雷伊Ｂ(200168)2008年年度报告（英文版）

Summary of Annual Report 2008 GUANGDONG RIEYS GROUP COMPANY LTD. Annual Report 2008 April 2009 1 Summary of Annual Report 2008 Important Notice The Board of Directors, the Supervisory Committee as well as all directors, supervisors and senior executives of GUANGDONG RIEYS GROUPCOMPANY LTD. (hereinafter referred to as the Company) hereby confirms that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take the individual and/or joint responsibilities for the reality, accuracy and completeness of the whole contents. Director Ms. Chen Xuewen failed to present the meeting due to her health, and entrusted Director Mr. Ding Lihong to vote on his behalf. Beijing Xinghua Certified Public Accountants issued the Auditors’ Report with qualified opinion for the Company, the Board of Directors, the Supervisory Committee and independent directors have made the detailed explanations to relevant matters and submitted to investors to read carefully. Chairman of the Board Mr. Chen Hongcheng, Chief Financial Officer and concurrently Financial Manager Ms. Chen Peixia hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. Contents Section I. Company Profile…………………………………………………….……… Section II. Summary of Financial Highlights and Business Highlights……………….. Section III. Change in Share Capital and Particulars about Shareholders………...…… Section IV. Directors, Supervisors, Senior Executives and Employees……………….. Section V. Corporate Governance……………………………………………………… Section VI. Shareholders’ General Meeting…………………………………………… Section VII. Report of the Board of Directors…………………………………………. Section VIII. Report of the Supervisory Committee…………………………………... Section IX. Significant Events…………………………………………………………. Section X. Financial Report………………………………………………………….… Section XI. Documents Available for Reference……………………………………..... 2 Summary of Annual Report 2008 Section I. Company Profile I. Legal Name of the Company In Chinese: 广东雷伊（集团）股份有限公司 Abbr. in Chinese: 雷伊 In English: GUANGDONG RIEYS GROUP COMPANY LTD. Abbr. in English: Rieys II. Legal Representative: Mr. Chen Hongcheng III. Contact method of Secretary of BOD and Securities Affairs Representative: Secretary of BOD Securities Affairs Representative Name Mr. Zhou Haolin Mr. Chen Yaoji Address 12/F of Orient Building, Dongmen Middle Road, Luohu District, Shenzhen Telephone 0755—82250045 Fax 0755—82251182 E-mail kkk@200168.com jacobchen63@200168.com IV. Registered Address: Meixin Industrial Park of Jun Bu Town, Puning, Guangdong Office Address: 12/F of Orient Building, Dongmen Middle Road, Luohu District, Shenzhen Post Code: 518001 Company’s Internet Website: http://www.rieys.com E-mail of the Company: rieys@live.cn V. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Hong Kong Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: 12/F of Orient Building, Dongmen Middle Road, Luohu District, Shenzhen Ⅵ . Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: RIEYS-B Stock Code: 200168 Ⅶ . Initial registered date: Nov. 17, 1997 Initial registered place: Industrial and Commercial Administration Bureau of Guangdong Province Registration code of enterprise business license: 4400001000088 Registration code of tax: 445281231131833 Certified Public Accountants engaged by the Company: Name: Beijing Xinghua Certified Public Accountants Co., Ltd. Address: 2 Fucheng Men Wai Av., West City District, Beijing Section II. Summary of Financial Highlights and Business Highlights I. Major financial date as of the year 2008 (Unit: RMB Yuan) Item 2008 -111,300,244.50 Operating profit -114,592,168.43 Total profit -105,566,944.24 Net profit attributable to shareholders of the Company -104,532,788.27 Net profit attributable to shareholders of the Company after deducting extraordinary gains and losses -61,288,610.36 Net cash flow from operating activities 3 Summary of Annual Report 2008 Items and amount of non-recurring gains and losses: Item of extraordinary gains and losses Amount Gains and losses on disposal of non-current assets -1,034,205.97 Unauthorized examination and approval, or lack of official approval 0 documents, or occasional tax revenue return and abatement Excess of interest in the fair value of investee’s identifiable net assets 0 over investment costs of subsidiaries acquired Profit and loss from debt restructuring 0 Other non-operating income and expenses besides the above items 0 Total non-recurring gains and losses -1,034,205.97 II. Major accounting data and financial indexes over the past three years ended the report period: (I) Major accounting data (Unit: RMB Yuan) Increase/ 2006 2008 2007 decrease than last Before After adjustment year (%) adjustment Operating income 199,124,620.35 407,819,022.64 51.17% 483,558,136 486,827,752.70 Total profit -114,592,168.43 -40,005,028.23 -186.44% 39,498,753 43,190,521.15 Net profit attributable to shareholders of listed -105.566,994.24 -79,704,336.59 -32.45% 11,746,536 15,141,538.32 company Net profit attributable to shareholders of listed company after -104,532,788.27 -163,111,255.16 35.91% -25,052,214 -21,657,211.68 deducting extraordinary Gain and Loss Net cash flow arising from operation -61,288,809.02 66,663,627.17 -191.94% 96,505,708 96,505,709.28 activities Increase/ 31 December 2006 decrease 31 December 2008 31 December 2007 Before After than last Adjustment Adjustment year Total assets 626,364,355.62 818,952,545.47 -23.52% 1,102,429,517 1,112,188,832.83 Owners’ equity 345,621,316.85 458,459,845.90 -23.40% 523,025,117 639,492,559.97 (shareholders’ equity) (II) Major financial index (Unit: RMB Yuan) Increase/ 2006 2008 2007 decrease than Before After last year (%) adjustment adjustment Basic EPS (RMB/share) -0.33 -0.25 -32.00% 0.04 0.05 Diluted EPS (RMB/share) -0.33 -0.25 -32.00% 0.04 0.05 Basic EPS after deducting extraordinary gain and loss -0.32 -0.51 37.20% -0.08 -0.07 (RMB/share) Fully diluted return on net assets (%) -30.54% -17.67% -12.87% 2.25% 2.37% Weighted average return on net assets -31.00% -16.00 -13.00% 2.27% 2.63% (%) Fully diluted return on net assets after deducting extraordinary gain and loss -30.24% -36.15% 5.91% -4.79% -3.39% (%) Weighted average return on net assets after deducting extraordinary gain and -30.00% -33.00% 6.00% -4.84% -3.76% loss (%) Net cash flow per share arising from -0.19 0.21 -190.48% 0.30 0.30 operation activities (RMB/share) 4 Summary of Annual Report 2008 Increase/ 31 December 2006 31 December 2008 31 December 2007 decrease than Before After last year Adjustment Adjustment Net assets per share attributable to 1.08 1.42 -23.94% 1.64 1.67 shareholders of listed company 5 Summary of Annual Report 2008 Section III. Change in Share Capital and Particulars about Shareholders I. Particulars about the changes in share capital 1. In the report period, the Company’s share capital remained unchanged. 2. Issuance and listing of shares 1) The Company has not issued any shares or the derived securities in recent three years. 2) In the report period, there was no change in total number and structure of the shares arising from bonus shares or share capital conversion. 3) There existed no inner employees’ shares in the Company. II. Particulars about shareholders 1. Particulars about shares held by the main shareholders of the Company (Unit: share) Total number of shareholders 19,953 Increase/ Number of Character of Shareholding Total number of Pledged or frozen Name of shareholders decrease in non-tradable shareholder proportion share held shares this year shares holding Guangzhou Shenghengchang Legal 36.99% 0 117,855,000 117,855,000 Pledged Trade Development Co., Ltd. person share Shenzhen Risheng Investment Legal 10.68% 0 34,020,000 34,020,000 Pledged Co., Ltd. person share Shantou Lianhua Industrial Legal 3.81% 0 12,150,000 12,150,000 Pledged Co., Ltd. person share Mo Ting B share 0.29% +934,048 934,048 0 Unknown Deng Xiaozhen B share 0.23% +736,260 736,260 0 Unknown Zhou Xiaoqun B share 0.20% 0 635,800 0 Unknown Gong Furong B share 0.19% +40,000 600,000 0 Unknown Xu Hui B share 0.18% 0 582,000 0 Unknown Xin Chengyu B share 0.18% +578,000 578,000 0 Unknown Lin mingyu B share 0.18% +560,000 560,000 0 Unknown Shares hold by the top ten tradable shareholders Number of tradable Name of shareholders Type of shares shares holding Mo Ting 934,048 B share Deng Xiaozhen 736,260 B share Zhou Xiaoqun 635,800 B share Gong Furong 600,000 B share Xu Hui 582,000 B share Xin Chengyu 578,000 B share Lin Mingyu 560,000 B share Chen zhenhong 548,500 B share Shui Guowei 467,944 B share Zhong Yaoxiang 453,000 B share There existed related relationship among Guangzhou Shenghengchang Trade Development Co., Ltd., Shenzhen Risheng Investment Co., Ltd. and Shantou Lianhua Industrial Co., Ltd., which belonged to Explanation on related relationship or action-in-concert among above action-in-concert promulgated by Measures for the Administration of mentioned shareholders Disclosure of Information on the Change of Shareholdings in Listed Companies. The Company was unknown whether there existed related relationship among other shareholders. Note: Guangzhou Shenghengchang Trade Development Co., Ltd. changed its name into Guangzhou Shenghengchang Trade Development Co., Ltd.. The actual controller remained unchanged. 2. About the controlling shareholder of the Company (1) The controlling shareholder of the Company is Guangzhou Shenghengchang Trade Development Co., Ltd.(Hereinafter refer to as Shenghengchang Trade Development ), who held 117.855 million shares of the Company, taking up 36.99% of the total share capital. The registered capital of this company is RMB 98 million; hereinto Mr. Chen Hongcheng holds 70% equity of Shenghengchang Trade Development , while Mr. Chen Honghai holds 30% equity of 6 Summary of Annual Report 2008 Shenghengchang Trade Development . Its registered address was B 6, Kecheng Building, Science Town, High-tech Industry Development Zone, Guangzhou, legal representative was Mr. Chen Yuyi. The business scope of Shenghengchang Trade Development : industrial investment, wholesale, retail trade (exclusive of the state-controlled goods); hardware, electric, building materials, electronic products, sale of auto parts; import and export goods, technology import and export (except for projects prohibited by laws and administrative regulations; projects prohibited by laws and administrative regulations can be operated after obtain permission). (2) Mr. Cheng Hongcheng is the actual controller of Shenghengchang Trade Development. Mr. Chen Hongcheng was engaged in operation and management of the enterprise for over 20 years. He was once Chairman of the Board and concurrently President of Puning Hongxing Weaving and Clothing Co., Ltd., and executive director of Puning Haicheng Industrial Co., Ltd.. Mr. Chen Hongcheng is the standing commissar of Political Consultative Conference of Puning, the deputy of the National People’s Congress of Jieyang City and Guangdong Province. In 1998, Mr. Chen was awarded as the excellent village and township entrepreneur of Guangdong province, the advanced member of Guangdong Industry and Commerce Union, and the advanced member of Guangdong Chamber of Commerce. In 1999, Jieyang municipality People’s Government awarded him as the advanced individual of splendor undertaking; Vice Chairman of Costume Association of Guangdong Province; Vice Chairman of Costume Association of Shenzhen City. Chen Hongcheng Chen Honghai Holding 70% equity Holding 30% equity Guangzhou Shenghengchang Trade Development Co., Ltd. Holding 36.99% equity The Company 3. Particulars about other shareholders of legal person’s share holding over 10% of shares (including 10%): Shenzhen Risheng Investment Co., Ltd. was founded on Sep. 8, 2000, whose registered capital is RMB 25 million, among which Ms. Chen Xuewen holds 80.4% equity and Mr. Ding Lihong holds 19.6% equity. The legal representative is Ms. Chen Xuewen. The business scope of Shenzhen Risheng Investment Co., Ltd.: to invest and initiate industries (the detailed project till further declared); domestic commerce, material supply and marketing industry (excluding monopoly commodities); investment consultation and information consultation (excluding limited projects). 7 Summary of Annual Report 2008 Section IV. Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives 1. Basic information Number of share Number of Name Sex Age Title Office term holding at the share holding year-begin at the year-end Chen Chairman of the Board, Male 51 2006.5-2009.5 0 0 Hongcheng President Vice Chairman of the Ding Lihong Male 38 2006.5-2009.5 0 0 Board, Vice President Chen Honghai Male 55 Director 2006.5-2009.5 0 0 Chen Xuewen Female 29 Director 2008.12-2009.5 0 0 Liu Yong Male 30 Independent Director 2008.6-2009.5 0 0 Su Jianlong Male 45 Independent Director 2008.6-2009.5 0 0 Yang Xinfa Male 40 Independent Director 2006.5-2009.5 0 0 Chairman of the Yan Mingfei Male 41 2006.5-2009.5 0 0 Supervisory Committee Huang Yanfang Female 42 Supervisor 2006.5-2009.5 0 0 Pan Xiaochun Female 37 Supervisor 2006.5-2009.5 0 0 Li Guoqiang Male 39 Vice President 2006.5-2009.5 0 0 Lei Yongsheng Male 54 Vice President 2006.5-2009.5 0 0 Chen Peixia Female 38 CFO 2006.5-2009.5 0 0 Zhou Haolin Male 39 Secretary of the Board 2008.6-2009.5 0 0 The Company has no equity incentive mechanism. 2. Main work experience of present directors, supervisors and senior executives Chairman of the Board and President: Mr. Chen Hongcheng, was born in 1958; bachelor degree, China nationality. He was once Chairman of the Board and concurrently President of Puning Hongxin Weaving and Clothing Co., Ltd., and executive director of Puning Haicheng Industrial Co., Ltd.. At present he is the standing commissar of political consultative conference of Puning, Guangdong, the deputy of the National People’s Congress of Jieyang City and Guangdong Province, Vice Chairman of Costume Association of Guangdong Province and Vice Chairman of Costume Association of Shenzhen City. Now he acts as Director of Guangzhou Shenghengchang Trade Development Co., Ltd. (the controlling shareholder) over the long term. Vice Chairman and Vice President: Mr. Ding Lihong was born in 1971 and graduated from junior college, and China nationality. He was once office director of Puning Hongxing Weaving & Clothing Co., Ltd., director of general manager office of Puning Jianyang Industrial Co., Ltd. and Secretary of the Board of Directors and vice President of Guangdong Rieys Group Company Ltd., as well as Chairman of the Board of Shenzhen Shenghengchang Industrial Co., Ltd.. Director: Mr. Chen Honghai was born in 1954 and graduated from university, and he has China nationality. He ever took the post of workshop director of Puning Songxing Garments Manufacturer and operation section chief, manager of Puning Hongxing Weaving & Clothing Co., Ltd. and supervisor of the Company. Now he acts as Director of Guangzhou Shenghengchang Trade 8 Summary of Annual Report 2008 Development Co., Ltd. (the controlling shareholder) over the long term. Director: Ms. Chen Xuewen, was born in Jan. 1980. She graduated from the department of law of Guangdong Institute of Public Administration. She has served as administrator in Shenzhen Rieys Industrial Co., Ltd. from Dec. 2000 to Dec. 2002; as legal representative of Shenzhen Shenghengchang Industrial Co., Ltd. from Jul. 2006 to Apr. 2007; as legal representative in Shenzhen Risheng Investment Co., Ltd. from Mar. 2003 to Jul. 2008. Independent Director: Mr. Liu Yong, was born in 1977, the Han nationality, college diplomas, CPA; he graduated from bachelor of the accounting major of Hunan College of Finance & Economics. He has been engaged in work in the accounting firm, and successively held the posts of auditor, audit manager and senior audit manager. Now he is partner of Shenzhen Pinghai Certified Public Accountants. Independent Director: Mr. Su Jianlong, was born in 1964, the Han nationality, post doctorate; he now acts as General Manager in Bio-Treat Technology Limited (listed on Singapore Exchange Mainboard). He successively held the posts of General Manager of Shenzhen Zhongxing Environmental E&T Ltd, of General Manager of Anhui Guo Zhen Environmental Protection Co., Ltd., Deputy General Manager of General Water of China Company Limited, of General Manager of Yuanshui Technology (Beijing) Co., Ltd., of Chairman of the Board of General Water of China (Shenzhen) Co., Ltd., of CMO and Chief Senior Advisor of China National Environmental Protection Corporation. Director: Mr. Yang Xinfa was born in 1969; he is master degree and has Chinese nationality. Now he is the lawyer of Yixing Law Firm Shenzhen Branch. He ever worked in Hunan Dexin Law Firm, Guangdong Guoyang Law Firm, Guangdong Bohe Law Firm and Liu&Wang, Attorneys At Law; and ever took the post of secretary of Board of the Company. Chairman of the Supervisory Committee: Mr. Yan Mingfei was born in 1968, bachelor degree and engineer, and has China nationality. He took the post of assistant engineer of Shantou Teye Power Development Co., Ltd. and engineer of Shantou Special Economic Region Talents Exchange Center. Now he is in charge of general manager of Shantou Lianzhihua Information and Technology Co., Ltd.. Supervisor: Ms. Huang Yanfang was born in 1966, bachelor degree and party member of the CPC. She has engaged in enterprise financial work for many years. Now she serves in financial dep. of the Company. In the past, she held a post in Shantou Film Company as deputy section chief of financial section. Supervisor: Ms. Pan Xiaochun was born in 1971; she got master degree with enterprise operation & management experience for many years. From the year 2004, the very time she joined in the Company, she has engaged in operation & management of the Company. Before that, she served in Shenzhen Maoye (Group) Co., Ltd.. Vice President: Mr. Li Guoqiang, was born in 1970 and was awarded MBA degree, CCAP, Accountant; he is Chinese and engaged in social audit, capital assessment and corporation consultation, etc. for many years. He ever took the post in Shenzhen Zhongtian Audit and CPA Firm and Authur Anderson Huaqiang CPA Firm. He ever took the post of Chief Financial Officer of the Company. 9 Summary of Annual Report 2008 Vice President: Mr. Lei Yongsheng, was born in 1954, bachelor degree, economic engineer, and was engaged in business administration for several years. He ever worked in Hunan Academy of Ceramics, took the posts of chief clerk, section chief and division chief in Foreign Trade Department of Hunan Province, of General Manager of Commercial Dept. in Zhuhai Gree Group Corp., of General Manager and Secretary of CPC in Zhuhai Jiali Industrial Corp., as well as Chairman of the Board and General Manager in Shenzhen Rieys Industrial Co., Ltd.. Vice President and concurrently Secretary of the Board: Mr. Zhou Haolin, was born in 1970, the Han nationality, college diplomas, economic manager; he graduated from Department of Business Administration of Shenzhen University. He had served as Secretary of the Board and Manager of Investment Dept. in Shenzhen International Enterprise Co., Ltd., as Vice President and Secretary of the Board in the Company, and as Vice President in China Flavors and Fragrances Company Limited. Chief Financial Officer: Ms. Chen Peixia, was born in 1971, CPA. She was engaged in enterprise financing for several years. She ever worked in Shantou Youjian Certified Public Accountants and took the post of Manager of Auditing Dept. in the Company. 3. Particulars about the annual remuneration In accordance with the proposal on setting down remuneration of senior executives examined and passed at the 1st meeting of the 2nd Board of Director for the year 2002 and proposal on adjusting allowance of directors, independent director and supervisors examined and passed at the annual Shareholders’ General Meeting 2007, directors and independent directors of the Company drew their annual allowance of RMB 50,000 (tax included) respectively from the Company; supervisors of the Company received the annual allowance of RMB 15,000 (tax included) respectively. The Company reimbursed the reasonable charges according to the actual situation which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Name Title Total (Unit: RMB Yuan) Chen Hongcheng Chairman of the Board, President 206,000 Ding Lihong Vice Chairman of the Board, Vice President 147,500 Chen Honghai Director 50,000 Chen Xuewen Director 0 Zhang Yongli Director 50,000 Fang Meidi Independent Director 50,000 Cai Shaohe Independent Director 50,000 Liu Yong Independent Director 50,000 Su Jianlong Independent Director 50,000 Yang Xinfa Independent Director 50,000 Yan Mingfei Chairman of the Supervisory Committee 15,000 Huang Yanfang Supervisor 80,000 Pan Xiaochun Supervisor 99,500 Li Guoqiang Vice President 97,500 Lei Yongsheng Vice President 97,500 Chen Peixia CFO 97,500 Zhou Haolin Secretary of the Board 60,000 10 Summary of Annual Report 2008 Total 1,250,500 Director Mr. Chen Honghai, Independent Director Mr. Yang Xinfa, and Chairman of the Supervisory Committee Mr. Yan Mingfei received no payment from the Company. Of them, Director Chen Honghai drew the annual remuneration from Guangzhou Shenghengchang Investment Co., Ltd. 3. Changes of directors, supervisors and senior executives of the Company in the report period. Two independent directors, who were appointed by the Company in 2002, continued as this position for six years. In accordance with Guiding Opinion on Establishing Independent Directory System in Listed Companies with ZJF [2001] No. 102, the Company needs to reelect two new independent directors to replace them. As approved at the 3rd meeting of the 4th Board of Directors for the year 2008, Mr. Liu Yong and Mr. Su Jianlong were elected as independent director of the Company respectively by employing cumulative voting at the Annual Shareholders’ General Meeting 2007. Due to change in work of the former secretary to the Board, he failed to continue to hold this position. At the 4th meeting of the 4th Board of Directors for the year 2008, in accordance with job demand, Mr. Zhou Haolin was engaged as Vice President and Secretary to the Board of the Company. Mr. Zhang Yongli, the former director of the Company, can not give attention to director of the Company due to his busyness at work, therefore, he submitted his resignation to the BOD of the Company. At approved at the 9th meeting of the 4th Board of Directors for the year 2008, Ms. Chen Xuewen was elected as Director of the Company by adopting cumulative voting at the 2nd Extraordinary Shareholders’ General Meeting 2008. II. About employees As at Dec. 31, 2008, the Company and its subsidiaries controlled by the Company had about 1800 on-job staffs in total. Among them, 1200 production personnel, 307 salespersons, 56 technicians, 60 QC, 67 financial personnel and 110 administrative personnel; 4 persons with senior professional titles, and 46 persons with middle professional titles, and 87 persons with preliminary professional titles. The Company did not bear expenses of retirees at present. Section VI. Corporate Governance I. Corporate governance In accordance with Company Law, Securities Law and Code of Corporate Governance for Listed Companies and the relevant laws and regulations, the Company established and perfected its organization such as Shareholders’ General Meeting, Board of Directors and Supervisory Committee since the Company was founded and constituted and consummated the Articles of Association of the Company and the relevant other rules in line with the relevant laws and regulations. Directors, the Special Committee of the Board of Directors and the Supervisory Committee brought the certain function into full play in the operation and management of the Company. The actual situation of the corporate governance basically accorded with the 11 Summary of Annual Report 2008 requirements of such standardization documents as the Code of Corporate Governance for Listed Companies. But in the actual operation management, there existed some shortcomings in such aspects as unscientific and imprudence decision-making, undemanding capital management and incomplete internal control, the management efficiency remained to be improved. The Company would strengthen and organize senior executives to study the relevant laws and regulations and modern business management practice in the further in order to perfect the modern enterprise system of the Company. II. Duty performance of independent directors In the report period, new and old independent directors of the Company actively took part in operation of the Board, seriously and diligently performed their duties and carefully examined all proposals of the Board and expressed independent opinion in the report period, and played an important role in enhancing the independence of the Board, strengthening the function of strategic management of the Board, balancing of rights of the Board and concentrating on the legal rights and interests of the small and medium investors, and played an active promotion role in scientific decision-making of the Board and normative operation of the Company. During the report period, the Company’s independent directors did not propose any objection on all proposals of the Board and other proposals of the Company. Times of Board Times of Board Times of Times of Remark Name of meeting should be meeting attended Boarding meeting Boarding shareholders attended personally attended by proxy meeting absent Yang Xinfa 9 9 0 0 Liu Yong 5 5 0 0 newly-appointed Su Jianlong 5 5 0 0 newly-appointed Cai Shaohe 4 3 1 0 Leaving office Fang Meidi 4 3 0 1 Leaving office III. The Company was independent from controlling shareholders in business, personnel, assets, organization and finance: 12 Summary of Annual Report 2008 The Company was completely separated with the controlling shareholder, Guangzhou Shenghengchang Industrial Co., Ltd., and associated enterprises in business, personal, assets, organization and financing, which ensured the Company had independent and complete business and self-operation capability. IV. Particulars on establishing and perfecting the internal control of the Company In order to standardize the operating management of the Company, control risk and ensure the normal operation of the business activities, the Company set up such a series of internal control system as Rules of President’s Work, Internal Audit System, Management System of Information Disclosure and Management Method of Raised Proceeds which were complemented, amended and perfected continuously and executed strictly, according to Company Law, Securities Law and other related laws and rules and in line with the actual situation of the Company, its own characteristics and management demand. As a result, the production and operation of the Company were supervised, controlled and guided effectively. In the opinion of the Board of Directors: the existed internal control system met the requirement of the current management of the Company and the demand for development, guaranteed the operating activities to be carried out orderly, assured the overall implementation and full realization of the development strategy and operating target of the Company as it was relatively integrated, reasonable and effective. Also, it could favorably ensure the truth, legality and integrity of the accounting information of the Company, as well as the safety and integrity of all the property of the Company. The information was disclosed truly, accurately, timely and completely, which ensured to treat all the investors publicly, fairly and justly and safeguarded the interest of the Company and investors. Opinion of the Supervisory Committee on the self-appraisal report of internal control: the self-appraisal report of internal control reflected the Company’s actual situation of internal control in all-round, true and accurate. Opinion of Independent Directors on the self-appraisal report of internal control: the self-appraisal report of internal control was in compliance with the Company’s actual situation of internal control. V. Establishment and implementation of the assessment and incentive and restrain mechanism for the senior management staffs by the Company The Company set up preferable remuneration system and performance assessment system, which could help to assess the work ability, fulfillment and performance on the responsibility of the senior management staffs as the revenue of the senior management staffs was coupled with the work performance. The Company would take steps to perfect the assessment and incentive and restrain mechanism for the senior management staffs. 13 Summary of Annual Report 2008 Section VI Brief Introduction to Shareholders’ General Meeting I. The 1st Extraordinary Shareholders’ General Meeting 2008 was held on 17 Mar. 2008. Relevant resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 18 Mar. 2008 with public notice No. 2008-004. II. The Annual Shareholders’ General Meeting for the Year 2007 was held on 30 Aug. 2008. Relevant resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 1 Jul. 2008 with public notice No. 2008-017. III. The 2nd Extraordinary Shareholders’ General Meeting 2008 was held on 31 Dec. 2008. Relevant resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 5 Jan. 2009 with public notice No. 2008-028. Section VII Report of the Board of Directors I. Operation of the Company in the report period (I) Review of operation status in the report period 1. Overall operation of the Company in the report period In the report period, the Company realized operating revenue amounting to RMB 1,991,246,203,5, with a decrease of RMB 208,694,402.29 compared with that of last period, as well as range of 51.17%. Main reason for change was: the Company mainly engaged in export, and seriously influenced by financial crisis of 2008. Profit in the report period amounted to RMB -106.35 million, net profit attributable to owners of parent company was RMB -105.56 million, which was in loss for two years. In view of business, scale of main business shrunk, but it was able to profit and operated routinely. Owing to historical heavy burden, the Company cannot turn around the trend of loss of main business. The above indices decreased by large margin because: (1) Global financial crisis of the second half year of 2008 seriously influenced export business of the Company ,especially clothing industry; (2) Capital for business development in 2008 further decreased due to decrease of loan from bank; (3) In order to realize operating plan on turning loss to benefit, the Company peeled off non-performing asset, and assets impairment provisions increased; (4) Accounting firm advised the Company withdrew loss provision and expense carefully according to auditing result. 2. Main business of the Company and its operating status 1) Composing of income from main business and profit from main business: Income form main business Cost of main business Items Amount of this Amounr of last Amount of this Amounr of last year year year year (1) Industry 211,631,894.13 303,513,308.67 187,140,504.94 245,847,547.14 (2) Commerce 51,094,790.23 198,482,323.70 29,512,117.58 105,373,867.15 Subtotal 262,726,684.36 501,995,632.37 216,652,622.52 351,221,414.29 Offset of the business of the Company -63,602,064.01 -94,625,409.73 -63,436,568.89 -95,137,061.57 Total 199,124,620.35 407,370,222.64 153,216,053.63 256,084,352.72 2. Income from main business and profit from main business according to areas Income form main business Cost of main business Items Amount of this Amounr of last Amount of this Amounr of last year year year year 14 Summary of Annual Report 2008 Sales of export clothing 180,195,532.80 254,080,972.54 154,560,255.33 216,291,963.13 Sales of clothing domestically 66,327,966.20 241,705,205.75 47,176,651.18 126,922,773.54 Clothing processing domestically 16,203,185.36 6,209,454.08 15,246,706.25 8,006,677.62 Subtotal 262,726,684.36 501,995,632.37 216,652,622.52 351,221,414.29 Offset of the business of the Company -63,602,064.01 -94,625,409.73 -63,436,568.89 -95,137,061.57 Total 199,124,620.35 407,370,222.64 153,216,053.63 256,084,352.72 3. Operating income of this year increased RMB 208,694,402.29 year-on-year, down 51.17%, and reason for change was that export operation shrunk by a large margin with influence of global financial crisis. 2) Principal suppliers and customers: The total amount of purchase of the top five suppliers took up 48.74% of the total annual amount of purchase. The total amount of sales of the top five customers took up 83.44% of the total annual amount of sales. 3. Financial data and change composed by assets and the according reasons in the report period Unit: RMB Yuan Dec. 31, 2008 Dec. 31, 2007 Change Items of balance sheet Proportion in Proportion in total Amount Amount year-on-year total assets (%) assets (%) Accounts receivable 76,757,525.75 12.25% 100,373,896.77 12.25% -23.5% Inventory 56,639,215.71 9.040% 55,944,391.83 6.83% 1.24% Investment properties 0 0 0 0 0 Long-term equity 5,130,000.00 0.82% 7,164692.02 0.87% -28.40% investment Fixed assets 258,240,859.74 41.23% 297,021,626.47 36.27% -13.06% Construction in progress 2,199,942.29 0.35% 2,060,754.99 0.25% 6.75% Short-term borrowings 221,847,631.91 35.42% 307,948,873.23 37.60% -27.96% Items of income 2008 2007 statement Operating expenses 22,705,416.00 53,625,136.63 -57.66% Administrative expenses 56,068,588.91 62,159,315.92 -9.80% Financial expenses 32,322,306.98 40,245,005.65 -19.69% Income tax -8,241,560.57 8,832,932.80 -193.30% Analysis of the change reason: 1) Accounts receivable: Reason for decrease of the accounts receivable: portfolio shrunk due to influence of financial crisis and income from main business decreased. Reason for decrease of accounts paid in advance: price of raw materials raised and account for good paid in advance increased. Reason for increase of other account receivable: callback of the amount of transferring 36% equity of Polo & Racquet Club Operation Corporation 2) Reason for increase of inventory: inventories increased about 700,000, which was in normal change scope. 3) Reason for decrease of long-term equity investment: change of long-term equity investment projects. 15 Summary of Annual Report 2008 4) Reason for change of fixed assets: withdrawal impairment provision 5) Construction in progress: change 6) Reason for change of short-term borrowings: part of borrowings was returned in this year. 4. Cash Flow Statement of the Company and main composing and change, and the analysis of the principal influence factors Unit: RMB Yuan 2008 2007 Increase/decrease year-on-year (%) Net cash flow arising from operating activities -61,288,610.36 66,663,627.17 -191.94% Net cash flow arising from investing activities 164,395,908.19 11,156.19 1473.48% Net cash flow arising from financing activities -98,669,213.61 -81,875,349.75 20.51% Influence on cash by the change in exchange rate 0 27,983.38 - Analysis of the change reason: 1) Decrease of net cash flow arising from the operating activities was because of the decrease of cash inflows arising from operating activities. 2) Increase of net cash flow arising from the investing activities was because of callback of the amount of transferring 36% equity of Polo & Racquet Club Operation Corporation. 3) Change of net cash flow arising from the financing activities was because the Company repaid borrowings from loan in the report period. 5. Operation and achievement of principal subsidiary companies and joint stock companies: A. Operation and achievement of shareholding companies: (1) Shenzhen Chuanger Fashion Co., Ltd, registered capital of RMB 12 million, whose 86% equity was held by the Company, is mainly engaged in the production and sales of women’s brand “MISSK” of Hong Kong in mainland of China. Its international Internet website is http://www.misskfashion.com. In the report period, this company’s total assets were RMB 47.46 million, realizing net profit of RMB -4.98 million. (2) Shenzhen Heyiyi Fashion Co., Ltd, registered capital of RMB 10 million, whose 51% equity was held by the Company, is mainly engaged in the production and sales of women’s brand “AXARA” of France in China. Its international Internet website is http://axara-hyy.com.cn. In the report period, this company’s total assets were RMB 3.23 million, and net profit realized was RMB -2.69 million. (3) Puning Tianhe Textile Manufactory Co., Ltd, registered capital of HKD 64.8 million, whose 100% equity was held by the Company, is mainly engaged in the processing and export business of OEM garments. In the report period, this company’s total assets were RMB 306.17 million, realizing the net profit of RMB -2.69 million. (4) Dongguan Jinjing Textile Manufactory Co., Ltd, registered capital of USD 12.8 million, whose 100% equity was held by the Company, is mainly engaged in the production processing and sales of high-grade wool garments. In the report period, this company’s total assets were RMB 45.2 million, and net profit realized was RMB -0.82 million. (5) Shenzhen Rieys Industrial Co., Ltd, registered capital of RMB 50million, whose 90% equity was held by the Company, is mainly engaged in the import and export business. In the report period, this company’s total assets were RMB 70.22 million, and net profit realized was RMB -26.84 million. (6) Tianrui (HK) Trading Co., Ltd, registered capital of USD 1, whose 100% equity was held by the Company, mainly engaged in international trade business. In the report period, this company’ total assets were RMB 66.9 million and net profit realized was RMB -26.48. B. Sales of joint stock companies in the report period 16 Summary of Annual Report 2008 Shanxi Chuanglian Information Network Technology Co., Ltd, registered capital of RMB 45 million, whose 27.78% equity was held by the Company, mainly engaged in information consultation of network, development of network communication and consulting service of t information on goods. In the report period, the Company sold 27.78% equity of Shanxi Chuanglian Information Network Technology Co., Ltd at trading price of RMB 8 million. (II) Prospect of the Company 1. In respect of main business: with the strategic core of brand business, improve management level and reduce operating cost. On the one hand, strengthen investment and support on current brand, enlarge its development and make it be operating mainstay; on the other hand, realize diversification of brand and category through fostering and acquisition; development of export sales business, explore and extend new market according to revival of international market. Competition of clothing export market was fiercer, pressure from cost continue to compress profit of enterprise, and clothing industry that mainly engage in capacity expanding and export on primary products was more difficult to operate, and the same is the Company. Shrinking of main business of the Company was mainly showed in export, the order decreased and gross profit decreased due to influence of financial crisis. The Board of Directors noticed that decrease of foreign order in the last two years influenced achievements of the Company obviously, however, it also reduced bad debt of accounts receivable and capital occupation. Along with support of policy on clothing export of the state, in the new increase round, we can choose order with high profit and credible payment, and operate stably. At present, the state has risen export refund rate, interest of bank, cost of labor and purchase cost of raw materials are reduced, which are both advantages. The Company is confident on revival and development of main business. In respect of domestic market, Shenzhen Chuanger Fashion Co., Ltd, subsidiary of the Company, operated stably owing to meet domestic marker. The Company was in loss in 2008 because we withdrew impairment provision according to principle of prudence. It forecasted that the Company will realize profit in 2009. Of which, women’s brand “MISSK” will be famous in domestic medium-high ended market and occupied some market. 2. Future development opportunity and challenge concerned by managements Challenge faced by the Company: such elements as quick appreciation of RMB, further decrease of the rate of tax rebate and increase of labor cost brought by the implementation of new labor law blocked the sales of garments overseas, making the market competition of the sales of garments domestically fiercer. The cost pressure continuously shortened the profit space of enterprises and increased the operating pressure of the garment industry. The industry concentration was as the relatively specific trend provided the up-grading competition of the famous garment industry. In the coming years, the development speed and size would be the crucial elements for the enterprises’ existence. Future development opportunity of the Company: the increase of the citizen’s revenue and the buildup brand consciousness provide a large space for the increase performance of the Company in the future. The new year is called A Year of Domestic Demand, because the up-grading consumption will boost the domestic demand market, and the simulating factors for the industry increase will be conversed from export to domestic consumption. The garment industry will keep in the state of increasing quickly as it has stepped into the core times of brand competition, the strong enterprises becoming more and more powerful. With years’ development and position of the Company in market and brand, the Company accumulated some experience in the aspects of brand construction and channel management, initially established the channel of main commercial circle covered domestically, which set up a preferable basis to obtain some advantage in the future competition for the Company. 3. Operating plan of the Company in 2009 (1) Continue to advance establishment of corporate governance, further standardize and perfect 17 Summary of Annual Report 2008 enterprise internal control, pay more attention to strict, durative and effective supervision on internal control, and improve operating management level and ability of risk prevention. (2) Enhance management of human resource, accelerate organization of talent team suitable for development of the Company, and optimize personnel allocation structure. (3) Continue to call fund back, improve cash flows. In the report period, the Company called back RMB 171 million from sales of 36% equity of Polo & Racquet Club Operation Corporation, which improved capital. In 2009, the Company will continue to settle accounts receivable and supply cash for durative development of the Company. (4) Continue to solve overdue loan, reduce total amount of loan, and decrease financial expense. Large financial expense as interest and penalty for interest of loan from bank was main reason why the Company was in loss. With effort of last year, loan from China Everbright Bank Guangzhou Branch was normalized, and overdue loan from Shanghai Pudong Development Bank Guangzhou Branch, China CITIC Bank Guangzhou Branch, China Everbright Bank Guangzhou Branch and Agricultural Bank of China Shenzhen Branch has been solved when the Company repaid RMB 86 million in 2008. The Company is struggle for repayment of overdue loan, and total amount of liabilities and overdue loans decreased obliviously. Determination to resolve overdue loan is adamantine and effect is obvious. The Company will make effort on solution of loan from bank in 2009, especially overdue loans. (5) Reduce loss through disposal of assets. The Company plans to sell enterprises and assets that were always in loss, which will reduce loss, supplement cash and also reorganized team and focus on main business and assets reorganization. (6) Increase income and decrease expenditure. The Company formulated economizing expenditure plan at the end of 2008, and adopted some effective measures to reduce expense and decrease loss. (7) Make brand business as the core, brand creation and channel construction as the crucial development strategy. As the funds situation permits, the Company will invest more into the women’s clothing brand and enlarge the brand business size according to the channel construction; on the other hand, the brand should be created and expanded by making use of self-financed funds. On the basis of brand business as the core, the Company will exert its professional advantage with the direction of development of business diversification; try the business of measuring for suit, order of office wear in mass and direct sales. (8) Change and optimize the operating pattern of the processing of traditional clothing of the Company. The business of processing traditional clothing of the Company faces the disadvantaged elements as the quick appreciation of RMB, further decrease of the rate of tax rebate and increase of labor cost brought by the implementation of new labor law. So the Company should seek reform, to downsize the organization with high-value attached line, i.e., to strive for discovering potential in every tache internally, improve the management ability and the quality of products, enhance the core competition of the said business and take steps to increase the attached value of products; on the other hand, to make use of the Company’s order, the method of entrusting others to process can help to solve the disadvantaged factors the clothing processing business faces. (III) Difficulties and problems in operation The Company faced the following difficulties and problems in operation of report period: 1. Pressure from cash. Share transfer of Rieys Papers from the Company to the principal shareholder has not completed. The Company will introduce new capital to improve current capital status, relax pressure from capital and improve operation status of the Company in case the share transfer complete successfully. 2. Clothing export is traditional business of the Company for several years, which takes up large proportion in main business. Although the Company has some advantages in order taking, production and selling, competition of clothing export will be further fiercer along with disadvantages such as appreciation of RMB, increase of cost of domestic labor, decrease of export refund rate, gradual open of international clothing market and fiercer competition from domestic 18 Summary of Annual Report 2008 clothing enterprises. The Company realized that development of export processing business will be influenced in case that the Company doesn’t improve management, reduce production cost, or further promote core competitive power in this business. 3. The Company only owns sales business of women’s brand owing to sales of equity of Polo & Racquet Club Operation Corporation, and market occupation rate and profit capacity was less than men’s brand. At present, the Company is focusing on women’s brand, and makes some progress, but effect on market and finance is not instantly. II. Investment of the Company (I) The Company had no raised proceeds or use in the report period. (II) No external investment occurred in the report period. III. Specific explanation on relevant events relating to non-standard audit report issued by accounting firm: 1. Described as XII Notes to financial statement, based on contract on shares transfer of Puning Rieys Paper Co., Ltd be executed, Puning Rieys Paper Co., Ltd continued to durative operate, withdrew assets impairment provisions and prepared financial statements. When prepared consolidated statements, the Company didn’t adjusted financial statements with basis of liquidation. The Company and its related parties didn’t withdraw bad debt provision with creditor’s right of RMB 180 million, but decreased investment to RMB 88 million. We had no adequate audit evidence to confirm rationality and accuracy of withdrawing assets impairment provision by the Board of Directors. Aim at qualified events, the Board of Directors explained as follows: In accordance with commitment letter from Shenzhen Risheng Investment Co., Ltd and Jiecheng Investment (Group) Co., Ltd, transferee of Rieys Paper, and irrepealable Guarantee Letter from Chen Hongcheng, related party of the two companies, all made commitment to complete share transfer in 2009. The Board of Directors believed that transferee showed great sincerity to execute contract, and the Company will make effort to accelerate share transfer in 2009 and solved borrowings of RMB 180 million from the Company and related parties by Rieys Paper, therefore, the Company didn’t need to withdraw impairment provision for creditor’s right of RMB 180 million, meanwhile, Rieys Paper was still in scope of consolidated statement, and withdrawal of bad debt provisions will be offset when prepared consolidated statements, which didn’t influence basis for preparation of Annual Report 2008. Audit organs issued unqualified opinion, of which emphases were uncertain opinion on rationality and accuracy of withdrawing assets impairment provision, that is, provided risk notice for various investors and user of financial statements. 2. Described as XII Notes to financial statement, the Company was in loss for the last two years and need to repay overdue borrowing and interest amounting to RMB 175 million, which indicated that it was uncertain of durative operating ability. The Board of Directors formulated relevant plan that sole Puning Rieys Paper Co., Ltd as soon as possible to repay overdue borrowings. Whether the share transfer will be completed or not lied on decisions and capital of buyer. Aim at qualified events, the Board of Directors explained as follows: (1) There was no significant lawsuit relating to overdue borrowing and interest of RMB 175 million. The Board of Directors communicated frequently with banks on relevant problems, and the Communication is very effective. The bank recognized achievement for solution of overdue loans for several years, meanwhile, they are confident on repayment of loan by the Company. (2) There was no serious contingency liabilities due to external guarantees (3) The Company was in loss in the last two years, which was mainly due to non-operating loss and impairment of assets. As of Dec. 2008, accumulative loss of the Company was RMB 111 million, of which Rieys Paper was RMB 149 million and impairment provision for assets (excluding paper industry) was RMB 84 million. Accumulative operating profit was RMB 122 19 Summary of Annual Report 2008 million after deducting the above two items. (4) According to repayment of the Company for several years, banks and amount relating to overdue borrowings both decreased, which showed determination and ability of the Company to repay borrowings. Repayment of overdue borrowings lasted for several years, which was executed in accordance with process and steps, and the Board of Directors was confident to solve overdue borrowings in 2009. At present, production and operation of the Company is stable, and the Board of Directors will continue to supervise and urge all parties to reach agreement on events relating to qualified opinion and protected against risks earlier. IV. Routine work of the Board of Directors (I) Particulars about the Board Meetings of the Company and resolutions in the report period The Board of Directors of the Company held nine meeting during the report period, and particulars about meetings are as follows: 1. The 1st Meeting of the 4th Board of Directors 2008 was held on 29 Feb. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 1 Mar. 2008 (public notice No.: 2008-002). 2. The 2nd Meeting of the 4th Board of Directors 2008 was held on 28 Apr. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 29 Apr. 2008 (public notice No.: 2008-008). 3. The 3rd Meeting of the 4th Board of Directors 2008 was held on 30 May 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 31 May 2008 (public notice No.: 2008-012). 4. The 4th Meeting of the 4th Board of Directors 2008 was held on 13 Jun. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 14 Jun. 2008 (public notice No.: 2008-016). 5. The 5th Meeting of the 4th Board of Directors 2008 was held on 29 Jul. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 30 Jul. 2008 (public notice No.: 2008-018). 6. The 6th Meeting of the 4th Board of Directors 2008 was held on 27 Aug 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 28 Aug. 2008 (public notice No.: 2008-021). 7. The 7th Meeting of the 4th Board of Directors 2008 was held on 23 Sep. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 24 Sep. 2008 (public notice No.: 2008-023). 8. The 8th Meeting of the 4th Board of Directors 2008 was held on 27 Oct. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 28 Oct 2008 (public notice No.: 2008-024). 9. The 9th Meeting of the 4th Board of Directors 2008 was held on 15 Dec. 2008, and public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao on 16 Dec. 2008 (public notice No.: 2008-026). (II) Execution of the resolutions at Shareholders’ General Meeting by the Board of Directors in the report period: In the report period, the Board of Directors of the Company strictly executed rights and obligations authorized by the Shareholders’ General Meeting, and executed all the resolutions at Shareholders’ General Meeting, ensuring the resolutions were thoroughly carried out carefully. (III) Performance of the Audit Committee 1. Examination and review of financial statements of the Company by the Audit Committee 20 Summary of Annual Report 2008 The Audit Committee of the Board of Directors reviewed the Financial Statements compiled by the Company before the CPAs’ entry for the yearly audit of the Company, believing that, the statements was in line with the Accounting Standard for Business Enterprises published by the State, and truly reflected the financial status of the Company and the operating results and cash flow 2008, so it was permitted that Beijing Xinghua Certified Public Accountants carried out the annual audit for the year 2008 on the basis of the said statements. After the accountant firm issued the preliminary audit opinion, the Audit Committee reviewed the related financial and believed that, the Financial Statements of the Company was complied with the basic situation of the Company after the adjustment of the Financial Statement of the Company according to the adjusting journal entry. The auditors’ report with qualified opinion issued by the accounting firm was in line with actual situation of the Company. Financial statements except influence from items relating to qualified opinion was compiled based on Accounting Standard for Business Enterprises, reflecting financial status of the Company as of Dec. 31, 2008 and the operating results, cash flow and changes of shareholders’ equity in 2008 in all the significant aspects. 2. Supervision on the annual audit work of the Company by the Audit Committee Before the entry of the CPAs, the Audit Committee, the Financial Department of the Company and the accountant firm consulted together to decide the time for the audit work of the Financial Report of the Company in 2007. After the entry of the CPAs, according to the audit time and progress confirmed by the consultation with accountant firm, the Audit Committee of the Board of Directors entrusted someone specially assigned to supervise by means of telephone and email, as well as auditors’ report being submitted in schedule. 3. Relevant opinion on reengagement of accounting firm from the Audit Committee The Audit Committee communicated with Shulun Pan Certified Public Accountants, former audit firm of the Company, according to Rules for Annual Report, both parties negotiated on audit date and remuneration of 2008, but finally didn’t reach agreement. Combined with actual situation of preparation and disclosure of Annual Report 2008, members of Audit Committee acquaint themselves and communicated with qualified accounting firms, colligated various situations, and submitted to the Board of Directors and the Shareholders’ General Meeting to dismissal Shulun Pan Certified Public Accountants and advised to engage Beijing Xinghua Certified Public Accountants as auditor of the Company. Owing to completion of share transfer of ten enterprises that engage in men’s brand in 2007, audit scope of 2008 shortened, just nine enterprises brought into consolidation scope, and income from main business decreased 50% year-on-year. Moreover, there were no significant assets reorganization, sales or acquisition of significant assets, nor investment in 2008, audit work was less than previous years. Beijing Xinghua Certified Public Accountants quoted RMB 500,000 and contract price was RMB 350,000, therefore, Audit Committee considered that Payment for audit work 2008 was reasonable. 4. Relevant opinion of the Audit Committee on annual financial statements After entry of CPAs, the Audit Committee and independent directors actively communicated with auditors, focused on progress of audit work, and supervised audit work processed as scheduled. After the CPAs issued primary audit opinion, the Audit Committee and independent directors met person in charge of audit firm in Apr. 2009, audited financial statements and formed opinion after heard opinion of the CPAs, then agreed to prepare Annual Report 2008 and its summary on basis of this financial data. 5. The Audit Committee submitted suggestion that continuing to engage Beijing Xinghua Certified Public Accountants in 2009. (IV) Summary of the duty performance of the Remuneration & Appraisal Committee In the report period, in accordance with Articles of Association, Proposal on Confirming 21 Summary of Annual Report 2008 Remuneration of Senior Executives of the Company examined and approved at the 1st meeting of the 2nd Board of Directors of the Company in 2002, Proposal on Adjustment of Allowance for Directors, Independent Directors and Supervisors examined and approved at the Annual Shareholders’ General Meeting 2007 and the performance assessment system of the Company, the Remuneration & Appraisal Committee of the Board of Directors believed that: 1. Remuneration of the directors, supervisors and the senior executives of the Company for the year 2008 was confirmed and executed according to the above resolutions and system, of which the amount was in line with operating status of the Company in 2008. 2. The Company has not established shareholding incentive mechanism yet, but the Company will continuously perfect internal incentive and restrict mechanism, gradually establish short-term incentive system with long-term incentive system, advance integration of managements’ interest with shareholders and the Company. V. Profit distribution preplan in 2008 (I) As of 31 Dec. 2008 and audited by Beijing Xinghua Certified Public Accountants, net profit attributable to owners of parent company realized in 2008 amounting to RMB -105,566,994.24. In accordance with principle of profit distribution, after withdrawal of statutory surplus reserves RMB 0 and statutory welfare reserves RMB 0, including retained profit in last year of RMB -5,577,445.69, profit attributable to shareholders was RMB -111,144,439.93 million. The profit distribution preplan was no distribution or capitalization. (II) Dividend of the Company in the last three years Amount of cash Net profit attributable to owners of Proportion in net profit attributable to Year dividend parent company in consolidated owners of parent company in (including tax) statement consolidated (%) 2007 0 -79,704,336.00 0 2006 0 11,746,536.00 0 2005 0 12,618,710.00 0 VI. Newspaper for information disclosure designated by the Company in 2008 was Securities Times and Hong Kong Ta Kung Pao. 22 Summary of Annual Report 2008 Section VIII Report of Supervisory Committee I. Particulars about work of the Supervisory Committee in the report period Apart from attending the Board meetings of the Company, the Supervisor of the Company held 3 meetings in total: (I) On the morning of Apr. 28, 2008, the 1st meeting of the 4th Supervisory Committee of the Company in 2008 was held at the meeting room of the Company on 12/F, Orient Building, Dongmen Middle Road, Luohu Area, Shenzhen. The following resolutions were examined and approved in this meeting: 1. Report on Work of the Supervisory Committee 2007; 2. Annual Report and Abstract 2007, as well as approval opinion on the report; 3. The First Quarterly Report and Approval opinion on the report 4. Resolution of special explanation given by the Board on the Financial Report in 2008 which was issued non-standard auditors’ report by the CPAs 5. Opinion given by the Committee on the operation of the Company in 2007 6. Opinion given by the Committee on the self-appraisal of the Company’s internal control (II) On the morning of Aug. 27, 2008, the 2nd meeting of the 4th Supervisory Committee of the Company in 2008 was held at the meeting room of the Company on 12/F, Orient Building, Dongmen Middle Road, Luohu Area, Shenzhen. The following resolutions were examined and approved in this meeting: 1. Semi-Annual Report and abstract 2. Approval opinions on the Semi-Annual Report and abstract (III) On the morning of Oct. 27, 2008, the 3rd meeting of the 4th Supervisory Committee of the Company in 2008 was held at the meeting room of the Company on 12/F, Orient Building, Dongmen Middle Road, Luohu Area, Shenzhen. The following resolutions were examined and approved in this meeting: 1. The Third Quarterly Report in 2008 2. Approval opinions on the Semi-Annual Report and abstract II. Authorized by the Shareholders’ General Meeting, the Supervisory Committee and all supervisors performed the supervision duties according to the laws and regulations of the State, the Article of Association and Work Rules for the Supervisory Committee: (I) The Company’s operation according to laws In the report period, the Supervisory Committee conducted supervision and investigation on all the work of the Company including procedure of decision making, implementation of internal control and performance of duty by Directors and other Seinor Mangements, and the members of the Supervisory Committee attended the Board meeting as non-voting delegate. It belived that the Company strictly operated according to relevant regulations of the State and the Articles of Association and the Company had established a relatively perfect internal control system. While performing their duties in the Company, Directors, General Managers or other Senior Executives had no cases that were against the laws, regulations, or the Articles of Association, or did harm to the interests of the Company. (II) Finance of the Company The Supervisory Committee carefully fulfilled the duty of inspecting the financial status of the 23 Summary of Annual Report 2008 Company and believed that the Auditor’s Report in 2008 issued by the CPAs objectively and truly reflected the financial status and operating results of the Company. (III) In the report period, the Company sold the equity of Shanxi Chuanglian Company, which was classified as disposing the non-performing assets. The transaction prices of purchase and sale of the Company were reasonable and did not find the actions which were secret transaction or harm interests of shareholders or assets draining. (IV) In the report period, there was no related transaction in the Company. (V) Permission of the special explanation on the relevant issues involved in the auditor’s report 2008 with qualified opinion, which was given by the Board of Directors. Section IX Significant Events I. The Company had no significant lawsuits or arbitrations in the report period. Significant lawsuits or arbitrations that occurred in the previous periods yet continued in the reporting period: in Apr. 2007, Agriculture Bank of China Shenzhen Nanshan Branch sued the Company as the Company did not repay the expired loans of RMB 15.12 million. The Shenzhen Nanshan Area People's Court made the written judgement [Case number of (2007) SNFM ECZ No. 339, 340,341] which judged the Company lost the case. In the reporting period, the Company has repaid the principal of RMB 15.12 million. II. The Company had no purchase nor sale in the report period. Purchase or sale that occurred in the previous periods yet continued in the reporting period: Hong Kong CEC Menswear Ltd acquired 5% equity of “St. Paul” brand series companies at the price of RMB 23,500,000. The transfer was completed in 2007, and payment of RMB 23,500,000 was received. 2. Sky Trend Investment (Group) Limited acquired 31% equity of St. Paul series companies held by the Company at the price of RMB 148 million. The transfer was completed in 2007, and payment of RMB 148 million was received in the report period. The transfer of equity mentioned above has no influence on the business achievement and the financial status of the Company. III. The Company had no significant affiliated transaction in the report period. 1. Significant affiliated transaction that occurred in the previous periods yet continued in the reporting period: On Nov. 14, 2007, the Company transferred 67% equity of Puning Rieys Paper to its affiliated party Shenzhen Risheng Investment Co., Ltd at the price of RMB 53,630,000; it also transferred 33% equity of Rieys Paper held by its wholly-owned subsidiary Tianrui (HK) Trading Co., Ltd to Jiecheng Investment (Group) Co., Ltd at the price of RMB 34,370,000. The total price of equity transaction was RMB 88,000,000 and the subscriber in the transaction of equity was the affiliated companies of Chen Hongcheng, the actual controller of the Company. Up to the date of reporting, the transfer of the equity has not been permitted by the competent department of the local government. The Board agrees to urge the actual controller to continue to fulfill the contract of Puning Rieys Paper equity transfer and make the payment before Oct. 2009. If the contract has not been fulfilled by then, the Company will terminate the contract and take actions 24 Summary of Annual Report 2008 against its breach. 2. Balance of affiliated transactions Percentage in the total balance of Amount at the year-end (RMB’0000) accounts receivable (payable) in Name of affiliated parties the items which it belongs to Amount at the end Amount at the Amount at the Amount at the of 2008 end of 2007 end of 2008 end of 2007 Other receivable: Sky Trend Investment (Group) Limited - 14,800 - 61.90% Total of other receivable - 14,800 - 61.90%- Other payable Cheng Hongcheng - 78 - 6.88% Ding Lihong - 214 - 27.24% Wang Shaoying 23 65 2.03% 5.73% Total of other payable 23 357 2.03% 39.85% IV. During the reporting period, the Company had no such investment behavior as holding equity of other listed companies, or involving in equity participation in financial enterprises like commercial banks, securities companies, insurance companies, trust companies and futures companies etc.. V. The Company had not formulated and implemented the share incentive plan. VI. Significant guarantees made by the Company in the report period: (I) The Company had no external guarantee within the report period. (II) The guarantees provided by the Company to its subsidiaries within the report period: The Company provided a joint responsibility guarantees for a liquid fund applied by Shenzhen Rieys Industrial Co., Ltd (a subsidiary of the Company) amounting to RMB 5317631from Hua Xia Bank Bao’an Sub-Branch. Currently, the Company has no external guarantee, and the guarantee accumulatively provided by the Company to its shareholding subsidiaries amounted to RMB 5317631 in total, taking up 1.5 % of net assets. VII. There was no commitment made by the Company or shareholders holding more than 5% shares of the Company in the report period. VIII. Appointment and disappointment of the CPAs : 1. On Mar. 17, 2008, with the agreement of the 1st Extraordinary Shareholders' General Meeting in 2008, the Company engaged Shunlun Pan Certified Public Accountants Co., Ltd as the auditor. The remuneration of the certified public accountants was RMB 500,000 in 2008, and the service term of audit of Shunlun Pan Certified Public Accountants Co., Ltd was one year. 25 Summary of Annual Report 2008 2. 2. On Dec. 31, 2008, with the agreement of the 2nd Extraordinary Shareholders' General Meeting in 2008, the Company engaged Beijing Xinghua Certified Public Accountants as the auditor. The remuneration of the CPAs was RMB 350,000 in 2008, and the service term of audit of Beijing Xinghua Certified Public Accountantswas one year. IX. In the report period, the Board of Directors, the Supervisory Committee, Directors, Supervisors of the Company had not been inspected, administratively punished or criticized with circulars by CSRC, nor had been condemned publicly by Shenzhen Stock Exchange. During Jun. 16 and Jun. 20, 2008, Guangdong Securities Regulatory Commission sent an inspection group to check the corporate operation, accounting, disclosure of annual report and change of the CPAs responsible for the annual auditing of the Company, and issued the notice on spot inspection results (2008) No. 46 for the Company. Receiving the notice on spot inspection results, the Company paid much attention to the event, organized all directors, supervisors and senior executives to study, analyzed problems listed in the notice item by item, formulated relevant rectification measures, and entrusted relevant person to carry out them item by item. The Rectification Report was published in Securities Times and Hong Kong Da Kung Pao on Sep. 24, 2008. X. The Company didn’t receive or invite special objects for interviews, communications and visits in the reporting period. 26 Summary of Annual Report 2008 Section X Financial Report I. Auditors’ Opinion (attachment) II. Accounting Statement and Notes (attachment) Section XI Documents for Reference 1. Accounting statements with the signatures and seals of legal representative, financial principal and person in charge of accounting 2. Original of Auditor’s Report with seals of accounting agencies and certified public accountants and seals and signatures of certified public accountants 3. Originals of all the documents of the Company ever disclosed publicly on the information-disclosure media designated by CSRC, as well as original manuscripts of all notifications of the Company. The Report is prepared both in Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version is prevailing. Board of Directors Guangdong Rieys Group Company Ltd 21 Apr. 2009 27 Summary of Annual Report 2008 Guangdong Rieys (Group) Joint-stock Company For the year ended December 31, 2008 Auditor’s report and financial statements Contents Page 一、 AUDITORS’ REPORT 1-2 二、 Financial statements of Guangdong Rieys (Group) Joint-stock Company and notes to the financial statements 1、Balance sheet and consolidated balance sheet 3-4 2 、 Income statement and consolidated income 5-6 statement 3、Cash flow statement and consolidated cash flow 7-8 statement 4、Statement of changes in owner’s equity and 9-10 consolidated statement of changes in owner’s equity 5、Notes to the financial statements 11-51 28 Summary of Annual Report 2008 Prepared by Guangdong Rieys Group Company Ltd. 31 Dec. 2008 Unit: RMB Yuan Items Closing amount Opening amount Consolidation Parent company Consolidation Parent company Current assets: Monetary funds 13,151,057.05 1,602,713.55 8,712,972.83 1,665,415.85 Settlement fund reserve Dismantle fund Transaction financial asset Notes receivable Account receivable 76,757,525.75 30,154,165.74 100,373,896.77 14,502,575.47 Account paid in advance 78,781,149.10 18,211,105.60 56,824,825.29 15,053,790.25 Premium receivables Receivables from reinsures Reinsurance contract reserve receivables Interest receivable Dividend receivable Other account receivable 48,779,676.14 182,572,201.02 218,144,803.34 348,172,287.71 Financial assets purchased under agreements to resell Inventories 56,639,215.71 340,973.16 55,944,391.83 7,594,016.56 Non-current assets due 2,000,000.00 2,000,000.00 within 1 year Other current assets Total current assets 276,108,623.75 234,881,159.07 440,000,890.06 386,988,085.84 Non-current assets: Loans and advance Available for sale financial assets Held to maturity investments Long-term account 5,000,000.00 5,000,000.00 receivable Long-term equity 5,130,000.00 207,345,600.49 7,164,692.02 319,071,500.68 investment Investing property Fixed asset 258,240,859.74 66,903,157.70 297,021,626.47 79,680,808.57 Project in construction 2,199,942.29 1,040,571.59 2,060,754.99 1,040,571.59 Engineering material Fixed asset disposal Bearer biological asset Oil assets Intangible assets 69,476,718.29 50,608,839.32 71,246,813.00 51,716,447.96 Development expense Goodwill Long-term expense to be apportioned Deferred tax assets 10,208,211.55 30,073,778.85 1,457,768.93 Other non-current assets Total of non-current assets 350,255,731.87 360,971,947.95 378,951,655.41 451,509,328.80 Total assets 626,364,355.62 595,853,107.02 818,952,545.47 838,497,414.64 Current liabilities: Short-term borrowings 221,847,631.91 201,030,000.00 307,948,873.23 242,304,875.53 Borrowing from Central Bank 29 Summary of Annual Report 2008 Deposits and due to banks and other financial institutions Placements from banks and other financial institutions Transaction financial liabilities Notes payable Account payable 7,015,487.60 30,193.72 16,985,531.68 2,383,189.65 Account received in 2,067,753.37 1,648,849.05 advance Financial assets sold under agreements to repurchase Handling charges and commission payable Employee’s compensation 2,382,538.14 154,697.19 4,953,708.71 636,843.93 payable Tax payable 4,976,744.77 1,549,464.84 5,190,095.83 802,361.27 Interest payable 24,640,578.80 22,793,407.21 12,423,207.61 8,653,200.87 dividend payable Other account payable 11,324,382.99 47,832,618.32 11,342,433.46 131,880,144.35 Due to reinsures Insurance contract reserve Customer deposits Amount payables under security underwriting Non-current liabilities due within 1 year Other current liabilities Total current liabilities 274,255,117.58 273,390,381.28 360,492,699.57 386,660,615.60 Non-current liabilities: Long-term borrowings Debentures payable Long-term payables Specific purpose account payables Provisions for contingent liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 274,255,117.58 273,390,381.28 360,492,699.57 386,660,615.60 Owner’s equity (or shareholders’ equity) Paid-in capital (or share 318,600,000.00 318,600,000.00 318,600,000.00 318,600,000.00 capital) Capital surplus 52,129,496.58 52,129,496.58 52,129,496.58 52,129,496.58 Less: Treasury Stock Reserved fund 86,036,260.20 86,036,260.20 86,036,260.20 86,036,260.20 General risk provision Retained earnings -111,144,439.93 -134,303,031.04 -5,577,445.69 -4,928,957.74 Foreign exchange difference Total owners' equity attributable to holding 345,621,316.85 322,462,725.74 451,188,311.09 451,836,799.04 company Minority interest 6,487,921.19 7,271,534.81 30 Summary of Annual Report 2008 Total owner’s equity 352,109,238.04 322,462,725.74 458,459,845.90 451,836,799.04 Total liabilities and owner’s 626,364,355.62 595,853,107.02 818,952,545.47 838,497,414.64 equity 9.2.2 Income Statement Prepared by Guangdong Rieys Group Company Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Amount in 2008 Amount in 2007 Items Consolidation Parent company Consolidation Parent company I. Total sales 199,124,620.35 43,796,730.30 407,819,022.64 29,633,336.46 Including: Sales 199,124,620.35 43,796,730.30 407,819,022.64 29,633,336.46 Interests income Premium income Handling charges and commission income II. Total cost of sales 311,260,172.85 201,637,732.85 547,073,363.52 86,823,959.32 Including: Cost of sales 153,216,053.63 41,275,391.28 256,092,205.52 29,022,669.62 Interests expenses Handling charges and commission expenses Claim expenses-net Provision for insurance liability reserve Expenses for reinsurance accepted Payments on surrenders Policyholder dividends Taxes and associate charges 200,114.59 48,607.90 993,664.01 37,201.82 Selling and distribution 22,705,416.00 446,931.58 53,625,136.63 571,246.37 expenses Administrative expenses 56,068,588.91 26,499,625.78 62,159,315.92 23,908,843.18 Financial expense 32,322,306.98 21,403,481.23 40,245,005.65 19,599,481.83 Impairment loss 46,747,692.74 111,936,695.08 133,958,035.79 13,684,516.50 Add: gain/(loss) from change in fair value (“-” means loss) Gain/(loss) from investment 835,308.00 835,308.00 99,351,225.38 157,785,527.16 (“-” means loss) Including: income form investment on affiliated enterprise and jointly enterprise Foreign exchange difference (“-” means loss) III. Business profit (“-” -111,300,244.50 -157,005,694.55 -39,903,115.50 100,594,904.30 means loss) Add: non-business income 39,005.11 1,234.56 6,169,367.37 99,043.07 Less: non-business expense 3,330,929.04 2,443,392.16 6,271,280.10 5,988,492.51 Including: loss from non-current asset disposal IV. Total profit (“-” means -114,592,168.43 -159,447,852.15 -40,005,028.23 94,705,454.86 loss) Less: Tax expense -8,241,560.57 -30,073,778.85 8,832,932.80 V. Net profit (“-” means -106,350,607.86 -129,374,073.30 -48,837,961.03 94,705,454.86 loss) 31 Summary of Annual Report 2008 -Attributable to parent -105,566,994.24 -79,704,336.59 company -Minority interest -783,613.62 30,866,375.56 VI. Earnings per share (I) Basic earnings per share -0.33 -0.41 -0.25 -0.30 (II) Diluted earnings per -0.33 -0.41 -0.25 -0.30 share 9.2.3 Cash Flow Statement Prepared by Guangdong Rieys Group Company Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Amount in 2008 Amount in 2007 Items Consolidation Parent company Consolidation Parent company 1. Cash flows for operating activities: Cash received from sales of 201,058,220.13 34,834,865.31 420,668,449.66 32,967,835.00 goods or rending of services Cash received on deposits and from banks and other financial institutions Net increased cash received on borrowings from central bank Cash received on placements from other financial institutions Premium received Cash received from reinsurance Net increased amount received on policyholder deposit and investment Cash received from disposal of held for trading financial assets Interests, handling charges and commission received Cash received on placements from bank, net Cash received under repurchasing, net Refund of tax and fare 10,727,749.81 13,148,092.88 1,000,000.00 received Other cash received relating to 21,982,281.71 124,507,593.43 15,438,091.43 55,437,375.36 operating activities Sub-total of cash inflows 233,768,251.65 159,342,458.74 449,254,633.97 89,405,210.36 Cash paid for goods and 176,752,978.89 45,812,139.51 232,303,387.14 32,675,115.60 services Loans and advances drawn Cash paid to central bank, banks and other financial institutions, net Claims paid Interests, handling charges and commission paid Dividends paid to 32 Summary of Annual Report 2008 policyholders Cash paid to and on behalf of 34,302,625.92 2,849,784.25 35,161,397.32 2,557,369.77 employees Tax and fare paid 7,893,616.25 1,449,361.79 25,714,645.45 2,455,235.53 Other cash paid relating to 76,107,640.95 231,556,040.53 89,411,576.89 28,360,727.05 operating activities Sub-total of cash outflows 295,056,862.01 281,667,326.08 382,591,006.80 66,048,447.95 Net cash flow from operating -61,288,610.36 -122,324,867.34 66,663,627.17 23,356,762.41 activities 2. Cash Flows from Investment Activities: Cash received from return of 171,269,220.57 171,269,220.57 investments Cash received from investment 12,960,000.00 12,960,000.00 income Net cash received from disposal of fixed assets, 252,701.92 116,440.00 174,300.00 123,000.00 intangible assets and other long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to 12,734,400.00 12,734,400.00 investment activities Sub-total of cash inflows 171,521,922.49 171,385,660.57 25,868,700.00 25,817,400.00 Cash paid for acquiring fixed assets, intangible assets and 7,126,014.30 1,762,908.00 11,694,484.71 other long-term assets Cash paid for acquiring 1,400,000.00 1,400,000.00 investments Net cash used in loans Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to 12,763,059.10 investment activities Sub-total of cash outflows 7,126,014.30 1,762,908.00 25,857,543.81 1,400,000.00 Net cash flow from investing 164,395,908.19 169,622,752.57 11,156.19 24,417,400.00 activities 3. Cash Flows from Financing Activities: Cash received from absorbing investment Including: Cash received from increase in minority interest Cash received from 85,700,000.00 70,700,000.00 164,900,000.00 112,900,000.00 borrowings Cash received from issuing debentures Other proceeds relating to 36,486,443.23 35,666,443.23 financing activities Sub-total of cash inflows 85,700,000.00 70,700,000.00 201,386,443.23 148,566,443.23 Cash paid for settling debt 171,801,241.32 111,974,875.53 237,685,218.44 177,609,205.90 Cash paid for distribution of dividends or profit or 12,567,972.29 6,085,910.66 22,465,968.54 17,929,632.47 reimbursing interest 33 Summary of Annual Report 2008 Including: dividends or profit paid to minority interest Other cash payments relating 23,110,606.00 to financing activities Sub-total of cash outflows 184,369,213.61 118,060,786.19 283,261,792.98 195,538,838.37 Net cash flow from financing -98,669,213.61 -47,360,786.19 -81,875,349.75 -46,972,395.14 activities 4. Effect of foreign exchange 27,983.38 rate changes 5. Increase in cash and cash 4,438,084.22 -62,900.96 -15,172,583.01 801,767.27 equivalents Add : Cash and cash 8,712,972.83 1,637,432.47 23,885,555.84 835,665.20 equivalents at year-begin 6. Cash and cash equivalents at 13,151,057.05 1,574,531.51 8,712,972.83 1,637,432.47 the end of the year 34 Summary of Annual Report 2008 9.2.4 Statement of Change in Owners’ Equity Prepared by Guangdong Rieys Group Company Ltd. Year 2008 Unit: RMB Yuan Amount in 2008 Amount in 2007 Owners’ equity attributable to parent company Owners’ equity attributable to parent company Paid-up Total of Paid-up Total of Items Lessen: Surplus General Minority Lessen: Surplus General Minority capital (or Capital Retained owners’ capital (or Capital Retained owners’ treasury public risk Others equity treasury public risk Others equity share reserve profits equity share reserve profits equity stock reserve reserve stock reserve reserve capital) capital) 318,60 458,45 318,60 108,59 639,49 52,129, 86,036, -5,577, 7,271,5 52,129, 86,036, 74,126, I. Balance as at 31 Dec. 2007 0,000.0 9,845.9 0,000.0 9,912.2 2,559.9 496.58 260.20 445.69 34.81 496.58 260.20 890.90 0 0 0 9 7 Add: Change in accounting policy Correction of previous accounting errors Other 318,60 458,45 318,60 108,59 639,49 52,129, 86,036, -5,577, 7,271,5 52,129, 86,036, 74,126, II. Balance as at 1 Jan. 2008 0,000.0 9,845.9 0,000.0 9,912.2 2,559.9 496.58 260.20 445.69 34.81 496.58 260.20 890.90 0 0 0 9 7 -105,5 -106,3 -79,70 -101,3 -181,0 II. Increase/decrease in 2008 (“-” -783,6 66,994. 50,607. 4,336.5 28,377. 32,714. means loss) 13.62 24 86 9 48 07 -105,5 -106,3 -79,70 -48,83 -783,6 30,866, I Net profit 66,994. 50,607. 4,336.5 7,961.0 13.62 375.56 ）（ 24 86 9 3 ）（ II Gain/loss recorded in owners’ equity directly 35 Summary of Annual Report 2008 1. Net amount on changes in fair value of financial assets available for sale 2. Effect on changes in other owners’ equity of invested units under equity method 3. Effect of income tax recorded in owners’ equity 4. Other -105,5 -106,3 -79,70 -48,83 -783,6 30,866, Subtotal of (I) and (II) 66,994. 50,607. 4,336.5 7,961.0 13.62 375.56 24 86 9 3 -132,1 -132,1 III Input and reduced capital of 94,753. 94,753. ） （ owners 04 04 1. Capital input by owners 2. Amount of shares-based payment recorded in owner’s equity -132,1 -132,1 3. Other 94,753. 94,753. 04 04 ） （ IV Profit distribution 1. Appropriating surplus reserve 2. Appropriating general risk reserve 3. Distribution to owners (shareholders) 36 Summary of Annual Report 2008 4. Other ）（ V Internal carry-over of owner’s equity 1. Transferring capital reserve into capital (share capital) 2. Transferring surplus reserve into capital (share capital) 3. Making up losses with surplus reserve 4. Other 318,60 -111,14 352,10 318,60 458,45 52,129, 86,036, 6,487,9 52,129, 86,036, -5,577, 7,271,5 IV. Balance as at 31 Dec. 2008 0,000.0 4,439.9 9,238.0 0,000.0 9,845.9 496.58 260.20 21.19 496.58 260.20 445.69 34.81 0 3 4 0 0 37 Summary of Annual Report 2008 AUDITORS’ REPORT （ ） Beijing Xinghua CPA 2009 No6-168 TO THE SHAREHOLDERS OF GUANGDONG RIEYS (GROUP) JOINT-STOCK COMPANY: We have audited the accompanying financial statements of Guangdong Rieys (Group) Joint-stock Company(hereinafter referred to as “the Company”), which comprise the balance sheet and the consolidated balance sheet as at December 31, 2008, the income statement and the consolidated income statement, the cash flow statement and the consolidated cash flow statement, the statement of changes in owners’ (shareholders’) equity and the consolidated statement of changes in owners’ (shareholders’) equity, for the year then ended, and notes to the financial statements. Management’s responsibility for the financial statements Management of the Company is responsible for the preparation of these financial statements in accordance with Accounting Standards for Business Enterprises (Version 2006). This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; Selecting and applying appropriate accounting policies; and Making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Chinese Certified Public Accountants Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the preparation of the 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 internal control. 38 Summary of Annual Report 2008 An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for qualified opinion 1. As disclosed in Note 13 to the financial statements of the Company, Puning Rieys Paper Industrial Co., Ltd. remains to make provision for assets impairment and prepare its financial statements on the basis of going concern, given that the equity transfer contract of Puning Rieys Paper Industrial Co., Ltd. will be fulfilled. The Company did not adjust its financial statements based on settlement when the Company prepared its financial statements. The Company and its subsidiaries did not accordingly make provisions for bad and doubt debts with respect to the debt of CNY180,000,000 receivable from that company, and the equity investment of that company decreased to CNY51,940,000. We are unable to obtain sufficient and appropriate audit evidence to ascertain the validity and accuracy of making provision for asset impairment by the Company’s board of directors. 2. As disclosed in Note 2 and 13 to the financial statements of the Company, the Company recorded operation loss for two consecutive years and the overdue principal of the borrowing required to be repaid amounts to CNY175,000,000. This situation indicates that there is a significant uncertainty in the Company’s ability to be going concern. The premise at which the financial statements for the year 2008 of the Company are prepared on the basis of going concern is: the Company’s board of directors believes that the Company can be a going concern and works out a plan in response to the situation, which proposed to complete the disposal of Puning Rieys Paper Industrial Co., Ltd. as soon as possible so as to obtain cash for repayment of the overdue borrowing. However the completion of the equity transfer shall mainly depend on the will and financing ability of the acquirers. Opinion In our opinion, except for the possible effect of the above mentioned matter the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises (Version 2006) and present fairly, in all material respect, the financial position of the Company as of December 31, 2007, the results of its operations, cash flows and changes in owners’ (shareholders’) equity for the year then ended. 39 Summary of Annual Report 2008 Beijing Xinghua Certified Public Accountants Certified Public Accountant of China Beijing, China April 21, 2009 40 Summary of Annual Report 2008 GUANGDONG RIEYS (GROUP) JOINT-STOCK COMPANY NOTES TO THE FINANCIAL STATEMENTS 1 General information （ Guangdong Rieys (Group) Joint-stock Company hereinafter referred to as “the Company” ） is a listed company established by five enterprises including Puning Haicheng Industrial Co., Ltd(which changed its name to Shenzhen Shenghengchang Industrial Co., Ltd when it relocated to Shenzhen,and then its name changed to Guangzhou Shenghengchang Investment Co., Ltd in 2007, in 2008 this company renamed to Guangzhou Shenghengchang Trade Development Co., Ltd ) , original sino-foreign cooperated enterprise of Hongxing Company. under approval of Guangdong Economic System Reform Committee (1997) No. 113 on November 17, 1997 after joint stock system restructure based on Puning Hongxing Textile and Apparel Production Factory Co., Ltd., which is an original sino-foreign joint venture. The registered capital of the Company is CNY 80,000,000 when established, which divided into 80,000,000 shares of CNY 1.00 each. The Company issued 60,000,000 shares of foreign invested stock domestically listed (“Stock B”) for foreign investors on October 17, 2000, and issued 9,000,000 shares of Stock B for exercise of over-allotment options during the period from October 27 to November 22, 2000 in accordance with approval of ZJFXZ (2000) No. 133 issued by China Bond Supervision Management Committee on September 29, 2000. The registered capital of the Company increased to CNY 177,000,000 after issuance of Stock B, which divided into 177,000,000 shares of CNY 1.00 each. The registered capital of the Company increased to 318,600,000 after years of bonus distribution and transfer increase in paid-in capital, which divided into 318,600,000 shares of CNY 1.00 each. The Company and its subsidiaries (hereinafter referred to as “the Group”)’s main scopes of business are manufacture, process and sales of various kinds of clothes including suit, fashion clothing, uniform, and knit goods, sales of industrial material for production, hardware, chemical product, daily necessities, furniture, arts and crafts and agricultural product and etc. (excluding commodities for exclusive sales, special control or monopolization) and various kinds of investment. II Principal accounting policies and estimates 1. Statement of complying with Accounting Standards for Business Enterprises The financial statements prepared by the Company meet the requirements of the enterprise accounting standards, and truly and completely reflect the financial conditions, operation result, change in owner’s equity and cash flow, etc of the Company. 2. Basis for the preparation The Company adopted ‘the Accounting Standard of P.R.C for Business Enterprise—Basic Standard’ which issued by Miinistry of Finance on February 15, 2006, No. 38 Enterprises Accounting Standard and Application guidances of the accounting standards for Business Enterprise, Interpretation of the accounting standards for 41 Summary of Annual Report 2008 Business Enterprise and other relevant regulations(hereafter referred as “Accounting Standard for Business Enterprise”) . The financial statements for the year 2008 of the Company are prepared on the basis of going concern. The net profit for the year ended December 31, 2008 attributable to owners of the Company amounted to CNY 105,670,000, and the principal of the short-term loan which will be fall due in 2008 amounted to CNY 246,490,000. The abilities of going concern, relization of the value of assets and repay the debts in time are totally depended on the status of the operation of the Company in future and the financial support from the banks which lent the borrowings or the creditors. In order to improve the liquidity of funds and the status of operation, the Company took various effective measures in the past year ,strengthened the management of cellection of the receivable account, facilitated the industry adjustment and capital restructure, and disposed the assets which resulted in loss from the operating activities in a limited time,in particular, to complete the equity transfer of Puning Rieys Paper Co., Ltd. Pursuant to the above-mentioned, the Board of directors of the Company consider that in the foreseeable future, the Company can repay the debts before the maturity through various ways (such as value realization of the assets). Based on these assumptions, the Board of dierectors of the Company are assured that on the basis of going concern the Company will maintain its operation, prepare the financial statements according to the actual transactions and events and make accounting comfirmation and measurement in accordance with ‘the Accounting Standard of P.R.C for Business Enterprise—Basic Standard’ and other accounting standards. 3. Fiscal year The fiscal year of the Company is the solar calendar year, which is from January 1 to December 31. 4. Recording currency Recording currency is CNY. 5. Calculation natures and statement items with the changes of calculation natures in the reporting period In calculating the accounting factors, the Company adopts the historical cost method; in case the determined accounting factor amount can be obtained or reliably calculated, the replacement cost, net realizable value, current value or fair value of the individual accounting factor may be adopted. There is no change about calculation nature of statement items during current reporting period. 6. Confirmation standard for cash equivalent In preparing the cash flow statement, the cash equivalents of the Company include the investments with short period (it usually expires within three months from the purchase date), characteristics of high liquidity, easy conversion to certain amount of cash and little risk of value change. 7. Transactions of foreign currencies Foreign currency transactions are converted into CNY for recording purpose at the exchange rate on the first day of the period when the transaction occurs. Adjustments are made to foreign currency accounts in accordance with the exchange rate prevailing on the 42 Summary of Annual Report 2008 balance sheet date. Value of non currency item recorded at fair value by foreign currency is adjusted in accordance with the exchange rate prevailing on fair value confirm date. Conversion differences arising from those specific borrowings are to be capitalized as part of the cost of the construction in progress in the period before the fixed assets being acquired and constructed has not yet reached working condition for its intended use. Conversion differences arising from other accounts are charged to financial expenses. 8. Conversion of financial statements in foreign currency In balance sheet, assets and liabilities items are converted into CNY at the the exchange rate prevailing on the consolidated balance sheet date. Owner’s equity items (excluding Undistributed profit item) are converted into CNY at the exchange rate when the transaction occurs. In income statement, revenue and expenses items are recorded by the proper method and the approximate rate when the transaction accurs. Translation difference occurred for above reason is disclosed in the consolidated balance sheet as a separate item. 9. Financial assets or financial liabilities a) Classification of financial assets or financial liabilities Based on the purpose of obtaining the financial assets and assuming the liabilities, financial assets or financial liabilities may be classified into: the financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss, including the trading financial assets or financial liabilities; the held-to-maturity investments; loans and receivables; available-for-sale financial assets; and other financial liabilities, etc. b) Confirmation and measurement of financial assets or financial liabilities (1) The financial assets or financial liabilities that are calculated in the fair values and whose changes are accrued to current profit and loss The fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry dates but have not been drawn) are deemed as the initial confirmation amount on acquisition. Relevant transaction expenses are charged to profit and loss of the period. The interests or cash dividends obtained during the holding period are recognized as investment income. Change of fair values is charged to profit and loss of the period at the year end. Difference between the fair value and initial book value is recognized as investment income upon disposal. Adjustment is made to gain or loss from changes in fair values. (2) Held-to-maturity investments The sum of fair values (excluding bond interests that have exceeded the expiry dates and have not been drawn) and relevant transaction expenses are deemed as the initial confirmation amount. During the holding period, interest income is recognized as investment income based on the amortized cost and actual interest rate (if the difference between the actual interest rate and the nominal interest rate is tiny, calculation is based on the nominal interest rate). The actual interest rates are determined upon acquisition and remain unchanged during the expected holding period or a shorter period applicable. Difference between the amount received and book value of the investment is charged to profit and loss of the period upon disposal. (3) Receivables and loans 43 Summary of Annual Report 2008 For the receivables from sales of goods or rendering of services and other debt instruments of other corporations except for those quoted in active market held by the Company, including: accounts receivable, notes receivable, advances to suppliers, other receivables, etc, the prices specified in the contracts or agreements with the purchasers are deemed as the initial confirmation amount. For the receivables with financing characters, their present values are deemed as the initial confirmation amount. Difference between the amount received and book value of the receivables is charged to profit or loss of the period upon recovery or disposal. (4) Available-for-sale financial assets The sum of fair values (excluding cash dividends that have been declared but have not been distributed and bond interests that have exceeded the expiry dates but have not been drawn) and relevant transaction expenses is deemed as the initial confirmation amount. The interests and cash dividends generated during the holding period are accrued to investment income. At year end, available-for-sale financial assets are calculated in the fair values and the changes in fair values are accrued to the capital reserves (other capital reserves). Difference between the amount received and the book value of the financial assets is recognized as investment gain or loss upon disposal. At the same time, the accumulated changes in fair value previously recognized in the owners’ equity are transferred into investment gain or loss. (5) Other financial liabilities The sum of fair values and relevant transaction expenses is deemed as the initial confirmation amount. The subsequent calculation adopts the amortized cost method. c) Confirmation and measurement of transform of financial assets The Company should terminate recognizing these financial assets when the transform occurs and almost all risk and return of the financial assets ownership have been transferred to the transferee; The Company should not terminate recognizing this financial assets if almost all risk and return of the financial assets ownership have been remained. Essence is more important than form when judging whether the transform meets the requirements of the financial assets termination recognition conditions mentioned above. The Company divides the transform of financial assets into entire transfer and partial transfer. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following two items shall be recorded in the profit and loss of the current period: (1) The book value of the transferred financial asset; (2) The sum of consideration received from the transfer, and the accumulative amount of the changes in the fair values originally recorded in the owners’ equities (in the case that the financial asset involved in the transfer is an available-for-sale financial asset). For partial transfers of financial assets that meet the recognition conditions of termination in recognition, the book value of the whole financial assets are spitted into the terminated portion and the exterminated portion according to their respective relative fair values (under this situation, the retained service assets are deemed as a part of the exterminated financial assets), and the difference between the following two items shall be recorded in the profit and loss of the current period: 44 Summary of Annual Report 2008 (1) Book value of the terminated portion (2) The sum of the consideration of the terminated portion and the accumulated changes in fair value previously recognized in the owners’ equity related to the terminated portion (in the case that the assets transferred are available-for-sale financial assets) For transfers of financial assets that do not meet the conditions of termination in recognition, the financial assets remain recognition and the consideration received is recognized as financial liabilities. d) Confirmation of fair values of main financial assets and financial liabilities For the active financial assets or financial liabilities in the market, the Company will use the quotations as their fair values. e) Impairment loss on financial assets (1) Impairment of available-for-sale financial assets: If at the year end the fair values of the available-for-sale financial assets decline significantly, or the trend of the decline is expected to be non-temporary after consideration of all relevant factors, the assets are deemed impaired and impairment loss is recognized together with the amount transferred from the accumulated decreases in fair values previously recognized in the owners’ equity. (2) Impairment of held-to-maturity financial assets: The treatment of impairment loss on held-to-maturity investments is in line with the impairment loss of the receivables. 10. Recognition standard and provision method of provision for bad and doubtful debts of accounts receivable If there is objective evidence at the year end to indicate that impairment exists in accounts receivable, their carrying amount should be decreasingly recorded as recoverable amount. The decreased amount should be recognized as impairment loss of assets and be recorded into profit and loss of the current period. Recoverable amount is recognized through discounting its future cash flow (excluding credit loss that has not occurred) at original actual rate with consideration of the value of related guarantee (deducting estimated disposal expenses and etc.). Original actual rate is actual rate calculated when recognizing the accounts receivable at first. Since there is tiny difference between estimated future cash flow and present value of short-term accounts receivable, the estimated future cash flow will not be discounted when recognizing related impairment loss. Conduct impairment testing separately on accounts receivable with relatively higher individual price at end of the period. If there is objective evidence to indicate that impairment exists, recognize impairment loss and provide for bad and doubtful debts in accordance with the difference between its future cash flow and carrying amount. Individual material receivables are the top five largest receivables or sum of receivables which account for 10% of ending balance of accounts receivable. For individual receivables not material, the Company categorizes them together with the receivables tested unimpaired into groups using aging of the accounts as a similar risk factor, and assigns a certain percentage of the end of the period balance of the receivable groups (individual impairment test may be carried out) to 45 Summary of Annual Report 2008 determine the impairment loss and provide for bad debts. Except the receivables provided impairment loss separately, the Company set the provision rate in accordance with the actual loss percentage of the same or similar credit risk group by aging divided in the previous years and the real circs as follows: Aging of accounts receivable Appropriation proportion Within 1 year 2% 1 to 2 years 10% 2 to 3 years 50% Over 3 years 80% 11. Inventory a) Inventory classification Raw materials, turn-over materials, finished goods, merchandise inventory, goods in process, issued commodity and materials for manufacturing consignment etc. b) Calculation of issued inventory (1) The inventory is calculated using weighted average method when issued. (2) Amortization of turn-over materials: For low cost and short lived articles, use step-amortization method ； For package materials, use lump-sum amortization method. c) System of stock inventories Perpetual inventory system. c) Recording method of provision for inventory devaluation At the end of the year, after overall check of the inventory, draw or adjust provision for inventory devaluation according to the lower of the cost of inventory and net realizable values of inventory. In normal operation process, net realizable values of commodities inventories for direct sales including finished goods, commodities and materials for sales are determined by the estimated selling prices minus the estimated selling expenses and relevant taxes and fees; In normal operation process, net realizable values of materials that need further processing are determined by the estimated selling prices of the finished goods minus estimated cost to completion, estimated selling expenses and relevant taxes. For the inventory held to implement sales contract or work contract, its net realizable value is calculated on the basis of contract price. For the balance of inventory beyond the amount of the sales contract, its net realizable value is calculated on the basis of general selling price. Provision for inventory devaluation is provided for based on individual inventory item at end of the period. For inventory that has large quantity and low unit price, the provision for inventory devaluation is provided for based on categories of the inventory. For inventory related to the products manufactured and sold in the same district, with same or similar use or purpose, and difficult to account for separately from other items, the provision for inventory devaluation is provided for on a consolidated basis. When the factors that influence the decreased bookkeeping of inventory value have disappeared, switch back from the provision for inventory devaluation amount that previously appropriated and the amount that switched back is charged to profit and loss of current period. 46 Summary of Annual Report 2008 12. Fixed assets Pricing and Depreciation Methods a) Recognition standard of fixed assets Fixed assets are tangible assets that are held for use in the production or supply of services, for rental to others, or for administrative purposes; they have useful lives over one fiscal year. And they shall be recognized only when both of the following conditions are satisfied: (1) It is probable that economic benefits associated with the assets will flow to the enterprise; and (2) The cost of the fixed assets can be measured reliably. b) Classification of fixed assets The Company’s fixed assets are classified as buildings and constructions, machinery equipment, transportation equipment, office equipment and others. d) Initial measurement of fixed assets Fixed assets are recorded at the actual cost on acquisition. The cost of fixed assets purchased includes purchase price, related tax, transportation expenses, loading and uploading expenses, installment expenses and specialist service expenses attributable to the assets that arise before the assets are completed and put into use. Where payment for the purchase price of a fixed asset is deferred beyond normal credit terms, such that the arrangement is in substance of a financing nature, the cost of the fixed asset shall be determined based on the present value of the purchase price, The difference between the purchase price and its present value shall be recognized in profit or loss over the period of credit. The cost of a self-constructed fixed asset comprises those expenditures necessarily incurred for bringing the asset to working condition for its intended use. For fixed assets formed through obtaining them by the debtor paying for debt in debt restructure, recognize its recording value as fair value of the fixed assets, and record the difference between the carrying amounts of debt restructure and the fixed assets used for paying debt into profit and loss of the current period. In the circumstance of the non monetary assets exchange has commercial nature and fair value of surrendered or received assets can be measured reliably, recording value of received assets should be recognized as fair value of surrendered assets unless there is clear evidence to indicate that fair value of received assets is more reliable; for non monetary assets exchange which doesn’t meet the requirement of premise mentioned above, cost of received assets should be recognized as carrying amount and related tax expenses payable of surrendered assets and should not be recognized as profit and loss. Recording value of fixed assets obtained by absorbing and consolidated by enterprise under the common control should be recognized as carrying amount of the consolidated party; recording value of fixed assets obtained by absorbing and consolidated by enterprise under different control should be recognized as fair value. Recording value of financing leasehold should be recognized as fair value of leasing assets and present value of lowest leasing payment when leasing occurs whichever is lower. d) Depreciation method 47 Summary of Annual Report 2008 Depreciation of fixed assets is provided for on a straight-line basis, the depreciation rate is recognized in accordance with category, estimated useful life and estimated residual rate of fixed assets. Fixed assets renovations expenses that meet the criteria of capitalization are depreciated on an individual basis over the interval of two renovations or remaining useful life of the fixed assets, whichever is shorter. Estimated useful life and annual depreciation rate of fixed assets by categories are as follows: Estimated useful Estimated net residual Annual depreciation Category life (year) value rate (%) rate (%) Buildings and constructions 35 5% 2.71% Machinery equipment 10 5% 9.50% Transportation equipment 8 5% 11.88% Office equipment and others 5 5% 19.00% 13. Calculation method of construction in progress a) Classification of construction in progress The Construction in progress will be calculated based on the classification of proposed projects. b) Transfer time of construction in progress to fixed assets For the construction in progress, all expenses occurring before they are ready for the use will be the book values as the fixed assets. In case the construction in progress has been ready for use but the final accounts for completion have not been handled, from the date when such projects has been ready for use, the Company will evaluate the values and determine the costs based on the project budgets, prices or actual costs of projects, etc and the depreciation amount will also be withdrawn; when the final accounts for completion are handled, the Company will adjust the originally evaluated values subject to the actual costs, but will not adjust the withdrawn depreciation amount 14. Intangible assets a) Calculation method of intangible assets When acquiring, the intangible assets are recorded according to actual cost. For those the price of intangible assets deferred paid exceed normal credit condition so substantively has financing character, the cost of intangible assets is confirmed on the basis of present value of purchasing price. The book values of intangible assets to be obtained by the absorption merger from the enterprises which are under the common control will be determined based on the book values of merging party; the book values of intangible assets to be obtained by the absorption merger from the enterprises which are not under the common control will be determined based on their fair values. b) Useful life and amortization of intangible assets (1) Estimation of useful life for intangible assets with finite useful life: At end of each year, the Company will recheck the useful life of intangible assets with the definite useful life and amortization method will be rechecked. According to the re-check, the useful life and amortization method of the intangible assets at the end of the year 48 Summary of Annual Report 2008 are not different from those estimated before. (2) Amortization of intangible assets: In case their useful life is limited, the intangible assets are amortized evenly over the period in which they produce economic profit for the Company; in case it is impossible to evaluate the useful life when the intangible assets bring the benefits to enterprises, it will be deemed that the useful life of such intangible assets is uncertain and amortization is not applicable. 15. Impairment on other main assets except for inventories, investment properties and financial assets a)Long-term equity investment In case the cost method is used to calculate the long-term equity investments which are not quoted in the active market or whose fair values cannot be reliably calculated, the depreciation loss will be determined based on the difference between the book values and current values determined by the discounting of future cash flow in line with the current market return rate of similar financial assets. For other long-term equity investments, in case the calculation results of receivable amounts indicate that the receivable amount of this long-term equity investment is less than their book values, the difference will be confirmed as the asset depreciation losses. Once the depreciation loss of long-term equity investment is confirmed, they will not be reversed. b)Long-term non-financial assets (Fixed assets, construction in progress,intangible assets and goodwill) For long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc, the Company assesses whether signs of possible impairment exist at end of each year. Impairment tests are performed on goodwill arises from business combinations and intangibles with uncertain useful life regardless of whether signs of possible impairment exist. For assets with signs of impairment, recoverable amounts are estimated. Recoverable amounts are determined as the fair value of the assets after netting off costs of disposal, and the current value of projected future cash flows generated by the assets, whichever is higher. When the recoverable amount of an asset is lower than the book value of the asset, the book value of the asset is reduced to its recoverable amount. The amount reduced is recognized as impairment loss on assets in the current profit and loss statement, and provision for impairment loss on assets is recorded at the same time. Future depreciation or amortization of assets is adjusted after recognition of impairment loss so that the adjusted book value of the assets (less estimated residual value) is amortized systematically over their remaining useful life. Impairment loss on long-term non-financial assets such as fixed assets, construction in progress, intangibles, etc shall not be reversed once recognized. When there are signs of possible impairment on assets, the Company estimates the recoverable amount of the assets on an individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Company shall determine the recoverable amount of the asset group to which the asset belongs. 16. Long-term Equity Investment a) Initial Calculation (1) Long-term equity investment caused by the enterprise merger 49 Summary of Annual Report 2008 In case the long-term equity investment are made to obtain the equities of the enterprises under the common control and the Company pays the cash, transfers the non-cash assets or bears the liabilities as the consideration for the merger, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. The difference between the initial investment cost of long-term equity investment and paid cash, transferred non-cash assets and book values of liabilities will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. In case the Company issues the equity securities as the merger consideration, the book value share on the merging date to obtain the owners’ equities of the merging party will be deemed as the initial investment cost of long-term equity investment. If the book value amount of the issued shares is deemed as the capital, the difference between the initial investment cost of long-term equity investment and the book value amount of the issued shares will be supplemented by the capital reserve; in case the capital reserve is not enough, the remaining gains will be adjusted. All direct expenses related to the enterprise merger, including the auditing expense, evaluation expense, legal service expense, etc will be accrued to the current profit and loss. In case the long-term equity investment are made to obtain the equities of the merging enterprises which are not under the common control, the consolidation cost determined according to ‘Accounting Standard for Business Enterprises No. 20 – Business Combinations’ on the purchase date will be deemed as the initial investment cost. b) Other types of long-term equity investment In case the long-term equity investment is made by cash payment, the actual payment amount will be deemed as the initial investment cost. In case the long-term equity investment is made by issuing the equity securities, the fair values of issued equity securities will be deemed as the initial investment cost. For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements (deducting the cash dividends or profits that have been declared but have not been dismissed) will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. In case the long-term equity investment is made by exchanging the non-currency assets, and this exchange has the commercial substance and the fair values of exchanged assets can be reliably calculated, the fair values of assets surrendered will be deemed as the initial investment cost, unless there is conclusive evidence that the fair values of assets received are more reliable; for exchange of non-currency assets that do not satisfy the above conditions, the sum of book value of assets surrendered and relevant taxes payable will be deemed as the initial investment cost. In case the long-term equity investment is made by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost. b) Judgment criteria of joint control and significant influence in the invested companies If, in accordance with provisions in the contracts, the Company enjoys joint control over certain economic activities only when taking part in significant financial and operational decisions with investors in need of share of control who unanimously agree, the Company is deemed to enjoy joint control with other parties over the invested companies. If the Company is authorized to take part in decision making with regard to the financial and operational policies, but is unable to control or control jointly with other parties over the invested company, 50 Summary of Annual Report 2008 the Company is deemed to be able to exercise significant influence over the invested companies. c) Subsequent measurement and income recognition When the Company is able to exercise significant influence or joint control, the difference of cost of initial investment in excess of the proportion of the fair value of the net identifiable assets in the invested companies is not adjusted against the initial cost of long-term equity investment. The difference of cost of initial investment in short of the proportion of the fair value of the net identifiable assets in the invested companies is charged into the current profit and loss statement. . The Company’s long-term equity investments in subsidiaries are accounted for by the cost method and adjusted according to the equity method when preparing consolidated financial statements. For joint ventures, proportional consolidation method is not applicable. When the Company has neither joint control nor significant influence in the invested companies, there is no quotation available on the active market, and the fair value of the investment cannot be reliably measured, the long-term equity investment is accounted for under the cost method. When the Company has joint control or significant influence over the invested companies, the long-term equity investment is accounted for under the equity method. Investment income recognized under the cost method is limited to the proportion of the accumulated profit of the invested companies after the investment. Any excess of profit or cash dividend received over the above amount is recognized as withdrawals of initial investments. Recognition of share of losses of the invested companies under the equity method is treated in the following steps: First, reduce the book value of the long-term equity investment. Second, when the book value is insufficient to cover the share of losses, investment losses are recognized up to a limit of book values of other long-term equity which form net investment in substance by reducing the book value of long term receivables, etc. Finally, after all the above treatments, if the Company is still responsible for any additional liabilities in accordance with the provisions stipulated in the investment contracts or agreements, estimated liabilities are recognized and charged into current investment loss according to the liabilities estimated. If the invested company achieve profit in subsequent periods, the treatment is in the reversed steps described above after deduction of any unrecognized investment losses, i.e., reduce book value of estimated liabilities recognized, restore book values of other long-term equity which form net investment in substance, and in long-term equity investment, and recognize investment income at the same time. Treatment of other equity changes except for net profit or loss in the invested companies: For other equity changes except for net profit or loss in the invested companies, if the proportion of investments remain unchanged, the Company calculates the proportion it shall enjoy or bear and adjust book value of long-term equity investment, and increase or decrease capital reserves – other capital reserves at the same time. 17. Capitalization of borrowing expenses a) Confirmation principle of capitalization of borrowing expenses In case the borrowing expenses occurring in the Company may directly be attributable to the construction and productions of assets complying with the capitalization conditions, they will be capitalized and accrued to the relevant capital costs; other borrowing expenses will be confirmed as the expenses based on the actual amount at 51 Summary of Annual Report 2008 the time of occurrence and accrued to the current profit and loss. The assets complying with the capitalization conditions mean the assets such as fixed assets, investment real estates and inventory, etc that need a long time of construction and production activities before they are ready for use or for sales. The borrowing expenses begin to be capitalized under the following circumstances: (1) The asset payment have been made which include the payment such as the paid cashes, transferred non-currency assets or borne liabilities with the interests to construct or produce the assets complying with the capitalization conditions; (2) The borrowing expenses have occurred; (3) The necessary construction or production activities to make the assets ready for use or sales have been launched. In case during the construction or production period the assets complying with the capitalization conditions are abnormally suspended and the suspension period exceeds 3 months continuously, the capitalization of borrowing expenses will also be suspended. The capitalization of borrowing expenses for the assets that have been constructed or produced and are ready for use or sales will be stopped. When parts of the purchased assets or assets whose production satisfies the capitalization conditions are completed respectively and can be used individually, the capitalization of the borrowing expenses of these parts will be stopped. b) Capitalization period of borrowing expenses The capitalization period means the period from the moment that the borrowing expenses start to be capitalized to the moment that the capitalization is stopped, which does not include the period that the capitalization of borrowing expenses is suspended. c) Calculation method about capitalization amount of borrowing expenses The interest expenses for special loans (after the deduction of interest income generated by the unused loan capitals or the investment return obtained from the temporary investments) and auxiliary expenses will be capitalized before the assets complying with the capitalization conditions are ready for the expected use or sales. The interest amount of general loans to be capitalized will be determined by multiplying the weighted average amount of the asset payment by which the accumulated assets exceed the special loans with the capitalization rate of general loans. The capitalization rate will be determined based on the weighted average interest rate of general loans. In case the loans have the discounts or premiums, the Company will adjust the interest amount in each period based on the amortized discount and premium amount in each accounting period in accordance with the actual interest rate method. 18. Recognition of Income a) Sale of goods Revenue from the sale of goods is recognized when the enterprise has transferred to the buyer the significant 52 Summary of Annual Report 2008 risks and rewards of ownership of the goods; the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; it is probable that the economic benefits associated with the transaction will flow to the enterprise; and the relevant amount of revenue and costs can be measured reliably. a) Rendering of service In case on the preparation date of balance sheet the results about service transaction can be reliably evaluated, the labor income will be confirmed by the completion percentage method. The completed percentage of service transactions is determined by the measurement of finished work （or the proportion of services performed to date to the total services to be performed, or the proportion of costs incurred to date to the estimated total costs）. The Company will determine the total amount of rendering of service based on the prices in contracts and agreements that have been received or will be receivable, except that such prices are not fair. On the balance sheet date, the current labor incomes will be determined based on the amount after the total labor income amount multiplied by the completion progress deducts the accumulated labors in the past accounting periods. At the same time, the current labor incomes will be carried forward based on the amount after the estimated total labor cost multiplied by the completion progress deducts the accumulated labors in the past accounting periods. In case the service transaction results on the preparation date of balance sheet cannot be reliably evaluated, they will be determined in the following methods: (1) In case the service costs that have occurred can be compensated, the service income will be confirmed based on such service costs and the same amounts will be settled as the service costs. (2) In case the service costs that have occurred cannot be compensated, such service costs will be accrued to the current profit and loss and will not be confirmed as the service costs. c) Use right of transferred assets In case the economic benefits related to the transaction will probably flow into the enterprise and the income amounts can be reliably calculated, the Company will determine the income amount about use right of transferred assets by the following means: (1) The interest income amount will be calculated and determined based on the use time of currency capital from the Company by others and actual interest rate. (2) The income amount of use expenses will be calculated and determined subject to the charging time and method agreed in the relevant contracts and agreements. (3) Rental income from lease of properties a. Lease contracts, agreements or other notice of settlement ratified by leaseholder b. Have executed liabilities as stipulated in the contract, issued rental invoices and the proceeds have been or will be received with certainty c. Cost can be reliably measured 19. Employee benefits Employee benefits mainly include salaries and wages, bonus, allowance and subsidies, employee welfare, social insurance, housing welfare fund, union welfare fund, employee education fund and other fund in 53 Summary of Annual Report 2008 relation to the expenses paid to the services provided by employees. Employee benefits payable are recognized during the period when employees providing services, which are included in relevant asset costs and expenses based on the party received the services provided by employees. 20. Estimated liabilities Fulfillment of the current obligations resulted from guarantee of product quality, guarantee to other parties and pending law suits may cause outflow of economic profits, and the obligations may be recognized as estimated liabilities when the amount can be reliably measured. The future operating losses shall not be recognized as estimated liabilities. Estimated liabilities shall be initially measured according to the best estimated amount required to be paid when current obligations are fulfilled, after considerations of the risks, uncertainties and time value of money related to contingencies. If time value of money affects materially, the best estimated amount shall be determined after the relevant future cash outflow which is discounted; the increased amount of carrying amount of estimated liabilities, caused by recovery of discounting conducted with the passage of time, shall be recognized as interest expenses. On the balance sheet date, re-check and appropriate adjustment was made to the carrying amount of estimated liabilities, to reflect the best estimated amount at the present. 21. Deferred income tax assets and deferred income tax liabilities Deferred income tax assets and deferred income tax liabilities are recognized based on the difference (temporary difference) between the tax basis of assets and liabilities and its carrying amount. If the deductible loss of taxable income can be offset in the future in accordance with the requirements of tax law, it shall be deemed as temporary difference to recognize as deferred income tax assets accordingly. As for the temporary difference arising from initial recognition of goodwill, the deferred income tax liabilities shall not be recognized accordingly. As for the temporary differences arising from the initial recognition of assets and liabilities incurred during the transactions of non-enterprise combination in which neither the accounting profits nor the taxable income (or deductible loss) are affected, deferred income tax assets and deferred income tax liabilities shall not be recognize On the balance sheet date, deferred income tax and deferred income tax liabilities are measured at the applicable tax rate during the period which is 54 Summary of Annual Report 2008 estimated to recover the assets or settled the liabilities. The recognition of deferred income tax assets is limited to the taxable incomes which are probably obtained by a company to offset deductible temporary difference, deductible loss and tax deduction. The deferred income tax and deferred income liabilities arising from temporary difference in relation to investments of subsidiaries and affiliates shall be recognized. However, it shall not be recognized if a company is able to control the recoverable time of the temporary difference, and such temporary difference probably can not be recovered in the foreseeable future. 22. Changes of key accounting polices, accounting estimates and correction of material accounting errors and relevant effects for the year There are no changes of key accounting polices, accounting estimates and correction of material accounting errors and relevant effects in 2008. III. Taxation 1. Main type of tax and tax rate of the Company Type of tax Tax rate Taxable basis VAT 17% Revenue of product Business tax 5% Rental income Enterprise income tax 25% Taxable income （1）The sales branch company under the subsidiary of the Company —Shenzhen Chuanger Garment Co., Ltd. adopts 4% VAT arte applicable to small-sized taxpayer (business enterprise). Since January 1 2009, 3% VAT rate of small-sized taxpayer (business enterprise) has been implemented. （2）The Company implements the uniform tax rebate policy of export, i.e. the export is exempt from VAT and the input-VAT of goods is refunded with refund rate according to relevant rules before export in accordance with the requirements of tax law. （3）Since January 1, 2008, other subsidiaries of the Company has adopted the applicable income tax rate of 25%, except for those company established in the below-mentioned districts. Companies established in Shenzhen Special Economic Zone are entitled to preferential enterprise income tax policy during five-year transitional period, i.e. since January 1, 2008, applicable enterprise income tax rate of 18%, 20%, 22%, 24% and 25% are adopted from 2008 to 2012 respectively. 55 Summary of Annual Report 2008 Companies established in Hong Kong are entitled to applicable profit tax rate of 17.5% during the period from January 1, 2008 to March 31, 2008; and applicable profit tax rate of 16.5% during the period from April 1, 2008 to December 31, 2008. 2. Tax free or its decrease The controlling subsidiary of the Company -Dongguan Jinjing Textile Co., Ltd is a manufacturing foreign invested enterprise. In accordance with the Term 8 of ‘Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises’, the enterprise is exempt from the first two profit-making years and will be subject to taxation at a rate of 50% of the standard Enterprise Income Tax rate for the following three years. The controlling subsidiary of the Company - Shenzhen Tianqi Garment Manufacturing Co., Ltd. is productive foreign invested enterprise. In accordance with the relevant rules of SF (1998) No. 232 of the ‘Circular of Several Problems of Enterprise Tax Policy in Shenzhen Economic District’, the productive enterprise is exempt for the first two profit-making years and will be subject to taxation at a rate of 50% of the standard Enterprise Income Tax rate for the following three years. The enterprise has entered the third year of three 50% tax rate deduction years and is subject to the taxation at a rate of 9%. IV. Business combination and the consolidated financial statements The Company adopts the Accounting Policies for Business Enterprises No.33 – Consolidated Financial Statements issued in February 2006. All subsidiaries under the Company’s control and main body with special objectives are included in the scope of consolidation. Since the date when actual control of subsidiary is obtained, the Company begins to combine the subsidiary; since the date when the actual control is lost, the combination shall be ceased. The consolidated financial statements are prepared by the parent company based on the individual financial statements of the parent company as well as the subsidiaries included in the scope of consolidation, with reference made to other relevant information and after adjustment to the long-term investments in subsidiaries’ equity under equity method. All material current balances, transactions and unrealized profits within the Group shall be offset when consolidated financial statements are prepared. The parts within the shareholder’s equity of subsidiary which are not attributable to parent company shall be separately stated in the item of shareholder’s equity under consolidated financial statements as minority interest. 56 Summary of Annual Report 2008 If the accounting policy or accounting period adopted by subsidiary and parent company are not consistent, a necessary adjustment shall be made to the financial statements of subsidiary in accordance with the accounting policy or accounting periods of parent company when the consolidated financial statements are prepared. As for the subsidiary obtained by consolidation which is not under the common control, its individual financial statements are adjusted on the basis of net fair value of identifiable assets on the acquisition date when the consolidated financial statements are prepared; as for the subsidiary obtained by consolidation which is under the common control, when the consolidated financial statements are prepared, the consolidation of the enterprise is regarded to be occurred at beginning of the earliest reporting period, and its assets, liabilities, operation results and cash flow are included in consolidated financial statements from the beginning of the earliest reporting period, and its net profits realized before consolidation date are reflected in the separate item under consolidated income statement. （1）Subsidiaries acquired through business combination which is under the common control There is no business combination which is under the common control for the year. （2）Subsidiaries acquired through business combination which is not under the common control Actual Balance of net Total Total voting Voting Place of Registered investment investment in equity Full name of invested power entitled power Registra Nature capital (10 Scope of business as at end of subsidiaries in holding companies to the consolida tion thousand) year (10 substance (10 percent Company ted thousand) thousand) age Shenzhen Chuanger Garment Product and sales of Shenzhe Manufac Co., Ltd.（“Shenzhen 1,200 clothes, sewing 752 752 86% 86% 86% n ture Chuanger“） products and etc.) Clothes, oter domestic Shenzhen He Yiyi Fashion Shenzhe commercial and Trading 1,000 510 510 51% 51% 51% Co.Ltd. (“Shenzhen He Yiyi) n material supplying and marketing industry Tianrui (HK) Trading Co., Ltd Hong Trading USD1 Trading USD1 CNY8.26 100% 100% 100% 57 Summary of Annual Report 2008 (“Tianrui Hongkong”) Kong （1）Shenzhen He Yiyi Fashion Co.,Ltd was transferred by the Company in January 2009. See note 10 for the details. （2）There is no business combination which is not under the common control for the year. （3）Subsidiaries acquired by other ways Actual Balance of net Total Total voting Voting Place of Registered investment investment in equity Full name of invested power entitled power registrat Nature capital(10 Scope of businesses as at end of subsidiaries in holding companies to the consolida ion thousand) year (10 substance (10 percent Company ted thousand) thousand) age Shenzhen Rieys Industrial Investment and Shenzhe Co., Ltd (“Rieys Trading 5,000 import & export 4,500 4,500 90% 90% 90% n Industrial“) trading Production and sales Puning Tianhe Garment Manufa of clothes and HKD Manufacturing Factory Co., Puning HKD 6,496 100% 100% 100% cture 116,670,00 knitting colorized 61,330,000 Ltd. (“Puning Tianhe”) 0 cloth Puning Rieys Paper Production and sales USD24,250 Industrial Co., Ltd. (“Rieys Manufact USD of high-intense paper 20,076 100% 100% 100% ,000 Puning ure 29,000,000 series Paper“) Shenzhen Tianqi Garment Manufacturing Co., Ltd. Shenzhe Manufact （“Shenzhen Tianqi“） n ure 100 Clothes production 100 100 100% 100% 100% Dongguan Jinjing Textile Production, sales USD9,610, Co., Ltd. （“Dongguan Donggua Manufact USD and process of top 8,015 100% 100% 100% Jinjing “） 000 n ure 12,800,000 material The above-mentioned subsidiaries are obtained by establishment. （4）Changes in consolidation scope of consolidated financial statements for the year There are totally 8 subsidiaries which are included into the consolidation scope of consolidated balance sheet in 2007. There are totally 8 subsidiaries which are included into the consolidation scope of consolidated statement in 2008, and there are no changes in the consolidation scope compared with that of last year. 58 Summary of Annual Report 2008 V. Notes to the main items of consolidated financial statements （1）Cash and cash equivalents Item As of December 31, 2008 As of December 31, 2007 Domestic CNY 13,087,289.63 8,693,795.27 Foreign currency abroad equivalent to CNY 63,767.42 19,177.56 Total 13,151,057.05 8,712,972.83 、 1 Domestic CNY Item As of December 31, 2008 As of December 31, 2007 Cash on hand 826,805.10 6,982,267.92 Bank deposits 12,232,302.49 1,683,543.97 Deposits 28,182.04 27,983.38 Total 13,087,289.63 8,693,795.27 、 2 Domestic foreign currency As of December 31, 2008 As of December 31, 2007 Item Foreign Exchange Equivalent to Foreign currenc Exchange Equivalent to currency rate CNY y rate CNY Cash on hand-USD 1.00 6.8346 6.83 1.00 7.3046 7.31 Cash on hand-HKD 3.70 0.88189 3.26 1,330.86 0.93638 1,246.19 Bank deposits -USD 7,390.82 6.8346 50,513.30 76.80 7.3046 560.99 Bank deposits -HKD 15,017.79 0.88189 13,244.03 18,542.76 0.93638 17,363.07 Total equivalent to CNY 63,767.42 19,177.56 （2）Accounts receivable 1、Accounts receivable constitution Item At the end of the year At the beginning of the year 59 Summary of Annual Report 2008 Proportion of Proportion of provision Balance of provision for Provisions for bad Balance of carrying Provisions for bad Percentage Percentage for bad carrying amount bad and and doubtful debts amount and doubtful debts and doubtful debts doubtful debts 1. Amount with significant individual amount and has 28,697,856.96 27.58% 50% 14,348,928.48 - - - - been provided for bad and doubtful debts 2. Amount with insignificant individual amount and has 292,842.41 0.28% 100% 292,842.41 172,728.17 0.16% 100% 172,728.17 been provided for bad and doubtful debts 3. Other accounts classified as seeming credit 75,077,239.38 72.14% - 12,668,642.11 110,791,975.69 99.84% - 10,418,078.92 risk in accordance with aging stage Among which: 56,456,490.54 54.25% 2% 1,115,742.35 93,844,021.58 84.57% 2% 1,897,884.08 within 1 year 1-2 years 2,916,683.15 2.80% 10% 360,776.91 5,778,932.37 5.21% 10% 577,893.24 2-3 years 4,538,381.00 4.36% 50% 2,276,945.51 3,309,719.31 2.98% 50% 1,654,859.66 Over 3 11,165,684.69 10.73% 80% 8,915,177.34 7,859,302.43 7.08% 80% 6,287,441.94 60 Summary of Annual Report 2008 years 104,067,938.75 100.00% 27,310,413.00 110,964,703.86 Total 100.00% 10,590,807.09 2. Changes in provision for bad and doubtful debts of accounts receivable Item Year 2008 Opening balance 10,590,807.09 Provided for the year 16,719,605.91 Offset for the year - Ending balance 27,310,413.00 The Company tested accounts receivable for impairment, analyzed and assessed its amount of bad and doubtful debts, and the provisions for bad and doubtful debts were made based on the difference between carrying amount and recoverable amount at the end of the year. 3. Accounts receivable with significant individual amount and has been provided for bad and doubtful debts Name of debtor Outstanding Provisions for bad and Percentage prov amount doubtful debts ided Victoria International(USA) INC 28,697,856.96 14,348,928.48 50% *Payment for goods receivable by the Company due from Victoria International (USA) INC amounts to CNY28, 697,856.96. The significant customer of the Company has applied for bankruptcy, which materially affects the operation of the Company. Provisions for bad debs are made at 50% of accounts receivable after analysis and assessment of possibility of bad and doubtful debts. 4. Top 5 debtors of accounts receivable at the end of the year Name of debtors Amount Aging Percentage of accounts receivable KEENZONE LIMITED 29,365,817.52 Within 1 year 28.22% Victoria International(USA) INC 28,697,856.96 Within 1 year 27.58% HONOURLINK 17,647,244.62 Within 1 year 16.96% Astologie California AJG.Inc 4,311,617.39 Within 2 year 4.14% Hongkong Jinhua Trading Company 4,224,304.63 Over 3 year 4.06% 5. There are no accounts receivable due from shareholders who have more than 5 % (including 5%) voting shares of the Company at the end of the year. 6. There is no accounts receivable due from related parties at the end of the year. 7. Ending balance of accounts receivable decreased by CNY23,616,371.02 compared with Opening balance, decrease percentage is 23.53%. （3）Prepayment 1. Aging analysis 61 Summary of Annual Report 2008 At the end of the year At the beginning of the year Aging Amount Percentage Amount Percentage Within 1 Year 35,914,897.09 45.59% 13,895,433.67 24.45% 1-2 years 45,860.39 0.06% 1,500,000.00 2.64% 2-3 years - - 42,429,391.62 72.91% Over 3 years 42,820,391.62 54.35% - - Total 78,781,149.10 100.00% 56,824,825.29 100.00% 2. Large amounts of prepayment at the end of the year Item Amount Nature and description Puning Guangcheng Waste Paper Purchase 29,820,391.62 Co., Ltd. Advanced payment for material Puning Xin Xu Textile Co.,Ltd. 17,492,056.25 Advanced payment for material Puning Huaqiao Construciotn Co., Ltd. 13,000,000.00 Advanced payment for project Shenzhen Mei Shu Trading Co.,Ltd. 1,500,000.00 Advanced payment for goods Guangdong Yuan Feng Trading and 1,200,000.00 Development Co.,Ltd. Advanced payment for goods 3. The aging of Prepayment over 3 years Item Amount Reasons Due to demand of stopping supply Puning Guangcheng Waste Paper Purchase 29,820,391.62 temporarily resulted from abnormal Co., Ltd.* production of Puning Rieys Paper Co.,Ltd. Due to the termination of project of ch 13,000,000.00 Puning Huaqiao Construciotn Co., Ltd.* emical fiber *The Company urged the collection of the above-mentioned prepayment, and assessed the possibility of bad and doubtful debts is minor, so the provisions for bad and doubtful debts are not made accordingly. 4. There is no prepayment due from shareholder who has more than 5 %( including 5%) voting shares of the Company at the end of the year. 5. Ending balance of prepayment increased by CNY21, 956,323.81 compared with beginning balance, increase percentage is 38.64%. The reason for this change is the prepayment for materials due to preparation of materials at end of the period. （4）Other receivables 1. Other receivables constitution At the end of the year At the beginning of the year Proportion of Proportion of Provision for bad Provision for bad Item Balance of carryi provisions for Balance of carryin Provisions for Percentage and doubtful de Percentage and doubtful de ng amount bad and g amount bad and bts bts doubtful debts doubtful debts 1. Amount - - - - 171,500,000.00 71.73% - - with 62 Summary of Annual Report 2008 significant individual amount and has been provided for bad and doubtful debts 2. Amount with insignificant individual amount and 17,317,260.69 22.61% 100% 17,317,260.69 15,014,937.86 6.28% 100% 15,014,937.86 has been provided for bad and doubtful debts 3. Other accounts classified as seeming 59,278,607.67 77.39% - 10,498.931.53 52,592,474.56 22.00% - 5,947.671.22 credit risk in accordance with aging stage Among which: 19,238,347.58 25.11% 2% 384,766.95 32,319,965.11 13.52% 2% 512,749.19 within 1 year 1-2 27,981,857.17 36.53% 10% 2,169,275.86 13,269,384.33 5.55% 10% 1,326,938.43 years 2-3 5,672,778.73 7.41% 50% 2,836,389.37 4,981,721.68 2.08% 50% 2,490,860.84 years Over 3 6,385,624.19 8.34% 80% 5,108,499.35 2,021,403.44 0.85% 80% 1,617,122.75 63 Summary of Annual Report 2008 years Total 76,595,868.36 27,816,192.22 239,107,412.42 20,962,609.08 2. Changes in provision for bad and doubtful debts of other receivables Item Year 2008 Opening balance 20,962,609.08 Provided for the year 7,638,426.19 Offset for the year 784,843.05 27,816,192.22 Ending balance The Company tested other receivables for impairment, analyzed and assessed its amount of bad and doubtful debts, and the provisions for bad and doubtful debts were made based on the difference between carrying amount and recoverable amount at end of year. 3. Top 5 debtors of other receivables at the end of the year Percentage of oth Name of debtors Nature or description Amount Aging er receivables Amounts obtained by Lin Geng * selling old machines 6,000,000.00 1-2 years 7.83% Advanced payment Chen Chunyu for materials 3,900,000.00 1-2 years 5.09% Advanced payment Fan Xi Bei Investment Co.,Ltd. for materials 2,922,925.00 Over 3 years 3.82% Advanced payment Puning Liusha RongCheng for construction Construction Co.,Ltd. materials 2,600,000.00 1-2 years 3.39% * The payment for the disposal of the old equipment due from Lin Geng shall be paid within 6 months after the date of equipment transfer (December 31, 2007) in accordance with an equipment transfer agreement. After the Company urged the payment, Lin Geng agreed to pay by installment in 2009 in written consent, i.e. CNY1,200,000 will be paid in April 2009; CNY1,800,000 will be paid in June and August 2009 respectively; CNY1,200,000 will be paid in December 2009. And the Company received CNY 120,000,000 as of the financial reporting date. 4. There are no other receivables due from shareholder who has more than 5 % (including 5%) voting shares of the Company at the end of the year. 5. There are no other receivables due from related parties at the end of the year. 6. Ending balance of other receivables decreased by CNY169,365,127.20 compared with beginning balance, decrease percentage is 77.64%. The main reason for this change is that the Company recovered Tianzhuo Hong 64 Summary of Annual Report 2008 Kong Holding Company and CEC Menswear Ltd received the amount of equity transfer granted by branded operation corporations such as St.Polo & Racquet Club Operation Corporation. （5）Inventories and provisions for impairment in value of inventory At the end of the year At the beginning of the year Item Balance of carr Balance of Provision Provision ying amount carrying amount Raw materials 29,493,962.04 6,690,473.75 20,598,036.86 703,754.19 Work in process 5,415,497.85 - 6,485,604.33 - Turnover materials 219,435.89 - 1,616.56 - Goods in stock 28,747,595.71 3,724,920.75 27,614,234.29 409,750.05 Goods delivered 3,178,118.72 - 2,358,404.03 - Total 67,054,610.21 10,415,394.50 57,057,896.07 1,113,504.24 1. Ending balance of inventories increased by CNY694,823.88 元 compared with beginning balance, increase percentage is1.24%. 2. Provision for impairment in value of inventory Decrease in this year Provision for Beginning bala Other Category increase in Ending balance nce Reversed transferred this year out Raw materials 703,754.19 5,986,719.56 - - 6,690,473.75 Goods in stock 409,750.05 3,315,170.70 - - 3,724,920.75 Total 1,113,504.24 9,301,890.26 - - 10,415,394.50 The Company tested inventories for impairment, analyzed relationship between age of inventory and realized price, and provisions for impairment in value of inventory were made based on the difference between inventory cost and net realizable value. （6）Non-current assets due within 1 year Beginning Increase in this ye Decrease in this Ending bala Item balance ar year nce 2,000,000.00 Amount of equity transfer (receipt by installment)* - - 2,000,000.00 *See note 5, (8) for the details. （7）Long-term receivables Item Ending balance Beginning balance Amount of equity transfer received by installment 5,000,000.00 - *See note 5, (8) for the details. 65 Summary of Annual Report 2008 (8) Long-term equity investment As of December 31, 2008 As of December 31, 2007 Provision for Provision for Carrying amount Carrying amount impairment in value impairment in value 5,130,000.00 - 20,971,018.82 13,806,326.80 Long-term equity investment by cost method: As of December 31, 2008 As of December 31, 2007 Initial Investment Provision Name of invested Provision for amount proportion Carrying for Carrying impairment in amount impairment amount value in value Shanxi Chuanglian Information Network 12,500,000.00 27.78% - - 20,971,018.82 13,806,326.80 Technology Co., Ltd. *1 Dezhou Kaiwei Garment Manufacturing 德州凯 Co., Ltd. ( 5,130.000.00 69.99% 5,130.000.00 - - - 维制衣有限公 司)*2 Note: *1. The Company transferred its 27.78% share rights of Shanxi Chuanglian Information Network Technology Co., Ltd to Mr. Zhao Guohao for the consideration of CNY 8 million on December 8, 2008, subject to repayment of three installments as follows: CNY1 million shall be paid before December 15, 2008, CNY2 million before December 25, 2009 and CNY5 million before December 25, 2010. Mr. Zhao Guohao has pledged his own property to the Company to ensure the repayment of such amounts. As of December 31, 2008, CNY1 million for equity transfer has been received. *2 The Company with its machinery equipments (the estimated value of CNY5.13 million) as capital 德州兰源服饰有限公司) established a joint venture, contributions and Dezhou Lanyuan Garment Co., Ltd. ( Dezhou Kaiwei Garment Manufacturing Co., Ltd. (德州凯维制衣有限公司). The Company with the registered capital of CNY7.33 million is currently under construction. For details, see note 5(9). (9) Fixed assets and accumulated depreciation A. Fixed assets – original cost As of December As of December Category 31, 2007 Increases Decreases 31, 2008 Buildings and 169,369,031.99 3,123,097.00 2,228,906.82 170,263,222.17 66 Summary of Annual Report 2008 constructions Machinery equipment 322,750,806.87 379,882.50 27,710,322.77 295,420,366.60 Transportation equipment 11,196,962.10 3,245,721.00 147,500.00 14,295,183.10 Office equipment and others 9,952,769.19 587,059.00 343,534.80 10,196,293.39 Total 513,269,570.15 7,335,759.50 30,430,264.39 490,175,065.26 (1) There was no original cost of fixed assets transferred from CIP for the year. (2) Please refer to Notes 9 for details of fixed assets mortgaged or used for guarantee as of December 31, 2008.’’ (3) The major maintenance fee is included in buildings and constructions. B. Accumulated depreciation As of December 31, As of December Category 2007 Increases Decreases 31, 2008 Buildings and constructions 23,791,075.23 7,491,725.59 2,228,906.82 29,053,894.00 Machinery equipment 81,227,409.00 15,672,466.33 20,539,584.65 76,360,290.68 Transportation equipment 8,109,171.42 1,353,083.40 83,198.90 9,379,055.92 Office equipment and others 7,197,204.86 1,259,264.56 326,358.05 8,130,111.37 Total 120,324,860.51 25,776,539.88 23,178,048.42 122,923,351.97 C. Provision for impairment losses on fixed assets As of December As of December Category 31, 2007 Increases Decreases 31, 2008 Machinery equipment 95,923,083.17 13,087,770.38 - 109,010,853.55 D. Carrying amount of fixed assets 67 Summary of Annual Report 2008 Category As of December 31, 2007 As of December 31, 2008 Buildings and constructions 145,577,956.76 141,209,328.17 Machinery equipment 145,600,314.70 110,049,222.37 Transportation equipment 3,087,790.68 4,916,127.18 Office equipment and others 2,755,564.33 2,066,182.02 Total 297,021,626.47 258,240,859.74 E. As of December 31, 2008, the Company evaluated recoverable amount of machinery equipment of fixed assets belong to Shenzhen Rieys Paper Co. Ltd. ( 深圳市雷伊纸业有限公司) which is planned to be sold, the Company provided for impairment on this part of equipment amounted to 84,970,853.55 in accordance with result of Asset Evaluation Report ZSLM (Beijing) A PBZ (2009) No. 037 issued by Beijing Zhongsheng Lianmeng Assets Verification Co., Ltd. on March 27, 2009. F. As of December 31, 2008, the Company evaluated the recoverable amount of machinery equipment of fixed assets of Dongguan Jinjing Textile Co., Ltd. The Company provided for impairment on this part of equipment amounted to CNY24,040,000.00 in accordance with result of Asset Evaluation Report SGCZPZ (2009) 深国策资评字 第 号资产评估报告 No.01007( [2009] 01007 ) issued by Shenzhen Guoce Assets Verification Co., Ltd.(深圳市国策资产评估有限公司 ) on January 13, 2009. G. Ending balance of fixed assets decreased by CNY38,780,766.23 compared with beginning balance, the decrease percentage is13.06%, and reasons for this change are : (1) The Company invested in Dezhou Kaiwei Garment Manufacturing Co., Ltd. ( 德州凯维制衣有限公司 ) with its machinery equipments, which reduced the original cost of the fixed asset by CNY18,545,615.19; (2) Puning Tianhe Garment Manufacturing Factory Co., Ltd. retired a batch of outdated machinery equipments, which reduced the original cost of the fixed asset by CNY 6,095,920.00. (10) Construction in progress Decreases As of As of Transferred Decembe Capital December Name of project Budget Increases to Other r resource 31, 2007 fixed assets decreases 31, 2008 Equipment of 211,650,00 655,660.0 Self-owned 655,660.00 - - - Rieys Paper 0.00 0 Plant of Rieys 56,286,224 503,710.7 364,523.40 139,187.30 - - Self-owned Paper .00 0 Expeniture of 1,040,571. 1,040,571 accessory of the - - - - Self-owned 59 .59 Company Total 2,060,754. 2,199,942 68 Summary of Annual Report 2008 99 .29 A. There is no interest capitalized amounts recorded into project cost of the Company as of December 31, 2008, and there is no capitalized borrowing in the year. B. The Company conducted impairment testing on construction in progress as of December 31, 2008, and had not to accrue the impairment of assets since the recoverable amount of construction in progress was higher than its book value. (11) Intangible assets A. Intangible assets- original cost As of December 31, As of December 31, Item Increases Decreases 2007 2008 Land use right 75,185,944.00 - - 75,185,944.00 Brand use right 1,216,845.00 - - 1,216,845.00 Computer software 396,915.00 - - 396,915.00 Total 76,799,704.00 - - 76,799,704.00 B. Accumulated amortization As of December As of December 31, Item 31, 2007 Amortized Decreases 2008 Land use right 4,234,171.92 1,503,533.95 - 5,737,705.87 Brand use right 987,016.80 229,828.20 - 1,216,845.00 Computer software 331,702.28 36,732.56 - 368,434.84 Total 5,552,891.00 1,770,094.71 - 7,322,985.71 C. Carrying amount of intangible assets Item As of December 31, 2007 As of December 31, 2008 Land use right* 70,951,772.08 69,448,238.13 Brand use right 229,828.20 - Computer software 65,212.72 28,480.16 Total 71,246,813.00 69,476,718.29 Note*: As of December 31, 2008, the Company has not obtained the relevant certificate of land use right for 69 Summary of Annual Report 2008 the land of 398.56 mu.. The Company had signed a “contract on land occupancy for construction project” with a local economic association located in Zhenchen Valley Junfu area Puning on December 3, 2003, occupied the land. The Company has paid related land use compensation amounted to CNY23,526,528.00 according to the contract in the year 2005, and applied for the certificate of land use right from the local government on April 7th 2008. The board of directors has consigned Guangdong Haima law office to issue the “Legal Opinion” on the land matter on April 24, 2008. It is possible for the Company to obtain the certificate according to such “Legal Opinion”. D.The Company conducted impairment testing on construction in progress, and had not to accrue the impairment of assets since the recoverable amount of construction in progress was higher than its book value. E. For details of land use right mortgaged or used for guarantee, see notes 9. (12) Deferred income tax assets As of December As of December 31, Form Increases Decreases 31, 2007 2008 Deductible temporary difference 1,457,768.93 8,750,442.62 - 10,208,211.55 Total 1,457,768.93 8,750,442.62 - 10,208,211.55 (13) Short-term loan A. Short-term loan Category As of December 31, 2008 As of December 31, 2007 Pledged loan 121,830,000.00 121,830,000.00 Mortgaged loan 51,000,000.00 122,241,539.42 Secured loan 49,017,631.91 63,877,333.81 Total 221,847,631.91 307,948,873.23 Among which: (1) There is no foreign currency borrowing as of December 31, 2008; (2) Please refer to Note 9 for more details of the Mortgage and Pledge as of December 31, 2008. B. As of April 18, 2008, unpaid due borrowings amounted to CNY151,147,631.91. 70 Summary of Annual Report 2008 C. As of April 18, 2008, unpaid due borrowings above haven’t been claimed by the loan bank for payment. D. Ending balance of short-term loans decreased by CNY86,101,241.32 compared with beginning balance, decrease percentage is 27.96%, and the main reason for change is: part of the amount has been paid for this year. (14) Accounts payable As of December 31, 2008 As of December 31, 2007 7,015,487.60 16,985,531.68 A. There is no accounts payable due from shareholder who has more than 5% (including 5%) voting shares of the Company as of December 31, 2008. B. There is no accounts payable due to related parties as of December 31, 2008. C. Ending balance of accounts payable increased by CNY9,970,044.08 compared with beginning balance, decrease percentage is 58.70%. (15) Advances from customers As of December 31, 2008 As of December 31, 2007 2,067,753.37 1,648,849.05 A. There is no advance from customers due from shareholder who has more than 5% (including 5%) voting shares of the Company as of December 31, 2008. B. There is no advance from customers due to related parties as of December 31, 2008. C. Ending balance of advances from customers increased by 418,904.32 compared with beginning balance, increase percentage is 25.40%. (16) Employee benefits payable As of As of Item December December 31, 31, 2007 Increases Paid 2008 A. Salaries and wages, bonus, allowance and 3,665,941.8 28,379,426.5 subsidies 2 4 29,800,211.81 2,245,156.55 1,287,766.8 B. Employee welfare 9 1,856,504.08 3,006,889.38 137,381.59 C. Social insurance - 920,772.56 920,772.56 - 71 Summary of Annual Report 2008 D. Housing welfare fund - - - - E. Union welfare fund and employee education fund - 9,212.00 9,212.00 - 4,953,708.7 31,165,915.1 Total 1 8 33,737,085.75 2,382,538.14 (1) Ending balance of employee benefits payable decrease by CNY2,571,170.57 compared with the beginning balance, decrease percentage is 51.90%. The main reason for the change is: the adjustment of the Company employment structure due to financial crisis. (2) According to social insurance policy specified by local government, the Company has gradually improved the specific policies and payment standards of social insurance based upon its practical conditions. (17) Taxes and surcharges payable Type of tax As of December 31, 2008 As of December 31, 2007 VAT -574,682.65 -1,709,916.30 Business Tax 7,156.74 107,156.74 City Construction and Maintenance Tax 99,085.44 116,096.85 Enterprise Income Tax 4,369,901.54 5,693,730.86 Individual income tax 121,035.73 60,532.69 Education additional expenses 83,603.86 80,792.10 Real estate tax 588,058.61 552,946.61 Stamp tax 41,999.43 47,920.41 Land use tax 240,120.00 240,120.00 Dike maintenance fee 466.07 715.87 Total 4,976,744.77 5,190,095.83 Ending balance of taxes and surcharges payable decreased by CNY213,351.06 compared with opening balance, decrease percentage is 44.11%. (18) Interests payable Item As of December 31, 2008 As of December 31, 2007 Bank loan interest 24,640,578.80 12,423,207.61 Ending balance of interest payable increased by CNY12,217,371.19 compared with opening balance, increase percentage is 98.34%. The main reason for this change is: the increase of unpaid overdue loan interest as of December 31, 2008. 72 Summary of Annual Report 2008 (19) Other payables Item As of December 31, 2008 As of December 31, 2007 11,324,382.99 11,342,433.46 Among which: accrued expenses 1,375,424.40 2,649,936.65 A. There is no other payables due from shareholder who has more than 5% (including 5 %) voting shares of the Company as of December 31, 2008. B. Amount due to related parties Name of creditor Amount Nature or description Wang Shaoying 233,560.00 Personal borrowing C. Ending balance of other payables decreased by CNY18,050.47 compared with beginning balance with the decrease percentage of 0.16%. (20) Share capital As of － Increase(+)/Decrease( ) As of Decembe Propor Equity Share Share Propor restriction Subtota Decembe r 31, tion distrib issuanc Others tion l r 31, 008 2007 ution e 1. Non-negotiable stock State-owned shares - --- --- --- --- --- --- --- --- Other domestic legal 164,025,0 164,025,0 51.48% --- --- --- --- --- 51.48% shares 00 00 Total negotiable shares 164,025,0 164,025,0 available for sale with 51.48% --- --- --- --- --- 51.48% 00 00 limitation 2. Negotiable shares available for sale without limitation Stock A --- --- --- --- --- --- --- --- --- 154,575,0 154,575,0 Stock B 48.52% --- --- --- --- --- 48.52% 00 00 Total negotiable shares 154,575,0 154,575,0 available for sale 48.52% --- --- --- --- --- 48.52% 00 00 without limitation 73 Summary of Annual Report 2008 318,600,0 100.00 318,600,0 100.00 3. Total shares --- --- --- --- --- 00 % 00 % Notes: 1. Guangzhou Sheng Heng Chang Trade Development Co. Ltd. ( 广州升恒昌贸易发展有限公司), the largest shareholder of the Company (holds 117,855,000 domestic legal shares which accounts for 36.99% of total share capital of the Company), pledged total domestic legal shares of the Company to Construction Bank of China Shenzhen Branch on April 28, 2005 and the related shares are still under pledge. For details, see note 7. 2. Shenzhen Rishen Investment Co., Ltd., the second largest shareholder of the Company, (holds 34,020,000 domestic legal shares which accounts for 10.67% of total share capital of the Company), pledged total domestic legal shares of the Company to Construction Bank of China Shenzhen Branch on April 28, 2005 and the related shares are still under pledge. For details, see note 7. 3. Shantou Lianhua Industrial Co., Ltd., the third largest shareholder of the Company, (holds 12,150,000 domestic legal shares which accounts for 3.81% of total share capital of the Company), pledged total domestic legal shares of the Company to Construction Bank of China Shenzhen Branch on April 28, 2005 and the related shares are still under pledge. For details, see note 7. 4. The above pledge is the secure for applying current funds loan with upper limit of CNY110,000,000 and CNY40,000,000 to Construction Bank of China Shenzhen Branch. The pledge period is from April 28, 2005 to the maturity of loan contract. The above pledge has been registered in China Security Registration and Settlement Co., Ltd. Shenzhen Branch. (21) Capital reserves Item As of December 31, Increase Decrease As of December 2007 31, 2008 Share capital premium 48,536,895.00 - - 48,536,895.00 Other capital reserves 3,592,601.58 - - 3,592,601.58 Total 52,129,496.58 - - 52,129,496.58 (22) Surplus reserves 74 Summary of Annual Report 2008 Item As of December 31, Increase Decrease As of December 31, 2007 2008 Statutory Surplus 49,036,260.20 - - 49,036,260.20 Reserves Voluntary surplus 37,000,000.00 - - 37,000,000.00 reserves Total 86,036,260.20 - - 86,036,260.20 (23) Undistributed profit Item 2008 2007 Unadjusted undistributed profit at beginning of -5,577,445.69 66,259,360.60 period Adjustment of undistributed profit at beginning - 7,867,530.30 of period （increases+, decreases-） Adjusted undistributed profit At the beginning of -5,577,445.69 74,126,890.90 the year Net profit of current year -105,566,994.24 -79,704,336.59 Undistributed profit at the ending of year -111,144,439.93 -5,577,445.69 A. Among the adjustment of undistributed profit of CNY 7,867,530.30 to opening balance of year 2007: (1) In accordance with ‘Accounting Regulations to PRC enterprises’ and ‘Explanation No. 1 to Accounting Regulations to PRC enterprises’, retrospective adjustments is made to adjust deferred tax assets, which affects the opening balance of undistributed profit for CNY 4,308,570.90. (2) In accordance with ‘Accounting Regulations to PRC enterprises’ and ‘Explanation No. 1 to Accounting Regulations to PRC enterprises’, retrospective adjustment is made to adjust the difference between book value and fair value of financial assets held for trading, which affects the opening balance of undistributed profit for CNY 74,704.90. (3) The injection difference in long-term equity investment of previous years has been adjusted to increase the opening balance of undistributed profit by CNY 3,484,254.50. B. The adjustment of undistributed profit to opening balance of year 2008 is nil. 75 Summary of Annual Report 2008 (24) Operating revenue and operating cost Current year Previous year Item Principle Other Principle Other activities activities Total activities activities Total Operating revenue 199,124,620.35 199,124,620.35 407,370,222.64 448,800.00 407,819,022.64 Operating cost 153,216,053.63 153,216,053.63 256,084,352.72 7,852.80 256,092,205.52 Gross operating profit 45,908,566.72 45,908,566.72 151,285,869.92 440,947.20 151,726,817.12 A. Sales and costs of sales listed in accordance with operation categories Revenue from principle activities Costs of principle activities Item Current year Previous year Current year Previous year (1) Industry 211,631,894.13 303,513,308.67 187,140,504.94 245,847,547.14 (2) Commerce 51,094,790.23 198,482,323.70 29,512,117.58 105,373,867.15 Subtotal 262,726,684.36 501,995,632.37 216,652,622.52 351,221,414.29 Deduction from intra-group business -63,602,064.01 -94,625,409.73 -63,436,568.89 -95,137,061.57 Total 199,124,620.35 407,370,222.64 153,216,053.63 256,084,352.72 B. Revenue of principal activities and costs of principal activities listed in accordance with region Revenue from principle activities Costs of principle activities Item Current year Previous year Current year Previous year Export sales of clothes 180,195,532.80 254,080,972.54 154,560,255.33 216,291,963.13 Domestic sales of clothes 66,327,966.20 241,705,205.75 47,176,651.18 126,922,773.54 Processing of clothes 16,203,185.36 6,209,454.08 15,246,706.25 8,006,677.62 Subtotal 262,726,684.36 501,995,632.37 216,652,622.52 351,221,414.29 Deduction from -63,602,064.01 -94,625,409.73 -63,436,568.89 -95,137,061.57 76 Summary of Annual Report 2008 intra-group business Total 199,124,620.35 407,370,222.64 153,216,053.63 256,084,352.72 C. Operating revenue of current year decreased by CNY208,245,602.29 compared with previous year. The decrease percentage is 51.12%.Reason for such change is: St. Polo & Other Brands Corporation quitted from consolidation statement scope in current year. (25) Taxes and surcharges on operations Item Current year Previous year Business tax 3,613.37 76,895.84 City maintenance & construction tax 65,203.80 406,285.34 Education surcharge 131,297.42 510,482.83 Total 200,114.59 993,664.01 Taxes and surcharges on operations of current year decreased by CNY793,549.42 compared with previous year. The decrease percentage is 79.86%. Main reason for such change is: the surcharge tax has accordingly decreased as the revenue for current year decreased. (26) Financial expenses Category Current year Previous year Interest expenses 24,791,621.93 33,496,495.31 Interest income -65,363.31 -466,259.98 Exchange gain and loss 7,331,275.05 6,619,333.97 Others 264,773.31 595,436.35 Total 32,322,306.98 40,245,005.65 Financial expenses of current year decreased by CNY7,922,698.67 compared with previous year. The decrease percentage is 19.69%. Main reason for such change is: the decrease of borrowings of current year caused the deduction of interest expenses. (27) Impairment loss on assets Item Current year Previous year Loss on bad debts 24,358,032.10 31,861,511.63 Loss on inventory devaluation 9,301,890.26 358,074.45 Impairment loss on long-term equity investment - 5,815,366.54 Impairment loss on fixed assets 13,087,770.38 95,923,083.17 Total 46,747,692.74 133,958,035.79 (28) Investment income 77 Summary of Annual Report 2008 Category Current year Previous year 1. Investment income from financial assets - - 2. Investment income from equity investments 835,308.00 99,351,225.38 (1) Recognized with cost method - - (2) Recognized with equity method - 15,106,579.53 (3) Disposal of investment income 835,308.00 84,244,645.85 Total 835,308.00 99,351,225.38 (29) Non-operating revenue Item Current year Previous year 1. Gain on disposal of non-current assets - 3,814.01 Among which: gain on disposal of fixed assets - 3,814.01 2. Gain on debt restructure - 31,032.58 3. Tax returns*1) 6,393.44 955,680.00 4. Income of fine and penalty - 55,143.00 5. Income of purchase equity by discount *2 - 5,022,579.15 6. Exporting incentive from Bureau of Finance 30,000.00 - 6. Others 2,611.67 101,118.63 Total 39,005.11 6,169,367.37 *1: No large amount of tax return in current year; *2: Profit of the minority of shareholders occurred for the Company purchased the subsidiary companies in 2007. Non-operating revenue of current year decreased by CNY6,130,362.26 compared with previous year. The decrease percentage is 99.37%. (30) Non-operating expenses Item Current year Previous year 1. Loss on disposal of non-current assets 1,869,513.97 5,607,299.90 Among which: loss on disposal of fixed assets 1,869,513.97 5,607,299.90 2. Loss on debt restructure - - 3. Donation 808,950.00 - 78 Summary of Annual Report 2008 4. Fine and penalty for delay payment 159,809.51 441,008.61 6. Others 492,655.56 222,971.59 Total 3,330,929.04 6,271,280.10 Non-operating expenses of current year decreased by CNY2,940,351.06 compared with previous year. The decrease percentage is 46.89%. (31) Income tax expenses Item Current year Previous year Income tax for current year 317,589.73 6,901,056.33 Deferred tax expenses -8,559,150.30 1,931,876.47 Total -8,241,560.57 8,832,932.80 (32) Minority shareholders’ equity and profit&loss of Minority shareholders Increases/decreases of profit Name of invested Companies Opening balance &loss of minority sharehold Ending balance ers in the current year Shenzhen Rieys Industrial Co., Ltd 4,343,231.21 -82,205.88 4,261,025.34 Shenzhen Chuanger Garment Co., 2,928,303.60 -701,407.74 Ltd 2,226,895.85 Total 7,271,534.81 -783,613.62 6,487,921.19 (33) Notes to cash flow statement A. Cash and cash equivalence At the beginning of the Item At the end of the year year Cash on hands 826,815.19 6,983,521.42 Bank deposits 12,296,059.82 1,701,468.03 Other monetary funds 13,122,875.01 8,684,989.45 B. Supplementary information for cash flow statement Item Current year Net profit -106,350,607.86 79 Summary of Annual Report 2008 Plus: Provision for assets impairment 46,747,692.74 Depreciation of fixed assets, depletion of oil and natural gas assets and depreciation of bearer biological assets 25,776,539.88 Amortization of intangible assets and other assets 1,770,094.71 Loss from disposals of fixed assets, intangible assets and other long-term assets (deduct: increase) 1,869,513.97 Loss on scraps of fixed assets (deduct: increase) - Loss from changes in fair values (deduct: increase) - Financial expenses (deduct: increase) 26,016,122.91 Investment loss (deduct: increase) -835,308.00 Decreases in deferred income tax assets (deduct: increase) ） -8,750,442.62 Increases in deferred income tax liabilities (deduct: decrease) - Decreases in inventories (deduct: increase) -,9,996,714.14 Decreases in operating receivables (deduct: increase) -25,181,789.80 Increases in operating payables (deduct: decrease) -12,353,711.83 Others -198.95 Net cash flows from operating activities -61,288,809.02 * The income expense CNY 24,791,621.93 has been included and the loss from the exchange translation of the equity transfer payment CNY 1,224,500.98 has been received. 6. Notes to the main items of financial statements of parent company 6.1 Accounts receivable a) Accounts receivable constitution At the end of the year At the beginning of the year Proportion Proportion of provisio of provisio Item Balance of carry percentag Balance of carr percenta ns for bad provision ns for bad provision ing amount e ying amount ge and doubt and doubt ful debts ful debts 1. Significant individual amount and the provision - - - - - - - - has been recognized individually 2. Not significant individual amount and the - - - - - - - - provision has been 80 Summary of Annual Report 2008 recognized individually 3. Other amounts with the 3,737,908.90 symbol of credit risk 33,892,074.64 100.00% - 18,077,400.15 100% - 3,574,824.68 identified by aging Among which: within 1 year 26,298,108.33 77.59% 2% - 13,351,660.28 73.86% 2% - 1－2 years 2,874,429.44 8.48% 10% 2,171.30 138,341.60 0.77% 10% 13,834.16 2－3 years 132,972.99 0.39% 50% 66,486.50 363,093.64 2.01% 50% 181,546.82 Over 3 years 4,586,563.88 13.54% 80% 3,669,251.10 4,224,304.63 23.37% 80% 3,379,443.70 Total 33,892,074.64 100.00% 3,737,908.90 18,077,400.15 100.00% 3,574,824.68 b) There is no accounts receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company at the end of the year. c) Top five account receivables at the end of the year Name of debtor Amount Aging Percentage Puning Tianhe Apparel Factory Co., Ltd. 26,298,108.33 Within 1 year 77.59% Hongkong Jinhua Trading Company 4,224,304.63 Over 3 years 12.46% Shenzhen Heyiyi Fashion Co., Ltd. 2,852,716.44 1-2 years 8.42% Guangzhou Chen Shunqin 335,904.80 Over 3 years 0.99% Guangzhou industrial and commercial bureau 117,462.99 2-3 years 0.35% d) Accounts receivable due from related parties at the end of the year accounts for 86.06% of total amount of this item. e) Accounts receivable as of December 31, 2008 increased by CNY 15,651,590.27 or 107.92% compared with January 1, 2008, which is mainly due to the increase of accounts receivable due from Puning Tianhe Apparel Factory Co., Ltd. of CNY 15,814,674.48. 6.2Other receivables a) Other receivables constitution At the end of the year At the beginning of the year Item Balance of carry percentag Provision Balance of carr percenta Provision provision provision ing amount e proportion ying amount ge proportion 1. Significant individual - amount and the provision has - - - 171,500,000.00 48.59% - - been recognized individually 2. Not significant individual amount and the provision has 4,964,572.60 2.62% 100% 4,964,572.60 3,031,608.20 0.86% 100% 3,031,608.20 been recognized individually 97.38% 1,901,425.70 3. Other amounts with the 184,473,626.72 - 178,424,275.14 50.55% - 1,751,987.43 81 Summary of Annual Report 2008 symbol of credit risk identified by aging Among which: within 1 year 18,317,143.09 9.67% 2% 124,440.27 16,856,490.69 4.78% 2% 152,585.92 1－2years 10,930,172.46 5.77% 10% 75,537.98 108,737,103.39 30.81% 10% 273,710.34 2－3years 105,535,543.11 55.71% 50% 636,508.20 51,462,845.60 14.58% 50% 231,422.80 Over 3 years 49,690,768.06 26.23% 80% 1,064,939.25 1,367,835.46 0.39% 80% 1,094,268.37 Total 189,438,199.32 6,865,998.30 352,955,883.34 4,783,595.63 b) There is no other receivable due from shareholder who has more than 5% (including 5 %) voting shares of the Company at the end of the year. c) Top 5 other receivables at the end of the year Name of debtor Amount Aging Percentage Puning Rieys Paper Industrial Co., 84,396,426.29 1-3 years 44.55% Ltd Tian Rui (HK) Trading Company 79,060,386.91 1-3 years 41.73% Limited Within 1 y 11,435,229.83 6.04% Shenzhen Rieys Industrial Co., Ltd ear Lin Gend 6,000,000.00 1-2 years 3.17% Within 1 2,331,608.20 1.23% Export tax refund receivable year 、 4 At the end of the year, other receivables due from related parties accounted for 92.32% of total amount of this item. Nature or descri Percentage of total amount of other Name of debtor Amount Aging ption receivables Puning Rieys Paper Industrial Current account Co., Ltd 84,396,426.29 1-3 years 44.55% Tian Rui (HK) Trading Current account Company Limited 79,060,386.91 1-3 years 41.73% Shenzhen Rieys Industrial Co., Within 1 y Ltd Current account 11,435,229.83 6.04% ear g) Accounts receivable as of December 31, 2008 decreased by CNY 165,600,086.69 compared with January 1, 2008. The increase percentage is 47.56%.The reason of change is: receivable for transfer of 36% shares of St. Polo & Other Brands Corporation, which amounted to CNY 171,500,000, had been received 。 6.3 Long-term equity investment At the end of the year At the beginning of the year Amount Provision for Amount Provision for 82 Summary of Annual Report 2008 impairment in impairment in value value 317,036,808.68 109,691,208.19 332,877,827.48 13,806,326.80 a) Long-term equity investment carried at cost Name of invested unit Initial amount As of Januar Increases/decreas Transfer to equity As of Decembe Provision for y 1, 2008 es of investment r 31, 2008 impairment in in method value current year １．subsidiary Puning Tianhe Garment Manufacturing Factory Co., Ltd 51,712,500.42 51,712,500.42 --- --- 51,712,500.42 --- Puning Rieys Paper Industrial Co., 122,353,300.0 122,353,300.0 Ltd *1 0 0 --- --- 122,353,300.00 68,723,300.00 Shenzhen Rieys Industrial Co., Ltd 45,000,000.00 45,000,000.00 --- --- 45,000,000.00 --- Shenzhen Chuanger Garment Co., Ltd. 7,520,000.00 7,520,000.00 --- 7,520,000.00 --- Shenzhen Heyiyi Fashion Co., Ltd *2 5,100,000.00 5,100,000.00 --- --- 5,100,000.00 5,099,999.00 Dongguan Jinjing Textile Co., Ltd. 80,221,000.00 80,221,000.00 --- --- 80,221,000.00 35,867,909.19 Tian Rui (HK) Trading Company Limited 8.26 8.26 --- --- 8.26 --- 311,906,808.6 311,906,808.6 subtotal 6 6 311,906,808.66 --- 2 ．Others Shanxi Chuanglian Information Network Technology Co., Ltd 12,500,000.00 20,971,018.80 -20,971,018.82 --- --- --- Dezhou Kaiwei Garment Manufacturing Co,. Ltd ( 德州凯维 制衣有限公司) 5,130,000.00 --- 5,130,000.00 --- 5,130,000.00 --- 329,536,808.6 332,877,827.4 Total 6 8 15,841,018.82 --- 317,036,808.68 109,691,208.19 *1 The Company intended to dispose of Puning Rieys Paper Industrial Co., Ltd., which had an accumulated occupancy of fund amounted to 180,390,000.00. As of December 31, 2008, Municipal Sewage Outlet Project, which located outside the factory, had not been completed for technology reason that lead to the routine 83 Summary of Annual Report 2008 production of Rieys Paper can not begin. Because the influence comes from the process of some other projects outside the factory, the date when this project will begin its routine production is uncertain. However the funds which the Company prepaid for it were borrowed from banks and the Company assumed relative large amount of interest expenses every year and that exerted great fund pressure on the Company and finally caused fund shortage in the Company. *2 On January 9, 2009, the Company transferred its equity in Shenzhen Heyiyi Fashion Co., Ltd for the consideration of CNY 1 according to the relevant agreement, and has completed the corresponding procedures of Change of Industrial and Commercial Administration Registration. b) As of December 31, 2008, long-term equity investment decreased by CNY111,725,900.19 as compared with January 1, 2008. The decrease percentage is 7.06%. The reason leads to the change is: （1）27.78% shares of Shanxi Chuanglian Information Network Technology Co., Ltd held by the Company were transferred and that decreased long-tern investment amounted to 20,971,018.82, and carried forward provision for impairment in value of 13,806,326.80 correspondingly.. （2）Shares in Dezhou Kaiwei Garment Manufacturing Co,. Ltd (德州凯维制衣有限公司) increased by 69.99% through capital contribution with fixed assets and the balance of long-term investment increased by CNY 5,130,000.00. （3）Provision for impairment in value has been made for investments in certain subsidiaries by the Company in 2008. 6.4 Operating revenue and operating cost Current year Previous year Item Other operati Other opera Main operation total Main operation total on tion Operating 43,796,730.30 - 43,796,730.30 29,604,536.46 28,800.00 29,633,336.46 revenue Operating - 29,021,056.82 1,612.80 29,022,669.62 cost 41,275,391.28 41,275,391.28 Operating - 583,479.64 27,187.20 610,666.84 gross profit 2,521,339.02 2,521,339.02 a) Income and cost from the principal business based on the operation categories Sales of principal operation Costs of principal operation Item Current year Previous year Current year Previous year Industry 43,796,730.30 29,604,536.46 41,275,391.28 29,021,056.82 b) The sales in current year are totally sales to Puning Tianhe Garment Manufacturing Factory Co., Ltd. 84 Summary of Annual Report 2008 c) Operating revenue of current year increased by 14,192,193.84 as compared with previous year. The ， decrease percentage is 47.94% The reason of change is the decrease of turnover. 6.5 Investment income Item Current year Previous year 1. Financial instrument investment income - - 2. Investment held to maturity - - 3. Equity investment income 835,308.00 157,785,527.16 a. Cost method valuation recognition - 39,088,211.04 b. Equity method valuation recognition - 34,452,670.27 c. Income of investment deposal 835,308.00 84,244,645.85 Total 835,308.00 157,785,527.16 7. Related parties and related parties transaction 7.1 Related parties with controlling relationship a) Related parties with controlling relationship （1）Related parties controlling the Company Name of the related parties Relationship with the Company Controlling shareholder of parent Chen Hongcheng company, effective controller and legal representative of the Company Guangzhou Shenghengchang Trade Development Co., Ltd( 广州升恒昌贸易发展有限公司) Parent company Name of enterprise registry Main business Business nature Legal representative Guangzhou Shenghengchang Sales of hardware, electric, Trade Development Co., Guangzhou construction materials, trade Chen Yuyi Ltd(广州升恒昌贸易发展有 electronic products, etc. 广州升恒昌贸易发展有限公司 限公司) Guangzhou Shenghengchang Trade Development Co., Ltd( ), Shenzhen Rishen Investment Co., Ltd and Shantou Lianhua Industrial Co., Ltd are under the common control , which belong to action-in-concert promulgated by Measures for the Administration of Disclosure of Information on the Change of Shareholdings in Listed Companies ( 《上市公司股东持股变动信息披露管理方法》 ). （2）Related parties controlled by the Company 85 Summary of Annual Report 2008 There is no other related party with controlling relationship, apart from subsidiaries stated in note 4. b) Registered capital and its changes of related parties with controlling relationship (Monetary unit: CNY 0’000) Name of enterprise Opening balance increases decreases Ending balance Guangzhou Shenghengchang Trade 98,000,000 - - 98,000,000 Development Co., Ltd( 广州升恒昌贸易发展 有限公司) Shenzhen Rieys Industrial Co., Ltd 5,000 --- --- 5,000 Puning Tianhe Garment Manufacturing HK$116,700,000 --- --- HK$116,700,000 Factory Co., Ltd Puning Rieys Paper Industrial Co., Ltd. $29,000,000 --- --- $29,000,000 Shenzhen Chuanger Garment Co., Ltd. 1,200 --- --- 1,200 Shenzhen Tianqi Garment Manufacturing Co., 100 --- --- 100 Ltd Shenzhen Heyiyi Fashion Co., Ltd. 1,000 --- --- 1,000 Dongguan Jinjing Textile Co., Ltd. $12,800,000 --- --- $12,800,000 Tian Rui (HK) Trading Company Limited $1 --- --- $1 c) Shares and its changes of related parties with controlling relationship (Monetary unit: CNY 0’000) Operning balance Iincreases Decreases Ending balance Name of enterprise amount % amount % amount % amount % Guangzhou Shenghengchang Trade --- --- --- --- Development Co., Ltd( 广州升恒昌 贸易发展有限公司) 11,785.5 36.99% 11,785.5 36.99% Shenzhen Rieys Industrial Co., Ltd 4,500 90% --- --- --- --- 4,500 90% Puning Tianhe Garment --- --- --- --- Manufacturing Factory Co., Ltd 12,797 100% 12,797 100% Puning Rieys Paper Industrial Co., --- --- --- --- Ltd. 20,076 100% 20,076 100% Shenzhen Chuanger Garment Co., 1,032 86% --- --- --- 1,032 86% 86 Summary of Annual Report 2008 Ltd. Shenzhen Tianqi Garment --- --- --- --- Manufacturing Co., Ltd 100 100% 100 100% Shenzhen Heyiyi Fashion Co., Ltd. 51 51% --- --- --- --- 51 51% Dongguan Jinjing Textile Co., Ltd. 8,015 100% --- --- --- --- 8,015 100% Tian Rui (HK) Trading Company --- --- --- --- Limited --- 100% --- 100% d) Related parties without controlling relationship Name of enterprise Relationship with the Company Shareholder with 10.68% of shareholdings, related enterprise Shenzhen Rishen Investment Co., Ltd. controlled by the relatives of Cheng Hongcheng Shareholder with 3.81% of shareholdings, related enterprise Shantou Lianhua Industrial Co., Ltd. controlled by the relatives of Cheng Hongcheng 100% of shareholdings held by Cheng Jiecheng Investment (Group) Co., Ltd Hongcheng, common controller 49% of shareholdings held by Cheng Tianzhuo Hongkong Investment Co. Ltd. Hongcheng Related enterprise controlled by relative Shanghai Hong Yi Property Limited of Cheng Hongcheng Chen Xuewen, Ma Chanying Direct relatives of Cheng Hongcheng Chen Meixiang Direct relatives of Cheng Hongcheng Vice-Board chairman of the Company, Ding Lihong relative of Cheng Hongcheng Shareholder of the Company’s holding Wand Shaoying subsidiary Chen Yuyi Shareholder of the parent company 7.2 Related parties transactions a) Transactions (i.e. sales and purchases) between subsidiaries controlled and consolidated and such subsidiaries with their parent companies have been eliminated. 87 Summary of Annual Report 2008 b) Pricing policy of related party transaction is the adoption of market price. c) Balance of current account of related parties Precentage in total receivables Amount at end of year (CNY (payables) ( Item/related party 0’000) %) End of this year End of last year End of this year End of last year Other receivables: Tianzhuo Hongkong Investment Co. Ltd. - 14,800 - 61.90% Chen Yuyi - 89.3 - 0.41% Total - 14,889.3 - 62.31% Other payables: Cheng Hongcheng - 78 - 6.88% Ding Lihong - 214 - 27.24% Wang Shaoying 23 65 2.03% 5.73% Total 23 357 2.03% 39.85% d) Other related parties transactions （1）The guarantee provided for the Company As of December 31, 2008, the guarantee provided for the Company by the related parties is set out below: Loan Amout Name of guarantee Bank issuing loan Due date Guarantor (CNY) Puning Tianhe Garment Puning Association of Country Credit 10,000,000.00 Guangzhou Shenghengchang Trade Manufacturing Factory Co., Ltd Union Liusha West Union 2009-1-20 Development Co., Ltd( 广州升恒昌贸易 发展有限公司) Puning Tianhe Garment Puning Association of Country Credit 5,000,000.00 Guangzhou Shenghengchang Trade Manufacturing Factory Co., Ltd Union Liusha West Union 2009-5-20 Development Co., Ltd( 广州升恒昌贸易 发展有限公司) Guangdong Rieys (Group) Puning Association of Country Credit 25,700,000.00 2009-10-25 Guangzhou Shenghengchang Trade Company Limited Union Liusha West Union Development Co., Ltd( 广州升恒昌贸易 发展有限公司) Guangdong Rieys (Group) Puning Association of Country Credit 2,500,000.00 2008-9-20 Guangzhou Shenghengchang Trade Company Limited Union Liusha West Union Development Co., Ltd( 广州升恒昌贸易 发展有限公司) Guangdong Rieys (Group) China Everbright Bank Guangzhou 40,000,000.00 2009-9-27 Guangdong Rieys (Group) Company Company Limited Branch *1 Limited 、 Puning Tianhe Garment 88 Summary of Annual Report 2008 Loan Amout Name of guarantee Bank issuing loan Due date Guarantor (CNY) Manufacturing Factory Co., Ltd 、 Shenzhen Rishen Investment Co., Ltd.、 Shantou Lianhua Industrial Co., Ltd 、 Donguan Jinjing Textile Co., Ltd、广州 市升恒昌贸易发展有限公司、Shenzhen Rieys Industrial Co., Ltd、Shanghai Hong Yi Property Limited、Cheng Hongcheng、 Ding Lihong 、 Ma Chanying 、 Chen Xuewen Guangdong Rieys (Group) Construction Bank of China Shenzhen 121,830,000.00 2008-1-21 Guangdong Rieys (Group) Company Company Limited Branch Heping Road Susidiary *2 、 Limited Shenzhen Rieys Industrial Co., Ltd、、Shenzhen Rishen Investment Co., Ltd. 、 Shantou Lianhua Industrial Co., Ltd、Donguan Jinjing Textile Co., Ltd、 Shenzhen Sheng Heng Chang Industrial Co., Ltd 、 Puning Tianhe Garment Manufacturing Factory Co., Ltd 、 Shenzhen Chuanger Garment Co., Ltd、 Chen Meixiang、Cheng Hongcheng（all are sureties） Shenzhen Rieys Industrial Co., Ltd Huaxia Bank Baoan Branch 5,817,631.91 2008.03 Puning Tianhe Garment Manufacturing Factory Co., Ltd 、 Guangdong Rieys (Group) Company Limited 、 Ding Lihong 、 Cheng Hongcheng 、 Chen Xuewen（all are sureties） Total 210,847,631.91 *1 Puning Rieys Paper Industrial Co., Ltd., mortgaged machine equipments to guarantee the Company and that the Company obtained China Everbright Bank Guangzhou Branch with CNY 40,000,000. The maturity date is September 27, 2009. *2 As mentioned in note 5.20, Guangzhou Shenghengchang Trade Development Co., Ltd( 广州升恒昌贸易 发展有限公司), Shenzhen Rishen Investment Co., Ltd and Shantou Lianhua Industrial Co., Ltd pledged total domestic legal shares of the Company to Construction Bank of China Shenzhen Branch on April 28, 20005 to 89 Summary of Annual Report 2008 obtain the above bank loans. （2）On November 14, 2007, the Company transferred 67% of its shareholdings of Puning Rieys Paper Industrial Co., Ltd. to its related party, Shenzhen Rishen Investment Co., Ltd., at the price of 53.63 millions pursuant to the signed Share Transfer Contract Tian Rui (HK) Trading Company Limited also transferred 33% interest of Rieys Paper held by it to Jiecheng Investment (Group) Co., Ltd.at the price of 34.37 millions pursuant to the signed Share Transfer Contract. The total price of the equity transfer amounts to 88 millions. As of April 18, 2009, the above equity transfer has not been completed, the transfer payment was not received, Puning Rieys Paper Industrial Co., Ltd has not completed the transfer procedures at industry and commerce office and shareholders of Puning Rieys Paper Industrial Co., Ltd are still transferees of equity. （3）In 2008, Shenzhen Rieys Industrial Co., Ltd obtained the non-interest bearing borrowings of CNY 5.8 million from Shenzhen Rishen Investment Co., Ltd and repaid CNY 5.8 million in the same year. （4）The Company received the receivable for transfer shares of St. Polo & Other Brands Corporation, which amounted to 148,000,000 in June, 2008. (5) The amount due from Chen Yuyi Entity At the beginnin Increase Decrease At the end g of the year of the ye ar Puning Rieys Paper Industrial Co., Ltd 893,800.00 300,000.00 1,193,800.00 - 8. Contingencies 1 Contingent liabilities arising from pending lawsuits or arbitration cases. As of April 18, 2009, the Company has no contingent liabilities arising from pending lawsuits or arbitration cases. 2 As of April 18, 2009, the Company has no contingent liabilities arising from providing debt guarantee for its related parties or other units. 3 As of the financial reporting date, there are no other guarantee or contingencies except to the contingencies disclosed in the report. 9. The assets mortgage The assets mortgage up to December 31, 2008: 90 Summary of Annual Report 2008 a) The Company mortgaged its real estate to obtain CNY 6,000,000 borrowing from Puning Association of Country Credit Union Liusha West Union. The maturity date is December 10, 2008. b) The Company mortgaged its real estate to obtain CNY 5,000,000 borrowing from Puning Rural Credit Union West Liusha Branch. The maturity date is January 20, 2009. c) The Company mortgaged its real estate and Puning Rieys Paper Industrial Co., Ltd mortgaged its machine equipments, the Company obtained CNY 40,000,000 borrowing from China Everbright Bank Guangzhou Branch. The maturity date is September 27, 2009. (See note 7.2(d) (1) *1) 10. Commitments a). The Company continues to implement the share transfer contract of Shenzhen Rieys Paper Co. Ltd. in 20009. b) There are no other disclosable significant financial commitments as of the financial reporting date. 11. Litigation events Saved the litigation events that were completely executed disclosed in note 5 (5.13), there are no disclosable significant litigation events as of the financial reporting date. 12. Post-balance sheet events As mentioned in 6 (6.3) above, the Company transferred its equity in Shenzhen Heyiyi Fashion Co., Ltd for the consideration of CNY1 on January 9, 2009, and has completed the corresponding procedures of Industrial and Commercial Registration Change. 13. Other significant events 13.1 Overdue loans As of financial reporting date, the Company is required to repay the principal and interest of the overdue loans of CNY 175,000,000, which accounted 49.72% of the net assets at the end of the year. The Company has not yet signed the extension agreement or reached debt mediation agreement, and has not suffered the litigations initiated by the loan bank. The negotiation between the Company and the bank is still in progress. The Company intends to repay the above loans with the realized amounts, including the amounts from disposal of the assets of Puning Rieys Paper Co. Ltd.. 13.2. Present status of Puning Rieys Paper Co. Ltd. 91 Summary of Annual Report 2008 Paper production lines of Puning Rieys Paper Co. Ltd were established in 2006 for trial production. The Company has been suffering abnormal operating losses, the reason is: the city sewage conveyance system failed to be completed timely, which made the Company fall into production halts. As of December 31, 2008, Puning Rieys Paper Co. Ltd has the total assets of CNY233,000,000 and the total liabilities of CNY 181,000,000, including accounts payable to the Company and the related parties of CNY 180,000,000, net assets of CNY51,940,000 and the losses of CNY 149,000,000 (mainly incurred by provision of impairment and depreciation fees). As of December 31, 2008, the Company and its subsidiaries have made the total investment of CNY 380,000,000 to Puning Rieys Paper Co. Ltd and the relevant funds are from bank loans, which caused the financial strain of the Company and its subsidiaries. Part of the city sewage conveyance system has not been completed due to certain technical factors, which made the Company fail to achieve normal production and the timing of normal production is influenced by the progress of such system. Therefore, reliability of assets is significantly influenced by the above factors. Given to the continuous implementation of the share transfer contract of Puning Rieys Paper Co. Ltd, the Company will accrue the provision of impairment and prepare its financial statements on going concern basis. The Company has not adjusted the financial statements on liquidation basis while preparing the consolidated financial statements. Given to the continuous implementation of the share transfer contract of Puning Rieys Paper Co. Ltd, the Company and its subsidiaries have not made allowance for bad debts in terms of the debts receivable of CNY180,000,000. In view of the above, the board of the Company has decided to sell Puning Rieys Paper Co. Ltd as quickly as possible. 13.3 The share transfer contract of Puning Rieys Paper Co. Ltd As mentioned in note7(7.2), the Company has not received the share transfer amounts from transferee (Shenzhen Rishen Investment Co., Ltd and Jiecheng Investment (Group) Co., Ltd) as of the date of the 92 Summary of Annual Report 2008 financial statements according to the share transfer contract signed on November 11, 2007. Share rights of Puning Rieys Paper Co. Ltd are still vested to the Company and the event has adversely influenced its repayment ability. The Company has urged the transferees to fulfill the obligations through a letter delivered in January 2009. As of financial reporting date, the Company has received the commitment letter and irrevocable letter of guarantee from the related parties, transferees and its actual controllers, whereupon they all agreed to fulfill the obligations as quickly as possible and confirmed the share transfer amounts of CNY88 million and accounts receivable for its share rights in Puning Rieys Paper Co. Ltd of CNY0.18 billion. The Board has instructed the management to implement the contract and obtain the approval of the relevant government. 13.4 The abilities of going concern of the Company The Company has he net profits attributable to the parent company of CNY105.57 million and the principal and interest payable of short-term borrowing of CNY0.175 billion and to a certain extent influence the going concern of the Company. The Board and the management noted that the Company has suffered the significant losses in most recent two years, which mainly due to the failure of investment projects (i.e. failure of recovering production of Puning Rieys Paper Co. Ltd due to the external factors beyond control, failure of turning loss into gain by Donguan Jinjing Textile Co., Ltd due to certain marker reasons), therefore disposal of non-performing assets, speeding the adjustments of the industry and assets restructuring are basic ways of repaying overdue loans in the short term and resolving the operation capacity in the long run. In order to improve capital liquidity and operation situation of the Company, all measures have been adopted, including enhance collection management, rapid the step of industry adjustment and capital reorganization, limit the time of handling operation losses, especially to complete transferring equity of Puning Rieys Paper Co. Ltd. in 2009. Meanwhile, it also hunts for extend of terms of bank borrowings, and looks for fund assistance from controlling shareholder and its related companies when the Company is in difficulty. In addition to above measures, the Company will through making effort to strength the brand and pursuing improvement in management of branded clothes operation and otherwise to raise fund. For this, the 93 Summary of Annual Report 2008 Company has established and implemented operation plans for 2009. The Company schemes to turn losses into gains by increasing industry size, realizing capital, broadening sources of income and reducing expenditure, and saving non-operational expenditures. Given to the measures adopted by the Company and its reputation, the Board and the management have cautiously evaluated its abilities of repayment and operations, and considered that the Company is able to repay the due debts by cash obtained from various ways of assets realization and believed that on the basis of going concern the Company will maintain its operation. There is no possibility of incurring forced liquidation. 14. Non-recurring profit and loss of current year (profit: +, loss: -) Item Amount 1. Profit and loss of non-current assets disposal -1,034,205.97 2. Tax return or deduction approved by exceeding authority or without official permission - 3. Profit or cost occurred by difference which the cost of enterprise combination is lower than proportion of the fair value of the net identifiable - assets in the invested enterprise 4. Profit and loss arising from estimated liabilities without relationship with main business of the Company - 5. Net amount of other non-operating income and expenses besides items above -1,428,803.40 Total -2,463,009.37 Profit factors of the minority of shareholders have been deducted from the data listed above. 15. Return on net asset and earnings per share Pursuant to the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No.9 —Calculation and Disclosure of Return on Net Assets and Earnings per Share (2007revised), the calculation of net assets return rate and earnings per share is set out as follows: 15.1 Return on net asset and earnings per share in 2008 Return on equity Earnings per share (CNY) Profit of the reporting period Fully diluted Diluted Weighted Basic earnings return on earnings per average per share equity share Net profit attributable to ordinary shareholders of the Company -31% -31% -0.33 -0.33 Net profit attributable to ordinary shareholders of the Company after -30% -30% -0.32 -0.32 deducting non-recurring gain or loss 15.2 Return on net asset and earnings per share in 2007 Return on equity Earnings per share (CNY) Fully diluted Diluted Profit of the reporting period Weighted Basic earnings return on earnings per average per share equity share Net profit attributable to ordinary shareholders of the Company -18% -18% -0.25 -0.25 94 Summary of Annual Report 2008 Net profit attributable to ordinary shareholders of the Company after -36% -36% -0.51 -0.51 deducting non-recurring gain or loss 15.3 Calculation process The above data is calculated using the following formulae: a. Fully diluted return on equity Fully diluted return on equity = P/E Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E is the year end equity attributable to ordinary shareholders of the Company. Net profit attributable to ordinary shareholders of the Company does not include the amount of gain or loss of minority shareholders. For net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss, non-recurring gain or loss of parent company (after taking into consideration the income tax effects) and the proportion of non-recurring gain or loss (after taking into consideration the income tax effects) of all subsidiaries owned by ordinary shareholders of parent company are deducted on the basis of consolidated net profit after deducting gain or loss of minority shareholders. The year end equity attributable to ordinary shareholders of the Company does not include equity of minority shareholders. b. Weighted average return on equity Weighted average return on equity = P/(E0+NP/2+Ei*Mi/M0–Ej*Mj/M0+-Ek*Mk/M0) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; E0 is the year beginning equity attributable to ordinary shareholders of the Company; Ei is increased equity attributable to ordinary shareholders of the Company which arises from new issuance of shares or conversion of debt instruments to stocks in the reporting period; Ej is reduced equity attributable to ordinary shareholders of the Company due to stock repurchase or cash dividend in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that equity is increased to the year end of the reporting period; Mj is the number of months from the next month that equity is decreased to the year end of the reporting period; Ek is the change of equity resulting from other transactions or events; Mk is the number of months from the next month that other change of equity occurs to the year end of the reporting period. c. Basic earnings per share Basic earnings per share = P/S 95 Summary of Annual Report 2008 S = S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss; S is weighted average number of ordinary shares outstanding; S0 is the total number of shares at the beginning of the year; S1 is the number of increased shares as a result of capitalization of reserves or scrip dividend during the reporting period; Si is the number of increased shares as a result of new issuance of shares or conversion of debt instruments to stocks during the reporting period; Sj is the number of reduced shares as a result of stock repurchase; Sk is the number of consolidated shares in the reporting period; M0 is the number of months of the reporting period; Mi is the number of months from the next month that the number of shares is increased to the year end of the reporting period; Mj is the number of months from the next month that the number of shares is decreased to the year end of the reporting period. d. Diluted earnings per share Diluted earnings per share = [P+ (any recognized interest related to dilutive potential ordinary shares-conversion expenses)*(1-income tax rate)]/ (S0+S1+Si*Mi/M0-Sj*Mj/M0-Sk +weighted average number of increased ordinary shares arising from warrants, stock options and convertible debts) Where: P is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss. In calculating the diluted earnings per share, the Company has taken into consideration the effects of all dilutive potential ordinary shares, until the diluted earnings per share reach the lowest amount. e. Potential ordinary stock without diluteness current year but with high possibility to have diluteness in future. f. Significant changes in quantity of ordinary stock or potential ordinary stock issued abroad by the Company during period from balance sheet date to the date approved to issue the financial report . 16. Supplementary information a. There is no difference between the net profit of the year and shareholders’ equity determined by China Accounting Standards and International Accounting Standards. b. Provision for impairment of assets in Year 2008 96 Summary of Annual Report 2008 At the Decreases beginn At the end of Item ing of provision the the Transferred Others year year in Writes off 1. Provision for doubtful and bad debts 31,553,416.17 24,358,032.10 --- 784,843.05 --- 55,126,605.22 2. Provision for diminution in value of inventory 1,113,504.24 9,301,890.26 --- --- --- 10,415,394.50 3. Provision for impairment of available-for-sale financial assets --- --- --- --- --- --- 4. Provision for impairment of held-to-maturity investments --- --- --- --- --- --- 5. Provision for impairment of long-term equity investment 13,806,326.80 --- --- 13,806,326.80 --- --- 6. Provision for impairment of investment real estate --- --- --- --- --- --- 7 Provision for impairment of fixed assets 95,923,083.17 13,087,770.38 --- --- --- 109,010,853.55 8. Provision for impairment of project materials --- --- --- --- --- --- 9. Provision for impairment of construction in progress --- --- --- --- --- --- 10. Provision for impairment of bearer biological assets --- --- --- --- --- --- Among which: Provision for impairment of mature bearer biological assets --- --- --- --- --- --- 11. Provision for impairment of oil and natural gas assets --- --- --- --- --- --- 12. Provision for impairment of intangible assets --- --- --- --- --- --- 13. Provision for impairment of goodwill --- --- --- --- --- --- 14. Others --- --- --- --- --- --- Total 142,396,330.38 46,747,692.74 --- 14,591,169.85 --- 174,552,853.27 17. Approval issuance of Financial Statements These Financial Statements have been approved to be issued by the Board of Directors of the Company on April 20, 2009. These Financial Statements are published in Chinese and English, in case of any inconsistency, the Chinese language version shall prevail. Guangdong Rieys (Group) Joint-stock company April 20, 2009 97