Audit Report
Lianda Shunlong Accounting Firm No. [2003] 1071
To all shareholders of Zhuhai Xinguang Group Co., Ltd.:
We have audited the accompanying financial statements of Zhuhai Xinguang Group Co., Ltd. (hereinafter referred to as "Xinguang Group") as of June 30, 2003, including the balance sheet, consolidated balance sheet, income statement, consolidated income statement, statement of profit distribution, consolidated statement of profit distribution, cash flow statement, and consolidated cash flow statement for the period from January to June 2003. The preparation of these financial statements is the responsibility of the management of Xinguang Group, while our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the Independent Auditing Standards for Certified Public Accountants in China, planning and performing the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, evaluating the accounting policies used and the reasonableness of significant accounting estimates made by management, and evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements mentioned above comply with the national enterprise accounting standards and the provisions of the "Enterprise Accounting System," and fairly present, in all material respects, the financial position of Xinguang Group as of June 30, 2003, the operating results for the period from January to June 2003, and the cash flows for the same period.
Additionally, we note that Xinguang Group has incurred losses for three consecutive years, and as of the report date, its main business operations have completely ceased. Physical assets (such as buildings and land) and equity assets have been mortgaged or frozen due to debts. As of June 30, 2003, the financial statements show shareholders' equity of -139 million RMB, indicating an inability to pay off substantial debts due. The major shareholder, Shenzhen Luyou Industrial Development Co., Ltd., has reached a debt repayment agreement with Maikete Group Textile Co., Ltd. to settle 32.94 million RMB owed to Xinguang Group with corresponding equity held by Maikete Textile Nanjing Co., Ltd. However, as of the report date, the transfer procedures for this equity are still being processed according to the requirements of the industrial and commercial administration department and have not been completed. Therefore, there remains a certain degree of uncertainty regarding the company's ability to continue as a going concern. This paragraph is intended to remind users of the financial statements to pay attention and does not affect the expressed opinion.
Lianda Shunlong Accounting Firm Co., Ltd. Certified Public Accountants of China
Consolidated Balance Sheet
As of June 30, 2003 Prepared by: Zhuhai Xinguang Group Co., Ltd. Unit: RMB