本钢板材(000761)2007年年度报告（英文版）

B E N G A N G S T E E L P L AT E S C O . , LT D . Annual Report 2007 April 23, 2008 Important Statement The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. None of the directors, supervisors, and senior executives demonstrated uncertainty or disagreement about the truthfulness, accuracy, and completeness of this report. Chairman Yu Tianchen absented the meeting for he’s on business trip, he entrusted vice Chairman Li Mohua to vote on his behalf. Independent director absented the meeting for he’s on business trip, and he entrusted Ms. Zhong Tianli to vote on his behalf. Director Liang Guangde absented the meeting due to health problem. Beijing TIN WHA Zhongxing CPAs issued the standard auditing report without qualified opinion for the Company. Chairman of the Board – Mr. Yu Tianchen, Chief Financial Officer – Mr. Li Mohua, and Head of Accounting Dept. – Mr. Zuo Zhanguo hereby declare: the authenticity and integrality of the report are guaranteed. This report is prepared both in English and Chinese. Should any conflict in interpreting, the Chinese version shall prevail. 7 Table of Contents I. Company Profile ................................................................................................................................... 9 II. Financial Highlight ............................................................................................................................ 10 III. Particulars About the Capital Share and Shareholders ..................................................................... 13 IV. Particulars about the Directors, Supervisors, Senior Management and Employees ......................... 17 V. Administrative Structure .................................................................................................................... 22 VI. Particulars about the Shareholders’ Meeting.................................................................................... 28 VII. Report of the Board of Directors .................................................................................................... 28 VIII. Report of the Supervisory Committee ........................................................................................... 36 IX. Significant Events ............................................................................................................................ 38 X. Financial Report ................................................................................................................................ 50 XI. Documents For Reference............................................................................................................. 50 8 I. Company Profile 1. Name of the Company in Chinese: 本钢板材股份有限公司 In English: BENGANG STEEL PLATES CO., LTD. Legal name in short form: BSP 2. Legal Representative: Mr. Yu Tianchen 3. Secretary of the Board: Mr. Liang Guangde Liaison of stock affair: Mr. Lu Xiaoyong Address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province Tel: 0414－7828360 7828010 Fax: 0414－7824158 7827004 E-mail: bgbcgdl@online.ln.cn 4. Registered address: 18th Gangtie Road, Pingshan, Benxi, Liaoning Office address: 16th Renmin Rd., Pingshan, Benxi, Liaoning Post Code: 117000 E-mail: bgbctwg@mail.bxptt.ln.cn 5. Information disclosure media stipulated by the company: China Securities Journal, Security Times, Hong Kong Commercial Daily Annual reports also published online at: http://www.cninfo.com.cn Place where the annual report is prepared and ready for reference: Stock Affair Department, 16th Renmin Rd., Pingshan, Benxi, Liaoning 6. Stock listed in: Shenzhen Stock Exchange (1) Short Form of B-Shares: BENGANGBAN-B Stock Code: 200761 (2) Short Form of the Stock of A-Shares: BENGANGBANCAI Stock Code: 000761 Misc. information: Initial business registration on: June 27 1997 Business registration renewed on: June 15, 2007 Business registration renewed with: Liaoning Commerce & Industry Administration Bureau Business license number: 2100001049024 Taxation registration number: 210502242690243 Public accountant engaged by the Company: Beijing TIN WHA Zhongxing CPA Ltd. Address: 17th Floor, Zhonghua Building, A2 Fuxingmenwai Street, Beijing 9 II. Financial Highlight 1. Gross profit and composition In RMB Items Indices Total profit 2,164,911,653.58 Net profit 1,698,949,701.78 Net profit deducted non-recurring gain/loss 1,633,258,814.28 Main business profit 4,692,104,079.54 Other business profit 84,477,136.97 Operation profit 2,130,142,783.24 None business income / expense, net 34,768,870.34 Cash flow generated by business operation, net 2,745,350,761.29 Net increasing of cash and cash equivalents 2,184,200,692.94 Note: Non-recurring gain/loss excluded are Gain/loss of non-current assets -52,235,627.66 Government subsidy counted into current gain/loss 4,816,987.03 account Gain/loss from debt reorganization 49,853,832.64 Net amount of non-operational gain/loss other than 32,333,678.33 the above Carry back of welfare payable 63,602,977.38 Impact of income tax -32,680,960.22 Total 65,690,887.50 10 2. Major accounting data and finance indices in the latest 3 years In RMB Yuan 3.1 Major accounting data Increase/decrease Year 2007 Year 2006 Year 2005 (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Turnover 31,351,596,494.84 26,711,849,276.37 26,711,849,276.37 17.37% 20,483,155,602.09 20,483,155,602.09 Total profit 2,164,911,653.58 2,031,835,341.06 2,031,835,341.06 6.55% 908,992,696.43 908,992,696.43 Net profit attributable to the 1,698,949,701.79 1,651,359,285.62 1,625,954,120.51 4.49% 632,216,696.89 606,811,531.78 shareholders of the listed company Net profit attributable to shareholders of listed company 1,633,258,814.28 1,624,134,970.34 1,635,658,145.75 -0.15% 634,205,447.21 608,800,282.10 after deducting of non-recurring gain/loss Cash flow generated by 2,745,350,761.29 2,108,712,699.89 2,108,712,699.89 30.19% 1,387,889,891.36 1,387,889,891.36 business operation, net Increase/decrease End of 2007 End of 2006 End of 2005 (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Gross Assets 29,356,299,029.54 26,954,121,899.21 27,164,567,536.69 8.07% 7,674,992,160.18 7,885,437,797.66 Owners’ (shareholders’) 16,740,762,529.86 16,037,701,834.45 15,982,612,828.08 4.74% 5,308,918,458.11 5,253,829,451.74 equity 2.2 Major financial indices Increase/decrease Year 2007 Year 2006 Year 2005 (%) Not Not Adjusted Adjusted Adjusted adjusted adjusted Basic gains per share 0.5418 0.7172 0.7061 -23.27% 0.5565 0.5342 Diluted gains per share 0.5418 0.5266 0.5185 4.49% 0.5565 0.5342 Basic earning per share after deducting of non-recurring gains/losses 0.5208 0.7053 0.7103 -26.68% 0.5577 0.5359 Net income on asset, fully diluted 10.15% 10.30% 10.17% -0.02% 11.91% 11.55% Net income on asset, weighted 10.38% 11.91% 13.67% -3.29% 12.38% 12.02% Net income on asset, fully diluted and deducted non-recurring gain/loss 9.76% 10.13% 10.23% -0.47% 11.95% 11.59% Net income on asset after deducting of 10.16% 11.93% 13.44% -3.28% 12.41% 12.05% non-recurring gain/loss Net Cash flow per share generated by 0.8754 0.6724 0.6724 30.19% 1.2217 1.2217 business operation End of Increase/decrease End of 2006 End of 2005 2007 (%) Not Not Adjusted Adjusted Adjusted adjusted adjusted Net asset per share attributable to 5.3383 5.1141 5.0965 4.74% 4.6733 4.6248 shareholders of the Company 11 3. Supplementary form of the Cash Flow Statement Year 2007 Year 2006 Net return on equity Earnings per share Net return on equity Profit of the report (%) (RMB) (%) Earnings per share period On full On full On full On full amortizing weighted amortizing weighted amortizing weighted amortizing weighted basis average basis average basis average basis average Net profit 10.15 10.38 0.5418 0.5418 10.17 13.67 0.5185 0.7061 Earnings per share after deducting of non-recurring gain/loss 9.76 9.98 0.5208 0.5208 10.22 13.73 0.5207 0.7091 4. Change in shareholders’ equity In RMB Total of Surplus Incl. Statutory Items Share capital Capital reserves Retained profit shareholders’ reserves public welfare equity Beginning 3,136,000,000.00 8,705,011,134.76 744,828,960.83 744,828,960.83 3,396,772,732.49 15,982,612,828.08 of term Increased 169,460,146.99 169,460,146.99 1,698,949,701.78 1,698,949,701.78 this year Decreased 1,110,260,146.99 1,110,260,146.99 this year At the end 3,136,000,000.00 8,705,011,134.76 914,289,107.82 914,289,107.82 3,985,462,287.28 16,740,761,529.86 of term (3) Causations of change in surplus reserves and statutory public welfare: provided at 10% of the net profit of current term. (4) Changes of attributable profit: the increase was caused by carry in of net profit RMB169,894,9701.78 from the end of last year; the decrease was caused by providing of statutory surplus reserves of RMB169,460,146.99. Meanwhile, according to the dividend plan adopted by the Shareholders’ Annual Meeting 2006, upon the total capital shares of 3,136,000,000 at December 31st 2006, cash dividend of RMB3.00 (tax included) was distributed to each 10 shares. The dividend was amounted to RMB940,800,000.00 in total. 12 III. Particulars About the Capital Share and Shareholders 1. Statement of change in capital shares Statement of change in capital shares (Ended Dec. 31, 2007, in shares) Before the change Changed (+,-) After the change Issuing Transferred Bonus Amount Proportion of new from Others Sub-total Amount Proportion shares shares reserves I. Shares with conditional 2,575,226,800 82.12% -6,700 -6,700 2,575,220,100 82.12% subscription 1. State-owned shares 2. State-owned 2,575,200,000 82.12% 2,575,200,000 82.12% legal person shares 3. Other domestic 26,800 0.00% -6,700 -6,700 20,100 0.00% shares Incl. Non-government domestic legal person shares Domestic natural 26,800 -6,700 -6,700 20,100 0.00% person shares 4. Share held by foreign investors Incl. Shares held by foreign legal persons Foreign natural person shares II. Shares with unconditional 560,773,200 17.88% 6,700 6,700 560,779,900 17.88% subscription 1. Common shares 160,773,200 5.13% 6,700 6,700 160,779,900 5.13% in RMB 2. Foreign shares 400,000,000 12.76% 400,000,000 12.76% in domestic market 3. Foreign shares in overseas market 4. Others III. Total of capital 3,136,000,000 100.00% 3,136,000,000 100.00% shares 13 Change of conditional shares In shares Conditional Conditional Name of the Released Increased Reason of Date of shares at shares at end of shareholder this year this year condition releasing beginning of year year Benxi Steel State-owned Dec 31, 2,575,220,100 0 0 2,575,220,100 (Group) Ltd. legal person 2010 Total 2,575,220,100 0 0 2,575,220,100 － － 2. Placing and listing of shares The previous three times of share placing prior to the end of the report term. 1) The Company issued domestic listing foreign capitals share (B-share) 400 million shares in Shenzhen Stock Exchange, the placing price is HKD2.38 on Oct. 12th 1997, the listing date was on July 8 , 1997 and the quantity was 400 million shares that got permission to be listed circulating. On November 3, 1997, issued the domestic listing RMB common stock (A-Share) 120 million shares in Shenzhen Stock Exchange, issue price was RMB5.40, listing date was January 15th, 1998. On July 16th 1998, the 108 million employees’ shares were approved to be listed in the stock exchange. 2) On June 30, 2006, the Company issued 2 billion A shares privately to Bengang Group and use the proceeds to purchase the steel & iron assets of the Group. It was approved by China Securities Regulatory Commission on June 30th 2006. On August 28 2006, as approved by China Securities Depository & Clearing Corporation Ltd. Shenzhen Office, the registration and conditional placing procedures of the 2 billion new shares were completed. On September 28 2006, the privately placed shares were approved by Shenzhen Stock Exchange to be placed in the stock market on October 9th 2006. Category of the share: Renminbi common shares (A shares); amount placed: 2 billion shares; subscribing price: RMB4.6733 yuan/share; The newly placed shares are conditional shares. They are not able to be transferred in 36 months since the date when they are registered to the name of Bengang Group, i.e. August 28 2006, 14 3. Particulars about the shareholders and substantial controller (1) Number of shareholders at the end of report term was 65,731 (2) Shareholding status of the top 10 shareholders Top 10 Shareholders Pledged Properties of Share Conditional Name of the shareholder Total shares or shareholder proportion % shares frozen State-owned legal Benxi Steel (Group) Ltd. 82.12% 2,575,200,000 2,575,200,000 person BONY-DREYFUS PIFI-DREYFUS Overseas natural 1.75% 55,015,030 PREMIER GREATER CHINA person Overseas natural BB/BARING HONG KONG FUND 0.90% 28,372,200 person GOVERNMENT OF SINGAPORE Overseas natural 0.77% 24,005,673 INV.CORP.- A/C "C" person GSIC A/C MONETARY AUTHORITY OF Overseas natural 0.38% 11,877,633 SINGAPORE person HTHK-VALUE PARTNERS Overseas natural 0.34% 10,638,182 INTELLIGENT FD-CHINA B SHS FD person FLEDGELING NOMINEES Overseas natural 0.32% 10,001,024 INTERNATIONAL LIMITED person Overseas natural EXCEL CHINA FUND 0.29% 9,107,917 person GSI S/A ACRU CHINA+ ABSOLUTE Overseas natural 0.29% 9,025,668 RETURN FUND LIMITED person CREDIT SUISSE (HONG KONG) Overseas natural 0.28% 8,645,917 LIMITED person Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Category of shares BONY-DREYFUS PIFI-DREYFUS PREMIER 55,015,030 Foreign shares placed in domestic exchange GREATER CHINA BB/BARING HONG KONG 28,372,200 Foreign shares placed in domestic exchange FUND GOVERNMENT OF SINGAPORE 24,005,673 Foreign shares placed in domestic exchange INV.CORP.- A/C "C" GSIC A/C MONETARY 11,877,633 Foreign shares placed in domestic exchange AUTHORITY OF SINGAPORE HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS 10,638,182 Foreign shares placed in domestic exchange FD FLEDGELING NOMINEES 10,001,024 Foreign shares placed in domestic exchange INTERNATIONAL LIMITED EXCEL CHINA FUND 9,107,917 Foreign shares placed in domestic exchange GSI S/A ACRU CHINA+ ABSOLUTE RETURN FUND 9,025,668 Foreign shares placed in domestic exchange LIMITED CREDIT SUISSE (HONG KONG) 8,645,917 Foreign shares placed in domestic exchange LIMITED China Construction Bank – Huaxia Dividend Mixed Open Stock 8,443,997 RMB common shares Investment Fund It is unknown to the Company whether there is any related connection or ‘Action Notes to relationship or “action in in Concert’ as described by Rules of Information Disclosing Regarding Changing concert” among the top ten of Shareholding Status of Listed Companies existing among the above shareholders. shareholders. 15 4. Particulars about the controlling shareholder Name of controlling shareholder: Benxi Steel (Group) Co., Ltd. Legal representative: Yu Tianchen Established date: July 10th 1996 Registration Capital: RMB5.368 billion Company's classification: State-own proprietorship, Authorized Business Business scope: steel smelt, mine exploitation, panel rolling, oxygen manufacturing, pipe manufacturing, power generating, coal industry, special steel material manufacturing, heating, supply of the water, electricity, wind and gas, metal processing, electro mechanics builds, device manufacturing, architecture installation, railway, highway transportation, import and export trade, traveling industry, construction material , refractory material , counting device instrument , goods and materials supply and marketing, development of real estate , scientific research , design , information service ,etc.. Authorized operate and manage state-own assets. The property right and control relationship between the Company and substantial controller are shown as the following chart: Liao Ning State-owned Asset Administration Committee 100% Benxi Steel (Group) Co. Ltd. 82.12% Bengang Steel Plate Co. Ltd (1) There is no legal person shareholders holding shares more than 10% (including 10%) except for the controlling shareholder - Benxi Steel (Group) Co. Ltd. (2) Top 10 holders of conditional shares In shares Shares with Date when Name of Newly added No. conditioned trading is Conditions the holder tradable shares subscription allowed 2008-03-14 56,800,000 Not to place or sell the shares Benxi Steel 2009-03-14 480,000,000 in 24 months since the day of 1 (Group) 2,575,200,000 share equity relocation is Ltd. 2011-01-01 2,038,400,000 completed. 16 IV. Particulars about the Directors, Supervisors, Senior Management and Employees 1. Profiles of the directors, supervisors and senior executives of the Company, and their annual remunerations Remuneration Incentive shares granted Take Shares Shares accepted Market remuneration held at held at Cause Job Job from the Rate price from Name Position Sex Age the the of Executible Executed started ended company in of at end shareholding beginning end of change shares shares report term shares of or related of term term (RMB0’000) term parties? July May Yu Director, M 55 26, 18, 13,400 13,400 0.00 0 0 0.00 0.00 Yes Tianchen Chairman 2003 2010 Director, July May Li vice M 59 26, 18, 0 0 46.80 0 0 0.00 0.00 No Mohua Chairman, 2003 2010 GM Director, July May Liang Secretary of M 53 26, 18, 13,400 13,400 10.68 0 0 0.00 0.00 No Guangde the Board 2003 2010 April May Zhao Director M 48 26, 18, 0 0 0.00 0 0 0.00 0.00 Yes Wei 2007 2010 July May Zhong Independent F 52 26, 18, 0 0 2.40 0 0 0.00 0.00 No Tianli Director 2003 2010 July May Xue Independent M 54 26, 18, 0 0 2.40 0 0 0.00 0.00 No Xiangxin Director 2003 2010 April May Tian Independent M 59 26, 18, 0 0 2.40 0 0 0.00 0.00 No Binfu Director 2007 2010 Supervisor, Chairman July May Liu of M 55 26, 18, 0 0 0.00 0 0 0.00 0.00 Yes Junyou Supervisory 2003 2010 Committee May May Cao Supervisor M 41 18, 18, 0 0 0.00 0 0 0.00 0.00 Yes Aimin 2007 2010 May May Zhang Supervisor M 51 18, 18, 0 0 0.00 0 0 0.00 0.00 Yes Jichen 2007 2010 May May Liu Supervisor M 53 18, 18, 0 0 0.00 0 0 0.00 0.00 Yes Engquan 2007 2010 May May Li Supervisor M 42 25, 18, 0 0 5.06 0 0 0.00 0.00 No Binqiang 2004 2010 Vice Mar May Zhang General M 55 17, 18, 0 0 10.37 0 0 0.00 0.00 No guohua Manager 2005 2010 Kang Vice Nov May M 53 0 0 8.55 0 0 0.00 0.00 No Wei General 6, 18, 17 Manager 2007 2010 Vice Nov May Li General M 43 6, 18, 0 0 17.87 0 0 0.00 0.00 No Mingwen Manager 2007 2010 Vice Nov May Zhang General M 53 6, 18, 0 0 11.16 0 0 0.00 0.00 No Qingbo Manager 2007 2010 Vice Nov May Feng General M 56 6, 18, 0 0 11.14 0 0 0.00 0.00 No Jianmin Manager 2007 2010 Total - - - - - 26,800 26,800 - 128.83 0 0 - - - Note: Annual remunerations for directors, supervisors, and senior executives were distributed according to the Ben-Ban-Fa (2007) No.56 formulated by the Company. 2. Profiles of directors and supervisors Directors: Yu Tianchen, Male, doctorial degree, senior engineer, Mr. Yu once held the position of head of PR department of Bengang No.2 Steel Factory; secretary and vice secretary of Party Committee of Bengang Construction Company; General Manager of No.3 Construction Company; secretary of Party Committee and chairman of the board of Bengang Construction Co.; Vice General manager of Bengang Group Co; Mr. Yu is now taking the position of Vice chairman of the board, general manager and vice secretary of Party Committee of Bengang Group Co. (since January 2007) and chairman of the board of Bengang Co., Ltd. Li Mohua, Male, university education, senior engineer. Mr. Li once held the position of vice director of Bengang No.2 Steel Factory; Manager and secretary of Party Committee of Bengang Roller Factory and Roller Casting Company; director and secretary of Party Committee of Bengang Group Co. No.2 Steel Factory; the standing commissioner of Party Committee and vice general manager of Bengang Group Co.; Mr. Li now is taking the position of the standing commissioner of Party Committee and director of Bengang Group Co. (since April 1996 up to present) and the vice chairman of the board and general manager of Bengang Steel Plate Co., Ltd.. Zhao Wei, male, master degree, certified senior engineer. Once he was the chief of mould workshop of No.2 steel-making factory, director of technical department, office manager of chief engineer, director of technical quality division, and head of operation planning department of Bengang Group. At present, he’s the head of development strategy department of Bengang Group. Liang Guangde, Male, postgraduate degree, senior engineer, Mr. Liang once held the position of vice factory director and director of Bengang No. 2 steel-making Factory; factory director of Cold-rolled sheet metal Factory of Bengang Group; factory director of Hot Continuous Rolling factory of Bengang Steel Plate Co., Ltd.; Mr. Liang is now taking the position of vice general manager and secretary of the Board of Directors of Bengang Steel Plate Co., Ltd. Independent Directors: Zhong Tianli, Female, she is the professor of North-east University Business School and president of Financial Management Institute. She was studied in the finance of the Northeastern finance and economics university from September of 1978 to July of 1982, obtained the bachelor's degree of economics; Studied as a graduate student in the Northeastern accountancy department of finance and economics university from September of 1986 to July of 1989, obtained the economics master's degree; Between Sept. 2000 and June 2003, she’s studying in Northeast University in doctorial course and got doctorial degree thereafter.Took the post as Singaporean Nanyang Technology University (NTU) Asia and commercial visiting researcher of research center from March of 1995 to March of 1996. Xue Xiangxin, male, a steel metallurgical doctoral supervisor of Northeastern University now, 18 scientific and technical place division chief , Northeastern University material and metallurgical resources of metallurgical institute and chief of research institute of environmental project of Northeastern University. He was studied an academic program of metallurgical physical chemistry in the colored metallurgy of the Northeastern technical college (Northeastern University now) from 1974 to 1977. Left the school to receive training and take the post as the assistant in 1977, studied for the master's degree in the Northeastern technical college from 1980 to 1983, and obtained the master's degree in May of 1983; enter the Northeastern surface process technology research institute of technical college and work, take the post as the assistant after graduating. Studied for the doctorate, was promoted to a lecturer in 1988 in the metallurgical specialty of Northeastern technical college steel in April of 1985, and obtained the engineering doctorate in June of 1990; Promoted to the associate professor in June of 1991; Promoted to professor in 1998. Tian Bingfu, male, chief secretary of Liaoning Public Company Association. 1986-1990, he’s the vice chief of overseas Chinese office of Liaoning Provincial Government. 1990-1993, vice director of policy study office of Shenyang CCP Committee. 1993-1999, director of Shenyang Securities Regulatory Commission. 1999-2003, investigator of Liaoning Securities Regulatory Commission. 2003- present, Liaoning Public Company Association Supervisors: Liu Junyou, male, university eduction, senior political profession. Mr. Liu once held the position of directors of Party Committee of Benxi Subordinate Institution of municipal Party committee of the Communist Party of China; propaganda ministers and committee members of the Benxi Communist Party of China municipal Party subordinate committee of working committee of organization,; director of Supervisory Bureau of Benxi , member of leading Party group; vice director of management committee of hot spring development district, member of leading Party; director of Benxi office of building materials industry, member of Party Committee; vice Secretary, member of leading Party group of Benxi Gongyuan cement (group); vice secretary and director of Supervisory Bureau of discipline inspection commission of Benxi; Mr. Liu is now taking the position of the standing commissioner of Party Committee, ministry of office and discipline committee director of Bengang Group (since August 2000), chairman of the Supervisory Committee of the Company. Cao Aimin, male, postgraduate degree, senior accountant. Once head of capital division of finance department of Bengang Group, and director of department, currently he’s the head of financial department. (since December 2005). Zhang Jichen, male, postgraduate degree, senior engineer. Once vice manager of Fire-resistant Material Factory and Company of Bengang Group, vice chief secretary of the CCP committee, manager; chief secretary of CCP committee of Labor Service Co. of Bengang Group, chief secretary of the CCP committee of Residue Co., of the Company, currently he’s the vide director of planning department of Bengang Group. (Since November 2004) Liu Enquan, male, college graduate, senior political profession. Once the chief of CCP committee office of No.2 Iron Factory, director of organization division, secretary of discipline committee. Currently he’s the vice director of personnel department of Bengang Group. (Since November 2004) Li Bingqiang, Male, university degree, he was once held the position of vice director, director of casting workshop and vice director of production department of the Company; director of sheet metal mold arrangement office of casting factory. He’s now the chief of Workshop No.2 of steel making factory. Executives: Zhang Guohua, Male, univerisity graduate, certified accountant. Mr. Zhang was once the director of the accounting dept. of Bengang Group, assistant to the Chief, and Deputy Chief. He is now the Deputy General Manager and Chief of Securities Dept. of the Company. 19 Kang Wei, male, college graduate, economist. He once served Bengang Group Co., Ltd. as the vice chief secretary of CCP committee of Coking Plant, vice head of Coking Plant, head and vice chief secretary of CCP committee of Coking Plant; and served the Company as head and vice chief secretary of CCP committee of Coking Plant, vice general manager of the Company and head of Coking Plant; at present he’s the vice general manager of the Company. Mr. Li Mingwen, male, higher education background, senior engineer. Once he served Bengang Group as the head of asset operation department, head of asset operation department and vice head of finance department, deputy head of finance department and head of asset operation department, manager of International Trade Co. and director of sales division; served the Company as the director of sales department. At present he’s the vice general manager and director of sales department of the Company. Mr. Zhang Qingbo, male, higher education background, senior engineer. Once he served Bengang Group as the assistant to head of Production Dept. and director of control center; chairman and manager of Iron Co., director of Production Dept.; served the Company as director of Production Dept. At present he’s the vice general manager and director of Production Dept. of the Company. Feng Jianmin, male, higher education background. Once he served Bengang Group as the director of Computer Control Division; served the Company as director of Equipment Dept. At present he’s the vice general manager and director of Equipment Dept. of the Company. Note: None of the current directors (independent directors are not included) and supervisors is working full time or part time for organizations other than shareholding organizations. 3. Directors and supervisors elected or resigned, executives employed or dismissed in the report term (1) As elected on the Shareholders’ Annual Meeting 2006 held on May 18 2007, Mr. Zhao Wei was elected the director of the 4th term of Board, Mr. Tian Binfu was elected the independent director of the 4th term of Board. Mr. Cao Aimin, Mr. Zhang Jichen, and Mr. Liu Enquan were elected the supervisors of the 4th term of Supervisory Committee. Mr. Li Yu and Mr. Zhang Guiyu no longer take the jobs as directors. Mr. He Xusheng, Mr. Zhang Fuchen, and Ms. Yu Ping no longer take the jobs as supervisors. Resolutions of the meeting were released with May 19 2007 issues of China Securities Journal, Securities Times, and Hong Kong Commercial Daily. (2) On May 18, 2007, as elected at the 1st meeting of the 4th term of Board, Mr. Yu Tianchen was engaged the Chairman of the 4th term of Board, Mr. Li Mohua was engaged the Vice Chairman of the Board. At the same day, as elected at the 1st meeting of the 4th term of Supervisory Committee, Mr. Liu Junyou was engaged the Chairman of the 4th term of Supervisory Committee. The resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated May 19, 2007. (3) On November 6, 2007, as nominated by General Manger Li Mohua, and passed at the 4th meeting of the 4th term of Board, Mr. Kang Wei, Mr. Li Mingwen, Mr. Zhang Qingbo, and Mr. Feng Jianmin were engaged the Vice General Manager of the Company. Mr. Liang Guangde was dismissed from the position of Vice General Manager. The resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated November 7, 2007. 4. Particulars about the employees There are 25035 employees in position by the end of the report term. (1) Classified by occupations: production people are 21412, count for 85.53%; sales people are 145, count for 0.58%; technology people are 1172, count for 4.68%; finance people are 161, count for 20 0.64% and administration people are 2146, count for 8.57%. (2) Classified by education level: postgraduate graduate 242, university graduates 2555, count for 10.21%; college graduates 5152, count for 20.58%; secondary vocational, technical and high school degree are 6627, count for 26.47%;others are 10459and count for 41.77%. (3) There are 14756 retired employees get retirement pay form the Company 21 V. Administrative Structure 1. Company Administration The Company unceasingly makes progress on legal person administration structure, establishing modern organization system and operation in legally by according to the regulations and requirements of Company Law, Securities Law, Listing Company administration Principle and the Guiding Opinion of Establishing Independent Director System in Listing Company, as well as The Notification of Lift Up the Quality of Listed Companies issued by China Securities Regulatory Commission and trans-approved by the National Government. The controlling shareholder was acting its rights as sponsor legally. Basically no competition was conducted against the Company’s business operation. The Company has established a long-term controlling shareholder behaving system. The shareholders’ meetings have been operated with clear responsibilities and clear meeting criteria. Regulations were established to give convenient to the public investors to participate in decision making process. Online voting system was opened to public shareholders to vote on major issues of the Company. Shareholders’ meetings were held legally according to the laws, regulations, regulatory regulations, and the Articles of Association. The Board of Directors, Supervisory Committee, and executives were working with clear responsibilities and meeting criteria. All of the directors, supervisors, and executives were fulfilling their duties. Administrative systems have been established regarding internal controlling, finance, decision-making over major investment, decision-making over related transactions, and other internal criteria. The systems are reviewed and assessed periodically, and relative information is released. The Company has also established internal restricting mechanism and responsibility tracking mechanism. Responsibilities are clearly undertaken and invalid decision-making is effectively restricted. Information disclosure regulations were established and executed to ensure authentic, precise, complete, timely, and fair information disclosure. Special administrative operation of the Company’s administration. According to the requirements of exclusive administration, the Company established professional activity leading group, designated a responsible department, organized directors, supervisors and high managers to learn relevant documents about exclusive administration. The company realized the exclusive administration activities could promote the regulation of company and improve the quality of listed company, and also could stand the basis to promote the capital market to continuously develop, and there were a important opportunity of improving the Company’s quality to conduct the exclusive administration. according to the documents of the China Securities Regulatory Commission and Liaoning Securities Regulatory Commission, the Company evaluated itself strictly and summarized the Company’s exclusive administration activities and analyzed the issues, the main issues were: the Company had not established professional committee under the Board, the employee representative proportion in the supervisor committee were not more than one third, capital raising system needed to be consummated, and set up regulative measures separately, collected the suggestion and opinion to the exclusive administration activity strictly. At the end of Oct 2007, the Liaoning Securities Regulatory Commission had a exclusive evaluation on the Company’s administration, and issued a Liaoning Securities Regulatory Commission document (Liaoning Securities Regulatory 2007.93) named the Opinion to The Administration of the Bengang Steel Board Company.“ According to the requirements of the Note of Enhancing the Exclusive Administration Activity of Listed Company (securities regulatory 2007.29), we evaluated your company’s administration. Considering with the routine supervise, we think the information release, 22 operation and internal control system of the Shareholder’s General Meeting and the Board of Directors are in accordance with the related regulations on listed company issued by the China Securities Regulatory Commission. But you Company’s Board of Directors has not established professional committees, the employee representative proportion in the supervisor committee are not more than one third, capital raising system need to be consummated. Your company should quickly promote the above works in time.” Notified by the Liaoning Securities Regulatory Commission, the Company put attention on fasten working procedures, will implement the above works in 2007 Shareholders’ General Meeting. 2. Function of independent directors. Independent director attended the entire shareholder meeting and the board meeting and played an important role on important strategy, routine work and maintenance the legality right of the Company and entireness shareholder by according to the law, regulation and Article Association's given responsibility in reporting term. Independent directors’ presenting of board meetings Name of Times of board Presented Presented by Independent Absent Note meetings to present personally proxy Director Zhong Tianli 5 5 0 0 Out for business, Xue Xiangxin 5 4 1 0 entrusted Zhong Tianli to vote Tian Binfu 4 4 0 0 Note: The independent director has not put forward the objection to relevant items that the Company passed. 3. Separation status in such aspects as personnel, assets, financial affairs, institution, business, etc between the Company and controlling shareholders. The Company is separated from the controlling shareholder in aspects of personnel, assets, financial affairs, institution, business, etc. and has its own independent and complete business operation. 1) In business operation: the Company has its own production and business planning, financial affairs check and calculate, personnel, raw material supplies and products selling business system independently and completely, . 2) In personnel: The Company and controlling shareholder are separate in such aspects as labor, personnel and salary management. Such senior executives as company's chairman, general manager, vice general manager, secretary of Board of Directors, etc. get salary from the Company, and have not held the important position beyond a director in shareholder's unit. 3) In Asset: The Company is separated from the controlling shareholder's clearly in asset. The Company has its own independent purchase, production, and marketing system. 4) In organization: The internal operations of the Company are independent; organization structuring and working function are totally independent. 5) In finance: The company has independent financial & accounting department, the accounting and financial management system were are complete and operated independently, and has bank 23 account and pay taxes independently. 4. Self evaluation on internal control system. (1) According to the Company Law, Security Law, Regulation on Listed Company Releasing Information, Guide for Listed Company on Shenzhen Stock Exchange, Administrative Criteria for Listed Company, the Company composed the Rule of Shareholders’ General Meeting, Rule of the Board of Directors, Rule of Supervisor Meeting, Rule of General Manager and other major rules and regulations, which defined the responsibilities and working procedure of shareholders’ general meeting, the Board of Directors, Supervisory Committee and the management. The Shareholder’s General Meeting, the Board of Directors, the Supervisory Committee and other major decision activities were legal, reasonable, actual, effective; which established and completed series of the Company’s internal control systems, and formed a complete and effective administrative rules system; which included the whole administrative procedures on manufacturing, finance management, information release, anti-risk solutions and etc which assure all the procedures could fit laws separately. These internal control systems were conducted effectively in the actual administration which had effective management, control, supervising on the Company’s operation. Control on the Company’s organization. A. The Company have a complete corporative administrative structure, the Shareholders’ General Meeting are the Company’s highest power organization and manage, supervise the Company through the Board of Directors. leaded by the Board of Directors, the general manager is responsible for the Company’s routine work, and the Supervisory Committee is the Company’s supervising organization which responsible for the activities of directors and managers and also the finance of the Company. Considering the actual characteristics, the Company established internal organization and manufacturing department according to the criteria of balance each other. B. Major changes which involved asset, debt, finance, employee and etc were decided under the Company’s regulations. C. To prevent and find error and malpractices of employee conducting responsibility, the Company composed series of detail responsibility descriptions for each operative departments and procedures. D. the Company employed qualified person on the key work station, who has good professional quality and professional morality, and changed the key station employees termly on currency business, purchasing, payment. E. The internal audit depart was responsible for the Board of Directors, and supervised and examined the finance status of the Company and its subsidiaries and reported works to the Board of Directors. (2) Establishment and execution of internal control system. A. On control of manufacturing operation On control of manufacturing operation, the Company composed rules of Management of Contract, Detail Management of Subsidiaries, Management of Purchasing Cost, Management of Purchasing Capital, Management of Stock Products, Management of Related price, Internal Control System and Information Release Rule and other internal control rules, the Company controlled the decision, execution, evaluation, feedback on the operation of the Company and subsidiaries, and controlled the operations on the aspects of manufacturing, supply, sale to ensure the normal, effective running of operation. B. On control of finance management, the Company composed Management of Accounting Seal, Management of Cost Budget, Internal Control Management Procedure of Fixed Asset, Regulations on Constructing Project and Technology Upgrade Project, Internal Audit System, Accounting Recalculation Management and etc, the Company controlled the capital risk and totally utilized capitals by internal bank (unitive capital distribution), unitive designation of finance responsible person, conditional authorization entrust, and controlled the actual finance status by internal audit system. C. On information Release: the Company composed Information Release Regulation, Information 24 Safety Management in which the Company designated the first responsible persons as the first reporters of the Company and subsidiaries separately. And also defined the report responsibility to ensure the smooth and safe information transfer. During the establishment of the internal control system, the Company entirely considered the industrial characteristics and the Company’s years’ management experiences, so the internal control system fit the Company’s operation and had effective effect against operation risks. (3) Emphasized control activities. A. Engineering project internal control. To enhance the Engineering project internal control, and prevent the errors and malpractices inside the project management, improve the capital utilizing efficiency, the Company established engineering project internal control system according to own characteristics. The Company established engineering project station responsibility, the responsibilities of suggestion, feasibility research, decision, budget, evaluation, conduction, payment, audit were conducted by different responsible persons, there were no station responsibility confusion. The Company established detail regulations on engineering project approval, and strictly evaluated and approved projects in operation, there were no non-authorization approval. The Company established control system of project decision, collective decision system, project decision and implementation system which were executed strictly. The Company established project budget control system, which defined the audit and evaluation of budget to ensure the budget scientific and reasonable, and organized corresponding professionals to audit the budget in the departments of engineering, technology, finance to ensure the budget actual, complete and accurate. The Company established payment control system during the engineering project step, which defined the payment condition, method, recalculation procedure, and the engineering payment, material payment and other expenses were in accordance with relevant regulation of rule, system, contract. The Company established control system on financial completion final accounts, which defined completion clearance, completion final accounts, completion audit, completion evaluation, the completion final accounts and audit were conducted timely after finishing engineering project. B. Raising capital internal control. (1) Basis on comparison of raising methods and raising expense, the Company raised capital using optimal capital structure which decided how to raise capital. For raising capital exceed 15% of net asset, the Board of Directors must evaluate and approve before conduction, the raising capital low than 15% of the net asset should be approved by the chairman of the Board. There were no major flaw and irregular affairs. (2). Contract, agreement, decision about capital raising must be authenticated and approved by responsible person which has authorization to approve capital raising business. The company’s law department should evaluate the above documents and propose opinions to be referred as needed when approve. There were no dissension case on raising capital. (3). The finance department enhanced evaluating the realness, legality, accuracy, completion of all the raw documents needed in the procedure of raising capital according to the Internal Control System on Raising Capital. And also established professional accounting subject on raising capital based on relevant accounting system, recalculated the capital raising business according to accounting system by establishing regulative accounting subject, and record the raising capital procedure in detail, supervised the accounting recalculation to effectively responsible for the raising capital recalculation and supervision. 25 (4). Raising capital activity were supervised by the Supervisory Committee. There were no one person responsible for the whole raising capital procedure, and the authorization approval procedure was complete and there were no non-authorization approval. C. Guaranteeinternal control (1). To enhance the Guaranteeinternal control and regulate Guaranteeactivity to prevent risk, the Company established internal control system according to own characteristics. (2) The Company established station responsibility for Guaranteebusiness, the evaluation and approval of Guaranteebusiness, the approval and execution of Guaranteebusiness were conducted separately by different person in which there were no station confusion. (3) The Company established detail regulations on Guaranteeauthentication approval, collectively evaluated and approved the Guaranteebusinesses, and established Guaranteebusiness procedures, and strictly evaluated and approved Guaranteebusiness in operation, there were no non-authorization approval. (4). The Company established the supervising report system on Guaranteebusiness execution,. Which executed routine supervision on warrantee finance risk and Guaranteeexecution. Formed periodic written report, timely deployed effective measures to solve possible issues. (5). The Company designated professional department and person to responsible for keeping guaranty and keeping record, and kept certificate of guaranty and rights to keep the documents complete. D. Control on related transactions. The Company strictly controlled related transactions according to relevant regulations. For possible large related transactions, the Company asked independence director’s opinions in advance and submitted for approval to the Board or the Shareholders’ General Meeting. When approval by the Board or the Shareholders’ General Meeting, the Company strictly obeyed obviation to ensure the fairness and justness. Simultaneously, the Company obeyed relevant regulations to timely release related information to ensure the publicity of the transactions. During the period, all the happened related transactions were subjected to relevant rules and the Company’s regulations. The Company’s internal control system were affirmed on the aspects of legality, harmony, reasonability, economy, effective feedback, and integrity. The internal control system were very rigorous to assure the execution which had positive and effective effect on management, regulating operation, improving economic benefit and long term development. (4) Opinions on self-evaluation on internal control system by the supervisory Committee A. According to the regulations of the China Securities Regulatory Commission and the Shenzhen Stock Exchange, the Company obeyed internal control criteria, established complete internal control system according to own characteristics to ensure the routine operation to keep the asset safe and integrate. B. The Company had a complete internal control system, and qualified employees in internal audit department to ensure the complete supervision on the Company’s internal main operations. C. In 2007 there were no disobey of the Guide for Listed Company issued by the Shenzhen Stock Exchange. Summarily, the Board thought the self evaluation of the Company’s internal control system completely, actually, accurately reflected the Company’s actual operations. (5) Opinions on self-evaluation on internal control system by the independence director During the period, the Board of Directors revised and evaluated series of administrative rules, the 26 internal control system was complete. The Company’s internal control activities were conducted based on the internal control rules, the Company strictly controlled on asset management, related transaction, engineering projects, major capital raising, external sponsion, information release which completely, effectively assured the normal operations. The self evaluation on internal control system were in accordance with the Company’s realness. 5. During the period, the Company had not established evaluation and incentive system. 27 VI. Particulars about the Shareholders’ Meeting The Company held shareholders’ annual meeting once in the report term, and no special meeting was convened.. The Shareholders’ Annual Meeting 2006 was held on May 18, 2007, the resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated May 19, 2007. VII. Report of the Board of Directors 1. Review of operation during the report period. (1). In 2007, the Company persisted in the basis of scientific development, establishment of learning, innovative, energy saving, environment friendly and powerful enterprise; together with all the employees, the company worked hard to face the sophisticated market status, and persisted in the center of economic benefit, adjusting the operation policies, overcome the difficulties of special snow crisis, absence of raw materials, interference between manufacturing and upgrade, achieved a developing success. It mainly consists of: The adjustment of structure of products and customers achieved obvious effect. Centralized on the research and manufacturing of “double high” products, promoting the adjustment of structure of products and customers, the Company’s way of development had a major change and the sale income increased a lot. The steel of manufacturing container was honored as the china famous brand among the evaluation among all the Chinese famous brand products which was the first one “china famous brand” in the Company. The Company enhanced the basic routine work of the Company’s administration. The company also persisted in information which led the industrialization to fasten the ERP construction. Centralizing on balance between material and energy media on the manufacturing management, the Company improved the manufacturing management to be scientific management and precision management by high-value added products manufacturing, enhancing basic management and plan management, arranging properly the upgrade of manufacture project and maintenance of the main procedures. Also on the finance management, the Company centralized on the capital management to promote the first level accounting recalculation and promote direct purchasing, promote capital management network to fast the recycling of capital and efficiency of using the capitals. The Company deeply dig out the potentials of each procedure which led to continuous decreasing procedure costs. On the equipment management, the Company centralized on the target of “zero False, Zero Impaction” to enhance the responsibilities and evaluation. There was new step progress on safety manufacturing. According to the requirement of continuously improving the management system, the professional health management system was evaluated and passed basing on strict evaluation and worked well. The Company continuously regulated and enhanced basic works. And achieved the target of “three zero” on major fault of personal safety, equipment, fire safety. The Company continuously deepen into the recycling economic development. According to the requirement of entire, harmonious and continuous development, the Company deeply exploited the area of developing recycling economy and worked well on energy saving and waste reducing. The Company seriously compiled the energy plan of “eleventh five years” and implemented it. By digging 28 out potentials and overcoming bottlenecks, the Company implemented 19 main projects of upgrading energy saving and achieved a year profit of RMB29,810,000.Among the 40 targets of procedure energy consumption, 33 were achieved. The company promoted the speed of environment protection. Basing on the “three together” criteria of environment protection, the Company invested more than RMB300 millions to deal with main waste sources. The Company further enhanced the company’s innovation. Basing on listing of steel business, the Company further consummated and smoothed the administrative structure. According to direct management and structure optimization and regulations for listed company, the Company finished the reconstruction of human resource, organization and business which led to obvious effect. In the report term, the Company has realized steel output of 7.06 million ton, increased by 1.00% over the same period of last year; hot rolled plate of 6.72 million ton, increased by 10.53% over the same period of last year. Revenue of the year was RMB31.352 billion, increased by 17.00% over the same period of year, operational profit of RMB2.130 billion, increased by 4.34% over the same period of last year; net profit of RMB1.699 billion, increased by 4.49%. (2) Main business and operation The Company engages in metallurgy, the main businesses are steel smelt and extensive processing. During the period, the company’s products had no main change. The following is the main businesses and their structures, main businesses’ profit capacity, market information, asset, profit, cash flow structure, A. Main business types based on industry and product. In RMB 10 thousand Yuan Distribution on industries Change of On Change of Change of Operation Operation operation profit industry or Turnover income over cost over last cost profit ratio ratio over last year product last year % year % % Steel rolling 3,135,159.65 2,639,042.00 15.82% 17.37% 11.21% 41.63% business Distribution on products Steel plate 2,745,107.34 2,271,684.10 17.25% 30.84% 24.35% 33.41% Steel billet 8,122.17 6,320.92 22.18% -92.57% -93.78% 211.52% Others 381,930.14 361,036.98 5.47% 62.70% 55.80% 324.03% B. Geographic segment of major products in term of revenue and profit Major business Proportion in major Main business Proportion in major Regions turnover business income profit business profit Northeast 1,212,106.66 38.66% 171,887.48 34.65% North 459,157.95 14.65% 76,965.74 15.51% East 944,372.37 30.12% 158,084.06 31.86% Northwest 18,888.71 0.60% 3,302.76 0.67% Southwest 185.06 0.01% 32.36 0.01% Mid-south 89,119.46 2.84% 13,922.78 2.81% Export 411,329.43 13.12% 71,922.46 14.50% Total 3,135,159.65 100.00% 496,117.65 100.00% 29 C. Geographic segment of major businesses In RMB 10 thousand Yuan Regions Turnover Change of income over last year % Northeast 1,212,106.66 36.73% North 459,157.95 -7.82% East 944,372.37 5.35% Northwest 18,888.71 416.38% Southwest 185.06 25.40% Mid-south 89,119.46 -46.17% Export 411,329.43 3.85% Total 3,135,159.65 10.14% D. Major suppliers and clients Total of purchases from top 5 suppliers Portion in total purchasing Total of sales to top 5 buyers 11,307,068,413.70 Portion in total sales 36.07% E. Asset and profit composition Year 2007 Year 2006 Changed over the Items Amount Portion % Amount Portion % previous year % Gross Assets 29,356,299,029.54 —— 27,164,567,536.69 —— 8.07 Account receivable 817,330,942.52 2.78 1,370,755,073.38 5.05 -44.83 Other account receivable 110,954,057.98 0.38 142,692,425.58 0.53 -28.05 Inventories 4,605,043,499.66 15.69 3,801,489,862.83 13.99 12.09 Fixed assets 13,708,841,478.55 46.70 15,785,815,399.11 58.11 -19.64 Construction in process 3,399,717,103.88 11.58 1,404,708,197.29 5.17 142.02 Short-term loans 2,639,685,960.00 8.99 1,879,261,000.00 6.92 29.93 Long-term borrowings 1,935,210,198.02 6.59 1,452,690,098.25 5.35 23.27 Items Year 2007 Year 2006 Changed over the previous year % Sales expense 556,170,341.63 281,136,491.61 97.83% Administrative expense 1,804,725,007.28 399,680,337.37 316.88% Financial expenses 292,943,331.06 119,379,356.68 145.39% Income tax 465,961,951.80 405,881,220.55 14.80% Note: cause of changes. The sales expenses of year 2007 was RMB556,170,341.63, which increased by RMB275,033,850.02 and 97.83%. This was caused by expanding of sales and relative expenses after purchasing of the major business assets of the Group in June 2006. The administrative expenses of year 2007 was RMB1,738,707,568.74, which increased by RMB1,305,799,293.03 and 301.63%. This was caused by expanding of production and sales expenses after purchasing of the major business assets of the Group in June 2006. Financial expenses has increased by RMB17,356,000, which was caused by increasing of loans and 30 caused increase in interest payment. Increase of income tax was caused by increase of total profit. F. Cash flow compositions Increase / Decrease over the Items Year 2007 Year 2006 previous year Cash flow generated by business 30.19% operation, net 2,745,350,761.29 2,108,712,699.89 Net cash flow generated by 105.14% investment -2,619,662,110.59 -1,277,040,200.65 Net cash flow generated by -83.61% financing -91,060,212.48 -555,522,525.43 G. Operations of the holding companies. Tianjin Bengang Steel Trade Co., Ltd, Wuxi Steel Trade Co., Ltd, Nanjing Bengang Material Co., Ltd and other seven trading companies all were exclusively invested subsidiaries after acquiring the Bengang Group, or the subsidiaries held stock shares each other. Engaged in tradings of metal and steel materials. H. Technology innovation, energy saving and waste reducing during the period. In 2007, the Company continuously improved the competitive power, fasten the precision steel board base construction, and promoted comprehensively the upgrade of industry structure optimization according to the requirements of “good and fast”. The Company persisted in innovating the traditional industry using high-tech technologies, and expanded the civil market and international market by self innovation, digestion, absorb, re-innovation, and adjusting products structure. The Company continuously improved the proportion of good products in the manufacture, and implemented the change from low end products to high end products, deeply exploited the recycling area and energy saving and waste reducing according to the requirements of entire, harmony, continuous development. The Company totally implemented 19 main energy saving projects with profit of RMB29,800,000.The main productive procedures has been improved to a new level, the comprehensive energy consumption for each steel ton, new water consumption for each steel ton, iron and steel consumption in converter have decreased a lot. Enhanced the environment protection construction according to the requirements of ISO14001 environment protection system. The company invested RMB 309.95 millions to continuously deal with the main waste pollution sources. And finished series of dealing with smoke projects of upgrading the anti-smoke system of the converter output. Achieved “zero waste distribution” of steel waste. Simultaneously, the year pollution facts distribution eligibility achieved 95.66% which increased 0.95% compared to last year, and the enterprise environment improved further which well support developing environmental steel board. 2. Perspective of future development. (1). Opportunities and challenges. Viewed from the external environment, the international steel market kept continuous requirement, and the civil steel consumption industries all kept high progress which well support the steel consumption. Simultaneously, the government continue to deploy macroscopical economic adjustment to enhance eliminate slow companies, which give large companies developing opportunity and policy support. Viewed from the internal environments, after couples of years development, the Company’s anti-risk power and market change adaptive power have increased obviously, the main technology equipments has reached the international advanced level, and has formed the “double high ” products system which centered with home appliance board, vehicle board, container board and pipe steel, and the Company 31 has established a direct customer group who interested with high-end products which led to further regulative operation for the Company. At the same time, the employee’s personal quality increased obviously, and they has formed the intention of quickly establishing the precision steel board base and establishing the modern enterprise with international competition. The above are the powerful guarantee for facing challenges and quick development. (2). Operation targets for 2008. Entirely centralizing with scientific development and economic benefit, the Company will enhance on changing developing way, fasten promotion of product structure adjustment, improve self innovation power to promote the construction of “five style” enterprise. The Company will persist in self-innovation, promote new products research and manufacturing emphasized on high quality, high value added products, persist in maximum benefit, and holding the market status, persist in technology to assure the main technology upgrade projects success with high quality and high level; persist in continuous development, promote recycling economy and energy saving and waste reducing with civil advanced level; persist in innovation and optimizing organization structures to well support administrative basis to achieve the safety manufacturing standard of “three zero”. According to the targets above, the Company will emphasize on the works as following: Arranging scientific manufacturing directed by the market. Enhancing self-innovation, optimizing products structure and customer structure. Promoting main projects construction and implementing projects in high quality and high speed. Developing recycling economy to achieve the target of energy saving and waste reducing. Consolidating the criteria of safety first and strictly implementing measures. Deepening internal innovation to fasten system innovation. (3). Capital requirement , using plan and capital source. In 2008, the expenses is mainly the operation cash output with estimation of RMB30 trillions. Engineering projects output is RMB3 trillions. Which mainly used for upgrading converter and moving converter. The operation and investing capital is mainly from sales income and bank loans. (4). Main risks and solutions. Risk from market price fluctuation: although the steel market is on increasing, the competition is tough so the market price still has risks. Upriver raw material price fluctuation: compared with the down river products increasing price, the upriver raw materials have price increasing risks especially with the price increasing of aboard iron ore, which definitely lead to the risk of civil raw material price increasing. To face the risks, the Company will enhance the internal administration, improve the product quality to keep the market shares and expand the sale. At the same time , the Company will adjust the product structure to improve the manufacturing the “double high” products, and improve the product quality to ensure the income increasing points under the market environments. The Company will continuously deploy standard cost control to further put effort on procedure cost and expand integrate bidding purchasing to reduce purchasing cost to form cost advantages and improve competition. (5). Investment. A. Operations of the holding companies. 32 Relationship Company Legal Registered Shareholding Consolidated Reg. Add. Business Scope to the invested in representative Capital % or not Company Wholesale and retaining of metal Xiamen materials, steel, pig Bengang iron, 500K Steel & Xiamen Bai Yu 100 Subsidiary Consolidated electro-mechanic Yuan Iron Sales products, Ltd. hardware, electronics Sales of steel, pig iron, chemical Tianjin materials (except Bengang for dangerous Steel & chemicals and 3 mil. Tianjin Zhang Yu 100 Subsidiary Consolidated Iron easy-to-make Yuan Trading poison chemicals), Ltd. construction materials, and mineral products Sales of metal materials, chemical materials and products Wuxi (dangerous Bengang products Pang 1 mil. Steel & Wuxi excluded), general 100 Subsidiary Consolidated Zonghua Yuan Iron Sales machinery and Co., Ltd. accessory, electronic machinery and instruments, and hardware Sales of construction materials, chemical materials (dangerous products Nanjing excluded), Bengang Pang hardware, (exclude 1.15 mil Nanjin 100 Subsidiary Consolidated Material Zonghua gas engine Yuan Sales Ltd. scooters), electronic products, hot rolled plate, cool rolled plate, and pig iron. Process of metal materials. Wholesale, retailing, construction Yantai materials, Bengang fire-resistance 500K Iron and Yantai Wang Peng 100 Subsidiary Consolidated materials, steel, Yuan Steel Sales chemical products Ltd. (except for dangerous products) Harbin Zhang Metal materials, 500K Harbin 100 Subsidiary Consolidated Bengang Guoming construction Yuan 33 Steel & materials, Iron Sales hardware (except Ltd. for wireless phone equipment), electro-mechanic products, home electronics. Sales of steel, pig Changchun iron, electronic Bengang machinery and 500K Iron and Changchun Li Zhichao instruments, 100 Subsidiary Consolidated Yuan Steel Sales general machinery, Ltd. construction material B. Using of non-raised capitals during the period. In 2007, the Company conducted the investment of RMB 3,157,250,000 on technology upgrade. (1). 4#LF converter precision refinery project: total investing plan of RMB50,060,000 and began in 2006.In 2007, the actual value invested was RMB28,870,000, accumulated amount of RMB45,720,000 till the end of 2007.And had finished in 2007. (2). 6#、7# coke oven converter project: total investing plan of RMB137,130,000 and began in 2005.In 2007, the actual value invested was RMB83,900,000, accumulated amount of RMB112,550,000 till the end of 2007.And had finished in 2007. (3). Special steel 800/650 large roll mill upgrade project: total investing plan of RMB677,430,000 and began from 2005.In 2007, the actual value invested was RMB451,910,000, accumulated amount of RMB674,740,000 till the end of 2007.And had finished in 2007. (4). Super thin cool roll board upgrade project: total investing plan of RMB1,126,190,000 and began from 2006.accumulated amount of RMB805,180,000 till the end of 2007Plan to be finished in 2008. (5). Eliminating old converter with upgrading move project: total investing plan of RMB2,172,580,000 and began from 2006.accumulated amount of RMB923,160,000 till the end of 2007Plan to be finished in 2008. (6). Iron material lot environment protecting project: total investing plan of RMB733,160,000 and began from 2005.accumulated amount of RMB324,730,000 till the end of 2007, Plan to be finished in 2008. (7). Information project: investment plan of RMB120,000,000 and began in 2005.In 2007, the actual value invested was RMB16,640,000, accumulated amount of RMB49,890,000 till the end of 2007.Plan to be finished in 2009. (8). 180 tons converter project: total investing plan of RMB1,500,000,000 and began in 2003.In 2007, the actual value invested was RMB127,970,000, accumulated amount of RMB413,460,000 till the end of 2007(ongoing project fixed asset of RMB930,960,000), Plan to be finished in 2008. (9). Continuing upgrade project: total investing plan of RMB210,930,000 and began in 2003.In 2007, the actual value invested was RMB22,440,000, accumulated amount of RMB197,490,000 till the end of 2007.Plan to be finished in 2008. (10). Eliminating old converter with upgrading move (8#9# coke ovens) project: total investing plan of RMB1,302,990,000 and began from 2006.accumulated amount of RMB141,490,000 till the end of 2007Plan to be finished in 2009. (11). Model and casting equipment upgrade project: total investing plan of RMB1,500,000,000 and began from 2007.accumulated amount of RMB12,910,000 till the end of 2007Plan to be finished in 2009. (12). Converter system energy saving and waste reducing project: total investing plan of RMB811,540,000 and began from 2007accumulated amount of RMB322,410,000 till the end of 2007, Plan to be finished in 2009. 34 1700 rolls procedure of Hot roll upgrade project: total investing plan of RMB188,800,000 and began from 2007accumulated amount of RMB100,970,000 till the end of 2007, Plan to be finished in 2008. (6) Beijing Tianhua Zhongxing PCA issued audit repot with qualified opinions. During the period, the Company had no Correction of errors caused by accounting policy, accounting estimation and of main previous errors. (7). Routine works of the Board A. Meetings and decisions. The Board held five meetings during the report period. The 20th meeting of the 3rd term of Board of Directors was held on April 24 2007. The decisions were published by Apr 26 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily The 1st meeting of the 4th term of Board of Directors was held on May 18 2007. The decisions were published by May 19 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily The 2nd meeting of the 4th term of Board of Directors was held on Aug 24 2007. The decisions were published by Aug 28 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily The 3rd meeting of the 4th term of Board of Directors was held on Oct 23 2007. The decisions were published by Oct 25 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily The 4th meeting of the 4th term of Board of Directors was held on Nov 6 2007. The decisions were published by Nov 7 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily B. Executing of the resolutions of Shareholders’ General Meeting by the Board of Directors Executing of the profit distribution of 2006. Evaluated and passed by the 2006 Shareholder’s General Meeting on May18 2007, the profit distribution plan was: basing on the total stock shares of 3,136,000,000, distributed cash RMB3 to all stock holders for each 10 stock shares (tax included, actually RMB2.7 for each 10 shares for A stock shareholders and investing organizations after tax).For bonus cash to the aboard shareholders (B stock), according to the Company’s regulations, the bonus cash was based on the rate (1HK$=RMB0.9803) of the Bank of China on the first work day (May 21 2007) after the decision day by the Shareholders General Meeting. The Board of Directors has published and conducted the “2005 profit distribution implementation note” by May 29 2007 issues of Securities Times, China Securities Journal, and Hong Kong Commercial Daily Functions of Audit Committee, Remuneration Committee of the Board of Directors. There were no audit committee, nomination committee, remuneration committee, stratagem committee and other professional committees, and will be established before the end of May in 2008 to completely use the positive effect of the professional committees to improve the Board’s efficiency, quality and science of decisions. 35 (8) Profit distribution and public fund reserve Turning to increase subscribed capital As audited by Beijing TIN WAH Zhongxing CPAs Ltd. the net profit of year 2007 is RMB1,698,949,701.79. According to the Articles of Association, 10% of the net profit, amounted to RMB169,894,970.18 will be provided as legal common reserves. Plus the retained profit of RMB3,394,970,950.76 carried over from year 2006,after deducting of the legal common reserves provided for the current year and the practical dividend paid for the previous year, the attributable profit for year 2007 is RMB 3,983,660,505.36. The dividend plan for year 2007 is: upon the total capital shares amounted to 3,136,000,000 shares at December 31st 2007, RMB3.20 (tax included) of dividend will be distributed upon each 10 shares to the whole shareholders. The dividend for common shares is totaled to RMB1,003,520,000.00 at this time. The balance of RMB2,980,140,505.36 will be carried over to the next fiscal year. (9) Other affairs A. The newspapers for releasing information was Securities Times, China Securities Journal, and Hong Kong Commercial Daily, which had no change during the period. B. Description of main shareholders and other relevant occupying capitals by PCA According to the requirement of Note of Regulating Capital between Listed Company and relevant entity and External Sponsion of Listed Company (Security supervisor issue 2003.56), the audit organization issued the Exclusive Note of Bengang Company Shareholder and Other Relevant Entity Occupying Capitals, which said till the end of Dec 31 2007, there was no existence of Bengang Company shareholder and other relevant entity occupying capitals C. Opinions of independent directors. As we checked, the Bengang Board Material Co.,Ltd had zero external sponsion and there was no irregular sponsion; the capital transactions between the Company and shareholders and other relevant entities were regular business transactions, there were no irregular capital occupied.” VIII. Report of the Supervisory Committee 1. Works of the Supervisory Committee in the report term The Supervisory Committee convened 4 meetings during the report term: The 15th meeting of the 3rd term of Supervisory Committee was held on April 24, 2007, the resolutions adopted were the followings: ‹ Supervisory Committee’s Work Report 2006; ‹ Board of Directors’ Work Report 2006; ‹ Annual Report 2006 and the Summary ‹ Financial Settlement Report 2006; ‹ Profit Distribution Plan 2006; ‹ Proposal of Employing the CPAs for Year 2007; ‹ Proposal on Routine Related Transactions; ‹ Proposal of investment framework of year 2007; 36 ‹ Proposal on Revising of the Articles of Association; ‹ Proposal on nominating of the candidates for the 4th term of Supervisory Committee; ‹ Proposal on convening of the Shareholders’ Annual Meeting 2006. The resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated April 25, 2007. The 1st meeting of the 4th term of Supervisory Committee was held on May 18, 2007, Mr. Liu Junyou was elected Chairman of the 4th term of Supervisory Committee. The 2nd meeting of the 4th term of Supervisory Committee was held on August 24, 2007, the resolutions adopted were the followings: ‹ Interim Report; ‹ Self-investigation report and improving plan; ‹ Administrative regulations of information disclosure. The 3rd meeting of the 4th term of Supervisory Committee was held on October 23, 2007, the 3rd Quarterly Report was adopted at the meeting. 2. Independent opinions of the Supervisory Committee on the relative issues of year 2007 The Supervisory Committee of the Company performed its duties according to the Company Law, Securities Law and the Articles of Association focusing on legality of daily operation, financial operation, etc. It was to protect the overall interests of the Company and the masses of shareholders, the Supervisory Committee issued the independent opinion on the relevant issues in report term as follows: (1) Legality of business operation The Supervisory Committee attended and observed Company's shareholder meetings and every conference of Board of Directors, and played an important role on resolution’s formulated, implemented guarantee function during the report term. The Supervisory Committee of the Company considered that the production of the Company was in good condition of operation. Company directors accorded with Company’s article and regulation while carrying out company's work and did not violate laws and regulations, Article Association or any behavior that harmful to the interests of the Company and shareholder. The Supervisory Committee of the Company considered, the Company’s management of production and operation had responsible as devoted to their duty, had not violated laws and regulations, Article Association or any behavior harmful to the interests of the Company and shareholder while carrying out company's work, the Company made the proper strategy of business and Company’s management is doing well and with high-efficient. (2) Inspection on financial operation The finance statement was audited by Beijing TIN WHA CPAs and they issued standard auditor’s report without qualified opinion, the finance report of the Company was frankly, objectively, and precisely reflecting the status of finance and business performance of the Company. (3) Related transactions Related transactions were done on fair base according to contracts or agreements, no interest of the Company was violated. 37 IX. Significant Events 1. In the report period, the Company didn’t involve in any material lawsuits or arbitrations. 2. No bankruptcy or reorganizing issues occurred in the report term needs to be disclosed. 3. In the report term, the Company holds no shares of other PLCs, nor shares of financial institutions such as commercial banks, security dealers, insurance companies, trust companies, or future companies, and made no trading of other PLCs’ shares. 4. In the report term, the Company conducted none of purchasing, selling of assets, nor merger of enterprises. 5. In the report term, the Company conducted no implementation of share option incentive program. 6. Material related transactions in the report term: (1) Relationships with the related parties Benxi Iron & Steel (Group) Co., Ltd. is the parent company and substantial controller of the Company, this hasn’t been changed in the report term. 1) Controlling Related Parties Registered Share portion Voting rights Organization Name of the subsidiaries Reg. Add. capital % % code Benxi Steel (Group) Co., Ltd. Benxi 5.369 bil yuan 82.12 82.12 Xiamen Bengang Steel Sales Ltd. Xiamen 0.5 mil 100.00 100.00 Wuxi Bengang Steel Sales Ltd. Wuxi 1 mil 100.00 100.00 Tianjin Bengang Steel Trading Ltd. Tianjin 3 mil 100.00 100.00 Nanjing Bengang Material Sales 100.00 100.00 Ltd. Nanjin 1.15 mil Yantai Bengang Steel Sales Ltd. Yantai 0.5 mil 100.00 100.00 HarbinBengang Steel&Iron SalesLtd. Harbin 0.5 mil 100.00 100.00 Changchun Bengang Steel Sales 100.00 100.00 Ltd. Changchun 0.5 mil 2) Registered capital of the related parties with controlling relationship and their changes Name of the subsidiaries Beginning of termIncreased this termDecreased this termAt the end of term Benxi Steel (Group) Co., Ltd. 4.7 bil 5.369 bil Xiamen Bengang Steel Sales Ltd. 0.5 mil 0.5 mil 38 Wuxi Bengang Steel Sales Ltd. 1 mil 1 mil Tianjin Bengang Steel Trading Ltd. 3 mil 3 mil Nanjing Bengang Material Sales Ltd. 1.15 mil 1.15 mil Yantai Bengang Steel Sales Ltd. 0.5 mil 0.5 mil HarbinBengang Steel&Iron SalesLtd. 0.5 mil 0.5 mil Changchun Bengang Steel Sales Ltd. 0.5 mil 0.5 mil 3) Shareholding of Related Parties with Controlling Relationship Beginning of Proportion Increased Decreased At the end of Name of the subsidiaries Proportion term this term this term term Benxi Steel (Group) Co., Ltd. 2.57520 bil 82.12 2.57520 bil 82.12 Xiamen Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 Wuxi Bengang Steel Sales Ltd. 1 mil 100.00 1 mil 100.00 Tianjin Bengang Steel Trading Ltd. 3 mil 100.00 3 mil 100.00 Nanjing Bengang Material Sales Ltd. 1.15 mil 100.00 1.15 mil 100.00 Yantai Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 Harbin Bengang Steel & Iron Sales 100.00 100.00 Ltd. 0.5 mil 0.5 mil Changchun Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 4) Related Parties without Controlling Relationship Relation with the Names of the related parties Company Benxi Steel (Group) Machinery Co., Ltd. Same parent Bengang Group International Trading Ltd. Same parent Benxi Steel (Group) Tengda Holdings Ltd. Same parent Guangshou Free Trade Zone Bengang Sales Co., Ltd. Same parent Shanghai Bengang Steel & Iron Trading Co., Ltd. Same parent Shanghai Bengang Steel Goods Ltd. Same parent Liaoning Bengang Steel & Iron Trading Co., Ltd. Same parent Dalian Boluole Steel Tube Ltd. Same parent Shenyang North Bengang Sales Ltd. Same parent Benxi Steel (Group) Steel Process and Logistics Co., Ltd. Same parent Benxi Steel (Group) Construction & Repairing Co., Ltd. Same parent Bengang Fire-resistance Material Co. Same parent Benxi Steel (Group) Metallurgy Residues Co., Ltd. Same parent Liaoning Metallurgy Technician College Same parent Benxi Steel (Group) Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Construction Co., Ltd. Same parent Yinkou Bengang International Logistics Co., Ltd. Same parent Benxi Steel (Group) Real-estate Development Co., Ltd. Same parent Benxi Steel (Group) Education Center Same parent Benxi Steel (Group) Drilling Tools Co., Ltd. Same parent Benxi Iron & Steel (Group) Designing and Research Institute Same parent Benxi Iron & Steel (Group) Information and Automatic Technologies Co., Ltd. Same parent Benxi Steel (Group) News Center Same parent 39 Benxi Steel (Group) New Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Mining Co., Ltd. Same parent Benxi Steel (Group) Electronics Co., Ltd. Same parent Benxi Steel (Group) Thermal Power Development Co., Ltd. Same parent Bengang Puxiang Cool Rolling Steel Sheet Co., Ltd. Same parent Benxi Steel & Iron (Group) Inspection Co., Ltd. Same parent (2) Related transactions 1) Pricing policies Transactions between the Company and related parties were conducted according to the related agreements or normal market trade terms. 2) Related transaction agreements (1) On December 28, 2005, the Company entered a comprehensive service agreement with Bengang Group, by which Bengang Group supplies the Company with raw materials, auxiliary materials, supporting services, and property leasing, meanwhile, the Company supplies Bengang Group with raw materials, auxiliary materials, power, spare parts, trademark and patents, supporting services and waste materials. According to the agreement, the pricing principles are: A: The pricing of subjects purchased from Bengang Group : Pricing of raw materials: Price of fine iron ore will not higher than the average customs C&F price from countries like Brazil and Australia in the last half year, plus inland freight, port fee, and quality adjustment price. Quality adjustment on prices will be basing on the weighted average of imported fine iron ore in the first half of year, and on the basis of 10 yuan per ton to 1% of quality difference. The price for iron ore pellets shall not higher than the weighted average price offered by the 3rd parties during the previous half-year. The price will be adjusted each half-year. The price for recycled steel will not be higher than the weighted average of the recycled steel the Company purchased from the independent 3rd parties in the previous month, and to be decided upon negotiation. Pricing of auxiliary materials: limestone, fire resistance material and auxiliary materials provided by Bengang Group will be at market price. Pricing of spare parts: the spare parts manufactured by the Group itself will be at market price. Trucking service: on market price. Pricing of the heating service of the dwelling house for staff and workers: carried out according to the price set forth by the national government. Workshop and equipment maintaining services: maintaining services are priced upon negotiation. Designing and engineering service will be at national government price. Construction service: construction services provided by Bengang Group to the Company will be at market price. Printing, newspapers, media and other publications: on national government price. Education facilities and services: education facilities, vocational education programs, and onsite training courses provided by Bengang Group are at market price. 40 Pricing of agency service: The export business was entrusted to Bengang Group before the Company obtains its own export business license. All business involved are conducted according to normal commercial practices. Agency fees are determined through negotiation between the two parties case by case and within the range of 0.5% to 1.5% of the total value of the trade. When the Company is authorized to do import & export trade, the agent service can be terminated on beforehand notice. Bengang Group is not the sole agent of the Company, namely the Company has the right to choose another party to do the agent. Pricing of telephone, fax and the TV service: carried out according to the price set forth by the national government. Office spaces: on market price during the effective period of this agreement. Car service: on market price during the effective period of this agreement. Property management: on market price during the effective period of this agreement. Packing service: on market price during the effective period of this agreement. Labor safety services: on market price during the effective period of this agreement. Pricing of trademark: Bengang Group allows the Company to use “Bengang” trademark by free. However the Company can’t allow any other parties to use it. The Company has the right to register its own trademark at any time. B: Pricing of the products sold to Bengang Group Hot-rolled steel sheet: carried out according to the weighting average price of the same quality products which our company sold to the independent third party in the previous month. Pricing of public service: Power from the Group was on the market price plus transferring cost. The supplies from the Company to Bengang Group, i.e. oxygen, nitrogen, argon, blast furnace gas, coke furnace gas, steam, clean water, fresh water, recycling water, and soft water, are at complete costs plus national surplus tax and reasonable profit. Railway transportation, quality test, measuring, weighting: at national price. Iron and steel scrap, including the iron material: carried out according to the market price. Spare parts: spare parts provided to the Group by the Company are on purchasing price plus 1% of purchasing expenses. R&D service: R&D that Bengang Group can’t do by itself are provided by the Company. The expenses shall be the national price. (2) Land rent from Bengang Group to the Company, it was agreed to carry forward the “Land Using Right Rent Agreement” which is effective at present. Namely the price is RMB6.24 /m2/year. 3) Sales of products A. Products sold to related parties with controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount revenue % revenue % 3,665,120,016 Benxi Steel (Group) Co., Ltd. 156,697,370 0.5 13.72 41 B. Products sold to related parties without controlling relationship RMB Yuan Year 2007 Year 2006 Portion Portion Name of company in in Amount Amount revenue revenue % % Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 386,009,813 1.23 346,387,661 1.30 Benxi Steel (Group) Tengda Holdings Ltd. 20,378,405 0.08 Dalian Boluole Steel Tube Ltd. 93,452,220 0.30 92,154,399 0.34 Guangshou Free Trade Zone Bengang Sales Co., Ltd. 435,432,374 1.39 328,533,978 1.23 Shanghai Bengang Steel Goods Ltd. Shanghai Bengang Steel & Iron Trading Co., Ltd. 942,129,468 3.01 675,639,311 2.53 Tianjin Bengang Trading Co., Ltd. 208,300,386 0.78 Bengang Group International Trading Ltd. 4,113,294,267 13.12 3,853,717,448 14.43 Liaoning Bengang Steel & Iron Trading Co., Ltd. 637,452,286 2.03 54,806,828 0.21 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., Ltd. 5,174,803,792 16.51 1,917,261,994 7.18 Shenyang North Bengang Sales Ltd. 213,503,629 0.80 Nanjing Bengang Steel Sales Ltd. 121,535,149 0.45 Haerbin Bengang International Trading Ltd. 32,713,243 0.12 Xiamen Bengang Steel Sales Ltd. 19,937,722 0.07 Yantai Bengang Steel Sales Ltd. 159,667,859 0.60 Changchun Bengang Steel Sales Ltd. 15,815,574 0.06 Total 11,782,574,220 37.59 8,060,353,586 30.18 The share equities of Nanjin Bengang Steel Sales Co., Ltd., Ha’erbin Bengang Steel Economic & Trade Co., Ltd., Xiamen Bengnag Steel Sales Co., Ltd., Yantai Bengang Steel Sales Co., Ltd., Changchun Bengang Steel Sales Co., Ltd., Tanjin Bengang Trade Co., Ltd, were purchased by the Company in June 2006. C. Sales of materials and spare parts to related parties with controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount revenue % revenue % Benxi Steel (Group) Co., Ltd. 227,045,266 0.72 D. Sales of materials and spare parts to related parties without controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount revenue Amount revenue % % Benxi Steel (Group) Mining Co., Ltd. 958,540,881 3.06 496,896,580 1.86 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet 445,046,723 1.42 336,077,729 1.26 Co., Ltd. Benxi Steel (Group) Industrial Development Co., Ltd. 83,436,539 0.27 16,931,257 0.06 Benxi Steel (Group) Thermal Power Development Co., Ltd. 28,879,851 0.11 Benxi Steel (Group) Construction Co., Ltd. 321,039,862 1.02 8,506,806 0.03 Benxi Steel (Group) Construction & Repairing Co., Ltd. 44,836,063.48 0.14 Benxi Steel (Group) Metallurgy Residues Co., Ltd. 15,652,467 0.05 1,990,586 0.01 Total 1,868,552,535 5.96 889,282,809 3.33 42 E. Sales of energy and power to related parties with controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount revenue % revenue % Benxi Steel (Group) Co., Ltd. 2,094,146 0.01 F. Sales of energy and power to related parties without controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount revenue % revenue % Benxi Steel (Group) Mining Co., Ltd. 481,136,968 1.53 125,649,753 0.47 Bengang Fire-resistance Material Co. 19,805,767 0.06 326,700 0.00 Benxi Steel (Group) Construction Co., Ltd. 3,293,140 0.01 382,632 0.00 Benxi Steel (Group) Construction & Repairing Co., Ltd. 1,723,568 0.01 362,800 0.00 Benxi Steel (Group) Machinery Co., Ltd. 30,622,999 0.10 1,615,937 0.01 Benxi Steel (Group) Metallurgy Residues Co., Ltd. 2,008,636 0.01 184,023 0.00 Benxi Steel (Group) Dahe Industry Co., Ltd. 254,612 0.00 Bengang Electronics Co., Ltd. 1,620,025 0.01 407,523 0.00 Benxi Steel (Group) New Industrial Development Co., Ltd. 581,757 0.00 47,691 0.00 Benxi Steel (Group) Real-estate Development Co., Ltd. 670,719 0.00 9,202 0.00 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., 213,980,309 0.68 16,629,921 0.06 Ltd. Benxi Steel (Group) Thermal Power Development Co., Ltd. 80,398,528 0.26 5,117,732 0.02 Benxi Steel (Group) Industrial Development Co., Ltd. 762,994 0.00 34,202 0.00 Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 642,020 0.00 61,320 0.00 Benxi Steel (Group) Medical Co. Ltd. 247,032 0.00 Total 837,749,074 2.67 150,829,436 0.56 4) Purchase of materials and parts A. Purchasing of raw materials and accessories from related parties with controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount cost % cost % Benxi Steel (Group) Co., Ltd.(Raw materials) 6,183,195,959 26.06 Benxi Steel(Group)Co.,Ltd. (Auxiliary materialsandparts) 4,052,267 0.02 345,598,317 1.46 Total 4,052,267 0.02 6,528,794,276 27.52 43 B. Purchasing of raw materials and accessories from related parties without controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount cost % cost % Benxi Steel (Group) Mining Co., Ltd. 3,368,167,127 12.76 1,985,670,940 8.37 Bengang Fire-resistance Material Co. 442,317,073 1.68 180,215,401 0.76 Benxi Steel (Group) Metallurgy Residues Co., Ltd. 45,837,249 0.17 21,224,019 0.09 Benxi Steel (Group) Steel Process and Logistics Co., 898,653 0.00 184,481 0.00 Ltd. Benxi Steel (Group) Real-estate Development Co., 35,330,207 0.13 Ltd. Benxi Steel (Group) Machinery Co., Ltd. 1,140,475 0.00 Benxi Steel (Group) Construction Co., Ltd. 17,068,490 0.06 Benxi Steel & Iron (Group) Puxiang Cool Rolling 1,026,432,557 3.89 Sheet Co., Ltd. Benxi Steel (Group) Industrial Development Co., Ltd. 107,862,231 0.41 Benxi Steel (Group) Construction & Repairing Co., 3,919,363 0.01 Ltd. Bengang Electronics Co., Ltd. 68,933,035 0.26 Total 5,117,906,460 19.37 2,187,294,841 9.22 C. Purchasing of spare parts from related parties without controlling relationship In RMB Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount cost % cost % Benxi Steel (Group) Machinery Co., Ltd. 270,596,866 1.03 121,772,292 0.51 Bengang Electronics Co., Ltd. 1,381,623 0.01 23,850,897 0.10 Benxi Steel (Group) Drilling Tools Co., Ltd. 17,220,739 0.07 7,343,690 0.03 Internship factory of Liaoning Metallurgy Technical 20,844,350 0.08 6,146,137 0.03 College Benxi Steel (Group) Education Center 599,900 0 Benxi Steel (Group) Information & Automatic Tech. Co., 27,823,726 0.11 9,220,258 0.04 Ltd. Benxi Steel (Group) Industrial Development Co., Ltd. 1,369,965 0.01 Benxi Steel (Group) Construction Co., Ltd. 2,343,247 0.01 36,639,645 0.15 Total 341,580,517 1.32 205,572,819 0.86 44 D. Accepting from related parties without controlling relationship – repairing and labor RMB yuan Year 2007 Year 2006 Name of company Portion in Portion in Amount Amount cost % cost % Benxi Steel (Group) Industrial Development Co., Ltd. 19,158,880 0.07 3,614,642 0.02 Bengang Electronics Co., Ltd. 15,124,955 0.06 23,850,897 0.10 Benxi Steel (Group) Information & Automatic Tech. Co., 6,962,392 0.03 30,127,988 0.13 Ltd. Benxi Steel (Group) Machinery Co., Ltd. 18,385,674 0.07 7,721,435 0.03 Benxi Steel (Group) Education Center 17,486,039 0.07 1,099,636 0.00 Benxi Steel (Group) Construction Co., Ltd. 141,732,365 0.54 189,632,225 0.80 Benxi Steel (Group) Construction & Repairing Co., Ltd. 71,114,749 0.27 49,161,485 0.21 Benxi Steel (Group) Real-estate Development Co., Ltd. 1,109,419 0.00 Benxi Steel (Group) Mining Co., Ltd. 2,714,591 0.01 Benxi Steel (Group) Designing Institute 468,000 0.00 Benxi Steel (Group) News Center 100,000 0.00 Benxi Steel (Group) Metallurgy Residues Co., Ltd. 2,565,317 0.01 Total 296,922,381 1.13 305,208,308 1.29 5) Other related transactions RMB yuan Items Year 2007 Year 2006 With the Group Power supply 406,084,620 Transportation 30,120,719 Repairing 188,181,896 138,535,946 Trademark 25,200 Land rent paid 51,140,500 30,945,708 Inspection and testing 2,780,689 Payment for purchasing 250,439,320 250,439,320 Bengang Group International Trading Ltd. Export commission 20,566,471 19,223,441 Import commission 16,752,867 5,808,991 Import of equipment 745,316,061 1,161,798,195 with Bengang Electronics Co., Ltd. Heating fee paid 321,344.88 Engineering fee paid 5,273,538.49 Yinkou Bengang International Logistics Co., Ltd. Port fee 171,490,324 43,148,722 Benggang Group Real-estate Co., Ltd. Property management 445,573 54,098 Property rental paid 244,511 Freight paid 206,576 Engineering fee paid 25,665,004 Benxi Steel (Group) New Industrial Development Co., Ltd. Labor safety fee 5,362,141 3,000,412 Benxi Steel (Group) Construction Ltd. Construction 612,648,946 545,107,690 Fixed asset maintenance fee paid 4,307,710 Transportation 6,663,699 40,608 Benxi Steel (Group) IT and Automation Ltd. Engineering 28,631,716 34,446,848 Fixed asset maintenance fee paid 830,465 Benxi Steel (Group) Repairing and Building Ltd. Engineering 19,579,691 30,428,366 Fixed asset maintenance fee paid 962,233 Benxi Steel (Group) Machinery Co., Ltd. Construction 8,920,474 Industrial water supply fee paid 888,703 Benxi Steel (Group) Designing Institute 45 Project construction fee paid 12,870,052 22,624,555 Engineering design fee paid 435,616 Benxi Steel (Group) Industrial Development Co., Ltd. Transportation 16,375,755 2,693,027 Engineering 5,944,155 9,114,636 Benxi Steel (Group) Metallurgy Residues Co., Ltd. Residue treatment fee paid 22,084,904 64,847,063 Freight received 360,664 Benxi Steel (Group) Thermal Power Development Co., Ltd. Heating 16,928,891 3,832,238 Benxi Steel (Group) Mining Co., Ltd. Transportation 5,709,739 362,071 Freight received 11,884,460 Metallurgy coke income 35,813,050 Benxi Steel (Group) News Center Printing & news press 1,824,007 1,888,944 Liaoning Metallurgy Technician College Training fee paid 2,729,440 Benxi Steel (Group) Training Center Engineering fee paid 2,229,819 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., Ltd. Labor fee received 5,024,639 Freight received 7,884,839 Bengang Fire-resistance Material Co. Freight received 651,914 4) Balance of related transactions: In RMB At the end of term Beginning of term Name of company Amount Percentage Amount Percentage Notes receivable Dalian Boluole Steel Tube Ltd. 50,000 0.01 Guangshou Free Trade Zone Bengang Sales Co., Ltd. 5,417,500 1.07 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., 73,036,000 14.47 Ltd. Benxi Steel (Group) Mining Co., Ltd. 20,000,000 3.96 Benxi Steel (Group) Industrial Development Co., Ltd. 200,000 0.04 Total 98,703,500 19.55 Notes payable Benxi Steel (Group) Industrial Development Co., Ltd. 700,000 0.20 1,400,000 0.70 Benxi Steel (Group) Construction Co., Ltd. 200,000 0.10 Bengang Fire-resistance Material Co., Ltd. 500,000 0.14 Benxi Steel (Group) Information and Automatic Tech. Ltd. 800,000 0.23 Benxi Steel (Group) Machinery Co., Ltd. 3,891,004 1.95 Total 2,000,000 0.57 5,491,004 2.75 Account receivable Benxi Steel (Group) Mining Co., Ltd. 17,140,513 1.25 Benxi Steel (Group) Machinery Co., Ltd. 18,684,922 2.29 Benxi Steel (Group) Thermal Power Development Co., Ltd. 240,094,735 29.38 225,058,522 16.42 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., 109,181,890 13.36 Ltd. Guangshou Free Trade Zone Bengang Sales Co., Ltd. 46,673,185 3.40 Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 125,132,389 9.13 Benxi Steel (Group) Construction Co., Ltd. 3,094,432 0.38 Benxi Steel (Group) Industrial Development Co., Ltd. 18,244,182 2.23 Benxi Steel (Group) New Industrial Development Co., Ltd. 1,374,977 0.17 Bengang Fire-resistance Material Co. 4,911,911 0.60 Shanghai Bengang Steel & Iron Trading Co., Ltd. 115,811,748 8.45 Total 395,587,049 48.41 529,816,357 38.65 Account payable 46 Benxi Steel (Group) Construction & Repairing Co., Ltd. 102,275,114 2.90 91,227,142 2.59 Bengang Fire-resistance Material Co. 10,917,312 0.31 8,796,423 0.25 Benxi Steel (Group) Industrial Development Co., Ltd. 53,903,452 1.53 81,798,818 2.33 Benxi Steel (Group) Construction Co., Ltd. 239,477,099 6.80 280,248,731 7.97 Benxi Steel (Group) Real-estate Development Co., Ltd. 597,633 0.02 1,037,107 0.03 Benxi Steel (Group) Information & Automatic Tech. Co., Ltd. 11,059,280 0.31 Bengang Electronics Co., Ltd. 4,637,476 0.13 9,069,935 0.26 Benxi Xingye Therapy and Sanitary Co., Ltd. 320,632 0.01 Benxi Yitong Pipe Co., Ltd. 584,449 0.02 Benxi Steel (Group) Mining Co., Ltd. 384,863,639 10.92 Benxi Steel (Group) Designing Institute 1,065,082 0.03 23,653,335 0.67 Internship factory of Liaoning Metallurgy Technical College 8,212,662 0.23 2,481,445 0.07 Benxi Steel (Group) Drilling Tools Co., Ltd. 7,656,545 0.22 7,088,413 0.20 Benxi Steel (Group) Co., Ltd. 68,838,378 1.95 - - Benxi Steel (Group) Metallurgy Residues Co., Ltd. 31,159,357 0.88 - - Benxi Steel (Group) Machinery Co., Ltd. 37,533,514 1.07 1,453,976 0.04 Liaoning Bengang Steel & Iron Trading Co., Ltd. 433,532 0.01 282,592 0.01 Benxi Steel (Group) New Industrial Development Co., Ltd. 1,587,110 0.05 - Benxi Steel (Group) News Center 1,066,082 0.03 - Total 966,188,348 27.42 507,137,917 14.42 Prepayment Bengang Group International Trading Ltd. 657,124,662.53 19.11 586,851,650 34.18 Benxi Steel (Group) Construction & Repairing Co., Ltd. 370,726.78 0.01 Benxi Steel (Group) Construction Co., Ltd. 192,499,853.13 5.60 Benxi Steel (Group) Industrial Development Co., Ltd. 716,665.65 0.02 Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., 149,592,507.88 4.35 120,787,519 7.03 Ltd. Total 1,000,304,416 29.09 707,639,169 41.21 Account received in advance Dalian Boluole Steel Tube Ltd. 13,534,273 0.54 10,733,311 0.63 Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 5,396,030 0.21 Guangshou Free Trade Zone Bengang Sales Co., Ltd. 10,458,926 0.41 Shanghai Bengang Steel & Iron Trading Co., Ltd. 53,500,339 2.12 6,089,555 0.35 Benxi Steel (Group) Drilling Tools Co., Ltd. 32,471 0.00 Benxi Steel (Group) Construction Co., Ltd. 52,957 0.00 Liaoning Bengang Steel & Iron Trading Co., Ltd. 74,725,500 2.96 Benxi Steel (Group) Industrial Development Co., Ltd. 4,210,201 0.17 Total 161,910,697 6.41 16,822,866 0.98 Other account receivable Benxi Steel & Iron (Group) Puxiang Cool Rolling Sheet Co., 9,505,617.56 8.57 Ltd. Benxi Steel (Group) Construction Co., Ltd. 11,603.90 0.01 Benxi Steel & Iron (Group) Inspection Co., Ltd. 250,000.00 0.23 210,000 0.15 Total 9,767,221 8.81 210,000 0.15 Other account payable Benxi Steel (Group) Machinery Co., Ltd. 283,608 0.09 Shanghai Bengang Steel & Iron Trading Co., Ltd. 985,000 0.33 Benxi Steel (Group) Construction & Repairing Co., Ltd. 5,310,311 1.76 Benxi Steel (Group) Metallurgy Residues Co., Ltd. 13,489,128 3.91 Benxi Steel (Group) Industrial Development Co., Ltd. 9,807,890 3.25 Benxi Steel (Group) Construction Co., Ltd. 80,011,185 26.54 Benxi Steel (Group) Real-estate Development Co., Ltd. 2,945,000 0.98 1,120,238 0.32 Benxi Steel (Group) Information & Automatic Tech. Co., Ltd. 11,019,194 3.65 7,158,418 2.08 Benxi Steel (Group) New Industrial Development Co., Ltd. 740,683 0.25 4,112,583 1.19 Bengang Electronics Co., Ltd. 7,707,534 2.56 Benxi Steel (Group) Education Center 138,195 0.05 4,504,266 1.31 Benxi Steel (Group) News Center 1,403,100 0.41 Dalian Boluole Steel Tube Ltd. 2,851,338 0.95 Bengang Fire-resistance Material Co. 2,980,000 0.99 Benxi Steel (Group) Designing Institute 7,507,133 2.49 Internship factory of Liaoning Metallurgy Technical College 258,300 0.09 1,502,857 0.44 Benxi Steel (Group) Mining Co., Ltd. 101,328 0.03 Total 132,646,699 44.01 33,290,59 9.66 Construction in process Bengang Group International Trading Ltd. 299,497,722 21.32 47 Total 299,497,722 21.32 Long-term payable Benxi Steel (Group) Co., Ltd. 250,439,320 100.00 500,878,639 100.00 Total 250,439,320 100.00 500,878,639 100.00 (3) Statement on the necessity and consistency of the related transactions To keep a steady supply of resources, the Company still needs to purchase major materials such as mineral powder from the Group. On the other hand, the power supply department and purchasing department still provides power and parts to the Group. For some companies under the controlling of the Group need to purchase finished products from the Company for further process. Therefore the sales to the Group and accepting of labor and training services will last for a period of time. To fully adopt the overseas marketing channels the Group has, the Company accepted the import & export services from Bengang International Trading Ltd. which is under full possession of the Group. (4) No non-operational capital adoption happened between the Company and the controlling shareholder or other related parties. (5) No related transactions happened in the report term in term of external joint investment with related parties. 7. Major contracts and fulfilling (1) The Company has never been involved in such events as keeping as custodian, contracted or leased any other company’s assets and vice versa in the report period. (2) No providing of external guarantee occurred in the report term. (3) No providing or accepting of cash asset management to or from other parties occurred during the report term. (4) No other material contract engaged in the report term. 8. Commitment issues made by share holders with 5% or above share equities occurred in or last to the report term. Shareho Commitments Fulfilli Fulfilling of commitments lder ng status Benxi 1. After launching of the share relocation program, Under From the day of the share equity Steel Bengang Group has committed not to trade or transfer its process relocation was implemented till the (Group) shares in 24 months since the day when they are allowed ing day when this report is released, none Co., to trade in the stock exchange, and not more than 5% of of the shares of the Company held by Ltd. the total capital share of the Company between the 24th Bengang Group was traded in the month and the 36th month. market or transferred to others. 2. Bengang Group committed not to put the newly None of the shares newly placed to placed shares in the market or sell to others in 36 months the Group for acquiring of the steel & since the date when the share registration is done. iron assets of the Group was traded in 3. From completion day of this acquisition up to the end the market or transferred to others. of 2010, Bengang Group will hold not lower than 65% No situation occurred that the Group of the Company’s shares (Except for selling to strategic is not fulfilling or not completely investors by way that is allowed by national policies. fulfilling the commitments. However the acceptor shall carry over the original commitment.) 48 9. The Company extended the service of Beijing TIN WHA CPAs to the report term, and paid auditing fee amounted to RMB2,800,000. Beijing TIN WHA CPAs have served the Company as auditors for successively 5 years. 10. In the report term, none of the directors, supervisors, executives, shareholders, substantial dominators, buyer of the Company was investigated by relative departments, executed by legal & discipline departments, delivered to legal departments, appeared for crime, investigated or punished by China Securities Regulatory Commission, restricted to security market, criticized publicly, regarded as improper person, punished by other executive departments, or publicly condemned by the Stock Exchange. 11. No other significant issues occurred during the report term as determined by the Board of Directors or as provided by Article 67 of the Securities Law, or Article 17 of Information Disclosing Rules for Company Placed Shares Publicly 12. Reception of investigation and visiting In the report term, the Company properly executed “Investor Management Instruction” issued by China Securities Regulatory Commission, and “Fair Information Disclosure Instruction” issued by Shenzhen Stock Exchange, accepted investigations, inquiring, and visiting of organization investors and individual investors. All information provided are those have already been disclosed in regular and provisional reports and announcements. The Company never provided, disclosed or leaked any major information to any particular object that is closed to the public. Particulars about reception of investigations, communications, and visiting in the report term Main content involved Time/date Place Way Visitors and material provided Meeting room of the Onsite Jan 17 2007 Yimin Foundation Business operation Company investigation Mar 06 Meeting room of the Onsite Guangda-Baodexin Foundation Business operation 2007 Company investigation Mar 15 Meeting room of the Onsite Yifangda Foundation Business operation 2007 Company investigation Apr 18 Meeting room of the Onsite Merrill Lynch Asset Management Business operation 2007 Company investigation Co., Ltd. Apr 27 Meeting room of the Onsite Zhongyou Foundation Business operation 2007 Company investigation May 24 Meeting room of the Onsite Jiashi Foundation Business operation 2007 Company investigation Meeting room of the Onsite Jun 13 2007 Lehman Brothers Business operation Company investigation Meeting room of the Onsite Jun 27 2007 Li’ang Securities Business operation Company investigation Meeting room of Bengang Onsite Jul 10 2007 UBS HK Business operation Hotel investigation Meeting room of the Onsite Jul 26 2007 UBS Securities Business operation Company investigation Aug 21 Meeting room of the Onsite La Compagnie Financiere Asset Business operation 2007 Company investigation Meeting room of the Onsite Sept 5 2007 CITIC Securities Business operation Company investigation Sept 19 Meeting room of Bengang Onsite Guotai Junan Securities Business operation 2007 Hotel investigation Meeting room of the Onsite Oct 23 2007 Changsheng Fund Business operation Company investigation Nov 14 Meeting room of Jinshan Onsite Jinlin Asset Business operation 2007 Hotel investigation 49 Nov 28 Meeting room of the Onsite Bisheng (Shanghai) Investment Business operation 2007 Company investigation Dec 16 Meeting room of Jinshan Onsite Guosen Securities Business operation 2007 Hotel investigation Dec 22 Meeting room of the Onsite Guangda-Baodexin Foundation Business operation 2007 Company investigation X. Financial Report 1. Financial Statements (Attached herein) 2. Notes to the Financial Statements (Attached herein) XI. Documents For Reference 1. Financial Statements signed and stamped by the legal representative, CFO, and accounting manager; 2. Original copy of the Auditors’ Report under the seal of the CPA and signed by and under the seal of certified accountants. 3. All of the original copies of documents and announcements that have been published on China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The Board of Directors of Bengang Steel Plate Co., Ltd. The Chairman: Yu Tianchen April 23, 2008 50 BenGang Steel Plates Co., Limited Financial Statements 31 December 2007 Important Notice The attached financial statements have been translated from the statutory financial statements prepared in accordance with generally accepted accounting principles applicable to foreign investment enterprises established in the People’s Republic of China. In the event of any differences in interpreting the financial statements, the Chinese version shall prevail. Bengang Steel Plates Co., Limited Index Pages AUDITORS’ REPORT 1 AUDITED FINANCIAL STATEMENTS Balance Sheet 2-3 Income Statement 4 Cash Flow Statement 5-7 Statement of Changes in Equity 8 Notes to Financial Statements 9 - 27 Auditors’ Report BAKER TILLY CHINA (2008) Shen Zi No.[1095]-[01] To the shareholders of share of Bengang steel plates CO., LTD We have audited the accompanying financial statements of Bengang Steel Plates Co., Limited (the “company”), which comprise the balance sheet as at 31 December 2007, and the income statement, statement of changes in owner’s equity and cash flow statement for the year then ended and notes to the financial statements. Management’s Responsibility for the Financial Statements The management is responsible for preparing financial statements in accordance with Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises. This responsibility includes (1) designing, implementing and maintaining the internal control relevant to the preparation of the financial statements that are free from material misstatement whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain a reasonable assurance as to 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, we consider the internal control relevant to the entity’s preparation of 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 the accounting polices used and the reasonableness of the 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. Auditor’s opinion In our opinion, the financial statements of the Bengang Steel Plates have been prepared in accordance with Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises, and present fairly, in all material aspects, the financial position of the Company as at 31 December 2007 and the results of its operations and its cash flows for the year then ended. BAKER TILLY CHINA Beijing Chinese Certified Public Accountant: (Signature and personal chop) Chinese Certified Public Accountant: (Signature and personal chop) 20 April 2008 Consolidated Balance Sheet At 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Assets Note Ending balance Current assets Cash and cash equivalents 七、1 2,242,866,884.97 Held-for-trading financial assets Notes receivable 七、2 834,324,393.98 Accounts receivable 七、3 817,330,942.52 Advance to suppliers 七、4 3,439,282,707.53 Interests receivable Dividends receivable Other receivables 七、5 110,954,057.98 Inventories 七、6 4,605,043,499.66 Non-current assets matured within one year Other current assets Total current assets 12,049,802,486.64 Non-current assets Available-for-sale financial assets Held- to-maturity investment Long-term receivable Long-term equity investment Investment properties Fixed assets 七、7 13,708,841,478.55 Construction in process 七、8 3,399,717,103.88 Material for construction Disposal of fixed assets Productive biological assets Oil and gas assets Intangible assets Development expenses Goodwill Long-term prepayments Deferred tax assets 七、9 197,937,960.47 Other non-current assets Total non-current assets 17,306,496,542.90 Total assets 29,356,299,029.54 Company principal: Accounting principal: Accounting agency princ Page 4 of 67 Consolidated Balance Sheet (Continued) At 31 December 2007 (Expressed in RMB Yuan) Prepared by:Bengang Steel Plates Co., Limited Liabilities and Equities Note Ending balance Opening balance Current Liabilities Short-term loans 七、 2,638,685,960.00 11 Held-for-trading financial liabilities Notes payable 七、 352,200,000.00 12 Accounts payable 七、 3,523,327,847.52 13 Advance from customers 七、 2,527,511,214.43 14 Accrued Payroll 七、 328,258,399.95 15 Current tax liabilities 七、 -123,081,408.79 16 Interests payable Dividends payable Other payables 七、 301,522,320.11 17 Non-current liabilities matured within one 七、 875,659,146.98 year 18 Other current liabilities Total current liabilities 10,424,083,480.20 Non-current liabilities Long term loans 七、 1,935,210,198.02 19 Bonds payable Long-term payable 七、 250,439,319.71 20 Special accounts payable Contingent liabilities Deferred tax liabilities Other non-current liabilities 七、 5,803,501.75 21 Total non-current liabilities 2,191,453,019.48 Total liabilities 12,615,536,499.68 Owner’s equity: Paid in capital 七、 3,136,000,000.00 22 Capital reserve 七、 8,705,011,134.76 23 Less: treasury shares Surplus reserves 七、 914,289,107.82 24 General reserve Undistributed Profits 七、 3,985,462,529.86 25 Currency transaltion differences Total owner’s equity 16,740,762,529.86 Total liabilities and owner’s equity 29,356,299,029.54 - - Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Page 5 of 67 Consolidated Income Statement for the year ended 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Item Note Amount of this Period Amount 1 Operating income 七、26 31,351,596,494.84 26 Less Operating cost 七、27 26,391,344,083.89 23 Sales tax 七、28 214,562,652.75 Selling expenses 七、29 556,170,341.63 General and administrative expenses 七、30 1,738,707,568.74 Financial expenses 七、31 307,993,829.89 Asset impairment loss 七、32 12,675,234.70 Add Changes of fair value assets Income on investment Wherein: income from associates 2 Operating profit 2,130,142,783.24 2 Add Non-operating income 七、33 87,846,569.81 Less Non-operating expenses 七、34 53,077,699.47 Wherein: loss on disposal of non-current assets 52,296,386.50 3 Total profit 2,164,911,653.58 2 Less Income tax expenses 七、35 465,961,951.80 4 Net profit 1,698,949,701.78 1 5 Earnings per share -1 Basic earnings per share 0.54 -2 Diluted earnings per share 0.54 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zhanguo Consolidated Cash Flow Statement For The Year Ended 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Item Note Amount in this pe 1 Cash flow from operating activities Cash received from sales of goods or rendering of services 27,057,159,8 Refund of tax and levy 240,567,1 Other cashes received from operating activities 七、38 89,771,1 Subtotal of cash inflows 27,387,498,1 Cash paid for goods and services 20,066,733,6 Cash paid to and on behalf of employees 1,365,085,5 Cash paid on taxes and levy 2,305,348,7 Other cash paid relating to operating activities 七、39 904,979,3 Subtotal of cash outflows 24,642,147,3 Net cash flows from operating activities 2,745,350,7 2 Cash flows from investing activities Cash received from return of investments Cash received from distribution of dividends or profit Net cash received from disposal of fixed assets, intangible assets and other long-term assets Net cash received from disposal of subsidiary and other operating units Other cash received relating to investing activities Subtotal of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets 2,402,722,7 Cash paid to investment Net cash received from subsidiary and other operating unit Other cash paid relating to investing activities 七、40 216,939,3 Subtotal of cash outflows 2,619,662,1 Net cash flows from investing activities -2,619,662,1 3 Cash flows from financing activities Proceeds from investment Proceeds from borrowings 4,840,731,7 Other proceeds relating to financing activities Subtotal of cash inflows 4,840,731,7 Cash repayments of amounts borrowed 3,697,137,2 Cash payments for distribution of dividends, profit or interest expenses 1,234,149,9 Other cash payments relating to financing activities 504,7 Subtotal of cash outflows 4,931,791,9 Net cash flows from financing activities -91,060,2 4 Effect of foreign exchange rate changes on cash 24,037,7 5 Net increase in cash and cash equivalents 58,666,1 Add: cash and cash equivalents at the beginning of the period 2,184,200,6 6 Cash and cash equivalents at the ending of the period 2,242,866,8 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Consolidated Statement of Changes in Equity For The Year Ended 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited 2007 Item Paid in capital Capital Surplus Less: treasury Surplus reserves shares 一 Balance at the end of last year 3,136,000,000.00 8,705,011,134.76 752,139,643.39 Add Change of accounting policies -7,310,682.56 Correction of errors for last period 二 Beginning Balance 3,136,000,000.00 8,705,011,134.76 744,828,960.83 三 Amount of decrease and increase in current year (“-” symbolizes decrease ) 169,460,146.99 （一） Net profit （二） Benefit and loss directly recorded to the owner’s equity 1 Changes in fair value of available for sale financial assets 2 Changes of other owner’s equity of invested unit under equity method 3 Influence of income tax relevant to owner’s equity item 4 Others Subtotal of above (1) and (2) （三） Owner’s devotion and decreased capital 1 Owner’s devotion capital 2 Amount calculated into owner’s equity paid in shares 3 Others （四） Profit distribution 169,460,146.99 1 Appropriation to surplus reserves 169,460,146.99 2 Appropriation to general risk reserves 3 Profit distribution to owners (or shareholders) 4 Others （五） Internal carry-forward of owner’s equity 1 Capital surplus turned to paid-in capital (or stock) 2 Surplus reserves turned to paid-in capital (or stock) 3 Surplus reserves covering a loss (or capital stock) 4 Others 四 Balance at the end of this year 3,136,000,000.00 8,705,011,134.76 914,289,107.82 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Consolidated Statement of Changes in Equity For The Year Ended 31 December 2006 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited 2006 Item Paid in capital Capital Surplus Less: treasury Surplus Reserves shares 一 Balance at the end of last year 1,136,000,000.00 1,400,387,044.04 586,516,638.3 Add Change of accounting policies -3,061,496.1 Correction of errors for last period 二 Beginning Balance 1,136,000,000.00 1,400,387,044.04 583,455,142.1 三 Amount of decrease and increase of this year (“-” symbolizes decrease ) 2,000,000,000.00 7,304,624,090.72 161,373,818.6 （一） Net profit （二） Benefit and loss directly recorded to the owner’s equity 1 Changes in fair value of available for sale financial assets 2 Changes of other owner’s equity of invested unit under equity method 3 Influence of income tax relevant to owner’s equity item 4 Others Subtotal of above (1) and (2) （三） Owner’s devotion and decreased capital 2,000,000,000.00 7,304,624,090.72 1 Owner’s devotion capital 2,000,000,000.00 2 Amount calculated into owner’s equity paid in shares 7,304,624,090.72 3 Others （四） Profit distribution 163,082,488.5 1 Appropriation to surplus reserves 163,082,488.5 2 Appropriation to general risk reserves 3 Profit distribution to owner (or shareholder) 4 Others （五） Internal carry-forward of owner’s equity 1 Capital surplus turned to paid-in capital (or stock) 2 Surplus reserves turned to paid-in capital (or stock) 3 Surplus reserves covering a loss (or stock) 4 Others 四 Balance at the end of this year 3,136,000,000.00 8,705,011,134.76 746,630,742.7 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Balance Sheet At 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Assets Note Ending balance Opening balance Current assets Cash and cash equivalents 2,232,308,962.38 2,128,996,544.81 Held-for-trading financial assets Notes receivable 790,367,921.28 479,001,066.54 Accounts receivable 八、1 822,580,593.80 1,370,789,053.08 Advance to suppliers 3,273,435,845.05 1,649,490,373.61 Interests receivable Dividends receivable Other receivables 八、2 194,876,148.04 257,429,528.51 Inventories 4,327,986,246.93 3,626,155,415.70 Non-current assets matured within one year Other current assets Total current assets 11,641,555,717.48 9,511,861,982.25 Non-current assets Available-for-sale financial assets Held- to-maturity investment Long-term receivable Long-term equity investment 八、3 56,100,529.68 56,100,529.68 Investment properties Fixed assets 13,706,373,552.50 15,782,723,204.70 Construction in process 3,399,717,103.88 1,404,708,197.29 Material for construction Disposal of fixed assets Productive biological assets Oil and gas assets Intangible assets Development expenses Goodwill Long-term prepayments Deferred tax assets 188,438,950.39 250,692,841.96 Other non-current assets Total non-current assets 17,350,630,136.45 17,494,224,773.63 Total assets 28,992,185,853.93 27,006,086,755.88 Company principal: Accounting principal: Accounting agency principal: Balance Sheet (Continued) At 31 December 2007 (Expressed in RMB Yuan) Prepared by:Bengang Steel Plates Co., Limited Liabilities and Equities Note Ending balance Opening balance Current Liabilities Short-term loans 2,638,685,960.00 1,879,261,000.00 Held-for-trading financial liabilities Notes payable 352,200,000.00 200,000,000.00 Accounts payable 3,523,327,847.52 3,515,312,094.32 Advance from customers 2,276,586,322.58 1,892,280,126.34 Accrued Payroll 328,258,399.95 436,499,625.37 Current tax liabilities -130,070,616.63 -112,857,089.97 Interests payable Dividends payable Other payables 212,818,530.38 288,326,890.46 Non-current liabilities matured within 875,659,146.98 974,009,750.18 one year Other current liabilities Total current liabilities 10,077,465,590.78 9,072,832,396.70 Non-current liabilities Long term loans 1,935,210,198.02 1,452,690,098.25 Bonds payable Long-term payable 250,439,319.71 500,878,639.42 Special accounts payable Contingent liabilities Deferred tax liabilities Other non-current liabilities 5,803,501.75 10,219,847.75 Total non-current liabilities 2,191,453,019.48 1,963,788,585.42 Total liabilities 12,268,918,610.26 11,036,620,982.12 Owner’s equity: Paid in capital 3,136,000,000.00 3,136,000,000.00 Capital reserve 8,705,011,134.76 8,705,011,134.76 Less: treasury shares Surplus reserves 914,289,107.82 744,828,960.83 General reserve Undistributed Profits 3,967,967,001.09 3,383,625,678.17 Currency transaltion differences Total owner’s equity 16,723,267,243.67 15,969,465,773.76 Total liabilities and owner’s equity 28,992,185,853.93 27,006,086,755.88 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Income Statement (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Item Note Amount of this Period 1 Operating income 八、4 30,098,539,944.00 Less Operating cost 八、5 25,230,476,923.64 Sales tax 213,020,951.14 Selling expenses 487,502,706.08 General and administrative expenses 1,724,182,228.11 Financial expenses 308,237,219.75 Asset impairment loss 12,601,344.06 Add Changes of fair value assets Income on investment Wherein: income from associates 2 Operating profit 2,122,518,571.22 Add Non-operating income 87,473,928.78 Less Non-operating expenses 53,069,520.57 Wherein: loss on disposal of non-current 52,296,386.50 assets 3 Total profit 2,156,922,979.43 Less Income tax expenses 462,321,509.52 4 Net profit 1,694,601,469.91 5 Earnings per share （1） Basic earnings per share 0.54 0.52 （2） Diluted earnings per share 0.54 0.52 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Statement Of Cash Flow For The Year Ended 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited Item Note Amount in this period 1 Cash flow from operating activities Cash received from sales of goods or rendering of services 25,993,005,137 Refund of tax and levy 239,128,690 Other cashes received from operating activities 89,341,835 Subtotal of cash inflows 26,321,475,663 Cash paid for goods and services 19,039,881,848 Cash paid to and on behalf of employees 1,359,158,521 Cash paid on taxes and levy 2,285,630,665 Other cash paid relating to operating activities 846,807,640 Subtotal of cash outflows 23,531,478,676 Net cash flows from operating activities 2,789,996,986 2 Cash flows from investing activities Cash received from return of investments Cash received from distribution of dividends or profit Net cash received from disposal of fixed assets, intangible assets and other long-term assets Net cash received from disposal of subsidiary and other operating units Other cash received relating to investing activities Subtotal of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets 2,402,722,790 Cash paid to investment Net cash received from subsidiary and other operating unit Other cash paid relating to investing activities 216,939,319 Subtotal of cash outflows 2,619,662,110 Net cash flows from investing activities -2,619,662,110 3 Cash flows from financing activities Proceeds from investment Proceeds from borrowings 4,840,731,700 Other proceeds relating to financing activities Subtotal of cash inflows 4,840,731,700 Cash repayments of amounts borrowed 3,697,137,243 Cash payments for distribution of dividends, profit or interest expenses 1,234,149,967 Other cash payments relating to financing activities 504,701 Subtotal of cash outflows 4,931,791,912 Net cash flows from financing activities -91,060,212 4 Effect of foreign exchange rate changes on cash 24,037,753 5 Net increase in cash and cash equivalents 103,312,417 Add: cash and cash equivalents at the beginning of the period 2,128,996,544 6 Cash and cash equivalents at the ending of the period 2,232,308,962 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Statement Of Changes In Equity For The Year Ended 31 December 2007 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited 2007 Item Paid in capital Capital Surplus Less: treasury shares Surp reser 一 Balance at the end of last year 3,136,000,000.00 8,705,011,134.76 752,139 Add Change of accounting policies -7,310 Correction of errors for last period 二 Beginning Balance 3,136,000,000.00 8,705,011,134.76 744,828 三 Amount of decrease and increase in current year (“-” symbolizes decrease ) 169,460 （一） Net profit （二） Benefit and loss directly recorded to the owner’s equity 1 Changes in fair value of available for sale financial assets 2 Changes of other owner’s equity of invested unit under equity method 3 Influence of income tax relevant to owner’s equity item 4 Others Subtotal of above (1) and (2) （三） Owner’s devotion and decreased capital 1 Owner’s devotion capital 2 Amount calculated into owner’s equity paid in shares 3 Others （四） Profit distribution 169,460 1 Appropriation to surplus reserves 169,460 2 Appropriation to general risk reserves 3 Profit distribution to owners (or shareholders) 4 Others （五） Internal carry-forward of owner’s equity 1 Capital surplus turned to paid-in capital (or stock) 2 Surplus reserves turned to paid-in capital (or stock) 3 Surplus reserves covering a loss (or capital stock) 4 Others 四 Balance at the end of this year 3,136,000,000.00 8,705,011,134.76 914,289 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Statement Of Changes In Equity For The Year Ended 31 December 2006 (Expressed in RMB Yuan) Prepared by: Bengang Steel Plates Co., Limited 2006 Item Paid in capital Capital Surplus Less: treasury Surplus Reser shares 一 Balance at the end of last year 1,136,000,000.00 1,400,387,044.04 586,516,638 Add Change of accounting policies -3,061,496 Correction of errors for last period 二 Beginning Balance 1,136,000,000.00 1,400,387,044.04 583,455,142 三 Amount of decrease and increase of this year (“-” symbolizes decrease ) 2,000,000,000.00 7,304,624,090.72 161,373,818 （一） Net profit （二） Benefit and loss directly recorded to the owner’s equity 1 Changes in fair value of available for sale financial assets 2 Changes of other owner’s equity of invested unit under equity method 3 Influence of income tax relevant to owner’s equity item 4 Others Subtotal of above (1) and (2) （三） Owner’s devotion and decreased capital 2,000,000,000.00 7,304,624,090.72 1 Owner’s devotion capital 2,000,000,000.00 2 Amount calculated into owner’s equity paid in shares 7,304,624,090.72 3 Others （四） Profit distribution 161,373,818 1 Appropriation to surplus reserves 161,373,818 2 Appropriation to general risk reserves 3 Profit distribution to owner (or shareholder) 4 Others （五） Internal carry-forward of owner’s equity 1 Capital surplus turned to paid-in capital (or stock) 2 Surplus reserves turned to paid-in capital (or stock) 3 Surplus reserves covering a loss (or stock) 4 Others 四 Balance at the end of this year 3,136,000,000.00 8,705,011,134.76 744,828,960 Legal representative: Yu Tianchen CFO: Li Mohua Accounting Manager: Zuo Zhanguo Bengang Lumber Co., Ltd Notes to the Financial Statements Fiscal Year 2007 (All amounts are in RMB unless otherwise stated) I. General information of the Company Bengang Steel Plates Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 27 June 1997 by Benxi Iron and Steel (Group) Limited (“Bengang Group”) through restructuring of operations, assets and liabilities of its plants, namely, Steel Smelting plant, Primary Rolling Plant and Continuous Hot Rolling Plant. On 10 June 1997, the Company issued 400,000,000 Domestically Listed Foreign Shares (“B shares”) through a private placement on the Shenzhen Stock Exchange and 616,000,000 unlisted State Shares to Bengang Group. On 3 November 1997, the Company issued RMB 120,000,000 denominated ordinary Shares (“A Shares”). The Company’s A Shares were listed on the Shenzhen Stock Exchange on 15 January 1998. The registered office and principal place of business of the Company is located at No. 16 Renmin Road, Pingshan District, Benxi City, Liaoning Province, china. The directors considered that Bengang Group is the ultimate parent company of the Company. The Company is principally engaged in steel smelting, metallurgy, processing and distribution business of related products in the PRC. II. Statement of compliance These financial statements were prepared in accordance with the "Accounting Standards for Business Enterprises" and reflects the true integrity of the company's financial position, results of operations and cash flow, and other relevant information. Apart from the "Enterprise Accounting Standard No. 38 - the first time adoption of Accounting Standard for Business Enterprises" relevant regulations on the implementation of the first project to retroactive adjustment, the Company and its subsidiaries comparable annual financial statements in accordance with the original company still accounting standards, and the "Enterprise Accounting system "in the accounting policy establishment, such accounting policies and the preparation of the Company 2007 annual financial statements of the accounting policies adopted by the existence of some differences, the difference was disclosed in the notes. The presentation of the comparable financial statements has been restated in accordance with the "Accounting Standards for Business Enterprises". III. Basis of the preparation These financial statements were based on the assumption of continued operation and accrual basis, according to the Ministry of Finance on 15 February 2006 issued the "Accounting Standards for Business Enterprises" and the China Securities Regulatory Commission on 15 February 2007 "issued by the public offering Securities companies standardize information disclosure Quiz No. 7 - old and new accounting standards during the transition period comparison of the financial accounting and the preparation of the information disclosure "of the relevant provisions, and based on the following significant accounting policies and estimations described below. IV. Significant accounting policies and estimations 1. Accounting year The accounting year of the Company is from 1 January to 31 December. 2. Reporting currency The Company’s reporting and presentation currency is the Renminbi (“RMB”). Unless otherwise stated, the unit of the currency is Yuan. 3. Basis of accounting and measurement basis These financial statements have been prepared under the historical cost convention, subsequently, if the assets are impaired, impairment provisions are made in accordance with the Accounting System for Business Enterprises. 4. Cash equivalents Cash equivalents standards: that the Company's short term, liquidity, and easy to convert to the known amounts of cash, lower risk of changes in the value of the investment. The Company's cash and cash equivalents include: cash, which can be readily payment of bank deposits and other funds and currency holders a period not exceeding three months of short-term investments. 5. Foreign currency transactions 1) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions, Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rates ruling at that date. Non-monetary assets and liabilities that are measured at fair value in foreign currencies are translated using the foreign exchange rates at the date the fair value is determined. Specialized end of the borrower accounts in foreign currency translation differences can be directly attributed to comply with the conditions of the capital assets acquired or constructed or production, according to the provisions of the capital, assets included in cost of the remaining foreign currency translation differences are included in financial expenses. Some overseas subsidiaries’ functional currency other than the currency is the RMB. At the balance sheet date, the company's assets and liabilities on the balance sheet date converted at the rate of the Company's reporting currency, and recognized in the income statements, the weighted average exchange rate for RMB conversion. The resulting of exchange differences included in equity under a separate item. 2) Translation of foreign currency financial statements Items of assets and liabilities on the balance sheet will be translated at the closing rate at the date of that balance sheet;; except for undistributed profit, other items in the category of stockholder’s equity will be translated at the rate of transactions, income and expenses for each income statement are translated at the weighted averaged rate for the year. 6. Financial instruments 1） Classification of financial assets and liabilities The Company classified its financial assets as: financial assets held for trading; financial assets designated at fair value through profit or loss; loans and receivables; held to maturity investments and available for sale financial assets. Financial liabilities including: financial liabilities held for trading; financial assets designated at fair value through profit or loss; other financial liabilities. Management determines the classification of its financial assets and liabilities at initial recognition. 2） Measurement of financial instruments (1) The financial assets at fair value through profit or loss includes: financial assets held-for-trading, and those designated at fair value through profit or loss at inception. The company purchases the stocks, bonds, funds, etc., which are the financial assets at fair value through profit or loss which recognized at fair value initially. The relevant transaction cost recognized in the income statement when occurred. The price includes the declared but not received cash dividends or bond interest is recognized as a separate item. The cash of dividends or interest are recognized as investment income when the Company received when holding such financial assets. At the balance sheet date, the Company recognizes the fair value changes in the income statements. The Company recognize the difference between initial recognition and fair value of the financial assets at investment income when dispose of the financial assets. (2) Held-to-maturity investment Financial assets classified as held to maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has both the positive intention and the ability to hold to maturity. The Company classified the fixed-rate bonds, floating rate bonds issued by corporate to held-to-maturity investments. They are initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest rate. The price includes the declared but not received bond interest is recognized as a separate item. The held-to-maturity investments measured at amortized cost. The interest income was recognized in the investment income. The effective interest will not be changed after initial recognition, if the difference between effective rate and coupon rate is not material, it also can be measured at coupon rate, the interest income recognized in the investment income. When disposing the held-to-maturity investment, the difference between the investing proceeds and the carrying value is recognized as investment income. If the Company changes the intention or ability, this kind of held to maturity investment should be classified as available-for-sale financial assets, and measured at fair value subsequently. On the date of reclassification, the difference between the fair value and the carrying value should be recognized in the equity. When the available-for-sale financial assets are impaired or de-recognized, the related amounts need to be transferred out from equity and recognized in the income statements. (3)Receivables (including accounts receivable and other receivables) are measured at contract price; (4) Available for sale financial assets Financial assets classified as available for sale are non-derivatives that are either designated as such or are not classified in any of the other categories: A. Financial assets at fair value through profit or loss B. Held-to-maturity investments; C. Loans and receivables Available for sale financial assets are initially recorded at fair value plus any directly attributable transaction costs on the trade date and subsequently re-measured at fair value. The price includes the declared but not received bond interest or cash dividend is recognized as a separate item. The Company recognizes the interest or cash dividends as investment income. At each balance sheet date, available-for-sale financial assets were measured at fair value and the fair value changes are recognized in the capital reserve - other capital reserve. The difference between the proceeds of the disposal and the carrying value should be recognized as investment income. And the related fair value change in the equity should be transferred out, and recorded as investment income. (5) The Company classifies financial liabilities at fair value through profit or loss as held-for-trading, and those designated at fair value through profit or loss at inception. Financial liabilities are measured at fair value, and do not deduct the future settlement transaction cost. If the fair value is not applicable, the financial liabilities should be measured at amortized cost. (6) Other financial liabilities For other financial liabilities which are not at fair value through profit or loss, for example financial guaranteed contracts, they are initially recognized at fair value plus any directly attributable transaction costs. After the initial recognition, the other financial liabilities are measured at the higher of the amount measured in accordance with “Accounting Standards for Business Enterprises– Contingency” and the amortized balance measured in accordance with “Accounting Standards for Business Enterprises – Revenue”. 3) Determination of the fair value of financial assets and financial liabilities The fair value of active market existed financial assets and liabilities should be on the quoted price of the active market. The quoted price of the active market referred as the prices which can be regularly and easily received from bourse, broker’s agency, and trade society and quotation service agency etc., and also referred as the actual market price in fair transactions. The fair value of non-active market existed financial assets and liabilities should be used the estimated skill to confirm the value. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market prices. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; a discounted cash flow analysis; option pricing models and other valuation models. 4) Impairment for financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Positive evidences refer to those occurred after the initial recognition, have effect on estimated future cash flows of the financial assets, and can be measured reliably. An individual impairment assessment should be performed on the balances that are individually significant. For the financial assets which are not individually significant, they should be allocated into asset groups which contain similar risk characteristics and assess collectively. The followings are the impairment testing method for each main financial asset: (1) Available for sale financial asset For the available for sale financial asset whose fair value can be reliably measured, the amount that is recognized in income statement is the difference between the book value and current fair value; for the available for sale financial asset whose fair value cannot be reliably measured, the impairment loss which is recognized in income statement is the difference between the book value and the present value of estimated future cash flow (excludes credit loss that has not happened yet). When a decline in the fair value of an available for sale financial asset has been recognized directly in equity and there is objective evidence that the asset is impaired the cumulative loss that had been recognized directly in capital surplus are removed from equity and recognized in profit or loss of the current period. (2) Financial assets carried at cost If there is objective evidence that the financial assets have been impaired, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset, and recognized in the income statement of the current year. (3) Financial assets carried at amortized cost If objective evidence shows that the financial assets carried at amortized cost are impaired, the carrying amount of the financial asset shall be reduced to the present value of the estimated future cash flow (excluding future credit losses that have not been incurred). The amount of reduction is recognized as an impairment loss in the income statement. Present value of estimated future cash flow is discounted at the financial asset’s original effective interest rate and includes the value of any related collateral. 7. Bad debt provision For each individually significant receivable, the impairment test should be assessed individually. Where there is evidence that indicates a impairment, the loss should be recognized with the respective provision accrued, equaling to the difference between the present value of the future cash flows and the book value of receivables. For the receivables which are not individually significant, they together with the receivables which are indicated not impaired during the individual assessment should be allocated into groups which contain similar risk characteristics and accrue the bad debt provision based on the actual bad debt percentage in experience and the situation in current period. The Company makes the specific bad debt provision for the receivables whose collect ability is doubtful; the Company does not make bad debt provision for the receivables which are used for guarantee purpose; for other receivables, the Company makes the bad debt provision using the allowance method. The Company makes the following percentages of bad debt provision for accounts receivable and other receivables: Aging Percentage (%) Within 1 year 0.00 1 to 2 years 5.00 2 to 3 years 20.00 Over 3 years 100.00 The Company makes no bad debt provision for receivables other than accounts receivable and other receivables by taking into accounts of the actual situation of the Company. For some specific items whose credit risk characteristics are obviously different, the Company performs individual analysis on them and confirms the actual loss rate. The Company makes no bad debt provision for the receivables happened between subsidiaries or between subsidiary and parent company in the scope of consolidation. When there is objective evidence shows a specific receivable is not collectable, the Company treats it as bad debt and write off against the bad debt provision. A. Description of the receivable classification (a) Individually significant item – Above 10 million in accounts receivable or above 5 million in other receivables; (b) Items not individually significant but credit risk of the group which the receivables are classifying to is high – account aging is above 3 years except for these individually significant; (c) Other items not individually significant – items other than specified in (a) or (b). B. Standard of recognizing a bad debt Debtor is discharged or bankrupt, the uncollected amount after the legal procedures; debtor dies, the uncollected amount after the repayment by using all of the debtor’s assets or legacies; the debtor did not fulfill his/her duty to repay the debt when it is overdue, and there is an objective evidence indicating that the receivables is not collectible. For these receivables, the Company charges off the bad debt in accordance with the company’s management authority. 8. Inventory 1) Inventory classification Inventories include raw material, low-valued consumables, work-in process, and finished goods etc. 2) Valuation method for inventory issuing Inventories should be recorded at their historical cost on acquisition; inventories requested or issued should be accounted for at their historical cost, which should be determined using the weighted average method to confirm the actual cost. 3) Low-valued consumables amortization Low-valued consumables should be amortized in full amount on issuance. 4) Verifying standard for inventory provision and way for accrued Inventories should be measured at the lower of cost and net realizable value, and a provision for inventory write-down should be established for any difference between the cost the lower net realizable value. Normally the Company accrued inventory provision on single item; at the end of the period, if the reasons of past accrued inventory provision have been disappeared, the accrued amount should be transferred back. 5) Net realizable value of the inventory Net realizable value of the inventory is amount that the estimated sales value minus the estimated completed cost, expenses and related taxes. 6) Inventory system The Company use perpetual inventory system. 9. Long-term equity investment 1) Initial measurement (1) The initial cost of long-term equity investment from business acquisition is determined by: A. For the acquisition under the common control, if the consideration of the acquiring enterprise is that it makes payment in cash, transfers non-cash assets or bear its debts, it shall, on the date of acquisition, regard the share of the book value of the owner's equity of the acquired enterprise as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne by the acquiring party shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. If the consideration of the acquiring enterprise is that it issues equity securities, it shall, on the date of acquisition, regard the share of the book value of the owner's equity of the acquired enterprise as the initial cost of the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital stock, while the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. B. For the combination not under the common control, the acquirer shall, on the acquisition date, measure the assets obtained and liabilities borne or assumed for a business combination in light of their fair values, and shall record the balances between them and their carrying amounts into the profits and losses at the current period. The acquirer shall recognize the positive balance of the acquisition costs over the fair value of the identifiable net assets it obtained from the acquiree as goodwill. When the acquisition cost is less than the fair value of identifiable net assets it obtained, the Company should review the fair value of the share of the acquired company’s identifiable net assets, and record the difference into income statement if the result of review is still in negative. (2) The initial measure of the long term equity investment other than from business acquisition: A. The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid. The initial cost consists of the expenses directly relating to acquiring the long term equity investment, taxes and other necessary expenses. B. The initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued. C. The initial cost of a long-term equity investment of an investor shall be the value stipulated in the investment contract or agreement except the unfair value stipulated in the contract or agreement. D. The initial cost of a long-term investment obtained by the exchange of non-monetary assets shall be ascertained in accordance with the Accounting Standards for Enterprises No. 7 – Exchange of Non-monetary Assets. E. The initial cost of a long-term equity investment obtained by recombination of liabilities shall be ascertained in accordance with Accounting Standards for Enterprises No. 12 – Debt Restructuring. 2) Subsequent measurement The Company adopts cost method for the long term investment in the company in which the Company has control and makes adjustment according to equity method when preparing consolidation. The Company adopts equity method for the long term investment in the company in which the Company has significant influence or joint control. For the long term investment in the company in which the Company has no significant influence and joint control, the Company adopts the cost method. Control refers to the rights to decide a company’s financial or operating policy and obtain the benefit from this company’s business activities. Directly holding or holding through its subsidiaries more than half of the invested company’s voting shares represent the Company can control the invested company. Holding less than half of the invested company’s voting share, but satisfying one of the following conditions, will be regarded as the controlling company, however, except for there is evidence representing the parent company cannot control the invested company: (1) Through the agreement with the other investors of the invested company, the Company holding more than half voting rights; (2) As per the invested company’s article of association or agreement, the Company has the right to decide the invested company’s financial and operating policy; (3) Has the right to remove most of the invested company’s members in board of directors or similar institutions; (4) Has the most voting right in invested company’s board of directors or similar institutions Joint control refers to the Company and other party controlling an operating activity together in accordance with an agreement, only existing when the Company and other party both agree on the important financial and operating decisions. Significant influence refers the right of participating a company’s financial and operating decision-making, however, no control or joint control on them. 3) Impairment At the balance sheet date, there is indication of impairment such as continuous decrease of market value or poor performance of the invested company’s operation, the net realizable value of the long term equity investment should be determined at the higher of fair value of the long term equity investment less any disposal charges and the net present value of the estimated future cash flow. When the net realizable value is less than the book value, an impairment provision should be made for long term equity investment, the impairment loss go the income statement. The impairment provision should not be reversed in future. The Company assesses the goodwill arisen from the business combination every year regardless whether there is indication of impairment. 10. Goodwill The goodwill arisen from business acquisition refers to the positive difference of consideration paid over the share of net identifiable assets obtained. Goodwill should be measured at the cost of initial measurement less any cumulative impairment loss. The Company performs an assessment at the end of each year. In order to perform assessment on goodwill, the Company classifies goodwill arisen from business combination to relevant asset groups by using a reasonable method and classifies the goodwill which is difficult to be classified to a relevant asset group to a group of asset group. The Company apportions the book value of goodwill to asset group or group of asset group by the ratio of the fair value of asset group or group of asset group over the fair value of total asset group or group of asset group. When the fair value cannot be reliably measured, apportioning by the ratio of the book value of asset group or group of asset group over the book value of total asset group or group of asset group. When performing the impairment test on goodwill’s relevant asset group or group of asset group, if there is indication of impairment for the asset group or group of asset group, firstly performs an impairment test on the asset group or group of asset group excluding goodwill and calculates the collectible amounts and compares it to the book value to determine the impairment loss; then, performs a further impairment test on the asset group or group of asset group including goodwill, compares the collectible amounts to the book value of the asset group or group of asset group, if the collectible amounts are less than the book value of the asset group or group of asset group, recognizes the impairment loss according the following: 1) Firstly deducts the book value of goodwill apportioned to asset group or group of asset group; 2) Then, deducts each asset’s book value by the ratio of the book value of each asset over the book value of asset group or group of asset group excluding the goodwill The deduction of the book value of the above assets is regarded as the impairment loss of each individual asset and recorded in income statement. The deducted book value of the asset cannot be less than the following: this asset’s fair value less any disposal charges; the present value of estimated future cash flow and zero. The unallocated impairment loss resulted from the above reasons should be allocated by the ratio of book value of other assets over the book value of asset group or group of asset group. Recognized impairment loss on goodwill should not be reversed in future. 11. Fixed Assets and Accumulated Depreciation 1) Standard The company’s fixed assets mean the intangible assets with more than one accounting year which were held for the purpose of manufacturing commodities, rendering of service, leasing, operation and management. 2) Valuation method of fixed assets Fixed assets should be recorded at the cost, and consider the influence amount of the disposal cost The cost of the procured fixed assets included the purchase price, import duties, delivery costs and insurance, and other expenditures necessary for bring the fixed assets to working condition for its intended use. The amount of a fixed asset contributed by an investor should be recorded on the value agreed upon by all the investors, except for the unfair value. Fixed assets are recognized when related income will inflow to the Company and related cost can be recognized. Continuing expenses related with fixed assets which can be recognized can be recorded as the cost of fixed assets, and stop recognized the replaced book value; otherwise, these expenses should be recorded as gain/loss of current period. 3) Fixed assets classification and depreciation Except for fully depreciated fixed assets that are still in use; and land that is revalued separately and recorded as a fixed asset item, other fixed assets should be depreciated. Straight line method is used. Details of classification, depreciation period, depreciation rate and residual value rate: Depreciation Residual Value Description Dep. Rate（%） Period (year) Rate（%） Building and structures 8-30 3.33% - 12.5% 0% Machinery 2.4-9 10.778% - 3% 40 417% Transportation and other equipment 3-10.8 8.981% -32.333% 3% At the end of the period, the Company will check the estimated useful life, residual value rate, and depreciation way. If the checked estimated useful life is different from the past one, the company would change the useful of the fixed assets. If the checked estimated residual value is different from the past one, the company would change it. If the related income that comes from the fixed assets changes a lot, the deprecation way would be changed. 12、Construction in progress The construction in progress (the “CIP”) means the capital construction and Renewal improvement project which is in progress. 1) The CIP valuation The construction project cost shall be confirmed according to actual expend. There into: Self-management project shall be valued according to direct materials, direct labor cost, direct construction fee; construction transferred to others shall be valued according to the payment of project price; Equipment setup project shall be valued according to the setup equipment price, setup expense, expense from the running-in of the project; Renewal improvement project shall be valued according to the book value before renewal, direct expense, running-in of the project, and administrate fee apportioned. 2) The time point of the CIP transfer into fixed asset The CIP constructed by us should be transferred to fixed asset when achieve the predetermined running condition. The cost should be confirmed according to the Project budget, actual cost of project and etc. And it also can be confirmed by estimation, the depreciation should be accrued in next month, the estimation should be adjusted when transacted the final accounts, but the accrued depreciation may not be adjusted. 13. The intangible assets measurement 1) Initial Valuation Measurement of intangible assets The intangible assets shall be initially measured according to its actual cost. The cost of outsourcing intangible assets shall be the purchase price; the cost invested into intangible assets by investors shall be determined according to the conventional value in the investment contract or agreement, except for those of unfair value in the contract or agreement. 2) Amortization measurement and time of intangible assets We analyze and judge the service life of intangible assets, when it obtains intangible assets. As for the intangible assets with limited service life, we shall estimate the years of its service life, or the amount of the output or any other similar measurement unit, which constitutes its service life. If it is unable to forecast the period when the intangible asset can bring economic benefits to the enterprise, it shall be regarded as an intangible asset with uncertain service life. With regard to intangible assets with limited service life, its amortization amount shall be amortized within its service life systematically and reasonably. Intangible assets with uncertain service life may not be amortized. We 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. We 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 treated according to these Standards. 3）The Division standard of the development expenditures for research and development The development expenditures for its internal research and development projects of an enterprise may be confirmed as intangible assets when they satisfy the following conditions simultaneously: (1) It is feasible technically to finish intangible assets for use or sale; (2) It is intended to finish and use or sell the intangible assets; (3) The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; (4) It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; and (5) The development expenditures of the intangible assets can be reliably measured. 14. Accounting Treatment of Borrowing costs 1) Principle of the recognition of capitalized borrowing costs Where the borrowing costs incurred to an enterprise can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it shall be capitalized and recorded into the costs of relevant assets. Other borrowing costs shall be recognized as expenses on the basis of the actual amount incurred, and shall be recorded into the current profits and losses. The borrowing costs shall not be capitalized unless they simultaneously meet the following requirements: (1) The asset disbursements have already incurred, which shall include cash, transferred non-cash assets or interest bearing debts paid for the acquisition and construction or production activities for preparing assets eligible for capitalization; (2) The borrowing costs has already incurred; and (3) The acquisition and construction or production activities which are necessary to prepare the asset for its intended use or sale have already started. 2) The Stopped point of capitalization of borrowing costs When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. The borrowing costs incurred after the qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses at the incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. 3) Method of calculating capitalized borrowing costs (1) Method of calculating specifically borrowing costs As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment (2) Method of calculating general borrowing costs Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. 15. Impairment of assets The term "impairment of assets" refers to that the recoverable amount of assets is lower than its carrying value. The company accrue impairment of assets for the assets expect inventory, deferred income tax, monetary assets and the long-term investment with no bidding in the active market and no dependably measured fair value, which was calculated according to the following method: When recoverable value is less than carrying value, the carrying value of assets should be decreased to the recoverable value, the decreased amount should be recognized as loss on impairment of assets, recorded into current profit or loss, and accrue provision of impairment accordingly. The recoverable amount shall be determined in light of the higher one of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets. This impairment cannot be reversed during the subsequent periods. There may be an impairment of assets when one of the following signs occurs: (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; (2) The 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; (3) The 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; (4) Any 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, or disposed ahead of schedule; (6) Any evidence in the internal report of the enterprise shows that the economic performance of the assets have 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 excepted amount, etc.; and (7) Other evidence indicates that the impairment of assets has probably occurred. 16. Accounting treatment for accrued payable 1) Principle of recognition: The obligation pertinent to a Contingency shall be recognized as an estimated debt when the following conditions are satisfied simultaneously, such as outside guarantee, discount of business acceptance, lawsuit for pending and Product quality guarantee: (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; and (3) The amount of the obligation can be measured in a reliable way. 2) Measurement method: The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation. 17. Revenue Recognition 1) Revenue from the sale of goods should be recognized when all the following conditions have been satisfied: a. the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; b. the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; c. it is probably that economic benefits associated with the transaction will flow to the enterprise; and d. the relevant amount of revenue and costs can be measured reliably. 2) Rendering of services When the provision of services is started and completed within the same accounting year, revenue should be recognized at the time of completion of the services. When the provision of service is started and completed in different accounting years and the outcome of a transaction involving the rendering of services can be estimated reliably, and enterprise should recognize the service revenue at the balance sheet date using the percentage of completion method. 3) Revenue arising from the use by others of enterprise assets should meet the following requirements: a. it is probable that the economic benefits associated with the transaction will flow to the enterprise; b. When the amount of the revenue can be measured reliably, interest should be measured based on the length of time for which the enterprise’s cash is used by others and the applicable interest rate; royalties fees should be measured according to the period and method of charging as specified in relevant contract and agreement. 18. Government grant Government grants refers to monetary or non-monetary assets received by an enterprise from the government, but excludes capital invested in the Group by the government that gives the government ownership rights. Government grants are recognized where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Monetary grants are measured on the basis of the amount received or the amount receivable. Non-monetary grants are being measured based on the fair value of relevant assets. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual installments. Government grants relating to income are handled accordingly as follows: (i) Those to be used as compensation for future expenses or losses are recognized as deferred income and are be recorded in the profit and loss account for the period where the relevant expenses are recognized; or (ii) Those to be used as compensation for relevant expenses or losses already incurred are recorded directly in the profit and loss account for the current period. 19. Income tax The measurement of income tax adopts the balance sheet liability method. The tax base is determined when the assets and liabilities are initially recognized. A deferred tax asset or liability is recognized for the temporary difference arisen between the carrying amount and its tax base. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. When the applied tax rate is changes, the recognized deferred tax asset or liability should be re-measured. The influence of the tax rate change should be recorded as income tax expense, except for the deferred tax asset or liability arisen from the transactions or events which are directly recognized in equity. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Conversely, previously unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. 20. Accounting methods of employees’ benefits Employee benefits refer to all kinds of remunerations and other relevant reimbursements made by enterprises to their employees in exchange for services of employees. It includes wages and salaries, bonuses, allowances and subsidies, welfare expenses, Medical insurance, endowment insurance, unemployment insurance and other social insurances, housing benefits, Labor union expenditure and employee education expenses, non-monetary benefits, termination benefits, and other pension benefits directly relevant to services provided. 1) Share based payment Some employees have been granted by share base payment, which is measured by the fair value of the share. For these awarded that can be exercised immediately, it needs to be recognized as relevant costs or expenses according to equity instruments and increase share premium accordingly. For these only can be exercised when service fulfilled in the waiting period or met the defined performance condition, on each balance sheet date in the waiting period, based on the best estimate to quantity of equity instrument and the fair value on the date equity instruments awarded, the service obtained in the current period is recognized as relevant costs or expenses and share premium. The recognized relevant costs or expenses and owner’s equity will not be adjusted any longer after the date of exercise. 2) Termination Benefits Our company will terminate the employment of an employee or group of employees before the normal retirement date; or provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. The enterprise will be demonstrably committed to a termination when, and only when, it has a detailed formal plan for the termination and is without realistic possibility of withdrawal. The provision incurred from compensation for the termination of labor relationship will be recognized to income statement of the current period. The treatment for the early retirement planning is on the same basis to that of the termination benefits. The salaries and the social insurance expenses for the period from the employee’s termination of service and the normal retirement of these staffs are recognized as employee benefits payable when meeting the above said retirement benefits recognition requirements, and recognized to income statement of the current period. 3) Other employee benefits During the accounting periods that our company is providing service, the benefits payable to employees are recognized as liabilities. Except termination benefits, according costs of products, costs of services and costs of assets will be recognized based on benefited objects where employee provide services. 21. Business combination (1) Business combination under common control As for business combination under common control, pooling of interest method is adopted. Except the adjustments for different accounting policies, the assets and liabilities obtained by the acquirer shall be measured on the basis of the carrying amount in the acquiree's accounts as at the date of combination. Where there is a difference between the carrying amount of the net assets acquired by the acquirer and the carrying amount of the consideration paid by it (or the total par value of the shares issued), capital surplus shall be adjusted. If the capital surplus is not sufficient to offset the value of the net assets acquired, retained earnings shall be adjusted. Any costs directly attributable to the combination are recognised as expenses when incurred. (2) Business combination involving entities not under common control As for business combination involving entities not under common control, combination by purchase method is adopted. The cost of combination is the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer, in exchange for control of the acquiree. The acquirer shall measure the acquiree’s identifiable assets, liabilities and contingent liabilities acquired in the business combination at their fair values on the acquisition date. Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill and the value shall be recognized as the cost of a business combination after deducting accumulated impairment provision. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be accounted as expenses after review. Any costs directly attributable to the combination are recognized as expenses when incurred. 22. Consolidation of financial statements The consolidation of consolidated financial statements is based on the financial statements of the Parent Company and its subsidiaries. Based on other relevant information, it is prepared by the Parent Company after adjustment to long-term equity investment to its subsidiaries according to equity method. 1) Scope of consolidation of consolidated financial statements The scope of consolidation of consolidated financial statements is determined based on control. A. The parent company directly, or indirectly, owns over more than one half of the voting rights, indicating the parent company can control the invested companies and recognize the invested companies as subsidiaries and to consolidate the invested companies into the scope of consolidation; but it excludes where the control not be evidenced by the parent company. B. The Parent Company owns over more than one half of the voting rights, and if one of the following conditions is met, it regarded that Parent Company can control the invested companies; the invested companies will be recognized as subsidiaries and to be consolidated into the scope of consolidation. But it excludes where the control not be evidenced by the parent company: a. over more than one half of the voting rights by virtue of an agreement with other investors; or b. to govern the financial and operating policies of the other enterprise under a statute or an agreement; or c. to appoint or remove the majority of the members of the board of directors; or d. to cast the majority of votes at a meeting of the board of directors. All the subsidies have been consolidated into the scope of consolidation for this period ended. 2) Method of Accounting for the consolidation of financial statements. The consolidation of financial statements are in accordance with the requirement of ‘Accounting Standards for Business Enterprises No. 31 – Financial statements consolidation’ and application guidance published by Ministry of Finance. All significant inter-company transactions and balances within the Group are eliminated on consolidation. 23. Significant accounting policies, changes to accounting estimates and Accounting Error Rectification 1) Significant changes to accounting policies Since Jan 1st 2007, Our Company enforces the Enterprise Accounting Principles promulgated by Ministry of Finance on Feb 15th 2006. According to new accounting standards and relevant regulations on ’the circularization regarding execution of information disclosure that relevant to new accounting standards’ (China Securities Regulatory Commission (2006) No. 136 ) and ‘Q&A to Information disclosure regulation for publicly issuing company, No7- preparation and disclosure of comparable accounting information in transitional period for new and previous accounting principles ’ promulgated by China Securities Regulatory Commission, our Company has made changes to accounting policies as follows and retrospective adjustment against the financial statements to the comparison period. Among there, A. Our Company adopts the Balance Sheet Liability Approach of Accounting for Income Taxes since Jan 1st 2007. Our Company has reviewed the book value of assets and liabilities on Jan 1st 2007; as for the difference between book value of assets, liabilities and their tax base, the deferred income tax assets and deferred income tax liabilities have been calculated according to applicable tax rate in the reversal accounting period. And the retrospective adjustment has been made where owner’s equity is increased by RMB 198,128,041.36 on Jan 1st 2007. B. Based on the regulation of ‘Enterprises Accounting Principles No. 9- Employee Benefits’《, for these meet the condition to recognize as provision, the provision incurred from compensation for dispelling labor relationship with employees is RMB 111,489,129.48. This is recognized as employees’ benefits payable and accordingly, owner’s equity is decreased by RMB 111,489,129.48 on Jan 1st 2007. (1) As for the changes to accounting policies notes above, the retrospective adjustment method has been adopted to adjust the beginning balance and comparison balance last year, and the financial statement for the comparable fiscal year has been restated. The impacts to consolidation of financial statements on Jan 1st 2006 and Dec 31st, 2006 and the equity of parent company are listed as follows: 1. The impact on consolidated equity on Jan 1st 2006. Item Surplus reserve Undistributed profit Total Original Accounting Principle Amount 586,516,638.33 2,186,014,775.74 2,772,531,414.07 Accounting adjustments： 1. Comply with the conditions of the projected liabilities confirmed the dismissal compensation obligations -30,806,253.76 -277,256,283.86 -308,062,537.62 2. Income tax 27,744,757.60 250,633,938.76 278,378,696.36 Total Adjustment -3,061,496.16 -26,622,345.10 -29,683,841.26 Enterprise Accounting Principle Amount 583,455,142.17 2,159,392,430.64 2,742,847,572.81 2. The influence to the consolidated equity on December 31 2006. Item Surplus reserve Undistributed profit Total Original Accounting Principle Amount 752,139,643.39 3,444,551,056.30 4,196,690,699.69 Accounting adjustments： 1. Comply with the conditions of the projected liabilities confirmed the dismissal compensation obligations -30,806,253.76 -277,256,283.85 -308,062,537.61 2. Income tax 25,069,284.20 227,904,247.04 252,973,531.24 3、Equity investment from equity method to cost method. -1,573,713.00 1,573,713.00 Total Adjustment -7,310,682.56 -47,778,323.81 -55,089,006.37 Enterprise Accounting Principle Amount 744,828,960.83 3,396,772,732.49 4,141,601,693.32 3. The influence to the parent company’s equity on January 1, 2006 Item Surplus reserve Undistributed profit Total Original Accounting Principle Amount 586,516,638.33 2,186,014,775.74 2,772,531,414.07 Accounting adjustments： 1、Comply with the conditions of the projected liabilities confirmed the dismissal compensation obligations -30,806,253.76 -277,256,283.86 -308,062,537.62 2、Income tax 27,744,757.60 249,702,818.34 277,447,575.94 Total Adjustment -3,061,496.16 -27,553,465.52 -30,614,961.68 Enterprise Accounting Principle Amount 583,455,142.17 2,158,461,310.22 2,741,916,452.39 4. The influence to the parent company’s equity on December 31, 2006. Item Surplus reserve Undistributed profit Total Original Accounting Principle Amount 752,139,643.39 3,449,421,821.28 4,201,561,464.67 Accounting adjustments： 1、Comply with the conditions of the projected liabilities confirmed the dismissal compensation obligations -30,806,253.76 -277,256,283.85 -308,062,537.61 2、Income tax 25,069,284.20 225,623,557.76 250,692,841.96 3、Equity investment from equity method to cost method. -1,573,713.00 -14,163,417.02 -15,737,130.02 Total Adjustment -7,310,682.56 -65,796,143.11 -73,106,825.67 Enterprise Accounting Principle Amount 744,828,960.83 3,383,625,678.17 4,128,454,639.00 (2) The company reviewed the financial statements for the first time being implementation of assets, liability and shareholders’ equity. The reviewed results and the adjustments for the opening balance shareholder equity as the following: The Difference on Shareholder Equity for Original and New Accounting Principle 2007 annual 2006 original No Item report annual report Difference Notes disclosure disclosure Shareholder equality on December 31 2006 （old accounting principle） 16,037,701,834.45 16,037,701,834.45 The dismissal compensation complied with the 1 conditions of the projected liabilities -308,062,537.61 -308,062,537.61 1 2 Income taxes 252,973,531.24 168,881,786.71 84,091,744.53 2 Shareholder equity on 1 January 2007（New Accounting Standard） 15,982,612,828.08 16,206,583,621.16 -223,970,793.08 Note 1 : According to the rule of No. 9 Employment Salary and Benefits under Accounting Standards for Business Enterprises, the company has developed formal dissolution of the labor relations scheme: the employees did not reach retirement age and but the labor relationship was breached in the early stage ,the liability shall be undertaken by the company; and employees was reached to the official retirement age, the Company will be also required to pay the official retirement age wages and benefits and insurance. The company accrued the amount in accrued payroll at the amount of RMB 308,062,537.61 to reduce the opening retained earnings; the amount is calculated at net present value in accordance with the same period interest rates for bank loans. Note 2: The company recalculated the salary for retire workers according to the new accounting standards after revision, the amount affects the opening deferred tax assets and opening balance of retained earnings is RMB 82,466,961.85. The company pursuant to the opinion of experts for the implementation of Enterprise Accounting Standards, the unrealized gains or losses for the consolidated financial statements in the temporary differences recognized as deferred income tax assets, the increase adjustment to the opening balance of retained earnings is RMB 1,624,782.68. (3) Accounting policy change in adopt to prospective treatment According to the relevant provisions of Accounting Standard for Business Enterprises, the Company will adopt the prospective treatment for the major changes on the following major changes in accounting policies if the Company is on the implementation of the Enterprise Accounting Standard for the first time. A. Borrowing Costs Before the implementation of Accounting Standard for Business Enterprises, the capital of the company borrowing costs limited to the scope of the acquisition or construction of fixed assets in the specific borrowing costs, and other borrowing costs are charged to profit or loss in the event of the period. After the implementation of Accounting Standard for Business Enterprises, the borrowing costs on the accounting policy adopted as Note 14. B. Employment benefits Before the implementation of Accounting Standard for Business Enterprises, the company made the provision of welfare as 14% of the total salary, and recorded in the current profit and loss. Implementation of enterprise accounting standards, the company recognizes the welfare according to the actual situation of the company and employee benefits plans, and recorded in the current profit and loss. In the first accounting period after the implementation of Accounting Standard for Business Enterprises, the difference between the welfare recognized under Accounting Standard for Business Enterprises and previous accrued welfare charged to current profit and loss. C. Government Grants As to the government grants related to assets ( not including the government capital inputs), was confirmed in the capital reserve, before January 1 2007, where the conditions attached to grants was met. NOW the grants are recognized in deferred income and the grants will be recorded evenly in the profit and loss along with the useful life of the assets. The company didn’t make the retroactive adjustments to the government grants due to the change of accounting policy for the reason is that the government grant is small. As to the above change in accounting policy, the impact on the financial statements of 2007 as the following: Content of the change in accounting policy Total profit Net profit （1）Impact on Welfare payable due to changes in accounting 63,602,977.38 42,613,994.84 method （2 ）Impact on follow-up expenditures in fixed assets (such as repair -60,591,846.75 -40,596,537.32 costs, etc.) to enterprises （3）Profit and loss for debt restructure 49,853,832.64 33,402,067.87 Total 52,864,963.27 35,419,525.39 2） Changes in accounting estimates The “PRC enterprise income tax law "(hereinafter: the new tax law) will take effect on January 1 2008. Under the new tax law, since January 1, 2008, the Company will apply the 25% income tax rate instead of 33%.The temporary differences on the balance sheet date will be reversed after January 1 2008; the company will re-measure the original recognized deferred income tax assets and deferred income tax liabilities applying the applicable tax rates in accordance with the new tax law. The tax rate change on deferred income tax as the impact of changes in accounting estimates which is to be adjusted in the current year. Adjustment included in the current year income tax expense. 3) Major error correction on previous period No major accounting error correction in the current period. 4) The cumulative effect on the opening balance of retained earnings for the change in accounting policy, pre-major error correction: Item 2007 2006 Opening balance of undistributed retained 3,444,551,056.30 2,186,014,775.74 earning Impact on restorative adjustments -47,778,323.81 -26,622,345.10 Opening balance of undistributed retained 3,396,772,732.49 2,159,392,430.64 earning after adjustments V. Taxes 1. Value added tax The taxes should be paid by taxable sales at 17% to allow the deduction of input tax. Export tax rebate rate: According to the Ministry of Finance, Development and Reform Commission, Ministry of Commerce, General Administration of Customs, State Administration of Taxation, "on the reorientation of some of the goods and the export tax rebate rate and the addition of the processing trade of goods prohibited directory notice" ([2006] 139 and taxation) there are 142 tariff heading from the steel export tax rebate rate from 11% to 8% from September 15, 2006. According to the Ministry of Finance, State Administration of Taxation, "Finance Ministry State Administration of Taxation on adjustment of the export tax rebate rate for steel notice" ([2007] 64 and taxation) import and export taxes (2007 version), Chapter 72 of some of the special steel and stainless steel plate, cold-rolled products, such as duty paragraphs 76, the export tax rebate rate fell to 5%; another 83 steel tariff heading the elimination of export tax rebates from April 15, 2007 onwards. 2. City maintenance and construction taxes: The tax should be paid at 7% VAT actually paid. 3. Enterprise income tax: The tax should be paid at 33% of taxable profit. According to the “Interim Procedures for enterprise income tax credits on technological transformation of domestic equipment investment” (taxation, 290 [1999]), the company enjoys income tax credit at the amount of RMB160.9891 million in 2007. According to the "Ministry of Finance, the State Administration of Taxation on the promotion of enterprise technology development of the financial tax issues notice" ( finance - "1996" 41), and "the State Administration of Taxation on doing a good job has been abolished and the decentralization of the management of the enterprise income tax approval follow-up management of the notice” ( State taxation" 2004 "82), and other documents, 50%technology development fee plus should be deductible from taxable income for the year. The company enjoys the enterprise technology development costs plus the amount deducted for the amount of RMB 34,923.95 in 2007. The company will adopt the enterprise income tax rate at 25% start from January 1 2008. 4. The tax should be paid at 1.2% of the building’s original costs after deduction of 30% of that. 5. Other taxes: To be paid according to the tax laws. VI. Combination and Consolidated financial statements 1. The company’s subsidiaries at the date of December 31 2007 1) The subsidiaries acquired by the common control company Unit：RMB10 thousand Registered Registered Voting Company Business scope InvestmentsShares(%) place capital rights(%) Metal, steel, pig iron, mechanical and 厦门本钢 electrical products, Wujinjiaodian, 钢铁销售 Xiamen 50 109.57 100 100 有限公司 electronic products wholesale and retail. Metal materials, chemical raw materials and products (excluding Dangerous 无锡本钢 Goods), general machinery and 钢铁销售 Wuxi 100 94.80 100 100 有限公司 accessories, electrical machinery and equipment, sales of metals Steel, pig iron, chemical raw materials and 天津本钢 products (Dangerous chemicals, the drug 钢铁贸易 Tianjin 300 can easily be made except), construction 3,330.68 100 100 有限公司 materials, minerals sales Building materials, chemical products (excluding Dangerous Goods), 南京本钢 Wujinjiaodian (excluding moped), the 物资有限 Nanjing 115 208.14 100 100 公司 electronic products, hot rolled plate volumes of cold-rolled plates, pig iron sales, metal material processing Wholesale, retail, construction materials, 烟台本钢 refractories, steel, chemical products 钢铁销售 Yantai 50 1,960.03 100 100 有限公司 (excluding Dangerous Goods) Metal materials, construction materials, 哈尔滨本钢 Wujinjiaodian (excluding wireless 钢铁销售有 Haerbin 50 microphone equipment), mechanical and 42.34 100 100 限公司 electrical products, home appliances Distribution of steel, cast iron, electrical 长春本钢钢 machinery and equipment, general 铁销售有限 Changchun 50 -135.51 100 100 公司 machinery, building materials The above subsidiary companies are the company purchases the range of principle work asset of the company by direction issue the stock additionally to Bengang Group in 2006. 2. The changes of the consolidation scope in the report period There is no change of the consolidation scope in the report period. VII. The important explanation of consolidation report As the following disclosed financial reporting data: Beside the additional indication, the “beginning balance” means 31. Dec, 2006, “Ending balance” means 31.Dec, 2007, “This period” means from 1.Jan, 2007 to 31.Dec, and 2007. The following amount units are all RMB, beside the additional indication. 1. Cash and cash equivalents Item Ending balance Beginning balance Cash on hand 23,946.00 83,309.29 Cash in bank 1,916,540,585.10 1,789,730,320.90 Other monetary funds 326,302,353.87 394,387,062.75 Total 2,242,866,884.97 2,184,200,692.94 The other monetary funds are mainly about credit letter of credit、note deposit and fixed deposit. Up to the 31.Dec, 2007, the foreign account balance is presented as follows Currency Original amount Exchange rate RMB amount USD 80,084.22 7.3046 584,983.20 HKD 473,029.18 0.9364 442,944.52 EUR 70,561.66 10.6669 752,674.17 2. Notes receivable Item Ending balance Beginning balance Bank acceptance draft 834,324,393.98 504,831,161.54 Total 834,324,393.98 504,831,161.54 The following is the notes receivable breakdown which were morgaged Drawer Date of draft Maturity Amount Remark 深圳南方中集东部物流装备制造有 2007-11-20 2008-2-20 35,355,000.00 mortgage 限公司 青岛太平货柜有限公司 2007-11-20 2008-2-20 5,303,000.00 mortgage 武汉市武钢北湖 2007-11-15 2008-5-15 5,000,000.00 mortgage 奇瑞汽车有限责任公司 2007-11-12 2008-5-12 5,000,000.00 mortgage 安徽安凯 2007-11-14 2008-5-14 4,000,000.00 mortgage Total 54,658,000.00 The notes receivable which the our company possess are all the bank acceptance within 6 months.As at December31,2007,there is no debtor from over 5%(including) of stockholder’s rights’ shareholder. Up to 31 Dec, 2007, the notes amount which we have discounted to others is 601,824,091.99 yuan. The maturity is from Jan to Jun 2008. This year there were no note receivable transfered into account receivable due to the incapable to fulfill an agreement by drawer. 3、Accounts receivable 1）Up to 31.Dec,2007 , the breakdown of account receivable is as follows, which is classified by materially extent: Provision for bad debt Item Amount Prop provision Individual and significant 568,525,099.75 49.23 10,993,106.42 The single amount is not significant , but the 293,124,817.77 25.39 293,124,817.77 credit risk is Other insignificant account 293,014,224.30 25.38 33,215,275.11 Total 1,154,664,141.82 100.00 337,333,199.30 Up to 31.Dec,2006 , the breakdown of account receivable is as follows, which is classified by materially extent: Provision for bad debt Item Amount Prop provision Individual and significant 1,171,652,956.90 69.88 93,433,877.91 The single amount is not significant , but the 104,591,211.17 6.24 94,534,234.34 credit risk is Other insignificant account 400,355,459.76 23.88 117,876,442.20 Total 1,676,599,627.83 100.00 305,844,554.45 2）Analysis of aging Ending balance Beginning balance Aging Provision for Provision for Amount Prop bad debt Amount Prop bad debt less 1 year 651,245,195.32 56.40 1,201,969,878.69 71.69 1-2years 116,254,627.79 10.07 5,812,731.40 110,547,112.03 6.60 5,527,355.60 2-3years 69,554,813.51 6.02 13,910,962.70 79,706,797.83 4.75 15,941,359.57 Over 3years 317,609,505.20 27.51 317,609,505.20 284,375,839.28 16.96 284,375,839.28 Total 1,154,664,141.82 100.00 337,333,199.30 1,676,599,627.83 100.00 305,844,554.45 3）The account receivable balance have not the company which hold the right to vote stock of us in 5% or above. 4）The total of the first five account receivable amount is 440,079,088.38, occupied the 38.11% of the account receivable amount. 5）For the notes of related party ,please refer to Notes IX.3 4、Advance to supplier 1）Analysis of aging Ending balance Beginning balance Aging Amount Prop Amount Prop less 1 year 3,370,355,474.23 98.00 1,354,125,825.29 78.87 1-2years 68,927,233.30 2.00 362,879,990.49 21.13 2-3years Over 3years Total 3,439,282,707.53 100.00 1,717,005,815.78 100.00 2）Up to 31.Dec, 2007 , The advance to supplier balance have not the company which hold the right to vote stock of us in 5% or above. 3）Up to 31.Dec,2007 , the total of the first account receivable amount is 1,512,423,380.99, which occupied the 43.97% of advance to supplier. 4）The ending balance increased 100.31 % compared with beginning balance , which was due to the new advance Project funds. 5）For the notes of related party ,please refer to Notes IX.3 5、Other receivable 1）Up to 31.Dec,2007 , the breakdown of other receivable is as follows, which is classified by materially extent: Item Amount Prop Provision for bad debt Individual and significant 40,177,396.76 25.80 3,610,314.64 The single amount is not significant , but the 36,727,164.97 23.58 34,987,164.97 credit risk is Other insignificant account 78,848,658.80 50.62 6,201,682.94 Total 155,753,220.53 100.00 44,799,162.55 Up to 31.Dec,2006 , the breakdown of other receivable is as follows, which is classified by materially extent: Item Amount Prop Provision for bad debt Individual and significant 59,522,013.05 32.63 5,607,144.15 The single amount is not significant , but the 25,848,649.29 14.17 25,848,649.29 credit risk is Other insignificant account 97,057,618.67 53.20 8,280,061.99 Total 182,428,281.01 100.00 39,735,855.43 2）Analysis of aging Ending balance Beginning balance Aging Provision for Provision for Amount Prop bad debt Amount Prop bad debt less 1 year 59,697,680.24 38.33 16,520,643.03 9.06 1-2years 32,072,253.37 20.59 1,603,612.66 80,554,163.08 44.16 4,027,708.15 2-3years 23,809,671.29 15.29 4,761,934.26 59,512,547.02 32.62 11,902,509.40 Over 3years 40,173,615.63 25.79 38,433,615.63 25,840,927.88 14.16 23,805,637.88 Total 155,753,220.53 100.00 44,799,162.55 182,428,281.01 100.00 39,735,855.43 3）Up to 31.Dec, 2007 , The other receivable balance have not the company which hold the right to vote stock of us in 5% or above. 4）The total of the first other receivable amount is 44,518,257.18, which occupied the 28.58% of advance to supplier. 5）Up to 31.Dec, 2007 , the company accrued the bad debt provision of the following receivable right according to the individual identificaion method: We have received the caution money for loan from XISHI Financial bureau paid by Japanese government , and haven`t accrued the bad debts provision. 6）We have writed off 69,464.19 of the other receivable in this period. 7）For the notes of related party ,please refer to Notes IX.3 6、Inventories 1）The classification of the inventories Item Beginning balance Current additions Current disposals Ending balance Raw material and primary materials 2,347,788,860.47 45,493,120,224.60 44,816,070,276.62 3,024,838,808.45 Semi-finished product 461,158,364.18 37,278,135,249.26 37,301,450,786.31 437,842,827.13 The part for repair 1,149,815,624.26 51,221,212,754.24 51,094,783,021.09 1,276,245,357.41 Impairment -157,272,986.08 -59,536,802.94 -82,926,295.69 -133,883,493.33 Total 3,801,489,862.08 133,932,931,425.16 133,129,377,788.33 4,605,043,499.66 2）Impairment Accrued in Decrease in this period Sort Beg balance End balance this period reversal write-off Semi-finished product 70,083,773.45 29,091,848.83 40,991,924.62 The fittings for repair 17,739,412.05 729,363.42 18,468,775.47 finished goods 69,449,800.58 58,807,439.52 53,834,446.86 74,422,793.24 Total 157,272,986.08 59,536,802.94 82,926,295.69 133,883,493.33 We accrued the impairment of inventory by comparing the book value and net realisable value of the individual asset. The impairment increased by 59,536,802.94 in this period, which was mainly about the impairment of the Cold rolling finished product. The impairment was reversed in this period was 82,926,295.69, which was mainly due to disposal the Special steel. 7、Fixed assets and Accumulated depreciation. 1）Fixed assets and Accumulated depreciation. Current Current Item Beginning balance Ending balance additions disposals Fixed asset cost 23,852,160,986.65 1,224,963,024.67 114,114,713.37 24,963,009,297.95 there into：building 5,166,841,872.85 107,493,935.47 26,348,986.55 5,247,986,821.77 machinery 18,140,435,108.67 1,077,574,752.25 87,080,185.82 19,130,929,675.10 Transportation equipment 544,489,940.77 39,860,350.95 685,541.00 583,664,750.72 Others 394,064.36 33,986.00 428,050.36 8,049,073,672.35 3,265,108,081.90 60,013,934.85 11,254,167,819.40 Accumulated depreciation there into：building 833,112,566.15 361,851,740.46 3,872,224.28 1,191,092,082.33 machinery 7,072,744,691.37 2,854,056,565.32 55,504,176.96 9,871,297,079.73 Transportation equipment 143,093,493.35 49,131,214.67 637,533.61 191,587,174.41 Others 122,921.48 68,561.45 191,482.93 Impairment 17,271,915.19 17,271,915.19 - there into：building machinery 17,271,915.19 17,271,915.19 - Transportation equipment Others Book value of fixed asset 15,785,815,399.11 13,708,841,478.55 there into：building 4,333,729,306.70 4,056,894,739.43 machinery 11,050,418,502.11 9,259,632,595.37 Transportation equipment 401,396,447.42 392,077,576.31 Others 271,142.88 236,567.43 2）The CIP transferred into Fixed asset in this period was 1,159,126,128.48 3）The newly increased building which was after Jun.2005 was transacting the property right certification. The cost of it was 2,162,035,516.32, and the net value of it was 1,930,980,493.31 4）We have no mortgages and assurance at the end of period. There are no fixed assets acquired under finance leases in the fixed asset at the end of period. 5）The impairment of fixed asset at the beginning of the period was 17,271,915.19, which was mainly about the Four stove institutes. In this period, the Four stove institutes have been back-outed , so the impairment of which has to be write-off. 8. Construction in progress Item 2007 2006 At 1 January 1,404,708,197.29 388,674,086.48 Additions 3,154,135,035.07 3,152,801,164.11 Transfer to property, plant and equipment -1,159,126,128.48 -2,136,767,053.30 At 31 December 3,399,717,103.88 1,404,708,197.29 a) Capitalized interest expense Decrease in this period Beginning Increase in Ending Item Transfer to FA this Other balance this period balance period decrease 4#5#6#转炉 9,077,100.00 9,077,100.00 落后焦炉改造(8#9#焦炉) 1,346,000.00 1,346,000.00 板坯连铸机改造 16,081,000.00 16,081,000.00 Total 26,504,100.00 26,504,100.00 9. Deferred tax assets 1）List the Recognized deferred income tax assets are as follows: Beginning Increase in Reverse in this Adjustment of Item Ending balance balance this period period tax rate Deferred income tax assets total of 252,973,531.24 19,220,974.71 -40,667,934.59 -33,588,610.89 197,937,960.47 （1）Allowance for bad debts 111,281,969.29 11,891,996.84 -27,640,875.66 95,533,090.47 （2）Provision of inventory 51,900,085.41 -12,481,476.85 -5,947,735.23 33,470,873.33 （ 3 ） Impairment for Fixed assets 5,699,732.01 -5,699,732.01 0.00 （ 4 ） Welfare for retired employee 82,466,961.85 -22,486,725.73 59,980,236.12 （ 5)Unrealized profit in inter-company sales 1,624,782.68 7,328,977.87 8,953,760.55 Note: The effect of deferred income tax assets came from the change of income tax rate, please see the note 5. （2）As at 31 December 2007,the breakdown of temporary difference, Deducted profit loss and deferred income tax is listed as follows: Difference of approved Item Dedected difference taxable Temporary difference based on by book value and tax base Receivables 382,132,361.85 Inventories 133,883,493.33 employee pay payables 239,920,944.46 Other liabilities 35,815,042.19 Total 791,751,841.83 Including: temporary difference deducted upon enough approved taxable income in the future Tax rate*1 25% 25% Acerned deferred income tax assets or liabilities 197,937,960.47 Total 197,937,960.47 The company and its subsidiaries reverse temporary difference back after the balance sheet date according to the income tax rate of 25%. 10. Impairment for assets Beginning Accrued Decrease in this period Ending Item amount this balance Reverse Offset balance period 1. Allowance for bad debts 345,580,409.88 36,621,416.16 69,464.19 382,132,361.85 2. Provision for obsolete inventory 157,272,986.08 59,536,802.94 82,926,295.69 133,883,493.33 3.Impairment for fixed assets 17,271,915.19 17,271,915.19 Total 520,125,311.15 96,158,219.10 82,926,295.69 17,341,379.38 516,015,855.18 11. Short-term loan Item Ending balance Beginning balance Credit loan 1,931,175,960.00 1,514,261,000.00 Guarantee loan 707,510,000.00 365,000,000.00 Total 2,638,685,960.00 1,879,261,000.00 The voucher of guarantee loan is all Benxi Iron and Steel Group Company. 12. Notes payable Item Ending balance Beginning Bank acceptance notes 352,200,000.00 200,000,000.00 Total 352,200,000.00 200,000,000.00 The ending balance has sharply increased compared with the beginning balance, which t is because the company paid goods payable using bank acceptance. 13. Accounts payable Ending balance Beginning balance Aging Amount Rate Amount Rate Within I year 3,246,102,725.43 92.14 3,026,159,508.24 86.05 1-2 years 173,135,726.96 4.91 391,686,632.03 11.14 2-3 years 45,561,573.26 1.29 56,578,929.67 1.61 Over 3 years 58,527,821.87 1.66 42,397,213.85 1.20 Total 3,523,327,847.52 100.00 3,516,822,283.79 100.00 2）No account payable related to Benxi Iron and Steel Group Company holding more than 5%(including 5%) of voting shares. The related party transactions please see the note 9. 3）The ending balance has decreased compared with the beginning balance, which results resulted from the payment for goods. 4）The total ending balance of top 5 account payable is RMB 958,467,514.22,which accounts for 27.2% of the total ending balance. 14. Advance from customers 1）Analysis for account’s age Ending balance Beginning balance Aging Amount Rate Amount Rate Within I year 2,511,361,438.78 99.36 1,602,129,059.35 81.08 1-2 years 4,079,579.55 0.16 354,512,252.29 17.94 2-3 years 9,778,729.30 0.39 5,161,025.07 0.26 Over 3 years 2,291,466.80 0.09 14,151,920.13 0.72 Total 2,527,511,214.43 100.00 1,975,954,256.84 100.00 2）No Advance from suppliers related to Benxi Iron and Steel Group Company holding more than 5%(including 5%) of voting shares. The related party transactions please see the note 9. 3）The ending balance above 1 year is reminding fund and deposit 4）The total ending balance of top 5 advance from suppliers is RMB 257,506,069.05, which accounts for 10.19% of the total ending balance. 15. Accrued Payroll Breakdown of Employee remuneration payable Accrual this Payment this Item Beginning period period Ending balace 1. Salary, bonus, allowance and subsidy 28,241,107.04 899,380,846.34 873,274,051.62 54,347,901.76 2. Employee welfare 63,602,977.38 139,148,612.21 202,751,589.59 3. Social Insurance 264,280.37 284,410,626.91 284,039,484.02 635,423.26 Including:1>Medical insurance premiums -84,600.35 63,072,841.05 62,954,851.53 33,389.17 2>Endowment insurance -257,290.63 187,878,059.72 187,668,378.40 -47,609.31 3>Annuity 4>Unemployment insurance expense -27,328.61 19,871,136.98 19,807,414.67 36,393.70 5>Compensation of employee 633,499.96 13,588,589.16 13,608,839.42 613,249.70 6>Maternity insurance 7>Comprehensive arrangement for serious disease 4. Housing accumulation funds -23,699.00 82,785,074.00 82,785,074.00 -23,699.00 5.Labor union fee and training 36,559,071.97 34,177,860.83 37,359,103.33 33,377,829.47 for employee fee 6. Non-monetary welfare 7. Compensation of relieving the work relations 308,062,537.61 68,141,593.15 239,920,944.46 8. Others Total 436,706,275.37 1,439,903,020.29 1,548,350,895.71 328,258,399.95 16、Current tax liabilities Items Ending balance Opening balance Value added tax 106,444,784.53 -55,157,044.54 Deductible fixed assets VAT -143,125,270.46 -51,398,872.98 Income tax -105,041,576.86 -22,354,331.30 House Property taxe 846,954.33 -1,886,077.99 City construction tax 10,661,982.74 13,447,294.61 Business tax 33,310.54 117,753.99 Education fee surplus 4,728,172.06 6,456,104.39 Education fee surplus of local government 1,550,835.97 1,354,910.76 Stamp duty 772,200.71 Others 47,197.66 46,117.72 Total -123,081,408.79 -109,374,145.34 The ending balance of tax payable increased a lot compared with the opening blance was due to the increase of revenue which leads to VAT increased a lot. 17、Other payables 1）Aging analysis Ending balance Beginning balance Aging Amount Ratio Amount Ratio Within one year 245,862,044.17 81.54 243,206,088.59 70.53 1-2 years 27,872,460.78 9.24 52,702,626.62 15.29 2-3 years 7,326,903.00 2.43 16,655,112.58 4.83 Over 3 years 20,460,912.16 6.79 32,222,874.56 9.35 Total 301,522,320.11 100.00 344,786,702.35 100.00 2）No liabilities due to a company that hold more than 5% (including 5%) of the Voting shares, ending balance between related parties refers to Notes Nine 3. 3）The ending balance of top five other account payable clients was RMB 130,773,927.44，as about 43.37% of the total ending balance。 4）The large unpaid liabilities over 1 year were mainly exchanges was not paid timely. 18、Non-current liabilities matrued within one year Borrowing category Ending balance Beginning balance Long-term borrowings 875,659,146.98 974,009,750.18 Total 875,659,146.98 974,009,750.18 19、Long-term loans Long-term borrowings listed by nature as follows: Borrowing categories Ending balance Beginning balance Credit borrowing 1,407,000,000.00 1,219,082,988.78 Guarantee borrowing 528,210,198.02 233,607,109.47 Total 1,935,210,198.02 1,452,690,098.25 20、Long-term payable Items Ending balance Beginning balance Benxi Iron and Steel Group Company 250,439,319.71 500,878,639.42 Total 250,439,319.71 500,878,639.42 Long-term account payable was the payment for the acquisition of main industry assets of Benxi Iron and Steel Group Company, and it will be paid in the future 3 years averagely. 21、Other current liabilities Items Beginning balance Addition Minus Ending balance High-grade non-oriented silicon steel 719,847.75 18,896.00 700,951.75 Iron Ore Resources Comprehensive Utilization 7,500,000.00 28,000.00 4,425,450.00 3,102,550.00 Funding of three technology items 2,000,000.00 2,000,000.00 Total 10,219,847.75 28,000.00 4,444,346.00 5,803,501.75 Funding of three technology items was used for thin slab, continuous casting and rolling with a short process three technologies, that according to the issue of Liaoning Province（Liaocaizhiqi 341 [2006]). 22、Paid in capital Unit：10 thousand RMB Movement Extension Rig Shares category Beginning balance hts increases Ending balance and Others Subtotal Iss delivers of ue stock Ⅰ、Shares with limited sales 2,575,226,800.00 -6,700.00 -6,700.00 2,575,220,100.00 condition 1、State-ownedshares 2 、 Shares holed by 2,575,200,000.00 2,575,200,000.00 State-owned Corporates 3、Shares holded by other domestic invested 26,800.00 -6,700.00 -6,700.00 20,100.00 Corporates Thereinto：Shares holded by domestic non-state-owned Corporates investing Shares holded by domestic 26,800.00 -6,700.00 -6,700.00 20,100.00 individuals 4、Shares holded by foreign investing Corporates Including：Shares holded by abroad Corporates Shares holded by foreigners II、Shares without sales 560,773,200.00 6,700.00 6,700.00 560,779,900.00 limitation 1、RMB Common stock 160,773,200.00 6,700.00 6,700.00 160,779,900.00 2、Foreign shares listed in 400,000,000.00 400,000,000.00 domestic stock market 3、Foreign shares listed in abroad stock market 4、Others Total shares: 3,136,000,000.00 3,136,000,000.00 On 14 March 2008, there were 56,800,000 shares holded by Benxi Iron and Steel Group Company came to unlimited shares for sell from limited conditions. 23、Capital Reserve Items Opening balance Addition Minus Ending balance 1、Additional paid-in capital 8,706,903,665.94 8,706,903,665.94 2、Other capital surplus 3、Other capital surplus transferred from prior accounting system -1,892,531.18 -1,892,531.18 Total: 8,705,011,134.76 8,705,011,134.76 For other capital surplus transferred from prior accounting system, there were 4,844,244.82 RMB debt restructuring gains and -6,736,776.00 RMB housing turnover fund coverage. 24、Surplus Reserve Items Beginning balance Addition Minus Ending balance Statutory Reserve 549,323,415.06 169,460,146.99 718,783,562.05 Surplus Reserve 195,505,545.77 195,505,545.77 Total 744,828,960.83 169,460,146.99 914,289,107.82 25、Undistributed profit Items Ending balance Beginning balance Retained earnings 3,396,772,732.49 2,159,392,430.64 Add：in the period 1,698,949,701.78 1,625,954,120.51 Other transferred in earnings Minus：Accrue legal earned reserve 169,460,146.99 161,373,818.66 Profits capitalized on return of investment Minus：Preferred stock dividends payable Accrue free earned reserve Common stock dividends payable 940,800,000.00 227,200,000.00 Common stock dividends transferred to capital Ending balance of retained earning 3,985,462,287.28 3,396,772,732.49 26、Operating income Items Year of 2007 Year of 2006 Prime operating revenue 28,010,165,557.34 24,691,457,924.79 Other operating revenue 3,341,430,937.50 2,020,391,351.58 Total 31,351,596,494.84 26,711,849,276.37 Prime operating revenue classified by products variety and business model: Year of 2007 Year of 2006 Items Operating revenue Cost of goods sold Operating revenue Cost of goods sold 1．Subtotal of 31,192,956,089.90 26,286,289,357.61 26,444,780,586.86 23,436,562,138.92 operating Year of 2007 Year of 2006 Items Operating revenue Cost of goods sold Operating revenue Cost of goods sold revenue and cost of goods sold Armor plate 30,633,863,928.31 25,869,664,189.76 22,734,663,351.12 20,017,448,764.00 Billet 81,221,731.78 63,209,156.68 1,093,305,617.33 1,015,423,171.64 Molten steel 2,228,519,167.32 2,071,835,887.67 Waste and defective 61,216,869.93 55,702,331.11 materials Others 477,870,429.81 353,416,011.17 327,075,581.16 276,151,984.50 2．Other operating 3,341,430,937.50 3,256,953,800.53 2,020,391,351.58 2,041,090,542.04 revenue and cost Ancillary 1,481,244,711.27 1,466,358,523.13 876,213,479.60 877,400,902.93 material Spare parts 568,940,839.08 564,122,134.07 467,357,570.12 467,357,570.12 Electricity 498,644,626.59 468,350,048.00 265,096,453.03 267,502,520.84 Coke oven 185,916,790.66 204,723,563.72 83,258,612.52 103,373,174.03 gas Freight 30,598,644.36 30,153,684.41 56,436,823.50 64,340,965.65 Fuel 83,854,813.46 83,150,182.81 51,662,531.49 51,662,531.49 Coke 36,598,870.00 37,062,465.19 28,692,396.10 28,979,657.57 Materials 219,124,614.87 162,885,555.31 15,746,851.34 15,513,196.60 Steam 48,097,568.41 52,171,351.67 12,182,631.50 43,385,021.49 Others 188,409,458.80 187,976,292.22 163,744,002.38 121,575,001.32 Subtotal: 34,534,387,027.40 29,543,343,158.14 28,465,171,938.44 25,477,652,680.96 Eliminated within 3,182,790,532.56 3,152,823,197.74 1,753,322,662.07 1,748,399,078.19 branches Total: 31,351,596,494.84 26,390,419,960.40 26,711,849,276.37 23,729,253,602.77 The molten steel was sold to a short process workshop of Benxi Iron and Steel Group in prior year, for current period there were no sales of molten steel was due to the acquisition of the controlling shareholder of the Company - Benxi Iron and Steel Group's main assets in June 2006. The prime operating revenue classified by areas: 2007 2006 Areas Operating revenue Cost of goods sold Operating revenue Cost of goods sold Northeast 12,671,372,481.03 10,947,316,266.90 8,865,142,525.40 8,077,048,552.54 North China 5,269,620,871.44 4,493,579,390.53 4,981,054,001.20 4,435,292,031.70 East China 11,057,009,488.22 9,460,979,149.55 8,964,462,098.37 7,974,753,886.54 Northwest 188,887,141.19 155,859,529.01 36,579,157.72 32,532,244.59 2007 2006 Areas Operating revenue Cost of goods sold Operating revenue Cost of goods sold Southwest 1,850,625.69 1,527,036.97 1,475,730.58 2,168,816.31 中南 1,232,352,153.22 1,089,912,167.50 1,655,673,920.64 1,477,075,794.34 Export 4,113,294,266.61 3,394,069,617.68 3,960,784,504.53 3,478,781,354.94 Subtotal: 34,534,387,027.40 29,543,243,158.14 28,465,171,938.44 25,477,652,680.96 Eliminated within 3,182,790,532.56 3,151,899,074.25 1,753,322,662.07 1,748,399,078.19 branches Total: 31,351,596,494.84 26,391,344,083.89 26,711,849,276.37 23,729,253,602.77 3）Total top five clients’ revenue as follows: Items 2007 2006 Top five clients’ revenue 11,307,068,413.70 9,202,497,062.59 The proportion accounted for prime operating revenue 36.07% 34.45% 27、Operating cost Items 2007 2006 Cost of goods sold 23,134,390,283.36 21,688,163,060.73 Other operating cost 3,256,953,800.53 2,041,090,542.04 Total 26,391,344,083.89 23,729,253,602.77 28、Sales tax Items 2007 2006 Operating tax 1,315,075.15 1,092,613.06 City construction tax 135,434,656.06 88,814,639.68 Education fee surplus 58,203,430.34 38,080,905.96 Education fee surplus of local 19,201,119.69 12,643,561.98 government 228,400.96 Floodwater prevention fee 408,371.51 Total 214,562,652.75 140,860,121.64 Prime operating tax and extras increased 52.32% compared with prior which year was due to the acquisition of controlling shareholder Company - Benxi Iron and Steel Group's main assets in June 2006,Corresponding expansed the production scale, increased business and taxes in current period. Pay standard of operating tax and surcharges refers to Notes five、Tax 29、Selling expenses The distribution expense was 556,170,341.63 RMB in year of 2007，increased about 275,033,850.02 RMB、as about 97.83% compared prior year，mainly due to the acquisition of controlling shareholder Company - Benxi Iron and Steel Group's main assets in June 2006,Corresponding expansed the self sales scale and relative distribution expenses. 30、General and administrative expenses The G&A expense was RMB 1,738,707,568.74 in year of 2007, increased about RMB 1,305,799,293.03、as of 301.63% compared with prior year，mainly due to the acquisition of controlling shareholder Company - Benxi Iron and Steel Group's main assets in June 2006,Corresponding expansed the production and sales scale, Have the integrity of the production, supply, and marketing system, and related expenses increased. 31、Financial expenses Items 2007 2006 （1）Net interest expense 330,877,224.33 123,847,055.34 Including：Interest expense 352,580,196.32 149,976,073.16 Interest income 21,702,971.99 26,129,017.82 （2）Exchange loss -24,036,207.64 -10,537,935.18 （3）Others 1,152,813.20 6,070,236.52 Including：Bank service charge 1,033,252.04 5,848,726.54 Total: 307,993,829.89 119,379,356.68 The interest expense increased a lot compared with prior year was due to the increase of borrowings. 32、Asset impairment losses Items 2007 2006 ⅰ、Allowance for accounts receivable 36,621,416.16 -30,196,752.96 ⅱ、Inventory provisions -6,674,266.27 -3,031,185.38 ⅲ、Fixed asset impairment losses -17,271,915.19 Total 12,675,234.70 -33,227,938.34 33、Non-operating revenue Items 2007 2006 Non-current assets disposal income 60,758.84 263,380.76 Debt restructuring profits 49,853,832.64 Government grants 4,816,987.03 Fine and the default 16,726.49 Genuinely unable to pay the amounts due 30,388,892.80 Others 2,726,098.50 342,895.54 Total 87,846,569.81 623,002.79 34、Non-operating expenses Items 2007 2006 Non-current assets disposal loss 52,296,386.50 9,193,112.43 Compensation 187,735.27 Breach of faith 185,146.80 Donation expenditures 101,241.38 Fine expenditures 403,857.53 1,028,974.22 Others 4,573.37 3,700.00 Total 53,077,699.47 10,327,028.03 35、Income tax Items 2007 2006 Income tax payable for the current year 410,926,381.02 375,385,996.56 Deferred income tax expense (income)of current year 55,035,570.78 30,495,223.99 Total 465,961,951.80 405,881,220.55 36、Earnings Per Share Earnings Per Share Calculation Calculation 2007 2006 Net profit attributable to parent company's A common shareholders 1,698,949,701.78 1,625,954,120.51 Outstanding parent company of the weighted B average number of common shares 3,136,000,000.00 3,136,000,000.00 Basic Earnings Per Share a/b 0.54 0.52 37、Subsection report As all the products sold out to each area were all produced by same equipment、assets and liabilities, so we did list area subsection analysis 38、Cash received relating to other operating activities Cash received relating to other operating activities was 89,771,156.46 RMB，there into： Items 2007 2006 Interest income 34,351,512.95 26,129,017.82 Other incomings and outgoings. 7,797,548.54 2,903,955.98 Freight 5,941,873.04 1,919,159.20 Others 41,680,221.93 3,753,338.53 Electricity 4,489,744.76 Financial allocation 2,000,000.00 Deposit 1,107,688.98 Total 89,771,156.46 42,302,905.27 39、Cash paid for other operating activities Cash paid for other operating activities was 904,979,378.41 RMB，There into： Items 2007 2006 Others 291,345,195.99 77,481,903.21 Freight 252,866,504.23 160,861,230.16 Harbor miscellaneous fees 171,490,323.81 46,069,072.36 Land usage fee 51,140,500.00 28,272,708.33 Services rendered 47,187,733.90 19,264,127.79 Processing expenses 13,574,247.51 11,434,307.45 Wraggage expense 51,092,342.07 10,215,455.40 Quality keeping fund 9,270,084.90 10,138,531.18 Consignment fee 10,012,446.00 19,223,440.93 Water Resource fees 7,000,000.00 10,998,925.66 Total 904,979,378.41 393,959,702.47 40、Other cash payments related to the activities of investment Other cash payments related to the activities of investment was 216,939,319.71RMB (297,625.10 RMB in 2006)，was the payment for acquisition of Benxi Iron and Steel Group’s assets in 2007. 41、Supplementary information for Cash Flow Statement Supplementary information 2007 2006 1、A reconciliation of net profit to cash flows from operating activities： Net profit 1,698,949,701.78 1,625,954,120.51 Add：Asset impairment losses 12,675,234.70 -33,227,938.34 Depreciation and amortization 3,265,108,081.90 2,290,524,038.38 Amortization of intangible assets Long-term prepayment amortization Losses proceeds from disposal of PPE、intangible assets and other long-term assets (Earnings marked“－”） -60,758.84 8,928,876.10 Scrapped losses from fixed assets, real estate investment 52,296,386.50 855.57 Fair value losses（Earnings marked“－”） Financial expenses（Earnings marked“－”） 328,543,988.68 139,438,137.98 Investment losses（Earnings marked“－”） Deferred tax assets reduction（Addition marked“－”） 55,035,570.77 25,405,165.11 Deferred tax liabilities increased（Reduce marked“－”） - Reduction of inventory（Addition marked“－”） -780,164,144.08 31,210,881.35 Operating receivable items reduction（Addition marked“－”） -1,451,352,734.60 -1,392,132,110.67 Operating payable items increase（Minus marked“－”） -435,680,565.52 -587,526,537.13 Others 137,211.03 Net cash flow Generated from operating activities 2,745,350,761.29 2,108,712,699.89 2、Payments of investment and fund-raising activities do not involve cash： Liabilities transferred to capital convertible bonds due within one year Fixed assets financed by leasing 3、The net increase in cash and cash equivalents： Ending balance of the monetary funds 2,242,866,884.97 2,184,200,692.94 Minus：Opening balance of the monetary funds 2,184,200,692.94 1,897,512,783.95 Add：Ending balance of cash equivalents Minus：Opening balance of cash equivalents The net increase in cash and cash equivalents 58,666,192.03 286,687,908.99 VIII、 NOTES TO THE FINANCIAL STATEMENTS OF PARENT COMPANY 1、Accounts receivable 1）On December 31, 2007, the accounts receivable are listed as follows according to level of materiality: Item Amount % of total balance provision for bad debts Important account receivable of single item 571,689,210.66 49.38 10,993,106.42 Accounts receivable with unimportant single 293,124,817.77 25.32 291,044,718.86 amount but material credit risk Other unimportant accounts receivable 293,014,224.30 25.30 33,209,833.65 Total 1,157,828,252.73 100.00 335,247,658.93 On December 31, 2006, the accounts receivable are listed as follows according to level of materiality: Item Amount % of total balance provision for bad debts Important account receivable of single item 1,171,652,956.90 69.97 93,433,877.91 Accounts receivable with unimportant single 104,591,211.17 6.25 94,534,234.34 amount but material credit risk Other unimportant accounts receivable 398,309,340.55 23.78 115,796,343.29 Total 1,674,553,508.62 100.00 303,764,455.54 2）The ageing of accounts receivable and related provision for bad debts is analyzed below: 31 December 2007 31 December 2006 Ageing Bad debts Bad debts Amount Prop Amount Prop provision provision Within 1 656,598,234.25 56.71 1,202,003,858.39 71.78 year 1 - 2 years 116,145,798.68 10.03 5,807,289.94 110,547,112.03 6.60 5,527,355.60 2 - 3 years 69,554,813.51 6.01 13,910,962.70 79,706,797.83 4.76 15,941,359.57 Over 3 315,529,406.29 27.25 315,529,406.29 282,295,740.37 16.86 282,295,740.37 years 1,157,828,252.73 100.00 335,247,658.93 1,674,553,508.62 100.00 303,764,455.54 3）As at December 31, 2007, there is no debtor from over 5%(including) of stockholder's rights’ shareholder. Details in Related party transactionsIX、3. 4）As at December 31, 2007, there is an amount of RMB 357,511,348.74Yuan from top five in accounts receivable, it’s take about 30.88% . 2、Other receivables 1）On December 31, 2007, the accounts receivable are listed as follows according to level of materiality: Item Amount Prop Bad debts provision Individual and significant 163,392,136.71 68.20 3,610,314.64 The single amount is not significant , but the 36,647,337.52 15.30 34,907,337.52 credit risk is Other insignificant account 39,540,378.63 16.50 6,186,052.66 Total 239,579,852.86 100.00 44,703,704.82 On December 31, 2006, the accounts receivable are listed as follows according to level of materiality: Item Amount Prop Bad debts provision Individual and significant 59,522,013.05 20.03 5,607,144.15 The single amount is not significant , but the 25,770,821.84 8.67 25,770,821.84 credit risk is Other insignificant account 211,845,540.50 71.30 8,330,880.89 Total 297,138,375.39 100.00 39,708,846.88 2) The ageing of accounts receivable and related provision for bad debts is analyzed below: 31 December 2007 31 December 2006 Ageing Bad debts Bad debts Amount Prop Amount Prop provision provision Within 1 year 143,865,745.66 60.05 131,761,908.41 44.34 1 - 2 years 31,827,647.73 13.28 1,591,382.38 80,025,992.08 26.93 4,001,299.60 2 - 3 years 23,792,671.29 9.93 4,758,534.26 59,509,547.02 20.03 11,901,909.40 Over 3 years 40,093,788.18 16.74 38,353,788.18 25,840,927.88 8.70 23,805,637.88 Total 239,579,852.86 100.00 44,703,704.82 297,138,375.39 100.00 39,708,846.88 3）As at December 31, 2007, there is no debtor from over 5%(including) of stockholder's rights’ shareholder. Details in Related party transactionsIX、3. 4）As at December 31, 2007, there is an amount of RMB 99,591,748.06Yuan from top five in accounts receivable, it’s take about 41.57%. 3、Long-term equity investment Amount Name of Percentages Initial 31 Current Current 31 Method investments of shareholder investment December period period December 2006 additions disposals 2007 哈尔滨本钢经济 100% 500,000.00 423,398.23 423,398.23 Cost 贸易有限公司 长春本钢钢铁销 100% 500,000.00 -1,355,124.64 -1,355,124.64 Cost 售有限公司 天津本钢钢铁贸 100% 3,000,000.00 33,306,820.76 33,306,820.76 Cost 易有限公司 烟台本钢钢铁销 100% 500,000.00 19,600,329.41 19,600,329.41 Cost 售有限公司 南京本钢物资销 100% 1,150,000.00 2,081,400.65 2,081,400.65 Cost 售有限公司 无锡本钢钢铁销 100% 1,000,000.00 947,993.61 4 947,993.61 4 Cost 售有限公司 厦门本钢钢铁销 100% 500,000.00 1,095,711.66 1,095,711.66 Cost 售有限公司 Total 56,100,529.68 56,100,529.68 4、Operating income Item 2007 2006 Revenues from main operations 26,757,109,006.50 24,480,626,884.04 Other revenues from operations 3,341,430,937.50 2,020,391,351.58 Total 30,098,539,944.00 26,501,018,235.62 1）Based on variety of products from Revenues: 2007 2006 Item Revenues from Cost of main Revenues from Cost of main main operations operations main operations operations Steel plate 26,198,016,844.91 21,556,897,955.26 20,770,509,648.30 18,108,838,325.89 Steel billet 81,221,731.78 63,209,156.68 1,093,305,617.33 1,015,423,171.64 Molten steel 2,228,519,167.32 2,071,835,887.67 Abolish second material 61,216,869.93 55,702,331.11 others 477,870,429.81 353,416,011.17 327,075,581.16 276,151,984.50 Total 26,757,109,006.50 21,973,523,123.11 24,480,626,884.04 21,527,951,700.81 2）Based on the Sell area of Revenues : 2007 2006 Item Revenues from Cost of main Revenues from Cost of main main operations operations main operations operations Northern-east 8,739,311,554.70 7,120,736,078.74 6,593,990,381.70 5,792,874,052.38 Northern 4,205,636,010.15 3,457,492,876.97 4,458,781,655.61 3,923,763,511.47 East of china 8,764,949,616.41 7,230,605,915.19 8,001,243,076.74 7,041,816,915.77 North-west 188,887,141.19 155,859,529.01 36,579,157.72 32,532,244.59 South-west 1,850,625.69 1,527,036.97 1,475,730.58 2,168,816.31 Middle-south of china 743,179,791.75 613,232,068.55 1,427,772,377.16 1,256,014,805.35 Exports 4,113,294,266.61 3,394,069,617.68 3,960,784,504.53 3,478,781,354.94 Total 26,757,109,006.50 21,973,523,123.11 24,480,626,884.04 21,527,951,700.81 3）Top five of revenues from operations in each year Item 2007 2006 Top five of revenues from operations 11,744,153,795.50 9,202,497,062.59 The percentage of revenues from main operations 43.89% 34.45% 5、Operating cost Item 2007 2006 Cost of main operations 21,973,523,123.11 21,527,951,700.81 Other cost of operations 3,256,953,800.53 2,041,090,542.04 Total 25,230,476,923.64 23,569,042,242.85 6. Supplemental information for cash flow statement of parent company Supplemental Information 2007 2006 Reconciliation of net profit to cash flows from operating activities: Net profit 1,694,601,469.91 1,639,519,411.30 Add: provision for assets 12,601,344.06 -33,175,119.44 Depreciation of fixed assets, investment-oriented real estate and amortization 3,264,443,160.89 2,290,187,254.67 Amortization of intangible assets amortization of long-term prepayments Losses on disposal of fixed assets, intangible assets and other long-term assets ( gain marked as “-“) -60,758.84 8,928,876.10 Losses on scrapping of fixed assets and real-estate investment 52,296,368.50 855.57 Losses on changing of fair value ( gain marked as “-“) Financial expenses ( gain marked as “-“) 295,975,275.73 149,976,073.16 Losses on investment ( gain marked as “-“) Decrease of deferred income tax (increase marked as “-“) 62,253,891.57 973,509.28 Increase of deferred tax liabilities (decrease marked as “-“) Inventory decrease (increase marked as “-“) -932,886,916.85 -20,206,353.03 Decrease in operating receivables ( increase marked as “-“) -1,371,746,856.61 -1,455,878,360.93 Increase in operating payables ( decrease marked as “-“) -287,410,545.34 -512,183,576.46 Other Net cash flow from operating activities 2,789,996,986.83 2,068,142,570.22 2 Investing and financing activities that do not involve in 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 2,232,308,962.38 2,128,996,544.81 Less: Cash at the beginning of the period 2,128,996,544.81 1,897,512,783.95 Add: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase in cash and cash equivalent 103,312,417.57 231,483,760.86 IX、Related party transactions 1、Definition of related party Related parties are those parties that have the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Parties are also considered to be related if they are subject to common control. 2、Relationships Bengang Group is the parent company and the ultimate holding company of the Company, there is no changes of the holding company during this period. 1）Related parties with control Paid-in Place of Effective equity Code of Subsidiaries capital Right% incorporation held% incorporation ( million) 本溪钢铁（集团）有限责任公司 本溪 536,900 82.12 82.12 厦门本钢钢铁销售有限公司 厦门 50 100.00 100.00 无锡本钢钢铁销售有限公司 无锡 100 100.00 100.00 天津本钢钢铁贸易有限公司 天津 300 100.00 100.00 南京本钢物资有限公司 南京 115 100.00 100.00 烟台本钢钢铁销售有限公司 烟台 50 100.00 100.00 哈尔滨本钢钢铁销售有限公司 哈尔滨 50 100.00 100.00 长春本钢钢铁销售有限公司 长春 50 100.00 100.00 2）Equity hold and changes of the related parties with control Subsidiaries Opening( million) Ratio Additions Reductions Endings Ratio 本溪钢铁（集团）有限责任公司 257,520 82.12 257,520 82.12 厦门本钢钢铁销售有限公司 50 100.00 50 100.00 无锡本钢钢铁销售有限公司 100 100.00 100 100.00 天津本钢钢铁贸易有限公司 300 100.00 300 100.00 南京本钢物资有限公司 115 100.00 115 100.00 烟台本钢钢铁销售有限公司 50 100.00 50 100.00 哈尔滨本钢钢铁销售有限公司 50 100.00 50 100.00 长春本钢钢铁销售有限公司 50 100.00 50 100.00 3）Other with no control Relationship of Company ，with the Company's relationship belong the same parent. 3、Transactions with related parties 1）Pricing The transaction price with related parties conducted in the ordinary course of business. 2）Protocol of related parties ①On 28 December 2005, the Company entered into an agreement with the Group about services contracts, which includes providing the raw material, supplementary, supporting services, rental and etc. to the Group and sale the raw materials, supplementary, energy, accessories, usage of the trade mark, supporting services, waste materials to the Group. Following are the pricing policies: A: Pricing of the purchase from The Group: Raw materials: The transaction price of Iron ore powder is no more than the average C&F of importing from Brazil, Austrailia, etc. in the preceding half year plus the carriage from port to the Company, port incidental expenses and grade price adjustment. Grade price adjustment is based on the weighted grade of Iron ore powder imporing in the preceding half year. The price is adjusted up or down 10 Yuan/T, when the grade gap of Iron ore powder decrease or increase per 1%. The transaction price of pellet ore is no more than the weighted price of purchasing the same quality pellet ore from independent third parties by the Company in the preceding half year. This price is adjusted every half year. Market price of scrap steel is co-determined by two transaction parties within the scale of the weighted average price of purchasing from independent third parties by the company during the last month. Ancillary materials: Market price, to the ancillary materials, such as lime, refractories, subsidiary materials, etc. provided by the Group. Accessories: Market price, to the purchased accessories produced by the Group. Auto transportation: Market price. Heating service of staff residence: National price. Repairs and maintenance of plant and equipment: Negotiable according to the complexity and workload. Designing and engineering: National price. Engineering construction: market price, to the engineering construction service provided by the Goup. Copies, newspaper, media and other publications: National price. Education facilities: Market price, to the education facilities rental service, professional technical education and staff training. Agency services: Before the import and export permission is obtained, the import and export business of the Company are deputized by the Group. This business is operated as the normal business behavior. The agency fee determined by the Group and the Company according to the specific affair is charged at 0.5%-1.5% of the total value of import or export goods. After the export rights is obtained, the agency relationship with Bengang will be terminated. After obtaining the permission, the Company has the right to inform the Group to terminate the agency relationship. The Group is not the only agency, so the Company have the right to choose independent third party as a agent. Telephone, fax, television services: National price. Office: Market price. Business transportation: Market price. Property management service: Market price. Packing service: Market price. Labor protection service: Market price. Trade mark: the trade mark “Bengang” which is ffree to the Company permitted by The Group should not be allowed to use by others. The Company has the right to register its own trade mark at any time. B: The price of the sales to The Group: Hot rolling of thin steel plates: The weighted average price of selling goods with same quality to third parties in the preceding month. Public service: except for the electricity purchased at the market price plus transferred cost from the Group, public service provided to the Group by the Company such as the oxygen, nitrogen, argon, blast furnace gas、converter gas、COG、stream、purified water、new water、central water、soft water, etc. price at the national associate tax plus rational profit. Railway transportation, quality control, measuring and weighting: National price. Scrap steel (containing iron): Market price. Accessories: Purchasing price of the Company plus 1% purchasing fee. Research and development service: National price, to the service provided by the Company, which could not be researched and developed by The Group separately. ②To the tenure leasing service provided by The Group, the two parties agree to determine the leasing price at 6.24 Yuan per square meter per year in accordance with the “tenure leasing agreement” which is fulfilling by the Company and The Group. 3)Except for the guarantees provided by Bengang Group’s and its subsidiary for the Company’s bank loans as disclosed , the principal related party transactions with Bengang Group and its subsidiaries in the ordinary course of business, are as follows: A 、Sales to the related parties with control: Unit: RMB 2007 2006 Name Amount Ratio% Amount Ration% Products 156,697,370 0.5 3,665,120,016 13.72 Supplementary 227,045,266 0.72 Energy 2,094,146 0.01 Total 385,836,782 1.23 3,665,120,016 13.72 B 、Sales to the related parties with no control: Unit: RMB 2007 2006 Name Amount Ratio% Amount Ratio% Products 11,782,574,220 37.59 8,060,353,586 30.18 Supplementary 1,868,552,535 5.96 889,282,809 3.33 Energy 837,749,074 2.67 150,829,436 0.56 Total 13,651,126,755 43.55 8,949,636,395 33.51 C、Purchase the raw material and supplementary from the related parties with control: Unit : RMB Name 2007 2006 Amount Ratio% Amount Ratio% raw material 6,183,195,959 26.06 supplementary 4,052,267 0.02 345,598,317 1.46 Total 4,052,267 0.02 6,528,794,276 27.52 D、Purchase the raw material and supplementary from the related parties with no control: Unit: RMB 2007 2006 Name Amount Ratio% Amount Ratio% raw material 5,117,906,460 19.37 2,187,294,841 9.22 supplementary 341,580,517 1.32 205,572,819 0.86 Accept the amendment 296,922,381 1.13 305,208,308 1.29 Total 5,756,409,358 21.82 2,698,075,968 11.37 E、Other transactions: Unit : RMB Items 2007 2006 Purchase the equipment of import agency 745,316,061 1,161,798,195 Payment of the construction costs 612,648,946 545,107,690 Payment of the acquisition 250,439,320 250,439,320 Payment of the Port Costs 171,490,324 43,148,722 Payment of the rental fee for the lands 51,140,500 30,945,708 Other transactions 294,374,661 775,912,472 Total 2,125,409,812 2,807,352,107 4、Balance of related party transactions Name Endings Opening Amount Ratio Amount Ratio Notes receivable 广州保税区本钢销售有限公司 5,417,500 1.07 本溪钢铁（集团）浦项冷轧薄板有限责任公司 73,036,000 14.47 本溪钢铁（集团）矿业有限责任公司 20,000,000 3.96 Other 250,000 0.05 Total 98,703,500 19.55 Notes payable 本溪钢铁（集团）实业发展有限责任公司 700,000 0.2 1,400,000 0.7 本溪钢铁（集团）机械制造有限责任公司 3,891,004 1.95 Other 1,300,000 0.37 200,000 0.10 Total 2,000,000 0.57 5,291,004 2.65 Account receivable 本溪钢铁（集团）矿业有限责任公司 17,140,513 1.25 本溪钢铁（集团）机械制造有限责任公司 18,684,922 2.29 本溪钢铁（集团）热力开发有限责任公司 240,094,735 29.38 225,058,522 16.42 本溪钢铁（集团）浦项冷轧薄板有限责任公司 109,181,890 13.36 广州保税区本钢销售有限公司 46,673,185 3.40 本溪钢铁（集团）钢材加工配送有限责任公司 125,132,389 9.13 本溪钢铁（集团）建设有限责任公司 3,094,432 0.38 本溪钢铁（集团）实业发展有限责任公司 18,244,182 2.23 本溪钢铁（集团）新事业发展有限责任公司 1,374,977 0.17 本钢耐火材料有限公司 4,911,911 0.60 上海本钢钢铁贸易有限公司 115,811,748 8.45 Total 395,587,049 48.41 529,816,357 38.65 Account payable 本溪钢铁（集团）修建有限责任公司 102,275,114 2.90 91,227,142 2.59 本钢耐火材料有限公司 10,917,312 0.31 8,796,423 0.25 本溪钢铁（集团）实业发展有限责任公司 53,903,452 1.53 81,798,818 2.33 本溪钢铁（集团）建设有限责任公司 239,477,099 6.80 280,248,731 7.97 本溪钢铁（集团）信息自动化有限责任公司 11,059,280 0.31 本钢电气有限责任公司 4,637,476 0.13 9,069,935 0.26 本溪钢铁（集团）矿业有限责任公司 384,863,639 10.92 本溪钢铁（集团）设计研究院 1,065,082 0.03 23,653,335 0.67 辽宁冶金技师学院实习工厂 8,212,662 0.23 2,481,445 0.07 本溪高新钻具制造有限责任公司 7,656,545 0.22 7,088,413 0.20 本溪钢铁（集团）有限责任公司 68,838,378 1.95 - - 本溪钢铁（集团）冶金渣有限责任公司 31,159,357 0.88 - - 本溪钢铁（集团）机械制造有限责任公司 37,533,514 1.07 1,453,976 0.04 本溪钢铁（集团）新事业发展有限责任公司 1,587,110 0.05 - 本溪钢铁（集团）新闻中心 1,066,082 0.03 - Total 964,252,102 27.36 505,818,218 14.38 Advance to suppliers 本钢集团国际经济贸易有限公司 657,124,663 19.11 586,851,650 34.18 本溪钢铁（集团）建设有限责任公司 192,499,853 5.6 本溪钢铁（集团）浦项冷轧薄板有限责任公司 149,592,508 4.35 120,787,519 7.03 Other 1,087,392 0.03 Total 1,000,304,416 29.09 707,639,169 41.21 Advance form customers 大连波罗勒钢管有限公司 13,534,273 0.54 10,733,311 0.63 本溪钢铁（集团）钢材加工配送有限责任公司 5,396,030 0.21 广州保税区本钢销售有限公司 10,458,926 0.41 上海本钢钢铁贸易有限公司 53,500,339 2.12 6,089,555 0.35 辽宁本钢钢铁商贸有限责任公司 74,725,500 2.96 本溪钢铁（集团）实业发展有限责任公司 4,210,201 0.17 Other 85,428 0.00 Total 161,910,697 6.41 16,822,866 0.98 Other receivables 本溪钢铁（集团）浦项冷轧薄板有限责任公司 9,505,617.56 8.57 本溪钢铁（集团）建设有限责任公司 11,603.90 0.01 本溪钢铁（集团）监理公司 250,000.00 0.23 210,000 0.15 Total 9,767,221 8.81 210,000 0.15 Other payables 本溪钢铁（集团）修建有限责任公司 5,310,311 1.76 本溪钢铁（集团）冶金渣有限责任公司 13,489,128 3.91 本溪钢铁（集团）实业发展有限责任公司 9,807,890 3.25 本溪钢铁（集团）建设有限责任公司 80,011,185 26.54 本溪钢铁（集团）房地产有限责任公司 2,945,000 0.98 1,120,238 0.32 本溪钢铁（集团）信息自动化有限责任公司 11,019,194 3.65 7,158,418 2.08 本溪钢铁（集团）新事业发展有限责任公司 740,683 0.25 4,112,583 1.19 本钢电气有限责任公司 7,707,534 2.56 本溪钢铁（集团）教育培训中心 138,195 0.05 4,504,266 1.31 本溪钢铁（集团）新闻中心 1,403,100 0.41 大连波罗勒钢管有限公司 2,851,338 0.95 本钢耐火材料有限公司 2,980,000 0.99 本溪钢铁（集团）设计研究院 7,507,133 2.49 辽宁冶金技师学院实习工厂 258,300 0.09 1,502,857 0.44 Other 1,369,936 0.45 Total 132,646,699 44.01 33,290,591 9.66 Long term payables Bengang Group 250,439,320 100.00 500,878,639 100.00 Total 250,439,320 100.00 500,878,639 100.00 X、 CONTINGENCIES At the balance sheet date, there are no significant contingencies required to disclose. XI、OPERATING LEASE COMMITMENT The Company as lessee: At the balance sheet date, the Company had commitment for future minimum lease payments in respect of land and buildings rented under non-cancellable operating leases which fall due as follows: RMB 6.24 per square metres per year. XII、Subsequent event 1、By the end of reporting day, the Company paid all bill payable, loans from banks and received all billreceivables in time. 2、According to the No.4 Board Meeting on 23 April 2007, a dividend in respect of 2007 of RMB0.32 per share, amounting to a total dividend of RMB1,003,520,000 is to be proposed for approval at the annual general meeting. 3、Except for the above matter, there is no other subsequent event need to be proposed to the financial statement as at 31 December 2007. XIII、NON-MONETARY TRANSACTION AND DEBT RESTRUCTURING ARRANGEMENT There is no Non-Monetary transaction and debt restructuring arrangement event in this year. XIV、RECONSTRUCTION OF LIABILITIES At the balance sheet date, the reconstruction of liabilities are 49,853,832.64RMB. XV、LEASE There are no important leasing events to be disclosed. XVI、OTHERS CAPITAL COMMITMENT At the balance sheet date, the Group had the following capital commitments: 2007 2006 RMB’000 RMB’000 Capital expenditure in respect of the acquisition of property, plant and equipment - Contracted for but not provided in the financial statements 47,760 16,856 - Authorised but not contracted for 983,000 2,734,895 Total 1,030,760 2,751,751 XVII、Supplementary information： 1、Non-recurring profit and loss deduction： Item 2007 2006 Non-current assets disposal loss -52,235,627.66 -8,929,731.67 Included in the current loss of government subsidies 4,816,987.03 78,168.00 Debt restructuring loss 49,853,832.64 Above, other operating income and expenditure of the net 32,333,678.33 -852,461.57 Welfare benefits payable reback 63,602,977.38 Total non-recurring gains and losses 98,371,847.72 -9,704,025.24 Less: non-recurring loss of the corresponding tax effects 32,680,960.22 -2,855,355.46 Income tax effect of non-recurring gains and losses together 65,690,887.50 -6,848,669.78 less：Attributable to the minority shareholders of non-recurrent loss Attributable to shareholders of the parent company of non-recurrent loss 65,690,887.50 -6,848,669.78 After deducting non-recurring gains and losses after the attribution of the 1,633,258,814.28 1,632,802,790.29 parent company's net profit Ordinary Shareholders The Company is non-recurring profit and loss items in accordance with the China Securities Regulatory Commission confirmed accounting characters (2007) on the 9th "issue public securities company information disclosure norms question and answer" No. 1, the implementation of the provisions. 2、Key financial indicators Basic earnings per share and diluted earnings per share Net assets yield（%） Earnings per share Item Fully Weight Baisc Diluted Dilution average 2007 Attributable to ordinary shareholders net profit 10.15% 10.38% 0.5418 0.5418 After deducting non-recurring profit and loss attributable 9.76% 9.98% 0.5208 0.5208 to common stock after shareholders of net profit 2006 Attributable to ordinary shareholders net profit 10.17% 13.67% 0.5185 0.7061 After deducting non-recurring profit and loss attributable 10.22% 13.73% 0.5207 0.7091 to common stock after shareholders of net profit 3、The first implementation of the Enterprise Accounting Standards financial statements relevant data adjustment process: (1)、The old accounting system or guidelines for the presentation of the December 31, 2006 owner's equity, adjusted in accordance with Accounting Standard for Business Enterprises presentation of the rights and interests of shareholders. See Note 5, accounting policies, changes in accounting estimates and errors corrected early. (2)、The old accounting system or guidelines for the presentation of the income statement for 2006, adjusted for the accounting standards set out by enterprises reported a profit report. 4、DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC GAAP AND IFRS Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Company’s financial statements prepared under the PRC GAAP and IFRS. The major differences are: i)Depreciation on revalued assets Certain assets of the Company are stated at their revalued value in the financial statements prepared under IFRS while they are stated at cost in the financial statements prepared under the PRC GAAP. Accordingly, the depreciation charge of these assets under IFRS and the PRC Accounting Rules and Regulations is different. ii)Provision for deferred tax There is no difference between Chinese Accounting Standards and International Financial ReportingStandards on deferred tax aspect. The financial statement has been restated accordingly. Effects of major differences between the PRC GAAP and IFRS on net profit are analyzed as follows: Note 2006 2006 RMB’000 RMB’000 Profit under the PRC GAAP 1,698,950 1,625,954 Adjustment: - Depreciation on revalued assets (i) -33,377 -49,408 - Disposal of revalued assets (i) -17 - Gain on debt restructuring (ii) 1,391 -33,377 -48,034 Profit under IFRS 1,665,572 1,577,920 Effects of major differences between the PRC GAAP and IFRS on total equity are analyzed as follows: Note 2007 2006 RMB’000 RMB’000 Total equity under the PRC GAAP 16,740,763 15,982,613 Adjustments: - Revaluation of assets (i) 321,764 321,764 - Depreciation on revalued assets (i) -243,838 -210,461 - Disposal of revalued assets (i) -4,625 -4,625 73,301 106,678 Total equity under IFRS 16,814,064 16,089,291 XVIII、The approval of the financial statements The financial statements and notes to the financial statements of the Company have been the fourth in the fifth meeting of the Board of Trustees 23 April 2008 approval. Bengang Steel Plates Co., Limited 20 April 2008