*ST中华A(000017)*ST中华Ｂ2005年年度报告（英文版）

SHENZHEN CHINA BICYCLE COMPANY （HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2005 §1. Important Notice 1.1 The Board of Directors, Supervisory Committee of the Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of 2005 annual report is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of 2005 Annual Report or have objection for this report. 1.3 Director Mr. Pan Shiming, Director Mr. Shi Zhanxiong, Director Mr. Wan Nianqing and Independent Director Mr. Wang Fuqing were absent from the Board meeting due to work, and respectively entrusted and Mr. Liu Linfeng and Mr. Li Hai to exert voting rights on their behalves. . 1.4 Hong Kong Charles Chan Ip & Fung Certified Public Accountants issued disclaimer of opinion report, the Board of Directors and the Supervisory Committee of the Company made explanations on the relevant matters in details; the investors are suggested to notice the content. 1.5 Mr. Zhang Xiaofeng, Chairman of the Board, Mr. Ye Qing, General Manager and Ms. He Yili, Chief Accountant hereby confirm that the Financial Report of 2005 Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock *ST ZHONGHUA – A, *ST ZHONGHUA – B Stock code 000017, 200017 Listed stock exchange Shenzhen Stock Exchange Registered address and Office address Registered address: No. 3008, Buxin Road, Shenzhen Office address: Shenzhen China Bicycle Company (Holdings) Limited, No. 3008, Buxin Road, Shenzhen Post code Post code of registered address: 518019 Post code of office address: 518019 Internet web site of the Company www.cbc.com E-mail of the Company dmc@szcbc.com 2.2 Contact person and method Secretary of the Board of Directors Name Li Hai Contact address Shenzhen China Bicycle Company (Holdings) Limited, No. 3008, Buxin Road, Shenzhen Telephone (86)755-25516998, 28181666 Fax (86)755-25516620, 28181009 E-mail lih@szcbc.com §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease over 2005 2004 2003 last year（％） Income from main operations 164,222,481.91 138,192,485.82 18.84% 99,014,966.38 Total profit 3,326,148.84 -93,643,461.46 -103.55% -34,183,864.62 Net profit 12,362,630.58 -92,781,000.00 -113.33% 340,820,000.00 Net profit after deducting non-recurring gains and losses Net cash flow arising from operating 22,377,763.45 -5,815,452.03 -484.80% -14,022,030.58 activities Increase/decrease from At the end of 2005 At the end of 2004 the end of previous At the end of 2003 year（％） Total assets 328,877,255.91 340,498,157.92 -3.41% 440,395,233.24 Shareholder’s equity (excluding -1,816,023,549.37 -1,822,380,350.14 0.00% -1,686,237,300.27 minority interests) 3.2 Major financial indexes Unit: RMB Increase/decrease over last 2005 2004 2003 year（％） Earnings per share 0.0257 -0.1936 113.27% -0.06915 Earnings per share (note) 0.0257 - - - Return on equity -0.68% 5.08% 113.39% 0.00% Return on equity as calculated based on net profit -0.02% 0.01% -0.03% 0.00% after deducting non-recurring gains and losses Net cash flow per share arising from operating 0.05 -0.0121 -0.0292 activities Increase or decrease from At the end of At the end of At the end of the end of previous year 2005 2004 2003 （％） Net assets per share -3.7879 -3.8011 -- -3.5171 Net assets per share after adjustment -4.0240 -3.9543 -- -3.9167 Note: Earnings per share were calculated based on new share capital if share capital was changed from the end of the report period to disclosure date of the report. Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Gains and losses on exchange 29,843,339.20 Non-operating income 16,971,920.51 Non-operating expense 3,712,953.10 Minority shareholders’ losses and gains -858,842.29 Total 43,961,148.90 3.2 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB CAS IAS Net profit 3,738,730.58 12,361,630.58 The differences of net profit as audited by domestic certified public accountants and overseas certified public accountants were RMB8, Explanation on the difference 622,900.00. Because of different accounting methods of IAS and CAS on accounting of no amount need to pay in debts reorganization. IAS accounted that part as income, while CAS as capital reserve. §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares Unit: share Before the change Increase/decrease of this time (+, - ) After the change Proportion (%) Others Subtotal Amount Proportion (%) Amount I. Unlisted Shares 204,747,836 42.71% -17,899,644 -17,899,644 186,848,192 38.97% 1. Sponsors’ shares 204,612,836 42.68% -17,899,644 -17,899,644 186,713,192 38.94% Including: State-owned share 0 0.00% 0 0 0 0.00% Domestic legal person’s shares 111,607,002 23.28% 0 0 111,607,002 23.28% Foreign legal person’s shares 93,005,834 19.40% -17,899,644 -17,899,644 75,106,190 15.67% Others 0 0.00% 0 0 0 0.00% 2. Raised legal person’s shares 0 0.00% 0 0 0 0.00% 3. Inner employees’ shares 135,000 0.03% 0 0 135,000 0.03% 4. Preference shares or others 0 0.00% 0 0 0 0.00% II. Listed Shares 274,685,167 57.29% 17,899,644 17,899,644 292,584,811 61.03% 1. RMB ordinary shares 76,617,000 15.98% 0 0 76,617,000 15.98% 2. Domestically listed foreign 198,068,167 41.31% 17,899,644 17,899,644 215,967,811 45.05% shares 3. Overseas listed foreign 0 0.00% 0 0 0 0.00% shares 4. Others 0 0.00% 0 0 0 0.00% III. Total shares 479,433,003 100.00% 0 0 479,433,003 100.00% 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Unit: Share Total shareholders 39,459 Particulars about the top ten shareholders holding shares Number of non- Nature of Total amount Number of share Full name of shareholders Proportion circulating shares shareholder of shares held pledged or frozen held China Huarong Assets Management State-owned 13.58% 65,098,412 65,098,412 0 Company shareholder Hong Kong Zhuorun Technology Co., Foreign shareholder 9.20% 44,104,246 44,104,246 44,104,246 Ltd. Hong Kong (Link) Bicycles Limited Foreign shareholder 5.24% 26,000,000 26,000,000 26,000,000 Chenhong(Hong Kong) Investment Foreign shareholder 4.32% 20,686,984 0 0 Co., Ltd. Guangdong Sunrise Group Co., Ltd. State-owned 2.50% 11,968,590 11,968,590 11,968,590 shareholder Xinliyi Investment Group Co., Ltd. State-owned 2.34% 11,200,000 11,200,000 0 shareholder Airline Trust and Investment Co., Ltd. State-owned 2.16% 10,340,000 10,340,000 10,340,000 shareholder Shenzhen International Trust & State-owned 1.25% 6,000,000 6,000,000 0 Investment Co., Ltd. shareholder STEPHEN&PARTNERS LIMITED Foreign shareholder 1.19% 5,680,930 0 0 Jingchao Investment Co., Ltd. Foreign shareholder 1.04% 5,001,911 5,001,944 0 Particulars about the shares held by the top ten shareholders of circulating share: Amount of Circulating shares held Name of shareholders Types shareholders (share) Chenhong(Hongkong) Investment Co., Ltd. 20,686,984 Domestically listed foreign shares STEPHEN&PARTNERSLIMITED 5,680,930 Domestically listed foreign shares Li Dongxuan 3,174,572 Domestically listed foreign shares CUOTAI JUNAN SECURIES H.K LIMITED 2,794,765 Domestically listed foreign shares Cai Wantong 2,034,217 Domestically listed foreign shares TANG JING YUAN 1,924,500 Domestically listed foreign shares Huang Junxiong 1,758,600 Domestically listed foreign shares Zhang Huiling 1,565,400 Domestically listed foreign shares Zhuang Weixiong 1,268,700 Domestically listed foreign shares Jiang Lan 1,213,000 Domestically listed foreign shares The Company was unaware of whether there existed any associated Explanation on associated relationship among the top relationship among the top ten circulation shareholders and whether there ten shareholders or consistent action existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. 4.3 Particulars about the controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller China Huarong Assets Management Company is a state-owned sole company limited, which was wholly owned company possessed by the Ministry of Finance of PRC. Its registered capital is RMB 10 billion; legal representative is Mr. Yang Kaisheng. China Huarong Assets Management Company was located in No. 10, Baiyun Road, Xicheng District, Beijing. Business scope: purchase and operation of bad assets peeled off from China Industrial and Commercial Bank, recovery of debts, replacement of assets, transfer and sale; reorganization of debts and enterprise; debt-to-equity; staggered holding share, securitizations of assets, listing recommendation, underwriting of bond and shares in the scope of assets management; direct investment; issuance of bond; commercial loan; loan from finance organization, application of reloan from People’s Bank of China; investment, finance and law consultation; evaluation of assets and project; bankruptcy liquidation and enterprise auditing; and the other business approved by the financial supervisory department. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows: China Huarong Assets Management Company 13.58% Shenzhen China Bicycle Company (Holdings) Limited §5. Particulars about Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Shares held Share held Reason of Total payment Draw Name Title Sex Age Term office at the at the change drew from the payment year-begin year-end Company in from the report other period sharehold (RMB’0000) er units or associates or not Zhang Chairman of the June, 2004- Male 35 0 0 Naught 0.00 Yes Xiaofeng Board June, 2007 June, 2004- Pan Shiming Director Male 35 0 0 Naught 0.00 Yes June, 2007 General June, 2004- Ye Qing Male 44 0 0 Naught 17.57 No Manager June, 2007 June, 2004- Shi Zhanxiong Director Male 62 75,000 75,000 Naught 0.00 Yes June, 2007 June, 2004- Liu Linfeng Director Male 49 0 0 Naught 0.00 Yes June, 2007 June, 2004- Yi Xiaoming Director Male 45 0 0 Naught 0.00 Yes June, 2007 June, 2004- Wan Nianqing Director Male 32 0 0 Naught 0.00 Yes June, 2007 Independent June, 2004- Yang Lixun Male 43 0 0 Naught 0.00 Yes Director June, 2007 Independent June, 2004- Wang Fuqing Male 39 0 0 Naught 0.00 Yes Director June, 2007 Independent June, 2004- Ma Hong Male 39 0 0 Naught 0.00 Yes Director June, 2007 Zhuang Independent June, 2004- Male 35 0 0 Naught 0.00 Yes Yuemin director June, 2007 June, 2005- He Xiongsen Supervisor Male 47 0 0 Naught 0.00 Yes June, 2008 June, 2005- Lan Qihua Supervisor Male 56 0 0 Naught 12.34 No June, 2008 June, 2005- Peng Tiesheng Supervisor Male 57 0 0 Naught 11.21 No June, 2008 Deputy General Manager, Sep., 2004- Li hai Male 37 0 0 Naught 12.34 No Secretary of the Sep., 2007 Board Chief Apr., 2005- He Yili Female 34 0 0 Naught 8.73 No Accountant Apr., 2008 Deputy General Sep., 2004- Hu Er’yi Female 42 0 0 Naught 12.34 No Manager Sep., 2007 Total 75,000 75,000 74.53 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In 2005, the Company fulfilled the operation target of wholly turning losses into gains, tried to hold the sales in midseason, faced the market, basically conducted in accordance with the pattern of sales supplied by production of “ Fixed production with sales, Fixed supply with production and Provide goods in cash”, strived for developing the electronic bicycle and the main operation kept the sustainable increasing trend; under the circumstance of gliding down in the industry of bicycle sales, the sales amount still increased a bit and accomplished the whole profit-gaining goal. The income from main operation during Jan. to Dec. of the Company realized amounted to RMB 164,222,500 with an increasing of 18. 84%, and profit amounted to RMB 12,361,630. 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Main operations classified according to industries Classified Increase/decrease in Increase/decrease in Increase/decrease according to Income from Cost of main Gross profit ratio income from main cost of main in gross profit industries or main operations operations (%) operations over the operations over the ratio over the last products last year (%) last year (%) year (%) Manufacture of 16,029.29 14,473.01 9.71% 20.07% 17.06% 31.57% bicycles Management of 392.95 442.77 -12.68% -8.41% 14.90% -224.68% real-estate Equipment repairing on traffic 0.00 0.00 0.00% -100.00% -100.00% -100.00% transportation Main operations classified according to products Bicycles 16,029.29 14,473.01 9.71% 20.07% 17.06% 31.57% Income from property 392.95 442.77 -12.68% -8.41% 14.90% -224.68% management Outside process 0.00 0.00 0.00% -100.00% -100.00% -100.00% 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease in income from main operations Areas Income from main operations over the last year (%) Shandong 4,573.95 37.66% Henan 3,178.24 26.60% 6.4 Application of the raised proceeds □ Applicable √Inapplicable Particulars about the changed projects □ Applicable √Inapplicable 6.5 Application of the proceeds not raised through shares offering □ Applicable √Inapplicable 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the CPAs √Applicable □Inapplicable Explanations on disclaimer of opinion report for the Company issued by Hong Kong Charles Chan Ip & Fung Certified Public Accountants from Board of Directors of the Company: The Board of Directors of the Company agreed the auditing report on B share issued by Hong Kong Charles Chan Ip & Fung Certified Public Accountants. Hong Kong Charles Chan Ip & Fung Certified Public Accountants regarded that the work on debt restructuring of the Company has not been accomplished in 2005, the debts risk of large amount still remained, so Hong Kong Charles Chan Ip & Fung Certified Public Accountants regarded that the debts of the Company in auditing report still remained uncertainty and issued the disclaimer of opinion report. The explanations from Board of Directors are as follows: Since March, 2002, the largest creditor of the Company China Huarong Assets Management Company entered into Zhonghua, the work on debts reorganization achieved breakthrough development. The Plan on Debts Restructuring of Shenzhen China has obtained approval from CBRC, and now it is in the period of gradual implementation. At present, debts relief by the creditor of financial organization of the Company had no policy obstacles; the creditor of financial organization has exempted and stopped calculating all the interest ended as Dec. 30, 2004 and part of interest in this year owed by the Company. China Huarong Assets Management Company had applied bankruptcy to Shenzhen Intermediate People’s Court on August 1, 2005, the purpose of which was to get to debts restructuring by bankruptcy and reconciliation, and finally solve the debts of the Company. With the progress of debts restructuring, the main operation of the Company increases with a large margin and the main operation unceasingly gained profits. Thus, the Board of Directors of the Company thought: the short-term payment pressure of the Company reduced a lot, the sustainable operation capability improved, and the operation environment and operation status of the Company further improved with the sustainable development of debts and asset restructurings and continuous increasing on the achievements of the Company. 6.7 The preplan of profit distribution and capitalization of capital public reserve of the Board of Directors □ Applicable √Inapplicable The preplan on the profit that has not been appropriated for cash profit distribution √Applicable □Inapplicable Reason for the preplan on the profit that has not been Purpose and using plan of the undistributed profit of the appropriated for cash profit distribution Company Used for offsetting the losses in previous years Used for offsetting the losses in previous years §7 Significant Events 7.1 Purchase of assets □ Applicable √Inapplicable 7.2 Sales of assets □ Applicable √Inapplicable 7.3 Significant guarantees √ Applicable □Inapplicable Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Complete Date of happening Guarantee for Amount of Guarante Impleme Name of the Company guaranteed (date of signing Guarantee type related party guarantee e term ntation or agreement) (yes or not) not Guangdong Sunrise Group Co., Ltd. June 20, 1996 614.20 Joint responsibility 6 months No Yes Guangdong Sunrise Group Co., Ltd. July 26, 2006 2,800.00 Joint responsibility 4 months No Yes 12 Guangdong Sunrise Group Co., Ltd. Sep. 30, 1999 830.00 Joint responsibility No Yes months 11 Guangdong Sunrise Group Co., Ltd. Apr. 30, 1998 260.00 Joint responsibility No Yes months Guangdong Sunrise Group Co., Ltd. July 30, 1997 250.00 Joint responsibility 7 months No Yes Guangdong Sunrise Group Co., Ltd. June 4, 1997 300.00 Joint responsibility 8 months No Yes Gintian Industry (Group) Co., Ltd. Oct. 30, 1998 5,000.00 Joint responsibility 6 months No No 12 Shenzhen Tianma Cosmetics Co., Ltd. Sep. 30, 1994 800.00 Joint responsibility No No months 12 ZORIA PTE LTD March 25, 1996 8,300.00 Joint responsibility No Yes months Total amount of guarantee in the report period 0.00 Total balance of guarantee at the end of the report period 19,154.20 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report period 0.00 Total balance of guarantee for controlling subsidiaries at the end of the report period 51.89 Particulars about the external guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 19,206.09 The proportion of the total amount of guarantee in the net assets of the Company -10.58% Including Amount of guarantee for shareholders, actual controller and its related parties 5,054.20 The debts guarantee amount provided for the guarantee of which the assets-liability ratio 0.00 exceeded 70% directly or indirectly Proportion of total amount of guarantee in net assets of the Company exceeded 50% 0.00 Total amount of the aforesaid three guarantees 5,054.20 7.4 Significant related transaction 7.4.1 Related transaction connected to operations □ Applicable √Inapplicable 7.4.2 Related credits and liabilities current √Applicable □Inapplicable Unit: RMB’ 0000 Provided capital to listed companies Provided capital to related parties Related parties by related parties Occurred Balance Occurred Balance Hong Kong (Link) Bicycles Limited 0.00 62,905.44 0.00 0.00 Diamond Back (HongKong) Co., Ltd. 0.00 24,155.70 0.00 0.00 Zhigao Resource International Co., Ltd. 0.00 13,939.64 0.00 2,491.76 Hong Kong Huajiaming Industry Trade Co., Ltd. 0.00 0.00 0.00 1,075.89 Shenzhen Canghai Industrial Co., Ltd. 0.00 0.00 0.00 18.94 Shenzhen Danxia Bicycle Accessory Co., Ltd. 0.00 0.00 0.00 45.66 Jiangsu Huaiyin Huayu Bicycle Accessory Factory 0.00 0.00 0.00 496.53 Co., Ltd. Shantou Economic Special Zone Dapeng Industrial 0.00 0.00 0.00 689.74 Co., Ltd. China Complex Material Products (Shenzhen) Co., 0.00 6,310.05 0.00 0.00 Ltd. Shenzhen Huajiaming Industry Trade Development 0.00 3,402.10 0.00 0.00 Co., Ltd. China Huarong Assets Management Corporation 0.00 0.00 -206.66 71,958.25 Guangdong Sunrise Group Co., Ltd. 0.00 0.00 0.00 23,280.17 Shenzhen Jinhuan Printing Format Co., Ltd. 0.00 0.00 0.00 60.00 Daming International Co., Ltd. 0.00 0.00 0.00 1,083.44 Shenzhen Goodyear Industrial Co., Ltd. 0.00 0.00 0.00 1,289.69 Total 0.00 110,712.93 -206.66 102,490.07 Including: in the report period, the capital amount the listed company provided to controlling shareholder and its subsidiaries was RMB 0.00 and the balance was RMB 1,107,129,300. Use of funds and plan on paying off the debt √Applicable □Inapplicable (1) Use of funds Occupied amount at Occupied amount at Name of the party fund occupied year-begin（RMB） year-end（RMB） Hong Kong (Link) Bicycles Limited 604,594,981.22 604,594,981.22 Diamond Back (HongKong) Co., Ltd. 240,685,831.55 240,685,831.55 Zhigao Resource International Co., Ltd. 139,396,408.85 139,396,408.85 Shenzhen Huajiaming Industry Trade Co., Ltd. 26,791,041.11 26,791,041.11 China Complex Material Products (Shenzhen) 60,541,700.96 60,541,700.96 Co., Ltd. Total 1,072,009,963.69 1,072,009,963.69 (2) Plan on paying off the debt The plan on paying off the debt was examined and approved by the 13th meeting of the 6th Board of Directors of the Company, all the incomings and outgoings of Hong Kong (Link) Bicycles Limited were be canceled, with the amount is equivalent to RMB 604,595,000. The account receivable which needed canceling was withdrew the provision for bad debts amounting to RMB 604,595,000. And the cancel did not influence the profits of this year. The plan could be settled down use of funds before the end of 2006 totally or not □Yes □No √Inapplicable 7.5 Entrusted assets management □ Applicable √Inapplicable 7.6 Implementation of commitments 7.6.1 Date on Share Merger Reform In light of that the Company was in the stage of debts restructuring, the Company plans to make up plan on Share Merger Reform of the Company combing with the debts restructuring and asset reorganization, and tries to enter the procedure of Share Merger Reform before June 30, 2006, and submits all the materials on Share Merger Reform to Shenzhen Stock Exchange. 7.6.2 Other Commitments □ Applicable √Inapplicable 7.7 Significant lawsuit and arbitrations □ Applicable √Inapplicable §8. Report of the Supervisory Committee □ Applicable √Inapplicable §9. Financial Report 9.1 Auditor’s opinions We have audited the accompanying consolidated balance sheet of Shenzhen China Bicycle Company (Holdings) Limited. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as at 31 December 2005 together with the related consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended. These financial statements set out on pages [ ] to [ ] are the responsibility of the Company’s directors. Except as discussed in the following paragraphs, we conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. LIMITATION OF SCOPE 1. Scope limitation - contingent liabilities As disclosed in note 18 to the financial statements, the Group has unprovided contingent liabilities for its subsidiaries, associates and related companies amounting to RMB25,271,000 as at 31 December 2005. We were not provided with sufficient audit evidence to determine the completeness on the disclosure of unprovided contingent liabilities. As a result, we were unable to determine whether all the contingent liabilities had been provided for and disclosed in the financial statements in relation to the adequacy and appropriateness of the provision in respect of contingent liabilities. 2. Scope limitation – land and buildings As disclosed in note 10 to the financial statements, land and buildings were carried at cost less accumulated depreciation and impairment losses. This is not in accordance with International Accounting Standard (“IAS”) 17 “Leases” in which a lease of land and building should be split into a lease of land and a lease of building in proportion to the relative fair values of the leasehold interests in the land element and the building element of the lease at the inception of the lease. The lease premium for land is stated at cost and amortised over the period of the lease whereas the leasehold building is stated at valuation/cost less accumulated depreciation. As a result, we were unable to satisfy ourselves as to whether the fixed assets as at the balance sheet date are fairly stated. FUNDAMENTAL UNCERTAINTIES In forming our opinion, we have considered the adequacy of the disclosure made in note 17 to the financial statements concerning the overdue bank borrowings as at 31 December 2005. The Group has outstanding borrowings of approximately RMB548,127,000 due to various banks plus accrued interest of approximately [ ] which is still under disputes. All these amounts were overdue and the Company is still in the process to re-negotiate the payment terms and dates with the lenders. The Group’s adoption of going concern basis is based on the successful outcome of the debt restructuring as well as the resulting improvement in the financial position of the Group. It is uncertain at this stage whether and how the Group can be able to repay the overdue bank borrowings and other payables. Attention should be drawn that the Group’s ability to continue as a going concern is dependent upon the attainment of profitable and positive cash flow operations, the restructuring/refinancing of its debts and the continuing financial support of its bankers. The financial statements which show net current liabilities of RMB355,155,000 and capital deficiency of RMB1,812,901,000 as at 31 December 2005 have been prepared on a going concern basis, the validity of which depends upon the successful outcome of the debt restructuring and the continuing financial support being available. The financial statements do not include any adjustments that would result from a failure to obtain such financial support. We consider that appropriate disclosures have been made but the inherent uncertainties surrounding the circumstances under which the Group might successfully continue to adopt the going concern basis are so material or pervasive that we have disclaimed our opinion. DISCLAIMER OF OPINION Because of the significance of the possible effects of the limitation in evidence available to us set out in the preceding paragraphs under the leading of limitation of scope and the fundamental uncertainties relating to appropriateness of the going concern basis as set out above we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs and of the Group as at 31 December 2005 and of its loss and cash flows of the Group for the year then ended, and whether these financial statements have been properly prepared in accordance with the International Financial Reporting Standards as published by the International Accounting Standard Board. CCIF CPA Limited Certified Public Accountants Hong Kong, Fung Pui Cheung Practising Certificate Number P00755 S1238-2005 9.2 Financial statement SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2005 As restated 2005 2004 RMB’000 RMB’000 TURNOVER 164,222 138,192 COST OF SALES -152,662 -128,599 GROSS PROFIT 11,560 9,593 OTHER REVENUE 60,424 11,336 71,984 20,929 OTHER EXPENSES Distribution costs -9,649.00 -10,706.00 Administrative expenses -33,411.00 -98,114.00 Other operating expenses -42.00 -618.00 -43,102.00 -109,438.00 LOSS FROM OPERATIONS 28,882 -88,509 FINANCE COSTS -21,874 -3,436 7,008 -91,945 WAIVER OF LIABILITIES - 691 ABSORPTION/PROVISION FOR PROFIT/(LOSS) ON MINORITY INTEREST 6,004 -16.00 OPERATING PROFIT/(LOSS) 13,012 -91,270 SHARE OF LOSS OF ASSOCIATES -364 -1,525 PROFIT/(LOSS) BEFORE TAXATION 12,648 -92,795 INCOME TAX -4 -2 PROFIT/(LOSS) FROM ORDINARY ACTIVITIES AFTER TAXATION 12,644 -92,797 MINORITY INTERESTS -283 16 PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS 12,361 -92,781 DIVIDENDS - - Earnings per share for profit/(loss) attributable to to the equity holders of the company during the year (expressed in RMB per share) - Basis 0.0257 (0.1936) - Diluted N/A N/A SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED CONSOLIDATED BALANCE SHEET 31-Dec-05 As restated 2005 2004 RMB’000 RMB’000 ASSETS Non-current assets Fixed assets 174,120 198,719 Interest in associates 17,534 17,534 Other investment 2,800 2,800 194,454 219,053 Current assets Inventories 49,597 50,995 Accounts receivable 8,855 16,026 Others receivable and prepayments 30,049 26,152 Amounts due from related companies - - Bills receivable 5,121 1,192 Cash and bank balances 27,692 6,781 121,314 101,146 LIABILITIES Current liabilities Amounts due to related companies 59,408 59,408 Accounts payable 109,518 119,455 Bills payable 235 1,419 Others payable and receipts in advance 213,062 210,811 Accruals 60,493 43,169 Tax payable 33,753 33,751 476,469 468,013 Net current liabilities -355,155 -366,867 -160,701 -147,814 Non-current liabilities Long-term loans due to related companies 937,283 954,450 Loan-term borrowings 548,127 556,208 Provision for loss on guarantees 166,790 166,790 1,652,200 1,677,448 NET LIABILITIES -1,825,262 SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED CONSOLIDATED BALANCE SHEET 31-Dec-05 (Continued) As restated 2005 2004 RMB’000 RMB’000 CAPITAL AND RESERVES Issued capital 479,433 479,433 Reserves -2,292,334 -2,304,695 -1,812,901 -1,825,262 MINORITY INTERESTS - - -1,812,901 -1,825,262 SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2005 As restated 2005 2004 RMB’000 RMB’000 CASH FLOW FROM OPERATING ACTIVITIES Profit/(loss) before taxation 12,648 -92,795 Adjustment for: Interest income -144 -79 Interest expense 21,771 3,539 Depreciation 20,062 16,899 Waiver of liabilities - -691 Provision for loss from guarantees - 519 Share of loss from associates 364 1,525 Profit on disposal of fixed assets -16,895 -63 Fixed assets written off 3,296 - Loss on disposal of other investments - 944 Licence fee income -3,318 - Provision for impairment loss of obsolete inventories reversed -16,044 -5,429 Provision for doubtful debts 23,750 29,438 Absorption/provision for (loss)/profit on minority interests -6,004 16 26,838 46,618 OPERATING PROFIT/(LOSS) BEFORE WORKING CAPITAL CHANGES 39,486 -46,177 Decrease in inventories 17,442 23,315 Decrease/(increase) in accounts receivable 8,043 -7,151 Increase in others receivable and prepayments -28,519 3,386 Increase in amounts due from related companies - 1,078 Increase in bills receivable -3,929 -917 Increase in accounts payable -9,937 2,200 Increase in bills payable -1,184 703 Increase in others payable and receipts in advance 2,251 518 Increase/(decrease) in accruals 17,324 -4,100 1,491 19,032 CASH GENERATED FROM OPERATIONS 40,977 -27,145 Interest paid -21,771 -426 Income taxes - 13 NET CASH INFLOW/(OUTFLOW) FROM OPERATION ACTIVITIES 19,206 -27,558 SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2005 (Continued) As restated 2005 2004 RMB’000 RMB’000 NET CASH INFLOW/(OUTFLOW) FROM 19,206 -27,558 OPERATIONS ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest received 144 79 Proceeds from disposal of property, plant and equipment 28,170 63 Payment for acquisition of property, plant and equipment -1,361 -1,169 Proceeds from disposal of other investments - 3,159 NET CASH USED IN INVESTING ACTIVITIES 26,953 2,132 FINANCING ACTIVITIES 46,159 -25,426 (Decrease)/increase in long-term loans due to related companies -17,167 3,387 (Decrease)/increase in long-term borrowings -8,081 23,235 NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES -25,248 26,622 NET INCREASE IN CASH AND CASH EQUIVALENTS 20,911 1,196 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 6,781 5,585 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 27,692 6,781 9.3 Explanation on changes of accounting policy, accounting estimation and settlement compared with the latest annual report □Applicable √Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report √Applicable □Inapplicable From July 1, 2005, Shenzhen Emmelle Industry Co., Ltd was brought into the consolidated scope.