ex10-23.htm


    Exhibit
10.23

    


    


    


    


    


    


    


    


     

    


    


    


    
      	 
      
	 
      
	
              QUALYTEXTIL
      S.A.

            
	 
      
	
              Independent
      Auditors’ Report

            
	 
      
	
              Financial
      Statements

            
	
              as
      of April 30, 2008 and December 31, 2007

            
	
              (Prepared
      in accordance with the requirements of

            
	
               General
      Accepted Accounting Principles in Brazil)

            
	 
      
	 
      


    

    
 

     

    

      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Independent
Auditors’ Report

            as of
April 30, 2008 and December 31st,
2007
1 

              
                

              

            

          

        

      


      
 

      


      INDEPENDENT
AUDITORS’ REPORT

      


      


      


      


      


      To the Shareholders and Board of
Directors of 

      QUALYTÊXTIL
S.A.

      


      


      1.           We
have audited the balance sheets of QUALYTEXTIL S.A., as of April
30, 2008 and December 31, 2007, and the related statements of profit & loss,
changes in shareholders’equity and changes in sources and uses of funds for
the period and year then ended.  These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

      


      2.           We
conducted our audits in accordance with generally accepted auditing standards in
Brazil. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The audits include examining, on a test basis, evidence supporting
the amounts and disclosures on the financial statements. The audits also include
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our
opinion.

      


      3.           In
our opinion, the financial statements referred to first paragraph present
fairly, in all material respects, the financial position of QUALYTÊXTIL S.A., as of April 30, 2008 and
December 31, 2007, and the results of its operations, changes in its
shareholders’equity and changes in its sources and uses of funds for the period
and year then ended, in conformity with generally accepted accounting principles
adopted in Brazil.

      


      4.           We
conducted our audits with the objective to express an opinion on the financial
statements referred to first paragraph. The statement of cash flow, presented in
order to offer supplementary information about QUALYTÊXTIL S.A., is not
required as part of the mandatory financial statements by the accounting
procedures adopted in Brazil. The statement of cash flow regarding April 30,
2008 and December 31, 2007 was examined under the same auditing procedures
described on the second paragraph, and in our opinion this supplementary
statement is adequately presented in all its relevant aspects to the overall
financial statements regarding April 30, 2008 and December 31,
2007.

      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Independent
Auditors’ Report

            as of
April 30, 2008 and December 31st,
2007
2 

              
                

              
 


          

        

      


       

      


      5.           As
described on note no. 6, the Company based on their legal advisors and
accounting experts, initiate at 2006 a judicial demand against tax authorities,
aiming the recoverance of PIS and Cofins (Social contributions) paid over ICMS
(Value Added Tax) from 2002 to 2006.  Based on this understanding, the
Company accounted for, at December 31, 2006,  tax recoverable as
long-term assets, of amount of R$ 688,145.  The related credit entries
were accounted for as other operational revenues (Statement of loss – current
year) on amount of R$ 47,338 and on Shareholders’ equity on amount of R$329,811
as prior year adjustments.  These credits are net of the judicial
demands fees.  Consequently, the result and Shareholders’ equity of
the period and year ended as of April 2008 and December 31, 2007, were increased
of R$46,086 (R$150,811 at 2007) and R$526,708 (R$480,622 at 2007),
respectively.

      


      


      


      Rio de
Janeiro, May 05, 2008.

      


      


      ACAL CONSULTORIA E AUDITORIA
S/S

      CRC
- RJ – 1144

      


      


      Gelson
José Amaro - Partner in Charge

      CRC-RJ -
049.669/O-4 – Accountant

       

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      
        	 
      	 	 	 	 	 	 	 	
                QUALYTÊXTIL
      S.A.

              
	 
      	 	 	 	 	 	 	 	
                A
      free translation of the original in Portuguese relating to the Financial
      Statements

              
	 
      	 	 	 	 	 	 	 	
                prepared
      in accordance with the requirements of General Accepted Accounting
      Principles in Brazil

              
	 
      	 	 	 	 	 	 	 	
                Balance
      Sheets

              
	 
      	 	 	 	 	 	 	 	
                as
      of April 30, 2008 and December 31, 2007

              
	 
      	 	 	 	 	 	 	 	
                (stated
      in Brazilian Reais - R$)

              


      

       

      
        
          	
                  ASSETS

                	 	
                  Notes

                	 	
                  2008

                	 	 	
                  2007

                	 
	 
      	 	 	 	 	 	 	 	 	 
	
                  Current
      assets

                	 	 	 	 	 	 	 	 	 
	
                  Cash
      and cash equivalents

                	 	 	3	 	 	 	57,244	 	 	 	872,077	 
	
                  Clients

                	 	 	4	 	 	 	2,023,192	 	 	 	3,553,693	 
	
                  Inventories

                	 	 	5	 	 	 	3,653,348	 	 	 	2,688,740	 
	
                  Taxes
      recoverable

                	 	 	 	 	 	 	202,570	 	 	 	150,800	 
	
                  Prepaid
      expenses

                	 	 	 	 	 	 	130,013	 	 	 	41,206	 
	
                  Short-term
      investments

                	 	 	 	 	 	 	-	 	 	 	41,355	 
	
                  Other
      receivables

                	 	 	 	 	 	 	232,612	 	 	 	261,645	 
	 
      	 	 	 	 	 	 	6,298,979	 	 	 	7,609,516	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Long
      term assets

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Taxes
      recoverable

                	 	 	6	 	 	 	796,325	 	 	 	769,220	 
	
                  Judicial
      deposits

                	 	 	6	 	 	 	197,925	 	 	 	155,203	 
	
                  Prepaid
      expenses

                	 	 	 	 	 	 	-	 	 	 	112,013	 
	
                  Long-term
      investments

                	 	 	 	 	 	 	-	 	 	 	8,687	 
	
                  Other
      receivables

                	 	 	 	 	 	 	27,401	 	 	 	198,068	 
	 
      	 	 	 	 	 	 	1,021,651	 	 	 	1,243,191	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Permanent
      assets - net

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Fixed
      assets

                	 	 	7	 	 	 	2,189,117	 	 	 	2,176,031	 
	 
      	 	 	 	 	 	 	2,189,117	 	 	 	2,176,031	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Total
      Assets

                	 	 	 	 	 	 	9,509,747	 	 	 	11,028,738	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 


        

         

        
          	
                  LIABILITIES
      AND SHAREHOLDERS' EQUITY

                	 	
                  2008

                	 	 	
                  2007

                	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Current
      liabilities

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Suppliers

                	 	 	8	 	 	 	1,327,681	 	 	 	1,875,727	 
	
                  Loans
      and financing

                	 	 	9	 	 	 	1,040,087	 	 	 	1,751,756	 
	
                  Debentures
      bonds

                	 	 	10	 	 	 	4,177,976	 	 	 	1,300,908	 
	
                  Taxes
      and contribution

                	 	 	11	 	 	 	1,190,582	 	 	 	346,097	 
	
                  Salaries
      and social charges

                	 	 	 	 	 	 	328,644	 	 	 	159,814	 
	
                  Other
      debts

                	 	 	 	 	 	 	304,929	 	 	 	63,360	 
	 
      	 	 	 	 	 	 	8,369,899	 	 	 	5,497,662	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Long
      term liabilities

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Debentures/bonds

                	 	 	10	 	 	 	-	 	 	 	2,601,816	 
	
                  Taxes
      and contribution

                	 	 	11	 	 	 	-	 	 	 	1,127,117	 
	
                  Tax
      incentive

                	 	 	 	 	 	 	-	 	 	 	643,115	 
	
                  Other
      debts

                	 	 	6	 	 	 	138,663	 	 	 	138,664	 
	 
      	 	 	 	 	 	 	138,663	 	 	 	4,510,712	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Shareholders'
      equity

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Paid
      in Capital

                	 	 	12	 	 	 	1,507,701	 	 	 	1,507,701	 
	
                  Capital
      reserves

                	 	 	12	 	 	 	712,909	 	 	 	712,909	 
	
                  Revaluation
      reserve

                	 	 	 	 	 	 	1	 	 	 	1	 
	
                  Accumulated
      losses

                	 	 	 	 	 	 	(1,219,426	)	 	 	(1,200,247	)
	 
      	 	 	 	 	 	 	1,001,185	 	 	 	1,020,364	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                   
      Total
      Liabilities and Shareholders` Equity

                	 	 	9,509,747	 	 	 	11,028,738	 


        

         

        
          	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                  See
      accompanying notes to financial statements.

                	 	 	 	 	 	 	 	 	 


        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	 
      	 
      	 
      	
                QUALYTÊXTIL
      S.A.

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                A
      free translation of the original in Portuguese relating to the Financial
      Statements

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                prepared
      in accordance with the requirements of General Accepted Accounting
      Principles in Brazil

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                Statements
      of Profit & Loss

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                for
      the period and year ended on April 30, 2008 and December 31,
      2007

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                (stated
      in Brazilian reais - R$)

              


      

       

      
        	 
      	 	 	 	 	 	 
	 
      	 	
                (04
      months)

              	 	 	
                (12
      months)

              	 
	 
      	 	
                2008

              	 	 	
                2007

              	 
	 
      	 	 	 	 	 	 
	
                Gross
      Income

              	 	 	 	 	 	 
	 
      	 	 	 	 	 	 
	
                Gross
      sales

              	 	 	6,890,423	 	 	 	22,104,656	 
	
                Cancellation
      and taxes on sales

              	 	 	(1,992,659	)	 	 	(5,517,669	)
	
                Net
      sales

              	 	 	4,897,764	 	 	 	16,586,987	 
	 
      	 	 	 	 	 	 	 	 
	
                Cost
      of sales

              	 	 	(2,622,240	)	 	 	(8,750,612	)
	 
      	 	 	 	 	 	 	 	 
	
                Gross
      profit

              	 	 	2,275,524	 	 	 	7,836,375	 
	 
      	 	 	 	 	 	 	 	 
	
                Operating
      (expenses) income

              	 	 	 	 	 	 	 	 
	
                General
      and administrative expenses

              	 	 	(1,719,147	)	 	 	(2,193,850	)
	
                Selling
      expenses

              	 	 	(180,255	)	 	 	(2,785,569	)
	
                Net
      financial

              	 	 	(248,512	)	 	 	(667,297	)
	
                Depreciation

              	 	 	(45,535	)	 	 	(117,405	)
	
                Other
      income (expense)

              	 	 	(94,952	)	 	 	(27,344	)
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Operating
      result

              	 	 	(12,877	)	 	 	2,044,910	 
	 
      	 	 	 	 	 	 	 	 
	
                Non
      operating result

              	 	 	(6,302	)	 	 	27,564	 
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Profit
      (loss) for the period/year before income tax and social
      contribution

              	 	 	(19,179	)	 	 	2,072,474	 
	 
      	 	 	 	 	 	 	 	 
	
                Provision
      for income tax and social contribution

              	 	 	-	 	 	 	(470,417	)
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Profit
      (loss) for the period/year

              	 	 	(19,179	)	 	 	1,602,057	 
	 
      	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
                Shares
      quantity of paid in capital at the period/year end

              	 	 	1,507,701	 	 	 	1,507,701	 
	 
      	 	 	 	 	 	 	 	 
	
                Profit
      (loss) per share

              	 	 	(0.01	)	 	 	1.37	 
	 
      	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
                See
      accompanying notes to financial statements.

              	 	 	 	 	 	 	 	 


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                QUALYTÊXTIL
      S.A.

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                A
      free translation of the original in Portuguese relating to the Financial
      Statements

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                prepared
      in accordance with the requirements of General Accepted Accounting
      Principles in Brazil

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                Statement
      of Changes in Shareholder's Equity

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                for
      the period and year ended on April 30, 2008 and December 31,
      2007

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                (stated
      in Brazilian reais - R$)

              


      

       

      
        	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	
                Total
      of

              	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	
                Capital
      Reserves

              	 	 	
                Capital

              	 	 	
                Revaluation

              	 	 	
                Accumulated

              	 	 	 	 
	
                Events

              	 	
                Capital

              	 	 	
                Tax
      incentive

              	 	 	
                Shares
      premium

              	 	 	
                Reserves

              	 	 	
                Reserve

              	 	 	
                Losses

              	 	 	
                Total

              	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Balance
      at December 31, 2006

              	 	 	1,507,701	 	 	 	316,172	 	 	 	84,923	 	 	 	401,095	 	 	 	1	 	 	 	(2,802,304	)	 	 	(893,507	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Tax
      incentive reserves

              	 	 	-	 	 	 	311,814	 	 	 	-	 	 	 	311,814	 	 	 	-	 	 	 	-	 	 	 	311,814	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Profit
      for the year

              	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,602,057	 	 	 	1,602,057	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Balance
      at December 31, 2007

              	 	 	1,507,701	 	 	 	627,986	 	 	 	84,923	 	 	 	712,909	 	 	 	1	 	 	 	(1,200,247	)	 	 	1,020,364	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Loss
      for the period

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(19,179	)	 	 	(19,179	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Balance
      at April 30, 2008

              	 	 	1,507,701	 	 	 	627,986	 	 	 	84,923	 	 	 	712,909	 	 	 	1	 	 	 	(1,219,426	)	 	 	1,001,185	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                See
      accompanying notes to financial statements.

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 


      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                QUALYTÊXTIL
      S.A.

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                A
      free translation of the original in Portuguese relating to the Financial
      Statements

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                prepared
      in accordance with the requirements of General Accepted Accounting
      Principles in Brazil

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                Statement
      of Changes in Sources and Uses of Funds

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                for
      the period and year ended on April 30, 2008 and December 31,
      2007

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                (stated
      in Brazilian reais - R$)

              


      

       

      
        	 
      	 	 	 	 	 	 
	 
      	 	
                (04
      months)

              	 	 	
                (12
      months)

              	 
	 
      	 	
                2008

              	 	 	
                2007

              	 
	 
      	 	 	 	 	 	 
	
                Sources
      of funds

              	 	 	 	 	 	 
	
                Profit
      of the year

              	 	 	-	 	 	 	1,602,057	 
	
                Items
      that do not affect the net working capital

              	 	 	 	 	 	 	-	 
	
                Depreciation
      of the year

              	 	 	-	 	 	 	176,362	 
	
                Fixed
      asset write-off/sale

              	 	 	4,784	 	 	 	37,797	 
	
                Tax
      incentive reserve

              	 	 	-	 	 	 	311,814	 
	
                Decrease
      on long-term assets

              	 	 	221,540	 	 	 	-	 
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Total
      of sources

              	 	 	226,324	 	 	 	2,128,030	 
	 
      	 	 	 	 	 	 	 	 
	
                Uses
      of funds

              	 	 	 	 	 	 	 	 
	
                Loss
      for the period

              	 	 	(19,179	)	 	 	-	 
	
                Depreciation
      of the period

              	 	 	90,734	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 
	
                Fixed
      assets acquisitions

              	 	 	(108,604	)	 	 	(660,234	)
	
                Increase
      on long term assets

              	 	 	-	 	 	 	(471,155	)
	
                Decrease
      on long term liabilities

              	 	 	(4,372,049	)	 	 	(697,862	)
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Total
      of investments

              	 	 	(4,409,098	)	 	 	(1,829,251	)
	 
      	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
                Increase
      (Decrease) in working capital

              	 	 	(4,182,774	)	 	 	298,779	 
	 
      	 	 	 	 	 	 	 	 
	
                Change
      in net working capital

              	 	 	 	 	 	 	 	 
	
                Current
      assets

              	 	 	 	 	 	 	 	 
	
                At
      the beginning of period/year

              	 	 	7,609,516	 	 	 	6,539,000	 
	
                At
      the end of period/year

              	 	 	6,298,979	 	 	 	7,609,516	 
	 
      	 	 	(1,310,537	)	 	 	1,070,516	 
	
                Current
      liabilities

              	 	 	 	 	 	 	 	 
	
                At
      the beginning of period/year

              	 	 	5,497,662	 	 	 	4,725,925	 
	
                At
      the end of period/year

              	 	 	8,369,899	 	 	 	5,497,662	 
	 
      	 	 	2,872,237	 	 	 	771,737	 
	 
      	 	 	 	 	 	 	 	 
	
                Increase
      (Decrease) in working capital

              	 	 	(4,182,774	)	 	 	298,779	 


      

       

      
        	 
      	 	 	 	 	 	 	 	 
	
                See
      accompanying notes to financial statements.

              	 	 	 	 	 	 	 	 


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
        	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                QUALYTÊXTIL
      S.A.

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                A
      free translation of the original in Portuguese relating to the Financial
      Statements

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                prepared
      in accordance with the requirements of General Accepted Accounting
      Principles in Brazil

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                Statements
      of Cash Flows

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                for
      the period and year ended on April 30, 2008 and December 31,
      2007

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                (stated
      in Brazilian reais - R$)

              


      

      
        	 
      	 	 	 	 	 	 
	 
      	 	
                (04
      months)

              	 	 	
                (12
      months)

              	 
	 
      	 	
                2008

              	 	 	
                2007

              	 
	 
      	 	 	 	 	 	 
	
                Operating
      Activities

              	 	 	 	 	 	 
	
                Profit
      (Loss) for the period/year

              	 	 	(19,179	)	 	 	1,602,057	 
	
                Adjustments
      to reconcile loss to net cash provided

              	 	 	 	 	 	 	 	 
	
                by
      operating activities:

              	 	 	 	 	 	 	 	 
	
                Depreciation
      and amortization

              	 	 	90,734	 	 	 	176,362	 
	
                (Increase)
      decrease in current assets

              	 	 	 	 	 	 	 	 
	
                Clients

              	 	 	1,530,501	 	 	 	(1,197,844	)
	
                Inventories

              	 	 	(964,608	)	 	 	(463,884	)
	
                Tax
      recoverable

              	 	 	(51,770	)	 	 	(25,401	)
	
                Prepaid
      expenses

              	 	 	(88,807	)	 	 	27,673	 
	
                Short-term
      investments

              	 	 	41,355	 	 	 	(27,524	)
	
                Other
      receivables

              	 	 	29,033	 	 	 	(66,626	)
	
                Increase
      (decrease) in current liabilities

              	 	 	 	 	 	 	 	 
	
                Suppliers

              	 	 	(548,046	)	 	 	1,470,582	 
	
                Loans
      and financing

              	 	 	(711,669	)	 	 	(737,692	)
	
                Debentures

              	 	 	2,877,068	 	 	 	222,526	 
	
                Taxes
      and contributions

              	 	 	844,485	 	 	 	(253,862	)
	
                Salaries
      and social charges

              	 	 	168,830	 	 	 	65,458	 
	
                Other
      debts

              	 	 	241,569	 	 	 	4,725	 
	
                Net
      Cash Provided by Operating Activities

              	 	 	3,439,496	 	 	 	796,550	 
	 
      	 	 	 	 	 	 	 	 
	
                Investments
      activities

              	 	 	 	 	 	 	 	 
	
                Fixed
      assets acquisitions

              	 	 	(108,604	)	 	 	(660,234	)
	
                Fixed
      asset write-off/sale

              	 	 	4,784	 	 	 	37,797	 
	
                Net
      Cash Consumed by Investments Activities

              	 	 	(103,820	)	 	 	(622,437	)
	 
      	 	 	 	 	 	 	 	 
	
                Financing
      activities

              	 	 	 	 	 	 	 	 
	
                (Increase)
      decrease in long-term assets

              	 	 	 	 	 	 	 	 
	
                Taxes
      recoverable

              	 	 	(27,105	)	 	 	(81,075	)
	
                Judicial
      deposits

              	 	 	(42,722	)	 	 	(147,426	)
	
                Prepaid
      expenses

              	 	 	112,013	 	 	 	(57,412	)
	
                Long-term
      investments

              	 	 	8,687	 	 	 	12,826	 
	
                Other
      receivables

              	 	 	170,667	 	 	 	(198,068	)
	
                Increase
      (decrease) in long-term liabilities

              	 	 	 	 	 	 	 	 
	
                Loans
      and financing

              	 	 	-	 	 	 	(227,069	)
	
                Debentures/bonds

              	 	 	(2,601,816	)	 	 	(633,330	)
	
                Taxes
      and contribution

              	 	 	(1,127,117	)	 	 	(40,199	)
	
                Tax
      incentive

              	 	 	(643,115	)	 	 	168,460	 
	
                Other
      debts

              	 	 	(1	)	 	 	34,276	 
	
                Share
      premium

              	 	 	-	 	 	 	311,814	 
	
                Net
      Cash Consumed by Financing Activities

              	 	 	(4,150,509	)	 	 	(857,203	)
	 
      	 	 	 	 	 	 	 	 
	
                Increase
      (decrease) in cash and cash equivalents

              	 	 	(814,833	)	 	 	(683,090	)
	 
      	 	 	 	 	 	 	 	 
	
                Represented
      by:

              	 	 	 	 	 	 	 	 
	
                Cash
      and equivalents at beginning of period/year

              	 	 	872,077	 	 	 	1,555,167	 
	
                Cash
      and equivalents at end of period/year

              	 	 	57,244	 	 	 	872,077	 
	 
      	 	 
      	  	 	 	 
      	  	 
	
                Increase
      (decrease) in cash and cash equivalents

              	 	 	(814,833	)	 	 	(683,090	)


      

       

      
        	 
      	 
      	 
      	 
      	 
      	 
      
	
                See
      accompanying notes to financial statements.

              	 
      	 
      	 
      	 
      


      

    

    

      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)


              1

            

          

        

        
          

        

      

       

      1
– Operating context

      


      The Company was incorporated on July
2000 as a limited liability company named Vieira, Bastos & Antunes
Ltda., and later been
changed to Qualytêxtil S.A., registered at Bahia state’s board of trade on May
2005.

      


      The
Company’s principal activity is to manufacture, commercialize and rent outfit,
uniforms and accessories to personal and industrial safety. The headquarter is
based at Salvador-BA, having branches based at Rio de Janeiro, to storage and
distribution and a trade representation office based at São Paulo.

      


      On
September 23, 2005, after an auditing process accomplished by BVQI do Brasil
Sociedade Certificadora Ltda, the Company was certified to ISO 9001/2000,
maintaining this status up to now.

      


      The sales increase recorded on 2007,
due in part to the regulation of the use of equipment to protect the individual
worker, which established new procedures specifically as a security uniform
anti-flame, to workers who perform activities of electrician workers in a
situation of medium and low voltage.

      


      The
manufacturing productivity has improved during the year due to investments in
new cutting and sewing equipments, as well as better qualified and appropriate
labor recruitment to the industrial process.

      


      


      2
– Summary of significant accounting and valuation policies

      


      The
Company maintains its records in accordance with generally accepted accounting
principles adopted in Brazil, based on the Corporation Law, and the accounting
procedures issued by  CVM – Comissão de Valores Mobiliários (Brazilian
Exchange Comission) and IBRACON – Instituto dos Auditores Independentes do
Brasil (the Brazilian Independent Auditors Institute).

      


      On
December 28, 2007 was enacted the Law 11,638/07 which changed several gadgets of
Law 6,404 (Publicity Traded Company) from year on 2008, in order to adjust
accounting practices adopted  in Brazil to the International Financial
Reporting  Standards (IFRS). The Company is currently evaluating the
impacts of this Law.

      


      
        	
                (a)

              	
                Cash and cash equivalents -
      represented mainly by the banks current accounts and short-term
      marketable securities, plus income earned through the balance sheet
      date.

              


      

      


      
        	
                (b)

              	
                Inventories - are
      stated at average cost of acquisition or production, which is lower than
      market value.

              


      

      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
2

          

        

        
          

        

      

       

      
        	
                (c)

              	
                Fixed assets - are
      stated by the cost of acquisition. Depreciation is provided for by using
      the straight-line method in accordance with the annual rates as mentioned
      in Note 7.

              


      

      


      
        	
                (d)

              	
                Allowance for doubtful
      accounts - is set up, when necessary, in an amount considered
      sufficient to cover potential losses on uncollectible
      accounts.

              


      

      


      
        	
                (e)

              	
                Indexed liabilities -
      liabilities subject to exchange variation are stated at their
      adjusted values on the balance sheet date, based on the dollar prevailing
      on April 30, 2008 – US$1.00=R$1,6872 (US$1.00=R$1,7713 on December 31,
      2007).

              


      

      


      
        	
                (f)

              	
                Assets
      and liabilities with maturity date within the next 12 months are accounted
      as current assets and current liabilities, respectively. As mentioned at
      Note 14 – Subsequent events the new shareholder to intend prepay the
      mainly liabilities, because of that related long term liabilities were
      reclassified as current liabilities at April 30,
  2008.

              


      

      


      
        	
                (g)

              	
                Profit
      and loss are determined on accrual
basis.

              


      

      


      
        	
                (h)

              	
                Assets
      and liabilities are registered at their net realizable and due value,
      respectively, considering monetary and exchange variations, as well as
      incomes and charges earned or incurred until the balance sheet date,
      accrued on a “pro rata temporis” basis. When applicable, are established
      accruals to decrease asset to market
value.

              


      

      


      
        	
                (i)

              	
                Supplementary
      information – Aiming to allow additional financial analysis, the
      Company presents as supplementary information, a statement of cash flow.
      This statement was elaborated in accordance to NPC-20 of IBRACON –
      Instituto dos Auditores Independentes do Brasil (the Brazilian Auditors
      Institute), considering the main operations which had influence on cash
      and cash equivalent and marketable securities of the Company. This
      statement is divided in operational activities, investment activities and
      financial activities in order to help the understanding of overall
      financial statements.

              


      

      


      
        	
                (j)

              	
                The
      profit or loss per share is calculated based on the quantity of shares at
      the year end.

              


      

      


      


      3
– Cash and cash equivalent

      


      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	 	 	 	 	 
	
                Cash

              	 	 	3,000	 	 	 	3,000	 
	
                Banks

              	 	 	54,244	 	 	 	869,077	 
	
                Total

              	 	 	57,244	 	 	 	872,077	 


      

      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
3

          

        

        
          

        

      


      4
– Clients

      


      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	 	 	 	 	 
	
                Domestic
      clients

              	 	 	2,054,707	 	 	 	3,575,820	 
	
                Allowance
      for doubtful accounts

              	 	 	(31,515	)	 	 	(22,127	)
	
                Total

              	 	 	2,023,192	 	 	 	3,553,693	 


      

      


      


      5
– Inventories

      


      


      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	 	 	 	 	 
	
                Goods
      for sale

              	 	 	656,339	 	 	 	309,685	 
	
                Goods
      in process

              	 	 	456,199	 	 	 	-	 
	
                Goods
      for re-sale

              	 	 	357,910	 	 	 	360,482	 
	
                Raw
      material

              	 	 	2,090,955	 	 	 	1,940,206	 
	
                Imports
      in process

              	 	 	-	 	 	 	59,248	 
	
                Others

              	 	 	177,508	 	 	 	19,119	 
	
                Provision
      for loss on sales

              	 	 	(85,563	)	 	 	-	 
	
                Total

              	 	 	3,653,348	 	 	 	2,688,740	 


      

      


      


      6
– Tax recoverable and judicial deposits

      


                 At
2006, the Company accounted for on the long-term assets, the recoverable tax
related to PIS and Cofins computed and paid considering the ICMS in its own
computation base  on the period from 2002 to 2006 on the total amount
of R$ 688,145.  The amount paid on 2006, R$71,125 were accounted for
against the result of the year and the remaining balance, which amounts to R$
499,714, was accounted for against accumulated results. On December 31, 2007,
these figure, accrued by Brazilian Central Bank interest rate (Selic), amounts
to R$ 769,220. The company’s lawyers and accountant experts consider that is
almost guaranteed the success on such demand.  From November 2006 on,
the Company is making judicial deposits, which amounts R$197,925 on April 30,
2008 (R$ 155,203 on December 31, 2007).  In addition,, on April 30,
2008, the recoverable value regarding PIS and COFINS paid over ICMS, restated by
Brazilian Central Bank interest rate (Selic), amounts R$ 799,325 (R$769,220 on
December 31, 2007).

      


                The
lawyers’ fees regarding the judicial demand are accrued as long-term
liabilities.

      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
4

          

        

        
          

        

      


      7
– Fixed assets

      


      
        	 
      	 	 	 	 	 	 	 	 
	 
      	 	
                
                

                Annual
      rate

              	 	
                
                

                04/30/2008

              	 	 	
                
                

                12/31/2007

              	 
	 
      	 	 	 	 	 	 	 	 	 
	
                Buildings

              	 	 	4	%	 	 	451,875	 	 	 	451,875	 
	
                Buildings
      (Revaluation)

              	 	 	4	%	 	 	789,538	 	 	 	789,538	 
	
                Software

              	 	 	20	%	 	 	476,975	 	 	 	388,498	 
	
                Machinery
      & Equipments

              	 	 	10	%	 	 	774,246	 	 	 	787,497	 
	
                Vehicles

              	 	 	20	%	 	 	21,993	 	 	 	21,993	 
	
                Trade
      marks and patents

              	 	 	20	%	 	 	102,217	 	 	 	102,217	 
	
                Hardware

              	 	 	20	%	 	 	119,705	 	 	 	117,588	 
	
                Fixtures

              	 	 	10	%	 	 	195,033	 	 	 	193,084	 
	
                Furniture

              	 	 	10	%	 	 	113,376	 	 	 	98,550	 
	
                Subtotal

              	 	 	 	 	 	 	3,044,958	 	 	 	2,950,840	 
	
                (-)
      Accumulated depreciation

              	 	 	 	 	 	 	(855,841	)	 	 	(774,809	)
	
                Total

              	 	 	 	 	 	 	2,189,117	 	 	 	2,176,031	 


      

      


      


      8
– Suppliers

      


      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	 	 	 	 	 
	
                Domestic
      suppliers

              	 	 	866,383	 	 	 	1,439,947	 
	
                Foreign
      suppliers

              	 	 	461,298	 	 	 	435,780	 
	
                Total

              	 	 	1,327,681	 	 	 	1,875,727	 


      

      


      


       

      


      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
5

          

        

        
          

        

      


      9
– Loans and financing

      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	
                Short

                 term

              	 	 	
                Long
 term

              	 	 	
                Short
 term

              	 	 	
                Long 
term

              	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                Secured
      account

              	 	 	 	 	 	 	 	 	 	 	 	 
	
                Banco
      Itaú S/A ( 2% p.m.)

              	 	 	460,000	 	 	 	-	 	 	 	200,000	 	 	 	-	 
	
                Banco
      Real S/A ( 7.05% p.m.)

              	 	 	-	 	 	 	-	 	 	 	746	 	 	 	-	 
	
                Banco
      do Nordeste S/A (2.0% p.m.)

              	 	 	578,753	 	 	 	-	 	 	 	-	 	 	 	-	 
	
                Subtotal

              	 	 	1,038,753	 	 	 	-	 	 	 	200,746	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Working
      capital

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Banco
      Safra S/A (CDI+ 0.6% p.m.)

              	 	 	-	 	 	 	-	 	 	 	382,315	 	 	 	-	 
	
                Banco
      Itaú S/A ( Variação Cambial 8% p.y.)

              	 	 	-	 	 	 	-	 	 	 	53,661	 	 	 	-	 
	
                Banco
      Itaú S/A (1.80% p.y.)

              	 	 	-	 	 	 	-	 	 	 	23,279	 	 	 	-	 
	
                Banco
      Real S/A (2.311% p.m.)

              	 	 	-	 	 	 	-	 	 	 	69,872	 	 	 	-	 
	
                Banco
      Safra S/A (credit limit)

              	 	 	32	 	 	 	-	 	 	 	-	 	 	 	-	 
	
                Bradesco
      do Nordeste S/A (10%/12% p.y.)

              	 	 	-	 	 	 	-	 	 	 	758,109	 	 	 	-	 
	
                Subtotal

              	 	 	32	 	 	 	-	 	 	 	1,287,236	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Financing
      of fixed assets

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Cia.
      Itauleasing Arrendamento Mercantil

              	 	 	4,649	 	 	 	-	 	 	 	9,298	 	 	 	-	 
	 
      	 	 	4,649	 	 	 	-	 	 	 	9,298	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Financing
      of imports

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Banco
      do Brasil S/A (Libor + 0.582%)

              	 	 	-	 	 	 	-	 	 	 	254,476	 	 	 	-	 
	
                Subtotal

              	 	 	-	 	 	 	-	 	 	 	254,476	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Prepaid
      expenses

              	 	 	(3,347	)	 	 	-	 	 	 	-	 	 	 	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Total

              	 	 	1,040,087	 	 	 	-	 	 	 	1,751,756	 	 	 	-	 


      

      


      


      10–
Debentures

      


      On May
18, 2005, the Company issued, in favor of Nordeste Empreendedor – Fundo Mútuo de
Investimento em Empresas Emergentes, 358,012 nominative and book entry
debentures, convertible in preferred capital stock Class A, with unit nominal
value of R$ 9.7762, amounting a total of R$ 3,500,000. The debentures issued
will be indexed by IGP-M variation, with amortization in four equal annual
installments beginning on May 18, 2007.

      


      As
mentioned at Note 14 – Subsequent event the new shareholder to intend prepay the
mainly liabilities, because of that related long term liabilities of debentures
were reclassified as current liabilities at April 30, 2008.

      


      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
6

          

        

        
          

        

      


      The
updated value of debentures on April 30, 2008, the amount of R$ 4,177,976,
accounted for as current liabilities (On December 31, 2007, R$ 3,902,724, being
R$1,300,908 accounted for as current liabilities and R$ 2,601,816 as long-term
liability), were prepay on May 13, 2008 in the amount of R$
4,183,838.

      


      


      11
– Taxes and contribution

      


      
        	 
      	 	 	 	 	 	 
	 
      	 	
                04/30/2008

              	 	 	
                12/31/2007

              	 
	 
      	 	
                Short
term

              	 	 	
                Long

                term

              	 	 	
                Short

                 term

              	 	 	
                Long

                term

              	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                State
      tax - VAT

              	 	 	26,920	 	 	 	-	 	 	 	68,554	 	 	 	-	 
	
                Cofins
      payable

              	 	 	-	 	 	 	-	 	 	 	45,677	 	 	 	-	 
	
                PIS
      payable

              	 	 	-	 	 	 	-	 	 	 	12,218	 	 	 	-	 
	
                Pis/Cofins/CSLL/IRRF
      withholding

              	 	 	290	 	 	 	-	 	 	 	14,803	 	 	 	-	 
	
                Income
      tax withholding – third parties

              	 	 	1,587	 	 	 	-	 	 	 	5,958	 	 	 	-	 
	
                Municipal
      service tax

              	 	 	631	 	 	 	-	 	 	 	210	 	 	 	-	 
	
                State
      tax - VAT - installments

              	 	 	104,125	 	 	 	-	 	 	 	25,185	 	 	 	88,034	 
	
                PAEX/PAES

              	 	 	851,652	 	 	 	-	 	 	 	101,297	 	 	 	852,580	 
	
                Pis
      - installments

              	 	 	39,549	 	 	 	-	 	 	 	13,896	 	 	 	35,898	 
	
                Cofins
      - installments

              	 	 	165,828	 	 	 	-	 	 	 	58,299	 	 	 	150,605	 
	
                Total

              	 	 	1,190,582	 	 	 	-	 	 	 	346,097	 	 	 	1,127,117	 


      

      


      The State
tax – VAT installments balance refers to 02 (two) debt installments of Company’s
Macaé branch.

      


      On August
2006, the Company gave up from PAES installment debts regarding federal taxes
debts, and request for a new installment program (PAEX).  On April 30,
2008 the total debt amounts R$ 851,652 (R$ 953,877 on December 31,
2007).

      


      As
mentioned at Note 14 – Subsequent event the new shareholder to intend prepay the
mainly liabilities, because of that related long term of Taxes and contribution
were reclassified as current liabilities at April 30, 2008. So the liabilities
balance with maturity date within next 12 month, are accounted for as current
liabilities.

      


       

      



      
        
           


        

        
           


          
            

          

        

        
           


          
            QUALYTÊXTIL
S.A.

            A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

            Notes to
the Financial Statements

                             April
30, 2008 and December 31, 2007

                                   (Stated
in Brazilian Reais - R$)
7

          

        

        
          

        

      


      12–
Shareholders’ equity

      


      
        	
                 

              	
                      
                  a)
      Capital

                

              


      

      


      On April
30, 2008 and December 31, 2007, Company’s paid in capital is comprised of
1,507,701 shares (1,492,624 common nominative shares and 15,077 preferred Class
A shares), distributed as follow:

      


      


      
        	
                 

                Shareholders

              	 	
                Quantity
      of Shares

              	 	
                 

                Type

              	 	
                
                

                Value
      in R$

              	 
	
                VBA
      Participações Ltda.

              	 	 	1,492,624	 	
                Common
      nominatives

              	 	 	1,492,624	 
	
                Nordeste
      Empreendedor – F.M.I.E.E.

              	 	 	15,077	 	
                Preferred
      Class A

              	 	 	15,077	 
	
                Total

              	 	 	1,507,701	 	 
      	 	 	1,507,701	 


      

      


      
        	
                 
      

              	
                 b)
      Capital reserves

              


      

      


                 On
2007 was formed a tax incentive reserve in the amount of R$ 311,814 relating to
exploitation profit.

      


      


      13 - Contingencies

      


      13.1 – Tax contingencies

      


      On June
21, 2007, the Company was fined by the State Tax Authority (AI 10895.0002/07-5
on the total amount of R$ 2,276,420.83 (updated amount until the date of the
fine), basically referring to non compliance with due dates requested by a tax
incentive program granted by the State Tax Authority). On August 01, 2007,
the Company joined with defense administrative through their legal advisers.
According to them, the Company will be successful in this litigation, and the
process in the initial stage of administrative trial, leaving even multiple
instances to use in case of not obtaining success in the first trial, being
taken for granted the success in the judicial sphere.

      


      The legal
fees due regarding success, in the amount of R$ 90,000 (ninety thousand
reais) was not accounted for, as well as any value regarding a remote
liability.

      


      
         

        



        
          
             


          

          
             


            
              

            

          

          
             


            
              QUALYTÊXTIL
S.A.

              A
free translation of the original in Portuguese relating to the Financial
Statements prepared in 
accordance with the requirements of General Accepted
Accounting Principles in Brazil

              Notes to
the Financial Statements

                               April
30, 2008 and December 31, 2007

                                     (Stated
in Brazilian Reais - R$)
8

            

          

          
            

          

        

      

       

      13.2
– Labor contingencies

      


      According
to the legal advisers of the Company, there are ongoing labor complaints, as
described below:

      


      
        	
                Process

              	 	 	
                Value

              	 	
                Chance
      of loss

              
	 	 	 	 	 	 
      
	
                 00181.2005.032.02.00-0

              	 	 	 	10,000	 	
                Probable
      loss

              
	
                 879660-9/2005

              	 	 	 	7,157	 	
                Possible
      loss

              
	
                 880259-4/2005

              	 	 	 	7,640	 	
                Remote
      loss

              
	 	 	 	 	24,797	 	 
      


      

      


      For all
the demands mentioned above, there is no final definition by the Court and does
not have accounting provision for eventual losses.

      


      


      14
– Subsequent events

      


      On May
09, 2008, Lakeland do Brasil Empreendimentos e Participações Ltda., became a
shareholder of the Company.

      


      On May
13, 2008, the main shareholder Lakeland do Brasil Empreendimentos e
Participações Ltda. paid in capital on amount of R$ 6,337,838, accounted for as
advance for future capital increase.

      


      


      On May
16, 2008, Lakeland Industries Inc. (main shareholder of Lakeland do Brasil
Empreendimentos e Participações Ltda.) borrowed US$ 650,000 with annual interest
of 8% plus exchange variation with maturity date 91 days.

      


      The new
shareholder to intend prepay the mainly liabilities, so related long term
liabilities were reclassified as current liabilities at April 30,
2008.

       

      


       

      


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