ST东海Ｂ(200613)2007年年度报告（英文版）

海南大东海旅游中心股份有限公司 Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. Annual Report 2007 (Overseas) April, 2008 Contents I. Important Notice and Contents---------------------------------------------------- II. Company Profile-------------------------------------------------------------------- III. Summary of Accounting Highlights and Business Highlights------------ IV. Changes in Share Capital and Particulars about Shareholders---------- V. Particulars about Directors, Supervisors, Senior Executives and Employees-- VI. Administrative Structure -------------------------------------------------------- VII. Particulars about Shareholders’ General Meeting------------------------- VIII. Report of the Board of Directors-------------------------------------------- IX. Report of the Supervisory Committee---------------------------------------- IX. Significant Events----------------------------------------------------------------- XI. Financial Report------------------------------------------------------------------- XII. Documents for Reference ------------------------------------------------------ I. Important Note Board of Directors and Supervisory Committee of Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. All the directors attended the meeting. ZONZUN Accounting Office Ltd. issued the standard unqualified Auditors’ Report for the Financial Report 2007 of the Company. Mr. Li Yuanbin, the Chairman of the Board and General Manager, and Mr. Chen Liurong, Person in Charge of Financing hereby confirm that the Financial Report of Annual Report 2007 is authentic and complete. II. Company profile 1. Legal name in Chinese: 海南大东海旅游中心股份有限公司 Short form of the legal name in Chinese: 大东海 Legal name in English: Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. Short form of the legal name in English: DADONGHAI, DADONGHAI-B 2. Legal representative: Li Yuanbin, 3. Secretary of Board of Directors: Chen Liurong Authorized Representative in Charge of Securities Affairs: Wang Hongjuan Contact Address: Dadonghai, Sanya Tel: 0898-88219888 Ext.8264 Fax: 0898-88212298 Email: hnddht@21cn.com 4. Registered address: Dadonghai, Sanya Office address: Dadonghai, Sanya Post code: 572021 E-mail: hnddht@21cn.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (domestic) and Hong Kong Wen Wei Po (overseas) Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: ST Donghai-A, ST Donghai-B Stock Code: 000613, 200613 7. Other Relevant Information of the Company Initial registered date: April 26, 1993. Registered date after the latest change: May 17, 2007 Registered address: Dadonghai, Hedong District, Sanya. Registered number for business license of the Company: 4600001003983 Registered number of taxation of the Company: 460200201357188 Organization Code: 20135718-8 Certified accountant engaged by the Company: ZONZUN Accounting Office Ltd. Office address: 4/F, Guoxing Building, No.22, Shouti South Road, Haidian District, Beijing, China. III. Summary of Accounting Highlights and Business Highlights I. Major profits index (Unit: RMB Increase/d ecrease in this year 2007 2006 2005 compared with last year (%) After Before Before adjustment After adjustment After adjustment adjustment adjustment 14,789,286.7 Operating income 25,623,653.21 13,260,868.03 13,294,904.03 92.73 14,789,286.71 1 Total profit 154,616,244.03 -18,633,733.19 -18,633,733.19 929.77 7,494,406.85 7,494,406.85 Net profit attributable to shareholders of the 139,158,744.20 -18,633,733.19 -18,633,733.19 846.81 7,494,406.85 7,494,406.85 listed company Net profit attributable to shareholders of the listed company after -5,666,753.99 -16,214,498.69 -16,214,498.69 -65.05 -9,324,523.87 -9,324,523.87 deducting non-recurring gains and losses Net cash flow arising from operating 6,623,022.91 2,425,457.97 2,425,457.97 173.06 5,923,396.74 5,923,396.74 activities Increase/d ecrease at the end of this year At the end of At the end of 2006 compared At the end of 2005 2007 with that at the end of last year (%) After Before adjustment After adjustment Before adjustment After adjustment adjustment Total assets 135,406,198.96 140,997,292.13 140,997,292.13 -3.97 156,380,145.77 156,380,145.77 Owners’ equity(Shareholders’ 73,692,685.04 -65,466,059.16 -65,466,059.16 212.57 -46,864,344.97 -46,864,344.97 equity) Items of deducting non-recurring gains and losses and the involved amounts are as following: (Unit: RMB) Items of non-recurring gains and losses Amount Gains and losses from the disposal of non-current assets -520,447.58 Income from debt restructuring 160,585,773.05 Net amount of non-operating income and expense 217,672.55 excluded the aforesaid items Amount of impact on income tax -15,457,499.83 Total 144,825,498.19 II. Explanation on the difference in net profit and net asset as audited according to CAS and IAS respectively in the report period (Unit: RMB) CAS IAS Net profit 139,158,744.20 139,158,744.20 Net asset 73,692,685.04 73,692,685.04 Explanations No differences on differences III. Main financial highlights and financial index over the previous 3 years ended the report period. (Unit: RMB) Increase/decreas 2007 2006 e in this year 2005 compared with last year (%) Before After After Before adjustment After adjustment adjustmen adjustmen adjustment t t Basic earnings per share 0.38 -0.05 -0.05 849.41 0.02 0.02 Diluted earnings per 0.38 -0.05 -0.05 849.41 0.02 0.02 share Basic earnings per share after deducting -0.02 -0.04 -0.04 75.51 -0.03 -0.03 non-recurring gains and losses Fully diluted return on 188.84 equity Weighted average return 3383.13 on equity Fully diluted return on equity after deducting -7.69 non-recurring gains and losses Weighted average return on equity after -137.77 deducting non-recurring gains and losses Net cash flow arising from operating activities 0.02 0.01 0.01 100.00 0.02 0.02 per share Increase/decreas e at the end of At the end of this year At the end of 2006 At the end of 2005 2007 compared with that at the end of last year (%) Before After After Before adjustment After adjustment adjustmen adjustmen adjustment t t Net asset per share attributable to shareholders 0.20 -0.18 -0.18 212.57 -0.13 -0.13 of listed company IV. Changes in Share Capital and Particulars about Shareholders I. Changes in Share Capital (1) Explanations on changes in share 1. On June 20, 2007, the relevant shareholders’ meeting on share merger reform scheme of the Company approved the Share Merger Reform Scheme of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd., that is, to adopt the shceme of Debt Restructuring+Bonus Shares. The detailed debt restructuring matters were organized and coordinated by the controlling shareholde the agent of Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd. Haikou Grocery Co., Ltd, accepted and finnaly exempted the debt of the liste company amounting to RMB 158,974,468.35; and radically improved the financial status of the listed company. Other nontradable shareholders who did not participated in the matters of debt restructuring would get 3 bonus shares for each 10 shares, including the tradable shares would get 3 bonus shares for each 10 shares; thus, nontradable shareholders obtained the trading rights. After the implementation of the scheme, the shares structure of the Company has changes but the total shares remained unchanged. 2. Changes in share structure in the report period Unit: Share Before the change Increase or decrease of this time (+) After the change Capitaliz New Bonus ation of Amount Proportion shares Others Subtotal Amount Proportion shares public issued reserve I. Restricted shares 231,034,353 63.45% 0 0 0 -13,519,694 -13,519,694 217,514,659 59.74% 1. State-owned shares 44,088,000 12.11% 0 0 0 -6,637,800 -6,637,800 37,450,200 10.29% 2. State-owned legal person’s 0 0.00% 0 0 0 0 0 0 0.00% shares 3. Other domestic shares 186,946,353 51.34% 0 0 0 -6,881,894 -6,881,894 180,064,459 49.45% Including: Domestic non-state-owned legal 186,912,000 51.34% 0 0 0 -6,892,200 -6,892,200 180,019,800 49.44% person’s shares Domestic natural person’s 34,353 0.01% 0 0 0 10,306 10,306 44,659 0.01% shares 4. Foreign shares 0 0.00% 0 0 0 0 0 0 0.00% Including: Foreign legal 0 0.00% 0 0 0 0 0 0 0.00% person’s shares Foreign natural person’s 0 0.00% 0 0 0 0 0 0 0.00% shares II. Unrestricted shares 133,065,647 36.55% 0 0 0 13,519,694 13,519,694 146,585,341 40.26% 1. RMB Ordinary shares 45,065,647 12.38% 0 0 0 13,519,694 13,519,694 58,585,341 16.09% 2.Domestically listed foreign 88,000,000 24.17% 0 0 0 0 0 88,000,000 24.17% shares 3. Overseas listed foreign 0 0.00% 0 0 0 0 0 0 0.00% shares 4. Others 0 0.00% 0 0 0 0 0 0 0.00% III. Total shares 364,100,000 100.00% 0 0 0 0 0 364,100,000 100.00% 3. Particulars about the top ten restricted shareholders and changes on restricted shares of other restricted shareholders in the report period (Unit: Share) Amount of Amount of Reason for Releasing date for releasing Name of shareholders restricted shares restriction restriction planned restriction planned Legal August 8, 2008 18,205,000 Haikou Grocery Co., Ltd. (Haikou commitment on August 8, 2009 18,205,000 Agriculture & Industry & Trade 60,000,000 Share Merger (Luoniushan) Co., Ltd.) August 8, 2010 23,590,000 Reform Legal August 8, 2008 18,205,000 commitment on Shi Yajun 18,327,000 Share Merger August 8, 2009 122,000 Reform Legal Wuhan Turui Technology commitment on 18,000,000 August 8, 2008 18,000,000 Development Co., Ltd. Share Merger Reform Legal Hainan Shanya Yinnong Industrial commitment on 6,930,000 August 8, 2008 6,930,000 Development Co., Ltd. Share Merger Reform Legal commitment on ChinaAMC 6,600,000 August 8, 2008 6,600,000 Share Merger Reform Legal Yangpu Tongrong Investment commitment on 6,514,500 August 8, 2008 6,514,500 Management Consultation Co., Ltd. Share Merger Reform Legal commitment on Yangpu Jinyu Industrial Co., Ltd. 4,666,200 August 8, 2008 4,666,200 Share Merger Reform Legal Sanya Zhongxing Development Co., commitment on 3,630,000 August 8, 2008 3,630,000 Ltd. Share Merger Reform Legal Shanghai Jingxian Investment Co., commitment on 3,481,100 August 8, 2008 3,481,100 Ltd. Share Merger Reform Legal China Agriculture Bank Haikou commitment on 3,300,000 August 8, 2008 3,300,000 Jinmao Branch Share Merger Reform Legal 128 shareholders with other restricted commitment on 144,651,200 August 8, 2008 144,651,200 conditions Share Merger Reform Note: The Company has implemented Share Merger Reform Scheme on August 8, 2007; all the restricted shares were not released restrictions ended Dec.31, 2007. The aforesaid restricted shares which needed repaying part substitutive shares in Share Merger Reform but not repaying part substitutive shares already, after repaying the part substitutive shares in Share Merger Reform, the relevant shares could obtain the trade on August 8, 2008 or after August 8, 2008. (2) All issuance and listing of shares During the previous 3 years ended the report period, no shares and derivative securities were issued. In the report period, there existed no inner employees’ shares in the Company. II. About shareholders (1) Particulars about the number of the shareholder the Company and the shares held at the end of report period Unit: Shares Total amount of shareholders 24,683 ended as the report period Particulars about shares held by the top ten shareholders Proportio Amount of Nature of Amount of Shares pledged Names of shareholders n of share restricted shares shareholder share held or frozen held held Haikou Grocery Co., Ltd. (Haikou Domestic Agriculture & Industry & Trade non-state-owned 16.48% 60,000,000 60,000,000 0 (Luoniushan) Co., Ltd.) legal person Domestic natural Shi Yajun 5.03% 18,327,000 18,327,000 0 person Domestic Wuhan Turui Technology non-state-owned 4.94% 18,000,000 18,000,000 0 Development Co., Ltd. legal person Domestic Hainan Shanya Yinnong Industrial non-state-owned 1.90% 6,930,000 6,930,000 0 Development Co., Ltd. legal person Domestic ChinaAMC non-state-owned 1.81% 6,600,000 6,600,000 0 legal person Yangpu Tongrong Investment Domestic Management Consultation Co., non-state-owned 1.79% 6,514,500 6,514,500 0 Ltd. legal person Domestic Yangpu Jinyu Industrial Co., Ltd. non-state-owned 1.28% 4,666,200 4,666,200 0 legal person Domestic Sanya Zhongxing Development non-state-owned 1.00% 3,630,000 3,630,000 0 Co., Ltd. legal person Domestic Shanghai Jingxian Investment Co., non-state-owned 0.96% 3,481,100 3,481,100 0 Ltd. legal person China Agriculture Bank Haikou State-owned legal 0.91% 3,300,000 3,300,000 0 Jinmao Branch person Particulars about shares held by the top ten unrestricted shareholders Amount of unrestricted Name of shareholder Type of share shares held Domestically listed foreign CITRINE CAPITAL LIMITED 2,159,868 share Domestically listed foreign LI TING 1,920,000 share Tianjing Guangda Bingfeng Chemical Co. Ltd. 413,840 RMB common share Domestically listed foreign XIANG XING LIANG 1,068,850 share Domestically listed foreign CHEN MING WEI 1,061,600 share Domestically listed foreign MORGAN STANLEY & CO. INTERNATIONAL PLC 1,000,000 share Domestically listed foreign CAI LING 905,900 share Domestically listed foreign ZHANG CHAN MEI 681,580 share Domestically listed foreign HUI, WAI 638,010 share Domestically listed foreign QIN HAN CHUAN 625,400 share Among the ten shareholders, The top 3 shareholders and the 6th shareholder are related parties; the 6th shareholder was jointly funded by the top three shareholders. Other shareholders did not have relationships, or belongs to the Explanation on associated consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company among the other shareholders. relationship or accordant action The Company is unknown whether there exists associated relationship or belongs among the aforesaid shareholders to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company among the other shareholders with unrestricted conditions. (2) Particulars about controlling shareholder of the Company: 1. The controlling shareholder The former first largest shareholder Haikou Grocery Co., Ltd has the Company’s 60 million shares instead owned by HaiKou Agriculture ＆ industry ＆ Trade (LUONIUSHAN) Co., Ltd. The first largest shareholder is actually HaiKou Agriculture ＆industry＆Trade(LUONIUSHAN) Co., Ltd. and details can be seen in the Suggestive Notice on Significant Event of Hainan Dadonghai Tourism Center (Holdings) Co., Ltd published on Security Times, Hong Kong Wen Wei Po and Julang Website www.cninfo.com.cn dated on April 26, 2008. HaiKou Agriculture＆lndustry＆Trade(LUONIUSHAN) Co., Ltd (stock abbreviation: * ST Luoniu, stock code: 000735) with Hu Dianling as its legal representative; the founding date is Nov., 15, 1993; registering capital is RMB 880,132,000.00; registering address is No.50 Renmin Road, Haikou city; operation covers seeding breeding industry, developing industry, operation of real estate developing, construction and decoration engineer, manufacture and sales of fertilizer, processing and sales of agricultural products and feeds, accessories of technical automobiles and motorcycles, electronic products, metallic materials (except for exclusive business), chemical and industrial products (except for exclusive business), household appliances, modern office supplies, document supplies, daily-use articles, food, construction materials, sales of agricultural specialties, restaurant industry, development and construction of trading market and leasing services. 2. Particulars about actual controllers of the Company HaiKou Agriculture ＆ lndustry ＆ Trade(LUONIUSHAN) Co., Ltd’s first largest shareholder is the Hainan Luoniushan Holding Group Co. Ltd with Ma Yaowu as its legal representative; registering capital is RMB 35 million; registering address is No.50 Renmin Road, Haikou city; operation covers agriculture developing, planting, breeding, processing and selling of agricultural products, tourism developing (all projects operated with administrative licenses). Share holding proportion of Hainan Luoniushan Holding Group Co. Ltd is relatively scattered. Shareholders with above 5% shares are: Xu Zili invested RMB 8,862,000 which accounts 25.32% of the registered capital; Ruifu Investment Co., Ltd invested RMB 5.8 million which accounts 16.57% of the registered capital; Hainan Liqin Investment Co., Ltd invested RMB 5,560,600 which accounts 15.89% of the registered capital; Ma Yaowu invested RMB 5 million which accounts 14.29% of the registered capital; Hu Dianling invested RMB 5 million which accounts 14.29% of the registered capital. Xu Zili: born in 1966, with the Han nationality, and is a senior engineer with a master degree. He was the vice president of Hubei Huangshi Mine Bureau Machinery, vice chairman of the board and general manager of the 5th board of director for HaiKou Agriculture＆lndustry＆Trade(LUONIUSHAN) Co., Ltd, and the member of the 11th Haikou Political Committee. Now he is the general manager of the HaiKou Agriculture ＆lndustry＆Trade(LUONIUSHAN) Co., Ltd. Ruifu Investment Co., Ltd with Wang Hao as its legal representative; registering capital is RMB 0.1 billion; registering type is limited company (nationally joint venture); operation covers industry development, project investment and management, asset operation and management, comprehensive agriculture development, agriculture investment and management and investment information consulting etc. And the actual controller of the Company is Chenjianjun. Hainan Liqin Investment Co., Ltd with Zhong Jinxiong as its legal representative; registering capital is RMB 21 million; registering type is limited company; operation covers Hi-Tec comprehensive agriculture and enterprises’ investment, management and planning etc. And the actual controller of the Company is Shao Huibing and Xu Zili. Ma Yaowu is the chairman of the board and general manager of Hainan Luoniushan Holding Group Co. Ltd. Hu Dianling: born is 1961 with the Han nationality, and is a lawyer as well as a China Communist Party member with a master degree. He was once prior office deputy of HaiKou Agriculture＆lndustry＆Trade(LUONIUSHAN) Co., Ltd; secretary of the board, deputy general manager and director, and during the period he got enterprise management master degree of Jilin University and lawyer qualification; director, standing deputy general manager and director as well as general manager of Hubei Guangji Pharmaceutical Co., Ltd. And now he is the chairman of the board for HaiKou Agriculture＆lndustry＆Trade(LUONIUSHAN) Co., Ltd, vice president of Hainan Enterprise Association and the National People's Congress Representative of Haikou. 3. Chart of relationships among the practical controller Chen Jiangjun 64％ Dongcheng Xingye Investment Co., Ltd. Shao Huibing Xu Zili 81.58 ％ 50 ％ 50% Shanghai Siping Development & Operation (Group) Co. Hainan Huijia Trading Co., Ltd 70％ 56.45％ Xu Zili Hainan Liqin Ma Yaowu Hu Dianling Ruifu Investment 25.32％ 16.57％ 15.89％ 14.29％ 14.29％ Hainan Luoniushan Holding Group Co., Ltd. 10.31％ Haikou Grocery Co., Ltd (HaiKou Agriculture＆lndustry＆Trade(LUONIUSHAN) Co., Ltd.) 16.48％ Hainan Dadonghai Tourism Center (Holding) Co., Ltd. 4. The Company did not have other shareholders who held above 10% shares (included 10%) V. Particulars about the Directors, Supervisors and Senior Executives and Employees I. Particulars about directors, supervisors and senior executives 1. Basic information Incentive equity bestowed in Draw the the report period remuneratio Total n from other Shares Shares Rea remuneration shareholder held Amou Share Beginning Terminating held son drew from the Shares units or at the nt market Names Titles Sex Age date of date of office at the of Company in availa Exerc associates or year-beg exerci price office tserm term year-end cha the report ble for ise not in sed in nge period exerci price Shares (Share) (Share) alread report- (RMB’0000) sing available y end for exercising Chairman, Li Yuanbin General Male 57 June 1, 2005 June 5, 2008 0 0 90,720.00 0 0 0.00 0.00 No Manager Independent Zhao Man Female 55 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 No Director Leng Independent Male 52 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 No Mingquan Director Independent He Lanping Female 50 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 No Director Li Wei Director Male 46 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 No Liu Juntao Director Male 39 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 No Fu Cai Director Male 36 June 1, 2005 June 5, 2008 0 0 36,000.00 0 0 0.00 0.00 Yes Director, Zheng Vice-chairm Male 47 June 1, 2005 April 10, 2007 2,673 2,673 12,000.00 0 0 0.00 0.00 No Jirong an Director Huang Deputy Male 37 June 1, 2005 April 10, 2007 0 0 12,000.00 0 0 0.00 0.00 No Qingwang General Manager Huang Supervisor Male 38 June 1, 2005 June 5 2008 0 0 21,000.00 0 0 0.00 0.00 Yes Wencai Yan Jianhua Supervisor Male 44 June 1, 2005 June 5, 2008 0 0 18,000.00 0 0 0.00 0.00 No Wang Supervisor Female 31 June 1, 2005 April 25, 2008 0 0 18,000.00 0 0 0.00 0.00 No Hongjuan Deputy Chen General Male 43 June 1, 2002 June 5, 2008 0 0 48,960.00 0 0 0.00 0.00 No Liurong Manager Deputy General Wu Manager, Male 36 April 1, 2004 Jan.28, 2008 0 0 48,960.00 0 0 0.00 0.00 No Congfeng Secretary of the Board of Directors Total 2,673 2,673 485,640.00 0 0 0.00 0.00 2. Particulars about directors, supervisors and senior executives holding the position in other Shareholding Company Drawing the payment Title in Shareholding from the Shareholding Name Name of Shareholding Company Office term Company Company (Yes / No) Hainan Sanya Yinnong Industrial Fu Cai Manager Since May 2003 Yes Development Co., Ltd. For the detailed positions in other units, please refer to Major Backgrounds of the Directors, Supervisors, and Senior Executives in Recent Five Years. 3. Major backgrounds of the directors, supervisors, senior executives and jobs taken or concurrently taken in parties other than shareholding parties in recent five years Directors: Mr. Li Yuanbin: 57 years old, MBA degree, senior engineer. He once held the position of Chairman of Board of Haikou Haiyuan Co. Ltd and Yangpu TIandi Sunshine Industry Co., Ltd, director and general manager of the Company, now he is chairman of the Board and general manager, vice chairman of Hainan Enterpreneurs’ Association, and permanent member of Hainan Federation of Industry Chamber of Industry & Commerce. Mr. Liu Juntao: 39 years old, undergraduate degree, economist. Mr. Liu once held the position of vice bank chairman of Gansu Construction Bank banch, secretary of the Board of Director of Haikou Agriculture Industry and Trade (Luo Niushan) Co. Ltd., deputy general manager of Hainan Dadonghai Traveling Co. Ltd and Softto Co., Ltd and director of Guohai Securities Co., Ltd., he held the position of director of the Company since 2002. Mr. Li Wei: 46 years old, Master Degree, CPA, Party member. Mr. Li once held the position of finance director of Yingshan County Silk Making Plant, director and vice director of Yingshan county auditing office, bailiff of Yingshan county Chengguan county, supervisor of Hainan Province Internal Auditing Institute, he held the position of deputy general manager manager and finance officer. Now, he is the chief accountant in Hainan Medical College; he held the position of director of the Company since 2002. Mr. Fu Cai: 36 years old, undergraduate degree, economist, Mr. Fu once held the position of international balance people of Sanya Agriculture Sales Department, vice general manager of Sanya Agriculture Sales Department, vice general manager (principal) of Hainan Sanya Yinnong Industry development head office and was held the position of director of the Company since June 2004. Independent Directors: Ms. Zhao Man, 55 years old, doctor, tutor of doctorial degree, Ms. Zhao now holds the position of president of finance and public management college of Zhongnan finance and political university, independent director of Changjiang Communication Co. Ltd., Fuxing science and technology Co. Ltd., and Wuhan Zhongxin Shopping Mall Co., Ltd. She held the position of independent director of the Company since 2002. Mr. Leng Mingquan: 52 years old, graduate degree, Mr. Leng once held the position of secretary of Suizhou city propagandize department, director of cooperation office of Suizhou government, director of Suizhou city Haikou office, vice director and secretary, legal representative of Hainan entrepreneur institute, political commissary of the 3rd term of Hainan province and vice director of Hainan Motions Examination Committee, he held the position of independent director of the Company since 2002. Ms. He Lanping: 50 years old, undergraduate degree, majored construction financing credit in Zhongnan University of Economics and Law, senior accountant; he took the post of chief and vice chief of office of management and head of construction department of Zhongnan University of Economics and Law; now he is head of financial department of Zhongnan University of Economics and Law and took the post of chairman of supervisory committee of the Company since 2005. Supervisors: Mr. Huang Wencai: 38 years old, undergraduate degree, Mr. Huang once held the position of vice director of Haikou meat association factory, director of Haikou food Co. Ltd. and assistant of general manager of Haikou food Co. Ltd., he held the position of the Company since 2002. Mr. Yan Jianhua: 43 years old, graduate degree, CPA title, Mr. once he worked in Shanya Zhongya Hotel and Haikou Xinyuan Hot Spring Hotel as vice general manager, general management, standing vice chairman of the board; and executive general manager of Sanya South China Hotel; He is now taking the position of general manager of Sanya South China Hotel and he held the position of supervisor of the Company since 2004. Mr. Li Zhi, 28 years old, Han nationality, studied in Hainan University from Feb., 2004 to Jan., 2007. From Oct., 2003 to Dec., 2004, he took the post of financial manager of Hainan Boshitong Investment Management Consultant Co. Ltd.; from Jan., 2005 to Oct., 2006, he took the post of deputy general manager of Haikou Anqiong Pawnshop; now he is deputy manager of financial department and employee supervisor. Other senior executives: Mr. Chen Liurong: 43 years old, undergraduate degree, accountant, Mr. Chen once held the position of vice finance manager, manager and assistant of general manager of Hainan Dadonghai Traveling Co. Ltd. and he is now taking the position of deputy general manager of Hainan Dadonghai Tourism Center (Holding) Co., Ltd. 4. Annual remuneration 1) According to the relevant regulations of China and actual conditions of the Company, the Shareholders’ General Meeting and Board of Directors of the Company made the allowance standard and remuneration standard on directors, independent directors, supervisors and senior executives; directors, independent directors, supervisors and senior executives drew their remunerations according to the relevant regulation made by Shareholders’ General Meeting and Board of Directors and their positions of the Company 2) According to the implementations of the directors, independent directors, supervisors, their business charges to Shareholders’ General Meeting and meeting of Board of Directors, and conduct their office rights according to the Articles of the Association should be apply for reimbursement from the Company. 3) The Company did not implement equity mechanism 5. Elected or leaving position and reason of directors, supervisors and senior executives in the report period On April 10, 2007, the former vice chairman and director of the 5th board of directors Mr. Zheng Jirong and former director and deputy general manager Mr. Huang Qingwang resigned their posts of vice chairman &director and director&deputy general manager of the Company due to the equity changes of the Company held by their working units. With the resolution in the 5th meeting of the 5th board of directors of the Company, the resign applications of Mr. Zheng Jirong and Mr. Huang Qingwang were planned to be agreed and passed the examination of 2006 Annual Sharholders’ General Meeting. II. Particulars about employees The total number of employees of the Company within the report period was: 262, including: Service people 144, Finance people 27, Technical people 59, Administration people 32, the undergraduate degree occupied 35% of total number of employees and there was no retire employees. VI. Administrative Structure I. In accordance with the regulations on the administration of listed companies promulgated by CSRC, the actual management status of the Company remained differences with the requirements of the relevant documents In the report period, according to relevant regulations of the Company Law, Securities Law and Stock Listing Rules of Shenzhen Stock Exchange, combining with the actual conditions of the Company, the Company established, revised and perfected internal management systems one by one. In the report period, the Company established Measures on Management of Collected Funds, Systems for Management of Information Disclosure Affairs, Systems for Internal Control, Systems for Independent Directors, Measures On Management of Investor Relations, Detailed Rules for General Manager’s Working, Rules of Procedure of General Manager and Detailed Rules of Board Secretary, revised Rules of Procedure of the Board of Directors, further consummated administrative structure of company legal person, perfected modern enterprise system and regulated operation of the Company. Operation of the Company was regulated, and the actual situation of legal person administration was basically conformed to the requirements of Code of Corporate Governance for Listed Companies in China. The contents were as follows: (I)The shareholders and shareholders’ general meetings: According to the requirements of Brief Introduction to the Shareholders General Meeting and Rules of Procedure of Shareholders’ General Meeting made by the Company, the procedure of calling, holding, proposal, discussion, and decision-making of shareholders’ general meeting all accorded with the relevant regulations, and relevant information was all disclosed timely in accordance with relevant requirements. The Company fully protected the right to know of shareholders and ensured that shareholders especially minority shareholders could fully exert their equal rights. Each shareholder’s general meeting had complete recorded. (II) About the relationship between controlling shareholders and listed company: The controlling shareholders’ behavior was regulated, not exceeded the activities that shareholders’ general meeting directly or indirectly intervening the decision-making and operation of the Company; the Company and controlling shareholders have done the “five independents” in personnel, assets, finance, institution, and business, the board of directors, supervisory Committee and internal institutions of the Company could independently operate; through making up and perfecting financial management system, the Company established and completed the financial and accounting management systems, the controlling shareholders didn’t intervene the financial and accounting activities of the Company. (III) About the director and the board of directors: Procedures regulated in the Company Law and Articles of Association, the number of Board of Directors and the constitution of personnel were in accordance with the requirements of laws and regulations, all the directors of the Company can seriously and responsibly attend the meeting of board of directors and shareholders’ general meeting, actively participate in relevant trainings, get familiar with relevant laws and regulations, know of rights, duties and responsibilities as a director. (IV) About supervisors and supervisory committee: the supervisory committee of the Company seriously implemented relevant regulations of the Company Law, Articles of Association, the number and personnel constitution were conformed to the requirements of laws and regulations, can seriously perform their duties according to systems such as Rules of Procedure of Supervisory Committee etc., supervise the finance of the Company and if the directors, managers, and other senior executives performing their duties legally or not, and issue independent opinions. (V) About achievement evaluation and incentive and restrictive mechanism: The Company would gradually establish fair and transparent standard for achievement evaluation and incentive and restrictive mechanism of directors, supervisors and managers, the engagement of managers was open and fair, and was conformed to the laws and regulations. (VI) About information disclosure and transparence: the Company strictly conformed to relevant laws and regulations and the requirements of Information Disclosure Work System made by the Company, truly, accurately, completely and timely disclosed relevant information, actively and actually disclosed information about possible significant influences of production and operation and significant influences of share price of the Company, and paid attention to strengthen the consciousness of actively disclosing information of directors, supervisors, senior managers and relevant personnel. The Company feasibly protected the interests of all investors. The actual conditions of the Company administration accorded with the requirements of standardized documents on listed company administration promulgated by CSRC. According to the relevant requirements of CSRC, the Company started special activities of the Company administration in year 2007. The Company strictly conformed to relevant laws, administrative regulations and internal rules and systems, with the principle of being practical and realistic, deeply analyzed the administrative structure, management and operation and internal control. After internal self-inspection and public comments, combining with opinions after field inspection by Hainan Security Regulatory Office, the Company analyzed present administration conditions, achievements and problems, made clear the reform measures, and formulated Self-inspection Report and Reform Planning on the Company Administration and Reform Planning on Strengthening Special Activities of the Company Administration, which respectively approved by the 7th Meeting and the 9th Meeting of the Fifth Board of Directors, and respectively was published on Securities Times, Wen Wei Po, and Juchao website (www.cninfo.com.cn) dated Jun.25, 2007 and Oct.27, 2007. (VII) About relevant interest persons: the Company treated relevant interest persons with the attitude of honesty and credit, not only protected the interests of investors, but also respected the legal rights of relevant interest persons such as banks, employees, customers and suppliers, and paid high attention to active cooperation and harmonious coexistence with the relevant interest persons to promote the sustained and healthy development of the Company together. (VIII) About related transactions: In the report period, there was no related transaction occurred, or do any harm to the interest and benefit of the Company and its shareholders. (IX) About the relationship management with investors: The Company designated special person to be responsible for relationship management with investors, and developed the work through the following manners: 1.Telephone and letter consultations: set up consulting telephone for investors, arranged special person in charge of answering investors’ consultations timely and passionately; 2. One to one communication: for investors and researchers of securities companies that come around for research and visit, the Company gave a one to one communication within the scope regulated by laws and regulations; 3. The shareholders’ general meetings: the Company relatively put emphasis on the contact and communication with shareholders, when examining and approving relevant events of the meetings, except published public notices through newspaper and network, the Company also actively contacted shareholders by fax and telephone specially, invited shareholders to attend the shareholders’ general meeting of the Company as more as possible. II. Performance of Independent Directors (I) Board of Directors set up three independent directors, which accorded with the requirements of Opinions on Establishing Rules of Independent Director in Listed Company promulgated by CSRC. Since the independent directors held the posts, they could conform to the requirements of Systems for Independent Directors’ Working, seriously, diligently and responsibly performed their duties, participated in board meetings and shareholders’ general meetings, took part in the compiling of periodic reports, expressed independent opinions on issues such as connected transaction and actively realized all kinds of information of the Company operations, which played a active role in scientific and objective decision-making, and protected interest of the whole company and legal interest of minority shareholders. In the report period, there was no situation of expressing disagreement on relevant affairs. (II) In the report period, the attendances to meeting of Board of Directors by independent directors Names of Times of board Presented Presented by Independent Absented meetings to present personally proxy Director Leng Mingquan 6 6 0 0 He Lanping 6 6 0 0 Zhao Man 6 6 0 0 III. Separation in businesses, personnel, assets, organization and finance of the Company and controlling shareholders 1. In aspect of business: the company has its independent and complete business operation capability. No competition exists between two of the entities by running same or similar businesses. The controlling shareholder made no interfering on the Company’s operation, neither directly nor indirectly. 2. In aspect of personnel: The labor management, personnel and salary management are operated independently from controlling shareholders. All of the managers, vice managers, accountants and senior managements get remuneration from the Company. 3. In aspect of assets: The Company is possessing and controlling over all of the assets belonged to the Company. The controlling shareholder is not occupying any capital or asset of the Company. 4. In aspect of organization: The Company has a mature and independent organization structure, including the Board of Directors, the Supervisory Committee, and the General Manager, which completely separated from the controlling shareholder. 5. In aspect of accounting: The Company has its own independent accounting division, accounting system, bank account, and exercises its liability of taxation independently. IV. Self-evaluation of internal control of the Company According to requirements of the Board of Directors, all departments and persons of the Company, in accordance with the Internal Accounting Control Criteria-Basic Criteria (for Trial Implementation) and relevant specific criteria promulgated by Financial Department, implemented all the procedures of research and evaluation. The Company evaluated the efficiency of internal control of Dec.31, 2007 related to accounting report, and formed 2007 Self-evaluation Report of Internal Control, which was approved by the 10th Meeting of the fifth Board of Directors. Independent Directors expressed their opinions on it, and will be publicly disclosed on appointed websites on Apr.29, 2008; detailed information is on Juchao website (www.cninfo.com.cn). V. Establishment and implementation on evaluation and incentive mechanism of performance of senior executives, and relevant encouragement systems (I) The Company persists with the principal of “Rooted on human”, hires the persons facing the society, and chooses the best candidates under the premise of publicity, justice and fairness. The qualified candidates, who are nominated by general manager and with the approval of Board of Directors, will be hired officially as senior manager of the Company. (II) The Company implements explicit evaluation, makes relevant evaluation method in accordance with the achievements and duty implementations of senior executives, and conducts monthly and annual evaluation meanwhile by higher management group or group of same level; the evaluation results will be taken as the evidence for the fluctuation of the positions as well as rewards and penalty of the senior executives. (III) The Company established the effective incentive mechanism, including the material encouragement and spiritual encouragement; tries to conduct explicit rewards and punishments; the achievements and remunerations connect closely; superior win and the inferior wash out; all these are to make the senior executives to make progress unceasingly, improve own comprehensive abilities and create fast development of the Company. VII. Particulars about Shareholders’ General Meeting On the morning of May 9, 2007, the 2006 Annual Shareholders’ General Meeting of the Company was held. The public notice of resolutions of the Shareholders’ Meeting was published on Securities Times, Hong Kong Wen Wei Po, and Juchao website (www.cninfo.com.cn) dated May 10, 2007. On the morning of June 20, 2007, the Shareholders’ Meeting on Share Merge Reform of the Company was held, the public notice of resolutions of the Shareholders’ Meeting was published on Securities Times, Hong Kong Wen Wei Po, and Juchao website (www.cninfo.com.cn) dated June 21, 2007. VIII. Report of the Board of Directors I. Review to the whole operation of the Company in the report period (I) The overall operation In the report period, the Company realized revenue from main operation amounting to RMB 25.62 million, increased 92.73% compared with the same period of last year. Total profit from main operation amounted to RMB 154.62 million, increased 929.76% compared with the same period of last year; net profit amounted to RMB 139.16 million, increased 846.81% compared with RMB-18.63 million of the same period of last year. The main reasons were as follows: 1. In 2007, Sanya Government promoted government and enterprise alliance for the first time, together explored domestic and overseas tourism markets such as Europe, which made tourism in Sanya keep stable development, and outside operation environment of the tourism markets had some improvement compared with the past years. 2. On the basis of complete and scientific analysis on markets, the Company actively adjusted business thoughts and performed business strategy of inside grasping decoration renovation and personnel management, and outside exploring markets and sales network. Main information was as follows: i) Timely adjusted organization and personnel of the hotels, decreased second-line personnel, supplemented and extended fist-line personnel; greatly strengthened employees management and skills training, completely improved the comprehensive qualities of employees; implemented system of department manager’s responsibility and personal responsibility. At the same time, established and perfected efficient incentive mechanism, fully explored and motivated the initiative, enthusiasm and innovation of the employees. ii) Flexibly adjusted marketing strategy according to the market trends. According to the information of passenger flows in off-season and peak season of tourism markets, timely adjusted business price, gradually gave up tourist source from low-price travel agencies, increased direct sales and sales promotion, simplified middle links of travel agencies and made the market share of individual tourism greatly increased compared with past years and realized maximized benefits. At the same time, increased internet promotions to make sales amounts on internet get up a new step. iii) Fully took use of the off-season, timely decorated and renovated the B and C buildings of the hotel and Chinese restaurant completely to make the hotel meet the next peak season with a completely new visage and lay a solid foundation for exploring domestic and overseas high-grade tourism markets in a long term. 3. The Company successively completed works on Share Merge Reform and Debt Restructuring, the exempted debts of RMB 158,974,500 from majority shareholder Haikou Foodstuff Co. Ltd. and relevant interests caused great increase in net non-operating income and expenditure and great decrease in financing expenses. In summary, after further self-reform, perfect and further exploration and complete conformity of tourist source markets, the tourist source structure of the hotel developed from origin domestic low-price group as main source to a new situation of overseas tourists as main source and domestic individual tourists as supplement, which presented a good trends of Four High and One Long, that were high rate of opening rooms, high average room price, high comprehensive consume, high proportion of individual tourists than group, and long live time. In 2008, the Company will keep forging ahead actively, under the good condition of settling down the historic load, took up with macroscopic planning, with the center of enterprise benefit and the power of exploitation and innovation, make great efforts for realizing a qualitative leap and development of the Company. (II) Main business and operation status 1. Main operations classified according to industries and products (Unit: RMB) Main operations classified according to industries Increase/de Increase/dec Increase/de crease in rease in crease in Gross profit profit ratio Revenue from Cost of revenue cost of ratio of from the Industries operations operations from operations (RMB) operation operation (RMB) operations over the (%) over the over the last last year last year year (%) (%) (%) Hotel services 25,623,653.21 2,840,886.28 83.41 92.73 163.41 -3.44 Total 25,623,653.21 2,840,886.28 83.41 92.73 163.41 -3.44 Main operations classified according to products Hotel services 25,623,653.21 2,840,886.28 83.41 92.73 163.41 -3.44 Total 25,623,653.21 2,840,886.28 83.41 92.73 163.41 -3.44 2. Main operations classified according to areas (Unit: RMB) Increase/decrease in revenue Revenue from main Area from main operations over operations the last year (%) Sanya 25,623,653.21 92.73 3. Major suppliers and customers (Unit: RMB) Portion in the The total purchase amount 5,725,451.49 Company’s whole 90.13 from the top five suppliers purchase amount (%) Portion in the The total purchase amount 5,102,564.00 Company’s whole 19.91 from the top five suppliers sales amount (%) (III) Constitution of assets of the Company in the report period (Unit: RMB) At the end of 2007 At the end of 2006 Changes on Increase/decea Proportion Proportion proportion in Item se proportion Amount in the total Amount in the total the total (%) asset (%) asset (%) asset (%) Account receivable 2,612,739.71 1.93 1,422,595.87 1.01 91.09 0.92 Inventories 339,465.89 0.25 307,111.19 0.22 13.64 0.03 Investment in real estate Long-term equity investment Fixed assets 86,088,868.45 63.58 87,671,774.69 62.18 2.25 1.40 Construction in 182,939.00 0.14 progress Short-term loan 16,098,222.40 11.42 Long-term loan 92,077,297.69 65.30 Reasons for change: 1. Net value of account receivable increased 83.67% compared with the amount in the beginning of the year, which was caused by the increase in sales income. 2. Fixed assets decreased 1.81%, which was caused by discarding of part fixed assets. 3. The increase in construction in progress was caused by new projects. 4. The decrease in short-term loan and long-term loan was caused by debt restructuring in this year. Changes compared between period expense and income tax (Unit: RMB) Increase Increase and Item 2007 2006 and decrease decrease amount proportion(%) Operating expense 14,475,303.74 11,072,660.46 3,402,643.28 30.73 Administrative 8,854,259.11 7,411,185.28 1,443,073.83 19.47 expense Financial expense 4,453,702.43 8,796,526.11 -4,342,823.68 -49.37 Income tax 15,457,499.83 - 15,457,499.83 - Reasons for change: 1. Operating expense increased 30.73% compared with last year, which was main relevant expense increase caused by income increase. 2. Financial expense decreased 49.37% compared with last year, which was caused by interests decrease after debt exemption of this period. 3. Increase in income tax mainly caused by net benefits increase after debt exemption of this period. (IV) Changes of index on cash flow statement (Unit: RMB) Increase/ Item 2007 2006 decrease amount Net cash flow arising from 6,623,022.91 2,425,457.97 4,197,564.94 operating activities Net cash flow arising from -4,979,982.91 747,589.94 -5,727,572.85 investing activities Net cash flow arising from -3,200,000.00 -2,330,000.00 -870,000.00 financing activities Reasons for change: 1. Increase in net cash flow arising from operating activities mainly caused by sales income increase in this period. 2. Decrease in net cash flow arising from investing activities mainly caused by purchasing fixed assets expenses increase in this period. 3. Decrease in net cash flow arising from financing activities mainly caused by increase of paying cash for debts in this period. (V) Business operation and achievement of the Company’s main holding subsidiaries and share-holding companies The Company had no subsidiary. There were no net profit influenced by the investment income from single share controlling company or shareholding company which exceeding over 10% in the Company. (VI) Particulars about main body controlled by the Company with special intention There was no main body controlled by the Company with special intention. II. Prospect for the future development of the Company (I) The development tendency in the industry of the Company and the market competition pattern the Company faced The Company is one of listed companies with tourism service as main business, and the Company mainly operates a four star hotel in Dadonghai of Sanya. In recent years, along with fast development of national economy and great increase of national income, tourism has become an important developing industry. And fast development of tourism to some extents brought the wide development of tourism service. However, because of the hot tourism market, lots of newly built star hotels appeared in Sanya, and guest room supply increased sharply, thus causing saturated or over saturated conditions of tourism services demand in Sanya. Malign competitions by cutting prices in hotel industry became more intense, industry competition became more furious, and the external operation environment needs further improving. In order to increase continuous operation ability and competitiveness, the Company has invested money for overall updating and changing of hotel equipments, which increased present operation competitiveness to some level in recent two years. However, for adjusting present and future furious industry competition and bad living environment of local industry, accessories and equipments of the hotel from all aspects need endless improving and perfecting in the future work. (II) The development strategy of the Company 1. Expanding the strategy of brand: on the basis of stable operation, The Company will fully develop the superior resources like geographic and humane environments; further strengthen construction of accessories and equipments to enhance service quality; expand the domestic and international sales network to improve the market share, and endlessly enlarge and strengthen the brand of main operation. 2. Attracting merchants or bring in capital to expand the scale strategy of company: the Company will implement the conformity of optimization of assets, hold the favorable cooperation opportunity for long term development, introduce excellent cooperators, properly introduce good assets, develop and expand operation project to endlessly enlarge enterprise scale. 3. Completing systems and standardizing management: the Company will establish modern enterprise management system, perfect legal administration structure; strengthen management control on the Company. According to its development need, the Company will add advanced management idea, establish management system adjusting to new system requirement to fasten its development. (III) Operation plan for New Year 1. The Company will grasp favorable opportunity for its capital attraction; find long term and excellent cooperators and operation projects for its long development to make foundation for its development. 2. The Company will continue to strive for the support of the local government and shareholders, impel the process of Share Merger Reform and reorganization of debts, fulfill the relevant plans of asset reorganization and debt burden decrease, and solve the problem left by the history to make foundations for the follow-up operations and development of the Company. 2. The Company will take development as the main line, “making money and reducing load” as the target, in strict accordance with the requirements of relevant law, regulations, and Articles of Association, regulate the operation, improve the profit-gaining ability of main operations, reduce expense and increase income, and continue to improve the financial conditions to make sure of the unceasing operation ability of the Company. 3. The Company will fully utilize the advantages of geographic position of hotel, optimize and integrate the current resources, strengthen the liquidation of assets and revitalization, strive for revitalizing the current inventory asset and operation items, and make the valuation of assets increase in flow to develop new growth of profit. (IV) Demand of fund and its using plan in the future development of the Company The Company collects its needed fund for development utilizing its own fund and financings to complete its development plan of the Company. (V) Risks which would exert adverse effects on the realization of the future development strategy and operation goal of the Company 1. Risks of macro policies The Company’s main business is tourism service. In order to standard and optimize tourism market environment, relevant department of the country will take related policies. These policies will strict and affect development of local tourism in short time, thus influencing its main business income. Countermeasures: While expanding the sales scale, furthure improve the hotel service quality, win more market share with good quality services and thus guarantee certain income of main operations. 2．Risks of the natural disaster Hainan Island belongs to the marine climate, which causes catastrophe weather especially in summer. If Sanya becomes the landing for typhoon, it will possibly create big destruction to the facilities of the Company and it will possibly influenced the normal operation of the Company. Countermeasures: the Company will strengthen the construction and maintenance of infrastructure, continue to purchase insurance, actively take effective preventive measures, and improve ability to resist natural disasters. 3. Risks of main operations operation In recent year, there were many hotels and family hotels emerging in Sanya, and tourism market had many leverage. Malign competitions by cutting prices in hotel industry became more intense, and performance of the Company greatly depends on the number of tourists, because the single main business of only one hotel operation’s scope is eating, accommodation and traveling. With low opening and supply beyond demand out of order expanding background, the developing promise is not optimistic. Countermeasures: the Company will actively focus on macro planning, enlarge the sales, on the basis of original sales network, utilize the advantages of closing to seas, unceasingly develop domestic top and international tourism market, and improve the lodging ration and single room price to increase the integrated profits. III．Investment of the Company (I) Use of raised fund In the report period, there was no such situation that the application of raised proceeds in the report period or proceeds rose before the report period continuing to the report period. (II) Use of non-raised fund In the report period, there were no significant investing projects of non-raising funds IV. Alterations on accounting policy and accounting estimation of the Company, and result as well as influences on important difference change. The Company made no alterations on accounting policy and accounting estimation of the Company and important difference change. VI. Routine work of the Board of Directors (I) In the report period, the Company held five Board of Directors’ meetings. 1. The 5th meeting of the 5th Board of Directors was held on April 12, 2007, and the relevant resolutions were published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated April 14, 2007. 2. The 6th meeting of the 5th Board of Directors was held on April 23, 2007, and the relevant resolutions were published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated April 25, 2007. 3. The 7th meeting of the 5th Board of Directors was held on June 25th, 2007, and the relevant resolutions were published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated June 26, 2007. 4. The 8th meeting of T the 5th Board of Directors was held on August 23, 2007, and the relevant resolutions were published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated August 25, 2007. 5. The 9th meeting of the 5th Board of Directors was held on Oct. 25th, 2007, and the relevant resolutions were published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated Oct. 27, 2007. (II) Board of directors’ implementation of shareholders’ general meeting in the report period In the report period, board of directors earnestly carried out resolutions examined and passed by 2006 annual shareholders’ general meeting. In the report period, the Company should neither distribute profit to shareholders nor convert capital public reserve into share capital. In the report period, the Company did not convert share-allotting, new issues of shares, etc. (III) Responsibility taking of Auditing Committee belonged to board of directors Working of the Auditing Committee belonged to board of directors Auditing Committee belonged to board of directors was in strict accordance with the relevant provisions to take its duties, and it was mainly responsible for the company's internal and external auditing communication, monitoring and verification. In the report period, the Auditing Committee fully played its supervisory role, thus protecting independence of the audit. 1. Auditing Committee negotiated and made auditing time schedule with ZONZUN Accounting Office Ltd. 2. Auditing Committee examined financial sheet made by the Company and issued written opinions before annual examining CPA entered; 3. Auditing Committee strengthen communication with annual examining CPA, and urged certified accountant to submit auditing report in the appointed time with the method of urging letter; 4. After original opinions made by annual examining CPA, the Auditing Committee checked financial sheet once again and issued a written opinions; 5. Auditing Committee held 2007 annual working meeting to exam and to pass 2007 annual report, summary report of auditing for the Company made by the ZONZUN Accounting Office Ltd and proposal of engaging ZONZUN Accounting Office Ltd as its auditing organization. (2) Written opinions, annual auditing report and conference resolution of Auditing Committee belonged to board of directors 1) Auditing Committee’s written opinions on financial sheet before annual examining CPA entered. According to the relevant regulations, our Auditing Committee took supervisory and checking responsibility during annual report making and disclosing. After first opinions made by annual examining CPA, the Auditing Committee examined 2007 annual financial sheet of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. It considered: 1. The financial accounting statements of the Company are prepared according to the accounting policy of the Company. The accounting policy is used adequately, the accounting estimation is reasonable. They are in accordance to the new Accounting Standard for Enterprise, accounting system for enterprise and the relevant regulations and requests released by the Ministry of Finance; 2. The units consolidated into the financial accounting statements of the Company and the contents in these statements are complete, with accurate consolidation basis; 3. The contents in the financial accounting statements of the Company are objective, real and accurate, and no significant errors and omission have been found; Due to that there is blank of time between this examination day for the financial statements, and the audit report day as well as the financial statement report day, the financial department of the Company would re-examine the financial statements in strict accordance to the new Accounting Standard for Enterprise, to assure the fair, truth and completeness of the financial statements. The financial statements could be submitted to the certified public accountants for annual audit. 2) The written opinion on the financial accounting statements of the Company issued by the Audit Committee after the certified public accountants had issued the initial audit opinion According to relevant regulations, the Audit Committee performed its duty of supervision and check during the procedure of making the annual report and information disclosure of the Company. Through the full communication with the certified public accountants in the prior period, and according to the production and operation of the Company, and the progress of material events, we examined the 2007 financial accounting statements of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd after the certified public accountants had issued the initial audit opinion. We still remain the original examination opinion and hold that: The Company has been in strict accordance to the new Accounting Standard for Enterprise and regulations of the relevant financial system of the Company. The procedure for forming the financial statements is rational and in criterion, and it fairly reflects the assets, liabilities, equity and operation achievements of the Company till Dec 31st of 2007. The content is real, accurate and complete. The 2007 financial accounting statements audited by ZONZUN Accounting Office Ltdcould be submitted to the Board for voting. 3) Summary report issued by the Audit Committee on the annual audit work of Zhongzhun CPAs Proposed by the Board of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd and passed by the shareholders’ general meeting, ZONZUN Accounting Office Ltdwas engaged by the Company to audit the 2007 financial accounting statements. On Feb 20th of 2008, with negotiation between the Audit Committee and ZONZUN Accounting Office Ltd, the time schedule for auditing the 2007 financial statements of the Company was confirmed. The audit schedule complied with requests of the notice on Doing Well the 2007 Annual Report and Relevant Works of Listed Companies (ZJGSZ (2007) No. 235), the notice on Doing Well the 2007 Annual Report Work of Listed Companies (SZS (2007) No. 206), the 2006 Accounting Standard for Enterprise and its application guidance. Totally 4 auditing personnel (including the person in charge of the project) of ZONZUN Accounting Office Ltd entered the arena on Mar 1st of 2008 according to the above audit schedule. The auditing personnel had finished the spot audit work of the companies which had been considered into consolidation from Mar 1st to Apr 26th of 2008. The person in charge of the project has made lasting and full communication with the management level of the Company and the members of the Audit Committee on issues of the statements consolidation, accounting adjustment, application of accounting policy and accounting works which were found in the audit and in need of perfection. With the materiality principle as basis and the prudence principle obeyed, the operation, financial disposal of the Company and application and implementation of the new Accounting Standard for Enterprise have got entire attention from both parties. It also helps the certified public accountants to have a more matured judge when issuing a fair audit conclusion, which ensures reality, accuracy and completeness for disclosing financial accounting information. During site auditing of annual examining CPA, every member of our Auditing Committee took supervisory and checking responsibility according to related regulations and requirements, checked its responsibility, paid attention to problems found in the auditing, urged certified public accountants to finished report making in the appointed time, to ensure exactness, accuracy and completeness of annual report. On April 26, 2007, the annual auditing CPA made standard auditing report without any reserved suggestions. In our view, annual auditing CPA has implemented auditing work in strict accordance with CPA Independent Auditing Code; auditing time is enough and auditing staff assignment is reasonable and powerful. Issued auditing report can fully reflect financial status of the Company before Dec. 31, 2007 and 2007 operation achievement and cash flow, and issued auditing conclusion agreed with its actual condition. 4) Audit Committee’s resolution of 2007 annual working meeting On April 26, 2008, all members of Audit Committee voted and passed Proposal on 2007 Annual Report, Summary Report on Auditing of ZONZUN Accounting Office Ltd, and Proposal on Engagement of Financial Auditing Organization. In 2008, the Company will continue engaging ZONZUN Accounting Office Ltd with related security and futures business certification to audit financial report, and the engagement period is one year. (IV) Responsibility taking of Remuneration Committee belonged to board of directors Remuneration Committee belonged to board of directors strictly conformed to related regulations to take its responsibility, and was mainly responsible for checking and making checking standard for directors, supervisors and senior executors, as well as making and examining remuneration policies and plans for its directors, supervisors and senior executors, and guided board of directors for perfecting remuneration system of the Company. The Company didn’t take equity incentive plan. VII. Profit distribution preplan or preplan on converting capital public reserve into share capital of the year After being audited by ZONZUN Accounting Office Ltd., the net profits the Company realized in 2007 amounted to RMB 139,158,744.20, and the profit distributable to the shareholders at the end of this year amounted to RMB -344,550,164.97. Examined by the 10th meeting of the 5th Board of Directors, the profit distribution preplan of 2007 was as follows: It would neither conduct profit distribution nor covert capital reserve into shares. The aforesaid preplan should be submitted to 2007 Annual Shareholders’ General Meeting. VIII. Other events In the report period, the newspapers for information disclosure engaged by the Company were Securities Times and Hong Kong Wen Wei Po. IX. ZONZUN Accounting Office Ltd. issued the explanations on the fund occupancy of the controlling shareholders of the Company and other related parties, specific explanations on guarantee and opinions of independent directors. For details, please refer to Juchao Website (www.cninfo.com.cn). IX. Report of the Supervisory Committee As the supervisory organization of the Company, adhering to the principle of taking responsibility for its entire shareholder, and in accordance with relevant provisions of Company Law, Articles of Association and Rules on Procedures of the Supervisory Committee, the Supervisory Committee seriously performed its duties and completed the following work in 2007: I. Meetings of the Supervisory Committee held in the report period and decisions made In the report period, Supervisory Committee of the Company held four meetings, with respective details as follows: (1) The Company held the 6th meeting of the 5th Supervisory Committee dated Apr 12th of 2007. The relevant notice was published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated Apr 14th of 2007. (2) The Company held the 7th meeting of the 5th Supervisory Committee dated Apr 23rd of 2007. The relevant notice was published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated Apr 25th of 2007. (3) The Company held the 8th meeting of the 5th Supervisory Committee dated Aug 23rd of 2007. The relevant notice was published on Securities Times, Hong Kong Wen Wei Po and Juchao Website (www.cninfo.com.cn) dated Aug 25th of 2007. (4) The Company held the 9th meeting of the 5th Supervisory Committee dated Oct 25th of 2007. The content of the meeting was free of disclosure according to the relevant regulations. II. Independent opinions of the Supervisory Committee (1) Operation of the Company according to law According to relevant laws and regulations, the Supervisory Committee supervised the holding procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board, duty performance of the senior executives and the various management system of the Company, and believed that, the Board performed its duty honestly, earnestly and responsible for the development of the Company and the shareholders’ sake in long term; its decision-making procedure complied with the regulation of the Company Law and the Article of Association; every meeting of the Shareholders’ General Meeting and the Board of Directors was held in accordance to the regulation of the Company Law and the Article of Association and other state laws and regulations, and so were the relevant resolution and information disclosure; the various internal control system of the Company was wholesome and perfect, the operating and decision-making procedure was scientific and reasonable. The Company could operate with criterion in strict accordance to the Company Law, Securities Law, Listing Rules in Shenzhen Stock Exchange and other relevant stipulations and systems. The directors, senior executives of the Company neither broke laws, regulations and the Article of Association nor harmed interest of the Company and its shareholders when performing their duties. (2) Inspection of the financial status of the Company In the report period, Supervisory Committee of the Company aperiodically inspected and supervised the financial statements, operations and other important activities of the Company; and examined the various financial reports, annual settlement plan; meanwhile, it checked the implementation of the financial systems and management rules and discovered no behaviors against the relevant regulations. ZONZUN Accounting Office Ltd. audited the 2007 financial report of the Company and issued the standard unqualified auditor’s report. The Supervisory Committee believed that the financial report truly reflected the financial status, operation achievement and cash flow status of the Company, and the auditor’s report was fair, objective, true and faithful. (3) There is no investment by raised proceeds of the Company during the report period. (4) During the report period, the Company has not sold and purchased assets. (5) During the report period, the price of connected transaction between the Company and others was reasonable, the contact was regulated, both sides strictly implemented the rights and duties of the agreement, and no significant inside transaction or behaviors hurting the profit of the Company happen. (6) Internal control. The form and content of the 2007 Self-estimation Report of the Internal Control of the Company are all in line with the demands of the Guidance for Internal Control of Listed Companies in Shenzhen Stock Exchange, and relevant laws, regulations and criterion documents. It truthfully and accurately reflects the present status of the internal control in the Company and the overall estimation on the internal control in the Company presented by the 2007 Self-estimation Report of the Internal Control is objective and true. III. Implementation of the Shareholders’ General Meeting The members of the Supervisory Committee attend meetings of the Board and the Shareholders’ General Meetings as nonvoting delegates, and they have no objection to the various reports and proposals submitted by the Board to the Shareholders’ General Meeting. The Supervisory Committee supervised the implementation of the resolutions of the Shareholders’ General Meeting and it held that the Board of the Company could earnestly implement relevant resolutions of the Shareholders’ General Meeting. X. Important Events I. During the year, there were no significant lawsuits and arbitrations of the Company. II. In the report period, there were no items of purchases and sales of assets, takeovers and mergers. III. No stock option incentive plan has been carried out by the Company. IV. Significant related transactions happened during the report period. (I) On Jul.2, 2007, the Company signed Debt Exemption Agreement with the agent of the first largest shareholder Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd. Haikou Grocery Co., Ltd., and since Jul.2, 2007, the first largest shareholder unconditionally and irrevocably exempted the debts of the Company RMB 158,974,468.35 and the related interests. The actual first largest shareholder Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd. accumulatedly consumed RMB 193,372.36 in the hotel of the Company in 2007. (II) In the report period, the Company had no related transactions on transferring the assets and equity. (III) In the report period, the Company had no related transactions on external investment combined with the related parties. (IV) In the report period, the Company had no guarantee with the related parties. (V) In the report period, the Company had no related transactions on significant purchase and sales, supplying or accepting labor forces. (VI) In the report period, the agent of the first largest shareholder- Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd., Haikou Grocery Co., Ltd. promised to pay the relevant fees occurred during the share merger reform. In this period, the Company has totally paid relevant fees of RMB 1,593,249.4 on favour of the Grocery Company and this borrowing has been all paid back by the first largest shareholder in January of 2008. The first largest shareholder- Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd. operationally occupied the Company capital RMB 262,634.93 in the beginning of 2007, RMB 193,372.36 accumulatedly in 2007, paid back RMB 381,607.64 accumulatedly in 2007, and occupied operation capital RMB74, 399.65 in the end of 2007. V. In the report period, the various business contracts of the Company were implemented normally, and no significant contracts dissension occurred. (I) In the report period, the Company had no entrustment, contracting or leasing from other companies; or other companies had no entrustment, contracting or leasing from the Company. (II) In the report period, the Company had no significant guarantee. (III) In the report period, the Company did not entrust others to conduct management of cash and assets. (IV) In the report period, the Company had no other significant contracts. VI. Commitment and its implementation in the report period or lasting to the report period made by the Company or the shareholders of the Company who hold over 5% shares of the Company. (I) In the report period, the Company has not made commitment. (II) Commitment and its implementation in the report period made by the shareholders of the Company who hold over 5% shares of the Company. 1. Commitment and its implementation made by the holding shareholder of the Company the agent of Haikou Agriculture & Industry & Trade (Luoniushan) Co., Ltd. -Haikou Grocery Co., Ltd (1) The debt of RMB 158,974,468.35 and relevant interest of the Company was carried on and finally exempted and the first largest shareholder has already accomplished the implementation. (2) For the non-circulating shareholders, who have not clearly showed satisfaction on the scheme till the equity registration day for this share merger reform scheme and who can’t implement the consideration arrangement with the following situation: the ownership of equity is involved in dispution, pledge and justice frozen, the consideration needed for listed circulation right for the non-circulating shares held by the aforesaid shareholders would be paid firstly by the first largest shareholder on their favour. The first largest shareholder has already accomplished the payment. (3) Pay the relevant fees for this share merger reform of the Company and the relevant fees has been entirely returned back in January of 2008. (4) Since the implementation of the share merger reform, the non-circulating shares held by it could not be transacted in listing market or transferred within 12 months; when the aforesaid regulation expires, the original non-circulating shares could be transacted through hanging out in Stock Exchange, while the amount sold could not exceed 5% of its total shares within 12 months and 10% within 24 months. The commitment has yet not reached the condition for implementation. (5) Seek for restructure party to restructure the assets of the Company in proper time. Till now, neither proper restructure party has been found, nor any agreement or will has been reached between proper restructure party and the big shareholder. 2. Commitment and its implementation made by Shi Yajun: Since the implementation of the share merger reform, the non-circulating shares held by it could not be transacted in listing market or transferred within 12 months; when the aforesaid regulation expires, the original non-circulating shares could be transacted through hanging out in Stock Exchange, while the amount sold could not exceed 5% of its total shares within 12 months and 10% within 24 months. The commitment has yet not reached the condition for implementation. VII. Engagement and dismission for CPAs of the Company Approved by the 2006 Annual Shareholders’ General Meeting, the Company had ever decided to re-engage Hainan Congxin CPA and Grant Thornton CPA as the domestic and international auditing institutions of the Company for 2007. On Jan 8th of 2008, with the resolution reached in the 8th provisional meeting of the 5th board of directors, and in order to guarantee a normal operation of the 2007 audit work, the Company planed to engage Zhongzhun Certified Public Accountants to be the auditing institutions of the Company for 2007, for this CPAs is qualified in securities and futures business, instead of the original one-Hainan Congxin CPA which could not meet the relevant standard demand for being an auditing institution for listed companies. Meanwhile, according to relevant regulations, it is not necessary for the Company to engage an international auditing institution, so the Company would not engage Grant Thornton CPA as the international auditing institutions. This decision has been examined and approved in the 1st provisional shareholders’ general meeting 2008 dated Jan 25th of 2008. According to the Operation Promise Book signed by the Company and ZONZUN Accounting Office Ltd, the Company will pay RMB 280,000 for the 2007 annual audit. VIII. In the report period, the Company, directors, supervisors, senior executives, shareholders and actual controllers of the Company have not received investigation from authorized departments, force measurement from the justice and supervision department, been removed to justice organization or asked for criminal responsibility, check from CSRC, administrative punishment from CSRC, or been forbidden to access to securities market, been punished by other administration department or received public criticize from Stock Exchange as being recognized as improper person selected. IX. The share merger reform Details could be available in the 1st part of the 4th section of this report X. Particulars about the Company’s Reception of Investigation and Interview Adhering to the open, fair and just principle, in the report period, the Company, in strict accordance with the Guidance for Fair Information Disclosure for Listed Companies of Shenzhen Stock Exchange, had not privately, in advance, selectively or solely disclosed and revealed non-public and significant information to specific objects, and ensured the fairness of the information disclosure of the company, to practically maintain the legal benefit of investors. In 2007, the Company had never received investors’ investigation and media interview. And the Company had no receptions of any investors’ investigation and media interview. XI. The report is prepared in bilingual versions using Chinese and English respectively, in the event of any discrepancy in understanding the two aforementioned versions, the Chinese version shall prevail. XI. Financial report (I) Auditor’s opinion Auditor’s Report ZONZUN Audit （2008）No.8061 To all shareholders of Hainan Dadonghai Tourism Center Co. Ltd., We have audited the accompanying financial statements of Hainan Dadonghai Tourism Center Co., Limited (hereinafter referred to as the "Dadonghai Company") which comprise the balance sheet as at 31 December 2007, the 2007 income statement, the statement of cash flow, the statement of changes in stockholder equity and the notes to the financial statements. 1. Responsibilities of the Management for the Financial Statements It is the responsibility for the management of the Dadonghai Company to prepare financial statements according to the stipulations of the business accounting rules. This responsibility includes: (1) devising, implementing and maintaining internal control related to the preparation of the financial statements so as to ensure that the financial statements do not contain major errors caused by fraudulence or mistake; (2) choosing and adopting appropriate accounting policies; and (3) making reasonable accounting estimations. 2. Responsibilities of the Certified Accountants Our responsibility is to express an auditor’s opinion based on our auditing on these financial statements. We have carried out the auditing according to the stipulations of China’s auditing rules for certified accountants, which require us to abide by the relevant ethics, plan and practice auditing and thereby provide a reasonably guarantee that the financial statements are free of significant errors. Auditing concerns implementation of relevant auditing procedures to procure the related amount of the financial statements and auditing proofs disclosed. The choice of auditing procedure depends on judgment of the certified accountants, including a risk assessment of significant errors possibly occurring due to fraudulence or mistakes. In the assessment we have taken into consideration the internal control related to the financial statements, but the purpose had not been to deliver an opinion on the effectiveness of the internal control. The auditing has also assessed the appropriateness of the accounting policies the management adopted, the rationality of the accounting estimations concerned, and the overall presentation of the financial statements. We believe that the proofs we procured have been sufficient and appropriate, and thus provided a good foundation for us to express the auditing opinion. 3. Auditing Opinion In our opinion, Dadonghai Company’s financial statements have been prepared according to the stipulations of the business accounting rules and have given a true and fair view of the state of affairs of the Company as of 31 December 2007, and of its operating results and cash flows for the year then ended. ZONZUN Accounting Office Ltd. Certified Public Accountant: Tan Daoyi Beijing, China Certified Public Accountant: Lin Jun April 27, 2008 (II) Financial statement (see the attachment I) (III) Notes to the financial statement (see the attachment II) XII. Documents for Reference The Securities Department of the Company prepares the originals of the following documents. When CSRC and the Stock Exchange demand to provide the documents, or the shareholders demand to check the documents according to laws and the Article of Association, the Company is expected to provide the documents in time: 1. Financial statements carrying with personal signatures and seals of legal representative, person in charge of the financial affairs and person in charge of accounting institution 2. Original of Auditors’ Report carrying with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company publicly disclosed on designated newspapers by CSRC. Chairman of the Board of Directors: Li Yuanbin Board of Directors Hainan Dadonghai Tourism Centre (Holding) Co., Ltd. April 27, 2008 Attachment I. Balance Sheet Prepared by Hainan Dadonghai Tourism Center Co., Ltd. 2007-12-31 Assets Note Year-end amount Year-beginning amount Liabilities & Shareholders' Equ Current Assets Current Liabilities Monetary capital 6.1 2,424,831.17 3,981,791.17 Short-term borrowings Tradable monetary assets Tradable monetary liabilities Notes receivable Notes payable Accounts receivable 6.2 2,612,739.71 1,422,595.87 Accounts payable Accounts paid in advance 6.3 39,263.00 21,800.11 Accounts received in advance Interests receivable Staff salary payable Dividends receivable Tax payable Other accounts receivable 6.4 1,746,964.94 4,752,365.14 Interests payable Inventory 6.5 339,465.89 307,111.19 Dividends payable In which: consumptive biological assets Other accounts payable Non-current assets due in one year Current liabilities due in one ye Other current assets 6.6 8,669,919.00 8,669,919.00 Other current liabilities Total Current Assets 15,833,183.71 19,155,582.48 Total Current Liabilities Non-Current Liabilities Non-Current Assets Long-term loans Salable monetary assets Long-term bonds Investment held until expiration Long-term accounts payable Long-term accounts receivable Earmarked accounts payable Long-term equity investment 6.7 Predicted liabilities Investment real estate Deferred income tax liabilities Fixed assets 6.8 86,088,868.45 87,671,774.69 Other non-current liabilities Projects under construction 6.9 182,939.00 Total Non-Current Liabilities Project materials Total Liabilities Fixed assets liquidation Shareholder Equity Productive biological assets Stock capital Oil & gas Capital reserves Intangible assets 6.10 33,301,207.80 34,169,934.96 Minus: Teasury shares R & D expenditure Surplus reserves Corporate reputation Undistributed profit Converted difference in foreign Long-term unamortized expenses currency Parent company shareholder Deferred income tax assets equity Other non-current assets Minority shareholder equity Total Non-Current Assets 119,573,015.25 121,841,709.65 Total Shareholder Equity Total Liabilities & Shareholder Total Assets 135,406,198.96 140,997,292.13 Equity Legal representative: Executive officer in charg Principal with the accounting agency： Profit and Loss Statement Prepared by Hainan Dadonghai Tourism Center Co., Ltd. 2007 Item Note The Current Year 1. Operational Revenue 6.25 25,623,653.21 Minus: Operating Cost 6.25 2,840,886.28 Business Tax & Extra Charges 6.26 1,409,795.94 Sales Cost 6.27 14,475,303.74 Management Cost 8,854,259.11 Financial Cost 6.28 4,453,702.43 Assets Devaluation 6.29 -743,540.30 Plus: Profit on Fair Value Variation (Loss Marked by "-") Investment Revenue (Loss Marked by "-") In Which: Revenue from cooperative & joint ventures 2. Operating Revenue (Loss Marked by "-") -5,666,753.99 Plus: Non-operating revenue 6.30 160,959,193.50 Minus: Operating expenses 6.31 676,195.48 In which: Loss in disposing of non-current assets 3. Total Profit (Loss Marked by "-") 154,616,244.03 minus: income tax 6.32 15,457,499.83 4. Net Profit (Loss Marked by "-") 139,158,744.20 Net profit of parent company stockholder 139,158,744.20 Monority stockholders' profit and loss 5. Earnings per Share (1) Basic earnings per share 0.38 (2) Deluted earnings per share 0.38 Legal representative: Executive officer in charge of accounting: Principal with the Prepared by Hainan Dadonghai Tourism Center Co., Ltd. 2007 Item Note The Curren 1. Cash flow arising from operating activities Cash received from commodity sales and labor 24,572 Received tax return Cash received from other relevant operating activities 6.33 4,87 Subtotal of cash inflow of operating activities 29,450 Cash paid for commodities and labor 7,84 Cash paid to and for staff 5,38 Taxes and fees paid 159,241.41 Cash paid for other relevant operating activities 6.34 9,44 Subtotal of cash outflow of operating activities 22,827 Net cash flow arising from operating activities 6,62 2. Cash flow arising from investment activities Cash received from withdrawal of investment Cash received from investment yield Net cash received from disposal of fixed assets, intangible assets and other long-term assets 18,180.79 Net cash received from disposal of subsidiaries and other operating units Cash received from other activities related to investment Subtotal of cash inflow of investment activities 18,180.79 Cash paid in purchase of fixed assets, intangible assets and other long-term assets 4,99 Cash paid in investment Cash paid in procurement of subsidiaries and other operating units Cash paid for other activities related to investment Subtotal of cash outflow in investment activities 4,99 Net cash flow arising from investment activities -4,979 3. Cash flow arising from fund raising acitivities Cash received from attracting investment Cash received in obtaining loans Cash received from other activities related to fund raising Subtotal of cash inflow in fund raising activities Cash paid in reimbursing debts 3,20 Cash paid as dividends, profits or interests Cash paid for other activities related to fund raising Subtotal of cash outflow in fund raising activities 3,20 Net cash flow arising from fund raising activities -3,200 4. Influence of fluctuation in exchange rate on cash flow 5. Net increase of cash and cash equivalents -1,556 Plus: initial balance of cash and cash equivalents 3,98 6.Ending balance of cash and cash equivalents 2,42 Legal representative: Executive officer in charge of accounting: Principal w Supplementary materials The Curren 1. Operating activity cash flow adjusted from net profit: Net profit 139,158,7 Plus: Assets devaluation reserve -743,540.30 Depreciation of fixed assets 5,92 Amortized intangible assets 868,727.16 Long-term deferred expenses Loss incurred from disposal of fixed assets, intangible assets and other long-term assets (revenue marked with "-") 520,447.58 Loss incurred in rejection of fixed assets (revenue marked with "-") Loss incurred in variation of fair value (revenue marked with "-") Financial expenses (revenue marked with "-") 4,64 Investment loss (revenue marked with "-") Revenue from debt restructuring -160,585,77 Deferred tax assets decrease (revenue marked with "-") Deferred tax liabilities increase (revenue marked with "-") Inventory decrease (revenue marked with "-") 1,19 Decrease in receivables under operating activities (revenue marked with "-") 2,11 Increase in payables under operating activities (revenue marked with "-") 13,519 Others Net cash flow arising from operating activities 6,62 2. Significant investment and fund raising activities not related to cash income and expenses: Debt transferred as capital Convertible bonds due in one year Fixed assets acquired under finance leases 3. Net change in cash and cash equivalents: Ending cash balance 2,42 Minus: Beginning cash balance 3,98 Plus: Ending balance of cash equivalents Minus: Beginning balance of cash equivalents Net increase of cash and cash equivalents -1,556 Legal representative: Executive officer in charge of accounting: Principal with the accounting agen Statement of Changes in Stockholder Equ Prepared by : Hainan Dadonghai Tourism Center Co., Ltd. 2007 Amount of Previous Yea Equity of owners of parent company Item Minus: Surplus unap Capital stock Capital reserves Treasury reserves stock 1. Ending balance of previous year 364,100,000.00 54,142,850.01 -465,0 Plus: alteration of accounting policies Error correction of previous period 2. Year beginning balance of current period 364,100,000.00 54,142,850.01 -465,0 3. Increase or decrease of current period (decrease marked with "-") -18,6 (1)Net profit -18,63 (2)Profit or loss directly counted into owner equity 1.Net change in fair value of salable monetary assets 2.Influence of other owner equity change from investment units under equity law 3.Influence of income tax related to owner equity accounts 4.Others Subtotal of above (1) and (2) -18,6 (3) Capital increase or decrease from owners 1.Invested capital by owners 2.Amount paid in stock counted into owner equity 3.Others (4) Profit distribution 1.Appropriation of surplus reserve 2.Distribution to onwers (or stockholders) 3.Others (5) Internal carrying forward of owner equity 1.Capital increase (or capital stock) carried forward from capital reserves 2.Capital increase (or capital stock) carried forward from surplus reserves 3.Capital increase (or capital stock) carried forward from Undistributed profit 4.Loss offset with surplus reserves 5.Others 4.Ending balance of current year 364,100,000.00 54,142,850.01 -483,7 Legal representative: Princip Executive officer in charge of accounting: Statement of Change in Stockholder Equ Prepared by Hainan Dadonghai Tourism Centre Co., Ltd. 2007 Amount of the Accounting Ye Parent Company Stockholder Equity Minus: Items Surplus unappo Capital stock Capital reserves Treasury reserves pro stock 364,100,000.0 1. Balance as of previous year end 0 54,142,850.01 -483,708 Plus: alteration of accounting policies Error correction of previous period 2. Year beginning balance of current period 364,100,000.0 54,142,850.01 -483,708 0 3. Increase or decrease of current period (decrease marked with "-") 139,158 (1) Net profit 139,158,7 (2) Profit or loss directly counted into owner equity 1.Net change in fair value of salable monetary assets 2.Influence of other owner equity change from investment units under equity law 3.Influence of income tax related to owner equity accounts 4.others Subtotal of above (1) and (2) 139,158 (3) Capital increase or decrease from owners 1.Invested capital by owners 2.Amount paid in stock counted into owner equity 3.Others (4) Profit distribution 1.Appropriation of surplus reserve 2.Distribution to onwers (or stockholders) 3.Others (5) Internal carrying forward of owner equity 1.Capital increase (or capital stock) carried forward from capital reserves 2.Capital increase (or capital stock) carried forward from surplus reserves 3.Capital increase (or capital stock) carried forward from Undistributed profit 4.Loss offset with surplus reserves 5.Others 4. Ending balance of current year 364,100,000.0 54,142,850.01 -344,550 0 Legal representative: Principal with the accoun Executive officer in charge of accounting: Adjustment Items Form of Profit Statement Prepared by Hainan Dadonghai Tourism Center (Holdings) Co., Ltd (Jan 1st of 2006—Dec 31st of 2006) Unit: RMB Items Before adjustment After adjustment Operation cost 1,078,523.73 1,078,523.73 Sales expense 11,072,660.46 11,072,660.46 Administration expense 7,411,185.28 7,411,185.28 Income from change of fair value Investment income Income tax Net profit -18,633,733.19 -18,633,733.19 Attachment II. Hainan Dadonghai Tourism Center Co. Ltd. Notes to the Financial Statement of Hainan Dadonghai Tourism Center Co., Ltd. 2007 Currency Unit: RMB yuan Note 1 Basic Facts of the Company 1.1 Historical evolution of the company Hainan Dadonghai Tourism Center Co., Ltd. (hereinafter referred to as the Company), was founded as a standardized holdings company limited on April 26, 1993, incorporated on the basis of the former Hainan Sanya Dadonghai Tourism Center Development Company limited and approved by the Hainan Provincial Stock System Experimentation Leading Group with its document No. [1993]11. On May 6, 1996, The Company underwent a restructuring and a corresponding division with the approval of the Hainan Provincial Securities Administration Office by its document No. [1996]58. On October 8, 1996 and January 28, 1997, The Company, with duly approval, went public by issuing 80 million shares of B stock and 14 million shares of A stock respectively at Shenzhen Security Exchange. On August 7, 2007, the Company experienced non-tradable shares reform, through which non-tradable share holders of the Company got circulating right of their shares by exempting liability of the Company or paying shares to tradable share holders, and tradable share holders got paid three shares for every ten of their shares. Up to December 31, 2007, the Company’s registered capital is RMB 364.1 million. The registering code is 4600001003983. The Legal Representative is Li Yuanbin. And the residence: Dadonghai, Hedong District, Sanya. 1.2 Trade nature, business scope, major products and labor service of the Company The Company mainly engages in accommodation, catering industry, photography, 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) miniature garden and bonsai, grains and oil products, knitwear and textiles, department stores, chemical products (excluding those needing specialized licenses), daily goods, industrial production means (excluding those needing specialized licenses), metal materials, machinery and equipment, and tour ticket service (on an item-license basis). Note 2 Alteration of the Accounting Policy and Its Influences According to the relevant stipulations of the business accounting rules promulgated by the state Financial Ministry on February 15, 2006, the board of directors of the Company approved that the Company, from January 1, 2007 onward, would implement the new business accounting rules and the relevant interpretations instead of the previous accounting rules and business accounting system. The Company thus reclassified the annual beginning numbers of the balance sheet based on analysis and confirmation of the relevant items in the financial report on the first executive date. Note 3 Major Accounting Policy, Method of Accounting Estimation and Preparation of Financial Statement 3.1 Statement of Abiding by the Business Accounting Rules All the financial statements prepared by the Company conform to the Business Accounting Rules, and reflect truthfully and completely the relevant information concerning the financial status, operational results and cash flow of the Company. 3.2 Basis of the financial statement preparation The preparation of the Company’s financial statement is based on continual operation, in which actual transactions or events are confirmed and measured. 3.3 The accounting period The accounting period covers the accounting year beginning on January 1 and ending on December 31. 3.4 The standard accounting currency The standard accounting currency is RMB. 3.5 The statement items with measurement attribute changed in the accounting period and their attribute as adopted in the current accounting period When measuring the accounting elements, historical cost is adopted. In cases the amount 52 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) of defined accounting element can be obtained and reliably measured, monetary assets, liabilities and salable assets which are measured in fair value and whose variation is counted profit or loss in the current accounting period, are measured in fair value; for devalued stock and other assets, measured in variable net value or recoverable amount; as for stock, fixed assets and intangible assets unpaid or delayed due to abnormal credit standing, measured in the current value of the sales price. 3.6 Definition of cash equivalent In the statement of cash flow, investment made by the Company with short cycle or strong liquidity, easily converted to definite cash amount, or with small risk of value variation, is defined as cash equivalent. 3.7 Converting method of foreign currency 3.7.1 In initial confirmation of foreign currency transaction, the foreign currency amount is converted into the Company’s accounting currency standard as per the spot exchange rate of the transaction date. In the balance sheet, monetary items and non-monetary items of foreign currency are treated according to the following rules: (1) Monetary items of foreign currency are converted at the spot exchange rate as of the date of the balance sheet. The balance of exchange arising from the foreign exchange difference between the spot exchange rate on the balance sheet date and the initial confirmation or the previous balance sheet date is counted as profit or loss of the same period. (2) Non-monetary items of foreign currency measured in historical cost is still converted at the spot exchange rate of the transaction date, without changing the accounting currency standard amount. (3) Non-monetary items of foreign currency measured in fair value is converted at the spot exchange rate of the confirmation date of the fair value, with the difference treated as variation of the fair value. 3.7.2 Converting method of foreign currency financial statement (1) The asset and liability items of the balance sheet are converted at the spot exchange rate of the balance sheet date. The owner’s equity item, except undivided profit, is converted at the spot exchange rate as of the date of occurrence. 53 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) (2) Revenue and expenses in the income statement are converted at the average exchange rate of the current period. The balance in the foreign currency financial statement arising from conversion as mentioned in above (1) and (2) is separately listed as “balance in the foreign currency financial statement” under the owner’s equity item in the balance sheet. 3.8 Confirmation and measurement of financial instrument (1) Monetary assets are divided into the following four kinds in initial confirmation: a. Monetary assets measured in fair value and with the variations counted in profit and loss in the current period, including transaction monetary assets and monetary assets specified as measured in fair value and the variation of which is counted in the current profit and loss; b. Investment held until due; c. Loan and account receivable; d. salable monetary assets. (2) Monetary liabilities are divided into the following two kinds in initial confirmation: a. Monetary liabilities measured in fair value and with the variations counted in profit and loss in the current period, including transaction monetary liabilities and monetary liabilities specified as measured in fair value and the variation of which is counted in the current profit and loss; b. Other monetary liabilities. 3.8.2 Validating basis and measurement of financial instrument In initial confirmation monetary assets and monetary liabilities are measured in fair value. For monetary assets or monetary liabilities measured in fair value and with the variations counted in profit and loss in the current period, the transaction fees incurred are directly counted in profit and loss in the current period; for other monetary assets or monetary liabilities, the transaction fees incurred are counted in initial confirmed amount. The Company conducts subsequent measurement to monetary assets on the basis of fair value without deducting transaction fees possibly incurred when disposing of them in the future, but with the following exceptions: (1) Actual cost method is adopted for due investment accounts receivable, which will be 54 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) measure on the basis of amortized cost. (2) Equity instruments without quoted price or with fair value unable to be measured reliably in a thick market, and derivative monetary assets linked to the previous equity instruments and having to be settled by delivering the equity instruments, are counted at cost. The Company uses the effective interest method and conducts subsequent measurement to monetary liabilities according to amortized cost, but with the following exceptions: (1) Monetary liabilities measured in fair value and with the variations counted as profit or loss in the current accounting period are counted at fair value without deducting transaction fees possibly incurred when disposing of them in the future. (2) Derivative monetary instruments linked to equity instruments without quoted price or with fair value unable to be measured reliably in a thick market and having to be settled by delivering the equity instruments, are counted at cost. (3) Financial guarantee contracts which do not belong to those designated as measured with fair value and whose variations are counted as profit or loss in monetary liabilities of current period, or loan commitment which does not belong to those designated as measured with fair value, through which the interest rate will be lower than market rare, and whose variations are counted as profit or loss in current period, are subsequently measured as per either amount of the following, whichever is higher: a. Amount determined in conformity with Rule 13 of Business Accounting Rules, i.e. contingencies; b. The balance of the initial confirmed amount after deducting accumulative amortization determined according to Rule 14 of Business Accounting Rules, i.e. revenues. 3.8.3 Confirmation basis and measurement method of monetary assets transfer The Company terminates confirmation of monetary assets which satisfies one of the following conditions: (1)The right to receive cash flow of monetary assets has been transferred to another party; (2)Almost all risks and rewards under the ownership of the monetary assets have been transferred to the transferee; (3)Control over the monetary assets has been abandoned though risks and rewards 55 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) under the ownership of the monetary assets have not been transferred. As for monetary assets satisfying conditions to terminate confirmation, the difference between the following amounts is counted as profit or loss of current period: (1) Book value of the monetary assets transferred; (2) Consideration received due to the transfer, plus the accumulated fair value (salable monetary assets) originally counted into owner’s interest. 3.8.4 Confirmation of the fair value of major monetary assets and liabilities: The fair value of monetary assets or liabilities with a thick market is determined according to their quotations in the thick market, including prices quoted regularly by bourses, brokers, trade associations and pricing institutions which usually represent prices actually occurring in fair transactions of the market. As for monetary assets or liabilities without a thick market, the fair value is determined through estimation techniques, which includes considering recent actual prices adopted parties familiar to the relevant situation and transacting on a volunteer basis, referring to current fair values of other similar or homogeneous monetary assets or liabilities, discounted cash flow, and option pricing model, etc. 3.8.5 Methods of monetary assets impairment test and withdrawal of provisions for devaluation On the date of balance sheet, the Company checks the book value of monetary assets other than those measured with fair value and the variations counted into profit and loss of current period, and withdraws correspondent provisions for devaluation on those monetary assets with objective evidence indicating that devaluation has occurred. When withdrawing, impairment test will be carried out on those with single major amount. The specific methods are as follows: Provisions are withdrawn and count into current profit and loss on the difference between fair value and book value for those salable monetary assets which can be reliably measured with fair value; for those salable but not reliably measured with fair value, withdrawn on the difference between the expected cash flow value (excluding possible future credit loss) and the book value. When devaluation occurring to salable monetary assets, even if the assets are not terminated confirmation, the accumulative loss due to value decline of the assets that were formerly counted into shareholder’s profit and loss, the devaluation is counted into profit and 56 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) loss of current period. Investment held until due time is withdrawn on the difference between the expected cash flow current value (excluding possible future credit loss) and the book value and counted into the profit and loss of current period. 3.9 Confirmation standard and withdrawal method of bad debts (1) Confirmation standard a. When debtor goes bankrupt or dies, the amount receivable can still not be collected after liquidation of the debtor’s assets or legacy; b. Debtor fails to pay overdue debt delaying more than three years and there are evident proof indicating the debt cannot be collected. (2) Withdrawal method of provision for bad debts On balance sheet date the Company checks the book value of amounts receivable and paid in advance, when there is objective evidence indicating the devaluation occurs, the devaluation is confirmed on an individual case basis and withdrawn from the provision for bad debts; for other amounts receivable and paid in advance, the withdrawal proportion is determined according to an actual loss rate worked out on the basis of the previous account aging mix of the amounts with similar credit risk features. Aging of accounts Proportion (%) Within one year 0 One to two years 5 Two to three years 15 Three to four years 25 Four to five years 50 Five years above 100 3.10 Inventory method The Company adopts perpetual inventory system in accounting. Inventory is divided into raw materials, commodities in stock, low-value consumables, trusted supply for processing, foodstuffs, etc. Inventory is counted on a sales price basis and apportioned on a monthly basis. 3.11 Kinds and measurement modes of investment real estate 57 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Investment real estate means buildings leased out. Subsequent measurement is conducted with cost mode, with the depreciation and withdrawal of provisions for devaluation similar to that of fixed assets. 3.12 Accounting of fixed assets The Company defines those tangible assets, which have the following features and their economic benefits probably flow into business and the cost can be reliably measured, as fixed assets: 1. Held for the purpose of producing commodities, offering labor service, leasing or operating; 2. The durability exceeding an accounting period. Fixed assets are initially measured on an actual cost basis, with depreciation on average years basis. The following is a depreciation rate table for different fixed assets: Assets classification Years of use Annual depreciation (%) Buildings & tenement 20—40 4.75—2.37 Machinery 8—20 11.87—4.75 Electronic entertainment appliances 5—16 19—5.93 Transportation vehicles 7—12 13.57—7.91 Other equipment 8 11.87 Remodeling & fitment 5 19 3.13 Classification of projects under construction and standard and time point for their transferring to fixed assets Projects under construction of the Company are divided into building and tenement projects, machinery installation, machinery maintenance and other projects. All such projects are counted according to actual cost. All loan interest and exchange rate difference directly related to the projects are counted into cost before the projects are put into use. Projects under construction are turned into fixed assets on the date of being available to use. 3.14 Accounting of intangible assets Intangible assets are counted on the actually paid amount or confirmed value. Intangible assets with limited service life are amortized within their durability with the following 58 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) amortization standards: (1) Those within law regulations are amortized according to law; within contract stipulations, according to contract; without relevant regulations or stipulations, within 10 years of durability. (2) Land use right is amortized according to average years of use. 3.15 Withdrawal of provisions for devaluation of long-term equity investment, fixed assets, projects under construction and intangible assets (1) Provisions for long-term equity investment: The Company conducts check on long-term equity investments at the end of the accounting year. If market price of the invested unit keeps declining or operation deterioration causes the investment value lower than its book value, withdrawal is counted on the value difference. (2) Provisions for fixed assets devaluation: The Company conducts check on fixed assets at the end of the accounting year. If market price of fixed assets keeps declining or technological backwardness, equipment outdated or long idling cause the assets value receivable lower than its book value, withdrawal is counted on the value difference. (3) Provisions for projects under construction: The Company conducts check on projects under construction at the end of the accounting year. Withdrawal is counted on the value difference between the funds receivable and the book value. Once the above devaluation is confirmed, there will be no reversion in subsequent accounting years. 3.16 Accounting of long-term equity investment 3.16.1 Initial measurement of long-term equity investment (1) Long-term equity investment formed in enterprise combination a. For long-term equity investment formed through enterprises combination under common control with cash payment, non-cash assets transfer or liability assumption as consideration, the book value share of shareholder equity obtained through combination is counted as the initial cost of the long-term equity investment on the date of combination. b. For long-term equity investment formed through enterprises combination under non-common control with assets payment, liability assumption or fair value of issuing equity security and other direct expenses incurred as consideration, the consideration concerned is 59 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) counted as the initial cost of the long-term equity investment on the date of combination. (2) For long-term equity investment formed through modes other than enterprise combination, the initial cost of investment is determined as per the following principles: For long-term equity investment through cash payment, the initial investment cost is counted on the fair value of issuing equity securities; For investor’s long-term equity investment, the value as agreed in relevant agreement or contract is counted as the initial cost of investment. 3.16.2 Subsequent measurement of long-term equity investment For long-term investments exerting control on the invested unit and without common control or significant influence, without quotations on thick market and the fair value unable to be reliably measured, the cost method is adopted in accounting, in which: profit and loss method is used in preparing the financial statements for adjustment for the Company’s long-term equity investment to its subsidiaries. For long-term investments with common control or significant influence on the invested unit, profit and loss method is adopted. 3.16.3 Determination of profit When cost method is adopted, any addition to or withdrawal of investment constitutes the cost of long-term equity investment. Any cash dividends or profits announced to be distributed by the invested unit are determined as current profit. When equity method is adopted, if the initial investment cost of the long-term equity investment is bigger than the net assets fair value discriminable to the invested unit, the difference is counted into the profit and loss of the current period, and the cost of long-term equity investment is reconciled. If the invested unit adopts an accounting policy different from that of the Company, the financial statements of the invested unit will be adjusted according to the Company’s accounting policy and the accounting period, and investment profit and loss will thus be determined accordingly. As for other changes or variations in shareholder’s equity, of the invested unit, except for net profit and loss, the book value of the relevant long-term equity investment will be reconciled and counted into shareholder’s equity. 3.16.4 Evidence to determine the common control and significant influence on invested unit 60 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) (1) Common control Common control can be determined if the important financial and operating decisions have to be unanimously agreed by investors sharing control. (2) Significant influence can be determined if investor has the right to join in financial and operating decision making of the invested unit but can not control either singly or with other parties the decision making. 3.17 The confirming principle of loan expense capitalization and measurement of the capitalization amount in the capitalization and the capitalization suspension periods Loan expenses simultaneously satisfy the conditions of capitalization when assets payment has occurred, loan expenses have occurred and related structuring activity has started to make assets concerned available for use. Otherwise, the loan expenses are determined as current period expense. 3.18 Revenue determination Commodity sales revenue: commodity sales are determined as revenue when satisfying simultaneously the following conditions: (1) The Company has transferred the main risk and reward related to ownership of the commodity to the purchaser; (2) The Company retains neither right of management usually related to ownership nor effective control over the sold commodity; (3) The received amount can be reliably measured; (4) Relevant economic benefit probably flows into the Company; (5) The related occurred or occurring cost can be reliably measured. Labor service revenue: The determination condition is that the revenue and the extent of completion of the labor service can reliably measured, the related rewards can be flow into and the cost can be reliably measured. Revenue from transfer of assets uses right: The determination condition is that the revenue and the related amount received can be reliably measured. 3.19 Determination and measurement of business income tax (1) For the difference between book value of assets and liabilities and the taxable base, the Company determines the deferred income tax assets and deferred income tax liabilities according to the tax rate applicable in the period recovering the assets or liabilities. 61 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) (2) Determination of deferred income tax assets is limited within the taxable income. (3) On the balance sheet date, the Company checks the book value of the deferred income tax assets. If no enough income is possibly obtained in the future to offset the payable tax, the book value is deducted. (4) The Company counts current income tax and deferred income tax as current profit or loss. Note 4 Taxes Tax Item Tax Bases Tax Rate VAT Commodity sales revenue 4% Business tax Operating revenue 5-10% Consumption tax Sales revenue of jewelry 5% Tax for urban construction & maintenance Business tax & paid VAT 7% Extra fee for education Business tax & paid VAT 3% Business income tax Income tax payable 15% Note: Enterprises established in Hainan enjoy a 15% income tax discount according to article 12 of the” Regulations for Encouraging investment and development of Hainan Island” by the State Council and article 19 of the “Regulations for Accelerating Development and Construction of Hainan Special Economic Zone” by Hainan Provincial People’s Government. Note 5 Enterprise combination and consolidation of financial statements 5.1 Scope of financial statements consolidation The scope covers the Company and non-corporate South China Hotel with independent accounting. Note 6 Notes to the Main Items of the Financial Statements 6.1 Monetary capital Year-end amount Year-beginning amount Item Original Exchange Converted to Original Exchange Converted to Currency currency rate RMB currency rate RMB Cash RMB 1,201,545.47 1,201,545.47 104,474.39 104,474.39 USD 15.00 7.8087 117.13 Yen 600.00 0.065633 39.38 HK$ 80.20 1.0058 80.67 62 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Subtotal 1,201,545.47 1,201,545.47 104,711.57 Bank Deposit RMB 1,185,666.70 1,185,666.70 3,811,097.16 3,811,097.16 Subtotal 1,185,666.70 1,185,666.70 3,811,097.16 3,811,097.16 Other money capital RMB 37,619.00 65,982.44 65,982.44 Subtotal 37,619.00 65,982.44 65,982.44 Total 2,424,831.17 3,981,791.17 The year-end amount is 39.10% lower than the year-beginning amount mainly because of debt reimbursement and assets increase. 6.2 Accounts receivable 6.2.1.Account aging analysis and percentage Year-end amount Year-beginning amount Aging of account Proportion Bad debt Proportion Bad debt Amount Amount in total (%) provision in total (%) provision Within 1 year 2,501,200.64 55.08 1,263,106.31 38.49 45,332.61 1-2 years 67,413.66 1.48 46,437.16 253,439.82 7.72 183,580.47 2-3 years 247,141.12 5.44 189,989.28 239,879.06 7.31 218,495.42 3-4 years 218,412.84 4.81 215,644.59 313,396.42 9.55 239,558.53 4-5 years 276,230.86 6.09 245,588.38 197,988.56 6.03 158,247.27 5years above 1,230,415.45 27.10 1,230,415.45 1,013,685.52 30.90 1,013,685.52 Total 4,540,814.57 100.00 1,928,074.86 3,281,495.69 100.00 1,858,899.82 Note: The year-end amount is 38.38% higher than the year-beginning amount mainly because of sales revenue increase. 6.2.2.Classified presentation Year-end amount Year-beginning amount Classification Proportion Bad debt Proportion Bad debt Amount Amount in total (%) provision in total (%) provision Single significant sum of account 3,236,472.63 71.28 773,409.98 2,320,279.64 70.71 1,237,234.67 receivable Single insignificant but risky sum 951,649.17 20.96 918,238.44 287,097.31 8.75 176,866.13 of account receivable Other insignificant accounts 352,692.77 7.76 236,426.44 674,118.74 20.54 444,799.02 receivable Total 4,540,814.57 100.00 1,928,074.86 3,281,495.69 100.00 1,858,899.82 63 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Note: (1) Single significant sum of account receivable refers to those accounts with comparatively long aging (more than 3 years) and under RMB 200,000.00. (2) Year-end accounts receivable do not include accounts held by shareholding units of the Company with a voting rights share of 5% or above. (3) The top five year-end accounts receivable have an aggregate of RMB 3,236,472.63, which accounts for 71.28% of the total accounts receivable. (4) Account receivable with an amount of RMB 773,409.98 of Sanya Electricity Co. is counted as bad debts because the Company deems there exists significant uncertainty in recovering the account. 6.3 Accounts paid in advance 6.3.1 Account aging analysis Year-end amount Year-beginning amount Account aging Amount Proportion Amount Proportion Within 1 year 39,263.00 100% 21,800.11 100% 1-2 years 2-3 years 3-4 years 4-5 years Total 39,263.00 100% 21,800.11 100% 6.3.2 Year-end accounts paid in advance do not include accounts held by shareholding units of the Company with a voting rights share of 5% or above. 6.4 Other accounts receivable 6.4.1 Account aging analysis and percentage Year-end amount Year-beginning amount Aging of account Proportion Bad debt Proportion Bad debt Amount Amount in total (%) provision in total (%) provision Within 1 year 1,705,241.04 2.14 957,014.21 0.30 1-2 years 43,000.00 0.05 2,185.10 3,262,700.00 1.01 163,135.00 2-3 years 2,748.15 412.22 3-4 years 1,212.00 303.00 923,000.00 0.29 230,750.00 64 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) 4-5 years 2,400.00 1,200.00 5 years above 78,071,464.30 97.81 78,071,464.30 318,587,795.61 98.40 318,587,795.61 Total 79,820,917.34 100.00 78,073,952.40 323,735,657.97 100.00 318,983,292.83 Note: The year-end amount is 75.34% lower than the year-beginning amount because a debt of RMB 240,518,731.31 was written off by the resolution of the second provisional shareholders’ meeting of 2008. 6.4.2 Classified presentation Year-end amount Year-beginning amount Classification Proportion Bad debt Proportion Bad debt Amount Amount in total (%) provision in total (%) provision Single significant sum of 78,606,392.71 98.48 77,013,143.31 320,554,574.62 99.02 317,683,009.62 account receivable Single insignificant but risky 1,059,532.99 1.33 1,058,623.99 1,981,320.99 0.61 1,287,870.99 sum of account receivable Other insignificant accounts 154,991.64 0.19 2,185.10 1,199,762.36 0.37 12,412.22 receivable Total 79,820,917.34 100.00 78,073,952.40 323,735,657.97 100.00 318,983,292.83 6.4.3 Single insignificant but risky sum of account receivable refers to those accounts with comparatively long aging (more than 3 years) and under RMB 1,000,000.00. 6.4.4 Details of year-end accounts receivable of shareholders holding more than 5% of the Company shares are as follows: Unit Owing amount Owing period Debt reason Haikou Foodstuff Co. Ltd. 1,593,249.40 Within 1 year Fee paid in advance for stock reform 6.4.5 The top five year-end other accounts receivable have an aggregate of RMB 78,606,392.71, which accounts for 98.48% of the total other accounts receivable. 6.5 Inventory and provisions for inventory devaluation 6.5.1 Classified presentation: Item Year-end amount Year-beginning amount 65 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Provision for Provision for Amount Net amount Amount Net amount value decline value decline Material in stock 942,828.59 790,407.38 152,421.21 2,129,205.66 2,015,747.86 113,457.80 Commodity in stock 79,010.91 67,341.94 11,668.97 79,010.91 67,341.94 11,668.97 Foodstuff & drinks 174,778.82 12,265.30 162,513.52 179,800.98 12,265.30 167,535.68 Fuel 12,862.19 12,862.19 14,448.74 14,448.74 Total 1,209,480.51 870,014.62 339,465.89 2,402,466.29 2,095,355.10 307,111.19 6.5.2 Provision for inventory devaluation Year-beginning Withdrawal amount Deducted amount of current period Item Year-end amount amount of current period Reversing Writing off Materials in stock 2,015,747.86 422,106.22 803,234.26 790,407.38 Commodities in stock 67,341.94 67,341.94 Foodstuffs & drinks 12,265.30 12,265.30 Total 2,095,355.10 422,106.22 803,234.26 870,014.62 Note: Inventory discountable net value is determined as net value the market value in voluntary transaction deducting necessary cost for further processing before sale. 6.6 Other current assets Current year Current year Year-beginning amount Year-end amount increase decrease Item Provision for Provision for Book balance Book value Book balance Book value value decline value decline Land exchange 10,837,399.26 2,167,480.26 8,669,919.00 10,837,399.26 2,167,480.26 8,669,919.00 entitlement Total 10,837,399.26 2,167,480.26 8,669,919.00 10,837,399.26 2,167,480.26 8,669,919.00 Note: (1) Other current assets refer to the land exchange entitlement (No. 00000514, Issuance No. 460200011217001) issued by Sanya municipal People’s Government for its requisition of the Company’s land use right. (2) Provision for devaluation of other current assets (land exchange entitlement) is withdrawn on the difference between the discountable value and the book value. 6.7 Long-term equity investment 6.7.1 Long-term equity investment as accounted with cost method Invested unit Equity Initial invested Year-beginnin Profit & loss Dividend Increase Year-end 66 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) proportion amount g amount adjustment of in cash (decrease) of amount current period current period Difu Investment & 14.28% 5,000,000.00 5,000,000.00 5,000,000.00 development Co. Ltd Jingsha Dadonghai 91% 4,566,207.42 4,566,207.42 4,566,207.42 Club Co. Ltd., Hubei Shun’an Recreational 70% 5,150,166.84 5,150,166.84 5,150,166.84 Plaza, Sanya Total 14,716,374.26 14,716,374.26 14,716,374.26 6.7.2 Provisions for long-term equity investment devaluation Year-beginning Increase of current Decrease of Invested unit Year-end amount amount period current period Difu Investment & development Co. Ltd 5,000,000.00 5,000,000.00 Jingsha Dadonghai Club Co. Ltd., Hubei 4,566,207.42 4,566,207.42 Shun’an Recreational Plaza, Sanya 5,150,166.84 5,150,166.84 Total 14,716,374.26 14,716,374.26 6.8 Fixed assets 6.8.1 Original value and accumulative depreciation of fixed assets Year-beginning Increase of current Decrease of current Classification Year-end amount amount period period Original value of fixed assets Buildings & tenement 156,278,345.03 156,278,345.03 Machinery 18,517,792.13 117,226.40 74,931.75 18,560,086.78 Electronic equipment 4,276,947.29 723,149.00 2,522,939.38 2,477,156.91 Transportation vehicle 1,253,838.77 789,700.00 988,100.00 1,055,438.77 Other equipment 2,905,328.89 363,314.30 1,981,223.98 1,287,419.21 Remodeling & fitment 6,553,685.75 2,907,555.28 9,461,241.03 Total 189,785,937.86 4,900,944.98 5,567,195.11 189,119,687.73 Cumulated depreciation Buildings & tenement 49,220,152.24 3,064,292.60 52,284,444.84 Machinery 10,511,130.18 740,873.03 55,416.48 11,196,586.73 Electronic equipment 2,981,175.37 253,179.90 2,070,991.07 1,163,364.20 Transportation vehicle 871,406.88 48,721.88 827,143.47 92,985.29 Other equipment 1,814,890.33 342,302.52 1,602,345.93 554,846.92 Remodeling & fitment 1,479,973.30 1,479,973.30 Total 65,398,755.00 5,929,343.23 4,555,896.95 66,772,201.28 67 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Net value 124,387,182.86 122,347,486.45 6.8.2 Provisions for fixed assets devaluation Year-beginning Increase of current Decrease of current Classification Year-end amount amount period period Buildings & tenement 32,449,653.81 32,449,653.81 Machinery 3,504,552.06 8,361.54 3,496,190.52 Electronic equipment 480,482.67 381,345.51 99,137.16 Other equipment 280,719.63 67,083.12 213,636.51 Total 36,715,408.17 456,790.17 36,258,618.00 Note: (1) The increase of fixed assets original value this year is mainly because of fitment and remedy of some fixed assets and increase of transportation vehicles. (2) The decrease of fixed assets original value this year is mainly because of scrap of some fixed assets. (3) Fuzhong Apartment Building, with an original value of RMB 1,258,281.82, has been mortgaged to Hainan Yangpu Jinyu Industrial Co. Ltd. 6.9 Projects under construction Actually paid Year-beginning Increase of Transferred into fixed Other Year-end Proportion amount current year assets in current year decrease amount Capital of Important projects Budget In which In which In which amount In which amount In which amount of source investment amount of amount of of Capitalization of of Capitalization of Capitalization of in budget Capitalization Capitalization interests interests interests of interests of interests Fitment of building B 2,179,350.00 2,179,350.00 Self-raised Transformation of fire 182,939.00 182,939.00 Self-raised control of building B Total 2,362,289.00 2,179,350.00 182,939.00 Note: There is no interest capitalization amount. 6.10 Intangible assets 6.10.1 Classification and amortization of intangible assets Year-beginning Increase of current Decrease of current Classification Year-end amount amount period period Original value Land use right 87,315,277.74 87,315,277.74 Total 87,315,277.74 87,315,277.74 68 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Accumulative amortization Land use right 23,801,451.80 868,727.16 24,670,178.96 Total 23,801,451.80 868,727.16 24,670,178.96 Net value 63,513,825.94 62,645,098.78 6.10.2 Provisions for intangible assets devaluation Year-beginning Increase of current Decrease of current Classification Year-end amount amount period period Land use right 29,343,890.98 29,343,890.98 Total 29,343,890.98 29,343,890.98 Note(1)：Provisions for intangible assets devaluation is withdrawn on the difference between the book value (higher) and the current market value. (2)：The original copy of the Company’s land use entitlement and real estate certificate is held pro tempore with Sanya Land & Environment Bureau due to a balance of service charge. 6.11 Provisions for assets devaluation Withdrawal Decrease of current Year-beginning Year-end Item of current period amount amount period Writing off Reversing 1. Provision for bad debts 320,842,192.65 -321,434.08 240,518,731.31 80,002,027.26 2. Provision for inventory depreciation 2,095,355.10 803,234.26 422,106.22 870,014.62 3. Provision for salable monetary assets devaluation 4. Provision for other current assets 2,167,480.26 2,167,480.26 depreciation 5. Provision for long-term investment 14,716,374.26 14,716,374.26 devaluation 6. Provision for investment real estate devaluation 7. Provision for fixed assets devaluation 36,715,408.18 456,790.18 36,258,618.00 8. Provision for project materials devaluation 9. Provision for devaluation of projects under construction 10. Provision for devaluation of productive biological assets In which: Provision for devaluation of mature productive biological assets 11. Provision for devaluation of oil & gas 69 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) 12. Provision for intangible assets 29,343,890.98 29,343,890.98 devaluation 13. Provision for corporate reputation devaluation 14. Miscellaneous Total 405,880,701.43 -321,434.08 241,778,755.75 422,106.22 163,358,405.38 Note: The current provision for written-off bad debts of RMB 240,518,731.31 is caused by the writing off of a debt of Hainan Dadonghai Tourism Center Group, as decided by the resolution of the second provisional shareholders’ meeting of 2008. 6.12 Short-term borrowings Year-end amount Year-beginning amount Item Original currency Converted into RMB Original currency Converted into RMB Bank loans In which: credit Mortgage 16,098,222.40 16,098,222.40 Total 16,098,222.40 16,098,222.40 Note: The decrease of RMB16,098,222.40 this year is due to debt exemption and liability assumption by Haikou Foodstuffs Co. Ltd., the Company’s biggest nominee shareholder. Details are as follows: (1) On January 23, 2007, a debt of RMB 11,098,222.40 and correspondent interest owed to Hainan United Assets Management Co. was transferred to Haikou Foodstuffs Co. Ltd. (2) On February 28, 2007, China Cinda Assets Management Co. Ltd., the Company’s creditor, transferred a loan and correspondent interest of RMB 5,000,000.00 to Hainan Chengxin Agricultural Sci-Tech Co. Ltd., the transferee then transferred it to Haikou Foodstuffs Co. Ltd. (3) On July 2, 2007, the Company and Haikou Foodstuffs Co. Ltd. Signed a debt exemption agreement, through which the latter exempted a creditor’s right of RMB 158,974,468.35 unconditionally and irrevocably from the same date onward. 6.13 Accounts payable (1) The year-end amount of accounts payable is RMB 2,300,798.98 and the year-beginning amount is RMB 3,343,039.10. (2) Year-end accounts payable do not include accounts held by shareholding units of the 70 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Company with a voting rights share of 5% or above. (3) The 31.18% decrease of year-end amount over year-beginning amount is mainly due to goods account reimbursement. 6.14 Accounts received in advance (1) The year-end amount is RMB 2,180,295.18 and the year-beginning amount, RMB 1,554,656.53. (2) There are no accounts held by shareholding units of the Company with a voting rights share of 5% or above. (3) The 40.24% increase of year-end amount over year-beginning amount is mainly due to increase of accounts received in advance by South China Hotel. 6.15 Staff salary payable Year-beginning Increase of current Paid in current Item Year-end amount amount period period 1. Salary, bonus, allowance & subsidy 519,395.41 4,050,682.37 3,788,486.68 781,591.10 2. Staff welfares 115,965.07 483,770.05 599,735.12 3. Social security 712,817.37 712,694.37 123.00 In which: 1.Healthcare insurance 123,537.25 123,537.25 2.Basic pension insurance 488,349.70 488,226.70 123.00 3.Pension premium 4.Unimployment insurance 73,360.56 73,360.56 5.Compo 18,430.27 18,430.27 6.Bearing insurance 9,139.59 9,139.59 7.Comprehensive insurance for temporary labor 4. Accumulation fund for housing 5.Outlay for trade union and staff training 772,570.77 150,179.35 158,840.00 763,910.12 6. Non-monetary welfare 7. Compensation due to determination of labor relations 8. Miscellaneous Total 1,407,931.25 5,397,449.14 5,259,756.17 1,545,624.22 6.16 Tax payable Tax Year-end amount Year-beginning amount VAT 135,982.62 135,982.62 Business tax 169,576.61 -1,116,115.68 71 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Tax for urban construction & maintenance -40,816.43 -130,814.88 Real estate tax 1,051,931.30 671,823.86 Business income tax 13,754,797.03 -1,702,702.80 Individual income tax 797.44 -860.76 Extra fee for education -17,492.75 -56,063.51 Land use tax 39,340.20 39,340.20 Fee for cultural undertakings 1,396.39 1,396.39 Total 15,095,512.41 -2,158,014.56 Note: The 799.51% increase of year-end amount over year-beginning amount is mainly due to revenue increase caused by debt exemption. 6.17 Interest payable Item Year-end amount Year-beginning amount Loan interest 18,483,781.24 Total 18,483,781.24 Note: Refer to Note 6.12 and 6.19 for the reason of the decrease of RMB 18,483,781.24. 6.18 Other accounts payable Aging of account Year-end amount Year-beginning amount Within 1 year 9,237,401.21 8,929,773.24 1-2 years 7,131,180.55 124,493.45 2-3 years 14,600.00 137,236.95 3-4 years 41,143.03 21,510,000.40 4-5 years 20,934,515.67 117,969.80 5 years above 3,232,442.67 3,935,574.19 Total 40,591,283.13 34,755,048.03 Note：(1) The 16.79% increase of year-end amount over year-beginning amount is mainly due to reclassification. (2) Accounts payable do not include accounts held by shareholding units of the Company with a voting rights share of 5% or above. (3) Other large-sum accounts payable with account aging more than 1 year: Unit Amount Causes for non-settlement China Securities Regulatory Commission 19,810,000.00 Financial difficulty Affiche fee to Securities Times 1,221,704.69 Financial difficulty Sun Hongjie 1,000,000.00 Guarantee deposit 72 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Total 22,031,704.69 6.19 Long-term liabilities due in 1 year Year-end amount Year-beginning amount Account Loan Interes Interest Amount Principal Amount Principal condition t rate rate China Cinda Asset Guarantee 10,866,458.10 6,000,000.00 1.70% Management Corporation Hainan United Asset 81,210,839.59 50,000,000.00 Management Corporation Total 92,077,297.69 56,000,000.00 Note: The decrease of RMB 92,077,297.69 this year is due to debt exemption and liability assumption by Haikou Foodstuffs Co. Ltd., the Company’s biggest nominee shareholder. Details are as follows: (1) On January 23, 2007, a debt of RMB 50,000,000.00 and correspondent interest owed to Hainan United Assets Management Co. was transferred to Haikou Foodstuffs Co. Ltd. (2) On February 28, 2007, China Cinda Assets Management Co. Ltd., the Company’s creditor, transferred a loan and correspondent interest of RMB 6,000,000.00 to Hainan Chengxin Agricultural Sci-Tech Co. Ltd., the transferee then transferred it to Haikou Foodstuffs Co. Ltd. (3) On July 2, 2007, the Company and Haikou Foodstuffs Co. Ltd. Signed a debt exemption agreement, through which the latter exempted a creditor’s right of RMB 158,974,468.35 unconditionally and irrevocably from the same date onward. 6.20 Long-term accounts payable Account Year-end amount Year-beginning amount Hainan Xinke Computer Software Co. Ltd. 608,833.11 Total 608,833.11 6.21 Provisions Item Year-end amount Year-beginning amount China Tourism International Trust & Investment 22,487,716.50 Co. Ltd China Cinda Asset Management Corporation 17,804,840.00 73 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Total 40,292,556.50 Note: The decrease of RMB 40,292,556.50 this year is due to debt exemption and liability assumption by Haikou Foodstuffs Co. Ltd., the Company’s biggest nominee shareholder. Details are as follows: (1) On February 5, 2007, a debt of RMB 10,800,000.00 and correspondent interest owed to China Tourism International Trust & Investment Co. Ltd. was transferred to Hainan Chengxin Agricultural Sci-Tech Co. Ltd., the transferee then transferred it to Haikou Foodstuffs Co. Ltd. (2) On February 28, 2007, China Cinda Assets Management Co. Ltd., the Company’s creditor, transferred a loan and correspondent interest of RMB 10,000,000.00 to Hainan Chengxin Agricultural Sci-Tech Co. Ltd., the transferee then transferred it to Haikou Foodstuffs Co. Ltd. An interest balance of RMB 7,488,596.50 was adjusted to other accounts payable. (3) On July 2, 2007, the Company and Haikou Foodstuffs Co. Ltd. Signed a debt exemption agreement, through which the latter exempted a creditor’s right of RMB 158,974,468.35 unconditionally and irrevocably from the same date onward. 6.22 Capital stock (Unit: share) Prior to this change Increase or decrease in this change(＋，－) After this change Share New Bonus transferred Shares Proportion Others Total Shares Proportion issue shares from capital reserve I. Restricted circulating shares 231,034,353 63.45% -13,519,694 -13,519,694 217,514,659 59.74% 1.State-owned shares 2.State corporate shares 44,088,000 12.11% -6,637,800 -6,637,800 37,450,200 10.29% 3.Other domestic shares 186,946,353 51.34% -6,881,894 -6,881,894 180,064,459 49.45% In which: Domestic corporate shares 186,912,000 51.33% -6,892,200 -6,892,200 180,019,800 49.44% Domestic natural person 34,353 0.01% 10,306 10,306 44,659 0.01% shares 4.Foreign shares In which: Foreign corporate shares 74 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Foreign natural person shares II. Non-restricted circulating 133, 065,647 36.55% 13,519,694 13,519,694 146,585,341 40.26% shares 1.A shares 45,065,647 12.38% 13,519,694 13,519,694 58,585,341 16.09% 2.Domestically salable foreign 88,000,000 24.17% 88,000,000 24.17% shares 3.Overseas salable foreign shares 4.Others IV. Total shares 364,100,000 100.00% 364,100,000 100.00% 6.23 capital reserves Year-beginning Current period Current period Year-end Item Cause of change amount increase decrease amount Equity premium 33,336,215.58 33,336,215.58 Other capital reserve 20,806,634.43 20,806,634.43 Total 54,142,850.01 54,142,850.01 6.24 Profit undistributed Item Current year Previous year Undistributed profit at year beginning -483,708,909.17 -465,075,175.98 Plus: net profit of current year 139,158,744.20 -18,633,733.19 Distributable profit -344,550,164.97 -483,708,909.17 Minus: withdrawal of surplus reserve Withdrawal for staff bonus & welfare Others Undistributed profit at year end -344,550,164.97 -483,708,909.17 6.25 Business revenue and cost 6.25.1. Composition of business revenue Classification Current year Previous year Revenue from major businesses 25,623,653.21 13,260,868.03 Revenue from other businesses 34,036.00 75 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Total 25,623,653.21 13,294,904.03 Note: The 92.73% increase over previous year is mainly due to increase of occupancy rate and average room rate of the hotel after remodeling. 6.25.2. Composition of operating cost Classification Current year Previous year Cost of major businesses 2,840,886.28 1,076,651.75 Cost of other businesses 1,871.98 Total 2,840,886.28 1,078,523.73 Note: The 163.41% increase over previous year is mainly due to cost increase of the hotel after remodeling. 6.25.3. Revenue and cost of the major businesses (presented on an area basis) Gross profit of major Revenue from major businesses Cost of major businesses businesses % Classification Current Previous Current year Previous year Current year Previous year year year Hainan area 25,623,653.21 13,260,868.03 2,840,886.28 1,076,651.75 88.91% 91.88% Subtotal 25,623,653.21 13,260,868.03 2,840,886.28 1,076,651.75 88.91% 91.88% Offset among regional branches Total 25,623,653.21 13,260,868.03 2,840,886.28 1,076,651.75 88.91% 91.88% 6.25.4. Sales revenue from the top five customers totals RMB 5,102,564.00, accounting for 19.91% of the total sales revenue. 6.26 Business tax and extras Item Current year Previous year Tax rate Business tax 1,281,632.69 663,173.33 5% Tax for urban construction 89,714.28 46,422.14 7% Extra fee for education 38,448.97 19,895.20 3% Total 1,409,795.94 729,490.67 Note: The 93.26% increase over previous year is mainly due to revenue increase. 6.27 Sales expenses Current year Previous year 14,475,303.74 11,072,660.46 Note: The 30.73% increase over previous year is mainly due to expense increase caused by revenue increase. 76 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) 6.28 Financial cost Item Current year Previous year Interest expenses 4,643,323.21 8,594,108.56 Minus: interest revenue 20,235.07 4,670.44 Exchange loss 8.53 Minus: exchange gain Banking charges 125,553.89 71,787.80 Others -294,939.60 135,291.66 Total 4,453,702.43 8,796,526.11 Note: The 49.37% decrease over previous year is mainly due to interest payment decrease thanks to debt exemption. 6.29 Impairment of assets devaluation Item Current year Previous year Loss of bad debts -321,434.08 421,016.47 Provision for inventory devaluation -422,106.22 Total -743,540.30 421,016.47 6.30 Non-business revenue Item Current year Previous year Return of consumer price adjustment fund 274,186.00 128,393.50 Net profit from disposal of fixed assets 18,042.40 5,364.97 Gain on liability exemption 160,585,773.05 Other revenue 81,192.05 129,086.74 Total 160,959,193.50 262,845.21 Note: The 611.37 times of increase over previous year is mainly due to the exemption of a liability of RMB 158,974,468.35 and its generated interest prior to July 2, 2007 by Haikou Foodstuffs Co. Ltd, the biggest nominee shareholder of the Company. 6.31 Non-operational expenditure Item Current year Previous year Loss on liquidation of fixed assets 538,489.98 2,662,311.58 Non-public interest donation 52,000.00 Fine expenses 85,705.50 77 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Loss on liability restructuring 16,568.13 Other expenses 3,200.00 Total 676,195.48 2,682,079.71 Note: The 74.79% decrease over previous year is mainly caused by substantial loss in previous period disposal of fixed assets. 6.32 Income tax expenses Item Current year Previous year Current period income tax expenses 15,457,499.83 Deferred income tax expenses Total 15,457,499.83 6.33 RMB 4,878,016.17 of cash received in activities related to operation. Details are as follows: Item Amount Incoming as received from Hainan Jingwei Investment Co. Ltd 3,022,700.00 Incoming as received from Hainan Xinke Computer Software Co. Ltd 923,000.00 Incoming as received from Haikou New South Foreign Language School 240,000.00 Deposit received 206,500.00 Incoming as received from Jinyuan Securities Co. Ltd. 200,000.00 Insurance compensation received from Hong Kong 75,000.00 Deposit returned 76,770.00 Loan returned 53,934.90 Incoming as received from Hainan Nengxing Telecom Technology Co. 20,000.00 Interest gain received 20,235.07 Incoming as received from Sanya Telecom Bureau 10,870.93 Incoming as received from China Unicom Co. 17,708.00 Water & electricity fee received 11,297.27 Total 4,878,016.17 6.34 RMB 9,440,029.21 of cash paid in activities related to operation. Details are as follows: Paid to China Railway 2nd Bureau Hainan Co. 1,100,000.00 Paid to Sanya Haiyuan Hotel Co. Ltd 950,000.00 Paid to Hainan Nengxing Telecom Technology Co. 20,000.00 Equity reform expenses paid in advance 1,593,249.40 Communication & entertainment expenses paid 1,222,483.33 Repair fee paid 1,115,490.29 Venue charges paid 868,727.16 78 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Promotion expenses paid 386,988.31 Intermediary service fee paid 370,000.00 Board allowance paid 285,483.50 Legal fare paid 253,915.25 Fuel expenses paid 206,783.70 Staff borrowings paid 202,000.00 Consultancy fee paid 200,000.00 Affiche cost paid 120,000.00 Staff deposit paid 107,880.00 Property insurance paid 81,938.71 Fee for listing paid 30,000.00 Office allowance paid 13,682.32 Other expenses paid 311,407.24 Total 9,440,029.21 6.35 Complementary data of cash flow statement: 1. Information of cash flow in operating activities Supplementary data Current year Previous year 1.Operating cash flow as adjusted from net profit: Net profit 139,158,744.20 -18,633,733.19 Plus: provision for assets devaluation -743,540.30 360,856.47 Depreciation of fixed assets and productive biological assets, oil & 5,929,343.23 4,469,611.71 gas consumption Amortization of intangible assets 868,727.16 868,727.16 Amortization of long-term deferred expenses Loss in disposal of fixed, intangible & other long-term assets (gain 520,447.58 -5,364.97 marked with “-”) Loss on scrapping of fixed assets (gain marked with “-”) 2,662,311.58 Loss on fair value variation (gain marked with “-”) Financial cost (gain marked with “-”) 4,643,323.21 8,594,108.56 Investment loss (gain marked with “-”) Gain from liability restructuring -160,585,773.05 Decrease of deferred income tax assets (gain marked with “-”) Increase of deferred income tax liabilities (gain marked with “-”) Decrease of inventory (gain marked with “-”) 1,192,985.78 113,377.65 Decrease of operating accounts receivable (gain marked with 2,119,227.55 -1,901,191.40 “-”) Increase of operating accounts payable (gain marked with “-”) 13,519,537.55 5,896,754.40 79 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Others Net cash flow in operating activities 6,623,022.91 2,425,457.97 2. Major investment & fund raising activities not involving cash flow: Capital transferred from liabilities Convertible bonds due within one year Fixed assets by finance leased 3.Net changes of cash and cash equivalents: Cash balance as of the period end 2,424,831.17 3,981,791.17 Minus: Cash balance as of the period beginning 3,981,791.17 3,138,751.79 Plus: Balance of cash equivalents as of the period end Minus: Balance of cash equivalents as of the period beginning Net increase of cash and can equivalents -1,556,960.00 843,039.38 2. Cash and cash equivalents Item Year-end amount Year-beginning amount 1.Item 2,424,831.17 3,981,791.17 In which: cash on hand 1,201,545.47 104,711.57 Deposit in bank 1,185,666.70 3,811,097.16 Other monetary capital 37,619.00 65,982.44 2.Cash equivalents In which: bond investment due in 3 months 3.balance of cash and cash equivalents as of 2,424,831.17 3,981,791.17 period end In which: restricted cash and cash equivalents within parent company or subsidiaries Total 2,424,831.17 3,981,791.17 Note 7 Relations and transaction with related parties I Basic background information of related party 1. The Company’s biggest shareholder and the final controller Shareholding Voting rights Institutional Biggest Shareholder Residence Registered capital Business nature proportion proportion code Haikou Agriculture Pantation & & Industry & Trade RMB 880.132 Haikou 16.48% 16.48% Animal 28408974-7 Luoniushan Co., million Ltd. Husbandary Registered capital and capital change of the Company’s biggest shareholder Biggest shareholder Year-beginning amount Increase (decrease) Year-end amount 80 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) in current period Haikou Agriculture & Industry & Trade RMB 880.132 million RMB 880.132 million Luoniushan Co., Ltd. Shares held by the Company’s biggest shareholder and equity change Year-beginning Increase (decrease) in Biggest shareholder Proportion Year-end amount Proportion amount current period Haikou Agriculture & Industry & Trade RMB60 million 16.48% RMB60 million 16.48% Luoniushan Co., Ltd. Note: As notified by Haikou Foodstuffs Co. Ltd. On April 24, 2008, the Company’s actual biggest shareholder is Haikou Agriculture & Industry & Trade Luoniushan Co., Ltd. Haikou Foodstuffs Co. Ltd., the previous biggest shareholder of the Company, is actually the nominee shareholder of Haikou Agriculture & Industry & Trade Luoniushan Co., Ltd. Mr. Xu Zili is the de facto final controller of the Company. II Transaction events with the related party On July 2, 2007, the Company and Haikou Foodstuffs Co. Ltd., nominee shareholder of the Company’s biggest shareholder, signed a debt exemption agreement, through which the latter exempted a creditor’s right of RMB 158,974,468.35 unconditionally and irrevocably from the same date onward. III Balance of accounts of the related party receivable and payable Amount Withdrawal of bad debts provision Related party Year-beginni Year-end Year-end amount Year-beginning amount ng amount amount Amount receivable: Haikou Agriculture & Industry 74,399.65 262,634.93 7,828.43 2,609.48 & Trade Luoniushan Co., Ltd. Other amount receivable Haikou Foodstuffs Co. Ltd. 1,593,249.40 Note 8 Contingencies The Company does not have any contingencies for disclosure in this statement. Note 9 Commitments 81 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) The Company does not have any significant commitments for disclosure in this statement. Note 10 Assets mortgage The following is the Company’s assets mortgage as of December 31, 2007. Collateral Book amount Mortgaged to Building 1,258,281.82 Hainan Yangpu Jinyu Industrial Co. Ltd. Note 11 After-Period Events As notified by Haikou Foodstuffs Co. Ltd. On April 24, 2008, the stock of RMB 60 million held by Haikou Foodstuff Co. Ltd. Is actully held on behalf of Haikou Agriculture & Industry & Trade Luoniushan Co., Ltd. All benefits, rights and obligations corresponding to this equity are therefore enjoyed and assumed by Haikou Agriculture & Industry & Trade Luoniushan Co., Ltd.. The procedure of equity transfer of the aforsaid equity will be carried out upon expiration of the equity transaction restriction on the Company. Therefore, Haikou Agriculture & Industry & Trade Luoniushan Co., Ltd. Is actually the biggest shareholder of the Company. Note 12 Other significant events (1) On December 27, 2007, Sanya Intermediary People’s Court rescinded its seal-up of the Company’s real estates nos. 96, 95, 105 and floors 1-4 of no. 96 by its civil ruling (1999) No. 102-23. (2) On October 30, 2007, Yangpu Intermediary People’s Court rescinded its seal-up of the Company’s real estate no. 102 (1,408.66 sq. meters) by its civil ruling (2006) No. 61-1. (3) On October 30, 2007, Yangpu Intermediary People’s Court rescinded its seal-up of the Company’s real estate no. 97 (1,248.16 sq. meters) by its civil ruling (2006) No. 61-2. (4) On the basis of an amicable settlement agreement signed between the Company and the Railway Ministry 2nd Engineering Bureau Hainan Branch signed on January 23, 2007, Yangpu Intermediary People’s Court, by its civil ruling (2006) No. 72-1, defrose 5 million corporate shares of Zhenzhen Difu Investment and Development Co. Ltd. Held by the Company on April 23, 2007. (5) According to a resolution of the shareholders meeting on February, 26, 2008, the Company wrote off a debt of RMB 240,518,731.31 owed by Hainan Dadonghai Tourism Center Group in the previous years, the amount of which was 100% withdrawn from provisions for bad 82 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) debts in the previous year. The Company’s application to Sanya Municipal Local Tax Bureau for its writing off of the debt prior to tax has yet not been replied. Note 13 Supplementary data 13.1 Non-current profit and loss According to the requirements of questions and answers No 1 on the Rules of Information Disclosure for Publicly Listed Companies by China Securities Regulatory Commission, the Company discloses its non-current profit and loss as follows: Item Year 2007 Year 2006 Profit & loss on disposal of non-current assets -520,447.58 -2,656,946.61 Counted into government subsidy in current period, but with the exception of those subsidies closely related to company business and enjoyed as per the unified state quota or standard Gains on liability restructuring 160,585,773.05 Other non-business net income & expenses except the above 217,672.55 237,712.11 Income tax influence -15,457,499.83 Other extraordinary items Total 144,825,498.19 -2,419,234.50 13.2 According to the requirements of questions and answers No 9 on the Rules of Preparation of Information Disclosure for Publicly Listed Companies issued by China Securities Regulatory Commission, the Company discloses its rate of return on common stockholders' equity and earnings per share as follows: 1. Year 2007 Rate of Return on Common Earnings per share Stockholders' Equity % Profit in the report period Basic Diluted Weighted Full dilution earnings per earnings per average share share Net earnings attributable to general 188.84 3,383.13 0.38 0.38 shareholders Net earnings attributable to general shareholders deducting non-current -7.69 -137.77 -0.02 -0.02 profit & loss 2. Year 2006 83 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) Rate of Return on Common Earnings per share Stockholders' Equity % Profit in the report period Basic Diluted Weighted Full dilution earnings per earnings per average share share Net earnings attributable to general -0.05 -0.05 shareholders Net earnings attributable to general shareholders deducting non-current -0.04 -0.04 profit & loss 13.3 Adjustment of year-beginning statement of shareholder’s equity variance According to the requirements of Interpretation No. 1 of Business Accounting Rules, the Company has rechecked the book balance of its assets, liabilities and shareholder’s equity discloses its rate of return on common stockholders' equity as of December 31, 2006. The following is the results: Amount as disclosed in Amount as disclosed in No. Item Difference annual report 2007 annual report 2006 Shareholder’s equity as of Dec. 31, 2006 (former 1 -65,466,059.16 -65,466,059.16 accounting rules) 2 Long-term equity investment difference In which: long-term equity investment difference through combination under common control Other long-term equity investment credit side difference by equity method Retroactive adjustment of long-term equity investment difference through combination under non-common control 3 Investment real estate measured in fair value Previous year depreciation withdrawable due to 4 expected assets disposal Dismissal compensation satisfying conditions of 5 expected liability confirmation No. Item Amount as disclosed in Amount as disclosed in Difference 84 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) annual report 2007 annual report 2006 6 Stock payment Restructuring obligation satisfying conditions of 7 expected liability confirmation 8 Enterprise combination In which: book value of corporate reputation in combination under common control Provisions of corporate reputation devaluation withdrawable according to new accounting rules Monetary assets measured in fair value and with 9 variations counted into profit or loss in current period, and salable monetary assets Monetary liabilities measured in fair value and with 10 variations counted into profit or loss in current period Equity increased with detachment of financial 11 instruments 12 Financial instrument derivatives 13 Income tax Equity attributable to parent company shareholders as 14 of January 1, 2007 according to the new accounting -65,466,059.16 -65,466,059.16 rules Minority shareholder’s equity as of January 1, 2007 15 according to the new accounting rules Shareholder’s equity as of January 1, 2007 according 16 -65,466,059.16 -65,466,059.16 to the new accounting rules Note: It is in conformity with the reported figures of the previous year. 13.4 Adjustment of the profit statement of 2006 According to the requirements of “preparation and disclosure of comparative financial accounting information in the transitional stage of accounting rules, i.e. questions and answers No 10 on the Rules of Preparation of Information Disclosure for Publicly Listed Companies issued as document No. [2007] 10 by China Securities Regulatory Commission, the Company 85 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) discloses its reconciliation statement of net profit 2006 as follows: Item Amount Net profit of 2006 (the previous accounting rules) -18,633,733.19 In which: Net profit attributable to parent company shareholders according to the previous accounting rules Minority shareholders profit and loss according to the previous accounting rules Total of retroactive adjustment items influence In which: business revenue Operating cost Sales expenses Overheads Financial cost Loss on assets devaluation Net earnings in fair value variation Net earnings from investment Non-business revenue Income tax expenses Net profit in 2006 (New accounting rules) -18,633,733.19 In which: Net profit attributable to parent company shareholders -18,633,733.19 (New accounting rules) Minority shareholders profit & loss (New accounting rules) Information for reference if new accounting rules are completely implemented Total of other items influence 115,965.07 In which: Payable welfare funds release 115,965.07 Correspondent increase in income tax expenses Gains from liability restructuring 32,019.00 Simulated net profit of 2006 -18,485,749.12 In which: Net profit attributable to parent company shareholders -18,485,749.12 (New accounting rules) Minority shareholders profit & loss (New accounting rules) Note 14 Approval of disclosure of the financial statements 86 海南大东海旅游中心股份有限公司 2007 年年度报告(境内) These financial statements are disclosed under approval of the board of directors of the Company on April 27, 2008. Person in charge of the Company: Financial executive officer: Date of Signature: Date of Signature: 87