沙隆达Ｂ(200553)2007年年度报告（英文版）

Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. HUBEI SANONDA CO., LTD ANNUAL REPORT 2007 1 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Contents Contents Pate I. Important Notes 2 II. Company Profile 2 III. Summary of Financial Highlight and Business Highlight 4 IV. Changes in Capital Shares and Particulars about Shareholders 6 V. Particulars about Directors, Supervisors, Senior Management and Employees 10 VI. Corporate Governance 14 VII. Brief Introduction to the Shareholders’ General Meeting 17 VIII. Report of the Board of Directors 18 IX. Report of the Supervisory Committee 24 X. Significant Events 25 XI. Financial Report 29 XII. Documents Available for Inspection 88 2 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. I. Important Notes 1.1 The Board of Directors, the Supervisory Board, Directors, Supervisors and Senior Executives of Hubei Sanonda Co., Ltd. (hereinafter referred to as the Company) hereby confirm that no omission, misstatement, or misleading information exists in this report, and accept, individually and collectively, the responsibilities for the authenticity, accuracy and completeness of the contents of this report. The summary of annual report 2007 is abstracted from the full text of such report; the investors are suggested to read the full text of such report to understand more details. 1.2 All directors attended the Board meeting. 1.3 The 2007 Financial Reports of the Company had been audited by Vocation International Certified Public Accountants, and an unqualified Auditors' Report for the Company had been issued by the Auditor. 1.4 Mr. Li Zuorong, Chairman of the Board of the Company, Mr. He Xuesong, Chief Financial Officer, and Mr. He Xuesong, Person who is in Charge of Accounting Organ, hereby confirm that the Financial Report enclosed in this Annual Report is true and complete. 1.5 This report has been prepared in Chinese and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. II. Company Profile 1. Legal name of the Company: In Chinese: 湖北沙隆达股份有限公司 Abbr. in Chinese: 沙隆达 In English: HUBEI SANONDA CO., LTD. Abbr. in English: SANONDA 2. Legal Representative: Li Zuorong 3. Secretary of the Board of Directors: Li Zhongxi Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 0716-8208632 Fax:(86) 0716-8208899 E-mail: li_zhongxi@263.net Securities Affairs Representative: Liang Jiqin Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 0716-8208232 Fax:(86) 0716-8208899 E-mail: freefly2006@263.net 4. Registered Address: No. 93, Beijing East Road, Jingzhou, Hubei Office Address: No. 93, Beijing East Road, Jingzhou, Hubei Post Code: 434001 Website of the Company: http://www.sanonda.cn E-mail of the Company: sld@chemchina.com.cn 5. Newspaper for Disclosing the Information Chosen by the Company: China Securities Journal, Securities Times and Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report of the 3 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Office of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A, Sanonda B Stock Code: 000553, 200553 7. Other Relevant Information of the Company Initial registration date: Nov. 30, 1993 Initial registration organization: Hebei Province Administration Bureau for Industry and Commerce Registration code of corporate business license: QGEZ Zi No.: 002523 Registration code of taxation: 421001706962287 Name and office address of Certified Public Accountants engaged by the Company: Domestic: Vocation International Certified Public Accountants Co., Ltd. Office Address: Room 208, Building B of Huatong Mansion, No.19, Chegongzhuang West Road Yi, Haidian District, Beijing, PRC Name: ShineWing Certified Public Accountants Office Address: Arion Commercial Centre, II-12 , Queen's Road West, Hong Kong 4 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. III. Summary of Accounting Highlights and Business Highlights (I) Accounting data as of the year 2007 Unit: RMB Yuan Operating profit 45,874,834.85 Total profit 40,061,647.32 Net profit attributable to shareholders of listed company 29,600,801.04 Net profit attributable to shareholders of listed company after deducting non-recurring gains and losses 34,272,179.96 Net cash flow from the operation activities 271,646,576.89 Note: Net profit affects of non-recurring gains and losses was RMB -4,671,378.92, the composing are as follows: Unit: RMB Yuan Items Amount Gains and losses from non-current assets disposal -11,707,391.93 Gains and losses from debt restructuring 9,864,764.75 Other non-operating income and expense -3,982,162.01 Impact on income tax 1,955,562.27 Non-operating gains and losses attributable to minority -802,152.00 shareholder Total -4,671,378.92 Difference in net profit as audited by PRC GAAP and IFRS Unit: RMB'000 Net profit as of Net assets as at 31 Items the year 2007 Dec. 2007 Shareholders' equity in accounting statement prepared 29,601 914,984 based on PRC GAAP Adjustment: Withdrawing bad debt of accounts receivable -19,596 Amortization of special appropriation 1,822 Switching back deferred income -5,804 Adjustment of deferred tax -2,514 Adjustment of payroll payable 21,408 Adjustment of unrealization gains and losses in investment -2,058 Shareholders' equity in accounting statement prepared 29,601 908,242 based on IFRS (II) Major accounting data and financial indexes over the previous three years at the end 1. Main accounting data Unit: RMB Yuan Increase/ decrease 2007 2006 2005 than last year（％） Prior to Subsequent to Subsequent Prior to Subsequent to 5 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. adjustment adjustment to adjustment adjustment adjustment Operating revenue 1,648,350,997.55 1,402,296,005.04 1,444,449,312.33 14.12% 1,261,835,295.88 1,267,770,150.54 Total profit 40,061,647.32 33,148,459.96 39,334,245.48 1.85% 12,618,968.50 19,089,671.12 Net profit attributable to 29,600,801.04 22,956,580.59 25,985,571.59 13.91% 5,165,234.82 10,306,675.33 shareholders of the company Net profit attributable to shareholders of the company after 34,272,179.96 5,882,953.13 28,347,076.02 20.90% 9,100,343.35 14,241,783.86 deducting non-recurring gains and losses Net cash flow arising from 271,646,576.89 240,431,207.69 240,184,855.01 13.10% 81,231,828.28 81,348,827.82 operating activities Increase/ decrease At the end of from the At the end of 2006 At the end of 2005 2007 end of last year（％） Prior to Subsequent to Subsequent Prior to Subsequent to adjustment adjustment to adjustment adjustment adjustment Total assets 1,740,712,079.90 1,617,094,926.82 1,625,094,922.02 7.11% 1,667,788,212.86 1,678,038,600.58 Owners’ equity (or shareholders’ 914,984,485.67 900,295,089.22 883,458,820.83 3.57% 878,945,465.14 880,849,782.22 equity) 2. Major financial indexes Unit: RMB Yuan Increase/ 2007 2006 decrease than 2005 last year（％） Prior to Subsequent to Subsequent to Prior to Subsequent adjustment adjustment adjustment adjustment to adjustment Basic earnings per share 0.05 0.08 0.09 -44.44% 0.02 0.03 Diluted earnings per 0.05 0.08 0.09 -44.44% 0.02 0.03 share Basis earnings per 0.06 0.02 0.03 100.00% 0.03 0.05 share after deducting 6 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. non-recurring gains and losses Fully diluted return 3.24% 2.55% 2.94% 0.30% 0.59% 1.17% on net assets Weighted average 3.29% 2.55% 2.99% 0.30% 0.59% 1.17% return on net assets Fully diluted return on net assets after deducting 3.75% 0.65% 3.21% 0.54% 1.04% 1.62% non-recurring gains and losses Weighted average return on net assets after deducting 3.81% 0.65% 3.26% 0.55% 1.04% 1.62% non-recurring gains and losses Net cash flow per share arising from 0.46 0.81 0.81 -43.21% 0.27 0.27 operating activities Increase/ At the end decrease from At the end of 2006 the end of last At the end of 2005 of 2007 year（％） Prior to Subsequent Subsequent to Prior to Subsequent adjustment to adjustment adjustment adjustment to adjustment Net assets per share attributable to 1.54 3.03 2.97 -48.15% 2.96 2.97 shareholders of the company 7 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. IV. Change in Share Capital and Brief to Shares held by Major Shareholder (I) Changes in share capital 1. Changes in share capital Unit: share Prior to the change Increase/decrease (+, - ) Subsequent to the change Issuance Capitalization Number of Proportion Bonus Number of Proportion of new of reserved Other Subtotal shares (%) shares shares (%) shares fund I. Shares subject to 63,361,669 21.34% 63,361,669 -4,489,266 58,872,403 122,234,072 20.58% trading moratorium 1. Shares held by the 2,244,633 0.76% 2,244,633 -4,489,266 -2,244,633 State 2. Shares held by state-owned legal 59,843,601 20.15% 59,443,601 -400,000 59,043,601 118,887,202 20.02% person 3. Shares held by other domestic 1,273,435 0.43% 1,673,435 400,000 2,073,435 3,346,870 0.56% investors Including: Shares held by domestic 1,250,000 0.42% 1,650,000 400,000 2,050,000 3,300,000 0.56% non-stated legal persons Shares held by domestic natural 23,435 0.01% 23,435 23,435 46,870 0.01% persons 4. Shares held by foreign investors Including: Shares held by foreign legal persons Shares held by foreign natural persons II. Shares not subject to trading 233,599,941 78.66% 233,599,941 4,489,266 238,089,207 471,689,148 79.42% moratorium 1. RMB ordinary 118,599,941 39.94% 118,599,941 4,489,266 123,089,207 241,689,148 40.69% shares 2. Domestically listed 115,000,000 38.73% 115,000,000 115,000,000 230,000,000 38.73% foreign shares 3. Overseas listed 0 0.00% foreign shares 4. Other 0 0.00% 8 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. III. Total Shares 296,961,610 100.00% 296,961,610 296,961,610 593,923,220 100.00% Note to change in shares: In Mar. 2007, Sanonda Group Corporation, the first principal shareholder of the Company, provided a joint guarantee for a loan of RMB 1 million of Hubei Pearled Chemical Co., Ltd.. But Hubei Pearled Chemical Co., Ltd. was insolvency, thus, 400,000 state-owned shares of the Company held by Sanonda Group Corporation were auctioned judicially, and Jingzhou Sanonda Advertising Co., Ltd. obtained such 400,000 state-owned shares of the Company. The relevant transfer procedure has been completed. Ended 6 Jul. 2007, (registration date of capital reserve transferring into share capital), Sanonda Group Corporation held 59,443,601 shares of the Company, accounting for 20.02%. On 25 May 2007, the Company held the Shareholders' General Meeting2006, at which the proposal on capital reserve transferring into share capital at the rate of 10 for 10 was examined and approved. Such plan has been implemented on 9 Jul. 2007. After implementation, the Company's total share capital was changed into 593,923,220 shares. Sanonda Group Corporation held 118,887,202 shares of the Company, accounting for 20.02%. On 18 Dec. 2007, in accordance with the commitments in the share merger reform, 4,489,266 shares of the Company held by State-owned Assets Administration Bureau of Qichun County, the shareholder with shares subject to trading moratorium, were changed into tradable shares not subject to trading moratorium when expiration of trading moratorium. 2. Change in shares subject to trading moratorium Unit: share Increase of Number of Number of shares Number of shares subject shares released subject to shares subject Name of Date of to trading from trading trading to trading Reason shareholder releasing moratorium at moratorium in moratorium moratorium at the year-begin 2007 subscription in the year-end 2007 Commitment in Sanonda Group 59,843,601 0 59,043,601 118,887,202 the share merger 3 Aug. 2009 Corporation reform Transferring in the share merger Jingzhou reform, and Shashi District continued to Union Rural 1,250,000 0 1,250,000 2,500,000 3 Aug. 2009 perform Credit commitment in Cooperation the share merger reform Jingzhou Transferring in 0 0 800,000 800,000 3 Aug. 2009 Sanonda the share merger 9 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Advertising reform, and Co., Ltd. continued to perform commitment in the share merger reform State-owned Assets Commitment in Administration 2,244,633 4,489,266 2,244,633 0 the share merger 18 Dec. 2007 Bureau of reform Qichun County Directors, Freezing shares Supervisors and 23,435 0 23,435 46,870 held by senior － Senior management management Total 63,361,669 4,489,266 63,361,669 122,234,072 － － 3. Particulars about issuance and listing of shares (1) Brief to issuance of shares over the previous three years as at the end of the reporting period. Over the previous three years as at the end of the reporting period, the neither issuance of securities nor listing occurred in the Company. (2) Total number of share capital and change in equity structure in the reporting period Up to the end of reporting period, the Company's total share capital increased to 593,923,220 shares, which was mainly because that the Company implemented proposal on capital reserve transferring into share capital, resulting in change in structure of share capital. (II) Particulars about the shareholders 1. Number of shareholders and abut shares held Unit: Share Total number of 142,593 shareholders Top ten shareholders Number of shares Nature of Total number of Share pledged or Name of shareholders Proportion (%) subject to trading shareholders shares held frozen moratorium held SANONDA GROUP State-owned 20.02% 118,887,202 118,887,202 81,720,000 CORPORATION legal entity STATE-OWNED ASSETS ADMINISTRATION State legal 0.76% 4,489,266 BUREAU OF QICHUN entity COUNTY JINGZHOU SHASHI Domestic 0.42% 2,500,000 2,500,000 10 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. DISTRICT UNION non-state-own RURAL CREDIT ed legal entity COOPERATION Domestic LIN CHENG FENG 0.22% 1,287,506 natural person Domestic WANG GONG LIN 0.19% 1,110,000 natural person Domestic ZHONG YU LIAN 0.15% 878,100 natural person Domestic JIA JI YAO 0.14% 820,000 natural person Domestic HUANG,WENJUN 0.13% 800,000 natural person JINGZHOU SANONDA State-owned ADVERTISING CO., 0.13% 800,000 800,000 legal entity LTD. Domestic LI SHUN QIN 0.12% 718,700 natural person Top ten shareholders with tradable share Number of shares not subject to Name of shareholders Category of share trading moratorium held STATE-OWNED ASSETS ADMINISTRATION BUREAU OF 4,489,266 RMB ordinary shares QICHUN COUNTY LIN CHENG FENG 1,287,506 Domestically listed foreign shares WANG GONG LIN 1,110,000 Domestically listed foreign shares ZHONG YU LIAN 878,100 Domestically listed foreign shares JIAN JI YAO 820,000 Domestically listed foreign shares HUANG,WENJUN 800,000 Domestically listed foreign shares LI SHUN QIN 718,700 Domestically listed foreign shares ZHANG QI HUA 690,000 Domestically listed foreign shares SUPER EMPEROR INVESTMENT CO., 600,000 Domestically listed foreign shares LTD. FU LI YAN 600,000 RMB ordinary shares Explanation on relationship among the top The Company is not aware of whether there is any associated relationship among the ten shareholders or above top ten shareholders and whether there is any action-in-concert among them. action-in-concert Note: As at the end of reporting period, the Company has 142,593shareholders in total, of which, 112,705 ones of A shares and 29,888 ones of B shares. 2. Number of shares held by the top ten shareholders subject to moratorium and trading moratorium Unit: Share 11 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Date on which Number of Name of shareholders with Number of shares shares can be additional shares No. shares subject to trading subject to trading Trading moratorium listed for can be listed for moratorium moratorium trading trading No trading or transferring within 36 Sanonda Group months from the first trading day of 1 118,887,202 3 Aug. 2009 118,887,202 Corporation A shares after the share merger reform proposal was implemented No trading or transferring within 36 Jingzhou Shashi District Union months from the first trading day of 2 2,500,000 3 Aug. 2009 2,500,000 Rural Credit Cooperation A shares after the share merger reform proposal was implemented No trading or transferring within 36 Jingzhou Sanonda Advertising months from the first trading day of 3 800,000 3 Aug. 2009 800,000 Co., Ltd. A shares after the share merger reform proposal was implemented 3. Brief to controlling shareholder and actual controller (1) The controlling shareholder Name of the controlling shareholder: Sanonda Group Corporation Legal representative: Li Zuorong Registered capital: RMB 240.66 million Date of foundation: 1994 Scope of business: manufacturing and sales of chemical products and pharmaceutical products; import and export trade of pesticide, chemical products and chemical mechanical equipments and fittings; manufacturing and sales of chemical mechanical equipments; production and fixing of steel construction; fixing of chemical engineering and lease of housing. (2) Actual controller Name of the actual controller: ChemChina Agrochemical Corporation Registered capital: RMB 300 million ChemChina Agrochemical Corporation is a large-scale stated-owned sole company subordinate to ChemChina Group Corporation, as well as the wholly-owned subsidiary of ChemChina Group Corporation and one of the specialized companies under ChemChina Group Corporation, who is engaged in investment, development, production and operation of pesticides, chemical fertilizers, fine chemical products and minerals products. ChemChina Group Corporation subordinates to SASAC of State Council, which is state-owned large-scale corporation established after approval by the State Council in 2004. (3) Brief to change in controlling shareholder and actual controller In the reporting period, controlling shareholder and actual controller remained unchanged.  (4) Relationship between the Company and its controlling shareholder: 12 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. SASAC of State Council 100% ChemChina Group Corporation 100% ChemChina Agrochemical Corporation 100% Sanonda Group Corporation 20.02% Hubei Sanonda Co., Ltd. 4. Other legal person shareholder holding over 10% share of the Company There was no other legal person shareholder holding over 10% share of the Company in the reporting period. 13 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. V. Particulars about Directors, Supervisors and Senior Management (I) Particulars about changes in shares held by directors, supervisors and senior management Share incentive granted during the Remunerati Total reporting period on received remuneration Number Number from received of shares of Number Market shareholder Beginning Ending date from the held at the shares Reasons for of Number price of entities or Name Title Gender Age date of of office Company in beginning held at change shares of share Exercis stock at other office term term the reporting of the the to be exercise e price the related period year year-end exercise d period- parties or (RMB’0,000 d end not ) (Yes / No) Transferring to Chairman of 30 Jun. 30 Jun. share capital Li Zuorong Male 57 3,660 5,490 20.00 0 0 0.00 0.00 No the Board 2006 2009 after selling out Transferring to Liu 30 Jun. 30 Jun. Director Male 45 2,440 32,840 share capital 18.00 0 0 0.00 0.00 No Xingping 2006 2009 after buy in Capital reserve Director, 28 Aug. 30 Jun. transferring in He Fuchun General Male 42 2,440 4,880 18.00 0 0 0.00 0.00 No 2006 2009 to share Manager capital Director, Standing 30 Jun. 30 Jun. Liu Anping Deputy Male 40 0 0 16.00 0 0 0.00 0.00 No 2006 2009 General Manager He Director, 30 Jun. 30 Jun. Male 52 0 0 15.00 0 0 0.00 0.00 No Xuesong CFO 2006 2009 Director, Capital reserve Deng Deputy 30 Jun. 30 Jun. transferred Male 40 2,440 4,880 15.00 0 0 0.00 0.00 No Guobin General 2006 2009 into share Manager capital 28 Aug. 30 Jun. Yin Hong Director Male 40 0 0 14.00 0 0 0.00 0.00 No 2006 2009 Yu Independent 30 Jun. 30 Jun. Male 43 0 0 3.00 0 0 0.00 0.00 No Jingzhong Director 2006 2009 Li Independent 30 Jun. 30 Jun. Male 62 0 0 3.00 0 0 0.00 0.00 No Shouming Director 2006 2009 Independent 30 Jun. 30 Jun. Li Hui Female 39 0 0 3.00 0 0 0.00 0.00 No Director 2006 2009 Yang Assistant Male 35 1 Feb. 2007 30 Jun. 0 0 12.00 0 0 0.00 0.00 No 14 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Guang General 2009 Manager Sellingout Chairman of after capital Zhang the 30 Jun. 30 Jun. reserve Male 54 2,440 3,660 14.00 0 0 0.00 0.00 No Jianguo Supervisory 2006 2009 transferred Board into share capital 30 Jun. 30 Jun. Xu Baojian Supervisor Male 51 0 0 4.00 0 0 0.00 0.00 No 2006 2009 30 Jun. 30 Jun. Liu Jun Supervisor Female 46 0 0 4.00 0 0 0.00 0.00 No 2006 2009 Jiang 30 Jun. 30 Jun. Supervisor Male 33 0 0 4.00 0 0 0.00 0.00 No Chenggang 2006 2009 Gong 30 Jun. Supervisor Male 38 1 Feb. 2007 0 0 4.00 0 0 0.00 0.00 No Shubin 2009 Secretary of 30 Jun. 30 Jun. Li Zhongxi Male 37 0 0 10.00 0 0 0.00 0.00 No the Board 2006 2009 Total - - - - - 13,420 51,750 - 177.00 0 0 - - - Particulars about the main work experiences among present directors, supervisors and senior executives: Mr. Li Zuorong successively took the posts of workshop technician, workshop director, section chief of technology section and director of design office of primary Sha City Pesticide Plant, and minister of project department, deputy general manager and director of the Company. Now he acts as Chairman of the Board and Secretary of CPC of the Company. Mr. Liu Xingping successively took the posts of technician of primary Sha City Pesticide Plant, AND plant manager of Electrochemical Plant, director, deputy general manager, vice chairman of the board and general manager of the Company. He is now acts as director of the Company. Mr. He Fuchun successively took the posts of section monitor of primary Sha City Pesticide Plant, senior chief director of workshop of the Company and plant manager of the Pesticide 1st Plant, deputy general manager of the Company. He is now acts as director and general manager of the Company. Mr. Liu Anping successively took the posts of vice factory director, factory director of Energy Source Power Plant, deputy chief engineer and assistant general manager of the Company. He is now acts as director and standing deputy general manager of the Company. Mr. He Xuesong successively took the posts of section monitor of the primary Sha City Pesticide Plant, section chief of financing office of Sha City Fuel-chemical Bureau, deputy minister and minister of financing department of Sanonda Group Corporation and deputy chief accountant and chief accountant of the Company. He is now in charge of director and chief financial officer of Company. Mr. Deng Guobin successively took the posts of workshop director of the Company, 15 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. plant manager of the Pesticide 1st Plant, deputy division chief of technology office of the Company. He is now in charge of director and deputy general manager of the Company. Mr. Yin Hong successively took the posts of vice factor manger of Fine Chemical Factory, manager of Keyuan Company, deputy chief engineer of the Company, head of development department of the Company. He is now in charge of director. Mr. Yu Jingzhong entered into accounting department of South China Finance and Economics University through examination to study accounting in 1981, then was left to teach at it after graduation in 1985; in 1991 he was sent to Huangshi as president assistance of Commercial Bank, and then temporarily transferred into Shenzhen Procurator ate in 1992 and sent back to teach in the University from 1993 till now. He is now in charge of independent director of the 5th Board of Directors of the Company. Mr. Li Shouming is the professor and Doctor Advisor of Economics and Management Dep. of Wuhan University. He is the expert who enjoys a special subsidy from the China State Council. Apart from that, he is Hubei Accounting Senior expert and technological consulting expert in Wuhhan, Hubei. He has worked in mathematics Depart of Wuhan University since he graduated from there in Jul.1970.he studied abroad in University of Duisburg in Germany from 1983 to 1999. He had been in Georg-August-University Goettingen as senior visiting scholar in 1995 for a half year, researching on finance strategy supporting system. And he was chief in financial accounting department from 1989 to 1999. he mainly assumed following social adjunct posts: Executive Director of Hubei Auditing Institute , Director of Hubei General Accounting Institute, Senior Consultant of Daxin accounting Co. Ltd. and CPA Research Magazine. He is now the Independent Director of 5th Board of Directors of the Company. Ms. Li Hui is the Commercial Law graduate from China University of Political Science and Law and the partner, lawyer, ministry of Business Development Department in Hubei Ruitongtianyuan Law Firm; she also works as Deputy Chief of Hubei Council of Financial Securities, arbitrator of Wuhan Arbitrating Institute. She is now Independent Director of 5th Board of Directors of the Company. Mr. Zhang Jianguo, successiely took the posts of Clerk of Organized Cadres Section, Vice Secretary of Party Branch of Workshop, Deputy Director of Enterprise Managementin the primary Sha City Pesticide Plant, of Deputy Director and Director of Office, Secretary to the Board, Director, Vice Secretary of CPC in the Company. Now he acts as Chairman of the Board of Supervisor, Vice Secretary of CPC, Secretary of Discipline Committee and Chairman of Labor Union in the Company. Mr. Xu Baojian successively took the posts of deputy director of workshop of the primary Sha City Pesticide Plant, deputy plant manager of Energy Power Plant, secretary of Party branch of CPC and concurrently chairman of Labor Union of the Company. He is now in charge of supervisor of the Company and manager of Industrial Development Corporation. Ms. Liu Jun successively took the posts of accountant of Financial Company, chief accountant of Sanonda Jingchun Company, chief accountant of Sanonda Jingzhou Agrochemical Company, Division Chief of Checking Division in Financial Company of the Company. Now she is in charge of supervisor of the Company, Deputy General Manager of Financial Company of the Company and concurrently Division Chief of 16 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Capital Checking Division. Mr. Jiang Chenggang has been respectively appointed as Section Chief in Quality Inspecting Section, Organizing Secretary of Political Department, Deputy Secretary of Party Branches, Vice President, Chairman of Labor Union, Deputy Division Chief and Division Chief of Political Department. Now he is a Supervisor of the Company, Deputy Director of the Office and Division Chief of Political Division of the Company. Mr. Gong Shubin, ever took the posts of technician of the Company, Deputy General Manager of Sanonda Qichun Company, Deputy Factory Chief of Parkerising Factory, Deputy Factory Director and Factroy Director of 1st Pesticide Factory. Now he acts as Supervisor of the Company and Factory Chief of 3rd Pesticide Factory. Mr. Yang Guang had been appointed as the Workshop Manager of 2nd Pesticide Factory of the Company, Deputy Chief and Chief of the Controlling Center of the Production Section,Supervisor of the Company respectively. He is now Assistant General Manager of the Company. . Mr. Li Zhongxi successively took the posts of office secretary of the Company, manager of packaging company. Now he is in charge of secretary of the Board and concurrently office director of the Company. (II) Particulars about directors and supervisors holing the position in shareholding company Name of the Name Shareholding Post in the Shareholding Company Office term Company Li Sanonda Group Chairman of the Board, Dec. 2005 to now Zuorong Corporation Secretary of CPC Liu Sanonda Group Director, General Manager Aug. 2006 to now Xingping Corporation He Sanonda Group Director Dec. 2005 to now Fuchun Corporation Liu Sanonda Group Director Aug. 2006 to now Anping Corporation Sanonda Group Yin Hong Assistant General Manager Aug. 2006 to now Corporation (III) Particulars about change in the directors, supervisors and senior executives in the reporting period: In Feb. 2007, Mr. Yang Guang resigned from the post of Supervisor of the Company due to work demand, and was engaged as Assistant General Manager of the Company. Meanwhile, Mr. Gong Shubin was elected as Supervisor of the 5th Board of Supervisor of the Company. (IV) Particulars about the annual remuneration of directors, supervisors and senior executives The Company set down salary plan and implementation measures to the senior executives. At the year-beginning, the Company would decide the appraisal index of operation achievements or management duties for the senior executives according to the overall development strategy and annual operating target; at the year-end, the Board appraised the senior executives based on the operation achievements and the fulfilled duties. (V) About employees 17 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. As at the end of the report period, the Company had totally 4043 employees, The Company needs to bear expenses of 2035 retirees. Staffing Structure: 1. Classified in line with specialty structure Specialty category Number Production personnel 2290 Technician 373 Management personnel 279 Salesman 149 Other 952 2. Classified in line with education background Education background Number Master and over 6 Junior college and over 913 Senior school and over 1897 Other 1227 18 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. VI. Corporate Governance (I) Corporate governance of the Company In the reporting period, in order to protect investors' interests, the Company continuously perfected its corporate governance of the Company in accordance with the requirements of Company Law, Securities Law, Several Provisions on Strengthening the Protection of the Rights and Interests of Public Shareholders, and Stock Listing Rules of Shenzhen Stock Exchange and other relevant laws, rules and regulations, so as to standardize operation of the Company and intensify information disclosure. 1. Shareholders and Shareholders’ General Meeting: the Company could treat all shareholders equally, fully respect and maintain shareholders’ interests, especially medium and small investors. The Company abided the rules of information disclosure, performed duties of information disclosure, and actively improved quality of information disclosure, continually strengthened investors relationship management and timely answered all questions put by the Company’s shareholders, consequently, ensured investors to enjoy the knowing and participation right for significant events of the Company regulated in laws and rules, and faithfully protected interests of shareholders especially medium and small investors. 2. Director and Board of Directors: The Company elected and engaged director according to the regulations of the Articles of Association of the Company. The number of the Board of Directors and holding qualification were in compliance with the regulations of the relevant laws, regulations and the Articles of Association. In the reporting period, the Board of Directors played role of each director and three independent directors in full according to duties empowered by the Articles of Association and the Rules of Procedure for the Board of Directors, as well as System for Independent Directors. 3. Supervisor and Board of Supervisor: The number of the Board of Supervisor and structure were in compliance with the regulations of the relevant laws and regulations. The Supervisory Committee conducted the supervision on lawfulness and regularity of financial status of the Company and performance of the directors and senior executives of the Company according to duties empowered by the Articles of Association and the Rules of Procedure for the Supervisory Committee, which protected the legal rights and interests of the Company and its shareholders. 4. Carrying out special campaign on corporate governance: In accordance with the spirit of Notice on the Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (ZJGS Zi [2007] No. 28) from CSRC, the Circular on the Relevant Works concerning Doing Well a Special Campaign to Strengthen the Corporate Governance of Listed Companies from Shenzhen Stock Exchange and the Notice Strengthening Special Campaign for the Corporate Governance of Listed Companies (EZJGS Zi [2007] No. 20), the Company launched special campaign for corporate governance in Apr. 2007, the Company organized directors, supervisors and senior management to study relevant laws, administrative rules and normative documents such as Company Law, Securities Law and Administrative Rules for Listed Companies, on the basis of these, the Company also seriously conducted self-inspection and rectification in term of regulations related with corporate governance and self-inspection. On 14 Aug. 2007, Self-inspection Report and Rectification Plan 19 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. concerning Special Campaign on Strengthening Corporate Governance of Listed Companies was examined and approved at the 9th Meeting of the 5th Board of Directors. At the same time, the Company set up special telephone and E-mail to hear suggestions from investors and Social public. On 17 July and 18 July 2007, the Company accepted the spot inspection on corporate governance of listed companies from Hubei Securities Regulatory Bureau. On 21 Oct. 2007, Hubei Securities Regulatory Bureau issued the Notice on Comprehensive Assessment Opinion and Rectification Suggestions for Corporate Governance of Hubei Sanonda Co., Ltd.. Aiming to problems such as self-inspection of the Company, field inspection and public investors' opinion, the Company set down an overall, practical and valid rectification plan and measure. And the Rectification Report on Special Campaign for Corporate Governance of Hubei Sanonda Co., Ltd. was examined and approved at the temporary session of the 5th Board of Directors held on 6 Nov. 2007. In such special campaign for corporate governance, the Company surveyed each link of corporate governance again in accordance with relevant laws and rules, supplemented and perfected the internal control system such as the Rules for Special Committees of the Board of Directors, Management Rules for Information Disclosure, Management Rules for Investor Relationship. Via self-inspection and rectification, the principal shareholder of the Company, the Board of Directors, the Board of Supervisors and Senior Management further knew corporate governance, so as to improve management level of the Company, enhance transparency of the Company, and perfect internal control, which played active promotion role to develop the Company continually, healthily and steadily. (II) Performance of duties of Independent Directors 1. In the reporting period, three independent directors of the Company patiently performed duties according to Articles of Association of the Company and Work System of Independent Director, actively learned the operating situation of the Company, proposed professional opinion to the Company's significant decision-making, which played an active role to development of the Company. 2. In the reporting period, the Company totally held 7 Board meetings, 1 annual shareholders’ general meeting. Three independent directors did not propose the objection on proposals of the Board meetings. Brief to their attending the shareholders’ general meeting is as follow: Independent Meetings should be Times attending Times of entrusting directors attended personally others to attend Yu Jingzhong 8 8 0 Li Shouming 8 8 0 Li Hui 8 8 0 (III) Separation between the Company and the controlling shareholder in the respects of business, personal, assets, organization and financing 1. Independence of the Company’s business: The Company possessed the independent purchasing and sales system and independent operating capability. The Company existed no competition in the same industry with the controlling shareholder. The related transactions between them are legal, transparent and fair and the price is reasonable. 20 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 2. Independence of the Company’s personal: The Company established independent systems of labor, personal and wage. The procedure of holding concurrent post of the directors of the Company by senior executives of the controlling shareholder is legal. The General Manager, other senior executives and core technicians of the Company took the full time jobs in the Company and received the salary from the Company. 3. Independence of the Company’s assets: The assets of the Company are independent and the property is clear. The Company has independent production system, auxiliary production system and accessory installation. The Company has its own industrial property, trademark and non-patent technology related with the Company’s operation. 4. Independence of the Company’s organization: The Company has independent location of production and operation and office organization. 5. Independence of the Company’s financing: The Company has independent financial and accounting department, established normative and independent accounting settlement system and financial management system as well as independent bank account and independently pays tax. (IV) Establishment and perfect of internal control system of the Company The Company set down the perfect management system for internal control, including such management rules as significant investment decision-making, financial management, HR management, administrative management, purchase management, production and sale and information disclosure, and conducted regular inspection to each rule, so as to improve and perfect them. All rules was carried out and performed after establishing, which played supervision, control and guiding roles to production and operation of the Company. 1. The Company established and perfect accounting system strictly in accordance with relevant regulations of accounting system for business enterprise, accounting standard for business enterprise as well as regulation for cash management, therefore, each financial management was in compliance with the relevant regulation, and internal control links such as authorization and sealing were performed availably. 2. The Company set down Management Rule for Seal, implemented examination and approval system from immediate manager, which a person specifically was in charge of seal. 3. The Company set up Law Affairs Department, which safeguard its legal operation to play important role and guarantee effectively its legal rights and interests. 4. The Company set up Auditing Department, which it would conduct audit to each unit for every year according to plan. 21 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 5. The Company established Management Rule for Significant Investment. The Company insisted on prudence principle to control investment risk in significant investment, emphasized investment income. The external investment authorized to the Shareholders' General Meeting, the Board of Directors and Chairman of the Board is regulated definitely in the Articles of Association of the Company and Rules of Procedure for Shareholders' General Meeting. 6. The Company set down Management Rule for Information Disclosure. The Company drew up Management Rule for Information Disclosure in accordance with laws and rules related with information disclosure, which strengthened management for information disclosure affairs, so as to protect legal rights and interests of investors, which is a important task. The Company carried out obligation of information disclosure in line with the timely, accurate and fair principle, at the same time, the Company also established flow fro transfer, procedure for examination and approval and disclosure in the inner of the Company The internal control is a durative systems engineering, which it need to summarize, perfect and innovate unceasingly in practice of operation and management. The Company would continue to research and summarize internal control system, optimize and perfect internal control system according to relevant laws and regulations on the basis of studing and reference on advanced experience of internal control, timely appoint professional agency to carding and enhance internal control system of the Company, so as to provide a system guarantee for durative development of the Company. On the whole, the current internal control system of the Company is integrated, reasonable and valid as a whole, which can be suitable management requirement and development demand of the Company. (V) Performance appraisement and incentive mechanisms for senior management The Company has established the plan on the remuneration of senior executives and its detailed enforcement method so as to unceasingly perfected performance appraisement and incentive mechanism for directors, supervisors and senior executives. The Company made out the product operations object and annual preplan of the Company every year, and carry out examination on senior executives according to the fulfillment of operation objects and development strategy and annual operation objects so as to confirm the amount of the efficiency annual remuneration of senior executives. 22 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. VII. Brief Introduction of Shareholders’ General Meeting The Shareholders' General Meeting 2006 was held on 25 May 2007. Relevant public notice was published in China Securities Journal, Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn on 26 May 2007. 23 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. VIII. Report of Board of Directors (I) Operation status in the reporting period 1. Overall operation status In the reporting period, surrounding the production and operation target established by the Board of Directors at the year-begin, the Company overcame influence from disadvantageous factors such as rise of price of raw materials and energy, export rebate rate reduction, upside land use tax, RMB appreciation, as well as the sales of riskiest pesticide was forbidden in home, and grasped such favorable opportunity as blooming demand in domestic and overseas pesticides market, so as to reinforce marketing, strength enterprise management, enhance technology reformation and project construction, rapidly develop technology innovation activities, therefore, the Company achieved production and operation target well all year round. In the reporting period, the Company achieved income from main operation of RMB 1.57 billion, up 15.74% year-on-year, total profit of RMB 40.06 million, up 2% year-on-year, net profit attributable to shareholder of listed company of RMB 29.6 million, up 14% year-on-year. The Company produced chemical pesticides of 41,300 tons, up 14.51% year-on-year, as well as caustic soda of 101,400 tons, up 14.74% year-on-year. The Company created foreign currency amounting to USD 93.78 million, up 46% year-on-year. 2. Operation status on main business (1) Scope of main business Business scope of the Company: production and sales of pesticides and chemical products. (2) Distribution of the main operations classified according to industry and products: Unit: RMB'0000 Distribution of the main operations classified according to industry Increase/decrease Increase/decrease Increase/decrease Industry or Operating Operating Operating proportion of proportion of proportion of products Revenue Cost profit Rate operation operation cost operating profit revenue compared with rate compared compared with the last year (%) with the last year the last year (%) (%) Pesticides 118,157.63 98,661.76 16.50% 15.70% 15.40% 0.22% Chemical 37,215.78 32,307.02 13.19% 7.14% 10.26% -2.46% Real estate 0.00 0.00 0.00% -100.00% 0.00% -100.00% Other 1,618.06 1,315.47 18.70% -60.64% -63.87% 7.27% Total 156,991.47 132,284.26 15.74% 11.23% 11.69% -0.35% Distribution of the main operations classified according to products Pesticides 118,157.63 98,661.76 16.50% 15.70% 15.40% 0.22% Chemical 37,215.78 32,307.02 13.19% 7.14% 10.26% -2.46% Real estate 0.00 0.00 0.00% -100.00% 0.00% -100.00% Other 1,618.06 1,315.47 18.70% -60.64% -63.87% 7.27% Total 156,991.47 132,284.26 15.74% 11.23% 11.69% -0.35% 24 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (3) Main operation by region Unit: RMB'0000 District Operating Revenue Change of operation Revenue compared with the last year (%) Domestic 82,928.47 -6.75% Overseas 74,063.00 41.85% Total 156,991.47 11.23% (4) The top five suppliers and top five customers of the company Unit: RMB'0000 Total purchasing amount of the Proportion in total purchase 34,122 25.79% top five suppliers amount Total sales amount of the top five Proportion in total sales 29,890 18.13% customers amount 3. Explanations on the significant changes of the company’s asset composing within the reporting period Unit: RMB’0000 31 Dec. 2007 31 Dec. 2006 Proportion in Proportion in +/- Items Amount total assets Amount total assets Monetary fund 45,240.57 25.99% 31,996.56 19.69% 41.39% Accounts receivable 22,996.34 13.21% 17,282.32 10.63% 33.06% Inventories 30,163.82 17.33% 33,610.54 20.68% -10.25% Investment real estate 558.12 0.32% 582.64 0.36% -4.21% Long-term equity investment 1,576.34 0.91% 1,654.54 1.02% -4.73% Net fixed assets 40,336.85 23.17% 43,141.79 26.55% -6.50% Project in construction 7,879.05 4.53% 3,074.41 1.89% 156.28% Short-term loan 33,498.00 19.24% 22,500.00 13.85% 48.88% Long-term loan 9,000.00 5.17% 9,000.00 5.54% Note: a. Monetary fund increased by 41.39% year-on-year, which was mainly due to increase of short-term loan. b. Accounts receivable increased by 33.06% year-on-year, which was mainly due to increase of export products and import and export documentary credit as short-term loan, resulting in increase of accounts receivable. c. Inventories decreased by 10.25% year-on-year, which was mainly due to increase of sales of products in the reporting period. d. Fixed assets decreased by 6.5% year-on-year, which was mainly because that the part of fixed assets were disposed in the reporting period. e. Project in construction increased by 156.28% year-on-year, which was mainly because of increase of project input in the reporting period. 25 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. f. Short-term loan increased by 48.88% year-on-year, which was mainly due to increase of funds for production and technology reform and import and export documentary credit as short-term loan. 4. Analysis on sale expense, management expense and financial expense year-on-year in the reporting period Unit: RMB'0000 Amount at the same period of Items Amount in 2007 last year +/-% Sale expense 6,337 7,103 -11% Management expense 10,199 7,956 28% Financial expense 4,104 3,044 35% Impairment loss for assets 7,466 3,450 116% Investment income 8,174 2,763 196% Non-operating income 1,083 152 612% Non-operating expense 1,664 474 251% Note: a. In the reporting period, sale expense decreased by 11% year-on-year, which was mainly due to decrease of transportation fee of the Company. b. In the reporting period, management expense increased by 28% year-on-year, which was mainly because increase of expense for safety in production withdrawn by the Company and increase of wage, welfare and insurance. c. In the reporting period, financial expense increased by 35% year-on-year, which was mainly because of increase of borrowing and rise of interests rate, resulting in increase of interests expenditure and increase of documentary credit and exchange loss. d. In the reporting period, impairment loss for assets increased by 116% year-on-year, which was mainly due to increase of reserve withdrawn in the reporting period. e. In the reporting period, non-operating income increased by 612% year-on-year, which was mainly because of income from debts restructuring in the reporting period. f. In the reporting period, non-operating expense increased by 251% year-on-year, which was mainly because of loss on disposal of fixed assets in the reporting period. 5. Explanation on cash flow composing in the reporting period Unit: RMB'0000 Range of increase/ Items 2007 2006 Amount +/- decrease Net cash flow arising from operating activities 27,164.66 24,018.49 3,146.17 13.10% Net cash flow arising from investing activities -3,313.62 -5,084.86 1,771.24 Net cash flow arising from financing activities -10,607.03 -11,184.05 577.02 Net increase in cash and cash equivalent 13,244.01 7,749.57 5,494.44 70.90% Note: a. In the reporting period, net cash flow arising from operating activities increased by 26 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 31,461,700 year-on-year, which was mainly due to increase of sale of commodity. b. In the reporting period, net cash flow arising from investing activities increased by 17,712,400 year-on-year, which was mainly due to increase of investment income. c. In the reporting period, net cash flow arising from financing activities increased by 5,770,200 year-on-year, which was mainly due to increase of cash received from bank loan. 6. Analysis of the operation conditions and achievements of the main holding companies Unit: RMB'0000 Proportion Registered of shares Total Net Operatin Net Name of subsidiary company Nature of business capital held assets assets g revenue profit Production of pesticides and chemical products Sanonda Zhengzhou Pesticide such as omethoate and Co., Ltd. sodium hydroxide 4000 70.00% 21,018 3,861 24,544 -38 Sanonda (Jingzhou) Pesticide Production of pesticides and Chemical Industry Co., Ltd. and intermediates 2800 87.50% 4,391 -589 8,268 384 Import & Export of Hubei Sanonda Foreign Trading pesticides and Co., Ltd. intermediates 1000 90.00% 19,854 1,915 13,648 32 Hubei Sanonda Tianmen Production and sales of Agrochemical Co., Ltd. pesticides 800 100.00% 6,732 2,226 11,233 Jingzhou Longhua Production and sales of Petrochemical Co., Ltd. chemical products 500 65.00% 2,326 822 6,540 166 Finance consulting, Jinzhou Sanonda Finance investment consulting and Consulting Co., Ltd. services 500 90.00% 2,178 2,178 1,674 Research, development, Jingzhou Sanonda Aifusi production and sales of Chemical Industry Co., Ltd. fine chemical products 600 51.00% 1,044 881 1,472 134 In the reporting period, profit of Jinzhou Sanonda Finance Consulting Co., Ltd., subsidiary company of the Company, mainly root in income from subscription of new shares. (II) Outlook for the Company's future development 1. Development trend of the industry: Along with intensifying the policies on "Agriculture, Rural Areas and Farmers" and implementing new socialist countryside, the foundational position of agriculture was solidified and strengthened, and adjustment of agriculture planting structure, stabilization of crop planting area, promotion of increase income for formers and labor force from agriculture to industry, which were beneficial to increase pesticides input in agricultural production, resulting in growth of pesticides consumption. According to forecast, the pesticides consumption in our country will be increased at the speed of 5% to 7% in coming years. Thus, pesticides industry will be up against new development opportunity and challenge. 27 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. The concentration ratio in Chinese pesticides industry is bad , scale for pesticides enterprises is small, and layout is relatively separate. Along with enhancement to requirements of energy saving and emission reduction and environmental protection, a large numbers of small-scale pesticides enterprise with serious pollution, lower technology level and poor funds were closed step by step, which was beneficial to development of large-scale pesticides enterprises, so as to centralize pesticides industry to strong enterprises. However, with high poison and high residues pesticides have withdrawn from the market, pesticides enterprise need to adjust product structure, actively seek, develop and produce productions with high-efficiency but low poison and low residues and meeting policies of the State, as a result, pesticides enterprises should keep away operation risks during transitional period. At present, throughput of the part of products in the market expanded sharply, which maybe result in intensified competition in production market and reduction of sales price. 2. Production and operation target in 2008 In 2008, the Company will continually reinforce enterprise management, quicken project construction and promote technology innovation, speed up adjustment of production structure. Meanwhile, the Company would actively carry out energy saving and reducing energy consumption, enhance safe environmental protection, so as to ensure safety in production in the whole year. The Company's production and operation target in 2008: income from main operation will reach to 1.9 billion, export for foreign exchange will be USD 100 million, and realize increase in profit year-on-year. 3. Risk faced by the Company and measure adopted a. Market risk Relentlessly rise of raw materials price have negative influence on the profit of the Company. At the same time, similar enterprises unceasingly enlarged throughput of products same as the Company, which maybe result in furious competition, corresponding price of products will be fallen down. b. Exchange rate risk In 2008, the volume of export for foreign trade will reach to USD 100 million, whose risk will grow with unceasing appreciation of the RMB. c. Policies risk In 2008, the tight monetary policy is adopted by the State, which results in difficulty in loan from bank, at the same time, money collection will go into the more difficulty, thus, the financial expense will rise. d. Risk in environmental protection Requirements in safety and environmental protection by China is more and more high, the working pressure will increase in safety and environmental protection. Aiming to the above-mentioned risks, the Company will adopt the following measures for response: a. To intensify overall enterprise management, improve profitability of the Company. The Company will decrease safety misadventure through enhance safety in management; reinforce environmental protection to strengthen regulation of environmental protection, 28 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. reaching drainage standard; pay attention to sales management to achieve effective sales; reinforce financial management to promote optimization of assets; intensify benchmarking management to realize energy saving and reducing energy consumption; further intensify bidding and purchase to reduce purchase cost. b. To speed up project construction, promote technology innovation. The Company will do well strategic research and layout, optimize products structure, pay more attention to key project and technology reformation, so as to strive for put into production as soon as possible. c. To raise sales price of the part of products timely aiming to rise of raw materials price rapidly. (III) Investment of the Company in the reporting period 1. Usage of the collected funds During the report period, the Company had no raise funds or no extension of the funds raised before the report period to the report period. 2. Project of non-raised funds Unit: RMB'0000 Name of projects Investment amount in Progress of projects Earnings of projects the year Project of ion-exchange membrane 1,656.00 20% Uncompleted th Extension project for the 4 phase of 681.00 70% Uncompleted sewage treatment 15000-ton glyphosate 676.00 11% Uncompleted Innovation of refrigeration station 536.00 50% Uncompleted DDV pilot test 507.00 100% Meeting prospection Total 4,056.00 - - (IV) Routine work of the Board of Directors 1. The work of the Board of Directors and the content of the resolutions (1) The 5th meeting of the 5th Board of Directors was held on 1 Feb. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 3 Feb. 2007. (2) The 6th meeting of the 5th Board of Directors was held on 29 Mar. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 31 Mar. 2007. (3) The 7th meeting of the 5th Board of Directors was held on 24 Apr. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 25 Apr. 2007. (4) The 8th meeting of the 5th Board of Directors was held on 28 Jun. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 3 Jul. 2007. (5) The 9th meeting of the 5th Board of Directors was held on 14 Aug. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 16 Aug. 2007. 29 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (6) The 10th meeting of the 5th Board of Directors was held on 22 Oct. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 24 Oct. 2007. (7) The 11th meeting of the 5th Board of Directors was held on 6 Nov. 2007. The relevant public notice on resolution was published on China Securities Journal, Securities Times and Ta Kung Pao on 7 Nov. 2007. 2. The resolution of the Shareholders' General Meeting by performed by the Board of the Directors In the reporting period, the Company strictly performed the resolution of the Shareholders' General Meeting. In accordance with resolution made at the shareholders' general meeting 2006, the Company implemented profit distribution plan on transferring capital reserve into share capital at the rate of 10 for 10. The registration date was 6 Jul.2007. The circulation date for newly increase shares was 9 Jul. 2007. The relevant public notice on implementing transfer capital reserve into share capital was published on China Securities Journal, Securities Times and Ta Kung Pao on 3 Jul. 2007. (V) Draft proposal on profit distribution Neither distribution nor transferring capital reserve into share capital. (VI) The reasons why the Company did not appropriate share distribution preplan though the Company achieved the profit in the report period In the reporting period, the Company realized net profit of RMB 29,600,801.04, after making up losses, profit available for distribution to shareholders was RMB -7,943,821.74, the retained profit was a negative. Thus, the Company did not propose profit distribution preplan in cash (VII) Others During the reporting period, the Company appointed China Securities Journal, Securities Times and Ta Kung Pao as newspapers for information disclosure. 30 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. IX. Report of the Supervisory Committee (I) The work of Supervisory Committee in the reporting period 1. The 4th meeting of the 5th Supervisory Committee was held at the meeting room of the Company on 1 Feb. 2007, at which the proposal on Yang Guang resigning from the post of supervisor and newly electing Gong Shubin as supervisor of the Company was examined and approved. 2. The 5th meeting of the 5th Supervisory Committee was held at the meeting room of the Company on 29 Mar. 2007, at which the following proposals were examined and approved: a. Working Report 2006 of the Supervisory Committee; b. Financial Settlement Report 2006; and c. Annual Report 2006 and Summary. 3. The 6th meeting of the 5th Supervisory Committee was held at the meeting room of the Company on 14 Aug. 2007, at which the semi-annual report 2007 and summary was examined and approved. (II) Independent work report 1. Operating according to laws. In the reporting period, all members of the Supervisory Committee attended all Board meetings as non-voting delegates. The Supervisory Committee conducted inspection and supervision to the Company's operation in line with law. The Supervisory Committee believed that the Company strictly performed all resolutions made at the shareholders' general meeting in accordance with the requirements of such laws and rules and regulations as Company Law, Securities Law, Administrative Rules for Listed Companies and Stock Listing Rule of Shenzhen Stock Exchange, the Company's decision-making was scientific and valid. The Company also revised and perfected internal control system according to relevant laws, rules and regulations, which provided system guarantee for upgrading level of corporate governance. The Company's directors and senior executives launched their working strictly in accordance with Chinese laws, regulation and Articles of Association, and did not disobey laws and regulations and the Articles of Association of the Company, also did not damage the interests of the Company or harm the interests of the shareholders. 2. Inspecting the Company's finance. In the reporting period, the Supervisory Committee inspected the Company's business and financial status, believed that the financial system is perfected with a good financial status and considered that the auditors' report 2007 with unqualified opinion presented by Vocation International Certified Public Accountants Co., Ltd. for the Company reflected the Company's financial position and operating results in an objective and true way. 3. There was no raised funds and usage of that funds during the report period. 4. Independent opinion of the Supervisory Committee on purchase and sales of assets: In the report period, the Company existed no significant purchase and sales of assets. 5. Related transactions. The related transactions were fair and just, not harming the interests of the Company. 31 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. X. Significant Events (I) Significant lawsuits and arbitrations In the report period, the Company existed no significant lawsuits or arbitrations. (II) Purchase and sales of assets as well as mergers in the report period In the report period, the Company existed no significant purchase or sales of assets or mergers. (III) Important related transactions happened in the report period Please refer "X. Relationship among Related Parties and Transaction" under "Notes to Financial Statement" under Section X Financial Report for details. (IV) Creditor’s rights, liabilities and guarantees between related parties and the Company 1. Current creditor's right and liabilities among related parties Please refer to "X. Relationship among Related Parties and Transaction" under Notes to Financial Statement for details. 2. Guarantee Unit: RMB'0000 External guarantee of the Company (excluding the guarantee for the shareholding subsidiaries) Name of the Date of occurrence Amount of Guarantee Guarantee Accomplish Guarantee for related Company (date of agreement guarantee type term ed or not party (yes or not) guaranteed signed) Total amount of guarantee occurred in the report period 0.00 Total balance of guarantee at the end of the report period 0.00 Guarantee of the Company for the shareholding subsidiaries Total amount of guarantee occurred for shareholding subsidiaries 3,500.00 in the report period Total balance of guarantee occurred for shareholding subsidiaries 20,995.00 at the end of the report period Total amount of external guarantee of the Company (Including the guarantee for the shareholding subsidiaries) Total amount of guarantee 20,995.00 The proportion of the total amount of guarantee in the net assets 22.95% of the Company Of which: The amount of guarantee provided for shareholders, actual 0.00 controller and other related parties Guarantee amount for the debts of the guaranteed companies with 20,995.00 an asset-liability ratio of over 70 percent, directly or indirectly The amount by which the total guarantee amount exceeded 50 0.00 percent of the net assets Total amount of the above three guarantees 20,995.00 Please refer to "XV. Contingent events under "Notes to Financial Statement for details. 3. Repayment on capital occupied In the reporting period, the balance of non-operating capital occupied by the controlling shareholders and subsidiaries of the Company was RMB 0. (V) Trusteeship, lease and other significant contract In the reporting period, there was no trusteeship, lease and other significant contract. 32 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (VI) In the reporting period, neither the Company nor the Board of Director or the Board had received any administrative punishment or notice of criticism from the CSRC, or had been criticized publicly by the Stock Exchange. (VII) Survey and interview received In the reporting period, the Company received the call and visit patiently in accordance with the Guidelines on Fair Information Disclosure of Companies Listed and response relevant problem. The Company and related information disclosure obligor obey the principle of Fair Information Disclosure, and implement no different treatment or divulge the non-public information ahead. There were more than 10 visitors of the Company during the report period. (VIII) Implementation of social responsibility of the Company during the report period a. Rights protection of Shareholders and Creditors: The Company treats all the Shareholders and Creditors fair, which ensured they can enjoy the legal rights fully prescribed by law and regulates. b. rights and interest protection of employees The Company strictly followed Labor Law to protect the legal rights and interests of employees, set up and perfect employment system, including the Compensation System and Inspirit Encouraging Mechanism, by which ensured employees to enjoy the labor rights and perform the obligation. c. rights and interest protection of provider client and consumer The Company always abides by the honest and faithful principle, and neither collects money by inveracious propagandize and advertisement, or infringe the copyright, trademark and patent right and other knowledge property of provider and client. d. Environment protection and sustainable development The Company established the policy of environment protection, and appointed the very department to responsible for providing performance, sustainment and improvement the environment protection system of manpower, essential material resource and technology. e. The public relations and commonweal undertaking The Company took part in the environment protection, poor serving and other social commonweal activities, which driven the development of the located area of company. Meanwhile, the Company received the supervision and inspection of government and supervisory institute, also, paid attention to the remark of the Company from the social commonage and media. (IX) Equity investment Equity Profit and Change in Book value Subject for Short form of Initial investment proportion in loss in the the owners’ Stock code at the accounting Source of shares stock amount that of this report equity in the period-end calculation company period report period Shuanghuan Long-term Purchase of 000707 Science and 495,000.00 0.27% 495,000.00 0.00 0.00 equity original issue Technology investment legal person share Total 495,000.00 - 495,000.00 0.00 0.00 - - 33 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Equity Profit and Change in Book value Subject for Initial investment Number of shares proportion in loss in the the owners’ Name at the accounting Source of shares amount held that of this report equity in the period-end calculation company period report period Jingzhou City Long-term Purchase of Commercial 20,000,000.00 20,000,000 6.65% 8,008,982.63 0.00 0.00 equity original issue Bank Co., investment legal person share Ltd. Total 20,000,000.00 20,000,000 - 8,008,982.63 0.00 0.00 - - (X) Other significant events in the reporting period 1. Sanonda Group Corporation, the principal shareholder of the Company, mortgaged 40.86 million shares of the Company (after transferring capital reserve into share capital, taking up 13.76% of total share capital) held by it to Industrial and Commercial Bank of China, Jingzhou Sha City Subbranch for loan of RMB 60 million on Dec. 1, 2005 with term limit of loan from Dec. 6, 2005 to June 17, 2008. Ended Dec. 31, 2007, the aforesaid mortgage didn't Unchain. 2. Sanonda Jingzhou Pesticide Chemical Co., Ltd., the subsidiary company controlled by the Company, signed Agreement for Debt Restructuring with China Cinda Assets Management Corporation. In accordance to such agreement, total debts involved in the said debts restructuring was USD 1,362,441.07 and RMB 1.283,548.70. Sanonda Jingzhou Pesticide Chemical Co., Ltd. paid RMB 2,240,000 one-off to China Cinda Assets Management Corporation, hereinafter, the rest debts were exempted by China Cinda Assets Management Corporation. The income from debts restructuring confirmed by the Company was RMB 9,864,764.75. 3. The Company employed the Vocation International Certified Public Accountants Co., Ltd as the domestic Auditing Firm for the year 2007, and the auditing expense was RMB 450,000. Beijing Vocation Zixin Certified Public Accountants CPA, the domestic Auditing Firm who audited for the Company last year changed name as Vocation International Certified Public Accountants Co., Ltd. 4. The Company employed the ShineWing (HK) CPA Limited as the overseas Auditing Institute for the year 2007, and the auditing expense was HKD 500,000. Hong Kong Ho and Ho & Company Certified Public Accountants as the overseas Auditing Institute of the Company last year was merged the ShineWing (HK) CPA Limited. (XI) Commitments and implementation The commitments from controlling shareholder of the Company --- Sanonda Group Corporation when the share merger reform: (1) All the non-tradable shareholders of the Company will abide the law regulation and perform the basest commitments prescribed by law. (2) Besides the basest commitments, Sanonda Group Corporation also made the following special commitments: ① No trading or transferring within 36 months from the first trading day of A shares after the share merger reform proposal was implemented, it would comply with relevant 34 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. regulations not to sell. The said commitment is under fulfilling. ② Sanonda Group would propose the proposal on transferring capital reserve into share capital at the rate of 10 shares for every 10 shares to all shareholders of Sanonda at the Annual Shareholders’ General Meeting 2006, and would vote the affirmative vote. The said commitment has been executed on 9 Jul. 2007. (XII) Index for information disclosure Event Date Name of newspaper Website Public Notice on the 5th meeting 3 Feb. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Board of Directors Securities Times and Ta Kung Pao Public Notice on the 4th meeting 3 Feb. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Supervisory Committee Securities Times and Ta Kung Pao Public Notice on Stock Price 12 Mar. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times and Ta Kung Pao Public Notice on the 6th meeting 31 Mar. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Board of Directors Securities Times and Ta Kung Pao Public Notice on the 5th meeting 31 Mar. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Supervisory Committee Securities Times and Ta Kung Pao Public Notice on the 7th meeting 25 Apr. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Board of Directors Securities Times and Ta Kung Pao Public Notice on Voluntary 11 May 2007 China Securities Journal, www.cninfo.com.cn Disclosure due to Rise of Stock Securities Times and Ta Kung Pao Price Public Notice on Shareholders' 26 May 2007 China Securities Journal, www.cninfo.com.cn General Meeting 2006 Securities Times and Ta Kung Pao Public Notice on Illegally 4 Jun. 2007 China Securities Journal, www.cninfo.com.cn Trading by Senior Management Securities Times and Ta Kung Pao Public Notice on Stock Price 19 Jun. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Public Notice on Influence on 28 Jun. 2007 China Securities Journal, www.cninfo.com.cn the Company due to export Securities Times and Ta Kung Pao rebates Public Notice on the 8th meeting 3 Jul. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Board of Directors Securities Times and Ta Kung Pao Public Notice on Stock Price 10 Jul. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Public Notice on Stock Price 26 Jul. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Public Notice on Stock Price 31 Jul. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Public Notice on the 9th meeting 16 Aug. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Board of Directors Securities Times and Ta Kung Pao Public Notice on the 6th meeting 16 Aug. 2007 China Securities Journal, www.cninfo.com.cn of the 5th Supervisory Committee Securities Times and Ta Kung Pao Semi-annual Report 2007 and 16 Aug. 2007 China Securities Journal, www.cninfo.com.cn Summary Securities Times and Ta Kung Pao The Third Quarterly Report 2007 24 Oct. 2007 China Securities Journal, www.cninfo.com.cn Securities Times and Ta Kung Pao Rectification Report on Special 7 Nov. 2007 China Securities Journal, www.cninfo.com.cn Campaign of Corporate Securities Times and Ta Kung Pao Governance Public Notice on Stock Price 16 Nov. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Temporary Public Notice on 22 Nov. 2007 China Securities Journal, www.cninfo.com.cn Suspension of Trading Securities Times Public Notice on Stock Price 28 Nov. 2007 China Securities Journal, www.cninfo.com.cn Abnormal fluctuation Securities Times Suggestive Public Notice on 14 Dec. 2007 China Securities Journal, www.cninfo.com.cn Releasing from Trading Securities Times Moratorium 35 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. XI. Financial Report (I) Auditors' Report TZJS Zi [2008] No. 637 All Shareholders of Hubei Sanonda Co., Ltd : We have audited the accompanying financial statements of the Company, which comprise the consolidated balance sheet and balance sheet as at 31 December 2007, the consolidated income statement and income statement, the consolidated statement of changes in equity and statement of changes in equity, the consolidated cash flow statement and cash flow statement for the year then ended, and notes to the financial statements. Management’s Responsibility for the Financial Statements The Company’s management is responsible for the preparation of these financial statements in accordance with China Accounting Standards for Business Enterprises (2006) issued by the Ministry of Finance of the People’s Republic of China. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China Standards on Auditing for Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements comply with the requirements of China Accounting Standards for Business Enterprises (2006) issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the consolidated financial position and financial position of the Company as at 31 December 2007, and the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company for the year then ended. Beijing · China 22 April 2008 CPA: Kuang Min CPA: Zhang Juzhong 36 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (II) Financial statement Balance Sheet Prepared by Hubei Sanonda Co., Ltd. 31 Dec. 2007 Unit: RMB Yuan Amount at the period-end Amount at the period-begin Items Consolidation Parent Company Consolidation Parent Company Current assets Cash and cash equivalents 452,405,704.33 384,695,931.50 319,965,596.44 223,103,831.01 Settlement fund 0.00 0.00 0.00 0.00 Outgoing call loan 0.00 0.00 0.00 0.00 Trading financial assets 0.00 0.00 28,287,350.22 28,287,350.22 Notes receivable 9,219,453.30 4,086,851.80 8,022,453.60 2,634,370.00 Accounts receivable 229,963,431.81 32,952,675.83 172,823,247.54 70,851,773.59 Prepayment 52,965,149.82 46,688,523.44 37,113,502.94 21,362,489.04 Insurance receivables 0.00 0.00 0.00 0.00 Reinsurance Receivable 0.00 0.00 0.00 0.00 Provision of reinsurance 0.00 0.00 0.00 0.00 contract reserve receivable Interests receivable 0.00 0.00 0.00 0.00 Other receivables 25,035,288.85 117,689,217.89 51,181,972.69 144,632,369.62 Financial assets purchased 0.00 0.00 0.00 0.00 under agreement to resell Inventories 301,638,198.05 167,548,483.81 336,105,443.22 178,537,759.78 Non-current assets due within 0.00 0.00 0.00 0.00 1-year Other current assets 0.00 0.00 0.00 0.00 Total current assets 1,071,227,226.16 753,661,684.27 953,499,566.65 669,409,943.26 Non-current assets： Loan and payment on other's behalf disbursed Available-for-sale financial assets Investment held to maturity Long-term receivables Long-term equity investment 15,763,382.63 81,598,425.27 16,545,382.63 82,380,425.27 Investment property 5,581,186.50 5,581,186.50 5,826,394.50 5,826,394.50 Fixed assets 403,368,455.33 324,118,110.46 431,417,936.01 346,844,364.76 Construction in progress 78,790,543.52 75,760,032.60 30,744,114.30 25,253,253.21 Engineering materials 28,298.44 2,071,479.30 1,979,356.81 Disposal of fixed assets Production biological assets Oil-gas assets Intangible assets 163,784,716.33 118,945,235.98 182,278,251.30 137,294,823.35 37 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. R&D expenses Goodwill Long-term deferred expenses 105,913.25 197,553.29 Deferred tax assets 2,062,357.74 2,514,244.04 Other non-current assets Total non-current assets 669,484,853.74 606,002,990.81 671,595,355.37 599,578,617.90 Total assets 1,740,712,079.90 1,359,664,675.08 1,625,094,922.02 1,268,988,561.16 Current liabilities： Short-term loans 334,979,993.25 185,000,000.00 225,000,000.00 141,000,000.00 Loans from central bank Deposits received and hold for others Call loan received Held-for-trading financial liabilities Notes payable 18,700,000.00 15,000,000.00 41,800,974.00 25,000,000.00 Accounts payable 117,249,335.53 78,354,115.32 149,582,111.47 79,291,777.70 Advance from customers 120,143,625.78 44,679,708.83 93,782,570.43 27,458,119.93 Financial assets sold under agreements to repurchase Fees and commissions payable Payroll payable 19,920,791.68 6,908,859.22 28,727,112.15 11,347,797.76 Taxes payable 1,759,988.62 1,622,398.62 -7,656,817.89 -1,019,659.19 Interests payable 3,912,441.11 6,951,417.19 Other payables 55,938,899.17 21,982,218.83 65,821,322.30 34,090,037.99 Amount due to reinsurance Insurance contract provision Entrusted trading of securities Entrusted selling of securities Non-current liabilities due 3,650,000.00 10,587,923.56 within 1-year Other current liabilities Total current liabilities： 676,255,075.14 353,547,300.82 614,596,613.21 317,168,074.19 Non-current liabilities： Long-term loans 90,000,000.00 90,000,000.00 90,000,000.00 90,000,000.00 Bonds payable Long-term payables 21,505,160.76 16,962,597.44 Specific payables 2,761,170.00 10,811,422.00 2,920,800.00 Provision for liabilities Deferred taxes liabilities Other non-current liabilities 12,119,452.00 6,990,000.00 Total non-current liabilities： 126,385,782.76 113,952,597.44 100,811,422.00 92,920,800.00 Total liabilities 802,640,857.90 467,499,898.26 715,408,035.21 410,088,874.19 38 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Shareholders' Equity： Share capital 593,923,220.00 593,923,220.00 296,961,610.00 296,961,610.00 Capital surplus 271,719,841.74 268,447,075.77 566,756,587.94 565,408,685.77 Less：Treasury Stock Surplus reserve 57,285,245.67 57,285,245.67 57,285,245.67 57,285,245.67 General risk provision Retained earnings -7,943,821.74 -27,490,764.62 -37,544,622.78 -60,755,854.47 Foreign exchange difference Total shareholders' equity 914,984,485.67 892,164,776.82 883,458,820.83 858,899,686.97 attributable to holding company Minority interest 23,086,736.33 26,228,065.98 Total shareholder's equity 938,071,222.00 892,164,776.82 909,686,886.81 858,899,686.97 Total liabilities & shareholder's 1,740,712,079.90 1,359,664,675.08 1,625,094,922.02 1,268,988,561.16 equity Income Statement Prepared by Hubei Sanonda Co., Ltd. Jan.-Dec. 2007 Unit: RMB Yuan This year Same period of last year Items Consolidation Parent Company Consolidation Parent Company I. Total revenue 1,648,350,997.55 1,147,079,409.80 1,444,449,312.33 979,390,732.45 Including: revenue 1,648,350,997.55 1,147,079,409.80 1,444,449,312.33 979,390,732.45 Interests income Insurance fee income Fee and commission income II. Total cost of sales 1,684,213,998.12 1,186,870,079.60 1,429,530,355.20 980,719,128.06 Including: Cost of sales 1,400,956,841.13 972,035,966.64 1,211,182,903.44 815,052,500.76 Interests expenses Service charge and commission income Insurance discharge payment Claim expenses-net Provision for insurance contract reserve-net Insurance policy dividend paid Reinsurance expense Business taxes and 2,195,493.76 1,118,882.89 2,816,514.64 2,083,222.30 surcharges Distribution 63,374,261.95 46,352,756.12 71,025,617.61 54,539,809.27 39 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. expenses Administrative 101,989,254.63 68,509,059.53 79,560,874.60 56,546,765.61 expenses Financial costs 41,037,649.87 31,309,216.47 30,444,570.10 20,549,103.82 Impairment loss 74,660,496.78 67,544,197.95 34,499,874.81 31,947,726.30 Plus: gain/loss on change in fair value (“-”for loss) gain/loss on 81,737,835.42 87,944,863.76 27,631,747.00 13,102,245.10 investment(“-”for loss) Including: income from investment on associates and jointly ventures Gain or loss on foreign exchange difference (“-”for loss) III. Operating profit(“-”for loss) 45,874,834.85 48,154,193.96 42,550,704.13 11,773,849.49 Plus: non-operating income 10,827,960.65 110,089.66 1,520,105.60 1,211,055.62 Less: non-operating expense 16,641,148.18 13,409,119.60 4,736,564.25 4,360,126.92 Including: loss from 12,260,017.68 9,447,976.17 4,463,672.95 4,278,018.29 disposal of non-current asset IV. Total profit(“-”for loss) 40,061,647.32 34,855,164.02 39,334,245.48 8,624,778.19 Less: income tax expense 7,632,435.18 1,590,074.17 7,952,984.00 4,215,968.62 V. Net profit(“-”for loss) 32,429,212.14 33,265,089.85 31,381,261.48 4,408,809.57 Including: Attributable to equity holders of the parent 29,600,801.04 33,265,089.85 25,985,571.59 4,408,809.57 company Minority interest 2,828,411.10 5,395,689.89 VI. Earnings per share (I) basic earnings per share 0.05 0.09 (II) diluted earnings per share 0.05 0.09 Cash Flow Statement Prepared by Hubei Sanonda Co., Ltd. Jan.-Dec. 2007 Unit: RMB Yuan This year Same period of last year Items Consolidation Parent Company Consolidation Parent Company 1. Cash flows from operating activities Cash received from sales of 1,671,493,810.91 1,188,894,719.03 1,589,540,118.43 1,132,276,232.22 goods or rending of services Net increase of deposits received and held for others Net increase of loans from central bank Net increase of inter-bank loans 40 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. from other financial assets Cash received against original insurance contract Net Cash received from reinsurance Net increase of client deposit and investment Cash received from disposal of held-for-trading financial assets Cash received as Interests, fees and commissions received Net increase of inter-bank fund received Cash received under repurchasing, net Tax returned 20,394,759.73 14,603,582.69 15,117,413.80 Other cash received from 23,442,727.62 31,411,626.27 82,501,508.56 70,156,343.74 operating activities Sub-total of cash inflow from 1,715,331,298.26 1,234,909,927.99 1,687,159,040.79 1,202,432,575.96 operating activities Cash paid for goods and 1,221,087,573.67 840,505,311.27 1,248,534,659.30 809,824,557.42 services Net increase of loans and advances Net increase of deposit in central bank, banks and other financial institutions Cash paid for original contract claim Cash paid for interests, fees and commission Cash paid for policy dividend Cash paid to and for employees 108,634,353.26 67,826,630.51 91,775,320.14 62,891,180.11 Cash paid for all types of taxes 30,466,412.48 19,977,661.12 19,334,552.76 8,194,200.00 Other cash paid relating to 83,496,381.96 58,645,083.83 87,329,653.58 41,853,137.37 operating activities Sub-total of cash outflows 1,443,684,721.37 986,954,686.73 1,446,974,185.78 922,763,074.90 Net cash outflow in operating 271,646,576.89 247,955,241.26 240,184,855.01 279,669,501.06 activities 2. Cash Flows from Investing Activities Cash received from return of 119,315,789.68 93,619,416.63 53,267,114.41 13,041,916.47 investments 41 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Cash received from investment 18,155,744.75 24,028,892.14 246,000.00 income Net cash received from disposal of fixed assets, intangible assets and 458,861.00 94,145.00 3,682,351.00 3,664,351.00 other long-term assets Net cash received from disposal of subsidiaries and other operating units Other cash received relating to 2,220.82 investing activities Sub-total of cash inflows of 137,930,395.43 117,742,453.77 57,197,686.23 16,706,267.47 investing activities Cash paid for acquisition of fixed assets, intangible assets and 83,337,017.15 82,267,245.29 71,557,025.79 68,811,700.00 other long-term assets Cash paid for acquisition of 87,638,860.84 53,612,666.54 36,489,274.64 36,489,274.64 investments Net increase of pledge loans Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to 90,689.30 investing activities Sub-total of cash outflows of 171,066,567.29 135,879,911.83 108,046,300.43 105,300,974.64 investing activities Net cash inflow from investing -33,136,171.86 -18,137,458.06 -50,848,614.20 -88,594,707.17 activities 3. Cash Flows from Financing Activities: Cash received from investment Including: Cash received from minority shareholders of subsidiaries Cash received from borrowings 395,000,000.00 322,000,000.00 271,000,000.00 196,000,000.00 Cash received from bonds issuing Cash received relating to 1,212,451.29 1,085,329.25 financing activities Sub-total of cash inflows of 396,212,451.29 322,000,000.00 272,085,329.25 196,000,000.00 financing activities Cash paid for repayments of 466,280,185.30 366,000,000.00 355,350,000.00 281,000,000.00 borrowings Cash paid for dividends, profit 34,247,031.25 24,225,682.71 28,292,945.88 22,297,210.18 distribution or interest Including: dividends or profits paid to minority shareholders by 42 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. subsidiaries Other cash paid relating to 1,755,531.88 282,906.17 financing activities Sub-total of cash outflows of 502,282,748.43 390,225,682.71 383,925,852.05 303,297,210.18 financing activities Net cash inflow from -106,070,297.14 -68,225,682.71 -111,840,522.80 -107,297,210.18 financing activities 4. Effect of foreign exchange rate changes 5. Net decrease in cash and cash 132,440,107.89 161,592,100.49 77,495,718.01 83,777,583.71 equivalents Add : Cash and cash equivalents 319,965,596.44 223,103,831.01 242,469,878.43 139,326,247.30 at the beginning of the year 6. Cash and cash equivalents at the 452,405,704.33 384,695,931.50 319,965,596.44 223,103,831.01 end of the year 43 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 9.2.4 Statement of Change in Equity Prepared by Hubei Sanonda Co., Ltd. 31 Dec. 2007 Unit: RMB Yu Year 2007 Shareholders' equity belonged to parent company Shareholders' equity be General Minorit Items Less: Retaine Less: Share Capital Surplus Risk y Total Share Capital Su Treasur d others Treasur capital reserve reserve provisio interest capital reserve re y stock earnings y stock n I. Balance at 31 December, 296,961, 566,756, 57,285,2 -37,544, 26,228,0 909,686, 296,961, 566,756, 57 2006 610.00 587.94 45.67 622.78 65.98 886.81 610.00 587.94 Plus: change in accounting policies Correction of errors in previous period 296,961, 566,756, 57,285,2 -37,544, 26,228,0 909,686, 296,961, 566,756, 57 II. Balance at 1 January, 2007 610.00 587.94 45.67 622.78 65.98 886.81 610.00 587.94 III. Increase/ decrease during 296,961, -295,03 29,600,8 -3,141,3 28,384,3 the financial year (“-”for loss) 610.00 6,746.20 01.04 29.65 35.19 29,600,8 2,828,41 32,429,2 (I) Net profit 01.04 1.10 12.14 (II) Gain and loss 1,924,86 1,924,86 recognized directly in equity 3.80 3.80 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 1 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 3. Deferred tax effect 1,924,86 1,924,86 4. Others 3.80 3.80 1,924,86 29,600,8 2,828,41 34,354,0 Subtotal of (I)and (II) 3.80 01.04 1.10 75.94 (III) Contributions and -3,124,8 -3,124,8 decrease of capital 63.84 63.84 1. Contributions by shareholders 2. Equity settled share-based payment -3,124,8 -3,124,8 3. Others 63.84 63.84 -2,844,8 -2,844,8 (IV) Profit distribution 76.91 76.91 1. Surplus reserve accrued 2. General risk provision accrued 3. Distribution to -2,844,8 -2,844,8 shareholders 76.91 76.91 4. Others (V) Transfer within 296,961, -296,96 shareholders' equity 610.00 1,610.00 1. Capital reserve 296,961, -296,96 transferred to capital (share 610.00 1,610.00 capital) 2. Surplus reserve transferred to capital (share 2 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. capital) 3. Surplus reserve offsetting losses 4. Others IV. Balance at 31 December, 593,923, 271,719, 57,285,2 -7,943,8 23,086,7 938,071, 296,961, 566,756, 57 2007 220.00 841.74 45.67 21.74 36.33 222.00 610.00 587.94 3 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Reconciliation of difference in shareholders’ equity between the New and the Old Accounting Standard for Business Enterprise Unit: RMB Yuan Amount disclosed Amount disclosed Items in the Annual in the Annual Difference Explanation on reason Report 2007 Report 2006 Shareholder’s Equity as at 31 Dec. 2006 (old 900,295,089.22 900,295,089.22 0.00 Naught accounting standard for business enterprise) Balance of long-term equity investment Naught Of which: balance of long-term equity investment formed in the merger of an Naught enterprise under the same control Credit balance for long-term equity investment Naught calculated based on equity method Investment real estate measured based on fair Naught value model Depreciation over the past years supplemental Naught withdrew due to dismantling cost of assets Decrease of shareholders' equity Employee termination indemnity according -21,408,498.58 -21,408,498.58 because that the with projected liability Company retroactively adjust welfare of retiree Share based payments Naught Reorganization obligation according with Naught projected liability Business Combinations Naught Of which: Book value of goodwill formed in the merger of an enterprise under the same Naught control Reserve for impairment of goodwill withdrawn Naught based on new accounting standards Financial assets measured in line with fair value and its change amounts was recognized 444,670.58 444,670.58 0.00 Naught in profit or loss of current period and available-for sale financial assets Financial liability measured in line with fair value and its change amounts was recognized Naught in profit or loss of current period Equity increased due to division of financial Naught instruments Derivative financial instruments Naught 39 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Income Tax 2,425,734.73 2,425,734.73 0.00 Naught Minority interests 24,220,643.76 24,220,643.76 0.00 Naught Special retroactive adjustment for listed Naught companies with B-share and H-share Other 3,709,247.10 3,709,247.10 0.00 Naught Decrease of shareholders' equity Shareholder Equity as at 1 Jan. 2007 (new 909,686,886.81 931,095,385.39 -21,408,498.58 because that the accounting standard for business enterprise) Company retroactively adjust welfare of retiree Adjustment in Income Statement （2006.1.1—12.31） Unit: RMB Yuan Items Prior to adjustment Subsequent to adjustment Operating cost 1,177,954,470.35 1,211,182,903.44 Sales expense 70,965,068.03 71,025,617.61 Administrative expense 110,361,152.64 79,560,874.60 Income from change in fair value 0.00 Investment income 27,951,601.27 27,631,747.00 Income tax 7,638,609.14 7,952,984.00 Net profit 22,956,580.59 25,985,571.59 Reconciliation to net profit as of 2006 between the New and the Old Accounting Standard for Business Enterprise Unit: RMB Yuan Items Amount Net profit as of the year 2006（old accounting standard for business 27,116,807.33 enterprise） Add: Total amount influenced by retroactive adjustment items 104,227.41 Including: Operating cost -33,228,433.09 Sales expense -60,549.58 Administrative expense 30,800,278.04 Income from change in fair value Investment income -319,854.27 Income tax -314,374.86 other 3,227,161.17 Less: Influence on Minority shareholder’s gains and losses from retroactive 1,235,463.15 40 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. adjustment Net profit attributable to owner of parent company as of the year 2006 25,985,571.59 (accounting standard for business enterprise) Reference information of supposing implement the New Accounting Standard for Business Enterprise I. Add: Total amount influenced by other items Including: Development expense Gains and losses from debt restructuring Gains and losses from non-monetary assets exchange Investment income Income tax Other II. Add: Minority shareholder’s gains and losses from retroactive 1,235,463.15 adjustment III. Add: Minority shareholder’s gains and losses listed in the former 4,160,226.74 financial statement Simulated net profit as of 2006 31,381,261.48 41 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (III) Notes to financial statement Hubei Sanonda Co., Ltd. Notes to Financial Statement for the Year 2007 (The following amount is expressed in RMB unless otherwise special explanation) I. Company profiles The former Hubei Sanonda Co., Ltd. (hereinafter referred to "Company" or "the Company") is state operated Hubei Sha City Pesticides Factory, which was set up in 1958. In Aug. 1992, as approved by Hubei Commission for Economic System Reformation, the original enterprise was reorganized as Hubei Sanonda Co., Ltd., which turned into the first pioneer large state-operated industry enterprise in Hubei Province. On 8 Sep. 1992, on the basis of reorganization of the former enterprise, the Company was established formally. As approved by People's Government of Hubei Province and reviewed by CSRC, 30,000,000 RMB ordinary public shares ("A shares") of the Company have been issued since Oct. to 30 Nov. 1993. On 3 Dec. 1993, shares of the Company have been listed on Shenzhen Stock Exchange. As approved by Securities Committee of the State Council with "ZF(1997) No. 23", its domestically listed foreign ordinary public shares ("B shares") amounting to 100,000,000 shares have been issued at the par value of RMB 1 per share on 29 Apr. 1997 and 25 May 1997, such shares have been listed on the Shenzhen Stock Exchange on 15 May 1997, and over-allotment option of 15,000,000 shares have been exercised since 15 May to 21 May 1997. The proposal on transferring capital reserve into share capital has been examined and approved at the Shareholders' General Meeting 2006 held in May 2007, which transferred capital reserve into share capital at the rate of 10 for 10, and has been implemented in July 2007. After transferring, the total share capital was RMB 593,920,000. The addresses of the registered office and principal place of business of the Company are No. 93, Beijing East Road, Jingzhou, Hubei. Legal representative is Li Zuorong. Share abbreviations are Sanonda A and Sanonda B with stock code of 000530 and 200530 respectively. Main pesticides products include: dipterex, isocarbophos, cyhalothrin, chlorpyrifos, triazophos, quizalofop-P-ethyl and paraquat. Main chemical products include: liquefied chlorine gas, hydrochloric acid, liquid caustic soda, solid caustic soda and spermine. The Company has self-operated import & export right. The Company has passed ISO 9002 Quality Management System and ISO14001 Environment Management System certifications. II. Statement for complying with the accounting standard for business enterprise The Company’s financial statements are in compliance with the requirements of the accounting standard for business enterprise, and have reflected the Company’s financial status, operating results and cash flows in an accurate and complete way. III. Preparation basis for the financial statements With sustaining operation as a postulate premise, the Company prepared the financial 42 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. statement in accordance with the below-mentioned important accounting policies and accounting estimate and actual transaction and events. The Company originally performed Accounting Standard for Business Enterprise and Accounting System for Business Enterprise, while in accordance with the requirements of the Ministry of Finance of PRC No. 33 document and CK [2006] No. 3 from the Ministry of Finance, the Company performed the new Accounting Standard for Business Enterprise since 1 Jan. 2007. In accordance with the Circular on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies ------ Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards issued by China Securities Regulatory Commission, the comparative financial data is amount as at the period-begin of balance sheet as at 1 Jan. 2007 recorded in such report are recognized based on the principle stipulated in ZJF [2006] No. 136 document from CSRC, and on the basis of these, and in accordance with the Article 5 to Article 19 in Accounting Standard for Business Enterprise No. 38 --- First Time Adoption of Accounting Standard for Business Enterprise, Interpretation for Accounting Standard for Business Enterprise No. 1, influence on income statement and comparative balance sheet as at the period-begin, the Company prepared income statement and comparative balance sheet after adjustment in the light of the principle of retroactive adjustment, and income statement after adjustment shall be listed as comparative income statement. IV. The main accounting policies, accounting estimates 1. Accounting period The Company’s fiscal year is from Jan. 1 to Dec. 31 the Gregorian calendar. 2. Bookkeeping base currency The Company adopts Renminbi as a bookkeeping base currency. 3. Accounting basis and pricing principles. The Company conducts accounting recognition, measurement and reporting based on the accrual system. 4. Measurement attributes The Company generally adopts historical cost as the accounting basis. And the Company adopts measurement replacement costs, net realizable values, present values and fair values when the confirmed accounting elements accord with the requirements of the accounting standard for business enterprise and can be reliably measured. 5. Recognition standard for cash equivalents Cash equivalents of the Company refer to short-term (usually due within 3 months since the day of purchase) and high circulating investments, which are easily convertible into known amount of cash and whose risks in change of value are minimal. Foreign currency (1) At the time of initial recognition of a foreign currency transaction, the amount in the foreign currency shall be translated into the amount in the functional currency at the spot exchange rate of the transaction date (generally refer to the middle price of foreign exchange market on that day published by People’s Bank of China, the same below), 43 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. but the Company’s transaction matters related with foreign currency exchange or involving in foreign currency exchange, the amount in the foreign currency transaction shall be translated into the amount in the functional currency based on actual exchange rate 6. Foreign currency (1) At the time of initial recognition of a foreign currency transaction, the amount in the foreign currency shall be translated into the amount in the functional currency at the spot exchange rate of the transaction date (generally refer to the middle price of foreign exchange market on that day published by People’s Bank of China, the same below), but the Company’s transaction matters related with foreign currency exchange or involving in foreign currency exchange, the amount in the foreign currency transaction shall be translated into the amount in the functional currency based on actual exchange rate. (2) On the balance sheet date, at the time of initial recognition of a foreign currency transaction, the amount in the foreign currency shall be translated into the amount in the functional currency at the spot exchange rate of the transaction date. The balance of exchange arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded into the profits and losses at the current period. The balance of exchange arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded into the profits and losses at the current period. (3) On the balance sheet date, the foreign currency non-monetary items measured at the historical cost shall still be translated at the spot exchange rate on the transaction date, of which the amount of functional currency shall not be changed. The foreign currency non-monetary items measured at the fair value shall be translated at the spot exchange rate on the fair value confirming date, the difference is taken as the changes in the profit and loss of fair value. 7. Financial asset and financial liability Financial assets owned by the Company shall be classified into the following four categories in accordance with investment purpose and economic entity:(1)the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and the financial assets which are measured at their fair values and of which the variation is included in the current profits and losses; (2) the investments which will be held to their maturity; (3) loans and the account receivables; and (4) financial assets available for sale. Tradable financial assets shall be measured based on fair value and its change shall be recorded into gains and losses of the current period. Available for sale financial assets shall be measured based on fair value and its change shall be recorded into shareholders’ equity. The investments held until their maturity and accounts receivable shall be measured on the basis of the post-amortization costs by adopting the actual interest rate method. Financial liabilities shall be classified into the following two categories according to the economic entity will take on financial liability :(1)the financial liabilities which are measured at their fair values and of which the variation is included in the current profits 44 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. and losses, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; and (2) other financial liabilities. 8. Principles of identifying bad debts (1) Recognition standard of bad debts: ① debtor has serious financial difficult; ② debtor goes against the contract clause (for instance, breach of faith or overdue paying interests or principal); ③ debtors has a great probability of bankruptcy or other financial reorganization; ④ other objective evidence proving such accounts receivable has been impaired. (2) Measurement method of bad debts Bad debts of the Company shall be measured based on the allowance method. (3) Withdrawal method of bad debts When there is objective evidence showing it has depreciated, a depreciation loss should be confirmed and a bad debt reserve should be drawn according to the balance of a receivable account’s present value of future cash flow’s lowering than its book value. The accounts receivable with non-significant single-item amount are classified into several portfolios together with the accounts receivable not incurring depreciation upon separate tests according to similar credit risk characteristics, and depreciation losses are confirmed and bad debt reserves are drawn according to the certain proportion on the balance sheet date. 9. Inventories (1) Category of inventories Inventories of the Company are classified into raw materials, reusing materials products in process, OEM products and stock goods etc. (2) Initial measurement of the inventories shall be adopted their cost. On the date of balance sheet, the inventories shall be measured whichever is lower in accordance with the cost and the net realizable value. (3) Inventory system for inventories: Perpetual inventory system is adopted.。 (4) Raw materials and packing shall be measured in the light of planning cost, the balance between actual cost and planning cost shall be recorded into difference of material cost. The Company shall amortize the easily consumed products of low value and packing the one-off amortization method. (5) On the date of balance sheet, the inventories shall be measured whichever is lower in accordance with the cost and the net realizable value. the cost of inventories is higher than the net realizable value, the provision for the loss on decline in value of inventories shall be withdrawn, and recorded into profit and loss of the current period. (6) The net realizable value refers to in the daily business activity the amount after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. 10. Recognition and measurement of long-term equity investment 1. Recognition of initial investment cost of long-term equity investment (1) For the merger of enterprises under the same control, if the consideration of the merging enterprise is that it makes payment in cash, transfers non-cash assets or bear its debts or issue equity securities, it shall, on the date of merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term 45 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. equity investment and the book value of merger consideration paid or the total amount of the par value of share issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. (2) For the merger under different control, the Company, on the date of merger, regards the fair value of the merger consideration paid and various direct costs as the initial cost of the long-term equity investment. (3) Besides the long-term equity investments formed by the merger of enterprises, 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 of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued; 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. 2. A long-term equity investment that is controlled by the Company shall be accounted by employing the cost method, and shall be made an adjustment by employing the equity method when it works out consolidated financial statements. A long-term equity investment that does not do joint control or does not have significant influence on the Company, and entity, and has no offer in the active market and its fair value cannot be reliably measured, shall be measured by employing the cost method. A long-term equity investment that does joint control or significant influences over the Company shall be accounted by employing the equity method. (3) Impairment reserve for long-term equity investment: there exist impairment signs, impairment reserve shall be withdrawn. 11. Investment real estates Investment real estates include: the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. The initial measurement of the investment real estate shall be made at its cost. The Company shall make a subsequent measurement to the investment real estate through the cost pattern An investment real estates measured through the cost pattern shall be withdrawn a depreciation and made an amortization by employing the same method with fixed assets and intangible assets. 12. Fixed assets Fixed assets refers to the tangible assets that simultaneously possess the features as follows: (1) they are held for the sake of producing commodities, rendering labor service, renting or business management; and (2) their useful life is in excess of one fiscal year. No fixed assets may be recognized unless it simultaneously meets the conditions as follows: (1) the economic benefits pertinent to the fixed assets are likely to flow into the enterprise; and (2) the cost of the fixed assets can be measured reliably. Where the subsequent expenditure related with fixed assets, meeting the aforesaid recognition condition, shall be measured into the cost of the fixed assets, while not meeting the aforesaid recognition condition, it shall be measured into the profits and losses of the current period. 46 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. The initial measurement of fixed assets shall be made at its cost. (2) The Company shall account the depreciation of the fixed assets by employing the straight-line method. Expected net salvage Name of assets Depreciation life Annual depreciation rate value House and building 24 years 4.00% 4% Special equipment 9 years 10.89% 2% General equipment 18 years 5.33% 4% Transport equipment 9 years 10.89% 2% (3) Where there is any evidence indicating a possible impairment of assets, the enterprise shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset group to which the asset belongs. 13. Construction in progress (1) No construction in progress may be recognized unless it simultaneously meets the conditions as follows: a. the economic benefits are likely to flow into the Company, and b. the cost of the construction in progress can be measured reliably. The construction in progress shall be measured in the light of the actual cost when the assets complete and achieve estimated usable status. 2. Constructions in progress are carried down to fixed assets according to their actual costs when completing and achieving estimated usable status. The fixed assets that have been completed and reached estimated usable status but have not yet been through completion and settlement procedures are charged to an account according to their estimate values; adjustment will be conducted upon confirmation of their actual values. 3. Where there is any evidence indicating a possible impairment of construction in progress, the enterprise shall, on the basis of single item, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the group to which the asset belongs. 14. Intangible assets (1) The intangible assets shall be initially measured according to its cost (2) The expenditures for its internal research and development projects of an enterprise shall be classified into research expenditures and development expenditures. The term "research" refers to the creative and planned investigation to acquire and understand new scientific or technological knowledge. The research expenditures for its internal research and development projects of an enterprise shall be recorded into the profit or loss for the current period. The term "development" refers to the application of research achievements and other knowledge to a certain plan or design, prior to the commercial production or use, so as to produce any new material, device or product, or substantially improved material, device and product. The development expenditures for its internal research and development projects of the Company 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 47 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 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. The Company can not classify into research expenditures and development expenditures, the expenditure shall be measured as management expense when occurred, and recorded into profit and loss of current period. (3) Subsequent measurement of intangible assets ① Use life of intangible assets The service life of the intangible assets derived from any contractual right or other statutory rights shall not exceed the period specified by the contractual right or other statutory rights; The contractual right or other statutory rights are extended due to the extension, and evidence shows that the company does not need to pay significant amount of cost, the extension period shall be recorded into the service life. Where the contract or law does not specify the service life, the company shall make the judgment taking into various aspects to determine the period in which the intangible assets will bring economic benefits to the company. If it is impossible to determine the service life in which the intangible assets will bring economic benefits to the company with the above procedure, the intangible assets shall be regarded as the intangible assets with uncertain service life. ②An enterprise 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. An enterprise 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 With regard to intangible assets with limited service life shall be amortized reasonably in accordance with the expected realization pattern of the economic benefits which relevant to the intangible assets within the service life ④ If it is unable to determine the expected realization pattern reliably, intangible assets shall be amortized by the straight-line method. Intangible assets with uncertain service life may not be amortized, but the Company shall check the service life of the said intangible assets for every year, and make impairment testing. (4) Where there is any evidence indicating a possible impairment of intangible assets, the enterprise shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset to which the asset belongs. 15. Long-term deferred expense (1) Scope of long-term deferred expense Long-term deferred expense includes all expenses over one year (including 1 year) that the said expense has been occurred but will be amortized in this period and the coming period. (2) Initial measurement of long-term deferred expense The Company conducted initial measurement of long-term deferred expense in the light of actual occurred amount. (3) Amortization of long-term deferred expense Long-term deferred expense shall be amortized in the light of straight line method 48 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. during the beneficial period. 16. Borrowing costs (1) The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. (2) Recognition principle 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. (3) Recognition of capitalization period of borrowing costs ① The borrowing costs shall not be capitalized unless they simultaneously meet the following requirements:(1)The asset disbursements have already incurred, (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 Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs incurred during such period shall be recognized as expenses, and shall be recorded into the profits and losses of the current period, till the acquisition and construction or production of the asset restarts. If the interruption is a necessary step for making the qualified asset under acquisition and construction or production ready for the intended use or sale, the capitalization of the borrowing costs shall continue. ③ hen 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. (4) Recognition of capitalization amount of borrowing costs ① During the period of capitalization, the to-be-capitalized amount of interests (including the amortization of discounts or premiums) in each accounting period shall be determined according to the following provisions: a. 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. b. 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 49 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. c. Where there is any discount or premium, the amount of discounts or premiums that shall be amortized during each accounting period shall be determined by the real interest rate method, and an adjustment shall be made to the amount of interests in each period. d. During the period of capitalization, the amount of interest capitalized during each accounting period shall not exceed the amount of interest actually incurred to the relevant borrowings in the current period. ② Recognition of capitalization amount of borrowing auxiliary costs a. For the ancillary expense incurred to a specifically borrowed loan, those incurred before a qualified asset under acquisition, construction or production is ready for the intended use or sale shall be capitalized at the incurred amount when they are incurred, and shall be recorded into the costs of the asset eligible for capitalization; those incurred after a qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses on the basis of the incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. b. The ancillary expenses arising from a general borrowing shall be recognized as expenses at their incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. ③ Recognition on capitalization of exchange balance During the period of capitalization, the exchange balance on foreign currency borrowings shall be capitalized, and shall be recorded into the cost of assets eligible for capitalization. 17. Employee compensation (1) The employee compensation shall include:(1)Wages, bonuses, allowances and subsidies for the employees;(2)Welfare expenses for the employees;(3)Medical insurance, endowment insurance, unemployment insurance, work injury insurance, maternity insurance and other social insurances;(4)Housing accumulation fund;(5)Labor union expenditure and employee education expenses;(6)Non-monetary welfare;(7)Compensations for the cancellation of the labor relationship with the employees; and(8)Other relevant expenditures of services offered by the employees. (2) During the accounting period of an employee' providing services to an enterprise, the enterprise shall recognize the compensation payable as liabilities. Except for the compensations for the cancellation of the labor relationship with the employee, the enterprise shall, in accordance with beneficiaries of the services offered by the employee, treat the following circumstances respectively:(1)The compensation for the employee for producing products or providing services shall be recorded as the product costs and service costs;(2)The compensation for the employee for any on-going construction project or for any intangible asset shall be recorded as the costs of fixed asset or intangible assets; or(3)The compensation for the employee other than those as mentioned in Items (1) and (2) shall be recorded as profit or loss for the current period. 18. Estimated liabilities (1) The obligation pertinent to a contingencies shall be recognized as an estimated debts when the following conditions are satisfied simultaneously: a. That obligation is a current obligation of the enterprise; b. It is likely to cause any economic benefit to flow out of the enterprise as a result of 50 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. performance of the obligation; and c. The amount of the obligation can be measured in a reliable way. (2) The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation.If there is a sequent range for the necessary expenses and if all the outcomes within this range are equally likely to occur, the best estimate shall be determined in accordance with the middle estimate within the range.In other cases, the best estimate shall be conducted in accordance with the following situations, respectively: a. If the Contingencies concern a single item, it shall be determined in the light of the most likely outcome. b. If the Contingencies concern two or more items, the best estimate should be calculated and determined in accordance with all possible outcomes and the relevant probabilities. 19. Recognition standard of revenue (1) Recognition standard of revenue from selling goods No revenue from selling goods may be recognized unless the following conditions are met simultaneously: The significant risks and rewards of ownership of the goods have been transferred to the buyer by the enterprise; The enterprise retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; The relevant amount of revenue can be measured in a reliable way; The relevant economic benefits may flow into the enterprise; and The relevant costs incurred or to be incurred can be measured in a reliable way. (2) Recognition standard of labor service provided ①If an enterprise can, on the date of the balance sheet, reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method. The outcome of a transaction concerning the providing of labor services can be measured in a reliable way, means that the following conditions shall be met simultaneously: The amount of revenue can be measured in a reliable way; The relevant economic benefits are likely to flow into the enterprise; The schedule of completion under the transaction can be confirmed in a reliable way; and The costs incurred or to be incurred in the transaction can be measured in a reliable way. ② If an enterprise can not, on the date of the balance sheet, measure the result of a transaction concerning the providing of labor services in a reliable way, it shall be conducted in accordance with the following circumstances, respectively: A. If the all cost of labor services incurred is expected to be compensated, the revenue from the providing of labor services shall be recognized in accordance with the amount of the cost of labor services incurred, and the cost of labor services shall be carried forward at the same amount; B. If the part of cost of labor services incurred is expected to be compensated, the revenue from the providing of labor services shall be recognized in accordance with the amount of the cost of labor services incurred, and the cost of labor services shall be carried forward at the same amount or C. If the cost of labor services incurred is not expected to compensate, the cost incurred should be included in the current profits and losses, and no revenue from the providing of labor services may be recognized. 20. Government grants The government subsidies pertinent to incomes shall be treated respectively in 51 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. accordance with the circumstances as follows: Those subsidies used for compensating the related future expenses or losses of the enterprise shall be recognized as deferred income and shall included in the current profits and losses during the period when the relevant expenses are recognized; or Those subsidies used for compensating the related expenses or losses incurred to the enterprise shall be directly included in the current profits and losses. The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current profits and losses. But the government subsidies measured at their nominal amounts shall be directly included in the current profits and losses. 21. Income tax The Company shall make accounting treatment of income tax in the light of balance sheet liabilities method. The "temporary difference" shall refer to the difference between the carrying amount of an asset or liability and its tax base. As for an item that has not been recognized as an asset or liability, if its tax base can be determined in light of the tax law, the difference between the tax base and its carrying amount shall also be a temporary difference. Pursuant to the effect of temporary differences on taxable amounts during future periods, they can be classified into taxable temporary differences and deductible temporary differences. Where there is difference between the carrying amount of the assets or liabilities and its tax base, the deferred income tax assets or the deferred income tax liabilities shall be determined. The carrying amount of deferred income tax assets shall be reexamined on balance sheet day. If it is unlikely to obtain sufficient taxable income taxes to offset the benefit of the deferred income tax assets, the carrying amount of the deferred income tax assets shall be written down. When it is probable to obtain sufficient taxable income taxes, such write-down amount shall be subsequently reversed. 22. Recognition principle on consolidation scope to accounting statement and preparation method The consolidation scope to accounting statement shall be based on control, which the Company shall bring all subsidiary companies into the scope of consolidation accounting statement. The consolidated statement shall be based on financial statements of parent company and subsidiary companies, and prepare by parent company when offset influence on the consolidated statement due from the internal transaction occurred between parent company and subsidiary companies. Where subsidiary company shall be increased due to businesses combination under the same control, the Company shall adjust the amount at the period-begin in consolidated statement, and bring revenue, expense and profit as well as cash flow of the said subsidiary company into consolidated into cash flow statement. Where subsidiary company shall be increased due to businesses combination under the not same control, the Company shall not adjust the amount at the period-begin in consolidated statement, but bring revenue, expense and profit as well as cash flow of the said subsidiary company into consolidated into cash flow statement. If the Company disposes the said subsidiary company in the reporting period, the Company shall not adjust the amount at the period-begin in consolidated statement, but bring revenue, 52 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. expense and profit as well as cash flow of the said subsidiary company into consolidated into cash flow statement. V. Preparation of consolidated financial statement 1. Recognition principle on consolidation scope to accounting statement and preparation method (1) Recognition principle on consolidation scope The consolidation scope to accounting statement shall be based on control. The term "control" refers to the power to determine the financial and operating polices of an enterprise and obtain benefits from its operating activities of the enterprise. When ascertaining whether or not it is able to control on an invested entity, an enterprise shall take into consideration the invested enterprises' current convertible corporate bonds and current executable warrants held by the investing enterprise and other parties, as well as other potential factors concerning the voting rights. Invested entities that the Company held over 50% of total assets with the voting right (excluding 50%) of invested entity, or the Company held less than 50% but has actual control right shall be brought into consolidated scope. (2) Preparation method of consolidated financial statement In line with the Accounting Standard for Business Enterprise No. 33 – Consolidated Financial Statement, the consolidated financial statement shall be prepared by parent company on the basis of the both financial statement of parent company and its subsidiaries after adjusting long-term equity investment over its subsidiaries based on equity method in accordance with other relevant information. 2. Subsidiary companies of the Company Actual Proportion Proportion investment of voting Registered of shares Name of subsidiary amount right Register address Quality of business capital held by the company enjoyed by (RMB’0000) Company the in total Company Production of pesticides No. 57 Chengdong South and chemical products 4000 38,558,619.32 70.00% 70.00% Sanonda Zhengzhou Road, Zhengzhou such as omethoate and Pesticide Co., Ltd. sodium hydroxide Sanonda (Jingzhou) No. 10 Xihuan Road, Pesticide and Chemical Production of pesticides 2800 24,500,000.00 87.50% 87.50% Industry Co., Ltd. Jingzhou and intermediates Hubei Fengyuan Chemical S No. 1, linjiang Road, Production of chemical 4000 22,000,000.00 55.00% 55.00% Co., Ltd. Shashi products Import & Export of No. 1, Beijing East Road, Hubei Sanonda Foreign pesticides and 1000 9,000,000.00 90.00% 90.00% Trading Co., Ltd. Jingzhou intermediates Hubei Sanonda Tianmen No. 179, Gudu Av. Zaoshi, Production and sales of 800 7,245,023.32 100.00% 100.00% Agrochemical Co., Ltd. Tianmen pesticides 53 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Actual Proportion Proportion investment of voting Registered of shares Name of subsidiary amount right Register address Quality of business capital held by the company enjoyed by (RMB’0000) Company the in total Company Jingzhou Longhua No. 95, Beijing East Road, Production and sales of 500 3,250,000.00 65.00% 65.00% Petrochemical Co., Ltd. Jingzhou chemical products Finance consulting, No. 1, Beijing East Road, Jinzhou Sanonda Finance investment consulting and 500 4,721,400.00 90.00% 90.00% Consulting Co., Ltd. Jingzhou services Research, development, No. 93, Beijing East Road, Jingzhou Sanonda Aifusi production and sales of 600 3,060,000.00 51.00% 51.00% Chemical Industry Co., Ltd. Jingzhou fine chemical products Note: Hubei Fengyuan Chemical Co., Ltd. was not be brought into consolidation scope, which was mainly because the said company has stopped production for many years, book value of long-term equity investment by the Company was RMB 0, and the Company has withdrew reserve for bad debt of accounts receivable. 3. Change in consolidated scope Jingzhou Sanonda IFS Chemical Co., Ltd. fail to be brought into the consolidation scope in last year because its assets, income and profit index are lower than 10%, however, in 2007, the Company brought into the consolidation scope according to Accounting Standard for Business Enterprise No. 33 --- Consolidated Financial Statement, and made the corresponding adjustment to the consolidated statement of last year. Operating revenue, net profit and net assets of Jingzhou Sanonda IFS Chemical Co., Ltd. for the year 2006 and year 2007: Items 2007 2006 Operating revenue 14,721,381.88 9,203,138.01 Net profit 1,335,879.21 1,235,356.12 Net assets 8,813,649.30 7,477,770.09 VI. Tax VAT (1) Pesticides produced by the Company shall be pay sales tax of the Value Added Tax based on 13%, such products includes: methamidophos, 95％glyphosate technical material, Imidacloprid, pyridaben, dipterex, cyhalothrin, acephate. (2) Chemical products produced by the Company shall be pay sales tax of the Value Added Tax based on 13%, such products includes:Main chemical products include: liquefied chlorine gas, hydrochloric acid, liquid caustic soda, solid caustic soda and spermine. (3) VAT of export products shall be implemented the policy of “tax exemption, 54 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. deduction and return”. City maintenance and construction tax Based on 7% of turnover tax. Educational surtax Based on 3% of turnover tax. Housing property tax Housing property tax shall be pay based on 1.2% of balance after deducting 10-30% of original value of housing property, Housing property tax of housing with rent shall be pay based on 12% of rent. Income tax The Company and subsidiary company shall pay income tax based on taxable income and applicable tax rate of the current period, income tax rate shall be 33%. VII. Explanation on the changes in the accounting policies, accounting estimate or accounting methods The Company performed the new Accounting Standard for Business Enterprise since 1 Jan. 2008. In accordance with Accounting Standard for Business Enterprise No. 38 --- First Time Adoption of Accounting Standard for Business Enterprise, Questions and Answers on the Standards for Information Disclosures by Companies That Offer Securities to the Public --- Compilation and Disclosure of Financial and Accounting Information for Comparison during the Period of Transition from the Old Accounting Standard and the New Accounting Standard (ZJKJ Zi [2007] No. 10) issued by CSRC, as well as Interpretation for Accounting Standard for Business Enterprise No. 1 promulgated by the Ministry of Finance, the Company made retrospective adjustment to the financial statement over the previous years and restatement. VII. Notes to consolidated financial statement 1. Monetary fund (1) Book balance at the year-end Book balance at the year-end Book balance at the year-begin Items Original currency Rate of Amount converted Original currency Rate of Amount converted amount exchange into RMB amount exchange into RMB Cash 28,776.43 22,630.18 Of which: RMB 28,776.43 1.0000 28,776.43 22,630.18 1.0000 22,630.18 USD HKD Bank deposit 341,776,096.91 254,535,859.32 Of which: RMB 341,174,101.97 1.0000 341,174,101.97 236,869,046.97 1.0000 236,869,046.97 USD 82,459.19 7.3005 601,994.94 2,262,562.29 7.8083 17,666,812.35 HKD Other monetary 110,600,830.99 65,407,106.94 55 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the year-end Book balance at the year-begin Items Original currency Rate of Amount converted Original currency Rate of Amount converted amount exchange into RMB amount exchange into RMB fund Of which: RMB 110,600,830.99 1.0000 110,600,830.99 65,407,106.94 1.0000 65,407,106.94 USD HKD Total 452,405,704.33 319,965,596.44 Note: (1) Other monetary capitals at the ending of the year included investment fund in Securities Company RMB 106,900,830.99; Deposit of Bank’s Acceptance Bill RMB 3,700,000.00. Note: (2) Monetary capitals at the ending of the year increased RMB 132,440,107.89, 41.39% up compared that at the veginning of the year, which was mainly because of increase of loan and reflow of payment for goods. 2. Transaction monetary assets Items Fair value at the end of the year Fair value at the beginning of the year equity instrument investments 28,287,350.22 Total 28,287,350.22 Note: The stocks of Huaxin Cement Co., Ltd have been sold out in current year. 3. Notes receivable Kinds of note Book balance at the ending of the Book balance at the beginning of year the year Bank’s acceptance bill 9,219,453.30 8,022,453.60 Commercial acceptance bill Total 9,219,453.30 8,022,453.60 4. Accounts receivable (1) Aging analysis Book balance at the Book balance at the Aging Provision for bad debt Provision for bad debt ending of the year beginning of the year Within one year 227,542,767.67 11,513,073.87 152,906,418.55 7,699,686.03 1-2 years 8,963,264.00 961,615.09 7,498,169.22 378,204.49 2-3 years 1,817,553.15 92,327.65 4,182,351.17 239,005.25 3-4 years 295,037.00 41,339.98 11,879,638.72 642,313.14 4-5 years 4,172,711.35 219,544.77 11,425,465.19 6,109,586.40 Over 5 years 11,314,192.18 11,314,192.18 14,681,556.04 14,681,556.04 56 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the Book balance at the Aging Provision for bad debt Provision for bad debt ending of the year beginning of the year Total 254,105,525.35 24,142,093.54 202,573,598.89 29,750,351.35 (2) Type analysis Book balance at the ending of the year Book balance at the beginning of the year Proportion of Proportion of Type Withdrawal of Provision for Withdrawal of Provision for Amount Proportion Amount Proportion provision for bad bad debt provision for bad bad debt debt debt Accounts receivable with 140,150,199.13 55.15% 5.00% 7,007,509.96 26,884,159.12 13.27% 5.00% 1,344,207.96 significant single amounts Accounts receivable with insignificant single amounts but with significant credit risk Other insignificant 113,955,326.22 44.85% 15.04% 17,134,583.58 175,689,439.77 86.73% 16.17% 28,406,143.39 Total 254,105,525.35 100.00% 9.50% 24,142,093.54 202,573,598.89 100.00% 14.69% 29,750,351.35 (3) Actual offset of accounts receivable in current year Name of items Amount Nature Reasons for offset 1. Associated party 2. Non-associated party Hubei Jingzhou Shashi Jinfa Pulp Board Co., Ltd 4,309,854.63 Payment for goods It was not able to collect due to long aging Jiangxi Jingdezhen Xianggan Pesticide Co., Ltd 2,095,486.55 Payment for goods It was not able to collect due to long aging Shangdong Payment for goods 2,021,899.00 Payment for goods It was not able to collect due to long aging Jiangxi Wuzhou Agricultural Materials Company 1,288,393.48 Payment for goods It was not able to collect due to long aging Hubei Jingzhou Chemical Industry & Light Industry Company 1,206,218.93 Payment for goods It was not able to collect due to long aging Guangxi Liuzhou Agriclutrial Technology Service Center 1,076,470.70 Payment for goods It was not able to collect due to long aging Jiangxi Gaoan Agricultural Material Company 948,482.64 Payment for goods It was not able to collect due to long aging Hubei JIngzhou Agricultural Material Group Company 924,516.92 Payment for goods It was not able to collect due to long aging Hubei Tuanfeng Agricultural Material Company 883,924.00 Payment for goods It was not able to collect due to long aging Hubei Shishou Agricultural Material Company 588,275.00 Payment for goods It was not able to collect due to long aging Hubei Jingmen Yuya Paper Co., Ltd 524,467.77 Payment for goods It was not able to collect due to long aging Other 15,394,780.37 Payment for goods It was not able to collect due to long aging Total 31,262,769.99 (4) List of the top five accounts receivable 57 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Full name of company Amount Arrearage aging Proportion of accounts receivable Germany Bell Co., Ltd 52,337,761.36 Within 1 year 20.60% Uruguay TAMPA SA 21,221,542.80 Within 1 year 8.35% Lebanon JUBAILY 12,059,953.46 Within 1 year 4.75% India UNITED PHOSPHORUS LIMITED 11,285,515.30 Within 1 year 4.44% Mexico TEKCHEM 8,780,440.00 Within 1 year 3.46% Total 105,685,212.92 41.59% Note: In the balance of accounts receivable at the year-end, the account receivable of Agricultural Chemical of China Co., Limited was RMB 100,100, and there was no account of shareholders holding over 5% (5% included) of voting right shares of the Company. 5. Payments in advance Book balance at the Book balance at the Aging Proportion Proportion ending of the year beginning of the year Within one year 53,152,354.22 94.11% 33,023,366.38 88.98% 1-2 years 862,475.56 1.53% 3,269,579.94 8.81% 2-3 years 1,655,956.57 2.93% 357,734.23 0.96% 3-4 years 349,732.66 0.62% 4-5 years 100,842.36 0.27% Over 5 years 459,650.63 0.81% 361,980.03 0.98% Total 56,480,169.64 100.00% 37,113,502.94 100.00% Note: (1) In the balance of payments in advance at the year-end, there was no account of shareholders holding over 5% (5% included) of voting right shares of the Company. Note: (2) Payments in advance at the year-end increased RMB 15,851,646.88, 42.71% up compared with amount at the year-begin, which was mainly because of increase of payments for equipment in advance of the project in current year. Note: (3) Payments in advance at the year-end withdrew the provision for bad debit RMB 3,515,019.82. 6. Other accounts receivable (1) Aging analysis Book balance at the Book balance at the Aging Provision for bad debt Provision for bad debt ending of the year beginning of the year Within one year 13,978,787.73 698,939.39 17,370,513.32 1,541,289.60 1-2 years 6,172,346.34 308,617.32 41,975,739.40 13,889,372.11 2-3 years 5,104,673.78 255,233.69 11,435,871.92 5,506,481.37 3-4 years 513,560.47 25,678.02 770,270.60 38,513.55 4-5 years 583,567.31 29,178.36 554,571.32 27,728.57 58 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the Book balance at the Aging Provision for bad debt Provision for bad debt ending of the year beginning of the year Over 5 years 4,742,900.78 4,742,900.78 4,609,094.80 4,609,094.80 Total 31,095,836.41 6,060,547.56 76,716,061.36 25,612,480.00 (2) Type analysis Book balance at the ending of the year Book balance at the beginning of the year Proportion of Proportion of Type Withdrawal of Provision for Withdrawal of Provision for Amount Proportion Amount Proportion provision for bad bad debt provision for bad debt debt bad debt Accounts receivable with 7,213,524.14 23.20% 5.00% 360,676.21 49,477,780.75 64.49% 40.53% 20,054,730.45 significant single amounts Accounts receivable with insignificant single amounts but with significant credit risk Other insignificant 23,882,312.27 76.80% 23.87% 5,699,871.35 27,238,280.61 35.51% 20.40% 5,557,749.55 Total 31,095,836.41 100.00% 19.49% 6,060,547.56 76,716,061.36 100.00% 33.39% 25,612,480.00 (3) Other actual offset of accounts receivable in current year Name of items Amount Nature Reasons for offset 1. Nom-associated party Special account 3,620.93 Special account Uncollectable Qichun Pesticide Co., Ltd 12,166,333.70 Current account Uncollectable 2. Associated party Hubei Fengyuan Chemical Industry Co., Ltd 37,823,840.85 Current account Unclollectable due to insolvent and discontinued operation Several years Total 49,993,795.48 (4) List on the top five of other accounts receivable Proportion of accounts Name of the Company Amount Arrearage aging receivable Hubei Jingzhou State Administration of Taxation High Technology 7,213,524.14 Within 1 year 23.20% Industrial Development Zone Branch Zhengzhou Xintiandi Agrochemical Co., Ltd 1,789,444.68 1-2 years 5.75% Jingzhou Petrol Chemical Industry Co., Ltd 1,128,743.12 Within 2 year 3.63% Xinzheng Zhenxin Water-protection Construction Materials Co., Ltd 590,563.89 2-3 years 1.90% Zhengzhou Shijiefeng Chemical Industry Co., Ltd 564,936.85 3-4 years 1.82% 59 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Total 11,287,212.68 36.30% Note: In the balance of other accounts receivable at the year-end, there was no account of shareholders holding over 5% (5% included) of voting right shares of the Company. 7. Inventories (1) Details Book balance at Increase in current Decrease in Book balance at Items the year-begin year current year the year-end Raw materials 58,364,723.56 1,025,804,013.64 1,030,770,447.06 53,398,290.14 Goods in produce 43,033,273.21 2,430,919,653.54 2,431,979,323.49 41,973,603.26 Goods in stock 239,409,854.51 1,513,133,335.68 1,556,619,483.47 195,923,706.72 Low-value consumption goods 1,317,348.26 1,503,406.64 1,887,667.94 933,086.96 Packing 3,267,307.87 32,134,477.19 30,131,391.30 5,270,393.76 Entrusted processing materials 11,079,764.53 309,803.15 10,769,961.38 Goods sold 3,725,800.25 1,916,871.52 1,808,928.73 Total 345,392,507.41 5,018,300,451.47 5,053,614,987.93 310,077,970.95 (2) Provision for falling price of inventories Book balance at Withdrawal in Decrease in current year Book balance at the Items the year-begin current year Switching back Amortization Total year-end Raw materials 435,979.99 424,525.61 860,505.60 Goods in stock 8,603,095.70 628,640.80 2,201,429.37 2,201,429.37 7,030,307.13 Packing 247,988.50 300,971.67 548,960.17 Total 9,287,064.19 1,354,138.08 2,201,429.37 2,201,429.37 8,439,772.90 Note: In accordance with the book balance of inventories at the year-end and principle of net realizable value of inventory lower than its book value, the provision for falling price of inventories switched back RMB 2,201,419.37 due to going up of the price in this year, which took up 1.12% of the book balance of inventories at the year-end. 8. Long-term equity investment Initial Cash bonus Book balance at Increase/decrease Book balance at Provision for Name of investing enterprise investment receivable in the year-begin in this year the year-end impairment amount this year 1. Equity method Hubei Fengyuan Chemical Industry Co., Ltd 22,000,000.00 2. Cost method Jingzhou City Commercial Bank Co., Ltd 20,000,000.00 20,000,000.00 20,000,000.00 11,991,017.37 Th-unis Insight Co., Ltd 750,000.00 750,000.00 -750,000.00 60 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Initial Cash bonus Book balance at Increase/decrease Book balance at Provision for Name of investing enterprise investment receivable in the year-begin in this year the year-end impairment amount this year Jingzhou Tianyang Huibao Precision 1,440,000.00 1,440,000.00 1,440,000.00 Chemicals Co., Ltd Jingzhou Sanonda Daweixun Chemicals Co., 450,000.00 450,000.00 450,000.00 ltd Beijing Yingli Chemical Precision Technology 2,000,000.00 2,000,000.00 2,000,000.00 Development Co., Ltd Jingzhou Lida Industrial Co., Ltd 1,674,600.00 1,674,600.00 1,674,600.00 Hubei Super-elec Auto Electric Motor Co., Ltd 564,000.00 564,000.00 564,000.00 Hubei Shuanghuan Science and Technology 495,000.00 495,000.00 495,000.00 Stock Co., Ltd Wangda Industrial Holding Co., Ltd 550,000.00 550,000.00 550,000.00 Guangxi Zhongding Holding Co., ltd 580,800.00 580,800.00 580,800.00 Huafei Chemical Industry Co., Ltd 32,000.00 32,000.00 32,000.00 32,000.00 Total 50,536,400.00 28,536,400.00 -750,000.00 27,786,400.00 12,023,017.37 9. Investment real estate Investment real estate measured with cost method Book balance at Increase in Decrease in Book balance at Items the year-begin this year this year the year-end 1. Original price 6,010,000.00 6,010,000.00 House and building 6,010,000.00 6,010,000.00 2. Accumulative depreciation and accumulative amortization 183,605.50 245,208.00 428,813.50 House and building 183,605.50 245,208.00 428,813.50 3. Provision for depreciation of investment real estates House and building 4. Book value of investment real estates 5,826,394.50 5,581,186.50 House and building 5,826,394.50 5,581,186.50 Note: The investment real estate of the Company was Hubei Building for lease located in Shenzhen City, which has not handled certificate of title. 10. Fixed assets Book balance at the Book balance at the Items Increase in this year Decrease in this year year-begin year-end 1. Original price 905,573,704.88 52,516,869.23 99,117,114.87 858,973,459.24 61 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the Book balance at the Items Increase in this year Decrease in this year year-begin year-end Including: House and building 273,387,171.79 16,478,178.25 12,140,543.82 277,724,806.22 General equipment 113,908,102.97 731,637.06 11,696,247.06 102,943,492.97 Special equipment 505,894,458.72 35,030,709.92 75,062,042.99 465,863,125.65 Transportation equipment 12,383,971.40 276,344.00 218,281.00 12,442,034.40 2. Accumulative depreciation 462,383,700.33 65,578,280.39 83,354,997.96 444,606,982.76 Including: House and building 102,865,170.90 12,742,138.31 6,123,892.77 109,483,416.44 General equipment 65,729,952.66 6,031,229.59 7,517,601.52 64,243,580.73 Special equipment 291,137,821.50 46,382,380.10 69,500,352.27 268,019,849.33 Transportation equipment 2,650,755.27 422,532.39 213,151.40 2,860,136.26 3. Provision for depreciation of 11,772,068.54 774,047.39 10,998,021.15 foxed assets Including: House and building 1,090,718.63 1,090,718.63 General equipment 3,962,381.16 3,962,381.16 Special equipment 6,718,968.75 774,047.39 5,944,921.36 Transportation equipment 4. Book Value of fixed assets 431,417,936.01 403,368,455.33 Including: House and building 169,431,282.26 167,150,671.15 General equipment 44,215,769.15 34,737,531.08 Special equipment 208,037,668.47 191,898,354.96 Transportation equipment 9,733,216.13 9,581,898.14 Note: The house and building, which located in Beijing with original price RMB 3,580,911.00 and book value RMB 795,141.25, has not handled certificate of title. 11. Construction in progress 1. Original price of construction in progress Book balance at the year-begin Decrease in this year Book balance at the year-end Including: Increase in this Transferring into Including: Capital Name of project Other Amount interest of year fixed assets in this Amount interest of resource decrease capitalization year capitalization Project of ion-exchange 552,878.51 16,557,235.47 17,110,113.98 87,669.44 membrane Innovation of extension project of 25000-ton 563,955.10 10,213,315.22 10,777,270.32 95,924.58 自筹 spermine Extension project for the 6,812,697.03 6,812,697.03 3,092.38 Self-financing 62 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the year-begin Decrease in this year Book balance at the year-end Including: Increase in this Transferring into Including: Capital Name of project Other Amount interest of year fixed assets in this Amount interest of resource decrease capitalization year capitalization 4th phase of sewage treatment 15000-ton glyphosate 6,759,707.38 6,759,707.38 5,895.62 Self-financing Innovation of refrigeration 712,404.08 5,363,266.07 6,075,670.15 228,736.20 Self-financing station DDV pilot test 536,243.80 5,073,264.93 5,609,508.73 48,846.39 Self-financing Newly increase 12-set 26,336.00 4,716,919.84 4,743,255.84 156,168.16 Self-financing electrolytic cell 农一胺化连续化 3,936,703.69 641,397.90 4,578,101.59 24,082.10 Self-financing Payment for projects in 39,567,919. 2,623,430.38 39,820,738.10 2,876,248.80 Other advance 68 Innovation of trichloro 1,712,205.35 642,086.19 2,354,291.54 17,446.30 Self-financing acetaldehyde Innovation of amic water in 243,950.69 1,652,653.52 1,896,604.21 42,078.73 Self-financing Removing project 1,295,518.50 186,814.00 1,482,332.50 Self-financing Innovation of trimethyl 598,155.54 565,681.64 1,163,837.18 26,940.35 Self-financing phosphite 10000-ton caustic soda 327,808.34 687,630.75 1,015,439.09 25,371.45 Self-financing flake Disposal of 130000-ton 632,072.59 381,448.84 1,013,521.43 18,137.31 Self-financing hydric Sporadic projects 17,500,056.71 12,293,573.62 24,446,815.23 307,266.37 5,039,548.73 66,699.92 Self-financing 39,875,186. Total 31,261,719.28 112,368,430.50 24,446,815.23 79,308,148.50 847,088.93 Self-financing 05 Note: The construction in progress took up parts of current capital of the Company in this year, interest of capitalization totaled RMB 847,088.93 which was confirmed with interest rate of current capital loan 6.72%, and interest of capitalization included in construction in progress was RMB 847,088.93 at the year-end. (2) Provision for depreciation of constructions in progress Book balance at the Withdrawal Decrease in Book balance at the Reason of Item year-begin this year this year year-end Withdrawal New Kebaiwei Project 517,604.98 517,604.98 63 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the Withdrawal Decrease in Book balance at the Reason of Item year-begin this year this year year-end Withdrawal Total 517,604.98 517,604.98 12. Intangible assets Book balance at the Book balance at the Items Increase in this year Decrease in this year year-begin year-end 1. Original price 223,337,378.53 1,680,000.00 225,017,378.53 Land use right 216,613,678.53 900,000.00 217,513,678.53 non-patent technology 6,723,700.00 780,000.00 7,503,700.00 2. Accumulative amortization 24,587,033.70 4,573,534.97 29,160,568.67 Land use right 22,466,581.24 4,013,331.68 26,479,912.92 non-patent technology 2,120,452.46 560,203.29 2,680,655.75 3. Provision for depreciation of 16,472,093.53 15,600,000.00 32,072,093.53 intangible assets Land use right 16,472,093.53 15,600,000.00 32,072,093.53 non-patent technology 4. Book value of intangible assets 182,278,251.30 163,784,716.33 Land use right 177,675,003.76 158,961,672.08 non-patent technology 4,603,247.54 4,823,044.25 Note: In accordance with utilization of land use right of Jingzhou Xuetangzhou and lande price in Jingzhou City, the Company withdrew provision for land use right RMB 15,600,000.00. 13. Deferred income tax assets Book balance at the Amount of temporary Book balance at the Amount of temporary Item year-end difference of related year-begin difference related 1. Provision for bad debt 2,062,357.74 8,249,430.96 2,425,734.72 7,350,711.27 2. Provision for depreciation of inventories 88,509.32 268,210.06 Total 2,062,357.74 8,249,430.96 2,514,244.04 7,618,921.33 14. Provision for assets depreciation Book balance at Withdrawal in Decrease in this year Book balance at Item the year-begin this year Switching back Amortization Total the year-end Provision for bad debt 55,362,831.35 60,487,958.45 820,156.79 81,312,972.09 82,133,128.88 33,717,660.92 Provision for depreciation of inventories 9,287,064.19 1,354,138.08 2,201,429.37 2,201,429.37 8,439,772.90 Provision for depreciation of long-term 11,991,017.37 32,000.00 12,023,017.37 64 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at Withdrawal in Decrease in this year Book balance at Item the year-begin this year Switching back Amortization Total the year-end equity investment Provision for depreciation of fixed assets 11,772,068.54 774,047.39 774,047.39 10,998,021.15 Provision for depreciation of constructions in progress 517,604.98 517,604.98 Provision for depreciation of Intangible assets 16,472,093.53 15,600,000.00 32,072,093.53 Total 105,402,679.96 77,474,096.53 3,021,586.16 82,087,019.48 85,108,605.64 97,768,170.85 15. Assets with limited ownership Book balance at the Book balance at the Type Increase in this year Decrease in this year year-begin year-end Assets for guarantee： Land use right 1,982,108.48 57,372,368.87 43,245.96 59,311,231.39 General equipment 36,777,396.35 115,873.60 8,167,628.73 28,725,641.22 Special equipment 178,782,766.88 11,234,906.74 36,265,838.10 153,751,835.52 House and buildings 154,001,361.46 5,706,526.32 14,551,291.06 145,156,596.72 Transportation equipment 114,427.33 0.00 52,355.88 62,071.45 Total 371,658,060.50 74,429,675.53 59,080,359.73 387,007,376.30 16. Short-term loan (1) Type of loan Type Book balance at the year-end Book balance at the year-begin Credit loan 1,278,352.00 Mortgage Loan 44,000,000.00 70,000,000.00 Guarantee loan 194,300,000.00 155,000,000.00 Pledge Loan 95,401,641.25 Total 334,979,993.25 225,000,000.00 Note: The credit loan was for Hubei Sanonda Foreign Trading Co., Ltd, controlling subsidiary of the Company, transacting import bill advance in Bank of China JIngzhou Shashi Sub-branch. The mortgage loan was for export bill advance. (2) Statement on mortgage loan and credit loan Method of Term of loan Issuance Unit Amount Guarantor (Guaranty） Guarantee From To Industrial & Commercial Bank of China 10,000,000.00 Mortgage Equipment 14 Feb. 2007 13 Feb. 2008 Shashi Sub-branch 65 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Method of Term of loan Issuance Unit Amount Guarantor (Guaranty） Guarantee From To Industrial & Commercial Bank of China 20,000,000.00 Mortgage Equipment 4 Sep. 2007 3 Sep. 2008 Shashi Sub-branch China Construction Bank Corporation 25,000,000.00 Guarantee Sanonda Group Co., Ltd 20 Mar. 2007 31 Mar. 2008 Jingzhou Sanwan Branch China Construction Bank Corporation 30,000,000.00 Guarantee Sanonda Group Co., Ltd 15 Feb. 2007 14 Feb. 2008 Jingzhou Sanwan Branch Export-Import Bank of China 30,000,000.00 Guarantee China National Agrochemical Corporation 28 Apr. 2007 28 Apr. 2008 Export-Import Bank of China 30,000,000.00 Guarantee China National Agrochemical Corporation 14 Jun. 2007 28 Apr. 2008 Export-Import Bank of China 40,000,000.00 Guarantee China National Agrochemical Corporation 23 May 2007 28 Apr. 2008 China Constriction Bank Zhengzhou 10,000,000.00 Guarantee Hubei Sanonda Stock Co., Ltd 19 Mar. 2007 19 Mar. 2008 Jinshui Branch Shanghai Pudong Development Bank 25,000,000.00 Guarantee Hubei Sanonda Stock Co., Ltd 23 May 2007 23 May 2008 Co., Ltd Zhengzhou Branch Zhengzhou Xiangyang Rural Credit 4,000,000.00 Guarantee Zhengzhou Xintiandi Agrochemical Co., Ltd 05 Dec. 2007 5 Jun. 2008 Cooperatives Industrial & Commercial Bank of China 300,000.00 Guarantee Hubei Sanonda Foreign Trading Co., Ltd Overdue Shashi Sub-branch Huitong Office Bank of China Tianmen Sub-branch 3,000,000.00 Mortgage Equipment, land and house 2 Feb. 2007 1 Feb. 2008 Bank of China Tianmen Sub-branch 3,000,000.00 Mortgage Equipment, land and house 12 Feb. 2007 12 Fwb. 2008 Bank of China Tianmen Sub-branch 3,000,000.00 Mortgage Equipment, land and house 2 Mar. 2007 12 Jan. 2008 Bank of China Tianmen Sub-branch 3,000,000.00 Mortgage Equipment, land and house 13 Mar. 2007 13 Feb. 2008 Bank of China Tianmen Sub-branch 2,000,000.00 Mortgage Equipment, land and house 30 Mar. 2007 28 Feb. 2008 Total 238,300,000.00 (3) Mature borrowings without payment Purp Whethe Predicte Yearly ose r to pay d time Borrowing unit Principal interest term of Reason for not paying or not for rate capit after payment al period Sanonda Jingzhou Curr Bank had transferred the Agrochemical Co., Ltd ent debtor’s right to Orient 300,000.00 7.56% No capit Asset Management al Corp. 66 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 17. Notes payable Book balance at the Book balance at the Amount due of the Type of note year-end year-begin next accounting year Bank acceptance 18,700,000.00 41,800,974.00 18,700,000.00 Total 18,700,000.00 41,800,974.00 18,700,000.00 18. Accounts payable Book balance at the year-end Book balance at the year-begin Proportion taking Proportion taking Account age amount up the total amount up the total amount amount Within 1 year 97,013,555.56 82.74% 130,624,658.02 87.32% 1 to 2 years 11,318,339.64 9.65% 13,687,485.15 9.15% 2 to 3 years 6,002,187.60 5.12% 2,835,923.53 1.90% 3 to 4 years 934,689.32 0.80% 898,079.46 0.60% 4 to 5 years 804,904.57 0.69% 592,989.71 0.40% Over 5 years 1,175,658.84 1.00% 942,975.60 0.63% Total 117,249,335.53 100.00% 149,582,111.47 100.00% Note: in the item of balance payable at the year-end, the amount payable for China National Agrochemical Corporation was RMB 3,316,946.21, existing no other accounts for the shareholders holding more than 5% (including 5%) of voting share of the Company. 19. Account paid in advance Book balance at the year-end Book balance at the year-begin Proportion taking Proportion taking Account age amount up the total amount up the total amount amount Within 1 year 109,037,301.38 90.76% 85,832,492.14 91.52% 1 to 2 years 7,423,471.49 6.18% 7,381,796.72 7.87% 2 to 3 years 3,177,667.38 2.64% 115,801.84 0.12% 3 to 4 years 54,622.93 0.05% 232,844.16 0.25% 4 to 5 years 232,751.23 0.19% 70,607.94 0.08% Over 5 years 217,811.37 0.18% 149,027.63 0.16% 67 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the year-end Book balance at the year-begin Proportion taking Proportion taking Account age amount up the total amount up the total amount amount Total 120,143,625.78 100.00% 93,782,570.43 100.00% Note: in the item of accounts paid in advance at the year-end, the amount paid in advance for China National Agrochemical Corporation was RMB 2,010,802.56, existing no other accounts for the shareholders holding more than 5% (including 5%) of voting share of the Company. 20. Employee’s compensation payable Book balance at Book balance at Item Increase in 2007 Payment in 2007 the year-begin the year-end I. Wage, premium allowance and 68,029.00 66,599,556.68 66,470,382.68 197,203.00 the subsidy II. Welfare expenses for the employees 2,208,992.34 14,531,002.71 16,739,995.05 III. Social security expenses 3,002,955.73 19,721,074.16 21,153,006.93 1,571,022.96 Of which: 1. Medical insurance 1,317,788.56 1,308,830.56 8,958.00 2. Basic endowment 2,726,553.25 15,348,267.47 17,074,400.01 1,000,420.71 insurance 3. Annuity payment 4. Unemployment 218,029.25 1,995,001.45 1,651,977.20 561,053.50 insurance 5. Injury insurance 26,665.28 930,236.06 956,484.34 417.00 6. Childbirth insurance 31,707.95 129,780.62 161,314.82 173.75 IV. Housing fund 1,883,178.87 4,407,542.15 4,986,439.79 1,304,281.23 V. Trade union operating fees and staff education expenses 155,457.64 857,180.53 778,924.10 233,714.07 VI. Non-monetary welfare 528,000.00 528,000.00 VII. Compensation for the cancellation of the labor 21,408,498.57 4,793,928.15 16,614,570.42 relationship VIII. Other 1,064.48 1,064.48 Of which: Cash-settled share-based payment Total 28,727,112.15 106,645,420.71 115,451,741.18 19,920,791.68 68 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 21. Tax payable Book balance at the Book balance at the Item year-end year-begin 1. Tax on value added -13,496,860.18 -18,301,611.90 2. Business tax 2,841,305.03 2,696,055.99 3. Consumption tax 4.Tax on city maintenance and construction 1,931,280.12 1,726,312.00 5. Enterprise income tax 6,916,656.63 3,396,905.73 6. Individual income tax 780,380.95 511,752.83 7. Tax on real estate 356,163.84 584,574.10 8. Tenure tax 1,113,269.58 511,717.99 9. Vehicle and vessel usage license plate tax 840.00 10. Stamp tax 482,694.02 46,708.50 11. Resources tax -24,939.85 84,036.67 12. Tariff 13. Extra-charges for education 836,919.21 821,398.19 14.Other 22,279.27 265,332.01 Total 1,759,988.62 -7,656,817.89 22. Other accounts payable Book balance at the year-end Book balance at the year-begin Proportion taking Proportion taking Account age amount up the total amount up the total amount amount Within 1 year 43,215,971.32 77.26% 52,939,975.39 80.42% 1 to 2 years 5,125,265.00 9.16% 8,425,472.35 12.80% 2 to 3 years 3,849,816.79 6.88% 3,973,728.31 6.04% 3 to 4 years 3,625,699.81 6.48% 187,610.39 0.29% 4 to 5 years 27,610.39 0.05% 1,300.00 Over 5 years 94,535.86 0.17% 293,235.86 0.45% Total 55,938,899.17 100.00% 65,821,322.30 100.00% Note: there were no accounts for the shareholders holding more than 5% (including 5%) of voting 69 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. share of the Company in the item of other accounts payable. 23. Mature non-current liabilities within one year Yearly Purpose Borrowing unit principal interest Term of Reason for not paying rate capital Bank had transferred the Sanonda Jingzhou debtor’s right to Orient 1,650,000.00 7.56% Agrochemical Co., Ltd Asset Management Corp. Bank had transferred the Sanonda Jingzhou debtor’s right to Orient 2,000,000.00 7.56% Agrochemical Co., Ltd Asset Management Corp. Note: by Dec. 31, 2007, the mature non-current liabilities within one year belonged to aged secured borrowing, the Company has been consult the solution scheme with Asset Management Corp.. The mature non-current liabilities within one year at the year-end were guaranteed by the parent company. 24. Long-term borrowings Yearly Balance at the Balance at the Borrowing Borrowing unit term interest year-end year-begin condition rate Principal interest Principal interest Industrial & Commercial Sep. 28, 2003 to Sep. Bank of China, Mortgage 7.56% 50,000,000.00 50,000,000.00 26, 2009 Jingzhousha Branch Industrial & Commercial May 31, 2004 to Bank of China, Mortgage 7.56% 40,000,000.00 40,000,000.00 Sep. 26, 2009 Jingzhousha Branch Total 90,000,000.00 90,000,000.00 25. Long-term account payable 70 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at Decrease in Book balance at type Increase in 2007 the year-begin 2007 the year-end Finance Bureau of Jingzhou 2,000,000.00 2,000,000.00 Item of Glyphosate 490,000.00 490,000.00 Fund for governance of Environmental Protection 200,000.00 200,000.00 Government of Hubei Province Guangzhou Chemical Industry 160,000.00 160,000.00 Research Institute Finance Bureau of Jingzhou (transformation of acute toxic 6,990,000.00 6,990,000.00 pesticide) Safety production expenses 11,665,160.76 11,665,160.76 Total 21,505,160.76 21,505,160.76 Note: according to Provisional Measures on Financial Management in Safety Production Expenses of High-Danger Occupation Enterprise ( CZBCQ (2006) No. 478) printed by State Administration of Work Safety and the provision with ZNHFC (2007) No. 43, the safety production expenses (excess aggregate proportion 0.2-4%) should be withdrawn on the basis of the revenue in 2007 of the hazardous goods industry enterprises for perfecting and improving the condition for safety production of enterprises. The balance of the safety production expenses by Dec. 31, 2007 was RMB 11,665,160.76. 26. Special account payable Book balance of Increase in Decrease in Book balance at Type the year begin 2007 2007 the year-end Subsidy of national debt (item of 2,920,800.00 2,920,800.00 paraquat) Appropriate fouds item for 4,400,000.00 2,000,000.00 2,400,000.00 fenoxycard overnance for environment 1,001,900.00 640,730.00 361,170.00 protection Appropriate fouds item for 250,000.00 250,000.00 0.00 Echongqing ppropriate fouds item for 380,000.00 380,000.00 0.00 acetaniprid 71 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance of Increase in Decrease in Book balance at Type the year begin 2007 2007 the year-end Three items of sci-tech funds 1,753,722.00 1,753,722.00 0.00 Science and technology key 105,000.00 105,000.00 0.00 projects Total 10,811,422.00 8,050,252.00 2,761,170.00 27. Other non-current liabilities Item Book balance at the year-end Book balance at the year-begin Subsidy of national debt (item of paraquat) 6,990,000.00 Appropriate fouds item for fenoxycard 5,129,452.00 Total 12,119,452.00 Note: by Dec. 31, 2007, the other non-current liabilities of the Company were the government subsidy recognized in 2007 related to the assets. 28. Share capital Book balance at the Book balance at the year-begin year-end Proportion Increase in Decrease in Proportion Item taking up 2007 2007 taking up amount amount the total the total amount amount I. Shares subject to moratorium 1.shares held by the State 2,244,633.00 0.76% 2,244,633.00 4,489,266.00 0 2.Shares held by state-owned legal person 59,843,601.00 20.15% 59,443,601.00 400,000.00 118,887,202.00 20.02% 3.Shares held by other domestic investors Including: Shares held by domestic legal person 1,250,000.00 0.42% 2,050,000.00 3,300,000.00 0.55% Shares held by the 23,435.00 0.01% 23,435.00 46,870.00 0.01% 72 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the Book balance at the year-begin year-end Proportion Increase in Decrease in Proportion Item taking up 2007 2007 taking up amount amount the total the total amount amount domestic natural person 4.Shares held by foreign investors Including: Shares held by foreign legal person Shares held by foreign natural person II. Shares not subject to moratorium 1.RMB ordinary shares 118,599,941.00 39.93% 123,089,207.00 241,689,148.00 40.69% 2.Domestically listed foreign shares 115,000,000.00 38.73% 115,000,000.00 230,000,000.00 38.73% 3.Overseas listed foreign shares 4.Other Total 296,961,610.00 100.00% 301,850,876.00 4,889,266.00 593,923,220.00 100.00% Note: (1) the Proposal of Capitalization of Share Capital was examined and approved at the Shareholders’ General Meeting of the Company 2006 held on May 25, 2007: 10 shares would be capitalized from every 10 shares. The scheme of capitalization of share capital was implemented on Jul. 9, 2007, and Vocation International Certified Public Accountants issued the Funds Verification Report (TZJY Zi No. 014) on Aug. 2, 2007. The procedure of registered capital with the change of the Industrial and Commerce Administration was still under way by Dec. 31, 2007. Note (2): the 4,489,266 shares held by the state-owned legal person, which were held by the State Administration of State Property of Qichun, were released the moratorium on Dec. 18, 2007. Note (3): the 81,720,000 shares subject to moratorium held by Sanonda Group Co., Ltd, the controlling shareholders of the Company, were frozen for collateralized loan by Dec. 31, 2007. 29. Capital reserves 73 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Reason Book balance at Increase in Book balance at Item Decrease in 2007 for the year-begin 2007 the year-end change 1. Premium on capital 561,157,454.61 296,961,610.00 264,195,844.61 stock 2. Other capital reserves 5,599,133.33 1,924,863.80 7,523,997.13 （1）Equity investment 2,019,038.29 2,019,038.29 reserve （ 2 ） Transfer-in of capital reserve in old 3,580,095,04 3,580,095,04 system （3）Other 1,924,863.80 1,924,863.80 Total 566,756,587.94 1,924,863.80 296,961,610.00 271,719,841.74 Note: in 2007, the shareholding subsidiary of the Company Sanonda Foreign Trading Co, Ltd purchased the 15% equity held by the nature shareholders of the subsidiary Sanonda Tianmen Agrochemical Co., Ltd of which 85% was controlled by the Company. The purchase price was RMB 1.2 million, the difference of RMb 1,924,863.80 between the purchase price and the fair price of the equity was recorded into capital reserves. 30. Surplus reserves Reason and Book balance at the Increase in Decrease in Book balance at the Item evidence for year-begin 2007 2007 year-end change Statutory surplus 53,470,160.02 53,470,160.02 reserves Other surplus reserves 3,815,085.65 3,815,085.65 Total 57,285,245.67 57,285,245.67 31. Retained profit Item Amount in 2007 Book balance at the end of last year -20,708,354.39 Add: changes in accounting policies -16,836,268.39 Accounting errors in the pre-period Book balance at the year-begin -37,544,622.78 Increase in 2007 29,600,801.04 74 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Item Amount in 2007 （1）Net profit in 2007 29,600,801.04 Decrease in 2007 （1）withdrawal statutory surplus reserves （2）Withdrawal other surplus reserves （3）Distributed profit Book Balance at the year-end -7,943,821.74 Note (1): the investment loss was not recognized in the items of balance at the end of last year (including that of the end of last year). Note (2): the retained profit at the year-begin was made a retroactive modulation by the changes in accounting policies by RMB -16,836,268.39, please refer to annotation XVII. 2 with details. 32. Business income (1) Business income Item Occurred amount in 2007 Occurred amount of last year Revenue from major business 1,569,914,709.24 1,411,458,227.66 Revenue from other business 78,436,288.31 32,991,084.67 Total 1,648,350,997.55 1,444,449,312.33 (2) Revenue from major business Type of Revenue from major business Cost of major business Profit of major business the major Amount in 2007 Amount in 2006 Amount in 2007 Amount in 2006 Amount in 2007 Amount in 2006 business pesticide 1,181,576,277.34 1,021,221,493.85 986,617,582.22 854,945,654.66 194,958,695.12 166,275,839.19 Chemical 372,157,792.01 347,368,010.94 323,070,232.91 293,016,605.27 industries 49,087,559.10 54,351,405.67 Real 1,755,400.00 estate 1,755,400.00 Other 16,180,639.89 41,113,322.87 13,154,742.99 36,413,322.21 3,025,896.90 4,700,000.66 Total 1,569,914,709.24 1,411,458,227.66 1,322,842,558.12 1,184,375,582.14 247,072,151.12 227,082,645.52 Note: particulars about the sales of the first customers of the Company 75 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. The proportion The proportion Total sales taking up the total Total sales taking up the total Name of the customers revenue in 2007 sales revenue of revenue in 2006 sales revenue of the Company the Company Germany Bayer 121,184,285.45 7.35% 102,627,420.17 7.10% Yinni Zhengda Company 54,209,837.38 3.29% 35,405,055.90 2.45% Uruguary TAMPA 42,405,321.02 2.57% 18,063,875.50 1.25% SACompany Germany ANTRACO 41,328,088.60 2.51% 39,985,921.53 2.77% India UNITED 39,772,536.50 2.41% 46,403,245.04 3.21% PHOSPHORUS LIMITED Sub-total 298,900,068.95 18.13% 242,485,518.14 16.78% 33. Business tax and extra charges Item Actual amount in 2007 Actual amount in 2006 Business tax 330,547.72 87,770.00 Resources tax 21,124.00 150,520.67 Tax on city maintenance and Tax on city maintenance and Tax on city maintenance and construction construction construction Tax on real estate 3,890.40 Extra-charge for education 532,691.46 774,639.47 Other 103,864.79 26,380.59 Total 2,195,493.76 2,816,514.64 34. Investment income Source of bring investment income Occurred amount in Occurred amount in 2007 2006 Disposal income 1. Trading financial assets 80,007,835.42 25,967,717.43 2. Long-term equity investment measured by cost 1,730,000.00 1,664,029.57 method Total 81,737,835.42 27,631,747.00 Note: the income from trading financial assets was the income from applying for acquisition of new share by the Company of RMB 55,852,085.94, the income from selling the held shares of Huaxin Cement was RMb 24,155,749.48. The income from long-term equity investment measured by cost method was the income from transferring the equity of Beijing Ziguang Yingli Company of RMb 76 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. 1,730,000.00. 35. Assets impairment loss Occurred amount in Occurred amount in 2006 Item 2007 1．Bad debt loss 59,607,018.02 25,589,228.54 2．Inventory falling price loss -578,521.24 1,110,646.27 3 ． Impairment loss of financial assets available for sale 4 ． Impairment loss of held-to-mature investment 5. Impairment loss of the long-term equity 32,000.00 investment 6．Impairment loss of investment properties 7．Fixed assets impairment loss 8．Project material impairment loss 9．Impairment loss of construction in progress 10．Capitalized biological assets 11．Oil-gas assets impairment loss 12．Intangible assets impairment loss 15,600,000.00 7,800,000.00 13．Goodwill Impairment loss 14．Other Total 74,660,496.78 34,499,874.81 36. Non-business income Item Occurred amount in 2007 Occurred amount in 2006 1 ． Sub-total of income from disposal 552,625.75 991,692.73 non-current assets Of which: income from disposal 552,625.75 991,692.73 fixed assets Income from disposal intangible assets 2 ． Income from exchange of non-monetary assets 3．Income from debt restructuring 9,864,764.75 77 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Item Occurred amount in 2007 Occurred amount in 2006 4．Government subsidy 5．Income from results 63,803.13 6．Donation income 7．Other 346,767.02 528,412.87 Total 10,827,960.65 1,520,105.60 Note: please refer to annotation XI with details about the income from debt restructuring. 37. Expenditure from non-operating expense Item Occurred amount in 2007 Occurred amount in 2006 1．Total of loss from disposal non-current 12,260,017.68 4,463,672.95 assets Of which: loss from disposal 12,260,017.68 4,463,672.95 intangible assets 2．Loss from exchange of non-monetary assets 3．Loss from debt restructuring 4．Public donation expenditure 798.00 5．Extraordinary loss 59,045.53 168,226.01 6．Loss from results 7．Other 4,322,084.97 103,867.29 Total 16,641,148.18 4,736,564.25 38. Income tax expenses Item Occurred amount in 2007 Occurred amount in 2006 Income tax expenses 7,632,435.18 7,952,984.00 Of which: current Income tax 7,180,548.88 8,203,473.98 expenses Deferred Income tax 451,886.30 -250,489.98 expenses 39. Other cash received or paid related to the operating activities Item with large amount Amount in 2007 Amount in 2006 I. Other cash received related to the operating 23,442,727.62 82,501,508.56 78 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Item with large amount Amount in 2007 Amount in 2006 activities Of which: Appropriate fouds for national debt 10,980,000.00 Current with Sanonda Xintiandi 10,000,000.00 11,300,000.00 Agrochemical Co., Ltd Sanonda Group Co., Ltd. and its 55,663,368.51 related parties II. Other cash paid related to the operating 83,496,381.96 87,329,653.58 activities Of which: Transportation cost 20,358,390.42 22,516,161.91 Business entertainment 3,690,349.93 3,120,957.89 Travel charge 3,969,353.90 3,637,923.89 Office allowance 4,159,597.68 2,954,640.87 Handing charges 175,894.55 59,832.88 Operating funds 3,659,330.83 5,404,999.20 Premium 2,995,517.02 3,057,668.42 Leasing 5,292,765.34 2,008,882.33 40. Net profit was adjusted as the net cash flow from the operating activities Item 2007 2006 I. Net profit was adjusted as the net cash flow from the operating activities: Net profit 32,429,212.14 31,381,261.48 Add：asset impairment provision 74,660,496.78 34,499,874.81 Fixed assets depreciation, depletion of oil and gas assets、 65,823,488.39 60,288,446.08 depreciation of capitalized biological assets Amortization of intangible assets 4,573,534.97 4,142,526.13 Amortization of long-term deferred expenses 91,640.04 91,640.04 Loss on disposal fixed assets, intangible assets and -559,931.99 3,467,606.95 long-term assets ( “－” means income) Losses on scrapping of fixed assets ("－" means income) 12,410,553.79 132,222.91 Losses on change of fair value ("－" means income) Financial expenses ("－" means income) 35,924,635.14 25,834,103.78 Losses arising form investment ("－" means income) -81,737,835.42 -27,631,747.00 79 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Item 2007 2006 Decrease of deferred income tax assets ("－" means 451,886.30 -250,489.98 increase) Increase of deferred income tax assets ("－" means decrease) Decrease in inventories ("－" means increase) 34,467,245.17 4,980,148.81 Decrease in operating receivables ("－" means increase) -4,593,830.10 74,705,103.90 Increase in operating receivables ("－" means decrease) 97,896,989.84 28,682,782.10 Other -191,508.16 -138,625.00 Net cash flows from operating activities 271,646,576.89 240,184,855.01 II. Investing and financing activities that do not involving cash receipts and payment: Conversion of debt into capital Reclassify convertible bonds to be expired within one year as current liability Fixed assets financed by finance leases III. Net increase in cash and cash equivalents: Cash at the end of the period 452,405,704.33 319,965,596.44 Less: cash at the beginning of the period 319,965,596.44 242,469,878.43 Add: cash equivalents at the end of the period Less: cash equivalent at the beginning of the period Net increase in cash and cash equivalents 132,440,107.89 77,495,718.01 41. Information about cash and cash equivalent Item 2007 2006 I. Cash 452,405,704.33 319,965,596.44 Of which: 1.cash on hand 28,776.43 22,630.18 2.Band deposit available for paying at any time 341,776,096.91 254,535,859.32 3.Other monetary capital available for paying at any time 110,600,830.99 65,407,106.94 II. Cash equivalents Of which: investment on bonds matured within 3 months III. Balance of cash and cash equivalents at the year-end 452,405,704.33 319,965,596.44 Of which: restricted ash and cash equivalent used by the parent company and the subsidiaries of the Group IX. Annotations for the items in Financial Statement of the parent company 1. Accounts receivable 80 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. (1) Represented by account age Book balance at Bad debt reserve Book balance at Bad debt reserve Account age the year-end the year-begin Within 1 year 24,440,203.40 4,533,695.16 50,567,917.70 2,480,811.91 1 to 2 years 8,279,170.56 874,400.41 6,352,225.90 264,981.16 2 to 3 years 1,593,336.34 79,666.81 2,613,744.34 130,687.22 3 to 4 years 69,732.50 3,486.63 11,603,910.22 627,929.21 4 to 5 years 4,280,244.25 218,762.21 9,055,400.10 5,837,015.17 Over 5 years 4,824,210.20 4,824,210.20 Total 38,662,687.05 5,710,011.22 85,017,408.46 14,165,634.87 (2) Represented by classification Book balance at the year-end Book balance at the year-begin Proportion Proportion Proportion of Proportion of Classification Bbad debt Bbad debt Amount taking up withdrawal Amount taking up withdrawal reserve reserve the total bad debt the total bad debt reserve reserve Significant accounts receivable with single amount Non-significant account receivable with single amount but relatively high risk after being combined based on the credit risk Other non-significant 38,662,687.05 100% 5,710,011.22 85,017,408.46 100% 14,165,634.87 accounts receivable 81 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance at the year-end Book balance at the year-begin Proportion Proportion Proportion of Proportion of Classification Bbad debt Bbad debt Amount taking up withdrawal Amount taking up withdrawal reserve reserve the total bad debt the total bad debt reserve reserve Total 38,662,687.05 100% 5,710,011.22 85,017,408.46 100% 14,165,634.87 (3) Accounts receivable cancelled after verification in 2007 Item Amount Account nature Reason for ca I. Non-related parties Hubei Jingzhousha Lvfa Jiangban Co., Ltd. 4,309,854.63 Payment for goods Unable to receive owing to Jiangxi Jingde Xianggan Pesticide Co., Ltd 2,095,486.55 Payment for goodsUnable to receive owing to Shandong Anbang Co., Ltd. 2,021,899.00 Payment for goodsUnable to receive owing to Jiangxi Fuzhou District Agricultural Material Co., Ltd. 1,288,393.48 Payment for goodsUnable to receive owing to Hubei Jingzhou Chemical & Light Industry Co., Ltd. 1,206,218.93 Payment for goodsUnable to receive owing to Guangxi Liuzhou District Agricultural Technology Service Center 1,076,470.70 Payment for goodsUnable to receive owing to Jiangxi Gaoan Agricultural Material Co., Ltd. 948,482.64 Payment for goodsUnable to receive owing to Hubei Jingzhou Agricultural Material Group Co., Ltd. 924,516.92 Payment for goodsUnable to receive owing to Hubei Tuanfeng Agricultural Material Co., Ltd. 883,924.00 Payment for goodsUnable to receive owing to Hubei Shishou Agricultural Material Co., Ltd. 588,275.00 Payment for goodsUnable to receive owing to Hubei Jingmen Yuya Paper Co., Ltd. 524,467.77 Payment for goodsUnable to receive owing to Hubei Tuanfeng Agricultural Technology Service Co., Ltd. 460,711.44 Payment for goodsUnable to receive owing to Chongqing Fuling Agricultural Material Co., Ltd. 424,700.00 Payment for goodsUnable to receive owing to Hubei Wuhan Xinzhou Agricultural Material Co., Ltd. 408,901.00 Payment for goodsUnable to receive owing to Anhui Suzhou Supply & Marketing Union Agricultural Material Operation 387,656.18 Payment for goodsUnable to receive owing to Hubei Nanzhang Pulp & Paper Co., Ltd. 351,054.01 Payment for goodsUnable to receive owing to Hubei Macheng Agricultural Material Co., Ltd. 321,248.00 Payment for goodsUnable to receive owing to Other 10,551,782.02 Payment for goodsUnable to receive owing to II. Related parties Total 28,774,042.27 (4) Representation of the first five accounts receivable Proportion taking up Arrearage Name of unit Amount the total of the time Accounts receivable 82 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Proportion taking up Arrearage Name of unit Amount the total of the time Accounts receivable Guandong Zhanjiang Sanzong Co., 2,376,624.95 4-5 years 6.15% Ltd. Guangxi Nanning Keerda Nonghua 2,325,810.30 1-5 years 6.02% Co., Ltd. Chongqing Yukai Agriculture 1,513,343.97 1-2 years 3.91% Development Co., Ltd. Hunan Huarong Yuanda Agricultural Within 1 1,070,554.00 2.77% Material Co., Ltd. year Hubei Huanggang Huangzhou 646,274.00 1-2 years 1.67% Agricultural Material Co., Ltd. Total 7,932,607.22 20.52% Note: there were no accounts for the shareholders holding more than 5% (including 5%) of voting share of the Company in the item of balance of the accounts receivable at the year-end. 2. Other account receivable (1) Represented by account age Book balance at t Provision for bad Book balance at the Provision for bad Structure of debt he year-end debt year-begin debt Within 1 year 93,614,156.81 34,673.27 82,919,807.39 1,164,565.20 1-2 years 7,072,209.30 77,918.02 49,382,725.71 13,746,354.42 2-3 years 9,358,647.54 55,916.94 30,903,256.01 5,475,867.15 3-4 years 7,182,762.23 132,196.08 315,716.96 15,785.85 4-5 years 175,291.03 8,764.55 541,500.00 27,075.00 Above 5 years 4,154,524.47 4,154,524.47 3,673,024.47 3,673,024.47 Total 121,557,591.38 4,463,993.33 167,736,030.54 24,102,672.09 （2）Listed according to the category Type Book balance at the year-end Book balance at the year-begin 83 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Ratio Ratio withdre Ratio Ratio Provision withdrew w to total Provision for Amount to total for bad Amount provision provisio amoun bad debts amount debts for bad n for bad t debts debts Other accounts receivable 113,092,489. 157,567,144. 93.94 20,054,730.4 with significant single 93.04% 0.77% 873,337.56 12.73% 58 41 % 5 amount Other accounts receivable with insignificant single amount, but which had big risks after reforming in accordance with credit risk Other accounts receivable 3,590,655. 10,168,886.1 with insignificant single 8,465,101.80 6.96% 42.42% 6.06% 39.81% 4,047,941.64 77 3 amount 121,557,591. 100.00 4,463,993. 167,736,030. 100.00 24,102,672.0 Total 3.67% 14.37% 38 % 33 54 % 9 （3）Other accounts receivable canceling after verification in deed in this year Name of item Amount Character of amount Reason for writing-off I. Non-related parties Individual special account 3,620.93Individual special fund Can’t recover Qichun Agrochemical Co., Limited12,166,333.70 Current account Can’t recover due to too long ages of account II. Related parties Can’t recover because it stopped production for many years, which Fengyuan Chemical Co., Limited 37,823,840.85 Current account can’t pay debt by assets. Total 49,993,795.48 （4）First five other account receivable Ratio to total other Name of company Amount Ages of account accounts receivable (%) Sanonda International Trade Co., Limited 67,286,275.16 Within 1 year 55.35% Sanonda Jinzhou Agrochemical Co., 21,125,939.07 1-3 years 17.38% 84 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Ratio to total other Name of company Amount Ages of account accounts receivable (%) Limited Sanonda Tianmen Agrochemical Co., 1-4 years 14.37% Limited 17,466,751.21 Jinzhou High-tach Industry Development Zone, State Administration of Taxation, Tax Within 1 year 5.93% Rebate 7,213,524.14 Zhengzhou Xin Tiandi Agrochemical Co., 1-2 years 1.47% Limited 1,789,444.68 Total 114,881,934.26 94.50% Note: In accounts receivable at the year-end, no arrearage due to shareholders which holding over 5% (including 5%) of shares of the Company with voting right 3. Long-term investment on stock Book balance Increase/ Book balance Cash bonus Initial amount Provision for Invested company at the decrease in at the year-en received in of investment bad debt year-begin this year d this year Calculated by Equity method Hubei Fengyuan 22,000,000.00 Chemical Co., Limited Calculated by Equity method 1. Investment to subsidiaries Sanonda Zhengzhou Agrochemical Co., 38,558,619.32 38,558,619.32 38,558,619.32 Limited Sanonda Jinzhou Agrochemical Chemical 24,500,000.00 24,500,000.00 24,500,000.00 24,500,000.00 Co., Limited Hubei Sanonda International Trade Co., 9,000,000.00 9,000,000.00 9,000,000.00 Limited 85 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Book balance Increase/ Book balance Cash bonus Initial amount Provision for Invested company at the decrease in at the year-en received in of investment bad debt year-begin this year d this year Hubei Sanonda Tianmen Agrochemical Co., 7,245,023.32 7,245,023.32 7,245,023.32 Limited Jinzhou Linghua Petroleum Chemical Co., 3,250,000.00 3,250,000.00 3,250,000.00 325,000.00 Ltd Jinzhou Sanond finance 4,721,400.00 4,721,400.00 4,721,400.00 24,028,892.11 consultation Co., Limited Jinzhou Sanonda Aifusi 3,060,000.00 3,060,000.00 3,060,000.00 Chemical Co., Ltd. 2. Other equity investment Th-unis Insight Co., Ltd. 750,000.00 750,000.00 -750,000.00 0.00 Jinzhou Tianyang Huibao Precise Chemical Co., 1,440,000.00 1,440,000.00 1,440,000.00 Ltd. Jinzhou Sanonda Weixun 450,000.00 450,000.00 450,000.00 Chemical Co., Ltd Beijing Insight Finechem 2,000,000.00 2,000,000.00 2,000,000.00 Co., Ltd. Jinzhou Dali Industrial 1,674,600.00 1,674,600.00 1,674,600.00 Co., Ltd Hubei Shendian Co., Ltd 564,000.00 564,000.00 564,000.00 Hubei Shuanghuan 495,000.00 495,000.00 495,000.00 Technology Co., Ltd. Wangda Industrial Co., 550,000.00 550,000.00 550,000.00 Ltd Guangxi Zhongding Co., 580,800.00 580,800.00 580,800.00 Ltd. Huafei Chemical Co., 32,000.00 32,000.00 32,000.00 32,000.00 Ltd. Jinzhou Commercial 20,000,000.00 20,000,000.00 20,000,000.00 11,991,017.37 Bank Total 140,871,442.64 118,871,442.64 -750,000.00 118,121,442.64 36,523,017.37 24,353,892.11 86 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Note: In accordance with the requirement of No. 1 to Accounting Standard for Business Enterprise Note, the Company made the retroactive reconciliation of long-term investment on stock to the subsidiaries, measuring by cost method in place of equity method. Among which, controlling subsidiaries Hubei Fengyuan Chemical Co., Ltd. had stopped production for so many years, can’t pay the debt by assets, so which was not brought into the consolidation scope and still calculate by the equity method. 4. Operating income （1）Operating income Item Amount occurring in this year Amount occurring in last year Income from main operation 1,110,351,181.61 964,991,256.81 Income from other operation 36,728,228.19 14,399,475.64 Total 1,147,079,409.80 979,390,732.45 （2）Income from main operation Income from main Type of main operation and product Cost of main operation Profit of main operation operation Agrochemicals category 831,190,011.63 698,134,520.79 133,055,490.84 Medicinal products category 262,980,530.09 226,561,334.92 36,419,195.17 Other 16,180,639.89 13,154,742.99 3,025,896.90 Total 1,110,351,181.61 937,850,598.70 172,500,582.91 5. Benefits of investment Source of benefits of investment Amount accruing in Amount accruing in last year this year Benefits during the holding period Bonus of long-term investment on stock under the cost method 24,353,892.11 7,894,968.18 Gains of disposal: Disposal of long-term investment on stock 1,730,000.00 1,664,029.57 Finance assets for trading 61,860,971.65 3,543,247.35 Total 87,944,863.76 13,102,245.10 Note: Bonus of long-term investment on stock under the cost method in this year amounting to RMB 24,353,892.11 was the cash bonus from the subsidiaries of the Company Jinzhou Sanond finance consultation Co., Limited and Jinzhou Linghua Petroleum Chemical Co., Ltd.; the gains from finance assets for trading was from the 87 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. gains form applying to purchase the new share amount to RMB 37,705,222.17 and gains from selling share of Huaxin cement held by the Company amounting to RMB24,155,749.48 ; gains from disposal of long-term investment on stock was the gains of transferring the equity of Th-unis Insight Co., Ltd. amounting to RMB1,730,000.00. I. Relationship of related parties and its transactions 1. Information of parent company and actual controller of the Company Registered Note Parent Registered address Character of business capital No. 93. Beijing East Road, agrochemicals and Parent SGC 240,661,000 Jizhou, Hubei medicinal products company Office building, old Chemical Construction, minerals Parent Agricultural Chemical Department, Liu Pukeng, product, fertilizers, raw 300,000,000 company of of China Co., Limited material chemicals, etc. Westtown District, Beijing parent company China Chemical Office building, old Chemical Construction, minerals Actual Industrial Group Co., Department, Liu Pukeng, product, fertilizers, raw 5,704,627,000 material chemicals, etc. controller Ltd Westtown District, Beijing 2. Shareholding proportion of the Company held by the parent company and its voting right proportion Proportion at the Proportion at the Item Increase in this year Decrease in last year year-begin year-end Shareholding proportion 20.15% 0.13% 20.02% Voting right proportion 20.15% 0.13% 20.02% Note: The parent company SGC provided the guarantee for the loan amounting to RMB 1 million for investment of Hubei Boerde Chemical Co., Ltd in Hubei in this year, but the Hubei Boerde Chemical Co., Ltd didn’t compensate when the loan expired, the 400,000 shares of state-owned equity of the Company held by the parent company was vendued judicially to compensate the above loan. 3. Subsidiaries of the Company 88 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Voting Shareholding right Registered proportion of proportion Name of subsidiaries Registered address Character of business capital ( Unit: the of the RMB’0000) Company Company totally totallly I. Subsidiaries consolidated under the same control II. Subsidiaries consolidated under the different control Production of Sanonda Zhengzhou No.57, town east south agrochemicals and Agrochemical Co., 4000 70.00% 70.00% road, Zhengzhou chemical products like Limited omethoate, caustic soda Sanonda Jinzhou Production of No.10, West huan, Jinzhou Agrochemical Chemical agrochemicals and 2800 87.50% 87.50% District Co., Limited intermediates. Bubei Fengyuan No.1, Linjiang Road Te, Production of precise 4000 55.00% 55.00% Chemical Co., Ltd. Shangsha District chemical products Hubei Sanonda Import and export of No.1, Beijing East Road, International Trade Co., agrochemicals, and 1000 90.00% 90.00% Jinzhou Limited intermediates. Hubei Sanonda Tianmen No. 179, Zaoshi Old town Production and sale of Agrochemical Co., 800 100.00% 100.00% Road, Tianmen agrochemicals Limited Jinzhou Linghua No. 95, Beijing East Road, Production and sale of Petroleum Chemical Co., 500 65.00% 65.00% Jinzhou chemical products Ltd Finance consultation, Jinzhou Sanond finance No 1. Beijing East Road, investment consultation 500 90.00% 90.00% consultation Co., Limited Shashi District, Jinzhou and other service. Development, design, Jinzhou Sanond Aifusi No.93, Beijing East Road, production and sale of 600 51.00% 51.00% Chemical Co., Ltd. Jinzhou precise chemical products 4. Related parties which existed no controlling relationship Name of company Relationship with the Company Jinzhou Fude Food General Corporation The same parent company Hubei Datian Chemical Co., Ltd. The same parent company 89 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Name of company Relationship with the Company Jinzhou Sandonda Advertisement Co., Ltd. The same parent company Jinzhou Hengxiang Chemical Material Trading Co., Ltd. The same parent company Hu Bei Jinzhou Huaxiang Chemical Co., Ltd. Associate company of parent company Beijing (Lanxing) Machinery Co., Ltd The same final controller Sichuan Lanxing Machinery Co., Ltd. The same final controller Th-unis Insight Chemical Technology Co., Ltd Share participating company Jinzhou Tianyang Huibao Precise Chemical Co., Ltd. Share participating company Jinzhou Sandonda Weixun Chemiacal Co., Ltd Share participating company Beijing Insight Precise Technology Development Share participating company Jinzhou Dali Industrial Co., Ltd. Share participating company 5. Related transaction (Unit: RMB Yuan) Amount Name Type of trading Price policy This year Last year Jinzhou Dali Industrial Co., Ltd Purchase goods Market price 7,446,760.10 8,232,976.24 Hubei Datian Chemical Co., Ltd Purchase goods Market price 16,000,000.00 1,163,597.34 Jinzhou Fude Food General Corporation Purchase goods Market price 22,725,609.57 10,372,139.32 Agricultural Chemical of China Co., Limited Purchase goods Market price 102,581,711.34 35,212,062.79 Hubei Datian Chemical Co., Ltd Sale of goods Market price 509,294.02 SGC Transferred equity Market price 720,000.00 Jinzhou Hengxiang Chemical Material Trading Co., Ltd. Purchase goods Market price 57,934,560.65 Jinzhou Tianyang Huibao Precise Chemical Co., Ltd. Sale of goods Market price 6,402,887.14 Agricultural Chemical of China Co., Limited Sale of goods Market price 23,980,754.36 Hu Bei Jinzhou Huaxiang Chemical Co., Ltd. Sale of goods Market price 11,048,009.37 Beijing Insight Precise Technology Development Co., Ltd. Sale of goods Market price 12,996,922.45 Jinzhou Hengxiang Chemical Material Trading Co., Ltd. Sale of goods Market price 4,463,241.73 Beijing (Lanxing) Machinery Co., Ltd Purchase equipment Market price 12,310,800.00 Sichuan Lanxing Machinery Co., Ltd. Purchase equipment Market price 997,000.00 6. Balance of accounts receivable form the related parties Type of balance of Amount at the Amount at the Name of related parties account year-end year-begin Accounts receivable Payment for Jinzhou Tianyang Huibao Precise Chemical Co., Ltd. goods 101,275.66 90 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Type of balance of Amount at the Amount at the Name of related parties account year-end year-begin Payment for Jinzhou Sandonda Weixun Chemiacal Co., Ltd goods 9,942.74 Payment for Agricultural Chemical of China Co., Limited goods 100,100.00 805,000.00 Beijing Insight Precise Technology Development Co., Payment for Ltd goods 1,974,980.40 Payment for Jinzhou Hengxiang Chemical Material Trading Co., Ltd. 118,084.81 761,733.99 goods Other accounts receivable: Bubei Fengyuan Chemical Co., Ltd. Borrowings 38,011,446.35 Th-unis Insight Chemical Technology Co., Ltd Current accounts 128,987.00 128,987.00 Jinzhou Tianyang Huibao Precise Chemical Co., Ltd. Borrowings 1,500,000.00 Jinzhou Sandonda Advisement Co., Ltd. Current accounts 1,020.00 2,806.75 Account payable in advance: Payment for Hubei Datiam Chemical Co., Ltd goods 928,859.50 1,928,859.50 Payment for Jinzhou Fude Food General Corporation goods 826,939.18 Payment for Agricultural Chemical of China Co., Limited goods 764,765.13 Payment for Jinzhou Hengxiang Chemical Material Trading Co., Ltd goods 301,372.10 Payment for Beijing (Lanxing) Machinery Co., Ltd 9,274,800.00 goods Payment for Sichuan Lanxing Machinery Co., Ltd. 555,000.00 goods Accounts payable: Payment for Jinzhou Fude Food General Corporation goods 1,091,170.39 Payment for Jinzhou Dali Industral Co., Ltd. goods 999,794.44 1,290,885.04 Payment for Jinzhou Hengxiang Chemical Material Trading Co., Ltd goods 267,207.70 Payment for Agricultural Chemical of China Co., Limited goods 3,316,946.21 91 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Type of balance of Amount at the Amount at the Name of related parties account year-end year-begin Payment for Hubei Datian Co., Ltd goods 5,535.00 Account receivable in advance: Payment for Agricultural Chemical of China Co., Limited goods 2,010,802.56 Payment for Jinzhou Tianyang Huibao Precise Chemical Co., Ltd. goods 188,101.20 Other accounts payable: Th-unis Insight Chemical Technology Co., Ltd Current account 400,000.00 400,000.00 SGC Current account 9,630,497.21 Jinzhou Sandonda Advisement Co., Ltd. Current account 3,498.00 XI. Reconstruction of liabilities The controlling shareholder of the Company, Sanonda Jinzhou Agrochemical Chemical Co., Limited signed the Reconstruction of liabilities Agreement with China Cinda Asset Management Corporation, which referred to USD1,362,441.07 and RMB 1,283,548.70, China Cinda Asset Management Corporation exempted the balance of liabilities after Sanonda Jinzhou Agrochemical Chemical Co., Limited paid RMB2,240,000 once to China Cinda Asset Management Corporation. The confirmed benefits from reconstruction of liabilities was RMB 9,864,764.75 which was measured into income form non-operation XII. Borrowings In this year, the construction in progress occupied the part of current capital, total capital interests was RMB847,088.93 in accordance with 6.72% loan rate of current capital, the capital interests of construction in progress was RMB 847,088.93 at the year-end. XIII. Share paid There was no information about the share paid to disclose in the report period. XIV. Exchange of non-monetary assets There was no information about the significant exchange of non-monetary assets to disclose in the report period. XV. Contingencies (Unit: RMB ’0000) 92 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Actual Overdu Amount of Type of situation of Guarantee Company Guaranteed Company e Way of guarantee guarantee guarantee guaranteed amount company Guarantee for Sanonda Zhengzhou Agrochemical Loan Sanonda Co., Ltd 1,000 related Operating Co., Limited guarantee responsibility Guarantee for Sanonda Zhengzhou Agrochemical Loan Sanonda Co., Ltd 2,500 related Operating Co., Limited guarantee responsibility Guarantee for Sanonda Jinzhou Agrochemical Loan Sanonda Co., Ltd 200 200 related Operating Chemical Co., Limited guarantee responsibility Guarantee for Sanonda Jinzhou Agrochemical Loan Sanonda Co., Ltd 165 165 related Operating Chemical Co., Limited guarantee responsibility Hubei Sanonda Guarantee for Sanonda Jinzhou Agrochemical Loan International Trade Co., 30 30 related Operating Chemical Co., Limited guarantee Limited responsibility Guarantee for Hubei Sanonda International Trade Loan Sanonda Co., Ltd 10,000 related Operating Co., Limited guarantee responsibility Guarantee for Hubei Sanonda International Trade Loan Sanonda Co., Ltd USD1,000 related Operating Co., Limited guarantee responsibility Note: all guarantee provided by the Company was towards the consolidated units, the total amount of guarantee at the year-end was RMB 13,895 million and USD 1 million, overdue amount was RMB 3.95 million. XVI. Events occurring after the balance sheet date There were no events to disclose during the period from balance sheet date to date of approving to submit the financial report in the report period. XVII. Complementary information 1. Return on equity and earnings per share Return on equity earnings per share Weighted Basic earnings Diluted earnings Profit in the report periot Fully diluted average per share per share Amount Amount Amount Amount Amount Amount Amount Amount 93 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. of this of last of this of last of this of last of this of last year year year year year year year year Net profit attributable to shareholders of 3.24% 2.94% 3.29% 2.99% 0.050 0.088 0.050 0.088 ordinary share of the Company Net profit attributable to shareholders of ordinary share of the Company after 3.75% 3.21% 3.81% 3.26% 0.058 0.095 0.058 0.095 deducting the non-recurring gains and losses (1) Explanation on calculating progress Item 2007 2006 Net profit attributable to shareholders of ordinary share of the Company 29,600,801.04 25,985,571.59 Non-recurring gains and losses attributable to parent company -4,671,378.92 -2,361,504.43 Net profit attributable to shareholders of ordinary share of the Company after deducting the non-recurring gains and losses 34,272,179.96 28,347,076.02 Net profit at the year-begin attributable to shareholders of ordinary share of the Company 883,458,820.83 857,473,249.24 Net profit at the year-end attributable to shareholders of ordinary share of the Company 914,984,485.67 883,458,820.83 Diluted net profit at the year-end attributable to shareholders of ordinary share of the Company 914,984,485.67 883,458,820.83 Weighted average net profit at the year-end attributable to shareholders of ordinary share of the Company 899,542,463.88 870,466,035.04 Number of shares 593,923,220.00 296,961,610.00 All above mentioned data was calculated in below formula: A: Fully diluted return on equity Fully diluted return on equity = P÷E Of which: P refers to Net profit attributable to common shareholder of the Company or net profit after deducting non-recurring gains and losses attributable to common shareholder of the Company; E refers to net assets at the period-end attributable to common shareholders of the Company. “Net profit attributable to common shareholder of the Company” excluded minority interest, “net profit after deducting non-recurring gains and losses attributable to common shareholder of the Company” would be calculated based on consolidated net profit after deducting minority interests; deducting non-recurring gain and loss of parent company (the Company should consider influence of income tax) and non-recurring gain and loss of each subsidiary (the Company should consider influence of income tax) ; “net assets at the period-end attributable to common shareholders of the Company” excluded minority interests. 94 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. B: Weighted average return on equity Weighted average return on equity =P/(E0 ＋ NP÷2 ＋ Ei×Mi÷M0-Ej×Mj÷M0±Ek×Mk÷M0） Of which: P refers to Net profit attributable to common shareholder of the Company or net profit after deducting non-recurring gains and losses attributable to common shareholder of the Company; NP refers to net profit attributable to common shareholders of the Company; E0 refers to net assets at the period-begin attributable to common shareholders of the Company; Ei refers to net assets increased due to issuance of new share or debts for equity swap or attributable to common shareholders of the Company; Ej refers to net assets decreased due to repurchased or dividends in cash or attributable to common shareholders of the Company; M0 refers to the number of months during the report period; Mi refers to the number of months from the next month when net assets increased to the end of the report period; Mj refers to the number of months from the next month when net assets decreased to the end of the report period; Ek refers to change of increase/decrease of net assets due to other transaction events; Mk refers to the number of months from the next month when other net assets changed the end of the report period. C: EPS-basis=P÷S S=S0＋S1＋Si×Mi÷M0-Sj×Mj÷M0-Sk Of which: P refers to net profit attributable to shareholders holding ordinary shares or net profit attributable to shareholders holding ordinary shares after deducting non-recurring gains and losses; S weighted average number of ordinary shares issued out; S0 refers to total number of shares at the period-begin; S1 refers to the number of shares increased due to transferring capital reserve into share capital or dividend distribution of shares during the report period; Si refers to the number of shares increased due to issuance of new shares or debt for equity swap during the report period; Sj refers to the number of shares decreased due to stock repurchase during the report period; Sk refers to the number of split-share during the report period; M0 refers to the number of months during the report period; Mi refers to the number of months from the next month to the end of the report period for increase of shares; Mj refers to the number of months from the next month to the end of the report period for decrease of shares. D. EPS-diluted = [net profit attributable to shareholders holding ordinary shares +(potential diluted interests of ordinary shares recognized as expense － transfer fee)×(1-income tax rate)]/(S0＋S1＋Si×Mi÷M0-Sj×Mj÷M0-Sk + weighted average amount of ordinary shares increased due to warrant, share options、convertible bond) P refers to net profit attributable to shareholders holding ordinary shares or net profit attributable to shareholders holding ordinary shares after deducting non-recurring gains and losses. The Company shall consider all influence on potential diluted interests of ordinary shares when the Company calculated diluted earnings per share, till to 95 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. minimum diluted EPS. (2) The potential ordinary share which is not diluted in current period but may be diluted in future period. (3) Significant changes of the ordinary shares which were issued to the public and the potential ordinary shares from the date of balance sheet to the date of the financial report was authorized for issue. 2. Explanation on adjustment matter between new and old accounting standards The Company implemented the new accounting standards since Jan.1, 2007, in accordance with the requirement of Accounting Standards for Enterprises No. 38 - Initial Implementation of Accounting Standards for Business Enterprises and No. 1 to Accounting Standard for Business Enterprise Note from Finance Ministry, and Questions and Responses of Information Disclosure Standard by Companies Publicly Issuing Securities No. 7 --- Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standard ( ZJHKJ Zi[2007] Document No.10), the Company made the retroactive reconciliation and new statement. (1) Changes of equity of consolidated shareholders adopting the new accounting standards In accordance with the old accounting standards, the equity of shareholders of the Company dated Dec. 31, 2006 was RMB 900,295,089.22 (Except the minority shareholders’ equity), in accordance with the new accounting standards, the equity of shareholders of the Company dated Jan. 1, 2007 was RMB 909,686,886.81, the equity of shareholders at the year-begin increased RMB 9,391,797.59 due to the conversion between the old and new accounting standards. Adjustment was as follows: Jan. 1, 2007 Jan. 1, 2006 Item of equity Before Amount After Before Amount After adjustment adjusted adjustment adjustment adjusted adjustment Share capital 296,961,610.00 296,961,610.00 296,961,610.00 296,961,610.00 Capital reserve 566,756,587.94 566,756,587.94 566,756,587.94 566,756,587.94 Surplus reserve 57,285,245.67 57,285,245.67 57,285,245.67 57,285,245.67 Retained profit -20,708,354.39 -16,836,268.39 -37,544,622.78 -42,057,978.47 -21,472,215.90 -63,530,194.37 Total equity 900,295,089.22 -16,836,268.39 883,458,820.83 878,945,465.14 -21,472,215.90 857,473,249.24 96 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Jan. 1, 2007 Jan. 1, 2006 Item of equity Before Amount After Before Amount After adjustment adjusted adjustment adjustment adjusted adjustment attributable to parent company Equity of minority shareholders 26,228,065.98 26,228,065.98 23,376,532.98 23,376,532.98 Total equity of shareholders 900,295,089.22 9,391,797.59 909,686,886.81 878,945,465.14 1,904,317.08 880,849,782.22 Note①: The retroactive reconciliation consolidated the retained profit dated Jan. 1, 2007, decreased RMB16,836,268.39, among which, confirmed welfare for inner retired employees decreased RMB 18,262,077.15; The confirmed deferred income tax increased RMB 2,197,779.62; The larger loss undertaking by former minority shareholders transferred to principal shareholder, which decreased RMB 1,216,641.44; The fiancé assets for trading increased RMB 444,670.58 due to changes of fair value. Note②: The decrease of retroactive reconciliation of retained profit was RMB21,472,215.90, among which, confirmed welfare for inner retired employees decreased RMB 22,437,866.78; The confirmed deferred income tax increased RMB2,003,717.44; The larger loss undertaking by former minority shareholders transferred to principal shareholder, which decreased RMB 1,038,066.56. Note③: In accordance with the new accounting standards, the equity of shareholders dated Jan. 1, 2007 increased RMB 26,228,065.98 after transferring equity of minority shareholders as part of equity of shareholders, among which, the equity of shareholders increased RMB 24,220,643.76 after transferring equity of minority shareholders as equity of shareholders under the old accounting standards; adjusted welfare of inner retired employees decreased RMB3,146,421.42; the confirmed deferred income tax assets increased RMB316,464.42; The larger loss undertaking by former minority shareholders transferred to principal shareholder, which increased RMB 1,216,641.44; the controlling shareholder Jinzhou Sanonda Aifusi Chemical Co., Ltd. of the Company was measured into the consolidation scope, which increased RMB 3,620,737.78. 97 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Note④: In accordance with the new accounting standards, the equity of shareholders dated Jan. 1, 2006 increased RMB 23,376,532.98 after transferring equity of minority shareholders as part of equity of shareholders, among which, the equity of shareholders increased RMB 22,784,206.89 after transferring equity of minority shareholders as equity of shareholders under the old accounting standards; adjusted welfare of inner retired employees decreased RMB3,764,559.94; the confirmed deferred income tax assets increased RMB260,036.62; The larger loss undertaking by former minority shareholders transferred to principal shareholder, which increased RMB1,038,066.56; the controlling shareholder Jinzhou Sanonda Aifusi Chemical Co., Ltd. of the Company was measured into the consolidation scope, which increased RMB3,058,782.85. (2) Adjustment of profit difference in 2006 under the new accounting standards Item Amount Net profit in 2006 ( Old Accounting Standards) 27,116,807.33 Total amount of retroactive reconciliation items 4,264,454.15 Among which: Fiance assets for trading 444,670.58 Dismissal compensation in line with condition of expected liabilities 4,793,928.15 Confirmed deferred income tax assets 161,980.65 Unconfirmed investment impairment -1,606,956.51 Changes in consolidation scope 470,831.28 Net profit in 2006 ( New Accounting Standards) 31,381,261.48 Information for referance in case of implementing new accounting standards fully The simulation net profit in 2006 31,381,261.48 Note①: the retroactive reconciliation of net profit in 2006 increased RMB 4,264,454.15, among which: finance assets for trading increased RMB 444,670.58 due to changes of fair value, adjusted welfare of inner retired employees increased RMB4,793,928.15; the confirmed deferred income tax assets increased RMB161,980.65; measuring the unconfirmed investment impairment at current year into gains and losses, which decreased RMB1,606,956.51; the controlling shareholder Jinzhou Sanonda Aifusi Chemical Co., Ltd. of the Company was measured into the consolidation scope, which increased RMB470,831.28. (Gains and losses from minority shareholders) Note②: The Company assumed to implementing the new accounting standards in 2006, there was no other significant difference except the retroactive reconciliation matters, so 98 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. that there were no other reconciliation matters. (3) Comparison on consolidated profit difference in 2006 under the old and new accounting standards: Amount disclosed in Amount disclosed in Item Difference Note annual report 2007 annual report 2006 Reclassify and retroactive Operating income 1,444,449,312.33 1,402,296,005.04 42,153,307.29 reconciliation in line with new accounting standards Reclassify and retroactive Operating cost 1,211,182,903.44 1,177,954,470.35 33,228,433.09 reconciliation in line with new accounting standards Reclassify and retroactive Business tax and extra 2,816,514.64 2,704,083.87 112,430.77 reconciliation in line with new accounting standards Reclassify and retroactive Other operation profit - 6,213,430.59 -6,213,430.59 reconciliation in line with new accounting standards Sale expense 71,025,617.61 70,965,068.03 60,549.58 The retroactive reconciliation Reclassify and retroactive Management expense 79,560,874.60 110,361,152.64 -30,800,278.04 reconciliation in line with new accounting standards Finance expense 30,444,570.10 30,390,318.40 54,251.70 The retroactive reconciliation Reclassify and retroactive Assets impairment 34,499,874.81 34,499,874.81 reconciliation in line with new accounting standards Investment benefit 27,631,747.00 27,951,601.27 -319,854.27 The retroactive reconciliation Non-operation income 1,520,105.60 1,520,105.60 0.00 Reclassify and retroactive Non-operation expense 4,736,564.25 12,457,589.25 -7,721,025.00 reconciliation in line with new accounting standards Total profit 39,334,245.48 33,148,459.96 6,185,785.52 The retroactive reconciliation Expense of income tax 7,952,984.00 7,638,609.14 314,374.86 The retroactive reconciliation Unconfirmed investment 1,606,956.51 -1,606,956.51 The retroactive reconciliation impairment Net profit 31,381,261.48 27,116,807.33 4,264,454.15 The retroactive reconciliation Among which: profit attributable 25,985,571.59 22,956,580.59 3,028,991.00 The retroactive reconciliation 99 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. Amount disclosed in Amount disclosed in Item Difference Note annual report 2007 annual report 2006 to shareholders of parent company Gains and losses from minority The retroactive reconciliation 5,395,689.89 4,160,226.74 1,235,463.15 shareholders 3. Adjustment of consolidated equity of shareholders in 2007 In accordance with the requirement of Accounting Standards for Enterprises No. 38 - Initial Implementation of Accounting Standards for Business Enterprises and No. 1 to Accounting Standard for Business Enterprise Note (CH[2007] Document No.14), the reconciliation process, items corrected, influence amount, and its reason were as follows: Amount disclosed Amount disclosed Difference Item in annual report in annual report Notes 2007 2006 Shareholders’ equity dated Dec. 31, 2006 ( Old No accounting standards) 900,295,089.22 900,295,089.22 difference Dismissal compensation in line with condition of -21,408,498.58 Note expected liabilities -21,408,498.58 Finance assets and fiancé assets for trading, which No calculated under the fair value and its changes was 444,670.58 444,670.58 difference measured into the current gains and losses No Income tax 2,425,734.73 2,425,734.73 difference Minority shareholders’ equity was consolidated into No consolidated shareholders’ equity 24,220,643.76 24,220,643.76 difference No Other 3,709,247.10 3,709,247.10 difference Shareholders’ equity dated Jan. 1, 2007 (New accounting standards) 909,686,886.81 931,095,385.39 -21,408,498.58 Among which: shareholders’ equity attributable to parent company 883,458,820.83 901,720,897.98 -18,262,077.15 Minority shareholders’ equity 26,228,065.98 29,374,487.41 -3,146,421.43 Note: the shareholders’ equity decreased RMB 21,408,498.58 arising from adjustment the welfare of inner retired employees, among which, the shareholders’ equity 100 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. attributable to parent company decreased RMB18,262,077.15; minority shareholders; equity decreased RMB3,146,421.43. 4. Analysis of statement item whose changes was so abnormal Data changes’ proportion on the financial statements reached more than 30% (including 30%), which occupies 5% to total assets in statements of the company(includeing5%) or occupied 10% to total profit in the report period, whose details were as follows: Book balance at this Book balance at last Proportion Item of financial statement Main reason for change year-end year-begin increased Increase of short-term Monetary capital 452,405,704.33 319,965,596.44 41% borrowings Accounts receivable 229,963,431.81 172,823,247.54 33% Increase of export Short-term borrowings 334,979,993.25 225,000,000.00 49% Increase of capital demand Assets impairment 74,660,496.78 34,499,874.81 116% Increase of account withdrew Increase of gains from Investment benefits 81,737,835.42 27,631,747.00 196% investment on stock in this year Reconstruction of liabilities in Non-operation income 10,827,960.65 1,520,105.60 612% this year Non-operation expense 16,641,148.18 4,736,564.25 251% Disposal of fixed assets 5. In accordance with the requirement of Questions and Responses of Information Disclosure Standard by Companies Publicly Issuing Securities No. 1- Non-recurring Gains and Losses (Revised in 2007), information of non-recurring gains and losses: Item Amount （1）Gains and losses on disposal of non-current assets -11,707,391.93 （2）Gains and losses from reconstruction of liabilities 9,864,764.75 （3）Other non-operation’s net income/expense except above said items -3,982,162.01 Non-recurring gains and losses in total -5,824,789.19 Less: influence of income tax -1,955,562.27 Non-recurring gains and losses after deducting income tax influence -3,869,226.92 Among which: non-recurring gains and losses attributable to owners of parent company -4,671,378.92 Non-recurring gains and losses attributable to minority shareholders 802,152.00 Note: “+” means gains and “-”means losses in non-recurring gains and losses XVIII. Approval of financial report This financial report was approved to submit through the 11th Meeting of the 5th Board of Directors of the Company held on Apr. 20, 2008. 101 Summary of Annual Report 2007 of Hubei Sanonda Co., Ltd. XII. Documents available for reference (I) Accounting statements with personal signatures and seals of legal representative and chief accountant; (II) Text of the Report with the seals of accountant office and the signatures and seals of certified public accountant; (III) In the report period, Originals of all documents of the Company ever disclosed publicly in media designated by China Securities Regulatory Commission as well as the originals of all the public notices. Chairman of the Board: Li Zuorong Hubei Sanonda Co., Ltd Apr. 20, 2008 102