Audit Report
REANDA Lianda Xunlong Certified Public Accountants Co., Ltd.
Audit Report No. [2003] 1051
To all shareholders of Changchun Northern Five Rings Industrial Co., Ltd.:
We have been entrusted to audit the balance sheet and consolidated balance sheet of Changchun Northern Five Rings Industrial Co., Ltd. (hereinafter referred to as "your company") as of December 31, 2002, as well as the profit and profit distribution statement and consolidated profit and profit distribution statement for the year 2002, and the cash flow statement and consolidated cash flow statement for the year 2002. These financial statements are the responsibility of your company, and our responsibility is to express an opinion on these financial statements. Our audit was conducted in accordance with the Independent Auditing Standards for Chinese Certified Public Accountants. During the audit process, we implemented audit procedures that we deemed necessary, including sampling accounting records, considering the actual situation of your company.
Upon audit, we found that:
- The financial statements for the year 2001 were audited by Shenzhen Pengcheng Accounting Firm, which issued an audit report with a qualified opinion, indicating that "your company has external guarantees that were authorized and contracted without the approval of the board of directors, and we are unable to determine the completeness of the disclosure of your company's external guarantees and their impact on the financial statements." Most of the external guarantees remain effective this period, thus we cannot determine their impact on the financial statements.
- We were unable to use satisfactory audit procedures to verify the completeness of the disclosure of numerous litigation matters and their impact on the financial statements. We believe that, except for the matters mentioned in the second paragraph of this report, the above financial statements comply with the relevant provisions of the "Enterprise Accounting Standards" and "Enterprise Accounting System," and fairly reflect, in all material respects, your company's financial position as of December 31, 2002, and the operating results and cash flow for the year 2002, with accounting treatment methods consistently applied.
Additionally, we noted that as of December 31, 2002, your company's net assets were -27,663,368.37 RMB, with accumulated losses of -420,855,328.61 RMB, and a heavy debt burden, leading to significant operational difficulties. As stated in Note 15, (1), there is substantial uncertainty regarding your company's ability to continue as a going concern.
Lianda Xunlong Certified Public Accountants Co., Ltd.
Certified Public Accountant: Yu Lei
Certified Public Accountant: Meng Qingkai
Beijing, China
April 24, 2003