company or its PRC subsidiary or other qualified PRC agent is required to appoint an asset manager or administrator and a custodian bank and open special foreign currency accounts to handle transactions relating to the share option or other share incentive plan. Under the Foreign Exchange Administration Regulations, as amended, the foreign exchange proceeds of domestic entities and individuals can be remitted into China or deposited abroad, subject to terms and conditions to be issued by SAFE. However, the implementation rules in respect of depositing the foreign exchange proceeds abroad have not yet been issued by SAFE. Currently, foreign exchange proceeds from sales of stock or dividends distributed by an overseas-listed company can be converted into Renminbi or transferred to such individuals' foreign exchange savings accounts after the proceeds have been remitted back to a special foreign currency account opened at a PRC domestic bank. If share options are exercised in a cashless exercise, PRC domestic individuals are required to remit the proceeds to special foreign currency accounts. We and our PRC citizen employees who have been granted share options, or PRC option holders, are subject to the Share Option Rules. If PRC option holders or our PRC subsidiaries fail to comply with these rules, such employees and our PRC subsidiaries may be subject to fines and other legal or administrative sanctions.

Regulations on Offshore Financing

        On October 21, 2005, SAFE issued Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents' Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or Circular 75, which became effective as of November 1, 2005. Under Circular 75, if PRC residents use assets or equity interests in their PRC entities as capital contributions to establish offshore companies or inject assets or equity interests of their PRC entities into offshore companies to raise capital overseas, they are required to register with provincial SAFE branches with respect to their overseas investments in offshore companies. PRC residents are also required to file amendments to their registrations if their offshore companies experience material events involving capital variation, such as changes in share capital, share transfers, mergers and acquisitions, spin-off transactions, long-term equity or debt investments or uses of assets in China to guarantee offshore obligations. Under this regulation, failure of PRC resident shareholders to comply with the registration procedures set forth in such regulation may result in liability on such shareholders under the relevant PRC laws for evasion of applicable foreign exchange restrictions. Further, such failure could result in the imposition of restrictions on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on the capital inflow from the offshore entity to the PRC entity.

        Moreover, Circular 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in China in the past were

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required to complete the relevant registration procedures with the provincial SAFE branch by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 75 may result in the imposition of restrictions on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who control our company or hold any of our shares prior to this offering are required to register periodically with SAFE in connection with their investments in us.

Regulations on Overseas Listing

        On August 8, 2006, six PRC regulatory agencies, namely the MOC, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or the CSRC, and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006. This M&A Rules, as amended on June 22, 2009, purport, among other things, to require offshore special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted by SPVs seeking the CSRC approval of their overseas listings.

        On December 14, 2006, the CSRC published on its official website procedures regarding the approval of overseas listings by SPVs. The CSRC approval procedures require the filing of a number of documents with the CSRC, and the approval process takes several months to complete.

        While the application of this new regulation remains unclear, we believe, based on the advice of our PRC counsel, Trend Associates, that CSRC approval is not required in the context of this offering, because we established Shishi Zuoan as a foreign-invested enterprise and began operating our business through this subsidiary before September 8, 2006, the effective date of the M&A Rules. We are also not an SPV as defined under the M&A Rules. However, we cannot assure you that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory agency subsequently were to determine that we need to obtain the CSRC's approval for this offering, we could face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as on the trading price of our ADSs and ability to complete this offering. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered by this prospectus.

        The M&A Rules also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the MOC be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC domestic enterprise. See "Risk Factors—Risks Related to Doing Business in China—The M&A Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in China."

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Regulations on Taxation

    Value-Added Tax

        Pursuant to the PRC Value-Added Tax Provisional Regulations, promulgated by the State Council on December 13, 1993, as amended on November 5, 2008 (effective on January 1, 2009), and the Detailed Rules for the Implementation of the PRC Interim Regulations on Value-Added Taxes, promulgated on December 25, 1993 and amended on December 15, 2008 (effective on January 1, 2009), all entities and individuals engaged in selling goods, providing repair and placement services or importing goods into the PRC are generally subject to a value-added tax, or VAT, at a rate of 17% (with the exception of certain goods subject to a rate of 13% or lower) of the gross sales proceeds received, less any VAT already paid or borne by the taxpayer on goods or services purchased and utilized in the production of goods or provision of services that have generated the gross sales proceeds.

    Enterprise Income Tax

        On March 16, 2007, the National People's Congress, the PRC legislature, enacted the PRC Enterprise Income Tax Law, or the New EIT Law. On December 6, 2007, the State Council promulgated the Implementation Regulations to the PRC Enterprise Income Tax Law, or the New EIT Law Implementation Regulations. Both the New EIT Law and the New EIT Law Implementation Regulations became effective on January 1, 2008. Under the New EIT Law and the New EIT Law Implementation Regulations, foreign-invested enterprises, or FIEs, and domestic companies are subject to a uniform income tax rate of 25% unless otherwise specified. There is a transition period for enterprises, whether foreign-invested or domestic, which currently receive preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transfer to the new tax rate within five years of the effective date of the New EIT Law. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term under the relevant tax law and regulations prior to promulgation of the New EIT Law may continue to enjoy such treatment until the fixed term expires.

        In accordance with the relevant laws and regulations in China prior to the New EIT Law, our wholly owned PRC subsidiary, Shishi Zuoan, was entitled to tax incentives as an FIE. It was exempted from the PRC enterprise income tax for the years ended December 31, 2002 and 2003, a period of two years from its first profit-making year, and was subject to the PRC enterprise income tax at a 50% reduction for the years ended December 31, 2004, 2005 and 2006. The applicable tax rate for the year ended December 31, 2007 was 27% after the expiry of the tax incentives. In accordance with the New EIT Law, the tax rate applicable to Shishi Zuoan was 25% from January 1, 2008. Shishi Zuoan currently does not qualify for any tax exemption, reduction or other preferential tax treatments.

        Under the New EIT Law and the New EIT Law Implementation Regulations, dividends payable to foreign investors are subject to PRC withholding tax at the rate of 10% unless the foreign investor's jurisdiction of incorporation has a tax treaty with the PRC that provides for a preferential withholding tax rate. The immediate holding company of our PRC subsidiary Shishi Zuoan is Champion Goal Holdings Limited, or Champion Goal, a company incorporated in Hong Kong. Pursuant to a bilateral arrangement between Hong Kong and China, dividends paid to us by Shishi Zuoan through Champion Goal may be subject to 5% withholding tax, subject to approvals by competent PRC tax authorities.

        In October 2009, the SAT further issued the Circular on How to Interpret and Recognize the "Beneficial Owner" in Tax Agreements, or Circular 601, and certain other related rules. According to Circular 601, non-resident enterprises that cannot provide valid supporting documents as "beneficial owners" may not be approved to enjoy tax treaty benefits. "Beneficial owners" refer to individuals, enterprises or other organizations that are normally engaged in substantive operations. These rules also set forth certain adverse factors on the recognition of a "beneficial owner." Specifically, it expressly

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excludes a "conduit company," or any company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in actual operations such as manufacturing, sales or management, from being a "beneficial owner." As a result, although Shishi Zuoan is currently wholly owned by our Hong Kong subsidiary, we may not be able to enjoy the preferential withholding tax treatment under the tax treaty with respect to dividends to be paid by Shishi Zuoan to our Hong Kong subsidiary, because our Hong Kong subsidiary may not qualify as a beneficial owner of Shishi Zuoan.

        Under the New EIT Law, enterprises organized under the laws of jurisdictions outside China with "de facto management bodies" located within China may be considered PRC tax resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The New EIT Law Implementation Regulations define the term "de facto management body" as a management body that exercises full or substantial control and management authority over the production, operation, personnel, accounts and properties of an enterprise.

        The SAT issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the "de facto management body" of a Chinese-controlled offshore incorporated enterprise is located in China, which include the presence in China of the following locations: (1) the location where senior management members responsible for an enterprise's daily operations discharge their duties; (2) the location where financial and human resource decisions are made or approved by organizations or persons; (3) the location where the major assets and corporate documents are kept; and (4) the location where more than half (inclusive) of all directors with voting rights or senior management have their habitual residence.

        Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, the criteria set forth in Circular 82 may reflect the SAT's general position on how the "de facto management body" test should be applied in determining the tax residency status of all offshore enterprises. Nevertheless, there are currently no detailed rules or precedents governing the procedures and specific criteria for determining whether a given entity constitutes a "de facto management body." Therefore, it is unclear whether the PRC tax authorities would classify us as a PRC resident enterprise. Because substantially all of our operations and senior management are located in China, we may be considered a PRC resident enterprise for enterprise income tax purposes, in which case we would be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income. In such circumstances, however, dividend income received by us from our PRC subsidiaries may be exempt from PRC withholding tax, since such income should be exempted under the New EIT Law for a PRC resident enterprise recipient.

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MANAGEMENT

Directors and Executive Officers

        The following table sets forth the name, age and position of each of our directors and executive officers. The business address of all of our directors and executive officers is Rooms 213 to 215, Block 8, No. 1150 Luochuan Middle Road, Shanghai 200072, China.

Directors and Executive Officers
  Age   Position/Title

James Jinshan Hong

    36   Chairman of the Board of Directors and Chief Executive Officer

Chaoshen Wang

    46   Director and Chief Operating Officer

Tianzhen Hong

    34   Director and Vice General Manager

Chi Hon Tsang

    35   Chief Financial Officer

Cheok Chi Tam

    48   Vice President of Procurement and Production

Xiaodong Li

    31   Vice President of Marketing, Sales and Distribution

Feiyan Zheng

    27   Vice President of Design

Yan Qiu

    40   Vice President of Administration

Dangsheng Chen

    37   Finance Manager

John Meng Low

    45   Vice President of Corporate Finance and Investor Relations

Jianwei Shen

    53   Independent Director Appointee*

Baoyan Su

    44   Independent Director Appointee*

Frank Zhao

    49   Independent Director Appointee*

Wenxin Zhu

    38   Independent Director Appointee*

*
Jianwei Shen, Baoyan Su, Frank Zhao and Wenxin Zhu have accepted appointments to serve as our independent directors, effective upon the completion of this offering.

        James Jinshan Hong, also named Kam Shan Hung, is the founder, chairman of the board and chief executive officer of our company. Mr. Hong was named one of the top 10 fashion designers in China by China Fashion Association in 2007 and 2008, respectively. Mr. James Hong has been with us since 2002. Prior to founding our company, Mr. Hong served as an assistant designer at Fujian Jinjiang Limei Clothing Co., Ltd. from 1992 to 1998.

        Chaoshen Wang is a director and the chief operating officer of our company. Mr. Wang joined our company in 2002. Prior to joining us, Mr. Wang served as the chief marketing officer of Judger Group Co., Ltd. from 1999 to 2002. He also served as the chief marketing officer at Baoxiniao Group from 1996 to 1999. He was a business manager at Shandong Xianxia Clothing Co., Ltd. from 1993 to 1996. From 1986 to 1992, he worked in various roles ranging from technician to deputy manager at Shandong Longkou Clothing General Factory.

        Tianzhen Hong has served as a director and vice general manager of our company since 2008. Prior to joining us, Mr. Hong served as procurement manager of Shishi Lianyi Cloth Trading Co., Ltd. from 2002 to 2007. Mr. Tianzhen Hong and Mr. James Hong are brothers.

        Chi Hon Tsang has served as the chief financial officer of our company since 2009. Prior to joining us, Mr. Tsang served as a finance manager at Luxworld Limited. Prior to that, he served as an audit principal with Lee & Yu Certified Public Accountants in 2009. He worked with Reyoung Pharmaceutical Holdings Limited as its chief financial officer from 2007 to 2008. He served as a supervisor at Grant Thornton from 2004 to 2007, and an audit associate at Baker Tilly Hong Kong Limited from 1999 to 2004. Mr. Tsang graduated with a bachelor's degree in accounting from the

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University of Hong Kong. He is a certified public accountant and a member of the Hong Kong Institution of Certified Public Accountants.

        Cheok Chi Tam has served as the vice president of our company in charge of procurement and production since 2008. Prior to joining us, Mr. Tam served as the production manager of Metropolo Macau from 2001 to 2007. He served as production manager at Mandarin H.K. from 1991 to 2000.

        Xiaodong Li is the vice president of our company in charge of marketing, sales and distribution. Prior to joining us, Mr. Li served as chief officer of Guangdong Dress Co., Ltd from 2006 to 2008. From 2004 to 2006, he worked as a sales manager at Guangxi Dress Co., Ltd. Mr. Li graduated from the University of Inner Mongolia with a bachelor's degree in sales and marketing.

        Feiyan Zheng is the vice president of our company in charge of design. Prior to joining us, Mr. Zheng served as a design manager at Zhongshan Feiyan Clothing Co., Ltd. from 2001 to 2006. Prior to that, he was a design manager at Hong Kong Crocodile Zhongshan Co., Ltd. from 1999 to 2001.

        Yan Qiu is the vice president of our company in charge of administration. Prior to joining us, Ms. Qiu served as a deputy manager of Shanghai Xinke Mechanical Co., Ltd. from 2001 to 2010. Ms. Qiu has the Professional Certificate in Accounting, issued by Huangpu District Bureau of Finance, Shanghai.

        John Meng Low is the vice president of our company in charge of corporate finance and investor relations. Mr. Low joined our company in November 2010. Before joining us, he was a part-time manager of the corporate finance and investor relations department of Carlo Castello Group from 2009. He served as the head of financial management and corporate communications of Yanlord Land Group Ltd. from 2008 to 2009. From 2002 to 2008, Mr. Low was the head of treasury and corporate finance department of U-Right International Holdings Ltd. Mr. Low was a vice president of Salomon Smith Barney from 2000 to 2002 and the Chase Manhattan Bank from 1999 to 2000. Prior to that, he worked as the executive director of CIBC/CEF (Singapore) Ltd. from 1996 to 1998. Mr. Low graduated with a bachelor's degree in accounting studies from Macquarie University, Australia.

        Dangsheng Chen is our finance manager. Prior to joining us, Mr. Chen served as finance manager of Tries Clothing Stock Co., Ltd. from 2006 to 2008, and as finance manager of Quanzhou Sansheng Rubber Plastic Foamed Shoes Materials Co., Ltd. from 2002 to 2006. He also served as a deputy finance manager at Hengan (Jiangxi) Hygiene Products Co., Ltd. from 2000 to 2002. Prior to that, he was an accountant with Hawson (Fujian) Ltd. from 1996 to 2000.

        Jianwei Shen will serve as an independent director of our company upon the completion of this offering. Mr. Shen is an associate professor at China Agricultural University. Mr. Shen currently also serves as an independent director of China Essence Group Ltd., a company listed on the Main Board of the Singapore Exchange Securities Trading Limited, or SGX-ST. He is also an independent director and the chairman of the remuneration committee of VLOV Inc. (formerly known as "Sino Charter, Inc."), a company listed on the OTC Bulletin Board. He served as in-house management consultant in Fujian Fuma Foods Group Co. from 2002 to 2005. From 1993 to 2000, he was the project manager in Beijing Xingyun Industrial Co. Ltd. Mr. Shen graduated with a bachelor's degree and a master degree in agricultural studies from Beijing Agricultural University. He also obtained a doctorate degree in agricultural studies from Beijing Agricultural University in a joint program with Hohenheim University, Germany.

        Baoyan Su will serve as an independent director of our company upon the completion of this offering. Ms. Su has been the vice president of the China Fashion Association since 2005, and was the assistant president in 2004, the general secretary from 2002 to 2003 and the vice general secretary from 2000 to 2001. She also served as a director of the International Exchange Department of the China National Garment Association from 2000 to 2001. From 1999 to 2000, Ms. Su was the deputy general

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director of China Textile International Exchange Center. Ms. Su graduated with a bachelor's degree in French language from Xiamen University.

        Frank Zhao will serve as an independent director of our company upon the completion of this offering. Mr. Zhao is a U.S. certified public accountant and a fellow of the American Institute of Certified Public Accountants, with over 20 years' experience in corporate finance and audit practice with various publicly listed companies and PricewaterhouseCoopers in the U.S. and China. Mr. Zhao is the chief financial officer of Kingmed Diagnostics and has held this position since January 2011. Prior to that, he was the chief financial officer of Simcere Pharmaceutical Group, an NYSE-listed company from 2006 to 2011. Prior to that, he was the chief financial officer of Sun New Media Group, a NASDAQ-listed company, from 2005 to 2006. Previously, he held senior financial positions with several publicly listed companies in the United States and was an investment consultant with Beijing International Trust and Investment Company. Mr. Zhao graduated with a bachelor's degree in economics from Peking University and obtained a master's degree in professional accounting from the University of Hartford.

        Wenxin Zhu will serve as an independent director of our company upon the completion of this offering. Mr. Zhu is the chairman of the board of System Expert Consultancy and has held this position since 1999. He currently also serves as a member of China National Garment Association Expert Committee, a clothing profession consultant of the China Chain-Store & Franchise Association, a clothing industry senior consultant of Alibaba Group and a visiting professor of Beijing Normal University, Zhuhai. Mr. Zhu was a management consultant of Qianjiang Business Consulting Co. Ltd. from 1995 to 1999. Prior to that, he was a customer manager of Xinjiang Pulana Advertisement Company from 1994 to 1995.

Employment Agreements

        We, through Zuoan Cayman, have entered into an employment agreement with each of our executive officers.

        We may terminate an executive officer's employment without notice or compensation at any time if the executive officer materially breaches his or her employment agreement, seriously or continually violates our employee rules or disciplines, causes significant losses to our company due to gross negligence or fraudulent behavior, is convicted of any criminal offense or is imprisoned for not less than three months, or if otherwise provided by relevant laws and regulations. We may also terminate an executive officer's employment by giving 30-day written notice in certain circumstances, such as if he or she is and remains unqualified for the position. Subject to the foregoing, each executive officer or our company may terminate his or her employment agreement by giving six months written notice.

        Each executive officer has agreed to be bound by non-competition restrictions. Specifically, each executive officer has agreed not to, during his or her employment with us and for a period of six months following the termination of his or her employment with our company, be engaged as an employee or in another capacity participating directly or indirectly in any business that is in competition with ours. In addition, each executive officer has agreed not to, during his or her employment with us and any time thereafter, use, retain, copy or disclose any of our confidential information other than for the benefit of our company.

Board of Directors

        Upon the completion of this offering, our board of directors will consist of seven directors. Under our amended and restated memorandum and articles of association, our board of directors shall consist of at least two directors. Our directors may from time to time appoint any person to be a director, either to fill a vacancy or as an addition to the existing directors. Any director so appointed shall hold office only until our next annual general shareholders' meeting and shall then be eligible for

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re-election. Our directors may also be elected by the holders of ordinary shares. There is no shareholding requirement for qualification to serve as a member of our board of directors.

        Our board of directors may exercise all the powers of the company to borrow money, mortgage or charge its undertaking, property and uncalled capital, and issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.

        We believe that each of Jianwei Shen, Baoyan Su, Frank Zhao and Wenxin Zhu will be an "independent director" as that term is used in NYSE corporate governance rules.

Duties of Directors

        Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. You should refer to "Description of Share Capital—Differences in Corporate Law" for additional information on our standard of corporate governance under Cayman Islands law.

Terms of Directors and Executive Officers

        Each of our directors holds office until a successor has been duly elected or appointed or until his or her office is otherwise vacated, except as otherwise described under "—Board of Directors" above. Our directors are subject to periodic retirement and re-election at staggered intervals. At each annual general meeting, one-third of our directors who are subject to retirement by rotation (or, if their number is not a multiple of three, the number nearest to, but not exceeding, one-third) retire from office. The chairman of our board of directors or our managing director will not be subject to retirement by rotation or be taken into account in determining the number of directors to retire in each year. Any retiring director is eligible for re-election. The directors to retire at each annual general meeting will be determined as follows: (i) first, any directors who wish to retire and not offer themselves for re-election and (ii) if no director wishes to retire, then such directors who have been longest in office since their last re-election or appointment, provided that among directors who became or were last re-elected directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. Beginning in 2011, assuming that our board of directors will consist of seven directors, the term of each director (other than the chairman) will not exceed three years.

        All of our executive officers are appointed by and serve at the discretion of our board of directors.

Board Committees

        We have established upon the completion of this offering three committees under the board of directors—the audit committee, the compensation committee and the nominating and corporate governance committee. Each committee's members and functions are described below. We have adopted a charter for each of the board committees.

    Audit Committee

        Upon the completion of this offering, our audit committee will consist of three directors, namely Frank Zhao (as chairman of the committee), Jianwei Shen and Wenxin Zhu. Each of them satisfies the "independence" requirements of the NYSE and the SEC. In addition, our board of directors has determined that Frank Zhao is qualified as an audit committee financial expert within the meaning of

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the applicable rule of the SEC. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

    overseeing the qualification of the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

    reviewing with the independent auditors any audit problems or difficulties and management's response;

    reviewing and approving all proposed related-party transactions;

    discussing the annual audited financial statements with management and the independent auditors;

    discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations;

    reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments;

    reviewing with management and the independent auditors related-party transactions and off-balance sheet transactions and structures;

    reviewing with management and the independent auditors the effect of regulatory and accounting initiatives and actions;

    reviewing policies with respect to risk assessment and risk management;

    reviewing our disclosure controls and procedures and internal control over financial reporting;

    timely reviewing reports from the independent auditors regarding all critical accounting policies and practices to be used by our company and all other material written communications between the independent auditors and management;

    periodically reviewing and reassessing the adequacy of our audit committee charter;

    such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and

    meeting separately, periodically, with management, the internal auditors and the independent auditors.

    Compensation Committee

        Upon the completion of this offering, our compensation committee will consist of Jianwei Shen (as chairman of the committee), Baoyan Su and Wenxin Zhu. Each of them satisfies the "independence" requirements of the NYSE. Our compensation committee will assist the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. The compensation committee will be responsible for, among other things:

    reviewing and approving the compensation for our senior executives;

    reviewing and evaluating our executive compensation and benefits policies generally;

    reporting to our board of directors periodically;

    evaluating its own performance and reporting to our board of directors on such evaluation;

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    periodically reviewing and assessing the adequacy of the compensation committee charter and recommending any proposed changes to our board of directors; and

    such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.

    Nominating and Corporate Governance Committee