ST中冠B(200018)2008年年度报告（英文版）

深圳中冠纺织印染股份有限公司 Shenzhen Victor Onward Textile Industrial Co., Ltd. 2008 Annual Report April 2009 1/130 Important Notes The Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. Mr. Hu Yongfeng, board chairman and General Manager, Mr.Zhang Jinliang, General Manager , Mr. Ren Chengzheng , Manager of Financial Dept of the Company represent and warrant the financial report in this report is true and complete. 2/130 Contents Section 1. Company Profile Section II. Summary of Accounting Highlights and Business Highlights Section III Changes in Share Capital and Particulars about Shareholders Section IV. Particulars about Directors, Supervisors, Senior Executives and Employees Section V Administrative Structure Section VI. Particulars about Shareholders’ General Meeting Section VII Report of the Board of Directors Section VIII Report of the Supervisory Committee Section IX Important Events Section X. Financial Report Section X1. Documents for Reference 3/130 Section I Brief Introduction of the Company I. Brief Introduction of the Company (I) Name of the Company in Chinese: 深圳中冠纺织印染股份有限公司 Name in English: Shenzhen Victor Onward Textile Industrial Co., Ltd. Abbreviation of English name of the Company: VICTOR ONWARD (II) Legal Representative: Hu Yongfeng (III) Secretary to the Board of Directors : Chen Xing Contact address: Room 1308, Hualian Building, No.2008 Shennan Zhong Road , Shenzhen Tel：（755）83668254 Fax: (755) 83668427 E-mail: szg000018@126.com Securities affair representative: Wu Xia Contact address: Room 1308, Hualiang Building, No.2008 Shennan Zhong Road, Shenzhen Tel：（755）83667895 Fax：（755）83668427 E-mail: wuxia_08@126.com IV. Registered address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Business address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Contact address: Room 1308, Hualiang Building, No.2008 Shennan Zhong Road, Shenzhen Zip Code: 518119 Website: http:// www.chinaszvo.com E-mail：szvo@chinaszvo.com (V) Designated newspapers for information disclosure: Securities Times and Hong Kong Commercial Daily. Designated website for information disclosure: http://www.cninfo.com.cn The place for preparing and placing the annual report: Office of the board secretary of the Company (VI) Stock exchange for listing of the stocks of the Company: Shenzhen Stock Exchange Stock abbreviation: ST Shenzhen Victor Onward A, ST Shenzhen Victor Onward B Stock code : 000018, 200018 VII. Other Relevant Information of the Company 4/130 1. The date and place when and where the Company made its first registration: The Company was first registered as Shenzhen Victor Onward Printing and Dyeing Co., Ltd. in Shenzhen in 1984. The Company changed its registration and was registered as Shenzhen Victor Onward Textile Industrial Co., Ltd. in Shenzhen in 1991. 2. Registration No. of Legal Entity Business License: 440301501131182 3. Tax Registration No.: 440301618801483 4. The name and business address of the Certified Public Accountants engaged by the Company Name: Shinewing Certified Public Accountants Address:Room 4001A,Lianhe Plaza, Futian District, Shenzhen, China Section II. Summary of Accounting Highlights and Business Highlights I. Main Profit Indicators of 2008 Unit: RMB Items Amount Operating profit -26,089,064 Total profit -26,168,635 Net profit attributable to the shareholders of the listed company -25,957,333 Net profit after deducting of non-recurring gain/loss attributable to the shareholders of listed company -26,977,875 Cash flow generated by business operation, net 13,621,421 Difference adjustment statement of accounting staement : Net profit Net assets Same period of last Balance of This period Balance of period-end year period-begin Pursuant to overseas -25,746,704.00 -124,242,022.00 166,567,448.00 127,788,287.00 accounting standards Pursuant to Chinese -26,057,341.00 -124,579,539.00 170,474,941.00 130,957,788.00 accounting standards Subitem and total adjusted pursuant to international accounting standards: I. Statement balance of the Group compiled by -26,057,341.00 -124,579,539.00 170,474,941.00 130,957,788.00 Chinese EAS 1. Switch back the part of Hong Kong house 310,637.00 337,517.00 -3,907,493.00 -3,373,398.00 property assessment in accordance with IAS Accordance with IAS -25,746,704.00 -124,242,022.00 166,567,448.00 127,584,390.00 Shinewing Certified Public Accountants has audited the 2008 Accounting Statement compiled by the Group in accordance with International Accounting Standard. Items of deducting non-recurring gains and losses and the involved amounts are as following: 5/130 Items of non-recurring gains and losses Amount Notes（if applicable） Gains and losses of non-recurring -10,878.00 Except the effective hedge business related to the normal operation business of the Company, the profit and loss in the changes of fair values caused by the holding of tradable financial assets and tradable financial liabilities as well as 151,431.00 the investment returns in disposal of tradable financial assets, tradable financial liabilities and saleable financial assets Single impairment test for impairment of receivables 997,924.00 transferred back to preparation Other non-operating income and expenditure beside for -68,693.00 the above items Amount of influence of minority interests -49,242.00 Total 1,020,542.00 - 2. Highlights of accounting data and financial indicators in the latest three years Main accounting data Unit：RMB Changed Year 2008 Year 2007 over last Year 2006 year（％） After Before Before After After adjustment adjustmen Adjustment Adjustment adjustment t 243,278,584.0 Operating profit 46,881,258.00 103,568,595.00 103,568,595.00 -54.73% 243,278,584.00 0 Total profit -26,168,635.00 -124,409,530.00 -124,409,530.00 -78.97% 22,892,087.00 21,833,888.00 Net profit attributable to the shareholders -25,957,333.00 -116,356,882.00 -116,356,882.00 -77.69% 30,057,907.00 28,992,654.00 of the listed company Net profit after deducting of non-recurring gain/loss -48,764,043.0 -26,977,875.00 -110,655,141.00 -110,655,141.00 -75.62% -48,771,099.00 attributable to 0 the shareholders of listed company Cash flow generated by 13,621,421.00 8,127,432.00 8,127,432.00 67.60% 273,485.00 273,485.00 business operation, net Changed End of 2008 End of 2007 over last End of 2006 year（％） After Before Before After After adjustment adjustmen Adjustment Adjustment adjustment t 445,576,711.0 Gross assets 192,923,851.00 229,451,566.00 229,451,566.00 -15.92% 447,899,399.00 0 Shareholders’ 292,773,431.0 130,073,334.00 169,602,112.00 169,602,112.00 -23.31% 293,549,081.00 equity 0 Capital stock 169,142,356.00 169,142,356.00 169,142,356.00 0.00% 169,142,356.0 169,142,356.00 6/130 0 Main Financial Indicators Unit：RMB Changed over Year 2008 Year 2007 Year 2006 last year（％） Before After After Before After Adjustment adjustment adjustment Adjustment adjustment Basic gains per -0.15 -0.69 -0.69 -7,826.09% 0.178 0.17 share(RMB/Share) Diluted gains per -0.15 -0.69 -0.69 -7,826.09% 0.178 0.17 share(RMB/Share) Basic earning per share after deducting of non-recurring -0.16 -0.64 -0.64 -7,538.46% -0.29 -0.25 gains/losses(RMB/Sha re) Net income on asset, -19.96% -68.61% -68.61% 48.65% 10.27% 9.88% fully diluted(%) Net income on asset, -16.34% -49.00% -49.00% 32.66% 10.74% 10.00% Weighted(%) Net income on asset, fully diluted and -20.74% -65.24% -65.24% 44.50% -16.66% -16.61% deducted non-recurring gain/loss(%) Net income on asset, weighted and deducted -16.99% -46.00% -46.00% 29.01% -17.43% -15.00% non-recurring gain/loss(%) Net cash flow per share generated by 0.081 0.048 0.048 68.75% 0.002 0.002 business operation (RMB/Share) Changed over End of 2008 End of 2007 last year（％） End of 2006 Before After After Before After Adjustment adjustment adjustment Adjustment adjustment Net asset per share attributable to shareholders of the 0.77 1.00 1.00 -23.00% 1.731 1.736 listed company(RMB/Share) 3．Attached Schedule of Profit Statement Return on equity % Earnings per share Fully Weighted Weighted Profit in the report period Fully diluted diluted average average Net profit attributable to the shareholders of the parent -0.19 -0.16 -0.15 -0.15 Company Net profit after deducting -0.20 -0.17 -0.16 -0.16 non-recuring gains and losses 7/130 attributable to the shareholders 4. Particulars about Changes in Shareholders' Equity in the Report Period Unit：（RMB） Owner’s equity Attributable to the Parent Company Minor Total of Items Share Attributable shareholders’ owners’ Other equity equity Capital profit Balance at the 169,142,356 43,881,067 26,309,287 -89,853,184 20,122,586 872,829 170,474,941 beginning of current year Changed in the current -4,686,436 -25,957,333 -8,885,009 11,625 -39,517,153 year Balance at the end of 169,142,356 39,194,631 26,309,287 -115,810,517 11,237,577 884,454 130,957,788 this term Section III. Particulars about Changes in Share Capital and Shareholders I. The changes in share capital (1) The changes in share capital Unit: shares Before this change Increase or decrease this time After this change (+/-) Quantity Proportion Quantity Proportio % Other Subtotal n% I. Share with conditional 56,963,401 -8,457,118 －8,457,118 48,506,283 33.68 28.68 subscription 1.State-owned shares 0 0 0 0 0 0 2.Staee-owned legal 13,822,369 8.17 -8,457,118 -8,457,118 5,365,251 3.17 person shares 3.Other domestic 43,141,032 25.51 0 0 43,141,032 25.51 shares Of which： 0 0 Domestic legal person 43,141,032 25.51 0 0 43,141,032 25.51 shares Domestic natural 0 0 0 0 0 0 person shares 4.Share held by foreign 0 0 0 0 0 0 investors Of which： 0 0 0 Foreign legal person 0 0 0 0 0 0 shares Foreign natural 0 0 0 0 0 0 person shares II. Shares with unconditional 112,178,955 8,457,118 8,457,118 120,636,073 66.32 71.32 subscription 8/130 1.Common shares in RMB 42,757,052 25.28 8,457,118 8,457,118 51,214,170 30.28 2.Foreign shares in 69,421,903 41.04 0 0 69,421,903 41.04 domestic market 3.Foregin shares in 0 0 0 0 overseas market 0 0 4.Other 0 0 0 0 0 0 III. Total of capital 169,142,356 100.00 0 0 169,142,356 100 shares Note: The increase or decrease of the quantity of shares in the above table is caused by the share holding structure reform carried out by the Company. (2).Change in shares subject to sale restriction (Unit :shares） Name of the Conditional Released Increased Conditional Reason of Date of shareholder shares at this year this year shares at condition releasing beginning end of year of year Share Union Holdings 43,141,032 0 0 43,141,032 structure June 16,2009 Co., Ltd. reform Shenzhen Textile Share June 16,2008 (Group)Holdings 13,822,369 8,457,118 0 5,365,251 structure June 16,2009 Ltd reform Union Share Development 0 0 0 0 structure August 28,2007 Group Co., Ltd. reform Total 56,963,401 8,457,118 0 48,506,283 II. Share issue and listing (1) The Company has never issued shares or derived securities within the previous three years as of the end of the report period. （2） The total number of the shares of and its structure of the Company remained unchanged within the previous three year by the end of the report period. III．Introduction to shareholders 1. Total number of shareholders at the end of the period: At the end of 2008, the Company had 11,324 registered shareholders in total including 5,887 shareholders of A shares and 5,437 shareholders of B shares. 2． Top 10 shareholders and top 10 holders of unconditional shares 9/130 Unit：shares Total number of shareholders 11,324 Particulars about the shareholding of the top ten shareholders Nature of Share Increase or Name of the Total Conditional Pledged or sharehold proport decrease in shareholder shares the year shares frozen er ion % Union Holdings Co., Ltd. Other 25.51% 43,141,032 0 43,141,032 0 STYLE-SUCCESS Foreign 14.46% 24,466,029 0 0 0 LIMITED shares Shenzhen Textile State-owne 9.29% 15,717,860 -654,509 5,365,251 0 (Group)Holdings Ltd d shares Union Development State-owne 3.72% 6,299,185 -84,551 0 0 Group Co., Ltd. d shares Rich Crown Investment Foreign 3.62% 6,114,556 0 0 0 Co., Ltd. shares Foreign Shing Ying Chieh 3.04% 5,137,061 -130,500 0 0 shares Yang Xiaohua Other 1.39% 2,343,637 538,912 0 0 Chen Weiyu Other 0.91% 1,538,449 0 0 0 Taifook Securities Foreign Company 0.79% 1,337,583 -18,034 0 Limited-Account Client shares Yu Aijun Other 0.44% 746,471 0 0 0 Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Type of shares Foreign shares placed in domestic STYLE-SUCCESS LIMITED 24,466,029 exchange Shenzhen Textile (Group)Holdings Ltd 10,352,609 RMB Common shares Union Development Group Co., 6,299,185 RMB Common shares Ltd. Foreign shares placed in domestic Rich Crown Investment Co., Ltd. 6,114,556 exchange Foreign shares placed in domestic Shing Ying Chieh 5,137,061 exchange Yang Xiaohua 2,343,637 RMB Common shares Chen Weiyu 1,538,449 RMB Common shares Taifook Securities Company Foreign shares placed in domestic 1,337,583 Limited-Account Client exchange Yu Aijun 746,471 RMB Common shares Zhu Qidi 700,000 RMB Common shares Notes to the related The controlling shareholder of the above-mentioned largest relationship between the shareholder Shenzhen Union Holdings Ltd.and fifth shareholder shareholders or their Rich Crown Investment Co., Ltd.. Is Union Development Group Ltd. concerted action 3. Introduction to the largest shareholder of the Company Name of the largest shareholder of the Company: Shenzhen Union Holdings Co., Ltd. Legal representative: Dong Binggen Date of establishment: September 11, 1989 Business scope: Production of and dealing in various fabrics, garments chemical fibers and textile equipment, domestic commerce, material supply and marketing (excluding monopolized commodities), management of self-owned properties, processing with imported materials and designs, internal introduction and foreign cooperation, assembling with imported spare parts and cooperation in compensation trade. Registered capital：RMB 1123.8877 million 10/130 Nature of enterprise: Share-holding system Registered address: Shenzhen 4. Particulars about the actual controller of the Company In the report period, the actual controller of the Company remains unchanged. Name of the actual controller: Union Development Group Co., Ltd. Legal representative: Dong Binggen Date of establishment: August. 23, 1983 Registered capital: RMB 90.61 million Business scope: Production and sales of chemical, textile and garment products (the license of product site is subject to separate application), import and export business, contracting of project construction, import and export of necessary engineering equipment and materials, export of labor, external investment, technical consulting services, real estate development and sales within the scope of land use right legally obtained, property management and lease services and sales of automobiles (including cars). The property right and controlling relationship between Union Development Group Ltd. and the Company is as follows: Hangzhou Jinjiang Group C Ltd 20.89% Union Development Group Co., 31.32% 99.99% 3.72% 4.13% Union Holdings Co., Ltd. Rich Crown Investment Co., Ltd 25.51% 3.62% Shenzhen Victor Onward Textile Industrial Co., Ltd. Statement of Union Group on its shareholders, shareholder structure and actual controller: Union Group has been a standardized limited liability company since its establishment. Despite decentralized equity and large number of shareholders, the department in charge of industry and state asset management department has been incontrovertible direct administrator because they were all state-owned shareholders 11/130 and engaged in the same industry before 2004. Private capital has entered since 2004 and its proportion has been unceasingly enlarged. The largest shareholder turned from national administrative department into a state-owned enterprise, which was then replaced by a private enterprise. The actual controller of Union Group gradually changed. The concrete process of change is as follows: (1) After the establishment of Union Group and before State-owned Assets Commission under the State Council transferred 12.09% equity held by it to OCT Group, the relationship of subordination of Union Group was definite. State administrative agencies (Ministry of Textile Industry, China Textile Federation, industrial commission of national enterprise and State-owned Assets Commission under the State Council) exercised management rights. Relevant national departments were responsible for the establishment of board of directors, appointment of management, audit and supervision. (2) From April 2005, OCT Group became the largest shareholder of Union Group. The management methods adopted when State-owned Assets Commission under the State Council conducted supervision were still adopted in some aspects. For examples, Union Group regularly submitted financial data to state assets management department and accepted the economy audit by the supervisory committee under the State Council. The financial statements of OCT Group consolidated those of Union Group. However, changes started in some aspects. The establishment of board of directors and the appointment of management were carried out completely according to the Articles of Association of Union Group. The shareholders' general meeting and the board of directors independently exercised the powers assigned by laws and regulations. The reelection of board of directors and the appointment of management were no longer reported to relevant department for examination and approval. (3) In 2005, Hangzhou Jinjiang Group held 20.89% equity of Union Group through acquisition and became the largest shareholder of Union Group by replacing OCT Group. Hangzhou Jinjiang Group and OCT Group respectively appointed one of 8 members of the fifth board of directors reelected in that year. (4) In 2007, Union Group did not submit various financial data to OCT Group and state-owned regulatory authority. The statements of OCT Group did not consolidate those of Union Group. State assets supervision organ did not conduct 12/130 regular economy audit of Union Group either. (5) Though private enterprise Hangzhou Jinjiang Group is the largest shareholder, only one of 8 members of the board of directors comes from it and it has no substantial influence on important decisions of Union Group. Meanwhile, Hangzhou Jinjiang Group neither participated in the daily management and operation of Union Group, nor required submission of daily financial statements, nor consolidated financial statements nor sent personnel to conduct economy audit (6) Since Dong Binggen, board chairman of Union Group, held office in 1997, he has led cadres and employees to make arduous efforts and realized growth of assets and profit of Union Group by big margin in successive years, who has been fully acclaimed by shareholders and enjoyed high prestige inside and outside Union Group. From the fifth board of directors, Dong Binggen was jointly recommended by all shareholders to enter the board of directors and was elected as board chairman. He does not represent any shareholder. Instead, he is responsible for all shareholders. Based on the above facts, Union Group holds the opinion that Union Group, as a limited liability company with a history of 25 years, has formed a standardized mode of operation according to law and business management during change of equity and its corporate governance structure has been increasingly stable and mature. The shareholders' meeting is the highest power organ of the Company. The board of directors is responsible to the shareholders' meeting and exercises the right to make decisions on important matters of Union Group according to the articles of association. The management is responsible for daily operation management of Union Group. At present, Union Group does not have administrative department or unit in charge. The largest shareholder only holds 20.89% equity of Union Group. No shareholder has absolute control over or absolute influence on the shareholders' meeting and board of directors of Union Group and is daily operation. The mutual restriction between shareholders of Union Group is quite apparent. Therefore, Union Group only has the largest shareholder and does not have actual controller at present. Enclosed: The equity structure of Union Group is as follows: Amount of Proportion Remarks No. Name of shareholder capital of capital contribution contribution 13/130 (RMB’0000) (%) 1 Hangzhou Jinjiang Group Co., Ltd. 1892.812 20.8896 Private 2 OCT Group 1094.95 12.0842 State-owned Zhejiang Kangrun Investment Private 3 926.0019 10.2196 Co.,Ltd. Shandong Garment, Footwear and State-owned 4 569.9196 6.2898 Headwear Industrial Group Hebei Textile Industry Supply and State-owned 5 531.48 5.8655 Sales Company Tianjing Textile Group( Holdings) State-owned 6 530.00 5.8492 Company Heilongjiang Textile Industry State-owned 7 500.00 5.5181 Association 8 Sichuan Shulian Co., Ltd. 329.024 3.6312 Private Hubei Textile Industry Investment State-owned 9 300.00 3.3108 Promotion Center Shanghai Kangrun Investment Private 10 719.2567 7.918 Management Company 11 Jiangsu Textile (Group) Company 288.6723 3.1859 State-owned Liaoning Textile Industry State-owned 12 286.44 3.1612 Association 13 Jiangxi Textile (Group) Company 265.00 2.9246 State-owned 14 Shenzhen Textile (Group)Holdings Ltd 260.00 2.8604 State-owned Xinjiang Textile Industry State-owned 15 236.46 2.6096 Association Beijing Textile Holdings Co., State-owned 16 215.84 2.3820 Ltd. China Textile Machineay State-owned 17 115.1435 1.2707 (Group)Co., Ltd. Total 9061.00 100.00 5. Introduction to other legal person shareholders holding over 10% of total shares (1) Style-Success Ltd. Legal Representative: Miss Amy Wang Date of establishment:November 1999 14/130 Business scope: Investment 6. The quantity of shares held by the top 10 shareholders subject to sale restriction and conditions of sale restriction Unit：Shares Shares with Newly added Name of conditions Date when No conditioned tradable Conditions holder trading allowed subscription shares 36 months after the first trading day upon Union Holdings Co., the implementation of 1 43,141,032 June 16,2009 43,141,032 Ltd. the plan for share holding structure reform June 27,2007 8,457,118 12months after the June 16,2008 8,457,118 first trading day upon Shenzhen Textile the implementation of 2 22,279,487 (Group)Holdings Ltd June 16,2009 5,365,251 the plan for share holding structure reform 12 months after the first trading day upon Union Development the implementation of 3 6,987,814 August 28,2007 6,987,814 Group Co., Ltd. the plan for share holding structure reform Section IV Particulars about Directors, Supervisors, Senior Executives and Employees I Basic information about directors, supervisors and senior executives （1）Basic information 1.Directors, Supervisors and senior executives Increase/dec The total Incentive rease amount of stock option Shares held Shares held amount remuneration vested during Se at the Name Age Title Term of office at the received from x year-beginn the reporting year-end the Company in ing the report period period Board No Hu Ma 46 chairman/Gen 2008.4-2011.4 0 0 No change 38 Yongfeng le eral Manager Ma Vice Board No Ding Yue 50 2008.4-2011.4 0 0 No change 0 le chairman Fe No Zhang Mei ma 33 Director 2008.4-2011.4 0 0 No change 0 le Fe No Vice Board Shu Yibo ma 36 2008.4-2011.4 0 0 No change 0 chairman le 15/130 Feng Ma No 46 Director 2008.4-2011.4 0 0 No change 0 Junbin le Ma Independent No Yu Ligang 49 2008.4-2011.4 0 0 No change 0 le director Shen Ma Independent No 51 2008.4-2011.4 0 0 No change 0 Songqin le director Wang Ma Independent No 35 2008.4-2011.4 0 0 No change 0 Tianguang le director Chairman of No Dong Ma the 59 2008.4-2011.4 0 0 No change 0 Binggen le supervisory committee Fe No Huang ma 51 Supervisor 2008.4-2011.4 0 0 No change 0 Xiaoping le Pan Ma No 57 Supervisor 2008.4-2011.4 0 0 No change 8.4 Weichao le Deputy No Zhang Ma 46 general 2008.4-2011.4 0 0 No change 15 Jinliang le Manager Director/ No Ma Chen Xing 35 Board 2008.4-2011.4 0 0 No change 13.3 le secretary Ren No Ma Manager of Changzhen 33 2008.4-2011.4 0 0 No change 7.3 le Finance Dept g Ma Vice Board No Li Zhihua 51 2003.5-2008.4 0 0 No change 0 le chairman Ma Vice Board No Song Tao 56 2003.5-2008.4 0 0 No change 0 le chairman Guan Ma No 62 Director 2003.5-2008.4 0 0 No change 0 Tongke le Sun Ma Director/Gen No 44 2003.5-2008.4 0 0 No change 6.3 Zhiping le eral Manager Mai Ma Independent HKD 30,000 No 47 2003.5-2008.4 0 0 No change Jianguang le director Ma Independent HKD30,000 No Li Weiping 55 2003.5-2008.4 0 0 No change le director Fe HKD 30,000 No Independent Shu Man ma 39 2003.9-2008.4 0 0 No change le director Fe No Gui Liping ma 50 Supervisor 2003.5-2008.4 0 0 No change 0 le Cai Ma No 58 Supervisor 2003.5-2008.4 0 0 No change 2.9 Wanqing le 2. Particulars about directors and supervisors holding positions at corporate shareholders Whether receiving Name of corporate Name Position Term of office remunerati shareholders on or subsidy Dong Shenzhen Union Holdings Board chairman 2007.6-2010.6 No Binggen Ltd. 16/130 Secretary of Party Dong Union Development Group committee, chairman of 2006.9-2009.9 Yes Binggen Co., Ltd. board of directors and GM Union Development Group Ding Yue Deputy general manager 2006.9-2009.9 Yes Co., Ltd. Shenzhen Union Holdings Chairman of the Supervisory Ding Yue Committee 2007.6-2010.6 No Ltd. Hu Union Development Group Deputy general manager 2006.9-2009.9 No Yongfeng Co., Ltd. Hu Shenzhen Union Holdings Vice Board chairman 2007.6-2010.6 No Yongfeng Ltd. Secretary of Party Huang Union Development Group committee, secretary of 2006.9-2009.9 Yes Xiaoping Co., Ltd. discipline committee Feng Shenzhen Textile(Holding) Deputy general manage 2007.1-2010.1 Yes Junbin Co., Ltd. Guan Shenzhen Textile(Holding) Consultant 2007.1 till now No Tongke Co., Ltd. Gui Deputy chief accountant Union Development Group and manager of Finance 2006.9-2009.3 Yes Liping Co., Ltd. Dept. (II).Particulars about main work experience of present directors, supervisor and senior executives Chairman of the Board : Hu Yongfeng, male, with bachelor degree, was born in July 1962, Senior Engineer， graduated from Southeast Textile Technology Institute in 1983. He is ever took the post of section chief of state textile headquarters general office, He now serves as deputy general manager of Union Development Group Co., Ltd. and chairman of the Board of Union Holdings Co., Ltd., he served as chairman of the Board of the Company from Oct., 2000 till now. He served as General manager of the Company since April 2008. Director： Ding Yue, male, was born in March 1958, with bachelor degree, Senior Economist, graduated from Lanzhou University in 1983. He took the turns of deputy section chief of personnel labor department of Textile Technology Department, section chief of personnel labor department of textile headquarters, deputy director of personnel labor department of textile headquarters and concurrently director of talents exchange center of Textile Headquarters and chairman of the Board of Union Holdings Co., Ltd., He now serves as deputy general manager of Union Development Group Co., Ltd. and convener of the supervisory committee of Union Holdings Co., Ltd., and held the position of director of the Company from June 2002 till now. He served as Vice Chainman board of the Company since April 18, 2008. Shu Yibo, Female，was born in February 1970, who is studying for EMBA. ,ever took the post of Manager of Sale of Manqi Industry Co., Ltd., Director of Manqi Investment Development Co., Ltd..He is now in charge of Chairman of the board , General Manager of Manqi Industry Co., Ltd.,Chairman of board of Manqi Investment Development Co., Ltd.He served as director of the Company since April 18, 2008, He served as Vice Chairman of board of the Company July 29, 2008. 17/130 Zhang Mei, female,was born in February 1975, is a certified public accountant with Master's degree, She once worked at Financial Division of China Garment Corporation. He now serves as Deputy General manager of Finance Dept of Union Development Group Co., Ltd, He served as Director of the Company since April 18, 2008. Feng Junbin, male, was born in July 1962, is a junior college graduate. He has served successively as special enterprise controller of Dapu Financial Bureau of Guangdong Province, deputy division chief of Fengshun Financial Bureau and director of Audit Dept, Manager of Management Dept ,Assistant General Manager, Supervisor of Shenzhen Textile (Holdings) Co., Ltd. He now serves as Deputy General Manager of Shenzhen Textile (Holdings) Co., Ltd, He served as director of the Company April 18, 2008. Chen Xing, male, was born in March 1973, with doctor degree, graduated from Dongbei University in 2000; he ever took the post of business manager of operation office of Union Development Group Co., Ltd. and held the position of secretary of the Board of the Company from March 2002 till now. He served as director of the company since April 18, 2008. Independent directors: Jin Ligang, male, was born in August 1959, graduated from Beijing Foreign Trade College in 1980. From 1981 to 1983, he majored in international economy at Rome LUISS Private University. He once worked at North America and Oceania Department of Third Bureau of Ministry of Foreign Trade and Economic Cooperation, who was in charge of U.S.-related affairs. He has served as assistant of board chairman and president and office director of West Europe China Trade Center (Hamburg, West Germany), deputy chief and chief of America and Oceania Department of Ministry of Foreign Trade and Economic Cooperation, business counselor of Economic and Commercial Department of Embassy in U.S. and business counselor of Economic and Business Office of Consulate General in New York in succession. He now serves as board chairman of American Stone Bridge International Company and director of Beijing Decision Making & Consultation Center. He served as Independent directors of the company since April 2008. Shen Songqin, male, was born in January 1957, has doctor's degree. In 1980, he graduated from Hangzhou University and worked there after graduation. He studied for Master's degree at Hangzhou University from 1985 and obtained the degree of master of Arts in 1988. He studied for doctor's degree from 1995 and obtained the degree of doctor of literature in 1998. His dissertation was appraised "Excellent Dissertation for Doctor's Degree in China in 2000". He now is a professor, doctor tutor and deputy dean of Chinese Language Department of Zhejiang University. In 2006, he was appraised as Qianjiang Scholor of Zhejiang Province (specially engaged professor). In 2007, he was appraised as Middle-aged/Young Expert with Outstanding Contribution in Zhejiang Province". He served as independent director of the Company since April 18, 2008. Wang Tianguang, male, Was born in May 1973, is a certified public accountant.Lawer. He graduated from Economic School of Beijing University. He once served as deputy chief of Listed 18/130 Company Supervision Division of Shenzhen Securities Regulatory Bureau. general manager of Shenzhen Investment Banking Dept. He now serves as Deputy General Manger of Investment Bank Headquarters of Southwest securities Co., Ltd of Yinhe Securities.He served as Independent direstor of the company since April 18, 2008. Supervisors: Dong Binggen, male, Was born in July 1949, an engineer, with bachelor degree, graduated from East China Textile Technology Institute in 1977. He ever took the post of deputy president of Zhejiang Silk Technology Institute, general manager of China Clothes Headquarters and board chairperson of China Clothes Association, etc.; he is now in charge of secretary of Party Committee, chairman of the board and general manager of Shenzhen Union Development Group Co., Ltd. and chairman of the Board of Shenzhen Union Holdings Co., Ltd., He served as Charnman and held the position of Chairman of the Supervisory Committee of the Company from June 2002 till now. Huang Xiaoping, female, Was born in January 1967, an Economist, is a junior college graduate,once served as policewoman of Public Security Bureau of Dan County, Hainan, chief staff and deputy director of office, deputy chief and chief of Personnel & Labor Division and office director of China Garment Industry Corporation, vice chairman of China Garment Association. She now serves as deputy secretary of Party committee and secretary of discipline committee of Union Development Group Co., Ltd. Co., Ltd. He served as Supervisor of the company since April 18, 2008. Pan Weichao, male,Was born in August 1951, is a junior college graduate., has worked at the Company since April 1984. He has served successively as vice chairman of labor union, supervisor of General Affairs Dept. and chairman of labor union. Since April 18, 2008, he has served as employee-representing supervisor of the Company. Deputy general manager: Zhang Jinliang, male,was born in May 1962, Senior Accountant, a senior accountant with bachelor degree, was born in May 1962. He ever took the post of senior section chief of Shenyang Dispatch and Shenzhen Dispatch of Audit Administration, manager of operation department of Shenzhen Property Union Holdings Co., Ltd., deputy director and director of auditing office of Union Development Group Co., Ltd., deputy general manager of Shenzhen Union Holdings Co., Ltd. and general manager of Yuyao Union Textile Co., Ltd., and he held the position of deputy general manager of the Company from Dec 2004 till now. Secretary of the Board of Directors: Chen Xing (Refer to director column for details) Manager of Finance Dept: Ren Changzheng, male, was born in August 1975, He graduated from Guizhou Finance University, once worked at Financial Division of Guizhou Yunman Aircraft Factory and Planning 19/130 and Finance Division of Union Development Group Co., Ltd. He now serves as Manager of Finance Dept of the Company. （III）Annual remuneration The total amount of annual remuneration of directors, supervisors and senior executives in 2008 is RMB 0.9915 million. Including,The allowance for each independent director is HKD 30,000 (including tax) per year, the current independent directors did not receive allowance. （IV）Particulars about leaving post, engaging and dismissing In the report period, the term of office of the fourth board of directors and supervisory committee expired. The first provisional shareholders' general meeting of the Company in 2008 elected the members of new board of directors and supervisory committee. The fifth board of directors is composed of directors Hu Yongfeng, Ding Yue ,Zhangmei, Shu Yibo,Feng Junbin and Chen Xing and independent directors Jin Ligang ,Shen Songqin and Wang Tianguang. The fifth supervisory committee is composed of Dong Bingen, Huang Xiaoping and Pan Weichao who is an employee representative. In the report year, the current independent directors did not receive allowance. The directors of the fourth board of directors who left their post upon expiration of the term of office include Li Zhihua, Song Tao, Guan Tongke and Sun Zhiping and independent directors Mai Jianguang, Li Weiping and Shu Man. The supervisors of the fourth supervisory committee who left their post upon expiration of the term of office include Gui Liping and Cai Wanqing. On April 18, 2008, The 1st meeting of the fifth board of directors elected Mr. Hu Yongfeng as chairman of the fifth board of directors and Mr. Ding Yue as vice board chairman. According to the nomination by the chairman of the board of directors of the Company, Mr. Hu Yongfeng was appointed as general manager of the Company and the appointment of Mr. Chen Xing as board secretary was renewed. According to nomination by the general manager of the Company, the meeting appointed Mr. Zhang Jinliang as deputy general manager of the Company and Mr. Ren Changzheng as financial manager of the Company. On July 29, 2008, the 3rd meeting of the fifth board of directors elected Ms Shu Yibo as vice board chairman of the Company. (V). Staffs: By the end of the report period, the Company had 35 staff members in total, including 7 managerial employees , 3 financial employees, 25 Logistics employees. The Company has provided social insurance to its staff according to relevant regulations of the government. Section V Administrative Structure 1.Administrative Status 20/130 The Company has constantly improved its corporate administration structure, established modern enterprise system and standardized its operation strictly according to the requirements of the Company Law, Securities Law ,Listed Companies in China and relevant laws and regulations of CSRC. In the report period, in accordance with relevant stipulations of listed firm governance campaign and the on-site inspection requirement of Shenzhen Securities Regulatory Bureau of China Securities Regulatory Commission to us, we have revised the Articles of Association, laid down the Reception and Promotion Rules, the Information Disclosure Management Rules, the Work Rules for General Manager, Shares Held by Directors, Trustees and Executives and Management Rules for the Change of Shares, further clarified the authorities of board of directors and board of trustees, and the decision-making procedures, to ensure they are compliant to the Principles for Listed Firm Governance. (1). Shareholders and shareholders' general meeting: The Company convened and held shareholders' general meeting strictly according to the requirements of Opinions on Standardization of Shareholders' General Meeting of Listed Companies, formulated Rules of Procedure of Shareholders' General Meeting, ensured all shareholders, especially medium and small shareholders, enjoy equal position and can fully exercise their own rights. (2). Relationship between the controlling shareholder and the Company: The acts of the controlling shareholder of the Company were standardized. It did not exceed the authority of the shareholders' general meeting to directly or indirectly intervene with the decision-making and operating activities of the Company. The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organ and business. The board of directors, the supervisory committee and internal organ of the Company are able to operate independently. (3). Directors and the board of directors: The Company elected directors strictly according to the director selection and appointment procedure specified in the Articles of Association of the Company and will further perfect director selection and appointment procedure and actively promote system of cumulative voting. The member composition of the board of directors of the Company complied with the requirements of laws and regulations. The board of directors of the Company formulated Rules of Procedure of the Board of Directors. Directors of the Company were able to attend board meetings and shareholders' general meetings with responsible attitude, actively participate in relevant training, get familiar with relevant laws and regulations and understand the rights, obligations and responsibilities of director. The Company has established independent director system according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The numbers of independent directors are 3 people. (4). Supervisors and the supervisory committee: The number and composition of the Supervisory Committee of the Company complied with the requirements of laws and 21/130 regulations. The Supervisory Committee of the Company formulated the Rules of Procedure of the Supervisory Committee. The supervisors of the Company were able to perform their duties seriously, take the attitude of being responsible for all shareholders and supervise the legality and regulation conformity of the Company's finance and the duty performance of the directors, managers and other senior executives of the Company. (5). Performance evaluation and encouragement and regulating mechanism The Company established the system of subsidy for independent directors and directors and remuneration for senior executives. The Company will further improve and perfect overall remuneration system, establish fair and transparent performance appraisal standard and stimulation and restriction mechanism for directors, supervisors and executives. (6). Interested parties: The Company was able to fully respect and safeguard the legal rights and interests of the interested parties including banks, other creditors, employees and consumers and promote its sustained and healthy development together with interested parties. (7).Information disclosure and transparency: The Company designated the secretary to the board of directors to be responsible for information disclosure, reception of shareholder and consultation. In the report period, the Company was able to truly, accurately, completely and timely disclose relevant information according to the provisions of laws, regulations and the Articles of Association of the Company. The Company will continue to operate in a standardized way strictly according to the requirements of relevant laws and regulations including the Company Law, further perfect company administration structure and establish and improve various regulations in light of the gap with the requirements of Standards of Administration of Listed Companies, ensure the maximization of shareholders' interests and safeguard the lawful rights and interests of all shareholders. II. Information on governance activities of the company 1. Information on governance activities of the company In accordance with the spirit in Notice on Strengthening Governance Activities of Listed Company issued by the China Securities Regulatory Commission, the Notice on Strengthening Governance Activities of Listed Company issued by Shenzhen Stock Exchange and the Notice on Strengthening Governance Activities of Listed Company in Shenzhen issued by Shenzhen Stock Supervision Bureau, and according to self conditions, the company conducted governance and self examination. In accordance with the spirit in China Securities Regulatory Commission (2008) File 27, the company made one-by-one examination on the rectification by referring to the Report of Results of Rectification on Special Governance of the Company, and made overall examination and summary on the first step of special governance. The Information on Progress of Rectification on July 31, 2008. So far, the company had completed the special activities of strengthening governance. 2.According to the Notice on strengthening Management on Listed Company Offering Non-public Information to Big Shareholders and Actual Controllers issued by Shenzhen Securities Regulatory Commission on March 19, 2007 (SSRC Co. Zi [2007] No.11), the Supplementary Notice on Strengthening Supervision on Governance of Offering Non-public Information to Big Shareholders and Actual Controllers (SSRC Co. Zi [2007] No.39, hereinafter referred to as "No. 39), the company carefully carried out self-examination, the relevant information as follows: 22/130 （1） The company reported monthly financial statements which were examined by the company chairman and signed by general manager and marked with "Internal information, confidential". The periodic reports as follows: Quarterly statement, semi-annual statement, annual statement must be reported after being completed in official financial report of the company, then sent to the Board of Directors for approval. In addition to the above situations, the company and big shareholders and actual control do not have the situations listed as "submitting production investment plans and financial budget, accepting appointment from big shareholders and actual controllers on directors and intermediate managers of the company, auditing the listed company and its subsidiaries or specific projects, asset purchase of listed company and approval of external investment and the implementation of property right reporting rules and other governance situations. （2）Strengthen the management of internal information, preventing internal transactions In accordance with the requirements in File No. 39, the company had reported the Promises in Strengthening Management of Non-public Information to Shenzhen Security Regulatory Bureau about big shareholders and actual controller, and had informed all directors, supervisors, senior managers about requirements from Shenzhen Security Regulatory Bureau, urged all the directors, supervisor and senior managers to abide by the Securities Law and Measures to Disclosure of Information of Listed Company. They must not disclose relevant information in the company or offer relevant information to related shareholders, actual controller and other specific objects. The governance activities on listed companies launched by China Securities Regulatory Commission in 2007 had reached their desired purposes, and provided rare opportunity for the company to improve governance level. The company will take this opportunity to improve the standard operation ability and improve governance structures. III. Particulars about duty performance of independent directors The Company has perfected independent director system in the Articles of Association of the Company according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The board of directors of the Company now has three independent directors, taking up one third of the total number of directors. These Three independent directors have consciously performed their duties according to the principles of good faith and diligence since they came into office. They expressed independent opinions on important matters of the Company including external guarantees, related transactions, corporate governance. Independent Directors’ attendance of the Boarding meeting Absent Times of Attended Attended form Name meeting should personally by proxy Notes meeting attend (times) (times) (times) He was elected as independent director at Ji Ligang 4 4 0 0 the time of reelection of board of directors in 23/130 April 2008. He was elected as independent director at Shen Songqin 4 4 0 0 the time of reelection of board of directors in April 2008. He was elected as independent director at Wang 4 4 0 0 the time of reelection Tianguang of board of directors in April 2008. His term of office Mai Jianguang 1 1 0 0 expired in April 2008. His term of office Shu Man 1 1 0 0 expired in April 2008. His term of office Li Weiping 1 1 0 0 expired in April 2008. IV. The separation of the Company from its controlling shareholder in five respects The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organization and business. The particulars are as follows: 1. Business: The Company has complete business and the ability of independent operation. It is completely independent from its controlling shareholder in respect of business. 2. Personnel: The Company is independent in respect of labor, personnel and wage management. the board chairman and general manager of the Company, received remuneration from the actual controller, other senior executives received remuneration from the Company, who neither held position at nor received remuneration from the controlling shareholder. 3. Assets: The Company has complete assets. Its property rights are definite and not related to its controlling shareholder and other shareholders. 4. Organization: The Company established an organizational structure that is completely independent of its controlling shareholder. The board of directors, the supervisory committee and internal organs of the Company are able to operate independently. 5. Finance: The Company has independent finance. It set up independent finance department and established independent financial accounting system. It has standardized and independent financial and accounting system and financial control system applicable to branches and subsidiaries. The Company independently pays taxes according to law. It opened accounts with banks independently. The Company and its controlling shareholder do not use the same bank account. V. Self-Appraisal of Internal Control: (I). Overview of Internal Control 1. Update on Rules Building for Internal Control To enhance internal control, in accordance with the provisions of the Corporate Law, the 24/130 Securities Law, Stock Listing Rules for Shenzhen Stock Exchange, Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firm, other laws & regulations, we have laid down and perfected the Articles of Association, Rules of Order for Annual Shareholder Meeting, Rules of Order for Board of Directors, Rules of Order for Board of Trustees, Work Rules for Independent Directors, the Information Disclosure Affairs Management Rules, other management rules and internal control rules, which have produced apparent effects to the operation of our company. 2. Internal Audit Department for Supervision & Inspection, Work and Staffing of Such Department We do not have an internal audit department particularly for supervision and inspection. 3. Our Organizational Structure for Internal Control We exercise internal control by standardizing and effectively executing the articles of association, and authorizing in major operation level layer by layer. The specific measures include: 1) We have clearly stipulated the approval authorities and review procedures of the annual shareholder meeting and the board of directors for financial guarantees, which has effectively controlled the financial risks and credit risks of our company. 2) We have clarified the decision authorities for affiliated transactions, and demanded stringent review and decision-making procedures to be established. 3) We have clearly stipulated the definition, procedure, authorized amount and level of major investment, contract requirement, matters to be disclosed, etc. 4) Make analysis and judgment to major internal information, and go through relevant procedures in case we are required to fulfill information disclosure obligation. The parent company assigns directors and trustees to subsidiaries according to laws, regulations and the articles of association, to influence the production & operation activities of subsidiaries through directors and trustees, and promote the effective execution of duties of all levels by means of professional inspection. (II)．Key Control Activities 1. Management Update of Our Controlled Subsidiaries: 25/130 Shenzhen Victor Onward Textile Industrial Co., Ltd. Victor Onward Printing & Dyeing (Hong Kong) Co., Ltd Shenzhen Lianchang Shenzhen Nanhua Shenzhen East Asia Victor Printing & Dyeing Co., Printing & Dyeing Co., onward Textile Printing & Ltd Ltd Dyeing Co., Ltd Victor Onward Digital Zhejiang Hualian Printing Co., Ltd Hangzhou Bay Startup Co., Ltd To standardize the relations with controlled subsidiaries, enhance the support, guidance and management to controlled subsidiaries, promote controlled subsidiaries to run according to modern enterprise rule, and further perfect corporate governance structure: (1) Supervise various controlled subsidiaries to establish relevant operation plans and risk management procedures. (2) Enhance the performance appraisal of various controlled subsidiaries. (3) Various controlled subsidiaries execute necessary internal control self-inspections according to their operation natures. 2. Internal Control of Affiliated Transactions: We manage affiliated transactions in which we are involved in strict accordance to the management rules for affiliated transactions provided in the Internal Control Guidance for Listed Firms and the Stock Listing Rules promulgated by Shenzhen Stock Exchange, our Articles of Association and our Management Methods for Affiliated Transaction. The articles of association provides that the board of directors determines relevant affiliated transactions of our company within the power scope authorized in the annual shareholder meeting; the board of directors determines the decision authority of affiliated transactions and requires stringent review and decision-making procedures to be established. Our Management Methods for Affiliated Transaction have made specific stipulations to the affiliated individuals, affiliated relations, conditions, decision-making procedures and disclosure of affiliated transactions. Affiliated transactions of our company taking place in the report period are compliant to the principles of honesty, equality, self-willingness, fairness, openness, and do not harm the interests of our 26/130 company and other shareholders. Review procedures, voting avoiding and other requirements have been abided by according to relevant laws, administrative regulations, departmental regulations, the stock listing rules, etc. Relevant responsible individuals have fulfilled approval and report duties to affiliated transactions when they take place to our company and controlled subsidiaries. 3. Internal Control of Financial Guarantees: According to the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firm, we have clearly stipulated the approval authorities, review procedures and information disclosure requirements of the annual shareholder meeting and the board of directors for financial guarantees, which have effectively controlled the financial risks and credit risks of our company. 4. Internal Control of the Use of Raised Capitals: We have made clear stipulations to the storage, approval, use, change, supervision and other matters of the funds in strict accordance to the Stock Listing Rules promulgated by Shenzhen Stock Exchange. 5. Internal Control of Major Investment: According to requirements of the Stock Listing Rules, Guidance on Internal Control of Listed Firms and other statutes, we have clearly stipulated the definition, procedure, authorized amount and level for major investment, contract requirement, disclosure matters, etc. The articles of association have clarified the approval authorities relevant review procedures of the annual shareholder meeting and the board of directors for major investment. Compared against the relevant provisions of the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firms, we have exercised stringent, adequate and effective internal control to investment, and have never violated the Guidance on Internal Control of Listed Firms, Stock Listing Rules, etc. 6. Internal Control of Information Disclosure: We have set up a set of effective stringent information management rule, enhanced the management of information affairs, ensured the accuracy and confidentiality of information, prevented information from being disclosed earlier than scheduled time, promoted directors, trustees and executives to fulfill their duties loyally and diligently, and guaranteed the truth, accuracy, promptness and fairness of disclosed information. We have conducted reception, communications and other investor relation activities and ensured the fairness of information disclosure according to the provisions of the Guidance of Shenzhen Stock Exchange on the Fair Information Disclosure of Listed 27/130 Firms, the Guidance of Shenzhen Stock Exchange on the Investor Relation Management of Listed Firms, etc. Individuals liable to report can promptly report relevant information to the board of directors and the secretary of board of directors. The secretary of board of directors shall analyze and judge major internal information, and promptly report to the board of directors of any matter whose information needs to be disclosed, so that the board of directors to go through relevant procedures and disclose to external entities. (III) Problems of Our Internal Control and Corrective Actions (1) Defects and Problems of Our Internal Control. The Company’s printing & dyeing plant in Shenzhen ceased production,owadays, our mission-critical production equipment and management team intend to move to Nanjing, and we hold only 30% shares of Nanjing East Asia Textile Printing & Dyeing Co., Ltd. We have an increasingly hollow core business. (2) Specific Causes of Internal Control Problems, Current Situation, Corrective actions and Measures. The Company’s printing & dyeing plant in Shenzhen ceased production, Except that Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. operated normally, daily operation was maintained mainly by house property lease. as of December 31, 2008,The capital construction project of Nanjing Factory was somewhat delayed and fell behind the original plan. Corrective Actions and Measures: Due to the delay of the relocation of our printing & dyeing business, our production & operation activities are seriously influenced and may not restore to normality within 3 months. Pursuant to the provision of Shenzhen Stock Exchange Stock Listing Rules, Article 13.3.1, Shenzhen Stock Exchange exercised other special treatment to our stocks since August 27th, 2007. This accident has major influence to the production & operation activities and sustainable growth of our company. To guarantee the stable operation and sustainable growth of our company, we will enhance the coordination of engineering project, and try to implement the relocation plan as soon as possible. (3) Overall Appraisal to Our Internal Control. With all mentioned above, we have established perfect an internal control structure and run our business in a disciplined manner according to the requirements of the 28/130 Corporate Law, the Guidance on Internal Control of Listed Firms, the Stock Listing Rules, and other laws and regulations. Our annual shareholder meeting, board of directors, board of trustees and management have clearly stated duties and operate in a disciplined manner. We follow the principles of truth, accuracy, completeness, promptness and fairness in term of information disclosure. Meanwhile, in the days to come, we will further improve and perfect corporate governance, improve rules building and investor relation management, and expand transparency. VI Committee of supervisers of Our Board of Trustees to the Self-Appraisal of Our Internal Control Opinion of committee of supervisers: 1. We have established and improved an internal control system covering the entire production & operation process according to the relevant stipulations of China Securities Regulatory Commission and Shenzhen Stock Exchange as well as the specific situation of our company, to confirm every work has its rule to follow, and form a disciplined management system. Our existing internal control rules provide guarantee to the production & operation activities of our company. 2. We have established and improved a corporate governance structure and internal organizational structure compliant to the requirement of modern management, and formed a decision-making mechanism, execution mechanism and supervision mechanism for the key activities of our internal control, and guaranteed the standardized operation of various business activities. 3. In the report period, we have never violated the Guidance of Shenzhen Stock Exchange on Internal Control of Listed Firms and our internal control rules. With all mentioned above, the board of trustees deems that our 2008 Annual Internal Control Self-Appraisal Report has comprehensively and objectively reflected the actual situation of internal control in our company, can show us areas to be improved, has proposed corrective actions, and we agree with it. VIIComments of Our Independent Directors to the Self-Appraisal of Our Internal Control Independent director opinion: Based on the Circular of Shenzhen Stock Exchange on Doing a Good Annual Report Work for Listed Firms in 2007, as independent directors of the company, we have carefully read through the 2007 Annual Internal Control Self-Appraisal Report 29/130 submitted by the board of directors, talked to the management and relevant departments, referred to the management rules of the company, and now make following comments based on our independent stance: 1. The internal control rules of the company are compliant to relevant national regulations and the requirements of securities regulatory authority, and fit for the actual situation of production and operation of the company. 2. The internal control measures of the company have played good roles in the various processes and links of the company management. 3. The 2008 Annual Internal Control Self-Appraisal Report has comparatively objectively reflected the true situation of internal control, is comparatively comprehensive in summarizing the internal control, and is comparatively clear in areas of internal control to be improved. 4. The 2008 Annual Internal Control Self-Appraisal Report is compliant to the actual situation of internal control of our company. VIII Performance Appraisal & Incentive Mechanism for Executives, Establishment and Implementation of Relevant Rewarding Rules We appraise the performance of executives according to relevant index and criterions, the results of performance appraisal are recorded in the archives of executives, and are linked to the compensations and hiring of executives. Section VI. Particulars about Shareholders’ General Meeting In the report period，the Company held 2nd shareholders’ general meeting. Relevant particulars are as follows: (1) 2007 annual shareholders' general meeting of the Company 1. Notice, convening and holding of shareholders' general meeting The Company issued the notice of holding 2007 annual shareholders' general meeting on April 30, 2008. 2007 annual shareholders' general meeting of the Company was held in the meeting room on the 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of May 28, 2008 as scheduled. The meeting was presided over by Mr. Hu Yongfeng, the board chairman of the Company. 4 shareholders and shareholders' agents attended this meeting, representing 95,738,662 shares which account for 56.6% of the total shares of the Company. 2 shareholders holding A shares (agents) attended the meeting, representing 65,158,077 shares which account for 65.34% of total voting shares held by the Company's shareholders holding A shares. 2 shareholders holding B shares (agents) attended the meeting, representing 30,580,585 shares which account for 44.04% of total voting shares held by shareholders holding B shares of the Company. 30/130 Chen Dong, lawyer of Guangdong Shengdian Law Office attended and witnessed the meeting and issued legal opinion. 2. The resolutions adopted at the shareholders' general meeting and the disclosure of resolution announcement The meeting examined and voted through the following proposals: (1) 2007 annual work report of the board of directors of the Company. (2) 2007 annual work report of the supervisory committee of the Company. (3) 2007 annual report of the Company and its summary. (4) The profit distribution preplan of the Company for 2007 and its profit distribution policy for 2008 （5）The proposal concerning establishment of specialized committees of the board of directors and their member composition (6) The proposal concerning remuneration of independent directors; (7) The proposal for renewing the engagement of Shine Wing Certified Public Accountants as the Company's audit body for 2008; (8) The proposal for amending part of articles of the Articles of Association of the Company; (9 (The proposal for revising part of provisions of Rules of Procedure of Shareholders' General Meeting. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on May 29,2008. (II) The first provisional shareholders' general meeting of the Company in 2008 1. The meeting examined and voted through the following proposals: 1. The Company issued the notice of holding the first provisional shareholders' general meeting in 2008 on April 3, 2008. The meeting was convened by the board of directors of the Company. In the Morning of April 18, 2008, The first provisional shareholders' general meeting of the Company in 2008 was held in the meeting room on the 16/F of Union Building, Shennan Road Central, Shenzhen in the morning of April 18, 2008 as scheduled. Mr. Hu Yongfeng, the chairman of the board of directors of the Company, presided over this meeting. 5 shareholders and shareholders' agents attended this meeting, representing 95,772,162 shares which account for 56.62% of the total shares of the Company. 3 shareholders holding A shares (agents) attended the meeting, representing 65,193,077 shares which account for 65.37% of total voting shares held by the Company's shareholders holding A shares. 2 shareholders holding B shares (agents) attended the 31/130 meeting, representing 30,580,585 shares which account for 44.05% of total voting shares held by shareholders holding B shares of the Company. Chen Dong, lawyer of Guangdong Shengdian Law Office attended and witnessed the meeting and issued legal opinion. 2. The resolutions adopted at the shareholders' general meeting and the disclosure of resolution announcement 1. The meeting examined and voted through the following proposals: (1) Rectification Plan of Shenzhen Victor Onward Textile Industrial Co., Ltd.; (2) The proposal for reelecting the Fourth board of directors of the Company; （3）The proposal for reelecting the Fourth Supervisory Committee of the Company. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 19, 2008. VII Report of the Board of Directors I. The discussion and analysis of operation status The Company’s printing & dyeing plant in Shenzhen ceased production, Except that Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is still operating normally, other 5 subsidiaries controlled by the Company have stopped operation or are maintaining daily operation by house property lease. .It plans to invest in Nanjing East Asia Textile Printing and Dyeing Co., Ltd. with part of machinery and equipment in 2007, Due to the reason on the side of the other party of joint venture and change of industry prospect，as of December 31, 2008, infrasture project of Nanjing factory is slightly delayed comparing to the original plan. the Company set up a comtrolling enterprise “ Shenzhen East Asia Victor Onward Textile Industrial Co., Ltd.” (hereinafter refered to as “East Asia Victor”) to connect the original printing & dyeing business of Company. (I) Review of the operating status of the Company in the report period 1. Overall operating status in the report period Unit：RMB Amount of Proportion of Items Year 2008 Year 2007 change and change (%) percentage Operating Income 46,881,258 103,568,595 -56,687,337 -54.73% Operating Profit -26,089,064 -112,501,891 86,412,827 -76.81% Total Profit -26,168,635 -124,409,530 98,240,895 -78.97% Net profit attributable toshareholders of listed -25,957,333 -116,356,882 90,399,549 -77.69% Company 32/130 Notes： (1) Operating income decreased by RMB 56.69 million year on year mainly due to suspense of printing and dyeing business by the Company and Nanhua Company, a subsidiary of the Company, for rectification in the report year; (2) Operating profit increased by RMB 86.41 million mainly due to decrease of relevant asset impairment and expenses in the second year of production suspense and rectification. Assets impairment loss, administrative expenses, investment income and financial expenses decreased by RMB 45.91 million, RMB 25.10 million, RMB 18.75 million and RMB 7.31 million respectively; (3) Total profit increased by RMB 98.24 million mainly for the reason mentioned in (2); (4) The net profit for the Company increase by RMB 90.40 million year on year mainly due to the said factors. 2. Scope of core business and its operation status . The Company is mainly engaged in the production and processing (printing and dyeing) and sales of various high-grade fabrics of pure cotton, pure linen, polyester-mixed cotton, linen cotton and mixed fiber and finished garments. In this report period, the head office and controlled subsidiaries continued production suspense and rectification and were mainly engaged in asset preservation, disposal of materials in stock and lease of idle properties except that the main operation of Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd., a subsidiary, was normally carried out. (1).The income from main operation earned by the Company in the report period mainly includes the income from printing and dyeing business. In the report period, the total income from main operation was RMB 46.88 million, an decrease of 54.73% year on year. The Company realized net profit of RMB -5.54 million. (1) Income from and cost of core business in terms of industry are as follows: Unit：Unit：RMB’0000 The Status of key business in terms of industry of business Change of key Increase/decre Increase/decre Key business business profit On industry or Income from Cost of key ase of key ase of key profit ratio over the same production key business business business business cost （％） period of last turnover（％） （％） year（％） Fabrics bleaching, 3,765.00 3,661.00 2.76% -62.19% -68.92% 18.30% Printing & dyeing Lease 923.00 473.00 48.75% 2,483.83% 988.49% -413.99% Other 0.00 0.00 0.00% -100.00% -100.00% -16.38% Income from and cost of main operation in terms of areas are as follows: Unit: Unit：Unit：RMB’0000 Increase/decrease of income Area Income from key business （％） Mainland China 1,173.00 -9.70% Hong Kong and Overseas 3,515.00 -61.19% 33/130 (2) The line of business or product whose income or profit accounts for over 10% of total income from main operation or profit from main operation in the report period Unit: RMB’0000 The Status of key business in terms of industry of business Change of key Increase/decre Increase/decre Key business business profit On industry or Income from Cost of key ase of key ase of key profit ratio over the same production key business business business business cost （％） period of last turnover（％） （％） year（％） Fabrics bleaching, 3,765.00 3,661.00 2.76% -62.19% -68.92% 18.30% Printing & dyeing Lease 923.00 473.00 48.75% 2,483.83% 988.49% -413.99% Other 0.00 0.00 0.00% -100.00% -100.00% -16.38% (3). The profit structure and key business structure in the report period did not change much compared with the previous report period. (4).Major Suppliers and Customers The Company's main products are printing and dyeing products, including various pure cotton, pure linen, polyester-mixed cotton, linen-mixed cotton and blended high-grade fabrics. The raw materials for the production (grey fibre, dyeing chemicals and fuel) are mainly imported. The products are mainly exported to Hong Kong, Japan, Europe and America. Victor Onward Printing and Dyeing (Hong Kong) Limited, a wholly-owned subsidiary of the Company, is mainly responsible for supply of raw materials and sales of products. 3.Change in composition of the Company's assets and reasons therefor: Unit :RMB Amount of Proportion Items of consolidated balance sheet Year 2008 Year 2007 change and of change percentage (%) Monetary fund 61,368,428 52,656,852 8,711,576 16.54% Account receivable 2,746,095 6,134,029 -3,387,934 -55.23% Inventories 3,510,747 11,151,708 -7,640,961 -68.52% Long term share equity investment 47,184,759 65,629,837 -18,445,078 -28.10% Property investment 48,165,784 29,286,179 18,879,605 64.47% Fixed assets 22,737,791 54,202,203 -31,464,412 -58.05% Goodwill 3,594,648 - 3,594,648 Tax payable 4,551,693 2,447,382 2,104,311 85.98% (1) Monetary capital increased by RMB 8.71 million and 16.54% mainly due to the Company's house rent income and recovery of funds by disposal of inventories; (2) Accounts receivable decreased by RMB 3.39 million and 55.23% mainly because the Company suspended production for rectification and liquidated accounts receivable in the report year. Shengzhong Company, a subsidiary, was deregistered and the Company made full provision for bad debts in respect of its accounts receivable of RMB 1,719,936; (3) Inventories decreased by RMB 7.64 million and 68.52% mainly because the Company sold partial grey fabric at discounted price and made provision for diminution in value for gray cloth 34/130 with long stock age that was not disposable according to the difference between book value and net realizable value; (4) Long-term equity investment decreased by RMB 18.45 million and 28.10% mainly because the net profit of Hangzhou Bay Company was recognized on equity basis and the change of fair value of financial assets available for sale of Hangzhou Bay Company was confirmed; (5) Real estate for investment increased by RMB 18.88 million and 64.47% mainly because the house property of Nanhua Company, a subsidiary of the Company, for overall lease, was accounted for as real estate for investment instead of fixed assets; (6) Fixed assets decreased by RMB 31.46 million and 58.05% mainly because the house property of Nanhua Company, a subsidiary of the Company, for overall lease, was accounted for as real estate for investment instead of fixed assets and additional provision of RMB 3.65 million for impairment was made in the report year; (7) Goodwill increased by RMB 3.59 million mainly because the Company acquired 7.31% equity of Nanhua Company, a subsidiary of the Company, held by CITIC Group, at the price of RMB 2.82 million and paid commission of RMB 15,100. As at December 31, 2007, the amount of 7.31% equity of Nanhua Company was RMB - 759,548. So goodwill of RMB 3,594,648 was generated; (8) Taxes and levies payable increased by RMB 2.1 million and 85.98% mainly because the Company could not process and re-export gray cloth originally imported and made provision for value added tax and customs duties to be paid retroactively according to the requirements of the customs after inspection. 4.Reasons for material change in the items of profit and loss statement of the Company in the report period: Amount of Proportion Items of profit and loss statement Year 2008 Year 2007 change and of change percentage (%) Income from the business 46,881,258.00 103,568,595 -56,687,337 -54.73% Cost of the business 41,341,329.00 119,387,919 -78,046,590 -65.37% Sales expense 2,629,457.00 8,606,930 -5,977,473 -69.45% Administrative expense 10,098,033.00 34,992,178 -24,894,145 -71.14% Financial expenses -353,989.00 6,951,894 -7,305,883 -105.09% Asset impairment loss 8,806,636.00 54,718,933 -45,912,297 -83.91% Investment gain -10,351,600.00 8,531,392 -18,882,992 -221.34% Non-business expenses 79,687.00 12,002,260 -11,922,573 -99.34% （1）Operating income and operating cost respectively decreased by RMB 56,69 million and RMB 78.05 million (54.73% and 65.37% ) year on year mainly because the Company and Nanhua Company, a subsidiary of the Company, continued production suspense and their business further 35/130 shrank in the report year; （2）Selling expenses decreased by RMB 5.98 million and 69.45% mainly due to sharp decrease of wage of sales personnel and sales commission with the production suspense of the Company and reduction of business and sales personnel; （3）Administrative expenses decreased by RMB 24.89 million and 71.14% mainly because the Company dismissed most employees and paid dismissal wage of large amount in the previous year and there was no such expenditure in the report year. In addition, the provision for fixed assets depreciation was accounted for as administrative expenses after production suspense in the previous year. In the report year, depreciation expenses decreased because sufficient provision for impairment was made for most fixed assets; （4）Financial expenses decreased by RMB 7.31 million and 105.09% mainly because many interest expenses were paid for many bank loans in the previous year and the interest expenses in the report year are the interests accrued for loans borrowed by Nanhua Company, a subsidiary of the Company, from Union Group, which have not been paid actually; （5）Assets impairment loss decreased by RMB 45.91 million and 83.91% mainly due to adequate provision in the previous year and decrease of provision in the report year; (6)Investment income decreased by RMB 18.88 million and 221.34% mainly because, Zhejiang Union Hangzhou Bay Ventures Co., Ltd., an affiliated company of the Company, is in the stage of real estate development and has not made profit; (7) Non-operating expenses decreased by RMB 11.92 million and 99.34% mainly because the caused by the Company's sales of equity of its subsidiary Weiou Peier Company and promise to abandon the claims to Weiou Peier Company caused loss of RMB 9.7 million and production suspense and disposal of machinery and equipment caused loss of RMB 2.26 million in the previous year while there was no such loss in the report year. 5. Composition of the cash flow of the Company: Year 2008 Proportion to Proportion the net of change in amount of cash and Items Amount of cash cash flow cash flow from similar equivalents activities % % Subtotal of cash inflows from 61,853,594.00 454.09% 100.79% business activities Subtotal of cash outflows 48,232,173.00 354.09% 78.59% from business activitie Net cash flows from 13,621,421.00 100.00% 22.20% operating activities Subtotal of cash inflows from 6,606.00 -0.23% 0.01% investing activities Subtotal of cash outflows 2,861,451.00 -100.23% 4.66% 36/130 from investing activities Net cash flows from -2,854,845.00 100.00% -4.65% investing activities Subtotal of cash inflows from financing activities Subtotal of cash outflows of 143,985.00 -100.00% 0.23% financing activities Net cash flows from -143,985.00 100.00% -0.23% financing activities Influence of the change of -1,911,015.00 -3.11% -3.11% exchange rate on cash Change in cash and cash 61,368,428.00 100.00% 100.00% equivalents Amount of Proportion of Main influencing Items Year 2008 Year 2007 change and change (%) factor percentage Continue Cash received from sales stopping of goods or rending of 42,451,326 176,654,559 -134,203,233 -75.97 production for services rectification, sales decreased The export tax Tax returned 7,337,725 6,396,030 941,695 14.72 returning rate increased Other cash received from Rental income 11,822,858 5,547,890 6,274,968 113.11 business operation increased Stopped Cash paid for purchasing production for of merchandise and 33,828,569 133,202,385 -99,373,816 -74.60 rectification this services year Cash paid to staffs or paid 4,155,118 28,433,553 -24,278,435 -85.39 Workers reduced for staffs Taxes paid 2,814,600 12,520,840 -9,706,240 -77.52 Other cash paid for Operation 7,433,886 9,573,077 -2,139,191 -22.35 business activities activities reduced Net cash retrieved from Resulted by disposal of fixed assets, 116 12,169,848 -12,169,732 -100.00 disposal of fixed intangible assets, and other assets in last year long-term assets Accepted the 7.31% equity of Cash paid as investment 2,835,100 2,835,100 Nanhua Company held by TITIC Group Shenzhen Victor Onward Textile Cash received from 1,470,000 -1,470,000 -100.00 Industrial Co., investment retrieving Ltd. was founded in previous year Cash to repay debts 143,985 62,000,000 -61,856,015 -99.77 Bank loans 37/130 returned in previous year Bank interest for Cash paid as dividend, 2,265,015 -2,265,015 -100.00 the loans in profit, or interests previous year 5. Status of equipment utilization of the Company: The Company suspended production for rectification in February 2007 and plans to relocate factory. Its equipment has been in idle status. 6.The operating status of main controlling subsidiaries and joint ventures Except that Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is still operating normally, other 5 subsidiaries controlled by the Company have stopped operation or are maintaining daily operation by house property lease. (II) Forecast of the Company's future development 1. The development trend of the industry the Company is engaged in and the situation of market competition confronted by the Company The Company controlled subsidiary Nanhua Printing & Dyeing and the Company ownerd Printing & Dyeing Factory are continuously suspended for rectification. The Company is actively promoting the transfer of printing and dyeing industry to inland areas. 2. Development opportunities and challenges in the future and business plan for the new year: The Company mainly made efforts to promote the transfer of printing and dyeing industry to inland areas. 3. The fund needed by the Company to realize the strategy of sustainable development, the plan to use funds and fund source Nil 4,Main risk factors and countermeasures At present, the Company only holds 30% equity of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. The Company has faced the situation of no main operation. Due to delay of basic construction, Nanjing Factory failed to commence production as scheduled at the end of September. There is no sign of improvement of the Company's printing and dyeing business in the near future and the Company is facing an operation predicament. 2. Investment in the report period (I) There were neither funds raised in the report period nor those raised in previous periods whose use continued in the report period. (II) In the report period, there were no investment projects utilizing non-raised funds. 3. Notes to the unqualified auditor's report with paragraph of emphasized matters issued by Shine Wing Certified Public Accountants for the Company's financial report for 2008. (I) Basic information about the matters involved in non-standard unqualified audit opinions: Shine Wing Certified Public Accountants issued unqualified auditor's report with paragraph of 38/130 emphasized matters for the Company's financial statements for 2008. Basic information of emphasized matters: Since March 2007, Shenzhen Victor Onward Textile Industrial Co., Ltd. stopped production and dismissed most of workers. And most subsidiaries of the company had stopped production and it maintained daily operation by house leasing. Shenzhen Victor Onward Textile Industrial Co., Ltd. had disclosed its improvement measures in Note 15 of Financial Statement, but its sustainable operation ability is still uncertain. This paragraph does not affect audit opinions that have been given. (II) Basic opinions of certified public accountants on such matter: Shine Wing Certified Public Accountants accepted entrustment, completed the audit of the financial statements of the Company for 2008 and issued unqualified auditor's report with paragraph of emphasized matters for the Company's financial statements for 2008. In accordance with No. 14 Rule for Preparation and Report of Information Disclosure by Companies Publicly Issuing Securities - Non-standard Unqualified Audit Opinions and Treatment of Matters Involved Therein, relevant notes are as follows: As noticed by Shine Wing Certified Public Accountants during audit, the land of the Company for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased and the lease term will expire on March 31, 2009, According to the city planning of Shenzhen Municipal Government, printing and dyeing business for textile industry is no longer allowed in this area.Since March 2007, Shenzhen Victor Onward Textile Industrial Co., Ltd. stopped production and dismissed most of workers. The company currently only had some agent import and export business and house leasing business. Except that Shenzhen East Asia Victor Onward Textile Printing and Dyeing Co., Ltd. is still operating normally, other 5 subsidiaries controlled by the Company have stopped operation or are maintaining daily operation by house property lease. It plans to invest in Nanjing East Asia Textile Printing and Dyeing Co., Ltd. with part of machinery and equipment in 2007, Due to the reason on the side of the other party of joint venture and change of industry prospect. we believe that the sustainable operation ability of Shenzhen Victor Onward Textile Industrial Co., Ltd. is still uncertain, so I emphasized the situation in the audit reports and issued unqualified auditor's report with paragraph of emphasized matters. This special statement is issued by us according to relevant regulations of CSRC and shall not be used for other purpose. We and the C.P.A. who performed this service shall not bear any liability for the consequences caused by its improper use. (III) The opinions of the board of directors, supervisory committee and management of the Company on this matter: The board of directors, Supervisory Committee and managers believed that the printing and dyeing plant of the company had stopped operation or maintained daily operation by house leasing. The company was about to invest Nanjing East Asia Textile Printing & Dyeing Co., Ltd., but the infrastructure projects was delayed. 39/130 (IV) Extent of influence of this matter on the Company: This matter will generate significant influence on the Company's production and operating activities and continuous development. (V) The possibility of eliminating this matter and its influence: Though the transfer of printing and dyeing business has been somewhat delayed, but the overall relocation plan of the company had not changed. It is still being undertaken step by step, The Company can eliminate this matter and its influence to a great extent. (VI) The concrete measures of eliminating this matter and its influence The Company will strengthen the management and coordination of engineering construction and try to implement the transfer plan as soon as possible. IV. Routine work of the board of directors 1. Board meetings and resolutions in the report period: In the report period, the board of directors of the Company held five meetings in total. 1. In the Morning of April 1, 2008, the 25th meeting of the fourth board of directors of the Company was held through voting by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 3, 2008. 2. In the Morning of April 18, 2008, the first meeting of the fifth board of directors of the Company was held in the meeting room on the 16/F of Union Building , Shennan Road Central, Shenzhen. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 19, 2008. 3. In the Morning of April 28, 2008, the second meeting of the fifth board of directors of the Company was held by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 30, 2008. 4. In the Morning of July 29, 2008, the 3rd meeting of the fifth board of directors of the Company was held by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on July 31, 2008. 5. In the Morning of October 28, 2008, the 4th meeting of the fifth board of directors of the Company was held by correspondence. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong 40/130 Commercial Daily on October 30, 2008. (2)Implementation by the board of directors of the resolutions of the shareholders' general meeting The board of directors of the Company strictly implemented the resolutions of shareholders' general meetings and the matters authorized by shareholders' general meetings according to the provisions of the Company Law and the Articles of Association of the Company. 1. 2007 annual shareholders' general meeting of the Company examined and adopted the proposal for the profit distribution of the Company for 2008: The Company is neither to distribute dividends nor capitalize capital surplus for 2008. 2. The first provisional shareholders' general meeting of the Company in 2008 adopted rectification plan and the proposal for reelecting the fourth board of directors and supervisory committee. （3）Performance introduced of the Special Committee of the Board of Directors In the report period, In accordance with the Work Rules for Audit committee of the Board of Directors, the Audit Committee of the Board of Directors conducted supervision on audit work of the company in 2008, and on November 19, 2008, independent directors, audit committee and the registered accountant in Xingyong Zhonghe Accountants Firm held the meeting of communication before conducting auditing, and determined annual audit work arrangement in 2008; the annual audit accountants communicated the problems found in the audit; after issuing preliminary audit views, they re-examined financial statement, and at the same time, the audit committee summarized the audit work conducted by Xingyong Zhonghe accountants, and advised continuing to employ Xingyoug Zhonghe Accountants Firm to conduct audit in 2009. 4. Profit distribution preplan for 2008 As audited by Shinewing Certified Public Accountants, the total profit of the Company for 2008 is RMB -26,168,635 , After deduction of minority gains and losses of RMB -100,008 and income tax expenses of RMB -111,294, net profit is RMB-25,957,333,the total year-end undistributed profit is - RMB -115, 810,517. The Company is neither to distribute profit nor to capitalize capital surplus for the current year. Profit Distribution Policy for 2009: Due to the demand of funds in respect of operation and investment, the Company also will not distribute the profit and undistributed profit for 2009. The Board of Directors determines the distribution preplan for 2009 according 41/130 to the actual situations of the Company, and makes the corresponding adjustment according to the Company’s operation development. Section VIII Report of the Supervisory Committee I. The meetings of the supervisory committee In the report period，the supervisory committee of the Company held five meetings in total. (1)In the afternoon of April 1, 2008, the 15th meeting of the fourth supervisory committee of the Company was held through voting by correspondence. The meeting was presided over by Mr. Dong Binggen, the convener of the supervisory committee of the Company. 3 supervisors were supposed to attend the meeting and 2 of them were actually present. The meeting examined and adopted the following resolutions: (1) Rectification Plan of Shenzhen Victor Onward Textile Industrial Co., Ltd.; (2) The proposal for reelecting the fourth supervisor commttee of the Company; （2）In the morning of April 18, 2008, the 1st meeting of the fifth supervisory committee of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held on 16/F of Union Building, Shennan Road Central, Shenzhen. The meeting examined and adopted the proposal for electing Mr. Dong Binggen as chairman of the fifth supervisory committee of the Company. （3） In the morning of April 28, 2008, the second meeting of the fifth supervisory committee of the Company was held through voting by correspondence . The meeting examined and adopted the following resolutions: 1. 2007 Work Report of the Company; 2. 2007 Auditor's Report of A shares and B shares of the Company ; 3. Profit Distribution Preplan of the Company for 2007 and Its Profit Distribution Policy for 2008; 4. 2007 Annual Report and 2007 Annual Report (Summary) of the Company; 5.The proposal for retroactive adjustment of related items of balance sheet and amount at the beginning of 2007; 6. Special Statement on Matters Involved in Unqualified Auditor's Report with Highlighted Matter Paragraph for 2007; 42/130 7. The First Quarterly Report 2008 8. The proposal for revising part of provisions of Rules of Procedure of Shareholders' General Meeting. （4）In the morning of July 29, 2008, the 3rd meeting of the fifth supervisory committee of the Company was held through voting by correspondence. The meeting examined and adopted the following resolutions: 2008 Semiannual Report of Shenzhen Victor Onward Textile Industrial Co., Ltd and its Summary. （5）In the morning of october 28, 2008, the 4th meeting of the fifth supervisory committee of the Company was held through voting by correspondence. The meeting examined and adopted the following resolutions: The Report of Shenzhen Victor Onward Textile Industrial Co., Ltd. for the Third Quarter of 2008. II. In the report period，the supervisory committee seriously performed its duties and expressed independent opinions in respect of the following matters: 1. The operation of the Company according to law. In the report period, the Company operated strictly according to Company Law, Securities law and the Articles of Association of the Company and other relevant laws and regulations. The Company's procedure of decision was legal and its internal control system was sound. The directors and managers of the Company all did their duties during their work and none of their acts were found to violate the laws, regulations and the Articles of Association or harm the Company's interests. 2. Inspection of the financial status of the Company. The Supervisory Committee carefully checked and examined the financial data of the Company including the financial report of the Company for 2008 audited by Shine Wing Certified Public Accountants and held the opinion that the unqualified auditor's report of the Company for 20078with paragraph of emphasized matters issued by Shine Wing Certified Public Accountants was true and gave a true view of the financial position and operating results of the Company. 3. The Company did not raise funds in the report period. The funds last raised after listing were invested in such projects as promised in Prospectus. 4. Neither insider trading nor act that caused harm to the rights and interests of part of shareholders or the loss of the Company's assets was found in respect of the transaction price of the assets purchased or sold by the Company. 5. The related transactions between the Company and associated enterprises (companies) were conducted in a fair manner and at market prices. The joint investment made by the Company and related enterprises is in keeping with the interests of the Company. Relevant voting procedure complied with relevant provisions of the Articles of Association of the Company and Stock Listing Rules of Shenzhen Stock Exchange and related directors observed the regulations on absence during vote. The related transactions were fair and reasonable and did not harm the interests of the Company and middle and small shareholders. 43/130 6. In the report year, Shine Wing Certified Public Accountants issued unqualified auditor's report with paragraph of emphasized matters for the Company's financial report for 2008. Company board of supervisors that: the cost in printing & dyeing industry is continuinghigh in Shenzhen. the printing & dyeing business of the Company and Productions & operations are in serious difficulties and are hard to continue normal operation. the Company controlled subsidiary Nanhua Printing & Dyeing and the Company ownerd Printing & Dyeing Factory are continuously suspended for rectification. As the transfer of the Company's printing and dyeing business is somewhat delayed, the production and operating activities of the Company have been seriously affected, In accordance with the provisions of 13.3.1 of Stock Listing Rules of Shenzhen Stock Exchange, Shenzhen Stock Exchange carried out special treatment of the stocks of the Company from August 27, 2007. Section IX Important Events I. The Company did not get involved in any material lawsuit or arbitration in the report period. II. The acquisition and disposal of assets and merger by absorption in which the Company was involved in the report period. The second provisional meeting of the fourth board of directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. was held by email. The meeting examined and adopted the resolution for acquiring 7.31% equity of Shenzhen Nanhua Printing and Dyeing Co., Ltd. held by China International Trust & Investment Corporation. On May 4, 2008, both parties signed equity assignment agreement and the Company acquired 7.31% equity of Shenzhen Nanhua Printing and Dyeing Co., Ltd. at the price of RMB 2.82 million. III. Related transactions. (I) Related transactions related to daily operation 1.Related leased In the report year, the Company leased Room 1307 and 1308 of Union Building owned by Union Group. The term of tenancy is from March 1, 2008 to February 28, 2009. The monthly rent is RMB 6800. The rent was determined according to market price. (2) Fund transfer between the Company and related parties 44/130 Amount of Amount of Related party period-end period-begin Account receivable Shenye Union(Hong Kong) 325,644 370,988 Other payable Union Group 20,492,359 16,310,435 Union Property 3,473,200 3,003,528 3. Other material related transactions No other material related transaction. 4. Significant contracts and their performance (I) The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust or contract for the assets of the Company in the report period. (2). Significant guarantee: (A) In the report period, the Company did not provided the external guarantee mentioned in ZJF (2003) No. 56 Document issued by CSRC. There was no significant guarantee that was provided in previous periods but continued to be valid in the report period. The Company will actively implement the gist of ZJF No. 56 Document strictly according to the requirements of laws and regulations of the Company Law, the Securities Law, Stock Listing Rules and the Articles of Association of the Company, further standardize the fund transfer between the Company and the controlling shareholder and other related parties, lower operation risk and protect the legitimate rights and interests of investors. (B) The special statement and independent opinions of the independent directors on the external guarantee of the Company. According to the gist of ZJF (2003) No. 56 Document - Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies ("the Circular") issued by CSRC, we, as the Company's independent directors，seriously examined the status of the external guarantee provided by the Company with practical attitude and hereby give our opinions on relevant issues: 45/130 According to the result of our prudent investigation，as of December 31, 2008,the Company did not provide guarantee to its controlling shareholder, other related parties of which the Company holds less than 50% equity, any unincorporate entity or individual against regulations nor did the controlling shareholder and other related parties force the Company to provide guarantee to others as of the end of the report period. In the report period，the Company specified the examination and approval procedure of external guarantee and the credit standards for the object of guarantee according to the gist of the Circular, added the same to the revised Articles of Association of the Company, strictly observed the provisions of the Articles of Association of the Company and strictly controlled the risks of its external guarantee. （3）The Company did not entrust others to manage its cash assets in the report period. （4）Other significant contracts The first provisional shareholders' general meeting of Shenzhen Victor Onward Textile Industrial Co., Ltd. in 2007 held on April 6, 2007 adopted the proposal for increasing capital of Nanjing East Asia Textile Printing and Dyeing Co., Ltd. Nanjing East Asia Textile Printing and Dyeing Co., Ltd. ("Nanjing East Asia") is a sino-foreign equity joint venture legally registered in Nanjing. The Company plans to operate Nanjing East Asia as a joint venture through increasing share capital of Nanjing East Asia. The Company is to increase capital of Nanjing East Asia with material objects valued at RMB 30 million as registered capital (full payment of subscribed registered capital is subject to the appraised value accepted by both parties), which accounts for 30% of total registered capital. The original shareholders of Nanjing East Asia are to invest RMB 70 million in Nanjing East Asia as registered capital (Full payment of subscribed registered capital is subject to audited amount accepted by both parties), which accounts for 70% of total registered capital. After completion of share capital increase, Nanjing East Asia will be renamed as NAN JING VICTOR ONWARD PRINTING & DYEING CO.LTD . The said share capital increase has been approved by the department in charge of foreign capital in Nanjing. The relevant procedures are being processed. (5) In accordance with the notice of Shenzhen Stock Exchange about Fair Information Disclosure of Listed Companies, the Company improved internal control system and procedure for information disclosure and formulated reception and introduction system, information disclosure, reference and registration system. The Company and relevant information disclosure obligors strictly abode by the principle of fair information disclosure, neither implemented discriminatory policy nor disclosed, revealed or divulged non-open significant information to specific objects. Reception Place Mode Object Discussion issue and 46/130 offered information Year 2008 Office of Telephone Individual The Company communicated board investor with investors in respect of secretar its production and y of the operation status, special Comapny treatment of trading of its stocks and its reorganization and listened to the opinions of investors. (VI)Commitment made by the Company or shareholders holding over 5% of shares of the Company. 1.Capital commitments 1.As of December 31, 2008, Group has signed a contract but there are still outstanding major agreement total foreign investment RMB 30 million .Specific conditions are as follows: Name Investment Payable Non-payable Investme Notes amount amount amount of nt Period of investment investm ent Not because Investment in of the machinery and other equipment in production 30 million - 30 million Nanjing East sites can asia Textiles not be Co., ltd. completed relocation 2.The Signed or is ready to carry out the contract of large contracts As of December 31, 2008,The Group still has signed the agreement but did not pay large amounts of letting contracts total RMB 1.71 million. Specific conditions are as follows: Name Investment Payable Non-payab Investment Notes amount amount of le amount Period investment of 47/130 investment The Not because of lelocation the other of production production 1,710,000 855,000 855,000 sites can not equipment be completed as a whole relocation works 3.According to the signed contract or provision to carry lease contract and financial impact. On December 31, 2008(T), According to the signed irrevocable contract for operating lease, the lowestrent to be paid in the future is as follow: Period Business lease T+1 year 371,944 T+2 years 29,862 T+3 years Over T+3 year - Total 401,806 2. Union Management Co., Ltd, the largest shareholder of the Company, made special commitment during the Company’s share holding structure reform: The original non-negotiable shares shall not be listed and sold through Shenzhen Stock Exchange within 36 months after the date of execution of share holding structure reform. At present, this commitment is under fulfillment. (VII)Engagement and ismission of Certified public Accountants In the report period, The Company still engaged Shine Wing Certified Public Accountants to do the auditing work .The annual auditing fees totaled RMB 0.30 million, Shine Wing Certified Public Accountants has providing auditing service for 3 years for the Company in succession. (VIII) Punishment to the Company , its Directors, Supervisors and senior Managment and rectification in the reporting period. In the report period, none of the Company, its Directors,Supervisors, senior Management , Shareholders or actual controllers was subject to investigation by cometent authorities, enforcement measures by judicial and regulatory authorities, transfer to judicial departments or prosecution for criminal liability, inspection or administrative punishment by CSRC, non-admission to securities market, or punishment by other administrative departments or public condemnation by the 48/130 Zhenzhen Exchange as a result of being identified as an inappropriate candidate. (IX) Future issues of balance sheet The land of the Company for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased and the lease term will expire on March 31, 2009,The company had applied to Shenzhen Municipal Planning Bureau for historical issue, and on January 7, 2009, approved and reviewed by Shenzhen Municipal Planning Bureau the Coastal Branch and the company acquired the "program plan of land for construction purposes", currently the official procedures was undergoing. In addition to the above matters in items after balance sheet date, this Group had no other significant matters after the balance sheet date. (X) Other material events Since March 2007, Shenzhen Victor Onward Textile Industrial Co., Ltd. stopped production and dismissed most of workers. The company currently only had some agent import and export business and house leasing business. Except that the Shenzhen Dongya Company was operating normally, the other five subsidiaries controlled by the company had stopped the operation and were depending on house lease to maintain. In 2007 the company intended to invest part of machineries and equipments to Nanjing Dongya Textile Printing & Dyeing Co., Ltd. But due to the reasons of the joint venture party and the prospect change in the industry, the investment plan was delayed. The company mainly made efforts to promote the transfer of printing and dyeing mill project, the company will strengthen construction direction coordination work，in order to carry out the transfer project as soon as possible. Section X Financial Report Auditor’s report XYZH/2008SZA1013-1 To the shareholders of Shenzhen Victor onward Textile Industrial Co., Ltd.： We audited accompanying consolidated financial statements and financial statements of the parent company of Shenzhen Victor Onward Textile Industrial Co., Ltd.(hereinafter referred to as "the Company"), including balance sheet as at December 31, 2008, profit statement, cash flow statement and statement of 49/130 changes in shareholders' equity for the year then ended and the notes to financial statements. I. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with international Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting polices; and making accounting estimates that are reasonable in the circumstances. II. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We conducted our audit in accordance with International Standards on Auditing, Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. III. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2008, and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standard. IV. Matters emphasized We remind the users of financial statements to pay attention to the fact that the Company stopped production and dismissed most of workers since March 2007. And most subsidiaries of the company had stopped production and it maintained daily operation by house leasing. Shenzhen Victor Onward Textile Industrial Co., Ltd. had disclosed its improvement measures in Note 15 of Financial Statement, but its sustainable operation ability is still uncertain. This paragraph does not affect audit opinions that have been given. Shine Wing Certified public Accountants C. P.A： C.P.A: Beijing Chian April 21, 2009 50/130 Consolidated Balance Sheet December 31, 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit:RMB Amount of Amount of Assets Notes period-end period-begin Current assets： Monetary funds VIII.1 61,368,428 52,656,852 Settlement provisions Capital lent Transaction finance assets VIII.2 36,687 140,423 Bill receivable VIII.3 850,000 - Accounts receivable VIII.4 2,746,095 6,134,029 Accounts in advance VIII.5 1,815,897 54,712 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable VIII.6 91,087 - Dividend receivable Other receivables VIII.7 614,673 8,860,543 Purchase restituted finance assets Inventory VIII.8 3,510,747 11,151,708 Non-Current assets within one year Other Current assets Total currents assets 71,033,614 78,998,267 Non-current assets Granted loans and advances Finance assets available sales VIII.9 207,255 836,861 Held-to maturity securities Long-term account receivable Long-term equity investment VIII.10 47,184,759 65,629,837 Investment property VIII.11 48,165,784 29,286,179 Fixed assets VIII.12 22,737,791 54,202,203 Construction in progress Engineering material Disposal of fixed assets Consumable biological assets Oil and gas assets Intangible assets VIII.13 - 498,219 Expense on research and development Goodwill VIII.14 3,594,648 - Long-term expenses to be apportioned Deferred income tax assets Other non-current assets Total non-current assets 121,890,237 150,453,299 51/130 Total assets 192,923,851 229,451,566 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Consolidated Balance Sheet(Cont’d) December 31, 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit：RMB Amount of Amount of Liabilities and shareholders' equity Notes period-end period-begin Current liabilities Short-term loan Bill payable Account payable VIII．16 6,175,741 4,936,984 Accounts received in advance VIII．17 5,281,103 5,833,758 Selling financial assets of repurchase Commission charge and commission payable Employees’ wage payable VIII．18 599,884 776,560 Tax payable VIII．19 4,551,693 2,447,382 Interest payable Dividend payable VIII．20 1,322,737 1,404,480 Other account payable VIII．21 30,064,983 28,418,511 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Long-term liabilities due within1 year Other current liabilities 1,137,304 1,265,701 Total current liabilities 49,133,445 45,083,376 Non-current liabilities： Long-term loans VIII．22 1,674,164 1,928,557 Bonds payable Long-term accounts payable VIII．23 9,232,220 9,802,757 Special accounts payable Projected liabilities Deferred income tax liabilities VIII．24 1,015,950 1,195,397 Other non-current liabilities VIII．25 910,284 966,538 Deferred income 12,832,618 13,893,249 Total liabilities 61,966,063 58,976,625 Owner’s equity(or shareholder’s equity)： Share capital VIII．26 169,142,356 169,142,356 52/130 Capital public reserve VIII．27 39,194,631 43,881,067 Less：Inventory shares Surplus public reserve VIII．28 26,309,287 26,309,287 Provision of general risk Retained profit VIII．29 -115,810,517 -89,853,184 Balance difference of foreign currency translation 11,237,577 20,122,586 Total owner’s equity attributable to parent company 130,073,334 169,602,112 Minority interests VIII．30 884,454 872,829 Total owner’s equity 130,957,788 170,474,941 Total liabilities and owner’s equity 192,923,851 229,451,566 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Consolidated Profit statement Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit：RMB Same period of the Items Notes Report period previous year I.Total business income 46,881,258 103,568,595 Incl：Business income VIII.31 46,881,258 103,568,595 Interest income Insurance fee earned Fee and commission received II.Total business cost 62,315,391 224,659,687 Incl：Business cost VIII.31 41,341,329 119,387,919 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves Insurance policy dividend paid Reinsurance expenses Business tax and surcharge VIII.32 458 1,833 Sales expense VIII.33 2,629,457 8,606,930 Administrative expense VIII.34 10,098,033 34,992,178 Financial expenses VIII.35 -353,989 6,951,894 Asset impairment loss VIII.36 8,806,636 54,718,933 Add：Gains from change of fair value （“-”for loss） VIII.37 -96,798 57,809 Investment gain（“-”for loss） VIII.38 -10,351,600 8,531,392 Incl: investment gains from affiliates -10,599,828 3,331,782 Gains from currency exchange（“-”for loss） III. Operational profit（“-”for loss） -26,089,064 -112,501,891 Add：Non-business income VIII.39 116 94,621 Less：Non business expenses VIII.40 79,687 12,002,260 Incl：Loss from disposal of non-current assets 2,258,181 53/130 IV.Total profit(“-”for loss) -26,168,635 -124,409,530 Less：Income tax expenses VIII.41 -111,294 170,009 V. Net profit（“-”for net loss） -26,057,341 -124,579,539 Of which: the net profit realized by the party being merged before the merger Net profit attributable to the owners of parent company -25,957,333 -116,356,882 Minority shareholders’ gain & loss -100,008 -8,222,657 VI. Earnings per share： （I）Basic earnings per share VIII.42 -0.15 -0.69 (II)Diluted earnings per share VIII.42 -0.15 -0.69 Notes: Net profit attributable to the owners of parent company+ Minority shareholders’ gain & loss =Net profit If there is no subsidiary newly joined in corporate merger under same control this year, then delete "of which: the net profit realized by the party being merged before the merger" Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Consolidated Cash flow statement Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit：RMB Same period of the Items Notes Report period previous year I.Cash flows from operating activities Cash received from sales of goods or rending of 42,451,326 176,654,559 services Net increase of trade financial asset disposal 241,685 3,258,808 Tax returned 7,337,725 6,396,030 Other cash received from business operation VIII．43 11,822,858 5,547,890 Sub-total of cash inflow 61,853,594 191,857,287 Cash paid for purchasing of merchandise and 33,828,569 133,202,385 services Cash paid to staffs or paid for staffs 4,155,118 28,433,553 Taxes paid 2,814,600 12,520,840 Other cash paid for business activities VIII．43 7,433,886 9,573,077 Sub-total of cash outflow from business activities 48,232,173 183,729,855 Cash flow generated by business operation, net 13,621,421 8,127,432 II.Cash flow generated by investing Cash received from investment retrieving Cash received as investment gains 6,490 6,918 Net cash retrieved from disposal of fixed assets, 116 12,169,848 intangible assets, and other long-term assets Net cash received from disposal of subsidiaries or 900,557 other operational units 54/130 Other investment-related cash received Sub-total of cash inflow due to investment activities 6,606 13,077,323 Cash paid for construction of fixed assets, intangible 26,351 1,189,290 assets and other long-term assets Cash paid as investment 2,835,100 Net cash received from subsidiaries and other operational units Other cash paid for investment activities Sub-total of cash outflow due to investment activities 2,861,451 1,189,290 Net cash flow generated by investment -2,854,845 11,888,033 III.Cash flow generated by financing Cash received as investment 1,470,000 Incl: Cash received as investment from minor 1,470,000 shareholders Other financing –related ash received Sub-total of cash inflow from financing activities - 1,470,000 Cash to repay debts 143,985 62,000,000 Cash paid as dividend, profit, or interests 2,265,015 Incl: Dividend and profit paid by subsidiaries to minor shareholders Other cash paid for financing activities Sub-total of cash outflow due to financing activities 143,985 64,265,015 Net cash flow generated by financing -143,985 -62,795,015 IV.Influence of exchange rate alternation on cash and -1,911,015 3,764,504 cash equivalents V.Net increase of cash and cash equivalents 8,711,576 -39,015,046 Add: balance of cash and cash equivalents at the 52,656,852 91,671,898 beginning of term VI. Balance of cash and cash equivalents at the end of 61,368,428 52,656,852 term Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 55/130 Consolidated Statement on Change in Owners’ Equity Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Owner’s equity Attributable to the Parent Company Items Share Capital Surplus Attributable Capital reserves reserves profit I.Balance at the end of last year 169,142,356 43,881,067 26,309,287 -89,853,184 Add: Change of accounting policy Correcting of previous errors Other II.Balance at the beginning of current year 169,142,356 43,881,067 26,309,287 -89,853,184 III.Changed in the current year -4,686,436 - -25,957,333 （I） Net profit - -25,957,333 （II） Gains losses accounted into owners’ -4,686,436 - - equity directly 1．Change in fair value of sellable financial -580,899 assets, net 2．Influence of change in other owners’ equity -4,160,758 of invested enterprises on equity basis 3．Influence of income tax related to owners’ equity items 4．Other - 55,221 Total of (I) and (II) - -4,686,436 - -25,957,333 （III）Investment or decreasing of capital by owners 1.Investment by owners 2．Amount of shares paid and accounted as owners’ equity 3．Other - - - - （IV）Profit allotment 1．Providing of surplus reserves 2.Providing of common risk provisions 56/130 3．Allotment to the owners(or shareholders) 4．Other - - - - （V）Internal transferring of owners’ equity 1．Capitalizing of capital reserves（Or to capital ） 2．Capitalizing of surplus reserves （Or to capital shares） 3．Making up losses by surplus reserves 4．Other IV.. Balance at the end of this term 169,142,356 39,194,631 26,309,287 -115,810,517 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Consolidated Statement on Change in Owners’ Equity Year 2007 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Owner’s equity Attributable to the Parent Company Items Share Capital Surplus Attributable Diffe Capital reserves reserves profit curre I.Balance at the end of last year 169,142,356 34,902,008 26,309,287 27,459,127 Add: Change of accounting policy Correcting of previous errors Other II.Balance at the beginning of current 169,142,356 34,902,008 26,309,287 27,459,127 year III.Changed in the current year - 8,979,059 - -117,312,311 （I） Net profit -116,356,882 （II） Gains losses accounted into - 8,979,059 - -955,429 owners’ equity directly 1．Change in fair value of sellable financial assets, net 57/130 2．Influence of change in other owners’ 557,907 equity of invested enterprises on equity basis 3．Influence of income tax related to 8,421,152 owners’ equity items 4．Other -955,429 Total of (I) and (II) - 8,979,059 - -117,312,311 （III）Investment or decreasing of capital by owners 1.Investment by owners 2．Amount of shares paid and accounted as owners’ equity 3．Other - - - - （IV）Profit allotment 1．Providing of surplus reserves 2.Providing of common risk provisions 3．Allotment to the owners(or shareholders) 4．Other - - - - （V）Internal transferring of owners’ equity 1．Capitalizing of capital reserves（Or to capital ） 2．Capitalizing of surplus reserves （Or to capital shares） 3．Making up losses by surplus reserves 4．Other IV.. Balance at the end of this term 169,142,356 43,881,067 26,309,287 -89,853,184 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 58/130 Parent Company Balance sheet December 31, 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit：RMB Year-beginning Assets Notes Year-end balance balance Current asset： Monetary fund 30,750,018 31,467,687 Trading financial assets Bill receivable Account receivable IX.1 714,042 5,779,780 Prepayments Insurance receivable Dividend receivable Other account receivable IX.2 82,236,725 83,780,414 Inventories 2,625,685 9,351,476 Non-current asset due in 1 year Other current asset Total of current assets 116,326,470 130,379,357 Non-current asset Disposable financial asset Expired investment in possess Long-term receivable Long term share equity investment IX.3 39,974,858 39,438,551 Property investment 6,972,363 7,792,700 Fixed assets 18,441,088 23,501,210 Construction in progress Engineering material Fixed asset disposal Production physical assets Gas & petrol Intangible assets R & D petrol Goodwill Long-germ expenses to be amortized Differed income tax asset Other non-current asset Total of non-current assets 65,388,309 70,732,461 Total of assets 181,714,779 201,111,818 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 59/130 Parent Company Balance Sheet(Cont’d) December 31, 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd. Unit：RMB Year-end Year-beginning Liabilities and shareholders' equity Notes balance balance Current liabilities Short-term loans Trade off financial liabilities Bill payable Account payable 1,867,796 2,770,633 Received in advance 2,464,838 1,718,419 Employees’ wage payable 560,676 532,758 Tax payable 3,864,340 2,321,268 Interest payable Dividend payable Other account payable 720,894 697,981 Non-current liability due in 1 year 0 Other current liability 1,137,304 1,180,756 Subtotal of current liability 10,615,848 9,221,815 Non-current liabilities： Long-term loan Bond payable Long-term payable Deferred income 910,284 966,538 Projected liabilities Deferred income tax liabilities 3,519,356 3,736,846 Other non-current liabilities Subtotal non-current liabilities 4,429,640 4,703,384 Total liabilities 15,045,488 13,925,199 Owner’s equity(or shareholder’s equity)： Share capital 169,142,356 169,142,356 Capital public reserve 31,606,598 31,606,598 Less：Inventory shares Surplus public reserve 26,309,287 26,309,287 Retained profit -68,418,602 -58,671,452 Balance difference of foreign currency translation 8,029,652 18,799,830 Total owner’s equity 166,669,291 187,186,619 Total liabilities and owner’s equity 181,714,779 201,111,818 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 60/130 Parent Company Profit statement Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd Unit：RMB Same period of the Items Report period Notes previous year I. Operating income IX.4 20,308,550 35,373,188 Less：operating cost IX.4 20,208,219 53,160,389 Operating tax and extras Sales expenses - 345,817 Administration expenses 6,359,263 23,959,653 Financial expenses -4,540,128 -1,149,489 Losses of devaluation of assets 8,256,535 43,443,769 Add：changing income of fair value Investment income IX.5 241,685 4,158,808 Including：Investment income on affiliated company and joint venture III.Operating profit -9,733,654 -80,228,143 Add：non-operating income 6,053 - less：non-operating expense 13,496 11,883,777 Including：disposal loss of non-current assets 2,170,205 IV. Total profit -9,747,150 -92,105,867 Less：expense of income tax 645,554 - V. Net profit -9,747,150 -92,751,421 VI. Earnings per share （i）basic earnings per share （ii）Diluted earnings per share 61/130 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Parent Company Cash Flow Statement Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd Unit：RMB Same period of the Items Report period Notes previous year I. Cash flows arising form operating activities: Cash received from selling commodities and providing labor 20,013,418 80,561,425 services Net increase of disposal of transaction financial assets 241,685 3,258,808 Write-back of tax received 840,576 1,992,380 Other cash received concerning operating activities 4,283,430 1,707,413 Subtotal of cash inflow 25,379,109 87,520,026 Cash paid for purchasing commodities and receiving labor 16,769,837 49,604,146 service Cash paid to/for staff and worker 1,964,505 15,450,483 Taxes paid 1,284,079 1,496,602 Other cash paid concerning operating activities 3,011,613 21,360,481 Subtotal of cash outflow 23,030,034 87,911,712 Net cash flows arising form operating activities 2,349,075 -391,686 II. Cash flows arising form investing activities Cash received form recovering investment Cash received form investment income Net cash received form disposal of fixed , intangible 3,100,000 and other long-term assets Net cash received from disposal of subsidiaries and 900,000 other units Other cash received concerning investing activities Subtotal of sash inflow - 4,000,000 Cash paid for purchasing fixed, intangible and other long-term assets Cash paid for investment 2,835,100 1,530,000 Net cash received from subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow 2,835,100 1,530,000 Net cash flows arising from investing activities -2,835,100 2,470,000 III. Cash flows arising from financing activities 62/130 Cash received from absorbing investment Cash received from loans Other cash received concerning financing activities Subtotal of cash inflow - - Cash paid form settling debts 37,000,000 Cash paid for dividend and profit distributing or interest 116,072 paying Other cash paid concerning financing activities Subtotal of cash outflow - 37,116,072 Net cash flows arising from financing activities - -37,116,072 IV. Influence on cash due to fluctuation in exchange rate -231,644 -265,147 V.Net increase of cash and cash equivalents -717,669 -35,302,905 Add：Balance of cash and cash equivalents at the period 31,467,687 66,770,592 -begin VI. balance of cash and cash equivalents at the period-end. 30,750,018 31,467,687 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 63/130 Parent Company Statement on Change in Owners’ Equity Year 2008 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd Share Capital Surplus Attributable Items Capital reserves reserves profit I.Balance at the end of last year 169,142,356 31,606,598 26,309,287 -58,671,452 Correcting of previous errors Other II.Balance at the beginning of current 169,142,356 31,606,598 26,309,287 -58,671,452 year III.Changed in the current year - - - -9,747,150 - （I） Net profit -9,747,150 （II） Gains losses accounted into - - - - owners’ equity directly 1．Change in fair value of sellable financial assets, net 2．Influence of change in other owners’ equity of invested enterprises on equity basis 3．Influence of income tax related to owners’ equity items 4．Other Total of (I) and (II) - - - -9,747,150 （III）Investment or decreasing of capital by - - - - owners 1.Investment by owners 64/130 2．Amount of shares paid and accounted as owners’ equity 3．Other （IV）Profit allotment - - - - 1．Providing of surplus reserves 2．Allotment to the owners(or shareholders) 3．Other （V）Internal transferring of owners’ equity - - - - 1．Capitalizing of capital reserves（Or to capital ） 2．Capitalizing of surplus reserves （Or to capital shares） 3．Making up losses by surplus reserves 4．Other IV.. Balance at the end of this term 169,142,356 31,606,598 26,309,287 -68,418,602 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng Parent Company Statement on Change in Owners’ Equity Year 2007 Prepared by: Shenzhen Victor Onward Textile Industrial Co., Ltd Share Capital Surplus Attributable Items Capital reserves reserves profit 65/130 I.Balance at the end of last year 169,142,356 31,606,598 26,309,287 34,079,969 Correcting of previous errors Other II.Balance at the beginning of current 169,142,356 31,606,598 26,309,287 34,079,969 year III.Changed in the current year - - - -92,751,421 （I） Net profit -92,751,421 （II） Gains losses accounted into - - - - owners’ equity directly 1．Change in fair value of sellable financial assets, net 2．Influence of change in other owners’ equity of invested enterprises on equity basis 3．Influence of income tax related to owners’ equity items 4．Other Total of (I) and (II) - - - -92,751,421 （III）Investment or decreasing of capital by - - - - owners 1.Investment by owners 2．Amount of shares paid and accounted as owners’ equity 3．Other （IV）Profit allotment - - - - 1．Providing of surplus reserves 2．Allotment to the owners(or shareholders) 66/130 3．Other （V）Internal transferring of owners’ equity - - - - 1．Capitalizing of capital reserves（Or to capital ） 2．Capitalizing of surplus reserves （Or to capital shares） 3．Making up losses by surplus reserves 4．Other IV.. Balance at the end of this term 169,142,356 31,606,598 26,309,287 -58,671,452 Legal representative: Financial controller The person in charge of the financial Department: Hu Yongfeng Zhang Jinliang Ren Changzheng 67/130 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） Shenzhen Victor Onward Textile Industrial Co., Ltd. Notes to the Accounting Statements January 1,2008 to December 31,2008 (Referring to notes to consolidated financial statements unless separately stated. Currency: RMB) 1.Basic Information of the Company Shenzhen Victor Onward Textile Industrial Co., Ltd. (hereinafter referred to as "the Company"), grew out of the Xingnan Printing Factory Co., Ltd, founded in 1980, was the first wholly foreign-owned enterprise in Shenzhen. In April 1984, Xingnan Printing Factory Co., Ltd was changed into foreign joint venture, and was renamed Shenzhen Victor Onward Textile Industrial Co., Ltd. . On November 19, 1991, the Company was reorganized into a joint stock limited company and renamed Shenzhen Victor Onward Textile Industrial Co., Ltd. pursuant to the approval of Shenzhen Municipal Government. The domestically listed RMB ordinary shares ("A shares, Stock code: 000018" ) and domestically listed foreign investment shares ("B shares ,stock code: 200018") issued by the Company were listed on Shenzhen Stock Exchange in 1992. By December 31, 2008, the total share capital was 169,142,356 million shares, of which circulating A-share 51,214,170 million shares, limit-sale A-share 48,506,283 million shares, circulating B-share 69,421,903 million shares, of which Union Holdings Co., Ltd. (hereinafter referred to Union Holdings ) holding 43,141,032 shares, accounting for 25.51% of the total equity, is the controlling shareholder of the company, Union Development Group Co., Ltd. (hereinafter referred to Union Group)holding 6,299,185 shares, accounting for 3.72% of the total equity, Union Group holds 31.32% of equity of Hualian Holdings and has the right to control Union Holdings, thus Union Group is the actual controller of the Company. By December 31, 2008, Victor Onward printing and dyeing (Hong Kong) Co., Ltd. (hereinafter referred to as "Hong Kong Victor Onward"), Hong Kong Victor Onward Digital Printing Co., Ltd. (hereinafter referred to as "Victor Onward Digital Printing"), Shengzhong Industrial Co., Ltd. (hereinafter referred to as "Shengzhong") , Shenzhen Vea opel Garment Co., Ltd (hereinafter referred to as "Vea opel") ,Shenzhen East Asia Victor onward Holding (hereinafter referred to as “East Asia Company)and Shenzhen Nanhua Printing and Dyeing as well as its wholly-funded subsidiary Nanhua Xingye Co., Ltd (hereinafter referred to as "Nanhua Xingye") are all subsidiaries of the Company. The Company and its subsidiaries are collectively referred to as "the Group". 13 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） The Group is mainly engaged in the production and processing (printing and dyeing) and sales of various high-grade fabrics of pure cotton, pure linen, polyester-mixed cotton, linen cotton and mixed fiber and finished garments. Registered address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Legal Representative: Hu Yongfeng II. Basis for the preparation of financial statements The financial statements was prepared on the basis of the Group's continuous operation. III.Complying with the statements in Accounting Standards for Business Enterprises The financial statements of the Group comply with the requirements of Accounting Standards for Business Enterprises, truly reflect the integrity of the financial situation, operating results and cash flows, and other relevant information of the company. IV. Accounting policies, accounting estimation and the method of preparing consolidated financial statements No changes in accounting policies and estimates happened this year, and no significant pre-errors were found this year. V. Accounting policies, accounting estimation and the method of preparing consolidated financial statements (1)Fiscal year The fiscal year of the Group starts on January 1 and ends on December 31 on the Gregorian calendar. (2)Standard currency for book keeping Except for Shenzhen East Asia Company and Veaopel taking RMB as the standard currency for bookkeeping, the Company and other subsidiaries of the Group all take HKD as the standard currency for bookkeeping. (3) Basis for bookkeeping and costing principle The Group's basis for bookkeeping is accrual system. Except that the financial assets for transaction, the financial liabilities for transaction, and financial assets available for sale are accounted by fair value, generally, account by historical cost. (4) Cash and cash equivalents The cash stated in cash flow statement refers to cash in hand and bank deposits usable for payment at any time. Cash equivalent refers to the investments with holding period of less than 3 months and strong liquidity that are readily convertible to known amount of cash and subject 14 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） to insignificant risk of changes in value. (5)Foreign currency Convert （1）Foreign currency Transactions The foreign currency transactions the Group were accounted according to the amount of foreign currency on the first day of the current month converting to the amount of bookkeeping currency. On the balance sheet date, foreign currency monetary items would be converted into RMB by using the spot exchange rate on the balance sheet date, the conversion differences produced shall be directly included in the current loss and gain except the exchange differences produced by foreign currency special loans borrowed for purchasing or production of the assets which meet the capitalization conditions. The foreign currency non-monetary items measured by fair value shall be converted into RMB by the spot exchange rate on the fair value date, the conversion differences produced shall be directly included in current loss and gain as fair value changes. The foreign currency non-monetary items measured by historical costs shall be converted by using the spot exchange rate on the transaction date, and its RMB amount will not be changed. （2）Foreign currency statement Convert The financial statements of the company and the subsidiaries making HK dollars as bookkeeping currency shall be converted into RMB. In the course of conversion, the assets & liabilities items shall be converted by using the spot exchange rate on the balance sheet date, the items of shareholders equity except for the retained profit shall be converted according to the spot exchange rate, the items of incomes and expenses in the profit statement shall be converted by the approximate exchange rate of spot exchange rate on the transaction date. The conversion differences of foreign currency statements produced in the above conversions shall be individually listed under the item of shareholders equity. The cash flow in the cash flow statement are converted by the average exchange rate of the market rates announced in the accounting period. The influences on cash flow from the changes of exchange rate are separately listed in cash flow statement. 6. Financial assets (1). Classification of financial assets: According to investment purposes and economic nature, the financial assets of the Group can be divided into the financial assets measured by fair value and the changes included in the current loss and gain, the expired investments held, receivables and financial assets for sale, the four categories. 1). The financial assets measured by fair value and the changes included in the current loss and gain: mainly refer to the financial assets for sale in short term, which shall be 15 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） listed in balance sheet in transactional financial assets. 2). The expired investments held: refer to the non-derivative financial assets which have fixed expire date and fixed or determined recovering amount, and the management level has the intention or ability to hold the assets. 3). Receivables: refer to the non-derivative financial assets which have no quotation in active market but have fixed or determined recovering amount, including notes receivable, accounts receivable, interest receivable, dividends receivable and other receivables. 4). Financial assets for sale: include the non-derivative financial assets which are recognized as for sale when they are initially confirmed, and the financial assets which are not divided into other categories. (2) Confirmation and measurement of financial assets: Financial assets are conducted initial confirmation by at fair value. The relevant expenses to obtain the financial assets measured by fair value and the changes included in the current loss and gain shall be included in the current loss and gain, the relevant transactional expenses of other financial assets shall be the initial confirmation amount. When the contract right of a financial asset is ended or the risk and reward of ownership of the financial asset are transferred to the corresponding party, the confirmation of financial assets shall be ended. At fair value and changes in their gains and losses included in the current period of financial assets and financial assets to be sold in accordance with the fair value of follow-up measures; receivables and investments held to maturity using the effective interest method to share more than the cost listed. The changes of fair values of financial assets measured by fair value and the changes included in the current loss and gain shall be included in the changing loss and gain of fair value; all the interest and cash dividends obtained during the period holding the assets shall be confirmed as investment income; upon the disposal of the assets, the differences between the fair value and initial bookkeeping amount shall be confirmed as investment loss and gain, and at the same time, the changing loss and gain of fair value shall be adjusted. The changes of fair values of financial assets for sale shall be included in equity of shareholders; during the holding period, the interest accounted by actual interest rate shall be included in the investment income; the cash dividends of equity tool investment for sale shall be included in investment income upon the invested unit’s declaration of distributing dividends; upon the disposal, the differences between the price and book value deducting the fair value originally included in shareholders equity shall be included in investment loss and gain. (3). Impairment of financial assets: Except for the financial assets measured by fair value and the changes included in 16 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） the current loss and gain, on the financial sheet date, the Group will check the book value of other financial assets on the balance sheet date, if there is objective evidence showing that impairment has happened on a financial asset, provision for the impairment shall be drown. If dramatic or non-temporary decline has happened on the financial assets for sale, the accumulative loss originally included in shareholders equity shall be included in the impairment loss. The equity tool investments which the impairment loss has been confirmed and are related to the events of conformation of impairment loss shall be included in the equity of shareholders. The impairment loss of equity tool investments which have no quotation in the active market and the fair value can not be reliably measured, will not be transferred back. 7. Account receivable and provisions for bad debts The Group adopted the method of counter compensation for the possible bad debt losses, which were drown provision for bad debt by the method of individual recognition at period end and were included in the current loss and gain. The receivables which were not to be recovered, after being approved by the Group, would be regarded as bad debt loss and the provision for bed debt would be written off. The individual amount of receivable over 1 million yuan will be recognized as a major receivable, when there is evidence showing that the Group will not be able to recover all the money in accordance with the original item of receivable, provision for bad debt shall be drown according to the differences of future cash flow lower than the book value after impairment test. The non-significant single receivables and the receivables without impairment will be divided into a number of combinations in accordance with credit risk characteristics. The provision for bad debts to be drown in this year will be accounted to the actual loss rate with the similar credit risk characteristics in the previous year and combining the present situations to determine the ratio of provision for impairment of this year. The Group divided the receivables which were not to be recovered with evidence or probably not to be recovered as special asset particular asset portfolio and provision for bad debt would be fully accounted. The accounting ratios for provision for bad debts which were divided accounting to account age were as follows: Age Proportion 17 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） Winthin 1 year 3% 1-2 years 10% 2-3 years 50% Over 3 years 100% The Group shall make special provision for bad debts in respect of other receivables on case-by-case basis. 8. Inventory (1)The inventories of the Company include raw materials, work-in-process, finished products, low-value and easily-worn articles and packing articles and are stated at the lower of cost and net realizable value. Perpetual inventory system was implemented for inventory, the inventory would be priced according to actual cost; upon receiving or sending inventory, weighted average method would be used. The low value consumable products would be amortized by method of one-time writing off. The inventory at year end can be priced by depending on which is lower between cost and realizable net value if the inventory were damaged or full or partly unused or the sale price lower than cost and other reasons. The provision for devaluation of finished products and big raw materials shall be drown according to the difference which the cost of individual inventory item higher than the realizable net value; other raw materials with large quantity and low unit price shall be drown provision for devaluation according to categories. Goods in stock, products in production and other materials directly for the sale, the amount of the realizable net value shall be determined according to the estimated sale price deducting the estimated sale expenses and relevant taxes; the amount of realizable value of material inventory for production shall be determined according to the estimated sale value of finished products deducting the estimated cost which will happen before the completion and estimated sale cost and relevant taxes. The inventory holding for the implementation of sale contract or service contract, the realizable net value shall be accounted on the basis of contract price; if the quantity of inventory held by enterprise is bigger than the quantity ordered in the sale contract, the realizable net value of the excess inventory shall be accounted on the basis of general sale price. 9.Long-term equity investment Long-term equity investments mainly include the equity investments which are held by the Group and the ones that the units being invested can be controlled or jointly controlled, or the equity investments which have not quotation in active market and the fair value can not be reliably measured. 18 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） Joint control refers to the control that common control on some economic activities according to contract. The references for the determination of common control are the business activities which any operating party can not be controlled independently; the decisions relating to basic operating activities of the joint venture enterprise are to be agreed by all joint parties. Significant impact refers to having the right to participate in decision making on financial and operating policies of the units being invested but can not control or jointly control the making of these policies. The determining reference of significant impact is to own 20% (inclusive) or more but less than 50% of the voting shares directly owned by the Group or owned through subsidiaries, unless there is clear evidence that under that circumstance the production operating decision can not be participated and no major influence will formed. The long-term equity investments obtained through merger of companies under same control the merger were the owner's equity book value of the shares as a long-term equity investment of initial investment cost. The long-term equity investments obtained through merger of companies under different control shall make the fair value which made on the merger (purchase) to pay the control of the assets or liabilities as the merger cost. On the merger (purchase) date, in accordance with the merger costs as a long-term equity investment of initial investment cost. Apart from the long-term equity investments stated above, the long-term equity investment obtained by cash, the initial investment obtained by cash will be determined according to the price actually paid, initial investment costs include the direct costs, tax, and other necessary expenses to obtaining long-term investment; the long-term equity investment obtained by issuing equity securities, the initial investment will be determined according to the fair value of the equity securities issued; the long-term equity investments invested by investors, the initial investment cost shall be determined according to contract value; the long-term equity investment obtained by debt restructuring, non-monetary assets or other methods, the initial investment cost shall be determined according to the relevant accounting standards. If the subsidiary uses the cost method to account, adjustment shall be conducted according to equity method when prepare the consolidated financial statements; the joint venture and joint venture investment using the equity method; for the long-term equity investments which have no control or joint control or significant influence and no price in an active market, the method of cost shall be adopted to account; the long-term equity investments which have no control or joint control or significant influence, there are quotations in an active market and the fair value can be reliably measured, shall be accounted as financial assets for sale. When using the method of cost accounting, the long-term equity investments were 19 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） priced by the initial investment costs. When the investment incomes are only limited to the distribution amount of accumulated net profit after the unit being invested accepting the investment, and the profit or cash dividends declared by the unit being invested will be recovered as initial investment cost to reduce the book value of the investment. When using the equity method accounting, the current investment gains and losses are the share of net losses and gains to be owned or shared and achieved in the current year by the unit being invested. When determining the share to be shared by the unit being invested, on the basis of the fair value of the identifiable assets, according to the accouting policy and accounting period of the Group, offsetting the internal transaction loss and gain and the part that the equity proportion attributable to the joint enterprise and united enterprise, and confirm the net profit of the unit being invested after profit adjustment. When confirming the net loss to be shared by the unit being invested, reduce the book value of long-term equity investment and other long-term equity of the unit being invested to zero. In addition, if the Group bears the obligation to undertake additional loss for the units being invested, then confirm the predicted liability according to predicted obligation and be included in the current loss and gain. The profit achieved by the units being invested in future period, will be reconfirmed as income shares after the Group recovered the losses not confirmed. For the long-term equity investments on joint venture enterprises and joint owned enterprises held before the first implementation date, if existing the debit difference relating to the equity investment, the debit difference of equity investment, after deducting the investment loss and gain according to the original remained period, should be confirmed as investment gains and losses. 10. Investment real estate The investment real estates of the Group are the rental buildings. The investment real estates are accounted by the cost, the purchased investment real estates include the cost of the purchase price, related taxes and fees and other expenses which can be directly attributable to the assets; the costs of investment real estate self constructed include the necessary expenses to construct the asset to reach the predicted use state. The Group adopts the cost method to conduct follow-up measurement on investment real estates are accounted devaluations and amortized. The expected service life, net residual rate and value depreciation rates of investment real estate are as follows: 20 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） Type Evpected useful Estinated Annual depreciation rate（%） life（Year） residual value rate Real estate in 20-50 years Hongkong 0% 2%-5% Real estate in 20-30 years China 10% 3%-4.5% If the investment real estate is changed to self use, since the date of change, investment real estate shall be converted into fixed assets or intangible assets. The function of self-use real estate is to earn rent or capital appreciation, then since the date of change, the fixed assets or intangible assets shall be converted into investment real estate. When the conversion happens, the book value before the conversion will be the book value after the conversion. When the real estate investment is disposed or will never be used, and economic interests can not be obtained from the disposal, the confirmation of the investment real estate shall be terminated. The amount of the income from the sale, transfer, disposal of the investment in real estate deducting the book value and related taxes and fees shall be included in the current loss and gain. 11. Fixed assets Fixed assets refer to the tangible assets which have the following characteristics at the same time, namely, held for production of goods, providing services, leasing or operation and management, and the life span shall not be more than a year, and the unit value is high. Classification of fixed assets: houses and buildings, machinery and equipments, transportation equipments, office equipments and others. The fixed assets shall be measured according to the actual cost to obtain them, including, the cost of purchasing the fixed assets including the purchase price, value-added tax, import tariffs and other related taxes, and other expenses happened to reach the predicted use state; the cost of building the fixed assets, which are composed of the expenses to reach the predicted use state of the assets; the fixed assets invested by investors, the value on the contract or agreement shall be the accounting value, but if the contract or agreement value is not fair, the fair value shall be accounted; the fixed leased assets, the lower amount of the fair value of leased assets and the present value of the lowest lease payment shall be as the accounting value. 21 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） Follow-up expenditures on fixed assets, including major repair expenses, expenses on updated improvement and other, To confirm compliance with the conditions of fixed assets, it shall be included in the cost fixed assets, the recognition of book value of replaced the part shall be terminated; If not meeting the conditions of confirming fixed assets, they should be included in the current period. In addition to the fixed assets which depreciation and impairment had already fully accounted and the lands which are separately accounted, the Group accounts depreciation on all fixed assets. The method of average number of years will be used when accounting depreciation which will be included in the costs and expenses of the relevant assets. The predicted net residual rate, classified depreciation years and depreciation rates are as follows: Type Evpected useful Estinated residual Annual depreciati No life（Year） value rate on rate（%） Real estate in Hong 20-50 Years 1 Kong 0% 2%-5% Real estate in 20-30 years 2 China 10% 3%-4.5% Machinery and 5-14 years 3 equipment 10% 6%-18% Transportation 4-5 years 4 Equipment 10% 18%-22.5% Office equipment 5 years 5 and other 10% 18% At the end of each year, the Group shall recheck the predicted service life of fixed assets, the predicted net residual value and depreciation method, if changes happen, then it shall be treated as accounting estimate. When the fixed assets were disposed, or expected to be used or the disposal can not have economic interests, the confirmation of the fixed assets shall be terminated. The income from the sale, transfer or damage of the fixed assets deducting the book value and related taxes shall be included in the current loss and gain. 12. Construction in progress The price of the construction project: determine the costs according to the actual expenditure on the project. Measure the price of the self-operated projects according to the direct materials, direct wages, direct construction costs; Measure the turnkey 22 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） projects according to the price should be paid on the project; measure the project of equipment installation according to the value, of the equipment, installation costs, and the expenditures on the trial operation to determine the project costs. The costs of projects under construction also include the cost of borrowing to be capitalized and exchange gain and loss. The time for the construction project converted to the fixed assets: the fixed assets of the company reached the predicted state, according to the budget of the project, construction cost or the actual cost of the project, transfer the fixed assets according to the predicted price, account the depreciation from the next month on. Upon finishing the procedures, make relevant adjustment. 13.Borrowing costs Borrowing costs include interest on borrowings, amortization of discount or premium, as well as the supporting costs and exchange difference due to foreign currency borrowing. The borrowing costs which can be directly attributed to capitalized condition, and taken place in the capital expenditure, borrowing costs have taken place, in order to meet the assets available for sale or purchase of the necessary state of construction or production activities, the capitalization begins; when the construction or purchase of the conditions of production in line with the capital assets reached the sale state, the capitalization should stop. And the rest borrowing costs should be recognized as expenses in the current period. The expenses on interests for the specialized loan happened in current period deducting the interest income from the bank or the investment income from temporary investment should be capitalized; the general assets of the borrower in accordance with the cumulative excess of expenditure over the assets of the specialized part of the borrower multiplied by the weighted average expenditure occupied by the weighted average borrowings to determine the amount of capitalization, until the restart of construction or purchase of assets. The assets which meet capitalization conditions, refer to the fixed assets, investment real estates and other inventories which are constructed for a long time (usually more than one year) to achieve the intended use or sale of state to. If meet the capitalization conditions or non-normal breaks occurred in the course of production and the break time is more than three months, then the capitalization of borrowing costs shall be suspended; when the acquisition or construction or production meet the conditions of capitalization and achieve the predicted use or sale state, the capitalization of borrowing costs shall be stopped. 14. Intangible assets The intangible assets of the Group include land use rights and computer software. Including: For the intangible assets purchased, the actual purchase price was the actual cost; For the intangible 23 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） assets invested by investors, The actual cost of intangible assets invested by investors, shall be determined according to the contract or agreement value, but if the contract or agreement values are not fair, the actual costs shall be determined according to the fair value. Since the date of selling land use rights, they are amortized according to the years sold; patent technology, non-patent technology and other intangible assets are amortized in accordance with the expected number of years, the benefited years specified in the contract and the effective length according to law. The amount to be amortized will be included in the related asset costs and current loss and gain according to the benefited targets. The predicted service life of the intangible assets and amortization methods should be rechecked and adjusted at the end of each year. Recheck the intangible assets with uncertain service life in each accounting period should be rechecked, if there is evidence showing that the service life of the intangible asset is limited, then estimate its service life and amortized it within the predicted service life. 15. Impairment in non-financial assets The Group conducts inspection on long-term equity investments, fixed assets, construction in progress, intangible assets with limited service life on every balance sheet date. when exist the following signs showing that the assets may have impairment, the Group will conduct impairment test. The intangible assets without certain service life, whether it has impairment signs, impairment tests shall be conducted at the end of each year. If the recoverable amount of single asset can not be tested, it shall be tested on the basis of the asset group the asset belong to or the asset combination. After the impairment test, if the book value of the asset exceeds its recoverable amount, the deficiency is recognized as the impairment loss, upon the confirmation of the above assets, they will not be transferred back in the following accounting period. The recoverable amount of the asset refer to the net amount of the fair value of the asset deducting disposal cost of assets and the present value of the expected future cash flows. The signs of impairment as follows: (1). Current market value of assets decreased significantly, the decline is significantly higher than the decline due to time passage or normal use. (2) The economic, technical or legal environment of the company and the market of the assets will have significant change in the current period or in the near future, therefore negative impact on the enterprise. (3) Market interest rates or other market return rate of investment in the current period have been increased, thus affecting the discount rate of the predicted cash flow, and resulting in the significant reduction in the amount of recoverable assets. (4) There is evidence showing that the assets were actually obsolete or damaged. (5). The assets have been or will be idle, ended the use or disposed in advance. (6). There are evidences of internal report showing that the economic performance of the assets has been lower than or less than what expected, such as the net cash flow 24 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） created by assets or the operating profits (or losses) realized are far below (or above)the expected amount. (7). Other signs showing the assets may have or have had impairment. 16.Goodwill Goodwill refers to the difference of equity investment under the control of the same cost or merger of enterprises should enjoy more than the cost or a merger of the investment was the purchase of flats or net assets in order to obtain. The goodwill related to subsidiaries shall be individually listed in the consolidated financial statements, the goodwill related to joint companies and associated companies shall be included in the book value of long-term equity investments. 17.Long-term amortized expenses The long-term expenses of the Group to be amortized refer to all the expenses already paid but should be undertaken in the current period or in the coming period with amortization period more than 1 year (not including 1 year), the expenses will be amortized averagely in the benefit period. If the long-term prepaid expenses can not benefit from subsequent accounting period, then all amortization value of the project not amortized should be transferred to the current loss and gain. 18. Employee’s salary During the accounting period, workers’ salary shall be recognized as liability, and be included in relevant cost and expenses according to the beneficiary target of the service provided by workers, and shall be included in the relevant cost and expenses. The compensations for the cancelation of workers’ labor relationship shall be included in the current loss and gain. Including wages, bonuses, allowances and subsidies, welfares, social insurance and housing accumulation fund, union fee and workers’ education fund, and other related expenses related to obtain services provided by employees. 19. Predicted liabilities When the external security, commercial acceptance bill discount, pending litigation or arbitration, product quality assurance or business related matters subject to the following conditions at the same time, the Group will identify it as liabilities: the 25 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） obligation is a present obligation of the Group; the enforcement of the obligation is likely to lead to the outflow of economic benefits; the amount of the obligation can be measured reliably. Predicted liabilities shall be conducted initial measurement according to the best estimates of related existing liabilities, and comprehensively consider risks, uncertainties and the time value of money and other factors relating to contingent events. Time value of money has the greatest influence, the best estimates shall be determined by future cash outflow. On the balance sheet, recheck the book value of predicted liabilities, adjust the book value to reflect the current best estimates if there are any changes. 20. Principle for confirmation of income The Group's revenues mainly include: incomes from sales of goods and transferring assets use right. The principle of income confirmation is as follows: When the Group had transferred the ownership of the risks and rewards of the commodities to the buyer, the Group does not keep the management right relating to ownership and does not implement effective control on the commodities sold out, the income amount can be reliably measured, and the related economic benefit will possibly flow into the enterprise, and when the related costs may happen or had happened can be measured reliably, the realization of the commodity sold out should be confirmed. The economic interests relating to transaction can flow into the company, and the relevant incomes and costs can be reliably measured, the sales income of transferring assets use right shall be confirmed. 21. Lease At the beginning date of lease, the Group divided leasing into financing lease and operating lease. Financing lease essentially refers to the lease that transferred all the risks and rewards relating to asset ownership. As the lessee, on the beginning date of lease, the Group took lower one in the cash of the fair value and the lowest lease payment as the book-keeping value of the fixed assets leased in by financing, and the lowest lease payment as the accounting value of the long-term payment, and the difference between the them will be recorded as financing costs not confirmed. Operating lease refers to the other lease apart from financing lease. As the lessee, during the lease period, the Group included the related asset cost and current losses and gains by the straight-line method during the lease period. The rent of the Group will be confirmed as income during the lease period by the straight-line method. 22. Government subsidies Government subsidies, when the Group can meet the conditions attached and can receive, shall be confirmed. If government subsidies are monetary assets, they shall be 26 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） measured according to the amount received; the subsidies allocated according to rated standards, they shall be measured according to the amount receivable. If government subsidies are non-monetary assets, they shall be measured according to fair value; if the fair value can not be reliably measured, they shall be measured according to nominal amount (1 yuan). The government subsidies relating to assets shall be recognized as deferred income, and be averagely distributed within the service life of relevant assets, and be included in the current loss and gain. If the government subsidies relating to income are used to compensate the related expenses and losses, they shall be confirmed as deferred income and be included in the current loss and gain in the period of confirming relevant expenses. If used to compensate the relevant expenses and losses happened, they shall be included in the current loss and gain. 23. Deferred income tax assets and deferred income tax liabilities Deferred income tax assets and deferred income tax liabilities shall be confirmed according to the difference between the tax base of assets and liabilities and their book value (temporary differences). The loss and tax which can be offset in the future years shall be recognized as temporary differences to determine the corresponding deferred income tax assets. On the balance sheet date, deferred income tax assets and deferred income tax liabilities shall be measured by the predicted application rate. The Group shall determine the deferred income tax assets produced by the deductible temporary differences within the amount limit of payable taxes which are likely used to deduct the temporary differences. The book value of the recognized deferred income tax assets shall be deducted when the deferred income tax assets produced by the deductible temporary differences within the amount limit of payable taxes which are likely used to deduct the temporary differences. When enough payable tax can be obtained, the deducted amount shall be transferred back. 24.Accounting of income tax The accounting of income tax of the Group shall use the method of debt of balance sheet. The income tax expenses include current income tax and deferred income tax. The current income tax and deferred income tax relating to the transactions and events directly included in shareholders equity shall be included in shareholders equity, except the book value of deferred income tax adjustment goodwill, the rest current income tax and deferred income tax or income shall be included in the current loss and gain. Current income tax cost refers to the amount of payable income tax which shall be paid to tax department according to the current transactions and events determined according to tax provisions; deferred income tax refers to difference between deferred income tax balance sheet debt in accordance with the law shall be recognized deferred income tax assets and deferred income tax liabilities in the amount originally confirmed. 27 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） 25.Corporate consolidation Corporate consolidation refers to two or more separate companies merge and form a transaction or event of report subject. The consolidation day or purchase day or the consolidation date of obtaining the assets or liabilities, shall be confirmed as the date of obtaining the control right of the party being merged or purchased. The corporate consolidation under same control: the assets and liabilities obtained by the consolidation party in the merger shall be measured according to the book value of merged party on the consolidation day. The difference between the book value of net assets obtained by the consolidation party and the book value of the consolidation price paid, the capital public reserve shall be adjusted; if the capital public reserve is not enough to be deducted, the retained earnings shall be adjusted. The corporate consolidation under different control: the consolidation cost is the fair value of equity stocks issued and the assets and debts paid to obtain the control right of the purchased party on the purchase day. The difference between the consolidation cost and fair value of recognizable net asset, shall be confirmed as goodwill; if the consolidation cost is smaller than the fair value of recognizable net asset of the purchased party, the difference shall be included in current loss and gain upon confirmation. 26.Determination of fair value of financial tools If the financial tools exit in the active market, the fair value shall be determined according to the price in active market. If the financial tools do not exit in the active market, the fair value shall be determined by value estimating technologies. Value estimating technologies include the price used in market transactions, referring the current fair value of other financial assets which are actually the same, cash flow discount and option pricing model. When use the value estimating technologies, the market parameters shall be used as much as possible, and the parameters which are related to the Group will not be used. 27.Methods for compilation of consolidated financial statements (1). Principles to determine the scope of merger: The Group will include the subsidiaries which have actual controlling right and the subjects which have special purpose into the scope of consolidated financial statements. (2). Accounting methods adopted in consolidated financial statements: The consolidated financial statements of the Group shall be compiled in accordance with Enterprise Accounting Standards No. 33 - Consolidated Financial Statements and the related provisions, the major internal transaction in the scope of consolidation and transactions shall be offset. The part of shareholders equity of the subsidiary which does not belong to the parent company, shall be individually listed as equity of minority shareholders in the consolidated financial statement. If the accounting policy and accounting period of the subsidiary and the company 28 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） are not consistent, when compile consolidated financial statement, the financial statement of the subsidiary shall be adjusted according to the accounting policy and accounting period of the company. For the subsidiary obtained by corporate merger under different control, when prepare consolidated financial statements, the individual financial statement shall be adjusted on the basis of fair value of the net assets on the purchase day; for the subsidiary obtained by corporate merger under same control, it will be taken as having been existed at the year beginning, its assets, liabilities, operating results and cash flow shall be consolidated in the financial statement according to original book value since the year beginning of the consolidation period. VI.Taxation The Group is subject to the following taxes and tax rates: 1. Corporate income tax The interest rate of corporate income tax of the company and subsidiaries in China mainland is 15%, according to the State Council on December 26, 2007, of the [2007] No. 39 Notice on the Implementation of Enterprise Income Tax Preferential Policies for the Transition, the enterprise income tax rate of the Company and the subsidiaries in China mainland gradually transited from 15% to 25%, the company implement the transition rate of 18% in 2008. the interest rate of the income from Hong Kong of the subsidiaries in Hong Kong is 16.5%. 2.VAT The sales interest rate of processing income and sale income of printing products of subsidiaries in China mainland and the company is 17%, export products will be adopted the method of "free, credit and rebate", the tax rebate rate is 11%(January-June 2008), 13%( July-September 2008) and 14% (October-December 2008). The purchase of raw materials such as VAT input tax paid by the amount of output tax can be offset, the tax rate is 17%. Of which: the input tax of VAT for export products can pply for payment of rebate. VAT taxable amount is the balance of the current output tax offseting the current input tax. The subsidiaries of the Company in Hong Kong do not need to pay VAT. 3. Business tax The housing rental income of the company and Nanhua Printing & Dyeing Company 29 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） shall be applied to business tax, applicable rate 5%. The subsidiaries of the Company in Hong Kong do not need to pay business tax. 4. City construction tax and education additional expenses City construction tax of the Company is based on the value-added tax, business tax, applicable interest rate 1%, the company does not need to pay education additional expenses.. The subsidiaries of the company in Hong Kong do not need to pay City construction tax and education additional expenses, subsidiaries in mainland China, the applicable City construction tax rate is 1%, applicable education additional tax rate of 3%. 5. Property tax 70% of the original value of property of the subsidiaries of the Company in China mainland shall be the tax basis, applicable tax rate 1.2%, subsidiaries in Hong Kong do not pay property taxes. 30 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） VII.Corporation Consolidation and Consolidation Financial statement （1）Main subsidiaries Proportion% Registration Registered Investment Indire Name Quality Business scope plance capital amount Direct Hong Kong Purchase of raw materials, 2,400,002 marketing of printed and dyed 2,400,002 Victor Onward Hong Kong Trade woven fabrics, investment and 100% （HKD） （HKD） Co. holding business Victor Onward 2,000,000 1,500,000 Hong Kong Trade Digital printing 75% Digital Printing （HKD） （HKD） Victor Onward 1,000,000 Sales of corduroy, dyed goods 1,000,000 Hong Kong Trade 100% Digital Printing （HKD） and printed cloth （HKD） Nanhua 85,494,700 Production and sales of printed 16,874,255 Shenzhen Trade 51.16% 14.62 Company （HKD） cloth and dyed cloth HKD+2,835,100RMB Xinye 10,000 Sales of printed cloth and dyed 10,000 Hong Kong Trade 100% Company （HKD） cloth （HKD） Textilet,Printing and Shenzhen dyeing industry and 3,000,000 1,530,000 East Asia Shenzhen Trade Raw 51% (RMB) (RMB) Co. materials ,Machinery equipment and other 31 深圳中冠纺织印染股份有限公司财务报表附注 2008 年 1 月 1 日至 2008 年 12 月 31 日 （本财务报表附注除特别注明外，金额单位均为人民币元） fabrics 32 1. The Company invested 2,400,002 Hong Kong dollars in 1984 to establish Hong Kong Victor Onward Company in Hong Kong. 2. Digital printing company was established in April 18, 2002, registered capital 2 million Hong Kong dollars, Hong Kong Victor Onward holding 75% equity, East Asia Development (Hong Kong) Ltd holding 25% equity. 3. Shengzhong Company was established in November 9 1993, registered capital 1 million Hong Kong dollars, Hong Kong Victor Onward holding 100% equity. 4. Nanhuan Company was established in July 21, 1988, registered capital 85.49 million Hong Kong dollars, by December 31, 2008 the shareholding structure as follows: Year-beginning Name of investor Proportion% Year-end amount Proportion amount CITIC Group 6,249,662.57 7.31% - - Shenzhen Nanyou（Group） Company 3,129,106.02 3.66% 3,129,106.02 3.66% Shenye Union (Hongkong)Co., Ltd. 26,127,180.32 30.56% 26,127,180.32 30.56% The Company * 37,489,425.95 43.85% 43,739,088.52 51.16% Hong Kong Victor Onward Co. 12,499,325.14 14.62% 12,499,325.14 14.62% Total 85,494,700.00 100.00% 85,494,700.00 100.00% * In may 4, 2008, The Company signed by CITIC Group share transfer agreement, the company price 2.82 million transferee CITIC Group holds 7.31% of the Nanhua Company of the equity, as of December 31, 2008, the Company directly held There are the Nanhua shares increased from 43.85 % to 51.16 %. 5. Xinye Company invested HKD10,000 to establish Industry Company in Hong Kong in December 1996. Nanhua Company Holding’s 100% of the equity. 6. Shenzhen East Asia Company was established in February 28, 2007, registered capital 3 million yuan, the company invested 1.53 million yuan, holding 51% equity, Nanjing East Asia Textile Co., Ltd. invested 1.47 million yuan, holding 49% equity. (2) Change of consolidation scope There is no change in the consolidated financial statement of this year. (I). Foreign currency translation Except that Shenzhen Dongya Company has RMB as basic accounting currency, the 33 company and other subsidiaries have Hong Kong dollars as basic accounting currency. The financial statements are reflected after conversion of RMB and the foreign currency conversion methods were described in Note V, 5, of which the spot exchange rate of HK dollar to RMB was 0.9364 at year beginning, and the spot exchange rate at year end was 0.8819, the approximate exchange rate of the spot exchange rate uses the current average exchange rate 0.8933. VIII. Notes to the main items of consolidated financial statements and the Company's financial statements The following financial statements disclosed below, except where indicated otherwise, "year beginning" means January 1, 2008, "year end" means December 31, 2008, "this year" means from January 1, 2008 to December 31, "last year" means from January 1, 2007 to December 31, the currency unit RMB. 1.Monetary Capital Year-end balance Year-beginning balance Items Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent Stock cash 117,278 273,448 RMB 117,028 1.0000 117,028 273,448 1.0000 273,448 HKD 283 0.8819 250 Bank deposit 51,085,519 29,113,125 RMB 24,298,396 1.0000 24,298,396 8,720,938 1.0000 8,720,938 HKD 30,342,936 0.8819 26,759,435 18,451,541 0.9364 17,278,023 USD 4,051 6.8346 27,688 426,329 7.3046 3,114,164 Other monetary capital 10,165,631 23,270,279 RMB 10,133,914 1.0000 10,133,914 23,237,188 1.0000 23,237,188 HKD 35,964 0.8819 31,717 35,339 0.9364 33,091 Total 61,368,428 52,656,852 * Transactional equity tools are the shares which are to be cashed at any time purchased by the subsidiary of the company Hong Kong Victor Onward Company, priced by fair value, its cash has no major restrictions. 2.Financial assets for transection Item Year-end balance Year-beginning balance Equity tool investment for transaction. 36,687 140,423 Total 36,687 140,423 34 Transactional equity tools are the shares which are to be cashed at any time purchased by the subsidiary of the company Hong Kong Victor Onward Company, priced by fair value, Changed income RMB 103,736, its cash has no major restrictions. 3. Bill receivable （1）Type of Bill receivable Type Year-end balance Year-beginning balance Bank acceptance 850,000 - Total 850,000 - (1).The Group had no notes receivable for pledge. (2) At year end, the Group had endorsed the other party the notes not due with amount of 750,000 yuan, the due time from February 18, 2009 to April 25, 4.Account receivable （1） Age of account receivable Year-end balance Year-beginning balance Items Provision for Provision for Amount Proportion% bad debts Amount Proportion% bad debts Within 1 year 4,600,129 29.69 138,004 4,186,342 19.83 18,474 1-2 years 18,866 0.12 1,734,896 7,331,486 34.72 5,627,787 2-3 years 5,712,851 36.88 5,712,851 2,127,388 10.08 1,936,433 Over 3 years 5,160,475 33.31 5,160,475 7,468,803 35.37 7,397,296 Total 15,492,321 100.00 12,746,226 21,114,019 100.00 14,979,990 * The original value of 1-2 years of accounts receivable were less than the amount of provision for bad debts because the subsidiary of the company Songzhong Company would be written off, so the company accounted provision for bad debt on the accounts receivable RMB 1,719,936. The accounts receivable were offset at the merger, but the corresponding provision for bad debts was not offset. 35 (2) Risk classification of accounts receivable Year-end balance Year-beginning balance Provision Provision Items Book Balance for bad Book Balance for bad debts debts Amount Proportion% Amount Amount Proportion% Amount Receivables with large individual amount. 3,749,167 24.20 4,057,382 7,217,868 34.19 3,699,398 Receivables without large individual amount, but with great risk after 9,126,271 58.91 8,610,337 11,651,883 55.19 11,216,798 combined according to risk characteristics Other minor 2,616,883 16.89 78,507 2,244,268 10.62 63,794 receivables Total 15,492,321 100.00 12,746,226 21,114,019 100.00 14,979,990 If the individual amount is not important but accounts receivable with big amount of credit risk identified as follows: According to the characteristics of the company, the accounts receivable more than 1 year have higher risk to be recovered, so the individual amount less than one million yuan with more than 1 year of accounts receivable or the amount less than one million yuan with less than 1 year of account age, and there were clear indications that the other party can not repaid on time, will be under the portfolio of accounts receivable. The accounts receivable at year end with significant single amount or the insignificant amount which were tested separately. Name December 31, Provision for Proportion% Age Reasons 36 2008 bad debts Insolvent 1-2 Shengzheng Company 1,719,936 1,719,936 100.00 company, to be Years written off TAIYANG ENTERPRISE 2-3 The company had 1,098,754 1,098,754 100.00 CO.,LTD. years stopped The unit with production, and insignificant amount 2-3 no business 4,628,624 4,628,624 100.00 and account age 1-3 years contact for a years long time. The unit with Account 100% insignificant amount Over 3 5,160,475 5,160,475 100.00 according to and account age more years account age than 3 years Total 12,607,789 12,607,789 100.00 （2） Full provision for bad debts had accounted in the previous years, but the amount of accounts receivable recovered this year was RMB 919,964. The reason for the provision for bad debts was due to a long account age, and had no business connection for a long time, and part of funds was recovered this year. Specific information as follows: Balance of Nature of Accounts The amount Items Accounts Receivable at recovered Receivable the end of this year last year Guonian Textiles Co., Ltd. goods 1,239,913 617,330 Fengrun Company goods 520,314 146,761 Rotary Textiles (Int'l) Co Ltd goods 142,916 142,916 Tongzhou Huarun Textiles Co., Ltd. goods 9,939 9,939 TAL Apparel Ltd goods 21,879 3,018 Total 1,934,961 919,964 （3） The accounts receivable of the subsidiary of the company was RMB 2,448,426, which had been fully accounted the provision for bad account in the previous years. Because the Huanan Company had stopped production, the above funds 37 were the ending funds in a number of customers, without connection, the account age more than 3 years, so they were written off this year with approval. （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. ( 5）The amount of top five debtor was RMB 4,188,213, accounting for 27% of the total. (6)Accounts receivable include the following foreign currency balances Foreign goods December 31,2008 December 31,2007 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 12,223,604 0.8819 8,881,870 17,491,056 0.9364 16,378,625 USD 501,763 6.8346 3,429,349 - - - Total 12,311,219 16,378,625 5.Prepayments goods December 31,2008 December 31,2007 Name amount Proportion amount Proportion （%） （%） Within 1 year 1,815,897 100 54,712 100 Total 1,815,897 100 54,712 100 （1） The prepayments at year end increased RMB 1,761,185 over those in the year beginning, with increases rate 3219%, mainly due to the subsidiary of the prepayments of the company Shenzhen East Asia Company increased. (2)The large prepayments at year end are as follows: Relation with Amount of Time of Company Name Causes the Company loans Loans Anqing Dacheng Printing & Non-Related Payments dyeing Co., Ltd. parties Within 1 for goods 828,070 year not paid Shenzhen Yingxingjia Payments Garments Co., Ltd. Non-Related Within 1 for goods parties 302,691 year not paid Total 1,130,761 Ratio to the total prepayments 62% 38 （3）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) Prepayments include the following foreign currency balances Foreign Year-end balance Year-beginning balance currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 29,900 0.8819 26,368 58,428 0.9364 54,712 Total 26,368 54,712 6. Interest receivable Items December Increase decrease December 31,2007 31,2008 Fixed - 91,087 - 91,087 deposits Total - 91,087 - 91,087 The interests receivable was the ones for the subsidiary of the company Hong Kong Zhongguan Bank’s deposits, with principal about 20 million Hong Kong dollars, the due dates were January 29, 2009 and February 6,2009. 7. Other receivables （1） Account Age Year-end balance Year-beginning balance Items Provision Provision for bad for bad Amount Proportion% debts Amount Proportion% debts Within 1 year 207,441 4.32 - 8,820,325 87.45 - 1-2 years 3,375,113 70.32 2,519,915 26,067 0.26 26,067 2-3 years * 18,044 0.38 546,411 - - - Over 3 years 1,199,018 24.98 1,118,617 1,239,422 12.29 1,199,204 Total 4,799,616 100.00 4,184,943 10,085,814 100.00 1,225,271 The other receivables will use the method of individual conformation to account bad debts. *The reason for the 2-3 years other receivables which were less than bad debts was that 39 the digital printing of the subsidiary will be written off, the company accounted RMB 546,411 for the provision for bad debts, and offset the other accounts receivable and the corresponding provision for bad debts was not offset. * （1）Risk classification of other receivable December 31,2008 December 31,2007 Provision Provision for Items Book account Book account for bad bad debts debts Amount Proportion% Amount Amount Proportion% Amount Receivables with large 3,382,539 70.48 3,382,539 8,091,040 80.22 1,080,023 individual amount. Receivables without large individual amount, but with 1,232,967 25.69 802,404 69,256 0.69 69,256 great risk after combined according to risk characteristics Other minor 184,110 3.83 - 1,925,518 19.09 75,992 receivables Total 4,799,616 100.00 4,184,943 10,085,814 100.00 1,225,271 If the individual amount is not important but accounts receivable with big amount of credit risk identified as follows: According to the characteristics of the company, the accounts receivable more than 1 year have higher risk to be recovered, so the individual amount less than one million yuan with more than 1 year of accounts receivable or the amount less than one million yuan with less than 1 year of account age, and there were clear indications that the other party can not repaid on time, will be under the portfolio of accounts receivable. （2）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. 40 (3)The amount of top five debtor was RMB 4,341,333, accounting for 87% of the total. (4) The balance at year end of the amount receivable in related parties was RMB 203,897, as shown in Note 12, (3). (5) Other receivables include the following foreign currency balances Foreign December 31,2008 December 31,2007 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 324,711.95 0.8819 286,363.00 2,007,441 0.9364 1,879,768 Total 286,363.00 1,879,768 8. Inventories and provision for impairment of inventories （1）Inventories Items Year-end balance Year-beginning balance Raw materials 9,479,427 20,479,177 Work-in-process - 2,261,023 Stock 1,076,055 2,003,027 Total 10,555,482 24,743,227 The Inventories at year end decrease RMB 14,187,745, with reduction proportion 57%, because production was stopped, no longer dealing with the procurement of raw materials and inventory stock. （2）Provision for impairment of inventories Increase in Decrease in Exchange December December Items the current the current rate 31,2007 changes 31,2008 period period Raw materials 11,854,175 1,053,023 5,454,940 -598,514 6,853,744 Work-in-process 1,280,980 - 1,186,325 -94,655 - Stock 456,364 - 241,898 -23,475 190,991 Total 13,591,519 1,053,023 6,883,163 -716,644 7,044,735 The method for Provision for impairment of inventories , see Note V,8. 41 The increase in this year was due to the raw materials with long age in the cargo of cloth and it is difficult to deal with more than book value in accordance with the net realizable value of the amount of provision for decline in value of preparation, this year is to reduce the provision for decline in value this year, sales have been out of stock, so the corresponding provision for preparation was accounted. 9. Financial assets for sale Items Year-end balance Year-beginning balance Equity tools for sale. 207,255 836,861 Total 207,255 836,861 The equity tools for sale are the shares held by the subsidiary of the company Hong Kong Victor Onward , because they are not to be cashed in a short term, so they are classified in this item, the change of fair value in the current period RMB 588,408 has been included in the public capital reserve. 10.Long-term equity investment （1）Long-term equity investment Items Year-end balance Year-beginning balance The cost of long-term equity investment accounting - - The equity method long-term equity investment 47,184,759 65,629,837 Total of long-term equity investment 47,184,759 65,629,837 Less ： Long-term equity investments for impairment - Net value long-term equity investment 47,184,759 65,629,837 （2） The equity method long-term equity investment Vote Exchange Proportion initial December December Name proportion change rate % amount 31,2007 31,2008 % change 1.Zhejiang Union Hangzhou 25% 25% 58,588,403 65,629,837 -14,625,316-3,819,76247,184,759 Bay Chuangye Co., Ltd. 2. Shenzhen 37.5% 37.5% 1,403,456 - - - - 42 Lianchang Printing & dyeing Co., Ltd. Total 59,991,859 65,629,837 -14,625,316-3,819,76247,184,759 Zhejiang Hualian Hangzhouwan Ventures Limited (hereinafter referred to as "Hangzhouwan Company"). The changes in this year include the loss of Hangzhouwan Company this year RMB 10,464,557 and the fair value loss for the financial assets for sale held by Hangzhouwan Company RMB 4,160,759. Shenzhen Lianchang Printing & Dyeing Co. Ltd. was in loss for many years, its net assets were negative, the operation of the company has stopped, the balance of long-term equity investment has been adjusted to zero. （3） Information of the units being invested. Total Registration Total net Name Quality business Net profit Place assets income 1.Zhejiang Union Real Hangzhou Bay Hangzhou 204,018,087 1,087,855 estate -41,858,227 Chuangye Co., Ltd. 2. Shenzhen Printing Lianchang Printing Shenzhen -4,881,960 - - & dyeing & dyeing Co., Ltd. 199,136,127 1,087,855 Total -41,858,227 11. Property investment The investment in real estate companies use the cost model measures Exchange Amount of Amount of rate year-end items year-beginning Increase decrease change Original Value 52,882,781 56,041,084 - -3,793,042 105,130,823 House, Building 52,882,781 56,041,084 -3,793,042 105,130,823 Accumulated amortisation 23,596,602 35,190,892 - -1,822,455 56,965,039 House, Building 23,596,602 35,190,892 -1,822,455 56,965,039 43 Impairment Provision House, Building Book value 29,286,179 20,850,192 - -1,970,587 48,165,784 House, Building 29,286,179 20,850,192 -1,970,587 48,165,784 The increase in real estate investments were the transfer of the houses of Huanan Printing Co. to lease, the corresponding fixed assets were adjusted as investment real estates. 12． Fixed assets （1） Fixed assets Amount of Exchange Amount of Items year-beginning Increase decrease rate change year-end Original Value. 248,133,252 35,648 56,224,350 -13,704,570 178,239,980 House and building 114,466,383 - 56,041,084 -5,946,951 52,478,348 Machine and Equipment 116,014,128 - - -6,752,210 109,261,918 Transportation Equipment 6,036,317 - 109,939 -334,439 5,591,939 Office equipment and other 11,616,424 35,648 73,327 -670,970 10,907,775 Accumulated amortisation 162,376,646 2,560,589 33,722,817 -9,035,845 122,178,573 House and building 62,895,288 2,202,642 33,550,544 -3,260,557 28,286,829 Machine and Equipment 87,025,524 34,648 - -5,065,469 81,994,703 Transportation Equipment 4,719,811 254,760 98,946 -263,568 4,612,057 Office equipment and other 7,736,023 68,539 73,327 -446,251 7,284,984 Impairment Provision 31,554,403 3,652,340 - -1,883,127 33,323,616 House and building 17,245,822 589,750 - -1,011,261 16,824,311 Machine and Equipment 11,761,439 2,462,148 - -715,956 13,507,631 44 Amount of Exchange Amount of Items year-beginning Increase decrease rate change year-end Transportation Equipment 2,184 - - -127 2,057 Office equipment and other 2,544,958 600,442 - -155,783 2,989,617 Book value 54,202,203 22,737,791 House and building 34,325,273 7,367,208 Machine and Equipment 17,227,165 13,759,584 Transportation Equipment 1,314,322 977,825 Office equipment and other 1,335,443 633,174 *1 The lands of plants and offices of the company at No. 26, Kuipeng Road, Baishigang, Kuiyong Town, Longgang, Shenzhen were obtained by leasing, lease period by March 31, 2009. The company was processing the procedures for land use, see Notes 14. *2 Houses building reduced due to the transfer of the house of Huanan Company to lease, transferring from fixed assets to investment real estates. *3 The Company shutdown for consolidation on March 2007, part of machinery and equipments were to be used for foreign investment, so the company fully accounted provision for impairment on residual value of housings, accounted 40% provision for impairment from the machinery and equipments, and accounted provision for impairment from the full value of residual value of other machinery and other equipments. RMB 3,652,340 was accounted for the provision for devaluation for fixed assets, causes as follows: Amount Items accounted Causes this year The decoration of houses and buildings set aside the original fee of 10% of the net residual value, House and building 589,750 and actually no non-recoverable value, fully accounted the provision for impairment. Machine and This part of the equipments were to be invested as Equipment—To be 1,809,747 foreign investment, starting in September 2007 as investment holding for sale of fixed assets accounting, from 45 the cessation of depreciation from the month, but postponed their investment plans, from September 2007 to the end of this year, the full provision for impairment should be accounted. Book value of machinery and equipment was in Machine and accordance with the expected sale price which is 652,401 Equipment—other higher than the difference of the provision for impairment. 600,442 10% was pre-set aside for the other equipments in Office equipment and which the original accounts of the ancillary other facilities no actual non-recoverable value, the full provision for impairment was accounted. Total 3,652,340 （2）Details of temporary idle fixed assets are as follows： Book Items Original Accumulated Impairment value depreciation provision Book Net value House and building 48,453,887 27,384,459 16,824,311 4,245,117 Machine and Equipment 109,261,918 81,994,703 13,507,631 13,759,584 Transportation Equipment 3,583,634 3,243,180 - 340,454 Office equipment and 9,103,678 5,788,719 2,989,617 325,342 other Total 170,065,803 118,212,915 30,804,075 21,048,813 The original value of the temporarily idle machinery and equipments to be invested in Nanjing Textile Printing & dyeing Co., Ltd. was RMB 82,908,265, Accumulated amortisation was RMB 60,270,320, Impairment Provision was RMB 10,841,830, Book value was RMB 11,796,115. 13. Intangible assets Exchange Amount of Amount of rate year-end Items year-beginning Increase decrease change Original Value 12,729,070 - - -740,852 11,988,218 Land use right 11,957,977 - - -695,973 11,262,004 software 771,093 - - -44,879 726,214 46 Exchange Amount of Amount of rate year-end Items year-beginning Increase decrease change Accumulated amortisation 11,968,469 469,222 - -696,584 11,741,107 Land use right 11,459,758 469,222 - -666,976 11,262,004 software 508,711 -29,608 479,103 Impairment Provision 262,382 - - -15,271 247,111 Land use right - - - - - software 262,382 - - -15,271 247,111 Book value 498,219 - 469,222 -28,997 - Land use right 498,219 - 469,222 -28,997 - software - - - - - 14. Goodwill Items Amount of year-end Amount of year-beginning For the goodwill formed from 3,594,648 - holding shares of Nanhua Company, Total 3,594,648 - The company bought the 7.31% equity of Nanhua Company held by the CITIC Group, with a price RMB 2.82 million, at the same time paid the processing fees RMB 15, 100, bought 7.31% of equity of Rianhua Company with equity amount RMB 759, 548, so it generated goodwill RMB 3,594,648. 15. Impairment of assets schedule 47 Amount Decrease in the current period Exchange Amount of Accrual Switchbac Items Other rate of year-begi amount k Transfer out change year-end nning Provision for bad debts 16,205,261 5,099,197 997,924 2,480,077 -895,288 16,931,169 Stock Impairment Provision 13,591,519 1,053,023 - 6,883,163 -716,644 7,044,735 Impairment of fixed assets 31,554,403 3,652,340 - - -1,883,127 33,323,616 Impairment of Intangible assets 262,382 - - - -15,271 247,111 Total 61,613,565 9,804,560 997,924 9,363,240 -3,510,330 57,546,631 The provision for bad debts transferred back RMB 919,964 was the accounts receivable with provision for bad debts accounted, as shown in Note 8 (4), Another RMB 77,960 was the provision for bad debts for other receivables transferred back. The other transfers were that the subsidiary of the company Nanhua Company wrote off the provision for bad debts for accounts receivable last year. The cause for the inconsistency with Note 8(4) was due the conversion of foreign currency. The cause for the transfer out for provision for inventory devaluation was that the inventory with provision for impairment originally accounted transferred out the corresponding provision for devaluation. 16. Account payable （1）Account payable Items Year-end balance Year-beginning balance Total 6,175,741 4,936,984 Including：over 1 year 1,796,627 227,033 The accounts payable increased RMB 1,238,757 at the end of this year over the year beginning, an increase of 25%, mainly due to the settlement of procurement money of Company's subsidiary Shenzhen Dongya Company this year was not settled in time. Accounts payable with age over one year included a number of accounts, without single significant amount of accounts payable. Of the prepayments at the end of period, there were none owed by corporate 48 shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. （2）Accounts payable include the following foreign currency balances. Foreign December 31,2008 December 31,2007 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 551,336 0.8819 486,223 757,424 0.9364 709,252 Total 486,223 709,252 17. Advanced account （1）Advanced account Items December 31,2008 December 31,2007 Total 5,281,103 5,833,758 Including：over 1 year 2,234,901 - Advanced account more than 1 year was mainly the sale fund for the wasted materials from the relocation of the company, and due to delays in the overall relocation plan, the money paid in advance was temporarily suspended. Of the prepayments at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. （2）Advanced Accounts include the following foreign currency balances. Foreign currency December 31,2008 December 31,2007 Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 595,522.23 0.8819 525,191 20,231 0.9364 18,944 USD 199,748.46 6.8346 1,365,201 - - - Total 1,890,392 18,944 18. Wage payables to employees December Decrease in December Increase in Items current period current 31,2007 period 31,2008 49 Wage (Including reward , allowance and subsidy) 584,656 3,222,667 3,291,599 515,724 Welfarism For employees 109,655 54,476 164,131 - Social insurance premiums -704 794,324 793,620 - Including : Medical insurance premiums 1,452 54,519 55,971 - Basic old-age insurance premiums -2,808 699,057 696,249 - Annuity payment - 35,448 35,448 - Unemployment insurance expenses 214 2,318 2,532 - Industrial injury insurance premiums 367 1,478 1,845 - Childbirth insurance premiums 71 1,504 1,575 - Housing accumulation fund 244 17,799 18,043 - Trade union outlays and employee education outlays 82,709 23,933 22,482 84,160 Other - 46,022 46,022 - Total 776,560 4,953,545 5,129,517 599,884 At the period end, the company had no wages payable that belong to arrears. 19. Fees and taxes payables Items Tax rate Year-end balance Year-beginning balance VAT 17% 1,626,945 681,383 Business tax 5% 235,420 172,769 Enterprise income tax 18%、16.5% 1,441,086 1,027,431 Tax on city maintenance and construction 1% 751 -127 Property tax 1.2%和 12% 294,194 308,141 Individual income tax - 604 Tariff 10% 711,084 - Stamp tax 242,213 257,181 Total 4,551,693 2,447,382 The taxes payable at the year end increased RMB 2,104,311 than the beginning of the year, with increase proportion 86%, mainly due to imports of cloth of the Company can no longer be re-exported, in accordance with the requirements from the customs, we need to pay VAT and customs duties, In addition, The Company's subsidiary, Hong Kong Zhongguan pre-paid the income tax at the end of last year, the payable income tax had credit balance, the debit balance will result in a balance increase due to corporate income tax. 50 20. Dividend payable Items Year-beginning Reasons of Year-end balance balance arrears State Development & 264,547 Investment Co., Ltd*2 280,896 CITIC Group*2 264,547 280,896 Shenzhen Nanyou (Group) 132,274 Company 140,448 Capital tense Shenye Union（Hongkong） 132,274 Co., Ltd. 140,448 Changzhou Dongfeng 529,095 Printing and dyeing plant *2 561,792 Total 1,322,737 1,404,480 *1 The above payable dividends were the payable dividends of Nanhua Company, a subsidiary of the company, the change in balance mainly due to the change of exchange rate. Because Nanhuan Company’s capital was more tension and the shareholders did not ask for the fund, the payable dividends have not been paid. The payable dividends reduced at the end of the period mainly due to the change of exchange rate. *2 The above three companies are the former shareholders of Nanhuan Company, the subsidiary of the company. 21. Other accounts payable （1）Other accounts payable Items Year-end balance Year-beginning balance Total 30,064,983 28,418,511 Including：Over 1 year 25,582,982 22,168,622 （2）Other payables which are longer than one year mainly were the loans borrowed by Nanhuan Company the subsidiary of the company from related companies, which have not been paid because of capital tension. （3）Of the Other payables at the end of period, there were none owed by corporate shareholders of the Company holding over 5% (including 5%) of its total shares with voting rights. (4) Other accounts payable by aging are as follows 51 Items Arrears Nature or amount Age content Within 1 year or Union Group 20,492,359 over 3 years Between loan Shenzhen Union property Group Co., Ltd. 3,473,200 2-3 years Between loan State Development & Investment Co., Ltd 2,999,660 Over 3 years Between loan Total 26,965,219 （5）Other payable Accounts include the following foreign currency balances. Year-end balance Year-beginning balance Foreign currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 1,839,964.93 0.8819 1,622,665 2,920,295 0.9364 2,734,565 Total 1,622,665 2,734,565 22.Long-term loans Type December 31, 2008 Decembr 31,2007 HKD 1,674,164 1,928,557 Total 1,674,164 1,928,557 z The long-term borrowing was the installment payment for the housing in Hong Kong bought by the subsidiary of the company Xingye Company, the mortgage article was the house purchased. The installment payment was HKD 2,366,000 , which paid in 240 month, the year loan interest rate 5.1%, monthly payment HKD 12,365. As of December 31, 2008,Principal amount of HKD 1,898,360.68 (RMB 1,674,164) 23.Long-term payable Items Time Year-beginning Year-end balance balance Assess the value of Non-time 9,232,220 9,802,757 assets Total 9,232,220 9,802,757 * The company was authorized by People's Bank of China when it was reorganized into joint-stock company, the revaluation of the assets of the revaluation gain attributable to the restructuring of the Company before the shareholder. The asset was re-assessed on January 31, 1992, which generated about 14,754,000 HKD revaluation gain, recorded on account as long-term payable subject, part of them have been used to offset the bad debts prior to listing (about 4,285,000 HKD ). 52 The shareholders before the reorganization have agreed not to require the company to pay such amounts with cash, to offset each other when purchase stocks of the company in the future, the decrease of long-term payables mainly due to the change of exchange rate. 24. Deferred income tax liabilities （1）The confirmed Deferred income tax liabilities. Items December 31, 2008 Decembr 31,2007 The income tax of taxable 1,015,950 1,195,397 temporary difference. Total 1,015,950 1,195,397 （2）THE temporary difference Item of the taxable temporary December 31, 2008 Decembr 31,2007 Assets assessment appreciation 6,157,273 6,830,841 Total 6,157,273 6,830,841 Tax rate 16.5% 17.5% Confirmation of the Deferred income tax liabilities. 1,015,950 1,195,397 * When the company was reorganized into joint-stock company, the company was approved by the People's Bank of China, the added value of the assets of the subsidiary of the company Hong Kong Victor Onward Company, according to Hong Kong Standards, can not be adjusted, and was not to be deducted when accounting the income tax, resulting in the differences in net value of fixed assets and accounting basis. * 25.Other non-current liabilities Items December Increase in Decrease in December current period current period 31,2007 31,2008 ERP Information construction 263,601 - 15,342 248,259 Digital printing technology subsidies 702,937 - 40,912 662,025 Total 966,538 - 56,254 910,284 The above funds were the special subsidies received from Shenzhen Department of Finance in 2004 for the digital jet printing projects and for the construction of enterprise information. The deal must be accepted by the Financial Bureau before accounting, so it was suspended. The reduction was due to the change in exchange rates. 53 26. Share capital December 31,2007 December 31,2008 Name/Type Change Amount Proportion% Amount Proportion% .Shares w conditional subscription State-owned legal person shares 13,822,369 8.17% -8,457,118 5,365,251 3.17% Other domestic shares 43,141,032 25.51% - 43,141,032 25.51% Incl ： domestic legal person shares 43,141,032 25.51% - 43,141,032 25.51% Total Shares with conditional subscription 56,963,401 33.68% -8,457,118 48,506,283 28.68% Shares with unconditional subscription Common shares in RMB 42,757,052 25.28% 8,457,118 51,214,170 30.28% Foreign shares in domestic market 69,421,903 41.04% - 69,421,903 41.04% Total Shares with unconditional subscription 112,178,955 66.32% 8,457,118 120,636,073 71.32% Total of capital shares 169,142,356 100.00% - 169,142,356 100.00% 27. Capital common reserve Items December Increase in Decrease in December current period current period 31,2007 31,2008 Share capital - - 29,718,829 Premium 29,718,829 Other Capital common 55,221 reserve 14,162,238 4,741,657 9,475,802 Total 43,881,067 55,221 4,741,657 39,194,631 54 The capital surplus increased this year was the part which was attributable to the change in equity in Shenzhen Dongya Company, RMB 4,160,758 reduced in this year for the loss of fair value of financial assets for sale this year, 0 yuan was for the reduction in other rights and interests of the joint enterprises. 28. Surplus common reserve Items December Increase in Decrease in December current period current period 31,2007 31,2008 Statutory Surplus - - 26,309,287 26,309,287 common reserve Total 26,309,287 - - 26,309,287 29. Retained profit Items Amount Proportion（%） Balance at the end of last period -89,853,184 Add： The beginning of the undistributed profits adjustments - Including：Change of accounting policy - Correcting previous errors - Change of consolidated scope - Other adjustments - Balance at the beginning of current year -89,853,184 Add:Increase Net profit at the current period -25,957,333 Less ： Withdrawing statutory surplus public reserve Withdrawing discretionary surplus reserve Common stocks dividends payable Stock dividend transferred in stock capital Balance at the end of current year -115,810,517 Including：Distribute cash dividend - 30. Minority shareholders equity Name of Subsidiary Proportion% Year-beginning Year-end balance balance Digital printing 25% - - 55 Company* Nanhua Company* 34.22% - - Shenzhen East Asia 884,454 Company 49% 872,829 Total 884,454 872,829 * The two subsidiaries had excess losses, because the constitution and agreement of the company agreed that small shareholders bear the obligations of the excess losses, so the equity of minority shareholders was reduced to zero, the excess losses were fully beard by the Company. 31. Business income, Business cost （1）Business income,Business cost Items The same period of In the report period last year Key business income 37,649,438 100,468,588 Other business income 9,231,820 3,100,007 Total 46,881,258 103,568,595 Key business cost 36,612,766 117,236,227 Other business cost 4,728,563 2,151,692 Total 41,341,329 119,387,919 （2）Type In the report period The same period of last year Content Business Business Business cost Business cost income income Cloth bleaching, printing and dyeing 37,649,438 36,612,766 100,468,588 117,236,227 House lease 9,231,820 4,728,563 2,646,533 1,762,034 Other cost - - 453,474 389,658 Total 46,881,258 41,341,329 103,568,595 119,387,919 （3）The total sale incomes of the top five customers was RMB 22,955,956 , representing 61% of the main business income in this year. （4）The operating income and operating cost in this year, reduced RMB 56,687,337 and RMB 78,046,590 over the previous year, respectively 55% and 65%, mainly due to the Nanhuan Company continues to halt the operation of business, so the business further declined. 56 32. Business tax and supertax Items Proportion% The same period of In the report period last year City Construction - Tax 1% 458 Education surcharge 3% 458 1,375 Total 458 1,833 33.Sale Expenses Sales expense in this year was RMB 2,629,457, RMB 5,977,473 reduced over the last year, with reduction proportion 69%, mainly due to lower sales, so the corresponding sale costs decreased significantly. 34. Management expenses The management cost in this year was RMB 10,098,033, decreased RMB 24,894,145 over the last year, decrease proportion 71%, mainly because most of the staff members laid off last year, there were large amounts of staff severance costs, and there is no such expenditures this year. In addition, since the production was stopped last year, fixed assets depreciation was included in the management costs, and this year most fixed assets were accounted provision for devaluation, so the depreciation costs reduced. 35. Financial expenses Items The same period of In the report period last year Interest expenses 1,277,319 4,834,706 Less：Interest income 667,773 589,809 Add：Exchange rate loss -1,007,131 2,550,162 Add：Other expenses 43,596 156,835 Total -353,989 6,951,894 The financial cost reduced RMB 7,305,883 over last year, with reduction proportion 105%, mainly due to there were more borrowings last year, so the corresponding interest payments increased, and interest payments this year the interests accounted from Hualian Group by Nanhua Company, actually unpaid. 36. Asset impairment losses Items In the report period The same period of 57 last year Bad debt losses 4,101,273 12,792,532 Inventory devaluation losses 1,053,023 8,947,576 Fixed asset impairment losses 3,652,340 32,706,860 Intangible asset impairment losses - 271,965 Total 8,806,636 54,718,933 37．Changes income in fair value /loss Items The same period of In the report period last year Trading financial assets- Changes loss in -96,798 fair value 57,809 Total -96,798 57,809 The reason for the difference for the balance change of transactional financial assets was due to the difference in translation. 38. Investment income (1）Investment income generated by the sources listed Items The same period of In the report period last year Stock investment income 248,229 3,258,808 The amount of net increase of owner’s equity of the invested unit adjusted at the year end. -10,599,829 3,331,782 Income from transfer of equity investment - 1,940,802 Total -10,351,600 8,531,392 * This year's money has decreased tremendously is because affiliated company is still under exlpoitation of real estate, and still has no profit, the reason for the difference amount 135,272 yuan from note 8 (10) of Long term share equity investment lost is because the exchange rate for report is different. There were no major restrictions in the investment income at the period end. （2）Equity method Items The same period of In the report period last year Total -10,599,829 3,331,782 Including：Hangzhou Bay Company -10,599,829 3,331,782 58 39.Non-operating income Items The same period of In the report period last year Net income disposition fixed assets 116 48,530 Other - 46,091 Total 116 94,621 40.. Non-operating expense Items The same period of In the report period last year Loss disposition Non-current assets 10,994 2,258,181 Debt restructuring loss - 9,706,099 Donate expenses 19,905 - Other 48,788 37,980 Total 79,687 12,002,260 41. Income tax expenses Items The same period of last In the report period year The current income tax expense - 775,455 Deferred income tax expense -111,294 -605,446 Total -111,294 170,009 42. Calculation process for Basic gains per share and Diluted gains per shares Items The same In the report No period period of last year Net profit attributable to shareholder of the Parent 1 -25,750,800 -116,356,882 Company non-recurring gain/loss attributable to the 2 1,020,542 -5,668,142 shareholders of the Parent Company 59 Items The same In the report No period period of last year Attributable to the shareholders of the Parent Company, Net profit after 3=1-2 -26,977,875 -110,688,740 deducting of non-recurring gain/loss\ Total of shares at 169,142,356 169,142,356 year-beginning 4 Public reserve was transferred as capital and share increase 5 - - from dividend distribution（Ⅰ） The issuance of new shares or increase the number of shares and 6 - - other debt-equity swap （Ⅱ） Increase in the shares (Ⅱ)from the next month to 7 - - the end month of the reporting period Shares decreased in the reporting period due to 8 - - repurchase. Decrease in the shares from the next month to the 9 - - end month of the reporting period Number of months of the 10 - - reporting period The weighted average 11=4+5+6×7÷10 number of ordinary shares 169,142,356 169,142,356 -8×9÷10 issued out. Basic gains per share（Ⅰ） 12=1÷11 -0.15 -0.69 Diluted gains per share -0.16 -0.65 （Ⅱ） 13=3÷11 60 Items The same In the report No period period of last year The interest of ordinary shares which was 14 - - confirmed as costs Conversion costs 15 - - Income tax rate 16 18% 15% Warrants, shares with 17 - - equity right increase Diluted gains per share 18=[1+(14-15)×(1-16)]÷(11+17) -0.15 -0.69 （Ⅰ） Diluted gains per share 19=[3+(14-15)×(1-16)]÷(11+17) -0.16 -0.65 （Ⅱ） 43. Cash flow statement （1）cash and cash equivalents Items The same period of In the report period last year Cash 61,368,428 52,656,852 Including :Stock of cash 117,278 273,448 The bank deposits which can be used at any time 51,085,519 29,113,125 The other monetary funds which can be used at any time 10,165,631 23,270,279 The funds deposited in the central bank which be used - - The funds deposited in the same industry - - The funds offered by the same industry - - Cash equivalents - - Including : Debt investments which will due within three months - - Balance of cash and cash equivalents at the period end 61,368,428 52,656,852 Including : the restricted cash and cash equivalents used by the parent company or subsidiary of the Group - - （2）Reveive/payable other /Investment/cach of financing activities 61 1）Other cash received relating to financing activities The same period of last Items In the report period year Rental income 9,093,398 2,646,533 Between units and individuals 45,356 2,311,548 Interest income 576,686 589,809 Deposit and Water and electricity fees 1,402,199 - Profits tax paid in advance will have prepaid tax returned 567,051 - Other 138,168 - Total 11,822,858 5,547,890 2）Other cash paid relating to operating activities Items The same period of In the report period last year Sales commission - 2,193,282 Rental fee 715,743 362,021 Society fees 655,805 963,790 Between units 412,655 800,000 Transportion fees 341,584 635,377 Audit fees 624,144 1,105,630 Packing fees - 62,163 Office fees 339,075 247,536 Insurance premium 194,234 472,789 Travel fees 609,541 406,714 Telephone fees 223,003 223,024 Securities management expenses 216,911 223,969 Commodity inspection expenses - 41,259 Water and electricity fees 1,549,417 191,935 Land use expenses 96,951 223,038 Parking fees 165,654 219,082 Tariffs on trial charge 40,634 40,952 Lawyer fees 49,082 249,741 Courier charges 33,326 62,269 Advertising - 76,345 Property management fees 209,786 53,294 62 Items The same period of In the report period last year Repair fees 168,714 - Deposit 33,273 - Other 754,354 718,867 Total 7,433,886 9,573,077 （3）Supplement information of Consolidated Flow Statement Items In the report The same period period of last year 1. Adjusting net profit to net cash flow in operating activities: Net profit -26,057,341 -124,579,539 Add： Provision for impairment of assets 8,806,636 54,718,933 Fixed assets depreciation 4,028,664 8,534,949 Amortization of intangible assets 469,222 838,806 Amortization of long-term expenses to be amortize - - The losses on the disposal of fixed assets, intangible assets and other long-term assets 10,878 2,209,651 Loss on retirement of fixed assets - Loss on changes of Fair value 96,798 -57,809 Financial expenses 1,911,015 4,834,706 Investment losses 10,351,600 -8,531,392 Decrease of deferred income tax asset - - Increase of deferred income tax liability -179,447 -351,641 Decrease in inventory 14,187,745 58,790,418 Decrease in operating receivable -4,136,161 27,400,836 Increase in operating payables 4,131,812 -15,680,486 Other - Net cash flows from operating activities 13,621,421 8,127,432 2.Investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under financial lease 3.Net increase in cash and cash equivalents Cash at the end of the period 61,368,428 52,656,852 63 Items In the report The same period period of last year Less：Cash at the beginning of the period 52,656,852 91,671,898 Add: Cash equivalents at the end of the period Less：Cash equivalents at the beginning of the period Net increase in cash and cash equivalents 8,711,576 -39,015,046 The financial cost due to change in exchange rate and the impact on cash and cash equivalents RMB 1,911,015, the financial cost of interest payments was the loan interest of the related parties, reflected in business activities. IX. Parent company Notes of financial statements 1. Accounts receivable (1)Account receivable age Year-end balance Year-beginning balance Items Provision Provision Amount Proportion% for bad debts Amount Proportion% for bad debts Within 1 year 736,126 5.56 22,084 2,069,986 11.51 - 1 － 2 years 1,719,937 13.00 1,719,937 7,367,587 40.97 3,909,130 2 － 3 years 5,669,146 42.85 5,669,146 1,932,265 10.74 1,733,603 Over 3 years 5,105,730 38.59 5,105,730 6,613,800 36.78 6,561,125 Total 13,230,939 100.00 12,516,897 17,983,638 100.00 12,203,858 (2) Risk classification of Account receivable Year-end balance Year-beginning balance Book Balance Provision Book Balance Provision Items for bad for bad debts debts Amount Proportion% Amount Amount Proportion% Amount Receivables with large 4,013,720 30.34 4,013,720 9,044,094 50.29 3,699,399 individual amount. Receivables without large 8,481,093 64.10 8,481,093 8,939,544 49.71 8,504,459 individual amount, but 64 with great risk after combined according to risk characteristics Other minor 736,126 5.56 22,084 - - - receivables Total 13,230,939 100.00 12,516,897 17,983,638 100.00 12,203,858 (1)The drawing methods and ratio of provision for bad debt are described in Note 8(4) (2) The total amount of the top five accounts receivable at the period end was RMB 5,254,055 , accounting for 40% of the total accounts receivable. (3) Other Account receivable include the following foreign currency balances Foreign Year-end balance Year-beginning balance currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 12,955,677 0.8819 11,425,612 17,870,726 0.9364 16,734,148 Total 11,425,612 16,734,148 2. Other receivables (1) Age of account receivable December 31, 2008 December 31, 2007 Provision Provision Items for bad for bad Amount Proportion% debts Amount Proportion% debts Within 1 year 22,488,425 26.19 - 83,777,367 98.64 - 1－2 years 62,227,913 72.46 2,486,951 35,001 0.04 35,001 2－3 years 35,000 0.04 32,964 - - - Over 3 years 1,123,919 1.31 1,118,617 1,124,061 1.32 1,121,014 Total 85,875,257 100.00 3,638,532 84,936,429 100.00 1,156,015 (2)Risk classification of other receivable Items Year-end balance Year-beginning balance Book Balance Provision Book Balance Provision for bad for bad 65 debts debts Amount Proportion% Amount Proportion% 比例% Amount Receivables with large individual amount. 84,585,569 98.50 3,319,691 83,809,610 98.67 1,080,023 Receivables without large individual amount, but with great risk after combined according to risk characteristics 898,054 1.04 318,841 - - - Other minor receivables 391,634 0.46 - 1,126,819 1.33 75,992 Total 85,875,257 100.00 3,638,532 84,936,429 100.00 1,156,015 The total amount of the top five accounts receivable at the period end was RMB 83,814,454 , accounting for 97 of the total accounts receivable. Mainly due to receivable of the Company subsidiary current account. (3) The total amount of the accounts receivable at the period end was RMB 203,897 , See Notes 12, 13. Other Account receivable include the following foreign currency balances Foreign December 31, 2008 December 31, 2007 currency Original Exchange RMB Original Exchange RMB Name currency rate equivalent currency rate equivalent HKD 75,848,108 0.8819 66,890,447 68,779,926 0.9364 64,405,523 Total 66,890,447 64,405,523 3. Long-term equity investment （1）Long-term equity investment Items Year-end balance Year-beginning balance The cost of long-term equity investment accounting 39,974,858 39,438,551 66 Total of long-term equity investment 39,974,858 39,438,551 Less ： Long-term equity investments for impairment - - Net value long-term equity investment 39,974,858 39,438,551 (2) （3）The method for cost Vote Exchange Initial December Increase/decrease December Name Proportion% proportion% rate Dividend amount 31, 2007 in this period 31, 2008 change The method for cost： Hong Kong 23,077,357 - Victor Onward 100% 100% 2,411,282 24,503,501 - 1,426,144 Nanhua 15,534,564 - Printing and dyeing 43.85% 43.85% 23,082,831 13,487,886 2,835,100 788,422 East 1,362,937 - Asia 51% 51% 1,470,000 1,447,164 - 84,227 Total 26,964,113 39,438,551 2,835,100 2,298,793 39,974,858 Mainly accounts receivable from the subsidiaries. The increase this year was due to the acquisition of minority shareholder held by China CITIC Group 7.31% stake. (4) Business income, Business cost （1）Business income, , Business cost Items December 31, 2008 December 31, 2007 Key Business income 19,313,029 34,426,195 Other business income 995,521 946,993 Total 20,308,550 35,373,188 67 Key Business cost 19,836,688 52,158,843 Other business cost 371,531 1,001,546 Total 20,208,219 53,160,389 （1） Type In the report period The same period of last year Items Business Business Business cost Business cost income income Cloth bleaching, printing and 19,313,029 19,836,688 dyeing 34,426,195 52,158,843 Lease income 995,521 371,531 946,993 1,001,546 Ttal 20,308,550 20,208,219 35,373,188 53,160,389 （2） The total amount of the top five sale income at the period end was RMB 13,407,081, accounting for 69% of the total sale income . (5) Investment income Items The same period of In the report period last year Investment income from disposal of - 900,000 long-term equity investment Investment income obtained from 241,685 3,258,808 disposal of transactional financial assets Total 241,685 4,158,808 X. Contingent events The external investment contracts and the related financial expenditures which have signed or not yet completely fulfilled. X1. Leasing (1) Business in leasing assets Year-beginning Type Year-end balance balance Original Value 105,130,823 52,882,781 Including ：House, Building 105,130,823 52,882,781 68 Accumulated amortisation 56,965,039 23,596,602 House, Building 56,965,039 23,596,602 Impairment provision - - House, Building - - The book value 48,165,784 29,286,179 House, Building 48,165,784 29,286,179 (2) Significant operating lease minimum lease payments Exchange liquidation By December 31, 2008, The leasing of office space of the Group requires for non-cancellable operating lease commitments in the following period as follows: Minimum lease The remaining lease period payments Within 1 year(including 1 year) 371,944 Over 1 year and within 2 years(Including 2 years) 29,862 Over 2 years and within 3 years(Including 3 years) - Over 3 years - Total 401,806 XII. Related party relationship and related transactions （一） Related party relationship 1. Related party relationship (1)The related parties with controlling relationship Parent Registered Legal Relations Organi Type Nature zation company address repres hip Code 11/F,Union Production Controll Union Issue Bulding, Dong and sale ofclothing ing Holding company Shennan Zhong Bingg and textiles, and 192471500 sharehol s Road,Shenzhe en real estate der n developin 69 Import & export Union business Limited Dong Union Bulding,Shenna “processing with Actual liabilit Bingg 190337957 Group n Zhong Road, materials” and controller y Company en Shenzhen processing with imported materials (2) The registered capital of the related parties with controlling relationship and the change thereof. Parent company Balance in year Increase of decrease of Balance in year beginning this period this period end Union Group 90,606,000 - - 90,606,000 Union Holdings 1,123,887,712 - - 1,123,887,712 (3) The related parties without controlling relationship Shares amount Holding proportion% Vote proportion% Parent Amount in Amount Proportion Proportion Proportion Proportion company year end in year in year end in year in year end in year beginning beginning beginning Union Group 6,299,185 6,383,736 3.72% 3.77% 3.72% 3.77% Union Holdings 43,141,032 43,141,032 25.51% 25.51% 25.51% 25.51% ** Union Group holds 31.32% of equity capital of Union Holdings, it controls Union Holdings, and Union Holdings is a controlling shareholder of the company, thus Union Group is the actual controller of the company 1.Subsidary company The subsidiaries of the Company as described in Note 7 2.Joint venture and affiliated company.see Notes( 8) (4) Other Related party 70 Related Type Name transactions The related parties controlled Shenye Union(HongKong)Co., Current balance the same Actual controller Ltd. The related parties controlled Shenzhen Union real estate Current balance the same actual controller Group Co., Ltd. (5) Related transactions 1. Lease assets to the related parties In the report year, the Company leased Room 1307 and 1308 of Union Building owned by Union Group. The term of tenancy is from March 1, 2008 to February 28, 2009. The monthly rent is RMB 6800. The rent was determined according to market price. 2. Balance current related parties December 31, 2008 December 31, 2007 related parties Account receivable account receivable 325,644 370,988 Other payable Union Group 20,492,359 16,310,435 Shenzhen Union real estate Group Co., Ltd. 3,473,200 3,003,528 1. XIII. Commitment events 1. The external investment contracts and the related financial expenditures which have signed or not yet completely fulfilled. By December 31, 2008,The Group still has the major external investments RMB 30 million which have signed but still not paid, as follows: Names of Contract Prepai Unpaid Expecte Remarks investment ual d investmen d projects investme invest t amount investm nt ment ent amount amount period 71 Invest Nanjing Can not be East Asia relocated Textile Co., Unsurene 30 million - 30million because the Ltd with ss machinery and fields equipments uncompleted 1. The big contract which has been signed or is ready to be carried out By December 31, 2008, The Group still has big contract which has been signed but not paid, a total of 1.71 million yuan, as follows: Names of Contractu Prepaid Unpaid Expected Remarks investmen al investm investm investment t projects investmen ent ent period t amount amount amount Relocatio n of productio Can not be n 1,710,000 855,000 855,000 Unsureness relocated equipment because the s as a fields whole uncompleted 2. The lease contract which is under performance or is ready to be performed and its financial influences See Note 11,Leaseing . 3 Except for the events described above, By December 31, 2008,the Group has no other significant commitment events. XIV . Events after balance sheet date The land for the factory building and office building located at 26 Kuipeng Road, Baishigang, Kuichong Town, Longgang District, Shenzhen, was leased and the lease term will expire on March 31, 2009. The company had applied to Shenzhen Municipal Planning Bureau for historical issue, and on January 7, 2009, approved and reviewed by Shenzhen Municipal Planning Bureau the Coastal Branch and the company acquired the "program plan of land for construction purposes", currently the official procedures was undergoing. In addition to the above matters in items after balance sheet date, this Group had no other significant matters after the balance sheet date. XV. Other Significant Events 72 Since March 2007, Shenzhen Victor Onward Textile Industrial Co., Ltd. stopped production and dismissed most of workers. The company currently only had some agent import and export business and house leasing business. Except that the Shenzhen East Asia Company was operating normally, the other five subsidiaries controlled by the company had stopped the operation and were depending on house lease to maintain. In 2007 the company intended to invest part of machineries and equipments to Nanjing East Asia Textile Printing & Dyeing Co., Ltd. But due to the reasons of the joint venture party and the prospect change in the industry, the investment plan was delayed. The company mainly made efforts to promote the transfer of printing and dyeing mill project, the company will strengthen construction direction coordination work，in order to carry out the transfer project as soon as possible. XVI, Supplement information 1.Statement of Non-current gain and loss In accordance with the provisions in the No. 1 Announcement on Explanation of Information disclosure For Companies Publicly Issuing Securities - Non-business Profit and Loss, the amount of non-business gain and loss of the company in the current period as follows: The same In the report Items period period of last year Gain/loss form disposal of non-current assets -10,878 -2,209,195 Gain/loss form Debt restructuring -9,706,099 Except the effective hedge business related to the normal operation business of the Company, the profit and loss in the changes of fair values caused by the holding of tradable financial 151,431 3,258,808 assets and tradable financial liabilities as well as the investment returns in disposal of tradable financial assets, tradable financial liabilities and saleable financial assets Single impairment test for impairment of receivables transferred back to preparation 997,924 - Net amount of non-operating income and expense except the aforesaid items -68,693 7,655 Other non-recurring Gains/loss items - 1,940,802 Subtotal 1,069,784 -6,708,029 Amount of influence of minority interests - -1,006,288 Total of non-recurring Gains/loss items 1,069,784 -5,701,741 73 Including：attributabletocommon shareholders of the parent 1,020,542 -5,668,142 2.Net asset income rate and the income of each share The net asset income rate and the income of each share were accounted according to the No. 9 of Information Disclosure Rules for Companies which are Publicly Listed - Net Asset Income Rate and the Calculation and Disclosure of Each Share issued by China Securities Regulatory Commission: （1） Year 2008 Return on net assets（%） Earnings per share（RMB） Profit of the report period Fully Weighted Weighted Fully diluted diluted average average Net profit attributable to the owners of parent Company. -0.20 -0.17 -0.15 -0.15 Net profit attributable to the owners of Parent Company after deducting of -0.21 -0.18 -0.16 -0.16 non-recurring gain/loss. （2） Year 2007 Return on net assets（%） Earnings per share（RMB） Profit of the report period Fully Weighted Weighted Fully diluted diluted average average Net profit attributable to the owners of parent Company. -0.69 -0.49 -0.69 -0.69 Net profit attributable to the owners of Parent Company after deducting of -0.65 -0.47 -0.65 -0.65 non-recurring gain/loss. XVII. The approval of financial reports The report of the financial statements was approved by all directors of the board of directors of the Company on April 21,2009. Section X1. Documents for Reference 74 1.Financial statements bearing the seal and signature of legal representative, financial controller and the person in charge of the accounting organ. 2. Original of the Auditors Report carrying the seal of PricewaterhouseCoopers Zhongtian Certified Public Accountants and the personal signatures of the C.P.A. 3.The original of all the Company's documents and the original manuscripts of announcements publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period. The Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. April 21, 2009 75