Document:

Exhibit
10.3

    

    TRANSACTION
APPROVAL AGREEMENT

    

    THIS TRANSACTION APPROVAL AGREEMENT
(this "Agreement"), dated as of March
31, 2010, is entered into by and among ZANETT,
INC.,  Delaware corporation (the "Company") and the Stockholders
listed on the signature page to this Agreement (each, a "Stockholder" and collectively,
the "Stockholders").

    

    WHEREAS, on February 28, 2010,
Rockport Investments Ltd. (the "Investor") and Bruno Guazzoni
entered into an arrangement whereby (i) the Investor agreed to purchase from
Bruno Guazzoni, and Bruno Guazzoni agreed to sell to the Investor, those two
certain promissory notes owing by the Company held by Bruno Guazzoni in an
aggregate principal amount equal to $5,325,000 (the "Promissory Notes"), and (ii)
the Investor agreed to assume from Bruno Guazzoni, and Bruno Guazzoni agreed to
assign to the Investor, all of Bruno Guazzoni's obligations and rights under
that certain line of credit to extend credit to the Company up to $3,000,000
(the "Line of Credit"),
in each case extinguishing in full all obligations owing by the Company to Bruno
Guazzoni thereunder in favor of repayment obligations owing to the
Investor.

    

    WHEREAS, the Company wishes to
refinance its obligations now owing to the Investor in respect of the Promissory
Notes and the Line of Credit in a transaction with the Investor in which the
Company will issue convertible debt of the Company to the Investor (the "Company Convertible Debt") in
exchange for the Promissory Notes and the Line of Credit, on the terms and
conditions set forth in that certain Term Debt – Convertible Debt Exchange
Agreement between the Investor and the Company dated as of March 31, 2010 (the
"Exchange
Agreement");

    

    WHEREAS, the consummation of
the transactions contemplated by the Exchange Agreement and the issuance of the
Company Convertible Debt (collectively, the "Transactions") are contingent
on the approval by the common stockholders of the Company at the 2010 Annual
Meeting of Stockholders;

    

    WHEREAS, the Stockholders are
record holders of common stock of the Company, par value $0.001 ("Common Stock");
and

    

    WHEREAS, each of the
Stockholders wishes, on the terms and subject to the conditions set forth
herein, to agree to vote the Common Stock held by it in favor of the
Transactions and as otherwise may be necessary to facilitate the consummation of
the Transactions, including, without limitation, approving (i) an amendment to
the Company’s Certificate of Incorporation to increase the number of authorized
shares of Common Stock to at least 149,669,463, and (ii) the issuance of shares
of Common Stock upon conversion of the Company Convertible Debt (including, in
each case, any shares issuable as a result of antidilution adjustments pursuant
to the terms of the Company Convertible Debt) or as otherwise contemplated by
the terms of the Company Convertible Debt.

     

    
      C.G.
______

      D.H.
______

       

        
          
             

          

          
             

            
              

            

          

          
             

          

        
 

    

    NOW, THEREFORE, for good and
valuable consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:

    

    1.           Representations of the
Stockholders.  Each Stockholder represents and warrants to the
Company, as to himself, that (i) he lawfully owns beneficially (as such term is
defined in the Securities Exchange Act of 1934, as amended) and of record the
number of shares of Common Stock set forth opposite his name on Exhibit A free
and clear of all liens, claims, charges, security interests or other
encumbrances and, except for this Agreement, there are no voting trusts or
voting agreements with respect to such shares, (ii) he does not beneficially own
any Common Stock or other voting securities of the Company other than the shares
set forth on Exhibit A, (iii)
he has full power and authority to vote all of the shares of Common Stock set
forth on Exhibit A and to enter into, execute and deliver this Agreement and to
perform fully his obligations hereunder, and (iv) this Agreement has been duly
executed and delivered by him, constitutes his legal, valid and binding
obligation, and is enforceable against him in accordance with its
terms.

     

    2.           Agreement to Vote
Shares.  Each Stockholder agrees, as to himself, that he will
vote the shares of Common Stock held of record or beneficially by him (including
the shares set forth opposite his name on Exhibit A and any New Company
Securities (as defined in Section 4 hereof)), or will, if applicable, cause any
holder of record of the shares of Common Stock owned beneficially by him
(including, any New Company Securities), to vote the shares of Common Stock and
New Company Securities at every meeting of the stockholders of the Company at
which such matters are considered and at every adjournment thereof and in
connection with any written consent of the stockholders of the Company
(including, without limitation, the 2010 Annual Meeting of Stockholders of the
Company):  (a) in favor of consummation of the Transactions and all
actions necessary to facilitate the consummation of the Transactions, (b) in
favor of an amendment to the Company’s Certificate of Incorporation to increase
the number of authorized shares of Common Stock to at least 149,669,463, (c) in
favor of approving the issuance of shares of Common Stock upon conversion of the
Company Convertible Debt (including, in each case, any shares issuable as a
result of antidilution adjustments pursuant to the terms of the Company
Convertible Debt) or as otherwise contemplated by the terms of the Notes and
Warrants, (d) against any action or agreement that would result, or would be
reasonably likely to result, in a breach in any material respect of any
covenant, representation or warranty or any other obligation of the Company
under the Exchange Agreement or the Convertible Note and (e) against any action
or agreement contrary to those set forth in this Section 2.  Each
Stockholder will retain the right to vote his Common Stock, in his sole
discretion, on all matters other than those described in this Section 2 or shall
grant a proxy in a form approved by the Company to vote the matters described in
this Section 2, and each Stockholder may grant proxies and enter into voting
agreements or voting trusts for the Common Stock in respect of such other
matters.

    
       

      C.G.
______

      D.H.
______

       

        
          
             

          

          
             

            
              

            

          

          
             

          

        
 

    

    3.           Transfer and
Encumbrance.  From the date hereof until after the completion
of the 2010 Annual Meeting of Stockholders of the Company (or any adjournments
thereof) at which the matters set forth in Section 2 above are considered, or
such later date upon which the Transactions are approved by the stockholders of
the Company, each Stockholder agrees not to transfer, sell, offer, exchange,
pledge or otherwise dispose of or encumber any of the Common Stock or any New
Company Securities held by him, unless the transferee agrees in written form
satisfactory to the Company to be bound by the terms of this Agreement as if
such transferee were a signatory to this Agreement, or to grant any other voting
rights with respect thereto or enter into any other agreement or arrangement
regarding the voting thereof.

     

    4.           Additional
Purchases.  Each Stockholder agrees that any Common Stock or
other voting securities of the Company purchased or otherwise acquired by him
after the date of execution of this Agreement ("New Company Securities") shall
be subject to the terms of this Agreement to the same extent as if they had been
owned by him on the date hereof.

     

    5.           Specific
Performance.  Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law for
damages.  Accordingly, each party hereto agrees that injunctive relief
or other equitable remedy, in addition to remedies at law for damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that the other party has an adequate remedy at
law.  Each party hereto agrees that it will not seek, and agrees to
waive any requirement for, the securing or posting of a bond in connection with
any other party’s seeking or obtaining such equitable relief.

     

    6.           Capacity of
Stockholders.  Each Stockholder has executed this Agreement
solely in such Stockholder’s capacity as a securityholder of the Company and not
in such Stockholder’s capacity as an officer, director or employee of the
Company or any of its affiliates.  Without limiting the foregoing,
nothing in this Agreement shall limit or affect any actions taken by such
Stockholder in such Stockholder’s capacity as an officer, director or employee
of the Company or any of its affiliates.

     

    7.           Entire
Agreement.  As among the Stockholders and the Company, this
Agreement supersedes all prior agreements, written or oral, among the parties
hereto with respect to the subject matter hereof and contains the entire
agreement among the parties with respect to the subject matter
hereof.  This Agreement may not be amended, supplemented or modified,
and no provisions hereof may be modified or waived, except by an instrument in
writing signed by all the parties hereto.  No waiver of any provisions
hereof by any party shall be deemed a waiver of any other provisions hereof by
such party, nor shall any such waiver be deemed a continuing waiver of any
provision hereof by such party.

     

    8.           Notice.  Any
notice, request, instruction or other document to be given hereunder by any
party to the others shall be deemed given if in writing and delivered personally
or sent by registered or certified mail (return receipt requested) or overnight
courier (providing proof of delivery), postage prepaid, or by facsimile (which
is confirmed):

    
       

      C.G.
______

      D.H.
______

       

        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

    

     

      If
to the Company:

    

    Zanett,
Inc.

    635
Madison Ave., 15th
Floor

    New York,
NY  10022

    Attention:  Dennis
Harkins

    

     
With a concurrent copy to:

    

    Drinker
Biddle & Reath LLP

    One Logan
Square

    Suite
2000

    Philadelphia,
PA  19103

    Attention:  Stephen
T. Burdumy, Esq.

    

      If
to a Stockholder, to the address set forth on Exhibit A
hereto.

    

    or to
such other persons or addresses as may be designated in writing by the party to
receive such notice as provided above.

    

    9.           Miscellaneous.

     

    (a)           This
Agreement shall be deemed a contract made under, and for all purposes shall be
construed in accordance with, the laws of the State of Delaware.

     

    (b)           If
any provision of this Agreement or the application of such provision to any
person or circumstances shall be held invalid or unenforceable by a court of
competent jurisdiction, such provision or application shall be unenforceable
only to the extent of such invalidity or unenforceability and the remainder of
the provision held invalid or unenforceable and the application of such
provision to persons or circumstances, other than the party as to which it is
held invalid, and the remainder of this Agreement, shall not be
affected.

     

    (c)           This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument.

     

    (d)           Each
party hereto shall execute and deliver such additional documents as may be
necessary or desirable to effect the transactions contemplated by this
Agreement.

     

    (e)           All
Section headings herein are for convenience of reference only and are not part
of this Agreement, and no construction or reference shall be derived
therefrom.

     

    (f)           The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
hereto.

     

      C.G.
______

      D.H.
______

       

        
          
             

          

          
             

            
              

            

          

          
             

          

        
 

    

    (g)           The
obligations of the Stockholders set forth in this Agreement shall not be
effective or binding upon such party until after such time as the Exchange
Agreement is executed and delivered by the parties thereto.

     

    [Remainder of Page Intentionally Left
Blank]

    
       

      C.G.
______

      D.H.
______

       

        
          
             

          

          
             

            
              

            

          

          
             

          

        
 

    

    IN WITNESS WHEREOF, the
parties hereto have executed and delivered this Agreement as of the date first
written above.

    

    
      
        
          
            
              	 	
                      ZANETT,
      INC.

                    	 
	 	 
      	 
      	 
	 	
                      By:

                    	 
      	 

            

          

        

      

    

    
      
        
          
            
              
                
                  	 	
                          Name:

                        	 
      	 
	 	
                          Title:

                        	 
      	 

                

              

            

          

        

      

    

    

    
      
        
          
            
              
                	 	
                        STOCKHOLDERS:

                      	 
      
	 	 
      	 
      
	 	 
      	 
      
	 	
                        Claudio
      M. Guazzoni

                      	 
      
	 	 
      	 
      
	 	 
      	 
      
	 	
                        Bruno
      Guazzoni

                      	 
      
	 	 
      	 
      
	 	 
      	 
      
	 	
                        Charles
      Deskins

                      	 
      
	 	 
      	 
      
	 	 
      	 
      
	 	
                        Dennis
      Harkins

                      	 
      

              

            

          

        

      

    

     

    C.G.
______

    D.H.
______

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    Exhibit
10.3

    

    EXHIBIT
A

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          	
                                                  Name and Address

                                                	 	 	 
	
                                                  of Stockholder

                                                	 	
                                                  Number of Shares

                                                	 
	 
      	 	 	 
	
                                                  Claudio
      M. Guazzoni

                                                	 	
                                                  2,109,204

                                                	 
	
                                                  Zanett,
      Inc.

                                                	 	 	 
	
                                                  635
      Madison Ave. 15th
      Floor

                                                	 	 	 
	
                                                  New
      York, NY  10022

                                                	 	 	 
	 
      	 	 	 
	
                                                  Bruno
      Guazzoni

                                                	 	
                                                  2,430,711

                                                	 
	
                                                  Zanett,
      Inc.

                                                	 	 	 
	
                                                  635
      Madison Ave. 15th
      Floor

                                                	 	 	 
	
                                                  New
      York, NY  10022

                                                	 	 	 
	 
      	 	 	 
	
                                                  Charles
      Deskins

                                                	 	
                                                  70,000

                                                	 
	
                                                  Zanett,
      Inc.

                                                	 	 	 
	
                                                  635
      Madison Ave. 15th
      Floor

                                                	 	 	 
	
                                                  New
      York, NY  10022

                                                	 	 	 
	 
      	 	 	 
	
                                                  Dennis
      Harkins

                                                	 	
                                                  100,000

                                                	 
	
                                                  Zanett,
      Inc.

                                                	 	 	 
	
                                                  635
      Madison Ave. 15th
      Floor

                                                	 	 	 
	
                                                  New
      York, NY  10022

                                                	 	 	 

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
       

      C.G.
______

      D.H.
______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 four month 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 auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An  audit also includes 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 in the 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 four
month 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 the four
month period ended April 30, 2008 and the year ended December 31, 2007 was
examined under the same auditing procedures described in the second paragraph,
and in our opinion is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      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 four month 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.

      

      /s/ 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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