MIRA INFORM REPORT

Report Date :

26.02.2007

IDENTIFICATION DETAILS

Name :	CHINA NATIONAL COTTON GROUP CO.
Registered Office :	11/F, Section C, Tongtai Building, No. 33, Financial Avenue, Xicheng District, Beijing, 100027 Pr
Country :	China
Financials (as on) :	31.12.2005
Date of Incorporation :	October, 1993
Com. Reg. No.:	1000001001519
Legal Form :	Limited Liabilities Company
Line of Business :	Processing and selling cotton and related products.

RATING & COMMENTS

MIRA’s Rating :

Ba

RATING		STATUS	PROPOSED CREDIT LINE
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory

Maximum Credit Limit :	Up To USD 500,000
Status :	Satisfactory
Payment Behaviour :	Usually correct
Litigation :	Clear

name & address

CHINA NATIONAL COTTON GROUP CO.

11/f, section C, tongtai building, no. 33, financial avenue,

xicheng district, beijing, 100027 PR CHINA.

TEL: 86 (0) 10-88086549

FAX: 86 (0) 10-88086562

EXECUTIVE SUMMARY

INCORPORATION DATE : OCTOBER, 1993

REGISTRATION NO. : 1000001001519

REGISTERED LEGAL FORM : LIMITED LIABILITIES COMPANY

CHIEF EXECUTIVE : MR. lv guangbin (CHAIRMAN)

STAFF STRENGTH : 500

REGISTERED CAPITAL : CNY 130,000,000

BUSINESS LINE : MANUFACTURING

TURNOVER : CNY 1,789,158,000 (AS OF DEC. 31, 2005)

EQUITIES : CNY 346,809,000 (AS OF DEC. 31, 2005)

PAYMENT : AVERAGE

RECOMM. CREDIT RANGE : UP TO USD 500,000 (PERIODICAL REVIEW)

MARKET CONDITION : COMPETITIVE

FINANCIAL CONDITION : FAIRLY Stable

OPERATIONAL TREND : STEADY

GENERAL REPUTATION : FAIRLY GOOD

EXCHANGE RATE : CNY 7.75 = US$1 AS OF 2007-2-12

Adopted abbreviations:

ANS - amount not stated

NS - not stated

SC - subject company (the company inquired by you)

NA - not available

CNY - China Yuan Renminbi

SC was registered as a limited liabilities company at local Administration for Industry & Commerce (AIC - The official body of issuing and renewing business license) in October, 1993.

Company Status: Limited liabilities co.

This form of business in PR China is defined as a legal person. Shareholders bear limited liability to the extent of shareholding, and the co. is liable for its debts only to extent of its total assets. The characteristics of this form of co. are as follows:

Upon the establishment of the co., an investment certificate is issued to the each of shareholders.

The board of directors is comprised of three to thirteen members.

The minimum registered capital for a co. is listed as follows:

-manufacturing co. : CNY 500,000.00

-trading &wholesaling co. : CNY 500,000.00

-retailing co. : CNY 300,000.00

-consultancy & service co. : CNY 100,000.00

Shareholders may take their capital contributions in cash or by means of tangible assets or intangible assets such as industrial property and non-patented technology.

Cash contributed by all shareholders must account for at least 50% of the registered capital while contribution by intangible assets must not exceed 20% of the registered capital.

Existing shareholders have pre-exemption right to purchase shares of the co. offered for sale by the other shareholders and to subscribe for the newly increased registered capital of the co.

SC’s registered business scope includes processing and selling cotton, hemp, linters and by products, and cotton yarn; technology developing, manufacturing and selling agricultural machinery, common machinery, meter, electronics; selling garments, knitting textiles, leather products, lumber, steel, metal products, vehicle parts, and chemical raw materials; storage and transportation; exhibition of self-developed and self-made products; import and export of various goods and technologies; processing and compensation trade; barter trade and carrying trade; information consulting and real estate consulting; technology development, technology consulting, technology services, technology transfer, and technology training; consultation of engineering designing and construction.

SC is mainly engaged in processing and selling cotton and related products.

Mr. Lv Guangbin has been legal representative and chairman of SC since 2001.

SC owns approximately 500 staff at present.

SC is currently operating at the above stated address, and this address houses its operating office and factory in the industrial zone of Beijing. Our checks reveal that SC owns the total premise about 100,000 square meters.

http://www.chncc.com/ The design is professional and the content is well organized. At present it is in Chinese version.

Email: master@chncc.com

No significant events or changes were found during our checks with the local Administration for Industry and Commerce.

MAIN SHAREHOLDERS:

Name % of Shareholding

All China Federation of Supply and Marketing Cooperatives 95

China Cotton Industries, Ltd. 5

l Legal representative and General manager:

Mr. Lv Guangbin, ID # 370602501008103, 57 years old with high school education. He is currently responsible for the overall management of SC.

Working Experience(s):

1986/7---1995/10 Worked in Shandong Yantai Supply & Marketing Cooperatives as director;

1995/10---2001/1 Worked in China Huanong Enterprise Group Corporation as CEO

From 2001 to present Working in SC as chairman and general manager.

l Vice- General manager:

Mr. Shi Jinkai, in his 40’s with university education. He is currently responsible for the overall management of SC.

Working Experience(s):

From 2000 to present Working in SC as vice-general manager.

SC is mainly engaged in processing and selling cotton and related products.

SC’s products mainly include cotton, flax and related products, etc.

SC sources its materials 30% from domestic market, and 70% from overseas market, mainly USA and Europe. SC sells 50% of its products in domestic market, and 50% to overseas market, mainly Southeast Asian market.

The buying terms of SC include Check, T/T, L/C and Credit of 30-60 days. The payment terms of SC include Check, T/T, L/C and Credit of 30-60 days.

SC is known to have 16 invested companies, mainly include:

China National Cotton Group Hebei Cotton Co., Ltd.

China National Cotton Group Guangdong Cotton Co., Ltd.

China National Cotton Group (Qingdao) Cotton Co., Ltd.

Henan China National Cotton Co., Ltd.

China National Cotton Group Sinkiang Cotton Co., Ltd.

China National Cotton Group Shanghai Cotton Co., Ltd.

Overall payment appraisal :

( ) Excellent ( ) Good (X) Average ( ) Fair ( ) Poor ( ) Not yet determined

The appraisal serves as a reference to reveal SC's payments habits and ability to pay. It is based on the 3 weighed factors: Trade payment experience (through current enquiry with SC's suppliers), our delinquent payment and our debt collection record concerning SC.

Trade payment experience : SC did not provide any name of trade/service suppliers and we have no other sources to conduct the enquiry at present.

Delinquent payment record : None in our database.

Debt collection record : No overdue amount owed by SC was placed to us for collection within the last 6 years.

Agricultural Development Bank of China Office

AC#：405000188

Relationship: Normal.

Balance Sheet (as of Dec. 31, 2005)

Unit: CNY’000

Cash & bank	196,874
Inventory	1,842,245
Accounts receivable	12,024
Advances to suppliers	469,246
Other receivables	537,970
A receivable tax rebate of export	16,573
Other current assets	136,209
	------------------
Current assets	3,211,141
Fixed assets	139,624
Fixed assets net value	97,572
Projects under construction	0
Long term investment	156,817
Other assets	1,694,930
	------------------
Total assets	5,160,460
	=============
Short loans	2,608,645
Accounts payable	37,368
Notes payable	50,000
Taxes payable	-384,195
Other payable	215,262
Advances from customers	372,771
Welfare expenses payable	3,988
Salaries payable	3,730
Other current liabilities	25
	------------------
Current liabilities	2,907,594
Long term liabilities	1,906,057
	------------------
Total liabilities	4,813,651
Equities	346,809
	------------------
Total liabilities & equities	5,160,460
	=============

Income Statement (as of Dec. 31, 2005)

Unit: CNY’000

Turnover	1,789,158
Cost of goods sold	1,746,758
Sales expense	30,927
Management expense	23,331
Finance expense	27,727
Investment income	11,533
Subsidy income	31,002
Non-operating income	5,503
Profit before tax	9,000
Less: profit tax	0
Profits	9,000

Important Ratios

=============

	as of Dec. 31, 2005
*Current ratio	1.10
*Quick ratio	0.47
*Liabilities to assets	0.93
*Net profit margin (%)	0.50
*Return on total assets (%)	0.17
*Fixed assets/Total assets	0.02
*Inventory /Turnover ×365	376days
*Accounts receivable/Turnover ×365	2days
*Turnover/Total assets	0.35
* Cost of goods sold/Turnover	0.98

PROFITABILITY: AVERAGE

l The turnover of SC appears average in its line.

l SC’s net profit margin is average.

l SC’s return on total assets is acceptable.

l SC’s cost of goods sold is average, comparing with its turnover.

LIQUIDITY: FAIR

l The current ratio of SC is maintained in a normal level.

l SC’s quick ratio is maintained in a fair level.

l The inventory of SC appears TOO LARGE.

l The accounts receivable of SC is maintained in a normal level.

l SC’s short-term loan appears TOO LARGE.

l SC’s turnover is in an acceptable level, comparing with the size of its total assets.

LEVERAGE: FAIR

l The debt ratio of SC is fairly high.

l The risk for SC to go bankrupt is average.

Overall financial condition of the SC: Fairly stable.

SC is considered medium-sized in its line with fairly stable financial conditions. The large amount of short-term loans could be a threat to SC’s financial conditions. A credit line up to USD 500,000 would appear to be within SC’s capacities upon a periodical review basis.

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average/normal.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions