*ST本实B(200041)2007年年度报告（英文版）

SHENZHEN BENELUX ENTERPRISE CO., LTD. ANNUAL REPORT 2007 Important notes The Board of Directors, the Supervisory Committee as well as all directors, supervisors and senior executives of SHENZHEN BENELUX ENTERPRISE CO., LTD. (hereinafter referred to as the Company) hereby confirms that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take the individual and/or joint responsibilities for the reality, accuracy and completeness of the whole contents. Shenzhen Pengcheng Certified Public Accountants issued an Auditors’ Report with disclaimer of opinion for the Company, the Board of Directors and the Supervisory Committee both have made the corresponding explanations in details for the relevant matters and submitted to investors to read carefully. Mr. Xu Min, Principal of the Company, Mr. Wang Changsheng, General Manager of the Company, and Ms. Li Lingling, person in charge of accounting organ, hereby confirm that the Financial Report enclosed in Annual Report is true and complete. Contents Chapter I. Company Profile…………………………………………………….……… Chapter II. Summary of Financial Highlights and Business Highlights……………….. Chapter III. Change in Share Capital and Particulars about Shareholders………...…… Chapter IV. Directors, Supervisors, Senior Executives and Employees……………….. Chapter V. Corporate Governance……………………………………………………… Chapter VI. Shareholders’ General Meeting…………………………………………… Chapter VII. Report of the Board of Directors…………………………………………. Chapter VIII. Report of the Supervisory Committee…………………………………... Chapter IX. Significant Events…………………………………………………………. Chapter X. Financial Report………………………………………………………….… Chapter XI. Documents Available for Reference……………………………………..... Chapter I. Company Profile I. Legal name of the Company In Chinese: 深圳本鲁克斯实业股份有限公司 In English: Shenzhen Benelux Enterprise Co., Ltd. II. Legal Representative: Mr. Xu Min III. Secretary of the Board of Directors: Mr. Xu Min (agency) Contact Address: 5/F, Building No. 13, Nanyou Zhongxing Industry Village, Nanshan District, Shenzhen Tel: 0755-26068614 Fax: 0755-26402007 E-mail: szshbshi@public.szptt.net.cn IV. Registered Address: 5/F, Building No. 13, Nanyou Zhongxing Industry Village, Nanshan District, Shenzhen Office Address: 5/F, Building No. 13, Nanyou Zhongxing Industry Village, Nanshan District, Shenzhen Post Code: 518054 E-mail: szshbshi@public.szptt.net.cn V. Newspapers Chosen for Disclosing Information of the Company: Securities Times and Hong Kong Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors of the Company VI. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: * ST BENELUX-B Stock Code: 200041 VII. Other Relevant Information: Initial Registered Date of the Company: Dec. 10, 1990 Initial Registered Address: Building No. 11, Nanyou Zhongxing Industry Village, Nanshan District, Shenzhen Registered Number of Legal Person’s Business License: QGYSZ Zi No. 101951 Registered Number of Taxation: National Tax: 440301618853267 Local Tax: 440305618853267 Name and Address of the Certified Public Accountant engaged by the Company: Domestic: Shenzhen Pengcheng Certified Public Accountants Address: 5/F, Baofeng Building, No. 2006, Dongmen South Road, Shenzhen (Post code: 518002) Chapter II. Summary of Financial Highlights and Business Highlights I. Major accounting data and financial indexes as of the year 2007 (Unit: RMB Yuan) Total profit -3,674,539.46 Net profit -3,674,539.46 Net profit after deducting non-recurring gains and losses -1,616,450.91 Operating profit -1,616,450.91 Investment income Subsidy income Net non-operating income / expenses Net cash flow arising from operating activities 2,294.95 Net increase (decrease) in cash and cash equivalents 2,294.95 2. Items of non-recurring gains and losses and the amount: Item Amount (Unit: RMB Yuan) Compensation expected for external guarantee -1,870,937.47 Net loss on disposal of fixed assets -187,151.08 Total -2,058,088.55 II. Major accounting data and financial indexes over the past three years ended the report period: (I) major accounting data Increase/ 2007 2006 decrease than last 2005 year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating income 1,663,062.00 1,657,474.80 0.00% 1,427,475.40 1,427,475.40 Total profit -3,674,539.46 -42,688,314.94 -42,688,314.94 91.39% 1,189,357.13 36,544,116.84 Net profit attributable to -3,674,539.46 -42,688,314.94 -42,688,314.94 91.39% 1,189,357.13 36,544,116.84 shareholders of listed company Net profit attributable to -1,616,450.91 -2,568,136.42 -2,568,136.42 37.06% 6,854,071.80 42,208,831.51 shareholders of listed company after deducting non-recurring gains and losses Net cash flow from the operation 2,294.95 19,753.25 19,753.25 -88.38% -2,546.02 -2,546.02 activities Increase/ At the end of At the end of 2006 decrease than last At the end of 2005 2007 year Before Adjustment After Adjustment After Adjustment Before Adjustment After Adjustment Total assets 23,480,019.14 25,192,151.18 25,192,151.18 -6.80% 28,901,988.87 28,901,988.87 Owners’ equity -324,253,030.3 (shareholders’ -360,578,490.87 -320,578,490.87 -1.14% -317,890,175.93 -277,890,175.93 3 equity) (II). Major financial index (Unit: RMB Yuan) Increase/ decrease 2007 2006 2005 than last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Basic earnings per -0.0607 -0.7056 -0.7056 95.78% 0.0197 0.604 share Diluted earnings -0.0607 -0.7056 -0.7056 50.33% 0.0197 0.604 per share Basic earnings per share after deducting -0.027 -0.042 -0.042 35.71% 0.1132 0.698 non-recurring gains and losses Fully diluted return on equity Weighted average return on equity Fully diluted return on equity after deducting non-recurring gain and loss Weighted Average return on equity after deducting non-recurring gain and losses Net cash flow per 0.00 0.0003 0.0003 -100.00% 0.003 0.003 share from operation activities At the end of Increase/ decrease At the end of 2006 At the end of 2005 2007 than last year (%) Before Adjustment After Adjustment After Adjustment Before Adjustment After Adjustment Net assets per share attributable -5.36 -5.96 -5.30 -1.13 -5.25 -4.59 to shareholders of listed companies Items of non-recurring gains and losses: (Unit: RMB Yuan) Items of non-recurring gains and losses Amount Provision for compensation for guarantee -1,870,937.47 Net loss on disposal of fixed assets -187,151.08 Total -2,058,088.55 (III) Explanation on retroactive adjustment In the year 2005, the Company hedged notes receivable from Wuhan Ronglida RMB 35,354,759.71 to notes payable to Shenzhen CATIC RMB 40,000,000 in accordance with the notice and inquiry letter of Guizhou Guihang Automotive Components Co., Ltd.(hereinafter refer to as Guihang Company), inquiry letter of Everbright Bank and judicial rule. The balances were calculated into “Shekou Hansheng Transactions” and lift the former provision for bad debt and calculated into the management expenses of the current period. Dated the end of 2006, as the Company could not get the direct evidence from related sections or units to indicate that RMB 40,000,000 that Guihang Company received and paid it to China National Aero-Technology Import and Export Shenzhen Corporation (hereinafter referred to as “CATIC Shenzhen Company”) in several periods is the corresponding notes which Wuhan Ronglida should pay. Therefore, Wuhan Ronglida Transaction receivable RMB 35,354,759.71 was on the account. So the Company adjusted and written back the record, and retrospectively adjusted and reduced profit of 2005RMB 35,354,759.71. Up to the reporting date, the Company received the direct evidence from the Economic Crime Reconnaissance Department of Guiyang City Public Security Bureau and Economic Crime Reconnaissance Department of Danzhou City Public Security Bureau, which showed that RMB 40,000,000 which was recovered by Guihang Company and paid in installments to CATIC Shenzhen Company, was the Company’s corresponding accounts receivable from Wuhan Ronglida Company. In accordance to the relevant regulations, the Company made the retroactive adjustment to aforesaid the correction of significant accounting errors, increased the retained profit at the beginning of 2006 by RMB 35,354,759.71 after adjustment (increased the profit in 2005 by RMB 35,354,759.71 after adjustment), decreased the liabilities dated Dec. 31, 2005 by RMB 40, 000,000.00 after adjustment, increased the capital reserve dated Dec. 31, 2005 by RMB 4,645,240.29. Also the Company adjusted the amount at the year-begin dated Dec. 31, 2007 in balance sheet and amount at the same period of the last year in profit and profit distribution statements for 2006. The Board of Directors of the Company passed the relevant resolution on above mentioned matters, believe that it was right for the Company to make the retroactive adjustment on above matters in compliance with the related regulations of the relevant standards, which was beneficial to improve the quality of accounting information, and reflect the financial status of the Company accurately. (IV) In accordance with Editing and Reporting Rules Regarding Information Disclosure for Companies Publicly Issuing Securities (No. 9), the Company’s return on equity and earnings per share for the year 2007 calculated based on fully diluted method and weighted average method were as follows: Return on equity (%) Earnings per share (RMB Yuan/share) Fully diluted Weighted average Fully diluted Weighted average Net profit attributable to ordinary --- --- -0.0607 -0.0607 shareholders of the Company Net profit after deducting non-recurring gains and losses --- --- -0.027 -0.027 attributable to shareholders of the Company 3. Changes in shareholders’ equity in the report period Amount at the Increase in the Decrease in the Amount at the Reason for change year-begin report year report year year-end Share capital 60,500,000.00 60,500,000.00 Capital reserve 34,791,680.54 34,791,680.54 Surplus reserve 31,716,564.50 31,716,564.50 Retained profit Loss in 2007 -447,586,735.91 -3,674,539.46 -451,261,275.37 Total shareholders’ -320,578,490.87 -324,253,030.33 equity Chapter III. Change in Share Capital and Particulars about Shareholders I. Statement of the changes in share Unit: share Before the change Increase/decrease of this time (+, - ) After the change Issuance Proportion Bonus Capitalization of Proportion Number of new Others Subtotal Number (%) shares public reserve (%) share I. Unlisted Circulation Shares 44,770,000 74.00 44,770,000 74.00 1.Sponsors’ shares 43,318,000 71.60 43,318,000 71.60 Including: Shares held by the State Shares held by domestic legal 28,031,078 46.33 28,031,078 46.33 person Shares held by foreign legal 15,286,922 25.27 15,286,922 25.27 person Others 2. Raised legal person’s shares 3. Inner employees’ shares 1,452,000 2.4 1,452,000 2.4 4. Preference shares or others II. Listed Circulation Shares 15,730,000 26.00 15,730,000 26.00 1. RMB ordinary shares 2.Domestically listed foreign 15,730,000 26.00 15,730,000 26.00 shares 3. Overseas listed foreign shares 4. Others III. Total shares 60,500,000 100.00 60,500,000 100.00 II. Issuance and listing of shares 1. The Company hasn’t issued new shares over the previous three years ended the report period. 2. In the report period, the Company’s shares were neither change in the number nor the structure of the shares capital. 3. The present inner employee’s shares were issued at an issuance price of RMB 3.67 in March 1994 with totaling 1,200,000 shares. In 1995, the Company implemented profit distribution at the rate of 1 bonus share for every 10 shares; in 1997, the Company profit distribution at the rate of 1 bonus share for every 10 shares. The Company has 1,452,000 inner employee’s shares after distributing bonus shares. By the end of the report period, the said shares were unlisted for trade. III. About shareholders 1. Ended Dec. 31, 2007, the Company had 3865 shareholders in total, including 64 shareholders of A-share, 3801 shareholders of B-share. 2. Ended Dec. 31, 2007, particulars about shares held by the top ten shareholders and the top ten shareholders of tradable share. Total number of shareholders 3,865 Particulars about shares held by the top ten shareholders Number of Nature of Total number of Share pledged or Name of shareholders Proportion (%) non-tradable shareholders shares held (share) frozen shares held HAINAN RULAI TIMBER CO., Other 24.25% 14,668,557 14,668,557 0 LTD. HONG KONG JIALI PRECISION Foreign 23.55% 14,247,290 14,247,290 0 MANUFACTURING CO., LTD. shareholder WUHAN HUAXING ELECTRONIC Other 14.00% 8,473,001 8,473,001 0 CO., LTD. SHEKOU HANSHENG Foreign 8.08% 4,889,520 4,889,520 4,889,520 ELECTRONIC CO., LTD. shareholder Foreign SUN LI FENG 3.19% 1,093,701 0 0 shareholder HONG KONG ORIENT Foreign 1.72% 1,039,632 1,039,632 0 INVESTMENT CO., LTD. shareholder Foreign WANG YONG 0.53% 320,000 0 0 shareholder Foreign WANG YAN 0.50% 300,000 0 0 shareholder Foreign ABN AMRO BRANK NV 0.41% 246,700 0 0 shareholder Foreign KOTO TRANSPORT LTD 0.33% 200,000 0 0 shareholder Foreign ZHANG HANXING 0.32% 196,900 0 0 shareholder Particulars about shares held by the top ten shareholders of tradable share Numbers of tradable share held at the end of Name of shareholders Type of share the report period SUN LI FENG 1,093,701 Domestically listed foreign shares WANG YONG 320,000 Domestically listed foreign shares WANG YAN 300,000 Domestically listed foreign shares ABN AMRO BRANK NV 246,700 Domestically listed foreign shares KOTO TRANSPORT LTD 200,000 Domestically listed foreign shares ZHANG HAN XIN 196,900 Domestically listed foreign shares WANG JUN BIN 188,902 Domestically listed foreign shares GUI RAN YAO 150,000 Domestically listed foreign shares CHEN SU JUAN 146,000 Domestically listed foreign shares CHEN WEI 121,000 Domestically listed foreign shares According to the information acquired by the Company presently, the Company was unknown whether there is any associated relationship among the top ten Explanation on associated relationship shareholders or action-in-concert regulated by the regulation of Measures for the among the top ten shareholders or Administration of Disclosure of Information on the Change of Shareholdings in action-in-concert Listed Companies; The Company was unknown whether there is any associated relationship among the top ten shareholders of tradable share. Note: 1) According to the information acquired by the Company presently, among the above top ten shareholders, except 4,889,520 shares held by Shekou Hansheng Electronic Co., Ltd. were pledged to Shenzhen Intermediate People’s Court, 8,473,001 shares held by Wuhan Huaxing Electronic Co., Ltd. were judged by Guangzhou Intermediate People’s Court to Hainan Jinjian Guotou Property Co., Ltd. (the relevant transfer procedure was still in progress). 2) The 4,889,520 shares held by Shekou Hansheng Electronic Co., Ltd. were transferred to China Orient Asset Management Corp. (Shenzhen Office) through the ruling of Guangdong Shanwei Intermediate People’s Court. 3) The shares held by the rest shareholders has not been pledged or frozen. 4) Among the above top ten shareholders, there existed no state-owned shareholders. The rest shareholders are foreign shareholders except that Hainan Rulai Timber Co., Ltd., Shekou Hansheng Electronic Co., Ltd. and Wuhan Huaxing Electronic Co., Ltd. are domestic shareholders. 3. The controlling shareholder of the Company was Hainan Rulai Timber Co., Ltd., which was founded in Feb., 1993 with registered capital amounting to USD 4 million; its legal representative was Mr. Xu Min. The said company was engaged in production and sales furniture and wood products and concurrently running planting of primary products. 4. The actual controller of the Company was natural person Ms. HSU WEN. Ms. HSU WEN is aged 50, American Chinese; she held the post in MCDONALD’S TAIWAN, from 1997 up till now. Now she is in charge of deputy director of financing in MCDONALD’S TAIWAN. The property right and controlling relationship between the actual controller of the Company and the Company is as follows: 40％ HSU WEN Hainan Rulai Timber Co., Ltd. Ba Won Group Co., Limited (Hong Kong) 30％ 100％ Liu Zhenliang 30％ Chen Xiuzhen 5. Particulars about legal person’s shareholders holding over 10% (including 10%) of shares of the Company Besides Hainan Rulai Timber Co., Ltd., the legal person’s shareholder holding over 10% of shares of the Company was Hong Kong Jiali Precision Manufacturing Co., Ltd. (Hong Kong Jiali) and Wuhan Huaxing Electronic Co., Ltd., therein the former one established in May 1980, legal representative was Zhong Ruiqing; business scope: manufacture and trading of the magnetism products; sales of whole construction equipment. While the latter one was founded in 1984, and was an enterprise owned by the whole people, which was a subsidiary company of Wuhan Huazhong Information Technology Group Co., Ltd.. Its legal representative was Zhao Congzhao; registered capital was RMB 1.966 million; business scope: recording equipment for special use in broadcast; manufacture equipment of broadcast controlling and video program; retail and wholesale of computer and its fittings, hardware, electrical appliance, construction material and decoration material. Chapter IV. Directors, Supervisors, Senior Executives and Employee I. Basic information of Directors, Supervisors and Senior Executives Beginning Ending date of Shares held at Shares held at Reason Name Title Sex Age date of office term the year-begin the year-end chang office term Chairman of Xu Min Male 53 2007-08-10 2010-08-10 0 0 the Board Liu Zhenliang Director Male 54 2007-08-10 2010-08-10 0 0 CHOU I-MIN Director Male 53 2007-08-10 2010-08-10 0 0 Li Dixun Director Male 60 2007-08-10 2010-08-10 0 0 Wang Changsheng Director Male 57 2007-08-10 2010-08-10 0 0 Wen Xinhua Director Male 50 2007-08-10 2010-08-10 Independent Wang Hongmei Female 44 2007-08-10 2010-08-10 Director Independent Zheng Xintao Male 39 2007-08-10 2010-08-10 Director Independent Wang Sheming Male 52 2007-08-10 2010-08-10 Director Dai Wuping Supervisor Male 46 2007-08-10 2010-08-10 0 0 Chen Yuanhong Supervisor Female 37 2007-08-10 2010-08-10 0 0 Pei Ji Supervisor Female 39 2007-08-10 2010-08-10 0 0 General Wang Changsheng Male 57 2007-08-10 2010-08-10 Manager Total - - - - Notes: the aforesaid personnel held the position in shareholders’ units were Mr. Xu Min (took the post of C Timber Co., Ltd.), Mr. Liu Zhenliang (took the post of General Manger in Hainan Rulai Timber Co., Ltd.). II. Particulars about main work experiences and other posts and part-time job excluding shareholding companies of the present Directors, Supervisors and Senior Executives: (I) Directors: Mr. Xu Min, aged 53, bachelor degree, now holds the posts of Chairman of the Board of Directors of the Company and Hainan Rulai Timber Co., Ltd. Mr. Liu Zhenliang, aged 54, bachelor degree, now holds the posts of vice Chairman of the BOARD OF DIRECTORS of the Company and Deputy General Manager of Hainan Rulai Timber Co., Ltd.. Mr. CHOU I-MIN, aged 54, bachelor degree, now holds the posts of Director of the Company, works in Taiwan Jiantai Cement Co., Ltd. Mr. Li Dixun, aged 59, bachelor degree, now holds the post of independent director of the Company and works in Hong Kong Sha Tin Hong Zhan Industrial Co., Limited. Mr. Wang Changsheng, aged 57, bachelor degree, now holds the position of Director of the Company; he ever took the post of General Manager in Yunnan Rilai Company. Mr. Wen Xinhua, aged 50, bachelor degree, now holds the post of Director of the Company, works in Changsha Xiangfei Model Borker Co., Ltd. Ms. Wang Hongmei, aged 44, bachelor degree, now holds the post of Independent Director of the Company, works in Xinxiang Zhongcheng Lianhe Certified Public Accountants. Mr. Zheng Xintao, aged 39, bachelor degree, now holds the post of Independent Director of the Company, works in Hainan Haikou Guobin Hotel. Mr. Wang Sheming, aged 52, bachelor degree, now holds the post of Independent Director of the Company, Deputy General Manager of Hainan Sunrise Group Co., Ltd. (II) Supervisors: Mr. Dai Wuping, aged 46, bachelor degree, now holds the post of Employee Supervisor of the Supervisory Committee in the Company. He has served as Chairman of Supervisory Committee of the Company from Dec. 29, 2006. Ms. Chen Yuanhong, aged 37, bachelor degree, now holds the post of the Supervisor of the Company. Ms. Pei Ji, ages 39, bachelor degreem now holds the post of the Supervisor of the Company. (III) Senior Executives: Mr. Wang Changsheng, aged 57, bachelor degree, now holds the post of General Manager of the Company; he ever took the post of General Manager in Yunnan Rilai Company. III. Directors, supervisors and senior management leaving or employing the office and the reason in the report period On Aug. 10, 2007, Shareholders’ General Meeting 2006 elected the Wen Xinhua, Wang Changsheng as the Directors of the Company; Wang Hongmei, Zheng Xintao and Wang Sheming as the Independent Directors of the Company; Former Independent Director, Li Dixun was elected as Director of the Company; the office term of former Independent Directors, Liao Ke and Song Zhenming expired and left their jobs. On Aug. 16, 2007, Mr. Shi Li, former CFO of the Company left his job due to individual reason. Besides, there were no other directors, supervisors and senior executives off their post. And the Company employed or dismissed no manager, deputy GM, chairman of finance, secretary of BOARD OF DIRECTORS and other senior executives. IV. About employees The Company had totally 5 employees, including 3 financial personnel and 2 administration personnel. In the report period, the Company has no retirees. Chapter V. Corporate Governance I. Actual Status of corporate governance According to requirements of Company Law of PRC and Securities Law of PRC and relevant regulations promulgated by CSRC, the corporate governance of the Company still has some little faultiness, at present, the Company was consistently consummating the corporate governance of the Company, made efforts to establish modern enterprise system and standardized the Company’s operation in the report period. With respect to Administrative Rules for Listed Company, the explanation on the corporate governance of the Company by the Board of Directors is as follows: (I) Shareholders and the Shareholders’ General Meeting: The present corporate governance of the Company could ensure the equal status of the shareholders, especially the medium and small shareholders and ensure the shareholders to execute fully legal rights. The Company has established Rules of Procedure of the Shareholders’ General Meeting. In the report period, the procedure of convening and holding of the Shareholders General Meeting, the qualification of the present people and the voting procedure was in conformity with the regulations of Company Law, Rules of Procedure of the Shareholders’ General Meeting and the Articles of Association of the Company. (II) Independence of the Listed Company: The problem existed on the independence of the Company, namely, the Company was separated from Hainan Rulai Timber Co., Ltd., the controlling shareholder of the Company, in terms of business, assets, organization and financing, settled independently and undertook liabilities and risk independently. While the Company did not separate from Rulai Timber in personnel, Mr. Xu Min, Chairman of the Board of the Company, concurrently took the post of Chairman of the Board of Hainan Rulai Timber Co., Ltd., Mr. Liu Zhenliang, Vice Chairman of the Board of the Company, concurrently took the post of Deputy General Manager of Hainan Rulai Timber Co., Ltd. (III) Directors and the Board of Directors: The Company elected directors (including Independent Director) strictly according to the election and engagement procedures as stated in the Articles of Association of the Company. Based on the relevant regulations and requirements of Administrative Rules for Listed Company and Articles of Association of the Company, the Company convened the Board Meeting, ensured and developed the function of administration and decision-making of the Board of Directors. Nomination of director candidate, engagement procedure of directors and number of directors of BOARD OF DIRECTORS and personnel composing were in compliance with the relevant regulations of Company Law, the Articles of Association of the Company and Work Details for the Board of Directors, all directors could perform their duties in a serious and responsible and diligence manner; the Company established the Independent Directors System according to the requirements of CSRC and Shenzhen Securities Regulatory Bureau. (IV) Supervisors and the Supervisory Committee: The Supervisory Committee of the Company enacted the Work Details for the Supervisory Committee and standardized its standing orders; the election and composing of members of the Supervisory Committee was in conformity with the requirements of laws and regulations; Being responsible to shareholders, the Supervisory Committee performed its responsibility seriously according to the relevant regulations of laws, rules and the Articles of Association of the Company, and could supervise in the Company’s operating, financing and validity of performance of the directors and senior management, and expressed the independent opinion to safeguard the legal interests of the Company and shareholders. (V) Relative Beneficial Parties: The Company fully respected and protected the legal rights and interests of bank, other creditors, employees, community and other relative beneficial parties and positively cooperated with these parties to promote continual and healthy development of the Company. (VI) Information Disclosure and transparency: The Company appointed a person specialized in responsibility of the information disclosure, receipt of shareholders and visiting and incoming telegram of investors and register the special E-mail to enhance the good communication with shareholders in accordance with the relevant regulations; enhanced the awareness of information disclosure, set down the relevant rules on information disclosure, disclosed regular report and temporary report abiding by the requirements of related laws and regulations. The temporary report of significant events was published publicly in accordance with the requirements of the relevant laws and regulations to ensure the equal chance of the shareholders to obtain the information of the Company. II. Duty performance of Independent Directors In the report period, The Company held the Boarding meeting for 8 times, attendance of Independent Directors was as follows: Times of Times of Name of Times of meetings meetings Times of Independent meetings should Notes attended attended by meetings absent Directors be attended personally. proxy Li Dixun 4 4 0 0 Independent Liao Ke 4 4 0 0 Directors of the Song Zengming 4 4 0 0 4th Board of Directors. Wang Sheming 4 4 0 0 Independent Wang Hongmei 4 4 0 0 Directors of the 5th Board of Zheng Xintao 4 4 0 0 Directors Three Independent Directors performed their duties seriously in accordance with related laws, regulations and the Article of Association, knew the various operating of the Company in-depth, actively took part in the decision-making of significant events of the Company, played fully a role of independent directors, and safeguarded the legal interest of the Company and the medium and small investors, and improved the level of corporate governance. There were no objections proposed by the Independent Directors on all proposals in the report period. III. Controlling Shareholders and Listed Company: The Company was separated from the controlling shareholder in business, assets, organization and financing and had independent and complete business and ability of self-operation, but not totally separated in personnel. (I). In respect of business, the business of the Company was separated from the controlling shareholder and the controlling shareholders did not engage in the same or similar business with the listed company. (II). In respect of assets, the assets invested in the Company by the controlling shareholder were finished independently and the property right was clear. The control shareholder did not interfere with the operation and management of the Company and the Company did not provide any guarantee for the controlling shareholder. (III). In respect of organization, the Board of Directors, the Supervisory Committee and other internal organizations of the Company independently operated and the controlling shareholder and its functional organization had no affiliation with the Company and its functional organization. The controlling shareholder and its subsidiaries did not release any plan and order on the Company’s operation to the Company and its subsidiaries and did not influence the independency of the Company’s operation and management in any forms. (IV). In respect of financing, the Company established and consummated the financing and accounting management system according to the requirements of relevant laws and regulations and independently settled. The controlling shareholder did not interfere with the financing and accounting activities. (V). In respect of personnel, the personnel of the Company were not fully independent from the controlling shareholder. Mr. Xu Min, Chairman of the Board of the Company, concurrently took the post of Chairman of the Board of Hainan Rulai Timber Co., Ltd., Mr. Liu Zhenliang, Vice Chairman of the Board of the Company, concurrently took the post of Deputy General Manager of Hainan Rulai Timber Co., Ltd.; Except for these, other Senior Executives, including person in charge of financing took no any post in the controlling Shareholder units. IV. Carrying out the special campaign of corporate governance In accordance with the related requirement and unified layout of Circular of Concerning Matters on Carrying out Special Campaign of Corporate Governance of Listed Companies (ZJGS Zi[2007] Document No. 28, hereinafter refer to “the Circular”) from CSRC, Circular of Fulfilling the Concerning Matters on Special Campaign of Corporate Governance of Listed Companies in Shenzhen (SZJGS Zi[2007] Document No.14) from Shenzhen Securities Regulatory Bureau and the Circular of Fulfilling the Concerning Matters to Strengthen the Special Campaign of Corporate Governance from Shenzhe Stock Exchange, the Company attached the great importance to this special campaign, set up the leader team of special campaign with the Chairman of the Board as team leader, carried out the self-inspection rectification work in deed in a objective, seeking truth from facts principle, truth-seeking and pragmatic attitude. The Company transited the related laws, regulation and the spirit of the Circular to Directors, Supervisors, Senior Executives, principal shareholders and actual controller, made the self-inspection deeply and comprehensively in terms of operation of abiding by the relevant laws, regulations like Company Law, Securities Law, rules on internal control like the Articles of Association, Rules of Procedure of “Three Meetings”, internal control, information disclosure and independence, found the problems and disadvantages in corporate governance earnestly, analyzed the problems existing and the deep reason, then set down the rectification plan against with the problems found in self-inspection. The self-inspection report and rectification plan in corporate governance was examined and approved by the 26th Meeting of the 4th Board of Directors, which was published in Securities Times, Hong Kong Ta Kung Pao and http://cninfo.com.cn. The special campaign of corporate governance and rectification were as follows: (I) During the period of carrying out the special campaign, the Company uploaded the a series of rules documents on corporate governance such as Articles of Association, Rules of Procedure of “Three Meetings” to http://www.cninfo.com.cn, established the special telephone, fax and e-mail etc. contact method. The Board of Directors appointed the principal to collect and hear the suggestion and advice from the investors and the public. (II) On Oct. 9, 2007, the Company received the Supervision Opinions on Corporate Governance of Shenzhen Benelux Enterprise Co., Ltd. from Shenzhen Securities Regulatory Bureau with contents: there were some other problems existing except the problems disclosed needing to be solved in self-inspection report: 1. Some articles in related rules were no normative; 2. The operation of “Three Meetings” was non-normative: the record of “Three Meetings”, some authorization was non-normative; there existed the situation of disobeying the requirement to hold the meeting of the Supervisory Committee. (III) Report of rectification” For further information, please refer to Rectification Report on Corporate Governance of Shenzhen Benelux Enterprise Co., Ltd. published in Securities Times, Hong Kong Ta Kung Pao and http://www.coinfo.com.cn on Oct. 30, 2007. Section VI Shareholders’ General Meeting In the report period, the Company held the Shareholders’ General Meeting twice with the following details: I. On Mar. 2, 2007, the 1st Extraordinary Shareholders’ General Meeting of the Company in 2007 was held, and the public notices of the resolutions at the meeting were disclosed in Securities Times and Hong Kong Ta Kung Pao on Mar. 3, 2007, at which such disposal was examined and approved as the Proposal on the Board of Directors of the Company Suggesting Tianjian Huazheng Zhongzhou (Beijing) Certified Public Accountants Offer the Auditing Work for Financial Settlement of the Company in 2006. II. On Aug. 10, 2007, the Annual Shareholders’ General Meeting of the Company was held, and the public notices of the resolutions of this meeting were disclosed in Securities Times and Hong Kong Ta Kung Pao on Aug. 11, 2007, at which the following proposals were examined and approved: 1. Text and Abstract of the Annual Report of the Company in 2006; 2. Financial Settlement of the Company in 2006; 3. Profit Distribution Preplan of the Company in 2006; 4. Proposal on Engaging Audit Institution in 2007; 5. Proposal on Endorsing the Audit Fees for Tianjian Huazheng Zhongzhou (Beijing) Certified Public Accountants and Hong Kong Morison Heng Certified Public Accountants in 2006; 6. Proposal on the Election at Expiration of Office Term for the Board of Directors of the Company; 7. Proposal on the Election at Expiration of Office Term for the Supervisory Committee of the Company. Section VII Report of the Board of Directors I. Discussion and analysis of managements (I) Operation in the report period 1. Difficulties faced by the Company currently: as Shenzhen Pengcheng Certified Public Accountants and Tianjian Huazheng Zhongzhou (Beijing) Certified Public Accountants issued the Auditors’ Report with disclaimer of opinion on the Accounting Statements of the Company in 2005 and 2006, the shares of the Company were treated as trade suspension from Aug. 31, 2006. The Company involved into great loss, great external guarantee with probable joint compensate liability, no main operation, sealed assets and other disadvantageous factors. In order to get rid of liability and external guarantee responsibility left over by the Company’s history, and set a better base for asset reconstruction of the Company, the Company listed the debt restructuring into the very important events in 2007. 2. Progress of debt restructuring (1) By the end of 2007, the Company reached an agreement with creditor on the guarantee liability of RMB 400 million approximately, taking up 85% of all the debt, which helped to lay the groundwork for the future asset reorganization of the Company. (2) On Dec. 12, 2006, the Company signed the Debt Restructuring Contract with China Orient Asset Management Cooperation, Chengdu Office. According to the contract, the Company purchased guarantee liability with 10% of principal, namely RMB 3.24 million which was paid off by twice: Sep.30, 2007 and Sep. 30, 2008. The Company could not complete the debt restructuring so comprehensively that it could not pay for the aforesaid accounts on schedule. On Oct. 22, 2007, the Company signed the complementary agreement with the opposing party, permitting the Company to compensate once by delaying to Sep. 30, 2008. 3. Particulars about subsidiaries in the report period (1) Wuhan Ruide Biological Product Co., Ltd. (hereinafter referred to as Ruide Company): the entire equity of Ruide Company held by the Company was entrusted to Wuhan Zhongyuan Industry Group Co., Ltd.. On Apr. 18, 2007, the Company received Circular on Releasing Entrustment with Term (SNFZ Zi (2005) No. 1484 from Shenzhen Nanshan People’s Court (hereinafter referred to as Nanshan Court). The Company would properly handle the entrustment with the related entities such as Nanshan Court according to the laws and rules of the State. By the report date, the Company had not received the penalty pen pusher from Nanshan Court. (2) Shenzhen Houyuan Medical Appliances Co., Ltd. (hereinafter referred to as Houyuan Company): the Company provided guarantee and undertook the joint liability for the documentary credit which was handled in Business Department of the ICBC Shenzhen Branch by Weiyu (Hong Kong) Co., Ltd, and Gangyu Industry Co., Ltd. (the credit right was transferred to China Orient Asset Management Cop. Shenzhen Representative Office), so Shenzhen Representative Office applied for the court to seal up the 75% equity of Houyuan Company held by the Company. On Aug. 15, 2006, the Company received the notification from Guangdong Shanwei Intermediate Court, deciding to assess the 75% equity of Houyuan Company held by the Company, of which the procedure was under way. (3) Shenzhen Benenlux Simulation & Control Co., Ltd.: in 2007, the said company was in the state of suspense. Finally, the Company completed the Financial Report of 2007 on the basis of the departments of the Company (three subsidiaries were not brought into the consolidated statements). (II) Main business range of the Company and particulars about operation: The main business of general department in the Company was shutout. In addition to the above 3 reasons, the Company stayed without main business income. II. Influence of the changes in accounting policies and accounting estimates and the audit opinion of CPAs 1. Changing of accounting policies In accordance with the Circular on Printing and Issuing Chinese Accounting Standards (2006) interpretation No. 1 from the Ministry of Finance, long-term equity investment of subsidiaries held by the Company before the first time adoption of accounting standard are made make the retroactive adjustment on the first time adoption of accounting standard, which regard as measurement under the cost method. Investment in three subsidiaries of the Company is calculated under the cost method and is made retroactive adjustment. Impairment of long-term investment is adjusted increase by RMB 8,219,559.85, retained profit at the beginning of 2005 is adjusted decrease by RMB 8,219,559.85. gains and losses adjustment of long-term investment is adjusted increase by RMB 8,219,559.85 and retained profit at the beginning of 2005 is adjusted increase by RMB 8,219,559.85. 2. Changing in accounting estimate Naught 3. Accounting error correction 1. For details of accounting error correction, please refer to Note 5 (3) to Financial Statements. 2. Changing of accounting policies and error correction are listed as follows: Data prior to Data subsequent adjustment in to adjustment in Accounting subject accounting Increase Decrease accounting statements as of statements as of the year 2006 the year 2006 Other receivables 55,520,579.52 35,354,759.71 20,165,819.81 Provision for bad debt of other receivables 43,075,423.46 35,354,759.71 7,720,663.75 Long-tern equity investment 110,504,584.55 8,219,559.85 118,724,144.40 Impairment reserve of long-term investment 110,504,584.55 8,219,559.85 118,724,144.40 Other payables 117,576,593.65 40,000,000.00 77,576,593.65 Estimated liabilities Capital reserve 30,146,440.25 4,645,240.29 34,791,680.54 Retained profit -482,941,495.62 35,354,759.71 -447,586,735.91 Management expense Financial expense Non-operating expense Retained profit at the year-begin -440,253,180.68 35,354,759.71 -404,898,420.97 (IV) Auditing opinion of accountant An Auditors’ Report with disclaimer of opinion is produced by Shenzhen Pengcheng Certified Public Accountants, reasons are as follows: 1. Reason for issuing Auditors’ Report with disclaimer of opinion 1.1 1. Limitation of audit scope (1) As presented in Note 8 (13) *1 and Note 13 (1), as at 31 December 2007, the Company fails to pay to China Orient Asset Management Corp. Shenzhen Office on schedule, which was a breach of faith. Via confirmation, ended the reporting date, we fails to receive the reply letter, we are unable to implement other audit procedure to obtain sufficient and reasonable evidences to make professional conclusion for rationality of losses caused by guarantee anticipated by the Company --- China Orient Asset Management Corp. Shenzhen Office RMB 184,730,783.61 (accounting for 71.19% of estimated liabilities). Moreover, due to limitation of audit scope, we are unable to confirm whether there exist other external guarantees in the Company besides the above-mentioned guarantee. 1.1.2 Due to various limitations as presented in Note 7, we are unable to implement the essential audit procedure to accounting statement for the year 2007 of three subsidiary companies of the Company, namely Wuhan Rui De Biological Products Co., Ltd, Shenzhen Houyuan Medical Instrument Co., Ltd. and Shezhen Benelux Emulation Co., Ltd., to obtain sufficient and reasonable evidences. 1.2 We are unable to conclude whether going-concern assumption is appropriate As listed in accounting statement attached thereto, the Company makes profit of RMB -3,674,539.46 in the year 2007, as at 31 December 2007, net assets is RMB -324,253,030.33, as well as balance sheet ratio is 1480.97%, which the Company is serious Insolvency. Furthermore, the operation and business of the Company is basically in stopping; main operational assets has been pledged or seized; equity of subsidiary company held by the Company has been seized; the Company has a number of overdue debts unpaid and external guarantee that has ruled by the Court but the Company need to undertake joint discharge responsibility; monetary funds available for operating activities expense is shortage. There exists material uncertainty in respect of ability to continue as a going concern. Up to the reporting date, the Company fails to provide sufficient and reasonable evidences to improve financial status and strengthen ability to continue as a going concern. Therefore, we are unable to conclude whether the preparation of financial statement for the year ended 2007 is appropriate under the going concern basis. 2. As for the events involving into the audit opinion, the Board of Directors expressed the following explanation: 2.1. External guarantee - the reasonability of the withdrawal of predicted liabilities by China Orient Asset Management Corp. Shenzhen Representative Office (hereinafter referred to as Shenzhen Representative Office) and whether other external guarantee existed or not. By Dec. 31, 2007, the Company had not paid the initial amount for the reorganization to Shenzhen Representative Office at the appointed time (Sep. 31, 2007), which caused the breach of faith. Given the Company had withdrawn the predicted liabilities by RMB 184,730,783.61 on the guarantee of Shenzhen Representative Office, as well as the factor of change in exchange rate, the amount could reasonably reflect the loss of this guarantee. In addition, there was no evidence to manifest the Company may exist other guarantee so far. 2.2. Reasonability on the un-consolidated statements of the three subsidiaries and the according influence on the accounting statements 2.2.1. Reasonability of the un-consolidated statements: as that mentioned in Annotation to the Financial Statements VII, the 99% equity of Wuhan Ruide Biological Product Co., Ltd. (hereinafter referred to as Ruide Company) held by the Company was made auction legally by Shenzhen Nanshan Court, while the 75% equity of Shenzhen Houyuan Medical Appliances Co., Ltd. (hereinafter referred to as Houyuan Company) held by the Company which was involved into lawsuits was sealed up and would be auctioned through evaluation by Shanwei Intermediate People’s Court. The 91.11% equity of Shenzhen Benenlux Simulation & Control Co., Ltd. held by the Company was frozen by Wuhan Intermediate People’s Court, which was in the state of suspense in 2007. The facts mentioned above could manifest that the Company had lose the substantial control. As to solve the above problems, the Board of Directors of the Company and Shareholders’ General Meeting had made the related resolution on disposing and settling the three subsidiaries (please refer to the public notices published in Securities Times and Hong Kong Ta Kung Pao respectively on Mar. 29, 2006 and May 9, 2006). According to Accounting Standard for Business Enterprises - Consolidated financial statements, it was in light with the regulation of Consolidated Financial Statement that the Company did not bring the three subsidiaries to be disposed, being lost control and in the state of suspense into the consolidated statements scope, which truly and fairly reflected the financial status of the Company. 2.2.2. Influence of the un-audit for the accounting statements Because the Company had totally withdrawn impairment provision on long-term investment, of which the book value was zero, as well as the un-qualification of the subsidiaries for the consolidated statements, there were no influence on the financial status and operating results of the Company. 2.3 Continuous operation of the Company So far, the Company had achieved great progress in debt restructuring, which set down the basis for the rest work of debt restructuring and the next asset restructuring. It was hoped that the Company could stem the disadvantaged tide and get out of the dilemma that there was no main business by means of efforts of the Company and the large shareholders, as to return the track of normal development. II. Investment in the report period: in the report period, the Company had no new-added external investment. III. Financial status and operating results in the report period (unit: RMB): 2007 2006 Proportion of increase/decrease (%) Total assets 23,480,019.14 25,192,151.18 -6.91 Shareholders’ equity -324,253,030.33 -320,578,490.87 -1.15 Profit of main business -1,616,450.91 -2,568,136.42 36.96 Net profit -3,674,539,46 -42,688,314.94 91.39 Net increase of cash and cash 2,294.95 8,650.08 -73.47 equivalents IV. Routine work of the Board of Directors (I) Particulars about the Board meetings and content of resolutions in the report period: In the report period, the Board of Directors of the Company held 8 meetings, with details about the meetings and its resolutions as follows: 1. On Feb. 12, 2007, the 24th meeting of the 4th Board of Directors of the Company was held, of which the public notice of the resolution were disclosed in Securities Times and Hong Kong Ta Kung Pao on Feb. 13, 2007. 2. On 26 Apr. 2007, the Company held the 25th meeting of the 4th Board of Directors, and public notices on the resolutions made at the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 27 Apr. 2007. 3. On 29 Jun. 2007, the Company held the 26th meeting of the 4th Board of Directors, and public notices on the resolutions made at the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 30 Jun. 2007. 4. On 20 Jul. 2007, the Company held the 27th meeting of the 4th Board of Directors, and public notices on the resolutions made at the meeting were published in Securities Times and Hong Kong Ta Kung Pao on 21 Jul. 2007. 5. On 10 Aug. 2007, the Company held the 1st meeting of the 5th Board of Directors, and elected Mr. Xumin as Chairman of the Board, Mr. Liu Zhenliang as the Duty Chairman of the Board and reengaged Mr. Wang Changheng as General Manager of the Company to preside daily work. 6. On 15 Aug. 2007, the Company held the 2nd meeting of the 5th Board of Directors, reviewed and approved Interim Report 2007 and its summary. 7. On 25 Oct. 2007, the Company held the 3rd meeting of the 5th Board of Directors, reviewed and approved the 3rd Quarterly Report 2007. 8. On 29 Oct. 2007, the Company held the 4th meeting of the 5th Board of Directors, reviewed and approved Rectification Report on Corporate Governance of the Company. (II) Implementation by the Board of the resolutions made at the Shareholders’ General Meeting In the report period, the Company held the Shareholders’ General Meeting twice, all the resolutions made at the meeting had been carried out in the report period according to the content. (III) In view of particulars of the Company, the related committees of the Company had not established yet. V. Preplan on profit distribution or capitalization of public reserves into share capital: as audited by Shenzhen Pengcheng Certified Public Accountants, the net profit of the Company of 2007 was RMB -3,674,539.46 and the profit distributable to shareholders amounted to RMB -451,261,275.37. According to relevant regulations of the Company Law and the Articles of Association, the Board of Directors has decided not to distribute any profit for the year 2007. This proposal needs to be submitted to the Shareholders’ General Meeting 2007 for examination and approval. If the resolution made at the Shareholders’ General Meeting differs from this proposal, adjustments shall be made according to the distribution plan made at the Shareholders’ General Meeting. VI. Special explanation by the CPAs on the capitals occupation by the controlling shareholder and other related parties of the Company: For the details of the related explanations, please refer to Note IX (II) 2 of the note to accounting statement. VII. Other events (I) In the report period, the newspapers designated by the Company for information disclosure are Securities Times and Hong Kong Ta Kung Pao, and the website designated for information disclosure is http://www.cninfo.com.cn. (II) Special explanation and independent opinions of the independent directors on the capital occupations by the controlling shareholder and other related parties, the external guarantees and the qualified opinions: According to the relevant regulations in the Guidelines on Establishing Independent Director System in Listed Companies, the Stock Listing Rules of Shenzhen Stock Exchange and the Articles of Association and after adequate deliberation, we, as independent directors of Shenzhen Benelux Enterprise Co., Ltd (hereinafter referred to as the Company), hereby express our independent opinions based on independent judgment: 1. Independent opinions on the capital occupations by the controlling shareholder and other related parties: Since the accounts of the Company have been sequestered, the Company has left part of the funds at the Shenzhen Office of the current principal shareholder Hainan Topywood Industry Co., Ltd, hence the currents. Debts owed by other related parties are caused by the accumulated debts in previous years. We will urge the Board of Directors to carry out the clearing work strictly according to relevant regulations and make sure that the capital occupation problems be solved properly. 2. Independent opinions on the external guarantees: The external guarantees by the end of 2007 are all historically accumulated ones, and the illegal behaviors of the Company were caused by the manipulation of the previous three Board of Directors. No guarantee has been found provided by the Listed Company or its subsidiaries for the controlling shareholder or affiliated enterprises of the controlling shareholder. We will strictly fulfill the responsibilities of independent directors and urge the Board to standardize the external guarantee behaviors according to documents ZJF [2003] No. 56 and [2005] No. 120 and make sure of the implementation of the rectification measures, so as to put an end to such kind of events. 3. Unqualified opinions: we have checked the financial report of the Company and read the auditors’ report provided by the Certified Public Accountants, and we believe that the financial report has faithfully reflected the financial status and operation achievements of the Company and that the auditors’ report provided by the Certified Public Accountants has abided by the principle of being fair, objective and faithful. We agree with the special explanations provided by the Board of the Company on the issues involved in the auditors’ report, and we will urge the Board of Directors to implement the debt reorganization and operation integration measures, etc, so as to protect the interests of the investors. 4. Independent opinions on the retrospective adjustments: We considered that, retrospect and adjustment on changes in accounting policy of 2007 and the correction of significant accounting errors by the Company were appropriate, and the aforesaid accounting has conformed to the relevant regulations in the Accounting Standards of Business Enterprises and systems. 5. Independent opinions on engaging the auditing agencies of 2007: We examined the related materials of audit organizations nominated by the Board of Directors, approved to engage Tianjian Huazheng Zhongzhou (Beijing) Certified Public Accountants Co., Ltd. and Morison Certified Public Accountants to be in charge the audit work of the Company in 2007. Section VIII Report of the Supervisory Committee The Supervisory Committee, as the standing supervisory body, strictly stuck to regulations of Company Law and Articles of Association, etc. performed the duties of Supervisory Committee responsible for all shareholders. I. Work of the Supervisory Committee: in the report period, the Supervisory Committee of the Company held four meetings, and particulars about the meeting and the content of the resolutions were as follows: (I) On 20 Jul. 2007, the Supervisory Committee held a meeting, examined and approved Resolution on Reelection of the Supervisory Committee of the Company. (II) On 10 Aug. 2007, the Supervisory Committee held a meeting, examined and approved the following resolutions: unanimously elected Mr. Dai Wuping as the Chairman of the 5th Supervisory Committee of the Company. (III) On 15 Aug. 2007, the Supervisory Committee held a meeting, examined and approved Interim Report 2007 and its summary. (IV) On 25 Oct. 2007, the Supervisory Committee held a meeting, examined and approved the 3rd Quarterly Report 2007. II. Independent opinions of the Supervisory Committee: (I) Operation according to laws: The Supervisory Committee believes that the Board of Directors of the Company has been able to operate strictly according to the Company Law, the Securities Law, Articles of Association and other laws as well as regulations, and implement the resolutions and authorization of the Shareholders’ General Meeting. During the operation, the decision-making procedures of the Company are legal, and the Company has established a relatively good internal control system. When performing their duties, no director or manager of the Company has been found any behaviors that have gone against the laws or regulations or have done harm to the interest of the shareholders or the Company. (II) Finance investigation: The Supervisory Committee supervised and examined financial management of the Company, examined and verified quarterly report, interim report and annual report in the report period, and believed that the Company strictly implemented relevant provisions stipulated in accounting rules, accounting standards and accounting system, financial report of the Company has faithfully reflected the financial status and operation achievements of the Company, and profit distribution plan was in accordance with fact of the Company. But Shenzhen Pengcheng Certified Public Accountants Co., Ltd issued audit report with disclaimer opinion. (III) For the auditors’ report of disclaimer opinion provided by Shenzhen Pengcheng Certified Public Accountants Co., Ltd, the Supervisory Committee believes that the problems of external guarantee responsibilities, failure of repayment and the control losing of subsidiaries, etc have all been caused by the manipulations of the former Board of Directors and the personal manipulations of the former Chairman of the Board, which have resulted in the limitations of the auditing work and the auditors’ report of disclaimer opinion provided by the Certified Public Accountants. The Supervisory Committee agrees with the relevant explanations by the Board of Directors, and suggests that the Board continue to seek for the supports of relevant authorities, find out the actual financial status of the Company as soon as possible and solve the problems including the control right over the subsidiaries, etc, so as to lay a solid foundation for properly solving relevant problems in the future. Section IX Significant Events I. Details on the significant lawsuits and arbitrations of the report period have been given in Note 8 (13) of the Notes to the Financial Statements. II. The Company made no purchases or sales of assets or mergers in the report period. III. The Company had no significant related transactions in the report period. IV. In the report period, the term of the loan principal and interest amounting to RMB 35,000,000.00 obtained by the subsidiary Shenzhen Houyuan Medical Instrument Co., Ltd from Guangzhou subsidiary of Huaxia Bank with guarantees provided by the Company expired on Apr. 27, 2005. The guarantee term was from Apr. 27, 2004 to Apr. 27, 2007. V. In the report period, the debt restructuring team of the Company gained important achievement (the details were in the discussion and analysis of the management level in section VII) and created favorable environment for further debt restructuring and assets restructuring of the Company. VI. Neither the Company nor any shareholder holding over 5% equity has made any commitments in the report period. VII. Since Tianjian Huazheng Zhongzhou Certified Public Accountants, the original domestic auditing agency engaged by the Company, did not arrange the audit work of 2007. In order to ensure the report 2007 can be disclosed on time, the General Meeting of Shareholders decided that, Shenzhen Pengcheng Certified Public Accountants in charge of the financial resolution audit work with remunerations being RMB 400,000. VIII Investigations, administrative punishments or notice criticism received by the Company, the Board or the directors, supervisors and senior executives from the CSRC or the public criticism received from the Shenzhen Stock Exchange in the report period: On 29 Sep. 2007, CSRC made an Administrative Punishment Verdict (ZJFZ [2007] No. 2) and punished the related original person in charge of the Company as follows because of the illegal discourse before 2004: 1. Give a penalty fine to Shenzhen Benelux Enterprise Co., Ltd of RMB 300,000; 2. Gave disciplinary warning to Huang Xianfeng and penalty fine of RMB 300,000; 3. Gave disciplinary warning to Zhou Jiaping and Zhou Jiachen and penalty fine of RMB 50,000; 4. Gave disciplinary warning to Zheng Huili and Zhang Lihong and penalty fine of RMB 50,000; 5. Gave disciplinary warning to Lin Bingjun, Li Yinghong, Zhou Yan and Zhou Rongming. IX. Other significant events: The Company has no other significant events. Apart from these, the Company has no other events that are described as significant events in Article 67 of the Securities Law and Article 30 of the Administration of Information Disclosure for Companies Publicly Issuing Securities or that the Company of the Board thinks are important. Section X Financial Report I. Full text of the Auditors’ Opinions (attached) II. Audited Financial Statements (attached) III. Audited Notes to the Financial Statements (attached) Section XI. Documents Available for Reference 1. Accounting statements with the signatures and seals of the legal representative, the person in charge of accounting work and the person in charge of accounting organs. 2. Original of the Auditors’ Report with the seal of the Certified Public Accountants and the signatures and seals of the CPAs. 3. Texts of all the Company’s documents ever disclosed in the newspapers designated by the CSRC in the report period as well as the originals of the public notices. 4. Annual Report publicized in other stock market. Note: this report has been compiled in both Chinese and English. Should there be any ambiguity in the meanings of the two versions, the Chinese one shall prevail. Shenzhen Benelux Enterprise Co., Ltd The Board of Directors 28 Apr. 2008 SHENZHEN BENELUX ENTERPRISE CO., LTD. Financial Statement for the Year 2007 Auditors’ Report Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Contents Contents Page I. Auditors’ Report 1-2 II. Financial Statement audited Balance Sheet Income Statement Statement of Change in Shareholders’ Equity Cash Flow Statement Notes to Financial Statement Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Tel.: 82207928 5/F, Baofeng Building, No. 2006, Dongmen South Road, Shenzhen, CPR Fax.: 82237549 Auditors’ Report SPSGS Zi [2008] No. 110 All Shareholders of SHENZHEN BENELUX ENTERPRISE CO., LTD. We have audited the accompanying financial statements of Shenzhen Benelux Enterprise Co., Ltd. (the “Company”), which comprise the balance sheet as of December 31, 2007, the income statement, the statement of changes in equity, the cash flow statements with the accompanied notes to the financial statements for the year then ended 2007. I. RESPONSIBILITY OF COMPANY’S MANAGEMENT The preparation of the financial statements in accordance with the China Accounting Standards for Enterprises, which issued by the Ministry of Finance of the People’s Republic of China, is the responsibility of the Company’s management. The responsibility comprises (1) designing, implementing and maintaining the internal control system relevant to the preparation of the financial statements, to ensure that the financial statements are free of material misstatement due to fraud or error; (2) selecting and applying appropriate accounting policies; (3) making accounting estimates that are reasonable in the circumstances. II. MATTERS CAUSED TO DISCLAIMER OF OPINION 1. Limitation of audit scope (1) As presented in Note 8 (13) *1 and Note 13 (1), as at 31 December 2007, the Company fails to pay to China Orient Asset Management Corp. Shenzhen Office on schedule, which was a breach of faith. Via confirmation, ended the reporting date, we fails to receive the reply letter, we are unable to implement other audit procedure to obtain sufficient and reasonable evidences to make professional conclusion for rationality of losses caused by guarantee anticipated by the Company --- China Orient Asset Management Corp. Shenzhen Office RMB 184,730,783.61 (accounting for 71.19% of estimated liabilities). Moreover, due to limitation of audit scope, we are unable to confirm whether there exist other external guarantees in the Company besides the above-mentioned guarantee. (2) Due to various limitations as presented in Note 7, we are unable to implement the essential audit procedure to accounting statement for the year 2007 of three subsidiary companies of the Company, namely Wuhan Rui De Biological Products Co., Ltd, Shenzhen Houyuan Medical Instrument Co., Ltd. and Shezhen Benelux Emulation Co., Ltd., to obtain sufficient and reasonable evidences. 2. We are unable to conclude whether going-concern assumption is appropriate As listed in accounting statement attached thereto, the Company makes profit of RMB -3,674,539.46 in the year 2007, as at 31 December 2007, net assets is RMB -324,253,030.33, as well as balance sheet ratio is 1480.97%, which the Company is serious Insolvency. Furthermore, the operation and business of the Company is basically in stopping; main operational assets has been pledged or seized; equity of subsidiary company held by the Company has been seized; the Company has a number of overdue debts unpaid and external guarantee that has ruled by the Court but the Company need to undertake joint discharge responsibility; monetary funds available for operating activities expense is shortage. There exists material uncertainty in respect of ability to continue as a going concern. Up to the reporting date, the Company fails to provide sufficient and reasonable evidences to improve financial status and strengthen ability to continue as a going concern. Therefore, we are unable to conclude whether the preparation of financial statement for the year ended 2007 is appropriate under the going concern basis. III. AUDITOR’S OPINION Because the impact on the above matters is material, we are unable to express an opinion as to whether the financial statements present fairly, in all material respects, the financial position of the Company as of December 31 2007 and the results of its operations and its cash flows for the year then ended. Shenzhen Pengcheng CPAs Certified Public Accountants of China Liao Fupeng Shenzhen, China Certified Public Accountants of China Li Ping April 28, 2008 Balance Sheet Prepared by Shenzhen Benelux Enterprise Co., Ltd Unit: RMB Yuan Note Assets 2007-12-31 2007-1-1 8 Current assets Monetary fund 1 61,725.75 59,430.80 Trading financial assets Notes receivable Accounts receivable 2 Prepayment Interests receivable Dividends receivable Other receivables 3 11,978,089.35 12,445,156.06 Inventories Non-current assets due within 1-year - - Other current assets - - Total current assets 12,039,815.10 12,504,586.86 Non-current assets： Available-for-sale financial assets Investment held to maturity Long-term receivables Long-term equity 4 investment Investment property Fixed assets 5 11,440,204.04 12,687,564.32 Construction in progress Engineering materials Disposal of fixed assets Oil-gas assets Intangible assets R&D expenses Goodwill Long-term deferred expenses Deferred tax assets Other non-current assets - - Total non-current assets 11,440,204.04 12,687,564.32 Total assets 23,480,019.14 25,192,151.18 Balance Sheet (Con.) 31 December 2007 Prepared by Shenzhen Benelux Enterprise Co., Ltd Unit: RMB Yuan Note Liabilities and shareholders’ equity 2007-12-31 2007-1-1 8 Current liabilities： Short-term loans 7 6,990,000.00 6,990,000.00 Trading financial liabilities Notes payable Accounts payable 8 136,282.84 136,282.84 Advance from customers Payroll payable 9 Taxes payable 10 1,383,021.13 1,339,344.35 Interests payable 11 2,836,216.29 2,121,451.03 dividends payable Other payables 12 76,909,621.56 77,576,593.65 Non-current liabilities due within 1-year Other current liabilities Total current liabilities： 88,255,141.82 88,163,671.87 Non-current liabilities： Long-term loans Bonds payable Long-term payables Specific payables Provision for liabilities 13 259,477,907.65 257,606,970.18 Deferred taxes liabilities Other non-current liabilities - - Total non-current liabilities： 259,477,907.65 257,606,970.18 Total liabilities 347,733,049.47 345,770,642.05 Shareholders' Equity： Share capital 14 60,500,000.00 60,500,000.00 Capital surplus 15 34,791,680.54 34,791,680.54 Less：Treasury Stock Surplus reserve 16 31,716,564.50 31,716,564.50 Retained earnings 17 -451,261,275.37 -447,586,735.91 Foreign exchange difference - - Total shareholder's equity -324,253,030.33 -320,578,490.87 Total liabilities & shareholder's 23,480,019.14 25,192,151.18 equity Income Statement Year 2007 Prepared by Shenzhen Benelux Enterprise Co., Ltd Unit: RMB Yuan Items Note 8 2007 2006 I. Operating revenue 18 1,663,062.00 1,657,474.80 Less: Operating cost - - Business tax and extra 19 85,450.68 61,401.16 Distribution expenses Administrative expenses 2,223,494.54 2,267,799.07 Financial costs 20 715,901.09 -895,041.07 Impairment loss 21 254,666.60 2,791,452.06 Plus: gain/loss on change in fair value (“-”for loss) - - Gain/loss on investment (“-”for loss) Including: income from investment on - - associates and jointly ventures II. Operating profit (“-”for loss) -1,616,450.91 -2,568,136.42 Plus: non-operating income Less: non-operating expense 22 2,058,088.55 40,120,178.52 Including: loss from disposal of non-current asset III. Total profit (“-”for loss) -3,674,539.46 -42,688,314.94 Less: income tax expense IV. Net profit (“-”for loss) -3,674,539.46 -42,688,314.94 Including: Attributable to equity holders of the -3,674,539.46 -42,688,314.94 parent company Minority interest - - Net profit before combination under the - common control Add: Retained profit at the beginning of -447,586,735.91 -404,898,420.97 year Other transfer in - - V. Profit available to distribution -451,261,275.37 -447,586,735.91 Less: Appropriating statutory surplus reserve Appropriating statutory welfare - - Appropriating employees’ bonus and welfare - - funds VI. Profit available to distribution to shareholders of -451,261,275.37 -447,586,735.91 parent company Less: dividends for preference shares - - payable Appropriating discretionary surplus - - reserves Dividends for ordinary shares payable Profit for ordinary shares converted into - - share capital VII. Retained profit -451,261,275.37 -447,586,735.91 VIII. Earnings per share (I) Basic earnings per share -0.0607 -0.7056 (II) Diluted earnings per share -0.0607 -0.7056 Statement of Change in Equity Prepared by Shenzhen Benelux Enterprise Co., Ltd Year 2007 Unit: RMB Yuan 2007 Retained Share capital Capital reserve Surplus reserve Total Items earnings I. Balance at 31 December, 2006 60,500,000.00 34,791,680.54 31,716,564.50 -447,586,735.91 -320,578,490.87 Plus: change in accounting policies - - - - - Correction of errors in previous period - - - - - II. Balance at 1 January, 2007 60,500,000.00 34,791,680.54 31,716,564.50 -447,586,735.91 -320,578,490.87 III. Increase/ decrease during the financial year (“-”for loss) - - - -3,674,539.46 -3,674,539.46 (I) Net profit - - - -3,674,539.46 -3,674,539.46 (II) Gain and loss recognized directly in equity - - - - - 1. Net changes in fair value of available-for-sale financial assets - - - 2. Effects on changes in equity of invested companies under equity method - - - - - 3. Deferred tax effect - - - - - 4. Others - - - - - Subtotal of (I)and (II) - - - -3,674,539.46 -3,674,539.46 (III) Contributions and decrease of capital - - - - - 1. Contributions by shareholders - - - - - 2. Equity settled share-based payment - - - - - 3. Others - - - - - (IV) Profit distribution - - - - - 1. Surplus reserve accrued - - - - - 2. Distribution to shareholders - - - - - 3. Others - - - - - (V) Transfer within shareholders' equity - - - - - 1. Capital reserve transferred to capital (share capital) - - - 2. Surplus reserve transferred to capital (share capital) - - - - - 3. Surplus reserve offsetting losses - - - - - 4. Others - - - - - (VI) Foreign exchange difference - - - - - IV. Balance at 31 December, 2007 60,500,000.00 34,791,680.54 31,716,564.50 -451,261,275.37 -324,253,030.33 Statement of Change in Equity Year 2006 Prepared by Shenzhen Benelux Enterprise Co., Ltd Year 2006 Unit: RMB Yuan 2006 Capital Retained Share capital Surplus reserve Total Items reserve earnings I. Balance at 31 December, 2006 60,500,000.00 30,146,440.25 31,716,564.50 -440,253,180.68 -317,890,175.93 Plus: change in accounting policies - - - Correction of errors in previous period - 4,645,240.29 - 35,354,759.71 40,000,000.00 II. Balance at 1 January, 2007 60,500,000.00 34,791,680.54 31,716,564.50 -404,898,420.97 -277,890,175.93 III. Increase/ decrease during the financial year (“-”for loss) - - - -42,688,314.94 -42,688,314.94 (I) Net profit - - - -42,688,314.94 -42,688,314.94 (II) Gain and loss recognized directly in equity - - - - - 1. Net changes in fair value of available-for-s ale financial assets - - - - 2. Effects on changes in equity of invested companies - - - - under equity method 3. Deferred tax effect - - - - 4. Others - - - - Subtotal of (I)and (II) - - - -42,688,314.94 -42,688,314.94 (III) Contributions and decrease of capital - - - - - 1. Contributions by shareholders - - - 2. Equity settled share-based payment - - - - - 3. Others - - - - - (IV) Profit distribution - - - - - 1. Surplus reserve accrued - - - - - 2. Distribution to shareholders - - - - - 3. Others - - - - - (V) Transfer within shareholders' equity - - - - - 1. Capital reserve transferred to capital (share capital) - - 2. Surplus reserve transferred to capital (share capital) - - - - - 3. Surplus reserve - - - - - offsetting losses 4. Others - - - - - (VI) Foreign exchange difference - - - - - IV. Balance at 31 December, 2007 60,500,000.00 34,791,680.54 31,716,564.50 -447,586,735.91 -320,578,490.87 Cash Flow Statement Prepared by Shenzhen Benelux Enterprise Co., Ltd Unit: RMB Yuan Items Note 8 2007 2006 1. Cash flows from operating activities Cash received from sales of goods or rending of services 1,663,062.00 1,427,475.40 Tax returned - - Other cash received from operating activities 23 467,066.71 Sub-total of cash inflow from operating activities 2,130,128.71 1,427,475.40 Cash paid for goods and services Cash paid to and for employees 324,810.91 408,642.60 Cash paid for all types of taxes 41,156.20 61,401.76 Other cash paid relating to operating activities 24 1,761,866.65 937,677.79 Sub-total of cash outflows 2,127,833.76 1,407,722.15 Net cash outflow in operating activities 2,294.95 19,753.25 2. Cash Flows from Investing Activities Cash received from return of investments Cash received from investment income Net cash received from disposal of fixed assets, intangible assets and other long-term assets Net cash received from disposal of subsidiaries and other operating units - - Other cash received relating to investing activities - - Sub-total of cash inflows of investing activities - - Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows of investing activities - - Net cash inflow from investing activities - - 3. Cash Flows from Financing Activities: Cash received from investment - - Cash received from borrowings Cash received relating to financing activities 116.07 Sub-total of cash inflows of financing activities - 116.07 Cash paid for repayments of borrowings 10,000.00 Cash paid for dividends, profit distribution or interest - Other cash paid relating to financing activities 1,060.20 Sub-total of cash outflows of financing activities - 11,060.20 Net cash inflow from financing activities - -10,944.13 4. Effect of foreign exchange rate changes - -159.04 5. Net decrease in cash and cash equivalents 2,294.95 8,650.08 Add : Cash and cash equivalents at the beginning of the year 59,430.80 50,780.72 6. Cash and cash equivalents at the end of the year 61,725.75 59,430.80 Cash Flow Statement Prepared by Shenzhen Benelux Enterprise Co., Ltd Unit: RMB Yuan Supplemental information 2007 2006 1. Transferring net profit into cash flows of operating activities: Net profit -3,674,539.46 -42,688,314.94 Add: impairment loss provision for assets 254,666.60 2,791,452.06 Depreciation of fixed assets, gas and oil and production biology assets 853,519.30 857,771.40 Amortization of intangible assets Amortization of long-term deferred expense Loss on disposal of fixed assets, intangible assets and other long-term assets(gain is listed beginning with"-") 2,058,088.55 Loss from scrap fixed assets(gain is listed beginning with"-") Loss of fair value changes(gain is listed beginning with"-") Financial expenses (profit is listed beginning with"-") 715,901.09 -895,041.07 Loss from investment(profit is listed beginning with"-") Decrease of deferred income tax assets (increase is listed beginning with"-") Increase of deferred income tax liabilities (decrease is listed beginning with"-") Decrease of inventories (increase is listed beginning with"-") Decrease of operating accounts receivable (increase is listed beginning with"-") 467,066.71 69,264.31 Increase of operating accounts payable (decrease is listed beginning with"-") -623,295.31 -27,170,374.25 Other -49,112.53 67,054,995.74 Net cash flow from operating activates 2,294.95 19,753.25 2. Significant investing and financing activates that do not involve in cash Transfer of debt into capital - - Convertible company bond due within on year - - Finance leased fixed assets - - 3. Changes in cash and cash equivalents Ending balance of cash 61,725.75 59,430.80 Less: Beginning balance of cash 59,430.80 50,780.72 Add: ending balance of cash equivalents Less: Beginning balance of cash Net increase in cash and cash equivalents 2,294.95 8,650.08 SHENZHEN BENELUX ENTERPRISE CO., LTD. Notes to Financial Statement For the Year 2007 Unit: RMB Yuan I. General Information (I) Company outline Shenzhen Benelux Enterprise Company Limited (the “Company”) is former Shekou Benelux Electrical Chemical Manufacturing Co., Ltd., which was established on September 25, 1990 as a Sino-foreign joint venture company as approved by the Shenzhen Municipal Government with SFK (1990) No. 187. Pursuant to the approval granted by the Shenzhen Municipal Government on August 31, 1993, the Company was reorganized from a Sino-foreign joint venture company to a company limited by shares and changed its name to Shenzhen Benelux Enterprise Company Limited. (深圳本魯克斯 實業股份有限公司). Pursuant to the approval granted by the CSRC Shenzhen Securities Supervision Regulatory Office with SZBF (1994) No. 38 document, 13,000,000.00 B shares were offered publicly to foreign investors, which was listed on the Shenzhen Stock Exchange on 24 May 1994 with total share capital of 50,000,000.00 shares. The Company made registration again, and drew Business License for an Enterprise as a entity with Qi-Gu-He-Yue-Shen-Zong-Zi No. 101951. Pursuant to the approval granted by the CSRC Shenzhen Securities Supervision Regulatory Office with (1996) No. 56, dividend for the year 1995 was distributed and share capital of 5 million was transferred from capital reserve on 15 July 1996. via approval from the CSRC Shenzhen Securities Supervision Regulatory Office with SZBF (1997) No. 104 on 12 August 1997, the Company distributed 10 bonus shares for every 10 shares to all shareholders based on share capital of 55,000,000 as at the end of the year 1996. Ended 2007, share capital of the Company was 60,500,000.00 shares. The principal activities of the Company is the sales and manufacture of medical equipment, clinical products, biological and blood products, cassettes and videotapes and development of the technology. However, there are no business activities for the company during the year. The address of its registered office is 中國深圳巿南山區南油中興工業城 (II) The Company’s financial statement has been approved by the 7th meeting of the 5th Board of Directors of the Company on April 28, 2008. II. Preparation basis of the financial statements The financial statements have been prepared on a going concern basis. Based on actual transaction and events occurred, the Company prepared original financial statement in accordance with Accounting Standard for Business Enterprise promulgated prior to 15 Feb. 2006 and Accounting System for Business Enterprise promulgated on 29 Feb. 2000 (hereinafter refer to “the old accounting standard and system”). While, new Accounting Standard for Business Enterprise promulgated by Ministry of Finance on 15 Feb. 2006 was performed by the Company since 1 Jan. 2007. The Financial Statement for the year 2007 is the first Annual Financial Statement prepared based on the new Accounting Standard for Business Enterprise. The amount at the period-begin in balance sheet and the comparative data at the same period of last year listed in the income statement has been made retroactive adjustment in accordance with the Article 5 to Article 19 in Accounting Standard for Business Enterprise No. 38 --- First Time Adoption of Accounting Standard for Business Enterprise and the Circular on Issuing the No. 7 Questions and Responses of Information Disclosure Standards of Public Companies ------ Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards issued by China Securities Regulatory Commission, and has been restated base on the Accounting Standard for Business Enterprise. III. Statement for complying with the accounting standard for business enterprise The Company’s financial statements are in compliance with the requirements of the accounting standard for business enterprise, and have reflected the Company’s financial status, operating results and cash flows in an accurate and complete way. IV. The main accounting policies, accounting estimates adopted by the Company and preparation method of consolidated financial statement 1. Accounting period The accounting year of the Company is from January 1 to December 31. 2. Functional currency The Company adopts Renminbi as a functional currency. 3. Accounting recognition, measurement, and reporting basis and pricing principles Based on the accrual system and going-concern, accounting recognition, measurement and reporting are made, and accounting is settled by stage and financial statement is prepared. The Company generally adopts historical cost as the accounting basis. But under the situation that accounting elements accord with the requirements of Accounting Standard for Business Enterprise, and fair value can be obtained in a reliable way, fair value shall be adopted in terms of financial instrument, non-control business combination, debts restructuring and non-monetary assets exchange. 4. Recognition standard for cash and cash equivalents in the cash flow statement The cash of the Company refers to cash on hand and deposits that are available for payment at any time. The cash equivalents refers to short-term (usually due within 3 months since the day of purchase) and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. 5. Foreign currency As for a foreign currency transaction, the amount in the foreign currency shall be translated into the amount in the functional currency at an exchange rate which is approximate to the spot exchange rate of the transaction date. An approximate to the spot exchange refers to exchange rate at the beginning of current month of the transaction date. As at the balance sheet date, the foreign currency monetary items shall be adjusted at the spot exchange rate on the balance sheet date, from which translation balance occurred, for those still under construction, those amount shall be recorded as long-term expenses to be apportioned, while, the exchange gains and losses that have been caused by loans for purchase of fixed assets shall be dealt with according to the principle of capitalization of borrowing expenses, other shall be recorded into gains and losses of current period. The foreign currency non-monetary items measured at the fair value cost shall still be translated at the spot exchange rate on the determination date of fair value, from which translation balance shall be dealt with as gains and losses of change in fair value. The foreign currency non-monetary items measured at the historical cost shall still be translated at the spot exchange rate on the transaction date, of which the amount of functional currency shall not be changed. 6. Translation of foreign currency financial statements When translating the financial statements on the overseas businesses, the asset, liability and gains and losses items in the balance sheets shall be translated into the functional currency of parent company at a spot exchange rate on the balance sheet date of the consolidated financial statement. Among the owner's equity items, except the ones as "undistributed profits", others shall be translated into the functional currency of parent company at the spot exchange rate at the time when they are incurred. The balance arisen from the translation of foreign currency financial statements shall be presented separately under the owner's equity item of the balance sheets. When disposing an overseas business, the Company shall shift the balance, which arises from the translation of foreign currency financial statements related to this oversea business, into the disposal profits and losses of the current period. 7. Financial assets and financial liabilities Classification of Financial Assets and Financial Liabilities Financial assets shall be classified into the following four categories when they are initially recognized: a. the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and the financial assets which are measured at their fair values and of which the variation is included in the current profits and losses; b. the investments which will be held to their maturity; c. loans and the account receivables; and d. financial assets available for sale. Financial liabilities shall be classified into the following two categories when they are initially recognized: a. the financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; and b. other financial liabilities. Recognition of Financial Instruments and subsequent measurement The financial assets and financial liabilities initially recognized by the Company shall be measured at their fair values. For the financial assets and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, the transaction expenses thereof shall be directly recorded into the profits and losses of the current period; for other categories of financial assets and financial liabilities, the transaction expenses thereof shall be included into the initially recognized amount. The Company shall make subsequent measurement on its financial assets according to their fair values, and may not deduct the transaction expenses that may occur when it disposes of the said financial asset in the future. However, those under the following circumstances shall be excluded: a. The investments held until their maturity, loans and accounts receivable shall be measured on the basis of the post-amortization costs by adopting the actual interest rate method; b. The equity instrument investments for which there is no quotation in the active market and whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. The Company shall make subsequent measurement on its financial liabilities on the basis of the post-amortization costs by adopting the actual interest rate method, with the exception of those under the following circumstances: a. For the financial liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, they shall be measured at their fair values, b. For the derivative financial liabilities, which are connected to the equity instrument for which there is no quotation in the active market and whose fair value cannot be reliably measured, and which must be settled by delivering the equity instrument, they shall be measured on the basis of their costs. Determination of fair value of financial instrument As for the financial instrument for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. Where there is no active market for a financial instrument, the Company concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. Recognition and measurement of Transfer of Financial Assets The term "transfer of a financial asset" refers to an enterprise's (the transferor's) transferring or delivering a financial asset to a party other than the issuer of the financial asset (the transferee). Where the Company has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee, it shall stop recognizing the financial asset. If it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall not stop recognizing the financial asset. If the transfer of the financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following two items shall be recorded in the profits and losses of the current period:(1)The book value of the transferred financial asset;(2)The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities (in the event that the financial asset involved in the transfer is a financial asset available for sale). If the Company fails to satisfy the conditions to stop the recognition, it shall still recognize the transferred financial asset, and the consideration received shall be recognized as financial liabilities. Impairment of financial assets The Company shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. The objective evidences that can prove the impairment of a financial asset shall include: a. A serious financial difficulty occurs to the issuer or debtor; b. The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the principal, etc.; c. The creditor makes any concession to the debtor which is in financial difficulties due to economic or legal factors, etc.; d. The debtor will probably become bankrupt or carry out other financial reorganizations; e. The financial asset can no longer continue to be traded in the active market due to serious financial difficulties of the issuer; f. Where the fair value of the equity instrument investment drops significantly or not contemporarily; g. Other objective evidences showing the impairment of the financial asset. (1) Measurement of impairment loss for Held-to-maturity investment, loan and accounts receivable As to held-to-maturity investment and loan, where a financial asset measured on the basis of post-amortization costs is impaired, impairment loss shall be recognized in the light of the balance that the current value of the future cash flow is lower than book value, and such balance shall be recorded into the profits and losses of the current period. An impairment test shall be made on the financial assets with significant single amounts. If any objective evidence shows that it has been impaired, the impairment-related losses shall be recognized. With regard to the financial assets with insignificant single amounts, an independent impairment test may be carried out, where, upon independent test, the financial asset has not been impaired, it shall be included in a combination of financial assets with similar risk features so as to conduct another impairment test. Where any financial asset measured on the basis of post-amortization costs is recognized as having suffered from any impairment loss, if there is any objective evidence proving that the value of the said financial asset has been restored, and it is objectively related to the events that occur after such loss is recognized, the impairment-related losses as originally recognized shall be reversed and be recorded into the profits and losses of the current period. (2) As to measurement of impairment loss for accounts receivable shall be stated in bad debt reserve. (3) Measurement of impairment loss for available-for-sale financial assets Where a sellable financial asset is impaired, even if the recognition of the financial asset has not been terminated, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. Where the impairment-related losses incurred to an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or incurred to a derivative financial asset which is connected with the said equity instrument and which shall be settled by delivering the said equity instrument, whose impairment loss shall be recognized in the light of balance that the current value of the future cash flow is lower than book value, and such balance shall be recorded into the profits and losses of the current period. Such impairment-related losses incurred may not be reversed in the coming accounting period. As for the sellable debt instruments whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be recorded into the profits and losses of the current period. 8. Bad debts reserve Recognition standard of bad debts a. Those accounts receivable that are still unable to be drawn back after the debtors discharge the aforesaid accounts with the bankruptcy properties if they are belly-up or with the legacies when they are dead, b. the debtors has not fulfilled their repayment duty after the expiration day, and there are obvious signs indicating that the accounts receivable really cannot be recovered or the accounts receivable really cannot be recovered even over 3 years shall be recognized as bad debts. Withdrawal method of provision for bad debt Bad debts of the Company shall be measured based on the allowance method. The Company performs impairment test for receivables and provide provision for impairment loss of receivables at each balance sheet date. For the individually significant receivables, the impairment test is carried on individually. If there is objective evidence that an impairment loss on loans and receivables, the Company provides provision for impairment loss for the amount which is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. For the receivables which are not individually significant or the individually significant receivables which are not determined for impairment, the Company assesses the asset in a group of financial assets with similar credit risk characteristics and collectively provide them for provision of impairment according to certain percentage of the total receivables at the balance sheet date. Percentage of provision for bad debt of receivables Aging of receivables Percentage of provision for bad debt Within 1 year 3% 1-2 years 5% 2-3 years 10% 3-5 years 30% Over 5 years 40% 9. Inventory Classification of inventory The term "inventories" refers to finished products or merchandise possessed by an enterprise for sale in the daily of business, or work in progress in the process of production, or materials and supplies to be consumed in the process of production or offering labor service. The inventories include the following four categories: raw materials (including auxiliary materials), work-in-progress products, Low-value consumption goods and finished goods. Measurement of inventory The Company adopts perpetual inventory system for its inventory taking. Finished materials shall be measured at actual cost when obtained, while the Company shall confirm the actual cost of sending out inventories by employing the first-in-first-out method. Low-value consumption goods shall be fully amortized when they are required and delivered; materials in consignors shall be measured in the light of amortization method by stage. Withdrawal method of provision for falling price of inventory At the end of term, basing on full range inventory checking, such inventories that those are timeworn or its sale price is lower than its cost, shall be measured whichever is lower in accordance with the cost and the net realizable value, and shall be withdrawn provision for loss on decline in value of inventories on the ground of each item of inventories, which is recorded into profits and losses of the current period. The Company shall confirm the net realizable value of inventories on the ground of reliable evidence obtained, taking into consideration of the purpose for holding inventories and the effects of events occurring after the date of the balance sheet, also influence on net realizable value due to the future matters. The net realizable value refers to in the daily business activity the amount after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. 10. Long-term equity investment Measurement of long-term equity investment (1) The initial cost of the long-term equity investment formed in the merger of an enterprise shall be ascertained in accordance with the following provisions: A. For the merger of enterprises under the same control, if the consideration of the merging enterprise is that it makes payment in cash, transfers non-cash assets or bear its debts, it shall, on the date of merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne by the merging party shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. If the consideration of the merging enterprise is that it issues equity securities, it shall, on the date of merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital stock, while the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. B. For the merger under different control, merger costs ascertained in accordance with the following provisions as the initial cost of the long-term equity investment. a. For a business combination realized by a transaction of exchange, the combination costs shall be the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree. b. For a business combination realized by two or more transactions of exchange, the combination costs shall be the summation of the costs of all separate transactions. c. All relevant direct costs incurred to the acquirer for the business combination shall also be recorded into the cost of business combination. d. Where any future event that is likely to affect the combination costs is stipulated in the combination contract or agreement, if it is likely to occur and its effects on the combination costs can be measured reliably, the acquirer shall record the said amount into the combination costs. (2) Besides the long-term equity investments formed by the merger of enterprises, the initial cost of a long-term equity investment obtained by other means shall be ascertained in accordance with the provisions as follows: a. The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid. The initial cost consists of the expenses directly relevant to the obtainment of the long-term equity investment, taxes and other necessary expenses. b. The initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued. c. The initial cost of a long-term equity investment of an investor shall be the value stipulated in the investment contract or agreement except the unfair value stipulated in the contract or agreement. d. As to long-term investment obtained by the exchange of non-monetary assets, where a non-monetary assets transaction satisfies the conditions that the transaction is commercial in nature, the initial cost of long-term equity investment received shall be regarded in the light of the fair value of the assets and relevant payable taxes, where a non-monetary assets transaction satisfies the conditions that the transaction is not commercial in nature, the initial cost of long-term equity investment received shall be regarded in the light of the book value of the assets surrendered and relevant payable taxes. e. As to a long-term equity investment obtained by recombination of liabilities, its initial cost shall be recognized in the light of fair value of the assets and relevant payable taxes. Recognition of income The following long-term equity investments shall be measured by employing the cost method: (1) A long-term equity investment of an investing enterprise that is able to control the invested enterprise, and (2) A long-term equity investment of the investing enterprise that does not do joint control or does not have significant influences on the invested entity, and has no offer in the active market and its fair value cannot be reliably measured. A long-term equity investment of the investing enterprise that does joint control or significant influences over the invested entity shall be measured by employing the equity method. As to long-term equity investment measured by employing the cost method, the dividends or profits declared to distribute by the invested entity shall be recognized as the current investment income. The investment income recognized by the investing enterprise shall be limited to the amount received from the accumulative net profits that arise after the invested entity has accepted the investment. Where the amount of profits or cash dividends obtained by the investing entity exceeds the aforesaid amount, it shall be regarded as recovery of initial investment cost to offset book value of such investment. As to long-term equity investment measured by employing the equity method, in accordance with the attributable share of the net profits or losses of the invested entity, recognize the investment profits or losses and adjust the book value of the long-term equity investment. The investing enterprise shall, in the light of the profits or cash dividends declared to distribute by the invested entity, calculate the proportion it shall obtain, and shall reduce the book value of the long-term equity investment correspondingly. When disposing of a long-term equity investment, the difference between its book value and the actual purchase price shall be included in the current profits and losses. 11. Fixed assets The term "fixed assets" refers to the tangible assets that simultaneously possess the features as follows: (1) They are held for the sake of producing commodities, rendering labor service, renting or business management; and (2) Their useful life is in excess of one fiscal year. The initial measurement of a fixed asset shall be made at its cost. The cost of a purchased fixed asset consists of the purchase price, the relevant taxes, freights, loading and unloading fees, professional service fees and other expenses that bring the fixed asset to the expected conditions for use and that may be relegated to the fixed asset. The expected discard expenses should be taken into consideration in the ascertainment of the cost of a fixed asset. Subsequent expenditure relating to a fixed asset is added to the carrying amount of the asset when the expenditure qualifies for capitalization. Subsequent expenditure that does not qualify for capitalization is recognized as an expense. The depreciation method adopted by the Company is straight-line method. Depreciation rate shall be determined in terms of original value, expected useful life and expected net salvage value (expected net salvage value is 10% of original value). For a fixed asset, the provision for impairment has been made, it shall be calculated again to determine depreciation rate in terms of such asset’s useful life, expected net salvage value when it is withdrawn depreciation. For a fixed asset, the provision for impairment has been made fully, its depreciation shall not be made. The categories of depreciation rate are shown as followings: Categories Expected useful life Annual depreciation rate (%) (years) 20-30 4.5-3 Property and building 12-15 7.5-6 Machinery equipment Transportation equipment 5 18 Electrical equipment 5 18 Other 10 9 Where a fixed asset that it is unable to bring about income or it is not be used temporarily (except for seasonal outage) is regarded as idle fixed asset. Expected useful life and depreciation rate of idle fixed asset need to be estimated again. Relevant depreciation shall be recorded into the profits and losses of the current period. The Company identifies a lease of asset as finance lease when substantially all the risks and rewards incidental to legal ownership of the asset are transferred. A fixed asset acquired under finance lease is valued at the lower of the fair value of the leased asset and the present value of the minimum lease payments at the inception of lease, adding the initial expense belonged to lease items directly, the minimum lease payments shall be valued as long-term account payable, the balance shall be unacknowledged financial charges. Unacknowledged financial charges shall be amortized in the light of effective interest method within leasing period. Depreciation rate of a fixed asset acquired under lease shall be recognized in the light of leasing period and estimated net salvage value, withdrawing depreciation. The fixed assets it holds for sale is recorded at the lower of book value and fair value reducing disposal expense. The amount that fair value reducing disposal expense is lower than book value shall be recognized as impairment loss of assets. Where a fixed asset meets either of the conditions as follows, the recognition of it as a fixed asset shall be terminated: a. The fixed asset is in a state of disposal; or b. The fixed asset is unable to generate any economic benefits through use or disposal as expected. When the Company sells, transfers or discards any fixed asset, or when any fixed asset of an enterprise is damaged or destroyed, the enterprise shall deduct the book value and relevant taxes from the disposal income, and include the amount in the current profits and losses. 12. Construction in progress Construction in progress refers to properties under construction and equipment, as well as other fixed assets, which shall be valued at actual cost. It also includes borrowing costs eligible for capitalization and gain or loss of exchange difference. The Company transfers construction in progress to fixed assets when the project is completed or the project is available for use. 13. Intangible assets Being derived from any contractual right or other statutory rights, its useful lift shall be deadline of contractual right or other statutory rights. With any contractual right or other statutory rights that it shall be continued due to renewal of an agreement when maturity, the renewals shall be the useful life. The useful life fails to be stipulated in the any law and contract, where intangible asset can bring economic benefits to the Company, but the Company unable to reasonability confirm period of economic benefits to the Company from intangible assets, such intangible asset shall be regarded as an intangible asset with uncertain service life. The development expenditures for its internal research and development projects of an enterprise may be confirmed as intangible assets when they satisfy the following conditions simultaneously:(1)It is feasible technically to finish intangible assets for use or sale;(2)It is intended to finish and use or sell the intangible assets;(3)The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally;(4)It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; and(5)The development expenditures of the intangible assets can be reliably measured. With regard to intangible assets with limited service life shall be amortized by the straight-line method within its service life. Where any evidence shows that there is possible assets impairment, the recoverable amount of the assets shall be estimated. If carrying amount of an asset is higher than its recoverable amount, the carrying amount of this asset should be written down to its recoverable amount with the difference recognized as impairment loss and charged to profit or loss accordingly. Simultaneously a provision for impairment loss should be made. 14. Goodwill The balance that cost of equity investment is more than the fair value of the invested entity’s being should enjoy, or in a business combination not under the same control, the acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as goodwill. The goodwill formed by merger of enterprises shall be listed separately in the consolidated financial. The balance that cost of equity investment is more than the fair value of the invested entity’s being should enjoy when purchased affiliated enterprises and associated enterprises shall be included into long-term equity investment. 15. Long-term deferred expense long-term deferred expense refers to those expenses that the Company has paid with amortization period over one year. Long-term deferred expense shall be amortized averagely by stage within benefit period. With long-term deferred expense that it is unable to benefit in the future accounting period, its amortization value shall be recorded into the profits and losses of the current period. 16. Impairment of assets Except for inventories, financial assets and deferred income tax assets, the Company shall adopt the following methods to make impairment loss: On the balance sheet date, the Company shall make an impairment test to those assets that they have been or will be left unused, or terminated for use, the current market price of assets falls, outsaid environment have any significant change. Impairment loss shall be recognized in the light of the balance that an asset's recoverable amount is lower than its carrying value, the carrying value of the asset, and be recorded as the profit or loss for the current period. Simultaneously, a provision for the asset impairment shall be made accordingly. No matter whether there is any sign of possible assets impairment, the goodwill formed by the merger of enterprises and intangible assets with uncertain service lives shall be subject to impairment test every year. The recoverable amount shall be determined in light of the higher one of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets. The Company shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset group to which the asset belongs. After the loss of asset impairment has been recognized, the depreciation or amortization expenses of the impaired asset shall be adjusted accordingly in the future periods. Once any loss of asset impairment is recognized, it shall not be switched back in the future accounting periods Treatment of Impairment of goodwill: The business reputation shall, together with the related asset group or combination of asset group, be subject to the impairment test. The Company shall apportion the carrying value of goodwill to the relevant asset groups or combinations of asset by a reasonable method. When making an impairment test, the Company shall first make an impairment test on the asset groups or combinations of asset groups not containing goodwill, and recognize the corresponding impairment loss. Then the enterprise shall make an impairment test of the asset groups or combinations of asset groups containing business reputation, and recognize the impairment loss of the goodwill. 17. Recognition of group assets Recognition of assets group The recognition of an asset group shall base on whether the main cash inflow generated by the asset group is independent of those generated by other assets or other group assets, and combining the ways of management and production of business activities and the ways of decision-making for the continuous use or disposal of the assets. Impairment of assets group a. The basis for the determination of the carrying value of an asset group shall be the same as that for the determination of the recoverable amount. b. The carrying value of an asset group shall include the carrying value that may be directly attributed to or may be reasonably and consistently distributed to the asset group. Generally it shall not include the carrying value of liability that has already been recognized, unless it is unable to determine the recoverable amount of the asset group if not considering the amount of liability. c. The recoverable amount of an asset group shall be determined on the basis of the higher one of the net amount of the fair value of the asset minus the disposal expenses and the current value of the expected future cash flow of the asset. d. The Company shall, on the balance sheet date, conduct an impairment test on asset group. Where the recoverable amount of an asset group or a combination of asset groups is lower than its carrying value, it shall be recognized as the corresponding impairment loss. The amount of the impairment loss shall first charge against the carrying value of the headquarter' assets and business reputation which are apportioned to the asset group or combination of asset groups, then charge it against the carrying value of other assets in proportion to the weight of other assets in the asset group or combination of asset groups with the business reputation excluded. The charges against the carrying value of the assets above shall be treated as the impairment loss of the assets and recorded as profit or loss for the current period. The carrying value of each asset after charging against shall not be lower than the highest one of the following three: the net amount of the fair value of the asset minus the disposal expenses, the current value of the expected future cash flow of the asset, and zero. The amount of impairment loss that cannot be apportioned incurred thereby shall be apportioned on the basis of the weight of the carrying value of other assets in the relevant asset group or combination of the asset groups. 18. Borrowing cost The term "borrowing costs" refers to the interest and other relevant costs, which are incurred by an enterprise in the borrowing of loans. The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. Where the borrowing costs incurred to an enterprise can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it shall be capitalized and recorded into the costs of relevant assets. Other borrowing costs shall be recognized as expenses on the basis of the actual amount incurred, and shall be recorded into the current profits and losses. The term "assets eligible for capitalization" shall refer to the fixed assets, investment real estate, inventories (acquisition and construction or production procedure is over one year) and other assets, of which the acquisition and construction or production may take quite a long time to get ready for its intended use or for sale. The borrowing costs shall not be capitalized unless they simultaneously meet the following requirements: a. The asset disbursements have already incurred, which shall include the cash, transferred non-cash assets or interest bearing debts paid for the acquisition and construction or production activities for preparing assets eligible for capitalization; b. The borrowing costs has already incurred; and c. The acquisition and construction or production activities which are necessary to prepare the asset for its intended use or sale have already started. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs shall be recognized as expenses, till the acquisition and construction or production of the asset restarts. When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. The borrowing costs incurred after the qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses at the incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. The capitalization period shall refer to the period from the commencement to the cessation of capitalization of the borrowing costs, excluding the period of suspension of capitalization of the borrowing costs. During the period of capitalization, capitalization amount shall be recognized according to the following provisions (1) As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment.(2) Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. 19. Revenue (1) Construction contracts can be measured in a reliable way, revenue and expense of contracts shall be recognized in the light of the percentage-of-completion method. The term "percentage-of-completion method" refers to a method to recognize the revenues and expenses in the light of the stage of completion under a transaction concerning the providing of labor services. In accordance with such method, revenue of the contracts shall match with cost of the contracts incurred for reaching the schedule of completion to reflect revenue, expense and gross profit of the contracts completed of in the current period. The Company shall chose one of the following methods to confirm the schedule of completion: a. Proportion of accumulative cost of the contracts incurred against fact in total expected cost; b. The measurement of the work completed. The Company shall mainly adopt the first method to recognize the schedule of completion. When the Company is unable to recognize the schedule of completion in the light of the first method, the Company shall adopt the second method. Two calculation measures for recognition of revenue based on percentage-of-completion method a. To confirm the schedule of completion of the contract to calculate percentage-of-completion Calculation formula: percentage-of-completion=accumulative cost of the contract incurred actually/total expected cost of the contract*100% b. To measure and recognize revenue and expense of the current period based on percentage-of-completion Calculation formula: Revenue of the contract recognized in the current period=(total revenue of the contract*the schedule of completion) – accumulative revenue recognized over the past accounting fiscal Gross profit of the contract recognized in the current period=(total revenue of the contract - total expected cost of the contract) *the schedule of completion - accumulative gross profit recognized over the past accounting fiscal Expense of the contract recognized in the current period=revenue of the contract recognized in the current period - Gross profit of the contract recognized in the current period – expected provision for loss over the past accounting fiscal (2) Construction contracts cannot be measured in a reliable way, it shall be conducted in accordance with the following circumstances, respectively a. When the outcome of a construction contract cannot be estimated reliably and contract costs are expected to be recoverable, revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognized as an expense in the period in which they are incurred. b. Contract costs that are not probable of being recovered are recognized as an expense immediately and no revenue is recognized. If the accumulative estimated contract costs exceed the contract revenue, an estimated loss should be recognized as an expense during the current financial period. 20. Government grants A government grants refers to the monetary or non-monetary assets obtained free by an enterprise from the government. The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current profits and losses. The government subsidies pertinent to incomes shall be recognized as deferred income or shall be recorded in the current profits and losses. 21. Income tax The Company adopts the balance sheet liability method for corporate income taxes. Income tax includes the current income and deferred income tax. The goodwill formed from merger enterprise or transaction or events recorded directly into owners’ equity are measured into owners’ equity. Except for this, other shall be recorded into profits and losses of the current period as income tax expense. Recognition of deferred income tax assets Where there is strong evidence showing that sufficient taxable profit will be available against which the deductible temporary difference can be utilized, the deferred tax asset unrecognized in prior period shall be recognized, except that deductible temporary differences are formed in the following transactions: a. The transaction is not business combination; At the time of transaction, the accounting profits will not be affected, nor will the taxable amount; b. Where the deductible temporary difference related to the investments of the subsidiary companies, associated enterprises and joint enterprises can meet the following requirements simultaneously, the enterprise shall recognize the corresponding deferred income tax assets:(1)The temporary differences are likely to be reversed in the expected future; and(2)It is likely to acquire any amount of taxable income tax that may be used for making up the deductible temporary differences. Recognition of deferred income tax liabilities Except for the deferred income tax liabilities arising from the following transactions, an enterprise shall recognize the deferred income tax liabilities arising from all taxable temporary differences: a. the initial recognition of business reputation; or the initial recognition of assets or liabilities arising from the following transactions which are simultaneously featured by the following:(a) The transaction is not business combination;(b) At the time of transaction, the accounting profits will not be affected, nor will the taxable amount (or the deductible loss) be affected. b. The taxable temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises shall recognize corresponding deferred income tax liabilities. However, those that can simultaneously meet the following conditions shall be excluded:(1)The investing enterprise can control the time of the reverse of temporary differences; and(2)The temporary differences are unlikely to be reversed in the excepted future. On the balance sheet day, the deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled, shall reflect the effect of the expected asset recovery or liability settlement method on the balance sheet day on the income taxes. Impairment of deferred income tax assets The carrying amount of deferred income tax assets shall be reexamined on balance sheet day. If it is unlikely to obtain sufficient taxable income taxes to offset the benefit of the deferred income tax assets, the carrying amount of the deferred income tax assets shall be written down. When it is probable to obtain sufficient taxable income taxes, such write-down amount shall be subsequently reversed. 22. Profit distribution The Company shall distribute profit after tax in accordance with the following order: (1) Making up losses of last year; (2) Appropriating statutory reserve (10%) (3) Appropriating arbitrary reserve (4) Paying dividend to the shareholder. The company may stop appropriating if the accumulative balance of the statutory reserve has already accounted for over 50% of the company's registered capital. After appropriating statutory reserve, whether the Company appropriates arbitrary reserve or not shall be decided by the Shareholders’ General Meeting. The Company shall not distribute profit to the shareholder before making up losses and appropriating statutory reserve. 23. Preparation basis of consolidated financial statement and method The consolidated financial statements are based on the financial statements of parent company and its subsidiaries, and prepared by parent company after adjustment of long-term equity investment of subsidiaries under equity method and elimination effect of intra group transaction. With business combination under the common control, shall be conducted accounting treatment at the pooling of interest method; while business combination not under the common control shall be conducted accounting treatment at the purchase method. Any subsidiary shall be included in the consolidated statement since the Company gains its actual control right, the Company does not included in the consolidated statement since such control right is transferred from the Company. 24 Retroactive adjustments on the first time adoption In accordance with [2006] document No. 3 of the Ministry of Finance, the Company performed the Accounting Standard for Business Enterprise and 38 specific standards since 1 January 2007. On the basis of confirming balance sheet as at 31 December 2006 prepared at the old accounting standard and system of business enterprise, the Company analyze the influence on income statement and balance sheet from the Article 5 to 19 of the Accounting Standard for Business Enterprise --- the First Time Adoption of Accounting Standard for Business Enterprise when it prepared financial statements, and makes retroactive adjustment. There was no significant retroactive adjustment in the Company. As to net profit as of the year 2006, shareholders’ equity as at the end of 2006 stated based on the old accounting standard and system for business enterprise are adjusted as net profit and shareholders’ equity based on the Accounting Standard for Business Enterprise, please refer to Note 16 “(3) Comparative Statement on Difference in Income Statement as of the Year 2006 after Retroactive Adjustment based on the Accounting Standard for Business Enterprise” and Note 16 “(4) Comparative Statement on Reconciliation of Shareholders’ Equity between the old and new Accounting Standard for Business Enterprise” for details. V. Changing of accounting policies and accounting estimates and error correction 1. Changing of accounting policies In accordance with the Circular on Printing and Issuing Chinese Accounting Standards (2006) interpretation No. 1 from the Ministry of Finance, long-term equity investment of subsidiaries held by the Company before the first time adoption of accounting standard are made make the retroactive adjustment on the first time adoption of accounting standard, which regard as measurement under the cost method. Investment in three subsidiaries of the Company is calculated under the cost method and is made retroactive adjustment. Impairment of long-term investment is adjusted increase by RMB 8,219,559.85, retained profit at the beginning of 2005 is adjusted decrease by RMB 8,219,559.85. gains and losses adjustment of long-term investment is adjusted increase by RMB 8,219,559.85 and retained profit at the beginning of 2005 is adjusted increase by RMB 8,219,559.85. 2. Changing in accounting estimate Naught 3. Accounting error correction (1) In 2005, according to the related public notices and letter of inquiry of Guizhou Guihan Automotive Components Co., Ltd. (hereinafter referred to as Guihang Company) and the letter of inquiry and the court judgment of Everbright Bank, RMB 35,354,759.71 receivable from Wuhan Ronglida Industry & Trade Development Co., Ltd. (hereinafter referred to as Wuhan Ronglida Company) was offset RMB 40,000,000.00 payable for China National Aero-Technology Import & Export Corporation Shenzhen Company (hereinafter referred to as Zhonghangji Shenzhen Company), of which the difference was recorded into the current account of Shekou Hansheng Electronic Co., Ltd.. Meanwhile, the withdrawn bad debt provision before was switched back and the current administrative expenses were sterilized. Up to the end of 2006, the Company had not yet got the direct evidence from the related departments or entities to manifest that RMB 40,000,000.00 recovered and paid in installment by Guihang Company for Zhonghangji Shenzhen Company was the accounts received from Wuhan Ronglida Company by the Company. Therefore, the Company handled the current account of RMB 35,354,759.71 receivable from Wuhan Ronglida Company by means of suspense account, switching back the adjusting journal entry in 2005 and reducing the net profit by RMB 35,354,759.71 in 2005 by retroactive modulation. By the report date, the direct evidence got from Guiyang Public Security Organ ECID and Zhanzhou Public Security Organ ECID by the Company showed that RMB 40,000,000.00 recovered and paid in installment by Guihang Company for Zhonghangji Shenzhen Company was the according accounts received from Wuhan Ronglida Company by the Company. The adjusting journal entry was as follows: ① Debit: Other accounts payable --- other 40,000,000.00 Credit: other accounts receivable – Wuhan Ronglida Industry & Trade Development CO., Ltd. 35,354,759.71 Capital reserves 4,645,240.29 ② Debit: Bad debt provision 35,354,759.71 Credit: profit and loss adjustment of previous years (retained profit at the beginning of 2006) 35,354,759.71 (increasing profit in 2005 by adjustment) (2) Changing of accounting policies and error correction are listed as follows: Data prior to Data subsequent adjustment in to adjustment in Accounting subject accounting Increase Decrease accounting statements as of statements as of the year 2006 the year 2006 Other receivables 55,520,579.52 35,354,759.71 20,165,819.81 Provision for bad debt of other receivables 43,075,423.46 35,354,759.71 7,720,663.75 Long-tern equity investment 110,504,584.55 8,219,559.85 118,724,144.40 Impairment reserve of long-term investment 110,504,584.55 8,219,559.85 118,724,144.40 Other payables 117,576,593.65 40,000,000.00 77,576,593.65 Estimated liabilities Capital reserve 30,146,440.25 4,645,240.29 34,791,680.54 Retained profit -482,941,495.62 35,354,759.71 -447,586,735.91 Management expense Financial expense Non-operating expense Retained profit at the year-begin -440,253,180.68 35,354,759.71 -404,898,420.97 VI. Taxation Type of taxation and tax rates Type of taxation Tax base Tax rate VAT Taxable income 17% Business tax Taxable income 5% Urban maintenance and construction tax Turnover tax payable 7% Extra charge for education Turnover tax payable 3% Corporate income tax Turnover tax payable 15% VII. Consolidation scope and its recognition (I) Recognition base of consolidation scope of the Company Consolidation scope of the Company’s consolidated financial statement is recognized based on control. The term "control" means having the power to decide an enterprise's financial and operating policy and obtains benefits from its business activities. The investee company is regarding as subsidiary and included consolidation scope, which the Company holds more than half of its voting power. (II) Consolidation scope of the Company Consolidation scope of the Company’s consolidated financial statement is recognized based on control. (III) As at 31 Dec 2007, the shareholding subsidiaries of the Company are as follows: Registered Percentage of equity Place of capital interest held Name of subsidiaries Principal activities incorporation Investment (RMB Yuan) Proportion amount Manufacture of Wuhan Rui De Biological Wuhan 45,840,000.00 99.00% 45,380,000.00 biological and blood Products Co., Ltd. products Distribution of medical Shenzhen Houyuan Medical Shenzhen 6,000,000.00 75.00% 4,500,000.00 instruments and Instrument Co., Ltd clinical products Technology Shenzhen Benelux development of Shenzhen 9,000,000.00 91.11% 8,200,000.00 Simulation & Control Ltd. simulation system control 1. Wuhan Rui De Biological Products Co., Ltd. (“Rui De Company”): 1.1 The Company has mortgaged its 99% equity of Rui De Company to Shenzhen Development Bank, the said equity has been seized by Shenzhen Nanshan District People’s Court. On 28 Mar. 2006, Shenzhen Nanshan District People’s Court issued a Notice with (2006) SNFZ Zi 1484, which the Court decided to appraise and auction 99% equity of Rui De Company held by the Company. Through appraisal by Shenzhen Rongze Assets Appraisal Land and Real Estates Appraisal Co., Ltd. with appraisal value of RMB 24,117.00. On 22 Nov. 2006, Shenzhen Nanshan District People’s Court continually seized the said equity from 22 Nov. 2006 to 21 Nov. 2007. On 17 Jan. 2006, the Company provided a guarantee for a loan of RMB 35 million from Huaxia Bank Guangzhou Branch to Shenzhen Houyuan Medical Instrument Co., Ltd (a subsidiary company of the Company). Because Houyuan Medical Instrument Co., Ltd failed to repay such loan on maturity, therefore, Huaxia Bank Guangzhou Branch proposed an application for preservation of property and required the Court to seize the properties of the Company. Guangzhou Intermediate People's Court sealed up 99% equity of Rui De Company from 8 Feb. 2006 to 7 Feb. 2008. 1.2 On 8 May 2006, the 1st Extraordinary Shareholders Genera Meeting 2006 of the Company passed the relevant resolutions on liquidating and Disposing Equity of Rui De Company. 1.3 On 21 December 2006, the Board of Directors of the Company made a resolution, which the Company agreed to trust its 99% equity of Rui De Company to Wuhan Zhongyuan Industrial Group Development Co., Ltd. (“Wuhan Zhongyuan Company”) in order to resolve guarantee responsibility issue between the Company and Wuhan Zhongyuan Company with Wuhan Zhongyuan Company giving up claiming any debts and contingent guarantee debt as premise, and according to the resolution on disposing subsidiary made at the 1st Extraordinary Shareholders Genera Meeting 2006 of the Company. Wuhan Zhongyuan Company enjoys the corresponding shareholders’ equity of Rui De Company. After maturity of transfer condition, the Company will transfer its equity of Rui De Company to Wuhan Zhongyuan Company. The Company implements the corresponding guarantee responsibility after transferring its equity of Rui De Company according to the relevant agreement. 1.4 The Company received the Notice on Releasing Trusteeship with Time Limit with SNFZ Zi (2005) No. 1484 from Shenzhen Nanshan District People’s Court (“Nanshan Court”) on 18 Apr. 2007, the Company will handle such trusteeship matter with Nanshan Court according to relevant National laws, rules and regulations. Up to the reporting date, the Company did not receive punishment file from Nanshan Court. 2. Shenzhen Benelux Simulation & Control Ltd. (“Houyuan Company”): 2.1 On 8 May 2006, the 1st Extraordinary Shareholders Genera Meeting 2006 of the Company passed the relevant resolutions on liquidating and Disposing Equity of Houyuan Company. 2.2 The Company undertook joint responsibility for guarantee provided by it for Weiyu (Hong Kong) Co., Ltd. and Gangyu Industrial Co., Ltd. handled documentary letter of credit in Industrial and Commercial Bank of China Shenzhen Branch (such creditor’s right has been transferred to China Orient Asset Management Corporation Shenzhen Office). Shenzhen Office sued the Court to seal up 75% equity of Houyuan Company held by the Company. On 15 Aug. 2006, the Company received the notice from Guangdong Shanwei Intermediate People's Court, in which the Court decided to make a appraisal to 75% equity of Houyuan Company held by the Company. The relevant procedure is under process. 3. Shenzhen Benelux Simulation & Control Ltd. (“Simulation Company”) Due to dispute case of technology service contract, the only property of Simulation Company was sealed up and auctioned by Hangdong Intermediate People's Court. The actual principal of Simulation Company resigned from the post by himself under the situation that he did not implement any transfer procedure. And the relevant accounting books were taken away by him. Simulation Company stopped its main operation since 2004, and stayed in shutout status after its property was auctioned. Business license of Simulation Company has been expired on 1 Feb. 2006, and the said failed to make annual inspection from 2004 to 2006. On 8 May 2006, the 1st Extraordinary Shareholders Genera Meeting 2006 of the Company passed the relevant resolutions on liquidating and Disposing Equity of Simulation Company. In June 2004, with (2003) WZ Zi No. 00188, Wuhan Intermediate People's Court froze 91.11% equity of Simulation Company held by the Company with lockout period from Jun. 2004 to Jun. 2006. Due to above-mentioned situations (without control or shutout), the 1st Extraordinary Shareholders Genera Meeting 2006 of the Company passed the relevant resolutions on liquidating and Disposing Equity of Simulation Company. Since 1 Jan. 2005, the said three companies were not brought into the consolidated accounting statement of the Company. VIII. Notes to financial statements 1. Monetary funds 2007-12-31 2007-1-1 Currency Original Exchange rate Original Exchange Item currency amount currency rate amount Cash RMB 38,601.40 56,027.65 Bank deposit 23,124.35 3,403.15 Incl.: RMB RMB 23,025.58 3,212.69 HKD HKD 105.48 98.77 104.41 190.46 Total 61,725.75 59,430.80 2. Accounts receivable (1) Risk analysis of accounts receivable 2007-12-31 Type Amount Proportion Provision for Net value bad debt Major single amount 9,514,070.14 95.02% 9,514,070.14 --- Minor single amount with high risk in combination as per credit 498,973.69 4.98% 498,973.69 --- feature Other minor accounts --- --- --- --- receivable Total 10,013,043.83 100.00% 10,013,043.83 --- (2) Accounts receivable with major single amount is taken RMB 500,000 as standard in accordance with operation scale, business nature and settlement status of clients. (3）Minor single amount with high risk in combination as per credit feature is defined as minor single other receivables with doubtful accounts. (4) Aging analysis of accounts receivable is as followings: 2007-12-31 2007-1-1 Aging Amount Proportion Amount Proportion Within 1 year 1-2 years 2-3 years 7,273,435.82 72.64% 3-4 years 7,273,435.82 72.64% 4-5 years Over 5 years 2,739,608.01 27.36% 2,739,608.01 27.36% Total 10,013,043.83 100.00% 10,013,043.83 100.00% (5) The top five debtors as at 31 December 2007: Name of companies Arrearage Content Hong Kong Yizhuo (Asian) Co., Ltd. 7,273,435.82 Loan Shenzhen Guowei Electrical Co., Ltd. 1,668,157.69 Loan Shenzhen Longsheng Industrial Co., Ltd 572,476.63 Loan Allied and Associated Enterprises (H.K.) Loan Ltd. 200,935.56 Shenzhen Aixun Electrical Co., Ltd. 192,685.45 Loan Total 9,907,691.15 As at 31 December 2007, the total amount of the top five debtors RMB 9,907,691.15, accounting for 98.95% against total accounts receivable. (6) There was no accounts receivable from shareholders holding over 5% of the voting shares of the Company. 3. Other receivables (1) Risk analysis of other receivables 2007-12-31 Type Amount Proportion Provision for Net value bad debt Major single amount 19,454,010.90 97.50% 7,633,123.68 11,820,887.22 Minor single amount with high risk 334,564.46 1.68% 334,564.46 --- in combination as per credit feature Other minor accounts receivable 164,844.34 0.83% 7,642.21 157,202.13 Total 100.00 19,953,419.70 7,975,330.35 11,978,089.35 % (2) Other receivables with major single amount is taken RMB 500,000 as standard in accordance with operation scale, business nature and settlement status of clients. (3) Minor single amount with high risk in combination as per credit feature is defined as minor single other receivables with doubtful accounts. (4) Aging analysis of other receivables is as followings 2007-12-31 2007-1-1 Aging Amount Proportion Amount Proportion Within 1 year 30,000.00 0.15% 377,232.45 1.87% 1-2 years 134,844.34 0.68% 178,060.45 0.88% 2-3 years 178,060.45 0.89% 1,304,666.37 6.47% 3-4 years 1,304,666.37 6.54% 18,298,887.81 90.74% 4-5 years 18,298,875.81 91.71% --- Over 5 years 6,972.73 0.03% 6,972.73 0.04% Total 19,953,419.70 100.00% 20,165,819.81 100.00% (5) The top five debtors as at 31 December 2007： Name of companies Arrearage content Shenzhen Houyuan Medical Instrument Co., Ltd 16,886,981.74 Current payment (Year 2003-2005) Shiyun International Group (H.K.) Ltd 2,567,029.16 Arrearage (Year 2003-2004) Beijing Shengda Law Firm 134,044.34 Unsettlement payment (Year 2006) Huang Xianfeng 129,314.15 Arrearage (Year 2003-2005) Li Mian 55,000.00 Arrearage (Year 2003) Total 19,772,369.39 As at 31 December 2007, the total amount of the top five debtors RMB 19,947,369.39, accounting for 99.09% against total other receivables. (6) In the balance as of the year 2007, there was no other receivable from shareholders holding over 5% of the voting shares of the Company. (7) In the balance as of the year 2007, Shenzhen Houyuan Medical Instrument Co., Ltd owed RMB 16,868,981.74, which has been withdrawn provision for bad debts amounting to RMB 5,066,094.52. 4. Long-term equity investment (1) The details of long-term equity investment Items 2007-1-1 Increase Decrease 2007-12-31 Long-term equity investment 118,724,144.40 118,724,144.40 measured under cost method Less: Provision for impairment 118,724,144.40 118,724,144.40 Net amount of long-term equity investment - - (2) Investment measured under the cost method Initial Investment Name of investing enterprises investment 2007-1-1 Increase Decrease 2007-12-31 proportion amount Wuhan Rui De Biological Products 99% 100,480,679.27 100,480,679.27 100,480,679.27 Co., Ltd. Shenzhen Benelux Simulation & 91.11% 8,200,000.00 8,200,000.00 8,200,000.00 Control Ltd. Shenzhen Houyuan Medical 75% 10,043,465.13 10,043,465.13 10,043,465.13 Instrument Co., Ltd Total 118,724,144.40 118,724,144.40 118,724,144.40 5. Fixed assets and accumulative depreciation Change in increase and decrease of fixed assets and accumulative depreciation are as follows: Total 2007-1-1 Increase Decrease 2007-12-31 Original value of fixed assets House and building 22,865,489.68 --- --- 22,865,489.68 Transportation equipment 190,000.00 90,000.00 --- 280,000.00 Machinery equipment 2,457,708.00 --- 2,457,708.00 --- Electrical equipment 444,242.35 --- 444,242.35 --- Other 1,721,234.46 --- 1,721,234.46 --- Total 2007-1-1 Increase Decrease 2007-12-31 Total 27,678,674.49 90,000.00 4,623,184.81 23,145,489.68 Accumulative depreciation House and building 10,680,621.48 840,164.16 --- 11,520,785.64 Transportation equipment 171,000.00 13,500.00 --- 184,500.00 Machinery equipment 2,211,937.20 --- 2,211,937.20 --- Electrical equipment 392,002.73 375.54 392,378.27 --- Other 1,535,548.76 2,086.50 1,537,635.28 --- Total 14,991,110.17 856,126.20 4,141,950.75 11,705,285.64 Net value of fixed assets 12,687,564.32 11,440,204.04 Provision for impairment of fixed assets --- --- Net amount of fixed assets 12,687,564.32 11,440,204.04 (1) There are 15 real estates in houses and buildings of the Company, namely the first floor of Block B of Zhongxing Industry Park, B3—102 and C1—701 Shenzhen Haichang Building, C4—504 of Shenzhen Linyuan Building, 201, 202, 301, 302, 401, 402, 502, 601, 602, 701 and 702 in Unit 4 of No. 5 Building of Block A at the Bandao Garden, whose original value is RMB 6,270,271.00 as well as net value of RMB 3,459,119.13, has been mortgaged to China Everbrigh Bank Shenzhen Branch, so as to gain a loan of RMB 6,990,000.00. Because the Company provided guarantee for a loan from Huaxia Bank Guangzhou Branch to Shenzhen Houyuan Medical Instrument Co., Ltd (a subsidiary company of the Company), therefore, Guangzhou Intermediate People's Court has seized the above-mentioned real estates and properties. (2) In houses and buildings of the Company, the Company did not have house property certificates of such properties as No. 16 and 22 Building of Nanyou B Block, Zizu Garden and No. 109 workshop without seal and pledge. The original value and net value of the above-mentioned properties is respectively RMB 3,158,999.00 and RMB 1,146,857.78. (3) In accordance with Notice on Sealing, Seizing and Freezing with (2002) SNFZ Zi No. 3171 from Shenzhen Nanshan District People’s Court on 12 Apr. 2007 the Court seized continually 78 properties in the rest houses and buildings properties on 5 Feb. 2007 except for properties mentioned in (1) and (2) with book original value of RMB 13,436,219.68 and net value of RMB 7,697,099.79 from 5 Feb. 2007 to 4 Feb. 2008, because Industrial and Commercial Bank of China Shekou Subbranch (relevant creditor’s rights has been transferred to natural persons such as Shi Ming by China Orient Asset Management Corporation Shenzhen Office) and Shenzhen Development Bank Shekou Subbranch sued the Company for failing to reimbursement obligation. (4) In accordance with civil judgment with (2006) SNFZ Zi No. 3171-3185 and Judgment (2006) SNFZ Zi No. 3186 and 3187 on 19 Mar. 2007, the Court judged the Company to refund natural persons such as Shi Ming with all equipment. 6. Provision for impairment of assets Item 2007-1-1 Appropriation Amount Amount 2007-12-31 amount switched offset back I. Provision for bad debts 17,733,707.58 254,666.60 --- --- 17,988,374.18 II. Provision for falling price of inventory --- --- --- --- --- III. Provision for impairment of long-term equity investment 118,724,144.40 --- --- --- 118,724,144.40 IV. Provision for impairment of fixed assets --- --- --- --- --- Total 136,457,851.98 254,666.60 --- --- 136,712,518.58 7. Short-term borrowing Borrowing 2007-12-31 2007-1-1 Mortgage loan * 6,990,000.00 6,990,000.00 * Such payment is guaranteed by Shenzhen Taifeng Electrical Co., Ltd.. Mortgage with 15 real estates including workshop located in Shenzhen Zhongxing Industrial Park (please refer Note 8 (5) for details) and the part of properties from Shekou Hansheng Electrical Co., Ltd. (the former principal shareholder) is overdue. On 19 May 2006, Guangdong Shenzhen Futian District People’s Court made the judgment with Civil Judgment (2006) SFFMEC Zi No. 985, which the Court requested the Company to repay principal of RMB 6,990,000.00 and relevant interests of RMB 769,262.73. if the Company is unable to execute reimbursement obligation within a prescribed time limit, then China Everbright Bank Shenzhen Branch is entitled to dispoal real estates mortgaged (including the part of properties of Shekou Hansheng Electrical Co., Ltd.) and enjoys priority right, the short part is discharged by Shenzhen Taifeng Electrical Co., Ltd. jointly. 8. Accounts payable Aging analysis of accounts payable is as followings Aging 2007-12-31 2007-1-1 Within 1 year 1-2 years 2-3 years Over 3 years 136,282.84 136,282.84 Total 136,282.84 136,282.84 There was no accounts payable from shareholders holding over 5% of the voting shares of the Company. 9. Payroll payable Items 2007-1-1 Increase Amount paid 2007-12-31 I Wage, bonus , allowance and subsidies 289,694.40 289,694.40 II Welfare expense III Social insurance charges 35,116.51 35,116.51 Items 2007-1-1 Increase Amount paid 2007-12-31 Total 324,810.91 324,810.91 10. Taxes payable Items 2007-12-31 2007-1-1 Business tax 366,816.90 324,820.00 Individual income tax --- 3,248.20 Corporate income tax -38,755.57 -38,755.57 Urban maintenance and construction tax 3,668.17 Property tax 1,050,031.72 1,050,031.72 Extra charge for education 1,259.907 Total 1,383,021.13 1,339,344.35 11. Interests payable Items 2007-12-31 2007-1-1 China Everbright Bank shenzhen Branch 2,416,464.07 1,701,698.81 Shenzhen Development Bank Shekou Subbranch 419,752.22 419,752.22 Total 2,836,216.29 2,121,451.03 12. Other accounts payable Analyzing other accounts payable according to the debts age: Debts age 2007-12-31 2007-1-1 Within 1 year 12,437.21 67,628,686.74 1-2 years 67,069,312.74 - 2-3 years --- 240,575.30 Over 3 years 9,827,871.61 9,707,331.61 Total 76,909,621.56 77,576,593.65 (1) The arrearage in other accounts payable at the year-end owned the former first largest shareholders and current the forth largest shareholders, Shekou Hansheng Electrics Co., Ltd. amounted to RMB 4,696,367.81. (2) The arrearage in balance of other accounts payable at the year-end owned the controlling subsidiaries of the Company; Wuhan Ruede Bioligical Products Co., Ltd. amounted to RMB 2,992,000.00. (3) In other accounts payable: the principal of short-term borrowings amounting to RMB 33,774,347.31 and the interests of expense withdrew amounting to RMB31,075,898.97 was transferred into this subject, because the China Orient Asset Management Corp. signed the Creditor’s Rights Transfer Agreement with Shi Ming etc. four person in total, all USD and RMB borrowings of the Company was transferred to Shi Ming etc. four person. 13. Accrued liabilities Item Creditor 2007-12-31 2007-1-1 Expected reason Compensation China Orient Asset Management 184,730,783.6 184,730,783. for guarantee Corp. Shenzhen Office 1 61 *1 Compensation China Everbright Bank, Wuhan 10,648,722.5 10,648,722.50 for guarantee Xinhua Road Brance 0 *2 Compensation Huaxia Bank, Beijing 5,584,790.31 5,584,790.31 for guarantee Chaoyangmen Branch *3 Compensation Tianjin The Leader Group Co., 1,946,335.00 1,946,335.00 for guarantee Ltd. *4 Compensation Agricultural Bank of China, 1,202,108.00 1,140,788.00 for guarantee Wuhan Nanjing Road Office *5 Compensation Agricultural Bank of China, 12,700,244.33 11,766,022.52 for guarantee Chengdu Wuhou Branch *6 Compensation 41,789,528.2 for guarantee Huaxia Bank Guangzhou Branch 42,664,923.90 4 *7 259,477,907.6 257,606,970. 5 18 *1. According to the civil judgments with (2000) SZFJEC Zi No. 53 and No. 58 from Guangdong Shenzhen Intermediate People’s Court on Aug. 18, 2000, the Company provided the guarantee for WeiYu (Hong Kong) Co., Ltd. transacting the documentary L/C amounting to USD 2, 694,000.00 in Industrial and Commercial Bank of China, Shenzhen Branch, Business Department, and undertook the joint responsibility, on Jul. 12, 2005, Industrial and Commercial Bank of China, Shenzhen Branch, Business Department transferred this above mentioned liability into China Orient Asset Management Corp. Shenzhen Office, still didn’t receive the reply after inquiring dated the reporting date. The Company reserved the capital principal and related interests in line with the reply in 2006. According to the civil judgments with (2000) SZFJEC Zi No. 49 from Guangdong Shenzhen Intermediate People’s Court on Sep. 4, 2000, the Company provided the guarantee for Gangyu Industrial Co., Ltd. transacting the documentary L/C amounting to USD 11,103,400.00 in Industrial and Commercial Bank of China, Shenzhen Branch, Business Department, and undertook the joint responsibility, on Jul. 12, 2005, Industrial and Commercial Bank of China, Shenzhen Branch, Business Department transferred this above mentioned liability into China Orient Asset Management Corp. Shenzhen Office, still didn’t receive the reply after inquiring dated the reporting date. The Company reserved the capital principal and related interests in line with the reply in 2006. *2. According to the civil mediation agreement with (2003) WJC Zi and No. 00376 with (2004) WZ Zi from Hubei Wuhan Intermediate People’s Court on Sep. 4, 2000, the Company provided the guarantee for Wuhan Chaolong Material Development Co., Ltd. ’ borrowings amounting to RMB 8,000,000.00 from China Everright Bank Wuhan Xinhua Road Branch, and undertook the joint responsibility. The Company still didn’t receive the reply after inquiring dated the reporting date; the Company reserved the capital principal and related interests in line with the reply in 2005. *3. According to the civil judgments with (2000) EZMC Zi No. 08921 from Beijing the Second Intermediate People’s Court, the Company provided the guarantee for Beijing Union Huitong Investment Co., Ltd. (Hereinafter refer to as Beijing Huitong)’s borrowings amounting to RMB 5,000,000.00 from Huaxia Bank Beijing Chaoyang Men Branch, and undertook the joint responsibility. The Company still didn’t receive the reply after inquiring dated the reporting date; the Company reserved the capital principal and related interests in line with the reply in 2005. *4. On Aug. 16, 2002, Tianjin The Leader Co., Ltd. (hereinafter refer to The Leader Co., Ltd.) signed the Cooperation Agreement with Wuhan Ronglida Industry Development Co., Ltd. (hereinafter refer to as Wuhan Ronglida Co., Ltd.), with contents that Wuhan Ronglida Co., Ltd. borrowed RMB 5,000,000.00 from The Leader Co., Ltd. and the Company presented the letter of commitment to promise to accept the joint responsibility for compensation from Wuhan Ronglida Co., Ltd. According to the civil judgment with (2004) EZMEC Zi No. 161 from Tianjin the Second People’s Court, the Company received the joint responsibility with one third of overdue liabilities to The Leader Co., Ltd. According to the civil judgment with (2005) EZMEC Zi No. 228-1 from Tianjin the 2nd People’s Court, the Company was sealed and frozen then deducted the RMB 1,946,335.00 or equal ant assets of the Company. *5. According to the civil judgments with (2005) AMSC Zi No. 14 from Wuhan Jiangmen District People’s Court, the Company provided the guarantee for Wuhan Duolunbao Beer Co., Ltd.’s borrowings amounting to RMB 800,000.00 from Agricultural Bank of China, Wuhan Nanjing Road Office and undertook the joint responsibility, after inquiring dated the Dec. 31, 2007, the Company still own the capital principal amounting to RMB 800,000.00 and related interests amounting to RMB 402, 108 .33. *6. According to the civil judgments with (2005) CMC Zi No. 750 from Chengdu Intermediate People’s Court, the Company provided the guarantee for Chengdu Xinchang Chemical Products Co., Ltd.’s borrowings amounting to RMB10, 000,000.00 from Agricultural Bank of China, Wuhan Nanjing Road Office and undertook the joint responsibility, after inquiring dated the Dec. 31, 2007, the Company still own the capital principal amounting to RMB 10,000,000.00 and related interests amounting to RMB 2,700,244.33. *7. According to the civil judgments with (2006) SZFEC Zi No. 48 from Guangzhou Intermediate People’s Court in Jan. 2006, the Company provided the guarantee for Shenzhen Houyuan Medical Equipment Co., Ltd.’s borrowings amounting to RMB 35,000,000.00 from Huaxia Bank Guangzhou Branch, and undertook the joint responsibility, after inquiring dated the Dec. 31, 2007, the Company still own the capital principal amounting to RMB 35,000,000.00 and related interests amounting to RMB 7,664,923.90. 14. Share capital 2007-1-1 Increase/decrease in this year（＋，－） Proportion Issuance of Bonus Capital conversion from public Number O （%） new share share reserve 44,770,000 I. Shares subject to moratorium .00 74.00 1、Shares held by the state 2、Shares held by state-owned legal person 29,483,078 3、Other domestic investors .00 48.73 - - Including: shared held by overseas 28,031,078 legal person .00 46.33 - - Shares held by overseas natural 1,452,000. person 00 2.40 - - 15,286,922 4、Shares held by foreign investors .00 25.26 - - Including: shares held by overseas legal person - - - - Shares held by overseas natural person - - - - 15,730,000 II. Shares nut subject to moratorium .00 26.00 - - 1、RMB ordinary share - - 15,730,000 2、Domestically listed foreign shares .00 26.00 - - - 2007-1-1 Increase/decrease in this year（＋，－） Proportion Issuance of Bonus Capital conversion from public Number O （%） new share share reserve 3、Overseas listed foreign shares - - - - - 4 Other - - - - - 60,500,000 100.00 III. Total shares .00 - - 1. Because the third largest shareholder of the Company, Wuhan Huaxing Electronics Co., Ltd. provided the guarantee in dispute that Guangzhou Suoer Technology Co., Ltd. loaned from Huaxia Bank Guangzhou Branch, the sponsor’s share 8,473,001 shares of the Company (representing 14% of total shares of the Company) held by Wuhan Huaxing Electronics Co., Ltd.were frozen and sold by auction by Guangzhou Intermediate People's Court, Guangzhou Intermediate People's Court ruled that the above mentioned equity was transferred to bidder Hainan Jinjian Guotou Property Co., Ltd., the registered procedure of equity transfer was not finished dated Dec. 31, 2007. 2. Because the Company provided the guarantee for Weiyu(Hong Kong) Co., Ltd.,Gangyu Industrial Co., Ltd. transacting the Letter of Credit in Industrial and Commercial Bank of China, Shenzhen Branch, Business Department, so the Company undertook the joint responsibility( This creditor’s right was transferred to China Orient Asset Management Corp., Shenzhen Office later). Shenzhen office applied Shanwei Intermediate People’s Court to seal the 4,889,520 shares of the Company held by Shekou Hansheng Electrics Co., Ltd. (Hereinafter referred to as “Shekou Hansheng”) 15. Capital reserve Item 2007-1-1 Increase in this Decrease in 2007-12-31 year this year Share premium 29,847,220.25 29,847,220.25 Other capital 4,944,460.29 4,944,460.29 reserve Total 34,791,680.54 34,791,680.54 16. Surplus reserve Item 2007-1-1 Increase in this Decrease in this 2007-12-31 year year Statutory surplus 31,246,893.66 31,246,893.66 reserve Other surplus 469,670.84 469,670.84 reserve Total 31,716,564.50 31,716,564.50 17. Retained profit Item 2006 2007 Retained profit at the year-begin before adjustment -440,253,180.68 -447,586,735.91 Adjusting retained profit at the year-begin in total (Increase+, decrease-) Note 35,354,759.71 - Retained profit at the year-begin after adjustment -404,898,420.97 -447,586,735.91 Add: net profit in this period -42,688,314.94 -3,674,539.46 Less: Statutory surplus reserve withdrew Other surplus reserve withdrew Interests payable for ordinary shares Interests of ordinary shares transferred to share capital Retained profit at the period-end -447,586,735.91 -451,261,275.37 Note: Item of the retained profit at the year-begin adjusted, please refer to Note V. 3 (1). 18. Operating income 2006 Item 2007 Major operation income - - Other operation income* 1,663,062.00 1,657,474.80 Total 1,663,062.00 1,657,474.80 * Income from house lease. 19. Business tax and surcharge Item 2007 2006 Business tax 83,153.10 59,039.58 Tax on City Maintenance 831.53 590.40 and Construction Education Fee Affixture 1,466.05 1,771.19 Total 85,450.68 61,401.16 20. Asset impairment loss Item 2007 2006 Provision for bad debt 254,666.60 2,791,452.06 21. Financial expense Item 2007 2006 Interests paid 714,765.26 766,904..05 Less: interests income 74.43 116.07 Exchange difference 92.76 -1,662,889.25 Commission fee 1,117.50 1,060.20 Total 715,901.09 -895,041.07 22. Non-operation expense Amount accrued in this Amount accrued in last Item period period Provision of compensation for guarantee 1,870,937.47 39,769,978.52 Penalty expense 350,200.00 Loss of fixed asset Provision for impairment of fixed asset Loss on disposal of fixed asset 187,151.08 Other Total 2,058,088.55 40,120,178.52 23. Cash received relate with other operation business Item 2007 200 Current account 467,066.71 - 24. Cash paid relate with other operation business Item 2007 2006 Management expense 1,094,894.56 937,677.79 Current account 666,972.09 Total 1,761,866.65 937,677.79 IX. Relationship of related parties and their transaction (I) Relationship of related parties 1. Related parties existing controlling relationship Relationship Economic Registered Legal Name of company with the character and Main business scope address representative Company type Production and sales of furniture and Wholly-owned Inside the wooden products, Hainan Rulai The controlling by Hong Kong, Xilian agricultural products Wood Industry shareholder of Xu Min Macao and Farm of and farming; Co., Ltd. the Company Taiwan Danzhou construction and operation of farmer's market The final controlling party of the Company was not Hainan Rulai Wood Industry Co., Ltd., but HSU WEN, Liu Zhenliang and Chen Xiuzhen. 2. The registered capital of the related parties existing controlling relationship and its changes Increase Decrease Name of Company 2007-1-1 2007-12-31 in this year in this year Hainan Rulai Wood Industry Co., USD10,000,000.00 USD10,000,000.00 3. The shares holding by the related parties existing controlling relationship and its change Name of 2007-1-1 Increase in this year Decrease in this year 2007-12-31 company Amount Proportion% Increase Proportion% Decrease Proportion% Amount Proportion% Name of 2007-1-1 Increase in this year Decrease in this year 2007-12-31 company Amount Proportion% Increase Proportion% Decrease Proportion% Amount Proportion% Hainan Rulai Wood 14,668,557.00 24.25 14,668,557.00 24.25 Industry Co., Ltd. 4. Related parties among which didn’t exist the controlling relationship Relationship Economic Registered Name of company Main business scope with the character capital Company Broadcasting exclusive audio recording equipment, broadcasting The former Wuhan Huaxing Electrics Company and video equipment, computer 1,906,000.00 shareholder of Co., Ltd. limited accessories, hardware electric, the Company building decoration materials, retail and wholesale of clothing and apparel The introduction of foreign computer, electronics, telecommunications, audio-visual, manufacture of electronic products , development and production, production with foreign Shekou Hansheng Company The shareholder 1,000,000.00 computer companies, develop Electronics Co., Ltd. limited of the Company networks and office software, follow application project of the foreign computer systems engineering, wholesale and retail of electronic products Technology development of many types of simulation system, control Controlling Shenzhen Benlux Simulation Company system, technology development of 9,000,000.00 subsidiaries of & Control Co., Ltd. limited computer hardware and software, the Company purchase and sale of computers and electronic products. Controlling Shenzhen Kouyuan Medical Company Sales of medical equipment and 6,000,000.00 subsidiaries of Equipment Co., Ltd. limited others. the Company Controlling Wuhan Ruide Biological Company 45,840,000.0 Biological products, blood products subsidiaries of Products Co., Ltd. limited 0 the Company (II) Transaction of related parties 1. Guarantee and mortgage bank loan and bank acceptance By Dec. 31, 2007, the guarantee for bank loan of related parties provided by the Company was as follows: Name of related party Loan bank Amount Guarantee term Shenzhen Houyuan Medical HXB Guangzhou Branch 35,000,000.00 2004.04.27—2007.04.27 Appliances Co., Ltd. On Mar. 15, 2004, the Company provided for principal RMB 35,000,000.00 and its interest borrowed from HXB Guangzhou Branch by Shenzhen Houyuan Mecical Appliances Co., Ltd., with guarantee term from Apr. 27, 2004 to Apr. 27, 2007. Please refer to Annotation VIII, 13, *7 with details. 2. Balance of current accounts of related parties 2007-12-31 2007-1-1 Proportion Proportion Item in balance in balance balance balance of year-end of year-end % % Other accounts receivable Shenzhen Houyuan Medical 16,886,981.74 84.63% 16,886,981.74 83.74% Appliances Co., Ltd. Other accounts payable Of which: Wuhan Ruide Biological 2,992,000.00 3.89% 2,992,000.00 3.85% Products Co., Ltd. Shekou Hansheng Electronic 4,696,367.81 6.10% 4,696,367.81 6.05% Co., Ltd. Hainan Rulai Wood Industry Co., 8,437.21 0.01% 12,388.11 0.02% Ltd. 5. Remuneration of the key management staffs of the Company The remuneration that the key management staffs of the Company got in 2007 totaled RMB 279,000. The aforesaid key management staffs included the Chairman of the Board, General Manager, supervisors and directors who got the remuneration in the Company, amounting 5 persons. X. Contingent events 1. The Company provided guarantee for loan of RMB 9,500,000.00 borrowed from Guangdong Development Bank Shenzhen Branch, Chenfeng Sub-branch (hereinafter referred to as the plaintiff) by Shenzhen Tai Feng Electronic Co. Ltd.. On Feb. 1, 2007, it was judged that Shenzhen Tai Feng Electronic Co., Ltd. should pay off the loan of RMB 9.5 million and the according interest within 10 days according to the Civil Judgment from Guangdong Guangzhou Intermediate People’s Court. Otherwise, the plaintiff had the rights to apply for auction and sales of 7-8/F, Block 7, Nanyou the 4th Industrial Zone which was mortgaged to the plaintiff by the defendant Shenzhen Tai Feng Electronic Co., Ltd., as well as the priority of claim on price of the real estate namely Block 6 of Department, Living Area, Songpingshan (the book value of the mortgage on Oct. 9, 2003 was RMB 19,497,902.00, the net assessed value RMB 8,827,008.00). The portion that the price was over the credit right amount would be attributable to Shenzhen Tai Feng Electronic Co., Ltd., while the deficiency was discharged by Shenzhen Tai Feng Co., Ltd.. The Company undertook the suretyship of joint and several liability for the mortgage except the credit rights. 2. At the end of 2000, the Company and the first largest shareholders of the Company namely Shekou Hansheng Electronic Co., Ltd. Carried out a large-scale assets recombination. The Company transferred the receivable accounts credit assignment totaling RMB 131.08 million and the long-term investment valuing RMB 24.01 million to Shekou Hansheng Electronic Co., Ltd. (hereinafter referred to as Shekou Hansheng), while Shekou Hansheng transferred the owned 99% equity of Wuhan Ruide Biological Products Co., Ltd. (hereinafter referred to as Wuhan Ruide) and 75% equity of Shenzhen Houyuan Medical Appliances Co., Ltd. (hereinafter referred to as Shenzhen Houyuan) to the Company, of which the related transfer procedure was finished in 2001. However, after taking over the management, the new Board of Directors of the Company discovered that, when Shekou Hansheng Electronic Co., Ltd. transferred the equity of the two companies mentioned above, it did not pay the purchase of the aforesaid equity of the two companies. The details were stated as follows: The actual shareholder of Wuhan Ruide was Hubei Xielida Investment Co., Ltd. when being transferred into the Company, while Hubei Xielida Investment Co., Ltd. (hereinafter referred to as Hubei Xielida) purchased the equity of the said company from the original shareholder of Wuhan Ruide namely Wuhan Zhongyuan Industry Group Co., Ltd. (hereinafter referred to as Wuhan Zhongyuan Company). When Wuhan Ruide was transferred into the mentioned company, Hubei Xielida didn’t pay off the amount of RMB 18,192,680.47 for the aforesaid equity transfer (RMB 5 million was paid in Dec. 2003), so the Company made promise to Wuhan Zhongyuan Company that it would provide guarantee for the unpaid equity transfer, also signed Repayment in Installment Agreement with Wuhan Zhongyuan Company. The lawyer of Wuhan Zhongyuan Company protested the Company should pay the principal, interest and penalty interest of the equity guaranteed above totaling to RMB 59,659,979.04. The result of the lawsuit was still confused owing to the lacking evidence. 3. According to the information in hand, when transferring Shenzhen Houyuan to the Company, Shekou Hansheng only paid RMB 1 million (total amount for the transfer was RMB 10,517,417.40) for the natural person of the original shareholder of Shenzhen Houyuan Gan Hui. On Oct. 22, 2001, the Company offered letter of undertaking for guarantee for Mr. Gan Hui as well as joint liability for guarantee for the unpaid amount for the transfer. Mr. Gan Hui claimed the principal of the equity transfer RMB 9,517,417.4 and interest of overdue payment RMB 11,430,418.29 for Shenkou Hansheng and the Company through the lawyer. In Dec. 2007, Gan Hui signed the confirmation, affirming that the Company had no any guarantee or debt obligation for him. 4. Benelux Company provided guarantee and undertook joint liability for the loan and bank acceptance of 成都信昌石化产品有限公司 respectively from China Construction Bank Guanghan Branch and Chengdu Minjiang Branch. In Nov. 2004, China Orient Asset Management Cop. Chengdu Representative Office (hereinafter referred to as Chengdu Representative Office) and China Cinda Asset Management Corporation signed Credit’s Right Transfer Agreement, transferring all the credit right to Chengdu Representative Office, of which the principal and interest were respectively RMB 32,400,000.00 and 2,156,947.41 (the interest due date was Dec. 31, 2003). According to inquiry and approval, the guarantee principal of RMB 32,400,000.00 and the according interest of RMB 11,321,661.93 were unpaid. On Dec. 12, 2006, the Company and Chengdu Representative Office signed Debt Restructuring Contract. The amount of the said debt restructuring mentioned in the contract was RMB 3,240,000.00 which should be paid within 2 years, RMB 1,620,000.00 being paid respectively on Sep. 30, 2007 and Sep. 30, 2008. If the Company performed the contract, Chendu Representative Office would exempt part of the principal and interest of the Company mentioned in the old borrowing contract, no former guarantee liability to be born. If not, the debt restructuring was no longer carried out, Chengdu Representative Office was able to request the Company should pay penalty for breach with the proportion of 1:10000 of the total interest on principal every day, canceling the according principal and exempting the interest, also requested the Company should bear the obligation for the debt obligation before exempt. The Company was permitted to discharge all the restructuring amount of RMB 3.24 million and the corresponding interest and penalty interest once before Sep. 31, 2008 by signing Complement agreement with Chengdu Representative Office on Oct. 22, 2007. If the Company breached of faith, the debt restructuring was no longer carried out, Chengdu Representative Office was able to request the Company should pay penalty for breach with the proportion of 1:10000 of the total interest on principal every day, canceling the according principal and exempting the interest, also requested the Company should bear the obligation for the debt obligation before exempt. XI. Commitment By Dec. 31, 2007, the Company had no capital expenditure which was signed without permission or was permitted without contract. XII. Non-monetary transaction By Dec. 31, 2007, the Company had no significant non-monetary transaction. XIII. Debt Restructuring (I) Four sides such as China Orient Asset Management Cop. Shenzhen Representative Office (hereinafter referred to as Shenzhen Representative Office) and the natural person Shi Ming reached the agreement of debt restructuring on disposing the related debt obligation and guarantee liability of Shenzhen Representative Office by the Company: 1. On Dec. 27, 2006, according to the Reconciliation Agreement signed by Shenzhen Representative Office and the Company, given ICBC Shenzhen Branch transferred the interest on penalty of all the owned credit right of the Company to Shenzhen Representative Office on Jul. 12, 2005, the credit right of the Company that Shenzhen Representative Office took was mainly divided into three parts by confirmation of both sides. The first part of the credit right borrower was the Company, the second part was Gangyu Industry Co., Ltd. of which guarantee was offered by the Company, and the third one was Weiyu (Hong Kong) Co., Ltd. of which guarantee was offered by the Company. 2. The first part of credit right: Shenzhen Representative Office and the natural persons such as Shi Ming signed Credit’s Right Transfer Agreement, the 4 persons such as Shi Ming transferred credit right by RMB 15.5 million and bore all the risk by themselves. After receiving RMB 15.5 million, Shenzhen Representative Office transferred the object of credit right to the four persons such as Shi Ming to share and undertake the risk. Before Dec. 31, 2006, the persons such as Shi Ming paid RMB 15.5 million for Shenzhen Representative Office. According to the Cooperation Agreement signed by the Company and the four persons, the purpose of purchasing the credit right was to obtain the disposal right and property right of the sealed up assets in the above mentioned credit right without purpose for the recourse of the rest credit right which would be vanished automatically as soon as the disposal of assets finished. The net book value of the fixed assets sealed up by the first part of the credit right was RMB 7,697,099.79 (by Dec. 31, 2006). According to Cooperation Agreement, the rest credit right would be vanished automatically without payment after disposal of the sealed up assets was finished, then the debt obligation of the Company would reduced by RMB 64,850,246.28 (the book value of Other Accounts Payable of the Company by Dec. 31, 2006). According to the Civil Ruling issued by Shenzhen Nanshan People’s Court, the main body of credit right disposal was changed to the persons such as Shi Ming, as the sealed up housing was being conducted assets disposal. 3. The second and third part of credit rights being executed by Shanwei Intermediate People’s Court. Shenzhen Representative Office applied for the court to seal up the 4,889,520 equity of the Company held by the execution guarantor namely Shekou Hansheng Electronic Co., Ltd. (hereinafter referred to as Shekou Hansheng) and the 75% equity of Shenzhen Houyuan Medical Appliances Co., Ltd. held by the Company. Shenzhen Representative Office agreed that, when the Company performed all the obligation based on the contract of the two sides, the joint liability for liquidation of the second and third part of the credit right by the Company would be exempted, as Shenzhen Representative Office had the recourse right of the principal and interest of the rest arrearage from other person subject to enforcement, as well as applying for the court to release from sealing up the 75% equity of Shenzhen Houyuan Medical Appliances Co., Ltd. held by the Company. If the Reconciliation Agreement between the Company and Shenzhen Representative Office could come into effect, the actual compensation for loss for the guarantee which was provided by the Company for Gangyu Industry Co., Ltd. and Weiyu (Hong Kong) Co., Ltd. was RMB 11,107,744.16. The book predicted liabilities of the Company for Shenzhen Representative Office was RMB 184,730,783.16 by Dec. 31, 2007 (through inquiry and approval, the reply had not been received by the report date. The Company would retain the principal and interest mentioned in the reply in 2006). If the Company could not paid the money on schedule, the debt restructuring was no longer carried out, the according principal and exempting the interest were canceled, also the other side requested the Company should bear the obligation for the debt obligation before exempt. (II) Debt Restructuring Agreement on disposing the related guarantee liability of the Company in China Orient Asset Management Cop. Chengdu Representative Office (hereinafter referred to as Chengdu Representative Office), which was reached by Chengdu Representative Office On Dec. 12, 2006, the Company and Chengdu Representative Office signed Debt Restructuring Contract. The credit right principal of RMB 32,400,000.00 and the interest of RMB 11,030,906.10 (due date for interest: Dec. 12, 2006) of Chengdu Representative Office were conducted a debt restructuring. Based on the contract, the amount of the said debt restructuring was RMB 3,240,000.00 which should be paid within 2 years, RMB 1,620,000.00 being paid respectively on Sep. 30, 2007 and Sep. 30, 2008. If the Company performed the contract, Chendu Representative Office would exempt part of the principal and interest of the Company mentioned in the old borrowing contract, no former guarantee liability to be born. The Company was permitted to discharge all the restructuring amount of RMB 3.24 million and the corresponding interest and penalty interest once before Sep. 31, 2008 by signing Complement agreement with Chengdu Representative Office on Oct. 22, 2007. If the Company breached of faith, the debt restructuring was no longer carried out, Chengdu Representative Office was able to request the Company should pay penalty for breach with the proportion of 1:10000 of the total interest on principal every day, canceling the according principal and exempting the interest, also requested the Company should bear the obligation for the debt obligation before exempt. (III) Debt Restructuring Agreement on resolving the problem that the Company purchased equity of Wuhan Ruide Biological Product Co., Ltd. (hereinafter referred to as Ruide Company) from Wuhan Zhongyuan Industry Group Co., Ltd. (hereinafter referred to as Wuhan Zhongyuan Company) on the behalf of Hubei Xielida Investment Co., Ltd. (hereinafter referred to as Xielida Company), which was reached by Wuhan Zhongyuan Company. 3.1. Please refer to Annotation X with the scope and the general information about the debt restructuring, Annotation VII with the status quo of the equity of Ruide Company. 3.2. According to Agreement signed by the Company and Wuhan Zhongyuan Company on Dec. 31, 2006, the Company permitted that the held 99% equity of Ruide Company would be entrusted to Wuhan Zhongyuan Company without day so that it could take the entire equity to the according shareholders of Ruide Company. Wuhan Zhongyuan Company would no longer have recourse for any debt obligation since the date of signing agreement. Meanwhile, the Company would transfer the equity to Wuhan Zhongyuan Company if the condition for equity transfer was mature. The Company could release from the guarantee liability of RMB 59,659,979.04 as soon as Wuhan Zhongyuan Company obtained 99% equity f Ruide Company. 3.3. On Apr. 18, 2007, the Company received Circular on Releasing Entrustment with Term (SNFZ Zi (2005) No. 1484 from Shenzhen Nanshan People’s Court (hereinafter referred to as Nanshan Court). The Company would properly handle the entrustment with the related entities such as Nanshan Court according to the laws and rules of the State. By the report date, the Company had not received the penalty pen pusher from Nanshan Court. XIV. Events occurring or existing after the balance sheet date By Dec. 31, 2007, the Company had no significant the non-adjusted events occurring or existing after the balance sheet. XV. Explanation on continuous operating ability The principal operating assets of the Company had been mortgaged or sealed up, the external guarantee with joint liability for debt judged by court existed, in line of the serious shortage of the currency capital available for the expenses of operating activities and the suspense of the operating business, so the Company faced the risk to lose the continuous operating ability. In order the help the Company get out of the dilemma, the Company was trying to stem the passive tide by the support of large shareholders and its own efforts, with hope to solve the dilemma. The key focus of continuous operation of the Company is completing the liabilities’ reconstruction and implementing the significant assets’ reconstruction, aiming at the current situation, the Company and the principal shareholder of the Company Hainan Rulai Wood Industry Co., Ltd. committed themselves to handling the work relating with relevant liabilities’ reconstruction and assets’ reconstruction, planed to achieve to change the industries’ structure, further benefit capability, took the road to healthy development for the Company. As the statement in note XIII of the Company, the Company made much progress in liabilities’ reconstruction, once the Company paid the liabilities reconstructed as agreed matters, the Company’s net assets will be increased hugely (expected switching the liabilities back), the financial situation of the Company will be completely changes, which also laid the solid and vital foundation for the assets’ reconstruction of the Company. XVI. Complement information 1. Form about detail with non-recurring profits and losses Item 2007 2006 1. Profits and losses of disposal of non-recurring assets 2. Tax refund and tax reduction from the documents approved beyond right or permitted informally 3. Governance subsidy recorded into current profits and losses 4. Use fee for funds received from non-financial enterprises and recorded into current profits and losses 5. Combination cost of business combination less than the profits and losses arising form the fair value of the net identifiable asset of the attributable invested entity when being combined 6. Profits and losses on non-monetary asset exchange 7. Profits and losses on entrusted investment 8. Owing to the irresistible force factor such as natural calamity, withdraw every asset impairment provision 9. Profits and losses on debt restructuring 10. expenses of enterprises reorganization - - 11. Profits and losses surpassing the fair value - - because of the transaction price without fairness 12. Current net profits and losses of the subsidiary from the period-begin to combination date arising from business combination under the same control Item 2007 2006 13. Profits and losses arising form the predicted liabilities without relationship with the main business of the Company 14. Net income and expense from on-business except -2,058,088.55 -40,120,178.52 the above items 15. Other Total -2,058,088.55 -40,120,178.52 Less: According income tax of the non-recurring profits and losses Less: Part attributable to minority shareholders Net profit influence by the non-recurring profits -2,058,088.55 -40,120,178.52 and losses Net profit of the statements -3,674,539.46 -42,688,314.94 Less: Profits and losses of minority shareholders Net profit attributable to the shareholders of the -3,674,539.46 -42,688,314.94 parent company Non-recurring profits and losses taking up the proportion of the net profit attributable to the 56.01% 93..98% shareholders of the parent company at the same period Net profit attributable to the shareholders of the parent company deducting non-recurring profits -1,616,450.91 -2,568,136.42 and losses 2. Rate of return on common stockholders’ equity and earnings per share Earnings per share (RMB Rate of return on equity per share) Period Financial index Basic Diluted Fully Weighted earnings earnings diluted average per share per share Net profit attributed to the ordinary -0.0607 -0.0607 shareholders of the Company Net profit attributed to 2007 the ordinary shareholders of the Company after -0.0267 -0.0267 deducting non-recurring profits and losses 2006 -0.7056 -0.7056 Net profit attributed to the ordinary shareholders of the Company Net profit attributed to the ordinary shareholders of the Company after -0.0424 -0.0424 deducting non-recurring profits and losses Item 2007 2006 Measurement of basic earnings per share and diluted earnings per share （一）Numerator Net profit after tax -3,674,539.46 -42,688,314.94 Adjustment: dividend of preferred stock and influence of other instrument Profits and losses attributable to the common -42,688,314.94 shareholders of the parent company in the measurement of basic earnings per share -3,674,539.46 Adjustment: Dividend and interest related with the diluted potential ordinary shares Earnings or change in expenditure arising from conversion with diluted potential ordinary shares Profits and losses attributable to the common -42,688,314.94 shareholders of the parent company in the measurement of diluted earnings per share -3,674,539.46 （二）Denominator Weighted average of the ordinary shares published in 60,500,000.00 60,500,000.00 public in the measurement of basic earnings per share Add: Weighted average at the period that all the diluted potential shares was conversed to ordinary shares Weighted average of the ordinary shares published in 60,500,000.00 60,500,000.00 public in the measurement of diluted earnings per share （三）Earnings per share Basic earnings per share -0.0267 -0.7056 Diluted earnings per share -0.0267 -0.7056 Method of measuring rate of return on common stockholders’ equity: (1) Measurement formula of rate of return on fully diluted net common stockholders’ equity was as follows: Rate of return on fully diluted net common stockholders’ equity = profit in report period ÷ net assets at the period-end (2) Measurement formula of rate of return on weighted average net assets (ROE) was as follows: P ROE＝ E0+NP÷2+Ei×Mi÷M0-Ej×Mj÷M0 Of which: P was the profit in the report period; NP was the net profit in the report period; E0 was the net assets at the period-begin; Ei was new-added net assets of the new share of debt for equity swap published in the current period; Ej was the net assets reduced by the repurchase or cash dividend at the current period; M0 was the number of months in the report period; Mi was the number of months from the next month of adding new net assets to the period-end; Mj was the number of months from the next month of reducing net assets to the period-end. 3. Comparative form on difference of income statements in 2006 after retroactive modulation by the new standard Item Amount Net profit in 2006 (old accounting standard) -42,688,314.94 Net profit attributable to the shareholders of the parent company in 2006 (new accounting standard) -42,688,314.94 Reference information supposing to roundly execute new accounting standard Simulated net profit in 2006 -42,688,314.94 4. Difference adjustment form and comparative disclosure form on shareholders’ equity between new and old accounting standard Nu Disclosure Original disclosure Explanation mb Item Difference amount in 2007 amount in 2006 for reason er Refer to Shareholders’ equity on Dec. 31, 2006 -320,578,490.87 -360,578,490.87 40,000,000.00 Annotation V, (old accounting standard) 3 (1) 1 Difference of long-term equity investment - - Of which: Difference of long-term equity investment arising from business - - combination under the same control Other difference of long-term equity investment lender measured by - - - - equity method Investment properties to be measured by 2 - - - - fair value pattern Depreciation in previous should be 3 withdrawn owing to the discard - - - - expenses of predicted assets 4 Dismissal compensation eligible to the - - - - recognition condition of predicted liabilities 5 Share-based payment - - - - Reorganization obligation eligible to the 6 recognition condition of predicted - - - - liabilities 7 Business combination - - - - Of which: Book value of enterprise combination goodwill under the same - - - - control withdrew goodwill impairment provision according to the new standard - - - - Financial assets and financial assets available for sales measured by fair 8 - - value of which change was recorded into the current profits and losses Financial liabilities measured by fair value 9 of which change was recorded into the - - - - current profits and losses Increased equity by financial instrument 10 - - - - carve-out 11 Derivative financial instruments - - - - 12 Income tax - - 13 Minority interest - - 14 Other - - Shareholders’ equity on Jan. 1, 2007 (new 40,000,000.00 -320,578,490.87 -360,578,490.87 - accounting standard) - The Company reviewed the book balance of the shareholders’ equity, liabilities and assets on initial execution date when compiling the Annual Report of 2007. Except the adjustment for the shareholders’ equity on Dec. 31, 2006 of the enterprise (old accounting standard), the Company had no economic business correlated with other adjustment. So there were no differences. The above annotation to the Financial Statements of the Company in 2007 was compiled in line with the Accounting Standard for Business Enterprises No. 1 to No. 37 published by State. Legal representative of the Company: Mr. Xu Min Date: April 28, 2008 Chief accountant of the Company: Mr. Wang Changsheng Date: April 28, 2008 Person in charge of accounting organization: Ms. Li Lingling Date: April 28, 2008