*ST中冠Ａ(000018)2007年年度报告（英文版）

深圳中冠纺织印染股份有限公司 Shenzhen Victor Onward Textile Industrial Co., Ltd. 2007 Annual Report April 2008 Important Notes The Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. Mr. Hu Yongfeng, board chairman of the Company, Mr.Zhang Jinliang, the person in charge of financial accounting organ, Mr. Ren Chengzheng , Manager of Financial Dept represent and warrant the financial report in this report is true and complete. Contents Section 1. Company Profile Section II. Summary of Accounting Highlights and Business Highlights Section III Changes in Share Capital and Particulars about Shareholders Section IV. Particulars about Directors, Supervisors, Senior Executives and Employees Section V Administrative Structure Section VI. Particulars about Shareholders’ General Meeting Section VII Report of the Board of Directors Section VIII Report of the Supervisory Committee Section IX Important Events Section X. Financial Report Section X1. Documents for Reference Section I Brief Introduction of the Company I. Brief Introduction of the Company (I) Name of the Company in Chinese: 深圳中冠纺织印染股份有限公司 Name in English: Shenzhen Victor Onward Textile Industrial Co., Ltd. Abbreviation of English name of the Company: VICTOR ONWARD (II) Legal Representative: Hu Yongfeng (III) Secretary to the Board of Directors : Chen Xing Contact address: Room 1308, Hualian Building, No.2008 Shennan Zhong Road , Shenzhen Tel：（755）83668254 Fax: (755) 83668427E-mail: szg000018@126.com Securities affair representative: Jiang Xiujuan Contact address: Room 1308, Hualiang Building, No.2008 Shennan Zhong Road, Shenzhen Tel：（755）83667895 Fax：（755）83668427 E-mail: jxj0341@sina.com IV. Registered address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Business address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Contact address: Room 1308, Hualiang Building, No.2008 Shennan Zhong Road, Shenzhen Zip Code: 518119 Website: http:// www.chinaszvo.com E-mail：szvo@chinaszvo.com (V) Designated newspapers for information disclosure: Securities Times and Hong Kong Commercial Daily. Designated website for information disclosure: http://www.cninfo.com.cn The place for preparing and placing the annual report: Office of the board secretary of the Company (VI) Stock exchange for listing of the stocks of the Company: Shenzhen Stock Exchange Stock abbreviation: Shenzhen Victor Onward A, Shenzhen Victor Onward B Stock code : 000018, 200018 VII. Other Relevant Information of the Company 1. The date and place when and where the Company made its first registration: The Company was first registered as Shenzhen Victor Onward Printing and Dyeing Co., Ltd. in Shenzhen in 1984. The Company changed its registration and was registered as Shenzhen Victor Onward Textile Industrial Co., Ltd. in Shenzhen in 1991. 2. Registration No. of Legal Entity Business License: 100625 3. Tax Registration No.: 440301618801483 4. The name and business address of the Certified Public Accountants engaged by the Company Name: Shinewing Certified Public Accountants Address:Room 4001A,Lianhe Plaza, Futian District, Shenzhen, China Section II. Summary of Accounting Highlights and Business Highlights I. Main Profit Indicators of 2007 Unit: RMB Item Amount Operating profit 112,501,891 Total profit -124,409,530 Net profit attributable to the shareholders of the listed -116,356,882 company Net profit after deducting of non-recurring gain/loss -107,885,071 attributable to the shareholders of listed company Cash flow generated by business operation, net 8,127,432 Difference adjustment statement of accounting staement : December 31,2007 Year 2007 HKD RMB HKD RMB Net Assets Net assets Net Profit Net Profit I. Statement balance of the Group compiled by EAS 182,053,548 170,474,941 (128,353,121) (124,579,539) The adjustment in accordance with IAS 1. Switch back the part of Hong Kong house property assessment in accordance with IAS (9,523,000) (8,917,337) (669,000) (649,331) 2. Difference of the disposal of goodwill amortization according to the international - financial reporting standards - - - 3.Difference of disposing goodwill amortization in - accordance with IAS - 4.Charge against long-term unredeemed payables so as to confirmed incomes - - - 5. The difference between fair value and book value of other equity investment - - 6.Other - 7.In case of foreign currency, the balance of translation in statements is taken Balance after adjustment in accordance with IAS 172,530,548 161,557,604 (129,022,121) (131,925,119) Shinewing Certified Public Accountants has audited the 2007 Accounting Statement compiled by the Group in accordance with International Accounting Standard. Items of deducting non-recurring gains and losses and the involved amounts are as following: Items of non-recurring gains and losses Amount Gains and losses from -2,209,195 disposalof non-scurrent assets Disposal units equity 1,940,802 investment gains and losses Losses from debts -9,706,099 restructuring Other non-operating 7,655 income ,Net Impact on Income tax 1,006,288 Investment income from subscription of newly issued 3,258,808 stocks Total -5,701,741 II. Highlights of accounting data and financial indicators in the latest three years Main accounting data Unit：RMB Year 2006 Changed over Year 2005 Index Year 2007 After Before last year（％） After Before Items/year adjustment Adjustment adjustment Adjustment 103,568,595 Operating profit 243,278,584 243,278,584 -57.43% 272,060,118 272,060,118 Total profit -124,409,530. 22,892,087 21,833,888 -669.80% -45,245,139 -45,245,139 Net profit attributable to the -116,356,882 30,057,907 28,992,654 -501.33% -37,444,000 -37,444,000 shareholders of the listed company Net profit after -110,655,141 -48,764,043 -48,771,099 -126.89% -38,806,872 -38,806,872 deducting of non-recurring gain/loss attributable to the shareholders of listed company Cash flow generated by business 8,127,432 273,485 273,485 2,871.80% 3,228,966 3,228,966 operation, net End of 2006 Changed over End of 2005 Index End of 2007 After Before last year（％） After Before Items/year adjustment Adjustment adjustment Adjustment Gross Assets 229,451,566 445,576,711 447,899,399 -48.77% 493,526,738 493,526,738 Shareholders’ equity 169,602,112 292,773,431 293,549,081 -42.22% 266,892,459 287,751,233 Main Financial Indicators Unit：RMB Year 2006 Changed over Year 2005 Index Items/year Year 2007 After Before last year（％） After Before adjustment Adjustment adjustment Adjustment Basic gains per share -0.69 0.178 0.17 -505.88% -0.221 -0.221 Diluted gains per share -0.69 0.178 0.17 -505.88% -0.221 -0.221 Basic earning per share after deducting of -0.64 -0.29 -0.25 -47.00% -0.229 -0.229 non-recurring gains/losses Net income on asset, fully -68.61% 10.27% 9.88% -78.49% -14.03% -13.01% diluted Net income on asset, -49.00% 10.74% 10.00% -59.00% -13.21% -13.21% Weighted Net income on asset, fully diluted and deducted -65.24% -16.66% -16.61% -48.63% -14.54% -13.49% non-recurring gain/loss Net income on asset, weighted and deducted -46.00% -17.43% -15.00% -31.00% -14.44% -14.44% non-recurring gain/loss Net cash flow per share generated by business 0.048 0.002 0.002 2,300.00% 0.019 0.019 operation End of 2006 Changed over End of 2005 End of Index Items/year After Before last year（％） After Before 2007 adjustment Adjustment adjustment Adjustment Net asset per share attributable to shareholders 1.00 1.731 1.736 -42.40% 1.574 1.574 of the listed company III. Attached Schedule of Profit Statement Return on equity （%） Earnings per share Fully Weighted Weighted Fully diluted Profit in the report period diluted average average Net profit attributable to the shareholders of the parent Company -0.69 -0.49 -0.69 -0.69 Net profit after deducting non-recuring gains and losses attributable to the shareholders -0.65 -0.47 -0.65 -0.65 IV. Particulars about Changes in Shareholders' Equity in the Report Period Owner’s equity Attributable to the Parent Company Minor Total of Items Share Capital Surplus Attributable shareholders’ owners’ Other Capital reserves reserves profit equity equity Balance at the beginning of current year 169,142,356 34,902,008 26,309,287 27,459,127 35,736,303 7,956,207 301,505,288 Changed in the current year 8,979,059 -117,312,311 -15,613,717 -7,083,378 -131,030,347 Balance at the end of this term 169,142,356 43,881,067 26,309,287 -89,853,184 20,122,586 872,829 170,474,941 Section III. Particulars about Changes in Share Capital and Shareholders I. The changes in share capital (1) The changes in share capital Unit: shares Before this change Increase or decrease this time After this change (+/-) Quantity Proportion Quantity Proportio Other Subtotal % n% I. Share with conditional 72,408,333 42.81% -15,444,932 －15,444,932 56,963,401 subscription 33.68 1.State-owned shares 0 0 0 0 0 0 2.Staee-owned legal 29,267,301 17.30% -15,444,932 -15,444,932 13,822,369 8.17 person shares 3.Other domestic 43,141,032 25.51% 0 0 43,141,032 25.51 shares Of which： 0 0 Domestic legal 43,141,032 25.51% 0 0 43,141,032 25.51 person shares Domestic natural 0 0 0 0 0 0 person shares 4.Share held by 0 0 0 0 0 0 foreign investors Of which： 0 0 0 Foreign legal person 0 0 0 0 0 0 shares Foreign natural 0 0 0 0 0 0 person shares I. Shares with unconditional 96,734,023 57.19% 15,444,932 15,444,932 112,178,955 subscription 66.32 1.Common shares in 27,312,120 16.15% RMB 15,444,932 15,444,932 42,757,052 25.28 2.Foreign shares 69,421,903 41.04% 0 0 69,421,903 41.04 in domestic market 3.Foregin shares 0 0 0 0 in overseas market 0 0 4.Other 0 0 0 0 0 0 III. Total of capital 169,142,356 100.00% 0 0 169,142,356 100 shares Note: The increase or decrease of the quantity of shares in the above table is caused by the share holding structure reform carried out by the Company. (2).Change in shares subject to sale restriction Unit:Shares Name of the Conditional Released Increased Conditional Reason of Date of releasing shareholder shares at this year this year shares at end condition beginning of of year year Share Union Holdings 43,141,032 0 0 43,141,032 structure June 16,2009 Co., Ltd. reform Shenzhen Textile Share June 27,2007 (Group)Holdings 22,279,487 8,457,118 0 13,822,369 structure June 16,2008 Ltd reform June 16,2009 Union Share Developing 6,987,814 6,987,814 0 0 structure August 28,2007 Group Co., Ltd. reform Total 72,408,333 15,444,932 0 56,963,401 II. Share issue and listing (1) The Company has never issued shares or derived securities within the previous three years as of the end of the report period. （2） The total number of the shares of and its structure of the Company remained unchanged within the previous three year by the end of the report period. III．Introduction to shareholders 1. Total number of shareholders at the end of the period: At the end of 2007, the Company had 13,652 registered shareholders in total including 7,754 shareholders of A shares and 5,898 shareholders of B shares. 2． Top 10 shareholders and top 10 holders of unconditional shares hares Unit：share 1. Number of shareholders and Particulars about shares held Unit：shares Total number of shareholders 13,652 Particulars about the shareholding of the top ten shareholders Nature of Share Increase or Name of the Total Conditional Pledged or sharehold proporti decrease in shareholder shares shares frozen er on % the year Union Holdings Co., Ltd. Other 25.51% 43,141,032 0 43,141,032 0 STYLE-SUCCESS Foreign 14.46% 24,466,029 0 0 0 LIMITED shares Shenzhen Textile State-owne 9.68% 16,372,369 -5,907,118 13,822,3690 0 (Group)Holdings Ltd d shares Union Developing Group State-owne 3.77% 6,383,736 -604,078 0 0 Co., Ltd. d shares Rich Crown Investment Foreign 3.62% 6,114,556 0 0 0 Co., Ltd. shares Foreign Shing Ying Chieh 3.11% 5,267,561 128,700 0 0 shares Yang Xiaohua Other 1.06% 1,804,725 0 0 Chen Weiyu Other 0.9% 1,538,449 0 0 Taifook Securities Foreign Company 0.8% 1,352,717 0 shares Limited-Account Client Li Ziying Other 0.27% 450.000 0 Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Type of shares Foreign shares placed in domestic STYLE-SUCCESS LIMITED 24,466,029 exchange Union Developing Group Co., Ltd. 6,383,736 RMB Common shares Foreign shares placed in domestic Rich Crown Investment Co., Ltd. 6,114,556 exchange Foreign shares placed in domestic Shing Ying Chieh 5,396,261 exchange Shenzhen Textile (Group)Holdings 2,550,000 RMB Common shares Ltd Yang Xiaohua 1,804,725 RMB Common shares Chen Weiyu 1,538,449 RMB Common shares Taifook Securities Company Foreign shares placed in domestic 1.352,717 Limited-Account Client exchange Li Ziying 450,000 RMB Common shares Huang Huibin 450,000 RMB Common shares Foreign shares placed in domestic Chen Song 398,400 exchange Notes to the related The controlling shareholder of the above-mentioned largest relationship between the shareholder Shenzhen Union Holdings Ltd.and fifth shareholder Rich shareholders or their Crown Investment Co., Ltd.. Is Union Developing Group Ltd. concerted action 3. Introduction to the largest shareholder of the Company Name of the largest shareholder of the Company: Shenzhen Union Holdings Ltd. Legal representative: Dong Binggen Date of establishment: September 11, 1989 Business scope: Production of and dealing in various fabrics, garments chemical fibers and textile equipment, domestic commerce, material supply and marketing (excluding monopolized commodities), management of self-owned properties, processing with imported materials and designs, internal introduction and foreign cooperation, assembling with imported spare parts and cooperation in compensation trade. Registered capital：RMB 1123.8877 million Nature of enterprise: Share-holding system Registered address: Shenzhen 4. Particulars about the actual controller of the Company In the report period, the actual controller of the Company remains unchanged. Name of the actual controller: Union Developing Group Ltd. Legal representative: Dong Binggen Date of establishment: August. 23, 1983 Nature of Union Development Group Ltd.: enterprise directly under Central People’s Government, one of the 520 national key enterprises. Registered capital: RMB 90.61 million Business scope: Production and sales of chemical, textile and garment products (the license of product site is subject to separate application), import and export business, contracting of project construction, import and export of necessary engineering equipment and materials, export of labor, external investment, technical consulting services, real estate development and sales within the scope of land use right legally obtained, property management and lease services and sales of automobiles (including cars). The property right and controlling relationship between Union Developing Group Ltd. and the Company is as follows: Hangzhou Jinjiang Group Co., Ltd. 20.89% Union Development Group Co., Ltd. 31.23% 99.99% 4.13% 4.13% Union Holdings Co., Ltd. Rich Crown Investment Co., Ltd. 25.51% 3.62% Shenzhen Victor Onward Textile Industrial Co., Ltd. Statement of Union Group on its shareholders, shareholder structure and actual controller: Union Group has been a standardized limited liability company since its establishment. Despite decentralized equity and large number of shareholders, the department in charge of industry and state asset management department has been incontrovertible direct administrator because they were all state-owned shareholders and engaged in the same industry before 2004. Private capital has entered since 2004 and its proportion has been unceasingly enlarged. The largest shareholder turned from national administrative department into a state-owned enterprise, which was then replaced by a private enterprise. The actual controller of Union Group gradually changed. The concrete process of change is as follows: (1) After the establishment of Union Group and before State-owned Assets Commission under the State Council transferred 12.09% equity held by it to OCT Group, the relationship of subordination of Union Group was definite. State administrative agencies (Ministry of Textile Industry, China Textile Federation, industrial commission of national enterprise and State-owned Assets Commission under the State Council) exercised management rights. Relevant national departments were responsible for the establishment of board of directors, appointment of management, audit and supervision. (2) From April 2005, OCT Group became the largest shareholder of Union Group. The management methods adopted when State-owned Assets Commission under the State Council conducted supervision were still adopted in some aspects. For examples, Union Group regularly submitted financial data to state assets management department and accepted the economy audit by the supervisory committee under the State Council. The financial statements of OCT Group consolidated those of Union Group. However, changes started in some aspects. The establishment of board of directors and the appointment of management were carried out completely according to the Articles of Association of Union Group. The shareholders' general meeting and the board of directors independently exercised the powers assigned by laws and regulations. The reelection of board of directors and the appointment of management were no longer reported to relevant department for examination and approval. (3) In 2005, Hangzhou Jinjiang Group held 20.89% equity of Union Group through acquisition and became the largest shareholder of Union Group by replacing OCT Group. Hangzhou Jinjiang Group and OCT Group respectively appointed one of 8 members of the fifth board of directors reelected in that year. (4) In 2007, Union Group did not submit various financial data to OCT Group and state-owned regulatory authority. The statements of OCT Group did not consolidate those of Union Group. State assets supervision organ did not conduct regular economy audit of Union Group either. (5) Though private enterprise Hangzhou Jinjiang Group is the largest shareholder, only one of 8 members of the board of directors comes from it and it has no substantial influence on important decisions of Union Group. Meanwhile, Hangzhou Jinjiang Group neither participated in the daily management and operation of Union Group, nor required submission of daily financial statements, nor consolidated financial statements nor sent personnel to conduct economy audit (6) Since Dong Binggen, board chairman of Union Group, held office in 1997, he has led cadres and employees to make arduous efforts and realized growth of assets and profit of Union Group by big margin in successive years, who has been fully acclaimed by shareholders and enjoyed high prestige inside and outside Union Group. From the fifth board of directors, Dong Binggen was jointly recommended by all shareholders to enter the board of directors and was elected as board chairman. He does not represent any shareholder. Instead, he is responsible for all shareholders. Based on the above facts, Union Group holds the opinion that Union Group, as a limited liability company with a history of 25 years, has formed a standardized mode of operation according to law and business management during change of equity and its corporate governance structure has been increasingly stable and mature. The shareholders' meeting is the highest power organ of the Company. The board of directors is responsible to the shareholders' meeting and exercises the right to make decisions on important matters of Union Group according to the articles of association. The management is responsible for daily operation management of Union Group. At present, Union Group does not have administrative department or unit in charge. The largest shareholder only holds 20.89% equity of Union Group. No shareholder has absolute control over or absolute influence on the shareholders' meeting and board of directors of Union Group and is daily operation. The mutual restriction between shareholders of Union Group is quite apparent. Therefore, Union Group only has the largest shareholder and does not have actual controller at present. Enclosed: The equity structure of Union Group is as follows(as of December 31,2007): Amount of Proportion Remarks capital of capital No. Name of shareholder contribution contribution (RMB million) (%) 1 Hangzhou Jinjiang Group Co., Ltd. 1892.812 20.8896 Private 2 OCT Group 1094.95 12.0842 State-owned Zhejiang Kangrun Investment Private 3 926.0019 10.2196 Co.,Ltd. Shandong Garment, Footwear and State-owned 4 569.9196 6.2898 Headwear Industrial Group Hebei Textile Industry Supply and State-owned 5 531.48 5.8655 Sales Company Tianjing Textile Group( Holdings) State-owned 6 530.00 5.8492 Company Leilongjiang Textile Industry State-owned 7 500.00 5.5181 Association 8 Henan Textile Industry Company 420.00 4.6352 State-owned 9 Sichuan Shulian Co., Ltd. 329.024 3.6312 Private Hubei Textile Industry Investment State-owned 10 300.00 3.3108 Promotion Center Shanghai Kangrun Investment Private 11 299.2567 3.3027 Management Company 12 Jiangsu Textile (Group) Company 288.6723 3.1859 State-owned Liaoning Textile Industry State-owned 13 286.44 3.1612 Association 14 Jiangxi Textile (Group) Company 265.00 2.9246 State-owned 15 Shenzhen Textile (Group)Holdings Ltd 260.00 2.8604 State-owned Xinjiang Textile Industry State-owned 16 236.46 2.6096 Association Beijing Textile Holdings Co., State-owned 17 215.84 2.3820 Ltd. China Textile Machineay State-owned 18 115.1435 1.2707 (Group)Co., Ltd. Total 9061.00 100.00 5. Introduction to other legal person shareholders holding over 10% of total shares (1) Style-Success Ltd. Legal Representative: Miss Amy Wang Date of establishment:November 1999 Business scope: Investment 6. The quantity of shares held by the top 10 shareholders subject to sale restriction and conditions of sale restriction Unit：shares Shares with Newly added Name of conditions Date when No conditioned tradable Conditions holder trading allowed subscription shares 36 months after the first trading day upon Union Holdings Co., the implementation of 1 43,141,032 June 16,2009 43,141,032 Ltd. the plan for share holding structure reform June 27,2007 8,457,118 12months after the June 16,2008 8,457,118 first trading day upon Shenzhen Textile the implementation of 2 22,279,487 (Group)Holdings Ltd the plan for share June 16,2009 5,365,251 holding structure reform 12 months after the first trading day upon Union Developing the implementation of 3 6,987,814 August 28,2007 6,987,814 Group Co., Ltd. the plan for share holding structure reform Section IV Particulars about Directors, Supervisors, Senior Executives and Employees I Basic information about directors, supervisors and senior executives （1）Basic information 1.Directors, Supervisors and senior executives Increase/dec The total Incentive rease amount of stock option Date of Shares held amount remuneration vested during Name Sex Age Title Term of office beginning at the received from the reporting and ending year-end the Company in period the report period (RMB) Hu No 0 No Chairman of Yongfe Male 45 2003.5-2006.5 0 0 change the BOD ng Li Male 50 Vice 2003.5-2006.5 0 0 No 0 No Zhihua Chairman of change the BOD Vice No 0 No Song Male 55 Chirmanof 2003.5-2006.5 0 0 change Tao the BOD No 0 No Ding Male 50 Director 2003.5-2006.5 0 0 change Yue Guan No 0 No Male 61 Director 2003.5-2006.5 0 0 Tongke change Sun No 21 No Director/Gen Zhipin Male 43 2003.5-2006.5 0 0 change eral Manager g Mai No HKD 30,000 No Independent Jiangu Male 46 2003.5-2006.5 0 0 change director ang Li No HKD30,000 No Independent Weipin Male 54 2003.5-2006.5 0 0 change director g Shu Femal Independent No HKD 30,000 No 38 2003.9-2006.5 0 0 Man e director change Convener of No 0 No Dong the change Bingge Male 58 2003.5-2006.5 0 0 Supervisory ng Committee Gui Femal No 0 No 49 Supervisor 2003.5-2006.5 0 0 Liping e change Cai No 6.5 No Wanqin Male 57 Supervisor 2003.5-2006.5 0 0 change g Zhang No 15 No Jinlia Male 45 Deputy GM 2004.12-2006.5 0 0 change ng Chen Board No 10 No Male 34 2003.5-2006.5 0 0 Xing secretary change The fourth board of directors and supervisory committee of the Company were elected by 2002 annual shareholders' general meeting in May 2003. Their term of office expired in May 2006. However, the Company failed to carry out reelection on time, which violated the provision of the Company Law that each term of office of directors and supervisors shall not exceed three years. On December 29,2007,The Company issued the Announcement of Reelection of Board of Directors and Supervisory Committee. The Company completed reelection according to relevant procedure on April 18, 2008. 2. Particulars about directors and supervisors holding positions at corporate shareholders Name Name of corporate Position Term of office Whether shareholders receiving remunerati on or subsidy Dong Shenzhen Union Holdings Chairman of the Board June 29,2007 No Binggen Ltd. Secretary of Party Dong Union Developing Group committee, chairman of June 2001 till now Yes Binggen Co., Ltd. board of directors and GM Union Developing Group Ding Yue Deputy general manager July 1998 till now Yes Co., Ltd. Shenzhen Union Holdings Convener of the Ding Yue June 29,2007 No Ltd. supervisory committee Hu Union Developing Group Deputy general manager July 1998 till now Yes Yongfeng Co., Ltd. Hu Shenzhen Union Holdings Deputy chairman of the June 29,2007 No Yongfeng Ltd. Board Guan Shenzhen Textile Holdings Consultant January 5,2007 Yes Tongke Co., Ltd. Deputy chief accountant Union Developing Group Gui Liping and manager of Finance Feb 2001 till now Yes Co., Ltd. Dept. (II).Particulars about main work experience and post or part-time job of present directors, supervisor and senior executives excluding in shareholder’s unit Chairman of the Board : Mr. Hu Yongfeng, a male with bachelor degree, was born in July 1962 and graduated from Southeast Textile Technology Institute in 1983. He is ever took the post of section chief of state textile headquarters general office, He is now in charge of deputy general manager of Union Developing Group Co., Ltd. and chairman of the Board of Union Holdings Ltd., and he took the position of chairman of the Board of the Company from Oct., 2000 till now. Vice chairman of the Board Mr. Li Zhihua, male with bachelor degree, was born in September 1957 and graduated from New York University. He is a merchant and is engaging import and export business in USA for a long time, and he took the post of Vice chairman of the Board of the Company from Sep., 2000 to April 18, 2008. Mr. Song Tao, male with junior college, was born in July 1952 and ever took the post of workshop superintendent, deputy plant manager and plant manager of Jiangsu Changzhou Dongfeng Printing and Dyeing Plant; he is now in charge of general manager of Shenzhen Nanhua Printing and Dyeing Co., Ltd. and held the position of Vice chairman of the board of the Company from September 2000 to April 18, 2008.. Director and general manager: Mr. Sun Zhiping, male with bachelor degree, was born in August 1965 and graduated from Tianjin Textile Technology University in 1987. He took turns of teacher of Tianjin Textile Technology University, engineer of Shenzhen Textile Trades Society, general manager of Union Realty Management Co., Ltd., general manager of the Company and plant manager of Printing and Dyeing Plant, etc., he took the position of director and general manager of the Company from September 2000 to April 18, 2008. Directors: Mr. Ding Yue, male with bachelor degree, was born in March 1958 and graduated from Lanzhou University in 1983. He took the turns of deputy section chief of personnel labor department of Textile Technology Department, section chief of personnel labor department of textile headquarters, deputy director of personnel labor department of textile headquarters and concurrently director of talents exchange center of Textile Headquarters and chairman of the Board of Union Holdings Co., Ltd., He is now in charge of deputy general manager of Union Developing Group Co., Ltd. and convener of the supervisory committee of Union Holdings Co., Ltd., and held the position of director of the Company from June 2002 till now. Mr. Guan Tong, male with bachelor degree, was born in Feb 1947. He ever took the post of office director of Shenzhen Geologic Branch, deputy secretary of Party Committee and deputy general manager of Shenzhen Textile Industrial Company, He is now in charge of secretary of Party Committee and chairman of the Board of Shenzhen Textile Group Co., Ltd., and he held the position of director of the Company from September 2000 to April 18, 2008. Independent directors: Mr. Mai Jianguang, male with bachelor degree, was born in July 1961 and graduated from Hong Kong Polytechnic University in 1985. He ever took the post of top management copartner of south-China district of Andersen Company, and now he is in charge of chairman of Hong Kong venFUND Investment Co., Ltd., ven Fund Pioneer Investment Management (Shenzhen) Co., Ltd. and venFUND Enterprise Management and Consultant (Shenzhen) Co., Ltd., and held the position of independent director from June 2002 to April 18, 2008. Mr. Li Weiping, male with bachelor degree, was born in Feb 1956 and graduated from Party School in 1996 of Central Committee, and ever took the post of political instructor and commissar of PLA, minister of Party affairs personnel department of 999 Group; he is now in charge of deputy secretary of Party of 999 Group, and he held the position of independent director of the Company from May 2003 to April 18, 2008. Ms. Shu Man, female with master degree, was born in Feb 1969 and graduated from economic management institute of Qinghua University. She took the post of chairman of the board of America Comfort Co., Ltd., deputy president of Shenzhen council for the promotion of middle and small enterprises, chairman of the board of Hong Kong Wande Investment Co., Ltd., deputy president of National US-China Friendship Association, deputy president of Zhejiang Chamber of Commerce of US, deputy president of Shenzhen Futian C of C, deputy president of Shenzhen Guranattee Benefit Society, etc., and now she is in charge of chairman of Shenzhen Huarong Investment and Guarantee Co., Ltd., and took the post of independent director of the Company from September 2003 to April 18, 2008. Supervisors: Mr. Dong Binggen, male, an engineer with bachelor degree, was born in July 1949 and graduated from East China Textile Technology Institute. He ever took the post of deputy president of Zhejiang Silk Technology Institute, general manager of China Clothes Headquarters and board chairperson of China Clothes Association, etc.; he is now in charge of secretary of Party Committee, chairman of the board and general manager of Shenzhen Union Developing Group Co., Ltd. and chairman of the Board of Shenzhen Union Holdings Co., Ltd., and held the position of convener of the supervisory committee of the Company from June 2002 till now. Ms. Gui Liping, female, an accountant with junior college, was born in July 1958. She ever nd rd worked in the 2 section of the 3 Line of MOC, treasure’s office of Shanghai Cotton Textile the th 13 Plant and treasure’s ministry of Shanghai Cotton Textile Company; she is now in charge of general accountant and manager of financial department of Union Developing Co., Ltd., and held the position of supervisor of the Company from Septebmer 2000 to April 18, 2008. Mr. Cai Wanqing, male with bachelor degree, was born in November 1950 and graduated from Middle China Science and Technology University. He ever took the post of plant director of Yichang Printing and Dyeing Plant, deputy general manager of Nanhua Printing and Dyeing Co., Ltd., deputy general manager of Union Trade Co., Ltd. and office director of the Company; he is now in charge of general manager of Shenzhen Veaopel Co., Ltd. and held the position of supervisor of the Company from June 2002 to April 18, 2008. Deputy general manager: Mr. Zhang Jinliang, male, a senior accountant with bachelor degree, was born in May 1962. He ever took the post of senior section chief of Shenyang Dispatch and Shenzhen Dispatch of Audit Administration, manager of operation department of Shenzhen Property Union Holdings Co., Ltd., deputy director and director of auditing office of Union Developing Group Co., Ltd., deputy general manager of Shenzhen Union Holdings Co., Ltd. and general manager of Yuyao Union Textile Co., Ltd., and he held the position of deputy general manager of the Company from Dec 2004 till now. Secretary of the Board of Directors: Mr. Chen Xing, male with doctor degree, was born in March 1973 and graduated from Dongbei University in 2000; he ever took the post of business manager of operation office of Union Developing Group Co., Ltd. and held the position of secretary of the Board of the Company from March 2002 till now. April 18, 2008 election as director of the Company. （III）Annual remuneration The total amount of annual remuneration of directors, supervisors and senior executives in 2007 is RMB 0.525 million. The allowance for each independent director is HKD 30,000 (including tax) per year. （IV）Particulars about leaving post, engaging and dismissing The 20th meeting of the fourth board of directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. held in the morning of March 15, 2007 agreed to Mr. Chen Jingqiu's resignation from the position of deputy general manager for reason of age. (V). Staffs: By the end of the report period, the Company had 36 staff members in total, including 10 managerial employees , 4 financial employees, 22 Logistics employees. The Company has provided social insurance to its staff according to relevant regulations of the government. Section V Administrative Structure 1.Administrative Status The Company has constantly improved its corporate administration structure, established modern enterprise system and standardized its operation strictly according to the requirements of the Company Law, Securities Law and relevant laws and regulations of CSRC. In the report period, in accordance with relevant stipulations of listed firm governance campaign and the on-site inspection requirement of Shenzhen Securities Regulatory Bureau of China Securities Regulatory Commission to us, we have revised the Articles of Association, laid down the Reception and Promotion Rules, the Information Disclosure Management Rules, the Work Rules for General Manager, Shares Held by Directors, Trustees and Executives and Management Rules for the Change of Shares, further clarified the authorities of board of directors and board of trustees, and the decision-making procedures, to ensure they are compliant to the Principles for Listed Firm Governance. (1). Shareholders and shareholders' general meeting: The Company convened and held shareholders' general meeting strictly according to the requirements of Opinions on Standardization of Shareholders' General Meeting of Listed Companies, formulated Rules of Procedure of Shareholders' General Meeting, ensured all shareholders, especially medium and small shareholders, enjoy equal position and can fully exercise their own rights. (2). Relationship between the controlling shareholder and the Company: The acts of the controlling shareholder of the Company were standardized. It did not exceed the authority of the shareholders' general meeting to directly or indirectly intervene with the decision-making and operating activities of the Company. The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organ and business. The board of directors, the supervisory committee and internal organ of the Company are able to operate independently. (3). Directors and the board of directors: The Company elected directors strictly according to the director selection and appointment procedure specified in the Articles of Association of the Company and will further perfect director selection and appointment procedure and actively promote system of cumulative voting. The member composition of the board of directors of the Company complied with the requirements of laws and regulations. The board of directors of the Company formulated Rules of Procedure of the Board of Directors. Directors of the Company were able to attend board meetings and shareholders' general meetings with responsible attitude, actively participate in relevant training, get familiar with relevant laws and regulations and understand the rights, obligations and responsibilities of director. The Company has established independent director system according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The numbers of independent directors are 3 people. (4). Supervisors and the supervisory committee: The number and composition of the Supervisory Committee of the Company complied with the requirements of laws and regulations. The Supervisory Committee of the Company formulated the Rules of Procedure of the Supervisory Committee. The supervisors of the Company were able to perform their duties seriously, take the attitude of being responsible for all shareholders and supervise the legality and regulation conformity of the Company's finance and the duty performance of the directors, managers and other senior executives of the Company. (5). Performance evaluation and encouragement and regulating mechanism The Company established the system of subsidy for independent directors and directors and remuneration for senior executives. The Company will further improve and perfect overall remuneration system, establish fair and transparent performance appraisal standard and stimulation and restriction mechanism for directors, supervisors and executives. (6). Interested parties: The Company was able to fully respect and safeguard the legal rights and interests of the interested parties including banks, other creditors, employees and consumers and promote its sustained and healthy development together with interested parties. (7).Information disclosure and transparency: The Company designated the secretary to the board of directors to be responsible for information disclosure, reception of shareholder and consultation. In the report period, the Company was able to truly, accurately, completely and timely disclose relevant information according to the provisions of laws, regulations and the Articles of Association of the Company. The Company will continue to operate in a standardized way strictly according to the requirements of relevant laws and regulations including the Company Law, further perfect company administration structure and establish and improve various regulations in light of the gap with the requirements of Standards of Administration of Listed Companies, ensure the maximization of shareholders' interests and safeguard the lawful rights and interests of all shareholders. II. Particulars about duty performance of independent directors The Company has perfected independent director system in the Articles of Association of the Company according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The board of directors of the Company now has three independent directors, taking up one third of the total number of directors. These Three independent directors have consciously performed their duties according to the principles of good faith and diligence since they came into office. They expressed independent opinions on important matters of the Company including external guarantees, related transactions, corporate governance, etc. They expressed independent opinions on important matters of the Company including external guarantees, related transactions, corporate governance, etc. Independent director Mr. Mai Jianguang made objection to the matter that Zhejiang Union Hangzhou Bay Ventures Co., Ltd., a joint stock subsidiary of Victor Onward Printing and Dyeing (Hong Kong) Co., Ltd., a wholly-owned subsidiary of the Company, provided guarantee with joint liability to Union Developing Group Co., Ltd. His opinion is as follows: To all shareholders, Zhejiang Union Hangzhou Bay Ventures Co., Ltd. shall provide guarantee with joint liability for comprehensive credit line of RMB 800 million for which Union Developing Group Co., Ltd. applied to Shenzhen Branch of Bank of China. Union Developing Group Co., Ltd. shall promise to provide guarantee of same limit with joint liability to Zhejiang Union Hangzhou Bay Ventures Co., Ltd. if Zhejiang Union Hangzhou Bay Ventures Co., Ltd. needs funds for project development. I checked the related transaction thus formed and expressed opinions of independent director as follows: I object to provision of bank guarantee with no mortgage and no compensation to Union Developing Group, the actual controller of Victor Onward, by an enterprise within Victor Onward Group. This action is unfair to minority shareholders of Victor Onward and constitutes unnecessary risks. Independent Directors’ attendance of the Boarding meeting Times of Absent Attended Attended meeting form Name personally by proxy Notes should meeting (times) (times) attend (times) Attendance Mai through proxy for 8 7 1 0 Jianguang work-related reason Shu Man 8 8 0 0 Li Weiping 8 8 0 0 III. The separation of the Company from its controlling shareholder in five respects The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organization and business. The particulars are as follows: 1. Business: The Company has complete business and the ability of independent operation. It is completely independent from its controlling shareholder in respect of business. 2. Personnel: The Company is independent in respect of labor, personnel and wage management. The general manager and other senior executives of the Company all received remuneration from the Company, who neither held position at nor received remuneration from the controlling shareholder. 3. Assets: The Company has complete assets. Its property rights are definite and not related to its controlling shareholder and other shareholders. 4. Organization: The Company established an organizational structure that is completely independent of its controlling shareholder. The board of directors, the supervisory committee and internal organs of the Company are able to operate independently. 5. Finance: The Company has independent finance. It set up independent finance department and established independent financial accounting system. It has standardized and independent financial and accounting system and financial control system applicable to branches and subsidiaries. The Company independently pays taxes according to law. It opened accounts with banks independently. The Company and its controlling shareholder do not use the same bank account. IV. Self-Appraisal of Internal Control: (I). Overview of Internal Control 1. Update on Rules Building for Internal Control To enhance internal control, in accordance with the provisions of the Corporate Law, the Securities Law, Stock Listing Rules for Shenzhen Stock Exchange, Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firm, other laws & regulations, we have laid down and perfected the Articles of Association, Rules of Order for Annual Shareholder Meeting, Rules of Order for Board of Directors, Rules of Order for Board of Trustees, Work Rules for Independent Directors, the Information Disclosure Affairs Management Rules, other management rules and internal control rules, which have produced apparent effects to the operation of our company. 2. Internal Audit Department for Supervision & Inspection, Work and Staffing of Such Department We do not have an internal audit department particularly for supervision and inspection. 3. Our Organizational Structure for Internal Control We exercise internal control by standardizing and effectively executing the articles of association, and authorizing in major operation level layer by layer. The specific measures include: 1) We have clearly stipulated the approval authorities and review procedures of the annual shareholder meeting and the board of directors for financial guarantees, which has effectively controlled the financial risks and credit risks of our company. 2) We have clarified the decision authorities for affiliated transactions, and demanded stringent review and decision-making procedures to be established. 3) We have clearly stipulated the definition, procedure, authorized amount and level of major investment, contract requirement, matters to be disclosed, etc. 4) Make analysis and judgment to major internal information, and go through relevant procedures in case we are required to fulfill information disclosure obligation. The parent company assigns directors and trustees to subsidiaries according to laws, regulations and the articles of association, to influence the production & operation activities of subsidiaries through directors and trustees, and promote the effective execution of duties of all levels by means of professional inspection. 4. Major Activities, Work and Effects We Made in 2007 to Establish and Perfect Internal Control. From Oct 9th to 19th, 2007, Shenzhen Securities Regulatory Bureau of China Securities Regulatory Commission made on-site inspections to our company. Required by the Circular of Shenzhen Securities Regulatory Bureau on Requiring Shenzhen Zhongguan Textile Printing & Dyeing Co., Ltd to Take Corrective Actions within Required Period (Shenzhen Securities Regulatory Bureau Company Letter [2007] No.129), we have laid down a corrective scheme, which is being implemented today. (II)．Key Control Activities 1. Management Update of Our Controlled Subsidiaries: Shenzhen Victor Onward Textile Industrial Co., Ltd. Victor Onward Printing & Dyeing (Hong Kong) Co., Ltd Shengzhong Enterprise Shenzhen Lianchang Shenzhen Nanhua Shenzhen East Asia Victor Co., Ltd Printing & Dyeing Co., Printing & Dyeing Co., onward Textile Printing & Ltd Ltd Dyeing Co., Ltd Victor Onward Digital Zhejiang Hualian Printing Co., Ltd Hangzhou Bay Startup Co., Ltd To standardize the relations with controlled subsidiaries, enhance the support, guidance and management to controlled subsidiaries, promote controlled subsidiaries to run according to modern enterprise rule, and further perfect corporate governance structure: (1) Supervise various controlled subsidiaries to establish relevant operation plans and risk management procedures. (2) Enhance the performance appraisal of various controlled subsidiaries. (3) Various controlled subsidiaries execute necessary internal control self-inspections according to their operation natures. 2. Internal Control of Affiliated Transactions: We manage affiliated transactions in which we are involved in strict accordance to the management rules for affiliated transactions provided in the Internal Control Guidance for Listed Firms and the Stock Listing Rules promulgated by Shenzhen Stock Exchange, our Articles of Association and our Management Methods for Affiliated Transaction. The articles of association provides that the board of directors determines relevant affiliated transactions of our company within the power scope authorized in the annual shareholder meeting; the board of directors determines the decision authority of affiliated transactions and requires stringent review and decision-making procedures to be established. Our Management Methods for Affiliated Transaction have made specific stipulations to the affiliated individuals, affiliated relations, conditions, decision-making procedures and disclosure of affiliated transactions. Affiliated transactions of our company taking place in the report period are compliant to the principles of honesty, equality, self-willingness, fairness, openness, and do not harm the interests of our company and other shareholders. Review procedures, voting avoiding and other requirements have been abided by according to relevant laws, administrative regulations, departmental regulations, the stock listing rules, etc. Relevant responsible individuals have fulfilled approval and report duties to affiliated transactions when they take place to our company and controlled subsidiaries. 3. Internal Control of Financial Guarantees: According to the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firm, we have clearly stipulated the approval authorities, review procedures and information disclosure requirements of the annual shareholder meeting and the board of directors for financial guarantees, which have effectively controlled the financial risks and credit risks of our company. 4. Internal Control of the Use of Raised Capitals: We have made clear stipulations to the storage, approval, use, change, supervision and other matters of the funds in strict accordance to the Stock Listing Rules promulgated by Shenzhen Stock Exchange. 5. Internal Control of Major Investment: According to requirements of the Stock Listing Rules, Guidance on Internal Control of Listed Firms and other statutes, we have clearly stipulated the definition, procedure, authorized amount and level for major investment, contract requirement, disclosure matters, etc. The articles of association have clarified the approval authorities relevant review procedures of the annual shareholder meeting and the board of directors for major investment. Compared against the relevant provisions of the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firms, we have exercised stringent, adequate and effective internal control to investment, and have never violated the Guidance on Internal Control of Listed Firms, Stock Listing Rules, etc. 6. Internal Control of Information Disclosure: We have set up a set of effective stringent information management rule, enhanced the management of information affairs, ensured the accuracy and confidentiality of information, prevented information from being disclosed earlier than scheduled time, promoted directors, trustees and executives to fulfill their duties loyally and diligently, and guaranteed the truth, accuracy, promptness and fairness of disclosed information. We have conducted reception, communications and other investor relation activities and ensured the fairness of information disclosure according to the provisions of the Guidance of Shenzhen Stock Exchange on the Fair Information Disclosure of Listed Firms, the Guidance of Shenzhen Stock Exchange on the Investor Relation Management of Listed Firms, etc. Individuals liable to report can promptly report relevant information to the board of directors and the secretary of board of directors. The secretary of board of directors shall analyze and judge major internal information, and promptly report to the board of directors of any matter whose information needs to be disclosed, so that the board of directors to go through relevant procedures and disclose to external entities. (III) Problems of Our Internal Control and Corrective Actions (1) Defects and Problems of Our Internal Control. We are a traditional printing & dyeing and processing company. Due to ever rising prices of fuel and dyes in recent years, our operation scale keeps going down and suffers losses for years running. Nowadays, our mission-critical production equipment and management team intend to move to Nanjing, and we hold only 30% shares of Nanjing East Asia Textile Printing & Dyeing Co., Ltd. We have an increasingly hollow core business. (2) Specific Causes of Internal Control Problems, Current Situation, Corrective actions and Measures. We are a conventional printing & dyeing and processing company and take orders primarily from foreign customers. We are small in scale and vulnerable to the change of international textile market. Due to ever rising prices of fuel and dyes in recent years, our operation scale keeps going down and profitability is poor. We suffered a loss of RMB 37 million in 2005, RMB 48.76 million in 2006 excluding the non-recurring earning arising out of the sales of shares of Industrial Bank, and lost money in 2007 too. Nowadays, our mission-critical production equipment and management team have been relocated to Nanjing, and we hold only 30% shares of Nanjing East Asia Textile Printing & Dyeing Co., Ltd. We have an increasingly hollow core business. Our Nanjing plant failed to start production by the end of September as scheduled due to delay of infrastructure project. Our printing & dyeing business shows no sign to change for the better and our operation confronts dilemma. Corrective Actions and Measures: In first half of 2007, our printing & dyeing plant in Shenzhen and our controlled subsidiary Shenzhen Nanhua Printing & Dyeing Co., Ltd ceased production for improvement, and we relocated our printing & dyeing business. Due to the delay of the relocation of our printing & dyeing business, our production & operation activities are seriously influenced and may not restore to normality within 3 months. Pursuant to the provision of Shenzhen Stock Exchange Stock Listing Rules, Article 13.3.1, Shenzhen Stock Exchange exercised other special treatment to our stocks since August 27th, 2007. This accident has major influence to the production & operation activities and sustainable growth of our company. To guarantee the stable operation and sustainable growth of our company, we will enhance the coordination of engineering project, and try to implement the relocation plan as soon as possible. (3) Overall Appraisal to Our Internal Control. With all mentioned above, we have established perfect an internal control structure and run our business in a disciplined manner according to the requirements of the Corporate Law, the Guidance on Internal Control of Listed Firms, the Stock Listing Rules, and other laws and regulations. Our annual shareholder meeting, board of directors, board of trustees and management have clearly stated duties and operate in a disciplined manner. We follow the principles of truth, accuracy, completeness, promptness and fairness in term of information disclosure. Meanwhile, in the days to come, we will further improve and perfect corporate governance, improve rules building and investor relation management, and expand transparency. V. Committee of supervisers of Our Board of Trustees to the Self-Appraisal of Our Internal Control Opinion of committee of supervisers: 1. We have established and improved an internal control system covering the entire production & operation process according to the relevant stipulations of China Securities Regulatory Commission and Shenzhen Stock Exchange as well as the specific situation of our company, to confirm every work has its rule to follow, and form a disciplined management system. Our existing internal control rules provide guarantee to the production & operation activities of our company. 2. We have established and improved a corporate governance structure and internal organizational structure compliant to the requirement of modern management, and formed a decision-making mechanism, execution mechanism and supervision mechanism for the key activities of our internal control, and guaranteed the standardized operation of various business activities. 3. In the report period, we have never violated the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firms and our internal control rules. With all mentioned above, the board of trustees deems that our 2007 Annual Internal Control Self-Appraisal Report has comprehensively and objectively reflected the actual situation of internal control in our company, can show us areas to be improved, has proposed corrective actions, and we agree with it. VI. Comments of Our Independent Directors to the Self-Appraisal of Our Internal Control Independent director opinion: Based on the Circular of Shenzhen Stock Exchange on Doing a Good Annual Report Work for Listed Firms in 2007, as independent directors of the company, we have carefully read through the 2007 Annual Internal Control Self-Appraisal Report submitted by the board of directors, talked to the management and relevant departments, referred to the management rules of the company, and now make following comments based on our independent stance: 1. The internal control rules of the company are compliant to relevant national regulations and the requirements of securities regulatory authority, and fit for the actual situation of production and operation of the company. 2. The internal control measures of the company have played good roles in the various processes and links of the company management. 3. The 2007 Annual Internal Control Self-Appraisal Report has comparatively objectively reflected the true situation of internal control, is comparatively comprehensive in summarizing the internal control, and is comparatively clear in areas of internal control to be improved. 4. The 2007 Annual Internal Control Self-Appraisal Report is compliant to the actual situation of internal control of our company. VII. Performance Appraisal & Incentive Mechanism for Executives, Establishment and Implementation of Relevant Rewarding Rules We appraise the performance of executives according to relevant index and criterions, the results of performance appraisal are recorded in the archives of executives, and are linked to the compensations and hiring of executives. Section VI. Particulars about Shareholders’ General Meeting In the report period，the Company held 3rd shareholders’ general meeting. Relevant particulars are as follows: (1) 2006 annual shareholders' general meeting of the Company 1. Notice, convening and holding of shareholders' general meeting The Company issued the notice of holding 2006 annual shareholders' general meeting on February 10, 2007. Announcement of Shenzhen Victor Onward Textile Industrial Co., Ltd. on "Canceling Part of Proposals of 2006 Annual Shareholders' General Meeting and relevant proposals were published on Securities Times and Hong Kong Commercial Daily on February 27, 2007. The meeting was convened by the board of directors of the Company. 2006 annual shareholders' general meeting of the Company was held in the meeting room on the 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of February 27, 2007 as scheduled. The meeting was presided over by Mr. Hu Yongfeng, the board chairman of the Company. 4 shareholders and shareholders' agents attended this meeting, representing 102,988,918 shares which account for 60.89% of the total shares of the Company. 2 shareholders holding A shares (agents) attended the meeting, representing 72,408,333 shares which account for 72.61% of total voting shares held by the Company's shareholders holding A shares. 2 shareholders holding B shares (agents) attended the meeting, representing 30,580,585 shares which account for 44.05% of total voting shares held by shareholders holding B shares of the Company. Chen Dong, lawyer of Guangdong Shengdian Law Office attended and witnessed the meeting and issued legal opinion. 2. The resolutions adopted at the shareholders' general meeting and the disclosure of resolution announcement The meeting examined and voted through the following proposals: (1) 2006 annual work report of the board of directors of the Company. (2) 2006 annual work report of the supervisory committee of the Company. (3) 2006 annual report of the Company and its summary. (4) The profit distribution preplan of the Company for 2006 and its profit distribution policy for 2006 （5）The proposal for terminating the investment RMB 165 million in constructing 500 sets of digital polychromatic printing system in Kuichong, Shenzhen. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on March 6, 2007. (II) The first provisional shareholders' general meeting of the Company in 2007 1. The meeting examined and voted through the following proposals: 1. The Company issued the notice of holding the first provisional shareholders' general meeting in 2007 on March 21, 2007. The meeting was convened by the board of directors of the Company. The first provisional shareholders' general meeting of the Company in 2006 was held in the meeting room on the 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of April 6, 2007 as scheduled. Mr. Hu Yongfeng, the chairman of the board of directors of the Company, presided over this meeting. 4 shareholders and shareholders' agents attended this meeting, representing 102,988,918 shares which account for 60.89% of the total shares of the Company. 2 shareholders holding A shares (agents) attended the meeting, representing 72,408,333 shares which account for 72.61% of total voting shares held by the Company's shareholders holding A shares. 2 shareholders holding B shares (agents) attended the meeting, representing 30,580,585 shares which account for 44.05% of total voting shares held by shareholders holding B shares of the Company. Chen Dong, lawyer of Guangdong Shengdian Law Office attended and witnessed the meeting and issued legal opinion. 2. The resolutions adopted at the shareholders' general meeting and the disclosure of resolution announcement The meeting examined and voted through the proposal for increasing the capital of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 7, 2007. (III) The second provisional shareholders' general meeting of the Company in 2007 1. The meeting examined and voted through the following proposals: 1. The Company issued the notice of holding the second provisional shareholders' general meeting in 2007 on September 13, 2007. The meeting was convened by the board of directors of the Company. The first provisional shareholders' general meeting of the Company in 2006 was held in the meeting room on the 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of September 29, 2007 as scheduled. Mr. Hu Yongfeng, the chairman of the board of directors of the Company, presided over this meeting. 5 shareholders and shareholders' agents attended this meeting, representing 106,249,051 shares which account for 62.81% of the total shares of the Company. 2 shareholders holding A shares (agents) attended the meeting, representing 72,408,333 shares which account for 72.61% of total voting shares held by the Company's shareholders holding A shares. 3 shareholders holding B shares (agents) attended the meeting, representing 30,798,685 shares which account for 44.36% of total voting shares held by shareholders holding B shares of the Company. Chen Dong, lawyer of Guangdong Shengdian Law Office attended and witnessed the meeting and issued legal opinion. 2. The resolutions adopted at the shareholders' general meeting and the disclosure of resolution announcement The meeting voted through the following proposal: Zhejiang Union Hangzhou Bay Ventures Co., Ltd., a joint stock subsidiary of Victor Onward Printing and Dyeing (Hong Kong) Co., Ltd., a wholly-owned subsidiary of the Company, shall provide guarantee with joint liability for comprehensive credit line of RMB 800 million for which Union Developing Group Co., Ltd. applied to Shenzhen Branch of Bank of China and shall agree to authorizing the board chairman of Zhejiang Union Hangzhou Bay Ventures Co., Ltd. to sign relevant resolutions and relevant legal documents. Union Developing Group Co., Ltd. shall promise to provide guarantee of same limit with joint liability to Zhejiang Union Hangzhou Bay Ventures Co., Ltd. if Zhejiang Union Hangzhou Bay Ventures Co., Ltd. needs funds for project development. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on October 9, 2007. VII Report of the Board of Directors I. The discussion and analysis of operation status In recent years, the cost in printing & dyeing industry is continuinghigh in Shenzhen. In 2005 and 2006, the printing & dyeing business of the Company has had big losses in the past two years. Productions & operations are in serious difficulties and are hard to continue normal operation. In order to actively promote the step-by –step migration of the printing & dying industry towards the inner mainland, the Company controlled subsidiary Nanhua Printing & Dyeing and the Company ownerd Printing & Dyeing Factory are continuously suspended for rectification.In the first half of the year, the company started the relocation program of the printing & dyeing business. As of December 31, 2007, the interface plan for the Company’s printing & dyeing business are as follows: 1.Because the climate in Nanjing in this season is rainy and instable, infrasture project of Nanjing factory is slightly delayed comparing to the original plan. It is expected that the time of production start of Nanjing Factory will still be postponed. 2.Influenced by decline in export rebate and RMB appreciation, export orders in dyeing & printing industry was not so pleasant. Export firstly appeared negarive growth .In order to reduce the cost of sales in Hong Kong company, the Company set up a comtrolling enterprise “ Shenzhen East Asia Victor Onward Textile Industrial Co., Ltd.” (hereinafter refered to as “East Asia Victor”) to connect the original printing & dyeing business of Company. In 2007, East Asia Victor Onward realized turnover of RMB 53.90 million. (I) Review of the operating status of the Company in the report period 1. Overall operating status in the report period Unit：RMB Percent of change Items Year 2007 Year 2006 (%) Operating Income 103,568,595 243,278,584 -57.43 Operating Profit -112,501,891 20,324,944 -653.52 Total Profit -124,409,530 21,833,888 -669.80 Net profit attributable toshareholders of listed Company -116,356,882 28,992,654 -501.33 Note： (1) Operating income decreased by RMB 139.71 million year on year mainly due to suspense of printing and dyeing business by the Company and Nanhua Company, a subsidiary of the Company, for rectification in the report year; (2) Operating profit decreased by RMB 132.83 million year on year mainly due to increase of assets impairment loss by RMB 35.43 million, abnormal increase of investment income by RMB 76.66 million caused by sales of shares of Industrial Bank and expenditure of RMB 15.11 million for workforce reduction for economic reasons; (3) Total profit decreased by RMB 146.24 million year on year mainly due to loss of RMB 9.71 million on debt restructuring brought by sales of Shenzhen Veaopel Co., Ltd. to the Company in addition to the said factors; (4) The net profit for the Company decreased by RMB 145.35 million year on year mainly due to the said factors. 2. Scope of core business and its operation status . The Company is mainly engaged in the production and processing (printing and dyeing) and sales of various high-grade fabrics of pure cotton, pure linen, polyester-mixed cotton, linen cotton and mixed fiber and finished garments. (1).The income from main operation earned by the Company in the report period mainly includes the income from printing and dyeing business. In the report period, the total income from main operation was RMB 103.57 million, an decrease of 54.73% year on year. The Company realized net profit of RMB -124.58 million. (1) Income from and cost of core business in terms of industry are as follows: Unit：RMB Industry Operating Increase/d Increase/decr Operating Operating Increase/decreas or profit ecrease of ease of profit income cost e of cost（%） production rate(%) income（%） （%） Fabrics bleaching, 99,583,552 117,803,360 -18.30% -57.80% -48.79% -20.81% Printing & dyeing Lease 2,646,533 434,413 83.77% 11.34% -72.26% 48.90% Other 1,338,510 1,150,146 14.18% 378.57% 22900.00% -84.04% Income from and cost of main operation in terms of areas are as follows: Unit: RMB Areas Operating income Same period of the Increase/decrease of previous year income（%） Mainland 12,990,531 26,220,749 -50.46% China Hong Kong and 90,578,064 214,392,801 -57.75% Overseas (2) The line of business or product whose income or profit accounts for over 10% of total income from main operation or profit from main operation in the report period Industry Operating profit Operating income Operating cost rate(%) Fabrics bleaching, 99,583,552 117,803,360 -18.30% Printing & dyeing Lease 2,646,533 434,413 83.77% (3). The profit structure and key business structure in the report period did not change much compared with the previous report period. (4).Major Suppliers and Customers The Company's main products are printing and dyeing products, including various pure cotton, pure linen, polyester-mixed cotton, linen-mixed cotton and blended high-grade fabrics. The raw materials for the production (grey fibre, dyeing chemicals and fuel) are mainly imported. The products are mainly exported to Hong Kong, Japan, Europe and America. Victor Onward Printing and Dyeing (Hong Kong) Limited, a wholly-owned subsidiary of the Company, is mainly responsible for supply of raw materials and sales of products. The total amount of purchase from the top five suppliers accounted for 23.85% of the Company's total annual purchase amount. The total amount of sales to the top five customers accounted for 21.73% of the Company's total annual sales amount. 3.Change in composition of the Company's assets and reasons therefor: Amount of change and Items of consolidated Year 2007 Year 2006 percentage balance sheet Amount Percentage Items of consolidated balance sheet 52,656,852 98,978,440 -46,321,588 -46.80% Accounts receivable 6,134,029 62,003,774 -55,869,745 -90.11% Inventory 11,151,708 71,078,373 -59,926,665 -84.31% Fixed assets 54,202,203 121,024,952 -66,822,749 -55.21% Short-term loan 62,000,000 -62,000,000 -100.00% Account payable 4,936,984 25,017,704 -20,080,720 -80.27% (1) Monetary capital decreased by RMB 46.32 million and 46.80% mainly due to the Company's repayment of bank loans; (2) Accounts receivable decreased by RMB 55.87 million and 90.11% mainly because the Company suspended production for rectification, decreased sales, settled accounts receivable and recovered part of arrears in the report year; (3) Inventories decreased by RMB 59.93 million and 84.31% mainly because the Company and its subsidiary Nanhua Company stopped raw material purchase and product manufacturing after production suspense for rectification and sold commodities in stock and part of raw materials; (4) Fixed assets decreased by RMB 66.82 million and 55.21% mainly because the land for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased and the lease term will expire on March 31, 2009. According to the city planning of Shenzhen Municipal Government, printing and dyeing business for textile industry is no longer allowed in this area. The Company suspended production for rectification in March 2007 and plans to make investment with part of machinery and equipment. Therefore, it fully made provision for impairment of houses and buildings after reservation of residual value, made provision for impairment according to 40% of net book value of the machinery and equipment to be used for investment at the end of period and fully made provision for impairment of other machinery and equipment after reservation of residual value; (5) Short-term loan decreased by RMB 62 million and 100% mainly because the Company repaid all loans and had no new loans in the report year; (6) Accounts payable decreased by RMB 20.08 million and 80.27% mainly because the Company suspended production for rectification, stopped purchase of raw materials and repaid part of arrears. Reasons for material change in the items of profit and loss statement of the Company in the report period: Items of profit Amount of change and Year 2007 Year 2006 and loss percentage statement Amount Percentage Income from 103,568,595 243,278,584 the business -139,709,989 -57.43% Cost of the 119,387,919 235,480,869 business -116,092,950 -49.30% Administration 34,992,178 24,681,075 expenses 10,311,103 41.78% Financial 6,951,894 9,814,511 expenses -2,862,617 -29.17% Asset impairment 54,718,933 20,178,040 loss 34,540,893 171.18% Investment 8,531,392 76,401,574 income -67,870,182 -88.83% Non-operating 94,621 1,862,375 income -1,767,754 -94.92% Non-operating 12,002,260 353,431 expenses 11,648,829 3295.93% (1) Operating income and cost respectively decreased by 57.43% or RMB 139.71 million and 49.30% or RMB 116.09 million year on year mainly due to decrease of income and cost caused by the production suspense of the Company and its subsidiary Nanhua Company in the report year; (2) Administrative expenses increased by RMB 10.31 million and 41.78% mainly because the Company suspended production and made redundancy payment of big amount and depreciation of fixed assets originally accounted for as manufacturing expenses was accounted for as administrative expenses due to suspense of main operation for rectification in the report year; (3) Financial expenses decreased by RMB 2.86 million and 29.17% mainly because the Company repaid all bank loans and had no new loans in the report year; (4) Assets impairment loss increased by RMB 34.54 million and 171.18% mainly because the Company suspended production for rectification and made provision for impairment of accounts receivable, inventories and fixed assets in the report year; (5) Investment income decreased by RMB 67.87 million and 88.83% mainly due to abnormal increase in investment income for the previous period caused by sales of stocks of Industrial Bank in the previous period; (6) Non-operating income decreased by RMB 1.77 million and 94.92% mainly due to increase of non-operating income for the previous period caused by gains from disposal of non-current assets in the previous period; (7) Non-operating expenses increased by RMB 11.65 million and 3295.93% mainly due to the loss of RMB 9,706,099 caused by the Company's sales of equity of its subsidiary Weiou Peier Company and promise to abandon the claims to Shenzhen Veaopel Co., Ltd. and the loss of RMB 2,258,181 caused by production suspense and disposal of machinery and equipment. 4. Composition of the cash flow of the Company: Proportion to the net amount of Proportion of Amount of cash flow from change in cash cash flow in similar activities and cash Items 2007 % equivalents % Subtotal of cash inflows from 191,857,287 2360.61% business activities Subtotal of cash outflows from 183,729,855 2260.61% business activitie Net cash flows from operating 8,127,432 100.00% -20.83% activities Subtotal of cash inflows from 13,077,323 110.00% investing activities Subtotal of cash outflows from 1,189,290 10.00% investing activities Net cash flows from investing 11,888,033 100.00% -30.47% activities Subtotal of cash inflows from 1,470,000 -2.34% financing activities Subtotal of cash outflows of 64,265,015 -102.34% financing activities Net cash flows from financing -62,795,015 100.00% 160.95% activities Influence of the change of 3,764,504 -9.65% exchange rate on cash Change in cash and cash -39,015,046 100.00% equivalents Main influencing Items Year 2007 Year 2006 Amount Percentage factor Cash received from sales of 176,654,559 261,030,019 -84,375,460 -32.32% The Company goods or rending of services suspended production for rectification and decreased sales in the report year Decrease of Tax returned 6,396,030 10,624,431 business and -4,228,401 -39.80% export rebates Decrease of Other cash received from unitexchanges 5,547,890 17,235,533 business operation in the report -11,687,643 -67.81% period The Company suspended Cash paid for purchasing of production for 133,202,385 234,689,109 merchandise and services rectification and decreased sales in -101,486,724 -43.24% the report year Taxes paid 12,520,840 3,299,636 9,221,204 279.46% Decrease of Other cash paid for business unitexchanges 9,573,077 23,845,817 activities in the report -14,272,740 -59.85% period Sales of equity Cash received from 105,000,000 of Industrial investment retrieving -105,000,000 -100.00% Bank Net cash retrieved from Increase in disposal of fixed assets, disposal of fixed 12,169,848 8,047,151 intangible assets, and other assets in the long-term assets 4,122,697 51.23% report period Cash received as loans 185,700,000 -185,700,000 -100.00% No new loans Cash received from bond Repayment of 62,000,000 228,700,000 placing -166,700,000 -72.89% bank loans Decreased in Cash paid as dividend, profit, loan of bank 2,265,015 5,308,696 or interests in the -3,043,681 -57.33% reportperiod 5. Status of equipment utilization of the Company: The Company suspended production for rectification in February 2007 and plans to relocate factory. Its equipment has been in idle status. 6.The operating status of main controlling subsidiaries and joint ventures 1. Victor Onward Printing and Dyeing (Hong Kong) Co., Ltd. Victor Onward Printing and Dyeing (Hong Kong) Limited is a wholly-owned subsidiary of the Company. It was registered by the Company for developing foreign market in Hong Kong in 1984 with registered capital of HKD 5 million. The Company holds 100% of its shares. It mainly engaged in supplying raw materials to the Company and marketing the Company's products. At present, the company owns commercial office building, warehouses and a full-size vehicle transportation fleet. It has total assets of about HKD 117.20 million. It is the Company's marketing center, financial center and investment center in Hong Kong and abroad. It net profit amounting to HKD0.17 million in 2007. 2. Shenzhen Nanhua Printing and Dyeing Co., Ltd. Shenzhen Nanhua Printing and Dyeing Co., Ltd. was established on July 21, 1988 with registered capital of HKD 85.49 million. The Company holds 58.47% of its shares. It mainly engaged in printing and dyeing of various garment fabrics. Nanhua Company officially shut down for rectification and has dismissed part of employees in February 2007. As of the end of 2007, its total assets, net assets and net profit were RMB 35,057,863, RMB - 11,082,103 and RMB - 28,431,705 respectively. 3. Shenzhen Veal Opel Garment Co., Ltd. Shenzhen Veal Opel Garment Co., Ltd. was set up on January 27, 1997 with the registered capital amounting to RMB 1 million . The Company held 90% equity. This company mainly engaged in domestic commerce, materials supply and marketing (excluding special operating, special controlling and special selling products). In 2006, it suffered loss amounting to RMB 1.60 million . On August 23, 2007,The 22nd meeting of the fourth board of directors of the Company resolved to assign 90% equity of Shenzhen Veaopel Co., Ltd. held by it at RMB 0.9 million, the actual amount of capital contribution. The board of directors agreed to authorizing Mr. Sun Zhiping to sign relevant legal documents. The said equity assignment has been completed. The sales of equity of Shenzhen Weiou Peier Garment Co., Ltd. brought loss of RMB 9,706,099 on debt restructuring to the Company. 4. Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. was established on February 28, 2007. It has registered capital of RMB 3 million and is mainly engaged in the sales of products, raw materials, auxiliary materials and mechanical equipment related to textile, printing and dyeing industry as well as various fabrics and garments (not including monopolized commodities). On April 6, 2007, a special meeting of the fourth board of directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held in the mode of voting through correspondence. The meeting examined and voted through the resolution for acquiring part of equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. The registered capital of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is RMB 3 million. Nanjing East Asia Textile Printing and Dyeing Co., Ltd. holds 100% equity of this company. The board of directors agreed to the Company's acquisition of 51% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. held by Nanjing East Asia Textile Printing and Dyeing Co., Ltd. at the price of RMB 1.53 million, i.e., the actual amount of capital contribution. After completion of acquisition, the Company and Nanjing East Asia Textile Printing and Dyeing Co., Ltd. will respectively hold 51% and 49% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. The procedure of change in industrial and commercial registration for this equity acquisition has been completed. As of the end of 2007, the total assets , Net assets and Net profit of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. were RMB 10,827,420, RMB 2,094,865 and RMB -905,135. (II) Forecast of the Company's future development 1. The development trend of the industry the Company is engaged in and the situation of market competition confronted by the Company In recent years, the cost in printing & dyeing industry is continuinghigh in Shenzhen. In 2005 and 2006, the printing & dyeing business of the Company has had big losses in the past two years. Productions & operations are in serious difficulties and are hard to continue normal operation. In order to actively promote the step-by –step migration of the printing & dying industry towards the inner mainland, the Company controlled subsidiary Nanhua Printing & Dyeing and the Company ownerd Printing & Dyeing Factory are continuously suspended for rectification. 2. Development opportunities and challenges in the future and business plan for the new year: In the first half of the year, the company started the relocation program of the printing & dyeing business. As of December 31, 2007, the interface plan for the Company’s printing & dyeing business are as follows: 1.Because the climate in Nanjing in this season is rainy and instable, infrasture project of Nanjing factory is slightly delayed comparing to the original plan. It is expected that the time of production start of Nanjing Factory will still be postponed. 2.Influenced by decline in export rebate and RMB appreciation, export orders in dyeing & printing industry was not so pleasant. Export firstly appeared negarive growth . In order to reduce the cost of sales in Hong Kong company, the Company set up a comtrolling enterprise “ Shenzhen East Asia Victor Onward Textile Industrial Co., Ltd.” (hereinafter refered to as “East Asia Victor”) to connect the original printing & dyeing business of Company. In 2007, East Asia Victor Onward realized turnover of RMB 53.90 million. 3. The fund needed by the Company to realize the strategy of sustainable development, the plan to use funds and fund source Nil 4,Main risk factors and countermeasures The Company is a traditional printing and dyeing enterprise mainly engaged in taking overseas orders. With small scale, it is greatly influenced by international textile market. Due to unceasing rise in the price of fuels and dyestuff in recent years, the operation scale of the Company has continuously shrunken and its profitability is very weak. In 2005, the Company suffered loss of RMB 37 million. In 2006, it suffered loss of RMB 48.76 million after deduction of non-recurring income realized through assignment of equity of Industrial Bank. In 2007, it also suffered loss. At present, the core production equipment and management team of the Company have moved to Nanjing and the Company only holds 30% equity of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. The Company has faced the situation of no main operation. Due to delay of basic construction, Nanjing Factory failed to commence production as scheduled at the end of September. There is no sign of improvement of the Company's printing and dyeing business in the near future and the Company is facing an operation predicament. 2. Investment in the report period (I) There were neither funds raised in the report period nor those raised in previous periods whose use continued in the report period. (II) In the report period, there were no investment projects utilizing non-raised funds. 3. Notes to the unqualified auditor's report with paragraph of emphasized matters issued by Shine Wing Certified Public Accountants for the Company's financial report for 2007. (I) Basic information about the matters involved in non-standard unqualified audit opinions: Shine Wing Certified Public Accountants issued unqualified auditor's report with paragraph of emphasized matters for the Company's financial statements for 2007. Basic information of emphasized matters: Shine Wing Certified Public Accountants reminds the users of financial statements to pay attention to the fact that the Company fully suspended its main operation for rectification from March 2007 and suffered loss of RMB 124,579,539 in 2007, as mentioned in note 15 to financial statements. The Company disclosed the improvement measures planned to be taken in note 15 to financial statements. However, the matters or circumstances that may cause great worries about its ability of continuous operation are still greatly uncertain. This paragraph does not affect audit opinions that have been given. (II) Basic opinions of certified public accountants on such matter: Shine Wing Certified Public Accountants accepted entrustment, completed the audit of the financial statements of the Company for 2007 and issued unqualified auditor's report with paragraph of emphasized matters for the Company's financial statements for 2007. In accordance with No. 14 Rule for Preparation and Report of Information Disclosure by Companies Publicly Issuing Securities - Non-standard Unqualified Audit Opinions and Treatment of Matters Involved Therein, relevant notes are as follows: As noticed by Shine Wing Certified Public Accountants during audit, the land of the Company for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased. Shenzhen Nanhua Printing and Dyeing Company, a major subsidiary of the Company suspended production for rectification in February 2007. The Company made provision of RMB 54,718,933 for assets impairment loss. Its operating income and operating profit for 2007 decreased by 57% and 654% respectively over the previous year. The Company suffered loss of RMB 124,579,539 for the year. The loss for the shareholders of the parent company is RMB 116,356,882. The Company is actively looking for the method of business transfer or transformation. It plans to invest in Nanjing East Asia Textile Printing and Dyeing Co., Ltd. with part of machinery and equipment. The Company established Shenzhen East Asia Company, a subsidiary engaged in trade. However, the matters or circumstances that may cause great worries about its ability of continuous operation are still greatly uncertain. So we made emphasizing statement in the auditor's report in respect of the said circumstance and issued unqualified auditor's report with paragraph of emphasized matters. This special statement is issued by us according to relevant regulations of CSRC and shall not be used for other purpose. We and the C.P.A. who performed this service shall not bear any liability for the consequences caused by its improper use. (III) The opinions of the board of directors, supervisory committee and management of the Company on this matter: In the opinion of the board of directors, supervisory committee and management of the Company, Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd., a controlled subsidiary established by the Company in Shenzhen, undertakes the original printing and dyeing business of the Company. The operation of printing and dyeing business is uninterrupted during this period. As the transfer of the Company's printing and dyeing business is somewhat delayed, the production and operating activities of the Company have been seriously affected, which, as expected, can not return to normal status within three months. In accordance with the provisions of 13.3.1 of Stock Listing Rules of Shenzhen Stock Exchange, Shenzhen Stock Exchange carried out special treatment of the stocks of the Company from August 27, 2007. (IV) Extent of influence of this matter on the Company: This matter will generate significant influence on the Company's production and operating activities and continuous development. (V) The possibility of eliminating this matter and its influence: Though the transfer of printing and dyeing business has been somewhat delayed, the Company's transfer plan is being implemented step by step. The Company can eliminate this matter and its influence to a great extent. (VI) The concrete measures of eliminating this matter and its influence To guarantee the Company's stable operation and continuous development, the Company will strengthen the management and coordination of engineering construction and try to implement the transfer plan as soon as possible. IV. Routine work of the board of directors 1. Board meetings and resolutions in the report period: In the report period, the board of directors of the Company held eight meetings in total. 1. In the afternoon of Fubruary 8, 2007, the 19th meeting of the fourth board of directors of the Company was held in the meeting room on the 16/F of Union Building , Shennan Road Central, Shenzhen. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on Fubruary 10, 2007. 2. On March 15, 2007, the 20th meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on March 20, 2007. 3. On April 6, 2007, a special meeting of the fourth board of directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held in the mode of voting through correspondence. The meeting examined and voted through the resolution for acquiring part of equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. The registered capital of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is RMB 3 million. Nanjing East Asia Textile Printing and Dyeing Co., Ltd. holds 100% equity of this company. The board of directors agreed to the Company's acquisition of 51% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. held by Nanjing East Asia Textile Printing and Dyeing Co., Ltd. at the price of RMB 1.53 million, i.e., the actual amount of capital contribution. After completion of acquisition, the Company and Nanjing East Asia Textile Printing and Dyeing Co., Ltd. will respectively hold 51% and 49% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. 4.On April 24, 2007, the 21th meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 26, 2007. 5. In the Morning of August 23, 2007, the 22th meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on August 27, 2007. 6. In the Morning of September 5, 2007, the 23th meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on September 13, 2007. 7. In the Morning of September 14, 2007, the first provisional meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on September 15, 2007. 8. In the Morning of October 26, 2007, the second provisional meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on October 30, 2007. (2)Implementation by the board of directors of the resolutions of the shareholders' general meeting The board of directors of the Company strictly implemented the resolutions of shareholders' general meetings and the matters authorized by shareholders' general meetings according to the provisions of the Company Law and the Articles of Association of the Company. 1. 2006 annual shareholders' general meeting of the Company examined and adopted the proposal for the profit distribution of the Company for 2006: The Company is neither to distribute dividends nor capitalize capital surplus for 2006. 2. The Company amended the articles of association of the Company according to the resolutions of 2007 the first provisional shareholders' general meeting of the Company. At present, this matter is under way. 4. Profit distribution preplan for 2007 As audited by Shinewing Certified Public Accountants, the total profit of the Company for 2007 is RMB -124,409,530 , After deduction of minority gains and losses of RMB -8,222,657 and income tax expenses of RMB 170,009, net profit is RMB-124,579,539,the total year-end undistributed profit is - RMB -89,853,184. The Company is neither to distribute profit nor to capitalize capital surplus for the current year. Profit Distribution Policy for 2008: Due to the demand of funds in respect of operation and investment, the Company also will not distribute the profit and undistributed profit for 2008. The Board of Directors determines the distribution preplan for 2008 according to the actual situations of the Company, and makes the corresponding adjustment according to the Company’s operation development. Section VIII Report of the Supervisory Committee I. The meetings of the supervisory committee In the report period，the supervisory committee of the Company held three meetings in total. (1)In the afternoon of February 8, 2007, the 12th meeting of the fourth board of directors of the Company was held in the meeting room on the 16/F of Union Building , Shennan Road Central, Shenzhen. The meeting was presided over by Mr. Dong Binggen, the convener of the supervisory committee of the Company. 3 persons were supposed to attend the meeting and all of them were present. The Company's supervisors and senior executives attended the meeting as non-voting delegates. The meeting examined and adopted the following resolutions: 1. 2006 Work Report of the Company; 2. 2006 Auditor's Report of A shares and B shares of the Company ; 3. Profit Distribution Preplan of the Company for 2006 and Its Profit Distribution Policy for 2007; 4. 2006 Annual Report and 2006 Annual Report (Summary) of the Company; 5. The proposal for terminating the investment RMB 165 million in constructing 500 sets of digital polychromatic printing system in Kuichong, Shenzhen. 6. The proposal for increasing the capital of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. (II) In the morning of August 23, 2007, the13th meeting of the fourth supervisory committee of the Company was held through voting by correspondence. The meeting examined and adopted 2007 Semiannual Report of the Company and Summary of 2007 Semiannual Report of the Company. (III). The 11th meeting of the fourth supervisory committee of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held on 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of October 26, 2007. The meeting examined and adopted the following resolutions: 1. The proposal for amending part of the Articles of Association of the Company; 2. Rules on Management of Shares of the Company Held by Directors , Supervisors and Senior Executives of Shenzhen Victor Onward Textile Industrial Co., Ltd. and Their Change. 3. Detailed Working Rules of General Manager of Shenzhen Victor Onward Textile Industrial Co., Ltd.; 4. Rectification Report of Shenzhen Victor Onward Textile Industrial Co., Ltd. on Special Activities for Strengthening Corporate Governance; 5. The Report of Shenzhen Victor Onward Textile Industrial Co., Ltd. for the Third Quarter of 2007. II. In the report period，the supervisory committee seriously performed its duties and expressed independent opinions in respect of the following matters: 1. The operation of the Company according to law. In the report period, the Company operated strictly according to Company Law, Securities law and the Articles of Association of the Company and other relevant laws and regulations. The Company's procedure of decision was legal and its internal control system was sound. The directors and managers of the Company all did their duties during their work and none of their acts were found to violate the laws, regulations and the Articles of Association or harm the Company's interests. 2. Inspection of the financial status of the Company. The Supervisory Committee carefully checked and examined the financial data of the Company including the financial report of the Company for 2007 audited by Shine Wing Certified Public Accountants and held the opinion that the unqualified auditor's report of the Company for 2007 with paragraph of emphasized matters issued by Shine Wing Certified Public Accountants was true and gave a true view of the financial position and operating results of the Company. 3. The Company did not raise funds in the report period. The funds last raised after listing were invested in such projects as promised in Prospectus. 4. Neither insider trading nor act that caused harm to the rights and interests of part of shareholders or the loss of the Company's assets was found in respect of the transaction price of the assets purchased or sold by the Company. 5. The related transactions between the Company and associated enterprises (companies) were conducted in a fair manner and at market prices. The joint investment made by the Company and related enterprises is in keeping with the interests of the Company. Relevant voting procedure complied with relevant provisions of the Articles of Association of the Company and Stock Listing Rules of Shenzhen Stock Exchange and related directors observed the regulations on absence during vote. The related transactions were fair and reasonable and did not harm the interests of the Company and middle and small shareholders. 6. In the report year, Shine Wing Certified Public Accountants issued unqualified auditor's report with paragraph of emphasized matters for the Company's financial report for 2007. Company board of supervisors that: In recent years, the cost in printing & dyeing industry is continuinghigh in Shenzhen. In 2005 and 2006, the printing & dyeing business of the Company has had big losses in the past two years. Productions & operations are in serious difficulties and are hard to continue normal operation. In order to actively promote the step-by –step migration of the printing & dying industry towards the inner mainland, the Company controlled subsidiary Nanhua Printing & Dyeing and the Company ownerd Printing & Dyeing Factory are continuously suspended for rectification. As the transfer of the Company's printing and dyeing business is somewhat delayed, the production and operating activities of the Company have been seriously affected, which, as expected, can not return to normal status within three months. In accordance with the provisions of 13.3.1 of Stock Listing Rules of Shenzhen Stock Exchange, Shenzhen Stock Exchange carried out special treatment of the stocks of the Company from August 27, 2007. Section IX Important Events I. The Company did not get involved in any material lawsuit or arbitration in the report period. II. The acquisition and disposal of assets and merger by absorption in which the Company was involved in the report period. 1. On April 6, 2007, a special meeting of the fourth board of directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held in the mode of voting through correspondence. The meeting examined and voted through the resolution for acquiring part of equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. The registered capital of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is RMB 3 million. Nanjing East Asia Textile Printing and Dyeing Co., Ltd. holds 100% equity of this company. The board of directors agreed to the Company's acquisition of 51% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. held by Nanjing East Asia Textile Printing and Dyeing Co., Ltd. at the price of RMB 1.53 million, i.e., the actual amount of capital contribution. After completion of acquisition, the Company and Nanjing East Asia Textile Printing and Dyeing Co., Ltd. will respectively hold 51% and 49% equity of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. As of April 27, 2007, The procedure of change in industrial and commercial registration for this equity acquisition has been completed. The above matter had no apparent influence on the continuity of the Company's business, the stability of its management and its financial position and operating results. Its operating income, i.e., RMB 53.90 million accounts for 52.04% of that of the Company, i.e., RMB 103.57 million. 2. On August 23, 2007, the 22nd meeting of the fourth board of directors of the Company resolved to assign 90% equity of Shenzhen Weiou Peier Garment Co., Ltd. held by it at RMB 0.9 million, the actual amount of capital contribution. The board of directors agreed to authorizing Mr. Sun Zhiping to sign relevant legal documents. The said equity assignment has been completed. The sales of equity of Shenzhen Veaopel Co., Ltd. brought loss of RMB 9,706,099 on debt restructuring to the Company. III. Related transactions. (I) Related transactions related to daily operation (1) Pricing policy The goods consigned by the Company to related parties for processing and the products sold by it to related parties are priced based on market price. (2) Fund transfer between the Company and related parties Related party Subject December 31,2007 December 31,2006 Shenye Union Account receivable - 370,988 Union Property Other receivable 3,253,261 3,000,000 Union Group Other payable 19,251,617 16,291,275 The fund provided by related parties to the Company is the working capital loan provided by Union Group and Union Property to Nanhua Company, a subsidiary of the Company. 2. Current account balance of claims and debts and guarantee: (1) Balance of current accounts with related parties in 2007. Name of related Financing to related party Financing of related party to the party Company Transaction Transaction amount Amount amount Amount Union Property - - 253,261 3,253,261 Union Group - - 2,960,342 19,251,617 Total - - 3,213,603 22,504,878 3. Other material related transactions No other material related transaction. 4. Significant contracts and their performance (I) The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust or contract for the assets of the Company in the report period. (2). Significant guarantee: (A) In the report period, the Company did not provided the external guarantee mentioned in ZJF (2003) No. 56 Document issued by CSRC. There was no significant guarantee that was provided in previous periods but continued to be valid in the report period. The Company will actively implement the gist of ZJF No. 56 Document strictly according to the requirements of laws and regulations of the Company Law, the Securities Law, Stock Listing Rules and the Articles of Association of the Company, further standardize the fund transfer between the Company and the controlling shareholder and other related parties, lower operation risk and protect the legitimate rights and interests of investors. (B) The special statement and independent opinions of the independent directors on the external guarantee of the Company. According to the gist of ZJF (2003) No. 56 Document - Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies ("the Circular") issued by CSRC, we, as the Company's independent directors，seriously examined the status of the external guarantee provided by the Company with practical attitude and hereby give our opinions on relevant issues: According to the result of our prudent investigation，the Company did not provide guarantee to its controlling shareholder, other related parties of which the Company holds less than 50% equity, any unincorporate entity or individual against regulations nor did the controlling shareholder and other related parties force the Company to provide guarantee to others as of the end of the report period. In the report period，the Company specified the examination and approval procedure of external guarantee and the credit standards for the object of guarantee according to the gist of the Circular, added the same to the revised Articles of Association of the Company, strictly observed the provisions of the Articles of Association of the Company and strictly controlled the risks of its external guarantee. （3）The Company did not entrust others to manage its cash assets in the report period. （4）Other significant contracts The first provisional shareholders' general meeting of Shenzhen Victor Onward Textile Industrial Co., Ltd. in 2007 held on April 6, 2007 adopted the proposal for increasing capital of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. Nanjing East Asia Textile Printing and Dyeing Co., Ltd. ("Nanjing East Asia") is a sino-foreign equity joint venture legally registered in Nanjing. The Company plans to operate Nanjing East Asia as a joint venture through increasing share capital of Nanjing East Asia. The Company is to increase capital of Nanjing East Asia with material objects valued at RMB 30 million as registered capital (full payment of subscribed registered capital is subject to the appraised value accepted by both parties), which accounts for 30% of total registered capital. The original shareholders of Nanjing East Asia are to invest RMB 70 million in Nanjing East Asia as registered capital (Full payment of subscribed registered capital is subject to audited amount accepted by both parties), which accounts for 70% of total registered capital. After completion of share capital increase, Nanjing East Asia will be renamed as Nanjing Victor Onward Textile Printing & Dyeing Co., Ltd. The said share capital increase has been approved by the department in charge of foreign capital in Nanjing. (5) In accordance with the notice of Shenzhen Stock Exchange about Fair Information Disclosure of Listed Companies, the Company improved internal control system and procedure for information disclosure and formulated reception and introduction system, information disclosure, reference and registration system. The Company and relevant information disclosure obligors strictly abode by the principle of fair information disclosure, neither implemented discriminatory policy nor disclosed, revealed or divulged non-open significant information to specific objects. Reception Place Mode Object Discussion issue and offered information Year 2007 Office of Telephone Individual The Company communicated board investor with investors in respect of its secretary production and operation of the status, special treatment of Comapny trading of its stocks and its reorganization and listened to the opinions of investors. (VI)Commitment made by the Company or shareholders holding over 5% of shares of the Company. 1.Capital commitments 1.As of December 31, 2007, Group has signed a contract but there are still outstanding major agreement total foreign investment RMB 30 million .Specific conditions are as follows: Name Investment Payable Non-payable Investme Notes amount amount amount of nt Period of investment investm ent Not because Investment of the inmachinery other and equipment production in Nanjing 30 million - 30 million sites can East asia not be Textiles Co., completed ltd. relocation 2.The Signed or is ready to carry out the contract of large contracts As of December 31, 2007,The Group still has signed the agreement but didnotpaylarge amounts of letting contracts total RMB 1.71 million. Specific conditions are as follows: Name Investment Payable Non-payab Investment Notes amount amount of le amount Period investment of investment The Not because of lelocation the other of production production 1,710,000 855,000 855,000 sites can not equipment be completed as a whole relocation works 3.According to the signed contract or provision to carry lease contract and financial impact. On December 31, 2007, According to the signed irrevocable contract for operating lease, the lowestrent to be paid in the future is as follow: Period Business lease T+1 year 448,238 T+2 years 358,344 T+3 years 29,862 Over T+3 year - Total 836,444 2. Union Management Co., Ltd, the largest shareholder of the Company, made special commitment during the Company’s share holding structure reform: The original non-negotiable shares shall not be listed and sold through Shenzhen Stock Exchange within 36 months after the date of execution of share holding structure reform. At present, this commitment is under fulfillment. (VII)Engagement and ismission of Certified public Accountants In the report period, The Company still engaged Shine Wing Certified Public Accountants to do the auditing work .The annual auditing fees totaled RMB 0.30 million, Shine Wing Certified Public Accountants has providing auditing service for 2 years for the Company in succession. (VIII) Punishment to the Company , its Directors, Supervisors and senior Managment and rectification in the reporting period. （1）During the report Period, none of the Company, its Directors,Supervisors, senior Management , Shareholders or actual controllers was subject to investigation by cometent authorities, enforcement measures by judicial and regulatory authorities, transfer to judicial departments or prosecution for criminal liability, inspection or administrative punishment by CSRC, non-admission to securities market, or punishment by other administrative departments or public condemnation by the Zhenzhen Exchange as a result of being identified as an inappropriate candidate. (II) On-Site Inspection of Shenzhen Securities Regulatory Bureau to Our Company and Special Governance Campaign in 2007. 1. On-Site Inspection of Shenzhen Securities Regulatory Bureau to Our Company in 2007 From Oct 9th to 19th, 2007, Shenzhen Securities Regulatory Bureau of China Securities Regulatory Commission made on-site inspections to our corporate governance, information disclosure, financial management and accounting treatment from 2005 to June 30th, 2007, and issued the Circular of Requiring Shenzhen Zhongguan Textile Printing & Dyeing Co., Ltd to Take Corrective Actions within Required Period (Shenzhen Securities Regulatory Bureau Company Letter [2007] No.129) on December 25th, 2007. We have treated problems found in the inspection seriously, taken corrective actions, mapped out and submitted the Corrective Schemes of Shenzhen Victor Onward Textile Industrial Co., Ltd. to the 25th meeting of 4th board of directors and 15th meeting of 4th board of trustees for review and approval. 2. Annual Corporate Governance Campaign in 2007 According to the Circular of China Securities Regulatory Commission on Relevant Matters of Enhancing the Governance Campaign for Listed Firms, the Circular of Shenzhen Stock Exchange on Relevant Work of Enhancing the Governance Campaign for Listed Firms and the Circular of Shenzhen Securities Regulatory Bureau on Relevant Work of Enhancing the Governance Campaign for Listed Firms in Shenzhen, we have taken the situation of our company into consideration and started to inspect our corporate governance from April 2007. On September 15th, our corporate governance self-inspection report and corrective actions were disclosed on (See Securities Times, Hong Kong Commercial Daily and the information disclosure website www.cninfo.com.cn specified by China Securities Regulatory Commission for details). Later on, Shenzhen Securities Regulatory Bureau made an on-site inspection to the governance situation and the governance campaign of our company, and issued the Regulatory Viewpoint on the Governance of Shenzhen Zhongguan Textile Printing & Dyeing Co., Ltd (Shenzhen Securities Regulatory Bureau Company Letter [2007] No.78). Based on our self-inspection result in earlier time, public appraisal and the on-site inspection result of Shenzhen Securities Regulatory Bureau to our company, we have determined corrective actions, time and individuals to implement these actions to areas of corporate governance to be improved, and implement these actions as required. On October 26th, 2007, the Corrective Actions Report of Shenzhen Zhongguan Textile Printing & Dyeing Co., Ltd on “Enhancing the Governance Campaign on Listed Firms” was disclosed (See Securities Times, Hong Kong Commercial Daily and the information disclosure website www.cninfo.com.cn specified by China Securities Regulatory Commission for details). By now, our governance enhancing campaign comes to an end perfectly. According to the requirements of the Notice of Strengthening Supervision of the Provision of Non-public Information to the Controlling Shareholder and Actual Controller by A Listed Company (Shen Zheng Ju Gong Si Zi (2007) No. 11) and the Follow-up Notice of Strengthening Supervision of Non-standard Administration Acts including Provision of Non-public Information to the Controlling Shareholder and Actual Controller of A Listed Company (Shen Zheng Jun Gong Si Zi (2007) No.39 Document, hereinafter referred to as "No. 39 Document) issued by Shenzhen Securities Regulatory Bureau on March 19, 2007, the Company seriously conducted self inspection. Relevant information is as follows: (1), The monthly financial statements submitted by the Company to the controlling shareholder and actual controller shall be submitted to the chairman of the board of directors of the Company for review and to its general manager for signing. "Internal information and responsibility for confidentiality" shall be indicated. Periodical reports such as quarterly report, semiannual report and annual report may be submitted only after the completion of official (or audited) financial report of the Company and its submission to the board of directors for examination and its announcement. Except the above cases, there are no circumstances between the Company and its controlling shareholder or actual controller specified in No. 39 Document, i.e., non-standard administration circumstances including reporting production and investment plan and financial budget, accepting appointment and dismissal of high-ranking and middle-ranking managerial personnel of the Company by the controlling shareholder or actual controller, audit of the Company and its subsidiaries or specific projects, examining and approving asset acquisition and external investment projects of the Company and implementing title representation reporting system. (2) Measures for strengthening management of insider information and preventing insider trading The Company has submitted the Letter of Commitment of the Company and Its Controlling Shareholder and Actual Controller for Strengthening Management of Non-public Information to Shenzhen Securities Regulatory Bureau according to the requirements of No. 39 Document. It communicated the requirements of Shenzhen Securities Regulatory Bureau to its directors , supervisors and senior executives and urged them to bear confidential obligations in respect of non-public information of the Company they have learned strictly according to laws and regulations including the Securities Law and Regulations on Information Disclosure of Listed Companies. They shall not provide relevant information to relevant shareholders or actual controller of the Company or other specific objects in their personal name before the Company publicly discloses relevant information. The listed firm governance enhancing campaign launched by China Securities Regulatory Commission in 2007 has not only achieved the expected end, but also provided a great opportunity for us to constantly improve our corporate governance. We will take this governance campaign as an opportunity to improve operation and perfect governance structure. (IX) Future issues of balance sheet Since January 1, 2008, the Company and the subsidiary established in China comply with the Enterprise Income Tax Law of People's Republic of China published by No. 63 of Decree of chairman of People’s Republic of China, according to the State Council on December 26, 2007, of the [2007] No. 39 Notice on the Implementation of Enterprise Income Tax Preferential Policies for the Transition, the enterprise income tax rate of the Company and the subsidiaries in China mainland gradually transited from 15% to 25%, the company implement the transition rate of 18% in 2008. (X) Other material events 1 As the transfer of the Company's printing and dyeing business is somewhat delayed, the production and operating activities of the Company have been seriously affected, which, as expected, can not return to normal status within three months. In accordance with the provisions of 13.3.1 of Stock Listing Rules of Shenzhen Stock Exchange, Shenzhen Stock Exchange carried out special treatment of the stocks of the Company from August 27, 2007. 2. We purchased new shares with self RMB 20 million funds in 2007 ,and realized earnings of RMB3,258,808. Section X Financial Report Auditor’s report XYZH/2007A1022-1 To the shareholders of Shenzhen Victor onward Textile Industrial Co., Ltd.： We audited accompanying consolidated financial statements and financial statements of the parent company of Shenzhen Victor Onward Textile Industrial Co.,Ltd.(hereinafter referred to as "the Company"), including balance sheet as at December 31, 2007, profit statement, cash flow statement and statement of changes in shareholders' equity for the year then ended and the notes to financial statements. I. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with international Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting polices; and making accounting estimates that are reasonable in the circumstances. II. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We conducted our audit in accordance with International Standards on Auditing, Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. III. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2007, and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standard. IV. Matters emphasized We remind the users of financial statements to pay attention to the fact that the Company fully suspended its main operation for rectification from March 2007 and suffered loss of RMB 124,579,539 in 2007, as mentioned in note 15 to financial statements. The Company disclosed the improvement measures planned to be taken in note 15 to financial statements. However, its ability of continuous operation is still greatly uncertain. This paragraph does not affect audit opinions that have been given. Shine Wing Certified public CPA Accountants Guo Jinlong CPA Zheng Fuli Beijing Chian April 28, 2008 Consolidated Balance Sheet Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Assts Note December 31,2007 December 31, 2006 Current assets: Monetary capital VIII.1 52,656,852 98,978,440 Settlement provision Outgoing call loan Trading financial assets VIII.2 140,423 90,825 Bill receivable VIII.3 0 6,650,741 Account receivable VIII.4 6,134,029 62,003,774 Prepayments VIII.5 54,712 343,832 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable 0 0 Dividend receivable 0 0 Other account receivable VIII.6 8,860,543 560,239 Repurchasing of financial assets Inventories VIII.7 11,151,708 71,078,373 Non-current asset due in 1 year 0 0 Other current asset 0 239,423 Total of current assets 78,998,267 239,945,647 Non-current assets： Loans and payment on other’s behalf disbursed Disposable financial asset VIII.8 836,861 299,300 Expired investment in possess 0 0 Long-term receivable 0 0 Long term share equity investment VIII.9 65,629,837 57,940,101 Property investment VIII.10 29,286,179 26,973,333 Fixed assets VIII.11 54,202,203 121,024,952 Construction in progress VIII.12 0 312,859 Engineering material 0 0 Fixed asset disposal 0 0 Production physical assets 0 0 Gas & petrol 0 0 Intangible assets VIII.13 498,219 1,403,207 R & D petrol 0 0 Goodwill 0 0 Long-germ expenses to be amortized 0 0 Differed income tax asset 0 0 Other non-current asset 0 0 Total of non-current assets 150,453,299 207,953,752 Total 229,451,566 447,899,399 Consolidated Balance Sheet(Cont’d) Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Liabilities and shareholders' equity Note December 31,2007 December 31,2006 Current liabilities Short-term loan VIII.14 0 62,000,000 Loan from Central Bank Deposit received and hold for others Call loan received Trade off financial liabilities 0 0 Bill payable VIII.15 0 7,409,611 Account payable VIII.16 4,936,984 25,017,704 Items received in advance VIII.17 5,833,758 956,148 Selling of repurchased financial assets Fees and commissions receivable Employees’ wage payable VIII.18 776,560 2,232,164 Tax payable VIII.19 2,447,382 1,779,269 Interest payable 0 0 Dividend payable VIII.20 1,404,480 1,506,921 Other account payable VIII.21 28,418,511 24,450,580 Non-current liability due in 1 year 0 0 Other current liability 1,265,701 1,033,132 Total of current liability 45,083,376 126,385,529 Non-current liabilities： Long-term loan VIII.22 1,928,557 2,147,933 Bond payable 0 0 Long-term payable VIII.23 9,802,757 10,517,759 Deferred income VIII.24 966,538 1,037,036 Expected liabilities VIII.25 0 4,758,816 Differed income tax liability VIII.26 1,195,397 1,547,038 Other non-current liabilities 0 0 Total of non-current liabilities 13,893,249 20,008,582 Total of liability 58,976,625 146,394,111 Owners’ equity Share capital VIII.27 169,142,356 169,142,356 Capital reserves VIII.28 43,881,067 34,902,008 Less：Shares in stock 0 0 Surplus reserves VIII.29 26,309,287 26,309,287 Common risk provision Undistributed profit VIII.30 -89,853,184 27,459,127 Different of foreign currency translation 20,122,586 35,736,303 Total of owner’s equity belong to the parent 169,602,112 293,549,081 company Minor shareholders’ equity VIII.31 872,829 7,956,207 Total of owners’ equity 170,474,941 301,505,288 Total of liabilities and owners’ equity 229,451,566 447,899,399 Consolidated Profit statement Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Items Note Year 2007 Year 2006 I.Income from the key business VIII.32 103,568,595 243,278,584 Incl：Business income 103,568,595 243,278,584 Interest income Insurance fee earned Fee and commission received II.Total business cost VIII.32 224,659,687 299,414,120 Incl：Business cost 119,387,919 235,480,869 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves Insurance policy dividend paid Reinsurance expenses Business tax and surcharge VIII.33 1,833 34,813 Sales expense VIII.34 8,606,930 9,224,812 Administrative expense VIII.35 34,992,178 24,681,075 Financial expenses VIII.36 6,951,894 9,814,511 Asset impairment loss VIII.37 54,718,933 20,178,040 Add：Gains from change of fir value VIII.38 57,809 58,906 （“-”for loss） Investment gain（“-”for loss） VIII.39 8,531,392 76,401,574 Incl: Investment gains from affiliates 3,331,782 -257,440 Gains from currency exchange（“-”for loss） 0 0 III. Operational profit（“-”for loss） -112,501,891 20,324,944 Add：Non-business income VIII.40 94,621 1,862,375 Less：Non business expenses VIII.41 12,002,260 353,431 Incl：Loss from disposal of non-current assets 2,258,181 122,405 IV.Total profit(“-”for loss) -124,409,530 21,833,888 Less：Income tax expenses VIII.42 170,009 2,225,057 V. Net profit（“-”for net loss） -124,579,539 19,608,831 Net profit attributable to the owners of -116,356,882 28,992,654 parent company Minor shareholders’ equity -8,222,657 -9,383,823 VI. Earnings per share： （I）Basic earnings per share -0.690 0.170 (II)Diluted earnings per share -0.690 0.170 Consolidated Cash flow statement Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Items Note Year 2007 Year 2006 I.Cash flows from operating activities Cash received from sales of goods or rending of 176,654,559 261,030,019 services Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter-bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal 3,258,808 0 Cash received as interest, processing fee and commission Net increase of inter-bank fund received Net increase of repurchasing business Tax returned 6,396,030 10,624,431 Other cash received from business operation VIII.43 5,547,890 17,235,533 Sub-total of cash inflow 191,857,287 288,889,983 Cash paid for purchasing of merchandise and services 133,202,385 234,689,109 Net increase of client trade and advance Net increase of savings n central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 28,433,553 26,781,936 Taxes paid 12,520,840 3,299,636 Other cash paid for business activities VIII．43 9,573,077 23,845,817 Sub-total of cash outflow from business activities 183,729,855 288,616,498 Cash flow generated by business operation, net 8,127,432 273,485 II.Cash flow generated by investing Cash received from investment retrieving 0 105,000,000 Cash received as investment gains 6,918 4,202 Net cash retrieved from disposal of fixed assets, 12,169,848 8,047,151 intangible assets, and other long-term assets Net cash received from disposal of subsidiaries or other 900,557 0 operational units Other investment-related cash received 0 0 Sub-total of cash inflow due to investment activities 13,077,323 113,051,353 Cash paid for construction of fixed assets, intangible 1,189,290 1,300,329 assets and other long-term assets Cash paid as investment 0 0 Net increase of loan against pledge Net cash received from subsidiaries and other 0 0 operational units Other cash paid for investment activities 0 0 Sub-total of cash outflow due to investment activities 1,189,290 1,300,329 Net cash flow generated by investment 11,888,033 111,751,024 III.Cash flow generated by financing Cash received as investment 1,470,000 0 Incl: Cash received as investment from minor 1,470,000 0 shareholders Cash received as loans 0 185,700,000 Cash received from bond placing Other financing –related ash received 0 0 Sub-total of cash inflow from financing activities 1,470,000 185,700,000 Cash to repay debts 62,000,000 228,700,000 Cash paid as dividend, profit, or interests 2,265,015 5,308,696 Incl: Dividend and profit paid by subsidiaries to 0 0 minor shareholders Other cash paid for financing activities 0 0 Sub-total of cash outflow due to financing activities 64,265,015 234,008,696 Net cash flow generated by financing -62,795,015 -48,308,696 IV.Influence of exchange rate alternation on cash and 3,764,504 -2,439,067 cash equivalents V.Net increase of cash and cash equivalents -39,015,046 61,276,746 Add: balance of cash and cash equivalents at the 91,671,898 30,395,152 beginning of term VI.Balance of cash and cash equivalents at the end of 52,656,852 91,671,898 term Consolidated Statement on Change in owners’ Equity Year 2007 Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Items Owner’s equity Attributable to the Parent Company Less: Common Share Capital Surplus Attributable Shares risk Capital reserves reserves profit in stock provision I.Balance at the end of last year 169,142,356 34,902,008 0 26,309,287 0 27,459,127 Add: Change of accounting policy 0 0 0 0 0 0 Correcting of previous errors 0 0 0 0 0 0 II.Balance at the beginning of 169,142,356 34,902,008 0 26,309,287 0 27,459,127 current year III.Changed in the current year 0 8,979,059 0 0 0 -117,312,311 （I） Net profit 0 0 0 0 0 -116,356,882 （II） Gains losses accounted 0 8,979,059 0 0 0 -955,429 into owners’ equity directly I.Change in fair value of 0 557,907 0 0 0 0 sellable financial assets, net 2. Influence of change in other owners’ equity of invested 0 8,421,152 0 0 0 0 enterprises on equity basis 3．Influence of income tax 0 0 0 0 0 0 related to owners’ equity items 4．Other 0 0 0 0 0 -955,429 Total of (I) and (II) 0 8,979,059 0 0 0 -117,312,311 （III） Investment or decreasing 0 0 0 0 0 0 of capital by owners 1.Investment by owners 0 0 0 0 0 0 2．Amount of shares paid and 0 0 0 0 0 0 accounted as owners’ equity 3．Other 0 0 0 0 0 0 （IV） Profit allotment 0 0 0 0 0 0 1．Providing of surplus 0 0 0 0 0 0 reserves 2.Providing of common risk 0 0 0 0 0 0 provisions 3．Allotment to the owners 0 0 0 0 0 0 4．Other 0 0 0 0 0 0 （V） Internal transferring of 0 0 0 0 0 0 owners’ equity 1．Capitalizing of capital 0 0 0 0 0 0 reserves 2．Capitalizing of surplus 0 0 0 0 0 0 reserves 3．Making up losses by surplus 0 0 0 0 0 0 reserves 4．Other 0 0 0 0 0 0 IV. Balance at the end of this term 169,142,356 43,881,067 0 26,309,287 0 -89,853,184 Legal representative: Financial controller The person in charge of the financial Department: Consolidated Statement on Change in owners’ Equity Year 2006 Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit Items Owner’s equity Attributable to the Parent Company Less: Common Share Capital Shares Surplus Attributa risk Capital reserves in reserves profit provision stock I.Balance at the end of last year 169,142,356 30,831,172 0 53,461,763 0 -30,365 Add: Change of accounting policy 0 0 0 0 0 1,679 Correcting of previous errors 0 0 0 0 0 II.Balance at the beginning of current 169,142,356 30,831,172 0 53,461,763 0 -28,686 year III.Changed in the current year 0 4,070,836 0 -27,152,476 0 56,145 （I） Net profit 0 0 0 0 0 28,992 （II） Gains losses accounted into 0 4,070,836 0 0 0 owners’ equity directly I.Change in fair value of sellable 0 0 0 0 0 financial assets, net 2. Influence of change in other owners’ equity of invested enterprises on equity 0 4,070,836 0 0 0 basis 3．Influence of income tax related 0 0 0 0 0 to owners’ equity items 4．Other 0 0 0 0 0 Total of (I) and (II) 0 4,070,836 0 0 0 28,992 （III） Investment or decreasing of 0 0 0 0 0 capital by owners 1.Investment by owners 0 0 0 0 0 2．Amount of shares paid and 0 0 0 0 0 accounted as owners’ equity 3．Other 0 0 0 0 0 （IV） Profit allotment 0 0 0 3,786,663 0 -3,786 1．Providing of surplus reserves 0 0 0 3,786,663 0 -3,786 2.Providing of common risk 0 0 0 0 0 provisions 3．Allotment to the owners 0 0 0 0 0 4．Other 0 0 0 0 0 （V） Internal transferring of owners’ 0 0 0 -30,939,139 0 30,939 equity 1．Capitalizing of capital reserves 0 0 0 0 0 2．Capitalizing of surplus reserves 0 0 0 0 0 3．Making up losses by surplus 0 0 0 -30,939,139 0 30,939 reserves 4．Other 0 0 0 0 0 IV. Balance at the end of this term 169,142,356 34,902,008 0 26,309,287 0 27,459 Parent Company Balance Sheet Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Assets Note December 31,2007 December 31,2006 Current asset： Monetary capital 31,467,687 66,770,592 Trading financial assets 0 0 Bill receivable 0 0 Account receivable IX.1 5,779,780 48,812,324 Prepayments 0 35,000 Insurance receivable 0 0 Dividend receivable 0 0 Other account receivable IX.2 83,780,414 65,871,140 Inventories 9,351,476 54,583,050 Non-current asset due in 1 year 0 0 Other current asset 0 36,709 Total of current assets 130,379,357 236,108,815 Non-current assets： Disposable financial asset 0 0 Expired investment in possess 0 0 Long-term receivable 0 0 Long term share equity investment IX.3 39,438,551 40,762,438 Property investment 7,792,700 8,778,949 Fixed assets 23,501,210 69,632,697 Construction in progress 0 312,859 Engineering material 0 0 Fixed asset disposal 0 0 Production physical assets 0 0 Gas & petrol 0 0 Intangible assets 0 227,135 R & D petrol 0 0 Goodwill 0 0 Long-germ expenses to be amortized 0 0 Differed income tax asset 0 0 Other non-current asset 0 0 Total of non-current assets 70,732,461 119,714,078 Total of assets 201,111,818 355,822,893 Parent Company Balance Sheet(Cont’d) Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Liabilities and shareholders' equity Note December 31,2007 Decenber,312006 Current liabilities Short-term loan 0 37,000,000 Trade off financial liabilities 0 0 Bill payable 0 0 Account payable 2,770,633 15,286,311 Advance received account 1,718,419 125,462 Wages payable 532,758 718,465 Tax payable 2,321,268 -16,694 Interest payable 0 0 Dividend payable 0 0 Other payables 697,981 616,460 Non-current liability due in 1 year 0 0 Other current liability 1,180,756 864,824 Total of current liability 9,221,815 54,594,828 Non-current liabilities： Long-term loan 0 0 Bond payable 0 0 Long-term payable 0 0 Differed income 966,538 1,037,036 Expected liabilities 0 0 Differed income tax liability 3,736,846 3,341,173 Other non-current liabilities 0 0 Total of non-current liabilities 4,703,384 4,378,209 Total of liability 13,925,199 58,973,037 Owners’ equity Share capital 169,142,356 169,142,356 Capital reserves 31,606,598 31,606,598 Less：Shares in stock 0 0 Surplus reserves 26,309,287 26,309,287 Undistributed profit -58,671,452 34,079,969 Different of foreign currency translation 18,799,830 35,711,646 Total of owners’ equity 187,186,619 296,849,856 Total of liabilities and owners’ equity 201,111,818 355,822,893 Parent Company Profit statement Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Items Note Year 2007 Year 2006 I. Business income IX.4 35,373,188 154,784,593 Less：Business cost IX.4 53,160,389 166,029,757 Business tax and surcharge 0 28,255 Sales expense 345,817 1,966,524 Administrative expense 23,959,653 8,364,290 Financial expenses -1,149,489 6,965,716 Asset impairment loss 43,443,769 10,223,744 Add：Gains from change of fir value （“-”for loss） 0 0 Investment gain（“-”for loss） IX.5 4,158,808 76,659,014 Incl: investment gains from affiliates 0 0 II. Operational profit（“-”for loss） -80,228,143 37,865,321 Add：Non-business income 6,053 803,578 Less：Non business expenses 11,883,777 96,188 Incl：Loss from disposal of non-current assets 2,170,205 0 III.Total profit(“-”for loss) -92,105,867 38,572,711 Less：Income tax expenses 645,554 706,079 IV. Net profit（“-”for net loss） -92,751,421 37,866,632 V. Earnings per share： （I）Basic earnings per share (II)Diluted earnings per share Parent Company Cash flow statement Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Items Note Year 2007 Year 2006 I.Cash flows from operating activities Cash received from sales of goods or rending of services 80,561,425 126,139,056 Net increase of trade financial asset disposal 3,258,808 0 Tax returned 1,992,380 8,117,164 Other cash received from business operation 1,707,413 2,842,277 Sub-total of cash inflow 87,520,026 137,098,497 Cash paid for purchasing of merchandise and services 49,604,146 116,116,690 Cash paid to staffs or paid for staffs 15,450,483 12,841,362 Taxes paid 1,496,602 1,723,932 Other cash paid for business activities 21,360,481 7,644,995 Sub-total of cash outflow from business activities 87,911,712 138,326,979 Cash flow generated by business operation, net -391,686 -1,228,482 II.Cash flow generated by investing Cash received from investment retrieving 0 105,000,000 Cash received as investment gains 0 0 Net cash retrieved from disposal of fixed assets, intangible assets, 3,100,000 4,464,052 and other long-term assets Net cash received from disposal of subsidiaries or other 900,000 0 operational units Other investment-related cash received 0 0 Sub-total of cash inflow due to investment activities 4,000,000 109,464,052 Cash paid for construction of fixed assets, intangible assets and 0 763,021 other long-term assets Cash paid as investment 1,530,000 0 Net cash received from subsidiaries and other operational units 0 0 Other cash paid for investment activities 0 0 Sub-total of cash outflow due to investment activities 1,530,000 763,021 Net cash flow generated by investment 2,470,000 108,701,031 III.Cash flow generated by financing Cash received as investment 0 0 Incl: Cash received as investment from minor shareholders 0 160,000,000 Cash received as loans 0 0 Cash received from bond placing 0 160,000,000 Other financing –related ash received 37,000,000 200,000,000 Sub-total of cash inflow from financing activities 116,072 4,335,505 Cash to repay debts 0 0 Cash paid as dividend, profit, or interests 37,116,072 204,335,505 Incl: Dividend and profit paid by subsidiaries to minor shareholders -37,116,072 -44,335,505 Other cash paid for financing activities -265,147 -1,267,746 Sub-total of cash outflow due to financing activities -35,302,905 61,869,298 Net cash flow generated by financing 66,770,592 4,901,294 IV.Influence of exchange rate alternation on cash and cash equivalents 31,467,687 66,770,592 V.Net increase of cash and cash equivalents Add: balance of cash and cash equivalents at the beginning of term VI.Balance of cash and cash equivalents at the end of term Parent Company Statement on Change in Owners’ Equity Year 2007 Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Less: Common Share Capital Shares Surplus Attributa Items risk Capital reserves in reserves profit provision stock I.Balance at the end of last year 169,142,356 31,606,598 - 26,309,287 - 34,07 Add: Change of accounting policy - - - - - Correcting of previous errors - - - - - II.Balance at the beginning of current 169,142,356 31,606,598 - 26,309,287 - 34,07 year III.Changed in the current year - - - - - -92,75 （I） Net profit - - - - - -92,75 （II） Gains losses accounted into - - - - - owners’ equity directly I.Change in fair value of sellable - - - - - financial assets, net 2. Influence of change in other owners’ equity of invested enterprises - - - - - on equity basis 3．Influence of income tax related - - - - - to owners’ equity items 4．Other - - - - - Total of (I) and (II) - - - - - -92,75 （III） Investment or decreasing of - - - - - capital by owners 1.Investment by owners - - - - - 2．Amount of shares paid and - - - - - accounted as owners’ equity 3．Other - - - - - （IV） Profit allotment - - - - - 1．Providing of surplus reserves - - - - - 2.Providing of common risk - - - - - provisions 3．Allotment to the owners - - - - - 4．Other - - - - - （V） Internal transferring of owners’ - - - - - equity 1．Capitalizing of capital reserves - - - - - 2．Capitalizing of surplus reserves - - - - - 3．Making up losses by surplus - - - - - reserves 4．Other - - - - - IV. Balance at the end of this term 169,142,356 31,606,598 - 26,309,287 - -58,67 Parent Company Statement on Change in Owners’ Equity(Cont’d) Year 2006 Prepared by :Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit: RMB Less: Common Share Capital Surplus At Items Shares in risk Capital reserves reserves stock provision I.Balance at the end of last year 169,142,356 30,831,172 - 53,461,763 - Add: Change of accounting policy - - - - - Correcting of previous errors - - - - - II.Balance at the beginning of current 169,142,356 30,831,172 - 53,461,763 - year III.Changed in the current year - 775,426 - -27,152,476 - （I） Net profit - - - - - （II） Gains losses accounted into - - - - owners’ equity directly 775,426 I.Change in fair value of sellable - - - - - financial assets, net 2. Influence of change in other owners’ equity of invested enterprises on equity - - - - 775,426 basis 3．Influence of income tax related to - - - - - owners’ equity items 4．Other - - - - - Total of (I) and (II) - - - - 775,426 （III） Investment or decreasing of - - - - - capital by owners 1.Investment by owners - - - - - 2．Amount of shares paid and accounted - - - - - as owners’ equity 3．Other - - - - - （IV） Profit allotment - - - 3,786,663 - 1．Providing of surplus reserves - - - 3,786,663 - 2.Providing of common risk provisions - - - - - 3．Allotment to the owners - - - - - 4．Other - - - - - （V） Internal transferring of owners’ - - - -30,939,139 - equity 1．Capitalizing of capital reserves - - - - - 2．Capitalizing of surplus reserves - - - - - 3．Making up losses by surplus reserves - - - -30,939,139 - 4．Other - - - - - IV. Balance at the end of this term 169,142,356 31,606,598 - 26,309,287 - Shenzhen Victor Onward Textile Industrial Co., Ltd. Notes to the Accounting Statements January 1,2007 to December 31,2007 (Referring to notes to consolidated financial statements unless separately stated. Currency: RMB) 1. Company Profile Shenzhen Victor Onward Textile Industrial Co., Ltd. (hereinafter referred to as "the Company"), grew out of the Xingnan Printing Factory Co., Ltd, founded in 1980, was the first wholly foreign-owned enterprise in Shenzhen. In April 1984, Xingnan Printing Factory Co., Ltd was changed into foreign joint venture, and was renamed Shenzhen Victor Onward Textile Industrial Co., Ltd. . On November 19, 1991, the Company was reorganized into a joint stock limited company and renamed Shenzhen Victor Onward Textile Industrial Co., Ltd. pursuant to the approval of Shenzhen Municipal Government. The domestically listed RMB ordinary shares ("A shares, Stock code: 000018" ) and domestically listed foreign investment shares ("B shares ,stock code: 200018") issued by the Company were listed on Shenzhen Stock Exchange in 1992. By December 31, 2007, the total share capital was 169.1424 million shares, of which circulating A-share 42.7571 million shares, limit-sale A-share 56.9634 million shares, circulating B-share 69.4219 million shares, of which Union Holdings Co., Ltd. (hereinafter referred to Union Holdings ) holding 43,141,032 shares, accounting for 25.51% of the total equity, is the controlling shareholder of the company, Union Development Group Co., Ltd. (hereinafter referred to Union Group)holding 6,383,736 shares, accounting for 3.77% of the total equity, Union Group holds 40.15% of equity of Hualian Holdings and has the right to control Union Holdings, thus Union Group is the actual controller of the Company. By December 31, 2007, Victor Onward printing and dyeing (Hong Kong) Co., Ltd. (hereinafter referred to as "Hong Kong Victor Onward"), Hong Kong Victor Onward Digital Printing Co., Ltd. (hereinafter referred to as "Victor Onward Digital Printing"), Shengzhong Industrial Co., Ltd. (hereinafter referred to as "Shengzhong") , Shenzhen Vea opel Garment Co., Ltd (hereinafter referred to as "Vea opel") ,Shenzhen East Asia Victor onward Holding (hereinafter referred to as “East Asia Company)and Shenzhen Nanhua Printing and Dyeing as well as its wholly-funded subsidiary Nanhua Xingye Co., Ltd (hereinafter referred to as "Nanhua Xingye") are all subsidiaries of the Company. The Company and its subsidiaries are collectively referred to as "the Group". The Group is mainly engaged in the production and processing (printing and dyeing) and sales of various high-grade fabrics of pure cotton, pure linen, polyester-mixed cotton, linen cotton and mixed fiber and finished garments. Registered address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Legal Representative: Hu Yongfeng 82 The Company has general shareholders meeting, board of directors and board of supervisors, the company sets up Production Department, Department of Financial, Department of Trade, Secretary Office and other functional departments. The financial statment was issued on April 28, 2008 upon the approval of the Board of Directors of the Company. 2. Basis for the preparation of financial statements The financial statements was prepared on the basis of the Group's continuous operation. The Group prepared the financial statement in accordance with the accounting standards issued before 2006 and the Enterprise Accounting System (hereinafter referred to as the "original accounting standards and systems"). Since January 1, 2007, the Group started to implement the Accounting Standards for Business Enterprises issued in 2006(hereinafter referred to as "Accounting Standards for Business Enterprises". The 2007 annual financial statement of the Group was the first annual financial statement prepared according to Accounting Standards for Business Enterprises. In the preparation of 2007 annual financial statement, the Group had made retroactive adjustments on the relevant comparative figures in 2006 in accordance with "Accounting Standards for Business Enterprises No. 38 - the first time implementation of corporate accounting standards" and related provisions issued by Finance Ministry, and "information disclosure rules for companies publicly issuing stocks No. 7 - the preparation and disclosure of financial accounting information during the transition of old and new accounting standards" issued by the China Securities Regulatory Commission, all items were re-reported in accordance with the Accounting Standards for Business Enterprises. 3. Complying with the statements in Accounting Standards for Business Enterprises The financial statements of the Group comply with the requirements of Accounting Standards for Business Enterprises, truly reflect the integrity of the financial situation, operating results and cash flows, and other relevant information of the company. 4. Accounting policies, accounting estimation and the method of preparing consolidated financial statements I． Influence of Change of Major Accounting Policy Our group followed the original accounting principles and rules, and changed to the corporate accounting principles since January 1st, 2007, and started to use corporate accounting principles to confirm, measure and report transactions or matters of our group since that date. For the change of accounting policy arising out of the employment of corporate accounting principles for the first time, we treat them with following methods: 1. Change of Major Accounting Policy Accounted with Retroactive Adjustment Method (1) Long-Term Investment Equity: Prior to the employment of corporate accounting principles, when long-term investment equity is accounted with the equity method, the difference of the initial 83 investment cost greater than the share of shareholder equity of the company invested will be accounted as debtor difference of investment on stocks, amortized evenly for a period of time and included in profit or loss. The difference of initial investment cost lower than the share of shareholder equity of the company invested, if occurred prior to the launch of the financial accounting [2003] No.10 document, will be accounted as creditor difference of investment on stocks, amortized evenly for a period of time and included in profit or loss; if occurred later than the launch of the financial accounting [2003] No.10 document, will be included in capital reserve. Prior to the employment of corporate accounting principles, the parent company accounts the long-term investment on stocks to its subsidiaries with equity method in its financial statement. After the employment of corporate accounting principles, the accounting policy of relevant long-term investment on stocks can be seen in the “Long-Term Investment on Stocks” of Note V, 9. Since our investment to subsidiaries may last for a couple of years and the share ratio may change from time to time, it is not feasible to make retroactive adjustment with the cost method to the said subsidiary according to the No.1 Interpretation of Corporate Accounting Principles by the Ministry of Finance, therefore we adjusted the book value of long-term investment on stocks according to the provision of No.38 Corporate Accounting Principle – Execution of the Corporate Accounting Principle for the First Time in the first execution date. (2) Financial Assets Division and Confirmation of Change of Fair Value: Prior to the employment of corporate accounting principles, our investment on stocks is divided into short-term investment and long-term investment according to investment period. After the employment of corporate accounting principles, the accounting policy of relevant investment on stocks can be seen in Note V, 6. (3) Income Tax: Prior to the employment of corporate accounting principles, income tax is accounted with the tax payment influence accounting method. After the employment of corporate accounting principles, we make income tax accounting treatment with the balance sheet debt method, and the accounting policy of relevant income tax can be seen in “income tax” in Note V, 23. (4) Minority Shareholders Equity: Prior to the employment of corporate accounting principles, the minority shareholders equity is listed as debt, after the employment of corporate accounting principles, the minority shareholders equity is independently listed in the shareholders equity. The accounting policy of relevant minority shareholders equity can be seen in the “Compiling Method of Consolidated Financial Statement” of Note V, 26. For afore-mentioned change of accounting policy, we have made retroactive adjustment according to No.38 Corporate Accounting Principle – Execution of the Corporate Accounting Principle and its relevant provisions, and restated the financial statement. The influences of afore-mentioned change of accounting policy to the consolidated and the parent company shareholders equities and the net profits of 2006 dated on January 1st, 2006 and December 31st, 2006 are listed as follows: (1) Influence to Consolidated Shareholders Equity dated on January 1st, 2006 Surpl Capit Minority us al Item Undistributed Shareholders Total Reser Reser profit Equity ve ve （1）Return of difference of investment on stocks consolidated 3,246,761 - - - 3,246,761 under the same controlling company （2）Income tax -1,567,393 - - - -1,567,393 （3）Minority shareholders equity 20,858,774 20,858,774 listed as shareholders equity Total 1,679,368 - - 20,858,774 22,538,142 84 （II）Influence to Consolidated Net profit of 2006 Item Amount （1）Income -7,056 （2）Change of fair value of financial assets held-for-trading -130,548 （3）Returned and amortized difference of investment on stocks -927,649 （4）Change of listing method of minority shareholders profit or loss -9,383,823 Total -10,449,076.00 st （III）Influence to consolidated shareholders equity dated on December 31 ,2006 Different of Minority Undistribute Surplus Capital foreign Item Shareholde Total d profit Reserve Reserve currency rs Equity translati on （1）Return of difference of investment on stocks 2,319,112 - - - - 2,319,112 consolidated under the same controlling company （2）Surplus reserve -207,104 207,104 - - - 0 charged -1,574,44 -1,574,449 - - - - （3）Income 9 （4）Financial assets - - 172,224 - - 172,224 available for sale （5）Trading financial -130,548 - - - - -130,548 assets （6）Minority shareholders equity listed as - - - 7,956,207 - 7,956,207 shareholders equity （7）Other - - - - -10,689 -10,689 Total 407,011 207,104 172,224 7,956,207 -10,689 8,731,857 （IV）Influence to Parent Company Shareholders Equity dated on January 1st, 2006 Item Surplus Capital Total Undistributed Reserve Reserve profit （1）Return of difference of investment on stocks 3,246,761 - - 3,246,761 consolidated 85 under the same controlling company （2）Income tax -3,820,529 - - -3,820,529 Total -573,768 - - -573,768 （V）Influence to parent company Net profit of 2006 Item Amount （1）Income tax 420,160 （2）Change of fair value of financial assets held-for-trading -927,649 （3）Long-term investment on stocks is accounted with cost method 8,316,214 rather than equity method Total 7,808,725 st （VI）Influence to parent company shareholders equity dated on December 31 ,2006 Items Surplus Capital Total ifferent of Undistributed Reserve Reserve foreign profit currency translatio n （1） Return of difference Of investment on stocks 2,319,112 - - - 2,319,112 Consolidated under the same controlling company （2）Surplus reserve charged -207,104 207,104 - - - （3）Income tax -3,400,369 - - - -3,400,369 （4）Long-term investmen 8,316,214 - -3,123,186 - 5,193,028 （5）Other -125,947 -125,947 Total 7,027,853 207,104 -3,123,186 -125,947 3,985,824 2. Change of Major Accounting Policy Accounted with Prospective Application Method Apart from afore-mentioned change of major accounting policies accounted with retroactive adjustment method, there have been following change of accounting policy in our company due to the employment of new accounting principles for the first time, which is accounted with prospective application method, primarily including: Non-Current Assets Impairment: Prior to the employment of corporate accounting principles, the impairment loss of non-current assets of our company confirmed in earlier time, if restored in future accounting period, shall be returned and included in the profit or loss for the current period according to the restored amount and within the scope of not exceeding the confirmed impairment loss. After the employment of corporate accounting principles, we charge impairment allowance to non-current assets according to the accounting policy stated in Footnote V, 16. Once confirmed, the impairment loss of non-current assets shall not be returned in future accounting periods unless 86 caused by assets disposal, sales, investment, etc. (II) Change of Major Accounting Estimate There has been no change of major accounting estimate in current accounting period. (III) Change of major accounting error There has been no major accounting error in current accounting period. 5. Accounting policies, accounting estimation and the method of preparing consolidated financial statements (1)Fiscal year The fiscal year of the Group starts on January 1 and ends on December 31 on the Gregorian calendar. (2)Standard currency for book keeping Except for Shenzhen East Asia Company and Veaopel taking RMB as the standard currency for bookkeeping, the Company and other subsidiaries of the Group all take HKD as the standard currency for bookkeeping. (3) Basis for bookkeeping and costing principle The Group's basis for bookkeeping is accrual system. Except that the financial assets for transaction, the financial liabilities for transaction, and financial assets available for sale are accounted by fair value, generally, account by historical cost. (4) Cash and cash equivalents The cash stated in cash flow statement refers to cash in hand and bank deposits usable for payment at any time. Cash equivalent refers to the investments with holding period of less than 3 months and strong liquidity that are readily convertible to known amount of cash and subject to insignificant risk of changes in value. (5)Foreign currency Convert （1）Foreign currency Transactions The foreign currency transactions the Group were accounted according to the amount of foreign currency on the first day of the current month converting to the amount of bookkeeping currency. On the balance sheet date, foreign currency monetary items would be converted into RMB by using the spot exchange rate on the balance sheet date, the conversion differences produced shall be directly included in the current loss and gain except the exchange differences produced by foreign currency special loans borrowed for purchasing or production of the assets which meet the capitalization conditions. The foreign currency non-monetary items measured by fair value shall be converted into RMB by the spot exchange rate on the fair value date, the conversion differences produced shall be directly included in current loss and gain as fair value changes. The foreign currency non-monetary items measured by historical costs shall be converted by using the spot exchange rate on the transaction date, and its RMB amount will not be changed. 87 （2）Foreign currency statement Convert The financial statements of the company and the subsidiaries making HK dollars as bookkeeping currency shall be converted into RMB. In the course of conversion, the assets & liabilities items shall be converted by using the spot exchange rate on the balance sheet date, the items of shareholders equity except for the retained profit shall be converted according to the spot exchange rate, the items of incomes and expenses in the profit statement shall be converted by the approximate exchange rate of spot exchange rate on the transaction date. The conversion differences of foreign currency statements produced in the above conversions shall be individually listed under the item of shareholders equity. The cash flow in the cash flow statement are converted by the average exchange rate of the market rates announced in the accounting period. The influences on cash flow from the changes of exchange rate are separately listed in cash flow statement. 6. Financial assets (1). Classification of financial assets: according to investment purposes and economic nature, the financial assets of the Group can be divided into the financial assets measured by fair value and the changes included in the current loss and gain, the expired investments held, receivables and financial assets for sale, the four categories. 1). The financial assets measured by fair value and the changes included in the current loss and gain: mainly refer to the financial assets for sale in short term, which shall be listed in balance sheet in transactional financial assets. 2). The expired investments held: refer to the non-derivative financial assets which have fixed expire date and fixed or determined recovering amount, and the management level has the intention or ability to hold the assets. 3). Receivables: refer to the non-derivative financial assets which have no quotation in active market but have fixed or determined recovering amount, including notes receivable, accounts receivable, interest receivable, dividends receivable and other receivables. 4). Financial assets for sale: include the non-derivative financial assets which are recognized as for sale when they are initially confirmed, and the financial assets which are not divided into other categories. (2) Confirmation and measurement of financial assets: Financial assets are conducted initial confirmation by at fair value. The relevant expenses to obtain the financial assets measured by fair value and the changes included in the current loss and gain shall be included in the current loss and gain, the relevant transactional expenses of other financial assets shall be the initial confirmation amount. When the contract right of a financial asset is ended or the risk and reward of ownership of the financial asset are transferred to the corresponding party, the confirmation of financial assets shall be ended. At fair value and changes in their gains and losses included in the current period of 88 financial assets and financial assets to be sold in accordance with the fair value of follow-up measures; receivables and investments held to maturity using the effective interest method to share more than the cost listed. The changes of fair values of financial assets measured by fair value and the changes included in the current loss and gain shall be included in the changing loss and gain of fair value; all the interest and cash dividends obtained during the period holding the assets shall be confirmed as investment income; upon the disposal of the assets, the differences between the fair value and initial bookkeeping amount shall be confirmed as investment loss and gain, and at the same time, the changing loss and gain of fair value shall be adjusted. The changes of fair values of financial assets for sale shall be included in equity of shareholders; during the holding period, the interest accounted by actual interest rate shall be included in the investment income; the cash dividends of equity tool investment for sale shall be included in investment income upon the invested unit’s declaration of distributing dividends; upon the disposal, the differences between the price and book value deducting the fair value originally included in shareholders equity shall be included in investment loss and gain. (3). Impairment of financial assets: Except for the financial assets measured by fair value and the changes included in the current loss and gain, on the financial sheet date, the Group will check the book value of other financial assets on the balance sheet date, if there is objective evidence showing that impairment has happened on a financial asset, provision for the impairment shall be drown. If dramatic or non-temporary decline has happened on the financial assets for sale, the accumulative loss originally included in shareholders equity shall be included in the impairment loss. The equity tool investments which the impairment loss has been confirmed and are related to the events of conformation of impairment loss shall be included in the equity of shareholders. The impairment loss of equity tool investments which have no quotation in the active market and the fair value can not be reliably measured, will not be transferred back. 7. Account receivable Account receivable , include accounts receivable, other receivables, and so on. The amounts of receivables formed by sale of goods or providing services shall be conducted initial confirmation in accordance with the receivable contract fair value. Receivables shall be listed by amortized cost deducting provisions for bad debts by the method of actual interest. The individual amount of receivable over 1 million yuan will be recognized as a major receivable, when there is evidence showing that the Group will not be able to recover all the money in accordance with the original item of receivable, provision for bad debt shall be drown according to the differences of future cash flow lower than the book value after impairment test. 89 The non-significant single receivables and the receivables without impairment will be divided into a number of combinations in accordance with credit risk characteristics. The provision for bad debts to be drown in this year will be accounted to the actual loss rate with the similar credit risk characteristics in the previous year and combining the present situations to determine the ratio of provision for impairment of this year. The drawing ratio of provisions for bad debts of receivables as follows: Age Proportion Winthin 1 year 3% 1-2 years 10% 2-3 years 50% Over 3 years 100% The Group shall make special provision for bad debts in respect of other receivables on case-by-case basis. 8.Inventory (1)The inventories of the Company include raw materials, work-in-process, finished products, low-value and easily-worn articles and packing articles and are stated at the lower of cost and net realizable value. (2) Valuation methods for obtaining and issuing inventories: the sustainable inventory system will be adopted, the purchase and stocking will be valuated according to actual cost, the receiving and sale of raw materials and the sale of finished products will use the adopt the method of weighted average. (3) Low-value consumables and packaging materials will be amortized by the method of one-time transfer and included in the related costs. (4). Principles for valuation of inventory at the period end and confirmation standards and drawing method of provision for devaluation of inventories: the inventory at the period end shall be valuated depending on which is lower between the cost and the realizable net value; at period end, on the basis of comprehensive checking on inventories, provision for devaluation of inventory shall be drown on the parts which are not to be recovered. The provision for devaluation of finished products and big raw materials shall be drown according to the difference which the cost of individual inventory item higher than the realizable net value; other raw materials with large quantity and low unit price shall be drown provision for devaluation according to categories. (5). Determination of realizable net value of inventory: goods in stock, products in production and other materials directly for the sale, the amount of the realizable net value shall be determined according to the estimated sale price deducting the estimated sale expenses and relevant taxes; the amount of realizable value of material inventory for production shall be determined according to the estimated sale value of finished products deducting the estimated cost which will happen before the completion and estimated sale cost and relevant taxes. The inventory holding for the implementation of sale contract or service contract, the realizable net value shall be accounted on the basis 90 of contract price; if the quantity of inventory held by enterprise is bigger than the quantity ordered in the sale contract, the realizable net value of the excess inventory shall be accounted on the basis of general sale price. 9. Long-term equity investment (1). Initial measurement of long-term equity investment The long-term equity investments obtained through merger of companies under same control the merger were the owner's equity book value of the shares as a long-term equity investment of initial investment cost. The long-term equity investments obtained through merger of companies under different control shall make the fair value which made on the merger (purchase) to pay the control of the assets or liabilities as the merger cost. On the merger (purchase) date, in accordance with the merger costs as a long-term equity investment of initial investment cost. Apart from the long-term equity investments stated above, the long-term equity investment obtained by cash, the initial investment obtained by cash will be determined according to the price actually paid, initial investment costs include the direct costs, tax, and other necessary expenses to obtaining long-term investment; the long-term equity investment obtained by issuing equity securities, the initial investment will be determined according to the fair value of the equity securities issued; the long-term equity investments invested by investors, the initial investment cost shall be determined according to contract value; the long-term equity investment obtained by debt restructuring, non-monetary assets or other methods, the initial investment cost shall be determined according to the relevant accounting standards. (2) The follow-up measurement of long-term equity investment If the subsidiary uses the cost method to account, adjustment shall be conducted according to equity method when prepare the consolidated financial statements; the joint venture and joint venture investment using the equity method; for the long-term equity investments which have no control or joint control or significant influence and no price in an active market, the method of cost shall be adopted to account; the long-term equity investments which have no control or joint control or significant influence, there are quotations in an active market and the fair value can be reliably measured, shall be accounted as financial assets for sale. 10. Investment real estate (1) Real estates for investment are the real estate for earning rent or capital appreciation or both, including the land use right leased, the land use right for future transfer, and the properties leased. (2). Valuation of investment real estate: the investment real estates are accounted by the cost, the purchased investment real estates include the cost of the purchase price, related taxes and fees and other expenses which can be directly attributable to the assets; the costs of investment real estate self constructed include the necessary expenses to construct the asset to reach the predicted use state. 91 The Group adopts the cost method to conduct follow-up measurement on investment real estates, the building and land use right are accounted devaluations and amortized. The expected service life, net residual rate and value depreciation rates of investment real estate are as follows: Type Evpected useful Estinated Annual depreciation rate（%） life（Year） residual value rate Real estate in 20-50 years 0% 2%-5% Hongkong Real estate in 20-30 years 10% 3%-4.5% China (3). Conversion and disposal of investment real estate: If the investment real estate is changed to self use, since the date of change, investment real estate shall be converted into fixed assets or intangible assets. The function of self-use real estate is to earn rent or capital appreciation, then since the date of change, the fixed assets or intangible assets shall be converted into investment real estate. When the conversion happens, the book value before the conversion will be the book value after the conversion. When the real estate investment is disposed or will never be used, and economic interests can not be obtained from the disposal, the confirmation of the investment real estate shall be terminated. The amount of the income from the sale, transfer, disposal of the investment in real estate deducting the book value and related taxes and fees shall be included in the current loss and gain. 11. Fixed assets (1)Standards for the recognition of fixed assets: fixed assets refer to the tangible assets which have the following characteristics at the same time, namely, held for production of goods, providing services, leasing or operation and management, and the life span shall not be more than a year, and the unit value is high. (2) Classification of fixed assets: houses and buildings, machinery and equipments, transportation equipments, office equipments and others. (3). Valuation of fixed assets: the fixed assets shall be measured according to the actual cost to obtain them, including, the cost of purchasing the fixed assets including the purchase price, value-added tax, import tariffs and other related taxes, and other expenses happened to reach the predicted use state; the cost of building the fixed assets, which are composed of the expenses to reach the predicted use state of the assets; the fixed assets invested by investors, the value on the contract or agreement shall be the accounting value, but if the contract or agreement value is not fair, the fair value shall be accounted; the fixed leased assets, the lower amount of the fair value of leased assets and the present value of the lowest lease payment shall be as the accounting value. 92 (4). Depreciation methods of fixed assets: in addition to the fixed assets which the depreciation has been accounted and are still used, the Company will draw depreciation for all fixed assets. When accounting depreciations, the average life span shall be adopted, by the unit depreciation rate monthly, and be included in the cost and current expenses of relevant assets. Type Evpected useful Estinated Annual depreciation rate（%） life（Year） residual value rate Real estate in Hong 20-50 years 0% 2%-5% Kong Real estate in 20-30 years 10% 3%-4.5% China Machinery and equipment 5-14 years 10% 6%-18% Transportation Equipment 4-5 years 10% 18%-22.5% Office equipment and other 5 years 10% 18% (5). Treatment of follow-up expenditures on fixed assets: follow-up expenditures on fixed assets, including major repair expenses, expenses on updated improvement and decorations and other, when the relevant economic interests are likely to flow in and its cost can be a reliable measured, it shall be included in the cost fixed assets, the recognition of book value of replaced the part shall be terminated; all the other follow-up expenses shall be included in current loss and gain upon the occurrence. (6) At the end of each year, the Company shall recheck the predicted service life of fixed assets, the predicted net residual value and depreciation method, if changes happen, then it shall be treated as accounting estimate. (7). When the fixed assets were disposed, or expected to be used or the disposal can not have economic interests, the confirmation of the fixed assets shall be terminated. The income from the sale, transfer or damage of the fixed assets deducting the book value and related taxes shall be included in the current loss and gain. 12. Construction in progress (1) The price of the construction project: determine the costs according to the actual expenditure on the project. Measure the price of the self-operated projects according to the direct materials, direct wages, direct construction costs; Measure the turnkey projects according to the price should be paid on the project; measure the project of equipment installation according to the value, of the equipment, installation costs, and the expenditures on the trial operation to determine the project costs. The costs of projects under construction also include the cost of borrowing to be capitalized and exchange gain and loss. (2) The time for the construction project converted to the fixed assets: the fixed assets of the company reached the predicted state, according to the budget of the project, 93 construction cost or the actual cost of the project, transfer the fixed assets according to the predicted price, account the depreciation from the next month on. Upon finishing the procedures, make relevant adjustment. 13.Borrowing costs (1) The recognition principles for borrowing costs capitalization: The borrowing costs for the construction or production of assets which meet the capitalization conditions shall be capitalized or included in the relevant capital costs; other borrowing costs shall be confirmed as expenses and include in the current loss or gain. The assets which meet capitalization conditions, refer to the fixed assets, investment real estates and other inventories which are constructed for a long time (usually more than one year) to achieve the intended use or sale of state to. (2) The duration of capitalization of borrowing costs: When assets have taken place, and the borrowing costs have taken place and the assets intended use or sale state may be necessary to purchase or production activities have been built at the beginning, the company will comply with the conditions of the capital Assets related to the capitalization of borrowing costs began. If meet the capitalization conditions or non-normal breaks occurred in the course of production and the break time is more than three months, then the capitalization of borrowing costs shall be suspended; when the acquisition or construction or production meet the conditions of capitalization and achieve the predicted use or sale state, the capitalization of borrowing costs shall be stopped. (3). Calculation of capitalization of borrowing costs: the special loans for the acquisition or construction or production of assets which meet the capitalization conditions, the Company specifically to the current actual borrower of the interest charges will be deducted from the unused borrowing funds deposited Bank of the interest income or the temporary investment after investment income as the difference between the special interest and the amount of capital. The general loans for the acquisition or construction or production of assets which meet the capitalization conditions, interest of capitalization of general loans shall be determined according to the weighted average interest rate of special loan and the weighted average interest rate of general loan interest to determine the interest of general loan capitalization. 14. Intangible assets (1) The methods for intangible assets pricing: The intangible assets of the Group include land use rights and computer software. For the intangible assets purchased, the actual purchase price was the actual cost; For the intangible assets invested by investors, The actual cost of intangible assets invested by investors, shall be determined according to the contract or agreement value, but if the contract or agreement values are not fair, the actual costs shall be determined according to the fair value. (2) Methods and duration for intangible assets amortization: The intangible assets of the Group include land use rights and computer software. The land use rights obtained by paying the land transfer amount and by purchasing, account the amount according to the actual purchase price. For the computer software, account on the actual purchase price, make average amortization according to the predicted service span of 5 years. The amount of amortization shall be included in the cost and current loss and gain 94 of the relevant assets according to the beneficiary targets. (3) At the end of each year, the company shall recheck the service life and amortization method of the intangible assets which have limited service life, if there are changes, adjustment shall be conducted. And in each accounting period, the predicted service life of intangible assets with uncertain service life shall be rechecked, if there is evidence showing that the service life of intangible assets is limited, then the estimated service life shall be amortized in the predicted service life. 15. Research and Development The internal research and development project expenditures can be divided into the expenditures on the stage of research and the expenditures on the stage of development according to the nature and whether the intangible assets have greater uncertainty. The intangible assets researched and developed by the company, the expenditure on the stage of research shall be included in the current loss and gain; the expenditures on stage of development, if meet the following conditions at the same time, shall be recognized as intangible assets: (1). Completion of the intangible assets to enable it be feasible to be used or sold technically; (2) Have the intention to complete the intangible assets for use and sale; (3) Use the product market and self market of the intangible assets produced by intangible assets; (4). There is sufficient technical, financial and other resources to support, to complete the development of the intangible assets, and have the ability to use or sell the intangible asset; (5). The expenditures attributable to the phase of development of intangible assets can be reliably measured. The expenditures which do not meet the above conditions will be included the current loss and gain. The development expenditures which have been included in loss and gain will not be recognized as assets in the following periods. The capitalized expenditures on the stage of development shall be listed as development expenditure on the balance sheet, and shall be converted into intangible assets when it achieved the predicted use state. 16. Impairment of non-current assets The Group will check the long-term equity investments, fixed assets, projects under construction, intangible assets with certain service life of the subsidiaries, joint companies and associated companies, when exist the following signs showing that the assets may have impairment, the Group will conduct impairment test. The intangible assets without certain service life, whether it has impairment signs, impairment tests shall be conducted at the end of each year. If the recoverable amount of single asset can not be tested, it shall be tested on the basis of the asset group the asset belong to or the asset combination. 95 After the impairment test, if the book value of the asset exceeds its recoverable amount, the deficiency is recognized as the impairment loss, upon the confirmation of the above assets, they will not be transferred back in the following accounting period. The recoverable amount of the asset refer to the net amount of the fair value of the asset deducting disposal cost of assets and the present value of the expected future cash flows. The signs of impairment as follows: (1). Current market value of assets decreased significantly, the decline is significantly higher than the decline due to time passage or normal use. (2) The economic, technical or legal environment of the company and the market of the assets will have significant change in the current period or in the near future, therefore negative impact on the enterprise. (3) Market interest rates or other market return rate of investment in the current period have been increased, thus affecting the discount rate of the predicted cash flow, and resulting in the significant reduction in the amount of recoverable assets. (4) There is evidence showing that the assets were actually obsolete or damaged. (5). The assets have been or will be idle, ended the use or disposed in advance. (6). There are evidences of internal report showing that the economic performance of the assets has been lower than or less than what expected, such as the net cash flow created by assets or the operating profits (or losses) realized are far below (or above)the expected amount. (7). Other signs showing the assets may have or have had impairment. 17. Goodwill Goodwill refers to the difference of equity investment under the control of the same cost or merger of enterprises should enjoy more than the cost or a merger of the investment was the purchase of flats or net assets in order to obtain. The goodwill related to subsidiaries shall be individually listed in the consolidated financial statements, the goodwill related to joint companies and associated companies shall be included in the book value of long-term equity investments. The goodwill individually listed in financial statement shall be conducted impairment test each year. When conduct the impairment test, the book value of goodwill shall be amortized to the benefited asset group or asset portfolio in accordance with the corresponding effect of corporate merger. 18. Employee’s salary （1）Employee’s salary Including wages, bonuses, allowances and subsidies, welfares, social insurance and housing accumulation fund, union fee and workers’ education fund, and other related expenses related to obtain services provided by employees. During the accounting period, workers’ salary shall be recognized as liability, and be included in relevant cost and expenses according to the beneficiary target of the service provided by workers, and shall be included in the relevant cost and expenses. The compensations for the cancelation of workers’ labor relationship shall be included in the 96 current loss and gain. 19. Predicted liabilities (1). Principle for the confirmation of predicted liabilities: When the businesses relating to external security, pending litigation or arbitration, product quality assurance, layoffs, contract losses, restructuring obligations, liabilities of disposal of fixed assets and other contingent events meet the following conditions at the same time, they will be recognized as liabilities: 1). The liability is the current liability the Group shall undertake; 2). The performance of the liability may result in outflow of economic interests; 3) The amount of the liability can be reliably measured. (2). Measurement methods of predicted liabilities: predicted liabilities shall be conducted initial measurement according to the best estimates of related existing liabilities, and comprehensively consider risks, uncertainties and the time value of money and other factors relating to contingent events. Time value of money has the greatest influence, the best estimates shall be determined by future cash outflow. On the balance sheet, recheck the book value of predicted liabilities, adjust the book value to reflect the current best estimates if there are any changes. 20. Methods for confirmation of income The Group's revenues mainly include: incomes from sales of goods, providing labor services, transferring assets use right. Economic interests associated with transactions will flow into the Group, the relevant income can be reliably measured and meet the following confirmation standards of specific income, to confirm the relevant incomes. (1). Income from sale of goods When the main risks and rewards of the goods are transferred to the buyer, the Group will no longer have management right and actual control right on the goods, the economic interests relating to transaction can flow into the company, and the relevant incomes and costs can be reliably measured, the sales income of the goods shall be confirmed. (2) Income from providing service On the balance sheet date, if meet the following conditions at the same time and the income amount can be reliably measured, the relevant economic interests are most likely flow into the company, the progress of the transaction can be reliably determined, the costs happened or will happen of the transaction can be reliably measured. Method of progress percentage will be used to confirm the income of service. (3). Income from transferring assets use right The economic interests relating to transaction can flow into the company, and the relevant incomes and costs can be reliably measured, the sales income of transferring assets use right shall be confirmed. 97 1) Interest income shall be determined in accordance with the time and actual interest rate of the monetary fund of the Group. 2). Income of use fee shall be determined according to the charging time agreed in the relevant contract or agreement. 3) Income of operating lease shall be determined by the method of straight line in the lease term. Government subsidies Government subsidies, when the Group can meet the conditions attached and can receive, shall be confirmed. If government subsidies are monetary assets, they shall be measured according to the amount received; the subsidies allocated according to rated standards, they shall be measured according to the amount receivable. If government subsidies are non-monetary assets, they shall be measured according to fair value; if the fair value can not be reliably measured, they shall be measured according to nominal amount (1 yuan). The government subsidies relating to assets shall be recognized as deferred income, and be averagely distributed within the service life of relevant assets, and be included in the current loss and gain. If the government subsidies relating to income are used to compensate the related expenses and losses, they shall be confirmed as deferred income and be included in the current loss and gain in the period of confirming relevant expenses. If used to compensate the relevant expenses and losses happened, they shall be included in the current loss and gain. 21. Deferred income tax assets and deferred income tax liabilities Deferred income tax assets and deferred income tax liabilities shall be confirmed according to the difference between the tax base of assets and liabilities and their book value (temporary differences). The loss and tax which can be offset in the future years shall be recognized as temporary differences to determine the corresponding deferred income tax assets. On the balance sheet date, deferred income tax assets and deferred income tax liabilities shall be measured by the predicted application rate. The Group shall determine the deferred income tax assets produced by the deductible temporary differences within the amount limit of payable taxes which are likely used to deduct the temporary differences. The book value of the recognized deferred income tax assets shall be deducted when the deferred income tax assets produced by the deductible temporary differences within the amount limit of payable taxes which are likely used to deduct the temporary differences. When enough payable tax can be obtained, the deducted amount shall be transferred back. 22. Accounting of income tax The accounting of income tax of the Group shall use the method of debt of balance sheet. The income tax expenses include current income tax and deferred income tax. The current income tax and deferred income tax relating to the transactions and events directly included in shareholders equity shall be included in shareholders equity, except the book value of deferred income tax adjustment goodwill, the rest current income tax and deferred income tax or income shall be included in the current loss and gain. Current income tax cost refers to the amount of payable income tax which shall be paid to tax department according to the current transactions and events determined according 98 to tax provisions; deferred income tax refers to difference between deferred income tax balance sheet debt in accordance with the law shall be recognized deferred income tax assets and deferred income tax liabilities in the amount originally confirmed. 23. Corporate consolidation Corporate consolidation refers to two or more separate companies merge and form a transaction or event of report subject. The consolidation day or purchase day or the consolidation date of obtaining the assets or liabilities, shall be confirmed as the date of obtaining the control right of the party being merged or purchased. (1). The corporate consolidation under same control: the assets and liabilities obtained by the consolidation party in the merger shall be measured according to the book value of merged party on the consolidation day. The difference between the book value of net assets obtained by the consolidation party and the book value of the consolidation price paid, the capital public reserve shall be adjusted; if the capital public reserve is not enough to be deducted, the retained earnings shall be adjusted. (2) The corporate consolidation under different control: the consolidation cost is the fair value of equity stocks issued and the assets and debts paid to obtain the control right of the purchased party on the purchase day. The difference between the consolidation cost and fair value of recognizable net asset, shall be confirmed as goodwill; if the consolidation cost is smaller than the fair value of recognizable net asset of the purchased party, the difference shall be included in current loss and gain upon confirmation. 24. Determination of fair value of financial tools If the financial tools exit in the active market, the fair value shall be determined according to the price in active market. If the financial tools do not exit in the active market, the fair value shall be determined by value estimating technologies. Value estimating technologies include the price used in market transactions, referring the current fair value of other financial assets which are actually the same, cash flow discount and option pricing model. When use the value estimating technologies, the market parameters shall be used as much as possible, and the parameters which are related to the Group will not be used. 25. Methods for compilation of consolidated financial statements (1). Principles to determine the scope of merger: the Group will include the subsidiaries which have actual controlling right and the subjects which have special purpose into the scope of consolidated financial statements. (2). Accounting methods adopted in consolidated financial statements: the consolidated financial statements of the Group shall be compiled in accordance with Enterprise Accounting Standards No. 33 - Consolidated Financial Statements and the related provisions, the major internal transaction in the scope of consolidation and transactions shall be offset. The part of shareholders equity of the subsidiary which does not belong to the parent company, shall be individually listed as equity of minority shareholders in the consolidated financial statement. 99 If the accounting policy and accounting period of the subsidiary and the company are not consistent, when compile consolidated financial statement, the financial statement of the subsidiary shall be adjusted according to the accounting policy and accounting period of the company. For the subsidiary obtained by corporate merger under different control, when prepare consolidated financial statements, the individual financial statement shall be adjusted on the basis of fair value of the net assets on the purchase day; for the subsidiary obtained by corporate merger under same control, it will be taken as having been existed at the year beginning, its assets, liabilities, operating results and cash flow shall be consolidated in the financial statement according to original book value since the year beginning of the consolidation period. (VI).Taxation The Group is subject to the following taxes and tax rates: 1. Corporate income tax The interest rate of corporate income tax of the company and subsidiaries in China mainland is 15%, the interest rate of the income from Hong Kong of the subsidiaries in Hong Kong is 17.5%. 2. VAT The sales interest rate of processing income and sale income of printing products of subsidiaries in China mainland and the company is 17%, export products will be adopted the method of "free, credit and rebate", the tax rebate rate is 11%. The purchase of raw materials such as VAT input tax paid by the amount of output tax can be offset, the tax rate is 17%. Of which: the input tax of VAT for export products can pply for payment of rebate. VAT taxable amount is the balance of the current output tax offseting the current input tax. The subsidiaries of the Company in Hong Kong do not need to pay VAT. 3. Business tax The housing rental income of the company and Nanhua Printing & Dyeing Company shall be applied to business tax, applicable rate 5%. The subsidiaries of the Company in Hong Kong do not need to pay business tax. 4. City construction tax and education additional expenses City construction tax of the Company is based on the value-added tax, business tax, applicable interest rate 1%, the company does not need to pay education additional expenses.. The subsidiaries of the company in Hong Kong do not need to pay City construction tax 100 and education additional expenses, subsidiaries in mainland China, the applicable City construction tax rate is 1%, applicable education additional tax rate of 3%. 5. Property tax 70% of the original value of property of the subsidiaries of the Company in China mainland shall be the tax basis, applicable tax rate 1.2%, subsidiaries in Hong Kong do not pay property taxes. VII. Corporation Consolidation and Consolidation Financial statement （1）Main subsidiaries Name Regis quality Register Businesssc Investment Proportion % Vote right tratio ed ope amount Proportion % Direct Indirect n capital planc e Purchase of raw Hong materials, $ Kong marketing of $ Hong 2,400, printed and Victor Trade dyed woven 2,400,002 100% 100% kong 002 Onward fabrics, investment Co. and holding business Victor Hong $2,000 $1,500,00 Onward kong Producti Digital ,000 printing 0 75% 75% Digital on Printing Sales of Hong Shengz $1,000 corduroy, kong $1,000,00 hong Trade ,000 dyed goods 100% 100% and printed 0 Co. cloth Production $85,49 and sales of Nanhua Shen Producti $16,874,2 4,700 printed cloth 43.85% 14.62% 58.47% Co zhen on 55 and dyed cloth Sales of Hong $10,00 Indust printed cloth $10,000 kong Trade 0 and dyed 100% 100% ry Co. cloth 101 RMB Design and RMB Vea opel Shen Producti 1,000, sales of 900,000 90% 90% Co. zhen on 000 garments Textilet ,Printi ng and dyeing industr Shenzh RMB y and RMB en East Shen 3,000, Raw Trade materia 1,530,000 51% 51% Asia zhen 000 ls ,Mac Co. hinery equipme nt and other fabrics 1. The Company invested 2,400,002 Hong Kong dollars in 1984 to establish Hong Kong Victor Onward Company in Hong Kong. 2. Digital printing company was established in April 18, 2002, registered capital 2 million Hong Kong dollars, Hong Kong Victor Onward holding 75% equity, East Asia Development (Hong Kong) Ltd holding 25% equity. 3. Shengzhong Company was established in November 9 1993, registered capital 1 million Hong Kong dollars, Hong Kong Victor Onward holding 100% equity. 4. Nanhuan Company was established in July 21, 1988, registered capital 85.49 million Hong Kong dollars, by December 31, 2007 the shareholding structure as follows: Name of investor Amount Proportion CITIC Group 6,249,662.57 7.31% Shenzhen Nanyou（Group）Company 3,129,106.02 3.66% Shenye Union (Hongkong)Co., Ltd. 26,127,180.32 30.56% The Company 37,489,425.95 43.85% Hong Kong Victor Onward Co. 12,499,325.14 14.62% Total 85,494,700.00 100.00% Nanhuan Company was shutdown for rectification in February 2007, and disposed part of fixed assets. 5. Nanhua Company invested 10,000 yuan to establish Industry Company in Hong Kong in December 1996. 6. Vea opel Company was established in January 27, 1997, registered capital 1 million yuan, the Company and Shenzhen Union Development Investment Co. Ltd. respectively 102 holding 25% and 75% equity, in May 2004, Shenzhen Union Development Investment Co. Ltd. transferred its 65% equity to the company, the transfer price 650,000, after the transfer, the company held 90% equity, Shenzhen Union Investment & Development Company holding 10% equity. In September 2007, the Company transferred its 90% eqity of Vea opel Company to Xie Jingzhang and Yuan Qi two natural persons, price 900,000 yuan, the transfer money was received in the current month and the procedures were processed. 7. Shenzhen East Asia Company was established in February 28, 2007, registered capital 3 million yuan, the company invested 1.53 million yuan, holding 51% equity, Nanjing East Asia Textile Co., Ltd. invested 1.47 million yuan, holding 49% equity. (2) Change of consolidation scope 1. As the Company assigned its subsidiary Veaopel Company in September 2007, its financial statements for 2007 only consolidate the profit statement and cash flow statement of Veaopel Company for the first nine months of 2007 and did not consolidate the balance sheet of Veaopel Company as at December 31, 2007. 2. Shenzhen East Asia Company is a subsidiary newly established by the Company in February 2007. The Company holds 51% equity of this subsidiary and owns control over it. So this subsidiary fell into consolidation scope in the report period. The net assets of this subsidiary as at December 31, 2007 were RMB 2,094,865 and its net profit for 2007 was RMB - 905,135. VIII. Notes to the main items of consolidated financial statements and the Company's financial statements 1.Monetary Capital Item December 31,2007 December 31,2006 Original Exchange RMB Original Exchang RMB currency rate equivalent currency e rate equivalent Stock cash 273,448 385,006 Bank deposit 29,113,125 91,286,892 Including: HKD 18,451,541 0.9364 17,278,023 16,770,140 1.0047 16,848,960 USD 426,329 7.3046 3,114,164 186,938 7.8087 1,459,746 Other monetary capital 23,270,279 7,306,542 Including: HKD 35,339 0.9364 33,091 7,072,706 1.0047 7,105,948 Total 52,656,852 98,978,440 103 * Transactional equity tools are the shares which are to be cashed at any time purchased by the subsidiary of the company Hong Kong Victor Onward Company, priced by fair value, its cash has no major restrictions. 2.Financial assets for transection Item December 31,2007 December 31,2006 Equity tool investment for transaction. 140,423 90,825 Total 140,423 90,825 z Transactional equity tools are the shares which are to be cashed at any time purchased by the subsidiary of the company Hong Kong Victor Onward Company, priced by fair value, Changed income 49,598 yuan, its cash has no major restrictions. 3. Bill receivable （1）Type of Bill receivable Type December 31,2007 December 31,2006 Bank acceptance - 4,176,122 Trade acceptance - 2,474,619 Total - 6,650,741 * The receivable decreased 100% at the period end mainly due to the company shutdown for rectification, the notes receivable at the period beginning have been recovered, there was no notes receivable in the current period. 4.Account receivable （1）Risk classification of accounts receivable Items December 31,2007 December 31,2006 Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Receivables with 7,217,868 34% 3,699,398 28,620,298 34% 16,476,917 large individual 104 amount. Receivables without large individual amount, but with 11,651,883 55% 11,216,798 32,245,882 38% 4,709,528 great risk after combined according to risk characteristics Other minor 2,244,268 11% 63,794 24,187,178 28% 1,863,139 receivables Total 21,114,019 100% 14,979,990 85,053,358 100% 23,049,584 Methods of risk classification of accounts receivable are described in Note v, 7. （2） Age of account receivable December 31,2007 December 31,2006 Provision for Provision for Items Amount Proportion% bad debts Amount Proportion% bad debts Within 1 year 4,186,342 20% 18,474 60,467,945 71% 4,657,848 1－2 years 7,331,486 35% 5,627,787 8,058,704 10% 2,846,389 2－3 years 2,127,388 10% 1,936,433 2,838,799 3% 1,857,437 Over 3 years 7,468,803 35% 7,397,296 13,687,910 16% 13,687,910 Total 21,114,019 100% 14,979,990 85,053,358 100% 23,049,584 （3）Accounts receivable reduced 75% at the period end mainly due to the company shutdown for rectification, therefore sales income reduced, cleared some accounts receivable and some receivables were recovered. （4）Accounting methods and ratio of provision for bad debts are described in Note V, 7. （5）In the receivables at the period end, no loans of the shareholders holding 5% (inclusive of a 5%) or more voting right and other related units. ( 6）The amount of top five debtor was RMB 9,096,768, accounting for 43% of the total, （Of which, one-year accounts receivable RMB 3,710,568, accounts receivable more than one year RMB 5,386,200） Accounts receivable include the following foreign currency balances 105 Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 17,491,056 0.9364 16,378,625 84,225,129 1.0047 84,620,987 Total 17,491,056 0.9364 16,378,625 84,225,129 1.0047 84,620,987 5.Prepayments December 31,2007 December 31,2006 Items Amount Proportion % Amount Proportion % Within 1 year 54,712 100% 343,832 100% 1-2 years - - - - 2-3 years - - - - Over 3 years - - - - Total 54,712 100% 343,832 100% （1） Of the prepayments at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. （2）Prepayments include the following foreign currency balances Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 58,428 0.9364 54,712 - - - Total 58,428 0.9364 54,712 - - -- 6.Other receivables （1）Risk classification of other receivable Items December 31,2007 December 31,2006 Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Receivables with large 8,091,040 80.22% 1,080,023 1,080,000 54.86% 1,043,041 individual amount. Receivables 69,256 0.69% 69,256 - - - without large 106 individual amount, but with great risk after combined according to risk characteristics Other minor 1,925,518 19.09% 75,992 888,515 45.14% 365,235 receivables Total 10,085,814 100.00% 1,225,271 1,968,515 100% 1,408,276 （2）Other account receivable age December 31,2007 December 31,2006 Provision Provision for bad for bad Items Amount Proportion% debts Amount Proportion% debts Within 1 year 8,820,325 87.45% - 450,667 23.00% - 1 － 2 years 26,067 0.26% 26,067 84,367 4.00% - 2 － 3 years - - - 189,124 10.00% 163,919 Over 3 years 1,239,422 12.29% 1,199,204 1,244,357 63.00% 1,244,357 Total 10,085,814 100.00% 1,225,271 1,968,515 100.00% 1,408,276 （3）Other receivables increased 412% mainly due to the receivable in Nanjing East Asia Textile Printing & Dyeing Co. Ltd. increased 2.47 million in the current period, and the export tax rebates of the subsidiary of the company Shenzhen East Asia Company increased 4.7 million. （4）Accounting methods and ratio of provision for bad debts are described in Note V, 7. （5）Of the prepayments at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. ( 6）The amount of top five account receivable was RMB 4,412,597, accounting for 41% of the total,（Of which, one-year accounts receivable RMB 3,062,574, accounts receivable more than one year RMB 1,350,023） （7）other receivable include the following foreign currency balances Foreign December 31,2007 December 31,2006 107 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 2,007,441 0.9364 1,879,768 62,655,558 1.0047 62,950,039 Total 2,007,441 0.9364 1,879,768 62,655,558 1.0047 62,950,039 7. Inventories and provision for impairment of inventories （1）Inventories Item December 31,2007 December 31,2006 Raw materials 20,479,177 18,515,077 Work-in-process 2,261,023 19,316,281 Stock 2,003,027 45,702,287 Total 24,743,227 83,533,645 * Inventory reduced 70%, mainly due to the Company and the subsidiary Nanhua Company shut down for rectification, the purchase of raw materials and products production stopped, and the stock and part of raw materials were conducted sale treatment. （2）Provision for impairment of inventories December 31, Decrease in the current 2006 Accrual period December 31, amount Other 2007 Items Switchback Transfer out Raw materials 8,174,831 8,217,011 4,537,667 11,854,175 Work-in-process 550,415 730,565 - - 1,280,980 Stock 3,730,026 - - 3,273,662 456,364 Total 12,455,272 8,947,576 - 7,811,329 13,591,519 The method for Provision for impairment of inventories , see Note V,8. 8. Financial assets for sale Items December 31,2007 December 31,2006 Equity tools for sale. 836,861 299,300 Total 836,861 299,300 108 The equity tools for sale are the shares held by the subsidiary of the company Hong Kong Victor Onward , because they are not to be cashed in a short term, so they are classified in this item, the change of fair value in the current period RMB 557,907 has been included in the public capital reserve. 9. Long-term equity investment （1）Long-term equity investment Items December 31,2007 December 31,2006 The cost of long-term equity investment accounting - - The equity method long-term equity investment 65,629,837 57,940,101 Total of long-term equity investment 65,629,837 57,940,101 Less ： Long-term equity investments for impairment - - Net value long-term equity investment 65,629,837 57,940,101 （2）The investment in the joint venture Net profit Registration Property Vote right Net asset at Total Name Proportion at the place proportion end period income period Joint venture Zhejiang Real Hangzhou 25% 25% 262,519,346 18,600 14,115,911 Union estate Shenzhen Printing Lianchan Shenzhen and 37.5% 37.5% -4,881,960.34 - - g dyeing （3）Items of Long-term equity investment Balance at Balance Initial the at the Name Proportion% Increase Decrease period Bonus Amount beginning of period end. Equity method Zhejiang 25% 58,588,403 57,940,101 11,950,129 4,260,393 65,629,837 - Union Shenzhen 37.5% 1,403,456 - - - - - 109 Lianchang *1. Increased RMB 11,950,129 in the current period, of which: the current loss and gain RMB 3,528,978, other equity change 8,421,152. The decrease in the current period mainly due to the change of exchange rate. *2. * 2 Shenzhen Lianchang Printing & Dyeing Co. Ltd. was in loss for many years, its net assets were negative, the operation of the company has stopped, the balance of long-term equity investment has been adjusted to zero. 10. Property investment The investment in real estate companies use the cost model measures December December Items Increase Decrease 31,2006 31,2007 Original Value 45,736,810 10,255,182 3,109,211 52,882,781 Including ： House, Building 45,736,810 10,255,182 3,109,211 52,882,781 Land use right Accumulated depreciation and accumulated amortisation 18,763,477 6,108,676 1,275,551 23,596,602 Including ： House, Building 18,763,477 6,108,676 1,275,551 23,596,602 Land use right - - - Investment of the accumulated amount of real estate impairment - - - Including ： House, Building - - - Land use right - - - The book value of real estate investment 26,973,333 4,146,506 1,833,660 29,286,179 Including ： House, Building 26,973,333 4,146,506 1,833,660 29,286,179 Land use right - - - - The investment real estates increased in the current period were housings of the subsidiary of the company Hong Kong Victor Onward Company, the decrease in the current period mainly due to the change of exchange rate. 11. Fixed assets （1） Fixed assets 110 Transporta Office House and Machine and Item tion equipment Total building Equipment Equipment and other Original Value. December 31,2006 136,344,346 219,445,090 7,340,366 26,926,067 390,055,869 Increase of current period - - 724,090 79,808 803,898 Including :The project under construction transferred in. - - - - - Decrease of current period 21,877,963 103,430,962 2,028,139 15,389,451 142,726,515 Including:Exchange rate change 9,268,756 14,917,986 499,002 1 ,830,447 11,099,203 December 31,2007 114,466,383 116,014,128 6,036,317 11,616,424 248,133,252 Accumulated depreciation December 31,2006 70,489,520 167,346,715 6,310,293 18,773,978 262,920,506 Increase of current period 4,199,638 3,471,075 367,631 496,605 8,534,949 Decrease of current period 11,793,870 83,792,266 1,958,113 11,534,560 109,078,809 Including:Exchang e rate change 4,791,912 11,376,312 428,977 1,276,264 17,873,465 December 31,2007 62,895,288 87,025,524 4,719,811 7,736,023 162,376,646 Impairment provision December 31,2006 - 6,110,411 - - 6,110,411 Increase of current period 17,245,822 11,761,439 2,184 2,544,958 31,554,403 111 Switch back of current period - - - - - Decrease of current period - 6,110,411 - - 6,110,411 Including:Exchange rate change - 415,389 - - 415,389 December 31,2007 17,245,822 11,761,439 2,184 2,544,958 31,554,403 Net value December 31,2006 65,854,826 45,987,964 1,030,073 8,152,089 121,024,952 December 31,2007 34,325,273 17,227,165 1,314,322 1,335,443 54,202,203 （2）Details of temporary idle fixed assets are as follows： Book Original V Accumulated Impairment Book Net Item alue depreciation provision value House and building 51,448,259 29,076,774 17,245,822 5,125,663 Machine and Equipment 115,655,969 86,851,453 9,088,379 19,716,137 Transportation Equipment 4,618,995 4,070,720 2,184 546,091 Office equipment and other 9,666,271 6,146,453 2,544,958 974,860 Total 181,389,494 126,145,400 28,881,343 26,362,751 （3）The lands of plants and offices of the company at No. 26, Kuipeng Road, Baishigang, Kuiyong Town, Longgang, Shenzhen were obtained by leasing, lease period by March 31, 2009. According to Shenzhen Municipal Government's urban planning, the region can not be used for textile printing and dyeing business, the Company shutdown for consolidation on March 2007, part of machinery and equipments were to be used for foreign investment, so the company fully accounted provision for impairment on residual value of housings, accounted 40% provision for impairment from the machinery and equipments, and accounted provision for impairment from the full value of residual value of other machinery and other equipments. Accrual amount December Accrual December Item 31,2006 amount Other Including:Exchange 31,2007 Switchback Transfer out rate change House and building 17,875,689 629,867 17,245,822 112 Machine and Equipment 6,110,411 12,191,000 6,110,411 429,561 11,761,439 Transportation Equipment 2,264 80 2,184 Office equipment and other 2,637,907 92,949 2,544,958 Total 6,110,411 32,706,860 - 6,110,411 1,152,457 31,554,403 The reduction in the current period mainly due to the subsidiary of the company Nanhua Company sold the machinery and equipments which have been accounted provision for impairment. （4） The permit of property rights of ownership of housings of the subsidiary of the Company, Hong Kong Victor Onward Company was mortgaged to Shenzhen Nanyang Business Bank for the loan of 37 million, which was returned on January 10, 2007, the procedures of canceling the mortgage were processing. 12. Construction-in-progress （1）Construction-in-progress Increase in Switchb Project name Project December Other December current ack budget 31,2006 period decrease 31,2007 2nd phase of the project ERP - 312,859 - - 312,859 - Total - 312,859 - - 312,859 - （2）All the projects under construction use the self-financed funds, the borrowing costs which are not capitalized shall be transferred to intangible assets upon the completion of the projects. 13. Intangible assets （1） Intangible assets Item Land use right software Total Original Value December 31,2006 12,830,180 514,476 13,344,656 Increase in current period - 312,859 312,859 Decrease in current period 872,203 56,242 928,445 December 31,2007 11,957,977 771,093 12,729,070 - - - Accumulative Amortize - - - December 31,2006 11,654,107 287,342 11,941,449 113 Amortize in current period 597,903 240,903 838,806 Decrease in current period 792,252 19,534 811,786 December 31,2007 11,459,758 508,711 11,968,469 - Net value - December 31,2006 1,176,073 227,134 1,403,207 December 31,2006 498,219 262,382 760,601 * The decrease of original value and accumulated amortization in the current period was due to the change of exchange rate. （2）Impairment provision of intangible assets Decrease in the current December Accrual period December Item Switchback Other 31,2006 amount 31,2007 Transfer out Software - 262,382 - - 262,382 Total - 262,382 - - 262,382 * Because the main business of the company was shutdown for rectification, the ERP originally developed could not bring economic interest and has no transfer value, so provision for impairment was accounted according to net value in the current period. 14. Short-term loans Type December 31,2007 December 31,2006 Mortgage loan - 62,000,000 Total - 62,000,000 * The short-term loan reduced 100% at the end of period, mainly due to the company returned all loans in this year and no new loans increased. 15. Bill payable Type December 31,2007 December 31,2006 Bank acceptance - 7,409,611 TotaL - 7,409,611 * Bill payable reduced 100% at the end of the period, mainly due to the 114 company shutdown for rectification, and the procurement of raw materials stopped, and Bill payable in the last period were paid. 16.Account payable （1）The balance of Bill payable on December 31, 2007 was 4,936,984 yuan (balance on December 31, 25,2006, 25,017,704 yuan), accounts payable at the end of the period reduced by 80% mainly due to the Company shutdown for rectification, and stopped the procurement of raw materials and repaid part of loans. （2）Of the prepayments at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. （3）Accounts payable include the following foreign currency balances. Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 757,424 0.9364 709,252 5,420,081 1.0047 5,445,555 17.Advanced account （1）The balance of advanced account payable on December 31, 2007 was 5,833,758 yuan (balance on December 31, 2006, 956,148 yuan)The advanced account of the Company increased 510% at the period end, mainly due to the increase of advanced account of Shenzhen East Asia Company, a subsidiary of the company. （2）Of the prepayments at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. （ （3）Advanced Accounts include the following foreign currency balances. Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 20,231 0.9364 18,944 - - - Total 20,231 0.9364 18,944 - - - 18. Wage payables to employees Payable in Increase in the December current December period current Item 31,2006 period 31,2007 115 Payable in Increase in the December current December period current Item 31,2006 period 31,2007 I. Wage (Including reward , 14,596,55 allowance and subsidy) 1,283,596 13,897,613 3 584,656 II.Welfarism For employees 135,387 232,083 257,815 109,655 III.Social insurance premiums 120,252 1,030,435 1,151,391 -704 Including : 1.Medical insurance premiums 24,372 64,048 86,968 1,452 2.Basic old-age insurance premiums 85,961 944,837 1,033,606 -2,808 3. Unemployment insurance expenses 3,259 6,485 9,530 214 4.Industrial injury insurance premiums 5,575 11,750 16,958 367 5. Childbirth insurance premiums 1,085 3,315 4,329 71 IV.Housing accumulation fund 3,721 44,767 48,244 244 V.Trade union outlays and employee education outlays 689,208 46,281 652,780 82,709 VI.Nonmonetary welfare - - - - VII.Commpensation to employees for severing labor 15,110,42 relations - 15,110,422 2 - VIII.other - - - - Including: paid by using cash - - - - 31,817,20 Total 2,232,164 30,361,601 5 776,560 （1）At the period end, the company had no wages payable that belong to arrears. （2）Payable workers’ salary reduced 65% mainly due to the company shutdown for rectification, the company dismissed most of the staff, so the payable workers’ salary decreased at the period end. 19. Fees and taxes payables Type Tax rate December 31,2007 December 31,2006 VAT 17% 681,383 -1,982,157 Business tax 5% 172,769 184,736 Tax on city maintenance and construction 1% -127 21 Enterprise income tax 15%、17.5% 1,027,431 3,051,145 Individual income tax 604 - Property tax 1.2%和 12% 308,141 249,584 116 Type Tax rate December 31,2007 December 31,2006 Stamp tax 257,181 275,940 Total 2,447,382 1,779,269 Payable expense and tax reduced 38% mainly due to the company shutdown for rectification, the operating of the company was at a loss, so the payable VAT reduced in this period. 20. Dividend payable Reasons of Item December 31,2007 December 31,2006 arrears State Development & Capital Investment Co., Ltd 280,896 301,384 tense Capital CITIC Group 280,896 301,384 tense Shenzhen Nanyou (Group) Capital Company 140,448 150,692 tense Shenye Union（Hongkong） Capital Co., Ltd. 140,448 150,692 tense Changzhou Dongfeng Printing and dyeing plant Capital *2 561,792 602,769 tense Total 1,404,480 1,506,921 *1 The above payable dividends were the payable dividends of Nanhua Company, a subsidiary of the company, the change in balance mainly due to the change of exchange rate. Because Nanhuan Company’s capital was more tension and the shareholders did not ask for the fund, the payable dividends have not been paid. The payable dividends reduced at the end of the period mainly due to the change of exchange rate. *2 The above two companies are the former shareholders of Nanhuan Company, the subsidiary of the company. 21. Other accounts payable （1）Other accounts payable Item December 31,2007 December 31,2006 Within 1 year 6,249,889 3,414,005 1-2 years 3,242,810 190,144 2-3 years 165,239 1,920,633 Over 3 years 18,760,573 18,925,798 117 Total 28,418,511 24,450,580 （2）Other payables which are longer than one year mainly were the loans borrowed by Nanhuan Company the subsidiary of the company from related companies, which have not been paid because of capital tension. （3）Of the Other payables at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. Arrears Nature or Item amount Age content Within 1 year or Union Group 16,310,435 Over 3 years Between loan Shenzhen Union property Group Co., Ltd. 3,003,528 1-2 years Between loan Total 19,313,963 （4）Other accounts payable by aging are as follows Arrears Nature or Item amount Age content Within 1 year or Union Group 16,310,435 Over 3 years Between loan Shenzhen Union property Group Co., Ltd. 3,003,528 1-2 years Between loan State Development & Investment Co., Ltd 3,000,000 Over 3 years Between loan House lease Mortgage 940,000 Within 1 year Mortgage Total 26,195,145 （ 5 ） Other payable Accounts include the following foreign currency balances. Forei December 31,2007 December 31,2006 gn curre ncy Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 2,920,295 0.9364 2,734,565 62,854,630 1.0047 63,150,047 22. Long-term loans （1）Listed by currency 118 Type December 31,2007 December 31,2006 HKD 1,928,557 2,147,933 Total 1,928,557 2,147,933 （2）Listed by loan： Loan type December 31,2007 December 31,2006 Credit loan - - Mortgage loan 1,928,557 2,147,933 Loan guarantee - - Loan pledge - - Total 1,928,557 2,147,933 * The long-term borrowing was the installment payment for the housing in Hong Kong bought by the subsidiary of the company Xingye Company, the mortgage article was the house purchased. The installment payment was 2,366,000 HK dollars, which paid in 240 month, the year loan interest rate 5.1%, monthly payment 12,365 HK dollars,as of December 31 2007, principal loan 1,989,505 HK dollars (RMB 1,928,557). （3）Listed by Credit ： Name December 31,2007 December 31,2006 HSBC 1,928,557 2,147,933 Total 1,928,557 2,147,933 23. Long-term payable Item December 31,2007 December 31,2006 Period Assets revaluation No deadline increase 9,802,757 10,517,759 Total 9,802,757 10,517,759 * The company was authorized by People's Bank of China when it was reorganized into joint-stock company, the revaluation of the assets of the revaluation gain attributable to the restructuring of the Company before the shareholder. The asset was re-assessed on January 31, 1992, which generated about 14,754,000 HKD revaluation gain, recorded on account as 119 long-term payable subject, part of them have been used to offset the bad debts prior to listing (about 4,285,000 HKD ). The shareholders before the reorganization have agreed not to require the company to pay such amounts with cash, to offset each other when purchase stocks of the company in the future, the decrease of long-term payables mainly due to the change of exchange rate. 24. Deferred income Increase in Carry-over current in current Item December 31,2006 period period December 31,2007 Information construction fund ERP 282,828 19,227 263,601 Digital printing subsidy 754,208 51,271 702,937 Total 1,037,036 70,498 966,538 * The company received special subsidy RMB 800,000 allocated from Shenzhen City Finance Bureau in 2004 for the digital jet printing project, and special subsidy RMB 300,000 for the construction of information of the company, the change in the current period mainly due to the change of exchange rate. ** Because the above amount required for acceptance from Finance Bureau to do account treatment, so it was temporarily suspened. 25. Liabilities in advance Increase in Carry-over December current December in current Item 31,2006 period 31,2007 Causes period Employees severance Stop pay 4,758,816 4,758,816 production Total 4,758,816 - 4,758,816 - *The predicted liabilities are the payable staff resettlement compensation confirmed on December 31, 2006 by the subsidiary of the company Nanhua Company, which have been fully paid in the current period 26. Deferred income tax liabilities 120 （1）The confirmed Deferred income tax liabilities. Item December 31,2007 December 31,2006 The income tax of taxable temporary difference. 1,195,397 1,547,038 Total 1,195,397 1,547,038 （2）The temporary difference project that had confirmed the deferred income tax liabilities at the period end. Item of the taxable temporary December 31,2007 December 31,2006 difference project 应纳税暂时 Assets assessment appreciation*1 6,830,841 8,840,219 Total 6,830,841 8,840,219 Tax rate 17.50% 17.50% Confirmation of the Deferred income tax liabilities. 1,195,397 1,547,038 *1 When the company was reorganized into joint-stock company, the company was approved by the People's Bank of China, the added value of the assets of the subsidiary of the company Hong Kong Victor Onward Company, according to Hong Kong Standards, can not be adjusted, and was not to be deducted when accounting the income tax, resulting in the differences in net value of fixed assets and accounting basis. * 2 The joint companies and transactional financial assets, financial assets to be sold are hold through subsidiaries in Hong Kong, in accordance with the provisions of the Hong Kong tax laws, the book value of these assets and tax basis have differences, deferred income tax liabilities were not to be recognized. 27. Share capital With the face value per share RMB 1 Yuan. Shareholder Name/Type December 31,2007 December 31,2006 .Shares with conditional subscription State-owned shares 121 Shareholder Name/Type December 31,2007 December 31,2006 State-owned legal person shares 13,822,369 29,267,301 Other domestic shares 43,141,032 43,141,032 Incl：domestic legal person shares 43,141,032 43,141,032 Domestic nature person shares Foreign shareholding Incl：Foreign legal person shares Foreign nature person share Total Shares with conditional subscription 56,963,401 72,408,333 Shares with unconditional subscription Common shares in RMB 42,757,052 27,312,120 foreign shares in domestic market 69,421,903 69,421,903 Foregn shares in overseas market Total Total Shares with unconditional subscription 112,178,955 96,734,023 Total of capital shares 169,142,356 169,142,356 28. Capital common reserve Decrease December Increase in in the December Item 31,2006 the period period. . 31,2007 Share capital Premium 29,718,829 - - 29,718,829 Other Capital common reserve 5,183,179 8,979,059 - 14,162,238 Total 34,902,008 8,979,059 - 43,881,067 * The increase of capital common reserve mainly due to the rise in capital public reserve formed by the rise of fair value of assets for sale of Zhejiang Hongzhouwang Pioneering Company was accounted by the method of equity, the capital common reserve RMB 8,421,152 yuan of the share ratio held by the company, and the rise of fair value of assets for sale of the subsidiary of the company Hong Kong Victor Onward Company formed the capital public reserve 122 RMB 557,907. 29. Surplus common reserve Increase Decrease in December in the the December Item 31,2006 period period. . 31,2007 Statutory Surplus common reserve 26,309,287 - - 26,309,287 Arbitrary Surplus common reserve - - - - Total 26,309,287 - - 26,309,287 30. Retained profit （1）Distribution proportion Distribution Item basis Year 2007 Year 2006 Extraction of the statutory Surplus common reserve Net profit - 10% （2）Profit distribution statement Item Year 2007 Year 2006 Retained profit at the period beginning. 27,459,127 -30,365,371 Add：Adjustment Retained profit at the period beginning*1 - 1,679,368 Other Transfer out*2 -955,429 30,939,139 Add：Net profit -116,356,882 28,992,654 Less ： Extraction Surplus common reserve - 3,786,663 Distribution of common stock dividend - - Retained profit at the period end. -89,853,184 27,459,127 Retained profit at the period end. - - 123 *1 The adjustment of undistributed profits at the period end was mainly in accordance with the new Guidelines to conduct the retroactive adjustments, see Note IV *2 The other transfers in 2006 were the transfer of surplus public reserve offsetting losses, in 2007 were the excess losses of Zhengzhong company undertaken by the company. 31. Minority shareholders equity Subsidiary name Proportion December 31,2007 December 31,2006 Digital printing Company 25% - 225,371 Nanhua Company 41.53% - 7,730,836 Shenzhen East Asia Company 49% 872,829 - Total 872,829 7,956,207 * The two subsidiaries had excess losses, because the constitution and agreement of the company agreed that small shareholders bear the obligations of the excess losses, so the equity of minority shareholders was reduced to zero, the excess losses were fully beard by the Company. 32. Business income, Business cost （1）Business income Item Year 2007 Year 2006 Key business income 100,468,588 240,613,550 Other business income 3,100,007 2,665,034 Total 103,568,595 243,278,584 The sales amount of the top 5 customers 16,571,527 49,380,653 Proportion 16.00% 20.30% （2）Business cost Item Year 2007 Year 2006 Key business cost 117,236,227 233,927,648 Other business coste 2,151,692 1,553,221 Total 119,387,919 235,480,869 124 （3）Key business income cost—Product/operating Item Year 2007 Year 2006 Key business income Including ： Cloth bleaching, printing and dyeing 99,583,552 235,957,462 Trade of garment - 4,656,088 Lease income 2,646,533 2,381,207 Other income 1,338,510 283,827 Total 103,568,595 243,278,584 Key business cost Including ： Cloth bleaching, printing and dyeing 117,803,360 230,022,417 Trade of garment - 3,905,231 House lease 434,413 1,548,941 Other cost 1,150,146 4,280 Total 119,387,919 235,480,869 Key business gross Including ： Cloth bleaching, printing and dyeing -18,219,808 5,935,045 Trade of garment - 750,857 House lease 2,212,120 832,266 Other cost 188,364 279,547 Total -15,819,324 7,797,715 （4）The operating income and cost in the current period respectively reduced 57% and 49%, mainly due to the Company and the subsidiary of the Company, Nanhua Company shutdown, therefore result in the decline of income and cost. 33. Business tax and supertax Item Base Proportion Year 2007 Year 2006 City Construction Turnover Tax tax 1% 458 24,369 Education Turnover surcharge tax 3% 1,375 10,444 Total 1,833 34,813 125 1.Sale Expenses Item Year 2007 Year 2006 Wage 4,043,661 1,709,998 Sales commission 2,193,282 3,172,788 Transportaton fees 403,235 971,002 Lease fees 362,021 675,971 Depreciation fees 195,402 145,507 Travel fees 126,051 14,511 Samples fees 120,952 - Telephone fees 105,004 31,998 Packing fees 62,163 845,176 Export commodity inspection fees 41,259 159,664 Other 953,900 908,067 Total 8,606,930 9,224,812 35.Management expenses Item Year 2007 Year 2006 Severance expenses of employees 11,030,715 4,843,127 Accumulative depreciation 7,354,601 484,376 Wage 3,075,025 5,077,270 Audit fees 1,105,630 849,536 Property tax 1,011,711 673,105 Electrict fees 91,935 89,890 Society fees 963,790 1,247,151 Amortisation of intangible assets 827,825 757,237 无形资产摊销 Social insurance 785,145 1,599,471 Insurance premium 741,893 425,618 Incidental expenses 419,563 1,172,333 Directorate expenses 326,122 171,780 Travel fees 280,663 208,938 Lawyer fees 249,741 117,086 126 Item Year 2007 Year 2006 Office expenses 247,536 650,147 Transport expenses 232,142 174,767 Securities management expenses 223,969 333,072 Land use expenses 223,038 173,404 Telephone fees 118,020 347,747 Other 5,683,114 5,285,020 Total 34,992,178 24,681,075 The management fee in this period increased 42% than the last period, mainly due to the company shutdown, and paid a large sum of expenses , and due to the main businesses were shutdown for recertification, the fixed assets originally included in depreciation of fixed assets shall be included in the management fee in the current period to account. 36. Financial expenses Item Year 2007 Year 2006 Interest expenses 4,834,706 5,388,396 Less：Interest income 589,809 509,347 Add：Exchange rate loss 2,550,162 4,571,151 Add：Other expenses 156,835 364,311 Total 6,951,894 9,814,511 37. Asset impairment losses Item Year 2007 Year 2006 Bad debt losses 12,792,532 7,795,393 Inventory devaluation losses 8,947,576 6,163,980 Fixed asset impairment losses 32,706,860 6,218,667 Intangible asset impairment losses 271,965 - Total 54,718,933 20,178,040 The asset impairment losses in the current period increased 171%, mainly due to the company shutdown for rectification, and accounted provision for impairment on receivables, inventories, and fixed assets. Losses from the change of fair value 127 38. Changes income in fair value /loss Item Year 2007 Year 2006 Trading financial assets ——Changes income in fair value ——Changes income in fair value 57,809 58,906 Total 57,809 58,906 39. Investment income (1）Investment income generated by the sources listed Source of investment income Year 2007 Year 2006 Stock investment income 3,258,808 - The amount of net increase of owner’s equity of the invested unit adjusted at the year end. 3,331,782 -257,440 Income from transfer of equity investment 1,940,802 76,659,014 Total 8,531,392 76,401,574 The equity investment income reduced 89% than the last period mainly due to the Company sold the shares of Xingye Bank which resulting in the increase of investment income in the last period. （2）Listed according to the invested units Content of The invested units investment incomes Year 2007 Year 2006 Income from purchase Stock of new shares 3,258,808 - Income from equity Veaopel* transfer 1,940,802 - Income from equity Industry Bank transfer - 76,659,014 Zhejiang Hualian Hangzhou Income confirmed by Venture Co., Ltd the method of equity 3,331,782 -257,440 Total 8,531,392 76,401,574 * The income from transfer of Veaopel includes the income RMB 900,000 of the transfer and excess loss RMB 1,040,802 confirmed in the previous years. There were no major restrictions in the investment income at the period end. 128 40. Non-operating income Item Year 2007 Year 2006 Net income disposition fixed assets 48,530 1,755,901 Other 46,091 106,474 Total 94,621 1,862,375 41. Non-operating expense Item Year 2007 Year 2006 Loss disposition Non-current assets 2,258,181 122,405 Debt restructuring loss 9,706,099 - Donate expenses - 21,904 Check accounts loss - 124,912 Other 37,980 84,210 Total 12,002,260 353,431 The expenses on non-operating expenses in the current period increased 3,296% mainly due to the company sold the equity of the subsidiary Veaopel Company, and at the same time, promising giving up the loss of debt right RMB 9,706,099 , and the loss of disposal of machinery equipment RMB 2,258,181. 42.Income tax expenses Item Year 2007 Year 2006 The current income tax expense 775,455 2,218,003 Deferred income tax expense -605,446 7,054 Total 170,009 2,225,057 43. Cash flow statement （1）cash and cash equivalents Item Year 2007 Year 2006 Cash 52,656,852 91,671,898 Including :Stock of cash 273,448 385,006 The bank deposits which can be used at any time 29,113,125 91,286,892 The other monetary funds which can be used at any time 23,270,279 129 The funds deposited in the central bank which be used The funds deposited in the same industry The funds offered by the same industry Cash equivalents 52,656,852 91,671,898 Including : Debt investments which will due within three months Balance of cash and cash equivalents at the period end 52,656,852 91,671,898 Including : the restricted cash and cash equivalents used by the parent company or subsidiary of the Group （2）Reveive/payable other /Investment/cach of financing activities 1）Other cash received relating to financing activities Item Year 2007 Year 2006 Rental income 2,646,533 1,922,369 Between units and individuals 2,311,548 12,993,556 Shares publicity for reform - 1,017,717 Interest income 589,809 506,238 Other - 795,653 Total 5,547,890 17,235,533 2）Other cash paid relating to operating activities Item Year 2007 Year 2006 Sales commission 2,193,282 1,483,442 Rental fee 362,021 1,272,574 Society fees 963,790 1,263,457 Between units 800,000.00 9,541,044 Shares publicity for reform - 1,017,717 Transportion fees 635,377 851,465 Audit fees 1,105,630 849,536 Packing fees 62,163 845,176 Office fees 247,536 770,483 Insurance premium 472,789 520,807 130 Item Year 2007 Year 2006 Exchange commission charge - 420,435 Travel fees 406,714 396,754 Counselor fees - 393,663 Telephone fees 223,024 379,745 Securities management expenses 223,969 333,072 Labour union outly 83,354 289,363 Commodity inspection expenses 41,259 237,751 MPF - 214,075 Water and electricity fees 191,935 206,327 Land use expenses 223,038 194,661 Market development and business expenses - 190,011 Parking fees 219,082 133,812 Maintenance expenses - 127,808 Tariffs on trial charge 40,952 120,100 Lawyer fees 249,741 117,086 Professional service fees - 108,106 Courier charges 62,269 100,600 Advertising 76,345.00 91,636 Property management fees 53,294 90,348 Other 635,513 1,284,763 Total 9,573,077 23,845,817 （3）Supplement information of Cash Flow Statement Item Year 2007 Year 2006 1. Adjusting net profit to net cash flow in operating activities: Net profit -124,579,539 19,608,831 Add： Provision for impairment of assets 54,718,933 13,755,894 Fixed assets depreciation 8,534,949 17,075,400 Amortization of intangible assets 838,806 820,565 Amortization of long-term expenses to be amortize - - The losses on the disposal of fixed assets, intangible assets and other long-term assets 2,209,651 247,317 131 Item Year 2007 Year 2006 Loss on retirement of fixed assets - - Loss on changes of Fair value -57,809 - Financial expenses 4,834,706 5,388,396 Investment losses -8,531,392 -76,401,574 Decrease of deferred income tax asset - - Increase of deferred income tax liability -351,641 - Decrease in inventory 58,790,418 16,790,459 Decrease in operating receivable 27,400,836 24,637,965 Increase in operating payables -15,680,486 -21,649,768 Other - - Net cash flows from operating activities 8,127,432.00 273,485.00 2.Investing and financing activities that do not involve cash receipts and payments - Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under financial lease 3.Net increase in cash and cash equivalents Cash at the end of the period 52,656,852 91,671,898 Less：Cash at the beginning of the period 91,671,898 30,395,152 Add: Cash equivalents at the end of the period Less：Cash equivalents at the beginning of the period Net increase in cash and cash equivalents -39,015,046 61,276,746 （4）The relevant information on acquisition of subsidiaries and other business units in the current period Item Year 2007 I. The relevant information on acquisition of subsidiaries and other business units 1. Prices of acquisition of subsidiaries and other business units 1,530,000 2. The cash and cash equivalents of acquisition of subsidiaries and other business units 1,530,000 Less: the cash and cash equivalents hold by subsidiaries and other business units - 3. The net cash amount paid for the acquisition of subsidiaries and other business units 1,530,000 4. The net assets of the subsidiaries acquired - Current assets - Non- Current assets - 132 Current liabilities - Non- Current liabilities - II. The relevant information on Disposition of subsidiaries and other business units 1. Prices of Disposition of subsidiaries and other business units 900,000 2. The cash and cash equivalents of Disposition of subsidiaries and other business units 900,000 Less: the cash and cash equivalents hold by subsidiaries and other business units -131,964 3. The net cash amount paid for the Disposition of subsidiaries and other business units 768,036 4. The net assets of the subsidiaries Disposition -4,554,298 Current assets 8,647,837 Non- Current assets 63,713 Current liabilities 13,265,848 Non- Current liabilities - IX. Parent company Notes of financial statements 1. Accounts receivable （1） Risk classification of Account receivable Items December 31,2007 December 31,2006 Provision Provision Proport for bad Proport for bad Amount ion% debts Amount ion% debts Receivable s with 9,044,094 50.29% 3,699,399 29,022,140 41.82% 3,721,697 large individual amount. Receivable s without large individual amount, but 8,939,544 49.71% 8,504,459 16,680,588 24.03% 8,716,376 with great risk after combined according to risk characteri 133 stics Other minor - - - 23,703,135 34.15% 8,155,466 receivable s Total 17,983,638 100.00% 12,203,858 69,405,863 100.00% 20,593,539 （2）Account receivable age Items December 31,2007 December 31,2006 Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Within 1 year 2,069,986 11.51% - 51,117,020 73.65% 6,623,274 1－2 years 7,367,587 40.97% 3,909,130 6,240,779 8.99% 2,515,382 2－3 years 1,932,265 10.74% 1,733,603 2,547,931 3.67% 1,954,749 Over 3 years 6,613,800 36.78% 6,561,125 9,500,133 13.69% 9,500,134 Total 17,983,638 100.00% 12,203,858 69,405,863 100.00% 20,593,539 （3）The accounts receivable decreased by 74% at the period end, mainly due to the company shutdown to have rectification, and recovered some receivables which owed in the past and there were no new receivables. （4）The drawing methods and ratio of provision for bad debt are described in Note 5, 7. （5）Receivables at period end do not include the fund of shareholders holding more than 5%(including 5%) voting rights of the company. （6）The total amount of the top five accounts receivable at the period end was RMB 9,096,768X , accounting for51% of the total accounts receivable. (of which, accounts receivable within one year RMB 3,710,568, accounts receivable more than one year RMB 5,386,200) （7）The total amount of receivables from related parties at the period end 134 was 1,611,145 yuan, accounting for9% of the total accounts receivable. （8）Account receivable include the following foreign currency balances Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 17,870,726 0.9364 16,734,148 60,549,976 1.0047 60,834,561 Total 17,870,726 0.9364 16,734,148 60,549,976 1.0047 60,834,561 2. Other receivables （1）Risk classification of other receivable Items December 31,2007 December 31,2006 Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Receivable s with 83,809 large 98.67% 1,080,023 66,924,963 99.73% 1,043,041 ,610 individual amount. Receivable s without large individual amount, but with great - - - - - - risk after combined according to risk characteri stics Other minor 1,126, receivable 1.33% 75,992 182,029 0.27% 192,811 819 s 84,936 Total ,429 100.00% 1,156,015 67,106,992 100.00% 1,235,852 135 （2） Age of account receivable Items December 31,2007 December 31,2006 Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Within 1 year 83,777,367 98.63% - 62,561,873 93.23% - 1－2 years 35,001 0.05% 35,001 31,160 0.05% - 2－3 years - - - 1,087,789 1.62% 155,852 Over 3 years 1,124,061 1.32% 1,121,014 3,426,170 5.10% 1,080,000 Total 84,936,429 100.00% 1,156,015 67,106,992 100.00% 1,235,852 （3)Other account receivable Increase 27%, Mainly increase in receivable of the Company subsidiary Nanhua Company borrowing RMB 13 million. （4）The drawing methods and ratio of provision for bad debt are described in Note 5, 7. （5）Receivables at period end do not include the fund of shareholders holding more than 5%(including 5%) voting rights of the company. （6）The total amount of the top five accounts receivable at the period end was RMB 82,834,589 , accounting for95% of the total accounts receivable. （7）The total amount of receivables from related parties at the period end was RMB 80,416,221, accounting for9% of the total accounts receivable. (8 ） Other Account receivable include the following foreign currency balances Foreign December 31,2007 December 31,2006 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 68,779,926 0.9364 64,405,523 61,975,409 1.0047 62,266,693 Total 68,779,926 0.9364 64,405,523 61,975,409 1.0047 62,266,693 Long-term equity investment （1）Long-term equity investment Items December 31,2007 December 31,2006 The cost of long-term equity investment accounting 39,438,551 40,762,438 The equity method long-term - - 136 equity investment Total of long-term equity investment 39,438,551 40,762,438 Less ： Long-term equity investments for impairment - - Net value long-term equity investment 39,438,551 40,762,438 （3）The method for cost, The method for Equity Initial Increase Decrease December December Name Proportion in this in this Dividend amount 31,2006 period period 31,2007 The method for cost Hong Kong Victor Onward 100% 2,411,282 26,290,760 - 1,787,259 24,503,501 - Nanhua Printing and dyeing 43.85% 23,082,831 14,471,678 - 983,792 13,487,886 - East Asia 51% 1,470,000 - 1,470,000 22,836 1,447,164 - Vea opel 90% 900,000 - - - - - Total 40,762,438 1,470,000 2,793,887 39,438,551 - Shenzhen East Asia to increase its investment in this year, for exchange rate changes this year to reduce to the balance of long-term equity investment The company stock in this year Vea opel transfer , See Note VII(II)1. (4) Business income, Business cost （1）Business income Items December 31,2007 December 31,2006 Key Business income 34,426,195 154,074,801 Other business income 946,993 709,792 Total 35,373,188 154,784,593 The sales amount of the top 5 customers 17,176,767 49,380,653 Proportion 48.56% 31.90% （2）Business cost Items December 31,2007 December 31,2006 Key business cost 52,158,843 165,598,590 137 Other business coste 1,001,546 431,167 Total 53,160,389 166,029,757 （3）Key business income cost—Product/operating Items December December 31,2007 31,2006 Key business income Including ： Cloth bleaching, printing and dyeing 34,829,071 154,074,801 Lease income 543,441 653,855 Other income 676 55,937 Total 35,373,188 154,784,593 Key business cost Including ： Cloth bleaching, printing and dyeing 52,725,976 165,598,590 Lease income 434,413 426,887 Other income - 4,280 Total 53,160,389 166,029,757 Key business gross Including ： Cloth bleaching, printing and dyeing -17,896,905 -11,523,789 Lease income 109,028 226,968 Other income 676 51,657 _______________________________ （4）The operating income and cost in the current period respectively reduced 77% and 68%, mainly due to the Company shutdown, therefore result in the decline of income and cost. （5）Investment income (1）Investment income generated by the sources listed Source of investment income Year 2007 Year 2006 Stock investment income 3,258,808 - The transfer of equity investment income 900,000 76,659,014 Total 4,158,808 76,659,014 （2）Listed according to the invested units 138 Content of The invested units investment incomes Year 2007 Year 2006 Income from purchase Stock of new shares 3,258,808 - Income from equity Veaopel* transfer 900,000 - Income from equity Industry Bank transfer - 76,659,014 Total 4,158,808 76,659,014 There were no major restrictions in the investment income X. Debt restructuring In September 2007, the company transferred 90% equity of the subsidiary Veaopel Company to Xie Jingzhang and Yuan Qi the two natural persons with RMB 0.9 million, by September 30, 2007, the receivable in Weioupeier of the company RMB 9,706,099, because the assets of Veaopel Company can not offset its capital, the company promised to voluntarily give up the commitment of the above debt right to Veaopel Company, resulting in the loss of debt restructuring of the Company RMB 9,706,099. XI. Related party relationship and related transactions （1）Standards for recognition of the related parties 1.The units that the Company controls, co-controls or can exerts significant influence 2.The units or individuals that control ,Co-control the Company or exerts significant influence on the Company 3.The units that were controlled or co-controlled by the same party or exerted significant influence by the same party. （2）Related party relationship 1. The company's subsidiaries see Note VII 2.The related parties with controlling relationship 139 Name Relationship Legal Organization Registered Code Key business with the Nature represen address Group tative Import & export business “ processing State-owned Union with Enterprise Union Bulding,Shennan Controlling Dong 190337957 materials ” Limited Group Zhong Road, shareholder Binggen and Liability Shenzhen processing Company with imported materials Production and sale 11/F,Union ofclothing Union Bulding, and Actual Limited Dong 192471500 Holdings Shennan Zhong textiles, controller Company Binggen Road,Shenzhen and real estate developing 3.The registered capital of the related parties with controlling relationship and the change thereof. Increase of decrease of Name Year 2006 this period this period Year 2007 Union Group 90,606,000 - - 90,606,000 Union Holding 1,123,887,712 - - 1,123,887,712 4.The shares or equity held by the related parties with controlling relationship and the change thereof. Amount Proportion Name December December December 31,2007 December 31,2006 31,2007 31,2006 Union 6,383,736 6,987,814 3.77% 4.13% 140 Group Union Holding 43,141,032 43,141,032 25.51% 25.51% * Union Group holds 40.15% of equity capital of Union Holdings, it controls Union Holdings, and Union Holdings is a controlling shareholder of the company, thus Union Group is the actual controller of the company 5.The related parties without controlling relationship Name Relationship Union property Group Co., Ltd. Controlled by the actualcontroller Shenye Union (Hongkong) Co., Ltd. Controlled by the actualcontroller （3）Related transactions 1.Fund relations among related parties （1）Year 2007 Name Financing to related Financing of related party to party the Group Transaction Transaction amount Balance amount Balance Union property Group Co., Ltd. - - 3,528 3,003,528 Union Group - - 19,160 16,310,435 Total - - 22,688 19,313,963 （2）Year 2006 Name Financing to related Financing of related party to party the Group Transaction Transaction amount Balance amount Balance Union property Group Co., Ltd. - - 3,000,000 3,000,000 Union Group - - 16,291,275 16,291,275 Total - - 19,291,275 19,291,275 2.Guarantees 141 By December 31, 2007,The Guarantees events which do not need to be disclosed （4）Current balance of the related parties Subject Name name December 31,2007 December 31,2006 Shenye Union (Hongkong) Accounts Co., Ltd. receivable 370,988 370,988 Union property Group Co., Other Ltd. payable 款 3,003,528 3,000,000 Other Union Group payable 16,310,435 16,291,275 XII. Contingent events By December 31, 2007, the Group had no contingent events which need to be disclosed. XIII. Commitment events 1. The external investment contracts and the related financial expenditures which have signed or not yet completely fulfilled. By December 31, 2007,The Group still has the major external investments RMB 30 million which have signed but still not paid, as follows: Names of Contractua Prepai Unpaid Expecte Remarks investment l d investment d projects investment invest amount investm amount ment ent amount period Invest Can not be Nanjing East relocated Asia Textile because 30 million - 30 million Co., Ltd with the fields machinery and uncomplet equipments ed 2. The big contract which has been signed or is ready to be carried out By December 31, 2007, The Group still has big contract which has been signed but not paid, a total of 1.71 million yuan, as follows: Names of Contractu Prepaid Unpaid Expecte Remarks 142 investmen al investmen investme d t projects investmen t amount nt investm t amount amount ent period Relocatio Can not be n of relocated productio because the n 1,710,000 855,000 855,000 fields equipment uncompleted s as a whole 3. The lease contract which is under performance or is ready to be performed and its financial influences On December 31, 2007 (T), the funds to be undertaken in the following period on office lease of non-cancellable operating leases are as follows: Period Lease T+1 year 448,238 T+2 years 358,344 T+3 years 29,862 Over T+3 years - Total 836,444 4. Except for the events described above, By December 31, 2007,the Group has no other significant commitment events. XIV . Events after balance sheet date Since January 1, 2008, the Company and the subsidiary established in China comply with the Enterprise Income Tax Law of People's Republic of China published by No. 63 of Decree of chairman of People’s Republic of China, according to the State Council on December 26, 2007, of the [2007] No. 39 Notice on the Implementation of Enterprise Income Tax Preferential Policies for the Transition, the enterprise income tax rate of the Company and the subsidiaries in China mainland gradually transited from 15% to 25%, the company implement the transition rate of 18% in 2008. XV. Other Significant Events The Company's operation period will expire on March 4, 2009. The land for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased and the lease term will expire on March 31, 2009. According to the city planning of Shenzhen Municipal Government, printing and dyeing business for textile industry is no longer allowed in this area. The Company suspended production for rectification from March 2007. Influenced by production suspense for rectification, the Group suffered loss of RMB 124,579,539 for the year. The loss for the shareholders of the parent company is RMB 116,356,882. The Company is actively looking for the method of business transfer 143 or transformation. It plans to invest in Nanjing East Asia Textile Printing and Dyeing Co., Ltd. with part of machinery and equipment. The Company established Shenzhen East Asia Company, a subsidiary engaged in trade. It does not have plan for operation termination or bankruptcy liquidation. XVI Supplement Information 1.Statement of Non-current gain and loss Items Year 2007 Year 2006 Gains and losses from disposalof non-current assets -2,209,195 78,946,502 Disposal units equity investment gains and losses 1,940,802 Investment income from subscription of newly issued stocks 3,258,808 Losses from debts restructuring -9,706,099 Other non-operating income ,Net 7,655 -124,552 Subtotal -6,708,029 78,821,950 Impact on Income tax -1,006,288 Total Gains and losses of non-current -5,701,741 78,697,398 Including：attributable to shareholders of the parent company -5,668,142 70,798,962 2. Return on equity and earnings per share According to the requirements in “information disclosure rules for companies issuing public securities No. 9 - the calculation and disclosure of net assets income rate and income of each share” issued by China Securities Regulatory Commission, the Group the net assets income rate and income of each share accounted by fully dilution and weighted average are as follows: （1）Year 2007 Return on net assets Earnings per share Diluted Full Weighed Basic earnings earnings per Profit in report period Diluted average per share share Net profit attributed to parent Company’ owner -0.69 -0.49 -0.69 -0.69 Net profit attributed to Parent Company share holders after non-recurring profit/loss deducted -0.65 -0.47 -0.65 -0.65 144 （2）Year 2006 Return on net assets Earnings per share Diluted Full Weighed Basic earnings earnings per Profit in report period Diluted average per share share Net profit attributed to parent Company’ owner 0.10 0.10 0.17 0.17 Net profit attributed to Parent Company share holders after non-recurring profit/loss deducted -0.14 -0.15 -0.25 -0.25 （3）Calculation of Return on net assets Item No Year 2007 Year 2006 Net profit attributable to shareholders of the parent company 1 -116,356,882 28,992,654 The non-recurrent gains and losses attributable to the parent company 2 -5,668,142 70,798,962 The net profit attributable to shareholders if parent company after deducting non-recurring gains and losses 3=1-2 -110,688,740 -41,806,308 The net assets at the period end attributable to shareholders of parent company 4 169,602,112 293,549,081 Net assets income rate fully diluted (Ⅰ) 5=1÷4 -0.69 0.10 Net assets income rate fully diluted (Ⅱ） 6=3÷4 -0.65 -0.14 The net assets at the period beginning attributable to shareholders of parent company 7 293,549,081 266,892,459 The net assets newly added by issuing new shares and attributable to shareholders of the parent company. 8 - - The month number from January to the reporting period attributable to shareholders of the parent company and the new net assets 9 - - The net assets for the decrease of back purchase or cash dividend and attributable to shareholders of the parent company. 10 - - 145 Item No Year 2007 Year 2006 The month number from January to the reporting period attributable to shareholders of the parent company and the new net assets 11 - - Month number of the reporting period 12 12 12 The net weighted average assets attributable to shareholders of the parent 13=7+1 ÷ ② +8 × 9 company ÷12-10×11÷12 235,370,640 281,388,786 The weighted average income rate of net assets (Ⅰ） 14=1÷13 -0.49 0.10 The weighted average income rate of net assets Ⅱ） 15=3÷13 -0.47 -0.15 （4）Basic earnings per share and Diluted earnings per share Item No Year 2007 Year 2006 Net profit attributable to shareholders of the parent compan 1 -116,356,882 28,992,654 The non-recurrent gains and losses attributable to the parent company 2 -5,668,142 70,798,962 The net profit attributable to shareholders if parent company after deducting non-recurring gains and losses 3=1-2 -110,688,740 -41,806,308 Total number of shares at the period beginning 4 169,142,356 169,142,356 Public provident fund or stock dividend distribution to increase the number of shares (Ⅰ) 5 - - The issuance of new shares or debt-equity transfer increase the number of shares(1) 6 - - Increase shares (Ⅱ) from the next month to the end of the reporting period 7 - - Shares reduced due to back purchase or reducing shares in the reporting period. 8 - - The month number from the next month of reducing shares to the end of reporting period. 9 - - Month number of the reporting period 10 12 12 The number of ordinary weighted average shares 11=4+5+6 × 7 ÷ 169,142,356 169,142,356 externally issued 10-8×9÷10 146 Item No Year 2007 Year 2006 Basic earning of each share -0.69 0.17 (Ⅰ) 12=1÷11 Basic earning of each share -0.65 -0.25 （Ⅱ） 13=3÷11 The interest of diluted potential ordinary shares which have been identified as costs 14 - - Conversion cost 15 - - Income tax rate 16 15% 15% Number of increase of warrants and option rights 17 - Earning of each share being 18=[1+(14-15) × -0.69 0.17 diluted (Ⅰ) (1-16)]÷(11+17) Earning of each share being 19=[3+(14-15) × diluted（Ⅱ） (1-16)]÷(11+17) -0.65 -0.25 3．Schedule of Asset Depreciation Reserve （1） Consolidation Schedule of Asset Depreciation Reserve Decrease in the Item current period Swit chb Accrual Other ack December 31, amount Transfer out December 2006 31,2007 Bad debt reserve 24,457,860 12,802,115 - 21,054,714 16,205,261 Inventory depreciation reserve 12,455,272 8,947,576 - 7,811,329 13,591,519 Fixed assets depreciation reserve 6,110,411 32,706,860 - 7,262,868 31,554,403 Intangible assets depreciation reserve - 262,382 - - 262,382 Total 43,023,543 54,718,933 - 36,128,911 61,613,565 （2）Parent Company Schedule of Provision for bad debts Decrease in the Item current period Switchba Accrual Other ck December amount Transfer December out 31, 2006 31,2007 147 Provision for bad debts 12,616,0 21,829,391 4,146,519 - 37 13,359,873 Inventory depreciation reserve 5,067,952 8,320,773 - - 13,388,725 Fixed assets depreciation reserve 30,714,095 - - 30,714,095 Intangible assets depreciation reserve 262,382 - - 262,382 12,616,0 Total 43,443,769 - 37 57,725,075 4.Net profit as of year stated under the original accounting standards for business ecterprise and accounting system： Item Year 2006 Amount stated under the old accounting standard 30,057,907 Add：Gain and loss of Minority shareholder -9,383,823 Difference Adjustment Impress Income tax -7,056 Differences in equity investment switch back cause by merger of companies under same holder -927,649 Change of fair value of Trading financial assets -130,548 - Subtotal of Difference adjustment -10,449,076 Including：Impact of the minority shareholders of Gain and loss - By enterprise accounting standards the amount of the financial statement 19,608,831 Including：Net profit attributable to shareholders of the parent company 28,992,654 Consolidated Net profit of under same holder - Gain and loss of Minority shareholders -9,383,823 * 1. According to the original accounting standards and systems, the accounting policy for the accounting of income tax shall use the method of payable tax. By corporate accounting standards, the accounting of income tax should adopt the method of balance sheet debt and the method of retrospective adjustments, resulting in the differences in net profit in the reporting period. * 2. The company invested Nanhua Company, the equity investment differences produced from holding merger under same control shall be amortized in 10 years in accordance with original accounting standards and systems. But the Corporate Accounting Standards regulates the reserved 148 income shall be reduced, and the amortized equity investment differences in 2006 shall be transferred back, resulting in an increase of net profit in 2006. * 3. The shares for sale in short term of the subsidiary of the company Hong Kong Victor Onward Company shall be priced according to original standards and systems, the transactional financial assets shall be classified according to enterprise accounting standards, the change of fair value shall be included in the current loss and gain, resulting in the increase of net profit in 2006. 5. Comparison statement of shareholders’ equity difference adjustment from under old and new accounting standards. Figures Original disclosed figures in No Name Difference Note in annual Annual report 2007 report 2006 Shareholders’ equity at December 31,2006 292,773,431 292,773,431 Difference of long-term 1 equityinvestment Including ： Differences in long-term equity investment caused by merger of companies under same holding 2,319,112 2,278,740 40,372 *2 Differences in credit of other long-term equity investment calculated on eqity basis Investment property 2 measuredby faire value Depreciation drawn for the 3 previous years on the assets expected to be wasted Dismissal compensation 4 recognizable as predicted debts 5 Payment for shares Reconstruction liabilities 6 recognizable as predicted debts 7 Merger of companies Including ： Book value of consolidated goodwill under same holder Impairment provisons drawn upon goodwill according to the new accounting standard Financial assets booket as 8 current gain/loss at fair value and disposable financial 41,676 43,948 -2,272 *2 149 Figures Original disclosed figures in No Name Difference Note in annual Annual report 2007 report 2006 assets Financial liabilities 9 booketas current gain/loss at fair value Equity increased by 10 splittingwith financial tools 11 Derived financial instruments 12 Income tax -1,574,449 7,086,503 -8,660,952 *1 Minority shareholders’ 13 equity 7,956,207 7,956,207 - 14 Other -10,689 -10,689 *2 Shareholders’ equity at January 1, 2007 301,505,288 310,138,829 -8,633,541 *1 Causes for the differences of the disclosure of income tax twice: the balance sheet of shareholders equity in 2006 annual report shall be confirmed according to deductible temporary differences, the deferred income tax assets over 8 million . Due to the shutdown of main business in the current period, whether there are taxable incomes for deduction in the future is uncertain, in accordance with the principle of caution, no deferred income tax assets in this year were not confirmed in this year, only the deferred tax liabilities were confirmed. *2 The differences produced by other projects were mainly due to the disclosure of other projects in 2006 annual report which used the amount on the RMB statement on December 31, 2006 to adjust the items, the annual report in this year was accounted by the bookkeeping currency HK dollars, and the amount at the beginning of 2006 was retrospectively adjusted. Because the balance sheet and profit statement used the different exchange rates to convert the RMB statement, the influence figures were different. 6. Copied consolidated profit statement (1). Assuming that the Group fully implemented the corporate accounting standards in 2006, on which the copied consolidated profit statements were compiled. Item Year 2006 I.Total Operating income 243,278,584 150 Item Year 2006 Including：Operating income 243,278,584 II.Total Operating cost 299,414,120 Including：Operating cost 235,480,869 Operating tax and supertax 34,813 Sales expense 9,224,812 Administrative expense 24,681,075 Financial expense 9,814,511 Assets impairment losses 20,178,040 Add ：loss from change of fair value 58,906 Investment income 76,401,574 Including：Investment gains from affiliates exchange gains -257,440 III. Business profit 20,324,944 Add：Non-business income 1,862,375 less：Non-business expenses 353,431 Including：Loss from disposal of non-current assets 122,405 IV.Gross profit 21,833,888 less：Income tax expenses 2,225,057 V.Net profit 19,608,831 Net profit attributable to shareholders of the parent company 28,992,654 Minority shareholders equity -9,383,823 （ 2 ） There were no differences between the copied consolidated profit statement and the consolidated profit statement in 2006 dis closed in 2007. Section X1. Documents for Reference 1.Financial statements bearing the seal and signature of legal representative, financial controller and the person in charge of the accounting organ. 2. Original of the Auditors Report carrying the seal of PricewaterhouseCoopers Zhongtian Certified Public Accountants and the personal signatures of the C.P.A. 151 3.The original of all the Company's documents and the original manuscripts of announcements publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period. The Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. April 30, 2008 152