瓦轴Ｂ(200706)2007年年度报告（英文版）

Wafangdian Bearing Company Limited 2007 Annual Report (Report period：Jan. 1st ,2007－Dec. 31st, 2007) Chairman（Signature）：Wang Lushun April 24th , 2008 Important Notes The Board of Directors ,board of supervisors ,directors ,supervisors ,and top management of the Company hereby guarantee that there are no false record, false statement of misleading data, and major omits in this report, and assume the individual and associated responsibilities for the truth, accuracy and completeness of the contents. Director Mr. Magnus Johansson was absent and authorized director Mr.Patrick Tong to attend the meeting . In 2007, Shine Wing Certified Public Accountants offered standard and unreserved auditing report. Chairman Mr. Wang Lushun, General manager Mr. Shao Yang and General Accountant Mr. Zhang Xinghai declare: guarantee the truth, completeness of the financial report in the annual report. The report was made in both Chinese and English ,should there be any misunderstanding between the Chinese version and the English version ,the Chinese version is prevailing . 1 Catalog Chapter One. Introduction to basic situation of the company 3 Chapter Two. Abstract of accounting data and business data 4 Chapter Three. Information on equity changes and shareholders 5 Chapter Four. Information on Directors, Supervisors, top management and employees 8 Chapter Five. Governing and managing structure of the Company 12 Chapter Six. Introduction to the shareholders’ meeting 16 Chapter Seven. Work report of the Board of Directors 16 Chapter Eight. Work report of the Supervisory Committee 23 Chapter Nine. Important events 25 Chapter Ten. Financial statements 30 Chapter Eleven. List of reference documents 99 2 2007 Annual Report of Wafangdian Bearing Company Limited Chapter One. Introduction to basic situation of the Company 1. Chinese name of the Company: 瓦房店轴承股份有限公司 Abbreviation of Chinese name: 瓦轴股份公司 English name of the Company: Wafangdian Bearing Company Limited Abbreviation of English name: WBC 2. Legal representative of the Company: Wang Lushun 3. Secretary of the Board of Directors of the Company: Zhang Xinghai Authorized Stock and Security Affairs Representative: Su Shaoli Correspondence address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China. Consulting telephone: 0411-85509888 ext. 3373 Fax: 0411-85500794 E-mail: zwz2308＠126.com 4. Registered address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Office address of the Company: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Post code: 116300 International net address: http//www.zwz-bearing.com E-mail address: zwz2308@126.com 5. The Company chose Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po for disclosure of information of the Company International net address for disclosure: http//www.cninfo.com.cn Preparation and liaison office of this report: Investment and Securities Department of the Company 6. Listing location of the Company’s stock:: Shenzhen Stock Exchange Abbreviated name of the stock: Wazhou B Stock code: 200706 7. Other relative information 1). The originally registered date of the company was March 20, 1997 The originally registered location of the company was: No. 1, Section 1, Beigongji Street, Wafangdian City, Liaoning Province, China 2). Business license registration No. of the entity: 大工商企法字 6-14522102001101996 3).Tax registration No. of the company: 国税大字 2102812242399712 4). Certified public accountants engaged by the company and its address : shine wing Certified Public Accountants: Floor 9 of A section of FuHua mantion ,No. 8 ,north street of ChaoYang door ,Dong Cheng area ,BeiJing . 3 Chapter Two. Abstract of accounting data and business data 1. Main economic indicators of WBC in the report year Unit: RMB Yuan Items Amount Operating profits 92,177,895.82 Total profits 104,027,270.90 Net profits available for shareholders of listing company 88,209,124.81 Net profits available for shareholders of listing company with abnormal incomes deducted 77,322,792.92 Net cash flow from operation activities 108,510,664.46 Abnormal incomes item Amount Income from disposal of the non-current assets 1,011,020.85 Government grants apportioned into the current 536,200.00 The net income from other non-operating business excluding above items 10,302,154.23 Income tax -4,003,775.07 Others -74,194.17 Total 7,771,405.84 2. Main accounting data and financial indicators for the previous three years up to the report period: (1)Main accounting data Unit: RMB Yuan Year of 2007 Year of 2006 +/- to Year of 2005 previous After Before adjustmen After adjustment adjustment Before adjustmen After adjustment Operating income 2,491,512,622.68 2,246,962,931.64 2,241,682,463.73 11.14% 2,090,170,114.49 2,090,170,114.49 Total profits 104,027,270.90 53,843,154.51 53,843,154.51 93.20% 40,566,814.98 40,566,814.98 Net profit available for shareholders of listing 88,209,124.81 45,136,792.00 45,136,792.00 95.43% 30,840,267.03 30,840,267.03 company Net profit available for shareholders of listing company with 80,437,718.97 38,274,160.19 43,418,193.92 85.26% 34,341,161.15 34,341,161.15 abnormal incomes deducted Net cash flows from 108,510,664.46 179,305,909.92 179,305,909.92 -39.48% 107,501,634.81 107,501,634.81 operation activities Year-end Year-end +/- to Year-end of 2005 of 2007 of 2006 previous After Before adjustmen After adjustment adjustment Before adjustmen After adjustment 4 Total assets 2,665,493,049.26 2,522,969,260.56 2,522,969,260.56 5.65% 2,391,755,872.42 2,378,530,592.17 Owners’ equity 1,200,141,484.54 1,150,308,062.10 1,130,112,889.10 6.20% 1,090,926,437.90 1,077,701,157.65 (shareholders’ equity) (2)Main financial indicators Unit:RMB yuan Year of 2007 Year of 2006 +/- to previous Year of 2005 Before After Before After adjustment After adjustmen adjustment adjustment adjustment Basic gains on per share 0.22 0.11 0.09 144.44% 0.0935 0.0935 Diluted gains on per share 0.22 0.11 0.09 144.44% 0.0935 0.0935 Basic gains on per share with 0.20 0.10 0.09 122.22% 0.104 0.104 abnormal incomes deducted Fully apportioned returns on net 7.35% 3.92% 3.99% 3.36% 2.83% 2.86% asset Weighted average net returns on 8.00% 4.00% 4.00% 4.00% 2.83% 2.86% net asset Fully apportioned returns on net asset with abnormal incomes 6.44% 3.33% 3.26% 3.18% 3.15% 3.19% deducted Weighted average net returns on net asset with abnormal incomes 6.44% 3.33% 3.26% 3.18% 3.15% 3.19% deducted Net cash flow on per share 0.27 0.45 0.45 -40% 0.03 0.03 gained from operation activities Year-end Year-end +/- to previous Year-end of 2005 of 2007 of 2006 Before After Before After adjustment After adjustmen adjustment adjustment adjustment Net assets on per share 2.98 2.86 2.81 6.05% 3.31 3.27 available for shareholders Chapter Three. Information on equity changes and shareholders 1. Equity changes in the report period (1). The change of equity structure: Unit: Share Before the change Increase/decrease in the report period (+,-) After the change proportio Issue new Gift Public reserves other total quantity proportion quantity n shares shares to shares s One. Non-marketable shares 1、 Sponsor’s shares 244,000,000 60.6% 244,000,000 60.6% Including: State-owned share 244,000,000 60.6% 244,000,000 60.6% Shares held by domestic legal person Shares held by foreign legal person Others 2、Collected legal person shares 3、Internal employee shares 4、Preferred shares and others 5 Total non-marketable shares 244,000,000 60.6% 244,000,000 60.6% Two. Marketable shares 1 、 Home listed RMB ordinary shares 2 、 Home listed foreign capital 158,600,000 39.4% 158,600,000 39.4% shares 3 、 Abroad listed foreign capital shares 4. Others Total of marketable shares 402,600,000 100% 402,600,000 100% (2). Share issue and listing situation: Type of share: Home listed foreign capital share (B-share) Share issue date: February 27,1997 Share issue price: The offered price for general investors is 2.66 HK dollars per share, and 3.575 HK dollars per share for strategic investor, AKTIEBOLAGET SKF. Amount of shares issued: 330,000,000 shares Listing date: The shares were listed on March 20.1997 in Shenzhen Stock Exchange. (3). The situation on transferring capital public reserves to shares in this period . In this report period ,there were no gift shares , transferred capital stock ,allotment of shares and new issues . (4). In the report period , there was no internal employees’ shares . 2. Information on shareholders (1). Up to the report period, the company had 9,678 registered shareholders, including 1 state-owned shareholder and 9,677public shareholders. (2) Information on the first ten shareholders and the top ten current shareholders up to year-end: Unit: Share Total shareholders 9,678 Top ten shareholders’ status Impawned Non-circulation Name Nature Proportion Total shares and frozen shares shares Wafangdian bearing company State-owned 60.6% 244,000,000 244,000,000 None limited shareholder AKTIEBOLAGET SKF Foreign 19.7% 79,300,000 0 Unknown shareholder FORTIS BANQUE Foreign 1.1% 4,373,406 0 Unknown LUXEMBOURG S.A shareholder CREDIT SUISSE (HONG Foreign 1.0% 4,110,110 0 Unknown KONG) LIMITED shareholder HANWHA DREAM & GREEN Foreign 0.8% 3,381,016 0 Unknown CHINA EQUITY FUND 1 shareholder MELLON/TALVEST CHINA Foreign 0.3% 1,306,902 0 Unknown PLUS FUND shareholder MAN,KWAI WING Foreign 0.2% 695,401 0 Unknown shareholder Commercial Securities Foreign 0.2% 683,300 0 Unknown Co.Ltd(HongKong) shareholder GUOTAI JUNAN SECURIES Foreign 0.1% 558,562 0 Unknown HONG LIMITED shareholder Mo Lixia Foreign 0.1% 456,196 0 Unknown 6 shareholder Top ten current shareholders’ status Name Circulation shares’ amounts Sort AKTIEBOLAGET SKF 79,300,000 B FORTIS BANQUE 4,373,406 B LUXEMBOURG S.A CREDIT SUISSE (HONG 4,110,110 B KONG) LIMITED HANWHA DREAM & GREEN 3,381,016 B CHINA EQUITY FUND 1 MELLON/TALVEST CHINA 1,306,902 B PLUS FUND MAN,KWAI WING 695,401 B Commercial Securities 683,300 B Co.Ltd(HongKong) GUOTAI JUNAN SECURIES 558,562 B HONG LIMITED Mo Lixia 456,196 B ABN AMRO BANK NV 344,700 B The explanation on the There was no relationship and consistent activities between the first big shareholder relationship and consistent and other shareholders or the top ten common stock holders ;The relationship activities between above among other shareholders , top ten circulation shareholders, top ten circulation shareholders shareholders and other shareholders was not clear. Note: In the report period , the frozen period of the shares purchased by the company’s strategic investor AKTIEBOLAGET SK expired in 1999, and has not dealt with the releasing-procedure in this report period . 3. Introduction to the holding shareholders (1)Introduction to the first largest shareholder Name: Wafangdian Bearing Group Corporation Legal representative: Wang Lushun Date of establishment: 1995 Main business and product: Bearings, Machinery equipment, Automobile parts and relative products Registered capital: 360000000 Yuan RMB Wafangdian Bearing Group Corporation is a state-owned sole venture company, the actual controller is Supervising and Managing Committee of Dalian Government for Stated Owned Assets, the office Address is No.576, Zhongshan Road, Shahekou District Dalian City. And the director is Wang Chun. (2) Relationship of the property right and controlling between the Company and actual controller: Supervising and Managing Committee of Dalian Government for State Owned Assets 100% shareholding Wafangdian Bearing Group Corporation 60.6% shareholding Wafangdian Bearing Company Limited 4. Introduction to shareholders with over (including) 10% of the total equity shares of the Company Name: AKTIEBOLAGET SKF (Swedish) Legal representative: Tom Gohnstone 7 Date of establishment: 1907 Main business and products: Bearings, seals and relative products, and relative services Registered capital: 1,423,000,000 Swedish Koron Equity structure: totally 113837767 shares of the Company, including A type and B type shares, 18.7% of which go to A type, and 81.3% go to B type. 5. There was no change of holding shareholder in the report period . Chapter Four Information on Directors, Supervisors, senior management and employees 1.Introduction to Directors and Supervisors and top management Shares Shares +/- Holding in the Holding at Name Position Sex Term ,and Age beginning of the end of Reason year year Wang Lushun Chairman Male 57 2006.6-2009.6 0 0 0 Jiang Vice-Chairman Male 55 2006.6-2009.6 0 0 0 Zhongyuan Shao Yang Director, General Manager Male 41 2006.6-2009.6 0 0 0 Zhang Director , Chief Accountant, Male 39 2006.6-2009.6 0 0 0 Xinghai Secretary of BD Su Shaoli Director Male 56 2006.6-2009.6 0 0 0 Sun Najuan Director Female 39 2006.6-2009.6 0 0 0 Magnus Director Male 52 2006.6-2009.6 0 0 0 Johansson Patrick Tong Director Male 45 2006.6-2009.6 0 0 0 Gui Liyi Independent Director Male 64 2006.6-2009.6 0 0 0 Zhang Li Independent Director Female 47 2006.6-2009.6 0 0 0 Li Yanxi Independent Director Male 37 2006.6-2009.6 0 0 0 Wu Chunyou Independent Director Male 62 2006.6-2009.6 0 0 0 President of Supervisory Zhang Jiayi Male 58 2006.6-2009.6 0 0 0 Committee Cai Zhi’an Supervisor Male 59 2006.6-2009.6 0 0 0 Chen Jiajun Supervisor Female 40 2006.6-2009.6 0 0 0 Supervisor, Staff Wei Lifang Female 52 2006.6-2009.6 0 0 0 representative Supervisor, Staff Li Zhixin Male 36 2006.6-2009.6 0 0 0 representative Gao Vice-G.M. Male 54 2006.6-now 0 0 0 Yongyang Shan Shikai Vice-G.M. Male 49 2006.6-now 0 0 0 Meng Wei Vice-GM Male 39 2006.6-now 0 0 0 Remarks: (1). Posts occupied by the directors and supervisors in the shareholding units Name Position in the shareholders’ units Office term Wang Lushun Chairman of Board of Directors, General Manager of Wafangdian From December 1998 to now 8 Bearing Group Corp. Ltd Jiang Zhongyuan Vice-chairman of Board of Directors Wafangdian Bearing Group Corp. From May 2000 to now Ltd Zhang Jiayi Chairman of Trade Union Wafangdian Bearing Group Corp. Ltd From October 1995 to now Cai Zhian Vice-G.M. of Wafangdian Bearing Group Corp. Ltd From May 1999 to now Sun Najuan Vice-chief accountant of Wafangdian Bearing Group Corp. Ltd From August 1998 to now Chen Jiajun Charger of economic managing department of Wafangdian Bearing From October 2000 to now Group Corp. Ltd Magnus Johansson General Manager , SKF (China) Investment Co,. Ltd. From June 2005 to now Patrick Tong Market Majordomo of AB SKF Industrial Division From April 2004 to now (2). No director, supervisor and top management held stock of the Company. 2.The main working experiences of directors ,supervisors ,and top management in recent 5 years : One. Director Mr. Wang Lushun，high-grade engineer. has assumed the office of director, General manger, chairman of Wafangdian Bearing Company Limited since 1995, and currently holds the post of chairman and General Manager of Wafangdian Bearing Group Corporation, Chairman of Dalian SKF-Wazhou Company Limited, Chairman of Wafangdian Rongtai Engineering Plastic production Company Limited, Chairman of Wafangdian Hongda CVJ Manufacturing Company Limited, Chairman of Dalian Koyo Wazhou Automobile Bearing Company Limited, Chairman of Wafangdian General Bearing Company Limited, DaLian THKWaZhou industrial company limited . Mr. Jiang Zhongyuan, has once assumed the office of the Section Chief of the Enterprise Section of Dalian Economy Committee since 1986, and currently holds the post of vice Chairman, vice General Manager, sectary of the party of Wafangdian Bearing Corporation, Chairman of Wafangdian Integrated Services Company Limited, chairman of Wafangdian Bearing Powering Company Limited., Chairman of Wafangdian Bearing Transportation Company Limited. Mr. Shao Yang, high-grade engineer, has assumed the office of the assist of General Manager, vice General Manager of Wafangdian Bearing Group Corporation, and currently holds the post of the director, General Manager of Wafangdian Bearing Company Limited, director of Dalian SKF-Wazhou Company Limited, Chairman of Wafangdian Bearing Precision Forging Company Limited, Chairman of Wa Zhou LiaoYang bearing manufacturing company limited , chairman of WBGC Slewing Bearing Company Limited. Mr. Zhang Xinghai, high-grade accountant, has assumed the office of the vice General Accountant and Secretary of board of directors of Wafangdian Bearing Company Limited since 1998, and currently holds the post of the director, General Accountant and Secretary of board of directors of Wafangdian Bearing Company Limited, director of Wafangdian General Bearing Company Limited. Mr. Su Shaoli, Economist, has assumed the office of Department Manager of Operating and Managing Department, Department Manager of Investment and Securities Department, director of Wafangdian Bearing Company Limited since 1997, currently holds the post of director of Wafangdian Bearing Company Limited, Department Manager of Operating and Managing Department & Investment and Securities Department, director of Dalian SKF-Wazhou Bearing Company Limited, director of Wafangdian General Bearing Company Limited, director of WBGC Liaoyang Bearing Manufacturing Company Limited, director of Wa Zhou LiaoYang bearing manufacturing company limited . Ms. Sun Najuan, high-grade accountant, has assumed the office of the assistant of the General Manager and the manager of Financial Department in Sales Head Office of Wafangdian Bearing Company Limited, deputy general accountant and manager of Financial Checking Department of Wafangdian Bearing Group Corporation since 1997, and currently holds the post of the assistant of the General Manager, deputy General Accountant, manager of Financial Checking Department of Wafangdian Bearing Group Corporation. Mr. Magnus Johansson ,from 1998 to now ,he occupied the president of SKF Mekan AB ,the vice-president of human resources at Volvo car CO. LMT. Obtain Group six champion of sigma at SKF , now 9 he occupy the manager of SKF(shanghai) investment and consultation CO.LMT , the director of Dalian SKF﹠ WBC bearing Cro.LTD. Mr. Patrick Tong，has assumed the office of the Manager, General Manager of SKF China Company Limited since 1989, currently holds the post of the Market Majordomo of AB SKF Industrial Division，Director of Dalian SKF-Wazhou Bearing Company Limited. Mr. Gui Liyi, Professor，has been assuming the office of the Director and Professor of Law College at Northeast Finance and Economics University from 1981 to now, the concurrent post of lawyer in Liaoning Shuanghu Law Office from 1986 to now, and independent director of Dalian Tiantu Television Network Company Limited from 2000 to now. Ms. Zhangli, Professor of Accountant, has been holding the post of teacher at Dalian Profession & Technology College from 1992to now ,currently holds the post of Professor of Accountant and Master Guider at Dalian Communication university , specially engaged professor at Dalian enterpriser market and Dalian manager united association, the chief teacher of CPA courses of Auditing and Financial Cost Management launched by Da Lian CPA Association , teacher of continued training for Da Lian Financial people . Mr. Li Yanxi, Associate Professor of Accountant, CPA，Registered Assets Assessor ,has been holding the post of teacher of Managing College at Dalian Science & Engineering University from 1992 to now, currently holds the posts of Subdecanal of management academy and superintendent of Financial Management Researching Institute at Dalian Science & Engineering University; has been holding the post of independent director at Liao Ning Cheng Da Co.,Ltd from 2003 to now, and the post of independent directors of at Da Lian Internatinal Cooperation (Group)Co.,Ltd ,Yun Nan City Real Estate Investment Co,Ltd ,Da Lian HuaXin Computer Co.,Ltd from 2007 to now. Mr. Wu Chunyou, Professor, from 1999to 2005, had assumed the Committeeman of Management Teaching Guiding committee of national education Department for two sessions ; from 1999 to 2005 ,and had ever assumed the dean of Management Academy of Dalian Science & Engineering University for two sessions ; had ever concurrently assumed the independent director of Liao He JinMa petroleum exploitation C.,Ltd from 2002 to 2006; now has been holding the post of teacher at Dalian Science & Engineering University , charger of ecology layout and development institute of Dalian Science & Engineering University , the charger of industrial and commercial doctor station , the charger of industrial and commercial postdoctor unfixed station , the initially registered management consulting engineer (investment) of china ; from 1996 to now , has been assuming the chairman of University Value Researching committee of China for tree sessions , and the DaLian Enterprise Management Consulting and Researching Committee from 1999 to now . has been assuming the office of teacher at Dalian Science & Engineering University from 1970 to now, currently holds the post of the prexy of Managing College at Dalian Science & Engineering University，has been holding the concurrent post of commissary of Teaching Guidance Committee of managing kind in National Educating Committee from 1999 to now, the concurrent post of CDR of Value Engineering Seminar for Chinese University & College from 1996 to now, the concurrent post of CDR of Consulting Seminar for Enterprise Managing of Dalian from 1999 to now, the concurrent post of independent director of Liaohe Jinma Oil Field Company Limited from 2002 to now. Two. Supervisor Mr. Zhang Jiayi, high-grade economist, has assumed the office of secretary of Discipline Examining Committee, president of Labor Union of Wafangdian Bearing Group Corporation since 1992, currently holds the post of deputy secretary of Party Committee, President of Labor Union of Wafangdian Bearing Group Corporation. Mr. Cai Zhi’an，politics engineer, has assumed the office of deputy department manager and department manager of Human Resources Department of Wafangdian Bearing Company Limited, department manager of Human Resources Department, deputy secretary of Party Committee, secretary of Discipline Examining Committee of Wafangdian Bearing Group Corporation since 1997, currently holds the post of vice 10 General Manager , secretary of Discipline Examining Committee of Wafangdian Bearing Group Corporation, director of Wa FANGdian TongDa bearing manufacturing company limited , chairman of Wa Fangdian bearing hospital company limited . Mr.Chen Jiajun , high-grade engineer , holds the post of charger of economic managing department of Wa Fangdian bearing group corporation limited from 2000 to now . Ms. Wei Lifang, high-grade engineer, has assumed the office of technical director, secretary of Roller Factory of Wafangdian Bearing Company Limited since 1998, and currently holds the post of director and secretary of Roller Factory of Wafangdian Bearing Company Limited. Mr. Li Zhixin, accountant, has assumed the office of director of the Bad Assets Clearing Office of Wafangdian Bearing Group Corporation , the assistant of the manager of Financial Department of Wafangdian Bearing Company Limited since 1999, the assistant of the manager of Investment & Securities Department of Wafangdian Bearing Company Limited, now he has quit from the company . Three. top management Mr. Gao Yongyang, Economist, has assumed the office of the General manager, secretary of Party Branch of Huamei Bearing Company Limited, the General manager, secretary of Party Branch of Hongda CVJ Manufacturing Company Limited since 1991, currently holds the post of the Vice General Manager of Wafangdian Bearing Company Limited, Chairman of Wafangdian Bearing Precision Ball Manufacturing Company Limited. Mr. Shan Shikai, Economist, has assumed the office of department manager of Human Resources Department, the assistant of the General Manager of Wafangdian Bearing Company Limited since 1995, currently holds the post of Vice General Manager of Wafangdian Bearing Company Limited. Mr. Meng Wei, engineer, has assumed the office of the assistant of the General Manager, Vice General Manager of Die Company of Wafangdian Bearing Group Corporation since 1996, the General Manager of Equipment Company of Wafangdian Bearing Group Corporation, currently holds the post of Vice General Manager of Wafangdian Bearing Company Limited. 3. Annual remuneration of the directors, supervisors and top management 1). The procedures and basis on determining the remuneration . In this report period ,The remuneration of directors (excluding independent directors), supervisors and top management was paid as the salary of the administrative management of the company. 8 person including the directors, supervisors and top management could get the remuneration with a total payment of 376,898.84 RMBYuan. The independent directors could only obtained the annual allowance rather than remuneration. The annual allowance of independent directors was 36,000 RMB Yuan (including income tax). 2). Annual payment information of the directors ,supervisors ,and top management in the report period . unit :RMB yuan Name duty Total remuneration Shaoyang Director,general manager 55,475.76 Director,general accountant , secretary of Zhangxinghai 48,989.52 directorate Sushaoli Director 45,663.84 No remuneration ,only Guiliyi independent Director allowance No remuneration ,only Zhang li independent Director allowance No remuneration ,only Li yanxi independent Director allowance Wu chunyou independent Director No remuneration ,only 11 allowance Wei lifang Supervisor 43,248.72 Li zhixin Supervisor 28,507.40 Gaoyongyang Vice-manager 57,000.00 Shan shikai Vice-manager 49,014.00 Mengwei Vice-manager 48,999.60 3). Information on people who were not paid by the Company (1). The following people were paid by Wafangdian Bearing Group Corporation for their salaries and subsidies: Wang Lushun, Jiang Zhongyuan, Cai Zhian, Zhang Jiayi, Sun Najuan, Chen Jiajun (2). The following people were paid by AKTIEBOLAGET SKF for their salaries and subsidies: Magnus Johansson, Patrick Tong 4. Changes of directors, supervisors and senior management . In this report period , there was no change in the director ,supervisor and top management . 5. Employee Up to the report period, the Company had a total employees of 7,289. 1). Classification according to specialty composing: Sales Financial Administrative worker Technician others people people staff Persons 3,682 358 214 98 409 528 Percentage 50.57 4.92 2.94 1.35 5.62 7.25 2). Among the employees on-the-job, according to the diploma: 1,234 were with junior college graduates. 3,322 were with poly-technical school graduates, mid-level technical titles or high- middle school students . 3). The number of retired workers whose relative expenses must be assumed by the Company was 1,991. Chapter Five. Governing and managing structure of the Company 1. Practical situation of corporation government The Company followed the regulations of Company Law, Corporation Government Rules ,the AOA ,etc to regulate its operations and perfect its corporation government step by step . 1)The holding of the shareholders, board of directors and board of supervisors , the voting procedures and the formation of the resolutions were totally subject to these regulations. 2)The Company has made its internal management systems and regulations for restriction of budgeting, purchasing, logistics and sale ,etc, and executed them strictly. 3)The company has Separated business, personnel, assets, internal organization and finance from its holding shareholder: (1) The Company had independent operations itself, with its business separated from its holding shareholders; (2)The Company was independent in terms of its personnel, labor and salary management, and had its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who occupies as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were all independent 12 from the controlling shareholder. (3)The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4)The Company has separated the accounting from the controlling shareholder. The Company carried out independent finance and accounting on its own and paid taxes independently. (5)The Company has established the organizations separating from the holding shareholder. 2. The fulfillment of independent directors The four independent directors of the company have seriously fulfilled their authorities granted by the law, the statute and Articles of Association in the report period, participated in the board meeting , fulfilled their function carefully, raised independent advices to the associated business of the company, and raised opinions to the production and operation of the company in the light of laws and profession, sticked up for the interest of the company and all the shareholders. One. The information that the independent directors present the board meeting in the report period. Name of The promising Entrusting Present by one’ Absence Remark independent presenting presenting self（time） （time） s director times of this year （time） Gui Liyi 5 5 0 0 Zhang Li 5 5 0 0 Li Yanxi 5 4 1 0 Wu Chunyou 5 3 2 0 Two. The information that the independent directors raise rejective opinions about the relative items of the company in the report period. The four independent directors didn’t raise any rejective opinions to the relative items of the company in the report period. 3 the self-assessment of internal controls 1).the general of internal controls At the beginning of establishment , the company has stressed on the internal controls , has been strictly in accordance with the relative state laws ,regulations and other stipulations , and has been building the quite prefect internal controls system step by step ,which covers the operation , accounting ,human resources ,the management of subsidiaries , the normal operation of listed company ,etc. In the report period , according to the relative regulations of Notification of Enhancing of Corporation Government sent by CSRC(证监公司字［2007］28 号)and the Index of Internal Controls of Listed Company sent by Shen Zhen Stock Exchange (herein refers to as Index of Internal Controls), with the self-examination and correcting activities of Special Actions on Corporation Government combined , the company has completely practiced the establishment ,perfect , execution and effective supervision of the internal controls. In the report period , the board of directors has revised and passed the AOA and the Assembly Principles of Boar of Directors ,Board of Supervisors and Shareholders; Meeting , built a series of internal controls system such as the Information Disclosure System ,Internal Control System , Reception and Promotion System and the Investor Relationship Management .these systems ,the previous systems and other management system formed the quite integrated internal control system of the company . In the report period , the company has entirely implemented the relative documents of Special Actions on The Corporation Government launched by CSRC and DLCSRB, seriously started to the corporation government . combining the instigation result and guide advices showed by the DLCSRB , the company has 13 pertinently corrected the internal controls of the company so as to make sure the corporation government effectively put into effect . The company has built an internal auditing organization ,which consists of a auditing charger and two auditors who are responsible for the accounting auditing of sales companies , production plants and self-calculated unites . As a pioneer of china bearing industry , the company has realized there to be dozens of internal and external risks .the external risks showed the drastic competition in both of the global bearing industry and home bearing industry and the increasing rise in the price of raw materials and energy ,etc ; the internal risks showed the deficiency of the corporation government and management system . therefore , firstly ,the company has taken various ways to reduce the cost ,adjust the products structure , develop high-tech products and the products replacing export , develop the customer groups, enhance the competition capacity of the company , strengthen the resistant to external risks ; secondly , the company has been constantly perfecting and improving the corporation government and internal control system , making the standard operation and the scientific management , and enhancing the controls over the company . In the report period , all the internal control activities and the relative system stipulated were in accordance with the national laws ,regulations and the supervisory department’s requirement so that make sure the smooth operation of the company . 2).The main activities of internal controls (1)The structure of the subsidiaries controlled by the company ,and the holding proportion Wa Fangdian Bearing Co.,Ltd 100% 75% Wa Zhou Liao Yang Bearing Co.,Ltd Wa Fangdian General BearCo.,Ltd （2）The internal controls over the subsidiaries The company has made the General Management System of Subsidiaries to enhance the management of subsidiaries . the company has established the effective control mechanism to risk-controls over the organization ,resources ,assets ,investment and the operation of the listed company so that enhanced the integral operating efficiency and the risk-resisted capacity of the company . (3) The internal controls over the related transactions The type ,price confirmation ,approval power , the procedures and the information disclosure ,etc of the related transactions were all in accordance with the relative documents sent by the CSRC and Shen Zhen Stock Exchange , the Related Enterprise Accounting Rules released by Fiscal Administrative ,and the AOA, with the principle of faith ,equality ,free of intention, justice ,open and fairness , all the related transactions has not hurt the interests of the company and all the shareholders . (4) The internal controls over the external guarantee In order to strictly control over the external guarantee risks ,the company strictly conformed to the relative laws and regulations released by CSRC and Shen Zhen Stock Exchange with the principles of legality ,prudence , reciprocity and safe ,and. the AOA has definitely stipulated the approval power of shareholders’ meeting and board of directors for external guarantee so as to avoid the guarantee risks . (5)The internal controls over the utilization of B- share capital The company has stipulated the Management of B- Share Capital which definitely regulates the 14 deposit ,approval , investment ,utilization ,supervision ,duty-running of the B-share capital , and standardized the management and utilization of B-share capital ,and protected the interests of the investors . In the report period , there was no new raise of B-share capital . (6)The internal control over the major investment The AOA and the Assembly Principles of Board of Directors ,Board of Supervisors and shareholders’ meeting definitely stipulated the approval and review procedures of the shareholders’ meeting and board of directors for the major investment .all the major investment activities were strictly in accordance with the approval procedures and the obligation for the information disclosure . (7)The internal control over the information disclosure In order to standardize the information disclosure ,enhance the management of information disclosure and protect the legal interests of investors , the company has made the Information Disclosure Management and Investor Relationship Management .following above stipulations , the company exercised the information disclosure and investor relationship management so as to ensure the information disclosure true ,accurate ,complete ,timely and fair . 3).The problems in the internal control ,and the correcting plan The internal control is a long term work ,which need to correct ,improve and complement according to the changes of situation and development of the company . The company will change the method of internal controls with positively proposing advices instead of being passively advised , actively improve and prefect the systems of internal control, strengthen the training of internal controls for directors ,supervisors and top management so that enhance the internal management and the consciousness of internal control . 4.The general assessment of internal controls General speaking , according to the relative laws and regulations of Company Law and Rules of Corporation Government ,the company has established the quite perfect corporation government and internal organization, built a scientific decision-making ,execution and supervision system ; the shareholders’ meeting ,board of directors and board of supervisors have definitely divided their duties and standardized the operation .the internal controls have covered the every chains of the operation of the company , and have been able to prevent ,find and correct the mistakes that maybe occur in the operation in time , so ensured the operation of the company smooth, ensured the assets of the company safe and complete , and ensured the information disclosure truth ,accurate ,complete and timely . 5.The opinions of independent directors for self-assessment of internal controls The company has built the quite perfect internal control system ,which were in accordance with the stipulations of relative national laws and regulations , the internal control systems stipulated by the company were legal ,reasonable and valid . the self-assessment of the internal controls truly and objectively reflected the actual situation of the system establishment , execution and supervision of the internal controls . they hoped the company could further enhance the internal control and go on improving the systems of internal control to provide a powerful guarantee for the long-lasting ,steady ,standard and health development of the company . 6.The opinions of board of supervisors for self-assessment of internal controls The company has built the internal control mechanism , and established the complete internal control systems ,which ensured the operation of the company was in order . in the report period , there was no activities against the Index of Internal Controls of Shen Zhen Stock Exchange and the Internal Control Systems of the company . the internal control systems have got a true and effective practice. the board of supervisors thought that the self-assessment of internal controls was complete ,true and accurate and reflected the actual situation of the internal controls of the company . 15 Chapter Six. Brief Introduction of the shareholders’ meeting One Shareholders’ meeting and two Extraordinary Shareholders’ Meeting were held in the report period. Details are as follows: 1.The annual shareholders’ meeting of 2006 which notice was published on May. 17th, 2007 was held on June. 19th ,2007.the resolutions and announcements were released at the Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po in Hong Kong published on June.20th ,2007 . 2.The first Extraordinary shareholders’ meeting of 2007 which notice was published on Jan. 27th, 2007 was held on Feb. 12th ,2007 .the resolutions and announcements were released at the Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po in Hong Kong published on Feb. 13th ,2007 . 3. The second Extraordinary shareholders’ meeting of 2007 which notice was published on Dec. 12th, 2007 was held on Dec. 28th ,2007 .the resolutions and announcements were released at the Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po in Hong Kong published on Dec. 29th ,2007 . Chapter Seven. Work report of the Board of Directors one. Operation information 1. The review of whole operation of the company in the report period In 2007, the company led by scientific outlook on development , focused on enhancing the operation quality , actively adjusted the structure of market and products , did its best to push the technique reform on the bearings matched for major technique equipment ,so the general strength of the company has been further enhanced, the market status have been further strengthened and promoted , new market and new profitability point continuously come out , and the company kept a health and sustainable development . The economy operation quality of the company has got a steady promotion , the structure adjustment has got a great improvement , the market structure and products structure were getting reasonable day by day ,so ensured the smooth operation of production and the market demand ; the technique creation and the technique reform projects have been roundly practiced with a remarkable results; the “Resource-Efficiency” has got plentiful fruits; the construction of human resources also has approached into a new stage ; the foundation of the management has been well enhanced . In 2007,the company’s operating income reached up to 249,151 RMB 0000yuan , increases of 11.14% compared with the same period in last year; the operating profits reached up to 9,218RMB 0000yuan , increase of 79.76%compared with the same period in last year; the net profit reached up to 8,733 RMB 0000yuan, increases of 93.21% compared with the same period in last year ; the net profit available for the holding shareholder reached up to 8,821 RMB 0000yuan, increases of 95.41% compared with the same period in last year . . 2. Operation (1). The scope of the main business of the company and it’s the actual situation The scope of the main business of the company includes the manufacture and sales of bearings, machinery equipment, automobile parts and components and other relative products, leasing of machinery equipment and houses, examination of bearings and relative machinery equipment and measuring apparatus. The company has come to modernized enterprises with production ,supply and sale integrated . (2). Composing of main business income and main business profit The main business according to the industry According to +/-(%) of Operating Operating +/-(%) of industry or BOI operating +/-(%) of BOI income cost operating cost product income Home 156,534.57 123,518.61 21.09% 11.71% 11.92% -0.15% Traffic bearing 76,080.90 67,785.03 10.9% 11.99% 17.31% -4.04% Special-used 46,886.92 29,777.25 36.49% 20.14% -14.21% 25.33% bearing General-used 33,566.75 25,956.34 22.67% 1.21% 44.95% -2.33% bearing Export 20,608.08 22,360.84 -8.51% -24.33% -26.27% -16.32% 16 The main business according to the products Bearing 177,142.65 145,879.45 17.65% 5.85% 3.69% 1.72% Component 23,198.69 19,611.14 15.46% 171.31% 148.81% 26.83% (3). Main products and the market share 1). The market share of main products of the company (bearings) Order Product Name Occupation ratio (%) 1 Traffic bearing 39%-43% 2 Specialized—use bearing 28%-31% 3 General—use bearing 19%-22% 2). In the report period, the main business or its structure, main business profitability didn’t change much compared with the last period. 3)The financial state , operating achievements and the analysis on the changes Unit : RMB yuan Items Year of 2007 Year of 2006 +/-(%) Total assets 2,665,493,049.26 2,522,969,260.56 5.65 Long-term borrowings 339,500,000.00 151,500,000.00 124.09 Shareholders’ equity 1,200,141,484.54 1,130,112,889.10 6.2 operating profits 92,177,895.82 51,278,482.59 79.76 Net profits available for 88,209,124.81 45,136,792.00 93.21 holding shareholder Note : the increase of long-term borrowings was because the company transferred part of short-term borrowings into the long-term borrowings . The increase of net profits available for the holding shareholder was because of the increase of sales incomes which resulted from the adjustment of product structure and the increase of price. (4). The changes in structure of asset of the company in the report period : Unit: RMB Yuan Year of 2007 Year of 2006 Assets Proportion Proportion +/-(%) composing occupying occupying to Amount Amount to total total assets assets (%) (%) Receivables 715,568,113.20 26.85 700,279,402.54 27.76 0.02 Inventories 913,169,979.17 34.26 827,137,822.69 32.78 0.10 Long-term equity 80,713,952.56 3.03 85,258,734.43 3.38 -0.05 investment Fixed assets 563,385,979.48 21.14 412,154,411.64 16.34 0.37 Construction in progress 84,886,793.12 3.18 124,669,102.89 4.94 -0.32 Short-term borrowing 233,470,235.14 8.76 483,870,235.14 19.18 -0.52 long-term borrowing 339,500,000.00 12.74 151,500,000.00 6 1.24 (5). The expense of the company in the report period : 17 Unit :RMB yuan Expenses Year of 2007 Year of 2006 +/-(%) Operating expenses 141,321,510.73 117,047,496.25 0.21 Management expenses 78,693,679.96 102,028,298.82 -0.23 Financial expenses 39,866,101.99 38,048,320.79 0.05 Income taxes 16,700,779.31 8,639,728.80 0.93 (6). the structure of cash flow of the company in the report period : Unit : RMByuan Index Year of 2007 Year of 2006 Net cash flow from business activities 108,510,664.46 179,305,909.92 Net cash flow from investment activities -135,735,407.28 -100,021,310.13 Net cash flows form financing activities -37,439,898.12 -71,711,103.54 Net increment or decrement of cash and the equivalent -65,269,208.63 7,270,502.99 (7). General operating situation and performance of the holding company and joint stock company : 1) the situation of the controlled companies : Establishment Registered Owned Nature or type of Legal Name Registered address Main business date capital capital economy Representative General No. 1, Section 1, Beigongji USD Produce bearings and relative Joint venture 1996.03.28 75% Wang Lushun Bearing Street, Wafangdian Dalian 4,510,000 products Company Liaozhou No. 61, Weiguo Rd, Baita RMB Produce and sell bearings and Company 1996.11.22 100% Feng Lijie Co., Ltd. Disc, Liaoyang City 19,350,000 machinery manufacture Limited 2)Operating situation and performance of the holding company and joint stock company : Unit: RMB Yuan Name of invested company Equity share Main Business Total Profit Net profit percentage income Liaoyang Bearing Co., Ltd. 100% 86,462,340.89 2,366,887.97 2,366,887.97 WaTong Bearing Co., Ltd. 75% 25,757,660.23 -3,530,532.87 -3,530,532.87 Dalian SKF Wazhou Bearings 49% 161,405,414.47 28,771,755.64 21,722,667.46 Co., ltd. Shanghai Zhenxin Wazhou 40% 8,658,656.26 49,200.69 4,530.54 Mechanical & Electrical Product Sales Co., Ltd. Shanghai Aimuyi Mechanical & 4.76% 231,828,350.37 19,580,057.04 19,580,057.04 Electrical Equipment Chain Co., Ltd. 3) Holding & joint stock company that investment gains can occupy over 10% of net profits of the company: Unit: RMB’ Yuan Name of joint stock company SKF Wazhou Bearing Co.,Ltd. The investment gains contributed in Occupies % of net profit of 10,644,107.06 12.07 this term the listed company Joint stock Operation scope Produce and sale of spherical roller bearing company Net profit 21,722,667.46 18 (8). Information on main suppliers and clients 1). Total purchasing amount payable to the first five suppliers reach up to 53,929.88 RMB’0000 Yuan, which is equivalent to 48.1%of the total purchasing amounts. 2). The total sales amount collectable from the first five customers reach up to41,531.31 RMB’0000 Yuan, which is equivalent to17% of the total sales value of the company. 2. the outlook of the company : (1) the industry developing trend and the competition faced by the company . The industry developing trend Bearings ,a important and necessary component of all the industries , have a wide application in all industries of the country . the production volume of the home bearing industry has had a great increase these 10 years which the sales amount is only less than Japan ,Germany and Sweden and ranks at the 4th of the world ,and approached in the line of world big bearing production country .the home bearing industry has built a special production system with relative variety of products and quite rational layout up to the end of “tenth five-year plan”, and accessed the important stage becoming as the world big bearing country . Following the trend that global manufacturing industries are transferring their business into china and the release of series of policies of reconstruction of the equipment industries , the home mainframe industries of mechanical industry will keep a high-speed development during the “eleventh five-year plan” ,which provides a good market environment for the development of home bearing industry . according to the forecast of the bearing industry association , the home bearing demand will reach up to 10.6 billion sets in 2010 , increase of 125.53% compared to year of 2005 , after deducting the forecasted export bearing of 2.6 billion sets ,80 billion sets of bearings with a sales amount of 84 billion RMByuan need to be produced in home to meet the demand of bearing matched for mainframe , machinery maintenance and the export .so the home bearing industry will be prosperous in the coming years . The market competition The world famous companies are quickening the their steps to china , not only are the foreign companies increasing the investment but also widening their scope of investment; following the open of market step by step , the export bearings are flooding into home market with price continuously decreased , and the price privilege of the home bearing will be weakened ,the market competition will be more drastic ; the private companies develop quickly , and their market share is enlarging ; although the market share of state-owned or state holding companies is decreasing , they still play a important roles in the self-researched products , the certificates and importance of the products , and the contribution to the bearing Industry. (2) the development chances that management is concerned In 2008 ,following the economy globalization and the high-speed development of china economy , the execution of the strategy of reconstruction of north-east and other old industry bases and equipment manufacture industries ,and the booming market demand , the company will get a good market chance ,policy chance and development chance . The management of the company will be serious to practise the scientific development idea , lean on the spirits of 17th people’s congress , orientate to the foreign high-tech market ,focus on developing high-tech products ,enhancing the efficiency and quality guarantee ability and realizing the energy conservation and environment protection ,stress the research ability , technology manufacture ability and the inspection and testing ability , put the technique development in the first place , launch the market development and the structure adjustment with the technique creation , push the company’s development with the technique development ; revolve around enhancing the operation quality and profitability , fully change the way to increase of operation ; establish the international sales service network ; roundly exercise the value-added service , speed up the realization of target, realize the new breakthrough of operation ; fully push the management creation to accord with the international standards ; stick to human-oriented , enhance the construction of human resources , increase the welfare and salary , make the company come into the 19 high-speed development and welcome and celebrate the 70-year anniversary with the excellent performance . (3) The negative factors of realization of the future development strategy and operation target 1) The great going-up of the price of raw materials ,subsidiary materials and the energy will give birth to great increase of negative factors of cost ; 2)The company will face the change of the way of increase ,which transfers the increase of quantity into the increase of self-research ability , bearing’s tape , the high accurate ,high-tech and high value-added products , and production ability of the special-used bearing ; 3) The upgoing value of RMB will influence the export; 4) A prevailing is to task to build the market-oriented management and operation system. 2 the company’s investment in the report periods : 1)Investment situation of B-share fund Up to the year 2002, the entire B-share fund has been used out on the promising investment items. So there was no raise of B-share funds in 2007. 2). Investment situation of non B-share fund: In 2007，The company plans to make the non B –share investment of 221.38 million RMBYuan ,up to the end of Dce. 2007 , the company has made investment of 104.02million RMBYuan with achieved rate of 45.63%, the main reform projects in 2007 include the machine precision bearing reform , the railway truck bearing reform , the cage reform , the automobile-used taper bearing reform and the remove of 2nd finished-goods plant . 3). Gain from investment: The gain from investment of 2007: new-added sales income of 180 million RMByuan gained from machine precision bearing reform ; new-added production capacity of 100 thousand sets gained from the railway truck bearing reform ; the cage reform promoted the automatic production level , improved the production inspection and stabilized the product quality ;the automobile-used taper bearing reform promoted the production level of automobile taper bearing ,increased the production capacity of single-line taper bearing of 5 million sets and got the production capacity of the second wheel bearing of 1 million sets per year . 3.The significant changes of the accounting policies The Company initially carried out the original Accounting Standards for Business Enterprise issued by Ministry of Finance before 2006, and began carrying out the new Accounting Standards for Business Enterprise from Jan 1 2007, and recognized, measured and reported the transactions or events of the Company according to the rules of the new Accounting Standards for Business Enterprise. For the changes in accounting policies caused due to the initial implementation of the new Accounting Standards, the Company will adopt the retroacting and adjusting methods to recognize and measure the changes in significant accounting policies and the future application method to recognize and measure the changes in significant accounting policies(the details refer to the significant accounting policies ,changes of accounting estimation and the correction of significant prior period errors in the fourth item of Notes) Considering the above changes in accounting policies , the company has retroacted and adjusted the financial statements according to and relative regulations, , and all items have been restated.(the effect of the consolidated and parent shareholders’ equity from Jan.1st ,2006 to Dec.31th,2006 and the net profits of year of 2006 according to the above changes in accounting policies refer to the significant accounting policies ,changes of accounting estimation and the correction of significant prior period errors in the fourth item of Notes) The board of directors considered these changes in accounting estimation were acceptable , and in line with to the Accounting Standard for Business Enterprise , Accounting System for Business Enterprise ,and the supplementary regulations released by the state . 20 4. Daily work of the Board of Directors (one). The meetings and resolutions of the Board of Directors in the report period Four board meetings and one extraordinary board meeting were held in the report period. The details are as follows: (1) The3rd meeting of 4th board session of the Company The3rd meeting of 4th board session was held on Jan. 26th, 2007 ; The resolutions of the board meeting released at Securities Time ,Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Jan. 27th, 2007. (2) The 4th meeting of the 4th board session of the Company: The 4th meeting of the 4th board session was held on Apr. 12th ,2007. The resolutions of the board meeting released at Securities Time ,Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Apr. 17th ,2007. (3) The 5th meeting of the 4th board session of the Company: The 5th meeting of the 4th board session of the Company was held on Aug. 16th ,2007. The resolutions of the board meeting released at Securities Time ,Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Aug. 21th ,2007. (4) The 6th meeting of the 4th board session of the Company: The 5th meeting of the 4th board session of the Company was held on Oct. 24th ,2007. The resolutions of the board meeting released at Securities Time ,Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Oct. 27th ,2007. (5) The 1st extraordinary board meeting of the Company: The 1st extraordinary board meeting of the Company was held on Dec. 12th ,2007. The resolutions of the board meeting released at Securities Time ,Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Dec. 13th,2007. (Two). Execution of resolution of shareholders’ meeting 1. In the report period, the board of directors has fulfilled its duties in accordance with authorization of the shareholders’ meeting and the power scope regulated in AOA, and supervised the operation activities effectively according to production and operation plan and operating targets fixed at the year-beginning .And has finished the work authorized by the shareholders’ meeting such as profit distribution of 2006, and so on . 2. The draft of profit distribution of 2007 and profit distribution budget of 2008 The draft of profit distribution of 2007 plan is as followings: According to the audit report offered by Shine Wing Auditing Firm , the annual net profit attributable to the parent shareholder is 88,209,124.81 RMByuan ; and the statutory surplus public reserves is provided based on 88,296,512.44 of tax-excluding net profits of parent company with a proportion of 10 percent ; the undistributed profits at the year-beginning is 178,371,959.59 RMByuan ; the annual profits attributable to shareholders is 243,660,433.16 RMByuan. Based on the total capital stock of 402,600,000shars at the end of 2007, 0.4 RMB Yuan will be paid per 10 shares (including tax) , totally allocates cash of 16,104,000.00 RMByuan . The profits distribution plan of 2008 will be decided by the board of directors according to the actual situation . Above proposal should be submitted to 2007 annual shareholders’ meeting for approval . 3. Execution situation of allotment of share, new issue in the report period There were no allotment of share, new issue in the report period. 4. In this report period , the shine wing Certified Public Accountants offered the standard and unreserved auditing report . 5. In this period, the shine wing Certified Public Accountants offered the special explanations on the 21 employment of company’s capital by the holding shareholder ands other related parties. (Three) The summary work report of the Auditing Committee of the Board of Directors 1.The Auditing Committee advised twice for the financial report of 2007 The Auditing Committee advised twice for the financial report of 2007. Before the annual auditing , the Auditing Committee showed its advice of the non-audited financial statements in a writing form for the first time, which after primary read of the financial statements of 2007 , we think the company accords with the regulations of New Accounting Rules ,chooses the correct accounting policies and right accounting estimation combining the actual situation of the company , the financial statements truly show the financial position , operating results and cash flow of 2007 , we agree to start to the auditing on the basis of these financial statements . After the CPA offered the initial version of the auditing report , the Auditing Committee read it in time ,after communication with the CPA, the Auditing Committee showed the advice for the second time ,which ,we and the CPA have no dispute for all the hot issues of the annual financial report , the primary audited financial statements show in essence the operation results of 2007 , we agree to make the annual report of 2007 on the basis of these financial statements and submit it to the board meeting for approval . 2.The supervision and urge for the auditing of CPA During the auditing of CPA , the Auditing Committee were concern about the progress of auditing ,and urged CPA to quicken the auditing work so that offer the primary auditing and completely finish the auditing of the annual financial statements . 3.The summary report of auditing of 2007 showed by the Auditing Firm During the annual auditing , through communicating with Auditing Firm and examining the initial version of the annual auditing report showed by the Auditing Firm , the Auditing Committee of the company thought that the Auditing Firm was strictly in accordance with the auditing statutes and rules , focused upon investigating the company and its operation environment , and the setup ,improvement and practice of internal controls ,had a quite strong consciousness of risk , and completed the auditing work in time . The Auditing Committee of the company also considered that the current Auditing Firm took independence and prudence as its principles, and had well completed the 2007 annual financial auditing work and showed the objective and justice auditing report . 4.The proposal of engagement of the Auditing Firm of 2008 The Auditing Committee of Board of Directors considered that Shine Wing (HK) CPA Firm , which has standard occupation moral , professional auditing team and the ability of auditing for big listed company, had provided the auditing service for consecutive 3 years , and proposed to continue to engage shine wing (HK) CPA Firm as the Auditing Firm of 2008. (Four) The summary work report of the Remuneration Committee of Board of Directors The Remuneration Committee was a special organization set up by the Board of Directors according to the AOA ,which holds the responsibilities for researching and stipulating the examination standard of directors and top management , taking examination and showing their opinions , stipulating and examining the remuneration policies and proposals of directors and top management .the Remuneration Committee consists of two independent directors and one director , and the Chief Committeeman is occupied by an independent director 。 In this report period , the Remuneration Committee audited the remuneration of the directors ,supervisors and top management in terms of the realization situation of 2007 annual main financial figure and the operation target , the main duty and the power of the top management ,and so on .After the auditing ,the Remuneration Committee confirmed that the remuneration of the directors ,supervisors and top management disclosed in the annual report is true ,accurate , and accords with the remuneration examining standard , and approved of the payment according to the remuneration disclosed in the annual report . 22 Chapter Eight. Work report of the Board of Supervisors In 2007, the board of supervisors fulfilled its duties and obligations according to Company Law and the AOA , and participated in all the activities of the Company and expressed its opinions. 1. Meetings in the report period Three meetings have been held in the report period: 1)The 2nd supervisor’s meeting of 4th session of the Company was held at 16 O’clock,Apr.12th, 2007 at Meeting Room 307 of WBGC headquarters. Due participating of 5 supervisors and actually 4 supervisors presented. The supervisor Mr.Li Zhixin absented due to busy work , and he authorized supervisor Mrs.Wei Lifang to present .General Accountant of the company attended as nonvoting delegate. The opening of the meeting was in accordance with the Company Law and AOA. After discussion , made following resolutions : (1).Discussed and unanimously passed 2006 annual Financial Final Reports (after audit)by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (2).Discussed and unanimously passed 2006 annual report of board of supervisors by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (3).Discussed and unanimously passed 2006 annual report and abstracts by 5 approving vote, 0 rejecting vote and 0 abstaining vote (based on IAS and CAS); (4). .Discussed and unanimously passed the proposal of special explanation on the “highlighted items” in audit report by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (5).Discussed and unanimously passed the 2006 annual presupposed profit distribution plan by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (6).Discussed and unanimously passed the 2007 first quarter report by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (7). Discussed and unanimously passed the proposal on adding a borrowing of 100million RMByuan by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (8). Discussed and unanimously passed the proposal of daily relationship transaction of 2007 by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (9). Discussed and unanimously passed the proposal on engaging the domestic and foreign certified public accountants and the remuneration by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (10). Discussed and unanimously passed the proposal of implementing the new accounting rules by 5 approving vote, 0 rejecting vote and 0 abstaining vote; 2) The 3rd supervisor’s meeting of 4th session of the Company was held at 16 O’clock,Aug.16th, 2007 at Meeting Room 307 of WBGC headquarters. Due participating of 5 supervisors and actually 4 supervisors presented. The supervisor Mr.Li Zhixin absented due to busy work , and he authorized supervisor Mr.Zhang Jiayi to present .General Accountant of the company attended as nonvoting delegate. The opening of the meeting was in accordance with the Company Law and AOA. After discussion , made following resolution : Discussed and unanimously passed the 2007 annual report (based on CAS and IAS) by 5 approving vote, 0 rejecting vote and 0 abstaining vote. After discussion , all the supervisors confirmed that the compiling and auditing of 2007 annual report and the abstract (based on CAS and IAS) were in accordance with the relative laws ,administrative regulations and the stipulations of SCRC , the report was true ,accurate and complete with no false record ,misleading statement and major omits . 3) The 4th supervisor’s meeting of 4th session of the Company was held at 16 O’clock,Oct.24th, 2007 at Meeting Room 307 of WBGC headquarters. Due participating of 5 supervisors and actually 4 supervisors presented. The supervisor Mr.Li Zhixin absented due to busy work , and he authorized supervisor Mr.Zhang Jiayi to present .General Accountant of the company attended as nonvoting delegate. The opening of the meeting was in accordance with the Company Law and AOA. After discussion , made following resolutions : 23 (1)Discussed and unanimously passed the 3rd quarter report of 2007(based on CAS and IAS) by 5 approving vote, 0 rejecting vote and 0 abstaining vote; After discussion , all the supervisors confirmed that the compiling and auditing of 2007 annual report and the abstract (based on CAS and IAS) were in accordance with the relative laws ,administrative regulations and the stipulations of SCRC , the report was true ,accurate and complete with no false record ,misleading statement and major omits . (2) Discussed and unanimously passed Assembly Principle of Board of Supervisors(based on CAS and IAS) by 5 approving vote, 0 rejecting vote and 0 abstaining vote. 2. Statutory operation of the Company In accordance with the power regulated in the Company Law of PRC and AOA, Board of Supervisors actively participated in the operation and management of the company. And supervised the company to operate legally, examined the financial position of the company. (1). Statutory operation of the company. In the report period, the decision-making procedure is regulative, and strictly executes relative laws, ordinances of the state and has established perfect internal controlling system. The supervisors of the company supervised the fulfillment of function of the directors and managers, and didn’t find out any activity violating the laws, legal regulations, AOA or hurting the interest of the Company. (2). Examination of the accounting of the Company In this report period, shine wing Certified Public Accountants Certified Public Accountants offered standard and unreserved auditing report. The board of supervisors considered that the audited financial report truly ,accurately and fairly showed the financial position and operation of the company , and the company had not been against the accounting rules and the relative stipulations of information disclosure . 3. The explanation on the change of accounting estimation . The Company initially carried out the original Accounting Standards for Business Enterprise issued by Ministry of Finance before 2006, and began carrying out the new Accounting Standards for Business Enterprise from Jan 1 2007, and recognized, measured and reported the transactions or events of the Company according to the rules of the new Accounting Standards for Business Enterprise. For the changes in accounting policies caused due to the initial implementation of the new Accounting Standards, the Company will adopt the retroacting and adjusting methods to recognize and measure the changes in significant accounting policies and the future application method to recognize and measure the changes in significant accounting policies(the details refer to the significant accounting policies ,changes of accounting estimation and the correction of significant prior period errors in the fourth item of Notes) Considering the above changes in accounting policies , the company has retroacted and adjusted the financial statements according to and relative regulations, , and all items have been restated.(the effect of the consolidated and parent shareholders’ equity from Jan.1st ,2006 to Dec.31th,2006 and the net profits of year of 2006 according to the above changes in accounting policies refer to the significant accounting policies ,changes of accounting estimation and the correction of significant prior period errors in the fourth item of Notes) The board of supervisors considered these changes in accounting estimation were acceptable , and in line with to the Accounting Standard for Business Enterprise , Accounting System for Business Enterprise ,and the supplementary regulations released by the state . 4. The related transactions of the company were performed with the fair and reasonable price, and didn’t hurt the interest of listed companies. 24 Chapter Ninth. Important events 1. In the report period ,the Company had no major lawsuits and arbitration. 2. In the report period, no purchasing or sales of significant assets , acquisition and merger. 3. Important associated transactions The company has been always taking the fairness, rightness and openness as the principles of the associated events and associated transactions, and following the principle of sufficient disclosure of the information of relative associated transactions. 1．The significant associated transactions of purchasing products(merchandise)or receiving labor in the report period : Proportion occupying to Relative parties Content Principle of price Amount settlement same transaction Wafangdian precision steal Components Priced by market 2,033.74 4.25 Pay by cash ball bearing Manufacturing Lease of Co. Priced by market 10.67 2.08 Pay by cash housing Wa Fangdian Precision forging and pressing Co., Components Priced by market 45,823.92 95.75 Pay by cash Ltd. Dalian Wafangdian Bearing Group Corp. bearing Bearings Priced by market 2,861.72 100 Pay by cash equipment manufacturing Co. WBGC Slewing Bearing Bearings Priced by market 7,277.06 30.72 Pay by cash Co.,Ltd Dalian SKF Wazhou Bearing Priced by Bearings 16,407.66 69.28 Pay by cash Co., Ltd agreement Security and fire-fighting Priced by market 329 34.67 Pay by cash service Propagandize Priced by market 80 8.43 Pay by cash service Develop of technology Priced by market 540 56.90 Pay by cash service Wafangdian Bearing Group Use of Corp Priced by market 2,100 100 Pay by cash trademark Lease of land Priced by market 46.3 9.05 Pay by cash Lease of Priced by market 21.32 4.17 Pay by cash housing Lease of Priced by market 433.55 84.7 Pay by cash workshop Guarantee for Priced by market 450 100 Pay by cash borrowing 2．the significant associated transactions of selling products (merchandise)or offering labor : Proportion occupying to Relative parties Content Principle of price Amount settlement same transaction Wafangdian precise steal Priced by Material 1,106.31 2.52 Pay by cash ball bearing Manufacturing agreement 25 Co. Hot treatment Priced by market 121.74 28.31 Pay by cash The outer sales companies Bearings Priced by market 51.22 100 Pay by cash of WBGC Wafangdian Precision Priced by forging and pressing Co., Material 36,175.09 82.51 Pay by cash agreement Ltd. Dalian Wafangdian Bearing Group Corp. Bearing Material Priced by market 284.31 0.65 Pay by cash Equipment Manufacturing Corp. WBGC Slewing Bearing Priced by Materials 6,277.42 14.32 Pay by cash Co.,Ltd agreement Components Priced by market 5,352.85 100 Pay by cash Dalian SKF Wazhou Bearing Co., Ltd Hot treatment Priced by market 308.3 71.69 Pay by cash After negotiation by the company and the WBGC , the company should pay the trademark use fee because its products were all sold with “ZWZ” trademark of WBGC marked, . In 2007 , based on the agreement between company and the WBGC ,the company should pay trademark use fee of 21,000,000 RMByuan, and 1,400,000 RMByuan have been paid in this period . In 2007 ,the subsidiaries of Big-Size Bearing Manufacturing Company and the Precision Bearing Manufacturing Company removed to the WaZhou Industry Zone belonged to WBGC , and the workshops were all rented from the WBGC; according to the Housing Lease Contract singed by WBGC, Big-Size Bearing Manufacturing Company and the Precision Bearing Manufacturing Company on July,1st,2007, 4,335,500 RMByuan should be provided as the lease fee in this period . In 2007 , in order to release the temporary deficiency of the capital, the company made a borrowings of 20 million RMByuan on July and a borrowings of 12 million RMByuan on October from WBGC , the funds were all repaid in current month or the following month. There were three pieces of lands used for land replacement between the company and the WBGC ( The details refer to the announcement published on Aug.22th,2006 and Feb.13th,2007 and the annual report of 2006 ).In the 2nd quarter of 2007, due to the new layout of the land and according to the document of No.290 大国资产权〔2006〕sent by the Da Lian State-owned Resources Bureau, Wa Fangdian State-owned lands and Resources Bureau only granted that two pieces of lands can be used for replacement (the replacement amount must be controlled at 142,200,000RMByuan ).so while starting to the replacement , the company only replaced two pieces of land , comparing to the original account receivable for replacement ,the account receivable actually used for replacement amounted to 143,058,297.23 RMByuan with a decrease of 22,995,702.77RMByuan .up to May ,2007 , the company had completed the relative formalities of replacement, and got the land using certificates approved by the Wa Fangdian municipal government with No.252 and No.253 瓦国用（2007）, these two pieces of lands cover 157,881.60square meters 和 186,155.40square meters respectively . The subsidiary ,Wa Fangdian General Bearing Co.,Ltd has been suffering loss these years due to , ended on Nov.30th,2007 , the company has accumulatively suffered loss of 2,369RMB 0000 yuan .Considering the above situation , in order to get rid of the trouble and avoid more loss , the company decided to temporary close the Wa Fangdian General Bearing Co.,Ltd from Dec.1st ,2007. The Company rents the land , buildings and workshops of Wafangdian Bearing Group Corporation, and uses it’s “ZWZ” brand with compensation, and accepts the services of WBGC such as security, fire fighting, propaganda and technical development. These transactions are the necessary conditions for the operation of the Company, and provides a good advantage for the development of the company . In order to ensure the normal operation of the company, It is necessary that the company buys component ,bearings ,goods ,steal from the associated parities and supplies the materials ,components and 26 rent of housing ,etc to them . It is the normal operation activities that the company buys and sells the products of SKF Wa Zhou and supplies the bearing components to it, and these activities can not harm the interests of the listed company . The above associated businesses are normal daily operation activities on the basis of dispassion and mutual benefit. Each side is strictly in accordance with the relative agreement. There is no case that harms the interest of the listed company. The associated transactions will not greatly affect the financial condition and operating result of the company in the report period and future, and will not affect the independence of the listed company. 4. the Information that the company entrusted ,contracted and leased other company’s assets or other company entrusted ,contracted and leased the company’s assets The Company rented the land use right and part of workshops from its holding shareholder ---Wafangdian Bearing Group Corporation, the Company’s subsidiary Company Wafangdian General Bearing Company Limited rented the workshops of the Company. The Company rented the workshops of Wafangdian Bearing Precision Steel Manufacturing Company Limited and an office building of Wafangdian Bearing Group Corporation. In the report period, the Company used ZWZ trademark of WBGC with compensation. In the year of 2007 , the company has paid the trademark use fee of 21,000,000.00 RMByuan.. 5. Other important contract. In the report period , the company had no significant contract . 6. Up to the report period, the major guarantee of the company In 2002 , the company provided credit guarantee for the subsidiary Liao Yang forging and pressing machine company Ltd. to get a bank loan , which amounts to 3,150,000.00 RMByuan with guarantee term from Dec.25th ,2002 to July,5th ,2003 .ended on Dec.31th ,2007 , the Liao Yang forging and pressing machine company Ltd had not repaid this borrowing . 7. In the report period, the Company did not entrust any other organization to manage its cash and assets. 8. The company , the shareholders with more than 5% (include 5%) shares of the company didn’t disclose any promising items on the appointed newspaper and websites. 9. In the report period , the situation of continuously engaging , changing or dismissing the certified public accountants . In the report period ,the company decided to continuously engage shine wing (HK) CPA as the auditing firm of 2007 , which charges the annual audit of 450 thousand RMB yuan and provides the auditing service for continuous three years ; In the report period ,the subsidiary Wafangdian Gneral bearing manufacturing Corp.Ltd continuously engaged the shine wing (HK) CPA as the auditing firm of 2007, which charges the annual audit of 20 thousand RMB yuan and provides the auditing service for continuous three years ; In the report period ,the subsidiary LiaoYang bearing manufacturing Corp.Ltd engaged the shine wing (HK) CPA as the auditing firm of 2007 , which charges the annual audit of 30 thousand RMB yuan and provides the auditing service for continuous three years . 10. In the report period, neither did the company , board of directors and the directors have check, administration penalty or criticism from CSRC nor publicly condemned by the Shenzhen Stock 27 Exchange. 11. The reception of visitor According to the Index of Fair Disclosure of Information of Listed Company published by Shen Zhen Stock Exchange , the company has improved the management of information disclosure, further standardized the work and procedures of internal control of information disclosure, reception , promotion so that the company’s information disclosure was strictly under the principle of open ,fair and justice . In this period of time ,there were no unfair information disclosure due to the investigation and visit of the special person. following were the details : Time place Method Unite Contents The operation situation and The office of secretary of Investigation on the Hai Futong Fund Apr.6th,2007 the development strategy in board of directors spot Company the future The office of secretary of Investigation on the Hai Tong Securities The general information of the June,11th,2007 board of directors spot Co.,Ltd company The products , the target of the company , the attitude 202 conference room of Investigation on the Morgan Stanley Aug.30th,2007 for the competitive Japan the WBC spot investing bank . products , and the plan for taping global market The business scope , the The office of secretary of Heng Mao Assets products and the order-taking Sep.,20th,2007 Telephone board of directors Management Co.,Ltd situation of the company , and the outlook of company The office of secretary of Investigation on the America Avenue The general information of the Oct.17th,2007 board of directors spot Co.Ltd (Asia) company Exchanging of the idea about Asia Researching The office of secretary of the operation environment of Nov.7th,2007 Telephone Office of Germany board of directors home bearing industry and Bank the capital market The office of secretary of Investigation on the Commercial The general information of the Nov.7th,2007 board of directors spot Securities company The office of secretary of Investigation on the Gao Sheng The general information of the Dec.24th,2007 board of directors spot Co.,Ltd(Asia) company The office of secretary of Investigation on the The operation and Dec.25th,2007 Guo Jin Securities board of directors spot development of WBC 12.The 2006 annual auditing report was signed by the CPA Wang Yang and Ji Cheng ; The 2007 annual auditing report was signed by the CPA Ye Zhongxun and Chao Xiaoyan. 13.The situation of information disclosure The important information was all published on the securities times , HongKong commercial newspaper , the Wen Wei Po HongKong ,and http//www.cninfo.com.cn . Date Items The announcement of changing of the 3rd meeting of the 4th board session ; the Jan.27th,2007 announcement of annual predicted increase of business results; the announcement of holding the 1st extraordinary shareholders’ meeting of 2007 Feb.13th,2007 Announcement of resolution of the 1st extraordinary shareholders’ meeting Apr.17th,2007 Announcement of resolution of the 4th meeting of the 4th board session ; 28 Announcement of resolution of the 2nd meeting of the 4th board of supervisors ; the announcement of daily related transactions of 2007 ; the annual report of 2006 ; the 1st quarter report of 2007 May,14th,2007 The announcement of the abnormal turbulence of the stock price May,17th,2007 The notice of holding the 2006 annual shareholders’ meeting June,20th,2007 The announcement of resolution of 2006 annual shareholders’ meeting July,9th,2007 The announcement of half-year predicted increase of business results Aug.2th,2007 The announcement of dividend distribution of 2006 The announcement of resolution of the 5th meeting of the 4th board session ; the Aug.21th,2007 half-year report of 2007 ; the self-examination report and correcting plan regarding the special actions on enhancing the corporation government Oct.13th ,2007 The announcement of the 3rd quarter predicted increase of business results The announcement of resolution of the 6th meeting of the 4th board session ;the 3rd quarter report of 2007 ; the The announcement of resolution of the 4th meeting of Oct.27th,2007 the 4th board of supervisors ; the correcting situation regarding the special actions on enhancing corporation government The announcement of resolution of the 1st extraordinary board meeting of 2007 ; the Dec.13th,2007 announcement of holding the 2nd extraordinary shareholders’ meeting of 2007 The announcement of resolution of the 2nd extraordinary shareholders’ meeting of Dec.29th,2007 2007 29 Chapter Ninth Audit report Auditor’ Report (English Translation for Reference Only) The Board of Directors and Shareholders To Shareholders of Wang Fang Dian Bearing Company Limited： We have audited the accompanying financial statements (consolidated and company) of Wang Fang Dian Bearing Company Limited (“the Company”), which comprise the balance sheet as at 31 Dec. 2007, and the income statement, and cash flow statement, and the statement of changes in equity for the year then ended, and notes to the financial statements. Management's Responsibility for the Financial Statements The Company’s management is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises and the Accounting Regulations for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China’s Auditing Standards for the Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements comply with the requirements of the Accounting Standards for Business Enterprises and the Accounting Regulations for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the financial position of the Company as at 31 Dec.2007, and the results of operations and cash flows of the Company for the year then ended. 30 ShineWing Certified Public Accountants Registered in the People’s Republic of China [Name of CPA1] [Name of CPA2] [Date] 31 Wa Fangdian Bearing Co.,Ltd Balance Sheet From 2007.01.01 to 2007.12.31 Unit:RMByuan 2007.12.31 2007.01.01 Item Consolidated Parent Consolidated Parent Current assets ： Monetary fund 75,233,285.21 73,822,830.51 141,006,398.13 136,367,342.33 Financial assets held-for-trading Bills receivable 48,103,503.04 48,103,503.04 36,031,515.68 35,961,824.63 Account receivable 715,568,113.20 694,123,154.69 700,279,402.54 677,567,038.32 Account paid in advance 12,648,978.96 11,669,432.57 4,956,094.90 4,564,296.71 Interest receivable Other receivables 10,601,429.34 7,345,320.80 9,697,222.77 6,274,913.75 Inventory 913,169,979.17 852,502,171.17 827,137,822.69 769,777,407.30 Non-current assets due within 1 year Other current assets 374,565.91 374,565.91 139,661.31 139,661.31 Total current assets 1,775,699,854.83 1,687,940,978.69 1,719,248,118.02 1,630,652,484.35 Non-current assets Financial assets available-for-sale Investments held-to-maturity Long-term receivable Long-term equity investment 80,713,952.56 127,160,289.16 85,258,734.43 130,626,369.88 Investment property Fixed assets 563,385,979.48 550,890,501.05 412,154,411.64 395,369,284.09 Construction in progress 84,886,793.12 84,277,272.39 124,669,102.89 124,625,708.24 Construction materials Fixed assets disposal Biological assets Gas and petrol assets Intangible assets 148,922,178.35 148,922,178.35 170,624,286.00 170,624,286.00 Development expenditure Goodwill Long-term prepaid expense 3,016,919.03 3,016,919.03 1,326,789.79 1,326,789.79 Deferred tax assets 8,867,371.89 7,586,030.37 9,687,817.79 9,687,817.79 Other non-current assets Total non-current assets 889,793,194.43 921,853,190.35 803,721,142.54 832,260,255.79 Total assets 2,665,493,049.26 2,609,794,169.04 2,522,969,260.56 2,462,912,740.14 Wa Fangdian Bearing Co.,Ltd Balance Sheet (continue) From 2007.01.01 to 2007.12.31 Unit:RMByuan Current liabilities Short-term loan 233,470,235.14 207,000,000.00 483,870,235.14 455,640,000.00 Note payable 102,187,200.00 102,187,200.00 27,803,904.29 27,803,904.29 Accounts payable 492,774,489.35 458,495,088.93 496,468,546.08 459,016,212.93 Accounts received in advance 30,749,009.85 23,194,403.71 22,902,745.88 16,542,491.37 Commission charge payable Accrued payroll 46,379,438.52 35,200,983.83 59,875,807.28 48,606,852.72 Tax payable 10,019,824.97 4,212,741.93 6,813,969.13 374,758.81 Interest payable 550,000.00 550,000.00 Dividends payable 1,300,000.00 1,300,000.00 32 Other payables 106,662,693.80 100,737,326.10 109,082,032.90 104,263,394.94 Non-current liabilities due within I year 100,000,000.00 100,000,000.00 17,500,000.00 17,500,000.00 Other current liabilities 121,344.10 121,344.10 10,969,947.68 10,936,806.84 Total current liabilities 1,122,914,235.73 1,031,699,088.60 1,236,587,188.38 1,141,984,421.90 Non-current liabilities Long-term loan 339,500,000.00 338,000,000.00 151,500,000.00 150,000,000.00 Debenture payable Long-term payables 100,000.00 100,000.00 Special payables 201,698.98 201,698.98 201,698.98 201,698.98 Contingent liabilities Deferred tax liabilities 949,220.87 949,220.87 Other non-current liabilities Total non-current liabilities 339,801,698.98 338,201,698.98 152,750,919.85 151,150,919.85 Total liabilities 1,462,715,934.71 1,369,900,787.58 1,389,338,108.23 1,293,135,341.75 Owner’s equity (shareholders’ equity) Capital stock 402,600,000.00 402,600,000.00 402,600,000.00 402,600,000.00 Capital public reserves 485,431,518.07 482,563,945.37 489,521,047.44 486,653,474.74 Less:treasury share Surplus reserve 68,449,533.31 68,449,533.31 59,619,882.07 59,619,882.07 Undistributed profit 243,660,433.16 286,279,902.78 178,371,959.59 220,904,041.58 Difference of foreign currency translation Equity attributable to parent company 1,200,141,484.54 1,239,893,381.46 1,130,112,889.10 1,169,777,398.39 Minority interest 2,635,630.01 3,518,263.23 Total owner’s equity 1,202,777,114.55 1,239,893,381.46 1,133,631,152.33 1,169,777,398.39 Total owner’s equity and liabilities 2,665,493,049.26 2,609,794,169.04 2,522,969,260.56 2,462,912,740.14 Wa Fangdian Bearing Co.,Ltd Income statement From 2007.01.01 to 2007.12.31 Unit:RMByuan 2007.12.31 2007.01.01 Item Consolidated Parent Consolidated 1.Total operating income 2,491,512,622.68 2,437,456,144.84 2,241,682,463.73 2,193,869,359.15 Including: Operating revenue 2,491,512,622.68 2,437,456,144.84 2,241,682,463.73 2,193,869,359.15 Interest income Handling charge and commission income 2.Total operating cost 2,408,901,944.99 2,352,709,762.74 2,205,068,180.15 2,153,291,900.92 Including: Operating cost 2,126,908,837.38 2,091,239,602.43 1,940,573,298.23 1,908,378,483.31 Interest expenses Handling charge and commission income Tax & surcharges for main operations 10,867,344.84 10,377,619.50 8,925,150.28 8,476,194.11 Selling expenses 141,321,510.73 137,908,669.44 117,047,496.25 114,198,936.72 Administrative expense 78,693,679.96 64,441,504.10 102,028,298.82 90,155,405.84 Financial expense 39,866,101.99 38,089,036.49 38,048,320.79 36,895,172.90 Loss of impairment of assets 11,244,470.09 10,653,330.78 -1,554,384.22 -4,812,291.96 Add:Gains of change of fair value of assets(loss with"-") Investment income(loss with "-") 9,567,218.13 10,645,919.28 14,664,199.01 14,664,199.01 Including: Income form investment on associated enterprise and jointly 9,567,218.13 14,664,199.01 14,644,199.01 enterprise 33 3.Operating profit (loss with"-") 92,177,895.82 95,392,301.38 51,278,482.59 55,241,657.24 Add: Non-operating revenue 13,851,321.71 12,084,847.85 4,256,075.68 4,221,534.18 Less: Non-operating cost 2,001,946.63 1,198,515.96 1,691,403.76 1,247,445.96 Including: loss on disposal of non-current 905,473.57 613,635.54 1,902.60 1,902.60 assets 4.Profit before tax(loss with"-") 104,027,270.90 106,278,633.27 53,843,154.51 58,215,745.46 Less: Income tax expenses 16,700,779.31 17,982,120.83 8,639,728.80 8,639,728.80 5. Net profit(Loss with"-") 87,326,491.59 88,296,512.44 45,203,425.71 49,576,016.66 Net profit attributable to shareholders of 88,209,124.81 45,136,792.00 parent company Minority interests -882,633.22 66,633.71 6.Earnings per share (1) Basic earnings per share 0.22 0.22 0.09 0.09 (2) Diluted earnings per share 0.22 0.22 0.09 0.09 The financial statements attached in the Notes is a component of this statement . Wa Fangdian Bearing Co.,Ltd Cash Flow Statement From 2007.01.01 to 2007.12.31 Unit:RMByuan 2007.12.31 2007.01.01 Item Consolidated Parent Consolidated Parent 1.cash from operating activities Cash received from sale of goods or 1,374,594,255.77 1,374,813,073.97 1,285,148,700.37 1,191,893,663.27 rendering of services Refund of taxes and fares 11,936,085.47 11,936,085.47 15,180,466.18 15,098,433.14 Other cash received relating to operating 8,279,075.48 8,150,030.21 14,408,801.46 14,368,334.16 activities Sub-total of cash inflows 1,394,809,416.72 1,394,899,189.65 1,314,737,968.01 1,221,360,430.57 Cash paid for goods and services 869,418,334.21 900,052,573.42 738,811,756.53 681,150,077.27 Cash paid to or on behalf of the employees 216,539,640.34 198,978,423.26 182,962,743.66 168,184,511.39 Tax payments 90,872,913.41 84,499,492.00 68,555,125.26 61,965,553.60 Other cash paid relating to operating 109,467,864.30 101,045,541.32 145,102,432.64 137,161,621.88 activities Sub-total of cash outflows 1,286,298,752.26 1,284,576,030.00 1,135,432,058.09 1,048,461,764.14 Net cash flows from operating activities 108,510,664.46 110,323,159.65 179,305,909.92 172,898,666.43 2.Cash flows from investing activities Cash received from return of investment Cash received from investment incomes 496,000.00 496,000.00 Net cash received from disposal of fixed assets, intangible assets and other 248,325.53 245,925.53 23,197.44 long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to investing activities Sub-total of cash inflows 248,325.53 245,925.53 519,197.44 496,000.00 34 Cash paid to acquire fixed assets, intangible assets and other long-term 135,983,732.81 135,339,104.81 100,540,507.57 100,155,751.19 assets Cash paid to acquire investment Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows 135,983,732.81 135,339,104.81 100,540,507.57 100,155,751.19 Net cash flows from investment -135,735,407.28 -135,093,179.28 -100,021,310.13 -99,659,751.19 activities 3.Cash flows from financing activities Cash received from absorbing investment Including: Cash received from increase in minority interest Proceeds from borrowings 831,170,000.00 831,170,000.00 694,100,000.00 694,100,000.00 Other proceeds relating to financing 11,411,245.15 11,411,245.15 28,412,792.41 28,412,792.41 activities Sub-total of cash inflows 842,581,245.15 842,581,245.15 722,512,792.41 722,512,792.41 Repayment of borrowings 822,310,000.00 822,310,000.00 721,430,000.00 719,100,000.00 Distribution of dividends or profits & 46,709,190.87 45,716,494.76 56,289,991.66 55,167,882.27 interest expenses Including: dividends or profit paid to minority interest Cash paid for other financing activities 11,001,952.40 11,001,952.40 16,503,904.29 16,503,904.29 Sub-total of cash outflows 880,021,143.27 879,028,447.16 794,223,895.95 790,771,786.56 Net cash flows from financing activities -37,439,898.12 -36,447,202.01 -71,711,103.54 -68,258,994.15 4. Effects of foreign exchange rate -604,567.69 -823,385.89 -302,993.26 -303,876.92 changes on cash 5.Net increases in cash and cash -65,269,208.63 -62,040,607.53 7,270,502.99 4,676,044.17 equivalents Add:cash and cash equivalent, at the 130,502,493.84 125,863,438.04 123,231,990.85 121,187,393.87 beginning of year 6.Cash and cash equivalent at the end 65,233,285.21 63,822,830.51 130,502,493.84 125,863,438.04 of the year The financial statements attached in the Notes is a component of this statement . Wa Fangdian Bearing Co.,Ltd The Supplement of Cash Flow Statement From 2007.01.01 to 2007.12.31 Unit :RMByuan Items 2007 2006 Adjusting net profit into cash flows of operating activities Net profit 87,326,491.59 45,203,425.71 Add: Provision for impairment of assets 11,244,470.09 -1,554,384.22 Depreciaton of fixed assets 61,722,687.84 60,891,445.37 Amortisation of intangible assets 4,546,070.55 498,584.33 Amortisation of long-term deferred expenses 411,035.27 76,910.60 35 Loss of disposal of fixed assets, intangible assets, and long-term assets (income listed with”-”) -1,011,020.86 -727,940.61 Loss of rejection of fixed assets (income listed with”-”) 0.00 0.00 Profit and loss in fair value (income listed with”-”) 0.00 0.00 Fiancial expense (income listed with”-”) 34,496,458.35 38,048,320.79 Investment loss(income listed with”-”) -9,567,218.13 -14,664,199.01 Decrease of deferred tax assets(increase listed with”-”) 820,445.90 -703,326.35 Increase of deferred tax liabilities(decrease listed with”-”) -949,220.87 -490,328.10 Decrease of inventories(increase listed with”-”) -94,225,417.11 -24,365,839.76 Decrease of operating receivable (increase listed with”-”) -128,811,986.75 4,112,780.37 Increase of operating payable (decrease listed with”-”) 142,507,868.59 70,718,873.57 Others 0.00 2,261,587.23 Net cash flows arising from operating activities 108,510,664.46 179,305,909.92 2.Significant investment and financing activities unrelating to cash income and expenses Liabilities transferred to capital 0.00 0.00 Convertible bonds within 1 year 0.00 0.00 Financing lease fixed assets 0.00 0.00 3. Net increase( decrease) of cash and cash equivalent Ending balance of cash 65,233,285.21 130,502,493.84 Less: Beginning balance of cash 130,502,493.84 123,231,990.85 Add: Ending balance of cash equivalent 0.00 0.00 Less: Beginning balance of cash equivalent 0.00 0.00 Net increase of cash and cash equivalent -65,269,208.63 7,270,502.99 The financial statements attached in the Notes is a component of this statement . The above balance sheet ,income statement (consolidated and parent ) cash flow statement (consolidated and parent )have been passed at the board meeting held on Apr.24th,2008. Legal person ：Wang Lushun Accounting controller: Zhang Xinghai Accounting charger:Yao Chunjuan 36 Wa Fangdian Bearing Co.,Ltd The breakdown of the impairment of assets Unit:RMByuan Decrease Items 2006.12.31 Increase Others 2007.12.31 Reverse transferred out Provision for bad debts 48,449,499.56 5,377,824.60 2,326,615.14 2,291,245.35 49,209,463.67 Provision for impairment of inventories 31,577,618.03 8,193,260.63 0.00 0.00 39,770,878.66 Provision for impairment of 0.00 0.00 0.00 0.00 0.00 financial assets held for sale Provision for impaiment of 0.00 0.00 0.00 0.00 0.00 investment held for maturity Provision for impairment oflong 0.00 0.00 0.00 0.00 0.00 term equity investment Provision for impairment of 0.00 0.00 0.00 0.00 0.00 investment property Provision for impairment of fixed 1,946,935.33 0.00 0.00 522,329.19 1,424,606.14 assets Provision for impairment of project 0.00 0.00 0.00 0.00 0.00 materials Provision for impairment of 1,403,093.55 0.00 0.00 0.00 1,403,093.55 construction in progress Provision for impairment of 0.00 0.00 0.00 0.00 0.00 biological assets Provision for impairment of oil & 0.00 0.00 0.00 0.00 0.00 gas assets Provision for impairment of 0.00 0.00 0.00 0.00 0.00 intangible assets Provision for impairment of 0.00 0.00 0.00 0.00 0.00 goodwill Others 0.00 0.00 0.00 0.00 0.00 Total 83,377,146.47 13,571,085.23 2,326,615.14 2,813,574.54 91,808,042.02 37 Wa Fanghdian Bearing Co.,Ltd The changes in shareholder’s equity (consolidated ) 2007.12.31 Amount in current period Owner’s equity attributable to parent company Minority Owner’s equity a Item Capital less： Surplus General sharehol Owner’s Capital less： Capital Undistribute Other Capital public treasure public provision ders’ equity public treasur stock d profits s stock reserves stock reserves for risk equity reserves e stock 402,600, 489,521, 59,619,8 178,371,959 3,518,26 1,133,63 330,000, 531,376,21 1.Balance at the end of last year 000.00 047.44 82.07 .59 3.23 1,152.33 000.00 5.24 Add: changes in accounting policies Changes in previous errors 2.Balance at the beginning of this 402,600, 489,521, 59,619,8 178,371,959 3,518,26 1,133,63 330,000, 531,376,21 year 000.00 047.44 82.07 .59 3.23 1,152.33 000.00 5.24 3. The changes in this year -4,089,52 8,829,65 65,288,473. -882,633. 69,145,9 72,600,0 -41,855,16 （decrease with“-”） 9.37 1.24 57 22 62.22 00.00 7.80 88,209,124. -882,633. 87,326,4 1）Net profits 81 22 91.59 2 ） Profits and loss directly -4,089,52 -4,089,52 30,744,832 recorded as owner’s equity 9.37 9.37 .20 (1)The net amount of the changes in fair value of financial assets available-for-sale (2)he effect of the changes in other owner’s equity in the unite invested (3)he effect of the income tax relating to the items recorded as the owner’s equity -4,089,52 -4,089,52 30,744,832 4．Others 9.37 9.37 .20 -4,089,52 88,209,124. -882,633. 83,236,9 30,744,832 Total 1) and 2) 9.37 81 22 62.22 .20 3 ） The assets invested or 38 returned by the owners (1) capital invested by owners (2)he amount of share payment recorded owner’s equity (3)thers 8,829,65 -22,920,651 -14,091,0 4）profits distribution 1.24 .24 00.00 (1)Provision for surplus public 8,829,65 -8,829,651. reserves 1.24 24 (2)rovison for general risks (3)istribution for -14,091,000 -14,091,0 owner(shareholders) .00 00.00 (4)thers 5 ） internal transference of 72,600,0 -72,600,00 owner’s equity 00.00 0.00 (1)apital (capital stock)transferred 72,600,0 -72,600,00 by the capital public reserves 00.00 0.00 (2)apital (capital stock)transferred by the surplus public reserves (3)oss offset by the surplus public reserves (4)thers 4. Balance at the end of the 402,600, 485,431, 68,449,5 243,660,433 2,635,63 1,202,77 402,600, 489,521,04 current period 000.00 518.07 33.31 .16 0.01 7,114.55 000.00 7.44 39 Wa Fangdian Beaing Co.,Ltd Notes 1. General information Wafangdian Bearing Company Limited (the “Company”) is a joint stock limited company established in the People’s Republic of China (the “PRC”) on 20 March 1997. In the opinion of the directors, its parent and ultimate holding company is Wafangdian Bearing Group Company Limited (“Wazhou Group”). The Company’s B shares have been listed on the Shenzhen Stock Exchange since 25 March 1997. The addresses of the registered office and principal place of business of the Company are No.1, Phrase 1, Gongji Street, Wafangdian North, Liaoning Province, and the PRC. The Company together with its subsidiaries is collectively referred to as the “Group”. The Group is principally engaged in the manufacturing and sale of bearing products, engineering equipment, automobile spare parts and relating products. 2. Basis for the preparation of financial statements The financial statements have been prepared on the basis of going concern. The Company prepared the financial statements according to Accounting Standard for Business Enterprise and (hereinafter “Original Accounting Standard and System”) released before 2006. From Jan 1 2007, the Company began carrying out the Accounting Standard for Business Enterprise (hereinafter ‘Accounting Standard for Business Enterprise’) released by Ministry of Finance in 2006. The financial statements for the year 2007 are the first annual financial statements prepared in accordance with Accounting Standard for Business Enterprise. When preparing the financial statements for the year 2007, the related comparative figures for the year 2006 were retroactively adjusted according to and relative regulations, China Securities Regulatory Commission , and all items have been restated according to Accounting Standard for Business Enterprise. 3. Statement for complying with Accounting Standard for Business Enterprise 40 The financial statements prepared by the Company according to the requirements of Accounting Standard for Business Enterprise, and reflect the relative information for the financial position, operating performance, cash flow of the Company truly and fully. 4. Changes in significant accounting policies, changes in accounting estimates and correction of significant prior period errors 4.1 Effects of the changes in significant accounting policies and accounting estimates The Company initially carried out the original Accounting Standards for Business Enterprise issued by Ministry of Finance before 2006, and began carrying out the new Accounting Standards for Business Enterprise from Jan 1 2007, and recognized, measured and reported the transactions or events of the Company according to the rules of the new Accounting Standards for Business Enterprise. For the changes in accounting policies caused due to the initial implementation of the new Accounting Standards, the Company will adopt the following methods to process: z Adopting the retroactive adjustment methods to recognize and measure the changes in significant accounting policies (1) Long-term equity investments Before applying the new Accounting Standards for Business Enterprise, the parent company adopted the equity method to recognize and measure its long-term equity investments in the subsidiaries when preparing its financial statements. After implementing the new Accounting Standards for Business Enterprise, the accounting policies related to the long-term equity investments refers to the “long-term equity investments” in notes 5.9. On the date for initial implementation, apply the retroactive adjustment method on the long-term equity investments in subsidiaries in the financial statements of the parent company, regarded as the subsidiaries have adopted the cost method from the beginning. (2) Termination benefits Before implementing the new Accounting Standard for Business Enterprise, the relevant payments for the termination and the salary of internal retiring employees and social insurance etc shall be charged as income or loss during the payment period. After implementing the new Accounting Standard for Business Enterprise, the expenses mentioned above shall be recognized when the termination plans, internal retirement plans and relevant expenses satisfies the expected conditions of confirmation. (3) Income tax Before implementing the new Accounting Standard for Business Enterprise, the accounting measurement for the income tax shall adopts liability method of taxation effect accounting. After enforcing the new Accounting Standard for Business Enterprise, the Company adopts balance sheet liabilities method to recognize the income tax, and relevant accounting policies of income tax refer to the “Income Tax” in notes 5.21. 41 For the changes in accounting policies mentioned above, the Company has made the retroactive adjustments correspondingly in accordance with and the related regulations, and restated its financial statements. The effects of changes in accounting policies mentioned above for the shareholders’ equity of the consolidation and parent company as at Jan 1 and Dec 31 2006 and the net profits for the year 2006 are listed as follows: (1) The Impacts on the shareholders’ equity of consolidation as at Jan 1 2006 Items Undistributedpr Surplus Capitalre Minority Total ofit reserve serve equity (1)Long-tem equity investment in subsidiary measured adopting cost -5,222,896.08 5,222,896.08 0.00 0.00 0.00 method (2)Income tax 0.00 0.00 0.00 0.00 0.00 (3)Minority equity presented as 0.00 0.00 0.00 3,451,629.52 3,451,629.52 shareholder’s equity (4)Termination benefit -17,165,897.05 -3,029,275.95 0.00 0.00 -20,195,173.00 Total -22,388,793.13 2,193,620.13 0.00 3,451,629.52 -16,743,543.48 (2) The Impacts on the consolidated net profits for the year 2006 Items Amounts (1) Income tax 0.00 (2)Changs of minority interest presentation 66,633.71 Total 66,633.71 (3) The impacts on the consolidated shareholders’ equity as at Dec 31 2006 Items Undistributed Surplus Capital Minority Total profit reserve reserve equity (1)Long-tem equity investment in subsidiary measured adopting cost -5,497,398.25 5,497,398.2 0.00 method (2)Income tax 0.00 0.00 0.00 0.00 0.00 (3)Minority equity presented as 0.00 0.00 0.00 3,518,263.23 3,518,263.23 shareholder’s equity (4)Termination benefit -17,165,897.05 -3,029,275.95 0.00 0.00 -20,195,173.00 Total -22,663,295.30 2,468,122.25 0.00 3,518,263.23 -16,676,909.77 42 (4) The impacts on the shareholders’ equity of the parent company as at Jan 1 2006 Items Undistributed Surplus Capital Total profit reserve reserve (1)Income tax (2)Long-tem equity investment in subsidiary 29,596,411.15 5,222,896.08 -2,867,572.70 31,951,734.53 measured adopting cost method (3)Termination benefit -17,165,897.05 -3,029,275.95 0.00 -20,195,173.00 Total 12,430,514.10 2,193,620.13 -2,867,572.70 11,756,561.53 (5) The impacts on the net profits of the parent company for the year 2006 Items Amounts (1) Income tax 0.00 (2) Long-tem equity investment in subsidiary measured adopting cost method 2,745,021.66 Total 2,745,021.66 (6) The Impacts on the shareholders’ equity of the parent company as at Dec 31 2006 Items Undistributed Surplus Capital Total profit reserve reserve (1)Long-tem equity investment in subsidiary 32,066,930.64 5,497,398.25 -2,867,572.70 34,696,756.19 measured adopting cost method (2) Termination benefit -17,165,897.05 -3,029,275.95 0.00 -20,195,173.00 Total 14,901,033.59 2,468,122.30 -2,867,572.70 14,501,583.19 z Adopting the future application method to recognize and measure the changes in significant accounting policies Except for the adoption of retroactive adjustment methods for recognizing and measuring the changes in significant accounting policies metioned above, the Company has adopted the future application method to process due to the initial implementation of new Accounting Standard for Business Enterprise and the following changes in significant accounting policies. Specifically including: (1) Capitalisation of borrowing costs Before applying the new Accounting Standards for Business Enterprise, the Company capitalised its borrowing costs according to the weighted average of accumulated capital expenditure and rate for the special loan which was only used for fixed assets. After applying the new Accounting Standard for Business Enterprise, the Company has been capitalizing its 43 borrowing costs in accordance with the accounting policies mentioned in notes 5.12. (2) Impairment of non-current assets Before applying the new Accounting Standard for Business Enterprise, if the impairment of non-current assets recognized in previous periods has recovered in the following accounting period, the impairment should be reversed according to the amounts recovered and in the scope on less than the amounts which have been recognized, and recorded into the profit or loss for the current period. After applying the new Accounting Standard for Business Enterprise, the Company recognizes the impairment of non-current assets in accordance with the accounting policies mentioned in notes 5.14. Once the impairment has been recognized, except for the circumstances for disposal, sales and investment of assets, it can not be reversed. (3) Employee welfare Before applying the new Accounting Standard for Business Enterprise, the Company measured and recognized the amount of employee welfare at 14% of the total salary, and charged as the profit or loss for the current period. After applying the new Accounting Standard for Business Enterprise, the Company recognizes the payroll payable (employee welfare) in accordance with the actual situation and employee welfare plans, and chargeed as the profit or loss for the current period. For the first accounting period after the date for the initial implementation ,recognized the difference between the payroll payable (employee welfare) recognized in accordance with new Accounting Standard for Business Enterprise and the original amount of payroll payable (employee welfare), and charged the difference as the profit or loss for the current period. (4) The subsidy from government related to the proceeds Before applying the new Accounting Standards for Business Enterprise, the subsidy from government related to the proceeds was recognized in subsidy revenue when it was received actually. After implementing the new Accounting Standards for Business Enterprise, the above subsidy from government related to the proceeds shall be recognized when it satisfies the incident conditions and is assured to be obtainded. 5. Significant accounting policies, accounting estimates and preparation of consolidated financial statements 5.1 Accounting period The Company adopts the Gregorian calendar year as accounting period, i.e. from Jan 1 to Dec 31. 5.2 Functional currency The Company adopts RMB as functional currency. 5.3 Recording principle and pricing basis 44 The accrual basis shall be adopted for accounting treatment to follow the historical cost method, except that the financial assets held for trading and sale are measured at fair value. 5.4 Cash and cash equivalents The cash listed on the cash flow statements of the Company refers to cash on hand and bank deposit. The cash equivalents refer to short-term (normally with original maturities of three months or less) and liquid investments which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. 5.5 Translation of foreign currency Foreign currency transactions are translated at the exchange rate issued by People’s Bank of China (“PBOC”) on the first day of the month when the transaction incurs. Monetary assets and liabilities in foreign currencies are translated into RMB at the exchange rate prevailing at the balance sheet day. Exchange differences arising from the settlement of monetary items are charged as in profit or loss for the period. Exchange differences of specific borrowings related to the acquisition or construction of a fixed asset should be capitalized as occurred, before the relevant fixed asset being acquired or constructed is ready for its intended uses. The foreign currency non-monetary items recorded at fair value are translated at the exchange rate issued on the date of fair value recognized. Exchange differences are charged as profit and loss of change of fair value. Foreign currency cash flows are translated at the spot exchange rate on the day when the cash flows incur. The amounts resulted from change of exchange rate are presented separately in the cash flow statement. 5.6 Financial assets (1) Classification of financial assets The financial assets are classified into the following four categories according to investment purpose and economic substance. 1) Financial asset measured at fair value and the amount of the change in fair value of a financial asset is recognized in profit and loss in current period: mainly represents the objective of being held for sale in short term and presented at financial asset held for transaction in balance sheet. 2) Investment held to maturity: non-derivative financial assets of fixed maturity, fixed or confirmable recoverable amount, which management have definite purpose and capacity to hold to maturity. 3) Accounts receivable: represents non-derivative financial assets of no quote, fixed or confirmable recoverable amount, including notes receivable, accounts receivable, interest receivable, dividends receivable and others receivable etc. 4) Financial assets available for sale: financial assets available for sale include non-derivative financial assets available for sale when initially recognized and others financial assets which are classified. 45 (2) Recognition and measurement of financial assets Financial assets should be initially recognized at fair value. Financial assets which are measured at fair value and the variation of fair value is charged as the profit or loss for the current period, related transaction expenses incurred when acquiring financial assets shall be directly charged as profit or loss for the current period. The transaction expenses of others financial assets shall be charged as initial amount. When the contractual rights for collecting the cash flow of the said financial asset are terminated, or when the risk and reward accompanied with the ownership of the said financial assets have been transferred to the receiving party, the recognition of financial assets shall be terminated. For the financial assets measured at their fair values and of which the variation is charged as the profit or loss for the current period and financial assets held for sale shall be measured subsequently at fair value. Accounts receivable and investment held to maturity shall be measured on the basis of the post-amortization costs by adopting actual interest rate method. For the financial assets measured at fair values and of which the variation is charged as profit or loss for the current period, changes of their fair values shall be recorded into changes of fair value of financial assets. The interest and cash dividends from financial assets when held shall be recognized investment income. When the financial assets are disposed, the difference between its fair value and initial recognition amount shall be recognized into investment profit or loss, and meanwhile, adjust the change of fair value of financial assets. The change of fair value of financial assets held for sale shall be recorded as owner’s equity. The interests of the financial assets held for sale calculated according to the actual interest rate method shall be recorded into the investment income of the current period. The cash dividends of the equity instrument investments available-for-sale shall be recorded into the investment income of the current period when the investee announces the distribution of dividends. When the financial assets are disposed, the difference between the prices with carrying amount deducted accumulated change amounts of fair values which recorded into owner’s equity shall be recorded into investment profit and loss. (3) Impairment of financial assets The Company carries out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. Where a financial asset available-for-sale is impaired, even if the recognition of the financial asset has not been terminated, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and charged as the profit or loss for the current period. As for the debt instruments available-for-sale whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be charged as the profit and loss for the current period. As for the debt instruments available-for-sale whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be recorded as the owner’s equity. The impairment-related losses incurred to 46 an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instrument, should not be reversed. 5.7 Provision for bad debts of accounts receivable The Company shall recognize it as significant accounts receivable when the amounts of the receivable exceed RMB 3 million. When there is evidence to prove that the Company can’t collect the reveivable it shall made the impairment test and the provision for the bad debts based on the difference between the present value of cash flow and the carrying amounts. For the single amount of non-significant accounts receivable, the Company will divide the amount into some combinations altogether with the individually tested and non-impaired significant accounts receivable according to their credit risk quality, and calculate the provision for bad debts for the current period based on the actual loss rate of the combination of accounts receivable which is the same as or similar to the previous years and with the similar credit risk quality, and the rate of provision for bad debts combined with the actual situation of current period.The Company recognizes the mortgage with the age more than three years and the amounts with the evidence showing non-collectable or little possibility on collection as special assets combination, and fully makes provision for bad debts. The rate of provision for bad debts based on the age of accounts receivable as follows: Aging Provision percentage Within one year 1％ 1－2 years 5％ 2－3 years 20％ Over 3 years 50％ The rate of provision for bad debts based on the age of other accounts receivable as follows: Aging Provision percentage Within one year 1％ 1－2 years 5％ 2－3 years 20％ Over 3 years 50％ 5.8 Inventory (1) Classification of inventory: Inventories are classified as raw material, wrappage, low-valuable consumable, working-in-progress, and finished goods etc. (2) Pricing of inventories received and sent out: The inventories are processed on perpetual inventory system, purchased and stored based on their standard cost. The raw materials are priced daily on their standard costs. The differences between 47 the standard and actual costs is recorded into the costs of materials and for sending out according to proportion of storage and sending out of materials, and adjust the planned costs of raw material into actual costs. The working-in-progress finished goods are priced on their standard costs; the differences between the standard and actual costs are recorded into the costs of working-in-progress and finished goods according to the receiving and sending out proportion, and finaly adjust the planned costs into actual costs. (3) The Company adopts the one-write-off method to amortize the low-valuable consumable and brings it in the cost of the relevant assets or in the current profit or loss. (4) Measurement principle for ending inventory, recognition criteria of provision for inventory and measurement method: On the date of balance sheet, the inventories shall be measured at the lower of cost and net realizable value. On the date of balance sheet, on the basis of stock-taking fully, for the damaged, obsolete fully or partly inventories or market value is lower than cost of inventories, the Company shall estimate the unrecoverable value and recognize the provision for impairment of inventories. Provision for impairment of finished goods shall be recognized by the categories in accordance with difference of cost over the realizable value. Provision for impairment of work-in-progress aged over 3 years shall be recognized at 10% of carrying amounts. Provision for impairment of raw materials aged over 3 years shall be recognized at 5% of carrying amounts. (5) Recognition method for net realizable value of inventory: The realizable value of finished goods, working-in-progress and raw materials for directly selling shall be recognized at the amounts of estimated selling price less estimate selling expenses and related taxes. The realizable value of raw materials held for production shall be recognized at amounts of the estimated selling price of finished goods less estimated cost, estimated selling expenses and related taxes. The realizable value of inventories held for performing the sales contracts or labor contracts shall be recognized on the basis of contractual price. When the amounts of inventories held by the Company much more than contract amounts, the realizable value of excessive part of inventories shall be recognized at general selling price. 5.9 Long term equity investments (1) Initial measurement of long term equity investment The initial cost of long term equity investments formed in the merger of enterprise under the same control shall be recognized at the carry amounts of equity of the merged enterprise. The initial cost of long term equity investments acquired in the merger of enterprise under the different control shall be recognized at fair value of the assets paid, liabilities happened or charged, and equity securities issued. Besides the long-term equity investments acquired by the merger of enterprises, the initial cost of a long-term equity investment obtained by other means shall be ascertained in accordance with the provisions as follows: 1) The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid. The initial cost consists of the expenses directly relevant to the obtaining of the long-term equity investment, taxes and other necessary expenses. 48 2) The initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued. 3) The initial cost of a long-term equity investment of an investor shall be the value stated in the investment contract or agreement except the unfair value stated in the contract or agreement. 4) The initial cost of a long-term investment obtained by the exchange of non-monetary assets and the initial cost of a long-term equity investment obtained by debts restructuring shall be ascertained in accordance with related Accounting Standards for Enterprises. (2) Subsequent measurement of long-term equity investment For the long-term equity investment in subsidiaries of the Company shall be measured in accordance with the cost method, and shall be adjusted when preparing consolidated financial statements in accordance with equity method. For the long-term equity investment of joint venture shall be measured in accordance with equity method. For the long-term equity investment of the investing enterprise that does not do joint control or does not have significant influences on the invested entity, and has no offer in the active market and its fair value cannot be reliably measured should be measured in accordance with cost method. For the long-term equity investment of the investing enterprise that does not do joint control or does not have significant influences on the invested entity, and has offer in the active market and its fair value can be reliably measured should be measured as the assets available for sale. 5.10 Fixed assets (1) Recognition criteria of fixed assets: Fixed assets are defined as the tangible assets which are held for the purpose of producing goods, rendering services, leasing or for operation & management, and have more than one year of useful life, and whose unit price is over RMB2000. (2) Classification of fixed assets: Building, machine, transportation equipment, electronic equipment and others. (3) Measurement of fixed assets: Initial measurement of fixed assets shall be conducted on fixed assets according to the actual cost when obtained, including, the cost of purchased fixed asset including purchase price, value added tax, duty and other related tax and fee, other expenses that bring the fixed asset to the expected conditions for use and that may be relegated to the fixed asset. The cost of a self-constructed fixed asset shall be formed by the necessary expenses incurred for bringing the asset to the expected conditions for use. The cost of fixed asset which was invested by investor should be recorded in accordance with the price stipulated in the contract or agreement, other than those of unfair value as stipulated in the contract or agreement. The cost of fixed assets which is obtained by financial leasing should be measured at the lower one of fair value and the minimum lease payment in the beginning of lease. (4) Depreciation method: the Company withdraws depreciation for all fixed assets except for the fixed assets which had been fully depreciated and are still being used. The Company withdraws depreciation by adopting straight-line method and depreciation rate of unit item on monthly basis, and brings it cost or expenses in current period. Estimated net residual value rate is 3%, useful life, depreciation rate as follows: 49 Category Useful life(years) Annual depreciation rate Housing and Buildings Including: Buildings 15 6.47% Housing for productive 30 3.23% Housing for non-productive 35 2.77% Machinery equipments 10-15 6.47%～9.70% Transportation equipments 6 16.17% Electric equipments Including: Computer 4 24.25% General testing instruments 7 13.86% Specialized electronic equipments 8 12.13% Automated controlling equipments 8 12.13% Automated controlling meters 8 12.13% Others equipments Including: Industrial kiln 7 13.86% Tools & other production tools 9 10.78% Transmission equipments 15 6.47% Non-operational equipments and tools 18 5.39% (5) Subsequent expenditure of fixed assets: Subsequent expenditure comprises repair expenditure, renewed & improvement expenditure, decoration expenditure and others, is recorded as cost of fixed asset when relevant economic benefit can flow into the Company and be measured reliably. For the parts of displacement, its book value should be derecognized. All the others subsequent costs should be recorded in profit and loss during current period. (6) The Company should review the estimated useful life, estimated net residual value and depreciation method at the end of each year. If any change has occurred, it shall be regarded as a change in the accounting estimates. (7) The Company should derecognized fixed asset when the fixed asset has been disposed, or the fixed assets can’t generate any future economic benefit through using and disposal. The amount that income resulting from disposal of fixed asset deducts fixed asset’s book value and relevant tax shall be recorded in the profit and loss for the current period. 5.11 Construction in progress (CIP) (1) Measurement of CIP: Construction-in-progress is recognized at actual cost. Self-construction project is recognized at the cost of material, labor cost and construction expenses. Contractual construction is recognized at project price which should be paid. Installed construction is recognized at the value of equipment, installation and assembly cost. Besides above, the cost of CIP comprises borrowing cost and profit and loss resulting from foreign exchange. 50 (2) The criteria and time spot of constructions in progress’s being transferred to fixed assets: Constructions in progress are carried down to fixed assets on their actual costs when completing and achieving estimated usable status. The fixed assets that have been completed and reached estimated usable status but have not yet been through completion and settlement procedures are charged to an account according to their estimate values; adjustment will be conducted upon confirmation of their actual values. The Company should withdraw depreciation in the next month after completion. 5.12 Borrowing cost (1) Recognition principles on capitalisation of borrowing cost: The Company should capitalizes the borrowing cost directly attributable to the acquisition, construction or production of a qualifying asset and record borrowing cost into cost of related asset. The Company should recognize the other borrowing cost as the current expense and charged it as profit and loss of current period. A qualifying asset refers to fixed asset, investment property and inventory need be constructed for so long time to its intended use or sale. (2) Duration of capitalisation of borrowing cost: When expenditures and borrowing cost are being incurred, and activities that are necessary to put the asset available for use or sale are in progress, the capitalisation of borrowing costs as part of the cost of a qualifying asset should commence. Capitalisation of borrowing costs should be suspended during extended periods in which active development is interrupted and interruption period last for over 3 month. The borrowing cost incurred during the period should be recognized as expenses and recorded into the profit and loss in the current period. When all the activities for bringing the asset to its intended use or sale are completed, the capitalization of borrowing costs ceases, and the borrowing costs should be recognized as an expense in the period incurred. (3) Measurement of borrowing cost: As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined as the difference of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the Company shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined at the weighted average interest rate of the general borrowing. 5.13 Intangible assets (1) Measurement of intangible assets: The intangible assets of the Company refer to land use right, ERP system software. The cost of outsourcing intangible assets shall include the purchase price, relevant taxes and other necessary expenditures directly attributable to intangible assets. The cost invested into intangible assets by investors shall be determined according to the stated value in the investment contract or agreement, except for those of unfair value in the contract or agreement. 51 (2) Amortisation method and period: The Company shall amortise land use right on the basis of its useful life by adopting straight line method from the time of acquiring. ERP system software and other intangible assets shall be amortised on the basis of shorter of estimated useful life, stated beneficial year in the contract, and legal available year. The amortization amount should be recorded into the cost or expense of relevant in the current period. (3) The Company shall check the estimated useful life and amortization method of intangible assets with limited useful life at the end of each year, if any change has been made, it shall be adjusted. The Company shall check the estimated useful life of intangible assets with uncertain useful life during the each accounting period. If there are evidences to prove the useful life of intangible assets is limited, the Company shall estimate the useful life and amortize the intangible assets within estimated useful life. 5.14 Impairment of non-financial assets The Company checks the long-term equity investment for its subsidiaries, association and joint venture, fixed asset, construction-in-progress, intangible asset and others on each balance sheet date. There may be an impairment of asset when one of following indications occurs. The Company should test impairments. The company tests the impairment of goodwill, intangible asset with uncertain useful life on the end of every year. When it is difficult to measure the recoverable amount of asset, it should measure the recoverable amount of asset on the basis of asset group. After impairment test, if the book value exceeds the recoverable amount of the asset, the difference should be recognized as impairment loss. Once any loss of impairment is recognized, it shall not be reversed in the future accounting periods. The recoverable amount of asset refers to the higher one of the net amount of the fair value of asset minus disposal expense and the present value of estimated future cash flow of asset. Indications of impairment as follows: (1) During the period, an fair value of the asset in the market has declined significantly, which exceeds the expected decline as time passing or normal use; (2) Significant changes with an adverse effect on the Company have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated; (3) Market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate applied in calculating an asset's value in use and decrease the asset's recoverable amount materially; (4) Evidence is available of obsolescence or physical damage of an asset; 52 (5) The asset has been idle or is becoming idle, discontinued, or plans to dispose of an asset before the previously expected date; (6) Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected; and (7) Other evidence indicates impairment of asset. 5.15 Employee compensation (1) Employee compensation Employee compensation comprises salary, bonus, allowance, welfare, social insurance, housing fund, labor union expenditure, employee education expenditure and other relevant expenditures of service rendered by the employees. The Company should recognize the employee compensation as liability during the period of employee provide service to company. In accordance with the beneficiaries of the service rendered by employee, the Company should record the employee benefits into relevant cost and expense. For the compensation for employee due to cancellation of labor contract, the Company should charge the compensation as the profit and loss during the current period. (2) Termination benefits Termination benefits are benefits payable as a result of cancellation of labor contract between the company and employees.Termination benefits comprise: (a) the company decides to terminate an employee's employment before the normal retirement date; (b) employee's decision to accept voluntary lay-off in exchange for those benefits; (c) the company decides to implement internal retire plan. Recognition principle of termination benefits: 1) The company has instituted formal termination plan or voluntary lay-off advice, and will implement them; 2) The company can’t recall the termination plan or voluntary lay-off advice unilateral. Measurement of termination benefits 1) For the termination benefits with no choice right for employee, the Company recognizes the employee compensation payable according to employee quantity, and compensation amounts; 2) For the voluntary termination advice, firstly estimates the amount of employees who will accept the termination advice, and then make the provision for compensation payable according to the expected amount of employees and termination compensation of each employee etc. 53 Recognition criteria of terminaton benefits For the termination plans with instalment or voluntary termination advice, when planning and checking the recognition condition of contingent liability for each period or stage, then the contingent liability caused by providing termination benefits shall be confirmed, and charged as management expenses satisfying the confirmation conditions of contingent liability for the current period. For the internal retirement plans according to the rules, the Company shall recognize the draft payment for the employees of internal retirement and social insurance premium, from the date of ceasing working to the date of normal retirement, as contingent liability, and recorded into management expenses for the current period. 5.16 Contingent liability (1) Recognition principle of contingencies: The obligation pertinent to a contingency shall be recognized as an estimated debt when the following conditions are satisfied simultaneously: 1) The obligation is a current obligation of the Company; 2) It is likely to cause any economic benefit to flow out of the Company as a result of performance of the obligation; and 3) The amount of the obligation can be measured reliably. (2) Measurement method of contigent liability: The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation, and the Company shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the contingencies. If the time value of money is of great significance, the best estimate amounts shall be determined after discounting the relevant future outflow of cash. The Company shall check the book value of the estimated debts on the balance sheet date. If there is any exact evidence indicating that the book value cannot really reflect the current best estimate amounts, the Company shall adjust the book value in accordance with the current best estimate amounts. 5.17 Recognition of revenue The revenue of the Company is mainly from selling goods, providing labor services and abalienating the right of use assets. The relevant revenue shall be recognized, when the relevant economic benefits may flow into the Company, and the relevant amount of revenue can be measured reliably, and also satisfying the following recognition standards, (1) Revenue of selling goods 54 The revenue from selling goods shall be recognized, when the significant risks and rewards of ownership of the goods have been transferred to the buyer by the Company, and the Company remains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods. (2) Revenue from providing labour services If the Company can, on the date of the balance sheet, reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method. (3) Revenue from abalienating the use right of use assets The revenue from abalienating of use right of assets shall be recognized, when the relevant economic benefits are likely to flow into the Company, and the amount of revenues can be measured reliably. 5.18 Leases The leases of the Company refer to operating lease. The rents from operating leases shall be recorded by the lessee into the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. 5.19 Government subsidies A government subsidy of the Company shall be recognized if the Company can meet the conditions for the government subsidy and also can obtain the government subsidy. If a government subsidy is a monetary asset, it shall be measured in the light of the received or receivable amount. If a government subsidy is a non-monetary asset, it shall be measured at its fair value; if its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount (RMB 1). The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current prifits and losses. The government subsidies pertinent to incomes shall be treated respectively in accordance with the indications as follows: (1) those subsidies used for compensating the related future expenses or losses of the Company shall be recognized as deferred income and shall included in the current profits and losses during the period when the relevant expenses are recognized; or (2) those subsidies used for compensating the related expenses or losses incurred to the Company shall be directly included in the current profits and losses. 5.20 Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liability should be recognized at the differences (taxable temporary differences) between the tax base of an asset or liability and its carrying amount. The Company shall recognize the deferred income tax assets arising from a deductible temporary difference to the extent of the amount of the taxable income which it is most likely to 55 obtain and which can be deducted from the deductible temporary difference. At the balance sheet date, deferred tax asset and deferred tax liability should be measured at applicable tax rate. The Company shall recognize the deferred tax assets arising from a deductible temporary difference to the extent of the amount of the taxable income which is most likely to obtainand which can be deducted from the deductible temporary difference. For the deferred tax assets which already have been recognized, where there is any evidence showing that the Company is probablely unable to acquire sufficient amount of taxable income tax in a future period to offset against the deductible temporary difference, the book value of the deferred tax assets shall be deducted. Where it is likely to acquire sufficient amount of taxable income tax, the amount deducted shall be reversed. 5.21 Income tax The Company shall recognize income tax by balance sheet liability method. The income taxes of the current period and deferred income tax of the Company shall be treated as income tax expenses or incomes, and shall be recorded into the current profits and losses, excluding the income taxes incurred in the following circumstances: (1) the business combination; and (2) the transactions or events directly recognized as the owner’s equity. The income taxes of the current period and deferred income tax related to the transactions or events directly recorded as the owner’s equity shall be recorded into the owner’s equity. The income tax expenses for the current period the amount payable to the Tax Office which are calculated and recognized according to the tax law and transactions and events of the current period, i.e income taxes payable; the deferred income taxes refer to the differences recognized between the amounts at the end of the period and amounts recognized originally of deferred tax assets and liabilities according to the balance sheet liability method. 5.22 Discontinued operation Discontinued operation represents the component of the Company that had been disposed or plan to sell, and the component can be separately divided when operating and preparing financial statements. The component shall be disposed partly or wholly in accordance with the Companys’ plan. The component of the Company shall be recognized as the component held for selling when satisfying the conditions as bellows: 1) The Company had made a decision on disposal of the component; 2) The Company had signed the irrepealable Transfer Agreement with transferee; and 3) The transfer shall be finished within one year. 5.23 Presentation of consolidated financial statements (1) Recognition principles of consolidation scope: Scope of consolidated financial statements should include all subsidiaries 56 and the special purpose entities. (2) Accounting methods of consolidated financial statements: The Company’s consolidated financial statements had been prepared in accordance with . All material intragroup transaction and balance had been eliminated in full. The parts of subsidiaries’ equity non-attributable to parent company shall be as minority equity lined separately in the ower’ equity on the face of consolidated financial statements. Where there are inconsistent accounting policies and accounting period, when preparing the consolidated financial statements, the Company shall adjust the subsidiaries’ financial statements in accordance with the Company’s accounting policies and accounting period. For the subsidiary obtained under different control, when preparing the consolidated financial statements, the Company shall adjust the separate financial statements based on the fair value of identifiable net assets at the purchase date; for the subsidiaries combined by the Company under the same control, regard the subsidiaries that they have been existing since the beginning of the period, and the assets, liabilities, operation performance and cash flows shall be consolidated into the financial statements of the beginning of the combination period according to their original book value. 6. Tax The applicable tax to the Company as follows: 6.1 Enterprise income tax (EIT) For the Company and its subsidiaries, Liaoyang Bearing Manufacture Co., Ltd (“Liaoyang Bearing”), the applicable income tax rate is 33%. The other subsidiaries of the Company, Wafangdian General Bearing Co., Ltd. (“General Bearing”), are a foreign investment company. Therefore, its applicable income tax rate is 24%. 6.2 Value-added tax (VAT) The valued-added tax is levied at 17% on domestic sales of goods and applicable rate on export sales of goods is zero, and the “exempt, offset, refund” refunding taxing policy is also applied on the export of the Company. VAT payable is the balance of the output VAT after deducting the input VAT for the period. 6.3 Business tax The business tax of buildings rental income is levied at 5% of the income. 57 6.4 City construction tax and education surcharge City construction tax is levied at 7% of net VAT payable & business tax. Education surcharge is levied at 3% of net VAT payable & business tax. 6.5 Real estate tax The real estate tax is levied at 1.2% of the 70% of the real estates’ initial carrying amounts or 12% of rental income of buildings. 6.6 Land use tax The subsidiary of the Company, “Liaoyang Bearing” pays Land use tax on its land use right at the rate of RMB 1.50 per square meter. The Company pays land use tax on its land user right at the rate of RMB 6.00 per square meter. 6.7 River toll fee The subsidiary of the Company, “Liaoyang Bearing” pays river toll fee at the rate of 1‰ on its sales revenue. 7. Consolidated financial statements (1) Subsidiaries of the Company Company Address Registered Principal activities Investment Attributabl Vote name capital amounts e equity interest General No.1, Phrase 1, Gongji USD4,510,000.00 Manufacture and trading of 28,030,385.50 75% 75% Bearing Street, Wafangdian North bearing products Liaoyang No.61, Weiguo road, Baita 19,350,000.00 Manufacture and trading of 17,337,259.95 100% 100% Bearing district Liaoyang city bearing products 8. Notes to consolidated financial statments 8.1 Monetary funds 2007.12.31 2006.12.31 Original Exchange Original Exchange Items currency rate RMB currency rate RMB Cash on hand 279,106.62 - 279,811.42 68,653.94 - 68,653.94 58 Cash in bank - - 50,998,880.72 - - 115,256,984.14 Including:US dollar 133,120.75 7.3046 972,393.83 1,284,578.38 7.938 10,197,028.75 Other cash - - 23,954,593.07 - - 25,680,760.05 Including: EU 921,224.20 10.24 9,433,337.47 854,190.00 10.1364 8,658,420.16 Jan 30,716,500.00 0.0641 1,977,519.05 18,692,300.00 0.0621 1,160,831.61 Total - - 75,233,285.21 - - 141,006,398.13 * The decrease of cash is mainly due to the increase in the price of materials and capital demanded for the current period. As at Dec 31 2007, other cash included bank acceptance notes deposit with over 3 months amounted to RMB 10,000,000. 8.2 Notes receivable (1) Category of notes receivable Items 2007.12.31 2006.12.31 Bank acceptance notes 41,703,503.04 26,267,069.55 Commercial acceptance notes 6,400,000.00 9,764,446.13 Total 48,103,503.04 36,031,515.68 * No notes receivable used for plege and discounted with non-maturity at the ending period. 8.3 Accounts receivable (A/R) (1) The risk category of accounts receivable Items 2007.12.31 2006.12.31 Amounts Proportion Provision Amounts Proportion Provision % for bad % for bad debts debts A/R with significant single 419,104,028.32 55.27 15,322,063.98 377,829,720.22 51.32 16,812,633.99 amounts Other A/R with 339,207,745.14 44.73 27,421,596.28 358,415,948.25 48.68 19,153,631.94 insignificant amounts Total 758,311,773.46 100.00 42,743,660.26 736,245,668.47 100.00 35,966,265.93 The policy of risk category of accounts receivable refers to notes 5.7. 59 (2) Aging of accounts receivable Items 2007.12.31 2006.12.31 Amounts Proportion Provision for bad Amounts Proportion Provision for % debts % bad debts Within one year 639,112,685.88 84.28 5,162,887.94 624,822,202.16 84.87 6,303,441.58 1-2 years 36,589,447.89 4.83 1,817,629.99 41,625,619.39 5.65 2,081,280.97 2-3 years 16,413,366.98 2.16 4,142,504.70 29,181,684.37 3.96 5,836,336.87 Over 3 years 66,196,272.71 8.73 31,620,637.63 40,616,162.55 5.52 21,745,206.51 Total 758,311,773.46 100.00 42,743,660.26 736,245,668.47 100.00 35,966,265.93 (3) Provision method and rate for bad debts refers to notes 5.7. (4) No accounts receivable is due from shareholder holding over 5% (including 5%) of the Company’s share. (5) The accounts receivables for the top 5 companies amounted to RMB 104,710,529.66, accounts for 13.81% of the total ending balance. (6) The accounts receivable from related parites amount to RMB 29,521,209.56, account for 3.89% of the total ending balance. (7) The accounts receivable includes the following foreign currency balance: Foreign currency 2007.12.31 2006.12.31 Original Exchange Original Exchange currency rate RMB currency rate RMB US dollar 4,660,402.89 7.3046 34,042,378.95 8,105,714.99 7.938 64,343,165.59 EU 7,487.80 10.24 76,675.07 48,087.80 10.1364 487,437.18 Total 34,119,054.04 64,830,602.77 8.4 Accounts paid in advance Items 2007.12.31 2006.12.31 Amounts Proportion Amounts Proportion % % Within one year 11,181,600.51 88.40 4,289,672.50 86.56 1-2 years 879,124.23 6.95 191,886.78 3.87 2-3 years 114,293.81 0.90 2,000.00 0.04 Over 3 years 473,960.41 3.75 472,535.62 9.53 Total 12,648,978.96 100.00 4,956,094.90 100.00 60 (1) The accounts paid in advance aging more than 1 year mainly includes payment for purchasing raw materials. (2) The significant increment in accounts paid in advance for the current period mainly reason from the increase in purchase of raw materials. (3) No accounts paid in advance is due from shareholder holding over 5% (including 5%) of the Company’s share. 8.5 Other receivable (O/R) (1) The risk category of other receivables Items 2007.12.31 2006.12.31 Amounts proportion% Provision Amounts proportion% Provision for bad for bad debts debts A/R with significant single 0.00 0.00 0.00 3,916,473.33 17.66 3,916,473.33 amounts Other A/R with 17,067,232.75 100.00 6,465,803.41 18,263,983.07 82.34 8,566,760.30 insignificant amounts Total 17,067,232.75 100.00 6,465,803.41 22,180,456.40 100.00 12,483,233.63 (2) The aging of other receivables Items 2007.12.31 2006.12.31 Amounts proportion% Provision for bad Amounts proportion% Provision for bad debts debts Within one year 4,404,453.60 25.81 3,156.14 4,401,271.94 19.84 43,848.72 1-2 years 1,325,052.17 7.76 155.42 3,267,625.56 14.73 162,813.28 2-3 years 793,848.40 4.65 86,032.85 1,230,789.25 5.55 246,166.85 Over 3 years 10,543,878.58 61.78 6,376,459.00 13,280,769.65 59.88 12,030,404.78 Total 17,067,232.75 100.00 6,465,803.41 22,180,456.40 100.00 12,483,233.63 (3) The method and rate of provision for bad debts refer to notes 5.7. The Company’s material supplier, BEIMAN Special Steel Group Ltd, has recognized and paid for the RMB 2,405,770.28, which was not recognized in previous year, for the current reporting period, so the Company has reversed the provision for bad debts RMB 2,405,770.28 fully. The Compamy’s subsidiary, Liaoyang Bearing, has written off the provision for bad debts RMB 3,935,792.25 of NEW FANG JI Bearing after the certification of the logout on NEW FANG JI Bearing. 61 (4) No other receivable is due from shareholder holding over 5% (including 5%) of the Company’s share. (5) The other receivables for the top 5 companies amounted to RMB 4,148,707.63, which is 24% of the total ending balance of other receivables. 8.6 Inventories and the provision for impairment of inventories (1) Category of inventories Items 2007.12.31 2006.12.31 Raw materials 132,023,050.12 108,153,015.54 Wrappage 442,163.07 351,327.47 Low-value comsuable 640,529.91 757,977.06 Finished goods 623,798,811.33 593,858,604.63 Consigned materials 419,157.56 357,197.21 Working in progress 195,617,145.84 155,237,318.81 Total 952,940,857.83 858,715,440.72 (2) Provison for impairment of inventories Decrease Items 2006.12.31 Increase Others 2007.12.31 Reverse transferred out Raw materials 1,124,999.31 53,957.66 0.00 0.00 1,178,956.97 Finished goods 30,043,338.59 5,162,483.55 0.00 0.00 35,205,822.14 Working in progress 409,280.13 2,976,819.42 0.00 0.00 3,386,099.55 Total 31,577,618.03 8,193,260.63 0.00 0.00 39,770,878.66 The provision method for impairment of inventories refers to notes 5.8. 8.7 Other current assets Items 2007.12.31 Nature Others 374,565.91 Sundry expenses paid in advance Total 374,565.91 8.8 Long-term equity investment (1) Long-term equity investment 62 Items 2007.12.31 2006.12.31 L-T equity investment under cost method 2,000,000.00 2,000,000.00 L-T equity investment under equity method 78,713,952.56 83,258,734.43 Total 80,713,952.56 85,258,734.43 Less:provision for impairment 0.00 0.00 Net amounts 80,713,952.56 85,258,734.43 (2) According to cost and equity method Equity Initial Cash dividends Investee 2006.12.31 Increase Decrease 2007.12.31 % Amounts received in 2007 Cost method Shanghai ME machine-electrical 4.76% 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 equitpmentchain Ltd. Sub-total 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 Equity method Dalian SKF Wazhou 49.00% 68,600,000.00 82,787,680.11 9,565,405.91 14,112,000.00 78,241,086.02 14,112,000.00 Bearings Co., Ltd. Shanghai Zhenxin Wazhou 40.00% 400,000.00 471,054.32 1,812.22 0.00 472,866.54 0.00 Machinery and Electricity Co., Ltd. Sub-total 69,000,000.00 83,258,734.43 9,567,218.13 14,112,000.00 78,713,952.56 14,112,000.00 Total 71,000,000.00 85,258,734.43 9,567,218.13 14,112,000.00 80,713,952.56 14,112,000.00 (3) According to associated company Net assets as Registered Business Equity Vote Net profit in Investee at Dec.31 Sales in 2007 address nature % % 2007 2007 Joint venture No.1, Phrase Manufacture Dalian SKF 1, Gongji and trading Wazhou Street, ball-surface 49.00% 49.00% 161,877,116.65 161,405,414.47 21,722,667.46 Bearings Co., Wafangdian rolling Ltd. North bearing Shanghai No.609, Bei trading Zhenxin Jing Dong bearing and 40.00% 40.00% 1,182,166.33 8,658,656.26 4,530.54 Wazhou Road, spare parts, Machinery and Huangpu etc. 63 Electricity Co., district, Ltd. Shanghai city Total 163,059,282.98 170,064,070.73 21,727,198.00 (4) No impairment in the long-term equity investment of the Company for the current report period. 8.9 Fixed assets (FA) (1) Details of fixed assets Buildings Machinery Transportaion Electrical Others Total equipment equipment Cost 2006.12.31 255,249,455.29 594,377,420.14 18,230,589.21 44,813,950.20 129,671,964.34 1,042,343,379.18 Increase 4,442,853.22 174,933,547.39 6,945,135.06 12,586,117.93 24,789,327.26 223,696,980.86 Including: CIP transferred to FA 2,216,808.27 169,676,538.72 1,373,472.41 11,776,800.34 18,983,234.60 204,026,854.34 Decrease 501,302.37 15,196,164.56 6,724,558.91 7,747,017.30 8,582,431.17 38,751,474.31 2007.12.31 259,191,006.14 754,114,802.97 18,451,165.36 49,653,050.83 145,878,860.43 1,227,288,885.73 Depreciation 2006.12.31 133,157,171.42 347,572,200.33 12,016,480.50 33,717,313.96 101,778,866.00 628,242,032.21 Increase 50,583,541.21 9,948,722.28 1,818,958.01 3,940,019.16 10,105,823.00 76,397,063.66 Decrease 9,637,774.03 1,364,156.19 1,344,160.36 1,482,729.63 28,331,975.55 42,160,795.76 2007.12.31 141,741,737.51 388,517,967.51 12,491,278.15 36,174,603.49 83,552,713.45 662,478,300.11 Provision for impariment 2006.12.31 0.00 1,636,107.42 200,000.00 23,289.90 87,538.01 1,946,935.33 Increase 0.00 0.00 0.00 0.00 0.00 0.00 Reverse 0.00 0.00 0.00 0.00 0.00 0.00 Others decrease 0.00 457,075.03 0.00 23,289.90 41,964.26 522,329.19 2007.12.31 0.00 1,179,032.39 200,000.00 0.00 45,573.75 1,424,606.14 Net book value 0.00 0.00 0.00 0.00 0.00 0.00 2006.12.31 122,092,283.87 245,169,112.39 6,014,108.71 11,073,346.34 27,805,560.33 412,154,411.64 2007.12.31 117,449,268.63 364,417,803.07 5,759,887.21 13,478,447.34 62,280,573.23 563,385,979.48 (2) Temporary idle fixed assets as follows: 64 Accumulated Provision for Items Original cost Net book value depreciation impairment Machinery 70,354,096.32 68,047,817.59 120,994.91 2,185,283.82 Total 70,354,096.32 68,047,817.59 120,994.91 2,185,283.82 (3) Details of pledge of fixed assets refer to notes 8.14 and 23. 8.10 Construction-in-progress (1) Details of construction-in-progress Proportion Of 2006. CIP transferred Others 2007. Source of Project name Budget Increase investment 12.31 to FA decrease 12.31 funds to budget M250Grinding Self funded Machine 12,468,057.21 54,000.00 263,858.37 0.00 0.00 317,858.37 /loan 1.24% Improvement Self funded Forked truck 6,393,742.00 1,362,979.43 2,434,685.34 740,405.13 103,118.87 2,954,140.77 22.42% /loan Improvement of plant 54,800.00 54,600.00 112,094.16 0.00 54,600.00 112,094.16 Self funded 99.64% Installation of Self funded super finish 45,657,252.00 9,930,725.40 11,888,150.22 7,872,511.54 385,990.11 13,560,373.97 14.43% /loan machine Improvement of Self funded finished goods 207,323.00 192,743.59 419,416.55 0.00 215,312.27 396,847.87 92.97% /loan storage Crane Project 2,745,575.00 8,077.03 556,722.54 0.00 401,487.76 163,311.81 Self funded 2.91% Improvement of Self funded two-finished 763,766.00 3,364.00 2,874.71 0.00 0.00 6,238.71 0.44% /loan products Improvement of Self funded 14,306,343.00 15,822,479.12 3,971,396.93 19,793,876.05 0.00 0.00 0.00% rollers product line /loan Self funded Computer Project 298,620.00 261,479.38 304,845.52 0.00 2,106.84 564,218.06 91.71% /loan Self funded Computer project 14,641,421.25 1,219,953.19 3,618,184.74 852,324.19 110,540.92 3,875,272.82 12.85% /loan Grinding product 131,110,724.93 50,669,769.02 86,067,033.48 102,537,861.01 26,550,585.53 7,648,355.96 Loan 2.81% line Reconstruct in Self funded 2,194,104.91 204,166.00 2,235,173.15 489,038.10 0.00 1,950,301.05 43.16% Pulandian /loan Improvement of seven-finished 31,992,975.00 250,052.66 16,533,755.54 13,124,250.61 470,424.79 3,189,132.80 Self funded 4.84% products Ball-surface 3,683,300.00 1,957,814.08 1,366,195.36 463,307.60 417,629.66 2,443,072.18 Self funded 32.51% rolling grinder Heat treatment Self funded 27,015,201.00 5,271,791.55 9,240,257.24 9,551,033.93 2,838,482.93 2,122,531.93 3.81% product line /loan Digital Boring Self funded 26,252,389.10 3,051,366.59 12,114,574.31 7,103,098.70 1,762,960.01 6,299,882.19 12.41% machine /loan Double-product 20,713,913.00 6,479,963.55 3,219,667.34 9,203,409.67 139,060.58 357,160.64 Loan 0.84% lines Improvement of Self funded exploration 4,925,685.00 1,759,921.13 4,802,724.68 893,273.00 764,771.60 4,904,601.21 48.33% /loan machinery Improvement 79,948.92 57,260.69 60,368.87 0.00 0.00 117,629.56 Self funded 71.62% 65 project of General /loan Bearing Pressure Self funded 2,431,258.00 198,315.25 732,960.73 0.00 3,059.35 928,216.63 18.55% Machine /loan Improvement of Self funded one-fininshed 8,232,217.20 201,844.21 212,728.40 0.00 0.00 414,572.61 2.45% /loan products Instruments 6,167,465.00 351,056.21 2,683,274.75 30,367.52 76,320.00 2,927,643.44 Self funded 23.05% Taper roller Self funded 1,432,000.00 155,300.73 342,224.90 0.00 0.00 497,525.63 16.37% assembly line /loan Equipments 0.00 - 566,126.08 0.00 0.00 566,126.08 Self funded 0.00% Carbonization 3,600,000.00 1,421,588.20 - 0.00 0.00 1,421,588.20 Self funded 39.49% furnace Others 120,665,839.23 25,131,585.43 37,378,748.50 31,372,097.29 2,587,046.62 28,551,190.02 Self funded 48.40% Total 488,033,920.75 126,072,196.44 201,128,042.41 204,026,854.34 36,883,497.84 86,289,886.67 Including: borrowing cost 1,050,160.14 10,764,643.30 11,814,803.44 capitalisation * The rate on interests capitalized is calculated as the weighted average interest rate of investment rate on special loan and interest rate on general loan. (2) Provision for impairment of construction-in-progess Items 2006.12.31 Increase Decrease 2007.12.31 Others Reverse transferred out Carbonization furnace 1,378,940.55 0.00 0.00 0.00 1,378,940.55 Vertex explore instrument 24,153.00 0.00 0.00 0.00 24,153.00 Total 1,403,093.55 0.00 0.00 0.00 1,403,093.55 8.11 Intangible assets (1) Intangible assets Items Land use right ERP software Total Cost 2006.12.31 166,137,027.00 4,985,843.33 171,122,870.33 Increase 5,724,132.27 177,777.78 5,901,910.05 Decrease 23,078,729.77 0.00 23,078,729.77 2007.12.31 148,782,429.50 5,163,621.11 153,946,050.61 Accumulated amortisation 2006.12.31 0.00 498,584.33 498,584.33 Amortisation 3,997,074.03 528,213.90 4,525,287.93 66 Decrease 0.00 0.00 0.00 2007.12.31 3,997,074.03 1,026,798.23 5,023,872.26 Book value 0.00 0.00 0.00 2006.12.31 166,137,027.00 4,487,259.00 170,624,286.00 2007.12.31 144,785,355.47 4,136,822.88 148,922,178.35 8.12 Long-term deferred expenses Items 2007.12.31 2006.12.31 Right to use premise 1,131,836.17 1,199,666.53 License fee of SAP software 1,048,673.07 0.00 Heat fee etc 718,641.41 0.00 Others 117,768.38 127,123.26 Total 3,016,919.03 1,326,789.79 8.13 Deferred tax assets (1) Deferred tax assets recognized Items 2007.12.31 2006.12.31 Deferred tax assets of deductable 8,867,371.89 9,687,817.79 temporary difference Total 8,867,371.89 9,687,817.79 (2) The temporary differences which have been recognized as deferred tax assets at the end of the period. Deductable temporary difference 2007.12.31 2006.12.31 Provision for bad debts 5,008,806.11 902,672.24 Provision for impairment of inventories 11,969,989.14 4,616,506.95 Depreciation of fixed assets 11,940,720.06 21,890,909.09 Impairment for fixed assets 1,424,606.14 1,946,935.33 Unfulfilment intragroup profit 5,125,366.08 0.00 Total 35,469,487.53 29,357,023.61 Income tax rate 25% 33% Deferred tax assets 8,867,371.89 9,687,817.79 * The temporary difference items of the Company’s subsidiary, Liao Bearing and the General Bearing did not recognized at the end of the current period, because the corresponding estimated deferred tax assets was unable to be reversed. 67 8.14 Short-term loan (1) Listed according to the loan conditions Items 2007.12.31 2006.12.31 Credit loan 207,000,000.00 140,000,000.00 Mortgage loan 26,280,235.14 26,280,235.14 Gurantee loan 190,000.00 317,590,000.00 Total 233,470,235.14 483,870,235.14 * The pledge and gurantee loans are all the loans belonging to the Company’s subsidiaries, Generl Bearing and Liaoyang Bearing, details refer to (2). (2) Details of short-term loan with overdue Bank name Amounts Interest Loan Reason of Expected Remarks rate purpose unpaid on payment sechdule date还款 期 Wafangdian Branch of Industrial and Commercial Operating Bank of China 5,000,000.00 5.7525% Production difficulty Uncertainty 1) Liaoyang Branch of Industrial and Commercial Operating Bank of China 13,590,235.14 5.31% Production difficulty Uncertainty 2) Baita Branch of Commercial Operating Bank of Liaoyang 7,090,000.00 7.254% Production difficulty Uncertainty 3) Jiaotong Branch of Commercial Bank of Operating Liaoyang 600,000.00 7.956% Production difficulty Uncertainty 4) Sales Departmemt of Liaoyang Branch of China Operating Construction Bank 190,000.00 Production difficulty Uncertainty 5) Total 26,470,235.14 1) Pursuant to the loan contract signed between General Bearing and Wafang Branch, the Industrial and Commercial Bank of China, machinery equipment (with original amount RMB 20,356,561.00) and other equipments (with original amount RMB 8,293,859.00) were pledged for the loan of RMB 5,030,000.00 with annual interest rate of 5.7525%. General Bearing had paid RMB 30,000.00 in 2006. The loan has been overdue and the extension prcocedure has not performed yet. 2) Pursuant to the loan contract signed between Liaoyang Bearings and Liaoyang Zhanqian Branch, the Industrial and Commercial Bank of China, machinery equipments (with original amount RMB 22,930,000.00) were pledged for the loan of RMB 13,590,235.14 with annual interest rate of 5.31%. The loan has been overdue. 68 3) Liaoyang Bearing obtained a loan of RMB 7,090,000.00 by pleding its buildings (Liao-zi No.00161797 with assessed value RMB 16,480,000.00) and land use right (Liao-bai No.[2003]101700070). The annual interest rate is 7.254%. The loan has been overdue. 4) Pursuant to the loan contract signed between Liaoyang Bearings and Jiaotong Branch, Liaoyang Commercial Bank, real estate (Liao-zi No.0012443) was pledged for the loan with the principal of RMB 600,000.00 with annual interest rate 7.956%. The date of maturity was April 5, 2007. 5) Liaoyang Bearings obtained a loan of RMB 190,000.00. The loan was guaranteed by Liaoyang Forging Machine Tool Co., Ltd. The loan has been overdue as at Dec.31, 2006. 8.15 Notes payable Items 2007.12.31 2006.12.31 Bank acceptance notes 102,187,200.00 27,803,904.29 Commercial acceptance notes 0.00 0.00 Total 102,187,200.00 27,803,904.29 * No notes payable is due from shareholder holding over 5% (including 5%) of the Company’s share. 8.16 Accounts payable The balance of the accounts payable on Dec 31 2007 is RMB 492,774,489.35 (the balance on Dec 31 2006 is RMB 496,468,546.08)。 As of Dec 31 2007, account payable due to shareholders who hold more than 5% (including 5%) of the Company’s shares amounted to RMB 1,884,707.30. For the significant non-repaid accounts payable aging over 1 year, it is mainly due to creditors have not urged for the repayment. The accouts payable include the following foreign currency balance: Foreign 2007.12.31 2006.12.31 currency Original currency Exchange Original Exchange rate RMB currency rate RMB US dollar 2,048,789.46 7.3046 14,965,587.49 0.00 - 0.00 Total 2,048,789.46 - 14,965,587.49 0.00 - 0.00 8.17 Accounts received in advance 69 The balance of the advance from customers on Dec 31 2007 is RMB 30,749,009.85 (the balance on Dec 31 2006 is RMB 22,902,745.88). The balance of accounts received in advance increased by 34% compared with last year, mainly due to the increase in domestic sales. No account received in advance is due from shareholder holding over 5% (including 5%) of the Company’s shares. No significant items aging over 1 year in the accounts received in advance at the end of the period. The account received in advance includes the following foreign currency balance: Foreign 2007.12.31 2006.12.31 currency Original Exchange Original Exchange currency rate RMB currency rate RMB US dollar 366,280.37 7.3046 2,675,531.59 298,369.97 7.938 2,368,460.82 Total 366,280.37 2,675,531.59 298,369.97 2,368,460.82 8.18 Employee compensation payable Items 2006.12.31 Increase Amounts 2007.12.31 paid Salary(including bonus, allowance) 675,222.94 135,272,843.66 135,546,031.53 402,035.07 Employee welfare 12,317,334.95 1,654,992.00 13,972,326.95 0.00 Social insurance 12,030,959.37 49,250,034.88 49,745,141.29 11,535,852.96 Including:1.Medical insurance 849,370.19 10,232,787.64 10,208,226.01 873,931.82 2.Basis endowment insurance 10,590,550.93 32,366,829.19 32,885,070.01 10,072,310.11 3.Unemployment insurance 339,648.86 3,359,201.05 3,369,074.29 329,775.62 4.Compo insurance 188,542.04 2,442,518.94 2,436,124.23 194,936.75 5.Bearing insurance 62,847.35 848,698.06 846,646.75 64,898.66 Housing fund 4,433,545.56 16,370,641.81 15,443,508.28 5,360,679.09 Labour union expenditure & employee education 10,223,571.46 2,273,544.61 1,726,445.03 10,770,671.04 expenditure Non-monetary welfare 0.00 53,925.73 52,704.37 1,221.36 Compensation due to cancel of labor contract 20,195,173.00 297,448.00 2,183,642.00 18,308,979.00 Others 0.00 0.00 0.00 0.00 Total 59,875,807.28 205,173,430.69 218,669,799.45 46,379,438.52 8.19 Tax payable Items Tax rate 2007.12.31 2006.12.31 70 VAT 17% 70,157.41 3,364,695.95 Business tax 5% 46,053.93 118,834.95 City construction tax 7% 461,707.89 329,611.84 EIT 33% 7,172,165.64 816,167.35 Individual income tax 59,248.73 53,733.47 Real estate tax 1,404,995.82 1,378,309.59 Land use tax 18,341.40 0.00 Stamp tax 173,202.17 199,511.26 Education surcharge 3% 237,863.03 169,670.07 River toll fee 369,380.93 383,018.94 Education expenditure of region 6,516.02 0.00 Others 192.00 415.71 Total 10,019,824.97 6,813,969.13 8.20 Dividends payable Items 2007.12.31 2006.12.31 Wazhou Group 0.00 1,300,000.00 Total 0.00 1,300,000.00 8.21 Other payable (1) The balance of other payable on Dec 31 2007 is RMB 106,662,693.80 (the balance on Dec 31 2006 is RMB109,082,032.90). As of Dec 31 2007, other payable due to shareholders who hold more than 5% (including 5%) of the Company’s shares amounted to RMB 86,861,270.58. (2) Significant other payable at the end of the period Items Amounts Aging Nature Wazhou Group 86,861,270.58 Various Aging urrent account ＆other Counter-claim fund of Fugang quality from purchasing Dep. 3,978,000.00 Over 3 years Counter-claim fund Deposit 1,810,000.00 within 2 years Deposit Deposit from Labour union of Grinding Wheel Factory 1,260,000.00 1-2 years Deposit Total 93,909,270.58 (3) Other payable includes the following foreign currency balance 71 2007.12.31 2006.12.31 Foreign curency Original Exchange Original Exchange currency rate RMB currency rate RMB US dollar 566,098.81 7.3046 4,135,125.37 589,429.75 7.938 4,678,913.52 Total 566,098.81 4,135,125.37 589,429.75 4,678,913.52 8.22 Non-current liabilities due within one year (1) According to currency: Currency 2007.12.31 2006.12.31 RMB 100,000,000.00 17,500,000.00 Total 100,000,000.00 17,500,000.00 (2) According to loan conditions: Items 2007.12.31 2006.12.31 Guranteed loans 100,000,000.00 17,500,000.00 Total 100,000,000.00 17,500,000.00 (3) According to bank: Loan banks 2007.12.31 2006.12.31 Wafangdian Branch, Bank of China 0.00 17,500,000.00 Dalian Branch, Import and Export Bank 100,000,000.00 0.00 of China Total 100,000,000.00 17,500,000.00 * The guaranteed loans were guaranteed by Wazhou Group. 8.23 Long-term loan (1) According to currency: Currency 2007.12.31 2006.12.31 RMB 339,500,000.00 151,500,000.00 Total 339,500,000.00 151,500,000.00 (2) According to loan conditions: 72 Items 2007.12.31 2006.12.31 Credit loan 1,500,000.00 1,500,000.00 Mortgaged loan 90,000,000.00 0.00 Guranteed loan 248,000,000.00 150,000,000.00 Total 339,500,000.00 151,500,000.00 * Pursuant to the loan contract signed between the Company and Dalian Branch, the Import and Export Bank of China, buildings (with original amount RMB 65,624,684.74, with net book value RMB 30,333,500.69, with assessed value RMB 54,222,947.00) and land use right (Wa Guo (2007) No.253, with original amount RMB 80,504,866.27, with net book value RMB 78,342,084.61, with assessed value 79,675,000.00) were pledged for the loan of RMB 90,000,000.00. ** The guaranteed loans were guaranteed by Wazhou Group. (3) According to bank Bank 2007.12.31 2006.12.31 Wafangdian Branch, Bank of China 50,000,000.00 50,000,000.00 Dalian Branch, Import and Export Bank of China 140,000,000.00 100,000,000.00 China Exploration Bank 148,000,000.00 0.00 Wafangdian Branch, Industrial and Commercial of China 1,500,000.00 1,500,000.00 Total 339,500,000.00 151,500,000.00 * The long-term bank loan was the balance brought forward from previous years of Liaoyang Bearing. As of December 31, 2007, there was still RMB 1,500,000.00 outstanding. No extension procedures were undertaken. 8.24 Long-term accounts payable Items 2007.12.31 Prompt Liaoyang Bureau of Environment 100,000.00 Uncertainty Total 100,000.00 - * This is the loan for the improvement of forging from Liaoyan Bureau of Environment in 1999. 8.25 Special payable Items 2006.12.31 Increase Decrease 2007.12.31 Special pollution treatment 201,698.98 0.00 0.00 201,698.98 Total 201,698.98 0.00 0.00 201,698.98 73 * This is the environmental protection subsidy granted by Wafangdian Bureau of Finance and Wafangdian Bureau of Environment Protection for the treatment of waste water pursuant to the circular No.[2004]217. 8.26 Deferred tax liability (1) Deferred tax liability recognized Items 2007.12.31 2006.12.31 Tax amounts of taxable temporary difference 0.00 949,220.87 Total 0.00 949,220.87 (2) The temporary differences which have been recognized as deferred tax liability at the end of the period. Taxable temporary difference 2007.12.31 2006.12.31 Investment income 0.00 12,023,464.34 Deferred tax liability recognized 0.00 949,220.87 Note: As at December 31 2006, deferred tax liability was arising from different tax rate between investee and the Company. 8.27 Share capital Par value per share is RMB 1.00. Shareholds/category 2007.12.31 2006.12.31 Unlised shares Sponsor’s shares 244,000,000.00 244,000,000.00 Including: domestical legal person shares 244,000,000.00 244,000,000.00 Total of unlisted shares 244,000,000.00 244,000,000.00 Listed shares Domestically listed foreign shares 158,600,000.00 158,600,000.00 Total of listed shares 158,600,000.00 158,600,000.00 Total of shares 402,600,000.00 402,600,000.00 8.28 Capital surplus Items 2006.12.31 Increase Decrease 2007.12.31 Premium on issue of shares 201,956,446.52 0.00 0.00 201,956,446.52 Others 287,564,600.92 0.00 4,089,529.37 283,475,071.55 74 Total 489,521,047.44 0.00 4,089,529.37 485,431,518.07 8.29 Surplus reserve Items 2006. 12.31 Increase Decrease 2007.12.31 Statutory surplus reserve 59,619,882.07 8,829,651.24 0.00 68,449,533.31 Total 59,619,882.07 8,829,651.24 0.00 68,449,533.31 According to the No.8 meetings of the Board of Directors on April 24, 2008, the Board of Directors recommended to the general meeting that the provision for statutory surplus reserve is made at 10% of parent net profit in 2007. Recognition principle of statutory surplus reserve on Dec 31 2006: the Company recognized statutory surplus reserve and statutory public welfare fund at 10% & 5% of restated accumulated distributed profit respectively in accordance with new Accounting Standards for Business Enterprise, Corporation Law issued before 2006 and the Company Chart. In 2006, the Company recognized statutory surplus reserve at 10% of restated net profit in accordance with new Accounting Standards for Business Enterprise, statutory public welfare fund recognized before 2006 was transferred into statutory surplus reserve in accordance with Corporation Law issued on Jan 1 2006. 8.30 Undistributed profit (1) Profit distribution Items Basis of distribution 2007 2006 statutory surplus reserve Net profit 10 % 10% (2) Statement of profit distribution Items 2007 2006 Undistributed profits at the beginning of the year 201,035,254.89 177,100,760.08 Add:Adjustment to undistributed profits at the beginning of the year -22,663,295.30 -22,388,793.13 Add: Current net profit 88,209,124.81 45,136,792.00 Less: Provision for statutory surplus reserve 8,829,651.24 4,976,799.36 Dividends for common shares 14,091,000.00 16,500,000.00 Undistributed profits at end of the year 243,660,433.16 178,371,959.59 Including:Propsoed dividends for common shares(refers to note 14) 16,104,000.00 16,500,000.00 The Company applied new Accounting Standards for Business Enterprise on Jan 1 2007, and made the retrospective adjustments according to related regulations. Please refer to Note 4. 75 8.31 Minority interest Subsidiary name percentage 2007.12.31 2006.12.31 General Bearing 25% 2,635,630.01 3,518,263.23 Total 2,635,630.01 3,518,263.23 8.32 Operating revenue & Cost (1) Operating revenue Items 2007 2006 Sales 2,003,413,381.48 1,759,088,486.46 Others revenue 488,099,241.20 482,593,977.27 Total 2,491,512,622.68 2,241,682,463.73 Sales amount of top 5 customers 415,313,061.97 293,263,994.98 Proportion 17% 13% (2) Operating cost Items 2007 2006 Cost of sales 1,654,905,962.70 1,485,724,135.39 Others operating cost 472,002,874.68 454,849,162.84 Total 2,126,908,837.38 1,940,573,298.23 (3) Sales & cost of sales (Classified according to goods or operation nature) Items 2007 2006 Sales Including: Export 206,080,785.56 272,329,306.43 Domestic 1,565,345,712.04 1,401,253,762.37 Transportation vehicle bearings 760,808,979.55 679,325,770.26 Special use bearings 468,869,242.55 390,264,998.78 General use bearings 335,667,489.94 331,662,993.33 Income from Industrial Operations 231,986,883.88 85,505,417.66 Total 2,003,413,381.48 1,759,088,486.46 Cost of sales Including: Export 223,608,406.59 303,281,001.47 Domestic 1,235,186,148.82 1,103,622,626.20 Transportation vehicle bearings 677,850,255.55 577,825,350.71 76 Special use bearings 297,772,452.93 346,723,415.50 General use bearings 259,563,440.34 179,073,859.99 Cost from Industrial Operations 196,111,407.29 78,820,507.72 Total 1,654,905,962.70 1,485,724,135.39 Gross profit of sales Including: Export -17,527,621.03 -30,951,695.04 Domestic 330,159,563.22 297,631,136.17 Transportation vehicle bearings 82,958,724.00 101,500,419.55 Special use bearings 171,096,789.62 43,541,583.28 General use bearings 76,104,049.60 152,589,133.34 Cost from Industrial Operations 35,875,476.59 6,684,909.94 Total 348,507,418.78 273,364,351.07 8.33 Tax & surcharges for main operations Items Tax basis Percentage 2007 2006 VAT& business Business tax 5% 859,499.72 0.00 tax VAT& business City construction tax 7% 6,364,394.70 5,500,584.94 tax VAT& business Education Surcharge 3% 3,582,315.57 3,422,383.05 tax Others 61,134.85 2,182.29 Total 10,867,344.84 8,925,150.28 8.34 Financial expenses Items 2007 2006 Interest expenses 29,618,670.35 28,837,661.07 Less: interest income 1,125,211.12 1,760,768.46 Add: Exchange losses 3,142,333.13 2,527,091.48 Add: Others expenditure 8,230,309.63 8,444,336.70 Total 39,866,101.99 38,048,320.79 * Others expenditure is mainly guarantee fee paid to the Wazhou Group. 8.35 Loss of impairment of assets Items 2007 2006 77 Loss of bad debts 3,051,209.46 -3,733,377.07 Loss of impairment of inventories 8,193,260.63 2,037,282.75 Loss of impairment of fixed asset 0.00 141,710.10 Total 11,244,470.09 -1,554,384.22 8.36 Investment income Souce of investment income 2007 2006 Dividends from invested enterprise under cost method 0.00 496,000.00 Adjustment due to changes of shareholder’s equity of 9,567,218.13 14,168,199.01 invested enterprise Total 9,567,218.13 14,664,199.01 There are no major restrictions regarding the remittance of the investment gains for the Company. 8.37 Non-operating revenues Items 2007 2006 Gains on disposal of non-current assets 1,916,494.42 788,133.11 Income from debt restruction 2,143,441.83 0.00 Government subsidies 536,200.00 0.00 Insurance compensation 1,830,409.58 0.00 Others 7,424,775.88 3,467,942.57 Total 13,851,321.71 4,256,075.68 * In current year, the others non-operating revenues are mainly caused by the increase of gains on cancel of accounts payable with over 3 years (RMB 4,604,258.33). 8.38 Non-operating cost Items 2007 2006 Gains on disposal of non-current assets 905,473.57 1,902.60 Loss from debt restruction 292,758.64 209,290.69 Donation 12,420.00 0.00 Extraordinary loss 0.00 488,567.83 Othes 791,294.42 991,642.64 Total 2,001,946.63 1,691,403.76 8.39 Income tax expenses 78 Items 2007 2006 Current income tax expenses 16,829,554.28 9,833,383.26 Deferred income tax expenses -128,774.97 -1,193,654.46 Total 16,700,779.31 8,639,728.80 8.40 Cash flow statement (1) Cash and cash equivalent listed in cash flow statement Items 2007 2006 Cash 65,233,285.21 130,502,493.84 Incluing: Cash on hand 279,811.42 68,653.94 Bank deposit used for paying at any moment 50,998,880.72 115,256,984.14 Other cash used for paying at any moment 13,954,593.07 15,176,855.76 Cash equivalent Including: Bond investment due within 3 months 0.00 0.00 Balance of cash and cash equivalent at the end of period 65,233,285.21 130,502,493.84 Including: Cash and cash equivalent used restrictedly in parent company 0.00 0.00 or subsidiaries under the Group (2) Other cash received or paid relating to operating, investment, and finance activities 1） Other cash received relating to operating activities Items 2007 2006 Income from penalty 165,841.00 0.00 Government subsidy 1,000,000.00 0.00 Insurance compensation 1,679,321.74 533,868.39 Interest income 0.00 1,613,956.81 Unblocked cash 0.00 2,350,000.00 Penalty arising form nonobservance labor contract 130,200.00 0.00 Deposit 248,000.00 1,455,571.77 Gurantee cash 1,922,098.30 3,516,800.00 Return of traveling expenses 36,823.57 3,411,295.81 Others current account received 675,530.00 0.00 Reward income 259,298.00 0.00 Others 2,161,962.87 1,527,308.68 Total 8,279,075.48 14,408,801.46 79 2) Other cash paid relating to operating activities Items 2007 2006 Security and fire protection expense paid to Wazhou Group 1,000,000.00 1,400,000.00 Operating propaganda expense paid to Wazhou Group 788,800.00 739,600.00 Technical Research expensed paid to Wazhou Group 1,700,000.00 109,700.00 Land rent paid to Wazhou Group 460,000.00 450,700.00 Transportation expense 28,041,215.88 24,597,557.79 Commission 679,730.68 2,233,448.46 Repairment fee 8,683,411.71 8,040,196.03 Transportation allowance for employee 1,145,707.97 1,976,721.73 Power fee 13,593,332.65 12,136,904.15 Market exploiture expenses 456,992.00 1,796,067.19 Trademark use fee paid to Wazhou Group 9,372,600.00 14,700,000.00 Operation activity expenses 7,765,418.18 5,725,077.00 Meeting expense 6,325,000.14 5,452,586.33 Sea transportation expenses 10,039,817.92 12,180,343.33 Deposit of purchasing scraps returned 1,472,992.00 3,892,300.00 Travelling expenses 13,609,191.50 18,826,141.18 Storage expenses 2,920,965.69 3,420,980.33 Insurance 1,341,260.90 1,791,606.56 Others 30,327,389.04 25,632,502.56 Total 139,723,826.26 145,102,432.64 3) Others cash received relating to financing activities Items 2007 2006 Interest income 907,340.86 0.00 Deposit for bank acceptance notes with a fixed term longer than 3 10,503,904.29 28,412,792.41 months Total 11,411,245.15 28,412,792.41 4) Others cash paid relating to financing activities Items 2007 2006 Guarantee fee paid to Wazhou Group 1,000,000.00 6,000,000.00 Deposit for bank acceptance notes with a fixed term more than 3 10,000,000.00 10,503,904.29 months Others 1,952.40 0.00 Total 11,001,952.40 16,503,904.29 (3) Supplementary information of consolidated cash 80 Items 2007 2006 Adjusting net profit into cash flows of operating activities Net profit 87,326,491.59 45,203,425.71 Add: Provision for impairment of assets 11,244,470.09 -1,554,384.22 Depreciaton of fixed assets 61,722,687.84 60,891,445.37 Amortisation of intangible assets 4,546,070.55 498,584.33 Amortisation of long-term deferred expenses 411,035.27 76,910.60 Loss of disposal of fixed assets, intangible assets, and long-term assets -1,011,020.86 -727,940.61 (income listed with”-”) Loss of rejection of fixed assets (income listed with”-”) 0.00 0.00 Profit and loss in fair value (income listed with”-”) 0.00 0.00 Fiancial expense (income listed with”-”) 34,496,458.35 38,048,320.79 Investment loss(income listed with”-”) -9,567,218.13 -14,664,199.01 Decrease of deferred tax assets(increase listed with”-”) 820,445.90 -703,326.35 Increase of deferred tax liabilities(decrease listed with”-”) -949,220.87 -490,328.10 Decrease of inventories(increase listed with”-”) -94,225,417.11 -24,365,839.76 Decrease of operating receivable (increase listed with”-”) -128,811,986.75 4,112,780.37 Increase of operating payable (decrease listed with”-”) 142,507,868.59 70,718,873.57 Others 0.00 2,261,587.23 Net cash flows arising from operating activities 108,510,664.46 179,305,909.92 2.Significant investment and financing activities unrelating to cash income and expenses Liabilities transferred to capital 0.00 0.00 Convertible bonds within 1 year 0.00 0.00 Financing lease fixed assets 0.00 0.00 3. Net increase( decrease) of cash and cash equivalent Ending balance of cash 65,233,285.21 130,502,493.84 Less: Beginning balance of cash 130,502,493.84 123,231,990.85 Add: Ending balance of cash equivalent 0.00 0.00 Less: Beginning balance of cash equivalent 0.00 0.00 Net increase of cash and cash equivalent -65,269,208.63 7,270,502.99 9. Notes to parent fiancial statements 9.1 Accounts receivable (1) The risk category of accounts receivable 81 Items 2007.12.31 2006.12.31 Amounts Proportion Provision for Amounts Proportion Provision for % bad debts % bad debts A/R with significant single 416,748,946.97 57.21 13,435,031.81 375,255,828.02 53.21 14,874,892.01 amounts A/R with significant single 311,738,476.44 42.79 20,929,236.91 330,037,972.32 46.79 12,851,870.01 amounts Total 728,487,423.41 100.00 34,364,268.72 705,293,800.34 100.00 27,726,762.02 The policy of risk category of accounts receivable refers to notes 5.7. (2) Aging of accounts receivable Items 2007.12.31 2006.12.31 Amounts Proportion Provision for Amounts Proportion Provision for bad bad debts debts Within 1year 627,317,824.57 86.11 5,044,939.33 610,170,666.61 86.51 6,125,203.05 1-2 years 34,205,823.35 4.70 1,707,198.07 40,248,572.62 5.71 2,012,428.63 2-3 years 15,464,443.92 2.12 3,917,722.80 25,628,629.20 3.63 5,125,725.84 Over 3 years 51,499,331.57 7.07 23,694,408.52 29,245,931.91 4.15 14,463,404.50 Total 728,487,423.41 100.00 34,364,268.72 705,293,800.34 100.00 27,726,762.02 (3) Provision method and rate for bad debts refers to notes 5.7. (4) No accounts receivable is due from shareholder holding over 5% (including 5%) of the Company’s share. (5) The accounts receivables for the top 5 companies amounted to RMB 104,710,529.66, which is 14.37% of the total ending balance. (6)The accounts receivable from related parites amounted to RMB29,521,209.56, which is 4.05% of the total ending balance. (7) The accounts receivable includes the following foreign currency balance: Foreign 2007.12.31 2006.12.31 currency Original currency Exchange RMB Original currency Exchange RMB rate rate US dollar 4,660,402.89 7.3046 34,042,378.95 8,105,714.99 7.938 64,343,165.59 EU 7,487.80 10.24 76,675.07 48,087.80 10.1364 487,437.18 Total 34,119,054.02 64,830,602.77 82 9.2 Others receivable (1) The risk category of others receivable Items 2007.12.31 2006.12.31 Amounts Proportion Provision Amounts Proportion Provision for % for bad % bad debts debts A/R with significant 0.00 0.00 0.00 0.00 0.00 0.00 single amounts A/R with significant 10,101,316.91 100.00 2,755,996.11 11,159,136.06 100.00 4,884,222.31 single amounts Total 10,101,316.91 100.00 2,755,996.11 11,159,136.06 100.00 4,884,222.31 (2) Aging of Accounts Receivable Items 2007.12.31 2006.12.31 Amounts Proportion Provision Amounts Proportion Provision for % for bad % bad debts debts Within one year 4,347,099.51 43.03 2,885.37 4,182,124.92 37.48 41,657.25 1-2 years 1,251,523.47 12.39 155.42 1,041,802.00 9.34 51,522.10 2-3 years 793,732.00 7.86 31,289.57 912,199.83 8.17 182,448.97 Over 3 years 3,708,961.93 36.72 2,721,665.75 5,023,009.31 45.01 4,608,593.99 Total 10,101,316.91 100.00 2,755,996.11 11,159,136.06 100.00 4,884,222.31 (3) Provision method and rate for bad debts, refers to notes 5.7. (4) No accounts receivable is due from shareholder holding over 5% (including 5%) of the Company’s share capital. (5) The accounts receivables for the top 5 companies amounted to RMB 4,148,707.63, which is 41% of the total ending balance. (6) The Company’s material supplier, BEIMAN Special Steel Group Ltd, has paid RMB 2,405,770.28 for the current reporting period. The Company has reversed the provision for bad debts RMB 2,405,770.28 fully. 9.3 Long-term equity investment (1) Long-term equity investment Items 2007.12.31 2006.12.31 83 L-T equity investment under cost method 47,367,635.45 47,367,635.45 L-T equity investment under equity method 79,792,653.71 83,258,734.43 Total 127,160,289.16 130,626,369.88 Less: Provison for impairment of L-T investments - 0.00 Net amounts 127,160,289.16 130,626,369.88 (2) According to cost and equity method Cash dividends Orignial received in Investee Percentage Amounts 2006.12.31 Increase Decrease 2007.12.31 2007 Cost method General Bearing 75.00% 28,030,375.50 28,030,375.50 0.00 0.00 28,030,375.50 0.00 Liaoyang Bearing 100.00% 17,337,259.95 17,337,259.95 0.00 0.00 17,337,259.95 0.00 ME Lta 4.76% 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 Subtotal 47,367,635.45 47,367,635.45 0.00 0.00 47,367,635.45 0.00 Equity method Dalian SKF 49.00% 68,600,000.00 82,787,680.11 10,644,107.06 14,112,000.00 79,319,787.17 14,112,000.00 Shanghai Zhenxin 40.00% 400,000.00 471,054.32 1,812.22 0.00 472,866.54 0.00 Subtotal 69,000,000.00 83,258,734.43 10,645,919.28 14,112,000.00 79,792,653.71 14,112,000.00 Total 116,367,635.45 130,626,369.88 10,645,919.28 14,112,000.00 127,160,289.16 14,112,000.00 (3) No impairment in the long-term equity investment of the Company for the current reporting period. (4) According to joint-venture enterprise Registered Business Equity Vote Net assets as at Net profit in Investee Sales in 2007 address nature % % Dec.31 2007 2007 No.1, Phrase Manufacture Dalian SKF 1, Gongji and trading Wazhou Street, ball-surface 49.00 49.00 161,877,116.65 161,405,414.47 21,722,667.46 Bearings Wafangdian rolling Co., Ltd. North bearing Shanghai trading Zhenxin No.609, Bei bearing and Wazhou Jing Dong spare parts, Road, Machinery Huangpu etc. 40.00 40.00 1,182,166.33 8,658,656.26 4,530.54 and district, Electricity Shanghai city Co., Ltd. Total 163,059,282.98 170,064,070.73 21,727,198.00 9.4 Operating revenue and cost 84 (1) Operating revenue Items 2007 2006 Sales 1,952,829,100.98 1,708,170,386.16 Others operating revenue 484,627,043.86 485,698,972.99 Total 2,437,456,144.84 2,193,869,359.15 Sales amount of top 5 customers 415,313,061.97 293,263,994.98 Proportion 17% 13% (2) Operating cost Items 2007 2006 Cost of sales 1,622,138,407.24 1,449,915,141.13 Others operating cost 469,101,195.19 458,463,342.18 Total 2,091,239,602.43 1,908,378,483.31 (3) Cost of sales (Classified by goods or operation nature) Items 2007 2006 Sales Including: Export 206,080,785.56 272,329,306.43 Domestic 1,514,761,431.54 1,350,335,662.07 Transportation vehicle bearings 745,751,524.91 655,830,892.83 Special use bearings 468,869,242.55 369,752,760.03 General use bearings 300,140,664.08 324,752,009.21 Income from Industrial Operations 231,986,883.88 85,505,417.66 Total 1,952,829,100.98 1,708,170,386.16 Cost of sales Including: Export 223,608,406.59 303,281,001.47 Domestic 1,202,418,593.36 1,067,813,631.94 Transportation vehicle bearings 676,913,671.56 562,989,726.95 Special use bearings 297,772,452.93 328,701,339.35 General use bearings 227,732,468.87 176,122,565.64 Cost from Industrial Operations 196,111,407.29 78,820,507.72 Total 1,622,138,407.24 1,449,915,141.13 Gross profit of sales Including: Export -17,527,621.03 -30,951,695.04 Domestic 312,342,838.18 282,522,030.13 85 Transportation vehicle bearings 68,837,853.35 92,841,165.88 Special use bearings 171,096,789.62 41,051,420.68 General use bearings 72,408,195.21 148,629,443.57 Cost from Industrial Operations 35,875,476.59 6,684,909.94 Total 330,690,693.74 258,255,245.03 9.5 Investment income Souce of investment income 2007 2006 Dividends from investee under cost method 0.00 496,000.00 Adjustment due to changes of shareholder’s equity of 10,645,919.28 14,168,199.01 invested enterprise Total 10,645,919.28 14,664,199.01 10. Debts restructuring In 2007, the Company entered into Debt Restructuring Agreement wih the Company’s debtors, whereby, the amount paid by the debtors to the Company was less than the carrying amount. This agreement resulted in a loss restructuring of RMB 1,014,652.25 and which was charged in the non-operating cost account. The amount of debts restructured was RMB 13,496,948.38. In 2007, the Company entered into Debt Restructuring Agreement wih the Company’s creditors, whereby, the amount paid by the Company was less than the carrying amount. This agreement resulted in a restructing gain of RMB 383,441.83 and such restructuring gain was recognized in non-operating revenue. The total amount of debts restructured was RMB 3,629,693.88. 11. Related parties relationships & transactions 11.1 Related parties ralationships Subsidiary companies refer to Note 7. (1) Brief introduction of related parties with controlled relationship Name of Scope of Relationship with Legal Address Nature Company business the Company representative Manufacture and No. 1 North Gongji sale of bearing Wazhou Group Street, Wafangdian Parent company State-Owned Wang lushun and other kinds of City, Dalian equipment 86 (2) Registered capital and its movement of related parties with controlled relationship Name of Company 2006.12.31 Increase Decrease 2007.12.31 Wazhou Group 360,000,000.00 0.00 0.00 360,000,000.00 (3) Stock held and its movement of related parties with controlled relationship Name of Company Amounts Percentage 2007 2006 2007 2006 Wazhou Group 244,000,000.00 244,000,000.00 60.61% 60.61% (4) Related parties without controlled relationship but have transaction with the Company Name of Company Relationship Transactions Controled by Wazhou Dalian Wazhou Manufacturing Equipment Co., Ltd. Purchase & selling of RM Group Controled by Wazhou Wazhou Steel Ball Company Selling of WIP & purchae of RM Group Controled by Wazhou Wazhou Exact Forge Co., Ltd. (Forge Co.) Selling of WIP & purchae of RM Group Controled by Wazhou Wazhou Group Turnplate Bearing Ltd Purchase fininshed goods Group SKF Wazhou company Associated company Purchase & selling of finished goods 11.2 Related party transaction (1) Purchase of goods, raw materials and working in progress Name of Company 2007 2006 Amounts Proportion Amounts Proportion SKF Wazhou company 164,076,639.83 5.03% 192,493,230.92 16% Wazhou Special Steel 0.00 0.00 3,751,115.09 0% Wazhou Steel Ball Company 20,337,351.68 0.62% 23,965,284.52 2% Wazhou Exact Forge Ltd., 458,239,183.22 14.05% 381,036,507.84 31% Tongda Bearing Manufacturing Co., Ltd. 0.00 0.00 21,511,869.19 2% Dalian Wazhou Manufacturing Equipment 28,617,220.07 0.88% 19,164,329.12 2% Co., Ltd/ Wazhou Group Turnplate Bearing Ltd 72,770,623.20 2.23% 0.00 0.00 Total 744,041,018.00 22.81% 641,922,336.68 53.00% 1) In 2007 the Company purchased finished goods from SKF Wazhou Company. The price is determined according to the terms of agreement in 2002. 87 2) In 2007 the Company purchased WIP from Wazhou Steel Ball Company at market price. 3) In 2007 WIP-ferrule purchased from Wazhou Exact Forge Ltd. The price is determined according to market price, 4) In 2007 the Company purchased turnplate bearing from Wazhou Group Turnplate Bearing Ltd. The price is determined according to market price less proper selling expense. 5) Wazhou Special Steel and Tongda Bearing Manufacturing Co., Ltd restructured in 2007. The shares held by Wazhou Group were transferred to others.The two companies are not related parties of the Company. (2) Sales of goods, raw materials and working in progress Name of Company 2007 2006 Amounts Proportion Amounts Proportion Wazhou Group (represpetives except for 512,157.09 0.02% 200,072,923.93 11.37% Dalan） SKF Wazhou company 53,528,504.01 2.00% 62,556,096.30 3.56% Wazhou Special Steel 0.00 0.00% 25,976,994.87 1.47% Wazhou Steel Ball Company 11,063,115.14 0.41% 15,119,977.11 0.86% Wazhou Exact Forge Ltd., 361,750,859.83 13.52% 383,722,180.98 21.81% Tongda Bearing Manufacturing Co., Ltd. 0.00 0.00% 3,323,630.20 0.19% Dalian Wazhou Manufacturing Equipment 2,843,139.04 0.11% 2,893,406.26 0.16% Co., Ltd/ Wazhou Group Turnplate Bearing Ltd 62,774,183.48 2.35% 0.00 0.00% Total 492,471,958.59 18.41% 693,665,209.65 39.42% 1) In 2007 the Company sold finished googs to Wazhou Group much less than before, selling price according to the market price. 2) In 2007 the company sold WIP to SKF Wazhou Company, selling price according to the terms of agreement in 2002. 3) In 2007 the company sold WIP to Wazhou Steel Ball Company, selling price according to agreed price plus handling fee. 4) In 2007 the company sold WIP to Wazhou Exact Forge Ltd., selling price according to agreed price plus handling fee. (3) Rendering service 1) Industrial Operations Nameofcompany 2007 2006 Amounts Porportion Amounts Proportion 88 SKF Wazhou company 3,083,049.24 0.10% 4,042,427.01 4.72% Wazhou Steel Ball Company 1,217,357.05 0.37% 2,849,758.38 3.33% Total 4,300,406.29 0.47% 6,892,185.39 8.05% The price is determined according to the terms of agreement in 2002. (4) Guarantee fee paid to Wazhou Group According to the Loan Guaranteeed agreement signed between Wazhou Group and the Company, Wazhou Group provides guarantee for long term bank loan of the Company. The Company should pay gurantee fee to Wazhou Group. The sguarantee fee payable to Wazhou Group in 2007 is RMB 4,500,000, including paid amount RMB 1,000,000.00, and the outstanding at the ended 31 December 2007 was RMB 3,500,000.00. (5) Leased properties 1) Leased Land Use Pursuant to the Premise Use and Lease Contract signed with Wazhou Group on Jan 1, 2007, the Company obtained the right to use the premise (Pu Stateowned (1993) No.0862, square is 37768m², and Sha Stateowned (1993) No.43, square is 13710 m²) with a price RMB 463,040 for the period from Jan 1 2007 to Dec 31 2007. The outstanding amount was at December 31 2007. The Company paid retal RMB 460,000.00 to Wazhou Group in 2007. 2) Leased buildings The Company entered into a building lease contract with Wazhou Group on 5 January 2007 to support its operating activities.The rental period is from 1 January 2007 to 31 December 2007. The rented area is 2,605.8 m². The rental for the year was RMB 213,200.00. The outstanding amount was at 31 December 2007. The Company entered into a building lease contract with Wazhou Steel Ball Company on 5 January 2007 to support its operating activities.The rental period is from 1 January 2007 to 31 December 2007. The rented area is 1,233.75 m². The rental for the year was RMB 106,700.00. The outstanding amount was at 31 December 2007. Special Large Bearing Branch of the Company and Precision Bearing Branch of the Company were founded in 2007.Two branches rent the bulidings of induestial park of Wazhou Group as the workshop. Pursuant to Lease Contract signed with Wazhou Group on July 1 2007, the rental for this year is RMB 4,335,500.00, and the outstanding at the ended 31 December 2007 was RMB 4,335,500.00. (6) Use of trademark 89 Pursuant to agreement made by the Company and Wazhou Group, the Company should pay trademark license fee at the 2% of the Company’s net income of its self-produced products. The payable fee in 2007 is RMB 21,000,000.00. At December 31, 2007, the company has paid trademark license fee was RMB 9,372,600.00 to Wazhou Group till Dec 31, 2007. (7) Receipt of integrated services In this fiscal year, other fees which should be paid to Wazhou Group are as follows: Items 2007 2006 Security and fire protection fees 3,290,900.00 3,290,900.00 Technical research expenses 5,400,000.00 5,400,000.00 Public relationship expenses 800,700.00 800,700.00 Total 9,491,600.00 9,491,600.00 (8) Receiving the settlement on behalf of Wazhou Group Certain of the accounts receivable were transferred to Wazhou Group while the Company was in the process of listing. The Company is still managing these amounts for Wazhou Group and recognizes as payable to Wazhou Group while receiving the settlement. In 2007, the accumulated amount received was RMB 1,486,386.37. The outstanding amount was at 31 December 2007. (9) Capital from Wazhou Group In order to settl temporary lack on operating capital, the the Company borrowed operating capital amounted to RMB 32,000,000.00 from Wazhou Group in Jul or Oct 2007. The borrowings were paid in current month or the next month. 11.3 Balances with related parties at the year ended Name of the company Item 2007.12.31 2006.12.31 Accounts Wazhou Group 1,884,707.30 1,884,707.30 payable Wazhou Group Others payable 86,861,270.58 74,515,248.79 Wazhou Group (representatives except Accounts 29,141,669.56 101,308,967.50 Dalian) receivable Accounts SKF Wazhou Company 45,904,091.86 49,919,306.14 payable Accounts Wazhou Steel Ball Company 3,714,106.02 5,550,003.74 payable Accounts Wazhou Exact Forge Co., Ltd. 12,348,150.48 11,083,877.18 payable Accounts Wazhou Exact Forge Co., Ltd. 379,540.00 0.00 receivable Wazhou Special Steel Accounts 0.00 16,584,153.43 90 receivable Accounts Rongtai Engineering plastic Co., Ltd. 0.00 0.00 payable Dalian Wazhou Manufacturing Equipment Accounts 21,501,723.58 31,708,927.26 Co., Ltd. payable Accounts Tongda Bearing Manufacturing Co., Ltd. 0.00 10,743,344.49 payable Others Liaoyang New Spinning Bearings Co., Ltd.* 0.00 3,935,792.25 receivable Accounts Wazhou Group Turnplate Bearing Ltd 20,391,313.67 0.00 payable * Liaoyang New Spinning Bearings Co., Ltd was logout in 2006 12. Contingencies 12.1 Contingent liabilities arising from pending litigations or arbitrations The litigation regarding to accounts receivable was RMB 1,214,544.23. Some of the cases have been registered, another are in inquisition. 12.2 Contingent liabilities arsing from guarantees of other enterprises As at the balance sheet date, Liaoyang Bearing has an unsettled guarantee of a bank loan of RMB 3,150,000 granted to a third party (Liao yang Forge Machine tool Ltd.). Guarantee period is from December 25 2002 to July 5 2003. As at December 31 2007, Liaoyang Forge Machine tool Ltd has not paid for the loan. 12.3 Besides the contingent events mentioned above, there is no other material contingent event at 31 December 2007. 13. Commitments As At 31 December 2007, no material commitmenst exist. 14. Subsequent events According to the decision of No.8 meetings of the Board of Directors on 24 April 2008, the Board recommended the general meeting the scheme of distribution for the year of 2007 a cash dividend of RMB 0.04 per share totalling RMB 16,104,000.00. 15. Ceasing of operation 91 Items 2007 2006 Ceasing operating revenue 25,757,660.23 31,271,142.68 Less: Ceasing operating cost 29,288,193.10 31,004,607.83 Ceasing operating profit -3,530,532.87 266,534.85 Less: Ceasing operating income expenses 0.00 0.00 Ceasing operating net profit -3,530,532.87 266,534.85 Total -3,530,532.87 266,534.85 In Dec 2007 General Bearing decided to cease operation because of loss for a long time, and planed to liquidate after being approved in Meeting of Borad of Directors. 16. Other significant events 16.1 Exchange of assets On August 18, 2006, the Company signed with Wazhou Group, the Company resolved that the receivables of the Company due from Wazhou Group and other customers be exchanged with the land, which are owned by Wazhou Group, located at No. 1, Phrase 1, Gongji Street, Wafangdian City, where the Company situated, (Property ownership certificate No.: [2005] No.0174, [2006] No. 239 and [2005] No. 0168. The total area of the land was 393,393.6 square meters. The fair value as determined by an independent professional valuer was RMB166,054,000 (the “Exchange”). In August 2006, Reanda Certified Public Accountants expressed with [2006]1051-1. In August 2006, Dalian Tianshi Realestate Firm express , three lands mentioned above were amounted to RMB 166,054,000. On 31 December 2006, the Exchange was completed. The amount of the accounts receivables exchanged was RMB166,054,000 and the related doubtful debts provision was RMB27,623,500. The carrying amount was RMB138,430,500.）The difference between the fair value of the land and the receivable of RMB27,623,500 was recognised as capital surplus for the year. On December 31, 2006, state-owned Assets supervision and administration Commission of Dalian Municipal Government approvaled Wazhou Group exchange land use right with accounts receivable of the Company with a circular [2006] No.290. In 2007 because state-owned Assets supervision and administration Commission of Wafangdian Municipal Government renewedly arranged land state-owned, meanwhile, approved the two of lands mentioned above for being exchanged. In fact the Company exchanged the receivable with two lands of Wazhou Group, the receivable’ s amount was RMB 92 143,058,297.23, the difference between the original exchange amounts with final exhange amounts was RMB 22,995,702.77. In May 2007, the Company obtained the land use rights license (Property ownership certificate No.: [2007] No.252, [2007] No. 253. The total area of the land was 344,037 square meters. In this report period the Company had adjusted accounting process of the transaction mentioned above. 16.2 Material investment revenue The Company accounts for its investment income of RMB 9,565,405.91in SKF under the equity method of accounting according to the audited financial statements of SKF for the year ended December 31, 2007, which represents 10.84% of the Company’s consolidated net profit in 2007. 16.3 Newly estabished Branches in 2007 The Company established following new branches in 2007, as below Name of company Address Representative Major operation Sales Branches No. 20 Building, Wufengsi Road, Sales of Bearings, Foshan Sales Branch Gao Qiang Chancheng District, Fushan Machinary equipment Ground floor of No.3 Block, No. 55 Yard, Sales of Bearings, Zhengzhou Sales Branch Mu Kai Nanyang Road, Jinshui District, Zhengzhou Machinary equipment Opposite side of No. 47, Langyashan Road, Sales of Bearings, Hefei Sales Branch Yu Zhen Hefei Machinary equipment No.74-7, Jiwei Road, Qinglong Uptown, Sales of Bearings, Jinan Sales Branch Su Shimin Shizhong District, Jinan Machinary equipment No.452, Gongbin Road, Xiangfang District, Sales of Bearings, Haerbing Sales Branch Li Junqi Haerbin Machinary equipment No. 107 & 108 Buildings, No.9 of First Sales of Bearings, Guangzhou Sales Branch Industry Park, Tang’an Road, Tianhe Gao Qiang Machinary equipment District, Guangzhou Production Branches Sales of Precise Precise Bearing Sales Zhuhua Industry Park, Wafangdian Wang Dexin Bearings, Machinary Branch equipment As at Dec 31 2007, the branches began to operate wholly, the Company established independent sales net 17. Supplementary informations 93 17.1 Non-operating profit and loss Items 2007 2006 Gain and loss from disposal of non-current assets 1,011,020.85 786,230.51 Government subsidy recorded into profit and loss of current 536,200.00 0.00 period Others net profit and loss besides items mentioned above 10,302,154.23 1,778,441.41 Subtotal 11,849,375.08 2,564,671.92 Impact from EIT 4,003,775.07 845,236.67 Total of Non-operating profit and loss 7,845,600.01 1,719,435.26 Including: Non-operating profit and loss attributable to 7,774,105.84 1,718,598.08 shareholders of parent company 17.2 Return on equity and Earings per share (1) Return on equity and Earings per share in 2007 Profit as of report period Return on equity Earings per share (EPS) Diluted fully Weight ed EPS-basis EPS-diluted average Net profit attributable to shareholders of parent 0.07 0.08 0.22 0.22 company Net profit after deducting non-operating profit and loss attributable to shareholders of parent 0.07 0.07 0.20 0.20 company (2) Return on equity and Earings per share in 2006 Profit as of report period Return on equity Earings per share (EPS) Diluted Weight ed EPS-basis EPS-diluted fully average Net profit attributable to shareholders of 0.04 0.04 0.11 0.11 parent company Net profit after deducting non-operating profit and loss attributable to shareholders 0.03 0.03 0.11 0.11 of parent company (3) Calculation method of Return on equity Items Sequence No. 2007 2006 Net profit attributable d to shareholders of 1 88,209,124.81 45,136,792.00 parent company 94 Non-operating profit and loss attributable to 2 7,771,405.84 1,718,598.08 shareholders of parent company Net profit after deducting non-operating profit and loss attributable to shareholders 3=1-2 80,437,718.97 43,418,193.92 of parent company Net assets as of Dec 31 2007 attributable 4 1,200,141,484.54 1,130,112,889.10 to shareholders of parent company Return on equity diluted fully(Ⅰ) 5=1÷4 0.07 0.04 Return on equity diluted fully(Ⅱ) 6=3÷4 0.07 0.04 Net assets as of Jan 1 2007 attributable to 7 1,130,112,889.10 1,090,926,437.90 shareholders of parent company Net assets increased due to issue of new share or debts for equity swap or 8 0.00 0.00 attributable to common shareholders of the Company the number of months from the next month when net assets increased to the end of the 9 0.00 0.00 report period Net assets decreased due to repurchased or dividends in cash or attributable to 10 0.00 0.00 common shareholders of the Company the number of months from the next month when net assets decreased to the end of 11 0.00 0.00 the report period Number of months during the report period 12 12 12 Weighted average net assets attributable to 13=7+1÷②+8×9÷12 1,174,217,451.51 1,113,494,833.90 shareholders of parent company -10×11÷12 Weighted average return on equity (Ⅰ) 14=1÷13 0.08 0.04 Weighted average return on equity ( (Ⅱ) 15=3÷13 0.07 0.04 (4) Calculation method of basis earnings per share and diluted earnings per share Items Sequence No. 2007 2006 Net profit attributable to shareholders of 1 88,209,124.81 45,136,792.00 parent company Non-operating profit and loss attributable 2 7,771,405.84 1,718,598.08 to shareholders of parent company Net profit after deducting non-operating profit and loss attributable to 3=1-2 80,437,718.97 43,418,193.92 shareholders of parent company Total number of shares at the 4 402,600,000.00 330,000,000.00 period-begin The number of shares increased due to transferring capital reserve into share 5 0.00 72,600,000.00 capital or dividend distribution of shares during report period(Ⅰ) The number of shares increased due to issuance of new shares or debt for 6 0.00 0.00 equity swap during the report period(Ⅱ) the number of months from the next month to the end of the report period for 7 0.00 0.00 increase of shares(Ⅱ) 95 The number of shares decreased due to stock repurchase or draw back stock 8 0.00 0.00 during the report period the number of months from the next month to the end of the report period for 9 0.00 0.00 decrease of shares Number of months during the report 10 12 12 period Weighted average number of ordinary 11=4+5+6×7÷10 402,600,000.00 402,600,000.00 shares issued out -8×9÷10 EPS – basis (Ⅰ) 12=1÷11 0.22 0.11 EPS – basis (Ⅱ) 13=3÷11 0.20 0.11 Potential diluted interests of ordinary 14 0.00 0.00 shares recognized as expense Transfer fee 15 0.00 0.00 EIT rate 16 0.00 0.00 Weighted average amount of ordinary shares increased due to warrant, share 17 0.00 0.00 options EPS – diluted (Ⅰ) 18=[1+(14-15)×(1-16)]÷(11+17) 0.22 0.11 EPS – diluted (Ⅱ) 19=[3+(14-15)×(1-16)]÷(11+17) 0.22 0.11 17.3 Statement of provision for impairment of assets Decrease Items 2006.12.31 Increase Others 2007.12.31 Reverse transferred out Provision for bad debts 48,449,499.56 5,377,824.60 2,326,615.14 2,291,245.35 49,209,463.67 Provision for impairment of 31,577,618.03 8,193,260.63 0.00 0.00 39,770,878.66 inventories Provision for impairment of 0.00 0.00 0.00 0.00 0.00 financial assets held for sale Provision for impaiment of 0.00 0.00 0.00 0.00 0.00 investment held for maturity Provision for impairment oflong 0.00 0.00 0.00 0.00 0.00 term equity investment Provision for impairment of 0.00 0.00 0.00 0.00 0.00 investment property Provision for impairment of fixed 1,946,935.33 0.00 0.00 522,329.19 1,424,606.14 assets Provision for impairment of 0.00 0.00 0.00 0.00 0.00 project materials Provision for impairment of 1,403,093.55 0.00 0.00 0.00 1,403,093.55 construction in progress Provision for impairment of 0.00 0.00 0.00 0.00 0.00 biological assets Provision for impairment of oil & 0.00 0.00 0.00 0.00 0.00 96 gas assets Provision for impairment of 0.00 0.00 0.00 0.00 0.00 intangible assets Provision for impairment of 0.00 0.00 0.00 0.00 0.00 goodwill Others 0.00 0.00 0.00 0.00 0.00 Total 83,377,146.47 13,571,085.23 2,326,615.14 2,813,574.54 91,808,042.02 17.4 Consolidated income statement for reference On the assumption that the Company implemented new Accounting Standard for Business Enterprise since 2006, and prepared the income statement for reference in accordance with new Accounting Standard for Business Enterprise. Items 2006 Revenue 2,241,682,463.73 Less: Cost of sales 1,957,496,825.02 Tax & surcharges for main operations 8,925,150.28 Sales expenses 118,656,011.50 Administrative expense 74,136,139.08 Finance expense 30,230,687.90 Loss of impairment of assets -1,554,384.22 Add: gain/(loss) from change in fair value 0.00 Investment income 13,932,199.01 Operating profit 67,724,233.18 Add: Non-operating revenue 5,043,970.79 Less: Non-operating cost 1,691,403.76 Profit before tax 71,076,800.21 Less: Income tax expenses 8,639,728.80 Net profit 62,437,071.41 (2) Difference between consolidated income statement for reference and original consolidated income statement Items 2006 Net profit in original income statement 45,203,425.71 Adjustments: Employee social insurance recognized into corresponding assets or expenses by the 9,360,117.70 beneficiary Capitalisation of borrowing cost of specially borrowed loan 7,817,632.89 The Company recognized debt restruction income into non-operating revenue under 787,895.11 new Accounting Standards for Business Enterprise. Offset unfulfilment intragroup profit included in investment income arising from -732,000.00 associated company Total of difference 17,233,645.70 97 Net profit in Consolidated income statement for reference 62,437,071.41 17.5 Reconciliation of difference of shareholder’s equity between the New and Old Accounting Standard for Business Enterprise Sequence Items Amount disclosed Amount disclosed Note in Annual Report in Annual Report 2007 2006 Difference Shareholder’s Equity as at Dec. 31, 1,150,308,062.10 1,150,308,062.10 0.00 2006 Long term equity investment difference 0.00 0.00 0.00 Including: difference of long-term equity investment formed in the merger of an 0.00 0.00 0.00 1 enterprise under the same control Credit difference of others equity 0.00 0.00 0.00 invetments Investment property measured at fair 0.00 0.00 0.00 2 value model Depreciation over the past years 0.00 0.00 0.00 supplemental withdrew due to dismantling 3 cost of assets Termination benefit according with -20,195,173.00 -21,000,000.00 804,827.00 1) 4 contigent liability 0.00 0.00 0.00 5 Share based payment Debts restruction obligation according with 0.00 0.00 0.00 6 contigent liability 0.00 0.00 0.00 Company combination Including: book value of goodwill formed in 0.00 0.00 0.00 the merger of an enterprise under the same control 7 Provision for impairment of goodwill 0.00 0.00 0.00 withdrawn based on new accounting standards Financial assets measured at fair value 0.00 0.00 0.00 and its change amounts was recognized into profit or loss of current period and 8 financial assets available-for sale Financial liability measured at fair value 0.00 0.00 0.00 and its change amounts was recognized in 9 profit or loss of current period Equity increased due to division of 0.00 0.00 0.00 10 financial instruments 0.00 0.00 0.00 11 Derivative financial instruments 12 Income tax 0.00 4,300,291.60 -4,300,291.60 2) 13 Minority interest 3,518,263.23 3,518,263.23 0.00 Shareholder’s equity as at Dec 31, 2007 1,133,631,152.33 1,137,126,616.93 -3,495,464.60 Reasons of difference: 1) In 2006 the Company recognized termination benefit payable amounting to RMB 21,000,000.00 based on employee termination benefit plan in accordance with New Accounting Standards for Business Enterprise. In 2007 the change of quantity of employees for termination resulted in decrease of termination benefit payable. The Company adjusted difference amounting to RMB 804,827. 98 2) The reason of difference is that the Company’s subsidiary had not recognized the deferred income tax because the estimated deferred tax assets were unable to be reversed. 12. Approval of fianancial statements The parent and consolidated financial statements of the Company was approved by the Board of Directors of the Company on April 24, 2008. Chapter Eleven. List of reference documents 1. Accounting statements with the signatures and seals of the legal representative, financial controller and the director of the accounting department of the company; 2. The 2007 annual audit report and the financial statement with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant. 3. The documents and notices of the company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. Above documents were kept in the Investment and Securities Department of the company. 99