Guangzhou Nanhua West Industrial Co., Ltd.
Audit Report and Financial Statements for the Period from January 1, 2004, to June 30, 2004
Table of Contents
- Audit Report 1~2
- Financial Statements and Notes of Guangzhou Nanhua West Industrial Co., Ltd. 3~50
- Balance Sheet 3~4
- Income Statement 5
- Profit Distribution Statement 6
- Cash Flow Statement 7
- Detailed Table of Asset Impairment Reserves 8
- Changes in Equity Statement 9
- Notes to Financial Statements 10~51
Audit Report
To all shareholders of Guangzhou Nanhua West Industrial Co., Ltd.:
We have accepted the engagement to audit the balance sheet and consolidated balance sheet of Guangzhou Nanhua West Industrial Co., Ltd. (hereinafter referred to as "Nanhua West") as of June 30, 2004, as well as the income statement, profit distribution statement, cash flow statement, and consolidated financial statements for the period from January to June 2004 (see attached statements one to four). The preparation of these financial statements is the responsibility of Nanhua West's management.
As of June 30, 2004, as listed in Note 7 (4)(2) of Nanhua West's financial statements, the company's major shareholder and related enterprises owe 499,774,799.44 RMB, which remains uncollectible. In 2003, Nanhua West believed that the controlling shareholder had not made new progress in the company's restructuring, and there was significant uncertainty regarding the recoverability of debts owed by the major shareholder and related enterprises. Therefore, the bad debt provision for receivables from Guangzhou Nanhua West Group Co., Ltd., Guangzhou Nanhua Garment Co., Ltd., and Guangzhou Tuxin Garment Co., Ltd. was raised to 70%. However, during this period, Nanhua West was unable to recover the aforementioned debts.
Due to objective reasons, we are still unable to investigate and verify the financial status of the aforementioned debtors, and thus we cannot assess the recoverability of Nanhua West's receivables from these entities or the appropriateness of the bad debt provisions made. As of June 30, 2004, the receivable from Nanhua Industrial Group (Hong Kong) Co., Ltd. amounted to 115,792,777.92 RMB, with no progress made in recovery. We sent a confirmation letter but did not receive a response, and Nanhua West was unable to provide detailed information about the other company, making it impossible for us to determine the recoverability of this amount or the appropriateness of the bad debt provision.
As stated in Note 8 (2) and (3) of Nanhua West's financial statements, the company has incurred a large amount of overdue bank loans and is involved in litigation regarding external guarantees, with relevant assets already judicially seized and frozen. As of the audit report date, Nanhua West has not been able to take specific and feasible measures to resolve these litigation issues. Furthermore, as of June 30, 2004, Nanhua West has incurred substantial liabilities exceeding its assets. Therefore, there is significant uncertainty regarding the company's ability to continue as a going concern, and we cannot determine whether the going concern assumption used in preparing the financial statements is reasonable.
For the above reasons, we are unable to express an opinion on whether the financial statements as a whole reflect the true financial position.
Guangdong Yangcheng Certified Public Accountants Co., Ltd.
Certified Public Accountant Huang Weicheng
Certified Public Accountant Yi Xusheng
Guangzhou, China
August 12, 2004