深纺织Ｂ(200045)2007年年度报告（英文版）

Shenzhen Textile (Holdings) Co., Ltd. 2007 Annual Report April 2008 Table of Contents I. Brief Introduction of the Company………………………………………………3 II. Highlights of Accounting Data and Business Data ……………………………4 III. Particulars about the Changes of Share Capital and Shareholders………...7 IV. Directors, Supervisors, Senior Executives and Staff…………………………12 V. Control Structure of the Company……………………………………………...17 VI. Brief Introduction of Shareholders’ General Meeting…………………………24 VII. Report of the Board of Directors……………………………………………… ..24. VIII. Repot of the Supervisory Committee…………………………………………...33 IX. Important Events……………………………………………………………….…34. X. Financial Reports……………………………………………………………….…37 XI. List of Documents Available for Inspection……………………………………..38 2 Shenzhen Textile (Holdings) Co., Ltd. 2007 Annual Report Important notes: The Board of Directors of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. Chairman of the Board of Directors Wang Bin, General Manager Zhu Jun and Assistant General accountant Liu Yin represent and warrant the financial and accounting report in the annual report is true and complete. I. Brief Introduction of the Company 1. Statutory name of the Company: In Chinese:深圳市纺织（集团）股份有限公司 In English: SHENZHEN TEXTILE (HOLDINGS) CO., LTD. English abbreviation: STHC 2. Legal representative: Wang Bin General manager of the Company:Zhu Jun 3.Secretary to the board of directors: Chao Jin Contact Address: 6/F, Shenfang Building, 3 Huaqiang North Road, Futian District, Shenzhen ZipCode: 518031 Tel : 0755-3776043 Fax : 0755-3776139 E-mail:cjane@mail.china.com 4. Registered Address: 6/F, Shenfang Building, No.3 Huaqiang North Road, Futian District, Shenzhen Office Address: 6/F, Shenfang Building, No.3 Huaqiang North Road, Futian District, Shenzhen Zip Code: 518031 Website: http://www.chinasthc.com E-mail : sztext@szonline.net 5. Newspapers for Information Disclosure: Securities Times, Hong Kong Commercial Daily Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: The Secretariat of the Company 6. Stock exchange for listing: Shenzhen Stock Exchange Stock abbreviation: Shen Textile A ,Shen Textile B Stock code : 000045 200045 7. Other Relevant Information : 3 The date of first registration of the Company: August 1994 Registered Address: 6/F, Shenfang Building, No.3 Huaqiang North Road, Futian District, Shenzhen Registration No. of Legal Entity Business License: 4403011013060 Tax Registration No.: Di Shui Deng Zi No.: 440304192173749 Guo Shui Deng Zi No.: 440301192173749 Certified public accountants retained by the Company: Name: Shenzhen Pengcheng Certified Public Accountants Business address：5/F, Baofeng Building, No. 28, Dongmen South Road, Shenzhen, China II. Highlights of Accounting Data and Business Data (I) Main profit indicators of report year Items Amount(RMB) Operation profit 16,724,105.87 Total profit 17,407,508.77 Net profit attributable to shareholders of the listed 11,554,100.29 company Net profit after deducting of non-recurring gain/loss -23,292,565.53 attributable to the shareholders of the listed company Cash flow generated by business operation, net 24,113,175.67 Note：1. Items and amount of non-recurring gains and loss Items Amount（RMB） Gains and losses from the disposal of non-current assets 40,589,916.98 Governmental subsidy reckonedin to current gainsand losses 505,448.75 Net amount of non-operating income and expense the aforesaid items -120,820.61 Total items of non-current gains and losses 40,974,545.12 Less:Income tax 6,151,830.20 Minority shareholding gain and losses -23,950.90 Total non-recurring gains and losses after deducting ninority interest 34,846,665.82 2. The influence of the adjustment made according to international financial report standards on the net profit of the Company: Unit：RMB’000 Year 2007 Year 2006 Pursuant to the financial report audited by 11,554 4627 Chinese C.P.A. Adjustment made for complying with 22,555 2,956 international accounting standards: 4 Writeback of over-provision for the depreciation 2,346 2,346 of real estate of investment nature Amortization of intangible assets 785 785 The price difference of equity investment --- 689 in affiliated companies need not amortization Writeback of impairment of other assets. --- 1,500 Restricted shares granted circulation profit 19,424 --- The shares distributed in A-share holding --- -2,364 structure reform were stated as expenditure Restated pursuant to international financial report standard 34,109 7,583 3. The influence of the adjustment made according to international financial report standards on the Net Value of Assets of the Company: Unit：RMB’000 Year 2007 Year 2006 Pursuant to the financial report audited by 363,329 336,573 Chinese C.P.A. Adjustment made for complying with 26,882 22,865 international accounting standards: Writeback of over-provision for the depreciation 27,528 25,182 of real estate of investment nature Amortization of intangible assets -546 -1,331 The price difference of equity investment 1,378 1,378 in affiliated companies need not amortization Restricted shares granted circulation profit 886 --- The shares distributed in A-share holding -2,364 -2,364 structure reform were stated as expenditure Restated pursuant to international financial 390,211 report standard 359,438 The financial statements of the Company were audited by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. according to international standards for financial report. (II) Main Accounting Data and Financial Indicators over the Past Three Years as at the End of the Report Period 1. Main accoubnting date Unit:RMB Changed Year 2007 Year 2006 over last Year 2005 year（％） Before After adjustment After Before After adjustment 5 Adjustment adjustmen Adjustment t 392,060,278.4 Operating profit 489,270,085.73 555,783,680.87 558,198,369.00 -12.35 392,060,278.43 3 Total profit 17,407,508.77 15,563,484.07 13,298,457.36 30.90 35,176,033.26 35,176,033.26 Net profit attributable to the shareholders 11,554,100.29 6,724,601.89 4,626,707.21 149.73 21,639,239.45 21,639,239.45 of the listed company Net profit after deducting of non-recurring gain/loss -23,292,565.53 354,756.08 3,136,918.40 -842.53 23,220,107.84 23,220,107.84 attributable to the shareholders of listed company Cash flow generated by 24,113,175.67 46,895,948.92 46,895,948.92 -48.58 21,701,207.67 21,701,207.67 business operation, net Changed End of 2007 End of 2006 over last End of 2005 year（％） After Before Before After After adjustment adjustmen Adjustment Adjustment adjustment t Gross Assets 680,557,137.56 660,297,042.84 661,047,141.67 2.95 659,843,681.48 659,843,681.48 Shareholders’ 363,329,286.62 338,389,884.78 336,573,619.61 7.95 343,921,482.89 343,921,482.89 equity 2. Main Financial Indicators Unit:RMB Changed Year 2007 Year 2006 over last Year 2005 year（%） After Before Before After After adjustment adjustmen Adjustment Adjustment adjustment t Basic gains per 0.05 0.027 0.02 150.00% 0.088 0.088 share Diluted gains 0.05 0.027 0.02 150.00% 0.088 0.088 6 per share Basic earning per share after deducting of -0.10 0.01 0.01 1100.00% 0.095 0.095 non-recurring gains/losses Net income on Increased asset, fully 3.18% 1.99% 1.37% 6.29% 6.29% by 1.81% diluted Net income on Decreased 3.37% 1.90% 1.36% 6.22% 6.22% asset, Weighted by 2.01% Net income on asset, fully diluted and Decreased -6.41% 0.10% 0.93% 6.75% 6.75% deducted by 7.34% non-recurring gain/loss Net income on asset, weighted Decreased and deducted -6.80% 0.10% 0.92% 6.68% 6.68% by 7.73% non-recurring gain/loss Net cash flow per share generated by 0.10 0.19 0.19 -47.37% 0.089 0.089 business operation Net asset per share attributable to 1.48 1.38 1.37 8.03% 1.40 1.40 shareholders of listed company III. Particulars about the Changes of Share Capital and Shareholders (1).Statement of changes in shares Unit: shares Before this change Increase/decrease this time (+ , - ) After this change Issuin Transfer Proportio g of Bonus red Subtota Proportio Amount Other Amount n new shares from l n shares reserves 1.Shares with 148,863,888 60.73% -94,540 -94,540 148,769,348 60.69% conditional 7 subscription 1.State-owned shares 2.State-owned legal person 148,721,760 60.67% 148,721,760 60.67% shares 3.Other 142,128 0.06% -94,540 -94,540 47,588 0.02% domestic shares Incl：Non-state owned domestic legal person shares Domestic nature person 142,128 0.06% -94,540 -94,540 47,588 0.02% shares 4.Foreign shareholding Incl：Overseas legal person shares Foreign nature person share II.Shares with unconditional 96,260,112 39.27% 94,540 94,540 96,354,652 39.31% subscription 1.Common shares 46,760,112 19.08% 94,540 94,540 46,854,652 19.11% in RMB 2.foreign shares in 49,500,000 20.19% 49,500,000 20.19% domestic market 3.Foregn shares in overseas market 4.Other III. Total of capital 245,124,000 100.00% 0 0 245,124,000 100.00% shares (II) Particulars about the issuing and listing of shares 1 The Company did not issue new shares and derived securities in the previous three years by the end of the report period. 2 In June 1994 approval, the Company issued 3.8 million staff shares at the price of RMB 3.9 per share in February 1995. The staff shares were approved to be listed in February 1995. As of December 31, 2007, the senior executives of 8 the Company held 70,500 shares. The trusted organ of the staff shares is China Securities Registration Settlement Co., Ltd. Shenzhen Branch. (III) Introduction to Shareholders 1. As of December 31, 2007, the Company had 20,185 shareholders in total including one shareholder of state-owned shares, 11,238 shareholders of A shares and 8,947 shareholders of B shares. 2. Particulars of the shareholding of the top ten shareholders as of December 31, 2007: Unit：Shares Total number of 20,185 shareholders Particulars about the shareholding of the top ten shareholders Nature of Proportion Quantity of Conditional Pledged or Name of shareholder shareholder (%) shares held shares frozen Shenzhen Investment State-owned 60.67% 148,721,760 148,721,760 Management Co., Ltd. Legal person Foreign Zheng Chuangjian 0.29% 721,850 natural person HSBC BROKING Foreign legal SECURITIES (ASIA) 0.29% 700,000 person LIMITED-CLIENTS A/C Foreign Liu Hong 0.24% 590,000 natural person Foreign Sun Xuwei 0.23% 554,284 natural person Domestic Ma Ying 0.22% 550,000 natural person VICTOR ONWARD Foreign legal PRINTING&DYEING 0.19% 455,000 person (HK) CO. LTD Domestic Huang Muxiu 0.19% 454,010 natural person Foreign Xu Peijun 0.18% 442,300 natural person Foreign He Yanling 0.16% 400,700 natural person Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Type of shares Foreign shares placed in Zheng Chuangjian 721,850 domestic exchange HSBC BROKING SECURITIES (ASIA) Foreign shares placed in 700,000 LIMITED-CLIENTS A/C domestic exchange 9 Foreign shares placed in Liu Hong 590,000 domestic exchange Foreign shares placed in Sun Xuwei 554,284 domestic exchange Ma Ying 550,000 RMB Common shares VICTOR ONWARD Foreign shares placed in 455,000 PRINTING&DYEING (HK) CO. LTD domestic exchange Huang Muxiu 454,010 RMB Common shares Foreign shares placed in Xu Peijun 442,300 domestic exchange Foreign shares placed in He Yanling 400,700 domestic exchange Yan Zhixiong 371,529 RMB Common shares Among the top ten shareholders as listed above, there exists no Notes to the related associated relationship among the shareholders of legal person relationship between the share. The relation between the top ten shareholders was unknown. top ten shareholders or It was unknown whether they are persons taking concerted action their concerted action specified in Regulations on the Information Disclosure of the Change of Shareholding of Shareholders of Listed Companies. Among the above shareholders, the one holding shares on behalf of the state is Shenzhen Investment Management Co. No. 1,3,4,5,7 ,9 and 10 shareholders are the ones holding foreign investment shares. 3. Introduction to the Controlling shareholder of the Company (1)Shenzhen Investment Management Co., Ltd., the controlling shareholder of the Company, Shenzhen Construction Holding Company and Shenzhen Commerce and Trade Investment Holding Company were merged into Shenzhen Investment Holding Co., Ltd. according to the Decision on Establishing Shenzhen Investment Holding Co., Ltd. - Shen Guo Zi Wei (2004) No. 223 Document issued by State-owned Assets Administration Committee of Shenzhen municipal people's government. The state-owned shares of the Company held by Shenzhen Investment Management Co., Ltd. are managed by Shenzhen Investment Holding Co., Ltd. As of November 2007, ,relevant procedure of title transfer have been completed. Please refer to the announcements of the Company on Securities Times, Hong Kong Commercial Daily in November 15,2007. (2) The shares held by :Shenzhen Investment Holding Co., Ltd. account for 60.67% of the total share capital of the Company. Legal representative:Chen Hongbo, Date of establishment: October 13, 2004; Registered capital: RMB 1 billion. It is a solely state-owned company in Shenzhen. Business scope: Providing guarantee to municipal state-owned enterprises, managing state-owned equity of enterprises other than those directly supervised by Municipal State-owned Assets Commission, conducting asset reorganization, system transformation and capital operation of affiliated enterprises, making investment and doing other businesses authorized by the Municipal State-owned Assets Commission. 10 （3）National Assets Regulatory Commission of Shenzhen Municipal People's Government is the actual controller of the Company. The chart of property right relationship between the Company and its actual controller: National Assets Regulatory Commission of Shenzhen Municipal People's Government │100% ↓ Shenzhen Investment Holding Co., Ltd. │60.67% ↓ Shenzhen Textile (Holdings) Co., Ltd. 4.Except Shenzhen Investment Management Co., the Company has no other legal person shareholders holding more than 10% (including 10%) shares of the Company. 5.The time for listing of shares subject to sale restriction Quantity of additional shares that can be listed Balance of shares Balance of shares Time and traded upon subject to sale not subject to sale Remark the expiration of restriction restriction sale restriction period September 12,256,200 136,465,560 59,158,440Negotiating shares of 11,2008 Shenzhen Investment Management Co., Ltd. September 136,465,560 195,624,000 Negotiating shares of 11,2009 Shenzhen Investment Management Co., Ltd. The quantity of shares held by the top 10 shareholders subject to sale restriction and conditions of sale restriction Name of Quantity of Quantity of Time when shareholder shares held by additional shares can be No. holding shares the shareholder shares that Conditions of sale restriction listed and subject to sale subject to sale can be listed traded restriction restriction and traded 11 1 Shenzhen 148,721,760 2008.9.11 12,256,200 The non-negotiable Investment shares of the Company will not be listed and Management Co., traded within 24 months. Ltd. 2009.9.11 136,465,560 Within 12 months after the expiration of the said commitment period, the proportion of the number of the original non-negotiable shares sold by the controlling company through Shenzhen Stock Exchange to the total number of shares of Shenzhen Textile shall not exceed 5%. IV. Directors, Supervisors, Senior Executives and Staff (I). Basic information Name Sex Age Title Date of starting and Shares held at Shares held at ending year-beginning year-end Wang Bin Male 37 Board chairman 2007.1.5—2010.1.4 0 0 Director, 2007.1.5—2010.1.4 Zhu Jun Male 44 General 0 0 Manager Li 2007.1.5—2010.1.4 Male 55 Director 63,450 63,450 Jingqiang Wang Peng Male 38 Director 2007.1.5—2010.1.4 0 0 Independent 2007.1.5—2010.1.4 Yang Jichao Male 53 0 0 director Liu Independent 2007.1.5—2010.1.4 Male 46 0 0 Xiangqing director Independent 2007.1.5—2010.1.4 Huang Hui Male 43 0 0 director Chairman of 2007.1.5—2010.1.4 Gao Zuofu Male 55 the supervisory 0 0 committee Zhou 2006.12.18—2007.1.4 Female 50 Supervisor 7,050 7,050 Meirong Deng 2007.1.5—2010.1.4 Male 41 Supervisor 0 0 Kangcheng Feng Junbin Male 45 Deputy GM 2007.1.5—2010.1.4 0 0 Gao Guoshi Male 54 Deputy GM 2007.1.5—2010.1.4 0 0 Zhang 2007.1.5—2010.1.4 Male 42 Deputy GM 0 0 Hong Secretary to the 2007.1.5—2010.1.4 Chao Jin Female 45 0 0 board of 12 directors Assistant 2007.1.5—2010.1.4 Liu Yi Male 54 General 0 0 Accountant (II). Position of directors, supervisors and senior executives Wang Bin served successively as secretary of Personnel Division of Equipment Branch of Henan Textile Machinery Plant, secretary of Communist Youth League of the Company, manager of a number of subsidiaries of the Company, general manager assistant and general manager of the Company. In the report period, He served as Board chairman of the Company. Zhu Jun served successively as secretary of Lige Village, Yutai County, Shandong Province, workshop director of Shandong Jining Cotton Mill, deputy factory director of Jining Chemical Fibre Factory, office director of Jining Textile Industry Company, deputy county head of Wenshang County, Shandong Province, office director of Shandong Textile Department, chief of Personnel Education Division, manager of Enterprise management Dept, general manager assistant and Deputy General Manager of the Company. In the report period, He served as Director and general manager of the Company. Li Jinqiang served successively as clerk of Shenzhen Baoan Xixiang Sugar Mill, section chief of Shenzhen Light Industry Company, director of Personnel Dept., general manager assistant, deputy general manager and deputy secretary of Party committee of the Company. In the report period, he served as director ,deputy secretary of Party committee and secretary of discipline committee of the Company. Wang Peng served successively as Economist of Shenzhen Jinzhong Co., Ltd., Manager assistant of Assets Management Dept of Shenzhen Construction Co., Ltd., Deputy Manager of Enterprise Dept of Shenzhen Investment Management Co., Ltd. and Deputy Manager of Property right Management Dept of Shenzhen Investment Management Co., Ltd. In the report period, He served as Director of the Company. Yang Jichao, a senior Engineer, served successively as deputy director general of State Textile Ministry Produce Dept, Deputy director of Textile product Development Center, Deputy functionary of China Textile association Economy Trading ministry, General engineer of Tibet Municipality economy Trading committee, Minister of State Textile Bureau Planning Development Dept, Director of China Textile Information Center, Deputy secretary-general of China Textile Industry association. In the report period, He served as independent director of the Company. Liu Xiangqing served successively as section chief of Guangxi Finance Department , section chief of Guangxi Certified Public Accountants, served successively as 13 minister of Shenzhen accountant office asset evaluation dept, Manager and deputy director of issued Dept, Chief partner of Shenzhen Huaxin Accountant office,director accountant . In the report period, He served as independent director of the Company. Huang Hui, once worked at Nantong Municipal People's Government, Jiangsu Province and the Standing Committee of People's Congress of Shenzhen and was engaged in legislation work. He served as partner of Guangdong Shengtang Law Office. He now serves as independent director of the Company. In the report period, He served as independent director of the Company. Gao Zuofu, an ex soldier, served successively as head of Personal Guarantee Section of Guangning Commercial Bureau, Guangdong, manager of Guangning Overseas Chinese Commodity Supply Co., secretary of Party committee of Muge Town of Guangning County, general manager of Zhaoqing Dinghu District Pharmaceutical Company, deputy office director of Shenzhen Torch Industrial Company, section staff in charge of Shenzhen Municipal Enterprise Working Committee, deputy secretary of discipline committee and director of Discipline Inspection Room of Shenzhen Investment Management Co., Ltd. In the report period, He served as chairman of the supervisory committee of the Company. Zhou Meirong served as a statistician of No. 2 Mine of Guangdong Shaoguan Coal Bureau and chief section staff of Shaoguan Communist Youth League Committee, deputy secretary and secretary of Communist Youth League, deputy director and director of Party Office and office director of the Company. She now serves as chairman of labor union and director of Party committee office of the Company. In the report period, she serves as employee-representing supervisor of the Company. Deng Kangcheng served as technician of Shenzhen Luohu Material Trade Company, Deputy chief and chief of Shenzhen Construction Earthwork mechanical engineering Company, Secretary ,Deputy director and director of inspection and supervision Room of Shenzhen Construction Investment Company,Deputy director of Shenzhen Construction Investment Company, Director of Petition office. He new as director of office of Shenzhen investment Management Co., Ltd. In the report period, He served as supervisor of the Company. Feng Junbin served successively as special enterprise controller of Guangdong Dapu County Finance Bureau, deputy section head of Guangdong Fengshun County, director of Audit Dept., manager of Enterprise Management Dept., general manager assistant and supervisor of the Company. In the report period, he served as Deputy general manager of the Company. Gao Guoshi once served successively as physician of Hunan Liuyang 14 Wenjiazhuang Municipal Hospital, president of Liuyang Yonghe Hospital, director general of Liuyang Municipal Health Bureau, member of standing committee of Liuyang municipal Party committee and deputy mayor of Liuyang municipal people's government, deputy director general and secretary of Party committee of Changsha Municipal Health Bureau, director general of Shenzhen Nanshan District Health Bureau, office director, member of Party Group and standing committee of CPPCC of Shenzhen Nanshan District, deputy general manager of Shenzhen Medicine Production and Supply Corporation and deputy general manager of Shenzhen Accordance Medical Co., Ltd. In the report period, He served as Deputy general manager of the Company. Zhang Hong, once served successively as assistant of China Textile University, cadre of China Textile Material Company, Chief of Management Dept of Shenzhen Textile (Holding) Co., Ltd.,Company manager subordinate enterprises, General Manager assistant. In the report period, He served as Deputy general Manager of the Company. Chao Jin served successively as teacher of Shanxi Chinese Medicinal Material School and Jilin Business College, head of Employment Section of Personnel and Employment Dept. of the Company, office director and manager of Personnel Dept. of subsidiary and general manager secretary of the Company. In the report period, she served as the board secretary of the Company. Liu Yi served successively as section staff of People's Bank Tonghua Sub-branch, director of teaching and research section of Tonghua Bank School and manager of Finance Dept of the Company. In the report period, he served as deputy chief accountant and manager of Finance Dept of the Company. (III). Annual remuneration In the report period, the annual remuneration of the directors, supervisors and senior executives receiving salary from the Company shall be paid according to the Provisional Regulations on the Annual Salary System for the Operators of Shenzhen Municipal State-owned Enterprises and the wage management system of the Company. The remuneration of the current directors , supervisors and senior executives of the Company in 2007 is as follows: Name Position Remuneration(RMB’0000) Wang Bin Chairman of the board of 39.1 directors Zhu Jun Director and general 36.8 manager Li Jingqiang Director 35.3 Wang Peng Director 0(Receiving salary from 15 corporate shareholder) Yang Jichao Independent director 5.00 Liu Xiangqing Independent director 5.00 Huang Hui Independent director 5.00 Gao Zuofu Chairman of the 36.8 supervisory committee Zhou Meirong Supervisor 32.0 Deng Kangcheng Supervisor 0(Receiving salary from corporate shareholder) Feng Junbin Deputy general manager 33.5 Gao Guoshi Deputy general manager 33.4 Zhang Hong Deputy general manager 24.2 Chao Jin Secretary to the board of 33.1 directors Liu Yi Deputy chief accountant 22.9 （IV） The resignation, appointment and removal in the report period 1. After examination at the first provisional shareholders' general meeting in 2007, the board of directors and the supervisory committee of the Company were reelected. Wang Bin ，Zhu Jun ,Li Jingqiang and Wang Peng were elected as members of the fourth board of directors of the Company. Yang Jichao, Liu Xianging and Huang Hui were elected as independent directors of the fourth board of directors of the Company. Former director Guan Tongke left his post due to retirement. Gao Zuofu and Deng Kangcheng were elected as supervisors of the fourth supervisory committee of the Company (the employees' assembly of the Company elected Zhou Meirong as employee-representing supervisor on December 18, 2006). The former supervisor Song Gongli left his post upon expiration of the term of office. 2. After examination at the fourth board of director, Wang Bin were elected as Board Chairman of the Company,Zhu Jun were elected as General Manager of the Company, Feng Junbin, Gao Guoshi and Zhang Hong were elected as Deputy General Manager of the Company, Liu Yi were elected as Assistant General Accountant and Manager of Financial Dept, and Chao Jin were elected as Secretary to the board of directors After examination at the 1st meeting of the fourth board of directors of the Company, Gao Zuofu was elected as chairman of the supervisory committee of the Company. (IV) Staff As of December 31, 2007, the Company had 685 staff members in total, including 412 production employees, 28 sales employees,62 technical employees, 31 financial employees and 74 administrative employees. Among the employees,15 hold Master's degree or above, 137 are graduates of universities and junior colleges and 64 have education of technical secondary school. The number of retired staff was 105 . 16 V. Control Structure of the Company (I)Status of corporate governance structure 1. General Introduction of the Corporate Governance The company constantly perfects the corporate governance structure and standardizes the company operation strictly according to The Company Law, Securities Law, Code of Corporate Governance for Listed Companies in China and any other laws and regulations in respect of the corporate governance of the listed companies promulgated by the China Securities Regulatory Commission. During the reporting period, according to the requirements related to the special campaign for the corporate governance of the listed companies by the China Securities Regulatory Commission and Shenzhen Stock Exchange, the company made a comprehensive amendment for the Company Constitution, Rules of Procedure for the Shareholders’ Meeting, Rules of Procedure for the Board of Directors, Rules of Procedure for Supervisory Committee, Working Rules for the General Manager, System of Independent Director, Internal Control System and so on, and set down a series of standardizing documents such as Management System of the Company Shares held by Directors, Supervisors and Senior Executives, System of Reception and Popularization, Management System of Information Disclosure and so on. At present, the condition of the company governance basically accords with the China Securities Regulatory Commission’s relevant requirements for the standardizing documents for the governance of the listed companies. 2. Special Campaign for the Corporate Governance During the reporting period, the company carried out the special campaign for the corporate governance in April 2007 according to the Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (Document Number: No.28 [2007] of China Securities Regulatory Commission) and the related unified plan designed by the Shenzhen Supervision Bureau and Shenzhen Stock Exchange. In accordance with the specific arrangement of the plan and the relevant regulations of the corporate governance, the company completely, objectively and carefully checked itself and opened the phone line, email and website for the special campaign as the communication platform for the investors and the public to analyze and comment the governance and improvement plan of the company and for the company to listen to the opinions and suggestions from the investor and the publics. According to the requirements of the relevant documents and combining with the keystone of the special campaign for the corporate governance, the company comprehensively adjusted and perfected the company’s internal control system so as to have them effectively implemented. The company took the following improvement measures for the main problems of the corporate governance found in the self-check and coming from public comments: (1) The company amended, complemented and perfected the Company Constitution in accordance with requirements of the Company Law, Securities Law and Instructions to the Constitutions of Listed Companies (Edited in 2006). 17 (2) The company made comprehensive coordination for the internal control systems and timely complemented the defective systems and complemented and perfected the existing defective articles so as to strengthen the force of the internal control. (3) In order to avoid the executive’s shortsighted behaviors in the management, fully mobilize the executive’s enthusiasm, activity and creativity and solve the problem of the long-time deficient encouragement, the company has been seeking for the scientific and long-term effective encouragement mechanism. (4) The company website was opened and brought into service on the last ten-day of October 2007. It would become the effective platform for the investors to know the company’s business picture and for the company and investors to communicate with each other. 3. The Suggestions of Shenzhen Securities Supervision Bureau of China Securities Regulatory Commission and the Results of the Improvement (1) The Company Constitution didn’t accord to the requirements of the Guide for the Constitution of Listed Companies to specify the extent of the competence of the board of the directors in such matters as purchasing and selling the assets, assets mortgage, guarantee of the company, entrusted financing, related transactions and so on. And the company didn’t ask the attendant supervisors to sign on the record of the shareholders’ meeting according to the requirements of the Rules of Procedure for the Shareholders’ Meeting of the Listed Companies. The Measures and Results of the Improvement: a. The company proposed the Motion Concerning the Amendment of the Company Constitution of the the 6th Meeting of the Fourth Board of Directors on October 30th, 2007 and amended the corresponding articles in the Company Constitution and submitted for approval on the 2nd provisional Shareholders’ Meeting in 2007. b. On September 24th, 2007, the company had had the attendant supervisors add their signatures on the records of the Shareholders’ Meetings which were held since the promulgation of the Guide for the Constitution of the Listed Companies (edited in 2006). (2) The company periodically submitted the monthly financial index news, annual and semiyearly financial statements, financial analysis reports and comprehensive budget reports and irregularly submitted the report of loan guarantee and the deposit and loan statistics to the controlling shareholders, but failed to submit the relevant insiders’ list to the related Securities Supervision Bureaus. The above mentioned behavior violated the relevant requirements of Administrative Regulations for the Information Disclosure of the Listed Companies and the Notice Concerning Strengthening Supervision on Providing the Undisclosed Information to the Majority Shareholders and Actual Controlling Persons by the Listed Companies. Measures and Results of the Improvement: In order to further standardize the information disclosure and keep the company independence and the justice of the information disclosure, the company took the following measures to avoid the leakage of the inside information: 18 a. The company would transmit again the Notice Concerning Strengthening Supervision on Providing the Undisclosed Information to the Majority Shareholders and Actual Controlling Persons by the Listed Companies to the controlling shareholders for their study so as to further strengthen the sense of keeping secret. b. The company would submit the relevant insiders’ list to the Shenzhen Securities Supervision Bureau, establish the insider credit record and the routine enquire system within the company and forwardly track the insiders’ implementation of keeping secret so as to strictly control the risks of information leakage. The above two items of improvement had been fulfilled on September 25th, 2007. 3. According to the requirements of the Complementary Notice Concerning Strengthening Supervision on the Un-standardized Governing Behaviors of Providing the Undisclosed Information to the Majority Shareholders and Actual Controlling Persons by the Listed Companies, the company submitted the Commitment Letter signed by the Chairman of the board to Shenzhen Securities Supervision Bureau. On December 13th, 2007, the company’s controlling shareholder, Shenzhen Investment Holding Co., Ltd provided and sent the Commitment Letter of Strengthening Management of Undisclosed Information to our company. 4. Before providing company information to the majority shareholders, the company should submit the relevant contents to all the directors for approval and timely submit the relevant information to Shenzhen Securities Supervision Bureau to put on record. If necessity, the company should be responsible to disclose the information in time according to the relevant laws and regulations. （II）The Existing Un-standardized Corporate Governance and the Relevant Measures of Improvement The company’s controlling shareholder, Shenzhen Investment Holding Co., Ltd is an enterprise directly supervised and administrated by Shenzhen State-owned Assets Supervision and Administration Commission. The company carries out the laws and regulations in respect of the state-owned assets management by the controlling shareholder and submits the undisclosed information to the controlling shareholder in such a way as following: before the first ten-day of the month, submit the monthly chief financial index news; within 20 days after a quarter, submit financial report, periodic report and financial analysis report etc. The company shall strictly implement the relevant items of the Result Report of the Improvement in the Special Campaign of Corporate Governance and standardize the extent of usage and approval procedure of submitted undisclosed information and put on record. (III) Duty performance of independent directors Name of The supposed times of Attendance in Attendance Absent independent attendance this year person (times) through agent （times） director (times) Yang Jichao 7 6 1 0 Liu 7 7 0 0 Xiangqing Huang Hui 7 6 1 0 19 The board of directors of the Company has 3 independent directors, including 1 professor-level senior engineer in textile industry, 1 senior accountant and 1 senior lawyer. In the report period, the independent directors of the Company seriously and independently performed their duties, attended board meetings on time and without absence, gave original views on the business management, investment decision and standardized operation of the Company and expressed independent professional opinions on the appointment and dismissal of senior executives, investment decision, business management and standardized operation according to relevant provisions of the Company Law, the Articles of Association of the Company, Guiding Opinions on the Establishment of Independent Director System at Listed Companies and Guidelines for Administration of Listed Companies. In the report period，independent directors of the Company did not make objection to proposals and other matters examined at all previous board meetings of the Company. (IV) Independent operation of the Company The Company was separated from its controlling shareholder in respect of business, personnel, assets, organ and finance. （V）The Establishment and Perfection of the Internal Control System 1. Summary of the Company’s Internal Control Approved by the board of directors, the company established the internal control system in 2004. The board of directors is responsible for the establishment, perfection and effective operation of the company’s internal control system and should periodically check the entire condition of the internal control and evaluate its effect. The general manager of the company is responsible for comprehensively carrying out and promoting the relevant regulations of the internal control system and checking the establishment, implement and perfection of the risk management and control system in the professional system of each functional department. Each functional department of the company headquarters is responsible for establishing, perfecting and implementing the risk management and control system in their own professions and helping complete the inspection of the risk management and control system of each profession. The company has established a whole set of internal control system covering production management, financial management and information disclosure. The company operations and internal control system comply with the relevant laws and regulation of the state and the requirements of the supervisory and regulatory departments. The well implementation of the company’s internal control system effectively maintain the safety and integrity of the company property, ensure the verity of the financial information and avoid all kinds of risk that may exist in the internal decision-making and operation management. 2.Important of the Company’s internal control （1）Controlling Subsidiaries and hold shares Proportion 20 50％ Anhui Huapeng Textile Co., Ltd. Dept of Party work 48％ Party committees Shenzhen Shenfang Lekai Photoelectronic Materials Co., Ltd. 100％ Secretary of board of Directors Shenzhen Shenfang Import and Export Co., Ltd. 64％ General Shareholders Meeting Pay evaluation committee Trade Dept Jiangxi Xuanli Yarn Industry Co., Ltd 75％％ Office Shenzhen Zhongxing Fibre Folds Cotton Clothing Ornament Co., Ltd 100％ Audit Committee Shenzhen Mei Bai Nian Garment Co., Ltd 100％ General Manager （Management team） Real estate Development Dept Board of Directors Shenzhen Jingguang Footwear Co., Ltd. 100 ％ Personnel Dep Shenfang Property Management Co., Ltd 100 ％ Financial audi tDept Huaqiang Hotel. 100 ％ Committee Nominating Committee Dept Committees of Supervisors Management Shenzhen Lisi Industrial Co., Ltd. 100 ％ Strategic Planning Committee Investment Dept Budget Shenzhen Jinlan Decorative Articles Industrial Co., Ltd. 21 (2) The Internal Control to the Holding Subsidiaries The company strictly accords to the relevant laws and regulations of the state and the requirements of the relevant supervisory and regulatory departments to manage the holding subsidiaries. The important personnel change and important economic activities of the holding subsidiaries shall submit to the company for approval and recording. The company sticks to take the financial management as the center point of managing the holding subsidiaries and lays stress on controlling the financial risks and management risks. The company can timely know the running state of the holding subsidiaries through accounting statement and enterprise statistical data, and instruct and supervise the production and management and the control of safe production of the holding subsidiaries through quarterly, semiyearly, annual and irregular production and management analysis meetings. The company’s control to its subsidiaries is strict, sufficient and effective, and does not violate the relevant articles of the Guide for the Internal Control of the Listed Companies and Internal Control System. (3) Internal Control to the Related Transactions The objects, contents, approval procedure and information disclosure of the company’s related transactions are specifically defined in the Company Constitution and the Rules of Procedure of the Shareholders’ Meeting. The board meeting and shareholders’ meeting strictly comply with the challenge system to examine and approve the related transactions so as to ensure the justice and equity of the transactions. In order to ensure the openness of the transactions, the company complies with the relevant laws and regulations to timely disclose the related information. The company’s control to the related transactions is strict, sufficient and effective, and does not violate the relevant articles of the Guide for the Internal Control of the Listed Companies and Internal Control System. (4) Internal Control to the Guarantees of the Company The Company Constitution specifically defines the basic principles, approval procedure, administrative procedure related to the guarantees of the company. During the reporting period, apart from the guarantees for its fully own subsidiaries, the company had no other guarantee. The company strictly complied with and performed the relevant procedures of approval and authorization when it offered guarantees to the subsidiaries. All the guarantees for the subsidiaries were discussed and approved during the board meeting. (5) Internal Control to the Usage of the Financing Capital According to the relevant regulations concerning the management of the financing capital by the China Securities Regulatory Commission, the company set up the Management Measures for the Financing Capital to specifically define the management, usage, approval procedure and information disclosure of the financing capital. During the reporting period, the company didn’t use the financing capital. (6) Internal Control to the Important Investment The Company Constitution specifically defines the extent of the examining and 22 approving competence of the board meeting and the shareholders’ meeting in the important investment and sets up the strict procedures for approval and decision-making. During the reporting period, the company had no important investment. (7) Internal Control to the Information Disclosure The company set up the Management System of Information Disclosure to standardize such behaviors and the management of the investor relationships as the information secrecy, information disclosure, reception, replying to the enquiries to ensure the verity, accuracy, complete and timely disclosure of the information. 3. The Problems in the Company’s Internal Control and the Improvement Measures The speedy development and structure adjustment of the company’s business brought forward new challenge on comprehensively strengthening the production management of the company. The company should timely amend and perfect the internal control system according to the development demands so as to provide powerful guarantee for the health and speedy development of the company. The company will continue strengthening the internal control system, increasing the training to the directors, supervisors, senior executives and the staff and further perfecting the corporate governance structure to improve the level of standard operation. 4. The General Evaluation of the Company’s Internal Control The company has established and perfected the internal control system which covered each link of the company so as to ensure the standard the operations of the company and that the company business runs on the rails and protects the security and integrity of the company capital. According to the Guide for the Internal Control of the Listed Companies, the company’s internal control system runs normatively, strictly, sufficiently and effectively in such aspects as internal environment, goal-setting, event identification, risk evaluation, risk countermeasures, information and communication, examination and supervision and so on. It generally accords with the relevant requirements of the China Securities Regulatory Commission and Shenzhen Stock Exchange. 5. Opinions on the Self-evaluation of the Internal Control from the Supervisors of the Company According to the relevant regulations of the China Securities Regulatory Commission and Shenzhen Stock Exchange and the basic principles of the internal control, and combining with the actual conditions of the company itself, the company established and perfected the internal control system which covered each link of the company. The Self-evaluation of the Company’s Internal Control truly and objectively reflects the establishment and implementation of the internal control system, and that the company has established the reasonable, well internal control system and the effect of implementation is obvious and effective. 6. Opinions on the Self-evaluation of the Internal Control from the Independent Directors of the Company The board meeting has discussed and approved a series of corporation 23 management systems, such as the Internal Control System. The above-mentioned items of the internal control system accord with the relevant laws and regulations of the state and the requirements of the supervisory and regulatory departments. The company has established quite perfect internal control system which accords with the relevant laws and regulations of the state and the requirements of the supervision and regulatory departments. The Self-evaluation of the Company’s Internal System truly and objectively reflects the establishment and implementation of the internal control system, and that the company has established the reasonable, well internal control system and the effect of implementation is obvious and effective. VI. Brief Introduction of Shareholders' General Meeting (I) 2007 first provisional shareholders' general meeting of the Company was held on January 5,2007. The resolutions of the meeting were published on Securities Times and Hong Kong Commercial Daily on January 6, 2007. (II) 2006 annual shareholders' general meeting of the Company was held on May 18, 2007. The resolutions of the meeting were published on Securities Times and Hong Kong Commercial Daily on May 19, 2007. (III) 2007 Second provisional shareholders' general meeting of the Company was held on October 30,2007. The resolutions of the meeting were published on Securities Times and Hong Kong Commercial Daily on October 31, 2007. VII. Report of the Board of Directors (I) Operating Status of the Company 1. The scope of main operation and its operating status The Company is mainly engaged in the production, import and export trade of textiles, garments and relevant products and sidelines in property lease, warehousing, real estate development, hotel business and manufacturing of optoelectronic devices. In 2007, the Company earned income of RMB 489.27 million, which decreased by 12.34% year on year. The net profit for the owner of the parent company is RMB 11.554 million , an increase of 149.29% year on year mainly due to obtainment of income from selling stocks of other listed companies. Industry: In the report period, the Company's income from manufacturing industry was RMB 250.745 million, an increase of 139.66% year on year mainly due to increase of income after start of operation of phase-II polarizer sheet project. Total profit was RMB -1.39966 million, a decrease of 112.6% year on year mainly due to big change in provision for impairment of unsalable products made by subsidiaries over the previous period. Trade: In the report period，the income of the Company from trade was RMB 179.011 million, a year-on-year decreased of 38.28%. However, Total profit was RMB 1.4004 million, a decrease of 20.85% year on year mainly due to decrease of profit from export trade caused by sharp rise in Renminbi rate and lowering of export rebate rate. Property lease and hotel business: The Company owns Shenfang Building and other properties including commercial stalls, factory buildings, office buildings and 24 warehouses for lease. In the report period，the income of the Company from property lease, warehousing and hotel business was RMB 63.791 million, a year-on-year increase of 18.41%. Mainly due to lease service enterprises' paying special attention to basic management, seeking potential return and enhancing property value and unit rent. In the report period, The Company’s main products: Product Sales income Sales cost Gross profit rate Polarizer sheet for 111,931,057.27 87,179,131.69 22.11% LCD Fully-shaped knitted 25,806,385.43 20,868,890.46 19.13% garment 2. Operating status and results of main controlled subsidiaries and joint ventures With registered capital of RMB 25 million and total assets of RMB 63.54 million, Shenzhen Mei Bai Nian Garment Co., Ltd. is engaged in production entirely-electronic figured full-shaped knitted garments. It earned net profit of RMB 2.0565 million in 2007. With registered capital of RMB 78 million and total assets of RMB140.41 million, Shenzhen Shenfang Lekai Photoelectronic Materials Co., Ltd. is engaged in producing polarizer sheet products for LCD. It earned net profit of RMB10.0554 million in 2007. With registered capital of RMB 50 million and total assets of RMB 53.99 million, Anhui Huapeng Textile Co., Ltd. is mainly engaged in production, bleaching, printing, dyeing and sales of yarns. It earned net profit of RMB1.0368 million in 2007. With registered capital of RMB 20 million and total assets of RMB 22.77 million, Jiangxi Xuanli Yarn Industry Co., Ltd. is engaged in production of various stitch yarns and knitted garments.In 2007, it suffered loss of RMB 11.5133 million It is mainly due to provision for impairment of assets. . With registered capital of RMB 5 million and total assets of RMB 22.22 million, Shenzhen Shenfang Import and Export Co., Ltd. is engaged in export and import business. It earned net profit of RMB 1.1971 million in 2007. With registered capital of RMB 3.54 million and total assets of RMB 20.22 million, Shenzhen Jinlan Decorative Articles Industrial Co., Ltd. is mainly engaged in production of bedroom articles series. It earned net profit of RMB 0.3771 million in 2007. With registered capital of RMB 2.14 million and total assets of RMB 20.99 million, Shenzhen Lisi Industrial Co., Ltd. is mainly engaged in property lease and management. the property Leases rate was 99.5% and it earned net profit of RMB 2.1187 million in 2007. With registered capital of RMB 10 million and total assets of RMB 19.40 million , Shenzhen Huaqiang Hotel. is mainly engaged in Guest room ,Hotel operation. The Hotel housing rate was 82.67% and it earned net profit of RMB 1.8628 million in 2007. With registered capital of RMB 1.68 million and total assets of RMB 1.06 25 million, Shenzhen Zhongxing Fibre Folds Cotton Clothing Ornament Co., Ltd. is engaged in producing fiber fold cotton and relevant products. In 2007, it suffered loss of RMB 0.77 million It is mainly due to provision for impairment of assets. With registered capital of RMB 7.2 million and total assets of RMB 7.87 million, Shenzhen Jingguang Footwear Co., Ltd. is engaged in producing footwear products. In 2007, it suffered loss of RMB 3.9179 million，It is mainly due to provision for impairment of assets and insufficient market competitiveness of products. Shenfang Property Management Co., Ltd. is mainly engaged in property management and conduct property lease business for the head office of the Company. It has registered capital of RMB 1.6 million and total assets of RMB 9.51 million. In 2007, the average occupancy rate of the property leased on agency business was 99.8%. Its income from management fee was RMB 6.77 million. Its net profit was RMB 0.0117million . 3. Main suppliers and customers The accumulative amount of purchase from the top five suppliers was RMB 98.9188 million, accounting for 29.69% of the Company's accumulative annual purchase amount. The accumulative amount of sales to the top five customers was RMB 197.9163 million, accounting for 40.45% of the Company's accumulative annual sales amount. 4. Problems and difficulties occurred in operation and their solutions In the report period, the export of textile and garment products was squeezed by international market. The rise in price of raw materials of textile and energy increased the production cost burden of the Company. The appreciation of RMB had serious adverse influence on the Company's export trade. It was difficult for the Company recruit workers. Product price competition tended to become fiercer. Profit margin was further reduced. The Company took the following measures to actively respond to fierce market competition: (1) It attached importance to detail management, controlled operating cost and tapped potential; (2) It actively developed diversified market, enlarged domestic sales and strengthened the popularization of Zuoerzi brand; (3) It strengthened property lease enterprise management, sharpened employees' service awareness, improved service quality, innovated service mode, developed new tourist source, strengthened maintenance of main properties and enhanced property image and value; (4) It carried out reform of labor, personnel and distribution system, perfected stimulation and restriction mechanism and fully aroused employees' enthusiasm and creativeness. (II) The investment of the Company 1.The Company did not raise funds in the report period. 2. In the report period, the Company was not involved in equity investment. （III）Investment in R&D and independent innovation Polarizer sheet project is a high-tech project developed by the Company for years, 26 which has independent intellectual property rights and national brand. In the report period, the Company invested RMB 5.625 million in R&D, actively promoted the technological innovation of this project, carried out a series of work of tackling key technical problems and equipment renovation, stabilized quality, attracted customers and obtained good effect. The Company actively promoted the R&D and marketing of new products. In the year, the output of new products accounted for 20% of the total output of this project. The sales income and profit from new products respectively accounted for 42% and 75% of total sales income and total profit. With the marketing of new products, the Company occupied characteristic markets, improved its ability of quick response and enhanced its core competitiveness. （IV）Analysis of the financial position and operating results of the Company 1. Analysis of the financial position and operating results of the Company As of December 31,2007，The total assets of the Company were RMB 680.557 million,a year-on-year increase of 2.95%. which was basically the same as compared with the previous year. The shareholders' equity for the parent company is RMB 363.3293 million, an increase of 7.95% year on year mainly due to the increase of net change in fair value of financial assets available for sale and the Company's net profit. The net profit is RMB11.554 million, an increase of 149.29% year on year mainly due to increase of income from selling stocks of other listed companies. Net increase in cash and cash equivalents is RMB 46.046 million, an increase of RMB 37.487million year on year mainly due to from selling stocks of other listed companies. 2.Asset Sturcture and expenses change Items December 31,2007 January 1,2007 Increase/decrease Amount Proportion% Amount Proportion% (%) Money 124,908,748.97 18.35 78,863,152.16 18.17 0.18 capital Account 45,900,339.22 6.74 45,401,968.22 6.88 -0.14 receivable Prepayments 12,923,615.58 1.90 24,873,580.14 3.76 -1.86 Other 22,607,747.17 3.32 14,222,226.38 2.15 1.17 receivable Inventories 44,384,315.38 6.52 64,610,464.52 9.79 -2.23 Long term 54,872,825.99 8.06 80,198,152.89 12.13 -4.07 share equity investment Construction 4,959,719.40 0.73 2,579,939.72 0.39 0.34 in progress Fixed assets 181,694,810.68 26.70 184,635,597.13 27.93 -1.23 Short-term 105,612,393.54 15.52 73,000,000.00 11.06 4.46 loans Account 36,094,528.13 5.30 23,683,172.07 3.58 1.72 payable 27 Prepayment 5,106,386.43 0.75 21,603,680.24 3.27 -2.52 Items Year 2007 Year 2006 Increase/decrease (%) Sales expenses 17,235,392.95 17,412,520.56 -1.02 58,840,282.62 56,705,606.92 3.76 Administration expenses Financial 7,283,913.49 5,287,043.52 37.77 expenses Losses of devaluation of assets 35,922,300.97 6,761,345.25 431.29 Investment income 35,617,395.86 1,735,810.03 1,951.92 Non-operating income 781,926.94 3,827,522.6 -79.57 Income tax 5,441,318.26 2,228,811.20 144.14 Notes: (1) Financial expenses increased mainly due to increase of interest expenses caused by increase of borrowings and increase of exchange loss caused by RMB appreciation. (2) Assets impairment loss increased due to provision for bad debts for the receivable payment for Gangpeng Building, change in accounting estimate of provision for bad debts made for accounts receivable in the report period and big change in provision for impairment of unsalable products of subsidiaries over the previous period. (3) Investment income increased mainly due to obtainment of income from selling the stocks of other listed companies. (4) Non-operating income decreased mainly due to year-on-year decrease of subsidy income. (5) Income tax increased mainly due to increase of profit in the report period. 3.Cash fow statement data change Items Year 2007 Year 2006 Increase/decrease (%) Cash flow generated by 24,113,175.67 46,895,948.92 -48.58 business operation, net Net cash flow generated by 13,174,077.91 -12,647,369.98 204.16 investment Net cash flow generated by 10,758,467.94 -24,641,860.34 143.66 financing Notes： （1）Generated from operating activities net cash flows over the same period last year to decrease RMB 227827.7325 million,the decrease Ratio is 48.58%，mainly lowering of the tax rebate, increased labor costs, and increase due to factors of 28 production. （2）Investment activities generated net cash flows over the same period last year RMB 258214.47.89 million, the ratio increase is 204.16% ，mainly minority shareholders of the company to purchase increase equity stake held by the subsidiary. （3）Financing activities generated net cash flows over the same period last year RMB354003.2828million, an increase in bank borrowings by the company. 4.Change in profit structure in the report period as compared with the same period of the previous year In the report period, the profit from industry accounted for -8.02% of the total profit，which decreased by 90.8% year on year due to sharp increase of provision for impairment of assets by industrial enterprises,The profit from property lease and management account for 99.98% of the total profit, which increased by 96.06% year on year,The profit form trade accounted for 8.04% of the total profit，which decreased by 5.26% year on year mainly due to the appreciation of RMB by big margin and lowering of export rebate rate. (V) The influence of the change in financial instruments and real estate for investment measured with fair value on the Company's profit The Company directly designates the stock investment whose fair value can be reliably measured as financial assets available for sale. The change in its fair value has no direct influence on the profit of the Company. The Company conducts subsequent measurement of real estate for investment with cost mode. （VI）Focal point of work in the new year The operation objective of the Company in 2008: To seize historic opportunities, quicken structural adjustment, develop its main business, vigorously develop market, strengthen refined management, regulate its operation, quicken team development and ensure its rapid, healthy and coordinated development. To attain this goal, the Company will focus on the following work in 2008: (1) To seize historic opportunities and greatly develop main business: To quicken the strategic arrangement of Shenfang Lekai Company in domestic middle-class polarizer sheet market, complete the construction of technology R&D center, actively expand to high-end polarizer sheet for TFT, realize rapid expansion of the polarizer sheet project, quicken the adjustment and transformation of textile and garment industry, persist in production of top-quality products, implement brand strategy, seize the opportunity brought by cooperating with China Knitting Industry Association in establishing China's industrial standards for seamless underwear and improve the popularity and reputation of own brand; (2) To strengthen technology and product R&D, unceasingly introduce high-end products with high added value and high technological content, vigorously develop new customers, actively open up domestic market and increase domestic sales while keeping foreign customers; (3) To elaborately organize, arrange and pay close attention to key projects: To quicken land development, lose no time in doing the work for land project including right confirmation, design, construction application, project tendering and bidding and pay close attention to the construction of phase-II expansion and reconstruction 29 project of Shenfang Lekai, Longgang Nanbaoyuan dormitory project and Textile and Garment Brand Industrial Park; (4) To strengthen recruitment and development of personnel, stress human resource development and establish stimulation mechanism with persistent effect: To attach equal importance to independent development and external recruitment, strengthen the development and replenishment of technical team, marketing team, management team and professional manager team, unceasingly strengthen and improve development of personnel bank, deepen mechanism reform and performance appraisal, actively explore and establish scientific stimulation mechanism with persistent effect. （VII）Routine work of the board of directors 1.Board meeting and resolutions in the report period. The 1st Meeting of the Fourth board of directors was held on January 5,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on January 6,2007. The 2nd Meeting of the Fourth board of directors was held on March 15,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on March 17,2007. The 3rd Meeting of the Fourth board of directors was held on April 19,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on April 21,2007. The board of directors of the Company held a provisional meeting on May 18,2007， The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on June 30,2007. The 4th Meeting of the Fourth board of directors was held on August 6,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on August 8,2007. The 5th Meeting of the Fourth board of directors was held on October 9,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on October 11,2007. The 6th Meeting of the Fourth board of directors was held on October 30,2007.The resolutions of the meeting were published on Securities times and Hongkong Commercial Daily on October 31,2007. 2.Implementation by the board of directors of the resolutions of the shareholders’ general meeting. In the report period, the board of directors of the company seriously implemented all relolutions adoped by shareholders’ general meeting according to relevant provisions of the Company law and the Articles of Association of the Company. The second provisional shareholders' general meeting of the Company in 2007 adopted the resolution of approving the Company to sell not more than 7 million shares of Shenzhen Victor Onward Textile Industrial Co., Ltd. ("Shenzhen Victor Onward") in the year. In the report period, the Company sold 5,907,118 shares of Shenzhen Victor Onward. 30 (VIII) Duty performance of audit committee of the board of directors In accordance with the Working Rules for Audit Committee of the Board of Directors, the audit committee of the board of directors of the Company duly performed its duties, did a great deal of work during 2007 annual audit and completed Summarization Report of Audit Committee on Audit Work of Shenzhen Pengcheng Certified Public Accountants in 2007. The audit committee summarized the audit work in 2007 as follows: 1. Determining overall audit plan and reviewing financial statements of the Company Before the entrance of the certified public accountants of Shenzhen Pengcheng Certified Public Accountants Co., Ltd. (hereinafter referred to as "Certified Public Accountants") retained by the Company for annual audit, independent directors, the audit committee and Certified Public Accountants determined the arrangement of audit work for 2007 after consultation. Meanwhile, independent directors and the audit committee reviewed the financial statements for 2007 prepared by the Company. In their opinion, the Company was able to conduct financial accounting in accordance with new accounting standards and the financial statements for 2007 prepared by the Company basically reflect the assets and liabilities and production and operation results of the Company as of December 31, 2007. They agreed to carrying out financial audit work for 2007 based on these financial statements. 2. Urging Certified Public Accountants in writing to enter the Company and do relevant work On March 12, 2007, Certified Public Accountants officially entered the Company to start audit. On March 27, the audit committee required Certified Public Accountants to complete field services on time according to audit plan and timely communicate work progress and the problems met in audit to the audit committee through sending the Letter of Audit Supervision and Urge. The audit committee required Certified Public Accountants to complete audit work as soon as possible according to audit plan through sending the Letter of Audit Supervision again and Urge to guarantee ensure the board of directors' disclosure of 2007 annual report as scheduled. 3. Holding communication meeting and paying further attention to progress of audit On April 1, 2008,The convener of the audit committee called independent directors, Certified Public Accountants and the Company to hold a communication meeting for audit of annual report and conduct preliminary communication in respect of the problems they jointly paid attention to during audit of annual report. On April 14,2008,Certified Public Accountants gave preliminary audit opinions. The convener of the audit committee called independent directors, Certified Public Accountants and the Company to hold a communication meeting for audit of annual report. At the meeting, the members of the audit committee reviewed the financial statements of the Company again and formed the following written opinions after full discussion with independent directors and Certified Public Accountants in respect of 31 the matters mentioned in the auditor's report for attention: Relevant data of the financial and accounting statements of the Company for 2007 basically reflect the assets and liabilities and production and operation results of the Company as of December 31, 2007. The audit committee agreed to preparation of 2007 annual report based on these financial statements. 4. Examining proposals related to annual report On April 17,2008,Certified Public Accountants completed audit as scheduled and issued standard and unqualified auditor's report of the Company for 2007. On the same day, the audit committee reviewed this auditor's report and adopted the Resolution for Agreeing to Submitting Financial and Accounting Statements to the Board of Directors for Examination, Summarization Report on Audit Work of Shenzhen Pengcheng Certified Public Accountants Co., Ltd. for 2007 and the Proposal for Engaging Auditing Body for 2008. In the opinion of the audit committee, Shenzhen Pengcheng Certified Public Accountants Co., Ltd. conducted work prudently, earnestly, meticulously and practically during audit for 2007 and ensured satisfactory completion of annual audit work as scheduled. (IX) Duty performance of remuneration and appraisal committee of the board of directors In the report period, the remuneration and appraisal committee gave professional opinions and suggestions on the Company's performance appraisal system and incentive system with persistent effect. It audited the remuneration of the directors , supervisors and senior executives of the Company disclosed in 2007 annual report and held the opinion that the Company's existing remuneration system was established according to specified decision-making procedure and the standard for payment of remuneration of the Company's directors , supervisors and senior executives complied with relevant regulations. （X）Profit distribution preplan for 2007 As audited by Shenzhen Pengcheng Certified Public Accountants, the net profit of the Company for 2007 is RMB 119661.9051million, The net profit for the parent company is RMB 11,554,100.29.As required in the articles of association of the Company, the Company is to appropriate 10% of its net profit for 2006 RMB 1,400,284.29, respectively for statutory common reserve fund. The Company is neither to distribute profit nor to capitalize capital surplus. This undistributed profit will be used to supplement the working capital needed by the Company to expand main business. （XI）Other matters 1.Shenzhen Pengcheng Certified Public Accountants issued special statement on fund occupation by the controlling shareholder of the Company and other related parties . Refer to www.cninfo.com.cn for details. 2.The special statement and independent opinions of the independent directors of the Company on the guarantees provided by the Company in the report period: According to the Circular on Certain Issues Relating to Standardization of FundTransfer Between Listed Companies and Their Related Parties and Guarartees 32 Provided by Listed Companies (Zheng Jian Fa(2003) No.56 Document), the Circular on Strengthening Disclosure of Information about Fund Occupation and Regulation-violating Guarantee of Listed Companies (Shenzhen Ju Fa Zi (2004)) No.338) and the Circular of Regulating External Guarantees provided by Listed Companies (Zheng Jian Fa( 2005) No.120 Document), we audited the external guarantees provided by the Cmpany with responsible attitude. We hereby make the following statement: In the report period, the Company did not provide any guarantee except providing guarantee with total amount of RMB 10 million to its controlled subsidiaries. In our opinion, the Company regulated external guarantee and controlled the riskof external guarantee strictly according to the Artiles of Association of the Company. The guarantee provided by the Compamy to its controlled subsidiaries in the report period was demanded by the Company’s production and operation and rational utilization of funds. The decision-making procedure of guarantee was legal and reasonable and the interests of the Company and its shareholders, especially middle and small shareholders, were not harmed. 3.In the report , the newspapers selected by the Company for information disclosure were Securities Times and Hongkong Commercial Daily. VIII. Report of the Supervisory Committee In the report period, the supervisory committee of the Company duly performedits supervision duties and carried out effective supervision strictly according to the provisions of the Company Law and the Articles of Association of the Company. （1）In the report period, the current supervisory committee held six meetings： 1. On January 5, 2007, the first meeting of the supervisory committee examined and adopted the proposal for electing Gao Zuofu as chairman of the fourth supervisory committee. 2. On March 15, 2007, the second meeting of the fourth supervisory committee examined and adopted the proposals of purchasing the shares of Meibainian and Import & Export Company. 3. On April 19, 2007, the third meeting of the fourth supervisory committee examined and adopted the proposals including the one concerning the report of the supervisory committee of the Company for 2006. 4. On August 6, 2007, the fourth meeting of the fourth supervisory committee examined and adopted 2007 semiannual report. 5. On October 9, 2007, the fifth meeting of the fourth supervisory committee examined and adopted the proposals submitted by the board of directors to the second provisional shareholders' general meeting of the Company in 2008. 6. On October 30, 2007, the sixth meeting of the fourth supervisory committee examined and adopted the report on rectification results of special governance 33 activities of the Company. （II）Opinions of the supervisory committee on other matters 1.The operation of the Company according to law：In the report year,themembers of the supervisory committee attended all board meetings of the Company as nonvoting delegates, In the opinion of the supervisory committee, the Company constantly improved and implemented internal control system, the decision-making procedures were standardized and legal, the directors and members of the management of the Company worked diligently and practiced self discipline, the Company operated normally and completed share holding structure reform. No act of violating laws and regulations or the Articles of Association of the Company or harming the interests of the Company. 2.The inspection of the Financial affair of the Compamy: In the opinion of the supervisory committee, the Company strictly implemented national finance laws and regulations and its financial statements were complete and truthful. 3.The Compamy neither raised funds nor was involved in qcquisition activities in the report period. 4. Related transactions In the report period, the Company acquired 36% equity of Shenzhen Mei Bai Nian Garment Co., Ltd. and 51% equity of Shenzhen Shenfang Import and Export Co., Ltd. held by Shenzhen Hengsheng Investment Co., Ltd., a related legal person, 12% equity of Shenzhen Mei Bai Nian Garment Co., Ltd. held by labor union committee of the Company, and 4% equity of Shenzhen Mei Bai Nian Garment Co., Ltd. held by the labor union committee of Shenzhen Mei Bai Nian Garment Co., Ltd. The total acquiring price is RMB 22.7171 million. The pricing for this related transaction is based on appraised value of net assets. The mode of transaction and pricing is fair. The related transaction does not harm the interests of the Company and all shareholders, especially middle and small shareholders and non-related shareholders. IX. Important Events （1）Importance lawsuits and arbitration 1.The Company was not involved in any Importance lawsuit or arbitrationin the report period. 2.Other lawsuits： （1）On September 16,2002，Hongkong Xieli Maintenance and Repair Co., the Hongkong shareholder of Shenzhen Xieli Automobile Co., Ltd. That is a subsidiary joint venture of the Company, buought and action to Shenzhen Intermediate People’s Court against the Company for infringement and demanded the Company to compensate on September 30, 2007, Gangxieli Maintenance Company withdrew this lawsuit from Shenzhen Intermediate People's Court. (2) The case that the Company sued Chengdu Gangpeng Real Estate Development Co., Ltd. ("Chengdu Gangpeng Co.) in respect of debts was officially placed by Sichuan Higher People's Court on file on September 3, 2007 (Refer to No. 2007-24 announcement of the Company). On November 9, 2007, Sichuan Higher People's Court ended the case through mediation. The Company and Chengdu Gangpeng Col. entered into a reconciliation agreement. As Chengdu Gangpeng Co. failed to refund payment of RMB 20.7830 million for house and interest accrued to 34 the Company within the time specified in the agreement, the Company applied to Sichuan Higher People's Court for enforcement in respect of dispute on the commercial house contract involving Chengdu Gangpeng Co. On November 29, 2007, the Company received the notice of accepting case enforcement from Sichuan Higher People's Court. At present, this enforcement application is being handled. （II）Acquisition and disposal of assets, takeover and merger The Company neither acquired nor disposed of assets nor was involved in any takeover or merger in the report period. （III）The shares of other listed companies held by the Company： The company holds 22,279,487shares of Shenzhen Victor Onward Textile Industrial Co., Ltd. Listed at Shenzhen Stock Exchange (stock code:000018, hereinafter referred to as “ Shenzhen Victor Onward”), which account for 13.17% of the total share capital of Shenzhen Victor Onward. On june 27, 2007, part of the negotiable shares subject to sale restriction after the share holding structure reform of Shenzhen Victor Onward were approved to be listed for dealing 8,457,118shares held by the Company(accounting for 5% of total share capital of Shenzhen Victor onward)obtained the qualification of listing and negotiation from this day. Exccpt these shares, the Company did not hold any share of other listed companies or intended listed companies or financial enterprises such as commercial banks, securities companies, insurance companies, trust companies and futures companies. After the market closed on December 31, 2007, the Company accumulatively hold 5,907,118 shares of Shenzhen Victor Onward held by it through the trading system of Shenzhen Stock Exchange, which account for 3.49% of the total share capital of Shenzhen Victor Onward. The remaining 16,372,369 shares of Shenzhen Victor Onward account for 9.68% of the total share capital of Shenzhen Victor Onward, including 2,550,000 negotiable shares not subject to sale restriction. Shares were accounted for as 13,822,369 shares for long-term investment. The initial investment cost is RMB16,481,013.93. At the end of the report period, the book value of the investment was RMB16,481,013.93. Shares were accounted for as 2,550,000 share financial assets available for sale. The initial investment cost is RMB3,034,500,the fair value is RMB21573,000 by the end of the report period. （IV）Important Related transactions The Company was not involved in any important related transaction in the reportperiod. Refer to the financial report for the details of other related transactions. （V）Important contracts and their performance 1.Trust, contracting and lease The neither acquired nor disposed of trust, contracting and lease in the report period. 2.Significant guarantee In the report period, the Company provided guarantee for bank line of RMB 100 million to Shenzhen Mei Bai Nian Garment Co., Ltd., one of its controlled subsidiaries for the period from May 15, 2007 to May 15, 2007 . At the end of the report period, the Company has been relieved from such guarantee liability. 3.Entrustment of cash asset management The Company did not entrust others to manage its cash assets in the report period. （VI）Commitments 35 Shenzhen Investment Management Co., Ltd., an original shareholder holding non-negotiable shares of the Company, made the following commitment during share holding structure reform: 1. The shares of the Company held by Shenzhen investment Management Co., Ltd.will not be listed or traded within at least 24 months from the date of obtaining the right of listing and negotiation. Within 12 months after the expiration of the said commitment period, the proportion of the number of the original non-negotiable shares sold by it through Shenzhen Stock Exchange to the total number of shares of Shenzhen Textile shall not exceed 5%. 2. Shenzhen Investment Management Co., Ltd.will bear the expenses related to this share holding structure reform including financial consultation fee, sponsoring fee, lawyers’ fee, communication and recommendation fee and media publicity expenses, At present, the above commitments are under fulfillment. At the end of the report period, the quantity of negotiable shares not subject ot sale retriction held by the original shareholders holding non-negotiable shares who holde over 5% of total shares was 0. The listing days of shares subject to sale restriction after share holding structure refron are September 11, 2008 and September 11, 2009. （VII）Engagement and removal of certified public accountants The Company continued to engage Shenzhen Pengcheng Certified Public Accountants Co., Ltd. as its domestic audit body in the report period. In accordance with the Circular about Issues Concerning Audit of Companies Issuing Domestically Listed Foreign Investment Shares (CSRC Ji Zi (2007) No. 30 Document) issued by CSRC, a company issuing domestically listed foreign investment shares shall not be required to carry out overseas audit while engaging a certified public accountants' firm with service qualification for securities and futures business to conduct audit. Thus, the Company did not engage any overseas audit body to conduct audit in the report year and expressed gratitude for the audit work did by K.C. Oh & Co. for the Company in the past. The remuneration paid by Shenzhen Pengcheng Certified Public Accountants to the above ceitified publicin the report was respectively RMB 0.42 million, including traveling expenses. So far, Shenzhen Pengcheng Certified Public Accountants has provided services to the Company for 7 consecutive years. （VII）Table for investigation, communication , interviewor other activities In the report period, the Company strictly abode by the principle of fair information disclosure in the work concerning relationship with investors according to the requirements of Guidelines for Fair Information Disclosure of Listed Companies. The Company communicated with investors in respect of its daily operation and development prospect with public materials including periodical reports and relevant announcements and did not selectively and privately disclose, reveal or divulge non-public significant information to specific objects. Information disclosure was fair. In the report period, no institutional investors came to investigate or interview the Company. The Company answered over 110 calls of personal investors. The Company communicated with the investors mainly in respect of the Company's operating status and development prospect, the controlling shareholder's support to the Company's 36 business development and temporary suspension of listing of the Company. Table for investigation, communication , interviewor other activities Reception Reception Reception Reception Discussion issue and offered date plane Mode Object information 1.1-12.31 The Tel Individual Operating status and Company Investement development prospect of the Company, the controlling shareholder's support to the Company's business development, etc. （IX）Supervision over the the Company its directors and senior executives The Company and its directors and senior executives were not investigated by CSRC, administratively punished or publicly criticized by CSRC or publicly condemned by stock exchange in the report period. (X) Subsequent events 1. On February 3, 2008, the 7th meeting of fourth board of directors of the Company examined and adopted the Proposal Concerning Assignment of Company Assets. The meeting agreed to assigning the use right of the land of the Company and Shenzhen East China Electronic Co., Ltd. (hereinafter referred to as "East China Company") that is located in Pillow Mountain, Nanling Village, Nanwan Subdistrict, Longgang District, Shenzhen and covers 26,600 square meters in total and the buildings on the said lot to community resident's committee of Nanling Village, Nanwan Subdistrict, Longgang District, Shenzhen. The assignment price totals RMB 107 million. RMB 35.6725 million is payable to the Company and net income after tax is about RMB14.80 million. RMB 71.3275 million is payable to East China Co. The proposal concerning this transaction was examined and adopted at the first provisional shareholders' general meeting in 2008 held on February 22, 2008. Refer to the announcement of the Company published on Securities Times and Hong kong Commercial Daily on February 23, 2008 for details. After the market closed on March 31, 2008, the Company accumulatively sold 6,561,627 shares of Shenzhen Victor Onward held by it through the trading system of Shenzhen Stock Exchange, which account for 3.88% of the total share capital of Shenzhen Victor Onward. The remaining 15,717,860 shares of Shenzhen Victor Onward account for 9.29% of the total share capital of Shenzhen Victor Onward, including 1,895,491negotiable shares not subject to sale restriction which account for 1.12% of the total share capital of Shenzhen Victor Onward. X. Financial Report 1 Auditor's report (attached I) 2 Financial statements (attached II) 3. Notes to financial statements (attached III) 37 4. Summary Statement of Fund Occupation by the Controlling Shareholder and Other Related Parties (attached IV) XI. List of Documents available for Inspection 1. Financial statements bearing the seal and signature of legal representative and financial controller. 2. The original of the auditor’s report bearing the seal of the certified public accountants and the signature of C.P.A. 3. The originals 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 above documents were completely placed at the Office of the Company. This Report has been prepared in both Chinese and English. In case of any discrepancy, the Chinese version shall prevail. This Report has been prepared in both Chinese and English. In case of any discrepancy, the Chinese version shall prevail. The Board of Directors of Shenzhen Textile (Holdings) Co., Ltd. April 18, 2008 38 Attached I: Auditor’s Report Shen Peng Suo Gu Shen Zi[2008]No.090 To all shareholders of Shenzhen Textile (Holdings) Co., Ltd.： We have audited the accompanying financial statements of Shenzhen Textile(Holdings) Co.,Ltd.. which comprise the consolidated balance sheet as December 31, 2007, and the consolidated income statement , cash flow statement, statement of changes in equity and Notes to Financial Statement in 2007. I. Management’s responsibility for the financial statement Management is responsible for the preparation and fair presentation of these financial statements in accordance with Intecnational Financial Reporting Standards. This responsibility includes: (1) Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from matecial misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; (3)and making accounting estimates that are reasonable in the circumstances. II. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements hased on our audit.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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of matecial misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditors consides internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to dwsign audit procedures that are appropriste in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the approprateness of accounting policies used and the reasonableness of accounting estimates make by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provideabasis for our audit opinion. III. Opinion In our opinion, the financial statements present fairdy, in all material respects, the financial Rule of Shenzhen Textile (Holdings) Co., Ltd. As of December 31, 2007, and of its financial performance and its consolidated cash flows for the year then ended in accordance with intecnational Financial Reporting Standards. Shenzhen Pengcheng Certified Public Chinese C.P.A. Accountants Co., Ltd. Shenzhen yChina April 19,2008 Hao Shiming Chinese C.P.A. Zhang Dan 39 Attached II: Financial statements Shenzhen Textile (Holdings) Co., Ltd. Consolidated Balance sheet Assets Note December 31,2007 January 1,2007 Current assets Monetary funds VII.1 124,908,748.97 78,863,152.16 Trading financial assets - - Bill receivable VII.2 500,000.00 1,110,000.00 Account receivable 58,918,141.64 52,953,080.81 Less: bad debts Prepared 13,017,802.42 7,551,112.59 Account receivable VII.3 45,900,339.22 45,401,968.22 Prepayments VII.5 12,923,615.58 24,873,580.14 Interest receivable - - Dividend receivable - 74,953.94 Other receivable VII.4 38,526,127.19 15,315,363.76 Less: bad debts Prepared VII.4 17,572,713.04 3,190,487.38 Other receivable VII.4 22,607,747.17 14,222,226.38 Inventories Balance VII.3 59,572,007.87 71,167,517.65 Less: Decline in value of inventories prepared VII.3 15,187,692.49 6,557,053.13 Inventories VII.6 44,384,315.38 64,610,464.52 Non-current asset due in 1 year - - Other current assets - - Total of current assets 249,570,433.30 227,058,995.36 Non-current assets： - - Disposable financial asset VII.7 21,573,000.00 - Expired investment in possess - - Long-term receivable - - Long term share equity investment 94,971,451.12 121,085,491.40 Less: Bad debts Prepared of 38,444,292.11 38,789,988.51 40 Long term share equity investment Long term share equity investment VII.8 54,872,825.99 80,198,152.89 Property investment VII.9 146,474,909.43 148,218,879.57 Fixed assets VII.10 181,694,810.68 184,635,597.13 Construction in progress VII.11 4,959,719.40 2,579,939.72 Engineering material - - Fixed asset disposal - - Production physical assets - - Gas & petrol - - Intangible assets VII.12 12,223,128.44 13,548,029.84 R & D petrol - - Goodwill VII.13 2,249,587.82 - Long-germ expenses to be amortized VII.14 1,597,591.75 1,960,098.33 Differed income tax asset VII.15 3,686,797.73 750,098.83 Other non-current asset - - Total of non-current assets 429,332,371.24 431,890,796.31 Total of assets 680,557,137.56 661,047,141.67 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 41 Shenzhen Textile (Holdings) Co., Ltd. Consolidated Balance Sheet（Con） Liabilities and owners’ Note December 31,2007 January 1,2007 equity Current Liabilities Short-term loans VII.16 105,612,393.54 73,000,000.00 Financial liabilities held for trading - - Bill payable - - Accounts payable VII.17 36,094,528.13 23,683,172.07 Advances from customers VII.18 5,106,386.43 21,603,680.24 Salaries payable to Staff VII.19 8,886,676.62 12,484,318.85 Taxes payable VII.20 1,943,947.68 3,412,760.29 Interests payable - - Dividends payable VII.21 10,000,000.00 18,118,000.00 Other payable VII.22 61,752,709.60 66,229,703.16 Non-current liabilities due in 1 year VII.23 210,000.00 470,000.00 Other current liabilities - - Total current liabilities 229,606,642.00 219,001,634.61 Non-Current liabilities: - - Long-term loan - - Bonds payable - - Long-term payable - - Special payable VII.24 2,000,000.00 2,500,000.00 Accrued liabilities - - Deferred income tax liabilities VII.25 3,336,929.28 - Other non-current 42 liabilities - - Other current liabilities 5,336,929.28 2,500,000.00 Total liabilities 234,943,571.28 221,501,634.61 Shareholders’ Equity - - Share capital VII.26 245,124,000.00 245,124,000.00 Capital suplus VII.27 61,016,141.46 45,814,574.74 Less：Treasury stock - - Surplus reserves VII.28 26,179,878.63 24,779,594.34 Reserved profit VII.29 31,009,266.53 20,855,450.53 Total attributable to equity holders of the Parent Company 363,329,286.62 336,573,619.61 Minority interest VII.30 82,284,279.66 102,971,887.45 Total owners’ equity 445,613,566.28 439,545,507.06 Total liabilities and Owners’ equity 680,557,137.56 661,047,141.67 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 43 Shenzhen Textile (Holdings) Co., Ltd. Consolidated profit Statement Year 2007 Items Note Year 2007 Year 2006 I. Operating income VII.31 489,270,085.73 558,198,369.00 Including：Operating income 489,270,085.73 558,198,369.00 II. Operating cost 508,163,375.72 550,268,445.15 Including：Operating cost VII.31 384,889,425.06 460,456,622.74 Operating taxes and extras VII.32 3,992,060.63 3,645,306.16 Sales expenses VII.33 17,235,392.95 17,412,520.56 Administrative expenses VII.34 58,840,282.62 56,705,606.92 Financial expenses VII.35 7,283,913.49 5,287,043.52 Loss of devaluation of assets VII.36 35,922,300.97 6,761,345.25 Add：Changing income of fair value - - Investment income VII.37 35,617,395.86 1,735,810.03 Including：Investment income onaffiliated company and joint venture -9,226,052.79 -4,577,914.93 III.Operating profit 16,724,105.87 9,665,733.88 Add：Non-operating income VII.38 781,926.94 3,827,522.64 Less：Non-operating expenses VII.39 98,524.04 194,799.16 Including：Disposal loss of non-current assets 64,852.04 73,872.29 IV. Total profit 17,407,508.77 13,298,457.36 Less：Income tax expenses VII.40 5,441,318.26 2,228,811.20 V. Net profit 11,966,190.51 11,069,646.16 Net profit attributable to the Parent company 11,554,100.29 4,626,707.21 Minority shareholders’ equity VII.41 412,090.22 6,442,938.95 VI.Earnings per share （i）Basic earning per share 0.05 0.02 （ii）Diluted earning per share 0.05 0.02 (The accompanying notes form an integral part of financial statements) 44 Legal representative： Person in change of accounting dept： Accounting Supervisor： Shenzhen Textile (Holdings) Co., Ltd. Consolidated cash flow statement Year 2007 Unit：RMB 人民币元 Item Note Year 2007 Year 2006 I.Cash flows arising from operating activities Cash received from sales of goods and supply of labor 495,0380,341.00 588,722,871.05 Rebated taxes received 19,374,528.15 36,528,498.44 Other business related cash receipts 637,836.63 18,693,413.74 Subtotal of cash flow in from operatingactivity 515,050,705.78 643,944,783.23 Cash paid for purchase of goods and reception of labor services 394,667,958.63 517,388,780.70 Cash paid to and for employees 51,276,149.12 42,982,696.39 Taxes paid 17,849,472.60 18,030,028.43 Other business related cash payments VII.41 271436,949.76 18,647,328.79 Subtotal of cash flow out from operatingactivity 490,937,530.11 597,048,834.31 Net cash flows arising from operating activities 24,113,175.67 46,895,948.92 II. Cash flow arising from investment activities Cash received from recovery of investment 47,657,925.26 1,760,400.00 Cash received from investment income 4,753,970.83 7,304,374.90 Cash received from disposal of fixed assets, intangible asset and other long-term assets 1,309,701.36 15,599.30 Proceeds from sale of subsidiaries and other operating units 4,259,990.00 Other cash received relating to investment activities 563,161.89 590,453.78 Sub total of cash inflows 58,544,749.34 9,670,827.98 Cash paid for acquiring fixed assets,intangible assets and other long-germ assets 22,653,571.43 21,425,697.96 45 Cash paid at investment - 892,500.00 Net cash received from subsidiaries and other operational units 22,717,100.00 - Other cash paid for investment activities - - Subtotal of cash outflow due to investment activities 45,370,671.43 22,318,197.96 Net cash flow generated by investment 13,174,077.91 -12,647,369.98 III.Cash flow generated by financing Cash received as investment - - Including:Cash received as investmentfrom minor shareholders - - Cash received as loans 105,612,393.54 78,000,000.00 Other financing –related cash received VII.42 30,000,000.00 2,000,000.00 Subtotal of cash inflow from financiangactivities 135,612,393.54 80,000,000.00 Cash to repay debts 73,260,000.00 86,700,000.00 Cash paid as dividend, profit, or 17,941,860.34 interests 14,093,925.60 Other financing-related cash received VII.43 37,500,000.00 - Subtotal of cash outflow due to financing activities 124,853,925.60 104,641,860.34 Net cash flow generated by financing 10,758,467.94 -24,641,860.34 IV. Influence of exchange rate alternation on cash and cash equivalents -2,000,124.71 -1,047,660.55 V. Net increase of cash and cash equivalents 46,045,596.81 8,559,058.05 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 46 Shenzhen Textile (Holdings) Co., Ltd. Paremt Companuy Balance sheet Assets Note December 31,2007 January 1,2007 Current assets Monetary funds 51,415,565.66 36,046,382.20 Trading financial assets - - Bill receivable - - Account receivable VIII.1 - - Prepayments 813,876.53 1,249,520.63 Interest receivable - - Dividend receivable - 74,953.94 Other receivable VIII.2 71,262,484.99 34,583,890.77 Less: bad debts Prepared VIII.2 16,596,063.95 2,562,965.38 Other receivable VIII.2 56,320,754.06 34,118,275.39 Inventories - 20,783,000.00 Non-current liabilities due in 1 year - - Other current liabilities - - Total current liabilities 108,550,196.25 92,272,132.16 Non-current assets - - Disposable financial asset 21,573,000.00 - Expired investment in possess - - Long-term receivable - - Long term share equity investment 241,772,086.71 245,118,027.00 Less: Bad debts Prepared of Long term share equity investment 38,444,292.11 38,789,988.51 Long term share equity investment VIII.3 201,673,461.58 204,230,688.49 Property investment VIII.4 131,995,963.47 133,731,101.77 Fixed assets VIII.5 40,695,721.47 40,541,966.30 Construction in progress 2,121,510.58 1,922,937.92 Engineering material - - Fixed asset disposal - - Production physical assets - - Gas & petrol - - Intangible assets 3,262,969.00 3,868,222.24 R & D petrol - - Goodwill - - Long-germ expenses to be - - 47 amortized Differed income tax asset 2,413,729.54 196,736.25 Other non-current asset - - Total of non-current assets 403,736,355.64 384,491,652.97 Total of assets 512,286,551.89 476,763,785.13 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 48 Shenzhen Textile (Holdings) Co., Ltd. Paremt Companuy Balance sheet（Con） Liabilities and owners’ Note December 31,2007 January 1,2007 equity Current Liabilities Short-term loans 84,000,000.00 68,000,000.00 Financial liabilities held for trading - - Bill payable - - Accounts payable 1,182,611.63 1,723,124.06 Advances from customers 784,038.57 1,763,300.07 Salaries payable to Staff 3,452,146.15 3,988,573.93 Taxes payable 4,116,038.61 856,975.76 Interests payable - - Dividends payable 10,000,000.00 18,118,000.00 Other payable 55,045,462.73 59,148,896.01 Non-current liabilities due in 1 year - - Other current liabilities - - Total current liabilities 158,580,297.69 153,598,869.83 Non-Current liabilities: - - Long-term loan - - Bonds payable - - Long-term payable - - Special payable - 2,000,000.00 Accrued liabilities - - Deferred income tax liabilities 3,336,929.28 - Other non-current liabilities - - Other current liabilities 3,336,929.28 2,000,000.00 Total liabilities 161,917,226.97 155,598,869.83 Shareholders’ Equity - - Share capital 245,124,000.00 245,124,000.00 Capital suplus 60,487,826.17 45,286,259.45 Less：Treasury stock - - Surplus reserves 26,179,878.63 24,779,594.34 Reserved profit 18,577,620.12 5,975,061.51 Total attributable to 350,369,324.92 321,164,915.30 49 equity holders of the Parent Company Total owners’ equity 350,369,324.92 321,164,915.30 Total liabilities and Owners’ equity 512,286,551.89 476,763,785.13 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 50 Shenzhen Textile (Holdings) Co., Ltd. Paremt Companuy profit statement Year 2007 Items Note Year 2007 Year 2006 I. Operating income VIII.6 44,046,600.81 55,632,560.36 Less：Operating Cost VII.6 2,951,175.77 19,852,430.02 Operating taxes and extras 2,134,743.85 2,019,059.63 Sales expenses 2,505,758.93 2,223,100.84 Administrative expenses 36,150,206.74 31,738,401.25 Financial expenses 4,337,022.99 3,309,873.57 Loss of devaluation of assets 17,954,548.87 - Add：Changing income of fair value - - Investment income 39,056,704.86 655,182.66 Including：Investment income onaffiliated company and joint venture -9,226,052.79 -4,577,914.93 II.Operating profit 17,069,848.52 -2,855,122.29 Add：Non-operating income 230,513.93 732,688.35 Less：Non-operating expenses - 101,815.66 Including：Disposal loss of non-current assets - - III. Total profit 17,300,362.45 -2,224,249.60 Less：Income tax expenses 3,297,519.55 - IV. Net profit 14,002,842.90 -2,224,249.60 V.Earnings per share （i）Basic earning per share 0.06 -0.01 （ii）Diluted earning per share 0.06 -0.01 (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 51 Shenzhen Textile (Holdings) Co., Ltd. Paremt Companuy cash flow statement Year 2007 Unit：RMB Items Note Year 2007 Year 2006 I.Cash flows arising from operating activities Cash received from sales of goods and supply of labor 43,262,516.94 54,290,816. Rebated taxes received 222,556.24 2,025,158. Other business related cash receipts 13,835,708.72 18,638,968. Subtotal of cash flow in from operating activity 57,320,781.90 74,954,942. Cash paid for purchase of goods and reception of labor services 3,473,777.95 18,452,213. Cash paid to and for employees 11,993,746.23 10,430,155. Taxes paid 4,385,014.65 4,761,697. Other business related cash payments 46,410,536.69 11,409,686. Subtotal of cash flow out from operating activity 66,263,075.52 45,053,752. Net cash flows arising from operating activities -8,942,293.62 29,901,189. II. Cash flow arising from investment activities Cash received from recovery of investment 47,494,906.58 1,760,400. Cash received from investment income 4,933,599.34 9,421,938. Cash received from disposal of fixed assets, intangible asset and other long-term assets 114,864.96 Proceeds from sale of subsidiaries and other operating units 4,230,000.00 Other cash received relating to investment activities 891,831.58 872,673. Sub total of cash inflows 57,665,202.46 12,055,012. Cash paid for acquiring fixed assets, intangible assets and other long-germ assets 5,877,349.65 4,452,636. Cash paid at investment - 892,500. Net cash received from subsidiaries and other operational units 22,717,100.00 Other cash paid for investment activities - Subtotal of cash outflow due to investment activities 28,594,449.65 5,345,136. Net cash flow generated by investment 29,070,752.81 6,709,875. III.Cash flow generated by financing Cash received as investment - Including:Cash received as investmentfrom minor shareholders 84,000,000.00 68,000,000. Cash received as loans 30,000,000.00 2,000,000. 52 Other financing –related cash received 114,000,000.00 70,000,000. Subtotal of cash inflow from financiangactivities 68,000,000.00 71,500,000. Cash to repay debts 13,130,938.89 13,395,926. Cash paid as dividend, profit, or interests 37,500,000.00 Other financing-related cash received 118,630,938.89 84,895,926. Subtotal of cash outflow due to financing activities -4,630,938.89 -14,895,926. Net cash flow generated by financing -128,336.84 -42,234. IV. Influence of exchange rate alternation on cash and cash equivalents 15,369,183.46 21,672,904. V. Net increase of cash and cash equivalents (The accompanying notes form an integral part of financial statements) Legal representative： Person in change of accounting dept： Accounting Supervisor： 53 Shenzhen Textile (Holdings) Co., Ltd. Consolidated Change in owners’ equities Year 2007 Owners’ Equity attributable to parent Company Item Practical capital Less:Shares in collected Capital reserves stock Surplus reserves Attributable profit Ot I.Balance at the end of last year 245,124,000.00 45,814,574.74 26,668,175.37 20,783,134.67 Add：Change of accounting policy - - - -1,888,581.03 72,315.86 Correncting previous errors - - - - - II.Balance at the beginning of currentyear 245,124,000.00 45,814,574.74 - 24,779,594.34 20,855,450.53 III.Changed in the current year - 15,201,566.72 - 1,400,284.29 10,153,816.00 （i）Net profit - - - - 11,554,100.29 （ii）Gains losses accounted into owners’ equity directly - 15,201,566.72 - - - I. Change in fair value of sellable financial assets net - 15,201,566.72 - - - 2.Influence of change in other owners’ equity of invested enterprises on equity basis - - - - - 54 3.Influence of income tax related toowners’ equity items - - - - - 4.Other - - - - - Total of (I) and (II) - 15,201,566.72 - - 11,554,100.29 - （iii）Investment or decreasing ofcapital by owners - - - - - - 1.Investment by owners - - - - 2.Amount of shares paid and accountedas owners’ equity - - - - - 3.Other - - - - - （IV）Profit allotment - - - 1,400,284.29 -1,400,284.29 - 1.Providing of surplus - - - 1,400,284.29 -1,400,284.29 2.Allotment of the owners - - - - - 3.Other - - - - - （V）Internal transferring of owners’equity - - - - - - 1.Capitalzing of capital reserves - - - - - 55 2.Capitalzing of surplus resrves - - - - - 3.Making up losses by suplus reserves - - - - - 4.Other - - - - - IV.Balance at the end of this term 245,124,000.00 61,016,141.46 - 26,179,878.63 31,009,266.53 - Legal representative： Person in change of accounting dept： Accounting Supervisor： 56 Shenzhen Textile (Holdings) Co., Ltd. Consolidated Change in owners’ equities Year 2006 Owners’ Equity attributable to parent Company Item Practical capital Less:Shares in collected Capital reserves stock Surplus reserves Attributable profit Other I.Balance at the end of last year 245,124,000.00 45,814,574.74 25,988,335.18 26,994,572.97 Add：Change of accounting policy - - - -1,208,740.84 1,490,370.35 Correncting previous errors - - - - - II.Balance at the beginning of currentyear 245,124,000.00 45,814,574.74 - 24,779,594.34 28,484,943.32 - III.Changed in the current year - - - - -7,629,492.79 - （i）Net profit - - - - 4,626,707.21 （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 - - - - - 57 3.Influence of income tax related toowners’ equity items - - - - - 4.Other - - - - - Total of (I) and (II) - - - - 4,626,707.21 - （iii）Investment or decreasing ofcapital by owners - - - - - - 1.Investment by owners - - - - - 2.Amount of shares paid and accountedas owners’ equity - - - - - - 3.Other - - - - - - （IV）Profit allotment - - - - -12,256,200.00 - 1.Providing of surplus - - - - - 2.Allotment of the owners - - - - -12,256,200.00 - 3.Other - - - - - - （V）Internal transferring of owners’equity - - - - - - 1.Capitalzing of capital reserves - - - - - 58 2.Capitalzing of surplus resrves - - - - - - 3.Making up losses by suplus reserves - - - - - - 4.Other - - - - - IV.Balance at the end of this term 245,124,000.00 45,814,574.74 - 24,779,594.34 20,855,450.53 - Legal representative： Person in change of accounting dept： Accounting Supervisor： 59 Shenzhen Textile (Holdings) Co., Ltd. Parent Company Change in owners’ equities Year 2007 Practical capital Less:Shares Item collected Capital reserves in stock Surplus reserves Attributable p I.Balance at the end of last year 245,124,000.00 45,814,574.74 26,668,175.37 Add：Change of accounting policy - -528,315.29 - -1,888,581.03 Correncting previous errors - - - - II.Balance at the beginning of currentyear 245,124,000.00 45,286,259.45 - 24,779,594.34 III.Changed in the current year - 15,201,566.72 - 1,400,284.29 （i）Net profit - - - - （ii）Gains losses accounted into owners’ equity directly - - - - I. Change in fair value of sellable financial assets net - - 15,201,566.72 - - 2.Influence of change in other owners’ equity of invested enterprises on equity basis - - - - 3.Influence of income tax related 60 toowners’ equity items - - - - 4.Other - - - - Total of (I) and (II) - - 15,201,566.72 - - （iii）Investment or decreasing ofcapital by owners - - - 1.Investment by owners - - - 2.Amount of shares paid and accountedas owners’ equity - - - - 3.Other - - - - （IV）Profit allotment - - - 1,400,284.29 1.Providing of surplus - - - 1,400,284.29 2.Allotment of the owners - - - - 3.Other - - - - （V）Internal transferring of owners’equity - - - - 1.Capitalzing of capital reserves - - - - 2.Capitalzing of surplus resrves 61 - - - - 3.Making up losses by suplus reserves - - - - 4.Other - - - - IV.Balance at the end of this term 245,124,000.00 60,487,826.17 - 26,179,878.63 Legal representative： Person in change of accounting dept： Accounting Supervisor： 62 Shenzhen Textile (Holdings) Co., Ltd. Parent Company Change in owners’ equities Year 2006 Unit:RMB Practical Total of owners’ capital Capital Less:Shares Surplus Attributable equity item collected reserves in stock reserves profit I.Balance at the end of last year 245,124,000.00 45,814,574.74 25,988,335.18 28,000,705.57 344,927,615.49 Add：Change of accounting policy - -528,315.29 -1,208,740.84 -7,545,194.46 -9,282,250.59 Correncting previous errors - - - - - - II.Balance at the beginning of currentyear 245,124,000.00 45,286,259.45 - 24,779,594.34 20,455,511.11 335,645,364.90 III.Changed in the current year - - - - -14,480,449.60 -14,480,449.60 （i）Net profit - - - - -2,224,249.60 -2,224,249.60 （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 toowners’ equity items - - - - - - 4.Other - - - - - - Total of (I) and (II) - - - - -2,224,249.60 -2,224,249.60 （iii）Investment or decreasing ofcapital by owners - - - - - - 1.Investment by owners - - - - - - 2.Amount of shares paid and accountedas owners’ - - - - - - 48 equity 3.Other - - - - - - （IV）Profit allotment - - - - -12,256,200.00 -12,256,200.00 1.Providing of surplus - - - - - - 2.Allotment of the owners - - - - -12,256,200.00 -12,256,200.00 3.Other - - - - - - （V）Internal transferring of owners’equity - - - - - - 1.Capitalzing of capital reserves - - - - - - 2.Capitalzing of surplus resrves - - - - - - 3.Making up losses by suplus reserves - - - - - - 4.Other 9,120,000.00 - - - - 9,120,000.00 IV.Balance at the end of this term 245,124,000.00 45,286,259.45 - 24,779,594.34 5,975,061.51 321,164,915.30 Check - - - - Legal representative： Person in change of accounting dept： Accounting Supervisor： 49 Attached III. Notes to financial statements Shenzhen Textile (Holdings)Co., Ltd. Notes to financial statements Unit: RMB Note 1.Basic Information of the Company (1). History The company was previously the Shenzhen Textile Industry Company, on April 13, 1994, approved by the Letter(1114)No.15 issued by Shenzhen Municipal People's Government, the Company was restructured and named as Shenzhen Municipal Textile (Group) Co., Ltd. In the same year, approved by the (1994) No.1 9 file of Shenzhenshi, the shares of the company were listed in Shenzhen Stock Exchange. The Company has got the corporate business certification of Shensizi N246747, by December 31, 2007, the registered capital of the Company was RMB 245,124,000.00. Business scope of the Company: (2) The industries the Company belongs to Textile industry, high-tech industry. (3). Business Scope of the Company Manufacturing textiles, knitwears, garments, decorative cloth belts, trademark belts, bicycles, crafts, and special equipments for textile industry, textile equipments and accessories, meters, standard parts, leather products, textile raw materials, dyes, electronics, cereals, oils and food; in the range of obtaining lawful land use right, the Company also engaged in individual real estate development and management; organizing exhibitions; import and export trading business according to the regulations in Shenmaoguan Shenzhengzi No.034 File. (4) The main products or services of the Company Textiles, production and sales of polarizing film, housing rent (5). The reporting person of the approval of financial statements and the reporting date of the approval of financial statements. The reporting person of the approval of financial statements of the company: Board of Directors of the Company the reporting date of the approval of financial statements of the Company:Aprul 18, 2008 Note 2. Basis for the preparation of financial statements On the basis of continuous operation, in accordance with actual transactions and events, before December 31, 2006, the Company carried out confirmation and measurement according to Accounting Standards for Business Enterprises (hereinafter referred to the old accounting standards) and enterprise accounting system, and in accordance with "the No.7 of quiz of information disclosure standards for companies issuing public stocks - preparation 50 and disclosure of financial accounting information during the course of transmission of old and new standards" of China Securities Regulatory Commission [2007]10, involving “Enterprise Accounting Standards No. 38 -- the first implementation of Accounting Standard for Business Enterprises" in Accounting Standards for Business Enterprises explanation No. 1", the company prepared according to the requirements in "Enterprise Accounting Standard No. 30 - financial statements"; Since January 1, 2007, the company carried out confirmation and measurement in accordance with "Accounting Standards for Business Enterprises - Basic Standards"(hereinafter referred to the new accounting guidelines) issued by the Ministry of Finance and other various accounting standards, on the basis of it, the Company prepared the financial statements. Note 3. Statement on complying with corporate accounting standards The Company declared: the financial statements of the Company complied with "Accounting Standards for Business Enterprises" and its application guidelines and the relevant requirement in information disclosure standards Quiz No. 7, and have truely, completely reflects the company's financial position, operation results, cash flow, and other relevant information. Note 4. Significant accounting policies, accounting estimates and early errors 1. Accounting systems The financial statements were in accordance with "Accounting Standards for Business Enterprises" and its Application Guidance. 2. Fiscal year A calendar year, that is, from January 1 to December 31 is a fiscal year. 3. Accounting standard money Accounting standard money is RMB. 4. Accounting basis and accounting measurement attribute Accounting basis: right&duty accurrence system; accounting measurement attribute: measured according to history costs, if the accounting elements can be reliably identified according to replacement cost, realisable net value, current value, fair value, they can be measured by the corresponding measurement attributes. 5. Method for foreign currency accounting (1). For the foreign currency business, it should be accounted according to the standard money accounted according to the spot rate. At the period end, adjust the foreign currency business according to the spot rate on the balance sheet date, all the exchange differences should be included in the current loss and gain accept that the business is relating to purchase and production of assets which meet the capitalization conditions. (2) The subsidiaries of the company whose stardard currency was foreign currency, all asset and liability items should be converted into the standard money of parent company according to the spot rate on the balance sheet date, and all the owners’ equity items, accept for "retained profits", should be converted into the standard money of parent company according to the spot rate on the balance sheet date. The income and cost items in the profit statement should be converted into the standard money of parent company according ot the spot rate during the period of consolidating financial statements. The conversion differences 51 due to different exchange rate, should be reflected by opening the "foreign currency conversion difference statements" in RMB. And open the "foreign currency statements conversion differences" in cash flow statement in RMB. 6. Standards for determing cash equivalents Standards for determing cash equivalents are the investments which have short duration and strong mobility and are easy to be converted into cash and value. 7. Methods for accounting financial assets (1) Classification of financial assets: Financial assets can be divided into: the financial assets which measured by fair value and its changes are included in the current loss and gain (including transactional financial assets and the financial assets which measured by fair value and its changes are included in the current loss and gain), the expired investments, loans and receivables held, and financial assets to be sold, the four categories; (2) Measurement of financial assets A. The initial recognition financial assets are accounted in accordance with fair values. For the financial assets which measured by fair value and its changes are included in the current loss and gain, the relevant transactional costs should be included in the current loss and gain; for other financial assets, the relevant transactional costs should be included in the initial recognition amount. B. The Company makes follow-up measurement on financial assets according to fair value, the transactional cost to deal with the financial assets which may happen in the future will not be deducted. But, except the following situations: (a). The expired investments, loans and receivables held, should be measured according to amortized costs by the actual interest method. (b). The equity tool investments which do not have quotation in market and their fair value can not be reliably measured, and the derivative financial assets which are related to the equity tool and are to be delivered to the equity tool to account, should be measured according to costs. (3) Determination of fair value of financial assets: A, The financial assets which exist in the market, the quotation in the market will be determined as fair value; B, The financial assets which do not exist in the market, adopt valuation techniques to determine the fair value. The results by the valuation techniques show the transaction prices which may be used in fair transactions on the valuation day. (4). Impairment of financial assets: On the balance sheet date, carry out inspection on the book value of financial assets which are not included in the financial assets measured according to fair value and its changes are include in the current loss and gain. If there are objective evidence showing that the financial assets have impairment, the provision for impairment should be accounted. The objective evidences which show the impairment of financial assets include the following items: A. The issuing party or the debtor had serious financial difficulties; B. The debtor violated the terms in the contract, such as the payment of interest or principal had default or delayed; C. For the consideration in economy and law, the Company made concessions to the debtor 52 in difficulties; D. The debtor was likely to collapse or carry out other financial restructuring; E. The issuing party had major financial difficulties, and the financial assets can not be traded in market; F. The debtor had major adverse changes in technology, market, economic and legal environment, and the Company was may not be able to recover the investment costs; G. The fair values of the equity tool investments had serious and non-temporary decline; H. Other objective evidences which show the impairment of financial assets. (5). Measurement of impairment losses of financial assets: A. The financial assets measured according to fair value and its changes are include in the current loss and gain require no test of impairment; B. The measurement of impairment loss of expired investments: account provision for impairment according to the difference of the value of future cash flow lower than the book value; C. Measurement of impairment loss of receivables: if the amount is large, conduct individual impairment test, account provision for impairment according to the difference of the value of future cash flow lower than the book value; if small receivables and the receivables found no impairment after the individual test, account provisions for impairment according to the nature of the receivables by the method of account age, the proportions to be accounted according to account age are as follows: Age Proportion % Within 1 year 5% 1-2 years 10.00% 2-3 years 30.00% Over 3 years 50.00% If the difference between the future cash flow of the receivable and its current value is small, when determine the relevant impairment loss, do not make discount on its future cash flow. D. Judgment of impairment of the financial assets for sale: if the fair value of the financial asset is decreasing continuously and the decline is not temporary, the occurrence of the impairment of the financial asset will be recognized. When the financial asset for sale had impairment, even if the asset is not finally determined, the accumulated loss, originally included in the owners’ equity and formed due to the decline of fair value should be converted out and included in the current loss and gain. The accumulated loss converted out can be the initial cost of the financial assets for sale deducting the amount recovered and the amount amortized, current fair value and the balance of the impairment loss originally included in loss and gain. 8. Accounting methods of inventory (1). Inventory classification Inventory can be divided into five categories: raw materials, materials commissioned to process, products, finished products, working materials; (2). Valuation and amortization of the inventory issued 53 All inventories are priced according to their actual purchasing costs, when issue the inventory, adopt the weighted average method to valuate; the working materials will be amortized by the method of one-time amortization when they are issued. (3). Inventory system and methods for accounting provision for devaluation of inventory. Inventory system adopts the perpetual inventory method; at period end, on the basis of comprehensive checking on inventories, all or part of the damaged and old inventories, the part that the realizable value lower than the cost, the provision for devaluation of inventory should be accounted. The amount is determined according to the difference of the cost of individual inventory item higher the realizable net value. (4). Methods for determination of realizable net value of inventory. Realizable net value of inventory is determined according to the estimated selling price minus estimated cost, the estimated selling cost and relevant taxes. 9. Methods for accounting long-term equity investment (1). Long-term equity investment is accounted according to its initial investment cost; (2) According to different situations, the Company adopts the methods of cost and equity to account long-term equity investments; A. The long-term equity investment of the subsidiaries that have controlling right on the invested units, should be accounted by cost method in parent company, when prepare the consolidated statements, adjust it by equity method. If the parent uses the cost method to account, the current investment income should be determined when the company allocates profit or cash dividends; B. The long-term equity investments which have no joint control or significant influence on the invested unit, and have no quotation in market, and its fair value can not be reliably accounted, should be accounted by cost method, and the current investment income should be determined when the company allocates profit or cash dividends; C. The long-term equity investments which have joint control or significant influence on the invested unit, should be accounted by equity method; the net loss or gain realized from the invested unit at period end will be determined as the current investment income (when determine the net loss of the invested unit, deduct the book value of the investment and the long-term equity of net investment in the invested unit, until zero); D. If the initial investment cost to obtain the long-term equity investment and its fair value of the identifiable net assets in the invested company have difference, and if the difference is in debit, the initial investment cost of the long-term equity investment will not be adjusted; if the difference is in credit, it should be included in the current loss and gain; for the long-term investment obtained from corporate merger under different controls, the difference between the merger cost and the fair value of identifiable net assets obtained from the merger, should be confirmed as goodwill or be included in the current loss and gain; 54 (3). Provision for impairment of long-term equity investment The impairment of long-term equity investment should be treated according to regulations of asset impairment in 15. 10. Measurement model of investment property (1). Scope of investment real estate: refers to the real estate for rent or for capital appreciation or for both of them, including the rented land use rights, the land use rights held and to transferred, and the leased building; (2). initial measurement of investment real estate: conduct initial measurement in accordance with the cost to obtain it; (3). Follow-up measurement of investment real estate: the Company conducts follow-up measurement on the investment real estate by cost model; the follow-up expenditure relating to investment real estate, if the related profit is likely to flow into the company and can be measured, then it should be included in the cost of the investment real estate, other follow-up expenditures should be recognized as the current loss and gain; (4) The classification, depreciation and amortization policies of real estate investments and the depreciation and amortization policies of fixed assets and intangible assets should be coherent. (5). Provision for impairment of investment real estate should be treated according to 15 Regulations for asset impairment. 11. Confirmation conditions, classification, measurement basis and impairment policy of fixed assets (1). Confirmation conditions of fixed assets The tangible assets held for producing goods, providing services, rent or operation, and the service time is longer than one fiscal year. (2). Measurement basis of fixed assets All fixed assets should be conducted initial measurement in accordance with the actual cost to obtain them. (3). Classification and depreciation policy of fixed assets Depreciation of fixed assets uses the straight-line method, the accrued depreciation minus the net residual value (4.00% of the original value of the fixed assets), then account the devaluation by the classified depreciation rate. The classification of fixed assets, service life and year depreciation rate of fixed assets are as follows: Classification of fixed asset Service life（year） Year depreciation rate House and Building –Production 35 2.74% House and Buildin-Non- 40 2.40% Production Fixed assets decoration 10 10.00% 55 Machinery and equipment 10-14 9.60%-6.86% Transportation equipment 8 12.00% Electronic Equipment 8 12.00% Other 8 12.00% At the end of each year, conduct review on service life, predicted net residual and depreciation methods of the fixed assets. If the predicted service life is different from the originally estimated service life, adjust the service life of the fixed assets; if the predicted net residual amount is different from the originally estimated amount, adjust the predicted net residual value. (5) Provision for impairment of investment real estate should be treated according to 15 Regulations for asset impairment. 12. Methods for accounting projects under construction, Methods for accounting provision for impairment of projects under construction. (1). Methods for accounting projects under construction. The projects under construction include pre-construction preparations, the building projects under construction, installation projects, technical transformation projects and overhaul works, etc. The projects under construction should be accounted according to actual expenditures by items, and should be converted to fixed assets when the projects reached the predicted use state. The costs for borrowing relating to projects under construction (including loan interests, excess discount amortization, exchange gains and losses, etc.), which should be included in the cost before the related projects reach the predicted use state, and included in the current financial cost after the related projects reach the predicted use state; (2). Provision for impairment of investment real estate should be treated according to 15 Regulations for asset impairment. 13. Valuation of intangible assets and amortization policy (1). Intangible asset refers to the non-monetary assets owned or controlled by a company with no identifiable physical forms, including proprietary technology, right to use land; (2). Intangible asset is valuated according the actual cost to obtain it; (3). For the intangible assets with definite service life, since the availability of the intangible assets, they should be amortized by straight-line method within the service life, and included in the current loss and gain; the intangible assets with no definite service life will not be amortized; the company should conduct review on the service life and amortization methods of the intangible assets at the end of the year, if the service life and amortization methods are inconsistent with what estimated previously, then the amortization period and amortization methods should be changed. 56 (4). Provision for impairment of investment real estate should be treated according to 15 Regulations for asset impairment. 14. Amortization policy of long-term deferred expense (1). Long-term deferred expenses refer to all the expenses which should be amortized in the current period and in the future periods and the amortization period is longer than one year; (2). Long-term deferred expense is valuated according to actual cost, the installation cost should be equally amortized during two major overhauls or the contract period (depends on which is shorter), other long-term deferred expenses should be equally amortized according to the benefit period of the project. For the long-term deferred expenses which can not bring predicted profit in the future accounting period, all the unamortized value should be converted to the current loss and gain. 15. Basis and methods for accounting provision for impairment of assets (1). Scope of impairment testing At the end of the reporting period, impairment tests should be conducted on the goodwill formed from corporate merger and the uncertain intangible assets regardless of whether there are indications of impairment. In addition, impairment tests should be conducted on the following assets which there are indications of impairment: A. The market value of assets decreased significantly in the current period, the decline was significantly higher than the normal decline. B. The economic, technical or legal environments of the company the market of the assets may have major changes in the current period or in near future, which have an adverse impact on the company. C. Market interest rates or other market return rates of in the current period has raised, thus affect the company to account assets and to predict the discounting rate of future cash flow value, thus resulting in significant reduction in the amount of recoverable assets. D. If there is evidence showing that the assets have been outdated or actully has been damaged. E. The assets have been or will be idled, ended to use or planned to dispose ahead of schedule. F. There is evidence of internal report showing that economic performance of the assets has been or would be lower than what expected, for example, the net cash flow created by assets or the operating profits realized (or losses) are far below (or above) the estimated amount. G. Other indications showing the signs of impairment. (2). Recognition of asset impairment loss. Asset impairment loss is determined according to the difference of the expected recoverable amount of assets lower than their book values. (3). Methods for determination of expected recoverable amounts Either the net amount of fair value of assets minus disposal costs or the current value of predicted future cash flow will be determined as the recoverable amount, depending on which is higher. (4) If there are indications showing the possible impairment of an asset, its recoverable amount should be estimated by basing on the individual asset. If the recoverable amount is hard to estimate, the asset group the asset belongs to will be the basis to determine the recoverable amount of the asset group. 57 16. Method for accounting financial liabilities (1) Classification of financial liabilities Financial liabilities can be divided into: the financial liabilities which measured by fair value and its changes are included in the current loss and gain (including transactional financial liability and the financial liability which measured by fair value and its changes are included in the current loss and gain), and other financial liability; (2) Measurement of financial liabilities A. The initial recognition of financial liability is accounted in accordance with fair values. For the financial assets which measured by fair value and its changes are included in the current loss and gain, the relevant transactional costs should be included in the current loss and gain; for other financial liabilities, the relevant transactional costs should be included in the initial recognition amount. B. The Company makes follow-up measurement on financial assets according to method of actual interest, but, except the following situations: (a).The financial liability measured by fair value and its changes are included in the current loss and gain, should be measured according to fair value, but the transactional cost may happen in the future to settle the financial liability will not be deducted. (b). The equity tool which do not have quotation in market and their fair value can not be reliably measured, and the derivative financial liabilities which need to deliver the equity to settle, should be measured according to their costs (c).The financial guarantee contracts of financial liabilities which are measured by fair value and its changes included in the current loss and gain, or the loan commitments which are not measured by fair value and its changes included in the current loss and gain, follow-up measurement should be conducted according to which is higher in the following two items after the initial confirmation: ① the amount determined in accordance with "Accounting Standards for Business Enterprises No. 13 – contingent events"; ② the balance of the initial confirmation amount deducting the cumulative amortized amount determined in accordance with "Enterprise Accounting Standard No. 14 - income". 17. Method for accounting of predicted liabilities (1). The liabilities which are relevant to contingent events and meet the following conditions at the same time, the Company recognizes it as predicted liabilities: the liability is the current obligation the company undertakes; the performance of the liability may result in the outflow of economic interests; the amount of the liability can be reliably measured; (2). If the predicted liability to be fully or partly paid by the company and be compensated by the third party, the compensation amount can be recognized as assets individually only when it can be basically recovered, at the same time, the compensation on the asset should not be more than the corresponding book amount of the predicted liability. 18. Principle for revenue recognition (1). Revenue from goods sale After the risks and rewards of the goods are transferred to the buyer, the company will no longer conduct the management right and the actual control right, and the relevant incomes have been received or the documents of receiving have been obtained, and the cost of the goods can be reliably measured, the realization of the revenue should be confirmed. (2). Revenue from service 58 In the same fiscal year and the service has been completed, the income should be confirmed upon the completion of the service; If the starting and completion of the service belong to different fiscal year, then when the service can be reliably measured, the service income should be confirmed at the period end according to the percentage of the service not completed. (3). Incomes from transferring asset use right. Incomes from transferring asset use right include interest income and income from use payment; The amount of interest income, is determined in accordance with the time and actual interest rate; the income from use payment is determined according to the time and method of relevant contract and agreement. 19. Method for accounting of borrowing costs (1). The borrowing expenses, if they comply with the capitalization conditions, should be capitalized and included in the cost of relevant assets; other borrowing expenses, should be determined according to the amount occurred and be included in the current loss and gain. If the borrowing expenses meet the following conditions at the same time, they should be capitalized: A. Capital expenditures have already occurred, capital expenditures include the expenditures paid by cash, transferring non-cash assets or by bearing interest-debt; B. The borrowing costs have occurred; C. The construction to make the asset to reach the intended use state or sale state, or the production activities have already begun. (2). When the assets which meet the capitalization condition reach the intended use or sale state, the capitalization of the borrowing expenses should be stopped. The borrowing expenses for the assets which meet the capitalization conditions and reach the intended use or sale state, the expenses should be confirmed according to the amount occurred, and be included in the current loss and gain. 20. Accounting treatment methods of income tax The accounting treatment of income tax of the company should adopt the method of balance sheet. If the book value of the asset is bigger than its tax basis or the book value of the liability is smaller its tax basis, the deterred income tax asset produced should be confirmed; If the book value of the asset is smaller than its tax basis or the book value of the liability is bigger its tax basis, the deterred income tax liability produced should be confirmed; 21. Methods for the compilation of consolidated financial statements (1) The consolidated financial statements should be based on the financial statement of the subsidiaries included in the consolidated financial statement and other relevant data, the long-term equity investment of the subsidiary should be adjusted according to the equity methods, all the investments and transactions of the subsidiary included in the consolidated financial 59 statement should be offset completely, and compiled by accounting loss and gain of minority shareholders and equity of minority shareholders. (2). Upon the consolidation, if the accounting policy of the subsidiaries and the company are inconsistent, it should be compiled according to the accounting policy of the company. 22. Accounting policy and the estimated changes Implement the new standards since January 1, 2007, according to the China Securities Regulatory Commission Zi[2007]No.10. "Notice on issuing Information Disclosure Quiz No. 7 for Public - old and new criteria during the comparison of preparation and disclosure the financial accounting information" provisions and conduct retroactive adjustment on the related "Enterprise Accounting Standards No. 38 - the first time the implementation of Accounting Standard for Business Enterprises" from Article 5 to Article 19, increased deferred income tax asset RMB 455,229.21, increased initial equity RMB 455,229.21; according to dismissal plan to accrue the employees’ dismissal welfare and increased the payable workers’salary RMB2,265,026.71, reduce initial equity RMB 2,265,026.71, and add the equity of minority shareholders to increased equity of owners’equity RMB 102,965,419.78. Note 5. Taxes of the Company Taxes Tax references Applicable tax ratesv VAT Incomes from product sales 13.00%、17.00% Providing labor services, real Business tax. estate sales, the transfer of 3.00%、5.00% intangible assets City construction tax VAT, sales tax, turnover tax, etc 5.00%、1.00% Business income tax Taxable income 15.00%、33.00% Note 6. Consolidation scope of the Company 1. Important information of subsidiaries. Company names Regis Registered Proportion Main businesses tered capital Place Shenzhen Jinlan Decorative Shenz 4,000,000.00 100.00% Furnishing fabrics, Articles Industrial Co., Ltd. hen bedding, clothing 60 Shenzhen Lisi Industrial Co., Ltd Shenz 2,360,000.00 100.00% Domestic business, hen material supply and marketing industry Shenzhen Huaqiang Hotel. Shenz 10,005,300.00 100.00% Accommodation, hen restaurants, business centre Shenfang Property Shenz 1,604,000.00 100.00% Property management Management Co., Ltd. hen Shenzhen Jingguang Footwear Co., Shenz 7,200,000.00 100.00% Various types of sports Ltd. hen shoes and socks Shenzhen Mei Bai Nian Garment Shenz 25,000,000.00 100.00% produce full electronic Co., Ltd. hen jacquard molding knitted apparel Shenzhen Zhongxing Fibre Folds Shenz 1,680,000.00 75.00% Acupuncture cloth, and Cotton Clothing Ornament Co., hen fusible Interlining Ltd. products Jiangxi Xuanli Yarn Industry Co., Jiangx 20,000,000.00 63.87% produce and operate Ltd. i man-made fibres, color embroidery threads Shenzhen Shenfang Import and Shenz 5,000,000.00 100.00% Operate import and export Export Co., Ltd. hen businesses Shenzhen Shenfang Lekai Shenz 78,000,000.00 47.95% Polarizer, liquid crystal Photoelectronic Materials Co., Ltd. hen display materials and devices Anhui Huapeng Textile Co., Ltd. Anhui 50,000,000.00 50.00% Yarn production, bleaching, dyeing and processing, and sales 2. Change of consolidation scopes in the current period (1). Purchase the equity of minority shareholders of Shenzhen Shenfang Import and Export Co., Ltd.. and Shenzhen Mei Bai Nian Garment Co., Ltd.., increased the shares to 100%. 61 (2) In addition to the above event, there is no change in the consolidated statements of current period. 3. The subsidiaries not included in the consolidation. Company names Regist Registered Proportio Main Causes of ered capital n businesses consolidation Place Hongkong Dahong Hongkon HKD10,000.00 100.00% Import and export Bas entered International Co., Ltd. g trade liquidation proceedings Shenzhen Fengsheng Shenzhe HKD6,670,000.00 100.00% Various Bas entered n liquidation Garment Co., Ltd. fabrics for proceedings garments, fabrics and materials Shenzhen Fenghua Shenzhe HKD11,240,000.00 75.00% Bears and Bas entered n liquidation Ribbon Factory Co., zippers in a proceedings Ltd. wide variety of specifications Note 7. Statement of major events in consolidated financial statements 1. Currency funds Items 2007-12-31 2007-1-1 Excha Exchan nge Original currency ge rate RMB Original currency rate RMB I. Cash RMB 251,947.41 1.00 251,947.41 428,696.70 1.00 428,696.70 HK$ 108,576.31 0.94 102,008.27 142,436.25 1.00 142,436.25 USD 20,984.88 7.07 148,315.63 20,764.30 7.81 162,169.18 Subtotal --- --- 502,271.31 --- --- 733,302.13 II.Bank deposit RMB 95,019,303.32 1.00 95,019,303.32 66,168,930.96 1.00 66,168,930.96 HK$ 3,723,930.38 0.94 3,487,511.65 5,522,925.27 1.00 5,522,923.74 USD 667,305.20 7.30 4,874,448.68 404,491.39 7.81 3,159,083.00 62 Items 2007-12-31 2007-1-1 Excha Exchan nge Original currency ge rate RMB Original currency rate RMB Subtotal --- --- 103,381,263.65 74,850,937.70 III. Other capital RMB 17,322,752.95 1.00 17,322,752.95 30,867.12 1.00 30,867.12 USD 125,268.00 7.30 915,032.63 279,708.00 7.81 2,191,288.93 Japanese Yen 43,485,623.00 0.06 2,787,428.43 16,055,000.00 0.07 1,056,756.28 Subtotal --- --- 21,025,214.01 --- --- 3,278,912.33 Total --- --- 124,908,748.97 --- --- 78,863,152.16 (1). Currency fund increased more than that of last period, mainly due to the sale of available-for-sale financial assets and recovered large amounts of funds. (2). There were no other funds that have potential risks from mortgage or freezing in the year balance of currency funds 2. Bill receivable Summary 2007-12-31 2007-1-1 Bank acceptance 500,000.00 1,110,000.00 Trade acceptance --- --- Total 500,000.00 1,110,000.00 3. Accounts receivable (1). Accounts receivable at different levels are as follows: 2007-12-31 Book balance Provision for bad debts Items Proportion Proportion Amount Amount （%） （%） Receivables with large 32,547,509.34 55.24% 8,720,508.21 66.99% 63 individual amount.[微软中国1] Receivables without large individual amount, but with great risk after combined according to risk characteristics 2,564,427.24 4.35% 2,635,372.72 20.24% Other minor receivables 23,806,205.06 40.41% 1,661,921.49 12.77% Total 58,918,141.64 100.00% 13,017,802.42 100.00% 2007-1-1 Book balance Provision for bad debts Items Proportion Proportion Amount Amount （%） （%） Receivables with large individual amount.[微软中国2] 28,357,817.86 53.55% 5,205,356.29 68.93% Receivables without large individual amount, but with great risk after combined according to risk characteristics 853,464.92 1.61% 791,268.01 10.48% Other minor receivables 23,741,798.03 44.84% 1,554,488.29 20.59% Total 52,953,080.81 100.00% 7,551,112.59 100.00% A. Combining with the company's assets and the structure of credit receivables, 1 million or more is the standard to divide individual amount; B. Details of receivables of major individual amount which have been accounted provision for bad debt are as follows; 64 Amount of Debtor Book balance provision for bad Reasons debt Shenzhen Tianlong Industry and trade Co., Ltd. 2,532,225.79 2,532,225.79 Note ① ① Shenzhen Tianlong Industry and trade Co., Ltd. was in loss in a long term, its net asset was negative, provision for bad debt was accounted on it according to the principle of caution. C. The accounts receivable with small single-item amount that have the sign of impairment as shown by clear evidences are listed as accounts receivable with small single-item amount that have big risks after combination according to risk characteristics. [微软中国3]。The details are as follows: Provision for bad Name of debtor Original value debts Reason for provision Long-term open account Zi Jing 300,000.00 300,000.00 that can not be recovered Hongkong Silk stocking Long-term open account man 208,616.27 208,616.27 that can not be recovered Shenhu Shanghai Long-term open account management Dept. 162,855.09 162,855.09 that can not be recovered Long-term open account Mengren Company 154,720.40 154,720.40 that can not be recovered Long-term open account Ding Xiqing 136,096.54 136,096.54 that can not be recovered Long-term open account Shu Ya 126,712.53 126,712.53 that can not be recovered Long-term open account Guangzhou Wanjia 108,919.34 108,919.34 that can not be recovered Long-term open account Baijian 89,428.23 89,428.23 that can not be recovered Shenzhen Jinshiji Health product technology Co., Long-term open account Ltd. 77,734.45 77,734.45 that can not be recovered Long-term open account Aoqi 74,596.86 74,596.86 that can not be recovered Shenzhen Wanjia Store Long-term open account Co., Ltd. 68,817.23 68,817.23 that can not be recovered WAL MART (China) Long-term open account investment Co., Ltd. 63,191.70 63,191.70 that can not be recovered 65 Shantou Shengping Air Long-term open account travel Company 60,074.00 60,074.00 that can not be recovered Long-term open account Li Jinta 58,558.00 58,558.00 that can not be recovered Long-term open account Guangzhou Qiuyuan 54,684.52 54,684.52 that can not be recovered Long-term open account Fu Jiahao 53,683.62 53,683.62 that can not be recovered Long-term open account Other Sporadic 765,738.46 765,738.46 that can not be recovered Total 2,564,427.24 2,564,427.24 (2). By aging, accounts receivable are as follows: 2007-12-31 2007-1-1 Amount Proportion Provision for Amount Proportion% Provision for Age % bad debts bad debts Within 1 44,627,313.56 84.28% 3,408,874.17 year 47,362,825.62 80.39% 2,743,814.92 1-2 years 5,879,433.72 9.98% 5,252,845.52 6,043,744.67 11.41% 2,804,705.30 2-3 years 3,457,576.50 5.87% 2,846,434.78 809,930.18 1.53% 133,419.45 Over 3 1,472,092.40 2.78% 1,204,113.67 years 2,218,305.80 3.77% 2,174,707.20 Total 58,918,141.64 100.00% 13,017,802.42 52,953,080.81 100.00% 7,551,112.59 (3). The amount of top five debtor was RMB 9,273,858.93, accounting for 15.74% of the total, RMB 6,741,633.14 within one year, accounting for 11.44%, 1 to 2 years was RMB 2,532,225.79, accounting for 11.44% 4.30% . (4). 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. 4. Other receivables (1). Other receivables at different levels are as follows: 66 2007-12-31 Book balance Provision for bad debts Items Proportion Proportion Amount Amount （%） （%） Receivables with large individual amount. 34,975,226.10 87.05% 16,124,847.71 91.76% Receivables without large individual amount, but with great risk after combined according to risk characteristics 791,199.06 1.97% 791,199.06 4.50% Other minor receivables 4,414,035.05 10.99% 656,666.28 3.74% Total 40,180,460.21 100.00% 17,572,713.05 100% 2007-1-1 Book balance Provision for bad debts Items Proportion Proportion Amount Amount （%） （%） Receivables with large individual amount. 12,773,512.69 73.36% 2,167,146.70 67.93% Receivables without large individual amount, but with great risk after combined according to risk characteristics 242,999.96 1.40% 242,999.96 7.62% Other minor receivables 4,396,201.11 25.25% 780,340.72 24.46% 67 Total 17,412,713.76 100.00% 3,190,487.38 100% A. Combining the company's assets and credit of receivables, RMB 0.5 million or more was the standard for the division of individual major amount; B. If the individual amount is large, the details of other receivables which have been accounted provision for bad debt are as follows: Amount of Debtor Book balance provision for Reasons bad debt Chengdu Gangpeng Real estate Note① Development Co., Ltd. 20,783,000.00 12,774,650.00 Hongkong Dahong International Co., Ltd. In long-term loss, 2,569,803.90 2,569,803.90 negative net asset Shenzhen Tianlong Industry and Trade In long-term loss, Co.,Ltd. 500,000.00 500,000.00 negative net asset Total 23,852,803.90 15,844,453.90 ① On September 25, 2003, the company and Chengdu Gangpeng Real Estate Development Co., Ltd. signed a Contract of Sale of Commercial Housing and purchased five sets shopping malls, the payment has been included in inventory, but Chengdu Gangpeng Real Estate Development Co., Ltd. has not handled the necessary procedures. In the reporting period, the company initiated a lawsuit to Chengdu Gangpeng Real Estate Development Co., Ltd. According to the (2007)-Chuan No. 31 civil mediation issued by Sichuan Higher People's Court, the both party would like to cancel the above contract, Chengdu Gangpeng Real Estate Development Co., Ltd. shall return the funds for the housing and pay the interest, Chengdu Gangpeng Real Estate Development Co., Ltd. has stopped its business, the existing asset Guangpeng Building is in auction, the company converts the recoverable amount according to the possible price to be traded, the difference will be accounted as provision for bad debt. C. The accounts receivable with small single-item amount that have the sign of impairment as shown by clear evidences are listed as accounts receivable with small single-item amount that have big risks after combination according to risk characteristics. 。The details are as follows: 68 Name of debtor Original value Provision for bad debts Reason for provision Xing Zhenhua Long-term open account that 65,000.00 65,000.00 can not be recovered Light Textile Industrial and Long-term open account that 116,285.83 116,285.83 Trading Company can not be recovered Long-term open account that Tan Wenxiong 132,310.09 132,310.09 can not be recovered Long-term open account that Other Sporadic 477,603.14 477,603.14 can not be recovered Total 791,199.06 791,199.06 (2) Other accounts receivable by aging are as follows 2007-12-31 2007-1-1 Amount Proportion% Provision for bad Amount Proportion Provision for Age debts % bad debts Within 1 year 34,687,928.43 86.33% 13,254,568.79 9,063,050.49 52.05% 97,542.97 1-2 years 549,446.60 1.37% 112,758.36 1,191,852.62 6.84% 165,036.87 2-3 years 969,473.10 2.41% 397,871.86 274,728.60 1.58% 13,536.43 Over 3 years 3,973,612.08 9.89% 3,807,514.03 6,883,082.05 39.53% 2,914,371.11 Total 40,180,460.21 100.00% 17,572,713.04 17,412,713.76 100.00% 3,190,487.38 (3). There was big growth in this period mainly due to the receivable building Guangpeng Building; 3). The amount of top five debtor was RMB 24,729,570.05X yuan, accounting for 64.19% of the total,RMB 21,359,766.15 within 1 year, accounting for 55.44%, 1 to 2 years was RMB 3,069,803.9, accounting for 17.97; Over 3 years was RMB 300,000.00, accounting for0.78% of the total; (4). In the receivables at the period end, no loans of the shareholders holding 5% (inclusive of a 5%) or more voting right, the related contacts are described in Note 9. 3. 5. Prepayments 69 Age Sturcture 2007-12-31 2007-1-1 within 1 year 12,515,849.32 24,757,459.82 Over 1 years 407,766.26 116,120.32 Total 12,923,615.58 24,873,580.14 （(1). By December 31, 2007, in the balance of payments in advance , no loans held by the shareholders holding 5% (inclusive of a 5%) or more voting right; (2). Payments in advance have big changes, mainly due to there were no large export orders at the end of the reporting period. 6. Inventory 2007-12-31 2007-1-1 Book balance Provision for Book balance Provision Inventory types devaluation for devaluation Raw materials 22,729,987.46 1,651,990.31 16,058,815.39 218,903.26 Processing products 12,304,949.34 3,189,344.21 32,253,936.22 2,321,301.67 Finished products 19,217,106.75 7,276,938.37 20,225,580.15 4,016,848.20 Commissioned 1,339,085.29 --- goods 3,511,034.63 2,468,043.69 Packaging --- --- 507,742.87 --- Consumables 1,808,929.69 601,375.91 782,357.73 --- Total 59,572,007.87 15,187,692.49 71,167,517.65 6,557,053.13 1). Methods for drawing provision for devaluation are described in Note 4. (2). Inventory has great changes, mainly due to the cancelation of contract described in Note 7. 3, the Gangpeng Building included in inventory item was transferred out. 7. Disposable financial asset Type 2007-12-31 2007-1-1 Stock Investment 21,573,000.00 --- 8. Long term share equity investment. 2007-1-1 2007-12-31 70 Items Amount Provision Increase Decrease in Amount Provision for in the the current for impairment current period impairment period Stock invest ment 41,376,665.85 14,831,681.50 --- 10,063,970.42 31,312,695.43 14,831,681.50 Joint enterp rise 8,520,167.35 --- 474,337.14 2,196,377.77 6,798,126.74 --- Associ ated enterp rise 14,035,798.23 --- 50,619.83 7,554,632.00 6,531,785.96 --- Other investment 55,055,509.97 23,958,307.01 --- 6,381,000.00 48,674,509.97 23,612,610.61 Total 118,988,141.40 38,789,988.51 524,956.97 26,195,980.19 93,317,118.10 38,444,292.11 （1）Name of joint enterprise and main financial information. Ratio of Total of voting Net profit Share Total at business right of of the ratio the period income in Name of the units Register Nature of the current held by end the invested ed place business company period the (RMB’000 current in the (RMB’000 company 0) period(RM unit 0) B’0000) invested Shenzhen Trademark Shenzhen Service 575.76 125.41 64.57 Factory Co. Ltd. industry 50.00% 50.00% 71 Ratio of Total of voting Net profit Share Total at business right of of the ratio the period income in Name of the units Register Nature of the current held by end the invested ed place business company period the (RMB’000 current in the (RMB’000 company 0) period(RM unit 0) B’0000) invested Shenzhen Tianlong Shenzhen Trade -249.28 1,165.04 -669.39 Industry and Trade Co., Ltd. 50.00% 50.00% Shenzhen Xieli Shenzhen Manufacturin 50.00% 50.00% 581.50 153.78 32.70 Automobile Co., Ltd. g （2）Name of Associated enterprise and main financial information. Ratio of Total of voting Net profit Share Total at business right of of the ratio the period income in Name of the units Register Nature of the current held by end the invested ed place business company period the (RMB’000 current in the (RMB’000 company 0) period(RM unit 0) B’0000) invested Shenzhen Changlianfa Shenzhen Service 425.47 54.47 12.58 Printing and dyeing industry Company 40.25% 40.25% Jordan Garnent Factory Jordan Manufacturin USD188.62 USD514.10 -28.62 g 35.00% 35.00% Hengshun （ Cypriot ） Cypriot Manufacturin USD-1.90 USD420.02 USD-225.91 Industry Co., Ltd. g 35.00% 35.00% （3）Details of stock investments are as follows. Units invested Type Amount Proportion December 31,2006 72 Shenzhen Jintian Industry Co., Ltd. Legal 12,274,497 4.00% 14,831,681.50 person shares Shenzhen Victor Onward Textile Legal 13,822,369 8.17% 16,481,013.93 Industrial Co., Ltd. person shares Total 31,312,695.43 The limit sale of RMB 8,457,118 shares of Shenzhen Victor Onward Textile Industrial Co., Ltd. held by the Company were canceled, and were converted to the financial assets for sale. （4）Investments accounted according to method of equity are as follows Ratio Balance at Increase in Decrease in Balance at held Original period the current the current the period investment beginning period. period. end Shenzhen Trademark Factory Co. Ltd. 50% 2,040,102.73 3,301,132.54 322,827.88 --- 3,623,960.42 Shenzhen Tianlong Industry and Trade Co., Ltd. 50% 850,000.00 2,196,377.76 --- 2,196,377.76 --- Shenzhen Xieli Automobile Co., Ltd. 50% 1,529,483.67 3,022,657.05 151,509.26 --- 3,174,166.31 Shenzhen Changlianfa Printing and dyeing Company 40.25% 2,524,500.00 1,661,932.03 50,619.83 --- 1,712,551.86 Jordan Garnent Factory 35.00% 7,240,625.00 5,985,275.29 --- 1,166,042.09 4,819,234.20 Hengshun （ Cypriot ） Industry Co., Ltd. 35.00% 8,228,350.00 6,388,590.91 --- 6,388,590.91 --- Total 22,413,061.40 22,555,965.58 524,956.97 9,751,010.76 13,329,912.69 73 （5）Investments accounted according to method of Cost are as follows Ratio Balance at Increase in Decrease in Balance at held Original period the current the current the period investment beginning period. period. end Shenzhen Hengsheng 19.58% Investment Co., Ltd. 4,230,000.00 4,230,000.00 --- 4,230,000.00 --- Chengdu huangjia 15.00% entertainment center 2,100,000.00 2,100,000.00 --- 2,100,000.00 --- Shenzhen Jiafeng Textile 10.80% Co., Ltd. 16,800,000.00 16,800,000.00 --- --- 16,800,000.00 Shenzhen Guanhua 45.00% Prnting and dyeing Co., Ltd. 5,491,288.71 5,491,288.71 --- --- 5,491,288.71 Shenzhen Union Textile 2.87% Group Co., Ltd. 2,600,000.00 2,600,000.00 --- --- 2,600,000.00 Shenzhen Xiangjiang 20.00% Leather Produce Co., Ltd. 160,000.00 160,000.00 --- --- 160,000.00 Shenzhen Xinfang 20.00% Knitting Co., Ltd. 524,000.00 524,000.00 --- --- 524,000.00 Hongkong Yehui 17.85% International Co., Ltd. 2,392,914.37 2,392,914.37 --- --- 2,392,914.37 Shenzhen South Textile 9.80% Co., Ltd. 1,500,000.00 1,500,000.00 --- --- 1,500,000.00 74 Shenzhen Tongyi Simian 18.00% Co., Ltd. 1,800,000.00 1,800,000.00 --- --- 1,800,000.00 Xian Tangcheng Group --- Co., Ltd. 51,000.00 51,000.00 --- 51,000.00 --- Shenzhen Huadong Electronic Co., Ltd. 50.00% 8,906,070.41 10,918,255.05 --- --- 10918255.05 Shenzhen Dailisi Knitting 30.00% Co., Ltd. 532,062.50 2,559,856.26 --- --- 2559856.26 Hongkong Dahong 100.00% International Co., Ltd. 10,600.00 1,451,653.84 --- --- 1,451,653.84 Shenzhen Fengsheng 100.00% Costume Co., Ltd. 4,123,077.16 1,778,004.61 --- --- 1,778,004.61 Shenzhen Fenghua 75.00% Ribbon Co., Ltd. 6,322,500.00 698,537.13 --- --- 698,537.13 Total 55,055,509.97 --- 6,381,000.00 48,674,509.97 A. The company held shares of Zhenzhen Huadong Electronics Co., Ltd. and Shenzhen Dalice Knitting Co., Ltd respectively 50.00% and 30.00%, because the two companies have been contracted by other shareholders, the company adopted the method of cost accounting; B. The company held shares of Hong Kong Dahong International Co., Ltd, Zhenzhen Fengsheng Costume Co., Ltd. and Shenzhen Fenghua Ribbon Co., Ltd respectively 100%,100% and 75%, because the companies have stopped their business for a long time and have entered liquidation proceedings, therefore, they are not included in the scope of consolidation. C. The company held shares of Shenzhen Guanhua Printing and dyeing Co., Ltd. 45%, because the company has stopped its business for a long time, therefore, the company adopted the method of cost accounting and drew the provision for devaluation. （6）Provision for impairment of long-term investments 75 December Increase Transfer December Units invested 31,2006 in the in or other 31,2006 Reasons current transfer period out in the current period Shenzhen Jintian Industry Co., 14,831,681.50 --- --- 14,831,681.50 The company's Ltd. net assets were negative Chengdu Huangjia 2,100,000.00 --- 2,100,000.00 --- Write off in entertainment center the current period Shenzhen Jiafeng Textile 16,800,000.00 --- --- 16,800,000.00 The company is Co., Ltd. being liquidating Shenzhen Guanhua Prnting 5,058,307.01 --- --- 5,058,307.01 The company is and dyeing Co., Ltd. being liquidating Hongkong Dahong --- 1,451,653.84 --- 1,451,653.84 Enter liquidation International Co., Ltd. procedings Shenzhen Fengsheng --- 25,535.56 --- 25,535.56 Enter liquidation Costume Co., Ltd. procedings Shenzhen Fenghua Ribbon --- 277,114.20 --- 277,114.20 Enter liquidation Co., Ltd. procedings Total 38,789,988.51 1,754,303.04 --- 38,444,292.11 9. Investment real estate Increase in decrease in 2007-12-31 the current the current Type 2007-1-1 period period 1. Total original price 214,115,334.68 4,261,945.97 --- 218,377,280.65 House , Building 212,298,295.76 719,153.02 --- 213,017,448.78 Land Use right 1,817,038.92 3,542,792.95 --- 5,359,831.87 76 II.Total accumulated depreciation and 65,896,455.11 6,005,916.11 --- 71,902,371.22 accumulated amortization House , Building 65,446,519.72 5,582,939.74 --- 71,029,459.46 Land Use right 449,935.39 422,976.37 --- 872,911.76 III.Total of accumulated provision for devaluation of --- --- --- --- investment real estate. House , Building --- --- --- --- Land Use right --- --- --- --- IV.Total book value of investment real 148,218,879.57 --- --- 146,474,909.43 estate House , Building 146,851,776.04 --- --- 141,987,989.32 Land Use right 1,367,103.53 --- --- 4,486,920.11 10.Fixed assets Decrease in Increase in the Items 2007-1-1 the current 2007-12-31 current period period 1. Total original price 290,822,772.45 15,682,305.19 4,676,818.59 301,828,259.05 House , Building 91,364,982.71 613,394.31 54,638.94 91,923,738.08 Fixed assets Fitment 10,057,694.87 1,356,796.14 --- 11,414,491.01 Machinery equipment 167,473,476.22 11,073,359.42 935,652.72 177,611,182.92 Ttansportation 7,467,379.43 1,393,786.64 3,563,080.09 5,298,085.98 Electronic and Other 14,459,239.22 1,244,968.68 123,446.84 15,580,761.06 II. Total of accumulative 105,304,349.08 16,867,538.09 3,367,117.23 118,804,769.94 77 Decrease in Increase in the Items 2007-1-1 the current 2007-12-31 current period period depreciation House , Building 19,775,422.93 2,821,675.16 5,167.28 22,591,930.81 Fixed assets Fitment 3,495,462.31 778,327.08 --- 4,273,789.39 Machinery equipment 69,364,721.93 11,331,813.16 414,122.71 80,282,412.38 Ttansportation 5,468,737.64 220,925.14 2,611,742.70 3,077,920.08 Electronic and Other 7,200,004.27 1,714,797.55 336,084.54 8,578,717.28 III. Amount of impairment 882,826.24 445,852.19 --- 1,328,678.43 IV.Book value of Fixed assets 184,635,597.13 --- --- 181,694,810.68 House , Building 71,589,559.78 --- --- 69,331,807.27 Fixed assets Fitment 6,562,232.56 --- --- 7,140,701.62 Machinery equipment 97,694,690.67 --- --- 96,307,026.85 Ttansportation 1,529,879.17 --- --- 1,921,902.72 Electronic and Other 7,259,234.95 --- --- 6,993,372.22 (1) The company has no temporarily idle fixed assets (2) The completed project under construction converted to fixed assets RMB 1,851,118.53 . (3). The ownership of fixed assets of the Company is unrestricted, the mortgage loans in the current period described are in Note 10; 11. Project under construction Transferr Increase ed to fixed in the asset in Projec Capi the Investmen Other items t tal Budget current current t real transferre progre sour (RMB’ Projects 2007-1-1 period period estate d out 2007-12-31 ss% ce 0000) ire control 730,659.00 958,929.19 370,997.23 1,318,590.96 --- --- 100.00 1.40 78 Self and elevator renovation project Shenzhen Textile Building C, fire pumps, Water Supply Improvement 350,000.00 47,583,397.57 67,076.58 238,402.26 44,521.16 --- 100.00 Self 0.35 Longgang Industrial Area dormitory 298,896.00 1,725,493.58 --- --- --- 2,024,389.58 4.6% Self 3 Improvement of fan and distribution room of Block ABC of Shenfang Building 246,261.92 687,995.89 205,142.92 729,114.89 --- --- 100.00 Self 0.70 Improvement of toilet drainage system of Shenfang Building 200,000.00 100,000.00 300,000.00 --- --- --- 100.00 Self 0.30 Network Information project of Shenzhen Shenfang 6th Floor --- 203,650.00 203,650.00 --- --- --- 100.00 Self 0.20 DZL4-1.25A boiler 238,147.40 23,500.00 261,647.40 --- --- --- 100.00 Self 0.26 Dyeing and finishing equipment installation --- 2,124,674.42 --- --- --- 2,124,674.42 98% Self 2.20- Polarizer Project II 365,676.00 959,088.10 412,051.00 221,803.70 690,909.40 99% Self 0.70 Other small works 150,299.40 --- 30,553.40 --- --- 119,746.00 Self Total 2,579,939.72 6,783,331.18 1,851,118.53 2,286,108.11 266,324.86 4,959,719.40 (1). Capitalization of the project under construction in the current period without 79 interest; (2) The project under construction of the company does not exist the impairment produced by the influences by risks from middle-term stop or declaration of waste. 12. Intangible assets Increase in the Decrease in the Item 2007-1-1 current period current period 2007-12-31 1. Total original price 13,548,029.84 139,335.50 --- 13,687,365.34 House , Building 1,722,829.84 139,335.50 --- 1,862,165.34 Land Use right 11,825,200.00 --- --- 11,825,200.00 II. Total amount of accumulated amortization --- 1,464,236.90 --- 1,464,236.90 Land Use right --- 675,836.90 --- 675,836.90 Proprietary technology --- 788,400.00 --- 788,400.00 III.Total value of provision for impairment --- --- --- --- IV. Book value of intangible assets 13,548,029.84 --- --- 12,223,128.44 Land Use right 7,240,829.84 --- --- 6,704,328.44 Proprietary technology 6,307,200.00 --- --- 5,518,800.00 There was no situations that result in the predicted value smaller than the book value due to the price decline, backward technology, on legal protection and other risk factors. Therefore, there were no prevision for impairment of intangible assets. 13. Goodwill Items Net assets can Acquisition Price paid Recognized be identified ratio goodwill Shenzhen Mei Bai Nian Garment 32,115,324.60 52% 18,867,400.00 2,167,431.21 80 Co., Ltd Shenzhen Shenfang Import and 7,387,339.99 51% 3,849,700.00 82,156.61 Export Co., Ltd. Total -- 2,249,587.82 14. Long-term prepaid expenses Amortization Other Increase in in the transfer Items 2007-1-1 the current 2007-12-31 current period period Mold 1,297,654.32 278,000.00 503,707.56 --- 1,071,946.76 Decoration costs 608,896.82 13,800.00 97,051.83 --- 525,644.99 Expenses on equipment improvement 53,547.19 --- 53,547.19 --- --- Total 1,960,098.33 291,800.00 654,306.58 --- 1,597,591.75 15. Deferred income tax assets Items of deferred income tax 2007-12-31 2007-1-1 assets 1.Provision or bad debt1 3,007,627.41 242,144.00 2. Provision for devaluation of 148,412.89 inventory 644,140.97 3. Provision for impairment of 17,514.68 fixed assets 35,029.35 4. Accrued expenses --- 273,027.26 5. Deferred revenue --- 69,000.00 Total 3,686,797.73 750,098.83 81 16. Short-term borrowings 2007-12-31 2007-1-1 Amount of Transferred to Amount of Transferred to Items Currency original RMB original RMB currency currency Secured RMB borrowing 94,500,000.00 94,500,000.00 68,000,000.00 68,000,000.00 Secured Euro borrowing 887,300.00 9,112,393.54 --- --- Guarantee RMB borrowing 2,000,000.00 2,000,000.00 5,000,000.00 5,000,000.00 Total --- 105,612,393.54 --- 73,000,000.00 As of December 31, 2007, the Company had no overdue bank borrowings. 17.Account payable Age 2007-12-31 2007-1-1 Within 1 year 32,273,486.18 22,124,052.93 1-2 years 2,479,284.10 614,724.62 2-3 years 397,363.33 193,643.94 Over 3 years 944,394.52 750,750.58 Total 36,094,528.13 23,683,172.07 （1）As of December 31,2007， In the balance of accounts payable, there were no payables to shareholders holding 5.00% (including 5.00%) or more of the voting right of the Company; (2). The payables at the period end are normal procurement borrowings, the other payables which are longer than 1 year, mainly due to the individual amount reduced, the suppliers have not provided invoices, so it belongs to normal transaction. On account of the principle of caution, the company has suspended the payables. （3）Other related transactions are described in Note 9. 18. Received in advance Age 2007-12-31 2007-1-1 Within 1 year 4,830,729.00 21,096,465.69 1-2 years 33,626.25 3,890.00 2-3 years 3,890.00 501,555.55 82 Over 3 years 238,141.18 1,769.00 Total 5,106,386.43 21,603,680.24 As of December 31,2007，In the balance of funds received in advance, there were no funds of shareholders holding 5.00% (including 5.00%) or more of the voting right of the Company; 19.Employee salary Amount drown in Decrease in the Items 2007-1-1 the current 2007-12-31 current period period Wages, bonuses, allowances and subsidies 4,945,498.26 43,195,541.15 40,549,835.66 7,591,203.75 Employee welfare 3,934,112.71 1,609,222.56 5,543,335.27 --- Social insurance premiums 343,019.36 7,059,833.17 7,059,833.17 343,019.36 Of Which: medical insurance --- 1,224,219.08 1,224,219.08 --- Basic old-age insurance premiums 343,019.36 5,395,439.96 5,395,439.96 343,019.36 Pension Payment --- 74,916.00 74,916.00 --- Unemployment insurance --- 111,748.91 111,748.91 --- Work injury insurance --- 168,759.71 168,759.71 --- Maternity insurance --- 84,749.51 84,749.51 --- Public reserves for housing --- 613,129.90 610,198.90 2,931.00 Union funds and staff education fee 764,810.81 1,153,030.82 1,101,243.12 816,598.51 Non-monetary welfare --- --- --- --- Compensation for cancelation of labor relations 2,496,877.71 314,433.00 2,678,386.71 132,924.00 83 Amount drown in Decrease in the Items 2007-1-1 the current 2007-12-31 current period period Other --- --- --- --- Of which: equity payment by cash settlement --- --- --- --- Total 12,484,318.85 53,945,190.60 57,542,832.83 8,886,676.62 20.Tax Payable Taxed 2007-12-31 2007-1-1 VAT -4,755,929.00 740,013.55 Business Tax 311,624.92 410,414.35 City Construction tax 19,528.54 30,454.96 Enterprise Income tax 5,542,081.42 1,093,804.32 House property Tax 128,966.23 590,330.76 Individual Income tax 423,378.05 519,546.32 Other tax 274,297.52 28,196.03 Total 1,943,947.68 3,412,760.29 21.Dividend Payable Name 2007-12-31 2007-1-1 Shenzhen Investment 10,000,000.00 18,118,000.00 Management Co., Ltd. 22.Other payable Age 2007-12-31 2007-1-1 Within 1 year 15,200,547.02 25,463,054.51 1-2 years 17,169,913.67 7,742,205.43 84 2-3 years 4,670,827.27 4,327,615.44 Over 3 years 24,711,421.64 28,696,827.78 Total 61,752,709.60 66,229,703.16 （1）As of December 31,2007， in the balance of other payables, owed to the controlling shareholder Shenzhen Investment Management Co., Ltd. RMB 2,500,000.00, except that, there were no other payables of shareholders holding 5.00% (including 5.00%) or more of the voting right of the Company; （2）The contacts between the related parties are described in Note 9. 23. The non-current liabilities which will due in 1 year. Items 2007-12-31 2007-1-1 Borrowings which will due in 1 470,000.00 year 210, 000.00 24. Special payable Name 2007-12-31 2007-1-1 Shenzhen Finance Bureau 2,000,000.00 2,500,000.00 According to the "Notice on National Development and Reform Commission to the General Office of the textile project management of the special funds" (Faigaiban [2006]2841), on December 22, 2006, the Company received "Textile special" funds RMB 2,000,000.00 from Shenzhen Finance Bureau. 25. Deferred income tax liabilities Items 2007-12-31 2007-1-1 Changes in fair value of --- financial assets for sale 3,336,929.28 Deterred income liabilities are determined and are used to reduce public reserves according to the book value of financial assets to be sold and the tax basis at the period end. 85 26.Stock capital 2007-1-1 Decrease in 2007-12-31 Increase in the Proportion the current Amount current Amount Proportion% % period I. Share with conditional subscription 1.State-owned shares --- --- --- --- --- --- 2.Staee-owned legal person shares 148,721,760.00 60.67 --- --- 148,721,760.00 60.67 3.Other domestic shares 142,128.00 0.06 --- --- 142,128.00 0.06 Of which： --- --- --- --- --- --- Domestic legal person shares --- --- --- --- --- --- Domestic natural person shares 142,128.00 0.06 --- --- 142,128.00 0.06 4.Share held by foreign investors --- --- --- --- --- --- Of which： --- --- --- --- --- --- Foreign legal person shares --- --- --- --- --- --- Foreign natural person shares --- --- --- --- --- --- Total 148,863,888.00 60. 73 --- --- 148,863,888.00 60. 73 II. Shares with unconditional subscription 1.Common shares in 46,706,112.00 19.08 --- 46,760,112.00 19.08 86 2007-1-1 Decrease in 2007-12-31 Increase in the Proportion the current Amount current Amount Proportion% % period RMB 2.Foreign shares in domestic market 49,500,000.00 20.19 --- --- 49,500,000.00 20.19 3.Foregin shares in overseas market --- --- --- --- --- --- 4.Other --- --- --- --- --- --- Total 96,206,112.00 39.27 --- --- 96,206,112.00 39.27 III. Total of capital shares 245,124,000.00 100.00 --- --- 245,124,000.00 100.00 27. Capital reserves Item 2007-1-1 Increase in the Decrease in the 2007-12-31 current current period Share premium 45,286,259.45 45,286,259.45 Other capital reserve 528,315.29 62,979,868.12 44,441,372.12 15,729,882.01 Other 45,814,574.74 62,979,868.12 44,441,372.12 61,016,141.46 In the reporting period, the limit of 8,457,118 shares of Shenzhen Zhongguang Printing & Dyeing Co., Ltd. held by the company was cancelled, and accounted according to fair value in the financial assets for sale, the changed part of the fair value was included in the public reserve and transferred out to investment income 28. Surplus reserve Items Year 2007 Year 2006 I.Statutory surplus reserve Balance at year beginning 24,779,594.34 24,779,594.34 Increase in this year 1,400,284.29 --- 87 Reduction in this year --- --- Balance at year end 26,179,878.63 24,779,594.34 The increase of surplus reserve in each year was drown from after-tax profit, the profit allocation plans are described in Note 7, 27. 29. Retained profits Items Year 2007 Year 2006 Net profit 11,966,190.51 11,069,646.16 Less： loss and gain of minority shareholders 412,090.22 6,442,938.95 Net profit belonging to the owner of the parent company 11,554,100.29 4,626,707.21 Add：retained profit at the period beginning 20,855,450.53 28,484,943.32 Less： drawing statutory surplus reserve 1,400,284.29 --- Less ： payable dividends of ordinary shares --- 12,256,200.00 Retained profits at the period end 31,009,266.53 20,855,450.53 The Company draws 10% statutory surplus reserve from after-tax profit according to company constitution. 30. Equity of minority shareholders minority shareholders Companies holding shares 2007-12-31 2007-1-1 Anhui Huapeng Textile Co., Huamao Textile Co., Ltd. Ltd 20,808,167.59 20,899,203.80 Anhui Huapeng Textile Co., Huamao Group Co., Ltd. Ltd 5,202,041.90 5,224,800.95 Shenzhen Shenfang Import Hengsheng Investment Co., Ltd. and Export Co Ltd --- 3,767,543.39 Shenzhen Shenfang Lekai China Lekai Film Group Co., Ltd. Photoelectron material Co., Ltd. 40,404,414.22 36,482,807.79 88 Shenzhen Shenfang Lekai Photoelectronic Materials Guotou High-tech Company Co., Ltd. 13,468,138.07 12,160,935.93 Hongkang Dahong Shenzhen Jingguang InternationalCo., Ltd. Footwear Co., Ltd 621,851.64 1,797,217.50 Jiangxi Xuanli Yarn Industry Employees’ equity 1,779,666.24 5,939,409.30 Co Ltd Shenfang Group Organic Shenzhen Mei Bai Nian Trade Union Committee Garment Co., Ltd. --- 3,853,838.95 Shenzhen Hengsheng Shenzhen Mei Bai Nian InvestmentCo., Ltd. Garment Co., Ltd. --- 11,561,516.86 Shenzhen Mei Bai Nian Shenzhen Mei Bai Nian Garment Co., Ltd. Union --- 1,284,612.98 Garment Co., Ltd. Committee Total 82,284,279.66 102,971,887.45 31．Revenues, costs, Gross Items Year 2007 Year 2006 I.Main business income Domestic and foreign trade 179,011,335.60 279,287,575.60 Manufacturing 250,745,023.22 228,648,520.84 Property management, leasing 66,138,684.30 56,437,738.25 Internal offset between industries -8,241,599.75 -6,448,707.42 Subtotal 487,653,443.37 557,925,127.27 2.Other Business income Income from booth planning 390,000.00 --- Material transfer, electricity 1,226,642.36 --- Other --- 273,241.73 Subtotal 1,616,642.36 273,241.73 Total 489,270,085.73 558,198,369.00 （2）Business cost Items Year 2007 Year 2006 1. Main business cost 89 Items Year 2007 Year 2006 Domestic and foreign trade 177,507,423.36 276,318,453.18 Manufacturing 210,926,084.43 189,180,486.94 Property management, leasing 1195200.24 --- Internal offset -5,894,317.12 -5,078,747.74 Subtotal 383,734,390.91 460,420,192.38 2.Other business cost Income from booth planning --- --- Material transfer, electricit 1,155,034.15 --- Other --- 36,430.36 Subtotal 1,155,034.15 36,430.36 Total 384,889,425.06 460,456,622.74 （3）Gross and gross rate Items Year 2007 Year 2006 1. Gross profit from main business 103,919,052.46 97,504,934.89 2.Other business profit 461,608.21 236,811.37 Operating Gross profit rate 21.33% 17.51% （4）Total income and the ratio of operating income from top five clients Items Year 2007 Year 2006 Total income from top five clients 197,916,261.96 242,282,300.00 The ratio of operating income 40.45% 43.40% （5）Incomes from main business are listed by region: Main business Year 2007 Year 2006 Domestic business revenue 222,217,788.38 190,374,609.81 Foreign business income 273,677,254.74 373,999,224.88 Internal offset -8,241,599.75 -6,448,707.42 90 Total 487,653,443.37 557,925,127.27 32. Business taxes and surcharges Items Year 2007 Year 2006 Business tax 3,282,804.21 3,036,419.52 City construction tax 341,863.41 306,464.08 Education surcharge 367,393.01 299,306.85 Consumption tax --- 3,115.71 Total 3,992,060.63 3,645,306.16 Main business taxes and additional tax standards are described in (4). 33. Cost of sales Items Year 2007 Year 2006 Total cost of sales 17,235,392.95 17,412,520.56 Including: Wage 5,868,544.87 4,780,250.79 Welfare cost 567,919.30 430,475.15 Depreciation expense 910,226.46 904,536.62 Transportation experses 1,269,441.50 2,139,932.47 Insurance experses 334,611.60 78,599.28 Repair fee 1,331,826.04 776,613.15 Business hospitality fee 130,956.20 114,980.46 Travel fee 93,186.44 110,562.40 Office experses 149,476.60 186,579.43 Lease experses 815,670.32 801,527.97 Other 5,763,533.62 7,088,462.84 34.Management Experses Items Year 2007 Year 2006 Total of Management experses 58,840,282.62 56,705,606.92 Including: Wage 17,681,094.41 14,928,217.82 91 Items Year 2007 Year 2006 Welfare cost -779,885.00 1,263,638.22 Depreciation expenses 8,466,813.80 7,910,562.82 Travel fee 1,895,494.50 1,695,170.36 Business hospitality fee 934,527.70 1,151,387.98 Tax 2,894,324.85 3,193,462.61 Transport expenses 1,770,882.42 1,250,862.92 Social security expenses 6,329,895.92 6,808,095.37 Housing Accoumulation fund 477,502.72 231,851.00 Labour union expenses 477,670.25 683,652.50 Employee Education expenses 567,088.19 343,551.66 Litigation expenses 2,375,201.00 --- R& D 5,287,117.12 52,311.40 Amortizetion of Intangible assets 1,394,810.59 1,361,609.30 Amortizetion of Long-term 124,292.91 4,288,064.58 Other 8,943,451.24 11,543,168.38 The change of management cost mainly due to the increase of research and development costs, staff wages and the lawsuit cost for Gangpeng Building, in addition, the payable welfare reduced part of management costs. 35. Financial costs Items Year 2007 Year 2006 Total financial expenses 7,283,913.49 5,287,043.52 Of which: Interest expense 6,091,143.04 4,304,742.50 Interest income -1,310,565.17 -590,453.78 Exchange gains and losses 2,000,124.71 1,047,660.55 other charges 503,210.91 525,094.25 The increase in borrowings resulted in the corresponding increase in interest payment. 92 36．Asset impairment losses Items Year 2007 Year 2006 Bad debt losses 22,046,282.67 4,175,542.50 Inventory devaluation losses 11,261,798.89 2,291,439.13 Fixed asset impairment losses 859,915.81 414,063.62 Long-term equity investment impairment losses 1,754,303.60 --- Stock Investment --- -119,700.00 Total 35,922,300.97 6,761,345.25 A. As described in Note 7, 4, the bad account losses of impairment drown for Gangpeng Building in this period and the provision for bad account were larger than last period; B. The drawing of provision for impairment on the slow sale products of the subsidiaries resulted in the change in inventory devaluation losses was larger than that of last period. 37. Investment income Items Amount of the current Amount in the same period period of last year Income from the sale of financial assets for --- sale 40,465,440.16 Income from the sale of transactional 1,958,151.34 financial assets --- Amortization of equity investment variance --- -688,999.94 Accounting loss and gain adjustment by -4,577,914.93 equity method -9,226,052.79 Accounting dividend by cost method 4,399,018.49 5,044,573.56 Income from equity disposal -21,010.00 --- Total 35,617,395.86 1,735,810.03 A. In the reporting period, the sale limit of 8,457,118 shares of Shenzhen Zhongguang Textile Printing & Dyeing Co., Ltd. was canceled, and accounted according to fair value of financial assets for sale, the part of change of fair value should be included in capital reserve according to the investment income transferred out from public reserve, which resulted in the change 93 of investment income in this period was larger. B. The company carried out the new standards in this period, the cost will be recognized in accordance with relevant provisions in the new guidelines making the balance of long-term equity investment as the cost on the first implementation day, the equity investment difference at credit will no longer be amortized. 38. Non-operating income Items Year 2007 Year 2006 Government grants 505,448.75 3,078,862.50 Income from liquidation of fixed asset 189,329.22 1,224.00 Other incomes 87,148.97 747,436.14 Total 781,926.94 3,827,522.64 39. Non-operating expenses Items Year 2007 Year 2006 Disposal of net loss of fixed assets 64,852.40 73,872.29 Donation expenses --- 63,000.00 Fine expenses 16,681.06 39,927.19 Other expenses 16,990.58 17,999.68 Total non-operating expenses 98,524.04 194,799.16 40. Income tax expenses Items Year 2007 Year 2006 Total profits 17,407,508.77 13,298,457.36 Current income tax expenses 8,353,724.34 2,389,028.18 Deferred income tax expenses -2,912,406.08 -160,216.98 Ratio of Current income tax expense to total profits 47.99% 13.72% Total 5,441,318.26 2,228,811.20 41.Minority shareholder loss 94 Name Shareholding Company 2007-12-31 2007-1-1 Anhui Huapeng Textile Co., Huamai Textile Co., Ltd. Ltd 414,712.45 571,757.40 Anhui Huapeng Textile Co., Huamao Group Co., Ltd. Ltd 103,678.12 142,939.36 Shenzhen Hengsheng Shenzhen Shenfang Import InvestmentCo., Ltd. and Export Co., Ltd. --- 791,678.81 China Lekai Film Group Shenzhen Shenfang Lekai Company Photoelectron material Co., Ltd. 3,921,606.43 3,020,273.24 Shenzhen Shenfang Lekai Photoelectronic Materials Guotou High –tech Company Co., Ltd. 1,307,202.14 1,006,757.75 Hongkong Dahong International Shenzhen Jingguang Co., Ltd. Footwear Co., Ltd -1,175,365.86 -87,217.32 Jiangxi Xuanli Yarn Industry Employees’ equity Co., Ltd -4,159,743.06 -1,478,085.46 Shenfang Group Organic Shenzhen Mei Bai Nian Trade Union Committee Garment Co., Ltd. --- 571,115.81 Shenzhen Hengsheng Investment Shenzhen Mei Bai Nian Co., Ltd. Garment Co., Ltd. --- 1,713,347.42 Shenzhen Mei Bai Nian Garment Co., Ltd. Union Shenzhen Mei Bai Nian Committee Garment Co., Ltd. --- 190,371.94 合计 412,090.22 6,442,938.95 42. Other cash paid relating to operating activities Items Year 2007 Year 2006 Business hospitality 1,065,483.90 1,266,368.44 Travel fee 1,988,680.94 1,805,732.76 Insurance premium 693,912.29 685,472.05 Postal communication fee 1,134,350.37 311,905.42 Rental fee 1,013,889.32 801,491.29 95 Items Year 2007 Year 2006 Transportation cost 1,269,441.50 2,139,932.47 Social security charge 6,329,895.92 6,808,095.37 R&D 5,287,117.12 52,311.40 Lawsuit cost 2,375,201.00 Other 5,985,977.40 4,776,019.59 Total 27,143,949.76 18,647,328.79 43. Other cash received relating to financing activities Items Year 2007 Year 2006 Borrow money from controlling shareholders 30,000,000.00 --- Government subsidies --- 2,000,000.00 Total 30,000,000.00 2,000,000.00 44. Other cash paid relating to financing activities Items Year 2007 Year 2006 Return borrowing to controlling shareholders 37,500,000.00 --- Total 37,500,000.00 --- 46. Cash and cash equivalents Items 2007-12-31 2006-12-31 I. Cash 124,908,748.97 78,863,152.16 Of which: Cash in stock 502,271.31 733,302.13 Bank deposits which can be readily available for payment 103,381,263.65 74,850,937.70 Other currencies with designated use 21,025,214.01 3,278,912.33 II. Cash equivalents --- --- Of which: bond investments which will due in --- --- 96 three months III. Balance of cash and cash equivalents at the period end 124,908,748.97 78,863,152.16 Of which: cash and cash equivalents which are limited to use --- --- Note 8. Notes to main items of financial statements of the parent company 1. Other receivables (1). Other receivables at different levels are as follows: 2007-12-31 Book balance Provision for bad debts Items Proportion Proportion Amount Amount （%） （%） Receivables with large individual amount. 70,409,556.83 96.56% 15,923,154.63 95.95% Receivables without large individual amount, but with great risk after combined according to risk characteristics 181,285.83 0.25% 181,285.83 1.09% Other minor receivables 2,325,975.35 3.19% 491,623.49 2.96% Total 72,916,818.01 100.00% 16,596,063.95 100.00% A. 500,000 or more as the single amount major standard. B. Details of other receivables with big individual amount which have been drown provision for bad debt are as follows: Provision for Debtor Book balance Reasons bad debt 97 Chengdu Gangpeng Real Estate Note ① Development Co., Ltd. 20,783,000.00 12,774,650.00 expect not to be Dahong International Company 2,569,803.90 2,569,803.90 recovered Nanshan Municipal Matching 748,624.19 49,862.42 Normal contacts Xinfang Knitting Plant 576,766.15 28,838.31 Normal contacts Tianlong Industry and Trade The expired related Company 500,000.00 500,000.00 borrowings Total 25,178,194.24 15,923,154.63 ① On September 25, 2003, the company and Chengdu Gangpeng Real Estate Development Co., Ltd. signed a Contract of Sale of Commercial Housing and purchased five sets of shopping malls, the payment has been included in inventory, but Chengdu Gangpeng Real Estate Development Co., Ltd. has not handled the necessary procedures. In the reporting period, the company initiated a lawsuit to Chengdu Gangpeng Real Estate Development Co., Ltd. According to the (2007)-Chuan No. 31 civil mediation issued by Sichuan Higher People's Court, the both party would like to cancel the above contract, Chengdu Gangpeng Real Estate Development Co., Ltd. shall return the funds for the housing and pay the interest, Chengdu Gangpeng Real Estate Development Co., Ltd. has stopped its business, the existing asset Guangpeng Building is in auction, the company converts the recoverable amount according to the possible price to be traded, the difference will be accounted as provision for bad debt. C. The accounts receivable with small single-item amount that have the sign of impairment as shown by clear evidences are listed as accounts receivable with small single-item amount that have big risks after combination according to risk characteristics. 。The details are as follows: Name of debtor Original value Provision for bad debts Reason for provision Xing Zhenhua Long-term open account that can not be 65,000.00 65,000.00 recovered Light Textile Industrial Long-term open and Trading Company account that can not be 116,285.83 116,285.83 recovered Total 181,285.83 181,285.83 (2). Other receivables by aging are as follows: 98 2007-12-31 2007-1-1 Age Amount Proportion Provision for Amount Proportion Provision for （%） bad debts （%） bad debts Within 1 year 68,066,982.88 93.35% 12,947,771.01 23,577,037.64 64.28% 32,775.36 1-2 years 546,641.19 0.75% 108,477.82 7,215,675.62 19.67% 53,283.78 2-3 years 851,651.10 1.17% 255,495.33 233,578.40 0.64% 11,678.92 Over 3 years 3,451,542.84 4.73% 3,284,319.79 5,654,949.11 15.42% 2,465,227.32 Total 72,916,818.01 100.00% 3,821,413.95 36,681,240.77 100.00% 2,562,965.38 (3). The amount of top five debtor was RMB58,172,414.49, accounting for 81.63% of the total, RMB 58,172,414.49 within one year, accounting for81.63%; 2. Long-term equity investment 2007-1-1 2007-12-31 Items Amount Provision Increase in Decrease in the Amount Provision for bad the current current本期减少 for bad debts debts Stock Provision Invest for bad debts ment 14,831,681.50 10,063,970.42 31,312,695.43 14,831,681.50 Subsid iaries 127,383,535.60 --- 22,717,100.00 150,100,635.60 --- Joint enterp rise 8,520,167.35 --- 474,337.14 2,196,377.76 6,798,126.73 --- Associ ated enterp 14,035,798.23 --- 50,619.83 7,554,632.00 6,531,785.96 --- 99 rise Other investment 51,704,509.97 23,958,307.01 6,330,000.00 45,374,509.97 23,612,610.61 Total 243,020,677.00 38,789,988.51 23,242,056.97 26,144,980.18 240,117,753.69 38,444,292.11 （1）Names of joint enterprise and main financial information Ratio of Total voting Total net business Sharehol Net profit right of asset at income of dings of the Register Nature of the the period the Name of units invested ratio of current ed place business company end current the period in the (RMB’0000 period company (RMB’0000) invested ) (RMB unit ‘0000) Shenzhen Trademark Shenzhen Service instrity Co. Ltd. 50.00% 50.00% 575.76 125.41 64.57 Shenzhen Tianlong Shenzhen Tuade Industry and Trade Co., Ltd. 50.00% 50.00% -249.28 1,165.04 -669.39 Shenzhen Xieli Shenzhen Manufacturin g Automobile Co., Ltd 50.00% 50.00% 581.50 153.78 32.70 （2）(2). Name of associated enterprises and main financial information Ratio of Total voting Total net business Net profit Shareholdi right of asset at income of of the Register Nature of ngs ratio the the period the current Name of units invested ed place business of the company end current period company in the (RMB’000 period (RMB’0000 invested 0) (RMB ) unit ‘0000) Shenzhen Changlianfa Shenzhen Service 425.47 54.47 12.58 instrity Printing and dyeing Company 40.25% 40.25% 100 Ratio of Total voting Total net business Net profit Shareholdi right of asset at income of of the Register Nature of ngs ratio the the period the current Name of units invested ed place business of the company end current period company in the (RMB’000 period (RMB’0000 invested 0) (RMB ) unit ‘0000) Jordan Garnent Factory Jordan Manufacturin USD188.62 USD514.10 -28.62 g 35.00% 35.00% Hengshun （ Saipan ） Cypriot Manufacturin 35.00% 35.00% USD-1.90 USD420.02 UDS-225.91 Industry Co., Ltd. g (3). Details of equity investments are as follows Units invested Type Amount Proportion December 31,2007 Shenzhen Jintian Industry Co., Ltd. Legal 12,274,497 4.00% 14,831,681.50 person shares Shenzhen Victor Onward Textile Legal 13,822,369 8.17% 16,481,013.93 Industrial Co., Ltd. person shares Total 31,312,695.43 The limit sale of 8,457,118 shares of Shenzhen Zhongguan Textile& Printing Co., Ltd. held by the Company were canceled, and were converted to the financial assets for sale. （4）Investments accounted by method of equity are listed as follows Ratio Balance at Increase in Decrease in Balance at held Original period the current the current the period investment beginning period. period. end 101 Shenzhen Trademark Factory Co. Ltd. 2,040,102.73 3,301,132.54 322,827.88 --- 3,623,960.42 Shenzhen Tianlong Industry and Trade Co., Ltd. 850,000.00 2,196,377.76 --- 2,196,377.76 --- Shenzhen Xieli Automobile Co., Ltd. 1,529,483.67 3,022,657.05 151,509.26 --- 3,174,166.31 Shenzhen Changlianfa Printing and dyeing Company 40.25% 2,524,500.00 1,661,932.03 50,619.83 --- 1,712,551.86 Jordan Garnent Factory 7,240,625.00 5,985,275.29 --- 1,166,042.09 4,819,234.20 Hengshun （ Saipan ） Industry Co., Ltd. 8,228,350.00 6,388,590.91 --- 6,388,590.91 --- Total 22,413,061.40 22,555,965.58 524,956.97 9,751,010.76 13,329,912.69 （5）Investments accounted by the cost method are listed as follows Ratio Decrease held Balance at Increase in in the Balance at Original period the current current the period investment beginning period. period. end Shenzhen Jinlan Decorative 90.00% Articles Industrial Co., Ltd. 5,470,000.00 5,470,000.00 --- --- 5,470,000.00 Shenzhen Lisi Industrial Co., Ltd 90.68% 6,666,132.60 6,666,132.60 --- --- 6,666,132.60 102 Ratio Decrease held Balance at Increase in in the Balance at Original period the current current the period investment beginning period. period. end Shenzhen Mei Bai Nian Garment 100.00% Co., Ltd. 30,867,400.00 12,000,000.00 18,867,400.00 --- 30,867,400.00 Shenzhen Shenfang Import and 100.00% Export Co., Ltd. 6,299,700.00 2,450,000.00 3,849,700.00 --- 6,299,700.00 Shenzhen Huaqiang Hotal 95.00% 14,623,003.00 14,623,003.00 --- --- 14,623,003.00 Shenzhen Shenfang Property 93.75% Management Co., Ltd. 1,600,400.00 1,600,400.00 --- --- 1,600,400.00 Shenzhen Zhongxing Fibre Folds 75.00% Cotton Clothing Ornament Co., Ltd. 1,260,000.00 1,260,000.00 --- --- 1,260,000.00 Anhui Huapeng Textile Co., Ltd. 50.00% 25,000,000.00 25,000,000.00 --- --- 25,000,000.00 Shenzhen Jingguang Footwear 70.00% Co., Ltd 5,040,000.00 5,040,000.00 --- --- 5,040,000.00 Jiangxi Xuanli Yarn Industry Co., 63.87% Ltd. 12,774,000.00 12,774,000.00 --- --- 12,774,000.00 Shenzhen Shenfang Lekai 48.00% Photoelectronic Materials Co., Ltd. 40,500,000.00 40,500,000.00 --- --- 40,500,000.00 Total 计 127,383,535.60 22,717,100.00 --- 150,100,635.60 （6）Investments accounted by the cost method are listed as follows 103 Ratio Balance at Increase in Decrease in Balance at held Original period the current the current the period investment beginning period. period. end Shenzhen Hengsheng 19.58% Investment Co., Ltd. 4,230,000.00 4,230,000.00 --- 4,230,000.00 --- Chengdu huangjia 15.00% entertainment center 2,100,000.00 2,100,000.00 --- 2,100,000.00 --- Shenzhen Jiafeng Textile 10.80% Co., Ltd. 16,800,000.00 16,800,000.00 --- --- 16,800,000.00 Shenzhen Guanhua 45.00% Prnting and dyeing Co., Ltd. 5,491,288.71 5,491,288.71 --- --- 5,491,288.71 Shenzhen Union Textile 2.87% Group Co., Ltd. 2,600,000.00 2,600,000.00 --- --- 2,600,000.00 Shenzhen Xiangjiang 20.00% Leather Produce Co., Ltd. 160,000.00 160,000.00 --- --- 160,000.00 Shenzhen Xinfang 20.00% Knitting Co., Ltd. 524,000.00 524,000.00 --- --- 524,000.00 Hongkong Yehui 17.85% International Co., Ltd. 2,392,914.37 2,392,914.37 --- --- 2,392,914.37 Shenzhen South Textile Co., Ltd. 50.00% 8,906,070.41 10,918,255.05 --- --- 10918255.05 Shenzhen Dailisi Knitting 30.00% Co., Ltd. 532,062.50 2,559,856.26 --- --- 2559856.26 104 Hongkong Dahong 100.00% International Co., Ltd. 10,600.00 1,451,653.84 --- --- 1,451,653.84 Shenzhen Fengsheng 100.00% Costume Co., Ltd. 4,123,077.16 1,778,004.61 --- --- 1,778,004.61 Shenzhen Fenghua 75.00% Ribbon Co., Ltd. 6,322,500.00 698,537.13 --- --- 698,537.13 Total 51,704,509.97 --- 6,330,000.00 45,374,509.97 A. The company held shares of Zhenzhen Huadong Electronics Co., Ltd. and Shenzhen Dalisi Knitting Co., Ltd respectively 50.00% and 30.00%, because the two companies have been contracted by other shareholders, the company adopted the method of cost accounting; B. The company held shares of Hong Kong Dahong International Co., Ltd, Zhenzhen Fengsheng Costume Co., Ltd. and Shenzhen Fenghua Ribbon Factory Co., Ltd respectively 100%,100% and 75%, because the companies have stopped their business for a long time and have entered liquidation proceedings, therefore, they are not included in the scope of consolidation. C. The company held shares of Shenzhen Guanhua Printing and dyeing Co., Ltd. 45%, because the company has stopped its business for a long time, therefore, the company adopted the method of cost accounting and drew the provision for devaluation. （6）Provision for impairment of long-term investments December Increase in Transfer in December Units invested 31,2006 the current or transfer 31,2006 Reasons period out in the current period The company's Shenzhen Jintian 14,831,681.50 --- --- 14,831,681.50 net assets were Industry Co., Ltd negative 105 Write off in Chengdu huangjia 2,100,000.00 --- 2,100,000.00 --- the current entertainment center period Shenzhen Jiafeng Textile The company is 16,800,000.00 --- --- 16,800,000.00 being Co., Ltd. liquidating Shenzhen Guanhua Prnting The company is 5,058,307.01 --- --- 5,058,307.01 being and dyeing Co., Ltd. liquidating Hongkong Dahong Enter liquidation --- 1,451,653.84 --- 1,451,653.84 procedings International Co., Ltd. Shenzhen Fengsheng Enter liquidation --- 25,535.56 --- 25,535.56 procedings Costume Co., Ltd. Shenzhen Fenghua Ribbon Enter liquidation --- 277,114.20 --- 277,114.20 procedings Co., Ltd. Total 38,789,988.51 1,754,303.04 --- 38,444,292.11 3. Property Investment Increase in the Decrease in the 2007-12-31 current period current period Type 2007-1-1 I.Cost 1．House, Building 189,163,884.56 --- --- 189,163,884.56 2.self housing renovation 1,817,038.92 3,542,792.95 --- 5,359,831.87 Total 190,980,923.48 3,542,792.95 --- 194,523,716.43 106 II.Accumulative depreciation 1．House, Building 56,799,886.32 4,854,954.88 --- 61,654,841.20 2.self housing renovation 449,935.39 422,976.37 --- 872,911.76 Total 57,249,821.71 5,277,931.25 --- 62,527,752.96 III. Devalue Provision 1．House, Building --- --- --- --- 2．Land Use right --- --- --- --- IV. Book Value 1．House, Building 132,363,998.24 --- --- 127,509,043.36 2．Land Use right 1,367,103.53 --- --- 4,486,920.11 Total of book value 133,731,101.77 --- --- 131,995,963.47 4.Fixed assets ,Accumulative depreciation and Devalue Provision of fixed assets Increase in the Decrease in the Items 2007-1-1 current period current period 2007-12-31 Fixed assets cost House, Building 49,549,709.20 101,594.91 54,638.94 49,596,665.17 Machinery equipment 970,025.00 --- --- 970,025.00 Electronic equipment 553,970.90 263,687.90 --- 817,658.80 Transport equipment 2,252,381.00 515,500.00 1,835,330.00 932,551.00 self housing renovation 10,057,694.87 1,356,796.14 --- 11,414,491.01 Total 63,383,780.97 2,237,578.95 1,889,968.94 63,731,390.98 Accumulative 107 Increase in the Decrease in the Items 2007-1-1 current period current period 2007-12-31 depreciation House, Building 16,243,871.03 972,538.33 5,167.28 17,211,242.08 Machinery equipment 619,346.25 93,122.40 --- 712,468.65 Electronic equipment 199,119.47 66,904.99 --- 266,024.46 Transport equipment 2,048,781.99 58,066.02 1,769,936.70 336,911.31 self housing renovation 3,495,462.31 778,327.08 --- 4,273,789.39 Total 22,606,581.05 1,968,958.82 1,775,103.98 22,800,435.89 Devalue Provision --- --- --- --- Devalue Provision 235,233.62 --- --- 235,233.62 Net fixed assets 40,541,966.30 --- --- 40,695,721.47 (1) The company has no temporarily idle fixed assets (2) The transfer and scrap of fixed assets in the current period RMB 1,889,968.94. (3). The ownership of fixed assets of the Company is unrestricted, the mortgage loans in the current period described are in Note 10; 6. Revenues, costs, gross （1）Business income Items Year 2007 Year 2006 1Main business income Domestic and foreign trade 1,803,878.28 20,878,898,.43 Property management, leasing 41,094,618.94 34,753,661.93 Subtotal 42,898,497.22 55,632,560.36 2. Other income Other 1,148,103.59 --- Subtotal 1,148,103.59 --- 108 Items Year 2007 Year 2006 Total 44,046,600.81 55,632,560.36 （2）Business cost Items Year 2007 Year 2006 Main business cost Domestic and foreign trade 1,803,072.16 19,852,430.02 Property management, leasing --- --- Subtotal 1,803,072.16 19,852,430.02 2. Other income Other 1,148,103.61 --- Subtotal 1,148,103.61 --- Total 2,951,175.77 19,852,430.02 （3）Gross and Gross Rate Items Year 2007 Year 2006 1.Main business gross 41,095,425.06 35,780,130.34 2.Other business gross -0.02 --- Total 41,095,425.04 35,780,130.34 (4). Current main business of the Company and the main business income greater cost reduction, is the main reason: Most of the trading business will be transferred to the subsidiary of the Company, Shenzhen Textile Import and Export Shenzhen Company Limited. (5). Property management, leasing of the main business costs, such as wages, depreciation, maintenance and other costs of the accounting period, the company failed to separate accounts statements. Note 9. Relationships of related parties and transactions 1. The related parties with controlling relationships. (1). Shareholders of the company with controlling relationships 109 Names of associated companies Register Legal Relationship Equity ed place representative with the ratio % company Shenzhen Investment Management Shenzhen Chen Hongbo Major 60.67 Co., Ltd. shareholders of the Company （2）Information of shareholders of the company with controlling relationships Names of Register Legal Registered associated ed place representa Business scope capital companies tive Shenzhen Shenzhen Chen 4000. million Provide guarantee for Investment Hongbo state-owned enterprises; Management Co., manage the state-owned equity Ltd. besides the enterprises supervised by municipal Assets Commission; carry out asset restructure, reform and capital operation; Investment; other business authorized by municipal Assets Commission. （3）Subsidiary with controlling relationships Names of associated companies Register Legal Relationship Equity ed place representati with the ratio % ve company Shenzhen Jinlan Decorative Articles Industrial Shenzhen Zhang Hong Subsidiaries 100.00% Co., Ltd. Shenzhen Lisi Industrial Co., Ltd Shenzhen Zhu Jun Subsidiaries 100.00% 110 Names of associated companies Register Legal Relationship Equity ed place representati with the ratio % ve company Shenzhen Mei Bai Nian Garment Co., Ltd. Shenzhen Wang Bin Subsidiaries 100.00% Shenzhen Textile Imports and exports Shenzhen Wang Bin Subsidiaries 100.00% Co., Ltd. Shenzhen Huaqiang Hotel. Shenzhen Zhu Jun Subsidiaries 100.00% Shenfang Property Management Shenzhen Wang Bin Subsidiaries 100.00% Co., Ltd. Shenzhen Zhongxing Fibre Folds Shenzhen Feng Junbin Subsidiaries 75.00% Cotton Clothing Ornament Co., Ltd. Anhui Huapeng Textile Co., Ltd. Anhui Hua Subsidiaries 50.00% Guanxiong Shenzhen Jingguang Footwear Co., Ltd. Shenzhen Feng Junbin Subsidiaries 100.00% Jiangxi Xuanli Yarn Industry Co., Ltd. Jianghui Gao Guoshi Subsidiaries 63.87% Shenzhen Shenfang Lekai Shenzhen Guan Tongke Subsidiaries 47.95% Photoelectronic Materials Co., Ltd. Shenzhen Fengsheng Garment Co., Shenzhen Feng Junbin Subsidiaries 75.00% Ltd. Hongkong Dahong International Co., Ltd. Hongkon Zhang Hong Subsidiaries 100.00% g Shenzhen Fenghua Ribbon Factory Shenzhen Zhou Dadong Subsidiaries 75.00% Co., Ltd. The current purchase of the Company to Shenzhen City in the United States and other centuries Garment Limited minority shareholders bought US centuries Garment Limited 52% stake in the end of a centuries-US Garment Limited stake to 100%, the Company to purchase the current 111 Shenzhen City Textile Import & Export Co. Ltd. bought the other minority shareholders Shenzhen Textile Import & Export Co. Ltd. 52% stake holders of the end of the Shenzhen Municipal Textile Import & Export Co. Ltd. stake to 100%. （4）. Existence of related-party control of the registered capital and its changes Name Increase Decrease Balance at in the in the period current current Balance at the beginning period. period. period end Shenzhen Jinlan Decorative Articles 4,000,000.00 --- --- 4,000,000.00 Industrial Co., Ltd. Shenzhen Lisi Industrial Co., Ltd 2,360,000.00 --- --- 2,360,000.00 Shenzhen Mei Bai Nian Garment Co., 25,000,000.00 --- --- 25,000,000.00 Ltd. Shenzhen Shenfang Import and Export 5,000,000.00 --- --- 5,000,000.00 Co., Ltd. Shenzhen Huaqiang Hotal 10,005,300.00 --- --- 10,005,300.00 Shenzhen Shenfang Property 1,600,000.00 --- --- 1,600,000.00 Management Co., Ltd. Shenzhen Zhongxing Fibre Folds 1,680,000.00 --- --- 1,680,000.00 Cotton Clothing Ornament Co., Ltd. Anhui Huapeng Textile Co., Ltd. 50,000,000.00 --- --- 50,000,000.00 Shenzhen Jingguang Footwear Co., Ltd 7,200,000.00 --- --- 7,200,000.00 Jiangxi Xuanli Yarn Industry Co., Ltd. 20,000,000.00 --- --- 20,000,000.00 Shenzhen Shenfang Lekai 78,000,000.00 --- --- 78,000,000.00 Photoelectronic Materials Co., Ltd. 112 Name Increase Decrease Balance at in the in the period current current Balance at the beginning period. period. period end Shenzhen Fengsheng Costume Co., HKD6,670,000.00 --- --- HKD6,670,000.00 Ltd. Hongkong Dahong International HKD10,000.00 --- --- HKD10,000.00 Co., Ltd. Shenzhen Fenghua Ribbon Co., HKD11,240,000.00 --- --- HKD11,240,000.00 Ltd. 2. No related-party control of the situation Shenzhen Trademark Co. Ltd. Shenzhen Tianlong Industry and Trade Co., Ltd. Shenzhen Xieli Automobile Co., Ltd Name Relation Shenzhen Tianlong Industry and Trade Co., Ltd. Affiliated company Shenzhen Shenhu Knitting Co., Ltd. Affiliated company Hengshun (Saipan）Co., Ltd. Affiliated company Shenzhen Xiangjiang Leatter Product Co., Ltd. Affiliated company Shenzhen Xinfang Knitting Co., Ltd. Affiliated company Hongkong Yehui International Co., Ltd. Affiliated company Shenzhen Changlianfa Printing and dyeing Co., Ltd. Affiliated company Shenzhen Trademark Co. Ltd. Affiliated company Shenzhen Xieli Automobile Co., Ltd Affiliated company 113 3. Related-party transactions and related contacts Pricing policy The companies associated with the purchase and sale of the company's activities under the contract price (close to the market price) settlement with the company is borrowing money lending activities by contract (close to normal interest rates for bank loans) the interest rate settlement. （2）Trading activities Associated company names / period Amount at current Amount in the same period period of last year Sale of goods Shenzhen Tianlong Industry and Trade Co., Ltd. 9,490,041.26 11,140,496.75 Interest charged Shenzhen Tianlong Industry and Trade Co., Ltd. --- 35,885.02 Shenzhen Xiangjiang Leatter Product Co., Ltd. --- 2,172.79 （3）Correlated contacts Name 2007-12-31 2007-1-1 Accounts receivable Shenzhen Tianlong Industry and Trade Co., Ltd. 2,532,225.79 2,053,196.72 Other receivable Shenzhen Xinfang Knitting Co., Ltd. 576,766.15 --- Shenzhen Tianlong Industry and Trade Co., Ltd. 500,000.00 500,000.00 Other receivable Shenzhen Xinfang Knitting Co., Ltd. --- 1,602,519.84 Shenzhen Changlianfa Printing and dyeing Co., 480,160.47 527,600.47 Ltd. Hongkong Yehui International Co., Ltd. --- 352,735.71 Hongkong Dahong International Co., Ltd. 2,569,803.90 2,495,603.90 Shenzhen Investment Management Co., Ltd. 2,500,000.00 10,000,000.00 114 Shenzhen Trademark Co. Ltd. 3,353,868.07 3,003,868.07 Shenzhen Xieli Automobile Co., Ltd 13,128.00 13,128.00 Note 10. Contingent events As of December 31, 2007, mainly mortgaged assets was as follows: Names of mortgaged goods Area (m2) loan bank Basement of Shenfang Building,Floor 1 - 6-, 25,048.82 Shenzhen Branch of Bank of 18,19,20,22, 23, complex building China C-901、C-902 Nanyang Building 170.43 Shenzhen Branch of Bank of China Floor 1, Fengfang Road No. 13 1,032.29 Shenzhen Branch of Bank of China Floor 1, Block 3, No. 8 Yard, Tianbei 2 Road 537.23 Shenzhen Branch of Bank of China 2 Except the contingent events disclosed above, the company had no major contingent events to be disclosed. Note 11. Events after balance sheet date On February 3, 2008, the company, Shenzhen Huadong Electronics Co., Ltd. and Shenzhen Longgang District Nanwan Nanlin Community signed a Transfer Agreement, Nianlin Village bought 26,600 square meters land use right and the buildings on the land of the company and Huadong Company, of which, the company owns land use right 10,400 square meters, and Huadong Company owns land use right 16,200 square meters and the buildings on the land, the transfer price is RMB X yuan. The transfer income of the company 35.6725 million, the net income after tax is 14.8 million (the accurate data will determined after the approval of tax by tax authoritie) Note 12. Commitment events of the company By the date of the statement, the company has no commitment events to be disclosed. Note 13. Additional information 1、1. Consolidation of non-recurrent loss and gain Items Year 2007 Year 2006 Loss and gain from disposal of non-current assets 40,589,916.98 -72,648.29 115 Items Year 2007 Year 2006 Government subsidies included in the current loss and gain 505,448.75 3,093,610.29 Other non-operating net income besides the above items -120,820.61 611,761.48 Total of non-recurring gains and losses 40,974,545.12 3,632,723.48 Less：Income 6,151,830.20 -87,606.05 Minority shareholder gains and loss -23,950.90 2,230,540.72 Non-recurring gain and loss after deducting income tax and gain and loss of minority shareholders 34,846,665.82 1,489,788.81 .2. Parent Company of non-recurrent loss and gain Items Year 2007 Year 2006 Loss and gain from disposal of non-current assets 40,610,305.12 -41,590.18 Other non-operating net income besides the above items 85,648.97 672,462.87 Total of non-recurring gains and losses 40,695,954.09 630,872.69 Less：Income 6,104,393.11 94,630.90 Non-recurring gain and loss after deducting income tax and gain and loss 34,591,560.98 536,241.79 3. Adjustment table of equity difference at the period beginning according to the new standards. (1). Adjustment table of consolidated equity difference at the period beginning according to the new standards 116 Balance disclosed in Original balance 2007 annual disclosed in 2006 No Items report annual report Difference Note Shareholders’ equity on December 31, 2006 Enterprises Accounting Standards 338,389,884.78 338,389,884.78 --- --- 1 Long-term equity investment differences --- --- --- --- Including ： Long-term equity investment --- --- --- --- differences due to business conmbination under same control Other credit balance existed in the --- --- --- --- long-term equity investment arising from adoption of equity method Investment real estate which plans to take 2 fairvalue mode for calculation --- --- --- --- The previous depreciation which should be --- --- --- --- 3 made up for calculation because of the projected fee for discarding assets Employee termination indemmity See 4 accordingwith projected liability -2,265,026.71 -3,220,335.00 955,308.29 ① 5 Share-based payment --- --- --- --- Restructure obligation according with 6 projected liability --- --- --- --- 7 Enterprise merger --- --- --- --- Including ： devaluation reserve of goodwill calculated on the basis of the book value of the goodwill of the merger enterprise under the same control --- --- --- --- according to the new accounting standard --- --- --- --- Financial asset and financial asset available --- --- --- --- for sale which are calculated with fair value 8 and whose change is written into the current gains and losses Financial asset and financial liability --- --- --- --- 9 availablefor sale which are calculated with 117 Balance disclosed in Original balance 2007 annual disclosed in 2006 No Items report annual report Difference Note fair value and whose change is written into the current gains and losses Equity increase arising from spin-off 10 financialinstrument --- --- --- --- 11 Derived financial instrument --- --- --- --- 12 Income tax 455,229.21 9,279,445.82 -8,824,216.61 see② 13 Minor shareholders’ equity 102,965,419.78 103,969,172.49 -1,003,752.71 see③ 14 Other --- --- --- --- The Shereholders’ equity on January 1 , 2007 (the New accounting standard) 439,545,507.06 448,418,168.09 -8,872,661.03 --- ①. The data of dismiss welfare disclosed in 2006 annual report was wrong, and was adjusted in the current period; ②. The deterred income tax disclosed in 2006 annual report was wrong, the Company made adjustment on deterred income taxes which do not meet the confirmation conditions; ③ The equity of the minority shareholders brought from above accounting treatment disclosed in 2006 annual report, should be adjusted in the current period together with the equity of minority shareholders under the old standards. （2）Compilation basis. Difference adjustment sheet is compiled according to "Accounting Standards for Business Enterprises No. 38 - the first time the implementation of Accounting Standard for Business Enterprises" issued by Finance Department, and the notice of "Accounting Standard for Business Enterprises No. 1" and "Quiz No. 7 of information disclosure norms for companies publicly issuing securities – preparation and disclosure old of comparison financial accounting of new and old accounting standards during the transition period and"(SFC word [2007] 10), in accordance with the company characteristics and specific situation, making the 2006 (Merger) Financial statements as the foundation, and based on the principle of the importance. For the situations not identified in Article 5 of Article 19 of "Accounting Standards for Business Enterprises No. 38 - the first time the implementation of Accounting Standard for Business Enterprises", the difference adjustment sheet should be compiled according to the following principles: upon the preparation of consolidated statements, the company adjusted the equity of minority shareholders in accordance with the new accounting standards, and independently reflected in difference adjustment sheet. 118 (3) Statement of adjustment events Equity difference adjustment statement was in accordance with "Accounting Standards for Business Enterprises No. 38 - the first time the implementation of Accounting Standard for Business Enterprises" and "Notice", increased deterred income tax RMB 455,229.21, and increase equity RMB 455,229.21; and according to dismiss plan, prepaid staff dismiss welfare and increased payable staff salary RMB 2,265,026.71, reduced equity RMB 2,265,026.71, and included equity of minority shareholders to owners’ equity and increased equity 102,965,419.78. 4.Comparative profit statement of new and old standards in 2006. (1) .2006 for a profit report compared the old and new criteria for merger Items Adjustment Before Adjustment after Management expenses 60,907,561.84 56,705,606.92 Asset impairment losses --- 6,761,345.25 Investment income 1,855,510.03 1,735,810.03 Non-operating expenses 608,862.78 194,799.16 Income tax expenses 2,389,028.18 2,228,811.20 Gain/loss to minority shareholders 6,449,854.00 6,442,938.95 Net profit attributable to owner’s parent Company 6,724,601.89 4,626,707.21 (2). Compilation basis Comparison profit statement is accordance with "Accounting Standards for Business Enterprises No. 38 - the first time the implementation of Accounting Standard for Business Enterprises", and the notice of "Accounting Standard for Business Enterprises No. 1, to explain" and "Quiz No. 7 of information disclosure norms for companies publicly issuing securities – preparation and disclosure old of comparison financial accounting of new and old accounting standards during the transition period and"(SFC word [2007] 10), combining self characteristics and specific information of the company, based on 2006 financial statement, and in accordance with the principle of importance. (4). Statement of adjustment events In accordance with "Accounting Standards for Business Enterprises No. 38 - the first time the implementation of Accounting Standard for Business Enterprises" and "Notice", and according to the division of subjects, included the assets impairment loss of management cost RMB 119 6,466,981.63, provision for impairment of short-term investment RMB119,000.00 and the assets impairment loss RMB 414,063.6 Adjusted to the subject of asset impairment and listed individually; adjusted deterred income tax asset, according to current asset and liability situation, increased deterred income tax assets RMB 160,216.98, reduce income tax costRMB 160,216.98; according to dismiss plan, pre-drown staff dismiss welfare and increase the payable staff salary RMB2,265,026.71 include in the current management cost; the above adjustment reduced equity of minority shareholders RMB 6,915.05, reduced net profit attributable to parent company in 2006 RMB 2,097,894.68. 5. The simulation of implementation of the new accounting standards in 2006, difference adjustment statement net profit disclosed in 2006 annual report. (1). The simulation of implementation of the new accounting standards in 2006, difference adjustment statement net profit disclosed in 2006 annual report. Items Amount Net profit in 2006（Original accounting standard） 6,724,601.89 The total amount influenced by retroactive adjustment items -2,097,894.68 Income tax expenses 160,216.98 Dismiss welfare -2,265,026.71 Gain/loss of minority shareholders 6,915.05 Net profit attributable to parent company in 2006（New accounting standard） 4,626,707.21 Assume that the company will full implement the referenced accounting standard Management Expenses 3,934,112.71 Gain/loss of minority shareholders -706,329.55 Net profit attributable to owner’s parent company 7,854,490.37 (2) Assuming full implementation of the new accounting standards duplicated profit report in 2006. Items consolidation Parent Company 120 Items consolidation Parent Company I.Business Income 558,185,601.77 55,632,560.36 Less: Business cost 460,443,855.51 19,852,430.02 Business tax and surtax 3,645,306.16 2,019,059.63 Sales expenses 17,412,520.56 2,223,100.84 Management expenses 52,771,494.21 31,738,401.25 Financial expenses 5,287,043.52 3,309,873.57 Losses of devaluation of assets 6,881,045.25 --- Add：Gain/loss from change in fair value --- --- Investment income 1,855,510.03 655,182.66 Including : Income from subsidy II. Business profit 13,599,846.59 -2,855,122.29 Add：Non-operating income 3,827,522.64 732,688.35 Less：Non-operating expenses 194,799.16 101,815.66 Indluding：Disposition loss of non-recurrent assets --- --- III. Total profit 17,232,570.07 -2,224,249.60 Less: Income tax expenses 2,228,811.20 --- IV. Net profit 15,003,758.87 -2,224,249.60 Net profit attributable to owner’s parent Comapny 7,854,490.37 -2,224,249.60 Gain/loss of minority shareholders 7,149,268.50 --- Not recognized investment losses --- --- V. Earnings per share： （I）Basic earnings per share 0.03 -0.01 (II)Diluted earnings per share 0.03 -0.01 (3). Foundation Duplicated profit statement in the comparison period is accordance with "Quiz No. 7 of information disclosure norms for companies publicly issuing securities – preparation and disclosure old of comparison financial accounting of new and old accounting standards during the transition period and"(SFC word [2007] 10), in accordance with "Accounting Standards for Business Enterprises - the basic criteria" issued by Finance department in February 2006, and other requirements and assumptions implemented and measured January 1, 2006, an the financial statements in the reporting period are compiled according to the simulated hypothesis. 121 (4). Statement of differences in financial statement in 2006. Assuming implementation of the new standards on January 1, 2006, include the balance at the period end of payable welfare in 2006 RMB 3,934,112.71 to current loss and gain in 2006, the adjustment increased the loss of minority shareholders RMB 706,329.55, and increase consolidated net profit RMB 3,227,783.16. 6. Provision for bad debts Decrease in this period Withdrawal Items 2007-1-1 amount in Transfer Transfer-ou 2007-12-31 -in t this period I. Provision for bad debts 10,741,599.97 23,199,450.41 --- 3,350,534.92 30590515.46 II. Provision for falling price of inventory 6,557,053.13 10,522,694.77 --- 1,892,055.41 15,187,692.49 III.Provision for devaluation of financial asset available for sales --- --- --- --- --- IV. Provision for devaluation of held-to maturity investment --- --- --- --- --- V.Provision for devaluation of Long-term equity investment 38,789,988.51 1,754,303.60 --- 2,100,000.00 38,444,292.11 VI.Provision for devaluation of investing property --- --- --- --- --- VII.Provision for devaluation of fixed assets 882,826.24 445,852.19 --- --- 1,328,678.43 VIII.Provision for devaluation of engineering materials --- --- --- --- --- IX.Provision for devaluation of construction in progress --- --- --- --- --- X. Provision for devaluation of productive biological assets --- --- --- --- --- Including：Provision for devaluation of mature productive biological assets --- --- --- --- --- XI.Provision for devaluation of oil assets --- --- --- --- --- XII.Provision for devaluation of intangible assets --- --- --- --- --- XIII. Provision for devaluation of goodwill --- --- --- --- --- XIV. Other --- --- --- --- --- 56,971,467.85 35,922,300.97 --- 7,342,590.33 85,551,178.49 Total 122 7.Supplement Infornation for cash flow statement （1）Suppmement information for cash flow statement of consolidation Year 2007 Year 2006 I.Adusting net profit to cash flow from opwrating activities Net profit 11,966,190.51 11,069,646.16 Add:Impairment loss provision of assets 35,922,300.97 5,425,446.70 Depreciation of fixed assets, oil and gas assets and consumablebiological assets 22,873,454.20 21,180,091.35 Amortization of intangible assets 1,464,236.90 1,361,609.30 Amortization of Long-term deferred expenses 654,306.58 142,619.01 Loss on disposal of fixed assets, intangible assets and other long-term deferred assets --- --- Loss from written off assets --- 72,648.29 Loss of fair value fluctuation on assets --- 4,761,949.27 Financial cost 6,780,702.58 2,982,968.47 Loss on investment -35,617,395.86 -1,855,510.03 Decrease of deferred income tax assets -2,936,698.90 -724,501.12 Decrease of deferred income tax liabilities 3,336,929.28 --- Decrease of inventories 11,595,509.78 -7,628,355.72 Decease of operating receivables -20,029,820.38 2,669,379.93 Increase of operating receivables -8,559,610.71 7,437,957.31 Other -3,336,929.28 --- Net cash flows arising from operating activities 24,113,175.67 46,895,948.92 II. Significant investment and financing activities that withoutcash flows: --- --- Liability transfer to capital --- --- Convertible corporate bond due within 1 yeaqr --- --- Finance leased fixed assets --- --- 123 Year 2007 Year 2006 III. Net increase of cash and cash equivalents --- --- Ending balance of cash 124,908,748.97 78,863,152.16 Less: Beginning balance of cash 78,863,152.16 70,304,094.11 Add: Ending balance of cash --- --- Less: Beginning balance of cash equivalents --- --- Net increase of cash and cash equivalents 46,045,596.81 8,559,058.05 （2）Suppmement information for cash flow statement of Parent Company Year 2007 Year 2006 I.Adusting net profit to cash flow from opwrating activities Net profit 14,002,842.90 -2,224,249.60 Add:Impairment loss provision of assets 14,002,842.90 -2,224,249.60 Depreciation of fixed assets, oil and gas assets and consumablebiological assets 17,954,548.87 -1,029,255.73 Amortization of intangible assets 7,246,890.07 6,744,664.83 Amortization of Long-term deferred expenses 605,253.24 567,578.90 Loss on disposal of fixed assets, intangible assets and other long-term deferred assets --- --- Loss from written off assets --- 41,590.18 Loss of fair value fluctuation on assets --- --- Financial cost --- --- Loss on investment 4,249,444.15 3,017,060.51 Decrease of deferred income tax assets -39,056,704.86 -655,182.66 Decrease of deferred income tax liabilities -2,216,993.29 -196,736.25 Decrease of inventories 3,336,929.28 --- Decease of operating receivables 22,675,055.41 2,041,737.71 Increase of operating receivables -35,071,833.41 19,071,094.51 Other 669,203.30 2,522,887.27 124 Year 2007 Year 2006 Net cash flows arising from operating activities -3,336,929.28 --- II. Significant investment and financing activities that withoutcash flows: -8,942,293.62 29,901,189.67 Liability transfer to capital --- --- Convertible corporate bond due within 1 yeaqr --- --- Finance leased fixed assets --- --- III. Net increase of cash and cash equivalents --- --- Ending balance of cash --- --- Less: Beginning balance of cash 51,415,565.66 36,046,382.20 Add: Ending balance of cash 36,046,382.20 17,999,482.95 Less: Beginning balance of cash equivalents --- --- Net increase of cash and cash equivalents 15,369,183.46 18,046,899.25 125 126 8．Process of calculating earnings per share (1) Process of calculating consolidated earnings per share Shenzhen Textile (Holdings) Co., Ltd. Supporting Statement of Consolidated Profit and Profit Distribution Statement Financial indicators Expressed in Return on net assets Earnings per share Fully diluted Weighted average Basic earnings per share Diluted earnings per share Item 2007 2006 2007 2006 2007 2006 2007 2006 Operating profit 4.60% 2.87% 4.89% 2.85% 0.07 0.04 0.07 Net profit 3.18% 1.37% 3.37% 1.36% 0.05 0.02 0.05 Net profit after deducting non-recurring gains and losses -6.41% 0.93% -6.80% 0.92% -0.10 0.01 -0.10 Process of calculation: 127 Fully diluted return on equity = Profit for the report period / net assets at the end of period Weighted average return on net assets=P/ （Eo+Np/2+Ei*Mi/Mo-Ej*Mj/Mo) Basic earnings per share=P/ （So+S1+Si*Mi/Mo-Sj*Mj/Mo) Diluted earnings per share = (P + diluted potential dividend of ordinary shares that has been recognized as expenses * (1-income tax rate) - conversion expenses) （S / 0＋S1＋Si*Mi/M0－Sj*Mj/M0+Num of shares increased by exercising subscription warrants and options) Notes to signs: Item 2007 2006 P：Profit for the report period Np：Net profit for the report period (not including minority gains and losses) 11,554,100.29 4,626,707.2 Eo：Beginning net assets (not including minority interest) 336,573,619.61 344,203,112.40 Ei：Net assets increased through new issue in the report period - - Ej：Net assets decreased through distribution of cash dividends in the report period - 12,256,200.0 Mi：The number of months from the next month of increase of net assets to the end of the report period - - Mj：The number of months from the next month of decrease of net assets to the end of the report period - 7 128 Mo：Number of months in the report period 12 12 So：Total number of shares at beginning of period 245,124,000 245,124,00 S1：The number of shares increased through capital surplus capitalization or distribution of stock dividends in the report period - - Si：Number of shares increased through new issue in the report period - - （2）Process of calculating parent Company earnings per share 129 Shenzhen Textile (Holdings) Co., Ltd. Supporting Statement of Parent Company Profit and Profit Distribution Statement Financial indicators Express Return on net assets Earnings per share Basic earnings per Fully diluted Weighted average share Diluted earnings per s Item 2007 2006 2007 2006 2007 2006 2007 2006 Operating profit 4.87% -0.89% 5.20% -0.87% 0.07 -0.01 0.07 Net profit 4.00% -0.69% 4.27% -0.68% 0.06 -0.01 0.06 Net profit after deducting non-recurring gains and losses -5.88% -0.86% -6.27% -0.84% -0.08 -0.01 -0.08 Process of calculation: Fully diluted return on equity = Profit for the report period / net assets at the end of period 130 Weighted average return on net assets=P/ （Eo+Np/2+Ei*Mi/Mo-Ej*Mj/M o) Basic earnings per share==P/ （So+S1+Si*Mi/Mo-Sj*Mj/Mo) Diluted earnings per share = (P + diluted potential dividend of ordinary shares that has been recognized as expenses * (1-income ta conversion expenses) /（S0＋S1＋Si*Mi/M0－Sj*Mj/M0+Number of shares increased by exercising subscription warrants and options Notes to signs: Item 2007 2006 P：Profit for the report period Np：Net profit for the report period (not including minority gains and losses) 14,002,842.90 -2,224,249.60 Eo：Beginning net assets (not including minority interest) 321,164,915.30 335,645,364.90 Ei：Net assets increased through new issue in the report period 15,201,566.72 - Ej：Net assets decreased through distribution of cash dividends in the report period - 12,256,200.00 Mi：The number of months from the next month of increase of net assets to the end of the report period - Mj：The number of months from the next month of decrease of net assets to the end of the 7 131 report period Mo：Number of months in the report period 12 12 So：Total number of shares at beginning of period 245,124,000 245,124,000 S1：The number of shares increased through capital surplus capitalization or distribution of stock dividends in the report period - - Si：Number of shares increased through new issue in the report period - - (The accompanying notes form an integral part of financial statements) Legal representative： Financial controller： The person in change of the financial Dept： 132 133 Note 14. Other important events By the date of the statement, the Company had no other important events to be disclosed. Note 15. Difference adjustment statement of Domestic accounting standards and international accounting 1. Difference adjustment statement of Domestic accounting standards and international accounting standar Unit：RMB’000 Year 2007 Year 2006 Financial report issued be China registered 11,554 4,627 accountants Adjustment made to comply with International 22,555 2,956 Financial Reporting Standards Of which:- write up depreciation of investment 2,346 2,346 real estate drown more Amortization of intangible assets 785 785 The equity investment difference of joint --- 689 companies does not have to be amortized. 134 Write back the impairment of other assets --- 1,500 The profit circulation of the restricted shares 19,424 --- is granted The equity of listed stock was listed as --- -2,364 expense Restate according to International Financial 34,109 Reporting Standards. 7,583 2. Difference adjustment statement of Domestic accounting standards and international accounting standard Unit: RMB’000 Year 2007 Year 2006 Financial report issued be China registered 363,329 336,573 accountants Adjustment made to comply with International 26,882 22,865 Financial Reporting Standards Of which:- write up depreciation of 27,528 25,182 investment real estate drown more 135 Amortization of intangible assets -546 -1,331 The equity investment difference of 1,378 1,378 joint companies does not have to be amortized. Write back the impairment of other assets 886 --- The profit circulation of the restricted -2,364 -2,364 shares is granted The equity of listed stock was listed as 390,211 expense 359,438 Restate according to International Financial Reporting Standards. Attached IV. Special Audit Statement on Status of Fund Occupation by the Controlling Shareholder and Rela (Holding) Co., Ltd. and Its Regulation-violating Guarantees Special Statement on the Fund Occupation by the Controlling Sh Related Parties of Shenzhen Textile (Holding) Co., Ltd. Shen 136 To all Shenzhen Textile (Holding) Co., Ltd.: We accepted entrustment and audited the financial statements of Shenzhen Textile (Holding) Co., Ltd. (hereinafter ref issued Shen Peng Suo Gu Shen Zi (2008) No. 090 unqualified auditor's report on April 18, 2008. In accordance with the Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the Stat Circular"), we rechecked the accompanying summary statement of fund occupation by the controlling shareholder and othe (hereinafter referred to as "Summary Statement") It is the responsibility of the Company's management to prepare the Summary Statement according to the require truthfulness, legality and completeness. We are responsible for making special statement on the Summary Statement. Our rechecking work includes verification of the content of the Summary Statement and relevant content of the Compan relevant audit procedure implemented in the audit of the financial statements of the Company for 2007 in respect of tran implement additional audit procedure or other procedures to the data in the special statement. After rechecking, we did not find that the Summary Statement prepared by the Company was inconsistent with relevan of the Company for 2007 in all material aspects. In order to better understand the status of fund occupation by the controlling shareholder and other related parties of the should be read with audited financial statements. Shenzhen Pengcheng Certified Public Accountants Co., Ltd. 137 Shenzhen yChina Aprul 18,2008 138 Summary Statement of Fund Occupation by the Controlling Shareholder and Relationship Type of Balance of fund between fund Account title of Accumulative Accumulative B fund Name of related occupied at occupation party the Company for amount of funds amount of funds fun occupation party beginning of and the accounting occupied in 2007 repaid in 2007 at e party 2007 Company Controlling shareholder, actual controller and its affiliated Subtotal --- --- --- Related natural persons and the legal persons controlled by them Subtotal --- --- --- Other Joint related Shenzhen Account venture 1,565,999.51 11,103,348.28 10,137,122.00 2, persons and Tianlong receivable their Industrial & Joint affiliated Trading Co., Ltd. Other receivable 500,000.00 --- --- enterprises venture 139 enterprises Shenzhen Xinfang Joint Other --- 576,766.15 -- Knitting Co., Ltd. venture Receivable Subtotal 2,065,999.51 11,680,114.43 10,137,122.00 3, Listed Company of Subsidiaries and affiliated enterprised of the Company Subtotal --- --- --- Total 2,065,999.51 11,680,114.43 10,137,122.00 3, 140