On behalf of the Board of Directors, I am pleased to present our Group's Annual Report and the Financial Statements for the financial year ended 31 December 2007 ("FY2007").

FY2007 was a difficult year for the Group. Although our revenue was at par with what we achieved in FY2006, a loss of RMB4.7 million was recorded for the year. The loss, other than the write-off of biological assets and a prudent provision for obsolete inventories, was mainly due to the continuing appreciation of Renminbi against the US Dollar and the increased labor cost and other facility expenses.

In FY2007, we revised the strategic planning for our Guizhou Agri-Produce mulberry and silkworm cocoon facility, from self-cultivating a large area of the mulberry plant to scaling down the self-operated plant and encouraging the local people to cultivate. The Group, then, returned parts of the land to the leasor at the end of FY2007, resulting to RMB2.6 million of the biological assets which had been capitalized previously written off. The Board is of the opinion that the return of land will reduce costs and enable the management to concentrate on the development of the surrounding mulberry plant and seek better returns in FY2008.

For FY2008, the Group will continue to operate under challenging conditions. As the group's main products are directly or indirectly exported to the US, the threat of the Renminbi strengthening against the US dollar and the slowdown of the US economy will be a big hurdle for the company's growth initiatives. Furthermore, the increasing labor cost and other related expenses will increase pressure on the Group.

However, we will continue to explore all business opportunities and implement cost-cutting measures in order to mitigate possible setbacks and achieve better results in the coming years.

On behalf of the Board of Directors, I would like to take this opportunity to extend my sincere appreciation to my fellow directors, our shareholders, the management team, business associates and all our employees for their dedication and contributions to the Group.

Thank you and we look forward to your continued support and an exciting year ahead for Asia Silk Holdings.

Ding Yuxiang
Non-Executive Chairman
18 March 2008