大冷Ｂ(200530)2007年年度报告（英文版）

Dalian Refrigeration Co., Ltd. 2007 Annual Report DALIAN REFRIGERATION CO., LTD. 2007 ANNUAL REPORT Dalian Refrigeration Co., Ltd. 2007 Annual Report CONTENTS Important … … … … … … … … … … … … … … … … … … … … … … … … … … … 2 Ⅰ.About the Company……………………………………………………………3 Ⅱ.Summary of Accounting Data and Business Data………… 4 Ⅲ. Changes in Share Capital and Particulars about Shareholders………………………………………………………………6 Ⅳ. The Directors, Supervisors, Senior Staff Members and Employees of the Company … … … … … … … … … … … … … … … 9 Ⅴ. The Administrative System of the Company………………13 Ⅵ. Brief Introduction to Shareholders General Meeting 17 Ⅶ. Report of the Board of Directors………………………………… 18 Ⅷ. Report of the Supervisory Board………………………………… 29 Ⅸ. Important Matters………………………………………………………… 30 Ⅹ. Financial Report………………………………………………………………34 Ⅺ.Contents of Reference Documents………………………………… 84 Page １ Dalian Refrigeration Co., Ltd. 2007 Annual Report Important: The directors and the Board of Directors, the supervisors and the Supervisory Board, and Senior staff members of Dalian Refrigeration Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are not any important omissions, fictitious statements or serious misleading carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completeness of the whole contents. Chairman of the Board of Directors of the Company Mr. Zhang He, Financial Majordomo and the head of Accounting Department Ms. Xu Junrao hereby confirm that the financial report of the annual report is true and complete. This report is written respectively in Chinese and in English. In the event of any discrepancy between the two above-mentioned versions, the Chinese version shall prevail. Page ２ Dalian Refrigeration Co., Ltd. 2007 Annual Report I. About the Company 1. Name of the Company in Chinese: 大连冷冻机股份有限公司 In English: Dalian Refrigeration Co., Ltd. Abbreviation in English: DRC 2. Legal Representative: Mr. Zhang He 3. Secretary of the Board of Directors: Ms. Lv Lianzhen Tel: 0086-411-86538100 Fax: 0086-411-86641470 E-mail: bingzhen@bingshan.com Authorized Representative for Securities Affairs: Mr. Song Wenbao Tel: 0086-411-86654530 Fax: 0086-411-86654530 E-mail: 000530@bingshan.com Address: 888 Xinan Road, Shahekou District, Dalian 4. Registered/Office Address of the Company: 888 Xinan Road, Shahekou District, Dalian Post Code: 116033 Website: http://www.daleng.cn E-mail: dlzqb@bingshan.com 5. The Newspapers the Company Selects to Disclose Information: China Securities Daily, and Wen Wei Po. The China Securities Regulatory Commission Designated Website Where the Annual Report Is Published: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company Tel: 0086-411-86654530 0086-411-86538130 Fax: 0086-411-86654530 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: DALENG GUFEN; DALENG-B Stock Code: 000530; 200530 7. Other Related Information: The Date When the Company Was Registered for the First Time: Dec. 18, 1993 Registered Address: 888 Xinan Road, Shahekou District, Dalian. Reg. Number of the Corporation Business License: 2102001100326. Number of the Taxation Registration: 210204242361300 Organization code：24236130-0 The Certified Public Accountants Engaged by the Company: Dalian Hualian Certified Public Accountants Co., Ltd. Office Address: 24 Floor, Vanke Mansion at No. 67, Tongxing Street, Zhongshan District, Dalian Page ３ Dalian Refrigeration Co., Ltd. 2007 Annual Report II. Summary of Accounting Data and Business Data 1. Summary of main business data during reporting period (unit: RMB yuan) Operating profit 135,691,808.11 Total profit 150,369,336.01 Net profit belonging to the shareholders of listed companies 128,827,637.59 Net profit belonging to the shareholders of listed companies after the deduction of incidental profit and loss 120,253,807.16 Net cash flow from operating activities 23,446,251.91 Note: Deduction of incidental profit and loss and the amount involved Disposal gains and losses of non-current asset 75,947.43 Government subsidies included in current profit or loss 12,461,735.34 Other non-operating revenue or expense 1,025,845.93 Total amount of incidental profit and loss items 13,563,528.70 Influence on income tax 4,176,917.79 Influence on minority shareholders 812,780.48 Influence on net profit 8,573,830.43 2. Main accounting data and financial indexes in recent three years at the end of reporting period 2.1 Main accounting data (Unit: RMB Yuan) Increase/decrease compared 2007 2006 2005 with previous year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating revenue 1,653,955,364.95 1,602,094,861.09 1,617,170,091.55 +2.27% 1,511,046,315.72 1,511,046,315.72 Total profit 150,369,336.01 156,742,520.90 157,509,855.26 -4.53% 143,294,481.64 144,061,816.00 Net profit attributable to shareholders of listed 128,827,637.59 117,295,004.69 125,901,875.54 +2.32% 100,812,403.40 101,496,541.38 companies Net profit belonging to the shareholders of listed 120,253,807.16 110,116,724.25 118,723,595.10 +1.29% 99,711,481.82 100,395,619.80 companies after the deduction of non-recurring profit and loss Net cash flow from operating 23,446,251.91 74,937,630.78 74,937,630.78 -68.71% 112,861,866.98 112,861,866.98 activities Increase/decrease compared At the end of 2007 At the end of 2006 At the end of 2005 with previous year（％） Before adjustment After adjustment After adjustment Before adjustment After adjustment Total assets 2,582,893,670.98 2,212,545,989.71 2,229,097,060.83 +15.87% 2,158,916,614.46 2,176,656,202.01 Owner's equity 1,584,284,582.78 1,496,160,022.72 1,493,570,967.33 +6.07% 1,427,525,349.93 1,418,740,031.17 Page ４ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2.2 Main financial indexes (Unit: RMB Yuan) Increase/decrease compared 2007 2006 2005 with previous year（％） After Before adjustment After adjustment Before adjustment After adjustment adjustment Basic earning per share 0.37 0.335 0.36 +2.78% 0.288 0.29 Diluted earnings per share 0.37 0.335 0.36 +2.78% 0.288 0.29 Basic earning per share after deduction of incidental profit 0.34 0.315 0.34 _ 0.285 0.287 and loss Fully diluted return on net Decrease 0.3 percentage 8.13% 7.84% 8.43% 7.06% 7.15% points assets Weighted average return on net Decrease 0.19 percentage 8.43% 7.89% 8.62% 7.25% 7.36% points asset yield Fully diluted return on net Decrease 0.36 percentage assets after deduction of 7.59% 7.36% 7.95% 6.98% 7.08% points incidental profit and loss Weighted average return on net Decrease 0.26 percentage asset after deduction of 7.87% 7.41% 8.13% 7.17% 7.28% points incidental profit and loss Per share net cash flow from 0.067 0.214 0.214 -68.69% 0.322 0.322 operating activities Increase/decrease compared At the end of 2007 At the end of 2006 At the end of 2005 with previous year（％） After Before Before adjustment After adjustment After adjustment adjustment adjustment Per share net assets belonging to the shareholders of listed 4.53 4.27 4.27 +6.09% 4.08 4.05 companies Note: (1) The above data and indexes are filled in or calculated based on those from the combined accounting statement. And the above data have been audited by Dalian Hualian CPA Firm Ltd. (2) No change occurred in the capital stock of the company from the end of reporting period to the summary disclosure date 3. Differences between domestic and foreign accounting standards None Page ５ Dalian Refrigeration Co., Ltd. 2007 Annual Report III. Changes in Share Capital and Particulars about Shareholders 1. Changes in capital stock (1) Statement on changes in capital stock (unit: share) Before change Increase/decrease（+，-） After change Shares converted from New Bonus Quantity Proportion public Other Subtotal Quantity Proportion issue Share accumulation fund Ⅰ. Shares with sale 107,270,247 30.65% -30,312,873 -30,312,873 76,957,374 21.99% restriction 1.Shares held by the State 76,855,683 21.96% 76,855,683 21.96% 2.Shares held by state-owned corporates 3.Shares held by other 30,414,564 8.69% -30,312,873 -30,312,873 101,691 0.03% domestic investors In which: Shares held by domestic non-state-owned 30,278,000 8.65% -30,278,000 -30,278,000 corporates Shares held by domestic 136,564 0.04% -34,873 -34,873 101,691 0.03% natural persons 4.Shares held by foreign corporations In which: Shares held by foreign investors Shares held by foreign natural persons Ⅱ. Shares without sale 242,744,728 69.35% 30,312,873 30,312,873 273,057,601 78.01% restriction 1.RMB ordinary shares 127,744,728 36.50% 30,312,873 30,312,873 158,057,601 45.16% 2.Foreign-funded shares 115,000,000 32.86% 115,000,000 32.86% listed at home 3.Foreign-funded shares listed abroad 4.Others Ⅲ. Total shares 350,014,975 100.00% 350,014,975 100.00% Page ６ Dalian Refrigeration Co., Ltd. 2007 Annual Report (2) Statement on changes in shares with sale restriction (unit: share) Shares with sale Release of shares with Increase in release of Shares with sale Date of release Name of shareholders restriction at the sale restriction this shares with sale restriction at the end Cause of sale restriction of sale beginning of the year year restriction this year of the year restriction No sale on the market Dalian Bingshan 76,855,683 0 0 76,855,683 within 60 months after Jan. 09, 2011 Group Co., Ltd. obtaining listing right. No transaction or transfer Former corporate on the market within 12 30,278,000 30,278,000 0 0 Jan. 09, 2007 shareholder months after obtaining listing right. Total 107,133,683 30,278,000 0 76,855,683 － － (3) Stock issuing and listing ① Stock issuing in previous three years: none. ②During the reporting period, the total shares of the company did not change, and the share structure changed as above due to release of sale restriction in the reform of share separation. 2. Shareholders （1）The total number of shareholders at the end of the reporting period was 41,875, decreased by 8,834 from the end of 2006, in which, the A-stock shareholders were 32,317, decreased by 8,164 as compared to that of the previous year, and the total number of B-stock shareholders were 9,558, decreased by 670 as compared to that of the previous year. (2) Shareholding of main shareholders (Unit: share) Shareholding of top ten shareholders Number of Number of shares with Name Nature Proportion Total number pledged shares sale restriction or shares frozen Dalian Bingshan Group Co., Ltd. State-owned corporate 21.96% 76,855,683 76,855,683 0 SANYO ELECTRIC CO LTD Overseas corporate 10.00% 35,001,500 0 0 BONY-DREYFUS PIFI-DREYFUS Overseas corporate 4.74% 16,608,167 0 0 PREMIER GREATER CHINA China Life Insurance Co., Ltd. Domestic corporate 1.71% 6,000,000 0 0 Dalian Huaxin Trust Co., Ltd. Domestic corporate 0.93% 3,253,957 0 0 Jilin Jiuzhou Development Company Domestic corporate 0.90% 3,150,000 0 3,150,000 Guotai Jun’an Securities Co., Ltd. Domestic corporate 0.90% 3,150,000 0 0 EXCEL CHINA FUND Overseas corporate 0.77% 2,700,997 0 0 Di Rong Domestic natural person 0.64% 2,229,300 0 0 CREDIT SUISSE(HONG KONG)LIMITED Overseas corporate 0.54% 1,900,000 0 0 Shareholding of top ten shareholders without sale restriction Number of shares without sale Name Type of shares restriction SANYO ELECTRIC CO LTD 35,001,500 Foreign capital stocks listed in China BONY-DREYFUS PIFI-DREYFUS PREMIER GREATER CHINA 16,608,167 Foreign capital stocks listed in China Page ７ Dalian Refrigeration Co., Ltd. 2007 Annual Report China Life Insurance Co., Ltd. 6,000,000 RMB ordinary stock Dalian Huaxin Trust Co., Ltd. 3,253,957 RMB ordinary stock Jilin Jiuzhou Development Company 3,150,000 RMB ordinary stock Guotai Jun’an Securities Co., Ltd. 3,150,000 RMB ordinary stock EXCEL CHINA FUND 2,700,997 Foreign capital stocks listed in China Di Rong 2,229,300 RMB common stocks CREDIT SUISSE(HONG KONG)LIMITED 1,900,000 Foreign capital stocks listed in China Dalian State-Owned Assets Operation Co., Ltd. 1,650,000 RMB common stocks Notes to the associated relationship and uniform actions of the above No information is available concerning the association relationship among the above shareholders shareholders. (3) Introduction to the holding shareholder of the Company Dalian Bingshan Group Co., Ltd. (hereinafter referred to as the Group) held 21.96% of the total shares of the Company by the end of the year. The Group’s legal representative is Zhang He. The Group was established on May 22, 1996 and has the registered capital of 126,540 thousand yuan, being mainly engaged in the manufacture and installation of the complete sets of refrigerators, air conditioners, cold chains and electrical appliances, etc. for industrial and commercial purposes. Its minor businesses include the electronic and household electrical appliances, light industry, chemical industry, import and export trading, etc. The Group is a state-owned solely-funded company subordinate to Dalian Municipal People’s Government State-Owned Assets Supervision & Administration Commission. There were no changes in the holding shareholder of the Company in the report period. Dalian Municipal People’s Government State-Owned Assets Supervision & Administration Commission ↓100% Dalian Bingshan Group Co., Ltd. ↓21.96% Dalian Refrigeration Co., Ltd. (4) Introduction to other legal person shareholders holding over 10% (including 10%) of the total shares of the Company Sanyo Electric Co., Ltd. held 10% of the total shares of the Company by the end of the year. Sanyo Electric Co., Ltd. is one of the principal manufacturers of electrical appliances in Japan. Page ８ Dalian Refrigeration Co., Ltd. 2007 Annual Report IV. The Directors, Supervisors, Senior Staff Members and Employees of the Company 1. Directors, supervisors and senior staff members (1) Particulars Shareholding Shareholding Name Position Age Term of duty at BOY at EOY x Directors (9 persons): Zhang He M Chairman 70 04.6—07.6 33,345 33,345 Mu Chuanjiang M Vice chairman 58 04.6—07.6 29,445 29,445 Yang Bin M Director 51 04.6—07.6 0 0 Xu Junrao F Director 44 04.6—07.6 3,900 3,900 Shimada Tadao M Director 63 04.6—07.6 0 0 Cheng Geng M Director 40 04.6—07.6 0 0 Lv Zhongli M Independent director 66 04.6—07.6 9,262 9,262 Wang Dong M Independent director 71 04.6—07.6 0 0 Zhang Guile M Independent director 67 04.6—07.6 0 0 Supervisors (3 persons): Yu Fuchun M Chairman 49 04.6—07.6 10,140 10,140 Men Yuesheng M Supervisor 55 04.6—07.6 975 975 Chi Feng F Supervisor 36 04.6—07.6 0 0 Senior staff members: Zhang He M General manager 70 04.6—07.6 33,345 33,345 Yang Bin M Standing deputy 51 04.6—07.6 0 0 general manager Zhang Hongzhi M Deputy general 49 04.6—07.6 27,462 27,462 manager Wang Dekun M Deputy general 56 04.6—07.6 18,525 18,525 manager Wang Zhiqiang M Deputy general 46 04.6—07.6 0 0 manager Hu Xitang M Deputy general 40 04.6—07.6 0 0 manager Xu Junrao F Financial majordomo 44 04.6—07.6 3,900 3,900 Lv Lianzhen F Secretary of BOD 55 04.6—07.6 3,510 3,510 The directors and supervisors who hold positions in the shareholders’ companies: Zhang He holding the position of the chairman of Dalian Bingshan Group Co., Ltd.; Mu Chuanjiang holding the position of the general manager of Dalian Bingshan Group Co., Ltd. The brief incumbency history of each of the present directors, supervisors and senior staff members and their holding or concurrently holding positions other than in the shareholder’s own unit: Page ９ Dalian Refrigeration Co., Ltd. 2007 Annual Report Holding positions or concurrently holding positions of Name Brief incumbency history units other than the shareholder’s own unit Having acted as the vice chief engineer, the plant The chairman of Dalian Bingshan Group Imp. & Exp. Zhang He manager, and the general manager and chairman of Co., Ltd.; and the chairman of Dalian Bingshan Metal the company. Processing Co., Ltd. Having acted as the plant deputy manager, the deputy The Chairman of Board of Directors of Linde Mu Chuanjiang general manager, and the general manager and vice Engineering (Dalian) Co., Ltd chairman of the company. Having acted as the chief of the Design Dept., the The chairman of Beijing Bingshan Package Refrigerator chief of the Business Planning Dept., the assistant to & Air Conditioner Co., Ltd.; the chairman of Beijing the general manager, the deputy general manager, the Huashang Bingshan Package Refrigerator & Air Yang Bin standing deputy general manager and the director of Conditioner Co., Ltd.; the chairman of Dalian Bingshan the company. Group Sales Co., Ltd.; and the chairman of Shanghai Bingshan Package Refrigerator & Air Conditioner Sales Service Co., Ltd. Having acted as the deputy chief and the chief of the Xu Junrao Finance Dept., the assistant chief accountant, the None financial majordomo and the director of the company. Having acted as the executive director of Sanyo Electric Co., Ltd., the chief of the Commercial Shimada Tadao Strategy Dept. of the Commercial Enterprise Group, None and the representative director and the president of Sanyo Electric Air-Conditioner Co., Ltd. Having acted as the assistant to the president and the Cheng Geng general manager and vice president of the Investment Unknown & Banking Dept. of Junan Securities Co. Having acted as the chief of the Industrial Dept., the assistant to the president and the chief auditor of Lv Zhongli Unknown Industrial and Commercial Bank of China Dalian Branch. Having acted as the associate professor and the Wang Dong professor of Northeast University of Finance and Unkown Economics. Having acted as the associate professor, the professor, the dean of faculty, the member of the university Zhang Guile Party committee, the member of the academic board Unkown of the university, and the head of the economics group of Northeast University of Finance and Economics. Having acted as the vice chairman of the Trade Union Yu Fuchun None of the company. Having acted as the chief of the Assets Management Men Yuesheng Dept., the chief of the Audit & Supervision Dept. and None the Price Dept. of the company. Page １０ Dalian Refrigeration Co., Ltd. 2007 Annual Report Having acted as the deputy chief of the Assets Chi Feng None Management Dept. of the company. Having acted as the deputy chief of the Chief The chairman of Dalian Bingshan Group Cold-Drink Engineer’s Office, the chief engineer and the deputy Equipment Co., Ltd.; the chairman of Dalian Bingshan Zhang Hongzhi general manager of the company. Group Refrigerator Co., Ltd.; and the chairman of Dalian Bingshan Group Refrigerator & Air-Conditioner Installation Co. Having acted as the deputy chief of the workshop, the chief of the Imp. & Exp. Dept., the assistant secretary Wang Dekun of the Party committee, the chairman of the Trade None Union, and the deputy general manager of the company. Having acted as the department’s deputy chief and Wang Zhiqiang chief, the chief engineer and the deputy general None manager of the company. Having acted as the deputy chief of the Political & Ideological Work Dept., the secretary of Committee Hu Xitang for Discipline Inspection, the assistant secretary of the None Party committee and the deputy general manager of the company. Having acted as the manager and deputy manager of Lv Lianzhen the General Office and the secretary of the Board of None Directors of the Company. (2) Annual remuneration standard The Company specified the remuneration standard for directors, supervisors and senior staff members in consideration of the actual conditions of production and operation on the basis of "lower than the two increases", i. e. the salary increase is lower than the increase of the annual labor productivity and than the increase of profit. Name Annual remuneration and allowance Zhang He 365,000 Mu Chuanjiang 365,000 Yang Bin 308,000 Xu Junrao 272,000 Lv Zhongli 50,000 Wang Dong 50,000 Zhang Guile 50,000 Zhang Hongzhi 272,000 Wang Dekun 272,000 Wang Zhiqiang 272,000 Hu Xitang 272,000 Total 2,548,000 Page １１ Dalian Refrigeration Co., Ltd. 2007 Annual Report Chen Geng, Shimada Tadao, Men Yuesheng, and Chi Feng received remuneration and allowance from the shareholder's unit or other associated unit without pay from the Company. (3) Changes In the report period, there were no changes in directors, supervisors and senior staff members. 2. Employees According to the statistics by Dec. 31, 2007, the Company had 1,676 employees including 924 production personnel (55.1% of the total), 307 technicians (18.3% of the total), 225 salesmen (13.4 of the total), and 220 administrative personnel (13.1% of the total). There were 735 persons employed by the Company who had the educational background of university or technical college, accounting for 43.9%. The social insurance institute paid the retirement pension and medical expenses for retirees of the Company. Page １２ Dalian Refrigeration Co., Ltd. 2007 Annual Report V. The Administrative System of the Company 1. Administration of the Company At the end of reporting period, actual condition of the corporation governance complied with the requirements stipulated in the related documents of The China Securities Regulatory Commission. No difference existed. 2. The independent directors' performance of duties There are three independent directors in this company at present. These independent directors attend the Board of Directors meeting timely and presented their independent opinions. They have fulfilled their duties and maintained the legal equity of the medium and small shareholders. On April 13, 2007, they approved beforehand such important issues as daily transactions intended with the associated enterprises, engagement of the auditing agency for 2007, and participation in Dalian Sanyo Efficient Refrigeration System Co., Ltd., etc. On April 24, 2007, they expressed their independent opinions on accumulative external guarantees, current external guarantees and implementation of related regulations, daily associated transactions in 2006 and forecast on the associated transactions in 2007, and equity participation in Dalian Sanyo Efficient Refrigeration System Co., Ltd., etc. On August 8, 2007, they approved beforehand the proposal to increase the investment in Dalian Sanyo Cold-Chain Co., Ltd. and Dalian Sanyo Air-conditioner Co., Ltd.. On August 17, 2007, they expressed their independent opinions on the above important issues, too. Name of Personal Attendance Number of due board Absence independent attendance by proxy meetings this year (times) director (times) (times) Lv Zhongli 5 5 0 0 Wang Dong 5 5 0 0 Zhang Guile 5 5 0 0 3. Separation of the Company from the holding shareholders in business, personnel, assets, organizational mechanism and finance (1) Separation in business. The Company's business is independent of the holding shareholders. The Company has its own complete business system and the capability of independent operation. (2) Separation in personnel. The Company is independent in labor, personnel and salary management. (3) Complete assets. The Company has the independent production system, auxiliary production system and supporting facilities. The Company owns the invisible assets including the industrial property right, trademark and non-patent technologies. The Company has its own purchase and sales systems. (4) Independent organizational mechanism. The Company has an organizational mechanism completely independent of the holding shareholders without joint office with the holding shareholder. Page １３ Dalian Refrigeration Co., Ltd. 2007 Annual Report (5) Independent accounting system. The Company has its own accounting department with the independent accounting system and the financial management system, and has its own bank accounts. 4. Self-evaluation of internal control in company （Ⅰ）Summary In 2007, by taking a special governance activity as the carrier and emphasizing amendment of the internal control system, the company perfected its internal control system further. At present, the company has established a standard and scientific internal control organizational framework, identified the target, duty, and responsibility of each department and post, and set up a related system of authorization, check and accountability level by level, which ensure the implementation of the instructions from the Board of Directors and senior managerial persons. The company has built an integrated internal control system. With the fundamental management system as the core, the internal control mainly includes the important aspects such as human resource and performance appraisal management, marketing management, security and equipment management, enterprise logistics management, quality control management, technology management, enterprise information management, enterprise assets management, information disclosure management, etc., which concern over thirty management systems. The above mentioned systems are perfect, accordant to the reality of the company, so it is of strong operability. The company also set up an internal auditing department especially for supervision and check, i.e. Auditing & Supervision Department. The department engaged full-time auditors for check and supervision to operation of internal control, and worked on system implementation, auditing of economic liability, special auditing etc. In 2007, according to the Notice on the Matters Concerning Carrying Out Special Activities to Strengthen the Corporate Governance of Listed Companies (ZJGSZ[2007] No. 28) of China Securities Regulatory Commission, and under the uniform allocation and careful instruction of Dalian Securities Regulatory Bureau, the company carried out a special governance activity earnestly. This special activity lasted for half a year, experiencing three stages (self-check stage, public comment stage, rectification and improvement stage). The company has rectified the issues in the self-check stage as well as that put forward by the regulatory authority at the public comment stage. The 13th Meeting of the 4th Session of the Board of Directors reviewed and approved the rectification report of the special activity to strengthen the corporate governance. Through the special activity, the internal control system is more perfected and the level of standard operations of the company is improved further. （Ⅱ）Important activities to be controlled 1. Control structure and shareholding ratio sheet of holding subsidiaries Page １４ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Refrigeration Co., Ltd. 100% 90% 70% 70% 64.25% 60% 51％ 45% Dalian Bingshan Group Refrigeration and Air Conditioner Company Dalian Bingshan Group Sales Company Dalian Bingshan Air Conditioning Equipment Co., Ltd. Dalian Bingshan Lingshe Quick Freezing Equipment Co., Ltd. Dalian Bingshan Metal Work Co., Ltd. Dalian Bingshan Guardian Automation Co., Ltd. Wuhan New World Refrigeration Industries Co., Ltd. Equipment Sales & Service Co., Ltd. Shanghai Bingshan Refrigeration and Air Conditioner Package 2. Management and control of holding subsidiaries The company built a controlling system to holding subsidiaries, assigned directors, supervisors and important superior managers with clear duty and rights to holding subsidiaries. Holding subsidiaries set up related business plan, risk management procedure, significant events reporting system and auditing system corresponding to the company. The company checks and supervises implementation of the business plans and the standard operations of the holding subsidiaries by convening monthly production and operation meeting and performance appraisal meeting. The control and management of the company over the holding subsidiaries have been carried out without any non-conformity with the Guidance to Listed Company Internal Control. 3. Internal control on associated transaction The company defines clearly the approval power of shareholders general meeting and the Board of Directors to associated transactions, and stipulates the approval procedure and voting avoidance requirement relating to associated transactions. Daily associated transactions in the present year and that in the next are special issues of the company. They shall be submitted to the Board of Directors and shareholders general meeting held in April or May every year for reviewing and approving after approval by the independent directors beforehand. The internal control of associated transactions has been carried out without any non-conformity with the Guidance to Listed Company Internal Control. Page １５ Dalian Refrigeration Co., Ltd. 2007 Annual Report 4. Internal control of external guarantee According to the Notice Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties issued by China Securities Regulatory Commission, the company controls strictly its external guarantees and strengthens its management to the holding subsidiaries regarding guarantees at the same time. In the Articles of Association, the approval authority, approval procedure, credit standard of guaranteed object and the like for external guarantee have been clearly stipulated. Thanks to the proper measures and powerful implementation, the company has no record of illegal guarantee. The internal control for external guarantee of the company has been carried out without any non-conformity with Guidance to Listed Company Internal Control. 5. Internal control on the use of raised fund During reporting period, the company amended and perfected Management System on Raised Fund, and clearly stipulated the deposit, approval, use, change, supervision and liability etc. of raised fund. The internal control on the use of raised funds of the company has been carried out without any non-conformity with the Guidance to Listed Company Internal Control. 6. Internal control of significant investments To standardize significant investment actions of the company and avoid related investment risks, the company shareholders general meeting authorizes the Board of Directors with limitation. The Articles of Association clearly stipulates that a strict auditing and resolution procedure must be made for the use of assets in risk investments by Board of Directors. Significant investments must be reviewed by experts and professionals. The authority of Board of Directors in risk investments with the company assets shall not exceed 5% of the total assets newly audited. Besides, the shareholders general meeting grants no investment authority to the General Manager with the investment right, stressing more the authority of collective decision by the Board of Directors. The internal control to significant investment of the company has been carried out without any non-conformity with Guidance to Listed Company Internal Control". 7. Internal control on information disclosure According to the stipulations of the Information Disclosure Rules of Listed Company, the company established a information disclosure affairs management system to enact the procedures for compilation, approval and disclosure of regular statements and that for report, delivery, approval, disclosure of significant events. It clarified internal confidential responsibility and has had it fulfilled effectively. The company is carrying out actively the work on investor relation management and has worked out a management system on the same. The internal control in information disclosure has been carried out without any non-conformity with Guidance to Listed Company Internal Control. 8. Issues and rectification plan For details concerning the issues at the self-check stage as well as that put forward by the regulatory authority during the special governance activity, please refer to the rectification report for that activity (as released on China Securities Daily and Wen Wei Po dated October 27, 2007). （Ⅲ）Self-evaluation of internal control The company has set up a relatively perfect internal control system and established feasible internal control system according to related requirements, and the company sufficiently stressed Page １６ Dalian Refrigeration Co., Ltd. 2007 Annual Report the internal control on important activities like holding subsidiaries, affiliated transactions, external guarantee, use of raised fund, important investment, information disclosure etc. Current internal control system and internal control rules of the company are in accordance with the reality of the company, which can ensure that the company develops normally and standardizes the development. For the future production, the company will duly amend and perfect internal control system based on the need of development, and improve the internal control system further. （Ⅳ）Opinion of supervisory committee on self-evaluation of internal control of the company The current condition of the internal control system of the company meets the related requirements and conforms to the reality of company. The internal control system of the company is fulfilled well during production and operation and has exerted its function actively. The company has rectified the issues discovered at the self-check stage during the special governance activity as well as that put forward by regulatory authority during the public comment stage. To sum up, we agree to the self-evaluation of the company on internal control. （Ⅴ）Opinion of the company’s independent director on self-evaluation of internal control. According to regulations in Guiding Opinion for Listed Companies on the Establishment of an Independent Director System and Guidance to listed company internal control issued by Shenzen Stock Exchange, we, as independent directors, has carefully audited the internal control of the company, and the following are our opinions on the self-evaluation of the internal control of the company: The company has established a perfect internal control system, and the internal control system meets related regulations, and complies with the reality of the company. The company has rectified all the issues discovered at the self-check stage during the special governance activity as well as that put forward by the regulatory authority during the public comment stage, and the internal control level of the company has improved further. The situation of the company has no non-conformity with the Guidance to listed company internal control. To sum sup, we agree the self-evaluation of the company on the internal control. 5. The assessment and stimulation mechanism for senior managerial persons The company evaluated and rewarded superior managers according to assets operation performance evaluation method during reporting period. VI. A Brief Introduction to the Shareholders General Meeting In the morning on May 22, 2007, the Company’s 2006 annual general meeting was held at the Company’s head office. The announcement about this general meeting’s resolutions was published on China Securities Daily and Wen Wei Po dated of May 23, 2007. Page １７ Dalian Refrigeration Co., Ltd. 2007 Annual Report VII. Report of the Board of Directors 1. Discussion and analysis of the management A. Review of the Company’s business status in the report period (1) Summary of the Company’s overall business status in the report period The Company is the largest industrial refrigerator producer in China, and owns the famous trademark in Chinese industrial refrigeration industry. The main products of the Company are: reciprocating refrigeration compressors, screw type refrigeration compressors, centrifugal type refrigeration compressors, and pressure vessels, combined storage, gas-conditioned freshness-keeping storage, plate type freezers, tunnel type freezers, block ice makers, flake ice makers and ice particle makers in five series (refrigerating, freezing, air-conditioning, cold storage, and freshness keeping) and six packages (air-conditioning package, civilwork cold storage package, combined cold storage package, ice-making package, special engineering package, and gas-conditioned freshness keeping package). These products can be used in such fields as scientific research, petroleum, chemical industry, textile, pharmacy, power plants, agriculture, stock raising, fishing and catering service. a. Main business In 2007, the company closely focused on the central work of “one exploitation, three innovations, and one harmonization” and target requirement. It took the profit and cost as the center to adapt actively to the market development tendency, tried its best to overcome the influence brought by such negative elements as price rising of raw materials and the increased pressure from market competitions, spared no effort to develop the domestic and oversea markets, carried out an overall quality improvement activity to further upgrade the basic management level and core competitive power of the company. In 2007, the operation revenue of the company amounted to RMB 1,653.96 million, up by 2.27% from the same period last year; the total profit RMB 150.37 million, down by 4.53% from the same period last year. In 2007, the company strongly promoted new energy saving and environmental protection products, which increased the market share of industrial refrigeration and deep processing of agricultural products. The company has transferred from product sale to package sale step by step. In 2007, the company undertook about 120 projects, double that in previous year. The 1st phase of seawater source heat pump project in Xinghai Bay was successfully completed, all the technology parameters met the designed requirements, and it works well. The seawater source heat pump project at Xiaoping Island will start in this year. In 2007, the company stressed research and development of such 29 new products as two-stage screw compressor unit, marine air conditioner unit of assembly type, new range of adjustable screw units, etc. In 2007, the company was focused on planning for and carrying out a group of technical transformation projects such as agricultural products deep-processing refrigeration process and storage package equipment, special screw compressors for large-scale petrochemical works, heat pump, promotion of the foundry relocation plan, etc. In 2007, the company obtained ASME certification, which helped Bingshan products to be available in international market like Europe and America etc. In 2007, the company carried out a quality improvement activity involving all and the whole Page １８ Dalian Refrigeration Co., Ltd. 2007 Annual Report process to solidify the basic management and upgrade steadily the quality work. In the meantime, the company implemented the plan management mode combining quarterly plan, month plan, and ten-day plan, this mode does not only accelerated the production, but also drove the production and management to a high level. With the application of ten-day plan, the company solidified and deepened its excellent production. In 2007, confronted with the lasting high raw material prices, the company, by taking actively various measures and tapping the in-depth potentials to reduce cost, gained a good effect. By making full use of the integral advantages of Bingshan Group in resources, the company controlled effectively the purchase cost by united purchase for bulk raw materials. b. Sino-foreign joint-ventures At the end of 2007, the total assets of the Sino-foreign joint-venture group of the company was RMB 5,403.46 million, up by 18.24% from the same period last year; the net assets was RMB 2,346.75 million, up by 16.64% from the same period last year. In 2007, the sales revenue of the Sino-foreign joint-venture group of the company was RMB 6,682.33 million, up by 8.64% from the same period last year, in which the export sales revenue was RMB 1,649.12 million, almost the same as the previous year. The investment revenue of the Sino-foreign joint-ventures of the company was RMB 93.88 million, down by 3.84% from the same period last year. During the reporting period, there are three joint-ventures with the investment revenue over 10% of the net profit of the company, they are: Dalian Sanyo Compressor, Dalian Sanyo Air-Conditioner, and Dalian Sanyo Cold Chain. During reporting period, there are nine joint-ventures with the main business revenue over RMB100 million in the Sino-foreign joint-venture group, including five over RMB 500 million and four over RMB 1,000 million; five with net profit over RMB10 million and two over RMB 50 million. Based on new product technology, structure and features, Dalian Sanyo Compressor strengthened market development in 2007. By organizing distributor meetings, product promotion activities and new offices, etc., Dalian Sanyo Compressor has gained new development in both regional market distribution and industrial field expansion. The company fulfilled development of multiple new vortex compressors and purchased new equipments within the year to further increase the vortex compressor production capacity. In 2007, Dalian Sanyo Air-Conditioner introduced refrigerant 410, a new product of DC variable frequency, and took the lead to promote the energy-saving air-conditioner on the market of the information industry. It passed American UL listing and had its products successfully sold to US and Canada. With the export volumes of various models increasing by 25.4% from the previous year in the whole year, a good export achievement was achieved. In 2007, persisting in the marketing strategy of “Increasing Occupation Rate of High Level Customers”, Dalian Sanyo Cold Chain Co., Ltd. put more marketing resources to the top 100 customers in chain trade, actively applied and promoted the advanced new energy saving and eco-friendly products. The company successfully contracted with Metro Group - the third largest chain supermarket in the world to supply products to its China Area as the sole supplier, keeping its leading position in this field. With capital increase and production expansion, the company further optimized business strategy frame for the future, that is taking supermarkets, convenient Page １９ Dalian Refrigeration Co., Ltd. 2007 Annual Report stores and commercial kitchen facilities as the base of business development, and further expanded its business of beverage showcases and bio-medical facilities. In 2007, for the development highlights and demands of the market, such as energy saving, emission reduction and clean energy etc., Dalian Sanyo Refrigeration Co., Ltd. put in market many new products such as the high-efficient variable-frequency screw chiller, the solar steam double-effect lithium bromide absorption water heater/chiller units, the GHP hot water generator, the combined cooling, heating and power supply system, etc., and promoted them towards comprehensive specialized central air-conditioner manufacturers. (2) Analysis on the company’s main business ① Products in main business and their regional distribution The Company’s income on main business all came from the refrigeration and air-conditioner products. The products are produced in two cities of Dalian and Wuhan and sold all over the country without distinct regional distribution. The exported products accounted for about 8% of the income on main business in the same period. For the breakdown of the incomes on main business listed on the basis of industries and geographic distribution, see the Explanatory Note 5-30 and 5-43 to the Accounting Report. ②Major suppliers and customers The Company purchased goods from the first five suppliers with the total amount of 311.94 million yuan, accounting for 25.03% of the Company's annual total amount of purchase. The Company sold products to the first five customers with the total sales of 259.02 million yuan, accounting for 15.66% of the Company's total sales. (3) Financial status of the Company a. Composition of assets (unit: RMB 10 thousand) 2007 2006 Proportion to Proportion to Item Change Amount the total assets Amount the total assets % % Receivables 44,264 17.14% 37,748 16.93% +17.26% Inventory 30,750 11.91% 25,485 11.43% +20.66% Real estate investment 0 0.00% 0 0.00% 0.00% Long-term equity 97,571 37.78% 83,817 37.60% +16.41% investment Fixed assets 39,017 15.11% 34,928 15.67% +11.71% Construction in progress 887 0.34% 2,078 0.93% -57.31% Short-term loans 7,000 2.71% 0 0.00% - Long term loans 5,000 1.94% 5,000 2.24% 0.00% Total assets 258,289 100% 222,910 100% +15.87% Note: ① The receivables were increased mainly due to increase of the unmatured receivables. ② The inventory was increased mainly due to increase of the materials in stock and the products in process resulted from increase of the sales contracts. ③ The long-term equity investment was creased mainly due to additional investment of the Page ２０ Dalian Refrigeration Co., Ltd. 2007 Annual Report Company to Dalian Sanyo Cold Chain Co., Ltd., Grand Ocean Showa Air-Conditioner (Dalian) Co., Ltd. and Dalian Sanyo Air-Conditioner Co., Ltd. ④ The fixed assets was increased mainly due to increase of houses and buildings in relocation and reconstruction of the subsidiary companies. ⑤ The construction in process was decreased mainly due to the subsidiary company’s most works of the relocation and reconstruction project that have been put into service. ⑥ The short-term loan was increased mainly due to the additional working capital for large package projects of the parent company and its subsidiary companies. b. Expenses and income tax (unit: RMB 10 thousand) Item 2007 2006 change Sales expense 10,169 10,311 -1.38% Management expense 12,791 12,788 +0.02% Financial expense 350 60 +483.33% Income tax 815 1,246 -34.59% Note: ① The financial expense was increased mainly due to increase of the short-term loan and decrease of the revenue on interest. ② The income tax was decreased mainly due to decrease of the deferred income tax in the current year. c. Composition of cash flow (Unit: RMB 10 thousand) Item 2007 2006 Change Net amount of cash flow generated in operating 2,345 7,494 -5,149 activities Net amount of cash flow generated in investment -9,567 -2,312 -7,255 activities Net amount of cash flow generated in fund 1,915 -8,914 +10,829 raising activities Note: ① The net amount of cash flow generated in operating activities was decreased mainly due to increase of the relevant expenses for purchasing commodities, paying for the labor, etc. ② The net amount of cash flow generated in investment activities was decreased mainly due to additional investment of the Company to the joint venture companies. ③ The net amount of cash flow generated in fund raising activities was increased mainly due to increase of the bank loan of the parent company and its subsidiary companies. (4) Business status and performances of the principal holding subsidiary companies and participating companies a. Main holding subsidiary companies ① Dalian Bingshan Group Refrigerator & Air-conditioner Installation Co. With a registered capital of 20.04 million yuan and 100% of its shares held by the Company, Dalian Bingshan Group Refrigerator & Air-conditioner Installation Co. is engaged mainly in installation and test of complete sets of refrigeration equipment. The company realized the sales of 80.75 million yuan and net profit of 1,320 thousand yuan in 2007, with total assets of 52.16 million yuan and net assets of 22.07 million yuan. Page ２１ Dalian Refrigeration Co., Ltd. 2007 Annual Report ② Dalian Bingshan Group Sales Co., Ltd. With a registered capital of 18 million yuan and 90% of its shares held by the Company, Dalian Bingshan Group Sales Co., Ltd. is engaged mainly in selling the products of the member enterprises of Dalian Bingshan Group. The company realized the sales of 33.26 million yuan and net profit of 480 thousand yuan in 2007, with total assets of 33.89 million yuan and net assets of 21.82 million yuan. ③ Dalian Bingshan Air-conditioning Equipment Co., Ltd. With a registered capital of 700 million Japanese yen and 70% of its shares held by the Company, Dalian Bingshan Air-conditioning Equipment Co., Ltd. is engaged mainly in production and sale of the terminal products for air conditioners such as fan coils and air processors. The company realized the sales of 132.12 million yuan and net profit of 3,280 thousand yuan in 2007, with total assets of 136.68 million yuan and net assets of 70.22 million yuan. ④ Dalian Bingshan Ryosetsu Fast Frozen Equipment Co., Ltd. With a registered capital of US$ 1 million and 70% of its shares held by the Company, Dalian Bingshan Ryosetsu Fast Frozen Equipment Co., Ltd. produces and selling fast frozen equipment. The company realized the sales of 29.82 million yuan and net profit of 380 thousand yuan in 2007, with total assets of 26.99 million yuan and net assets of 7.62 million yuan. ⑤ Dalian Bingshan Metal Processing Co., Ltd. With a registered capital of US$ 2.35 million and 64.25% of its shares held by the Company, Dalian Bingshan Metal Processing Co., Ltd. produces and supplies metal plate works and stampings for the established joint venture companies and the Company. The company realized the sales of 30.05 million yuan and net profit of -2,220 thousand yuan in 2007, with total assets of 32.53 million yuan and net assets of 20.56 million yuan. ⑥ Dalian Bingshan Guardian Automation Co., Ltd. With a registered capital of GBP 210 thousand and 60% of its shares held by the Company, Dalian Bingshan Guardian Automation Co., Ltd. engaged mainly in supplying automated control technology for refrigeration & other fields. The company realized the sales of 16.31 million yuan and net profit of 1,780 thousand yuan in 2007, with total assets of 9.78 million yuan and net assets of 5.06 million yuan. ⑦ Wuhan New World Refrigeration Industry Co., Ltd. With a registered capital of 30 million yuan and 51% of its shares held by the Company, Wuhan New World Refrigeration Industry Co., Ltd. engaged mainly in producing and selling screw type refrigeration compressor. The company realized the sales of 266.48 million yuan and net profit of 29,720 thousand yuan in 2007, with total assets of 342.04 million yuan and net assets of 95.91 million yuan. b. Main participating companies Name Sales（thousand yuan） Net profit（thousand yuan） Dalian Sanyo Compressor 1,168,370 95,400 Dalian Sanyo Air Conditioner 1,503,270 73,930 Dalian Sanyo Cold-chain 1,460,470 37,850 Dalian Sanyo Refrigeration 517,830 23,130 Page ２２ Dalian Refrigeration Co., Ltd. 2007 Annual Report B. Development prospect of the Company (1) Trend of the industrial development The Company is in the refrigeration and air-conditioning industry. Refrigerators and air-conditioners are used widely with increasing expansion of the service field. Refrigerators and air-conditioners are indispensable to whether industries, agriculture, construction, commerce, scientific research, national defense, education, culture and public health, or food, clothing, housing and transport in people’s living. Rapid growth of the national economy and comprehensive promotion of the moderately prosperous society provide the refrigeration and air-conditioning industry, which manufactures supporting equipment for all fields of the national economy, with a broader space to develop. As the reform and opening up is being depended and the import tariff is reduced step by step after China’s accession to the WTO, more and more products of the international competitors go into Chinese market, causing higher pressure on Chinese refrigeration and air-conditioning industry. (2) Opportunities and challenges faced by the Company For the more general category, the Company’s products can be regarded as the supporting equipment for both the investment-based industries and the consumption-based industries. It is the comprehensive supporting capability covering the two major fields of the investment-based industries and the consumption-based industries that provides the Company with the higher resistance to cyclicity and the low sensitivity to macro adjustment and control. In comparison with the international competitors, there still is a gap between the Company and them mainly on the aspect of technical progress. However, the Company has many comparative advantages, including the nationwide marketing network, after-sale network and resources of customers, and the high cost performance of products. (3) Development plan of the Company With the guiding ideology of “development, reform, innovation, harmony”, and based on the main business of refrigerators and air-conditioners, the Company will put much efforts to research & development of high technical products with energy saving and low consumption in the refrigerating & heating and ecological and environmental protection fields, form the industrial chain and further increase the market shares in domestic and overseas markets, to win honors for Chinese machine-building industry and serve for improving the living conditions of human. (4) Demand for funds and fund source plan The estimated funds that the Company needed in 2008 will be from its own funds and debt financing. (5) Business plan for 2008 The Company’s business targets for 2008: Sales income: 1,600 million yuan Total amount of profit: 135 million yuan ① Considering the background of global competition, the company, focusing on market development tendency and capital investment direction, will devote itself to development of the markets at home and abroad to ensure achievement of the annual business targets. Bingshan Group will continue utilizing its integration advantage and joint sale advantage, and keep on perfecting and innovating the marketing service mechanism and management mode. ② With the aim to development of the cooling, heating and bio-friendly products, the company Page ２３ Dalian Refrigeration Co., Ltd. 2007 Annual Report will quicken the product mix adjustment, technology transformation and joint venture and cooperation, and step forward development of eco-friendly, energy saving and safe products. Meanwhile, the company will accelerate the application and promotion of new technologies and new processes, and strive to be ahead of competitors to gain the market share positively. ③ Focusing on the management innovation and implementation, the company will further improve its basic management work, perfect management systems, and strengthen the work on cost reduction. (6) Main risks faced by the Company and countermeasures Main risk confronted at present by the company is the price hike of raw materials. In 2008, reducing cost is still the most important work of management innovation. This work should be carried out all around on product mix optimization, material substitution, expense management etc. The company should bring the group advantage into full play and keep on the group purchase. 2. Investment of the Company By the end of 2007, the Company had established such joint ventures respectively with the companies from Japan, Hong Kong, the United States and Britain as follows: Name of the company Registered address Main business Ratio of shares Thermo King Container Temperature Suzhou Temperature controller 10% Control (Suzhou) Co., Ltd. products for marine containers Thermo King-Dalian Transport Shenzhen Producing & selling cold 25% Refrigeration Co., Ltd. storage vehicles Grand Ocean Showa Auto Air- DETDZ Producing & selling auto air- 20% conditioning Engineering (Dalian) Co., Ltd. conditioners Dalian Sanyo High-Efficiency DETDZ Producing high-efficiency 25% Refrigeration System Co., Ltd. heat exchanger Dalian Honjo Chemical Co., Ltd. Dalian E & T Producing & selling lithium 30% Development Zone bromide liquor Dalian Sanyo Meica Electronics Co., Ltd.DETDZ Producing & selling printed 30% circuit boards Dalian Bingshan Aquatic Environment Dalian Producing ozone liquor 33% Equipment Co., Ltd. treatment plants Dalian Sanyo Refrigeration Co., Ltd. DETDZ Producing & selling lithium 40% bromide refrigerators Dalian Sanyo Cold-Chain Co., Ltd. DETDZ Producing & selling refrigera- 40% tors for supermarkets Dalian Sanyo Compressor Co., Ltd. DETDZ Producing & selling semi-hermetic 40% and hermetic compressors Dalian Grand Ocean Transport Dalian Assembling & selling movable 40% Refrigeration Engineering Co., Ltd. refrigerators Dalian Sanyo Air Conditioner Co., DETDZ Producing & selling air- 40% Ltd. conditioners Page ２４ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Sanyo Home Appliance Dalian Producing & selling small 40% Co., Ltd. household appliances Shenyang Sanyo Air Conditioner Co., Shenyang Production and sale of 40% Ltd. split wall-mounted air conditioners. Dalian Fuji-Bingshan Vending DETDZ Producing & selling vending 49% Machine Co., Ltd. machines Dalian P&A Recreation Development Dalian Designing & installing 50% Engineering Co., Ltd. recreational facilities Dalian Jiale Vending Machine Dalian sale of vending machines, 50% Sales Co., Ltd. soft drink, food and articles by using vending machines. Dalian Bingshan Guardian Dalian Automated control technology 60% Automation Co., Ltd. for refrigeration & other fields Dalian Bingshan Metal Processing Dalian Metal platework & stampings 64.25% Co., Ltd. Dalian Bingshan Air-conditioning Dalian Producing & selling terminal 70% Equipment Co., Ltd. products for air-conditioners Dalian Bingshan Ryosetsu Fast Frozen DETDZ Producing & selling fast frozen 70% Equipment Co., Ltd. equipment (1) The utilization of raised funds In the report period, the Company neither had raised funds nor had use of any previous-period raised fund going down to this report period. (2) Description of the investment projects utilizing non-raised funds In the report period, the company added its investment to Dalian Sanyo Air-Conditioner Co., Ltd. according to its original share proportion with its self-owned funds. Our company holds 40% of the share and therefore should add the investment of 1,254 million yen. In the report period, the company added its investment to Dalian Sanyo Cold Chain Co., Ltd. according to its original share proportion with its self-owned funds. Our company holds 40% of the share and therefore should add the investment of 588 million yen. In the report period, the company established Dalian Daleng Metal Technology Co., Ltd. with its self-owned funds. It is a wholly-owned subsidiary of our company with the registered capital of RMB 20 million. Its business scope is the production of cast products for machinery and equipment and pipes and the service of machining. 3. The routine work of the Board of Directors (1) Meetings of the Board of Directors and the resolutions in the report period ① The 10th meeting of the 4th Board of Directors The 4th Board of Directors of the Company held the 10th meeting at the conference room on 8/F of the head-office building on Apr. 24, 2007. The announcement about this Board meeting’s resolutions was published on China Securities Daily and Wen Wei Po dated of Apr. 26, 2007. Page ２５ Dalian Refrigeration Co., Ltd. 2007 Annual Report ② The 11th meeting of the 4th Board of Directors The 4th Board of Directors of the Company held the 11th meeting at the conference room on 8/F of the head-office building on June 29, 2007. The meeting reviewed and approved the company’s self-check report and rectification plan for the special rectification activity. ③ The 12th meeting of the 4th Board of Directors The 4th Board of Directors of the Company held the 12th meeting at the conference room on 6/F of the head-office building on Aug. 17, 2007. The announcement about this Board meeting’s resolutions was published on China Securities Daily and Wen Wei Po dated of Aug. 21, 2007. ④ The 13th meeting of the 4th Board of Directors The 4th Board of Directors of the Company held the 13th meeting at the conference room on 6/F of the head-office building on Oct. 25, 2007. The announcement about this Board meeting’s resolutions was published on China Securities Daily and Wen Wei Po dated of Oct. 27, 2007. ⑤ The 14th meeting of the 4th Board of Directors The 4th board of directors of the company held the 14th meeting by fax on Nov. 15, 2007. This meeting reviewed and approved the report for investment on establishment of Dalian Daleng Metal Technology Co., Ltd. (2) The execution of the resolutions adopted on the general shareholders meeting by the Board of Directors The Board of Directors of the Company earnestly carried out all the resolutions adopted at the 2006 general shareholders meeting. The 2006 profit distribution plan of the Company has been implemented by the Board of Directors in July 2007. (3) Summary report of the duty fulfillment of auditing committee under the board of directors The auditing committee under the board of directors has fulfilled its duty by complying with the Implementation Rules for the Auditing Committee under the Board of Directors. The committee supervised the internal auditing system of the company and its implementation, audited the financial information of the company and its disclosure, and appraised the work of the external auditing institution. In 2007, the auditing committee actively communicated with and supervised the auditing institution — Dalian Hualian Certified Public Accountants Co., Ltd. The auditing committee communicated with project manager of the auditing institution for the auditing plan, time, and notice during auditing, and had reached agreement with the auditing company before the auditing institution started its work. During auditing, the auditing committee kept close watch on the progress of auditing, supervised and urged the auditing institution to ensure the quality and schedule. After completion of the auditing, the auditing committee carefully reviewed the annual financial report and annual report of the company and admitted that the financial report was all-around and true, the financial report disclosed to the public reflected the real financial status of the company. The auditing committee commented on the auditing service of Dalian Hualian Certified Public Accountants Co., Ltd. for the company in 2007 that they provided the audit service for the company strictly according to the new accounting standard on the basis of independence, objectiveness and justice with the thorough plan and allocation of competent personnel. They Page ２６ Dalian Refrigeration Co., Ltd. 2007 Annual Report actively communicated with the auditing committee and independent directors, and well fulfilled their duty. They finished the auditing work of 2007 perfectly, and the auditing committee suggests renewing the engagement of Dalian Hualian Certified Public Accountants Co., Ltd. as the auditing institution for the company in 2008. (4) Summary report on duty fulfillment of the salary and performance appraisal committee under the board of directors The salary and performance appraisal committee has fulfilled their duty according to the Implementation Rules for the Salary and Performance Appraisal Committee under the Board of Directors and examined the annual salary of the company’s directors, supervisors and superior executives. They admitted that the salary decision procedure and distribution standards for the above people complied with the laws, regulations and the company’s rules and the salary disclosed in the 2007 Annual Report was true and correct. 4. The preplan of profit distribution or the preplan of converting the capital public reserve into additional shares The company applied the new accounting standard from January 1, 2007, which resulted in a remarkable difference between the net profit in the parent company’s accounting statements as of 2007 and the net profit owned by the parent company in the consolidated accounting statements. The Reply to the Application for Instructions on the Profit Distribution Problem in Working out the Consolidated Accounting Statements (CAI KUAI HAN No. [2000] 7 from the Ministry of Finance) required that the profit distribution for the companies to work out the consolidated accounting statements is based on the distributable profit of the parent company. According to the requirement, the company used the data in the parent company’s accounting statements for the profit distribution. According to the audit by Dalian Hualian Certified Public Accountants Co., Ltd., the net profit made by the company in 2007 was RMB 114.33 million and 10% of the net profit (RMB11.433 million) was drawn as the legal surplus reserve. Therefore, the profit distributable to the shareholders in the current year was RMB 102.897 million. Plus the initial undistributed profit of RMB 237.33 million and minus the dividend of RMB 52.502 million of common shares paid in 2006 and the drawn free surplus reserve of RMB 23.459 million (20%), the accumulated profit distributable to the shareholders is RMB 264.266 million, in which, RMB 22.866 million (20%) was drawn as the free surplus reserve, and RMB 52.502 million is distributed as the dividend, and the balance of RMB 188.898 million is transferred to the future for distribution. The company’s dividend distribution preplan for 2007: Based on the total capital stock of 350,014,975 shares at the end of 2007, the dividend of RMB 1.5 in cash (including tax) is distributed for every 10 shares, and the cash dividend for B share is converted and paid in Hong Kong dollars. The company will not transfer the capital reserve to increase capital stock. The above preplan shall be submitted to the shareholders general meeting 2007 for review and approval. Page ２７ Dalian Refrigeration Co., Ltd. 2007 Annual Report 5. The independent directors’ special description and independent opinion about the Company’s accumulated and current guarantee issuance and compliance with the related regulations The examination showed that the Company did not issue any guarantees for the holding shareholder, other associated parties with the shareholding less than 50%, any non-legal-person units and individuals, and the amount of guarantee issuance of the Company accounted for 0% of the net assets listed in the consolidated accounting statement in the last fiscal year. To sum up, we believe that the Company is well compliant with the related regulations. Page ２８ Dalian Refrigeration Co., Ltd. 2007 Annual Report VIII. The Report of the Supervisory Board In the report period, the board of supervisors held three meetings. The 10th meeting of the 4th board of supervisors was held in the conference room at the fifth floor of the Company’s head office on Apr. 24, 2007. The 2006 annual work report of the board of supervisors, the “report of the board of supervisors” in the Company’s 2006 annual report, and the examination opinions on the 2006 annual report and the quarterly report for the first quarter of 2007 were reviewed and passed at the meeting. The 11th meeting of the 4th board of supervisors was held in the conference room at the fifth floor of the Company’s head office on Aug. 17, 2007. The Company’s 2007 semiannual report and its abstract as well as the written examination opinions on the 2007 interim report were reviewed and passed at the meeting. The 12th meeting of the 4th board of supervisors was held in the conference room at the fifth floor of the Company’s head office on Oct. 25, 2007. The Company’s quarterly report for the third quarter of 2007 as well as the written examination opinions on the quarterly report for the third quarter of 2007 were reviewed and passed at the meeting. The Supervisory Board gave the independent comments on the following matters: (1) About legal operation of the Company. The Company had a legal resolution-making process and built a quite perfect internal control system. No acts of the directors and managers of the Company in the course of performing their duties were found to violate laws, regulations and the Articles of Association of the Company or to harm the interests of the Company. (2) About the financial condition of the Company. Dalian Hualian Certified Public Accountants has presented the unqualified-opinions auditor's report. The accounting report reflected the actual financial status and operation results of the Company. (3) In the report period, the Company had neither raised funds nor use of any raised fund that took place in the previous period and went down to this report period. (4) In the report period, associated transactions taking place on the Company in the report period mainly were purchase of goods from the associated companies. The above transactions were fair with no prejudice to the interests of the Company. (5) The procedures of withdrawing provisions for devaluation of assets in 2007 were legitimate and valid. Hereunder are the written examination opinions on the Company’s 2007 Annual Report: (1) The preparation and review procedures for this Annual Report comply with the laws and regulations, and the stipulations of the Articles of Association and the Company’s management rules. (2) The content and format of this Annual Report comply with the regulations of China Securities Regulatory Commission and Shenzhen Securities Exchange, and its content reflects on all aspects the authentic business management and financial status of the Company in 2007. (3) Before this Annual Report was worked out, no persons engaged in preparation and review of this Annual Report were found conducting with violation of the confidentiality requirements. Page ２９ Dalian Refrigeration Co., Ltd. 2007 Annual Report IX. Important Matters 1. There were no important matters concerning lawsuit or arbitration in the report period of this year. 2. In the report period, the Company had no important matters concerning purchase and sale of assets. 3. Important matters concerning associated transactions: (1) For details of associated transactions taking place in purchase of goods, see the Explanatory Notes to the Accounting Statements. In the report period, the total amount of normal associated transactions between the Company and associated parties was 750,850 thousand yuan, accounting for 104.3% of the budgeted amount for the year 2007. This included 471,400 thousand yuan, accounting for 94.3% of the budgeted amount for the year 2007, for purchasing supporting products for package projects from associated parties, and 27,945 thousand yuan, accounting for 127.0% of the budgeted amount for the year 2007, from selling supporting parts and components to associated parties. (2) For details of the associated debts and claims, see the Special Audit Opinion on Dalian Refrigeration Co., Ltd.’s Using the Funds of Its Holding Shareholders and other Associated Parties issued by Dalian Hualian Certified Public Accountants Co., Ltd. (3) Associated transaction brought by joint foreign investment between the company and associated party In the report period, the company and the associated party Sanyo Electric Co., Ltd. jointly added their investment to Dalian Sanyo Air-Conditioner Co., Ltd. according to their original share proportions. The associated transaction report regarding the above matter was published on China Securities Daily and Wen Wei Po dated of August 21, 2007. 4. In the report period, the Company had no important matters concerning guarantees. There was no guarantee issued by the Company for the holding subsidiary in the report period. There was no guarantee issuance of the Company. here was no guarantee issuance of the Company by breaching the regulations. 5. In the report period, no cash assets of the Company were consigned to others for management and there were no matters concerning loan by mandate. 6. Holding of share equity of other listing companies （RMB）Yuan Unit： Proportion Profit Amount of of share Book value at and Change of Security Abbreviation primary equity in the end of loss owner’s equity code of security investment that period within within period company period 600346 Da Xiangsuo 2,307,692.31 1.11% 17,280,900.00 0.00 11,229,905.77 600728 SST Xintai 3,000,000.00 1.40% 3,000,000.00 0.00 0.00 Total 5,307,692.31 - 20,280,900.00 0.00 11,229,905.77 Page ３０ Dalian Refrigeration Co., Ltd. 2007 Annual Report 7. Holding of share equity of non-listing financial enterprises and intending to list enterprises Unit：（RMB）Yuan Proportion Profit Change of Amount of of share Book value at Name of Quantity and loss owner’s primary equity in the end of object held (Shares) held within equity within investment that period period period company Guotai Junan Secunities 30,098,895.00 30,098,895.00 0.64% 30,098,895.00 0.00 0.00 Co., Ltd Total 30,098,895.00 30,098,895.00 - 30,098,895.00 0.00 0.00 8. In the report period, the certified public accountants engaged by the Company had no changes. The remuneration paid to the certified public accountants in the report year is as follows: all the payment made to Dalian Hualian Certified Public Accountants was the audit charge of 280 thousand yuan without other charges, and the travelling expenses were borne by that company. Now, the consecutive service tenure of Dalian Hualian Certified Public Accountants Co., Ltd. is 15 years. According to China Securities Regulatory Commission’s Notice on Auditing of Companies Issuing Domestically Listed Foreign Shares (ZHENG JIAN HUI JI ZI No. [2007] 30), the company will not engage foreign auditing institutions for the auditing abroad any more from this report year. 9. Undertaking matters for trial sales of state shares and implementation Bingshan Group undertook that the Dalian Refrigeration Co., Ltd.’s state shares held by it would not be listed for trading or assigned within 12 months from the date when their being allowed to be listed for trading in the A-share market; that the shares would not be listed for trading within 48 months after expiry of the aforementioned undertaking; that it would submit the dividend distribution proposal for the annual dividend from 2005 to 2007 not lower than 50% of the distributable profit of Dalian Refrigeration Co., Ltd. for respective years, and ensure that it votes for that proposal at the general meeting; and that after this trial sales of state shares is completed, it would authorize the Board of Directors of Dalian Refrigeration Co., Ltd. to work out and apply as soon as possible the management incentive and restriction system with share options according to the state’s policies, laws and regulations. Bingshan Group well fulfilled the above undertaking. Page ３１ Dalian Refrigeration Co., Ltd. 2007 Annual Report 10. Table of investigation, communication, interview received Main content of Place of discussion and Date of reception Way of reception Guest received reception information provided Jan. 11, 2007 Communication Research fellow of HK Value Partners Feb. 7, 2007 by telephone Research fellow of Hang Seng Securities Mar. 14, 2007 Research fellow of CITI Securities Mar. 21, 2007 Research fellow of Bosera Funds May 8, 2007 Research fellow of Orient Securities May 22, 2007 Research fellow of United Securities On-the-spot May 25, 2007 Analyst of Sumitomo, Mitsui investigation June 13, 2007 Research fellow of CITI Securities June 14, 2007 Research fellow of Bosera Funds Fundemental June 19, 2007 In company Research fellow of Orient Securities information of July 31, 2007 Shanghai Yangyin Investment company Communication Aug. 7, 2007 Qin Han Investment by telephone On-the-spot Aug. 23, 2007 Research fellow of CITI Securities investigation Communication Nov. 1, 2007 Research fellow of Guotai Junan Securities by telephone On-the-spot Dec. 11, 2007 Research fellow of Gongyin Ruixin Funds investigation Page ３２ Dalian Refrigeration Co., Ltd. 2007 Annual Report 11. Indexes of important information announcements in the report period No. Description Date 2007-001 The informative announcement on cancellation of conditional sale 20070106 for the circulation shares subject to conditional sale 2007-002 Abstract of the 2006 Annual Report 2007-003 The resolution announcement of the 10th meeting of the 4th board of directors 2007-004 The Notice on Convening the Shareholders’ General Meeting 2006 2007-005 The resolution announcement of the 10th meeting of the 4th board 20070426 of supervisors 2007-006 The 1st quarterly report 2007 2007-007 The announcement on daily associated transactions 2007-008 The announcement on the associated transaction (establishment of Dalian Sanyo High-Efficiency Refrigeration System Co., Ltd.) 2007-009 The resolution announcement of the Shareholders’ General Meeting 20070523 2006 2007-010 The self-check report and rectification plan for the special 20070703 rectification activity of the company 2007-011 The notice of dividend and bonus distribution 2006 20070705 2007-012 Abstract of the Semiannual Report 2007 2007-013 The resolution announcement of the 12th meeting of the 4th board of directors 2007-014 The announcement on the associated transaction (investment 20070821 increase to Dalian Sanyo Cold Chain Co., Ltd.) 2007-015 The announcement on the associated transaction (investment increase to Dalian Sanyo Air-Conditioner Co., Ltd.) 2007-016 The announcement on the company’s Internet communication 20070929 meeting 2007-017 The announcement on abnormal fluctuation in stock transactions 20071019 2007-018 The 3rd quarterly report 2007 2007-019 The resolution announcement of the 13th meeting of the 4th board 20071027 of directors (the rectification report for the special rectification activity of the company) 2007-020 The announcement on trade suspension due to important matters 20071224 (reconstruction of the major shareholder Bingshan Group) Page ３３ Dalian Refrigeration Co., Ltd. 2007 Annual Report X. Financial Report 1. Report of the auditors HLNS(2008) No. 92 TO THE SHAREHOLDERS OF DALIAN REFRIGERATION COMPANY LIMITED We have audited the accompanying financial statements of Dalian Refrigeration Company Limited (hereinafter referred to as the “Company”), which comprise the consolidated balance sheet and balance sheet as at 31 December 2007, the consolidated income statement and income statement, the consolidated statement of changes in equity and statement of changes in equity, the consolidated cash flow statement and cash flow statement 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 China Accounting Standards 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 Standards on Auditing for 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 China Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the consolidated financial position and financial position of the Company as at 31 December 2007, and the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company for the year then ended. Dalian Hualian Certified Public Accountants Co., Ltd. China CPA: Zhang Yaolin Dalian, P. R. China China CPA: Yang Yingjin April 23, 2008 Page ３４ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2. Accounting Statements (attached) 3. Explanatory Notes to the Accounting Statements (All amounts in RMB yuan unless otherwise stated) Ⅰ.General information Dalian Refrigeration Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 18 December 1993 as a joint stock limited company. The principal activities of the Company are manufacture, sale and installation of refrigeration equipment. The Company together with its subsidiaries is hereinafter collectively referred to as the “Group”. The address of the Company’s registered office is No.888 Xinan Road, Shahekou District, Dalian. The Company’s domestically listed RMB denominated ordinary shares (“A shares”) and domestically listed foreign investment ordinary shares (“B shares”) were listed on the Shenzhen Stock Exchange in the PRC in December 1993 and March 1998 respectively. The immediate and ultimate parent company of the Company is Dalian Bingshan Group Company Limited (“Bingshan Group”). Ⅱ. The main accounting policies, accounting estimation of the Company and the way of working out the consolidated financial statements 1. Declaration on following Accounting Standard for Business Enterprises Declaration from the Company: the Financial Report made by the Company was in line with Accounting Standard, which reflected the financial status, business result and cash flow of the Company truly and objectively. 2. Compiling foundation of financial statements On the basis of continue management, according to the occurred transactions and events, recognizing and measuring by the new Accounting Standard for Business Enterprises published on Feb. 15, 2006 by Ministry of Finance and the application guidance, the Income Statement and Balance Sheet in the comparative period were made a retroactive modulation when they were worked out, in accordance with the requirement about retroactive modulation mentioned Accounting Standard for Business Enterprises No.38 – First time adoption of Accounting Standard for Business Enterprises Article Five to Nineteen. Moreover, the financial statements also listed and disclosed the related financial information according to Standards for Information Disclosure by Companies That Offer Securities the Public (No. 15) – General Rules for Financial Report (amended in 2007). 3. Fiscal year The Company adopts the calendar year as its fiscal year, i.e. from January 1 to December 31. 4. Functional currency RMB was the functional currency of the Company. 5. The items of the statements of which the measurement attributes changed and the adopted measurement attributes in the report period. The Company measured according to the canonical accounting measurement attributes. In the report period, measurement attributes were not changed. The Company conducted the measurement of the accounting elements commonly by historical cost. If using the way of replacement cost, net realizable value, present value and fair value, the measurement should be on the basis of the amount of the accounting element which could be obtained and measured reliably. 6. The standard for recognizing cash equivalent when making cash flow statement Cash equivalent means the highly liquid, very safe investment which can be easily converted into cash, and the company can hold it for a very short time (3 months from the date of purchase). Page ３５ Dalian Refrigeration Co., Ltd. 2007 Annual Report 7. Method of foreign currency translation When foreign currency translation occurs, the spot exchange rate on the date of translation (i.e., the middle price of the intraday foreign exchange rate of RMB published by People’s Bank of China) shall be converted into RMB for keeping accounts while the occurred foreign currency exchange or the foreign exchange transactions shall be translated according to exchange rate adopted in actual transactions. On the balance sheet date, the foreign currency monetary items and foreign currency non-monetary items shall be treated in accordance with the following provisions: The foreign currency monetary items shall be translated at the spot exchange rate on balance sheet date, of which happen during the normal business period shall be recorded into gains and losses at the current period; of which happen during organization period shall be recorded into long-term deferred expense. The exchange gains or losses caused by the borrowing belonging to acquiring fixed assets shall be treated by the capitalization of borrowing costs. Foreign currency non-monetary items shall be translated at spot rate on the date of transaction, not changing the amount of functional currency. 8. The recognition and measurement of financial instruments and the transfer of the financial instruments (1) Recognition of the financial assets When an enterprise becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. Where a financial asset satisfies any of the following requirements, the recognition of it shall be terminated: ① Where the contractual rights for collecting the cash flow of the said financial assets are terminated; ②Where the said financial asset has been transferred and meets the conditions for recognizing the termination of financial assets as provided for in Accounting Standard for Business Enterprises No. 23 – Transfer of Financial Assets. Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. (2) The classification, recognition and measurement of financial assets and financial liabilities The financial assets or financial liabilities got or born by the Company are measured according to the following classifications: ① The financial assets or financial liabilities which are measured at their fair value and the variation of which is recorded into the profits and losses of the current period The interest rate or cash dividend which was gained in the period when the financial assets held by the Company are measured at its fair value and of which the variation is recorded into the profits and losses in the current period shall be recognized as investment income. On balance sheet date, the in change in the fair value of the financial asset or financial liability which is measured at its fair value and of which the variation is recorded into the profits and losses of the current period, shall be recorded into the profits and losses of the current period; When the said financial assets of financial liabilities are on disposal, the difference between the fair value and the amount in initial account shall be recognized as investment income, meanwhile, the profits and losses arising from the change in fair value shall be adjusted. ② The investments which will be held to their maturity The investments which will be held to their maturity will regard the sum between the gained fair value and the transaction expense thereof as the initially recognized amount. The interest on bonds in payment, of which the mature interest is not drawn, shall be solely recognized as the receivables. The interest revenue which is measured and recognized by the amortized cost and actual interest rate during the period of the investments which will be held to their maturity shall be recorded into investment income. The actual interest rate which is recognized in the period of gaining the investments which will be held to their maturity, shall maintain unchanged within the Page ３６ Dalian Refrigeration Co., Ltd. 2007 Annual Report predicted term of existence or within a shorter applicable term of the said investment which will be held to their maturity. The little difference between actual interest rate and coupon rate of which interest revenue can be measured at the coupon rate shall be recorded into the profits of losses in the current period. When the investments which will be held to their maturity are on disposal, the difference between the obtained price and investment book value shall be recorded into the profits and losses in the current period. ③ The accounts receivables The creditor’s right receivable formed during the Company selling commodity outside or offering labor shall be regarded as the initially recognize amount in according with the receivable price stipulated in the contract or agreement signed between the Company and the buyers. When the Company recovers or disposes the accounts receivable, the difference between the obtained price and the book value of the accounts receivable shall be recorded into the profits and losses in the current period. ④ Financial assets available for sale The financial assets available for sale will be regarded as the initial recognized amount in according with the sum between the fair value obtained from the said financial assets and the transaction expense thereof. The interest on bonds of which the mature interest rate is not drawn in the payment or the cash dividend which is declared but not extended in the payment shall be solely recognized as the receivables. The interest rate or cash dividend gained during the period of holding the financial assets available for sale shall be recorded into investment income. On balance sheet date, the financial assets shall be measured through fair value, while the change in fair value is recorded into capital reserves (other capital reserves). When the financial assets are on disposal, the difference between the obtained price and the book value of the financial assets shall be recorded into investment income, meanwhile, the amount on proposal transferring out from the accumulated amount which is directly recorded into shareholders’ equity and arises from the variation of the fair value, shall be recorded into investment income. ⑤ Other financial liabilities Other financial liabilities are regarded as the initial recognized amount in accordance with the sum between the fair value and the transaction expense thereof. The Company shall make subsequent measurement on other financial liabilities on the basis of the post-amortization costs. (3) Main recognition method for the fair value of the financial assets or financial liabilities ① The quotation in the active market shall be used to recognize the fair value of the financial assets or financial liabilities existing in active market. ② If the financial instruments do not exist in the active market, the fair value shall be recognized by value appraisal techniques. ③ As for the financial assets initially obtained of produced at source and the financial liabilities assumed, the fair value thereof shall be determined on the basis of the transaction price of the market. (4) Main impairment test method of the financial assets and impairment provision method The recognition standard for impairment provision of the financial assets: the Company shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. The withdrawal method for impairment provision of the financial assets: as for the impairment provision of the financial assets is measured on the basis of post-amortization costs, if the current value of the predicted future cash flow of the financial assets is below the difference in the carrying amount of the said financial asset, the impairment provision of the financial assets shall be made; as for the impairment provision of the financial assets Page ３７ Dalian Refrigeration Co., Ltd. 2007 Annual Report available for sale, if the recoverable amount is below the difference in the carrying amount, the impairment provision shall be made. Where a sellable financial asset is impaired, even if the recognition of the financial asset has not been terminated, the accumulative losses arising from the decrease of the fair value of the owners’ equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. 9. The recognition standard and the withdrawal method for the bad debt provision of the accounts receivable (1) Receivables are considered uncollectible after liquidation with statutory procedures for debtors are in canceling or bankrupt, due death of debtors who has no bequest and no undertaker on obligation, or caused by debtors fail to perform their obligation to pay a debt over five years, and it will be recognized as bad debt. (2) The bad debt losses are accounted by the allowance method. The Company recognized the bad debt provision on the basis of the accounts age analysis method based on the actual financial status and the cash flow of the debt units, which shall be recorded into the profits and losses of the current period. As for the accounts receivable of the related party of the Company with continuous operation ability, the withdrawal of bad debt reserves should not reach 100% at most. The proportion taking up the withdrawal of the bad debt provision for the accounts receivable in every account age phase is described as follows: Account age Proportion taking up the bad debt Proportion taking up the bad debt provision for the accounts receivable (%) provision for the other accounts receivable (%) Within one year 5 5 One to two years 10 10 Two to three years 30 30 Three to four years 50 50 Four to five years 80 80 Over five years 100 100 10. The classification, pricing and accounting methods for inventories; the recognition standard and withdrawal method of the inventories falling price reserves (1) Classification of the inventories: purchased materials, stocking materials, material cost difference, entrusted processing materials, unfinished products, finished products, working on project and etc. (2) The inventory system is on the basis of perpetual inventory method. (3) The inventories are priced by the historical cost method, so are the raw material and auxiliary material, the sold material cost is carried over on the basis of first-in first-out method; the product cost is accounted through standard cost method, the difference between the standard cost and historical cost is undertaken by the cost of the finished goods in process, while the cost of sales is carried over on the basis of weighted average method; low-value consumption goods will be amortized once when drawn. (4) As for the inventory write-down provided: each kind of inventories at the end of the report period will be measured at the lower of cost or net realizable value, and a provision for inventory write-down will be established for any difference between the cost and the lower net realizable value. The net realizable value refers to the value minus the predicted expense needed in the process of completing the production and sales from the predicted price for sale and the taxes. 11. The method for measuring long-term equity investment (1). Confirmation of initial investment cost of long-term equity investment For the consolidation of enterprises that under the same control, take the book value proportion of the owner’s Page ３８ Dalian Refrigeration Co., Ltd. 2007 Annual Report equity of consolidated party on consolidation date as initial investment cost of long-term equity investment. The balance of initial investment cost of long-term equity investment and paid cash, transferred non-cash asset, and book value of debt taken, should adjust capital public reserve; and adjust retained earning while the capital public reserve isn’t enough to offset. For the consolidation of enterprises that under different control, take assets paid out in order to acquire the control right of purchased party on purchase date, occurred or undertaken debt and fair value of issued equity securities as initial investment cost of long-term equity investment. The long-term equity investment acquired in other manners except from the enterprise consolidation, should confirm its initial investment cost according to following regulations: ①. The long-term equity investment acquired by paying cash, should take purchasing price that actually paid as initial investment cost. Initial investment cost including expense, tax and other necessary payout that directly related with acquiring the long-term equity investment. ②. The long-term equity investment acquired by issuing equity securities, should take fair value of the issued equity securities as initial investment cost. ③. The long-term equity investment invested by investors, should take the promised value in investment contract or agreement as initial investment cost, excluding those promised in the contract or agreement that the value is not fair. ④. The long-term equity investment acquired by non-monetary asset exchange, its initial investment cost should be confirmed according to Accounting Standards of Business Enterprise No.7—Non-monetary Asset Exchange. ⑤. The long-term equity investment acquired by debt reorganization, its initial investment cost should be confirmed according to Accounting Standards No.12—Debt Restructuring. (2). Subsequent measurement of long-term equity investment ①. The following long-term equity investments adopt cost calculation method: i. The long-term equity investment on the invested units controlled by the Company. The investment of the Company on the subsidiaries and calculated on cost method and adjusted according to equity method while compiling the consolidated financial statements. ⅱ. The long-term investment that the Company hasn’t together control or material influence on invested party, and hasn’t quoted price on active market so its fair value can’t be dependably measured. ②. The long-term equity investment that the Company has together control or material influence on the invested party, adopt equity method to calculated. 12. The fixed assets pricing and depreciation method (1) Definition of fixed assets The fixed assets refer to the assets related to production and operation that has over 1 year lifetime. (2). Classification The fixed assets include property and plant, machinery and equipment, motor vehicles, electric equipments and other equipments etc. (3). Pricing of fixed assets The initial measurement of a fixed asset shall be made at its cost. The cost of a purchased fixed asset is based on the actual expense; the cost invested to a fixed asset by the investor shall be ascertained in accordance with the value as stipulated in the investment contract or agreement; the cost of a self-constructed fixed asset shall be formed by the necessary expenses incurred for bringing the asset to the expected condition for use; the costs of fixed assets acquired through the exchange of non-monetary assets, recombination of liabilities, merger of enterprises, and financial leasing shall be respectively ascertained in accordance with the Accounting Standard for Business Enterprises No. 7 - Exchange of Non-monetary Assets, the Accounting Standard for Business Enterprises No. 12 – Debt Restructuring, the Accounting Standard for Business Enterprises No. 21 – Leases. Page ３９ Dalian Refrigeration Co., Ltd. 2007 Annual Report (4).Deprecation method of fixed assets Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Fixed assets Estimated lifetime Annual depreciation Expected residual rates value rates Buildings 20-40 years 2.25-4.85% 3% or 10% Machinery and equipment 10-22 years 4.09-9.7% 3% or 10% Motor vehicles 5-15 years 6-19.4% 3% or 10% Electric equipments 5 years 18-19.4% 3% or 10% Other equipments 10-15 years 6-9.7% 3% or 10% The asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 13. Construction-in-progress (1). Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. (2). This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. (3). When construction engineering in process has reached the scheduled state in commission, and has proceeded the final accounts of completing, validate all the actual expenses as the fixed asset; if the fixed asset has reached the scheduled state in commission without proceeding the final accounts of completing, validate the cost and adjust the original provisional estimated value according to the actual costs after finishing the final accounts of completing. 14. The pricing and amortizing method of intangible assets (1) Pricing of the intangible assets The intangible assets shall be initially measured according to its cost. ① The cost of outsourcing intangible assets shall include the purchase price, relevant taxes and other necessary expenditure directly attributable to intangible assets for the expected purpose. ② The cost of self-developed intangible assets shall include the total expenditures incurred during the period from the time when it meets the following conditions to the time when the expected purposes of use are realized, except that the expenditures which have already been treated prior to the said period shall not be adjusted. ⅰ. It is feasible technically to finish intangible assets for use or sale; ⅱ. It is intended to finish and use or sell the intangible assets; ⅲ. The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufacturing by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally. ⅳ. It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⅴ. The development expenditures of the intangible assets can be reliably measured. ③ The cost invested into intangible assets by investors shall be determined according to the conventional value in the investment contract or agreement. ④ The costs of intangible assets acquired from non-monetary assets transaction, debt recombination, government subsides, and merger of enterprises shall be determined respectively according to the Accounting Standard for Business Enterprises No. 7 - Non-monetary Assets, Accounting Standard for Business Enterprises No. 12 – Debt Page ４０ Dalian Refrigeration Co., Ltd. 2007 Annual Report Restructurings, Accounting Standard for Business Enterprises No. 16 – Government Grants and Accounting Standard for Business Enterprises No. 20 – Business Combinations. (2) Amortization of the intangible assets ①As for the intangible assets with limited service life, which are amortized by straight-line method when it is available for use within the service period, shall be recorded into the current profits and losses. The Company shall, at least at the end of each year, check the service life and the amortization method of intangible assets with limited service life. When the service life and the amortization method of intangible assets are different from those before, the years and method of the amortization shall be changed. ② Intangible assets with uncertain service life may not be amortized. However, the Company shall check the service life of intangible assets with uncertain service life during each accounting period. Where there are evidences to prove the intangible assets have limited service life, it shall be estimated of its service life, and be amortized according to the above method mentioned in (1). 15. Impairment of long-term assets (1) At the end of accounting period, the Company shall check the long-term assets. There may be an impairment of assets when the following signs occur. The recoverable amount shall be estimated and the asset impairment loss shall be made in light of the difference that the recoverable amount of assets is less than the book value when the impairment happens. The signs are stated as follows: ① The current market price of assets falls, and its decrease is obviously higher than the expected drop over time or due to the normal use; ②The economic, technological or legal environment in which the enterprise operates, or the market where the assets is situated will have any significant change in the current period or in the near future, which will cause adverse impact on the enterprise; ③The market interest rate or any other market investment return rate has risen in the current period, and thus the discount rate of the enterprise for calculating the expected future cash flow of the assets will be affected, which will result in great decline of the recoverable amount of the assets; ④Any evidence shows that the assets have become obsolete or have been damaged substantially; ⑤ The assets have been or will be left unused, or terminated for use, of disposed ahead of schedule; ⑥ Any evidence in the internal report of the enterprise shows that the economic performance of the assets has been or will be lower than the expected performance, for example, the net cash flow created by assets or the operating profit (or loss) realized is lower (higher) than the expected amount; ⑦Other evidence indicates that the impairment of assets has probably occurred. (2) The evidences to withdraw the impairment provision of long-term investment, fixed assets, construction in process and intangible asset: at the end of the report period, the Company will withdraw the asset impairment provision according to the difference that the recoverable amount of single asset is less than the book value. The recoverable value shall be recognized according to the high one between the net amount of fair value deducting disposal charge and the current value of the expected future cash flow of assets. If the recoverable amount of the single asset cannot be obtained, the recoverable amount shall be recognized on the basis of the asset group to which the asset belongs. (3) The business reputation formed by merger of enterprises shall be distributed into the related asset group at the end of every year, then the asset group shall have the impairment test to measure the recoverable amount, comparing to the book value, if the recoverable amount of the asset group is less than the book amount, the difference shall first charge against the book value of the business reputation which is apportioned to the asset group; if the book value of the business reputation is not enough to charge against the difference, the uncharged balance shall be distributed by the other assets of the asset group in accordance with the book value. Page ４１ Dalian Refrigeration Co., Ltd. 2007 Annual Report (4) The recognition of the asset group under impairment test: the related minimum of asset groups that can share the synergetic benefit brought from merger through the prediction of the Company. (5) The above impairment losses of assets cannot be reversed as soon as they are recognized. 16. Calculation method of loan expenses (1) The loan expenses occurred to the Company includes loan interest, amortization of reduction price and premium price, assistant expenses and the exchange balance from foreign currency loan. The amortization of the interest, discount or premium and exchange difference from, the specific loan for purchasing fixed assets, if meeting the following three conditions, loan expenses should be capitalized. ① Asset disburses have been occurred. ② The borrowing costs has already incurred. ③ Purchase construction activity for achieving the asset utility condition has started. Other loan interest, amortization of reduction price and premium price and the exchange balance from foreign currency loan should be deemed as expenses of the period while they occur. (2)Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. Auxiliary expense of general loan should be counted into current loss and interest. (3)To determine capitalized amount：Capitalized interest for purchasing fixed asset at the end of the current period is the accumulated expense and weight average asset multiplied capitalization rate. And the capitalization rate is determined by following principles： ①Interest of the specialized loan for purchasing fixed assets is the capitalization rate； ②Above single specialized loan for purchasing fixed assets, the capitalization rate is the weighted average interest rate of these general borrowings. (4)Temporary stop of capitalization: If the purchase and building activities for fixed assets stop abnormally and the interruption interval exceeds three months, the capitalization of borrowing cost should be stopped temporarily and deemed as the expenses of current period until the re-start of purchasing and building activities for assets. (5)Stop of capitalization: When the purchased fixed assets have reached the expected serviceable condition, stop the capitalization of borrowing cost. 17. Calculating method on salary payable to staff The staff’ salary means that the enterprise gives various remunerations for obtaining services providing by the employees or other relevant expenses. It includes: i. Staff’s salary, bonus, allowance and subsidy; ii. Staff’s welfare; iii. Hospitalization insurance, endowment insurance, unemployment insurance, occupational injury insurance and childbirth insurance, etc. social insurances; iv. Housing public reserve; v. Labor union expenditure and personnel education expense; vi. Non-monetary welfare; vii. Compensation for rescinding the labor relationship with employee; viii. Other expenses related with the services the employee supply. During the accounting period of an employee' providing services to an enterprise, the Company shall recognize the compensation payable as liabilities. Except for the compensations for the cancellation of the labor relationship with the employee, the enterprise shall, in accordance with beneficiaries of the services offered by the employee, treat Page ４２ Dalian Refrigeration Co., Ltd. 2007 Annual Report the following circumstances respectively: (1)The compensation for the employee for producing products or providing services shall be recorded as the product costs and service costs; (2)The compensation for the employee for any on-going construction project or for any intangible asset shall be recorded as the costs of fixed asset or intangible assets; (3)The compensation for the employee other than those as mentioned in Items (1) and (2) shall be recorded as profit or loss for the current period. The social insurance such as hospitalization insurance, endowment insurance, unemployment insurance, occupational injury insurance and childbirth insurance; and housing public reserve handed by the company for the staff should be calculated in proportion of total salary according to the relevant regulations of local government during the accounting period of the services the employee supply to the company. Before the expiration of the contract, the company rescinds the labor relationship between the company and the staff or encourage staff accept the suggestion on compensation for accepting reduction at will, at the same time satisfy the following conditions, projected liabilities occurs for confirming rescinding the labor relationship with employee and giving compensation and is reckoned into current gains and losses: i. The company officially established the plan on rescinding the labor relationship or brings forward the suggestions on reduction at will, and will be implemented; ii. The company could not singly withdraw rescinding the labor relationship or suggestions of reduction. 18. Measurement method of estimated debts The obligation pertinent to Contingencies shall be recognized as estimated debts when the following conditions are satisfied simultaneously: (1) That obligation is a current obligation of the enterprise; (2) It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; (3) The amount of the obligation can be measured in a reliable way. 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, the Company will adjust the book value in accordance with the current best estimate. 19. Revenue recognition (1) The recognition of the revenue from selling goods: the revenue from selling shall be recognized by the following conditions: The significant risks and rewards of ownership of the goods have been transferred to the buyer by the Company; the Company retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; the relevant amount of revenue can be measured in a reliable way; the relevant revenue and costs of selling goods can be measured in a reliable way. (2) The recognition of the revenue from providing labor services: When the total revenue and costs from providing labor can be measured in a reliable way; the relevant economic benefits are likely to flow into the enterprise; the schedule of completion under the transaction can be measured in a reliable way, the revenue from providing labor shall be recognized. When the outcome of a contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognized when incurred. 20. Calculation method of government grants The government grants related to the proceeds, if those used for compensating the relevant future expenses or losses of the enterprise shall be recognized as deferred income and shall, during the period when the relevant Page ４３ Dalian Refrigeration Co., Ltd. 2007 Annual Report expenses are recognized, recorded in the current profits and losses; or if those used for compensating the relevant expenses or losses that have been incurred to the enterprise shall be directly recorded in the current profits and losses. The government grants related to the assets shall be recognized as deferred income and shall be distributed averagely in the related asset using period, then counted into current loss and interest. However, government subsidiary according to nominated amount shall be counted into current loss and interest directly. 21. Income tax Where there is difference (temporary difference) between the carrying amounts of the assets or liabilities and its tax base, the deferred income tax assets or the deferred income tax liabilities shall be determined. According to tax law, the deductible loss and tax deduction which can deduct the taxable amount in the subsequent years, regarding as temporary difference, shall be recognized as the corresponding deferred income tax assets. As for the temporary difference arising from the initial recognition of the goodwill, the corresponding deferred income tax liabilities. When the temporary difference is arisen from the initial recognition of the assets or liabilities incurring in the transaction which is not business combination and does not affect the accounting profits or the taxable amount (or the deductible loss), the corresponding deferred income tax assets and deferred income tax liabilities shall not recognized. On the balance sheet date, the deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. The Company shall recognize the deferred income tax assets to the extent of the amount of the taxable income which it is likely to obtain and which can be deducted from the deductible temporary difference, deductible loss and tax deduction. The deferred income tax liabilities arising from the temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises shall be recognized. However, the deferred tax income assets and deferred income tax liabilities shall not recognized which meet the conditions that the Company can control the time of the reverse of temporary differences which are likely to be reversed in the expected future. 22. Measure method of business combination 1) The business combination under the same control: the consideration paid by combining party and the net assets obtained by the combining party shall be measured according to the book value. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it and the total par value of the shares issued, the additional paid-in capital shall be adjusted. The direct cost for the business combination of the combining party shall be recorded into the profits and losses at the current period. The bonds issued for a business combination or the handling fees, commissions and other expenses for assuming other liabilities shall be recorded into the amount of initial measurement of the bonds or other debts. 2) The business combination not under the same control: the combination costs of the acquirer and the identifiable net assets obtained by the acquirer shall be measured based on fair value. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. The combination costs are less than the fair value of the identifiable net assets it obtains from the acquiree, it shall record the balance into the profits and losses of the current period. The direct cost for the business combination of the combining party shall be recorded into costs of business combination. The bonds issued for a business combination or the handling fees, commissions and other expenses for assuming other liabilities shall be recorded into the amount of initial measurement of the bonds or other debts. 23. Method for compiling consolidated financial statements The consolidation scope of the consolidated financial statements includes the Company and its subsidiaries. Since the actual control right of the subsidiary was obtained, the Company has started to bring it into combination, which shall be suspended since the actual control date ends. All the significant current balance, transactions and Page ４４ Dalian Refrigeration Co., Ltd. 2007 Annual Report unrealizable profits of the Group shall be offset when the consolidated financial statements were made. The shareholder’s interest of the subsidiaries which doesn’t belong to the portion that the Company owns shall be represented solely as the minority interest in the shareholders’ interest of the consolidated financial statements. When the accounting policies or accounting period between the Company and its subsidiaries, when the consolidated financial statements are made, the financial statements of the subsidiaries shall be adjusted and combined according to the accounting policies or accounting period of the Company. As for the subsidiaries obtained from business combination not under the same control, when the financial statements are made, the specific financial statements shall be adjusted on the basis of the fair value of identifiable net assts on the acquisition date. As for the subsidiaries obtained from business combination under the same control, when the financial statements are made, the sides anticipated in the combination shall exist at the present situation when the final controller started to implement control. 24. Earnings per share (1) Basic earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares (2) Diluted earnings per share= net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares after adjusted (3) If the outstanding or potential common shareholders change during the report period but do not affect the total amount of shareholders equity, the earnings per share should be recalculated. If the above changes happened during the date of balance sheet and the date of financial statements approval, the earnings per share of the report period should be recalculated. 25. Explanation on accounting policy, accounting estimation change and mistake corrections (1) From implemented Enterprise Accounting System and corresponding enterprise financial codes of the Company was changed to implement Enterprise Accounting Standards (hereby named new Accounting Standards) issued by Ministry of Finance on Feb 15, 2006. According to Enterprise Accounting Standards No.38---Initial Implementation of Enterprise Accounting Standards and its application guidance, it traced and adjusted income tax events, as well as traced and adjusted long term investment and other events to Enterprise Accounting Standards Explanation No.1. Combined retained income influence to the Company at the beginning of 2006 and 2007 and net profit influence to Company of 2006 for implementing new Accounting Standards are in noteⅨ.4. (2) Accounting estimation change There is no accounting estimation change in the report period. Ⅲ. Taxation 1.Value added tax (“VAT”) The Group is subject to VAT, which is a tax charged on top of the selling price at a general rate of 17%. An input credit is available whereby VAT previously paid on purchases of raw materials and semi-finished products can be used to offset the VAT on sales to determine the net VAT payable. 2.Tax on city maintenance and construction and extra-charges for education Tax on city maintenance and construction, extra-charge for education: shall be paid by measuring according to the rules of the tax paying unit which belongs to the Local Taxation Bureau. 3.Tax on real estate The tax rate of the real estate for self-use of which tax is measured at 70% of the original value of the real estate at the end of last year, shall be 1.2%. The tax rate of the real estate for renting, of which tax is measured according to the revenue from leasing real estate, shall be 12%. Page ４５ Dalian Refrigeration Co., Ltd. 2007 Annual Report 4. Income tax (1)Income tax shall be measured at 33% in total. (2)Income tax of subsidiaries and associates Taxation on profit of subsidiaries and associates is calculated at the applicable rates in accordance with the relevant tax regulations. Certain subsidiaries and associates enjoy preferential income tax policies with approvals from tax authorities. The applicable income tax rates of major subsidiaries and associates for 2007 are as follows: Applicable income Relationship with the Name of the entity Company tax rate in 2006 Dalian Bingshan Group Refrigeration Installation Company Subsidiary 33% Dalian Bingshan Air-Conditioning Equipment Company Subsidiary 15% Limited Dalian Bingshan Lingshe Deepfreezing Equipment Subsidiary 15% Dalian Bingshan Group Sales Company Subsidiary 33% Dalian Bingshan Metal Processing Company Limited Subsidiary 24% Dalian Bingshan Guardian Automation Co., Ltd. Subsidiary 33% Shanghai Bingshan Serial Refrigeration Equipment Sales Subsidiary 33% Company Wuhan New World Refrigeration Industrial Co., Ltd Subsidiary 24% (“WNWRI”) Wuhan New World Refrigeration Air Conditioner Engineering Subsidiary 33% Company Limited Ⅳ. Business combination and consolidated financial statements The principal activities of its subsidiaries are shown as below. As of 31 December 2007 the Company had direct equity interests in the following subsidiaries, all of which were incorporated in the PRC: Legal Percentage Registered representative Registered of equity Name of subsidiaries address person capital interest Principal activities Dalian Bingshan Group Shahekou Zhang RMB 100% Installation and testing of Refrigeration Installation Dist., Dalian Hongzhi 20,040,000 refrigeration equipment Company (“Installation Company”) Dalian Bingshan Group Shahekou Yang Bin RMB 90% Sale of refrigeration Sales Company (“Sales Dist., Dalian 18,000,000 equipment Company”) Dalian Bingshan Development Yamamoto JPY 70% Manufacture and sale of Air-Conditioning Zone, Shunniti 700,000,000 accessories of Equipment Company Dalian refrigeration equipment Limited (“Bingshan Air-Conditioning”) Dalian Bingshan Metal High & new Zhang He USD 64.25% Process and sale of metal Processing Company Technology 2,350,000 punching parts Limited (“Metal Dist., Dalian Processing”) Page ４６ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Bingshan Guardian High & new Mike Murphy GBP 60% Research, design and Automation Co., Ltd. Technology 210,000 develop refrigerator Dist., Dalian automation parts Dalian Bingshan Ryosetsu Development Yamati USD 70% Manufacture and sale of Quick Freezing Equipment Zone, Yashuhiro 1,000,000 deepfreezing equipment Co., Ltd. Dalian Shanghai Bingshan Serial Jiading Dist., Yang Bin RMB 45% Sale and installation of Refrigeration Equipment Shanghai 2,000,000 refrigeration equipment Sales Company Wuhan New World Hanyang Mu RMB 51% Design, manufacture, Refrigeration Industrial Dist., Chuanjiang 30,000,000 sale, installation and test Company Limited Wuhan of screw type (“WNWRI”) refrigeration compressor and refrigeration equipment Wuhan New World Dongxihu Ding Jie RMB 5% Design, installation, test Refrigeration Air Dist., 8,000,000 and repair of Conditioner Engineering Wuhan refrigeration equipment Company Limited Dalian Daleng Metal Lvshunkou Zhang He RMB 100% Manufacture of metal Technology Company Dist., Dalian 20,000,000 founding parts and pipe Limited ① parts; process of metal machine parts(Preparing to construct) All of the above subsidiaries are included in the consolidated scope. ① The decision of investing and setting up Dalian Daleng Metal Technology Company Limited was made by the14th meeting of the 4th board of directors in November 2007. ② The Company exercises its control over Shanghai Bingshan Serial Refrigeration Equipment Sales Company by assigning three members of Board of Directors out of total five members and having power to govern the financial and operating policy of Shanghai Bingshan Serial Refrigeration Equipment Sales Company. ③ Wuhan New World Refrigeration Industrial Company Limited holds 95% equity interest of Wuhan New World Refrigeration Air Conditioner Engineering Company Limited, and through Wuhan New World Refrigeration Industrial Company Limited , the Company have the whole power to govern Wuhan New World Refrigeration Air Conditioner Engineering Company Limited. Ⅴ. Notes to the consolidated financial statements 1 Monetary fund Item 31-12-2007 31-12-2006 Cash on hand 162,280.96 87,977.27 Cash in bank 244,637,445.15 298,117,981.48 Total 244,799,726.11 298,205,958.75 Page ４７ Dalian Refrigeration Co., Ltd. 2007 Annual Report Particular about foreign monetary funds in the monetary funds: 31-12-2007 31-12-2006 Foreign Original RMB Original RMB currency Exchange rate Exchange rate currency equivalent currency equivalent USD 373,178.79 7.3046 2,725,921.80 487,683.13 7.8087 3,808,171.26 JPY 740,000.00 0.064064 47,407.36 761,988.00 0.06563 50,009.27 HKD 228.06 0.9364 213.52 225.76 1.00467 226.81 Total 2,773,542.68 3,858,407.34 2 Notes receivable Item 31-12-2007 31-12-2006 Bank acceptance 35,845,834.90 6,310,535.00 Trade acceptance 25,259,626.58 10,984,781.82 Total 61,105,461.48 17,295,316.82 *The amount of notes receivable at the year-end increased 253.31% compared with that at last year-end, which was mainly because of not discounting. 3 Accounts receivable (1) Classified by account nature 31-12-2007 31-12-2006 Item Amount Proportion (%) Amount Proportion Receivables that are individually 51,694,352.77 11.11 36,565,648.30 9.21 significant Receivables not individually 413,481,223.77 88.89 360,560,565.33 90.79 significant but with high risk in Other insignificant items Total 465,175,576.54 100 397,126,213.63 100 (2) The ageing of accounts receivable and related provisions for bad debts 31-12-2007 31-12-2006 Account age Proportion Provision for Proportion Provision for Amount Amount (%) bad debts (%) bad debts Within1 year 297,130,147.65 63.88 14,823,890.73 265,708,799.91 66.91 17,997,727.27 1 to 2 years 92,822,493.19 19.95 7,720,073.71 61,966,855.91 15.60 6,196,685.59 2 to 3 years 30,612,113.86 6.58 13,869,621.12 35,409,106.62 8.92 10,622,731.99 3 to 4 years 20,870,212.64 4.49 10,435,106.33 9,847,132.61 2.48 4,923,566.31 4 to 5 years 7,417,631.50 1.59 5,934,105.20 15,543,008.91 3.91 12,434,407.13 Over 5 years 16,322,977.70 3.51 16,322,977.70 8,651,309.67 2.18 8,651,309.67 Total 465,175,576.54 100 69,105,774.79 397,126,213.63 100 60,826,427.96 *(1) No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts receivable. (2) The arrearage total of the first five arrearage entities listed in the balance of accounts receivable at the end of 2007 is defined as the individually significant receivables. Page ４８ Dalian Refrigeration Co., Ltd. 2007 Annual Report 4 Account paid in advance 31-12-2007 31-12-2006 Account age Amount Proportion (%) Amount Proportion (%) Within1 year 29,855,794.43 100 26,836,116.24 99.99 1 to 2 years 3,195.00 0.01 Total 29,855,794.43 100 26,839,311.24 100 *No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of account paid in advance. 5 Dividends receivable 31-12-2007 31-12-2006 15,799,774.90 20,266,710.65 * The amount of dividends receivable in year-end decreased 22.04% compared with last year-end, which was mainly because dividends from associates and joint ventures received. 6 Other accounts receivable (1) Classified by account nature 31-12-2007 31-12-2006 Item Proportion Proportion Amount Amount (%) (%) Receivables that are individually significant 2,244,494.38 12.33 2,248,369.07 14.08 Receivables not individually significant but 15,955,384.74 87.67 13,718,021.02 85.92 with high risk in groups Other insignificant items Total 18,199,879.12 100 15,966,390.09 100 (2) The ageing of other accounts receivable and related provisions for bad debts 31-12-2007 31-12-2006 Account Proportion Provision for Proportion Provision for age Amount Amount (%) bad debts (%) bad debts Within1 14,287,403.09 78.51 714,370.16 13,587,085.29 85.10 676,046.30 year 1 to 2 years 2,813,962.70 15.46 281,396.26 1,099,297.35 6.89 109,929.74 2 to 3 years 680,645.15 3.74 204,193.55 486,929.08 3.05 146,078.73 3 to 4 years 189,699.03 1.04 94,849.51 76,479.30 0.48 38,239.65 4 to 5 years 165,470.66 0.91 132,376.53 307,559.00 1.92 246,047.20 Over 5 years 62,698.49 0.34 62,698.49 409,040.07 2.56 409,040.07 Total 18,199,879.12 100 1,489,884.50 15,966,390.09 100 1,625,381.69 * No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of other accounts receivable. Page ４９ Dalian Refrigeration Co., Ltd. 2007 Annual Report 7 Inventories (1)Cost 31-12-2006 Current year Current year 31-12-2007 Item addition disposal Raw materials 72,203,615.91 926,641,285.46 916,944,174.72 81,900,726.65 Materials on Consignment for 2,798,753.60 8,574,237.09 7,979,800.89 3,393,189.80 further processing Low-value 160,380.67 3,119,000.75 3,168,744.76 110,636.66 consumption Work-in-progress 77,484,195.34 1,830,679,790.88 1,803,752,364.06 104,411,622.16 Self-manufactured semi-finished 11,077,856.60 256,104,013.12 242,812,814.23 24,369,055.49 products Finished goods 95,804,660.98 1,285,232,208.02 1,284,371,716.64 96,665,152.36 Constructing projects 534,420.65 74,229,844.66 72,907,229.59 1,857,035.72 Total 260,063,883.75 4,384,580,379.98 4,331,936,844.89 312,707,418.84 *The amount of inventories in year-end increased 20.24% compared with last year-end, which was mainly because of more sales contracts signed. (2) Provision for impairment of inventories: 31-12-2006 Current year Current year 31-12-2007 Item addition disposal Finished goods 5,211,215.24 5,211,215.24 Total 5,211,215.24 5,211,215.24 8 Financial assets available for sale Item 31-12-2007 31-12-2006 Notes available-for-sale Equity instruments available-for-sale Others 17,280,900.00 Total 17,280,900.00 * Other financial assets available for sale is 1.17 million legal person shares of Dalian Rubber & Plastics Machinery Co., Ltd. 9 Long-term equity investments Item 31-12-2007 31-12-2006 Associates 930,961,478.46 791,272,899.88 Joint ventures 18,740,512.31 18,574,366.51 Other long-term equity investments 43,006,159.50 45,313,851.81 Less: Provision for impairment of long-term equity 16,995,796.52 16,995,796.52 investments Total 975,712,353.75 838,165,321.68 Page ５０ Dalian Refrigeration Co., Ltd. 2007 Annual Report (1) Long-term equity investment calculated by cost method Initial amount Impairment Name of invested Nature of Shareholding company shares percentage 31-12-2006 31-12-2007 31-12-2006 31-12-2007 Zibo Electric Traction Legal person Machine Group Co., 1,735,142.50 1,735,142.50 1.465% shares Ltd. Liaoning Mec Group Legal person 1,020,000.00 1,020,000.00 2% Co., Ltd. shares Suntek Technology Legal person 3,000,000.00 3,000,000.00 1.4% 3,000,000.00 3,000,000.00 Co., Ltd. shares Guotai Junan Legal person 30,098,895.00 30,098,895.00 0.64% 1,582,164.89 1,582,164.89 Securities Co.,Ltd. shares Dalian Rubber & Legal person Plastics Machinery 2,307,692.31 shares Co., Ltd. Thermo King Container Legal person 3,310,806.00 3,310,806.00 10% Temperature Control shares (Suzhou) Co., Ltd. Dalian Bingshan Legal person Group Materials 250,000.00 250,000.00 5% shares Trading Co. , Ltd Liaoning Enterprises Legal person United Industry shares 105,000.00 105,000.00 4.2% 105,000.00 105,000.00 Company Wuhan Steel and Legal person 429,000.00 429,000.00 0.056% Electricity Co., Ltd. shares Guotai Junan Legal person Investment 3,057,316.00 3,057,316.00 0.22% 2,688,605.91 2,688,605.91 shares Management Co., Ltd Total 45,313,851.81 43,006,159.50 7,375,770.80 7,375,770.80 * 1.17 million legal person shares of Dalian Rubber & Plastics Machinery Co., Ltd are available for sale and moved to other financial assets available for sale. Page ５１ Dalian Refrigeration Co., Ltd. 2007 Annual Report (2) Long-term equity investment calculated by equity method Sharehol Accumulated Changes in Cash dividend Name of invested -der Initial Amount additional 31-12-2006 current year received in 31-12-2007 company percenta Investment profit/loss current year ge Thermo King-Dalian Transport Refrigeration 6,313,174.25 25% 25,540,373.30 2,518,565.07 2,000,000.00 26,058,938.37 Company Limited Dalian Grand Ocean Thermo King Transport 2,871,708.00 40% 6,093,491.43 1,150,484.79 1,913,107.90 5,330,868.32 Refrigeration Engineering Co., Ltd Dalian Sanyo 40,606,709.20 40% 98,881,740.79 8,454,273.61 5,920,000.00 101,416,014.40 Refrigeration Co., Ltd. Dalian Honjo Chemical 3,908,911.50 30% 8,821,955.33 1,381,061.83 636,900.00 9,566,117.16 Company Limited Dalian Sanyo 76,943,525.75 57,715,228.00 40% 132,420,557.04 70,793,743.52 20,800,000.00 182,414,300.56 Cold-train Co., Ltd Grand Ocean-showa Auto Air Conditioning 16,797,987.00 7,604,247.58 20% 11,878,655.04 9,507,826.10 21,386,481.14 (Dalian) Co., Ltd. Dalian Sanyo 176,953,841.88 40% 257,089,567.44 36,277,577.18 28,000,000.00 265,367,144.62 Compressor Co., Ltd. Dalian Meica 9,649,590.00 30% 18,323,110.05 2,129,181.98 3,000,000.00 17,452,292.03 Electronics Co.,Ltd. Dalian Sanyo Air-conditioner Co., 93,353,841.88 83,600,000.00 40% 125,605,551.34 111,154,513.42 46,800,000.00 189,960,064.76 Ltd Dalian Sanyo Home 19,666,212.00 40% 22,324,739.06 31,621.34 22,356,360.40 Appliance Co., Ltd. Dalian Bingshan Group Import & Export Co. , 1,200,000.00 24% 2,387,174.54 2,373,561.97 4,760,736.51 Ltd Beijing Huashang Bingshan Refrigeration 490,000.00 49% 557,598.41 -116,538.68 441,059.73 and Air-conditioning Machinery Co., Ltd Dalian Bingshan H2O3 Environmental 2,731,377.50 33% 1,650,677.04 -188,106.05 1,462,570.99 Solution Co. , Ltd Dalian Fuji Bingshan Vending Machine Co., 66,416,364.00 49% 54,077,683.35 99,139.98 54,176,823.33 Ltd Page ５２ Dalian Refrigeration Co., Ltd. 2007 Annual Report Shenyang Sanyo Air-conditioner 9,564,120.00 40% 9,620,025.72 9,620,025.72 Company Limited Daliian Sanyo High-Efficient 16,000,000.00 4,000,000.00 25% 16,000,000.00 3,191,680.42 19,191,680.42 Refrigeration System Co., Ltd. Dalian Bingshan – P&A Recreation 1,034,675.00 50% 1,972,852.20 967,842.95 2,940,695.15 Development Engineering Limited Dalian Jiale Vending Machine Operation 18,750,000.00 50% 16,601,514.31 -801,697.15 15,799,817.16 Co., Ltd Total 563,252,037.96 152,919,475.58 809,847,266.39 248,924,732.28 109,070,007.90 949,701,990.77 *(1)Following with the agreement of the Company’s board of directors, the Company increased the investment amount to Dalian Sanyo Cold-train Co., Ltd, Grand Ocean-showa Auto Air-conditioning (Dalian) Co., Ltd and Dalian Sanyo Air-conditioner Co., Ltd, and the total amount increased is RMB148,919,475.58 Yuan. (2) According to Enterprise Accounting Standards No.38---Initial Implementation of Enterprise Accounting Standards and its application guidance, the Company traced and adjusted long term equity investment difference, and increased the beginning balance of long term joint venture investment RMB11,947,883.19 Yuan, increased the beginning retained profit RMB 4,431,355.84Yuan and the beginning surplus public reserve RMB 1,899,152.55 Yuan and the beginning provision for impairment of long-term equity investments RMB 5,617,374.80 Yuan. (3) Provision for impairment of long-term equity investments Name of invested company 31-12-2007 31-12-2006 Suntek Technology Co., Ltd 3,000,000.00 3,000,000.00 Guotai Junan Securities Co., Ltd 1,582,164.89 1,582,164.89 Guotai Junan Investment Management Co., Ltd 2,688,605.91 2,688,605.91 Liaoning Enterprises United Industry Company 105,000.00 105,000.00 Shenyang Sanyo Air-conditioner Company Limited 9,620,025.72 9,620,025.72 Total 16,995,796.52 16,995,796.52 10 Fixed assets (1) Increase or decrease change in fixed assets 31-12-2006 Current year Current year 31-12-2007 Item addition disposal 1. Original value 746,059,213.95 101,421,887.62 59,546,344.65 787,934,756.92 Including: Buildings 231,235,055.59 81,213,784.24 52,682,513.65 259,766,326.18 Machinery 479,966,395.57 13,200,267.76 4,392,274.62 488,774,388.71 Vehicles 20,162,266.53 5,279,336.42 1,492,723.44 23,948,879.51 Other equipments 14,695,496.26 1,728,499.20 978,832.94 15,445,162.52 Page ５３ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2. Accumulated depreciation 387,006,427.37 34,929,133.70 33,594,336.74 388,341,224.33 Including: Buildings 98,216,130.58 6,005,057.15 28,354,073.06 75,867,114.67 Machinery 273,735,580.46 24,944,572.93 3,687,269.81 294,992,883.58 Vehicles 8,458,922.78 1,768,720.47 656,849.21 9,570,794.04 Other Equipments 6,595,793.55 2,210,783.15 896,144.66 7,910,432.04 3.Net book value 359,052,786.58 399,593,532.59 Including: Buildings 133,018,925.01 183,899,211.51 Machinery 206,230,815.11 193,781,505.13 Vehicles 11,703,343.75 14,378,085.47 Other Equipments 8,099,702.71 7,534,730.48 *①The original value of fixed assets increased RMB 68,042,088.88 Yuan from construction in progress during 2007. ②There are no fixed assets mortgaged. (2) Provision for the impairment of fixed assets 31-12-2006 Current year Current year disposal 31-12-2007 Item addition Machinery and 9,768,200.46 348,387.69 9,419,812.77 equipment Total 9,768,200.46 348,387.69 9,419,812.77 11 Construction in progress Percentage Name of 31-12-2006 Current year Transferred to Source of Budget 31-12-2007 of projects addition fixed assets funds completion Internally Buildings 7,000,000.00 19,096,188.44 53,405,891.93 66,596,769.37 5,905,311.00 generated 80% fund Internally Machinery 1,371,701.20 2,640,775.43 1,130,319.51 2,882,157.12 generated fund Internally Others 450,000.00 315,000.00 80,809.50 315,000.00 80,809.50 generated fund Total 20,782,889.64 56,127,476.86 68,042,088.88 8,868,277.62 *(1) The capitalized loan interests are RMB 470,073.68 Yuan during the current year. (2) The ending balance of construction in progress decreased 57.33% during the current period, because most of the movement and innovation projects of affiliated company are finished. Page ５４ Dalian Refrigeration Co., Ltd. 2007 Annual Report 12 Intangible assets 31-12-2006 Current year 31-12-2007 The rest the way Current year Item Original cost disposal duration for obtained addition amortization Land use Buy 111,576,402.40 37,521,006.18 69,957,793.01 4,590,060.83 102,888,738.36 39 years rights Non-patented Buy 515,224.41 103,044.57 51,522.48 51,522.09 1 year technology Others Buy 861,000.00 1,106,501.33 1,450,507.26 205,024.46 2,351,984.13 39 years Total 38,730,552.08 71,408,300.27 4,846,607.77 105,292,244.58 *(1) No situation of intangible assets that can be draw back being lower than book value, so not withdraw the provision for devaluation of intangible assets. (2) No capitalization of interest existed in the report period. (3) The ending balance of intangible assets increased 171.86% during the current period, because the affiliated company bought Land use rights for the movement and innovation projects. 13 Long-term prepayments Current year Current year The rest duration Item 31-12-2006 31-12-2007 addition disposal for amortization Rental fee 3,812,388.54 138,478.32 3,673,910.22 26 years Organization 24,715.84 24,715.84 expenses Total 3,812,388.54 24,715.84 138,478.32 3,698,626.06 14 Deferred tax assets Item 31-12-2007 31-12-2006 Bad debt provision 6,373,035.26 4,366,616.40 Provision for obsolete inventory 1,302,803.81 1,719,701.03 long-term equity investments 910,739.15 Impairment provision of fixed 2,354,953.19 3,223,506.15 Total 10,030,792.26 10,220,562.73 15 Short-term loans Terms of borrowing 31-12-2007 31-12-2006 Credit loan 50,000,000.00 Guaranteed loan 20,000,000.00 Total 70,000,000.00 16 Notes payable 31-12-2007 31-12-2006 Bank acceptance notes 30,665,261.59 25,573,798.06 Trade acceptance notes 4,559,797.47 14,024,738.02 Total 35,225,059.06 39,598,536.08 Page ５５ Dalian Refrigeration Co., Ltd. 2007 Annual Report 17 Accounts payable 31-12-2007 31-12-2006 Ages Proportion Proportion Amount Amount (%) (%) Within1 year 352,282,568.48 92.66 279,554,123.70 95.09 1 to 2 years 14,754,243.73 3.88 11,910,213.65 4.05 2 to 3 years 10,834,420.52 2.85 366,735.30 0.12 3 to 4 years 297,420.30 0.08 1,084,776.85 0.37 4 to 5 years 1,074,465.35 0.28 837,334.91 0.28 Over 5 years 937,596.08 0.25 248,762.00 0.09 Total 380,180,714.46 100 294,001,946.41 100 Note：(1) There were no accounts due to the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts payable. (2) The main reason for the 29.31% increase of balance at the year-end compared to that of year-begin in the notes payable was increase of purchases. 18 Accounts received in advance 31-12-2007 31-12-2006 Ages Proportion Proportion Amount Amount (%) (%) Within1 year 149,463,189.22 85.17 96,698,748.09 82.41 1 to 2 years 10,670,207.72 6.08 11,919,239.62 10.16 2 to 3 years 10,022,671.95 5.71 1,841,615.47 1.57 3 to 4 years 658,834.35 0.38 2,220,991.55 1.89 4 to 5 years 1,118,320.47 0.64 2,674,556.42 2.28 Over 5 years 3,547,018.46 2.02 1,979,748.10 1.69 Total 175,480,242.17 100 117,334,899.25 100 *(1) There were no accounts due to the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts received in advance. (2) The main reason for the 49.56% increase of balance at the year-end compared to that of year-begin in the accounts received in advance was increase of sales contracts. 19 Employee’s compensation payable Item Current year Current year 31-12-2006 31-12-2007 addition reduction Wages and salaries, bonuses, allowances 22,934,551.15 105,313,642.70 104,304,419.86 23,943,773.99 and subsidies Staff welfare 23,939,163.38 -3,960,746.67 3,671,822.02 16,306,594.69 Social security contributions 1,335.70 33,502,055.84 33,502,186.87 1,204.67 Housing funds 938,562.98 12,564,077.21 12,489,099.45 1,013,540.74 Labor union and employee education 731,989.17 2,617,037.38 2,913,164.06 435,862.49 funds Page ５６ Dalian Refrigeration Co., Ltd. 2007 Annual Report Non-currency welfare 31,069.00 31,069.00 Compensation giving because of 82,057.80 82,057.80 severing labor relations Total 48,545,602.38 150,149,193.26 156,993,819.06 41,700,976.58 20 Taxes payable Item 31-12-2007 31-12-2006 Value-added tax -360,590.57 180,631.36 Business tax 1,481,204.93 1,581,008.38 City maintenance and construction tax 196,415.20 743,318.11 Enterprise income tax -988,476.79 -897,056.42 Individual income tax 1,715,127.91 1,669,728.84 Land tax 11,187.90 78,005.91 Stamp duty 64,096.19 1,320.99 Property tax 0 28,476.92 Education development expenses 20,298.40 237,429.69 Withholding business tax for foreign 32,726.60 24,755.53 owners Withholding income tax for foreign owners 0 47,035.51 Extra-charges for education 103,336.01 422,507.69 Water project fund/River route 634,515.53 13,265.48 maintenance fee Safeguard fund for disables 480.00 1,116.00 Total 2,910,321.31 4,131,543.99 21 Dividend payable Name of investors 31-12-2007 31-12-2006 State-owned shares 9,028,352.45 Legal person shares 2,249,266.01 4,149,837.89 Total 11,277,618.46 4,149,837.89 22 Other accounts payable 31-12-2007 31-12-2006 Ages Proportion Proportion Amount Amount (%) (%) Within1 year 39,140,376.38 68.22 26,286,561.45 43.78 1 to 2 years 11,727,686.49 20.44 28,799,892.47 47.96 2 to 3 years 2,027,661.00 3.53 1,161,719.90 1.93 3 to 4 years 1,113,488.90 1.94 1,998,858.72 3.33 4 to 5 years 1,986,838.72 3.46 239,888.73 0.40 Over 5 years 1,376,684.86 2.41 1,560,732.83 2.60 Total 57,372,736.35 100 60,047,654.10 100 Page ５７ Dalian Refrigeration Co., Ltd. 2007 Annual Report *(1) There were JPY28,4000,000 equivalent to RMB 1,820,440.00 Yuan due to the shareholders holding over 5% (including 5%) of the equity of the Company——Sanyo Electric Co., Ltd. (2) There were RMB 10,107,841.16 Yuan due to the shareholders holding over 5% (including 5%) of the equity of the Company——Dalian Bingshan Group Co., Ltd. 23 Long-term loans Terms of Loan date due date Interest Rate 31-12-2007 31-12-2006 borrowing Credit loan 2004-11-22 2009-11-21 6.48%-7.65% 50,000,000.00 50,000,000.00 Total 50,000,000.00 50,000,000.00 24 Deferred tax liabilities Item 31-12-2007 31-12-2006 Bad debt provision 72,075.65 22,036.03 Available for sale financial assets 3,743,301.92 Long-term equity investments 7,121,588.05 18,701,123.87 Total 10,936,965.62 18,723,159.90 25 Other non-current liabilities —Deferred income Item 31-12-2007 31-12-2006 Enterprise informationization construction 105,000.00 105,000.00 subsidy fund Agricultural product intensive processing/screw rod technology deducted 16,717,545.00 11,550,250.00 interest deducted Contribution to highly effective heat pump 7,800,000.00 9,300,000.00 and related system Contribution to subsidiary company 54,586,000.00 relocation Total 79,208,545.00 20,955,250.00 *(1) The balance of above items haven’t met the conditions being converted to income. (2) The main reason for the277.99% increase of balance at the year-end compared to that of year-begin was the subsidiary company——Wuhan New World Refrigeration Industrial Company Limited received the relocation contribution during the period. Page ５８ Dalian Refrigeration Co., Ltd. 2007 Annual Report 26 Share capital Shares Issuance converted Item 31-12-2006 of new Others 31-12-2007 from shares reserve I. Non-circulating share capital with restricted trade conditions 1. State-owned shares 76,855,683.00 76,855,683.00 2. Shares held by domestic legal persons 3. Other domestic shares 136,564.00 -34,873.00 101,691.00 Including: Shares held by 136,564.00 -34,873.00 101,691.00 domestic natural person II. Circulating share capital 1. Domestically listed ordinary 158,022,728.00 34,873.00 158,057,601.00 shares (A-share) 2. Domestically listed ordinary 115,000,000.00 115,000,000.00 shares (B-share) III Total 350,014,975.00 350,014,975.00 * The non-circulating share capital with restricted trade conditions will circulate on January 8, 2011. 27 Capital surplus Current year Current year Item 31-12-2006 31-12-2007 addition reduction Capital premium 513,645,432.79 513,645,432.79 Other capital surplus 58,941,593.42 16,166,457.01 75,108,050.43 Total 572,587,026.21 16,166,457.01 588,753,483.22 *(1) The current year addition of capital surplus included: provision of equity investment RMB736,551.24Yuan, which was the addition of the subsidiary company capital surplus contributed to the Company; the net amount of RMB 11,229,905.77 Yuan influenced by the alteration amount of the financial assets available for sale； financial contribution RMB4,200,000.00Yuan received during the current period. (2) Other capital surplus included value increases of assets valuation RMB 40,090,787.33Yuan. 28 Surplus reserves Current year Current year Item 31-12-2006 31-12-2007 addition reduction Statutory surplus reserves 298,067,136.37 34,891,977.77 332,959,114.14 Total 298,067,136.37 34,891,977.77 332,959,114.14 The increase of the surplus reserves in 2007 was because the statutory reserved capital were withdrawn respectively on the basis of 10% of the net profit of the Company in 2007 and other reserved capital were withdrawn respectively on the basis of 20% of the net profit of the Company in 2006. 29 Retained earnings Page ５９ Dalian Refrigeration Co., Ltd. 2007 Annual Report Item 2007 2006 Retained earnings at the year-end of the prior year 272,901,829.75 206,161,773.40 Add: Changes in accounting policies 7,350,324.13 At beginning of year after retrospective adjustment 272,901,829.75 213,512,097.53 Add: Net profit 128,827,637.59 125,901,875.54 Less: Appropriation of statutory surplus reserves 34,891,977.77 11,599,289.59 distribution of dividends 52,502,246.25 52,502,246.25 Including: cash dividends 52,502,246.25 52,502,246.25 Dividends transferred to share capital Appropriation of employee welfare and bonus fund 1,778,232.90 2,410,607.48 Retained earnings at the year end 312,557,010.42 272,901,829.75 (1) The Company withdrew respectively on the basis of 10% of the net profit of the Company in 2007 and withdrew respectively on the basis of 20% of the net profit of the Company in 2006. (2) The shareholders approved the distribution of a cash dividend of RMB 0.15 per share, totaling RMB 52,502,246.25. 30 Revenue and cost of sales (1) Revenue from main operations and cost of goods sold Revenue Cost Item 2007 2006 2007 2006 Refrigeration equipment 1,631,848,236.62 1,602,094,861.09 1,344,842,140.02 1,287,875,020.28 (2) Other revenue and cost Revenue Cost Item 2007 2006 2007 2006 Sale of raw materials 22,107,128.33 15,075,230.46 17,285,101.80 11,807,153.22 and others * The total sales income of the first five clients of the Company was RMB 259,022,720.40, taking up 15.66% of the whole sales income of the Company. 31 Taxes and associate charges Item Basis of taxes calculated 2007 2006 Business tax Revenue 3% or 5% 2,342,548.09 4,631,882.30 City maintenance and Business tax 、 Value-added 2,576,119.34 2,702,401.30 construction tax tax 7% Education additional Business tax 、 Value-added 1,484,056.81 1,554,656.83 expenses tax 3% Others 841.40 Total 6,403,565.64 8,888,940.43 Page ６０ Dalian Refrigeration Co., Ltd. 2007 Annual Report *The main reason for the 27.96% decrease of the taxes and associate charges in the report period was the decrease of income from assessment. 32 Operating expenses Item 2007 2006 Office expenses 1,883,470.28 1,637,681.06 Travel expenses 13,258,715.16 11,470,468.45 On behalf charges 4,690,143.43 7,247,994.50 Communication expenses 1,968,282.10 2,155,445.24 Wages and attachment 29,648,120.82 37,218,028.67 Advertising expenditure 1,576,940.24 1,663,849.46 Transportation cost 14,263,996.77 12,317,804.19 Business entertainment 10,992,179.89 10,181,339.25 Expenses of inviting tenders 1,444,620.50 1,040,169.23 Expenditure of agent 2,896,530.53 2,862,968.67 Post-sale service fee 5,846,877.01 5,665,215.23 Others 13,216,200.71 9,649,603.73 Total 101,686,077.44 103,110,567.68 33 General and administrative expenses Item 2007 2006 Office expenses 4,809,142.07 5,485,726.69 Travel expenses 3,636,920.79 4,504,354.90 Insurance premium 2,351,992.51 1,311,824.46 Other taxes and fees 7,777,194.55 5,349,221.99 Wages subsidy and additional charges 35,128,639.36 46,482,575.45 Housing fund 3,736,206.45 2,933,194.59 Social security contributions 25,403,088.59 17,591,533.56 Auditing fee 1,186,000.00 1,060,998.00 Checking and testing expenses 1,727,104,06 2,350,014.16 Maintenance cost 1,622,041.41 2,159,016.73 Advertising expenditure 1,811,488.61 2,213,699.66 Accumulation depreciation 9,354,828.87 8,896,012.97 Amortization of intangible assets and 2,638,559.90 1,187,764.79 long-term prepayments Water, electricity and heating fee 8,116,873.67 7,873,216.53 Others 18,606,287.85 25,266,911.36 Total 127,906,374.63 134,666,065.84 Page ６１ Dalian Refrigeration Co., Ltd. 2007 Annual Report 34 Financial expenses Item 2007 2006 Interest expenses 5,466,644.60 4,631,547.75 Less: interest income 2,411,030.92 4,416,483.60 Exchange losses 370,766.07 278,781.25 Less: exchange gain 289,321.33 128,910.52 Others 358,841.98 234,411.88 Total 3,495,900.40 599,346.76 35 Impairment losses on assets Item 2007 2006 Bad debt provision 13,474,289.61 12,433,900.53 Provision for obsolete inventories 4,655,855.93 Provision for the impairment of available-for-sale financial assets Provision for the impairment of held to maturity investments Provision for the impairment of long-term equity 1,477,734.83 investments Provision for the impairment of Investing property Provision for the impairment of fixed assets Provision for the impairment of construction materials Provision for the impairment of construction in progress Provision for the impairment of Bearer biological asset Provision for the impairment of Oil assets Provision for the impairment of intangible assets Provision for the impairment of goodwill Provision for the impairment of other assets Total 13,474,289.61 18,567,491.29 36 Gain/ (loss) from investments Item 2007 2006 Long-term equity investment income 93,878,758.86 97,627,425.48 accounted by using equity method Gain or loss arising from the disposal of 25,841.84 long-term equity investments Other investment income 2,925,292.00 2,380,750.00 Total 96,829,892.70 100,008,175.48 * There was no significant limitation of investment income return. Page ６２ Dalian Refrigeration Co., Ltd. 2007 Annual Report 37 Non-operating incomes Item 2007 2006 Gain on the disposal of non-current assets 432,750.82 4,601.28 Penalty and fine income 313,709.01 1,201,970.40 The tax returns and rewards 1,239,860.94 1,856,553.76 Gain from debt restructuring 21,900.00 Relocation offsetting receipts 2,289,429.80 Deferred income 10,046,445.00 3,391,000.00 Debts can not paid 666,300.80 Others 181,347.26 Total 15,191,743.63 6,454,125.44 *The main reason for the 135.38% increase of non-operating incomes in the report period was the amortization of deferred income. 38 Non-operating expenses Item 2007 2006 Loss on the disposal of 356,803.39 513,320.72 non-current assets Fines and penalties 84,148.48 56,630.99 Donation expenditure 50,000.00 21,000.00 Others 23,263.86 17,000.00 Total 514,215.73 607,951.71 39 Income tax expense Item 2007 2006 Current income tax expense 19,397,463.09 17,958,836.10 Deferred income tax expense -11,248,748.00 -5,494,278.04 Total 8,148,715.09 12,464,558.06 40 Other cash receipts relating to operating activities Item 2007 2006 Government grants 16,799,420.00 Returns travel expense receivable 3,746,836.31 9,056,584.60 Deposit received 11,849,605.94 9,856,045.70 Received amount paid on behalf of related companies 278,650.28 2,233,003.83 Others 6,796,743.48 6,403,034.13 Total 39,471,256.01 27,548,668.26 Page ６３ Dalian Refrigeration Co., Ltd. 2007 Annual Report 41Other cash payments relating to operating activities Item 2007 2006 Travel expense 19,917,856.87 25,064,856.40 Deposit paid 11,314,961.00 9,564,113.50 Sales expenditure 20,421,241.58 19,506,285.40 Administrative expenditure 16,515,382.26 14,856,784.52 Amount paid on behalf of related companies 666,250.28 2,346,527.26 Others 4,701,092.65 7,124,287.69 Total 73,536,784.64 78,462,854.77 42 Complementary information for consolidated cash flow statement (1) The relationship between the net profit and the net cash flows from operating activities Item 2007 2006 1. Reconciliation from the net profit to the cash flows from operating activities Net profit 142,220,620.92 145,045,297.20 Add: Provisions for assets impairment 13,474,289.61 18,567,491.29 Depreciation of fixed assets 34,929,133.70 33,008,140.12 Amortization of intangible assets 2,544,057.57 1,078,946.45 Amortization of long-term deferred expenses 138,478.32 138,478.32 Losses on disposal of fixed assets, intangible assets and other -205,440.01 369,176.34 long-term assets Losses on scrapping of fixed assets 129,492.58 143,500.83 Losses on variation of fair value Finance expenses 5,427,944.37 4,631,547.75 Investment losses -96,829,892.70 -100,008,175.48 Decrease in deferred tax assets 189,770.47 -2,723,377.43 Increase in deferred tax liabilities -7,786,194.28 -2,770,900.62 Decrease in inventory -54,165,926.66 38,303.71 Decrease in operating receivables -102,848,372.86 -21,016,334.96 Increase in operating payables 86,228,290.88 -1,564,462.74 Others Net cash flows from operating activities 23,446,251.91 74,937,630.78 2. Investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under finance lease 3. Net increase in cash and cash equivalents Cash at the end of the period 244,799,726.11 298,205,958.75 Less: Cash at the beginning of the period 298,205,958.75 335,401,672.30 Plus: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase in cash and cash equivalents -53,406,232.64 -37,195,713.55 Page ６４ Dalian Refrigeration Co., Ltd. 2007 Annual Report (2) Cash and cash equivalents Item 2007 2006 Cash Including: cash on hand 162,280.96 87,977.27 Bank deposits that can be used for payment whenever necessary 244,637,445.15 298,117,981.48 Other monetary capital that can be used for payment whenever necessary Balance of ‘Cash and cash equivalents’ at the end of the year 244,799,726.11 298,205,958.75 43 Segment statement Item Northeast of China East of China Mid of China Counteract Total 1、Total sales 1,421,342,405.00 48,071,170.78 268,250,991.60 83,709,202.43 1,653,955,364.95 Include：Income from 1,367,575,273.11 36,955,264.26 249,424,827.58 1,653,955,364.95 outside Income from 53,767,131.89 11,115,906.52 18,826,164.02 83,709,202.43 segments 2 、 Selling and 80,220,740.41 2,595,637.36 18,869,699.67 101,686,077.44 distribution expenses 3、Operating profit 129,410,049.94 1,181,514.30 27,120,219.62 22,019,975.75 135,691,808.11 4、Total assets 2,414,046,683.58 22,066,764.65 342,036,544.22 195,256,321.47 2,582,893,670.98 5、Total liabilities 664,724,955.16 16,256,224.49 245,726,190.82 12,414,191.46 914,293,179.01 44 Provision for impairment of assets 31-12-2006 Current year Current year 31-12-2007 Item addition reductions Bad debt provision 62,451,809.65 14,655,901.24 6,512,051.60 70,595,659.29 Including: Accounts receivable 60,826,427.96 14,457,880.10 6,178,533.27 69,105,774.79 Other accounts receivable 1,625,381.69 198,021.14 333,518.33 1,489,884.50 Provision for obsolete inventory 5,211,215.24 5,211,215.24 Including: Finished goods 5,211,215.24 5,211,215.24 Provision for impairment of 16,995,796.52 16,995,796.52 long-term equity investments Provision for the impairment of fixed 9,768,200.46 348,387.69 9,419,812.77 assets Including: Machinery and equipment 9,768,200.46 348,387.69 9,419,812.77 Page ６５ Dalian Refrigeration Co., Ltd. 2007 Annual Report Ⅵ.Notes to the financial statements of the parent company 1、Accounts receivable (1) Classified by account nature 31-12-2007 31-12-2006 Item Proportion Amount Amount Proportion (%) (%) Receivables that are individually 51,694,352.77 18.49 36,565,648.32 17.16 significant Receivables not individually 227,898,104.25 81.51 176,511,820.94 82.84 significant but with high risk in Other insignificant items Total 279,592,457.02 100 213,077,469.26 100 (2) The ageing of accounts receivable and related provisions for bad debts 31-12-2007 31-12-2006 Proportion Provision for bad Proportion Provision for bad Ages Amount Amount (%) debts (%) debts Within1 year 176,298,299.86 63.06 8,813,486.99 123,300,597.68 57.87 10,856,604.89 1 to 2 years 48,192,091.84 17.24 4,819,209.18 41,501,021.41 19.48 4,150,102.14 2 to 3 years 21,381,077.46 7.65 6,414,323.24 25,701,686.71 12.06 7,710,506.01 3 to 4 years 15,093,362.37 5.40 7,546,681.19 6,613,572.32 3.10 3,306,786.16 4 to 5 years 5,412,045.14 1.93 4,329,636.11 12,482,860.54 5.86 9,986,288.43 Over 5 years 13,215,580.35 4.72 13,215,580.35 3,477,730.60 1.63 3,477,730.60 Total 279,592,457.02 100 45,138,917.06 213,077,469.26 100 39,488,018.23 *(1) No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts receivable. (2) The main reason for the31.22% increase of balance at the year-end compared to that of year-begin in the accounts receivable was increase of engineering projects accounts receivable. 2 Other accounts receivable (1) Classified by account nature 31-12-2007 31-12-2006 Item Proportion Proportion Amount Amount (%) (%) Receivables that are individually 2,248,369.07 57.12 1,603,000.00 32.83 significant Receivables not individually 3,279,034.70 67.17 1,687,708.69 42.88 significant but with high risk in Other insignificant items Total 4,882,034.70 100 3,936,077.76 100 Page ６６ Dalian Refrigeration Co., Ltd. 2007 Annual Report (2) The ageing of other accounts receivable and related provisions for bad debts 31-12-2007 31-12-2006 Ages Proportion Provision for bad Proportion Provision for bad Amount Amount (%) debts (%) debts Within1 year 3,664,306.35 75.06 183,215.32 2,655,656.57 67.47 132,782.83 1 to 2 years 687,148.20 14.08 68,714.82 628,435.90 15.97 62,843.59 2 to 3 years 403,853.25 8.27 121,155.97 106,580.00 2.71 31,974.00 3 to 4 years 35,642.34 0.91 17,821.17 4 to 5 years 126,726.90 2.59 101,381.52 307,559.00 7.81 246,047.20 Over 5 years 202,203.95 5.13 202,203.95 Total 4,882,034.70 100 474,467.63 3,936,077.76 100 693,672.74 *(1) No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of other accounts receivable. (2) The main reason for the24.03% increase of balance at the year-end compared to that of year-begin in the other accounts receivable was the deposits for entering bids. 3Long-term equity investments Item 31-12-2007 31-12-2006 subsidiaries 131,792,371.43 111,792,371.43 Associates 930,961,478.45 791,272,899.88 Joint venture 18,740,512.31 18,574,366.51 Other long-term equity 41,262,017.00 43,569,709.31 investments Less: Provision for impairment of long-term 16,995,796.52 16,995,796.52 equity investments Total 1,105,760,582.67 948,213,550.61 (1) Other long-term equity investment calculated by cost method Initial Amount impairment Name of invested Nature of Shareholding company shares percentage 31-12-2006 31-12-2006 31-12-2006 31-12-2006 Zibo Electric Traction Legal Machine Group Co., person 420,000.00 420,000.00 0.7% Ltd. share Legal Liaoning Mec Group person 1,020,000.00 1,020,000.00 2% Co., Ltd. share Legal Suntek Technology Co., person 3,000,000.00 3,000,000.00 1.4% 3,000,000.00 3,000,000.00 Ltd. share Page ６７ Dalian Refrigeration Co., Ltd. 2007 Annual Report Legal Guotai Junan Securities person 30,098,895.00 30,098,895.00 0.64% 1,582,164.89 1,582,164.89 Co.,Ltd. share Dalian Rubber & Legal Plastics Machinery Co., person 2,307,692.31 Ltd. share Thermo King Container Legal Temperature Control person 3,310,806.00 3,310,806.00 10% (Suzhou) Co., Ltd. share Dalian Bingshan Group Legal Materials Trading Co. , person 250,000.00 250,000.00 5% Ltd share Liaoning Enterprises Legal United Industry person 105,000.00 105,000.00 4.2% 105,000.00 105,000.00 Company share Guotai Junan Legal Investment person 3,057,316.00 3,057,316.00 0.22% 2,688,605.91 2,688,605.91 Management Co., Ltd share Total 43,569,709.31 41,262,017.00 7,375,770.80 7,375,770.80 *1.17 million legal person shares of Dalian Rubber & Plastics Machinery Co., Ltd are available for sale and moved to other financial assets available for sale. (2) Investment to subsidiaries calculated by cost method Shareholdi 31 December Current year Current year 31 December Name of invested company Initial Amount ng 2006 addition reductions 2007 percentage Dalian Bingshan Group Refrigeration 20,036,841.62 100% 20,036,841.62 20,036,841.62 Installation Company Dalian Bingshan Group Sales 16,200,000.00 90% 16,200,000.00 16,200,000.00 Company Dalian Bingshan Metal Processing 12,501,344.60 64.25% 12,501,344.60 12,501,344.60 Co., Ltd Dalian Bingshan Air-conditioning 36,506,570.00 70% 36,506,570.00 36,506,570.00 Equipment Co., Ltd Dalian Bingshan Guardian 1,522,117.80 60% 1,522,117.80 1,522,117.80 Automation Co., Ltd Dalian Bingshan Ryosetsu Quick 5,745,097.40 70% 5,745,097.40 5,745,097.40 Freezing Equipment Co., Ltd Shanghai Bingshan Serial Refrigeration Equipment Sales Co., 900,000.00 45% 900,000.00 900,000.00 Ltd Wuhan New World Refrigeration 17,980,400.00 51% 17,980,400.00 17,980,400.00 Industrial Co., Ltd Page ６８ Dalian Refrigeration Co., Ltd. 2007 Annual Report Wuhan New World Refrigeration Air 400,000.00 5% 400,000.00 400,000.00 Conditioner Engineering Co., Ltd Dalian daleng Metal Technology Co., 20,000,000.00 100% 20,000,000.00 20,000,000.00 Ltd. 111,792,371.4 131,792,371.4 Total 131,792,371.42 20,000,000.00 2 2 (3) Long-term equity investment calculated by equity method Cash Accumulated Sharehold-i Changes in Name of invested dividend Initial Amount additional ng 31-12-2006 current year 31-12-2007 company received in Investment percentage profit/loss current year Thermo King-Dalian Transport 6,313,174.25 25% 25,540,373.30 2,518,565.07 2,000,000.00 26,058,938.37 Refrigeration Co., Ltd Dalian Grand Ocean Thermo King Transport 2,871,708.00 40% 6,093,491.43 1,150,484.79 1,913,107.90 5,330,868.32 Refrigeration Engineering Co., Ltd Dalian Sanyo Refrigeration Co., 40,606,709.20 40% 98,881,740.79 8,454,273.61 5,920,000.00 101,416,014.40 Ltd. Dalian Honjo 3,908,911.50 30% 8,821,955.33 1,381,061.83 636,900.00 9,566,117.16 Chemical Co., Ltd Dalian Sanyo 76,943,525.75 57,715,228.00 40% 132,420,557.04 70,793,743.52 20,800,000.00 182,414,300.56 Cold-train Co., Ltd Grand Ocean-showa Auto Air 16,797,987.00 7,604,247.58 20% 11,878,655.04 9,507,826.10 21,386,481.14 Conditioning (Dalian) Co., Ltd. Dalian Sanyo 176,953,841.88 40% 257,089,567.44 36,277,577.18 28,000,000.00 265,367,144.62 Compressor Co., Ltd. Dalian Meica 9,649,590.00 30% 18,323,110.05 2,129,181.98 3,000,000.00 17,452,292.03 Electronics Co., Ltd. Dalian Sanyo Air-conditioner Co., 93,353,841.88 83,600,000.00 40% 125,605,551.34 111,154,513.42 46,800,000.00 189,960,064.76 Ltd Dalian Sanyo Home Appliance 19,666,212.00 40% 22,324,739.06 31,621.34 22,356,360.40 Co., Ltd. Page ６９ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Bingshan Group Import & 1,200,000.00 24% 2,387,174.54 2,373,561.97 4,760,736.51 Export Co. , Ltd Beijing Huashang Bingshan Refrigeration and 490,000.00 49% 557,598.41 -116,538.68 441,059.73 Air-conditioning Machinery Co., Ltd Dalian Bingshan H2O3 Environmental 2,731,377.50 33% 1,650,677.04 -188,106.05 1,462,570.99 Solution Co. , Ltd Dalian Fuji Bingshan Vending Machine 66,416,364.00 49% 54,077,683.35 99,139.98 54,176,823.33 Co., Ltd Shenyang Sanyo Air 9,564,120.00 40% 9,620,025.72 9,620,025.72 Conditioner Co., Ltd Daliian Sanyo High-Efficient 16,000,000.00 4,000,000.00 25% 16,000,000.00 3,191,680.42 19,191,680.42 Refrigeration System Co., Ltd. Dalian Bingshan – P&A Recreation 1,034,675.00 50% 1,972,852.20 967,842.95 2,940,695.15 Development Engineering Co., Ltd Dalian Jiale Vending Machine Operation 18,750,000.00 50% 16,601,514.31 -801,697.15 15,799,817.16 Co., Ltd Total 563,252,037.96 152,919,475.58 809,847,266.39 248,924,732.28 109,070,007.90 949,701,990.77 (4) Provision for impairment of long-term equity investments Name of invested company 31-12-2007 31-12-2006 Suntek Technology Co., Ltd. 3,000,000.00 3,000,000.00 Guotai Junan Securities Co., Ltd. 1,582,164.89 1,582,164.89 Guotai Junan Investment Management Co., Ltd 2,688,605.91 2,688,605.91 Liaoning Enterprises United Industry Company 105,000.00 105,000.00 Shenyang Sanyo Air-conditioner Company Limited 9,620,025.72 9,620,025.72 Total 16,995,796.52 16,995,796.52 Page ７０ Dalian Refrigeration Co., Ltd. 2007 Annual Report 4 Revenue and cost of sales (1) Revenue from main operations and cost of goods sold Revenue Cost Item 2007 2006 2007 2006 Refrigeration plant 1,105,629,826.23 1,033,826,455.08 943,125,446.05 844,334,243.12 Item 2007 2006 Revenue Northeast of China 1,105,629,826.23 1,033,826,455.08 Total 1,105,629,826.23 1,033,826,455.08 Cost Northeast of China 943,125,446.05 844,334,243.12 Total 943,125,446.05 844,334,243.12 (2) Other revenue and cost Revenue Cost Item 2007 2006 2007 2006 Sales of raw 21,597,738.86 18,039,978.06 19,510,431.53 16,205,391.51 materials and others Item 2007 2006 Revenue Northeast of China 21,597,738.86 18,039,978.06 Total 21,597,738.86 18,039,978.06 Cost Northeast of China 19,510,431.53 16,205,391.51 Total 19,510,431.53 16,205,391.51 5 Gain/ (loss) from investments Item 2007 2006 Gain arising from dividends of subsidiaries 7,522,106.46 11,218,121.86 Long-term equity investment income accounted for 93,878,758.86 97,627,425.48 by using the equity method Gain or loss arising from the disposal of 25,841.84 long-term equity investments Other equity investment income 2,841,667.00 2,325,000.00 Total 104,268,374.16 111,170,547.34 Page ７１ Dalian Refrigeration Co., Ltd. 2007 Annual Report Ⅶ. The relationship of the related parties and transactions 1. The related parties existing controlling relationship （1）The related parties existing controlling relationship Legal Relationshi Registered representative Registered p with the Nature of Name of enterprise address person capital Company Principal activities enterprise Dalian Bingshan Group Shahekou Zhang He RMB Parent Installation and Limited Company Limited Dist., Dalian 126,540,000 Company manufactory of liabilities refrigeration Company equipment Dalian Bingshan Group Shahekou Zhang RMB Subsidiary Installation and Limited Refrigeration Installation Dist., Dalian Hongzhi 20,036,841.62 testing of liabilities Company (“Installation refrigeration Company Company”) equipment Dalian Bingshan Group Shahekou Yang Bin RMB Subsidiary Sale of Limited Sales Company (“Sales Dist., Dalian 18,000,000 refrigeration liabilities Company”) equipment Company Ningbo Bingshan Ningbo Yang Bin RMB Subsidiary Installation, Limited Refrigeration Air 3,000,000 of wholesale and liabilities Conditioner Engineering subsidiary repair of Company Company Limited refrigeration equipment Dalian Bingshan Development Yamamoto JPY Subsidiary Manufacture and Limited Air-Conditioning Zone, Dalian Shunniti 700,000,000 sale of liabilities Equipment Company accessories of Company Limited (“Bingshan refrigeration Air-Conditioning”) equipment Dalian Bingshan Metal High & new Zhang He USD Subsidiary Process and sale Limited Processing Company Technology 2,350,000 of metal liabilities Limited (“Metal Dist., Dalian punching parts Company Processing”) Dalian Bingshan Guardian High & new Mike Murphy GBP Subsidiary Research, design Limited Automation Co., Ltd. Technology 210,000 and develop liabilities Dist., Dalian refrigerator Company automation parts Dalian Bingshan Ryosetsu Development Yamati USD Subsidiary Manufacture and Limited Quick Freezing Equipment Zone, Dalian Yashuhiro 1,000,000 sale of liabilities Co., Ltd. deepfreezing Company equipment Shanghai Bingshan Serial Jiading Dist., Yang Bin RMB Subsidiary Sale and Limited Refrigeration Equipment Shanghai 2,000,000 installation of liabilities Sales Company refrigeration Company equipment Page ７２ Dalian Refrigeration Co., Ltd. 2007 Annual Report Wuhan New World Hanyang Mu RMB Subsidiary Design, Limited Refrigeration Industrial Dist., Wuhan Chuanjiang 30,000,000 manufacture, liabilities Company Limited sale, installation Company (“WNWRI”) and test of screw type refrigeration compressor and refrigeration equipment Wuhan New World Dongxihu Ding Jie RMB Subsidiary Design, Limited Refrigeration Air Dist., Wuhan 8,000,000 of installation, test liabilities Conditioner Engineering subsidiary and repair of Company Company Limited refrigeration equipment Dalian Daleng Metal Lvshunkou Zhang He RMB Subsidiary Manufacture of Limited Technology Company Dist., Dalian 20,000,000 metal founding liabilities Limited parts and pipe Company parts; process of metal machine parts(Preparing to construct) (2) Registered capital of the related parties existing controlling relationship and the changes Increase in the Decrease in Name of enterprise 31-12-2006 31-12-2007 period the period Dalian Bingshan Group Company Limited RMB126,540,000.00 RMB126,540,000.00 Dalian Bingshan Group Refrigeration RMB20,036,841.62 RMB20,036,841.62 Installation Company Dalian Bingshan Group Sales Company RMB18,000,000.00 RMB18,000,000.00 Ningbo Bingshan Refrigeration Air Conditioner Engineering Company RMB3,000,000.00 RMB3,000,000.00 Limited Dalian Bingshan Air-Conditioning JPY700,000,000.00 JPY700,000,000.00 Equipment Company Limited Dalian Bingshan Ryosetsu Quick Freezing USD1,000,000.00 USD1,000,000.00 Equipment Co., Ltd. Dalian Bingshan Metal Processing USD2,350,000.00 USD2,350,000.00 Company Limited Dalian Bingshan Guardian Automation GBP210,000.00 GBP210,000.00 Co., Ltd Shanghai Bingshan Serial Refrigeration RMB2,000,000.00 RMB2,000,000.00 Equipment Sales Company Wuhan New World Refrigeration RMB30,000,000.00 RMB30,000,000.00 Industrial Company Limited Wuhan New World Refrigeration Air RMB8,000,000.00 RMB8,000,000.00 Page ７３ Dalian Refrigeration Co., Ltd. 2007 Annual Report Conditioner Engineering Company Limited Dalian Daleng Metal Technology RMB20,000,000.00 RMB20,000,000.00 Company Limited （3）The shares or equity held by the related parties with controlling relationships and its changes 31-12-2006 Increase Decrease 31-12-2007 Name of enterprise in the in the Amount Proportion period Amount Proportion period Dalian Bingshan Group Company RMB RMB 21.96% 21.96% Limited 76,855,683.00 76,855,683.00 Dalian Bingshan Group RMB RMB Refrigeration Installation 100% 100% 20,036,841.62 20,036,841.62 Company Dalian Bingshan Group Sales RMB RMB 90% 90% Company 16,200,000.00 16,200,000.00 Ningbo Bingshan Refrigeration RMB Air Conditioner Engineering 45.90% RMB3,000,000.00 45.90% 3,000,000.00 Company Limited Dalian Bingshan JPY JPY Air-Conditioning Equipment 70% 70% 490,000,000.00 490,000,000.00 Company Limited Dalian Bingshan Ryosetsu Quick USD350,000.00 70% USD350,000.00 70% Freezing Equipment Co., Ltd. Dalian Bingshan Metal USD1,510,000.00 64.25% USD1,510,000.00 64.25% Processing Company Limited Dalian Bingshan Guardian GBP126,000.00 60% GBP126,000.00 60% Automation Co., Ltd Shanghai Bingshan Serial Refrigeration Equipment Sales RMB900,000.00 45% RMB900,000.00 45% Company Wuhan New World Refrigeration RMB RMB 51% 51% Industrial Company Limited 15,300,000.00 15,300,000.00 Wuhan New World Refrigeration Air Conditioner Engineering RMB400,000.00 5% RMB400,000.00 5% Company Limited Dalian Daleng Metal Technology RMB RMB 100% Company Limited 20,000,000.00 20,000,000.00 Page ７４ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2、Type of the related parties without controlling relationship Registered Relationship with the Name of the related parties Nature of enterprise place Company Thermo King-Dalian Transport Refrigeration Limited liabilities Company Shengzhen Affiliated company Company Limited Dalian Sanyo Refrigeration Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Grand Ocean Thermo King Transport Limited liabilities Company Dalian Affiliated company Refrigeration Engineering Company Limited Grand Ocean-showa Auto Air Conditioning (Dalian) Limited liabilities Company Dalian Affiliated company Co., Ltd. Dalian Sanyo Cold-train Co., Ltd Limited liabilities Company Dalian Affiliated company Dalian Free Trade Zone Sanyo Air conditioner Sales Limited liabilities Company Subsidiary of Affiliated Dalian Co., Ltd company Dalian Sanyo Air-conditioner Co., Ltd Limited liabilities Company Dalian Affiliated company Dalian Sanyo Compressor Co., Ltd Limited liabilities Company Dalian Affiliated company Dalian Honjo Chemical Company Limited Limited liabilities Company Dalian Affiliated company Dalian Sanyo Meica Electronics Co., Ltd Limited liabilities Company Dalian Affiliated company Dalian Sanyo Home Appliance Co., Ltd Limited liabilities Company Dalian Affiliated company Dalian Bingshan H2O3 Environmental Solution Limited liabilities Company Dalian Affiliated company Co. , Ltd Beijing Huashang Bingshan Serial Refrigeration Limited liabilities Company Beijing Affiliated company Equipment Co., Ltd. Dalian Fuji Bingshan Vending Machine Co., Ltd Limited liabilities Company Dalian Affiliated company Shenyang Sanyo Air-conditioner Co., Ltd Limited liabilities Company Shenyang Affiliated company Dalian Jiale Vending Machine Operation Co., Ltd Limited liabilities Company Dalian Joint Ventures Dalian Bingshan – P&A Recreation Development Limited liabilities Company Dalian Joint Ventures Engineering Limited Dalian Bingshan Group Cold Drink Equipment Co., Limited liabilities Company Subsidiary of Dalian Dalian Ltd. Bingshan Group Dalian Bingshan Group Refrigeration Equipment Limited liabilities Company Subsidiary of Dalian Dalian Co., Ltd. Bingshan Group Collective Subsidiary of Dalian Dalian Third Refrigeration Equipment Factory Dalian Bingshan Group Dalian Bingshan Group Jinzhou Heavy Machinery State-owned Subsidiary of Dalian Dalian Co., Ltd Bingshan Group Limited liabilities Company Subsidiary of Dalian Dalian Bingshan Group Import & Export Co. , Ltd Dalian Bingshan Group Beijing Bingshan Serial Refrigeration Equipment Limited liabilities Company Subsidiary of Dalian Beijing Co., Ltd. Bingshan Group Limited liabilities Company Subsidiary of Dalian Dalian Bingshan Group Materials Trading Co. , Ltd Dalian Bingshan Group Limited liabilities Company Affiliated company of Dalian Seiko Electric Control Co., Ltd Dalian Dalian Bingshan Group Page ７５ Dalian Refrigeration Co., Ltd. 2007 Annual Report Limited liabilities Company Affiliated company of Dalian Spindle Cooling Towers Co., Ltd Dalian Dalian Bingshan Group Limited liabilities Company Affiliated company of Dalian Bingshan Metal Technology Co., Ltd Dalian Dalian Bingshan Group Dalian Mahe Level Control Electrical Appliances Limited liabilities Company Affiliated company of Dalian Co., Ltd Dalian Bingshan Group Limited liabilities Company Affiliated company of Dalian JCI Cryogenic Industries Co., Ltd Dalian Dalian Bingshan Group Limited liabilities Company Affiliated company of Linde Engineering (Dalian) Co., Ltd Dalian Dalian Bingshan Group Dalian Bingshan Sanyo Laundering and Dyeing Co., Limited liabilities Company Affiliated company of Dalian Ltd Dalian Bingshan Group Limited liabilities Company Affiliated company of BAC Dalian Co., Ltd Dalian Dalian Bingshan Group 3、The transactions between the Company and the related parties (1) Purchases of goods from related parties: Name of the related parties 2007 2006 Dalian Sanyo Refrigeration Co., Ltd 8,436,588.03 19,672,812.04 Dalian Sanyo Cold-train Co., Ltd 88,642,621.54 140,323,234.10 Dalian Sanyo Air-conditioner Co., Ltd 9,718,541.06 13,002,632.43 Dalian Free Trade Zone Sanyo Air-conditioner Sales Co., Ltd 68,710,596.58 70,609,441.03 Thermo King-Dalian Transport Refrigeration Company 58,063.20 240,945.22 Limited Dalian Sanyo Compressor Co., Ltd 14,148,777.09 24,646,301.89 BAC Dalian Co., Ltd 83,762,623.93 65,281,310.26 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 40,858,616.79 21,605,501.47 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 29,966,358.85 30,817,732.78 Dalian Third Refrigeration Equipment Factory 4,954,396.04 6,571,664.20 Dalian Sanyo Home Appliance Co., Ltd. 8,691.45 13,471.79 Dalian Seiko Electric Control Co., Ltd 884,579.49 2,640,870.09 Dalian Spindle Cooling Towers Co., Ltd 11,201,384.62 16,832,864.96 Dalian Bingshan Group Jinzhou Heavy Machinery Co., Ltd 76,923.08 40,170.94 Dalian Bingshan Group Import & Export Co. , Ltd 58,578,135.22 39,041,352.14 Dalian Bingshan Group Materials Trading Co. , Ltd 41,049,121.96 26,361,421.13 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd 295,042.74 207,264.96 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 9,761,582.42 16,166.15 Dalian Sanyo Meica Electronics Co., Ltd 270,944.96 Dalian Fuji Bingshan Vending Machine Co., Ltd 6,842.40 Dalian Jiale Vending Machine Operation Co., Ltd 23,967.11 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd 15,173.07 Total 471,398,762.12 477,955,967.09 Page ７６ Dalian Refrigeration Co., Ltd. 2007 Annual Report * The Company purchased goods from related parties is 37.83% of total purchases during 2007. (2) Providing services to related parties Name of the related parties 2007 2006 BAC Dalian Co., Ltd 1,253,727.00 1,561,002.00 Dalian Sanyo Refrigeration Co., Ltd. 75,000.00 Total 1,253,727.00 1,636,002.00 (3) Sales of goods to related parties Name of the related parties 2007 2006 Dalian Sanyo Compressor Co., Ltd. 9,582,962.26 13,764,744.64 Dalian Sanyo Refrigeration Co., Ltd. 5,837,896.68 2,110,246.64 Dalian Sanyo Meica Electronics Co., Ltd 5,435.90 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 312,618.80 2,588,715.82 Thermo King-Dalian Transport Refrigeration Company 14,934,674.10 7,505,009.87 Limited Grand Ocean-showa Auto Air Conditioning (Dalian) Co., Ltd. 8,255.01 6,500.00 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 23,596,195.93 19,437,908.83 Beijing Huashang Bingshan Refrigeration and 6,861,920.73 10,319,860.02 Air-conditioning Machinery Co., Ltd Dalian Bingshan Group Import & Export Co. , Ltd 171,823,168.66 101,233,242.85 Dalian Sanyo Air-conditioner Co., Ltd 32,420,818.47 35,259,270.12 Dalian Seiko Electric Control Co., Ltd 774,275.67 237,668.81 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 198,559.00 Dalian Bingshan Group Materials Trading Co. , Ltd 865,058.12 4,071,827.29 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd 7,692.31 636,350.43 Dalian Sanyo Cold-train Co., Ltd 2,184,152.40 1,649,070.32 Dalian Bingshan – P&A Recreation Development 4,254,667.52 1,002,599.31 Engineering Limited BAC Dalian Co., Ltd 492,510.26 Dalian Fuji Bingshan Vending Machine Co., Ltd 1,783,436.79 3,043,207.79 Dalian Bingshan Metal Technology Co., Ltd 163,580.09 62,524.79 Shenyang Sanyo Air-conditioner Co., Ltd 3,242,329.40 3,835,366.68 Dalian Third Refrigeration Equipment Factory 297,000.00 1,733,010.61 Total 279,448,649.10 208,695,683.82 * The Company sales income from related parties is 17.12% of total sales income during 2007. (4) Leasing fees from related party Name of the related parties 2007 2006 Dalian Bingshan Group Co., Ltd. 95,400.00 95,400.00 * The Company signed a leasing agreement with Dalian Bingshan Group Co., Ltd, and leased 530 ㎡ of offices to Dalian Bingshan Group Co., Ltd. The rental of offices is RMB 95,400.00 Yuan every year, and the effective period of the contract is 5 years. Page ７７ Dalian Refrigeration Co., Ltd. 2007 Annual Report 4 Amounts due from/to related parties (1) Accounts receivable Name of the related parties 31-12-2007 31-12-2006 Dalian Sanyo Compressor Co., Ltd. 2,647,569.00 138,293.75 Dalian Sanyo Refrigeration Co., Ltd. 411,426.98 35,685.25 Grand Ocean-Showa Auto Air Conditioning (Dalian) Co., Ltd. 9,658.36 Dalian Sanyo Cold-train Co., Ltd 635,495.00 923,233.26 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 140,733.98 233,544.56 Thermo King-Dalian Transport Refrigeration Company 7,365,599.77 8,704,453.26 Limited Dalian Sanyo Air-conditioner Co., Ltd 1,700,214.92 356,528.24 Dalian Bingshan Group Import & Export Co. , Ltd 1,545,992.13 3,577,730.51 Dalian Bingshan – P&A Recreation Development Engineering 724,627.55 76,300.00 Limited Beijing Huashang Bingshan Refrigeration and 2,666,332.93 774,989.53 Air-conditioning Machinery Co., Ltd Dalian Seiko Electric Control Co., Ltd 138,020.00 18,024.50 Dalian Fuji Bingshan Vending Machine Co., Ltd 391,403.75 340,886.46 BAC Dalian Co., Ltd 5,636.00 721,880.91 Shenyang Sanyo Air-conditioner Co., Ltd 90,928.00 3,702,597.40 (2) Other accounts receivable Name of the related parties 31-12-2007 31-12-2006 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd 3,500.00 3,500.00 Dalian Bingshan Group Import & Export Co. , Ltd 501,123.43 113,523.43 (3) Account paid in advance Name of the related parties 31-12-2007 31-12-2006 Dalian Sanyo Refrigeration Co., Ltd. 404,000.00 Dalian Bingshan Group Import & Export Co. , Ltd 224,673.68 Dalian Sanyo Air-conditioner Co., Ltd 2,726,440.00 176,300.00 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd 1,306.49 Dalian Sanyo Cold-train Co., Ltd 275,261.00 Dalian Sanyo Compressor Co., Ltd. 142,260.00 (4) Notes receivable Name of the related parties 31-12-2007 31-12-2006 Dalian Sanyo Refrigeration Co., Ltd. 1,730,473.83 Dalian Sanyo Air-conditioner Co., Ltd 4,444,274.17 6,324,564.68 Shenyang Sanyo Air-conditioner Co., Ltd 1,831,158.40 Page ７８ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Bingshan Group Import & Export Co. , Ltd 17,071,358.01 1,891,431.81 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 1,750,000.00 1,620,000.00 Dalian Seiko Electric Control Co., Ltd 630,582.53 (5) Dividends receivable Name of the related parties 31-12-2007 31-12-2006 Dalian Sanyo Refrigeration Co., Ltd. 5,920,000.00 4,340,000.00 Dalian Grand Ocean Thermo King Transport Refrigeration 1,913,107.90 1,572,111.46 Engineering Co., Ltd Thermo King-Dalian Transport Refrigeration Company 2,000,000.00 7,875,000.00 Limited Dalian Sanyo Meica Electronics Co., Ltd. 3,000,000.00 Grand Ocean-showa Auto Air-conditioning (Dalian) Co., Ltd. 4,279,599.19 (6) Accounts payable Name of the related parties 31-12-2007 31-12-2006 Dalian Third Refrigeration Equipment Factory 1,078,230.67 858,101.23 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 16,915,754.51 19,623,216.35 BAC Dalian Co., Ltd 12,999,531.73 3,953,436.73 Dalian Seiko Electric Control Co., Ltd 860,171.00 425,433.00 Dalian Bingshan Group Jinzhou Heavy Machinery Co., Ltd 4,500.00 32,350.00 Dalian Sanyo Air-conditioner Co., Ltd 78,346.86 6,397.61 Dalian Free Trade Zone Sanyo Air-conditioner Sales Co., Ltd 135,353.00 Dalian Bingshan Group Materials Trading Co. , Ltd 92,040.10 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 7,056,347.35 3,068,864.92 Dalian Sanyo Refrigeration Co., Ltd. 179,101.80 Dalian Sanyo Cold-train Co., Ltd 63,066.50 9,516.00 Dalian Meica Electronics Co., Ltd. 317,005.60 Dalian Sanyo Home Appliance Co., Ltd. 42,570.00 58,332.00 Dalian Spindle Cooling Towers Co., Ltd 1,465,993.30 209,630.35 Dalian Bingshan Group Import & Export Co. , Ltd 1,122,968.98 1,320,858.87 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd 37,240.00 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd 45,348.00 (7) Accounts received in advance Name of the related parties 31-12-2007 31-12-2006 Dalian Sanyo Airconditioner Co., Ltd 343,493.64 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 10,000.00 Dalian Sanyo Cold-train Co., Ltd 261,756.79 Dalian Sanyo Refrigeration Co.,Ltd. 6,461.23 Dalian Bingshan – P&A Recreation Development Engineering 133,046.00 Limited Page ７９ Dalian Refrigeration Co., Ltd. 2007 Annual Report Dalian Bingshan H2O3 Environmental Solution Co. , Ltd 2,092.20 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 132,000.00 (8) Other accounts payable Name of the related parties 31-12-2007 31-12-2006 Dalian Bingshan Group Co.,Ltd. 10,107,841.16 10,848,952.54 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd 32,442.00 16,221.00 Dalian Third Refrigeration Equipment Factory 101,000.00 101,000.00 (9) Notes payable Name of the related parties 31-12-2007 31-12-2006 Dalian Seiko Electric Control Co., Ltd 400,000.00 Dalian Spindle Cooling Towers Co., Ltd 200,000.00 2,919,750.00 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 3,689,734.00 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 1,550,000.00 1,908,500.05 BAC Dalian Co., Ltd 9,963,260.00 10,000,000.00 Dalian Bingshan Group Materials Trading Co. , Ltd 6,680,000.00 8,496,746.89 Dalian Third Refrigeration Equipment Factory 1,803,590.90 Ⅷ. Contingencies and Commitments Ended Dec.31, 2007, the Company and its subsidiaries has no significant contingents or commitments. Ⅸ. Supplementary Information 1.Non-recurring profits and losses Non-recurring gains and losses item 2007 2006 1. Gain/loss from disposal of non-current 75,947.43 508,719.44 assets 2.Governmental subsidy written into current gains and 12,461,735.34 432,103.00 losses 3. Interest from non-financial enterprises written into current gains and 827,537.18 losses 4.Reversal of provision for impairment of long-term assets 6,032,318.82 5. Other net income and expense from non-operation 1,025,845.93 89,900.53 Total 13,563,528.70 7,890,578.97 Less：affected amount of income tax from non-recurring gains and 4,176,917.79 428,061.32 losses non-recurring gains and losses 9,386,610.91 7,462,517.65 Included: Attributable to minority interest 812,780,48 284,237.21 Attributable to parent company 8,573,830.43 7,178,280.44 Page ８０ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2. Earnings per share Item 2007 2006 Net profit attributable to the Company’s ordinary shareholders 0.37 0.36 Net profit attributable to the Company’s ordinary shareholders after deducting non-recurring gains and losses 0.34 0.34 3. Return on equity 2007 2006 Weighted Weighted Fully diluted Fully diluted Item average average Net profit attributable to the Company’s 8.13% 8.43% 8.43% 8.62% ordinary shareholders Net profit attributable to the Company’s ordinary shareholders after deducting 7.59% 7.87% 7.95% 8.13% non-recurring gains and losses 4、Affection of Reconciliation of Accounting Standards for Enterprises In accordance with the requirement of Accounting Standards for Enterprises No. 38 – Initial Implementation of Accounting Standards for Business Enterprises and No. 1 to Accounting Standard for Business Enterprise Note with CK〔2007〕Document No. 14, the reconciliation process of owner’s (shareholder’s) equity at the beginning of the year, items changed, influence amount and their reason is as follows: (1) Adjustment of difference on consolidated shareholders’ equity at the beginning of 2006 Item Amount Shareholders’ equity as at January 1,2006 ( Former Accounting Standards) 1,427,525,349.93 Amortized long-term equity investment difference (debited amount) 5,563,174.03 Income tax -14,348,492.79 Minority interest was brought into shareholders’ equity of consolidated statements 67,215,147.36 Shareholders’ equity as at January 1,2006 ( New Accounting Standards) 1,485,955,178.53 Page ８１ Dalian Refrigeration Co., Ltd. 2007 Annual Report (2) Adjustment of difference on consolidated shareholders’ equity at the beginning of 2007 Amount disclosed in Former amount disclosed Item Annual Report 2007 in Annual Report 2006 Shareholders’ equity as at January 1,2007 ( Former Accounting Standards) 1,496,160,022.72 1,496,160,022.72 Amortized long-term equity investment difference (debited amount) 6,330,508.39 Income tax -8,919,563.78 -8,919,563.78 Minority interest was brought into shareholders’ equity of consolidated statements 78,037,663.50 78,037,663.50 Shareholders’ equity as at January 1,2007 ( New Accounting Standards) 1,571,608,630.83 1,565,278,122.44 (3) The reconciliation of difference in consolidation net profit of 2006 Item Amount Net profit of 2006 attributable to parent company（former accounting 117,295,004.69 standards） Plus: Gain/loss of minority shareholders of 2006 (former system) 19,078,072.63 Net profit of 2006（former accounting standards） 136,373,077.32 Deferred income tax 5,494,278.04 Amortized long-term equity investment difference (debited amount) 767,334.36 Other adjustment---welfare and bonus fund appropriated by affiliated 2,410,607.48 company Net profit of 2006（new accounting standards） 145,045,297.20 Deduct: Gain/loss of minority shareholders (new accounting 19,143,421.66 standards) Net profit of 2006 attributable to parent company（new accounting 125,901,875.54 standards） Page ８２ Dalian Refrigeration Co., Ltd. 2007 Annual Report 5、Amendment form of income statement of 2006 Assuming full implementation of the new accounting standard duplicated profit report in 2006 Item Amount Net profit of 2006（new accounting standards） 145,045,297.20 The balance of welfare expenses appropriated during 2006 9,408,731.76 Fund appropriated by the government and transferred into capital surplus Debt restructure 30,448.00 Assuming full implemental net profit of 2006 154,484,476.96 Ⅹ.Approval of the financial statements The financial statements were approved by the board of directors on 23 April, 2008. Page ８３ Dalian Refrigeration Co., Ltd. 2007 Annual Report XI. Reference Documents 1. The accounting statements bearing the signatures and seals of the legal representative, the financial majordomo and the accountants in charge. 2. The original copy of the auditor's report bearing the seal of the certified public accountants and the signatures and seals of the certified accountants. 3. The original copies of all the Company's documents and the original copies of the bulletins published on the newspapers designated by the China Securities Regulatory Commission in the report period. 4. Time for reference: from Monday to Friday 8:00 - 12:00 (a. m.) 1:00 - 5:00 (p. m.) Liaison persons: Song Wenbao Tel: 0086-411-86654530 0086-411-86538130 Fax: 0086-411-86654530 Page ８４ Dalian Refrigeration Co., Ltd. 2007 Annual Report CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited 31 December 2007 Unit: RMB Yuan Consolidation Parent company Items Ending balance Beginning Balance Ending balance Beginning Balance Current Assets: Monetary funds 244,799,726.11 298,205,958.75 145,162,895.61 198,065,756.92 Transaction financial asset Notes receivable 61,105,461.48 17,295,316.82 33,923,196.41 6,720,996.49 Account receivable 396,069,801.75 336,299,785.67 234,453,539.96 173,589,451.03 Account paid in advance 29,855,794.43 26,839,311.24 7,857,424.76 5,809,513.08 Interest receivable 15,799,774.90 20,266,710.65 17,047,781.57 21,514,717.32 Other account receivable 16,709,994.62 14,341,008.40 4,407,567.07 3,242,405.02 Financial assets purchased under agreements to resell Inventories 307,496,203.60 254,852,668.51 213,598,247.96 175,256,053.61 Non-current assets due within 1 year Other current assets Total current assets 1,071,836,756.89 968,100,760.04 656,450,653.34 584,198,893.47 Non-current assets: Loans and advance Available for sale financial assets 17,280,900.00 17,280,900.00 Held to maturity investments Long-term account receivable Long-term equity investment 975,712,353.75 838,165,321.68 1,105,760,582.67 948,213,550.61 Investing property Fixed asset 390,173,719.82 349,284,586.12 247,509,889.22 261,519,027.54 Project in construction 8,868,277.62 20,782,889.64 499,955.08 1,371,701.20 Engineering material Fixed asset disposal Bearer biological asset Oil assets Intangible assets 105,292,244.58 38,730,552.08 30,409,717.89 29,893,341.86 Development expense Goodwill Long-term expense to be apportioned 3,698,626.06 3,812,388.54 3,215,191.13 3,336,138.77 Deferred tax assets 10,030,792.26 10,220,562.73 6,026,979.10 7,626,647.94 Other non-current assets Total non-current assets 1,511,056,914.09 1,260,996,300.79 1,410,703,215.09 1,251,960,407.92 Total assets 2,582,893,670.98 2,229,097,060.83 2,067,153,868.43 1,836,159,301.39 Page ８５ Dalian Refrigeration Co., Ltd. 2007 Annual Report CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited 31 December 2007 Unit: RMB Yuan Items Consolidation Parent company Ending balance Beginning Balance Ending balance Beginning Balance Current liabilities: Short-term borrowings 70,000,000.00 50,000,000.00 Transaction financial liabilities Notes payable 35,225,059.06 39,598,536.08 12,500,000.00 15,000,000.00 Account payable 380,180,714.46 294,001,946.41 236,013,225.16 162,623,240.74 Account received in advance 175,480,242.17 117,334,899.25 93,657,056.53 60,695,866.04 Financial assets sold under agreements to repurchase Handling charges and commission payable Employee’s compensation payable 41,700,976.58 48,545,602.38 20,559,393.99 28,000,029.10 Tax payable 2,910,321.31 4,131,543.99 1,679,395.17 1,774,870.37 Interest payable Dividend payable 11,277,618.46 4,149,837.89 10,742,758.45 2,264,977.88 Other account payable 57,372,736.35 60,047,654.10 21,782,704.31 19,456,171.36 Amount payables under security underwriting Non-current liabilities due within 1 year Other current liabilities Total current liabilities 774,147,668.39 567,810,020.10 446,934,533.61 289,815,155.49 Non-current liabilities: Long-term borrowings 50,000,000.00 50,000,000.00 50,000,000.00 50,000,000.00 Debentures payable Long-term payables Specific purpose account payables Provisions for contingent liabilities Deferred tax liabilities 10,936,965.62 18,723,159.90 10,936,965.62 18,723,050.74 Other non-current liabilities 79,208,545.00 20,955,250.00 24,517,545.00 20,850,250.00 Total non-current liabilities 140,145,510.62 89,678,409.90 85,454,510.62 89,573,300.74 Total liabilities 914,293,179.01 657,488,430.00 532,389,044.23 379,388,456.23 Owner’s equity Share capital 350,014,975.00 350,014,975.00 350,014,975.00 350,014,975.00 Capital surplus 588,753,483.22 572,587,026.21 587,524,555.60 571,358,098.59 Less: Treasury Stock Reserved fund 332,959,114.14 298,067,136.37 332,959,114.14 298,067,136.37 General risk provision Retained earnings 312,557,010.42 272,901,829.75 264,266,179.46 237,330,635.20 Foreign exchange difference Total owners' equity attributable to 1,584,284,582.78 1,493,570,967.33 1,534,764,824.20 1,456,770,845.16 holding company Minority interest 84,315,909.19 78,037,663.50 Total owner’s equity 1,668,600,491.97 1,571,608,630.83 1,534,764,824.20 1,456,770,845.16 Total liabilities and owner’s equity 2,582,893,670.98 2,229,097,060.83 2,067,153,868.43 1,836,159,301.39 Page ８６ Dalian Refrigeration Co., Ltd. 2007 Annual Report CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited Year of 2007 Unit: RMB Yuan Items Consolidation Parent company 2007 2006 2007 2006 I. Total sales 1,653,955,364.95 1,617,170,091.55 1,127,227,565.09 1,051,866,433.14 Including: Operating income 1,653,955,364.95 1,617,170,091.55 1,127,227,565.09 1,051,866,433.14 II. Total operating cost 1,615,093,449.54 1,565,514,585.50 1,120,985,460.34 1,041,964,218.32 Including: Operating cost 1,362,127,241.82 1,299,682,173.50 962,635,877.58 860,539,634.63 Taxes and associate charges 6,403,565.64 8,888,940.43 3,961,247.60 3,922,235.90 Selling and distribution expenses 101,686,077.44 103,110,567.68 63,575,794.26 71,673,542.19 Administrative expenses 127,906,374.63 134,666,065.84 78,403,570.60 89,888,198.18 Financial expense 3,495,900.40 599,346.76 3,794,047.24 1,681,782.17 Impairment loss 13,474,289.61 18,567,491.29 8,614,923.06 14,258,825.25 Add: gain from change in fair value Gain/(loss) from investment 96,829,892.70 100,008,175.48 104,268,374.16 111,170,547.34 Including: income form investment on affiliated enterprise and jointly 93,878,758.86 97,627,425.48 93,878,758.86 97,627,425.48 enterprise Foreign exchange difference III. Operating profit 135,691,808.11 151,663,681.53 110,510,478.91 121,072,762.16 Add: non-business income 15,191,743.63 6,454,125.44 10,437,992.08 5,348,536.62 Less: non-business expense 514,215.73 607,951.71 336,663.65 95,555.55 Including: loss from non-current asset disposal 356,803.39 513,320.72 228,447.58 40,451.05 IV. Total profit 150,369,336.01 157,509,855.26 120,611,807.34 126,325,743.23 Less: Income tax 8,148,715.09 12,464,558.06 6,282,039.06 10,332,847.30 V. Net profit 142,220,620.92 145,045,297.20 114,329,768.28 115,992,895.93 Net profit attributable to parent company 128,827,637.59 125,901,875.54 114,329,768.28 115,992,895.93 Minority shareholders’ gains and losses 13,392,983.33 19,143,421.66 VI. Earnings per share (I) basic earnings per share 0.37 0.36 (II) diluted earnings per share 0.37 0.36 Page ８７ Dalian Refrigeration Co., Ltd. 2007 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited Year of 2007 Unit: RMB Yuan Items 2007 2006 Consolidation Parent company Consolidation Parent company 1. Cash flows arising from operating activities: Cash received from sales of goods or rending of services 1,537,696,618.96 1,016,357,518.90 1,515,440,156.50 986,903,350.26 Refund of tax and fare received 188,810.40 33,754.82 3,201,685.93 3,003,699.73 Other cash received relating to operating activities 39,471,256.01 18,342,948.10 27,548,668.26 10,202,254.20 Sub-total of cash inflows 1,577,356,685.37 1,034,734,221.82 1,546,190,510.69 1,000,109,304.19 Cash paid for goods and services 1,227,117,455.15 830,044,228.06 1,165,794,537.97 781,802,878.29 Cash paid to and on behalf of employees 156,993,819.06 97,143,478.69 134,030,143.25 85,302,876.82 Tax and fare paid 96,262,374.61 63,434,410.08 92,965,343.92 64,220,130.51 Other cash paid relating to operating activities 73,536,784.64 38,977,210.59 78,462,854.77 31,045,235.38 Sub-total of cash outflows 1,553,910,433.46 1,029,599,327.42 1,471,252,879.91 962,371,121.00 Net cash flow from operating activities 23,446,251.91 5,134,894.40 74,937,630.78 37,738,183.19 2. Cash Flows arising from Investment Activities: Cash received from return of investments Cash received from investment income 44,507,636.46 51,946,117.92 38,802,491.14 46,708,681.80 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 6,083,591.11 115,753.35 238,000.00 18,000.00 Proceeds from sale of subsidiaries and other operating units 2,041,356.64 2,041,356.64 Other cash received relating to investment activities 57,400,957.71 1,439,112.77 Sub-total of cash inflows 110,033,541.92 55,542,340.68 39,040,491.14 46,726,681.80 Cash paid for acquiring fixed assets, intangible assets and 46,156,762.76 other long-term assets 121,304,888.17 10,390,365.23 8,969,001.30 Cash paid for acquiring investments 84,399,473.79 84,399,473.79 16,000,000.00 16,000,000.00 Net cash used in loans Net cash used in acquiring subsidiaries and other operating units 20,000,000.00 3,248,147.40 Other cash paid relating to investment activities Sub-total of cash outflows 205,704,361.96 114,789,839.02 62,156,762.76 28,217,148.70 Net cash flow from investing activities -95,670,820.04 -59,247,498.34 -23,116,271.62 18,509,533.10 3. Cash Flows arising from Financing Activities: Cash received from absorbing investment Including: Cash received from increase in minority interest Cash received from borrowings 79,702,034.80 50,000,000.00 Cash received from issuing debentures Other proceeds relating to financing activities 17,400.96 20,543,416.00 9,700,000.00 Sub-total of cash inflows 79,719,435.76 50,000,000.00 20,543,416.00 9,700,000.00 Cash paid for settling debt 2,740,108.89 44,250,000.00 Cash paid for distribution of dividends or profit or 62,439,843.33 reimbursing interest 57,825,652.34 48,789,370.17 53,034,124.46 Including: dividends or profit paid to minority interest 7,114,737.64 7,488,162.90 Other cash payments relating to financing activities 2,991,000.00 2,991,000.00 Sub-total of cash outflows 60,565,761.23 48,789,370.17 109,680,843.33 56,025,124.46 Net cash flow from financing activities 19,153,674.53 1,210,629.83 -89,137,427.33 -46,325,124.46 4. Influence on cash due to fluctuation in exchange rate -335,339.04 -887.20 120,354.62 -454.99 5. Increase in cash and cash equivalents -53,406,232.64 -52,902,861.31 -37,195,713.55 9,922,136.84 Add : Cash and cash equivalents at year-begin 298,205,958.75 198,065,756.92 335,401,672.30 188,143,620.08 6.Cash and cash equivalents at the end of the year 244,799,726.11 145,162,895.61 298,205,958.75 198,065,756.92 Page ８８ Dalian Refrigeration Co., Ltd. 2007 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited Year of 2007 Unit: RMB Yuan 2007 Owners’ equity attributable to parent company Items Lessen: General Minority Total of owners’ share capital Capital suplus treasury Surplus reserve risk Retained profits Others equity equity stock reserve I. balance at the end of last year 350,014,975.00 572,587,026.21 - 298,067,136.37 - 272,901,829.75 - 78,037,663.50 1,571,608,630.83 1. Change of accounting policy - 2. Correction of errors in previous period - II. Balance at the beginning of this year 350,014,975.00 572,587,026.21 - 298,067,136.37 - 272,901,829.75 - 78,037,663.50 1,571,608,630.83 III. Increase/ decrease of amount in this year (“-” - 16,166,457.01 - 34,891,977.77 - 39,655,180.67 - 6,278,245.69 96,991,861.14 means decrease) (I) Net profit 128,827,637.59 13,392,983.33 142,220,620.92 (II)Gain/loss listed to owners’ equity directly - 16,166,457.01 - - - - - - 16,166,457.01 1. Net amount on changes in book value of financial assets 11,229,905.77 11,229,905.77 available for sale 2.Effect on changes in other owners’ equity of invested 736,551.24 736,551.24 units under equity method 3. Effect on income tax related to items - 4. Others 4,200,000.00 4,200,000.00 Subtotal of (I)and (II) - 16,166,457.01 - - - 128,827,637.59 - 13,392,983.33 158,387,077.93 (III) Input an reduced capital of owners - - - - - - - - - 1. Input capital of owners - 2.Amount of Shares included in the owners’ equity - 3. Others (IV) Profit distribution - - - 34,891,977.77 - -89,172,456.92 - -7,114,737.64 -61,395,216.79 1. Withdrawing surplus public reserve 34,891,977.77 -34,891,977.77 - 2. Withdrawing general risk reserve - 3. Distribution to all owners (shareholders) -52,502,246.25 -7,114,737.64 -59,616,983.89 4. Others -1,778,232.90 -1,778,232.90 (V)Internal carrying forward of owners’ equity - - - - - - - - - 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this period 350,014,975.00 588,753,483.22 - 332,959,114.14 - 312,557,010.42 - 84,315,909.19 1,668,600,491.97 Page ８９ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2006 Owners’ equity attributable to parent company Items Lessen: General Minority Total of owners’ share capital Capital suplus treasury Surplus reserve risk Retained profits Others equity equity stock reserve I. balance at the end of last year 350,014,975.00 568,745,111.86 302,603,489.67 206,161,773.40 66,863,529.78 1,494,388,879.71 1. Change of accounting policy -16,135,642.89 7,350,324.13 351,617.58 -8,433,701.18 2. Correction of errors in previous period - II. Balance at the beginning of this year 350,014,975.00 568,745,111.86 - 286,467,846.78 - 213,512,097.53 - 67,215,147.36 1,485,955,178.53 III. Increase/ decrease of amount in this year (“-” - 3,841,914.35 - 11,599,289.59 - 59,389,732.22 - 10,822,516.14 85,653,452.30 means decrease) (I) Net profit 125,901,875.54 19,143,421.66 145,045,297.20 (II)Gain/loss listed to owners’ equity directly - 3,841,914.35 - - - - - 697.94 3,842,612.29 1. Net amount on changes in book value of financial assets - available for sale 2.Effect on changes in other owners’ equity of invested 231,466.35 697.94 232,164.29 units under equity method 3. Effect on income tax related to items - 4. Others 3,610,448.00 3,610,448.00 Subtotal of (I)and (II) - 3,841,914.35 - - - 125,901,875.54 - 19,144,119.60 148,887,909.49 (III) Input an reduced capital of owners - - - - - - - - - 1. Input capital of owners - 2.Amount of Shares included in the owners’ equity - 3. Others - (IV) Profit distribution - - - 11,599,289.59 - -66,512,143.32 - -8,321,603.46 -63,234,457.19 1. Withdrawing surplus public reserve 11,599,289.59 -11,599,289.59 - 2. Withdrawing general risk reserve - 3. Distribution to all owners (shareholders) -52,502,246.25 -8,321,603.46 -60,823,849.71 4. Others -2,410,607.48 -2,410,607.48 (V)Internal carrying forward of owners’ equity - - - - - - - - - 1. New increase of capital (share capital) from capital - reserves 2. Convert surplus reserves to capital(share capital) - 3. Surplus reserves make up losses - 4. Others - IV. Balance at the end of this period 350,014,975.00 572,587,026.21 - 298,067,136.37 - 272,901,829.75 - 78,037,663.50 1,571,608,630.83 Page ９０ Dalian Refrigeration Co., Ltd. 2007 Annual Report STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Prepared by Dalian Refrigeration Company Limited Year of 2007 Unit: RMB Yuan 2007 Owners’ equity attributable to parent company Items Lessen: General Total of owners’ share capital Capital surplus treasury Surplus reserve risk Retained profits Others equity stock reserve I. balance at the end of last year 350,014,975.00 571,358,098.59 - 298,067,136.37 - 237,330,635.20 1,456,770,845.16 1. Change of accounting policy - 2. Correction of errors in previous period - II. balance at the beginning of this year 350,014,975.00 571,358,098.59 - 298,067,136.37 - 237,330,635.20 - 1,456,770,845.16 III. Increase/ decrease of amount in this year (“-” - 16,166,457.01 - 34,891,977.77 - 26,935,544.26 - 77,993,979.04 means decrease) (I) Net profit 114,329,768.28 114,329,768.28 (II)Gain/loss listed to owners’ equity directly - 16,166,457.01 - - - - - 16,166,457.01 1. Net amount on changes in book value of financial assets 11,229,905.77 11,229,905.77 available for sale 2.Effect on changes in other owners’ equity of invested 736,551.24 736,551.24 units under equity method 3. Effect on income tax related to items - 4. Others 4,200,000.00 4,200,000.00 Subtotal of (I)and (II) - 16,166,457.01 - - - 114,329,768.28 - 130,496,225.29 (III) Input an reduced capital of owners - - - - - - - - 1. Input capital of owners - 2.Amount of Shares included in the owners’ equity - 3. Others (IV) Profit distribution - - - 34,891,977.77 - -87,394,224.02 - -52,502,246.25 1. Withdrawing surplus public reserve 34,891,977.77 -34,891,977.77 - 2. Withdrawing general risk reserve - 3. Distribution to all owners (shareholders) -52,502,246.25 -52,502,246.25 4. Others - (V)Internal carrying forward of owners’ equity - - - - - - - - 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this period 350,014,975.00 587,524,555.60 - 332,959,114.14 - 264,266,179.46 - 1,534,764,824.20 Page ９１ Dalian Refrigeration Co., Ltd. 2007 Annual Report 2006 Owners’ equity attributable to parent company Items Lessen: General Total of owners’ share capital Capital surplus treasury Surplus reserve risk Retained profits Others equity stock reserve I. balance at the end of last year 350,014,975.00 568,745,111.86 293,066,080.40 215,699,182.67 1,427,525,349.93 1. Change of accounting policy -1,222,646.16 -6,598,233.62 -30,259,907.56 -38,080,787.34 2. Correction of errors in previous period - II. balance at the beginning of this year 350,014,975.00 567,522,465.70 - 286,467,846.78 - 185,439,275.11 - 1,389,444,562.59 III. Increase/ decrease of amount in this year (“-” - 3,835,632.89 - 11,599,289.59 - 51,891,360.09 - 67,326,282.57 means decrease) (I) Net profit 115,992,895.93 115,992,895.93 (II)Gain/loss listed to owners’ equity directly - 3,835,632.89 - - - - - 3,835,632.89 1. Net amount on changes in book value of financial assets - available for sale 2.Effect on changes in other owners’ equity of invested 225,184.89 225,184.89 units under equity method 3. Effect on income tax related to items - 4. Others 3,610,448.00 3,610,448.00 Subtotal of (I)and (II) - 3,835,632.89 - - - 115,992,895.93 - 119,828,528.82 (III) Input an reduced capital of owners - - - - - - - - 1. Input capital of owners - 2.Amount of Shares included in the owners’ equity - 3. Others - (IV) Profit distribution - - - 11,599,289.59 - -64,101,535.84 - -52,502,246.25 1. Withdrawing surplus public reserve 11,599,289.59 -11,599,289.59 - 2. Withdrawing general risk reserve - 3. Distribution to all owners (shareholders) -52,502,246.25 -52,502,246.25 4. Others - (V)Internal carrying forward of owners’ equity - - - - - - - - 1. New increase of capital (share capital) from capital - reserves 2. Convert surplus reserves to capital(share capital) - 3. Surplus reserves make up losses - 4. Others - IV. Balance at the end of this period 350,014,975.00 571,358,098.59 - 298,067,136.37 - 237,330,635.20 - 1,456,770,845.16 Page ９２