古井贡Ｂ(200596)2007年年度报告（英文版）

Annual Report 2007 April 2008 Important  The board of directors, the board of supervisors, directors, supervisors and senior officers of the Company confirm that, there are no fictitious presentation, misleading statements or important omissions carried in this report, and shall take responsibilities, individually and/or jointly, for the truth, accuracy and completion of the whole contents.  Reanda Certified Public Accountants issued the audit reports of the standard and clean opinion for the company.  Mr. Wang Feng, chairman of the directors, Mr. Lu Jiazhao, chief accountant, and Ms. Xia Xueyun, principal of the accounting body, hereby guarantee that the financial report enclosed in this annual report are true and complete.  The report has been prepared in Chinese and English respectively. In case of discrepancy, the Chinese version shall prevail. 1 Contents Chapter I． Company Information..................................................................................................................3 Chapter II． Financial and Business Data Summary...................................................................................... 4 Chapter III． Particulars about the Changes of Share Capital & Shareholders........................................... 7 Chapter IV． Particulars about Directors, Supervisors, Senior Executives & Employees of the Company 12 Chapter V． Corporate Governance Structure............................................................................................. 16 Chapter VI． Briefs to the General Meeting of Shareholder......................................................................... 24 Chapter VII． Report of the Board of Directors.......................................................................................... 25 Chapter VIII． Report of the Board of Supervisors...................................................................................... 40 Chapter IX． Substantial Matters.................................................................................................................... 43 Chapter X． Financial Statements.................................................................................................................. 46 2 Chapter I． Company Information 1 Legal Name in Chinese: 安徽古井贡酒股份有限公司 Legal Name in English: Anhui Gujing Distillery Company Limited Abbreviate: GUJING 2 Legal Representative: Wang Feng 3 Secretary of the Board:: Li Bin Add: Gujing Town, Bozhou City, Anhui Province Tel: （0558）5710149 Fax: （0558）5710149 E-mail: gjglbin@gujing.com.cn Securities Affairs Representative: Ma Junwei Add: Gujing Town, Bozhou City, Anhui Province Tel: （0558）5710057 Fax: （0558）5317706 E-mail: gjzqb@gujing.com.cn 4 Registered Address: Gujing Town, Bozhou City, Anhui Province Office Address: Gujing Town, Bozhou City, Anhui Province Post Code: 236820 Internet Web Site: http://www.gujing.com 5 Newspaper Designated for Disclosing the Information: China Securities, Shanghai Securities and Wen Wei Po in Hong Kong Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place for filing the Annual Report: Secretary Office of the Board of Directors of the Company 6 Stock Exchange where the company shares are listed: Shenzhen Stock Exchange 3 Short form of the Stock: Gujing Distillery A Securities Code: 000596 Short form of the stock: Gujing Distillery B Securities Code: 200596 7 Other Relevant Information (1) Date of the initial registration: May 30, 1996 Variation of Registered Date: Dec. 15, 2004 Registration Place: Industrial & Commercial Administration Bureau of Anhui Province (2) Registration No. of Corporate Business License: QGWZ Zi No. 001745 Tax registration number: 341600151940008 (3) Names and addresses of accountants’ offices appointed by the Company: Domestic: Reanda Certified Public Accountants Address: 2008 Dongqu, Bldg. 1, Zhubang 2000, 100 Balizhuang Xili, ChaoYang District, Beijing, PRC. Foreign accountant: BDO Reanda Certified Public Accountants Gold Address: 2008 Dongqu, Bldg. 1, Zhubang 2000, 100 Balizhuang Xili, Chaoyang District, Beijing, PRC. Chapter II． Financial and Business Data Summary 1. Main business data in 2007 Items Amount Revenue from business 1,201,356,596.91 Total profit 51,978,072.67 Net profit attributed to shareholders of the Company 33,876,546.32 Net profit less non-operating profit and loss attributed to the 18,244,111.64 shareholders of the Company Net cash flow arising from operating activities 117,120,270.12 Note: Non-recurring gains/losses items and amount deducted. Gains/losses on disposal of non-current assets -845,722.54 Government subsidy recorded in current profits& losses 4,044,600.00 Other non-operating revenue save for those items above 1,872,150.86 4 Subtotal 11,776,478.89 The influence of Income tax -1,204,056.30 Total of non-recurring net profits and losses 15,643,450.91 2. Main financial data 2007 Y 2006 Y Comparing 2005 Y Before After adjustment with Before After adjustment previous adjustment adjustment year Revenue from 1,201,356,596.9 957,415,646.39 963,702,143.87 24.66% 653,662,634.75 668,024,256. 1 22 business Total profit 51,978,072.67 26,477,042.62 23,702,424.38 119.29% 16,576,313.79 16,576,313.7 9 Net profit attributed 33,876,546.32 13,1561,037.46 13,329,639.70 154.14% 5,172,133.90 5,172,133.90 to shareholders of the Company Net profit less non- 10,509,140.89 10,687,743.13 70.70% -5,435,073.70 - 18,244,111.64 5,435,073.70 operating profit and loss attributed to the shareholders of the Company Net cash flow 117,120,270.12 48,120,654.64 48,120,654.64 143.39% 38,245,950.13 38,245,950.1 3 arising from operating activities End of 2007 2006 Y Comparing 2005 Y Before After adjustment with Before After adjustment previous adjustment adjustment year Total assets 1,384,339,218.8 1,374,630,520. 1,364,652,962.78 1.44% 1,335,726.228.4 1,356,260,80 6 16 5 0.72 Owners’ equity 845,504,539.50 821,434,915.19 811,457,342.19 4.20% 808,120,859.21 827,163,368. 08 5 3. Main financial index Items 2007 Y 2006 Y Comparing 2005 Y Before After with previous Before After adjustmen adjustmen year adjustmen adjustmen t t t t Net cash flow arising from each 0.511 0.20 0.20 155.50% 0.16 0.16 share of operating activities Fully diluted net asset earning ratio 4.01 1.60 1.64 2.37% 0.63 0.63 Weighted average net asset earning 4.09 1.61 1.65 2.44% 0.63 0.63 ratio Diluted net asset earning ratio 2.16 1.28 1.32 0.84% (0.66) (0.66) deducted from recurring profits and losses Weighted average net asset earning 2.20 1.29 1.33 0.87% (0.66) (0.66) ratio deducted from recurring profits and losses Basic earnings per share 0.14 0.056 0.057 145.61% 0.022 0.022 Diluted earnings per share 0.14 0.056 0.057 145.61% 0.022 0.022 Basic earnings per share deducted 0.08 0.045 0.045 77.78% (0.023) (0.023) from recurring profits and losses Diluted earnings per share deducted 0.08 0.045 0.045 77.78% (0.023) (0.023) from recurring profits and losses End of 2006 Y Comparing 2005 Y 2007 Before After with previous Before After adjustmen adjustmen year adjustmen adjustmen t t t t Net asset per share attributed to 3.60 3.50 3.45 4.35% 3.43 3.52 shareholders of the listed company 6 Chapter III． Particulars about the Changes of Share Capital & Shareholders 1 Change of share capital (1). Change of share capital (In share) Before this Change Increase or decrease of this Changes (+, -) After this Change Capitalizat Newly Bonus ion from Subtot Quantity Pct issued Others Quantity Pct shares public al shares reserve 1. Shares subject to - 147,007,000 62.56% 135,257,000 57.56% conditional sales 11,750,000 (1) State-owned shares (2) State-owned 147,000,000 62.55% 135,250,000 57.55% corporate shares (3) Other domestic 7 shares Including: domestic non-state-owned corporate shares Domestic natural 7,000 0.01% 7,000 0.01% person shares (4) Foreign shares Including: foreign corporate shares Foreign natural person shares 2. Shares subject to 87,993,000 37.44% 99,743,000 42.44% unconditional-sales (1) RMB- denominated 27,993,000 11.91% 39,743,000 16.91% ordinary shares (2) Foreign capital 60,000,000 25.53% 60,000,000 25.53% shares listed locally (3) Foreign capital shares listed overseas (4) Others 3. Total shares 235,000,000 100.00% 235,000,000 100.00% (2). Change of shares subject to conditional sales (In share) No. of the selling- No. of shares at No. of the selling- Reasons for Names of limited shares No. of the restricted Date for selling the year limited shares selling-limited shareholders increased this at the year end shares beginning released this year shares year Anhui Gujing Gro 147,007,000 11,750,000 135,257,000 Reform of non- June19, 2009 8 up Company tradable shares Limited Total 147,007,000 11,750,000 135,257,000 － － (3) Stock issuing and listing information There is no stock issuance within the previous 3 years by the end of reporting period. 2 Information about the shareholders and the actual controllers (1) Total number of shareholders and particulars about the shares held by shareholders (In share) Total number of Shareholders 36,965 Particulars about the shares held by the top ten shareholders Number of shares Nature of Shares under pledged Names of shareholders Proportion Total shares subject to conditional shareholders or frozen sales Anhui Gujing Group Company State-owned 61.15% 143,702,711 135,257,000 Limited Corporate Domestic non- GSI S/A GOLDEN CHINA state-owned 5.10% 11,985,434 MASTER RUND corporate Domestic non- KGI ASIS LIMITED state-owned 1.98% 4,644,223 corporate Domestic non- GSI S/A GOLDEN CHINA state-owned 1.11% 2,600,000 PLUS MASTER FUND corporate Domestic non- GAM ASIA EQUITY HEDGE state-owned 0.80% 1,885,403 INVESTMENTS INC corporate Domestic non- UOB Kay Hian Co., Ltd (HK) 0.61% 1,435,095 state-owned corp 9 orate Domestic natural Chen Fei 0.32% 745,070 person GAM GREATER CHINA Domestic non- EQUITY HEDGE state-owned 0.31% 735,700 INVESRMENTS INC corporate Domestic natural Chen Bo 0.29% 697,190 person Domestic natural Zhang Yonghui 0.20% 474,030 person Particulars about the shares subject to unconditional sales held by the top ten shareholders Quantity of shares subject to non- Names of shareholders Stock types conditional sales GSI S/A GOLDEN CHINA MASTER RUND 11,985,434 Foreign capital shares listed locally Anhui Gujing Group Company Limited 8,452,011 RMB-denominated ordinary shares KGI ASIS LIMITED 4,644,223 Foreign capital shares listed locally GSI S/A GOLDEN CHINA PLUS MASTER 2,600,000 Foreign capital shares listed locally FUND GAM ASIA EQUITY HEDGE INVESTMENTS 1,885,403 Foreign capital shares listed locally INC UOB Kay Hian Co., Ltd (HK) 1,435,095 Foreign capital shares listed locally Chen Fei 745,070 Foreign capital shares listed locally GAM GREATER CHINA EQUITY HEDGE 735,700 Foreign capital shares listed locally INVESRMENTS INC Chen Bo 697,190 Foreign capital shares listed locally Zhang Yonghui 474,030 Foreign capital shares listed locally Among the abovementioned shareholders, Anhui Gujing Group Company Limited, the Notes on the associated state-owned shareholder, has no associated relations with the other shareholders, and is relations and a group of a not concluded in the group as a person specified in the Measures for the Administration person of the above of Disclosure of Shareholder Equity Changes of Listed Companies. Among the float shareholders, the associated relations and whether they are included in the group as a shareholders person specified in the Measures for the Administration of Disclosure of Shareholder Eq 10 uity Changes of Listed Companies or not are not available. (2) Particulars about the controlling shareholder The controlling shareholder is Anhui Gujing Group Company Limited which is a sole state- owned proprietor incepted on January 16, 1995 with a registered capital RMB353, 380,000 and whose legal representative is Mr. Cao Jie. Its business scope covers: operating and agency to do import or export business on goods and technology permitted by the state; dealing with foreign trades and cooperated business; doing domestic trades and developing high technology; information consulting service, processing and distributing agricultural by-products; processing and distributing package materials, building materials, glass products, craft supplies and wooden products; and goods delivery transportation. (License or permits may be obtained for special businesses) 3 There is no change in controlling shareholders in the report period. Property right relationship and control relationship between the company and actual controller. The People’s Government of Bozhou 100％ Anhui Gujing Group Company Limited 61.15％ This Company 11 Chapter IV． Particulars about Directors, Supervisors, Senior Executives & Employees of the Company I. Particulars about directors, supervisors, and senior executives 1 Basic information Increase Reaso Total payment and Shares held Shares & ns for remuneration from the Ag at year held at Name Title Gender Duty term decrease chang Company in the report e beginning year end (shares) es period (ten thousand (shares) (shares) Yuan) Wang Feng President Male 43 2005.7-2008.5 0 0 16 Cao Jie Director Male 42 2007.8-2008.5 0 Li Peihui Director Male 35 2005.7-2008.5 0 0 0 Director Li Bin & Board Male 32 2007.8-2008.5 0 0 10 secretary Liang Jinhui Director Male 44 2007.8-2008.5 0 0 15 Lv Jiazhao Director Male 33 2008.1-2008.5 0 0 0 Liu Independe Male 54 2005.7-2008.5 0 0 5 Youpeng nt director Zhuo Independe Male 70 2005.7-2008.5 0 0 5 Wenyan nt director Independe Li Hao Male 57 2005.7-2008.5 0 0 5 nt director Yuan Chief Female 60 2005.7-2008.5 2,100 2,100 0 Qinghua supervisor Zhang Superviso Male 54 2005.7-2008.5 0 0 7 Jialiang r Ye Superviso Male 33 2007.12-2008.5 0 0 Changqing r General Liu Min Male 45 2007.12-2008.5 0 0 manager Deputy Zhang general Male 44 2005.7-2008.5 0 0 10 Jianlin manager Particulars about directors and supervisors of the Company working in shareholding companies No. Name Working company Title Working time 12 1 Cao Jie Anhui Gujing Group Company Limited Chairman of the board & July 2007 President 2 Li Peihui Anhui Gujing Group Company Limited Chief Finance Officer July 2004 3 Yuan Qinghua Anhui Gujing Group Company Limited Supervisor August 2002 4 Ye Changqing Anhui Gujing Group Company Limited Chief Auditing & August 2004 Supervision officer II. Main work experience and sideline information of incumbent directors, supervisors and senior executives 1. Particulars about directors, supervisors, and senior executives (1) Mr. Wang Feng, incumbent board chairman of the company, had ever acted as the Manager of Assets Management Department, member of the second board of directors, Vice General Manager, General Manager, member of the third board of directors, and board chairman. (2) Mr. Cao Jie, incumbent director of the Company and the board chairman & president of ANHUI GUJING GROUP CO., LTD., had ever acted as the Vice Financial Manager of the Group, the executive director & General Manager of Hefei Gujing Hotel Company Limited, the board chairman of Anhui Gujing Hotel (Group) Company Limited, Vice General Manager of Gujing Group, member of the board of directors of Gujing Group, Deputy President of Gujing Group, Supervisor of business department, Supervisor of finance department and chairman of board of Hotel Group.。 (3) Mr. Li Peihui, incumbent director of the Company and the Chief Finance Officer of ANHUI GUJING GROUP CO., LTD., had acted as Finance Department Manager, Second chief accountant, member of the third board of directors, secretary of board, and general accountant. (4) Mr. Libin, incumbent the director and secretary of board of the Company, had acted as the Manager of Enterprise Programming and Management Department of ANHUI GUJING GROUP CO., LTD, the second chief accountant of the company and manager and chief accountant of Finance Department of the company. (5) Mr. Liang Jinhui, incumbent director and market supervisor of the Company, had ever acted as vice manager of market development department of the company, supervisor of the second and third board of supervisors, manager of market development department and chief of market research and supervision center. (6) Mr. Lv Jiazhao, incumbent the director and Finance Department of the company. (7) Mr. Zhuo Wenyan, incumbent independent director of the of this company, had acted as assistant, lecturer, associate professor, professor and department head of accounting department of Anhui University of Finance & Trade, now acts as accounting professor and tutor of Ph. D. in Anhui University of Finance & Trade, director of China Accounting Society, vice chairman of Anhui Accounting Society , vice chairman of Business Finance & Accounting Seminar of China academy of finance & economics, and member of the third board of directors. 13 (8) Mr. Liu Youpeng, incumbent independent director of board of directors of this company and vice professor of Shanghai Institute of Commercial Education, had acted as director of the Enrollment Office of Higher Education Institutions of Anhui Provincial education committee and adjunct professor of Anhui Institute of Education and the independent director of the third board of directors. (9) Mr. Li Hao, incumbent independent director of this company and superintendent of modern Institute of Justice of Law School of Nanjing Normal University, Tutor for doctorial students, lawyer of Anhui Zhongding Law Firm and vice chairman of Chinese Procedural Law Seminar, had ever acted as deputy director of Teaching and Research of Law of Party School of Anhui Province Party Committee, adjunct professor of Anhui University and counselor of Anhui Technology Publishing House, etc. and member of the third board of directors. (10)Ms. Yuan Qinghua, incumbent director of party committee office of ANHUI GUJING GROUP CO., LTD. secretary of Commission for Discipline Inspection, committeeman of party committee and supervisor of the third board of supervisors of this company, had ever acted as vice general manager of Anhui Bozhou Gujing Hotel Co., Ltd. supervision manager of the company, supervisor of the first and second board of supervisors of this company, office director of ANHUI GUJING GROUP CO., LTD. vice secretary of Commission for Discipline Inspection and the first vice-chairman of labor union and the chief supervisor of the third board of supervisors. (11) Mr. Zhang Jialiang, incumbent human resource manager and supervisor of the board of supervisors, had acted as personnel vice manager and deputy director of party committee office, director, and supervisor of the second and third board of supervisors of the company. (12)Mr. Ye Changqing, incumbent supervisor and Chief Auditing& Supervision officer of ANHUI GUJING GROUP CO., LTD., had acted as Chief Auditor of Audit Department, Vice Manager of Audit Department and Vice Supervisor of Auditing& Supervision Department. (13)Mr. Liu Min, incumbent the General Manager of the company, had ever acted as the General Manager of Alcohol Business Department of Wanji Group in September 2003, the Vice General Manager and General Manager of Xi’an Subsidiary of Kingway Brewery Group in July 2006, and the General Manager of this company in December 2007. (14)Mr. Zhang Jianlin, incumbent vice general manger mainly responsible for the production work of the company, had ever acted as factory director and production manager of Wine Brewery Branch of the company. 2. Particulars about the annual remuneration (1) The annual remuneration for the director, supervisor, and senior executives is formulated by the company’s board of directors. The annual remuneration is determined according to such factors as one’s position, the performance of company's business, the local income status, consumption level and individual performance appraisals. (2) The annual remuneration The total amount of the annual remuneration for the current director, supervisor, and senior executives is 1,458,000. As for the individual amount, see the basic information. 14 Remuneration for independent directors is the allowance received from the company, excluding the directors, Cao Jie and Li Peihui, and supervisors, Yuan Qinghua and Ye Changqing, who receive their remunerations from the shareholders holding companies. (3) Particulars about the changes of directors, supervisors, and senior executives during the report period The proposal on adjustment of the board members was adopted at the 13th meeting of the fourth board of directors of the company that dismissed the directors Mr. Wang Xiaojin, Mr. Liu Junde and Mr. Zhu Renwang and nominated Mr. Cao Jie, Mr. Li Bin and Mr. Liang Jinhui as the candidates for this board of directors. The proposal was adopted at the first temporary shareholders meeting in 2007. It observed and adopted Mr. Wang Dejie’s resignation of General Manager and appointed Mr. Wang Feng, the board chairman, to hold the concurrent position of General Manager at the temporary meeting of the fourth board of directors. It observed and adopted the proposal on reelection of directors of the board at the 15th meeting of the fourth board of directors: Mr. Wang Dejie assumes the director of the company no longer, while Mr. Lu Jiazhao is nominated as the director by-election. It also observed and adopted the proposal on re-appointment of the General Manager of the company: the board chairman Mr. Wang Feng assumes the concurrent position of General Manager no longer while Mr. Liu Min is retained as the General Manager of the company. It observed and adopted the proposal on reelection of the supervisors of board of supervisors at the eighth meeting of the fourth supervisors of board: Mr Lu Jiazhao assumes the supervisors of board of supervisors no longer while Mr. Ye Changqing is nominated as the supervisor by election for the fourth supervisors of board. Remark: the proposal on reelection of directors of the board of directors and supervisors of the board of supervisors was adopted at the first temporary shareholders meeting in 2008 on January 22, 2008. It observed and adopted the proposal on reelection of the chief accountant of the company at the 16th meeting of the fourth board of directors: for the sake of working demand, Mr. Li Bin assumes the chief accountant of the company no longer and it considered that Mr. Lu Jiazhao is appointed as the chief accountant of the company by the board of directors. III. Particulars about employees Up to December 31, 2007, the Company has 6483 employees in the payroll, including 516 managerial persons, 239 technicians, 85 financial persons, 3586 persons engaged in production and sales, and 107 persons engaged in administration and logistics. Particulars about the education of the employees: There are 21 persons with master or above degrees; 216 persons with bachelor degrees; 348 persons graduated from college, and others 5798. At present, 301 persons have been retired or left from the Company. Chapter V． Corporate Governance Structure 15 I. Particulars about actual governance state of the Company Since the inception, the Company constantly perfects corporate governance structure and standardize its management strictly in accordance with the Companies Law, Securities Law, Standard for Governance of Listed Companies, Guardlines on Setting up Independent Directors Systems for Listed Companies as well as principles and requirements of other relevant laws, regulations and normative documents. During the report period, the Company has revised the Articles of Association, Rules of Procedure of General Meetings of Shareholders, Rules of Procedure of Board of Directors, Rules of Procedure of Board of Supervisors in the light of the principles and requirements of newly issuing relevant laws, regulations and normative documents and further perfected them according to the new situations and problems that may probably emerges in practice. Meanwhile, the Company has further established the inner control system of the company like Principles for Corporate Budget Management and Outline of Financial Management (Internal Control), to provide systematic conditions for standard operation. During the report period, the board of directors, the board of supervisors and the management of the Company make decisions, perform rights and assume obligation strictly according to the standard operation rules and inner control system so as to make sure the standard operation of the Company in the frame of rules and systems. During the report period, the Company, according to the requirements of China Securities Regulatory Commission and Rules Governing Listing of Stocks on Shenzhen Stock Exchange and with the “open, fair and just” principle, performs the information disclosure of the Company, and guarantees that the information disclosed is true, accurate and complete, free from fictitious presentation, misleading statements or important omissions, so that all the shareholders will equally acquaint themselves with all the notices of the Company. In conclusion, the Company has established the corporate governance structure satisfying the requirements of a listed company, and the actual governing particulars have met the requirements of normative documents on listed company governance issued by China Securities Regulatory Commission. Corporate governance structure chart of the company: 16 General Meeting of Shareholders II. Particulars about independent directors’ performances 1 Meeting-attending information of the independent directors Name Required Times of Times of Times of Voting Absence attendance times attending in Voting on by times person Commission communication Zhuo 7 3 0 4 0 Wenyan Liu 7 3 0 4 0 Youpeng Li Hao 7 3 0 4 0 2 Particulars about independent directors’ performances The three independent directors credibly and diligently performed their duties strictly in accordance with the stipulations and regulations of Guidelines on Setting up Independent Directors System for Listed Company, Stipulations on Emphasizing Public Shareholder’s Interests Protection, and Articles of Association. Since the beginning of their tenancy, they have punctually attended Board Meeting and General Meetings of Shareholders, actively understand the situation of operation of the Company, contribute good advices and schemes to the management of the Company, present their independent suggestions on such significant matters as the exchange of assets between the related parties and affiliated transaction, promote the Board to make scientific and objective decisions, and maintain the interest of the Company and its shareholders. 3 Particulars about dissidences from the independent directors In the report period, the independent directors did not put forward any dissidence to the relevant events. III. Particulars about five independences in business, personnel, assets, organizations and financial affairs between this company and controlling shareholders The company and the controlling shareholder, Anhui Gujing Group Co., Ltd., realized five independences in terms of business, personnel, assets, organizations and financial affairs, with separate independent calculation, independent and complete business, independent operation ability, 17 and independent responsibilities and risks. Majority shareholders can not surpass the shareholders’ general meeting to directly or indirectly interfere with the company’s decisions and legal production and operation activities, and there is no same trade competition state of the same products between the company and majority shareholders. IV. Self evaluation of internal control With more than 10 years’ development since listing, the Company has established a set of internal control system, which continuously improved as the company further expanded its business and scale. During the report period, the Audit Management Institution of the Company has integrated the business procedures and organized necessary inspection and evaluation on the related departments and staff of the parent company as well as the subsidiaries according to the relevant prescriptions of Guideline on Internal Control of Listed Companies at Shenzhen Stock Exchange issued by Shenzhen Stock Exchange. The following is the presentation and evaluation to the establishment of internal control system during the report period and the particulars about the implementation of internal control by the end of the second period. 1 Overview of the Company’s internal control The Company has established a corporate governance structure which grants the General Meeting of Shareholders as the supreme power body, the Board of Directors as the decision-making body, the Manager Administration as the executing body and the Board of Supervisors as the supervising body, featuring an independent working, coordinating, and check-and-balance system and has set up a sound rules of procedure for General Meeting of Shareholders, Board of Directors and Board of Supervisors so as to guarantee the performance of decision-making, executing and supervising. The board of directors has set up four special committees, namely, audit, remuneration and examination, strategy, and nomination. Basing on relevant working rules, the special committee of the board of directors performed respective functions to enhance the operating efficiency of the board. The board of directors of the Company is responsible for the construction, perfection, and enforcement of the internal control system. The Company has established an internal auditing & supervision department which is responsible to the audit committee of the board of directors and carries out routine work directly led by the board chairman. It is equipped with the internal auditing personnel with special financial and managerial knowledge. According to correlated laws, administrative regulations, department rules, and the practical 18 situation, the Company established a set of relatively complete internal control system covering all links of the operating activities, including production operations, investment decisions, financial management, affiliated transactions, information disclosure, management of investors' relationship, and the reception and promotion system. During the report period, the auditing & supervision department carried out comprehensive organization towards the internal control system of corporate functional departments and subsidiaries companies. The Company has revised and stipulated partial internal control system in order to meet the changes of external environment and the requirements of company management. 2 Key control activities 1 Management and control of the holding subsidiaries ¨In order to enhance the supervision and macro-regulation of the Company over its subsidiaries, standardize the management, establish effective incentive mechanism and restraint mechanism and realize value-retaining and increment of assets, the Company developed the Approach on the Management of Anhui Gujing Distillery Company Limited over Its Subsidiaries and Measurement of the Subsidiaries’ Operating Performance. The Company manages its subsidiaries through its voting right exercised at the subsidiary’s board of directors. ¨The subsidiaries enjoy the independent managing rights stated in the relevant laws, administrative regulations and rules of the Company, exercise decision-making on routine management and assume the responsibility for value-retaining and increment of assets and the administration decisions. The managers of the subsidiaries, within the limits of authority, organize the routine production and management and whose work is responsible to the board of directors of the Company. 2 Management of affiliated transactions In addition to the implementation procedure for affiliated transactions in the Articles of Association, the Company has also developed the Measures for the Administration of the Affiliated Transactions of Anhui Gujing Distillery Company Limited prescribing the basic principles of affiliated transactions, related persons, scope of affiliated transactions, decision-making procedure for affiliated transactions and information disclosure of affiliated transactions. 3 Internal control for external guarantee The Articles of Association has clearly stated the approval authority and decision-making procedures for the external guarantee of the shareholders’ meeting and the board of directors and 19 subsidiaries must not offer the external guarantee without authority approval by the Company. Moreover, the Company has prepared the Measures for the Administration of the External Guarantee of Anhui Gujing Distillery Company Limited, further prescribing the implementation procedure for the External Guarantee of the Company. 4 Internal control of use of raised funds The board of directors of the Company has adopted the Measures for the Administration of the Raised Funds of Anhui Gujing Distillery Company Limited, to manage the raised funds strictly according to the related prescriptions stated in PRC Company Law, PRC Securities Law and Measures for the Administration of Security Issuing by Listed Companies. 5 Internal control of significant investment In order to standardize the investment behavior, optimize investment structure, avoid investment risk, the company has developed the administration of investment of Anhui Gujing Distillery Company Limited so as to set up sound and scientific investment decision-making procedure, investment management and operation mechanism. 6 Internal control of information disclosure The company has developed the measures for the administration of information disclosure of Anhui Gujing Distillery Company Limited, according to the related prescriptions stated in PRC Company Law, PRC Securities Law, Measures for the Administration of Security Issuing by Listed Companies and Articles of Association, through approval at different levels to assure information be transmitted completely, timely and appropriately to the external information users. The information to be disclosed is drafted by the office of board of directors, approved by the board secretary and disclosed in the light of the legal approval procedure. The newspaper designated for disclosing the information is China Securities, Shanghai Securities, Wen Wei Pao in Hong Kong and www.cninfo.com.cn. According to the rules of the company, the parties related to information disclosure are responsible for the confidentiality of the disclosed information that shall not disclose any content to the external in any way before open disclosure. The interpretation rights to the disclosed information shall belong to the board secretary, and other parties may interpret the actual conditions of disclosed information when approved by the board of directors. The office of board of directors collects related information at company wide according to the requirements of information disclosure. Before the information is disclosed publicly, all related personnel shall be responsible 20 for its confidentiality. Any one who breaks the rule shall be criticized, warned, or punished economically and politically if serious and legal liabilities shall be investigated according to conditions. 3 Problems and improvement plans According to the Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies issued by China Securities Regulatory Commission and Notice on the Matters for Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies issued by Guangdong Securities Regulatory Commission (GDSRC 2007 No. 48) on March 19, 2007, and through the self-inspection of the company and inspection of Security Regulatory Bureau of Anhui Province, the problems of internal control and targeting measurement for improvement are as following: (1). On the establishment of board of directors: there are three directors suspected involving violation of administrative discipline being investigated by the organization department that can not perform responsibilities of director, so that the number of directors that can normally perform responsibilities is less than the number stipulated in Articles of Association. Improvement action: the Company has replaced the directors at the first interim General Meeting of Shareholders on August 29, 2007 that assured the board of directors operates normally and arranged directors' qualification training organized by the supervision department. (2). On the supervision of board of supervisors: the function of supervision of the board yet to be improved. Improvement action: the Company revised the Articles of Association to increase the stipulated number of supervisors in the Articles of Association so as to pave the way to strengthen the functions of the Board of Supervisors. The Company arranged qualification training for partial supervisors organized by supervision department in the mid of September in 2007 to improve the capacity of board of supervisors. (3). On the establishment of internal control system: the internal control system of the company is yet to be improved and partial key control points fail to control well. Meanwhile, the degree of the systematization of internal control is yet to be strengthened. Improvement action: firstly, according to the guidance to the internal control of listed company at stock exchange, the Company set up audit management department to be responsible for supervising and assessing the operation situations of the internal control system. Secondly, the 21 Company revised and formulated the related system in the light of standard internal control system, including the provisional measures for the internal auditing administration, reception and promotion working system, measures for the administration of affiliated transactions, measures for the administration of external guarantee and measures for the administration of the raised funds, so as to improve the internal control system of the Company. (4).On management: the management of the Company is yet to be enriched. Zhu Renwang, the standing vice general manager and Lu Jianchun, the vice general manager are suspected involving violation of administrative discipline being investigated by the organization department that can not perform responsibilities of director. Improvement action: the Company has adjusted the management during the report period so as to make sure the normal performance of management and assure various businesses such as production, distribution, quality and purchase carry out in order. (5).The Letters of Attorney related to the general meeting of shareholders and board of directors do not meet the standard requirements. Improvement action: the Company will prepare the unified and standard Letters of Attorney according to the rules of supervision department when convening the general meeting of shareholders and board of directors, and require recording the opinions and attitude of the trustee on and to the events discussed. (6).The time notified for some meetings of board of supervisors are out of line of the Articles of Association. Improvement action: where a meeting of the board of supervisors is to be convened, the notified time shall be carried out strictly according to the Rules of Procedure of Board of Supervisors of Anhui Gujing Distillery Company Limited, the supervisors shall, 10 days prior to the convening of such a meeting in normal condition, and 2 days prior for the temporary meeting. (7).The hand-show vote at the supervisors' meeting is nonconforming to the standard requirements. Improvement action: the Company will revise the Rules of Procedure of Supervisors’ Meeting of Anhui Gujing Distillery Company Limited to rescind the Hand-show Vote and carry out voting strictly in the light of Companies Law. 4 Self evaluation of internal control Combining its own operating characteristics, the Company has established a set of rather 22 complete internal control system and carried it out strictly. This is able to guarantee that all operating activities of the Company can be performed on risk controllable occasions, thus ensuring the security and completion of corporate assets and realizing the objective of operation and development strategies. The Company will perfect the internal control according to the requirements of practical operation development to make the control system work comprehensively all the time. 5 Particulars about assessment and incentive mechanism to senior executives during the report period The remuneration system for the senior executives of the company closely linked with performance assessment and incentive mechanism has been established in the Company. The decision-making management adopts the assessment and incentive measures in combination with the yearly remuneration and economic indexes and management achievement. To advance the standard, healthy and orderly development of the company as well as attract more talents and keep the stability of the senior executives, the company annually establishes the assessment index at the beginning of the year and sign a written responsibility of business objective, decides the remuneration proportion at the year-end according to personal work performance of the senior executives and completion of benefit target of the Company. Chapter VI． Briefs to the General Meeting of Shareholder During the report period, the company convened two shareholders’ General Meetings. The particulars are as below: Newspapers for Publishing Meeting description Convening Date Publishing Date Meeting Resolution China Securities, Shanghai 2006 General Meeting of April 23, 2007 Securities and Wen Wei Pao in April 24, 2007 Shareholders Hong Kong The first interim General China Securities, Shanghai Meeting of Shareholders in August 29, 2007 August 30, 2008 Securities and Securities Times 2007 23 Chapter VII． Report of the Board of Directors I. Discussion and analysis of the general operation of the Company in the report period 1 General operation of the Company in the report period In 2007, with the support from the shareholders, the board of directors led the staff to overcome difficulties and resist the pressure from internal and external. Focusing on the theme of “overall improvement, and invigorating Gujing”, the board actively improved its work based on the steady development of the Company. By virtue of the endeavor of the staff, the Company got good achievements and developed in a favorable way. In the report period, the main business income reached RMB 1,201,356,600, increasing by 24.66% on year-on-year basis, and the pre-tax profit is RMB 51,978,100, increasing by 107% on year-on-year basis. The net profit is Company achieves operation revenue of RMB 1,933,432,900 (making an increase RMB 33,876,500, increasing by 154% on year-on-year basis. 2 Particulars about the major business 1). Major business scope Primary scope of business of the Company covers the production and distribution of Gujing spirit, Gujing, Labada and Yetaiyang series alcoholic products including three fragrant types of aroma, fragrant and faint scent, and the company owns very complete product system with spirit content from 60 to 30 degree at the high, medium and low prices. Our major products include Gu Jing Gong 946/846 Series, Gu Jing Gong Aged Spirit, Gujing Distillery Old Spirit, Refined Gujing Distillery Spirit and Longyun Gujing Distillery Spirit. 2). Main business by industries and types of products In RMB By industries By Revenue from main Profit from main Rate of Increase or Increase or Increase or industries or businesses businesses gross profit Decrease of Main Decrease of Main Decrease of products Business Income business profits Rate of over the previous over the previous gross profit year (%) year (%) over the 24 previous year (%) Wine 891,478,836.72 331,991,611.74 37.24% 32.99% 25.18% -2.32% Others 298,723,402.19 60,254,999.12 20.17% 16.72% 30.94% 2.19% By products High grade 459,087,067.41 221,403,218.63 48.23% 17.96% 6.69% -5.09% wine/liquor Medium grade 183,905,311.23 37,175,085.76 20.21% 11.24% -23.44% -9.16% wine/liquor Low grade 27,361,095.36 6,638,717.21 24.26% -27.67% -- 30.93% wine/liquor 3). Main business by regions In RMB Districts Revenue from main businesses Increase or Decrease of Main Business Income over the previous year North 159,989,331.96 26.35% China South 163,689,238.50 9.89% China Central 567,800,266.27 43.83% China 4). Main suppliers and customers During the report period, the total purchase of the top five suppliers of the company is RMB66,420,000, accounting for 20% of the total purchase amount; During the report period, the total sales income of the top five customers of the company is RMB132,030,000, accounting for 11% of the total main business income of the company; 3 Company’s assets particular during the report period and major accounting data analysis 25 1). Assets particular In RMB Reasons for 2007 Y 2006 Y The changes Amount Pct (%) Amount Pct (%) changes of Items percentage (%) Accounts 33,654,098.71 2.43 35,494,491.76 2.58 -0.15 receivables Inventories 492,813,407.60 35.60 576,356,053.35 41.93 -6.33 Long-term 0.00 0.00 10,803,478.60 0.79 -0.79 equities investment Fixed assets 446,083,791.68 32.22 477,502,943.69 34.74 -2.52 Construction in 37,234,859.66 2.69 38,250,105.55 2.78 -0.09 progress Short-term 55,000,000.00 3.97 58,000,000.00 4.22 -0.25 loans Long term loans due within a 13,000,000.00 0.94 51,100,000.00 3.72 -2.78 year Long-term loans 36,000,000.00 2.60 19,000,000.00 1.38 1.22 Note: There is no significant change of the composition of the company’s assets in the report period. 2). Measurement attributes adopted for assets during the report period The Company carried out the new accounting standards for enterprises as of the January 1, 2007. There is no significant change in measurement attributes adopted for main assets during the report period, and for the specific measurement attributes, see the notes attached to the financial statements. 3). Particulars about the operation expenses, management expenses, financial expenses, and income tax 26 In RMB Items 2007 Y 2006 Y The Notes for Amount (Rmb Pct to the total profits Amount (Rmb Pct to the total changes the 10,000) 10,000) profits of change percenta ge (%) 220.38 68,120,930.15 287.40 -67.02 Operation 114,547,532.4 expenses 0 83,599,350.80 160.84 368.38 -207.54 Administratio 87,315,347.85 n expenses 6,792,777.31 13.07 28.47 15.40 Financial 6,747,595.70 expenses 18,157,333.04 34.93 13,377,916.08 56.44 -21.51 Income tax 4). Particulars about the variation of the cash flow In RMB Items 2007 Y 2006 Y The changes of percentage (%) Net cash flow arising from operating 143.39 117,120,270.12 48,120,654.64 activities Net cash flow arising from investing -77.73 (55,073,528.80) (30,986,934.46) activities Net cash flow arising from fund raising -579.41 (33,661,304.35) 7,021,434.76 activities 4 Operation and Performance Analysis of Major Controlling Companies and Equity Participating Companies (1) Bozhou Gujing Sales Company Bozhou Gujing Sales Company has the registered capital RMB84, 864,400 and holds 99% of total shares, which is mainly engaged in the sales of liquor and trade service. 27 At the end of the report period, Bozhou Gujing Sales Company has total assets RMB276,557,399.23,and main business income RMB208,103,432.40,and realizes net profits RMB23,221,469.34 (2) Bozhou Gujing Motor Transport Company Bozhou Gujing Motor Transport Company has registered capital RMB6, 945,000 holds 99% of total shares, which mainly provides transport service. At the end of the report period, Bozhou Gujing Motor Transport Company has total assets RMB8,780,516.24,and main business income RMB1,553,287.53 and realizes net profits RMB- 104,511.39 during the report period. (3) Bozhou Gujing Glass Product Co., Ltd. Bozhou Gujing Glass Product Co., Ltd. has registered capital RMB66, 460,000 and holds 99% of total shares, which is mainly engaged in production and sales of glass products. At the end of the report period, Bozhou Gujing Glass Product Co., Ltd. has total assets RMB92,844,545.08 and main business income RMB83,205,164.86 and realizes net profits RM1,261,154.52 during the report period. (4) Bozhou Gujing Printing Co., Ltd Bozhou Gujing Printing Co., Ltd. has registered capital RMB27.26 million and holds 99.96% of total shares, which is mainly engaged in printing and sales of packing products. At the end of the report period, Bozhou Gujing Printing Co., Ltd. has total assets RMB36,171,587.25 and main business income RMB31,173,317.78 and realizes net profits RMB181,234.82 during the report period. (5) Anhui Laobada Distillery Co., Ltd Anhui Laobada Distillery Co., Ltd. has registered capital RMB30 million and holds 93% of total shares, which is mainly engaged in sales of Laobada series alcoholic products. At the end of the report period, Anhui Laobada Distillery Co., Ltd. has total assets RMB 31,026,920.10 and main business income RM3,529,512.72 and realizes net profits RMB301,707.10 during the report period. (6) Bozhou Gujing Package Material Co., Ltd. Bozhou Gujing Package Material Co., Ltd. has registered capital RMB9, 168,800, mainly dealing with the production and sales of package material, and holds 99.48% of total shares. At the end of the report period, Bozhou Gujing Package Material Co., Ltd. has total assets 28 RMB35,944,422.19 and main business income RMB47,083,420.44 and realizes net profits RMB2,036,736.12 during the report period. (7) Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. has registered capital RMB3.6 million and holds 92% of total shares, which is mainly engaged in sales of Yetaiyang series alcohol products. At the end of the report period, Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. has total assets RMB2,094,077.94 and main business income RMB1,195,862.39 and realizes net profits RMB158,029.02 during the report period. (8) Shanghai Gujing Trading Company Shanghai Gujing Trading Company has registered capital RMB10 million and holds 99% of total shares, which is mainly engaged in the sales of liquor. At the end of the report period, Shanghai Gujing Trading Company has total assets RMB19,342,720.97 and main business income RMB51,084,791.83 and realizes net profits RMB7,426,735.11 during the report period. (9) Bozhou Gujing Hotel Co., Ltd. Bozhou Gujing Hotel Co., Ltd., with registered capital 141,442,000, holds 92.77% of total shares and mainly deals with catering and accommodation. At the end of the report period,Bozhou Gujing Hotel Co., Ltd. has total assets RMB26,306,498.34 and main business income RMB5,951,928.87 and realizes net profits RMB-1,050,215.07 during the report period. (10) Anhui Ruifuxiang Food Co., Ltd. Anhui Ruifuxiang Food Co., Ltd., has registered capital RMB106 million and holds 99% of total shares, which is mainly engaged in production and sales of powder and gluten powder. At the end of the report period, Anhui Ruifuxiang Food Co., Ltd. has total assets RMB208,530,954.99 and main business income RMB337,795,143.74 and realizes net profits RMB1,872,744.40 during the report period. (11) Hefei Gujing Trade Co., Ltd. Hefei Gujing Trade Co., Ltd., with registered capital 10 million, holds 99% of total shares and mainly deals with the sales of liquor. At the end of the report period, Hefei Gujing Trade Co., Ltd., has total assets RMB45,329,117.08 and main business income RMB405,339,974.28 and realizes net profits 29 RMB116,997,590.56 during the report period. II. The prospect of the Company For many years, the liquor industry has developed in a confined and grown way, and advanced with inheritance and innovation. Currently, the liquor industry basically established production admission and circulation admission mechanism that the industry structure has been adjusted and the product quality has been improved generally, and the industry is developing soundly and orderly. Driven by economic growth and the upgrading of consumption, the people of our country pay more attention to the healthy and quality of liquor, on the other hand, more consumption of top grade liquor in business activities will bring along the sales of top grade liquor, therefore, in the following several years, the competition of brand will dominate the competition in liquor industry. The liquor brand will focus on famous traditional and top grade large liquor enterprise. The main products of the company, Gujinggong liquor, with long history, consecutively won the first prize of national liquor competition respectively in 1963, 1979, 1984 and 1989, and it is honored as “Peony of liquor”. It is quality in color, smelling and taste and it is widely recognized by consumers as a famous brand. From the beginning of 2008, as the market of liquor industry of the Company keeps developing in a favorable situation and Gujinggong liquor is advantaged its long history and profound culture, the Company will improve its ability of sustainable development and promote the sustainable, sound and rapid development of different industries with the following measures: 1. Strengthen the brand building, erect the popularity and reputation of the Company’s products and intensify the influence of the product on the market and right of speech in the industry. 2. Carry out the principle of “Three Focuses”, namely focus on market, focus on expenses and focus on personnel to expand the market occupation ratio. 3. Intensify the plan and management of product, and exert the dominant role of tactic product and the harmonious role of the strategic product to improve the profit rate of the Company’s products. 4. Strengthen the establishment of sales group, improve assessment system of marketing performance and advance the management level of marketing. III.Particulars about the investment of the Company in the report period 30 (1) Investment with raised funds No raised fund has been put into investment in this report period. (2) Investment not with raised funds Please refer to Accounting Statement. IV. Reanda CPA showed the standard and clean opinion auditing report for the company in 2006. No change occurs to the accounting policy and accounting estimation. There is no substantial correction of accounting error. V. Routine work of the board of directors 1 Meetings of the Board of Directors i 10th Meeting of the Fourth Board of Directors Date of Meeting: March 7, 2007 Resolutions: 1). Observed and passed the Proposals on Annual Report of 2006 and the Summary of Annual Report of 2006; 2). Observed and passed the Proposal on Working Report of the Board of Directors in 2006. 3). Observed and passed the Proposal on Final Financial Accounts Report in 2006; 4). Observed and passed the Draft on 2006 profit distribution and capitalization of public reserves; 5). Observed and passed the Proposal on engaging auditor in 2007; 6). Observed and passed the Proposal on revising the Articles of Association; 7). Observed and passed the Proposal on offsetting losses by surplus reserve capital; 8). Observed and passed the Proposal of the General Meeting of Shareholders in 2006; 9). Resolution disclosing: the resolutions were published in China Securities, Shanghai Securities and Wen Wei Pao in Hong Kong. ii 11th Meeting of the Fourth Board of Directors Date of Meeting: April 27, 2007 Resolutions: 1). Observed and passed the Proposal on the First Quarter Report of 2007. 2). Observed and passed the Administration System of Information Disclosure of 31 Anhui Gujing Distillery Company Limited. iii 12th Meeting of the Fourth Board of Directors Date of Meeting: July 2, 2007 Resolutions: 1). Observed and passed the Self-inspection report concerning Special Campaign to the Corporate Governance and improvement plans of Anhui Gujing Distillery Company Limited; 2). Observed and passed the Internal Control System of Anhui Gujing Distillery Company Limited. 3). Observed and passed the provisional Measures for the Administration of Internal Audit of Anhui Gujing Distillery Company Limited. 4). Observed and passed the Reception and Promotion System of Anhui Gujing Distillery Company Limited. 5). Observed and passed the Measures for the Administration of Affiliated Transactions of Anhui Gujing Distillery Company Limited. 6). Observed and passed the Measures for the Administration of External Guarantee of Anhui Gujing Distillery Company Limited. 7). Observed and passed the Measures for the Administration of Raising Funds of Anhui Gujing Distillery Company Limited. iv Interim Meeting of the Fourth Board of Directors Date of Meeting: August 30, 2007 Resolutions: 1). Observed and passed the Proposal on Mr. Wang Dejie’s resignation of General Manager ; 2). Observed and passed the Proposal on engaging Mr. Wang Feng as General Manager. v 13th Meeting of the Fourth Board of Directors Date of Meeting: August 10, 2007 Resolutions: 1). Observed and passed the Proposal on the Semiannual Report of 2007 and the Summary of Semiannual Report of 2007; 32 2). Observed and passed the Proposal on the adjustment of members of the board of directors; 3). Observed and passed the Proposal on revising the Articles of Association; 4). Observed and passed the Proposal of the first temporary General Meeting of Shareholders in 2007; vi 14th Meeting of the Fourth Board of Directors Date of Meeting: October 26, 2007 Resolutions: 1). Observed and passed the Proposal on the Third Quarter Report of 2007. 2). Observed and passed the Suggestion on special governance of rectification. vii 15th Meeting of the Fourth Board of Directors Date of Meeting: December 24, 2007 Resolutions: 1). Observed and passed the Proposal on Mr. Wang Dejie’s resignation of director in the board; 2). Observed and passed the Proposal on nominating Mr. Lu Jiazhao as the director by-election of the fourth board of directors; 3). Observed and passed the Proposal on change the General Manager of the Company; 4). Observed and passed the Proposal on convening the First Temporary General Meeting of Shareholders in 2008; 2 Execution of Resolutions of Shareholders’ General Meetings by the Board of Directors During the report period, the Board of Directors of the Company passed the following resolutions strictly in accordance with the Companies Law, Securities Law, and the Articles of Association of the Company and in accordance with the resolutions and authorization: i Carefully carried out the matters concerning change of members of the Board of Directors; ii Dealt with the matters concerning the resign and employment of Auditor. iii Duty performance report of the Audit Committee 1. Work of the Audit Committee of the Board of Directors 33 The Audit Committee of the Board of Directors of the company is composed of three independent directors and two other directors, among which Mr Zhuo Wenyan, an independent director with professional accounting background, is the convener. According to the regulations of China Securities Regulatory Commission and Shenzhen Stock Exchange, the implementation rules of the Audit Committee of the Board of Directors of the company, the measures for the work of the independent directors of the company with regard to annual reports, and the working procedures of the Audit Committee of the Board of Directors, the Audit Committee of the Board of Directors of the company has mainly performed the following duties based on the principle of due diligence: (1) Audit the plan and relevant data of 2007 of the company, determine the time for auditing the financial report of 2007 of the company with Reanda Certified Public Accountants in charge of the annual accounting work of the company; (2) Audit the financial statement initially prepared by the company prior to participation of the certified public accountant, as well as issue written audit opinion; (3) With the participation of the certified public accountant of the company, the Audit Committee of the Board of Directors and the certified public accountant communicate with each other for the problems discovered during the auditing and for the time for submitting the audit report; (4) After the initial audit opinion is expressed by the certified public accountant of the company, the Audit Committee of the Board of Directors will audit the financial statement of 2007 of the company again and form written audit opinion; (5) After Reanda Certified Public Accountants has issued the annual audit report of 2007, the Audit Committee of the Board of Directors will convene a meeting to sum up the auditing work of Reanda Certified Public Accountants for the company. 2. Audit opinion, annual auditing work summary report and relevant decisions of the Audit Committee of the Board of Directors (1) Audit opinion of the Audit Committee on the financial statement of the company prior to the participation of the certified public accountant: We have audited the financial statement submitted on January 9, 2008 by the Finance Department of the company, including the balance sheet as of December 31, 2007, and the income and profit appropriation statement, statement of changes in stockholders' equity, cash flow statement and accounting notes for the 2007 then ended. 34 We have focused on the authenticity and completeness of the accounting information in accordance with the relevant accounting standards and the relevant financial regulations of the company, focus is also put on whether the financial statement is prepared strictly in accordance with the new corporate accounting standards and the relevant financial regulations of the company. Through inquiring the financial personnel and management personnel of the company, reviewing the meeting minutes, account books and vouchers of the stockholders' conference, supervisory committee and relevant committee, and through analyzing significant financial date, we conclude that: All transactions of the company, which have been recorded, are true with complete information, proper accounting policies, and reasonable accounting estimates, while without any material misstatement and declaration failure; no major stockholder occupies the capital of the company; the company has no illegal guarantees and abnormal related transactions. For the time for auditing this financial statement still There is a long period of time from the auditing of this annual report to the audit report date and the publishing date of the annual report, the Financial Department of the company is suggested to deal with the succeeding events after balance sheet date by focusing on and strictly abiding by the new corporate accounting standards, so as to ensure the fairness, authenticity and completeness of the accounting statements. Audit Committee of the Board of Directors January 11, 2008 (2) Audit opinion of the Audit Committee on the accounting statements of the company after the certified public accountant has issued the initial audit opinion: To Board of Directors of the company: We have audited the financial statement submitted on , 2008 by the Financial Department of the company, which, through the issue of the initial audit opinion by the certified public accountant, is issued by the company, including the balance sheet as of December 31, 2007, and the income and profit appropriation statement, statement of changes in shareholders' equity, cash flow statement and the notes for the accounting statements for the fiscal year of 2007. We have focused on the authenticity and completeness of the above information in accordance with the relevant accounting standards and the relevant financial regulations of the company, whether the financial statement is prepared strictly in accordance with the new corporate accounting standards and the 35 relevant financial regulations of the company, .and the succeeding events after balance sheet date. Through communicating with the certified public accountant on the initial audit opinion and reviewing account books and vouchers, we conclude that: All audit opinion should be maintained, the company has dealt with the succeeding events after balance sheet date strictly in accordance with the new corporate accounting standards, the financial statement of the company has been prepared in accordance with the new corporate accounting standards and the relevant financial regulations of the company, and all significant aspects have reflected the financial position of the company as of December 31, 2007 and its financial performance and cash flow for the fiscal year of 2007. Audit Committee January 24, 2008 (3) Summary report of the Audit Committee on the auditing work of this year of Reamda Certified Public Accountants To Board of Directors of the company: We have audited the Auditing Plan of 2007 submitted on December 25, 2007 by the Finance Department of the company, and have fully communicated and reached an agreement with the project leader of Reamda Certified Public Accountants on the above auditing plan on December 28, 2007. We consider the plan is made in detail and the responsibilities are well performed, which greatly ensures the smooth completion of the auditing work of 2007. Reamda Certified Public Accountants has assigned 16 auditors (including the project leader), to participate respectively on December 30, 2008 and January 3, 2008. On January 22, 2008, the on- site audit work of each company in the scope of the consolidated statement was completed. The project leader had a continuous and thorough communication with each of our audit committee members on the consolidation of statements, the issues on accounting adjustment, and the audit work discovered during auditing to be perfected. During the on-site auditing of the certified public accountant, our audit committee paid close attention for the problems discovered during the auditing. They always communicated with the certified public accountant by phone or meeting. They mainly communicated on the following points:  Whether financial statements are prepared in accordance with the new corporate accounting standards, the requirements of the securities supervision department and the relevant financial 36 regulations of the company;  The observation of laws, regulations, the requirements of other department, the policies, instructions and other requirements of the management by the Finance Department;  Where the internal accounting control regulations of the company have been established self-contained;  If each department of the company cooperates with the certified public accountant to obtain is adequate and proper materials and data for auditing. The certified public accountant approved the above problems and issued the standard audit report of standard clean opinion on February 2, 2008. In our opinion, the certified public accountant has conducted the audit work strictly in accordance with the standards on auditing for certified public accountants. The audit time is sufficient, the auditors are reasonably allocated with competent practicing capacities, the audit report issued can fully reflect the financial status of the company as of December 31, 2007 and its financial performance and cash flow for the fiscal year of 2007, and the audit conclusion issued is in compliance with the actual situation of the company. Audit Committee February 2, 2008 4. Resolution of the Audit Committee on engaging an accounting firm The Audit Committee of the Board of Directors of Anhui Gujing Distillery Co., Ltd. convened a meeting on April 28, 2008. There should be five participants, actually four present at the meeting. All members of the Audit Committee observed and passed the following proposals by signature: (1) Financial report of 2007 of the company; (2) Summary report on the auditing work of this fiscal year of Reamda Certified Public Accountants; (3) For Reamda Certified Public Accountants was the auditor of the company from 2006 to 2007 and for its good audit performance and integrity in 2007, Reamda Certified Public Accountants is proposed to be the auditor of the company in 2008. The aforesaid proposals shall be submitted to the Board of Director of the company for review. Audit Committee of the Board of Directors January 28, 2008 37 4. Report on the fulfillment of duties by Remuneration Committee The Remuneration and Appraisal Committee of the Board of the Directors is composed by five directors, including three independent directors, and Mr. Li Hao, the independent director, acts the role of convener. During the report period, The Remuneration and Appraisal Committee of the Board of the Directors, according to the main financial indexes and the completion of operational objectives in 2007, the working scope and responsibilities of directors, supervisors and senior executives, and the completion of indexes concerning the performance appraisal system of directors, supervisors and senior executives, and in the light of the standard and procedure of performance appraisal, appraises the performance of directors, supervisors and senior executives, and puts forth their remuneration amounts and bonus in accordance with the appraisal result and remuneration policy, and finally reports to the board of directors to review. In accordance with the related laws and regulations of China Securities Regulatory Commission and Shenzhen Stock Exchange and the Company’s internal control system and Implementation Rules of the Remuneration and Appraisal Committee of the Board of the Directors, the Remuneration and Appraisal Committee hereby audits and presents its audit opinions on the disclosed remuneration of the directors, supervisors and senior executives: The Remuneration and Appraisal Committee of the Board of the Directors, according to the main governing scope, duty, significance of the directors, supervisors and senior executives and the remuneration level of related positions in the industry, prepares and checks the Company’s remuneration scheme, mainly including the standard and procedure of performance appraisal, main appraisal system, award and punishment system, and prepares the appraisal standards for directors (excluding independent directors), supervisors and senior executives, checks the performance of directors supervisors and senior executives, and conducts annual performance assessment in the light of appraisal standard and remuneration policy. The Board of Directors has decided the remuneration standards for the paid directors, supervisors and senior executives according to the unified remuneration system and the annual performance appraisal results by the Remuneration and Appraisal Committee of the Board of the Directors. The disclosed remuneration of the directors, supervisors and senior executives in 2007 is 38 conforming to the Company’s administration system for remuneration, and there is no violation to and discrepancy with the Company’s administration system for remuneration. According to the audit in 2007 by Reanda Certified Public Accountants, the Company achieved net profit RMB 33,876,500 in 2007, plus RMB -96,975,100 of undistributed profit of the beginning of the year. In addition, according to the Proposal in 2006 that using the surplus reserves to offset the loss of the previous year, use the statutory surplus reserves RMB 92,044,700 to offset the loss of the previous year, and the statutory public reserves are RMB 3,387,700 of this year, thus the total profit available to distribute is RMB 25,558,500. Considering that the Company is in recovering period and in great requirement to the capitals, the 17th meeting of 4th Board of Directors proposed that the Company shall have no profit distribution and the capitalization of public reserves this year in the light of prescriptions stated in Companies Law and Articles of Association. The distribution plan shall be submitted for the review and approval by 2007 General Meeting of Shareholders. Chapter VIII． Report of the Board of Supervisors I. Meetings and resolutions of the Board of Supervisors All members of the Board of Supervisors of Anhui Gujing Distillery strictly followed the Company Law of the People’s Republic of China, the regulations on IPO, the Articles of Association, the Rules of Procedures of the Board of Supervisors, and executed its responsibilities as stated in the Articles of Association based on the principle of integrity to actively protect the interests of the company and all the shareholders. During the report period, the Board held meetings twice, and the meeting notices, procedures of convening and resolutions comply with the legal procedures. The details are shown as below: 1. The 5th Meeting of the Fourth Board of Directors 39 Resolutions: (1) Observed and passed the Proposal on Working Report of the Board of Supervisors in 2006. (2) Observed and passed the proposals on Annual Report of 2006 and the Summary of Annual Report of 2006; (3) Observed and passed the Draft on 2006 profit distribution and capitalization public reserves; (4) Observed and passed the Proposal on the employment of auditor in 2007; (5) Observed and passed the Proposal on revising the Articles of Association; (6) Observed and passed the Proposal on offsetting losses by surplus reserve capital; (7) Observed and passed the Proposal on the routine affiliated transactions with the associated parties. (8) Observed and passed the Proposal on convening the General Meeting of Shareholders in 2006; 2. The 6th Meeting of the Fourth Board of Supervisors Resolutions: (1) Observed and passed the proposal on Semiannual Report of 2007 and the Summary of Semiannual Report of 2007; (2) Observed and passed the Proposal on the adjustment of members of the Board of Supervisors; 3. The 7th Meeting of the Fourth Board of Supervisors Resolutions: (1) Observed and passed the Proposal on the Third Quarter Report of 2007. (2) Observed and passed the Proposal on the suggestion for special governance of rectification. 4. The 8th Meeting of the Fourth Board of Supervisors Resolution: observed and passed Proposal on reelection of supervisors of the Board of Supervisors. II. Independent Opinions Expressed by the Board of Supervisors on Related Matters 1. Legal operation of the Company In the report period, the whole staff of the Board of Supervisors of the Company attended all 40 Board Meetings of 2007 and the General Meetings of Shareholders of 2006. The Board of Supervisors, with the policy of “Legal administration, supervision, self-discipline, and standardization”, duly fulfills its supervision functions and carries out the effective supervision over the convening procedures, proposals, and resolutions of the general meetings of shareholders and Board Meetings, to protect the interests of all shareholders. In the opinion of the Board of Supervisors, the management of the Company strictly observes the provisions and regulations of the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, and Articles of Association. Each management system of the Company has been improved, ensuring the standard operation of the Company. In the report period, the directors, General Manager and senior managers of the Company earnestly performed their duties and neither did damage to the interests of the Company and shareholders nor breached the national laws and regulations and the Articles of Association. The Company has established better internal management system and the appropriation of the reserves for the depreciation of relevant assets and the related procedure are conducted in accordance with laws. 2. Audit of Financial Status of the Company In 2007, the standard Financial Audit Report 2007 of ANHUI GUJING DISTILLERY COMPANY LIMITED with clean opinions issued by Reanda Certified Public Accountants and BDO Reanda Certified Public Accountants Gold truly reflected the Company’s financial status as of Dec. 31, 2007 and business results of 2007, and the financial receipts and expenditure accounts are clear, and the accounting and accounts management is in accordance with the relevant regulations. 3. Audit of Utilization of Raised Fund The Company did not raise any fund, and no raised fund has been put into investment during the report period. All of the funds previously raised have been used up in the previous fiscal year and there is no raised fund left over to this period. 4. The acquisition and sales of assets During the report period, the pricing for acquisition and sales of assets is reasonable, no inside transaction or acts are found impairing the interests of the shareholders or causing the assets loss 5. Affiliated transactions 41 The affiliated transactions incurred in the Company are mostly the routine affiliated transactions between the Company and controlling shareholders and their subsidiaries; the pricing was fair and reasonable and is in conformity with related laws, regulations and Articles of Association of the Company. The company performed the obligations in information disclosure according to the requirements of Shenzhen Stock Exchange and the Articles of Association of the Company. Chapter IX． Substantial Matters 1. There are no substantial lawsuits or arbitration matters during the report period. 2. There is no bankruptcy or reforming matters during the report period. 3. The Company did not hold the stock equity of other listed companies or participate any investment activities on the stock equity of financial enterprises such as Commercial Bank, Security Company, Insurance Company, Trust Company or Futures Company during the report period. 4. Particulars about the assets purchase and sale and the progress of enterprises combination of the company during the report period. 5. There is no stock award plan and commitments during the report period. 6. Significant affiliated transactions (1) Routine affiliated transactions Details about the important routine affiliated transactions of the Company during the report period: 42 In RMB (10,000) Purchasing products and services from the affiliated party Trade price Proportion accounting for Affiliated party Trade amount the amount of similar Payment transactions Anhui Gujing Comprehensive Market price 2,076.12 6.37% cash Service Co., Ltd. Bozhou Gujing Market price 3,664.90 11.24% cash Thermoelectricity Co., Ltd. Total - 5,741.02 17.61% - The above affiliated transactions are submitted to the review at the 10th meeting of the 4th Board and are passed without the attendance of affiliated directors, and implemented upon the review and approval by 2006 General Meeting of Shareholders. All independent directors of the Company consent that the purpose of affiliated transactions is to ensure the normal production and operation of the Company, the operating procedures conforming to relevant standards, the parties involved observing fair market price and the trade price is reasonable. This transaction is beneficial to the Company and all shareholders thereof, without infringing upon the interest of shareholders holding few shares. The voting procedures on the affiliated transaction by the Board are conducted in accordance with the provisions of relevant laws and conform to the provisions of the PRC Companies Law, PRC Securities Law and the Articles of Association. (2) Except for the abovementioned routine affiliated transactions, the Company had no other substantial affiliated transactions. 7. Commitments made by the Company and shareholders holding more than 5% of the shares of the Company Anhui Gujing Group Co., Ltd., a shareholder of the Company holding non-tradable shares, hereby promises that it will list or transfer its shares within 12 months upon the acquirement of right to float and that the proportion of sold numbers within 12 months shall not exceed 5% of the total shares of the Company, and shall not exceed 10％ within 24 months, upon the expiry of the period of sales limitation. 8. Particulars about resignation and employment of accountant firms 43 As decided at 2007 General Meeting of Shareholders, the Company will renew the employment of Reanda Certified Public Accountants and BDO Reanda Certified Public Accountants Gold as the domestic and foreign auditors of the Company in 2008. During the report period, the Company paid a total amount of RMB500, 000 as audit fee to Reanda Certified Public Accountants and BDO Reanda Certified Public Accountants Gold. 9. Particulars about surveys and interviews accepted by the Company Observing the Guidelines of Shenzhen Stock Exchange for the Fair Information Disclosure of Listed Companies, the Company did not accept any survey from related institutions like Fund Company or from investors during the report period. When being interviewed or required by the investors, the Company did not disclose, reveal or leak any non-disclosed substantial information selectively, in private or previously to the special objective singly so that ensures the fairness of the information disclosure of the Company. The Company will, in the light of Guidelines of Shenzhen Stock Exchange for the Fair Information Disclosure of Listed Companies, establish and perfect the internal control system and procedure of information disclosure to ensure the fairness of information disclosure; set up the strict confidentiality system, formulate reception and promotion system, prepare registration system of information disclosure and publish the internal control system of information disclosure to do well in fair information disclosure. 10. Substantial matters after the report period The Company, at the first interim General Meeting of Shareholders in 2008 held on the January 22, 2008, observed and passed the proposal that Mr. Lu Jiazhao assumes the supervisor of the Board of Supervisors no longer, and Mr. Ye Changqing assumes the supervisor by-election of the Board of Supervisors, and observed and passed Mr. Wang Dejie assumes the director of the Board of Directors no longer, and Mr. Jiazhao assumes the director by-election of the Board of Directors. The 16th meeting of the fourth Board of Directors, held on January 22, 2008, observed and passed the proposal on change the chief accountant of the Company that the Company employs Mr. Lu Jiazhao as the chief accountant. 11. There is no director, supervisor, or senior executive punished by Supervision Department in the report period 44 12. Particulars about the punishment and inspection &rectification by CSRC During the report period, there is no audit, administrative penalty, criticism with public notice, public censure or any other punishment on the Company, the Board of Directors or director by China Security Regulatory Commission. The Company was not inspected and rectified by China Security Regulatory Commission during the report period. 13. Other Substantial Events 1. The Company has no other substantial events undisclosed during the report period. Chapter X． Financial Statements 1. Audit report Auditors' Report REANDA SHEN ZI [2008] No.1105 To the Shareholders of Anhui Gujing Distillery Co., Ltd. We have audited the accompanying financial statements of Anhui Gujing Distillery Co., Ltd. (“the Company”) and its subsidiaries (“the Group”), which comprise the consolidated balance sheet as at December 31, 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements The Company’s management is responsible for the preparation of these financial statements in accordance with the Enterprises Accounting Standards of China. This responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; (3) making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Chinese Certified Public Accountants' Auditing Standards. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amount and disclosures in the 45 financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been prepared in accordance with the requirements of the Enterprises Accounting Standards promulgated by the People’s Republic of China, and present fairly, in all material respects, the financial position of the Group as at December 31, 2007, and the results of its operations and its cash flows for the year then ended. Reanda Certified Public Accountants Co., Ltd. Certified Public Accountant Beijing, China Certified Public Accountant April 28, 2008 Consolidated Balance Sheet December 31, 2007 Unit: Prepared by: Anhui Gujing Distillery Company Limted RMB Not 2007.12.31 2006.12.31 Assets es Consolidation Parent Company Consolidation Parent Company Current Assets: VII. Monetary Funds 1 154,708,705.75 52,029,679.84 126,323,268.78 55,629,539.41 Tradable financial assets Notes receivables VII. 46 2 121,849,788.26 89,195,381.45 58,445,532.75 46,598,240.45 Dividends receivable Interest receivables VII. Account receivables 3 33,654,098.71 2,100,162.56 35,494,491.76 23,505,511.22 VII. Other receivables 4 16,432,963.49 35,231,333.09 23,262,968.88 19,781,923.51 VII. Advances to suppliers 5 10,923,981.33 28,003,826.07 9,160,157.80 5,124,484.17 VII. Inventories 6 492,813,407.60 427,642,345.12 576,356,053.35 504,022,817.20 Non-current assets due within one year Other current assets Total current assets 830,382,945.14 634,202,728.13 829,042,473.32 654,662,515.96 Non-current assets: Available-for-sale financial assets Long-term equity VII. investments 7 375,501,927.38 375,501,927.38 Held-to-maturity investments VII. Investment properties 8 10,984,358.51 11,718,751.19 Long-term account receivables VII. Fixed assets 9 446,083,791.68 225,795,815.65 427,509,688.02 229,508,223.80 Construction materials 1,468,571.51 1,330,574.14 1,178,458.93 1,164,448.93 VII. Construction in progress 10 37,234,859.66 35,201,316.15 38,250,105.55 33,594,855.15 Liquidation of fixed assets VII. Intangible assets 11 54,497,679.05 28,605,281.57 55,888,653.93 29,291,365.01 Development expenses Goodwill VII. Long-term deferred assets 12 2,379,391.63 Deferred income tax VII. assets 13 1,307,621.68 1,064,831.84 47 Other non-current assets Total non-current assets 553,956,273.72 666,434,914.89 535,610,489.46 669,060,820.27 Total assets 1,384,339,218.86 1,300,637,643.02 1,364,652,962.78 1,323,723,336.23 3 Consolidated Balance Sheet(Continued) December 31, 2007 Uni Prepared by: Anhui Gujing Distillery Company Limted t:R MB 2007.12.31 2006.12.31 Liabilities and Shareholders' equity Notes Parent Consolidation Parent Company Consolidation Company Current liabilities: Short-term loans VII.16 31,000,000. 55,000,000.00 30,000,000.00 58,000,000.00 00 Tradable financial liabilities Notes payables 200,000.00 Account payables VII.17 62,181,229. 66,183,289.49 45,628,505.47 84,326,258.53 74 Advances from customers VII.18 273,596,682. 50,444,893.44 283,209,087.22 29,269,807.68 85 Payroll payables VII.19 63,101,420. 91,820,122.72 78,230,698.89 86,155,340.91 85 Dividend payables 20,119.51 Tax payable VII.20 68,194,956. 175,854,383.23 76,432,395.31 194,797,794.77 27 Interest payables 48 Other account payables VII.21 9,856,947.7 39,748,641.28 10,937,759.50 26,866,611.82 8 Non-current liabilities due within one VII.22 51,100,000. year 13,000,000.00 9,000,000.00 51,100,000.00 00 Other current liabilities Total current liabilities 559,031,237. 492,071,449.67 533,438,446.39 530,715,813.71 49 Non-current liabilities: Long-term borrowings VII.23 19,000,000. 36,000,000.00 10,000,000.00 19,000,000.00 00 Bond payable Long-term account payable Special accounts payable Deferred incomes VII.24 7,530,000.00 1,530,000.00 Accrued liabilities Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 19,000,000. 43,530,000.00 11,530,000.00 19,000,000.00 00 Total liabilities 578,031,237. 535,601,449.67 544,968,446.39 549,715,813.71 49 Shareholders' equity: Share capital VII.25 235,000,000. 235,000,000.00 235,000,000.00 235,000,000.00 00 Capital reserve VII.26 518,090,990. 532,662,319.68 518,090,990.16 532,491,668.70 16 Less: inventory shares Surplus reserve VII.27 139,289,283. 52,283,759.34 47,244,617.51 140,940,771.04 84 General risk provsion Retained earnings VII.28 - - 25,558,460.48 44,666,411.04 -96,975,097.54 146,688,175. 49 26 Exchange difference of foreign currency financial statements translation Equity attributable to the holders of 745,692,098. parent company 845,504,539.50 755,669,196.63 811,457,342.20 74 Minority interests 3,233,229.69 3,479,806.87 Total shareholders’ equity 745,692,098. 848,737,769.19 755,669,196.63 814,937,149.07 74 Total liabilities and shareholders’ 1,323,723,3 equity 1,384,339,218.86 1,300,637,643.02 1,364,652,962.78 36.23 Consolidated Income Statement For the year ended December 31, 2007 Prepared by: Anhui Gujing Distillery Company Limted Unit:RMB 2007 2006 Item Notes Parent Parent Consolidation Consolidation company company 1. Total operating income VII.29 1,201,356,596.91 490,805,264.51 963,702,143.87 554,606,607.27 Less: Operating cost VII.29 813,099,107.00 433,934,614.45 649,142,910.83 453,508,385.52 Business taxes and VII.30 surtax 129,726,421.52 115,381,773.00 130,150,588.64 124,368,385.72 Selling expenses 114,547,532.40 8,247,230.18 68,120,930.15 3,274,230.99 Administrative expenses 83,599,350.80 43,854,469.25 87,315,347.85 44,781,869.19 Financial costs VII.31 6,792,777.31 4,941,475.69 6,747,595.70 6,868,120.21 Impairment loss of - - VII.32 assets 6,684,363.53 4,886,938.32 480,669.86 886,675.24 Add: gains from the fair value changes (The loss is listed beginning with “-“) Investment income (The loss VII.33 - 50 is listed beginning with “-“) 129,134,548.89 13,446.35 161,020,545.28 Including: the investment income from associated and joint ventures enterprises II. Operating profit 46,907,044.35 8,693,312.51 22,691,994.21 83,712,836.16 Add: non-operating income VII.34 7,653,569.15 3,091,566.10 3,165,072.17 2,341,761.78 Less: non-operating expense VII.35 2,582,540.83 1,807,780.72 2,154,642.00 131,694.54 Including: loss from disposal of non-current assets 1,915,328.31 1,542,234.60 1,894,390.52 III. Total profits (The loss is listed beginning with “-“) 51,978,072.67 9,977,097.89 23,702,424.38 85,922,903.40 Less: income tax expense VII.36 18,157,333.04 13,377,916.08 IV. Net profits (the net loss is listed beginning with “-”) 33,820,739.63 9,977,097.89 10,324,508.30 85,922,903.40 Net profits attributable to equity holders of the parent 33,876,546.32 9,977,097.89 13,329,639.70 85,922,903.40 company - - Minority interests 55,806.69 13,013.16 Profit in acquired company - before consolidation 2,992,118.24 V. Earnings per share 1. Basic earnings per share XV 0.14 0.06 2. Diluted earnings per share XV 0.14 0.06 Consolidated Cash Flow Statement For the year ended December 31, 2007 Prepared by: Anhui Gujing Distillery Company Unit:RMB Limted 2007 2006 Items Notes Consolidation Parent company Consolidation Parent company I. Cash flows from operating activities: Cash received from 1,348,030,210.12 1,139,548,242.58 sales of goods or renderi 547,986,014.34 713,404,064.37 51 ng of services Tax refund Cash received related to other operating VII.37 33,261,474.79 1,439,627.61 12,005,634.30 4,070,201.88 activities Subtotal of cash inflow from operating 1,381,291,684.91 1,151,553,876.88 549,425,641.95 717,474,266.25 activities Cash paid for sales of goods and received 758,357,764.70 374,891,939.16 675,880,276.83 421,397,240.52 services Cash paid to and on behalf of employees 112,358,592.33 76,583,839.27 91,011,678.07 45,872,025.45 Tax payments 248,594,397.16 154,416,017.61 237,073,261.94 173,157,621.43 Cash paid to other VII.38 operating activities 141,873,241.79 14,334,210.57 99,840,035.52 13,572,575.96 Subtotal of Cash outflow from 1,261,183,995.98 1,103,805,252.36 620,226,006.61 653,999,463.36 operating activities Net cash flow arising - from operating 120,107,688.93 70,800,364.66 47,748,624.52 63,474,802.89 activities II. Cash flow from investment activities: Cash received from investments 8,116,447.20 7,828,702.30 Cash dividends received from investment 129,134,548.89 493,749.89 Net cash received from disposal of fixed assets, intangible assets and 2,101,654.15 1,804,763.98 1,436,773.51 81,625.42 other long-term assets Net cash received from disposal of subsidiaries an other business units Cash received related to other investing activities 7,530,000.00 1,530,000.00 Subtotal of cash inflow from investing 9,631,654.15 132,469,312.87 9,553,220.71 8,404,077.61 activities Cash paid to acquire and construct fixed asset 67,692,601.76 7,956,434.86 41,052,500.17 25,331,946.42 52 s, intangible assets and other long-term assets Cash paid to acquire investments 37,095,281.44 Net cash paid to acquire subsidiaries and other business units Cash paid related to other investing activities Subtotal of Cash outflow from investing 67,692,601.76 7,956,434.86 41,052,500.17 62,427,227.86 activities Net cash flow arising - - - from investing 58,060,947.61 124,512,878.01 31,499,279.46 54,023,150.25 activities III. Cash flow from financing activities: Cash received from investments Including: subsidiaries received cash investment from minority shareholders Cash received from loans 95,000,000.00 40,000,000.00 103,000,000.00 51,000,000.00 Cash received related to other financing activities Subtotal of cash inflow from financing 95,000,000.00 40,000,000.00 103,000,000.00 51,000,000.00 activities Repayment of loans or debts 119,100,000.00 92,100,000.00 88,000,000.00 63,000,000.00 Cash paid for dividends, profits, or interests 9,561,304.35 5,212,372.92 7,978,565.24 7,156,477.53 Including: subsidiaries paid for minority shareholders with cash dividends and profits Cash paid related to other financing activities Subtotal of cash outflow from financing 128,661,304.35 97,312,372.92 95,978,565.24 70,156,477.53 53 activities Net cash flow arising - - - from finacing activities 33,661,304.35 57,312,372.92 7,021,434.76 19,156,477.53 IV. Effects on cash and cash equivalents due to the change of foreign exchange rates V. Net increase in cash - - VII.40 and cash equivalents 28,385,436.97 3,599,859.57 23,270,779.82 9,704,824.89 Add: beginning balance of cash and 126,323,268.78 55,629,539.41 103,052,488.96 65,334,364.30 cash equivalents VI .Ending balance of cash and cash 154,708,705.75 52,029,679.84 126,323,268.78 55,629,539.41 equivalents Anhui Gujing Distillery Company Limited Notes to the Consolidated Financial Statements For the year ended December 31, 2007 （All amounts are expressed in RMB yuan unless otherwise stated） I. General Anhui Gujing Distillery Company Limited (“the Company”) was incorporated in the People’s Republic of China (the “PRC”) on 30 May 1996 as a joint stock limited company. Its shares are listed on the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (“the Group”) are the manufacture and sale of distilled spirits, wine, distilling facilities, packaging material, feeds, bottles and computer hardware. Its holding 54 company is Anhui Gujing Group Limited (“AGGL”). There are 6,483 staffs in the Group (6,459 staffs in the year of 2006). II. Basis for preparation The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with the Enterprise Accounting Standards issued by the Ministry of Finance in February 2006 which became effective from January 1, 2007. The financial statements are prepared base on the assumption of going concern, actual transactions and items, latest Enterprise Accounting Standards, Zheng Jian Fa [2006] No. 136 Notice on the Improvement in Disclosing the Accounting Information related to the New Accounting Standards, Zheng Jian Kuai Ji Zi [2007] No. 10 Disclosure of Accounting Information for public listed company No. 7 Questionnaires - Preparation and Disclosure of Comparable Accounting Information in the Transition Period of New and Old Accounting Standards which issued by China Securities Regulatory Commission and related regulation, and notes IV – the summary of significant accounting policies and accounting estimates. The 2006 annual financial statements were originally prepared in accordance with the old Enterprise Accounting Standards and Enterprise Accounting Systems and relevant supplementary regulations. According to articles 5 to 19 of No. 38 Enterprises Accounting Standard - First Implementation of Enterprise Accounting Standards, and No. 1 Interpretation of Enterprises Accounting Standard which interprets the impacts of comparable income statement and balance sheet, the Company complied with retroactive adjustment principle, and adjusted data into comparable income statement and balance sheet for the beginning of year 2007. III. Declaration of Compliance with the EnterpriseAccounting Standards The Company’s financial statements prepared meet the requirements of the Enterprise Accounting Standards, fairly and completely present the financial position, operation results and cash flows, and other relevant information of the company. IV. Summary of Significant accounting policies and accounting estimates and m ethods of consolidation (1) Accounting Y ear The company employs a period of calendar days from January 1 to December 31 each year as accounting year. (2) Reporting currency The Company’s reporting currency is Renminbi (“RMB”). 55 (3) Measurement characters The Company commonly measures accounting factors by historical cost method; if the determined accounting factor amount can be obtained or reliably measured, then replacement cost, net realizable value, net value and fair value method may be employed for some individual accounting factors. A. By using historical cost method, assets are accounted for on the basis of cash or cash equivalents paid, or fair value of the considerations paid when are acquired. The liabilities are accounted for on the basis of amount actually received or asset amount for performing current obligations, or contract amount for performing the current obligations, or expected cash or cash equivalent amount paid to repay the debts in daily business activities. B. There is no change in measure characters of financial statement items during the report period. (4) S tandard of cash equivalents In preparing cash flow statement, cash equivalents of the company include investment with short term (it usually expires within three months from the purchase date), highly liquidity, easy to convert into known amount of cash, and low-risk of changes in value. Equity investment shall not deem as cash equivalents. (5) Foreign currency transactions Foreign currency (currency other than the reporting currency) transactions are translated into reporting currency at spot exchange rates prevailing on the day in which the transactions take place. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the balance sheet date. The exchange gains and losses arising on the exchange are included in profit and loss for the year. (6) Translation of financial statement denominated in foreign currency Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are translated into reporting currency at spot exchange rates on the occurrence date except the item of retained earnings. Income Statement items are translated into reporting currency at average spot exchange rate on the occurrence date. The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. (7)Financial assets and financial liabilities A. Classification Financial assets and liabilities include financial assets and liabilities at fair value through profit and loss; held-to-maturity investments; loans and receivables; available-for-sale financial assets; and other financial liabilities. 56 B. Initial recognition and subsequent measurement (a) Financial assets and financial liabilities are measured initially with fair value (deducted with any declared but not paid out cash dividends and declared due bond interests but not paid) when are acquired. Related transaction fees are accounted for profit and loss in current period. Interests received and cash dividends received during the period held are recognized as investment income. At balance sheet date, the changes of fair value are accounted for profit and loss in current period. (b) Held-to-maturity investments are measured initially with fair value (deducted with any declared but not paid cash dividends and declared due bond interests but not paid) and transaction fees when are acquired. Interests are measured at actual interest rate during the period held and recognized as investment income. (c) Receivable Receivables are measured initially with the price in a purchase contract or an agreement. (d) Available-for-sale financial assets are measured initially with fair value (deducted with any declared but not paid cash dividends and declared but not paid due bond interests) and transaction fees when are acquired. Interest received and cash dividends received during the period held are recognized as investment income. Any changes of fair value of available-for-sale financial assets at the end of period are accounted for capital reserve (other capital reserve). (e) Other financial liabilities are measured initially with fair value and transaction fees when are acquired. The subsequent calculations employ amortized cost method. C. Fair values of financial assets and financial Liabilities For active financial assets or financial liabilities in the market, the quotations shall be used for the determination of their fair values; for inactive financial instruments, the Company shall employ evaluation techniques to determine their fair values. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. D. Impairment of financial assets The Company assesses the changes in value of financial assets at fair value through profit and loss are recognized in profit and loss accounts at the balance sheet date. If there is objective evidence that the one or several financial assets are impaired, the Company shall determine the amount of any impairment loss. (a)Accounts receivable The Company classifies accounts receivable into individual transaction with significant amount accounts receivable (the amount is equivalent to or over RMB2,000,000 except for related party transaction), or individual transaction with not so significant amount but with significant recoverable risk accounts receivable (the age is over 57 three years, or has objective evidence that the accounts receivable is impaired) and other insignificant accounts receivable. At the end of the period, if there is objective evidence that the account receivables have been impaired, then the impairment loss shall be recognized based on the differences between book values and present value of future cash flows. At the end of the period, impairment test shall be made on individual transaction with significant amount account receivables. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of future cash flows. For those individual transaction with not significant amount accounts receivable at the end of the period, along with those accounts receivable that have been tested individually but not impaired, the Company classifies them in line with similar credit risk characteristics into several groups, and make a specific percentage of bad debts provision on the accounts receivable balances at balance sheet date. The percentage reflects the actual impairment loss, that is, the amount of which book values of each group are over their present value of future cash flows. On the basis of the actual loss rate of receivable accounts, with same or similar credit risk characteristics of accounts receivable package in previous year, the Company also considers current situation and determine the percentage of bad debt provision. Here is the Company’s bad debts provision policy: Age Percentage Within 180 days 1% 180-360 days 5% 1-2 years 10% 2-3 years 50% Over 3 years 100% Bad debts provision is not made for the accounts receivable between the Group. 58 The accounts receivable meeting the following criteria are recognized as bad debts: *The debtor is deceased or has been declared bankrupt and the debts remain not collectible after considering the assets of the bankrupt or the estate of the deceased debtor; *Debts that are long overdue and there is evidence indicating that the debts are not collectible or the possibility of collecting is remote. Upon the approval of board of directors, the account receivables are written off as bad debts by meeting the above-mentioned conditions. (b) Held-to-maturity investment At the end of the period, impairment test shall be made on individual transaction or several groups which are classified on the basis of similar credit risks. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of future cash flows. For those held-to-maturity investments which are recognized impaired losses in prior years, if there is objective evidence that the values of the financial assets have be recovered, and the objective evidence is related to the event after impairment loss recognition, then the impairment loss provision shall be reversed to not over the cost, and accounted for profit and loss in current period. (c) Available-for-sale financial assets If there is objective evidence that available-for-sale financial assets have significant impaired, or a f t e r considering various relevant factors, this downward tendency is deemed as not temporary, then impairment loss shall be recognized based on the difference between the carrying value and the present value of future cash flows. In case of impairment loss of available-for-sale equity instruments recognized, it can not be reversed thereafter. E. Derecognition and measurement of financial assets The Company shall derecognize financial assets when all the risks and rewards have been transferred to other party; if not, the Company shall recognize the financial assets. The company adopts substance over form method while making judgment if the derecognition of financial assets meet the requirement of accounting principles. The company differentiates the transfer of financial assets into entire transfer and the partial transfer of financial asset. When derecogniziton condition of entire transferred assets has been satisfied, the differences between the amounts of following two items shall be accounted for profits and losses of current period. (a)The book value of transferred financial assets; 59 (b)The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the shareholders’ equities (in the event that the financial asset involved in the transfer is a financial asset available-for-sale) If the transfer of partial financial assets satisfies the conditions of derecognition, the entire book value of the transferred financial asset shall, between the portion whose derecognition and the recognized portion (under such circumstance, the service asset retained shall be deemed as a portion of financial asset whose derecognition), be apportioned according to their respective relative fair value, and the difference between the amounts of the following two items shall be accounted for the profits and losses of the current period . (a)The portion book value derecognized; (b)The sum of consideration of the portion whose derecognition and the portion of accumulative amount of the changes in the fair value originally recorded in the shareholders’ equity which is corresponding to the portion whose derecognized ( in the event that the financial assets involved in the transfer is a financial assets available- for-sale). If the Company fails to satisfy the conditions of derecognition for transferred financial assets, it shall continue to recognize the entire financial assets to be transferred and shall recognize the consideration it receives as a financial liability. (8) Inventory A. Inventories category: raw materials, package materials, the low–value consumable supplies, semi-finished goods, work-in-process, and finished goods. B．Inventories physical stock count system: perpetual inventory method C. Valuation methods of inventories：Inventories are calculated at actual costs when acquire. The actual costs are included purchase cost, conversion cost, and other costs incurred in bringing the inventories to their present location and condition. When issuing of inventories, the Company shall calculate by weighted average cost method. D. High turnover materials amortization method The low–value consumable supplies and package materials are amortized at one time while issue. E. Impairment loss of inventories For inventories at balance sheet date, the evaluation criteria should base on the lower value between costs and net values that can be converted into cash. When net values that can be converted into cash are lower than costs, provision for impairment loss of inventories shall be made. For large quantity and low-unit-price inventories, provision for impairment loss of inventories shall be made based on the category of inventories; for those 60 inventories that relate to product series which production and sale are in same areas, have same or similar final usages or purposes, and are hard to separate calculation from other items, their impairment loss provision shall be consolidated. The net value that can be converted into cash is referred to the value after estimated the selling price subtracting the estimated finished costs, selling expenses and related taxes and fees in normal operating process. On the balance sheet date, if the affected reason of impairment loss provision has been removed, the provision shall be reversed, and the reversed amount shall be accounted into current profit and loss account. (9) Long-term Equity Investment A. Long-term equity investment is measured at initial investment cost after obtained. (a) Long-term equity investment caused by the enterprise merges Long-term equity investment obtained through business combinations: for obtaining subsidiary under common control, the consideration cost can be cash payment, non-monetary assets transfer or taking over the subsidiary’s liability. Under this situation, the initial investment cost is carrying amount of shareholder’s equity of the subsidiary on the merger date. The difference between the carrying amount of the net assets obtained and initial investment cost of long-term equity investment shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. In the case of company issues equity securities as the consideration, the initial investment cost is carrying amount of shareholder’s equity of the subsidiary on the merger date. If the book value amount of the issued shares is deemed as the capital, the difference between the carrying amount of the issued shares and initial investment cost of long-term equity investment shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings All direct expenses related to the merger, including the auditor fee, evaluation expense, legal service expense, etc will be accrued to the current profit and loss. (b) For obtaining subsidiary not under common control, the cost of long-term equity investment is fair value of assets paid or liabilities undertaken by the Company. Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, after reassessment, the difference shall be recognized in profit or loss for the current period. (2)Other types of long-term equity investment (a) Long-term equity investment, which is acquired by cash consideration, the actual cash payment amount will be deemed as the initial investment cost. The initial investment cost includes the direct expenses related to the long-term equity investment, taxes and other necessary expenses. (b) Long-term equity investment, which is acquired by equity securities, the fair value of the issued equity will be 61 deemed as the initial investment cost. (c) For the long-term equity investment made by the investors, the values agreed in the investment contracts or agreements will be deemed as the initial investment cost, except that the contracts or agreements provide that the values are not fair. (d) Long-term equity investment is acquired by exchange of non-monetary assets, if this transaction has commercial substance or the fair values of exchange assets can be reliably measured, the fair values of these assets and relevant taxes will be deemed as the initial investment cost; the difference between the fair values of the assets and book values will be accrued to the current profit and loss; if the non-currency asset exchange does not satisfy these two conditions mention above, the book values of the assets and relevant taxes will be deemed as the initial investment cost. (e) Long-term equity investment, which is acquired by the mode of liability restructure, the fair values of the obtained equities will be deemed as the initial investment cost; the difference between the initial investment cost and book values of credit will be accrued to the current profit and loss. 2. Subsequent Measurement The cost method is employed to calculate the long-term equity investment of subsidiaries and will be adjusted in accordance with the equity method in the preparation of the consolidated financial statements. The Company uses cost method for the following conditions: a long-term equity investment where the investing enterprise can exercise control over the investee, or the investing enterprise does not have joint control or significant influence over the investee, the investment is not quoted in an active market and its fair value can’t be reliably measured. When an investing enterprise can exercise joint control or significant influence over the investee, a long-term equity investment cost shall be treated as a recovery of initial investment cost. When using cost method, cash dividends or profit distributions declared by the investee shall be recognized as investment income in the current period. However, investment income recognized by the investing enterprise shall be limited to the amount distributed to it out of accumulated net profits of the investee arising after the investment was made. Any cash dividends or distributions received in excess of this amount shall be treated as a recovery of initial investment cost. When using equity method, after the investing enterprise has acquired a long-term equity investment, it shall recognize its share of net profits or losses made by the investee as investment income or losses, and adjust the carrying amount of the investment accordingly. The carrying amount of the investment shall be reduced by the portion of any profit distributions or cash dividends declared by the investee that is attributed to the investing enterprise. 62 Provision for long-term equity investment impairment loss Company should have impairment test for any long-term equity investment on very balance sheet date. When the estimated value in use is less than its book value, it will be treated as impairment loss. And this loss should be transferred into current profit and loss account; meanwhile, the company should set up provision for the long- term equity investment impairment loss. To any long-term equity investments, which are measured by cost method, there is no price or its fair value can not be measured reliably, the impairment loss of these investments should be the difference between the book value and the present value of the future cash flow calculated by using current market rate of similar financial asset. For other long-term equity investment, if the calculation of its money return in future declared that the money return is less than its book value, the difference will be treated as impairment loss. The long-term equity investment impairment loss can not be reversed. (10) Investment property Investment property is held to earn rentals or for capital appreciation or for both. Investment property includes leased or ready to transfer after capital appreciation land use rights and leased buildings. Property investment is measured by cost model, and the Company adopts the same depreciation or amortization policy with fixed assets and intangible assets; while there is indication that the investment property has impaired, the Company shall comply with Enterprise accounting Standards – Impairment Assets. (11) Fixed asset and depreciation method A. Recognition of fixed assets Fixed assets are tangible assets that are held for use in production or supply of goods or services, for rental, or held for administrative purpose, and have useful lives more than one accounting year. Fixed assets shall be recognized if they meet the following conditions: (a) The economic benefits related to fixed asset probably flows to the enterprise; (b) The cost of fixed asset may be reliably measured. B.Category of fixed assets The fixed assets includes: buildings and structures, machineries, vehicles, electronic devices and office equipments. C. Measurement of fixed assets 63 Fixed assets shall be initially measured at cost. The cost of fixed asset comprises purchase price, relate tax or duties, and any directly attributable cost of bringing the asset to working condition for its intended use, such as delivery cost, insurance etc. The purchasing price of fixed assets which is over the credit limit and has financing substance, the cost shall be based on the present value of the purchase price. The fixed assets obtained by debts restructuring, shall be accounted with its fair value. Any difference between the book value of debts and the fair value of assets shall be accounted into the current profit and loss. If the non- monetary assets exchange has business substance and the exchange assets have reliable fair value, the transfer-in non-monetary asset normally shall accounted by the fair value of the transfer-out asset, except there is authentic evidence proofs the fair value of transfer-in assets are more reliable; the exchange assets are not satisfied this premise, shall be accounted with the book value of transfer-out asset and related tax fees, do not recognize any profit and loss. (c) Fixed assets obtained by enterprise merger under common control, shall be accounted with the book value of these assets when it acquired; fixed assets obtained by enterprise merger not under common control, shall be accounted with the fair value of these assets when it acquired. The subsequent expense shall be accounted into the fixed assets’ book value, when the economic benefit of the fixed assets would probably flow into the enterprise, the increased amount shall not exceed its recoverable amount. D. The category and depreciation method of fixed assets Straight-line method is in used to calculate the depreciation of fixed assets (including finance leased fixed assets). The estimated useful lives, expected residual value and annual depreciation rate of various types fixed assets are listed as follows: Category Estimated useful lives (years) Annual depreciation rate(%) Estimated residual value(%) Buildings and structures 8-35 2.8-12.1 3-5 Machineries 8-10 9.7-12.1 3-5 Vehicles 8 12.1 3 Electronic devices and office equipments 8 12.1 3 E. Impairment loss provision for fixed assets: Impairment loss of assets refers to its recoverable amount is lower than its carrying book value of assets. The recoverable amount is the higher of the fixed asset’s fair value less 64 cost to sell and discounted present value of estimated future cash flows expected to arise from the fixed asset. At the end of period, the entity shall make judgment if there is indication of probable impairment of assets. When the recoverable amount is lower than the carrying book value, then the entity shall make provision of impairment loss of assets. Once the impairment loss is recognized, it can not be reversed. Assets may be impaired when the following indication exists: ①There is indication that an asset is idle, and the entity plans to discontinue the usage of an asset, or plans to disposal of an asset before the previous expected date. ②Due to the technology reason, the assets are no longer for use. ③Even the asset is still in use, but it brings a large amount unqualified fixed assets. ④There is indication that an asset is obsolete, outdated or physically damaged. ⑤Any other fixed assets can not bring in economic benefit into the company. F. Idle assets: depreciation of idle assets is treated as the same with other fixed assets. (12) Construction in progress A. Construction in progress shall be measured base on the classification of proposed projects. B. Construction in progress is transferred to fixed assets when the project is substantially ready for its intended use. Any costs incurred before the project reached the status of ready for use, shall be accounted of fixed assets. If the project has not yet completed the closed project settlement, from the date the assets are ready for use, the costs shall be accounted and depreciate based on the estimated value. Until the closed project settlement has been completed, the cost of assets shall be adjusted by actual cost and no previous depreciation need to be adjusted. C. At the end of period, the Company shall make judgment if any provision of impairment loss is necessary. If the project has been stopped for a long time and will not be constructed within three years; or the construct project is far behind current capacity or technology, and will bring significant uncertainty of economic benefits; or evidences have been obtained for the impairment of construct project, then the impairment loss for such construction in progress shall be made base on the differences between recoverable amounts and book values. Once impairment loss is made, it can not be reversed. (13) Intangible Assets A. Recognition of intangible assets Intangible assets are identifiable non-monetary assets without physical substance, but held or controlled by the entity. Intangible assets are recognized only when the following conditions are met: (a) It is probably that the expect future economic benefits that are attributable the assets to will flow to the entity; and (b) The cost of intangible asset can be measured reliably. 65 B. Measurement of intangible asset: Intangible assets shall be initially measured at cost. (a) the purchasing price of intangible assets which is over the credit limit and has financing substance, the cost shall be based on the present value of the purchase price. (b)The intangible assets obtained by debts restructuring, shall be accounted with its fair value. Any difference between the book value of debts and the fair value of intangible assets shall be accounted into the current profit and loss. If the non-monetary assets exchange has business substance and the exchange assets have reliable fair value, the transfer-in non-monetary asset normally shall accounted by the fair value of the transfer-out asset, except there is authentic evidence proofs the fair value of transfer-in assets are more reliable; the exchange assets are not satisfied this premise, shall be accounted with the book value of transfer-out asset and related tax fees, do not recognize any profit and loss. (c) Intangible assets obtained by enterprise merger under common control, shall be accounted with the book value of these assets when it acquired; Intangible assets obtained by enterprise merger not under common control, shall be accounted with the fair value of these assets when it acquired. C. Amortization of intangible assets: The amortization of an intangible asset with finite useful lives shall be allocated on a systematic and rational basis over its useful lives. An intangible asset with infinite useful lives, no amortization shall be made. At the end of each year, the entity will review useful lives of intangible assets with finite useful lives and amortization method. In case the useful lives and amortization method are different from the previous estimations, the entity may change as necessary. D. Impairment loss provision of intangible assets: The entity treats impairment of intangible asset according to the accounting policy of impairment of assets. Once the impairment loss is made, it can not be reversed. (14) Development costs Internal organizational development costs are included development cost and research expense. Research expenses are expenses for the entity obtaining knowledgeable new science and technology in order to have creative and exploring research activities. The research activities are mainly for obtaining related information, and there is quite uncertainty if the research activities will turn into development phase, and further turn them into intangible assets. Development costs are costs for materials, devices and products before commercial production or usage, and plan or design which applying research results or other knowledge, and materials, devices and productions having great substance improvement. Relatively to research phase, research activities have been completed in development 66 phase, and create basic conditions for a new product or new technology in some degrees. Internal organizational research expenses are accounted for as profit and loss in current period; development costs which are recognized as intangible assets shall satisfy the following conditions: - It is technical feasible for use or sales upon the completion of the intangible assets; - It is intended for use or sales upon the completion of the intangible assets; - The expect future economic benefits that are attributable the intangible assets will flow to the entity; - The entity should have enough technology, financial and other resources to support the completion of development, and have ability to use or sale the intangible assets. - The cost of intangible asset can be measured reliably. (15) Long-term deferred expenses The preliminary setting-up expenses shall be accounted for profit and loss on the month when the entity starts operation. Those fixed asset maintenance expenses shall amortize averagely during the intervals of maintenance period; and other long-term deferred assets are amortized averagely during the beneficial period. (16) Impairment of assets A. Recognition of impairment of assets Impairment loss of assets refer to its recoverable amount is lower than its carrying book value of assets. At the end of period, the entity shall make judgment if there is indication of probable impairment of assets. When the recoverable amount is lower than the carrying book value, then the entity shall make provision of impairment loss of assets. Once the impairment loss is recognized, it can not be reversed. Assets may be impaired when the following indication exists: During the period, an asset’s market valve has declined significantly more than would be expected as a result of the passage of time or normal use. Significant changes with adverse effect on the entity have taken place during the period, or will take place in near future, in the technology, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. Market interest rate or other market rates on investment return have been increased during the period, and those increases are likely to affect the discount rate that are used in calculation of present value of future cash flows, resulting material decrease of recoverable amount of assets. 67 There is indication that an asset is obsolete, outdated or physically damaged. There is indication that an asset is idle, and the entity plans to discontinue the usage of an asset, or plans to disposal of an asset before the previous expected date. Information of internal report of the entity indicates that the economic performance of an asset is lower than expectation, net cash flow the asset created or realized operating profits (or losses) are far below (or higher) than expected amount. There is other indication that an asset may be impaired. B. Measurement of impairment of assets At the end of period, the entity should check the carrying amounts of fixed assets, construction in process, intangible assets and goodwill and make judgment if any indication of impairment loss for those assets exists. Goodwill and intangible assets with infinite useful lives, the entity shall make impairment test each year whether there are signs of possible impairment. If there is objective indication that the asset is impaired, recoverable amount of the asset shall be estimated. The recoverable amount should base on the higher value between fair value less disposal expense and present value of estimated future cash flow. When the recoverable amount of the asset is less than its carrying amount, the differences are recognized as impairment loss and accounted for profit and loss in current period. Once the impairment loss is recognized, it can not be reversed in subsequent years. When the entity performs impairment test for goodwill and impairment test of relative asset group (will be mentioned as followed), the goodwill reflected in the consolidated financial statement shall not include the goodwill of subsidiary attributable to minority interests; However, for relative group asset, the goodwill attributable to minority interests shall be included, and the entity shall adjust the book values of the asset group, and compare the adjusted value with its receivable amounts, then to determine whether the asset group (including the goodwill ) is impaired. If aforesaid asset group is impaired, the entity will deduct the share of minority interests proportionately from the loss, and then determine the impaired loss of goodwill attributable to parent company. C. Measurement of asset group If there is objective evidence that an individual asset is impaired, recoverable amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the entity shall determine the recoverable amount of the asset group to which the individual asset belongs. The entity determines asset group base on the cash flow which generate from the asset group is independent with other asset or other asset group. Meanwhile, the entity should consider the method of administration, production and operation activities, and held-for-use assets or disposal decision. Once the asset group is determined, it shall keep consistence in each accounting period. 68 The recoverable amount of an asset group is measured by the higher value between fair value less disposal expense and present value of estimated future cash flow. When the recoverable amount of an asset group or an asset combination is less than its carrying value, the differences are recognized as impairment loss. (17) Capitalization of borrowing costs A. Recognition of capitalization of borrowing costs Borrowing costs that are direct attributable to construction, purchase and production of assets and comply with capitalization conditions, shall be capitalized and accounted for as costs of assets; otherwise, borrowing costs shall be recognized as expenses when incurred and accounted for current profit and loss in current period. Assets which comply with the capitalization conditions refer those assets such as fixed assets, investment properties and inventories etc that require a long time of construction and production activities before being intended for use or for sales. The capitalization of borrowing costs shall satisfy the following conditions: The capital expenditures have been incurred; and, The borrowing costs have been incurred; and, (c) Activities relating to acquisition, construction or production that are necessary to make the assets being intended for use or sales have been launched. Capitalization of borrowing costs shall be suspended during periods in which acquisition, construction or production of assets is interrupted abnormally, and is interrupted for a continuous period of three months. Capitalization of borrowing costs also shall be suspended when the acquisition, construction or production of assets are prepared for intended use or sales. B. Capitalization period Borrowing costs that incur for acquisition, construction or production of assets, and are satisfied with the aforesaid capitalization conditions, are recognized as cost of assets before those assets are intended for use or sales. Any borrowing costs incurred after assets that are intended for use or sales, and are recognized as financial costs of current period. C. Measurement of capitalized borrowing costs During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as following: - for a specific purpose borrowing, the amount of interest to be capitalized shall be the actual interest expenses incurred for the period less temporary deposit interests or investment income; - Where funds are borrowed under general purpose, the entity shall determine the amount of interest to be 69 capitalized by applying capitalization rate to weighted average of the excess amount between cumulative expenditures on the asset and the amount of specific-purpose borrowings. The capitalization rate shall be weighted average of the interest rates applicable to the general-purpose borrowings. (18) Accrued liabilities A. Recognition of accrued liabilities The obligations related to contingent item that meet the following conditions shall be confirmed as the liabilities: (a) This obligation is the current obligation of the company; and, (b)The performance of this obligation will probably cause economic benefits flow out of the company; and, (c) The amount of this obligation can be reliably measured. If loss contracts and restructuring obligations of the company meet the above conditions, they shall be recognized as accrued liabilities. B. Optimum evaluation of accrued liabilities If the necessary payments have scopes, the optimum evaluation shall be determined based on the average amount between the upper and lower limit amount of scope ; if the necessary payments do not have such scopes, then the optimum evaluation shall be determined in the following method: (a) If the contingent event is involved in an individual project, the optimum evaluation amount will be determined base on the most possible amount; (b) If the contingent event is involved in some projects, the optimum evaluation amount shall be determined base on possible amount and occurrence probability. In case of all or part of payments about the confirmed liquidation liabilities are expected to be compensated by the third parties or other parties, and the compensation amounts are surely received, then such amounts shall be separately recognized. The confirmed compensation amounts shall not exceed book values of confirmed liabilities. (19) Revenue recognition A. Sale of goods Revenue from the sale of goods shall be recognized when all the all of the following conditions are satisfied: - the entity has transferred the significant risks and rewards of ownership of goods to the buyer; - the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over goods sold; - the amount of revenue can be measured reliably; - the associated costs incurred or to be incurred can be measured reliably. B. Rendering of services The entity recognizes revenue from rendering of service when the outcome of rendering of service can be measured 70 reliably at balance sheet date, and adopts percentage of completion method in recognition of revenue. When the outcome of rendering of service can not be measured reliably at balance sheet date, revenue shall be recognized to the extent of costs incurred that are expected to be recoverable. C. Transfer of asset use right When the economic benefits related to the transaction are probably will flow into enterprise and the amounts can be reliably measured, the entity shall recognize them as income from the transfer of asset use right under following situations: (a) The amount of interest income is determined by the capital usage period and actual interest rate. (b) The amount of royalties is determined by the period and method of charging as stipulated in the relevant contract or agreement. (20) Income taxes The Company uses deferred income tax liability method in calculation of income taxes. The company use the asset or liability as based to calculate the tax payable, when there is a difference between book value of those assets or liability and their tax bases, the company shall differentiate the temporary tax difference and deferred income tax assets or liabilities incurred by recognition of recoverable temporary difference. A. Deferred income tax assets (a) Deferred tax asset should be recognized for deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized, unless the deferred tax asset arises from: ①the transaction is not under business combination; ②at the time of the transaction does not affect the accounting or the taxable profit. (b) Deferred tax assets for deductible temporary differences arising from investments in subsidiaries, associates, branches and joint ventures should be recognised,when: ①the temporary difference will reverse in the foreseeable future; and, ②taxable profit will be available against which the temporary difference will be utilized. (c) Deferred tax asset should be recognized for an unused tax loss carry forward or unused tax credit if, and only if, it is considered probable that there will be sufficient future taxable profit against which the loss or credit carry forward can be utilized B. Deferred income tax liabilities Deferred tax liabilities shall be recognized for all taxable temporary differences, except to the extent that the 71 deferred tax liabilities arise from: (a) the initial recognition of goodwill; (b) the transaction is not a business combination, at the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss). (c) for temporary differences associated with investment in subsidiaries, associates, and interests in jointly controlled enterprises, the investing enterprise is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. C. Income taxes measurement Income taxes include income taxes for the current period and deferred income taxes. Current and deferred income tax shall be recognized as income tax expenses or income that included in the profit and loss accounts, except that (a) income tax arising from a business combination; (b) income tax arising from a transaction or an event which is recognized directly in shareholders’ equity. ( 21) Government grants A. Recognition of government grants There are two types of government grants; they are government grant related to assets, and government grant related to income. Government grants shall be recognized when and only when it satisfied: (1) the enterprises are satisfied with the government grant condition; and (2) the enterprises can receive the government grants. B. Initial recognition of government grants Monetary grants are usually accounted for amount received; on-monetary grants, such as land or other resources are usually accounted for at fair value, although recording both the asset and the grant at a nominal amount is also permitted. C. Measurement of government grants For government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant shall be recognized as deferred income, and recognized in profit and loss over the periods in which the related cost are recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit and loss over the useful lives of the related asset. (23) Basis of Consolidation The consolidated financial statements prepared are in accordance with the No. 33 Enterprise Accounting 72 Standards – Consolidated Financial Statement issued in February, 2006. The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transaction and balances between the Group are eliminated on consolidation. (24) Changes in accounting policies, accounting estimates A. Changes in accounting polices Since January 1, 2007, the Company has implemented new enterprise accounting standards systems and guidelines promulgated by the People’s Republic of China. In accordance with the No 38 Enterprise Accounting Standard –First implementation of Enterprise Accounting, No 1 Interpretation of Enterprise Accounting Standard, Zheng Jian Fa [2006] 136 Notice on improvement in disclosing the accounting information relating to New Accounting Standards, and the circular on issuing No 7 Question and responses of information Disclosure standard of Public companies-Completion and Disclosure of the comparative Financial accounting information during the transition period between New and Old account standards and adjusted retroactively the financial statement during the comparative period, of which (a) Long-term equity investment difference According to New Enterprise Accounting Standard, for under common control enterprise consolidation, the Company shall recognize long-term investment initially at cost on the proportionate share of investees’ book values of equity. The difference between initial cost of long-term equity investment and the book values of cash, transferable non-monetary assets and liabilities shall recognize as capital surplus; if capital surplus is not enough for deduction, and then adjust retained earnings accordingly. For not under common control enterprise consolidation, and has significant control over investee unit, the purchaser shall recognized the difference between initial cost and the proportionate share of fair value of identified net assets as profit and loss in current period. The balance of unamortized equity investment difference incurred under common control enterprise consolidation on December 31,2006 is 10,803,478.60. Due to the first time adoption of new Enterprise Accounting Standards, the Company retroactively reduced RMB11,020,978.60 for capital reserves, and reduced RMB217,500.00 for retained earnings accordingly. 73 (b) Income tax Under new Enterprise Accounting Standards, the Company recognized negative temporary difference between the carrying amount of assets and its tax base as deferred income tax assets, and the positive temporary difference between the carrying amount of assets and its tax base as deferred income tax liabilities. On January 1, 2007, the Company increased retained earnings from deferred income tax assets for RMB 825,921.22, in which amount of RMB825,905.61 is attributable to the parent company and minority interests for RMB 15.61. (c) Retroactive adjustment for long-term equity investment in subsidiaries In accordance with the Cai Kuai [2007] No. 14 notice regarding to printing and issuing of No. 1 Interpretation of Enterprise Accounting Standards issued by the Ministry of Finance, on the first implementation date, the parent company should retroactively adjust long-term equity investment in subsidiaries that have been held by itself before such date and it is deemed that this subsidiary has employed the cost method. After the implementation of new accounting standards, the company shall recognize declared distributable cash dividends or distributable proportionate net profits as investment income. The above accounting policy change has no effect on consolidated net assets. B. The company has no change in accounting estimates and correction of accounting errors for current period. (25) Taxation A. Value-Add-Tax (VAT) VAT is levied at 17% for domestic sales, and shall remit to tax authority by deducting them from the VAT which has paid on eligible purchases. B. Business tax Business tax is levied at 3% on automobile operation revenue. C. Income tax The Company and its subsidiaries’ income tax are levied at 33% for the current year. According to Wan Guo Shui Han [2007] No.265 approval issued by State Tax Administration of Anhui province, the Company’s subsidiary Hefei Gujing Trade Co., Ltd is belong to newly establish enterprise in poor area which is defined by government, and its income tax is exempt from January 1, 2007 to December 31, 2009. D.Consumption Tax Consumption tax is levied at 20% of sales revenue from in production circle, and shall pay RMB 1 addition on 74 each kilogram of sales quantities. E. City and construction maintenance tax City and construction maintenance tax is levied at 5% on actual paid for VAT, consumption tax and business tax. F．Education fee Additional education fee is levied at 4% on actual paid for VAT, composition tax and business tax. VI. Subsidiaries and associates and co-operation enterprises （All amounts are expressed in RMB,000 yuan in the section unless otherwise stated） (1) Subsidiaries acquired by entities under common control The name of investee Registration Registration Actual Holding Voting Business scope Business If is included in location capital investment at proportion right nature the scope of balance sheet proportion consolidation date by the Company Bozhou Gujing Printing Bozhou, Printing, parking service, Limited Co., Ltd Anhui 2,726 2,702 99.95% 99.95% house or building rental company Yes Hotel service, parking, and Bozhou Gujing Hotel Co., Bozhou, wholesale or retail of Limited Ltd Anhui 1,414 2,642 92.77% 92.77% merchandise company Yes 1.1 Definition of entities under common control According to No.20 of Enterprise Accounting Standards, other related regulation of application guidelines, and opinion of professional team for implementation of Enterprise Accounting Standards, the entity under common control shall be judged by: The entity which is included in the consolidation scope is under one party or under the multiple same parties’ control, and the control is not temporary, is under common control business combination whenever before or after consolidation. Except that, it is not usually deemed as business combination under common control. 1.2 Ultimate controlling party under common control The ultimate controlling party for above-mentioned entities acquired by under common control is Anhui Gujing Group Co., Ltd. (2) Subsidiaries acquired by entities that are not under common control 75 The name of investee Registration Registrati Actual Holding Voting Principal activities Business nature If is included in location on capital investment at proportion right the scope of balance sheet proportion consolidation date by the Company Wholesales of distilled spirit, construction Limited Bozhou Gujing Sales Co., Ltd Bozhou, Anhui 8,486 8,486 100% 100% Yes materials, feeds and company assistant materials distilled spirit and trade Limited Shanghai Gujing Trade Co., Ltd Shanghai 1,000 1,000 100% 100% Yes business company Department stores, wine, hardware, and Limited Hefei Gujing Trade Co., Ltd Hefei, Anhui 1,000 1,000 100% 100% Yes wholesale of company construction materials Anhui Old Big Eight Distillery Wholesale or retail of Limited Bozhou,Anhui 3,000 2,800 93.33% 93.33% Yes Co., Ltd wine products company Sale of distilled spirit Anhui Gujing Wild Sun Sales Co., Limited Bozhou,Anhui 360 360 100% 100% and fruit and vegetable Yes Ltd company wine Production and sale of flour and farina, self- operation or agency of Limited Anhui Ruifuxiang Food Co., Ltd Bozhou,Anhui 10,600 10,600 100% 100% Yes permit merchandise and company technology export business Provision of Bozhou Gujing Transportation Limited Bozhou,Anhui 695 695 100% 100% transportation services Yes Co., Ltd company to the Company Manufacture and sale of Limited Bozhou Gujing Glass Co., Ltd Bozhou,Anhui 6,646 6,646 100% 100% Yes glass products company Production and sale of Bozhou Gujing Packaging Co., Limited Bozhou,Anhui 1,917 1,917 100% 100% printing and packaging Yes Ltd company material The name of investee Registration Registrati Actual Holding Voting Principal activities Business nature If is included in location on capital investment at proportion right the scope of balance sheet proportion consolidation date by the Company Bozhou Gujing Waste Collect and sale of Limited Bozhou,Anhui 60 60 100% 100% Yes Reclamation Co., Ltd recycled glass bottle company (3) Associates and co-operation entity 76 No (4) The change of scope of financial statements consolidation There is no change of scope of financial statements consolidation. VII. Notes to financial statements 1、Monetary funds 2007.12.31 2006.12.31 Items Original currency Exchange rate Equivalent to RMB Original currency Exchange rate Equivalent to RMB Cash on hand RMB —— —— 56,208.10 —— —— 63,351.88 Cash at banks RMB —— —— 154,651,732.20 —— —— 124,843,271.00 USD 104.79 7.3046 765.45 155,806.46 7.8087 1,216,645.90 Sub-total —— —— 154,652,497.65 —— —— 126,059,916.90 Other monetary fund RMB —— —— —— —— —— 200,000.00 Total —— —— 154,708,705.75 —— —— 126,323,268.78 2、Notes receivable （1）Listed by item Item 2007.12.31 2006.12.31 Bank acceptance notes 121,849,788.26 58,445,532.75 Total 121,849,788.26 58,445,532.75 77 （2）Endorsed but not matured notes receivable Type of notes Maturity Balance Bank acceptance notes 2008.1.3—2008.6.20 52,205,985.83 （3）The ending balance is increased for 108.48% compared with the beginning balance in current period, is mainly due to the increase of sales turnover. 3、Accounts receivable （1）Listed by items 2007.12.31 2006.12.31 Balance Proportion Proportion Bad debt Balance Proportion Proportion Bad debt Items of Bad provision of Bad provision debt debt provision provision Individual transaction with significant amount —— —— —— —— —— —— —— —— Individual transaction with not so significant amount but significant recoverable risk 1,441,579.76 3.74% 100% 1,441,579.76 1,528,600.68 3.55% 100% 1,528,600.68 Other transaction with no significant amount 34,507,574.52 96.26% —— 853,475.81 36,314,461.75 96.45% —— 819,969.99 Total 35,949,154.28 100.00% —— 2,295,055.57 37,843,062.43 100.00% —— 2,348,570.67 （2）Age analysis 2007.12.31 2006.12.31 Age Balance Proportion Bad debt provision Net value Balance Proportion Bad debt Net value provision Within one year 31,081,307.10 86.46% 412,471.93 30,668,835.17 34,852,407.62 92.10% 353,128.06 34,499,279.56 1-2 years 3,178,839.60 8.84% 317,289.96 2,861,549.64 660,462.83 1.74% 66,046.28 594,416.55 2-3 years 247,427.82 0.69% 123,713.92 123,713.90 801,591.30 2.12% 400,795.65 400,795.65 78 Over 3 years 1,441,579.76 4.01% 1,441,579.76 —— 1,528,600.68 4.04% 1,528,600.68 —— Total 35,949,154.28 100.00% 2,295,055.57 33,654,098.71 37,843,062.43 100.00% 2,348,570.67 35,494,491.76 （3）Up to December 31, 2007, the accounts receivable balance due from shareholders who own 5% or over 5% voting right shares is RMB80,328.00 （4）The total of top five accounts receivable balance is RMB7,962,594.62, accounting for 22.15% of total accounts receivable balance. 2007.12.31 2006.12.31 Age Balance Proportion Balance Proportion Within one year 7,962,594.62 100% 5,883,150.82 100% 4、Other receivable （1）Listed by items 2007.12.31 2006.12.31 Balance Proportion Proportion Bad debt Balance Proportion Proportion Bad debt Items of Bad provision of Bad provision debt debt provision provision Individual transaction with significant amount 79,993,800.00 85.53% —— 74,989,938.00 77,000,000.00 76.08% 100% 77,000,000.00 Individual transaction with not so significant amount but significant recoverable risk —— —— —— —— —— —— —— —— Other transaction with no significant amount 13,529,166.44 14.47% —— 2,100,064.95 24,209,400.88 23.92% —— 946,432.00 Total 93,522,966.44 100.00% —— 77,090,002.95 101,209,400.88 100.00% —— 77,946,432.00 （2）Individual transaction with significant amount Debtor Amount owed Age Bad debts Nature provision proportion Hengxin Securities Co., Over three Ltd 30,000,000.00 years 100% Securities investment Minfa Securities Co., Over three Ltd 30,000,000.00 years 100% Securities investment 79 Jianqiao Securities Co., Over three Ltd 17,000,000.00 years 88% Securities investment Anhui Jinyang Within one Advertising Co., Ltd 2,993,800.00 year 1% Advertisement Total 79,993,800.00 （3）Age analysis 2007.12.31 2006.12.31 Age Balance Proportion Bad debt provision Net value Balance Proportion Bad debt provision Net value Within one year 12,319,218.52 13.17% 776,790.85 11,542,427.67 22,780,184.17 22.51% 471,148.09 22,309,036.08 1-2 years 3,303,143.09 3.53% 780,314.31 2,522,828.78 636,480.86 0.73% 63,648.09 672,832.77 2-3 years 655,414.10 0.70% 327,707.06 327,707.04 1,762,200.07 1.64% 1,381,100.04 281,100.03 Over three years 77,245,190.73 82.60% 75,205,190.73 2,040,000.00 76,030,535.78 75.12% 76,030,535.78 —— Total 93,522,966.44 100.00% 77,090,002.95 16,432,963.49 101,209,400.88 100.00% 77,946,432.00 23,262,968.88 （4）Jianqiao Securities Co., Ltd (“Jianqiao Securities”) has been in the liquidation phase since April 2006, due to significant uncertainty with the recoverable of investment, the Company made impairment loss provision for the receivable investment balance for RMB16 millions and litigation charges for RMB 1 million. According to the notice of the first time bankruptcy distribution method for Jianqiao Securities dated December 28, 2007, the Company may recover debts for RMB2.04 millions, and accordingly, the Company reverses bad debts provision for RMB2.04 millions in current period. （5）The Company has written off other receivables for RMB312,839.44 in current period. The details are as followed: Debtor Written-off amount Nature Reason If is related party The debtor is dead, and Purchase price of the debt is Li, Hezhong 236,404.88 vehicle unrecoverable No The debtor is dismissed, and the debt is Ma, Jun 75,742.50 Borrowings unrecoverable. No 80 （6）Up to December 31, 2007, there is no other receivable balance due from shareholders who own 5% or over 5% of voting right shares. （7）The total amount of five top other receivables is RMB80,493,800 .00, accounting for 86.07% of total other receivables. The details are as followed: Debtor Amount owed Nature or content Age Proportion Receivable for government Hengxin Securities Co., Ltd 30,000,000.00 securities investment Over three years 32.08% Receivable for government Minfa Securities Co., Ltd 30,000,000.00 securities investment Over three years 32.08% Receivable for government Jianqiao Securities Co., Ltd 17,000,000.00 securities investment Over three years 18.18% Anhui Jinyang Advertising Co., Ltd 2,993,800.00 Advertisement Within one year 3.20% Daqing Meiying Economic and Receivable for the refund of trade Co., Ltd 500,000.00 goods 1-2 years 0.53% Total 80,493,800.00 86.07% 5、Advance to suppliers （1）Age analysis Age 2007.12.31 Proportion 2006.12.31 Proportion Within one year 10,923,981.33 100.00% 8,729,434.54 95.30% 1-2 years —— —— 430,723.26 4.70% Total 10,923,981.33 100.00% 9,160,157.80 100.00% （2）Up to December 31, 2007, there is no advance to suppliers balance due from shareholders who own 5% or over 5% voting right shares. 6、Inventories （1） Listed by items 2007.12.31 2006.12.31 Items Balance Impairment loss Net value Balance Impairment loss Net value provision provision Raw materials 122,758,911.07 28,507,735.27 94,251,175.80 181,166,817.12 41,155,334.68 140,011,482.44 Work-in-process 347,978,563.41 883,261.49 347,095,301.92 381,118,236.21 1,020,200.08 380,098,036.13 Finished goods 54,792,969.37 3,326,039.49 51,466,929.88 63,771,400.22 7,524,865.44 56,246,534.78 81 Total 525,530,443.85 32,717,036.25 492,813,407.60 626,056,453.55 49,700,400.20 576,356,053.35 （2） Impairment loss provision for inventories Transfer out in the Items 2006.12.31 Accounted for in the current period Reverse in current period 2007.12.31 current period Raw materials 41,155,334.68 4,916,760.83 —— 17,564,360.24 28,507,735.27 Work-in-process 1,020,200.08 —— —— 136,938.59 883,261.49 Finished goods 7,524,865.44 2,364,707.40 —— 6,563,533.35 3,326,039.49 Total 49,700,400.20 7,281,468.23 —— 24,264,832.18 32,717,036.25 （3） Impairment loss provision for inventories is accounted for by the difference between the higher book value of inventories and recoverable net values. The recoverable net values is referred to the value by estimate sales price less any sale expenses and related taxes or fees during the general production and operation process. 7、Long-term equity investment （1）Long-term equity investment and impairment loss provision 2007.12.31 2006.12.31 Items Impairment Impairment Book value Net book value Book value Net book value loss provision loss provision Long-term equity investment —— —— —— —— —— —— Including: investment in subsidiaries —— —— —— —— —— —— 8、Investment Investment properties （1）Adoption of cost model for subsequent measurement Items 2006.12.31 Increment Decrement 2007.12.31 Cost: 1．Buildings and structures 14,772,277.80 —— —— 14,772,277.80 2．Land use right 1,214,800.00 —— —— 1,214,800.00 Sub-total 15,987,077.80 —— —— 15,987,077.80 Accumulated depreciation and accumulated a - 82 mortization: 1．Buildings and structures 4,207,586.61 710,096.64 —— 4,917,683.25 2．Land use right 60,740.00 24,296.04 —— 85,036.04 Sub-total 4,268,326.61 734,392.68 —— 5,002,719.29 Impairment loss provision: 1．Buildings and structures —— —— —— —— 2．Land use right —— —— —— —— Sub-total —— —— —— —— Net values: 1．Buildings and structures 10,564,691.19 9,854,594.55 2．Land use right 1,154,060.00 1,129,763.96 Sub-total 11,718,751.19 10,984,358.51 （2）The details of restricted investment properties are as followed: Accumulated depreciation/ Impairment loss Items Original costs amortization provision Net values Reasons Buildings and Pledged for loan structures 14,278,711.84 4,661,741.48 —— 9,616,970.36 facilities Pledged for loan Land use right 1,214,800.00 85,036.04 —— 1,129,763.96 facilities Total 15,493,511.84 4,746,777.52 —— 10,746,734.32 9、Fixed assets and accumulated depreciation （1）Listed by items Items 2006.12.31 Increment Decrement 2007.12.31 Cost: Buildings and structures 419,161,867.01 16,532,955.46 351,374.08 435,343,448.39 Machineries 293,468,660.82 45,957,212.23 10,230,833.79 329,195,039.26 Vehicles 66,451,115.46 10,734,400.15 3,166,005.73 74,019,509.88 Office equipments and others 22,757,344.84 2,048,066.04 2,518,145.00 22,287,265.88 Sub-total 801,838,988.13 75,272,633.88 16,266,358.60 860,845,263.41 83 Accumulated depreciation: Buildings and structures 209,269,521.80 20,749,905.34 310,442.98 229,708,984.16 Machineries 127,232,358.58 23,128,307.81 8,943,141.62 141,417,524.77 Vehicles 26,129,029.91 7,833,932.65 1,826,108.96 32,136,853.60 Office equipments and others 11,698,389.82 2,129,081.68 2,329,362.30 11,498,109.20 Sub-total 374,329,300.11 53,841,227.48 13,409,055.86 414,761,471.73 Net values: Buildings and structures 209,892,345.21 —— —— 205,634,464.23 Machineries 166,236,302.24 —— —— 187,777,514.49 Vehicles 40,322,085.55 —— —— 41,882,656.28 Office equipments and others 11,058,955.02 —— —— 10,789,156.68 Sub-total 427,509,688.02 —— —— 446,083,791.68 Impairment loss provision: —— —— —— —— Net fixed assets value 427,509,688.02 —— —— 446,083,791.68 （2）The addition of fixed assets is included the transfer from construction-in-process for RMB63,726,006.40. （3）There is no financial leased fixed asset in current period. （4）There is no leased out fixed asset under operating lease in current period. （5）There is no idle fixed assets in current period. （6）Up to December 31, 2007, the Company is still in process of the following assets’ ownership certificates: Impairment Original book Accumulated loss Item values depreciation provision Net values Buildings and structures 54,908,246.95 18,607,427.04 —— 36,300,819.91 r Total 54,908,246.95 18,607,427.04 —— 36,300,819.91 84 （7）The details of restricted fixed assets as at December 31, 2007 are as followed: Item Accumulated Impairment loss Net values Original book values depreciation provision Reason Buildings and Pledged for obtaining structures 13,201,711.04 6,815,174.03 —— 6,386,537.01 loan facilities Total 13,201,711.04 6,815,174.03 —— 6,386,537.01 （8）The management of the Company considers that there is no significant impairment loss provision necessary upon their review at the end of reporting period. 10、Construction-in-process （1）Listed by items 2007.12.31 2006.12.31 Project name Impairment loss Impairment loss Book Value Net values Book Value Net values provision provision Wheat comprehensive processing project 32,466,740.40 —— 32,466,740.40 27,767,493.00 —— 27,767,493.00 Firedamp electricity generation and waste water treatment project —— —— —— 3,597,698.94 —— 3,597,698.94 Anaerobic electricity generation project —— —— —— —— —— —— Extract filtering wine pot project 194,000.00 —— 194,000.00 —— —— —— Technology improvement project for farina 2,004,543.51 —— 2,004,543.51 4,584,698.00 —— 4,584,698.00 Other projects 2,569,575.75 —— 2,569,575.75 2,300,215.61 —— 2,300,215.61 Total 37,234,859.66 —— 37,234,859.66 38,250,105.55 —— 38,250,105.55 （2）Details of Construction-in-process projects Transfer to fixed Projection injection Decre Sources of Project name Budget 2006.12.31 Increment assets in current 2007.12.31 proportion over to total ment funds period budgets By the Wheat comprehensive processing Company project 27,767,493.00 4,699,247.40 —— —— 32,466,740.40 itself By the Firedamp electricity generation and Company waste water treatment project 21,000,000.00 3,597,698.94 16,891,714.10 20,489,413.04 —— —— itself 100% 85 By the Anaerobic electricity generation Company project 1,800,000.00 —— 1,810,886.39 1,810,886.39 —— —— itself 100% By the Extract filtering wine pot project Company 1,940,000.00 —— 194,000.00 —— —— 194,000.00 itself 10% By the Technology improvement project Company for farina 23,000,700.00 4,584,698.00 17,771,649.16 20,351,803.65 —— 2,004,543.51 itself 97% By the Company Other projects —— 2,300,215.61 21,343,263.46 21,073,903.32 —— 2,569,575.75 itself Total 38,250,105.55 62,710,760.51 63,726,006.40 —— 37,234,859.66 （3）Capitalized borrowing costs for construction-in-process up to December 31, 2007 are RMB1,753,837.50. （4）The management of the Company considers that there is no significant impairment loss provision necessary for construction-in-process upon their review at the end of reporting period. 11、 Intangible assets and accumulated amortization (1) Intangible assets 2007.12.31 2006.12.31 Item Book Value Impairment Net value Book Value Impairment Net value provision provision Land use right 54,017,679.05 —— 54,017,679.05 55,348,653.93 —— 55,348,653.93 Trade marks 480,000.00 —— 480,000.00 540,000.00 —— 540,000.00 Total 54,497,679.05 —— 54,497,679.05 55,888,653.93 —— 55,888,653.93 （2）Accumulated amortization Residual Transfe Accumulated Acquired Project Original amount 2006.12.31 Transfer in Amortization 2007.12.31 amortization r out amortization by periods Land use right 102,605,418.45 55,348,653.93 193,780.64 1,524,755.52 —— 54,017,679.05 48,587,739.40 9-46 years Purchase Trade marks 600,000.00 540,000.00 —— 60,000.00 —— 480,000.00 120,000.00 8 years Purchase Total 103,205,418.45 55,888,653.93 193,780.64 1,584,755.52 —— 54,497,679.05 48,707,739.40 86 （3）The details of restricted intangible assets as at December 31, 2007 are as followed: Item Accumulated Impairment loss Net value Reason Original book value amortization provision Pledged for obtaining Land use right 86,960,251.40 46,488,515.45 —— 40,471,735.95 loan facilities Total 86,960,251.40 46,488,515.45 —— 40,471,735.95 （4）The management of the Company considers that there is no significant impairment loss provision necessary for intangible assets upon their review at the end of reporting period. 12、 Long-term deferred assets Item Original costs 2006.12.31 Addition Amortization 2007.12.31 Accumulated Residual amortization amortization Periods Decoration 2,403,721.65 —— 2,403,721.65 24,330.02 2,379,391.63 24,330.02 83 months Total 2,403,721.65 —— 2,403,721.65 24,330.02 2,379,391.63 24,330.02 13、 Deferred income tax assets （1）Recognized deferred income tax assets Item 2007.12.31 2006.12.31 Deductible temporary difference generating from impairment loss provision made 1,307,621.68 1,064,831.84 Total 1,307,621.68 1,064,831.84 （2）Unrecognized deferred income tax assets: Items 2007.12.31 Deductible losses 135,426,043.33 deductible temporary difference 20,538,222.19 Total 155,964,265.52 14、Impairment Impairment loss provision for assets Decrement Items 2006.12.31 Increment 2007.12.31 Reversal Written-off 87 Bad debts provision 80,295,002.66 1,442,895.30 2,040,000.00 312,839.44 79,385,058.52 Impairment loss provision for inventories 49,700,400.20 7,281,468.23 —— 24,264,832.18 32,717,036.25 Total 129,995,402.86 8,724,363.53 2,040,000.00 24,577,671.62 112,102,094.77 15、Restricted assets （1）Listed by items Item 2006.12.31 Addition Reduction 2007.12.31 Original costs for pledged assets Buildings and structures 27,480,422.88 —— —— 27,480,422.88 Land use rights 88,175,051.40 —— —— 88,175,051.40 Total 115,655,474.28 —— —— 115,655,474.28 （2）The net value of restricted assets up to December 31, 2007: Accumulated Impairment loss Item Book value Net value depreciation/amortization provision Buildings and structures 27,480,422.88 11,476,915.51 —— 16,003,507.37 Land use right 88,175,051.40 46,573,551.49 —— 41,601,499.91 Total 115,655,474.28 58,050,467.00 —— 57,605,007.28 （3）The reason of restricted assets: The company pledged a land use right which the original cost is RMB73,918,035.10 ， accumulated depreciation is RMB45,785,253.53，net value is RMB28,132,781.57 to obtain loan facility for RMB10 millions from Bank of China, Bozhou Branch. The pledge contract is mature on September 20, 2008. The company pledged a land use right which the original cost is RMB14,257,016.30 ， accumulated depreciation is RMB788,297.96，net value is RMB13,468,718.34 and buildings and structures which the original cost is RMB27,480,422.88，accumulated depreciation is RMB11,476,915.51，net value is RMB16,003,507.37 to obtain loan facility for RMB30 millions from Construction Bank of China, Bozhou Branch. The highest pledge guarantee contract is mature on May 8, 2012. 16、Short-term loans （1）Listed by types Types 2007.12.31 2006.12.31 Guarantee loans 45,000,000.00 —— 88 Pledge loans 10,000,000.00 58,000,000.00 Total 55,000,000.00 58,000,000.00 （2）There is no overdue loan in current period; （3）Please refer to Notes VII.15 for the pledged details. 17、Accounts payable （1） Age analysis Age 2007.12.31 2006.12.31 Within one year 65,820,213.65 83,879,069.65 Over one year 363,075.84 447,188.88 Total 66,183,289.49 84,326,258.53 （2） Up to December 31, 2007, there is no accounts payable balance due from shareholders who own 5% or over 5% voting right shares. （3） Please refer to Notes IX.(3).3 for the details of related party transaction. 18、Advance from customers （1） Age analysis Age 2007.12.31 2006.12.31 Within one year 47,557,139.44 27,877,720.33 Over one year 2,887,754.00 1,392,087.35 Total 50,444,893.44 29,269,807.68 （2） Up to December 31, 2007, there is no advance from customers balance due from shareholders who own 5% or over 5% voting right shares. （3） Please refer to Notes IX.(3).3 for the details of related party transaction. （4） The ending balance is increased of 72.34% compared with the beginning balance of the year. It is mainly due to the increase of sales. 19、Payroll payable （1）Listed by items Items 2006.12.31 Addition Paid out 2007.12.31 Salary, bonus and allowance 59,523,502.95 76,523,326.46 69,596,139.18 66,450,690.23 Employee welfare 14,254,215.99 346,762.27 14,600,978.26 —— Social insurance 7,502,971.00 35,122,123.47 23,247,108.59 19,377,985.88 Including：Medical insurance 1,311,040.18 7,780,085.67 7,704,569.18 1,386,556.67 89 Basic retirement insurance 6,125,977.82 25,239,858.62 13,531,802.79 17,834,033.65 Annuity fee —— —— —— —— Unemployment insurance 22,471.00 1,454,258.00 1,358,612.71 118,116.29 Injury insurance 43,482.00 647,921.18 652,123.91 39,279.27 Pregnancy insurance —— —— —— —— Housing accumulation fund 786,075.63 3,349,977.29 2,426,966.38 1,709,086.54 Labour union fee and employee education fee 3,666,093.83 3,103,666.16 2,487,399.92 4,282,360.07 Non-monetary fund welfare 422,481.51 2,345,718.20 2,768,199.71 —— Redemption for termination of labor contract —— —— —— —— Others —— —— —— —— Including：share payment by cash —— —— —— —— Total 86,155,340.91 120,791,573.85 115,126,792.04 91,820,122.72 (2) Up to December 31, 2007, total amount of bonus for RMB50,524,290.42 is still not paid out. (3) The Company paid out self-production distilled spirit for RMB2,768,199.71 as festival welfare during the reporting period. 20、Tax payable Type 2007.12.31 2006.12.31 Enterprise income tax 82,072,487.29 119,518,595.32 Value add tax (VAT) 24,062,797.47 11,857,949.99 Business tax 92,198.85 80,811.54 Consumption tax 65,985,447.77 62,493,897.34 City construction tax 1,973,512.42 345,602.02 Personal income tax 339,028.20 51,779.89 Property tax -149,559.03 -167,030.16 Land use tax —— 11,790.84 90 Education fee 1,343,456.17 198,072.72 Stamp duty tax 1,953.40 83,393.66 Others 133,060.69 322,931.61 Total 175,854,383.23 194,797,794.77 21、 Other payable （1） Age analysis Age 2007.12.31 2006.12.31 Within one year 26,214,036.49 18,315,937.33 Over one year 13,534,604.79 8,550,674.49 Total 39,748,641.28 26,866,611.82 （2）Other payables over one year are 34.20% of total other payables balance. The details are as followed: Items 2007.12.31 Nature/Content Anhui Anzhen Investment Co., Ltd 5,000,000.00 Unrecognized investment income Anhui Gujing Hotel Group 4,399,195.80 Borrowings （3）The ending balance is included accrued expenses for RMB5,141,309.35, accounting for 12.93% of total ending balance of other payable. The details are as followed: Items 2007.12.31 2006.12.31 Reason of un-settlement Incurred in current period, Water and electricity 1,190,085.42 589,794.17 shall settle in next year Incurred in current period, Audit fee 590,000.00 250,000.00 shall settle in next year Incurred in current period, Waste clearing 100,000.00 —— shall settle in next year Incurred in current period, Transportation 451,681.33 298,086.68 shall settle in next year Incurred in current period, Insurance 363,740.16 —— shall settle in next year Incurred in current period, Labour Service 545,861.70 —— shall settle in next year Incurred in current period, Consultation 1,500,000.00 —— shall settle in next year Securities information disclosure 340,000.00 —— Incurred in current period, 91 fee for year 2007 shall settle in next year Incurred in current period, Others 59,940.74 6,609.89 shall settle in next year Incurred in current period, Total 5,141,309.35 1,144,490.74 shall settle in next year （4） Up to December 31, 2007, there is no other payable balance due from shareholders who own 5% or over 5% voting right shares. （5） Please refer to Notes IX.(3).3 for related party transaction. 22、Non-current liabilities due within one year Item 2007.12.31 2006.12.31 Long-term borrowings due within one year Pledged loan 13,000,000.00 51,100,000.00 Total 13,000,000.00 51,100,000.00 23、 Long-term borrowings （1） Listed by types Types 2007.12.31 2006.12.31 Pledge loans 36,000,000.00 19,000,000.00 Total 36,000,000.00 19,000,000.00 （2） Listed by creditors 2007.12.31 Annual Loan Creditors Principal Interest Total Loan period Interest rate Condition payable Construction Bank of China, 2005.3.31 — Pledge Bozhou Branch 10,000,000.00 —— 10,000,000.00 5.85% 2010.3.30 loan 92 Construction Bank of China, 2007.5.29 — Bozhou Branch 26,000,000.00 —— 26,000,000.00 6.93% 2012.5.28 Pledge loan Total 36,000,000.00 —— 36,000,000.00 （3） There is no overdue long-term borrowing in current period. 24、Deferred income Approval Total Transfer Item document 2006.12.31 Addition 200 grants out number Fagaihua nzi 【 2,550,000. 2007】 1,530,000. 1,5 Subsidy for improvement of resource use project 00 No.2500 —— 00 —— Caijian 6,000,000. 【2007】 6,000,000. 6,0 Subsidy for environment protection 00 No.1476 —— 00 —— 8,550,000. 7,530,000. 7,5 Total 00 —— 00 —— 25、Share capital （1） Listed by items 2006.12.31 The change in current period 2007.12.31 Items Share Bonus Issuance of Release of Others Subtotal rights shares new shares restriction (1)Unlisted shares Including: shares held by —— —— —— —— —— —— —— —— 93 initiator Including: shares held by states —— —— —— —— —— —— —— —— Shares held by state-owned —— —— —— —— —— —— legal persons —— —— Shares held by overseas legal —— —— —— —— —— —— —— persons —— Others —— —— —— —— —— —— —— —— Total unlisted shares —— —— —— —— —— —— —— —— (2)Restricted shares Including: shares held by states 147,000,000.00 —— —— —— -11,750,000.00 —— -11,750,000.00 135,250,000.00 Shares held by state-owned —— —— —— —— —— —— —— —— legal persons Shares held by overseas legal —— —— —— —— —— —— —— persons Others 30,800.00 —— —— —— -23,800.00 —— -23,800.00 7,000.00 Sub-total of restricted shares 147,030,800.00 —— —— —— -11,773,800.00 —— -11,773,800.00 135,257,000.00 (3)Listed shares RMB ordinary shares 27,969,200.00 —— —— —— 11,773,800.00 —— 11,773,800.00 39,743,000.00 Domestically listed foreign 60,000,000.00 —— —— —— —— —— —— 60,000,000.00 shares Overseas listed foreign shares —— —— —— —— —— —— —— —— Other —— —— —— —— —— —— —— —— Total listed shares 87,969,200.00 —— —— —— 11,780,800.00 —— 11,780,800.00 99,743,000.00 Total shares 235,000,000.00 —— —— —— —— —— —— 235,000,000.00 (1) The listed shares are listed with face value of RMB1 each. There is no change of total shares during the report period. （2） The Company issued a notice on June 27, 2007 regarding to restricted shares of Anhui Gujing Distillery Co., Ltd are able to transact on market for a total 11,750,000 shares started from June 29, 2007. 26、Capital reserve Items 2006.12.31 Increment Decrement 2007.12.31 Share premium 510,021,915.56 —— —— 510,021,915.56 Other capital reserve 22,469,753.14 170,650.98 —— 22,640,404.12 Total 532,491,668.70 170,650.98 —— 532,662,319.68 27、Surplus reserve （1） Listed by items 94 Item 2006.12.31 Increment Decrement 2007.12.31 Statutory surplus reserve 140,940,771.04 3,387,654.63 92,044,666.33 52,283,759.34 Total 140,940,771.04 3,387,654.63 92,044,666.33 52,283,759.34 （2） The decrease of surplus reserve for RMB92,044,666.33 in current period is being used for redemption of losses from prior years. This is in accordance with the proposal in 2006 regarding to use of surplus reserve for redemption of losses from prior years. The proposal has been passed on shareholders meeting on April 23, 2007. 28、Retained earnings Items 2007 2006 Balance at the beginning of the year of 2007 -82,067,093.33 -95,218,130.79 Amount effected by new accounting standards -14,908,004.21 -12,310,818.36 Balance at the beginning of the year of 2007 after adjustment -96,975,097.54 -107,528,949.15 Add：Consolidated net profit 33,876,546.32 13,329,639.70 Other transfer-in 92,044,666.33 -2,775,788.09 Less：Withdrawal of statuary surplus reserve 3,387,654.63 Withdrawal of employees’ reward and welfare fund —— —— Withdrawal of reserve fund —— —— Withdrawal of Enterprise development fund —— —— Reimbursement of investment —— —— Less: dividends payable for preference shares —— —— Withdrawal of surplus reserves —— —— Dividends payable for ordinary shares —— —— Dividends for ordinary shares transfer into capital —— —— Balance at the end of the year of 2007 25,558,460.48 -96,975,097.54 Note 1: Other transfer-in: According to the proposal in 2006 regarding to use of surplus reserve for redemption of losses from prior years, the Company uses statutory surplus reserve for 92,044,666.33 for the redemption of losses from prior years. 29、Operating income （1）Listed by items Items 2007 2006 Operating income Operating cost Gross profit Operating income Operating cost Gross profit 95 Main business income 1,190,202,238.91 797,955,628.05 392,246,610.86 926,295,045.03 615,061,480.05 311,233,564.98 Other business income 11,154,358.00 15,143,478.95 -3,989,120.95 37,407,098.84 34,081,430.78 3,325,668.06 Total 1,201,356,596.91 813,099,107.00 388,257,489.91 963,702,143.87 649,142,910.83 314,559,233.04 （2）Listed by products or business types Products or 2007 2006 types Operating income Operating cost Gross profit Operating income Operating cost Gross profit Wine and Alcohol 891,478,836.72 559,487,224.98 331,991,611.74 670,353,474.00 405,136,452.40 265,217,021.60 Deep processing of farm products 132,818,658.19 104,370,850.00 28,447,808.19 178,465,979.28 162,722,717.96 15,743,261.32 Others 165,904,744.00 134,097,553.07 31,807,190.93 77,475,591.75 47,202,309.69 30,273,282.06 Total 1,190,202,238.91 797,955,628.05 392,246,610.86 926,295,045.03 615,061,480.05 311,233,564.98 （3）Listed by segments or areas 2007 2006 Items Operating income Operating cost Gross profit Operating income Operating cost Gross profit Northern of mainland 159,989,331.96 100,408,426.62 59,580,905.34 126,622,374.60 76,525,805.61 50,096,568.99 Middle of mainland 811,864,508.20 552,509,974.72 259,354,533.48 617,337,031.45 422,135,487.60 195,201,543.85 Southern of mainland 163,689,238.50 102,730,467.66 60,958,770.84 148,954,137.22 90,022,283.86 58,931,853.36 others 54,659,160.25 42,306,759.05 12,352,401.20 33,381,501.76 26,377,902.98 7,003,598.78 Total 1,190,202,238.91 797,955,628.05 392,246,610.86 926,295,045.03 615,061,480.05 311,233,564.98 （4）Listed by top five customers sales revenue 2007 2006 Item Sales revenue Proportion to total sales Sales revenue Proportion to total sales Total sales revenue from top five customers 132,031,606.29 10.99% 124,451,177.83 12.91% （5）Segment report of other operation incomes, other operation costs: Item 2007 2006 96 other operation income other operation cost Other operation profit other operation income other operation cost Other operation profit Sales of Materials 4,453,128.58 3,980,186.32 472,942.26 26,498,775.74 21,977,511.11 4,521,264.63 Lease 554,410.00 711,385.85 -156,975.85 477,104.00 627,704.59 -150,600.59 Sales of waste materials 1,238,417.19 96,173.17 1,142,244.02 1,708,041.12 1,418,084.17 289,956.95 Sales of water, electricity and gas 437,759.78 357,619.68 80,140.10 7,691,526.89 9,893,359.26 -2,201,832.37 Processing fee 4,011,955.56 9,561,656.73 -5,549,701.17 —— —— —— Others 458,686.89 436,457.20 22,229.69 1,031,651.09 164,771.65 866,879.44 Total 11,154,358.00 15,143,478.95 -3,989,120.95 37,407,098.84 34,081,430.78 3,325,668.06 30、Business tax and surtax Items 2007 2006 Consumption tax 110,240,349.77 112,035,858.94 Business tax 375,260.83 390,607.28 City construction tax and education fee 19,110,810.92 17,724,122.42 Total 129,726,421.52 130,150,588.64 31、Financial costs Item 2007 2006 Interest expenses 7,807,466.85 7,978,565.24 Less: interest income 1,035,885.95 1,287,972.80 Foreign exchange losses 9,711.97 20,481.07 Bank charges 34,836.02 32,091.69 Others -23,351.58 4,430.50 Total 6,792,777.31 6,747,595.70 32、Impairment loss for assets Items 2007 2006 Bad debts -597,104.70 1,202,101.44 Inventories impairment loss 7,281,468.23 -1,682,771.30 Total 6,684,363.53 -480,669.86 33、Investment income Source 2007 2006 Gains from disposal of subsidiaries —— -13,446.35 97 Total —— -13,446.35 34、 Non-operating income （1）Listed by items Items 2007 2006 Gains from disposal of non-current assets 1,069,605.77 1,023,027.49 Including: Gains from disposal of assets 1,069,605.77 1,023,027.49 Government grants 4,044,600.00 —— Fine 1,388,232.73 1,690,538.99 Others 1,151,130.65 451,505.69 Total 7,653,569.15 3,165,072.17 （2）Government grants Types 2007 Source Approval document Comprehensive project for deep processing of 15 Financial bureau of Anhui million wheat annual production 600,000.00 province Fagainongjing【2007】No.280 Government grants for Putuo district, Shanghai 721,600.00 Putuo district, Shanghai Agreement, and co-operation memorandum New technology development research on wheat Technology Bureau of powder for deep transition processing project 1,000,000.00 Anhui Province Caijian【2007】No.1089 Encouragement for increment quantity of farm Financial bureau of Anhui products 123,000.00 province Caiqi【2007】No.446 Comprehensive project for deep processing of 15 Financial bureau of Anhui million wheat annual production 350,000.00 province Fagaidiqu【2006】No.1091 Environment protection special fund 200,000.00 Financial bureau of city Caijian【2006】No.1311 Enterprise development special fund 350,000.00 Financial bureau of city Caiqi【2006】No.1625 Technology improvement loan discounts 300,000.00 Financial bureau of city Bojing【2007】No.200 Comprehensive project for deep processing of 15 Technology Bureau of million wheat annual production 400,000.00 Anhui Province Technology research project of Anhui province Total 4,044,600.00 35、Non-operating expenses Items 2007 2006 Losses from disposal of non-current assets 1,915,328.31 1,894,390.52 Including: Losses from disposal of fixed assets 1,915,328.31 1,894,390.52 Fine 69,954.40 231,538.84 Losses from scrap assets 409,926.05 —— Others 187,332.07 28,712.64 98 Total 2,582,540.83 2,154,642.00 36、Income tax Item 2007 2006 Income tax expenses 18,400,122.88 13,331,447.29 Deferred income tax expenses -242,789.84 46,468.79 Total 18,157,333.04 13,377,916.08 37、Cash received relating to other operating activities Items 2007 Deposits 16,487,117.26 Government grants 4,044,600.00 Others 12,729,757.53 Total 33,261,474.79 38、Cash paid relating to other operating activities Items 2007 Advertising fee 44,775,865.59 Business trip expenses 15,906,865.45 Deposits 13,355,353.51 Transportation expenses 18,188,130.97 Others 49,647,026.27 Total 141,873,241.79 39、Adjustment of net profits to operating activities cash flows 1.Adusting net profits to cash flow from operating activities： 2007 2006 Net profits 33,820,739.63 10,324,508.30 Add: Impairment loss provision of assets 6,684,363.53 -480,669.86 Depreciation of fixed assets 、 oil and gas assets and production biological assets 54,575,620.16 51,341,748.62 Amortization of intangible assets 1,584,755.52 3,444,641.66 Amortization of Long-term deferred assets 24,330.02 2,788,487.05 Loss on disposal of fixed assets、intangible assets and other long-term d 845,722.54 -794,708.72 99 eferred assets（Loss/Gain +/－） Loss from scrap assets（Loss/Gain +/－） —— —— Loss of fair value fluctuation on assets（Loss/Gain +/－） —— —— Financial costs（Loss/Gain +/－） 7,817,178.82 7,999,046.31 Loss on investment（Loss/Gain +/－） —— 13,446.35 Decrease of deferred income tax assets（Decrease/Increase +/-） -242,789.84 46,468.79 Decrease of deferred income tax liabilities(Increase/Decrease +/-) —— —— Decrease of inventories（Decrease/Increase +/-） 74,426,857.50 -15,923,481.58 Decrease of operating receivables (Decrease/Increase +/-) -56,497,680.60 -22,130,781.98 Increase of operating payables(Increase/Decrease +/-) -3,341,334.40 11,119,919.58 Debt restructuring(Loss/Gain +/-) —— —— Others 409,926.05 —— Net cash flows arising from operating activities 120,107,688.93 47,748,624.52 2.Significant investment and financing activities that without cash flows： Transfer of debts into capital —— —— Convertible corporate bond due within 1 year —— —— Finance leased fixed assets —— —— 3.Net increase (decrease) of cash and cash equivalents Ending balance of cash 154,708,705.75 126,323,268.78 Less: Beginning balance of cash 126,323,268.78 103,052,488.96 Add : Ending balance of cash equivalents —— —— Less: Beginning balance of cash equivalents —— —— Net increase of cash and cash equivalents 28,385,436.97 23,270,779.82 40、Cash Cash and cash equivalents Items 2007 2006 1、Cash Including: Cash on hand 56,208.10 63,351.88 unrestricted bank deposit 154,652,497.65 126,059,916.90 unrestricted other monetary funds —— 200,000.00 Deposit in central bank —— —— Placement in other banks or financial institutions —— —— Due to other banks or financial institutions —— —— 2、Cash equivalents —— —— 100 Including: Bond investment within three month —— —— 3、Ending balance of cash and cash equivalents 154,708,705.75 126,323,268.78 VIII. Notes to financial statements for the parent company (1) Accounts Receivable 1.1 Listed by items 2007.12.31 2006.12.31 Amount Proportion Bad debt Bad debt Amount Proportion Bad debt Bad debt Items provision provision provision provision proportion proportion Individual transaction with significant amount —— —— —— —— —— —— —— —— Individual transaction with not so significant amount but significant recoverable risk —— —— —— —— —— —— —— —— Other transaction with no significant amount 2,195,426.62 100.00% —— 95,264.06 23,863,988.83 100.00% —— 358,477.61 Total 2,195,426.62 100.00% —— 95,264.06 23,863,988.83 100.00% —— 358,477.61 1.2 Age analysis 2007.12.31 2006.12.31 Age Amount Proportion Bad debt Net value Amount Proportion Bad debt Net value Provision Provision Within 1 year 1,733,792.22 78.97% 27,555.86 1,706,236.36 20,769,346.73 87.03% 49,013.40 20,720,333.33 1-2 years 424,254.67 19.32% 42,425.47 381,829.20 3,094,642.10 12.97% 309,464.21 2,785,177.89 2-3 years 37,379.73 1.70% 25,282.73 12,097.00 —— —— —— —— Total 2,195,426.62 100.00% 95,264.06 2,100,162.56 23,863,988.83 100.00% 358,477.61 23,505,511.22 1.3 Up to December 31, 2007, there is no accounts receivable balance due from shareholders who own 5% or over 5% voting right shares. 1.4 The top five accounts receivable balance is RMB1,737,405.46, accounting for 79.14% of total account receivables: 2007.12.31 2006.12.31 Items Amount Proportion Amount Proportion Within one year 1,618,664.56 93.17% 20,283,289.21 100.00% 1-2 years 118,740.90 6.83% —— —— 101 Total 1,737,405.46 100.00% 20,283,289.21 100.00% (2) Other receivables 2.1 Listed by items 2007.12.31 2006.12.31 Balance % Bad debts Bad debt Balance % Bad debts Bad debt to Provision provision to Provision provision total proportion total proportion Items balance balance Individual transaction with significant amount 77,000,000.00 69.86% 97.35% 74,960,000.00 77,000,000.00 79.44% —— 77,000,000.00 Individual transaction with not so significant amount but significant recoverable risk —— —— —— —— —— —— —— —— Other transaction with no significant amount 33,224,647.36 30.14% —— 33,314.27 19,928,778.18 20.56% —— 146,854.67 Total 110,224,647.36 100.00% —— 74,993,314.27 96,928,778.18 100.00% —— 77,146,854.67 2.2 Other receivables with significant amount Bad debt provision Name of Debtor Amount Age proportion Content Hengxin Securities Co., Over 3 years Ltd 30,000,000.00 100% Securities investment Mingfa Securities Co., Over 3 years Ltd 30,000,000.00 100% Securities investment Jianqiao Securities Co., Over 3 years Ltd 17,000,000.00 88% Securities investment 102 Total 77,000,000.00 2.3 Age analysis 2007.12.31 2006.12.31 Age Bad debt Bad debt Amount Proportion provision Net value Amount Proportion provision Net value Within 1 year 33,066,347.36 30.00% 16,684.27 33,049,663.09 19,656,693.79 20.28% 97,750.61 19,558,943.18 1-2years 156,300.00 0.14% 15,630.00 140,670.00 240,283.39 0.25% 24,028.34 216,255.05 2-3years 2,000.00 0.00% 1,000.00 1,000.00 1,013,450.56 1.05% 1,006,725.28 6,725.28 Over 3 years 77,000,000.00 69.86% 74,960,000.00 2,040,000.00 76,018,350.44 78.42% 76,018,350.44 —— Total 110,224,647.36 100.00% 74,993,314.27 35,231,333.09 96,928,778.18 100.00% 77,146,854.67 19,781,923.51 2.4 Bad debts provision which made in full amount for Jianqiao Securities Co., Ltd in priors years has been reversed for RMB2,040,000 in current period. The details are referred to Notes VII.(4).4. 2.5 Other receivable for RMB22,224.04 has been written off in current period. 2.6 Up to December 31, 2007, there is no other payable balance due from shareholders who own 5% or over 5% voting right shares. 2.7 The total amount of top five account receivables is 77,406,300.00, accounting for 70.23 % of total other receivables. （3）Long-term equity investment 3.1 Long-term equity investment and impairment loss provision 2007.12.31 2006.12.31 Impairment Impairment Items Balance loss Net value Balance loss Net value provision provision Long-term equity 375,501,927.38 —— 375,501,927.38 375,501,927.38 —— 375,501,927.38 103 investment Including: Investment in subsidiaries 375,501,927.38 —— 375,501,927.38 375,501,927.38 —— 375,501,927.38 3.2 Long-term equity investment measured by cost method Investee companies Initial investment 2006.12.31 Increment Decrement 2007.12.31 Bozhou Gujing Sales Co., Ltd 84,428,042.21 84,428,042.21 —— —— 84,428,042.21 Bozhou Gujing Transportation Co., Ltd 6,875,743.00 6,875,743.00 —— —— 6,875,743.00 Bozhou Gujing Glass Co., Ltd 65,795,666.00 65,795,666.00 —— —— 65,795,666.00 Anhui Old Big Eight Distillery Co., Ltd 28,000,000.00 28,000,000.00 —— —— 28,000,000.00 Anhui Gujing Wild Sun Sales Co., Ltd 3,300,000.00 3,300,000.00 —— —— 3,300,000.00 Bozhou Gujing Packaging Co., Ltd 19,068,805.14 19,068,805.14 —— —— 19,068,805.14 Bozhou Gujing Printing Co., Ltd 27,021,753.63 27,021,753.63 —— —— 27,021,753.63 Shanghai Gujing Trade Co., Ltd 9,900,000.00 9,900,000.00 —— —— 9,900,000.00 Anhui Ruifuxiang Food Co., Ltd 104,940,000.00 104,940,000.00 —— —— 104,940,000.00 Hefei Gujing Trade Co., Ltd 9,900,000.00 9,900,000.00 —— —— 9,900,000.00 Bozhou Gujing Hotel Co., Ltd 16,271,917.40 16,271,917.40 —— —— 16,271,917.40 Total 375,501,927.38 375,501,927.38 —— —— 375,501,927.38 3.3 At the end of the reporting period, there is no impairment loss provision necessary for long-term equity investment upon management’s review. (4) Operating incomes and operating costs 4.1 Operating incomes and operating costs 2007 2006 Items Operating Operating Operating Costs Gross Profits Operating Costs Gross Profits Incomes Incomes Main operation 469,051,155.55 404,536,971.95 64,514,183.60 527,144,811.35 427,737,288.58 99,407,522.77 Other operation 21,754,108.96 29,397,642.50 -7,643,533.54 27,461,795.92 25,771,096.94 1,690,698.98 104 Total 490,805,264.51 433,934,614.45 56,870,650.06 554,606,607.27 453,508,385.52 101,098,221.75 4.2 Operating income and Operating cost lsited by category 2007 2006 Products Operating Operating Operating Costs Gross Profits Operating Costs Gross Profits Incomes Incomes Distilled spirit 439,595,705.32 383,096,076.36 56,499,628.96 499,350,509.17 409,041,575.98 90,308,933.19 Other 29,455,450.23 21,440,895.59 8,014,554.64 27,794,302.18 18,695,712.60 9,098,589.58 Total 469,051,155.55 404,536,971.95 64,514,183.60 527,144,811.35 427,737,288.58 99,407,522.77 4.3 Sales from top five clients 2007 2006 Name of customers Sales amount % to total sales Sales amount % to total sales Total sales from top five clients 400,610,261.42 85.41% 420,969,611.47 79.86% 4.4 Other operating income and other operating cost lsited by category： 2007 2006 Items Other operation Other operation Profits Other operation Other operation Profits Other operation Costs Other operation Costs Incomes Incomes Sales of raw material 9,970,314.93 9,085,925.12 884,389.81 19,751,436.45 16,032,708.71 3,718,727.74 Supply of water, electric and gas 7,745,999.39 10,721,844.63 -2,975,845.24 7,503,349.91 9,738,388.23 -2,235,038.32 Processing income 4,011,955.56 9,561,656.73 -5,549,701.17 —— —— —— Others 25,839.08 28,216.02 -2,376.94 207,009.56 —— 207,009.56 Total 21,754,108.96 29,397,642.50 -7,643,533.54 27,461,795.92 25,771,096.94 1,690,698.98 (5) Business tax and surtax Items 2007 2006 Consumption tax 102,606,283.10 110,106,006.76 City and construction maintenance tax and 12,775,489.90 education fee 14,262,378.96 Total 115,381,773.00 124,368,385.72 105 (6) Investment income Items 2007 2006 Profit distributed from subsidiaries 129,134,548.89 161,020,545.28 Total 129,134,548.89 161,020,545.28 IX. Related party and related party transactions (1) Confirmation related parties The Company has control, jointly control or significant influence on the other party, or is under common control, joint control or has significant influence on other company, is deemed as related parties. (2) The relationship of related parties 2.1 Related party with controllable relationship Legal Registered Main Registration Relationship with Business Related Party representati Address Business number the Company nature ve Beverage, 151947437 Direct controlling Limited Cao, Jie Construction shareholder liability Anhui Gujing Anhui materials, and company Group Co., Ltd Baozhou plastic productions manufacture 2.2 Share capital of related party with controllable relationship Related Party 2006.12.31 Increment Decrement 2007.12.31 Anhui Gujing Group Co., Ltd 353,800,000.00 —— —— 353,800,000.00 2.3 Share holding by related party with controllable relationship Related Party 2006.12.31 Proportion Increment Decrement 2007.12.31 Proportion Anhui Gujing Group Co., Ltd 147,000,000.00 62.55% —— 3,297,289.00 143,702,711.00 61.15% 106 2.4 Related parties with no controllable relationship Name of Company Registration number Relationship with the Company The subsidiary of same direct controlling 151940040 Anhui Gujing Comprehensive Service Co., Ltd shareholder The subsidiary of same direct controlling 71395940-6 Bozhou Zhenli Hengbao Co., Ltd shareholder The subsidiary of same direct controlling 71395908-6 Gujing Tianshi Printing Co., Ltd shareholder The subsidiary of same direct controlling 15194598-4 Gujing Jiufang Medicine Manufacture Co., Ltd shareholder The subsidiary of same direct controlling 14912443-1 Anhui Gujing Hotel (Group) Co., Ltd shareholder Shanghai Gujing Jinhao Real Estate Development The subsidiary of same direct controlling 134565998 Co., Ltd shareholder The subsidiary of same direct controlling Bozhou Gujing Thermoelectricity Co., Ltd 15194236-1 shareholder Anhui Ruijing Famous Wine Sales Co., Ltd The subsidiary of same direct controlling 667916375 shareholder Gujing Hotel The subsidiary of same direct controlling 15194483-4 shareholder (3) Related party transactions 3.1 The price of transaction between the Company and related parties is based on the price in contract signed by both parties. 3.2 Related party transaction ① Sales 2007 2006 Proportion to sales of Proportion to sales of Name of related parties Amount similar category of Amount similar category of products products Anhui Gujing Group Co., Ltd 616,735.40 0.05% —— —— Anhui Gujing Comprehensive Service Co., Ltd 942,669.49 0.08% 730,433.20 0.08% 107 Bozhou Zhenli Hengbao Co., Ltd 9,939.00 0.00% —— —— Bozhou Gujing Thermoelectricity Co., Ltd 36,962.70 0.00% 650,710.02 0.07% Gujing Jiufang Medicine Manufacture Co., Ltd 783,860.49 0.07% 196,675.15 0.02% Gujing Hotel 129,505.50 0.01% —— —— Anhui Ruijing Famous Wine Sales Co., Ltd 315,897.44 0.03% —— —— Gujing Tianshi Printing Co., Ltd —— —— 95,340.51 0.01% Total 2,835,570.02 0.24% 1,673,158.88 0.18% ② Purchases Year of 2007 Year of 2006 Proportion to sales of Proportion to sales of Name of related parties Amount similar category of Amount similar category of products products Anhui Gujing Comprehensive Service Co., Ltd 20,761,252.27 6.37% 89,637,002.23 34.94% Bozhou Gujing Thermoelectricity Co., Ltd 36,648,958.05 11.24% 32,554,174.84 12.69% Gujing Tianshi Printing Co., Ltd —— —— 25,247.53 0.01% Total 57,410,210.32 17.61% 122,216,424.60 47.64% ③ Guarantees Up to 31 December 2007, Anhui Gujing Group Co., Ltd provided guarantees for the Company’s long-term borrowing for RMB19 millions (including RMB9 millions long-term borrowings due within one year). 3.3 Balance of account receivable or account payable among related parties 2007.12.31 2006.12.31 Name of company Amount Proportion Amount Proportion Account receivable: Anhui Gujing Group Co., Ltd 80,328.00 0.22% —— —— 108 Bozhou Zhenli Hengbao Co., Ltd 1,776.00 0.00% —— —— Bozhou Gujing Thermoelectricity Co., Ltd 1,673.00 0.00% —— —— Gujing Jiufang Medicine Manufacture Co., Ltd 105,199.59 0.29% 95,004.30 0.25% Hefei Hotel Group Co., Ltd 51,677.20 0.14% —— —— Total 240,653.79 0.65% 95,004.30 0.25% Advanced to suppliers: Bozhou Gujing Thermoelectricity Co., Ltd 287,031.12 2.63% 765,499.77 8.36% Total 287,031.12 2.63% 765,499.77 8.36% Account payables: Anhui Gujing Comprehensive Service Co., Ltd 481,033.26 0.73% 2,502,273.98 2.97% Bozhou Zhenli Hengbao Co., Ltd 69.34 0.00% —— —— Total 481,102.60 0.73% 2,502,273.98 2.97% Other payables: Anhui Gujing Group Co., Ltd 500,000.00 1.26% —— —— Anhui Gujing Comprehensive Service Co., Ltd 261,061.21 0.66% —— —— Bozhou Gujing Thermoelectricity Co., Ltd 49,792.55 0.13% —— —— Anhui Gujing Hotel (Group) Co., Ltd 4,399,195.80 11.07% —— —— Total 5,210,049.56 13.11% —— —— X. Contingency Up to 31 December 2007, there is no significant contingency event that needs to be disclosed XI. Commitment Up to 31 December 2007, there is no significant commitment event that needs to be disclosed XII. Non-adjusting events after balance sheet date 109 Up to 28 April 2008, there is no significant non-adjusting event after balance sheet date that needs to be disclosed XIII. Other significant events Up to 31 December 2007, there is no other significant event that needs to be disclosed. XIV. Net profits after deduction of the non-recurring profit and loss Items Amount Net Profits 33,876,546.32 Less: Profits from disposal of non-current assets -845,722.54 Government grants 4,044,600.00 Net profits from other non-operating activities 1,872,150.86 Balance of welfare expense reversed required by new Enterprise Accounting Standards at the end of reporting period 11,776,478.89 Sub-total 17,029,039.11 Add: Non-recurring profit attributable to minority interests 11,016.23 Add: Amount influenced by income tax 1,204,056.30 Net profits after deduction of non-recurring profit and loss 18,244,111.64 XV. Yield Rate of Net Assets and Earnings Per Share Yield Rate of Net Assets Earnings Per Share (Yuan/share) Profits for the report period Basic earnings Diluted earnings Full dilution Weighted average per share per share Net profits attributable to ordinary shareholders 33,876,546.32 4.01% 4.09% 0.14 0.14 Net profits attributable to the ordinary shareholders after deduction of non-recurring profit and loss 18,244,111.64 2.16% 2.20% 0.08 0.08 Calculation： 110 1、Basic Earnings Per Share: After deducted from non-recurring Items Calculation Amount profit or loss Net profits for current period attributable to ordinary shareholders P 33,876,546.32 18,244,111.64 Total shares at beginning of the period S0 235,000,000 235,000,000 Incremental shares for the year Si —— —— the number of months from the next month to the end of the reporting period for increase of shares Mi —— —— the number of months during the report period M0 12 12 Weighted average ordinary shares issued S=S0＋Si×Mi÷M0 235,000,000 235,000,000 Basic Earnings Per Share P÷S 0.14 0.08 2、Diluted Earnings Per Share After deducted from non-recurring Items Calculation Amount profit or loss Net profits for current period attributable to ordinary shareholders P 33,876,546.32 18,244,111.64 Dividends and interests related to potential dilution in ordinary shares A1 —— —— Gains or expenses incurred by potential dilution in ordinary shares A2 —— —— Total shares at beginning of the period S0 235,000,000 235,000,000 Incremental shares for the year Si —— —— The number of months from the next month to the end of the reporting period for increase of shares Mi —— —— The number of months during the reporting period M0 12 12 Weighted average ordinary shares issued S=S0＋Si×Mi÷M0 235,000,000 235,000,000 Weighted average of ordinary shares transferred from potential diluted ordinary shares X —— —— Diluted Earnings Per Share (P＋A1±A2)÷(S＋X) 0.14 0.08 XVI. Supplementary Information (1). Procedures for adjustment of comparative income statement Adjusted items for income statement for the year of 2006 Items Before adjustment After adjustment Operating income 957,415,646.39 963,702,143.87 Operating costs 647,285,389.37 649,142,910.83 Business tax and surtax 129,836,223.32 130,150,588.64 Selling expenses 65,446,308.50 68,120,930.15 111 Administration expenses 84,386,626.45 87,315,347.85 Financial costs 6,889,122.56 6,747,595.70 Investment incomes -230,946.35 -13,446.35 Non-operating incomes 3,143,913.17 3,165,072.17 Non-operating expense 488,570.25 2,154,642.00 Income tax 13,331,447.29 13,377,916.08 Net profits attributable to the parent company 13,151,037.46 13,329,639.70 Minority interests -5,442.13 -13,013.16 Net profits in acquired companies before combination —— -2,992,118.24 (2) Net profits in simulating the implementation of new accounting standards in 2006 and the difference adjustment statement of net profits disclosed in the 2006 annual report Difference Adjustment for Net Profits for the year of 2006 Items Amount Net profits for year 2006 (old accounting standards) 13,151,037.46 Total amount effected by retroactive adjustment items -2,821,087.03 Including: Amortization of long-term equity investment difference under common control enterprise consolidation 217,500.00 Impacts on re-recognition of deferred income tax 46,468.79 Net profits in acquired company before combination -2,992,118.24 Less : impacts on minority interests for retroactive adjustment items -7,571.03 Less :Net profits in acquired company before combination -2,992,118.24 Net profits in 2006 (new accounting standard)） 13,329,639.70 Assume that the company will fully implement the referenced accounting standards —— Total effects by other items —— Simulated net profits in 2006 13,329,639.70 (3) Adjustment of the shareholders’ equity reported in accordance with the old accounting standards to the new Enterprise Accounting Standards 3.1 Adjustment of shareholders’ equity on January 1, 2006 Items Before adjustment After adjustment Shares capital 235,000,000.00 235,000,000.00 Capital reserve 529,049,706.16 558,751,546.18 Surplus reserve 139,289,283.84 140,940,771.04 112 Retained earnings -95,218,130.79 -107,528,949.15 Subtotal of shareholders’ equity attribute to the parent company 808,120,859.21 827,163,368.07 Minority interests 2,217,086.76 3,709,150.18 Total 810,337,945.97 830,872,518.25 3.2 Adjustment of shareholders’ equity on December 31, 2006 Items Before adjustment After adjustment Shares capital 235,000,000.00 235,000,000.00 Capital reserve 529,212,724.68 532,491,668.70 Surplus reserve 139,289,283.84 140,940,771.04 Retained earnings -82,067,093.33 -96,975,097.54 Subtotal of shareholders’ equity attribute to the parent 821,434,915.19 811,457,342.20 company Minority interests 3,479,791.26 3,479,806.87 Total 824,914,706.45 814,937,149.07 XVII. The corresponding disclosure of changes in Shareholder’s equity under new and old accounting standards The amounts The amounts Items disclosed in annual disclosed in annual Notes report for 2007 report for 2006 Shareholders’ equity on December 31, 2006(old accounting standards) 821,434,915.19 821,434,915.19 113 Difference in long-term equity investment -10,803,478.60 -10,803,478.60 Including: Difference in long-term equity investment occurred by consolidation under same control -10,803,478.60 -10,803,478.60 Credit side difference for long-term equity investment measured by equity method investment property measured by fair value Share payment Consolidation Including: Book value of goodwill after consolidation under common control Impairment loss provision for goodwill under new accounting standards Financial assets at fair value through P&L, and available- for-sale financial assets Financial liabilities at fair value through P&L Derivative financial instruments Income tax 825,905.61 825,905.61 Minority interests 3,479,806.87 3,479,806.87 Special retroactive adjustment for companies listed in B shares or H shares Shareholders’ equity on 1 Jan 2007(New accounting standards) 814,937,149.07 814,937,149.07 XVIII. Approval of financial statements This financial statements are approved and authorized for issuance by the Board of Directors on April 28, 2008. 114