深深房Ｂ(200029)2007年年度报告（英文版）

(000029 SHENSHENFANG A 200029 SHENSHENFANG B) SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Annual Report 2007 (A share) April 21, 2008 Section I. Important Notes and Contents The Board of Directors, the Supervisory Committee, Directors, Supervisors and Senior Executives of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (hereinafter referred to as the Company) hereby ensure that there are no false records, misleading statements, or significant omissions in the materials of this report, and will assume individual and joint responsibilities concerning the authenticity, accuracy and integrity of its contents. None of Directors, Supervisors or Senior Executives can’t confirm the authenticity, accuracy and integrity of annual reports’ contents or had any objections. All Directors of the Company attended the Board meeting. Chairman of the Board Shao Zhihe, person in charge of accounting work Guo Hongzhuang and person in charge of accounting organ Chen Jincai hereby ensure the authenticity and integrity of the Financial Report enclosed in the Annual Report. The annual Report is written in both English and Chinese. In case of any discrepancy between the two versions, Chinese version prevails. Contents Section II. Company Profile--------------------------------------------------------------------- Section III. Summary of Accounting Highlights and Business Highlights---------------- Section IV. Change of Share Capital and Particulars of Shareholders------------------ Section V. Directors, Supervisors, Senior Executives and Employees--------------------- Section VI. Corporate Governance ------------------------------------------------------------ Section VII. Shareholders’ General Meeting--------------------------------------------------- Section VIII. Report of the Board of Directors------------------------------------------------ Section IX. Report of the Supervisory Committee------------------------------------------- Section X. Significant Events-------------------------------------------------------------------- Section XI. Financial Report--------------------------------------------------------------------- Section XII. Documents Available for Reference--------------------------------------------- 1 Section II. Company Profile (I). Legal Name of the Company In Chinese: 深圳经济特区房地产（集团）股份有限公司 In English: Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Short Form in Chinese: 深房集团 Short Form in English: SPG (II). Legal Representative: Shao Zhihe (III). Secretary of the Board: Chen Ji Securities Affairs Representative: Feng Hongwei Contact Address: 47/F, SPG Plaza, Renmin South Road, Shenzhen Tel.: (0755) 82293000-4718, 4715 Fax: (0755) 82294024 E-mail: spg@163.net (IV). Registered Address: 47/F, SPG Plaza, Renmin South Road, Shenzhen Office Address: 46/F-48/F, SPG Plaza, Renmin South Road, Shenzhen Postal Code: 518001 E-mail: spg@163.net Website: http://www.sfjt.com.cn (V). Newspapers for Disclosing the Information: Domestic: China Securities Journal Overseas: Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: 47/F of SPG Plaza, Renmin South Road, Shenzhen (VI). Stock Exchange Listed with: Shenzhen Stock Exchange Short Forms of the Stock: SHENSHENFANG A（Stock Code: 000029） SHENSHENFANG B (Stock Code: 200029) (VII). Other Information of the Company Initial registration date: Jan. 8, 1980 Registration place: Shenzhen Administration Bureau for Industry and Commerce Registration code of corporate business license: 4403011002426 Registration code of taxation: 440301192179585 Name and address of Certified Public Accountant engaged by the Company: Name: Shenzhen Nanfang Minhe Certified Public Accountants Address: 8/F, Electronics Tech. Bldg., No. 2007, Shennan Middle Road, Shenzhen 2 Section III. Abstract of Accounting Highlights and Business Highlights Unit: RMB (I) The financial indexes for the year 2007 Total profit realized by the Company as of the year 2007 51,658,929.76 Net profit 39,007,992.54 Net profit after deducting non-recurring gains and losses 8,503,113.51 Investment profit 28,472,277.81 Net cash flows arising from operating activities -52,901,570.14 Net increase in cash and cash equivalents -19,569,552.41 Items of non-recurring gains and losses deducted RMB30,504,879.03, including benefit from disposal of equity of Shenzhen Bafangtong Railway Storage & Transportation Co., Ltd amounting to RMB 16,366,000.00, and benefits from disposal of equity of Shenyang Tongxin Real Estate Development Co., Ltd. amounting to RMB 11,019,009.15, The balance of welfare funds payable is wright-off RMB 8,195,054.65,benefits from disposal of fixed assets RMB -19,680.02, net income/expense from non-operation amounting to RMB -1,616,821.83, deducted influence on income tax amounting to RMB -2,154,116.67. Difference between A shares and B shares: Effect on net profit and net assets calculated under IFRS and reconciliation: PRC GAAP IFRS Net profit 39,007,992.54 39,007,992.54 Net assets 1,188,146,644.01 1,188,146,644.01 Explanation on difference None (II) Main accounting data and financial indexes of the Company over the past three years 1. Major accounting data Increase/ 2007 2006 decrease than last 2005 year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating income 845,127,526.44 990,894,003.74 995,935,563.22 -15.14% 852,141,198.21 853,104,405.57 Net profit 51,658,929.76 20,449,631.64 21,218,544.81 143.46% 11,006,158.35 11,369,158.35 Net profit attributable to 39,007,992.54 19,259,485.35 20,150,368.49 93.58% 12,100,200.79 12,463,200.79 shareholders of listed company Net profit attributable to shareholders of listed company 8,503,113.51 54,338,604.44 59,637,104.41 -85.74% -40,482,937.48 -40,119,937.48 after deducting non-recurring gains and losses Net cash flow from the operation -52,901,570.14 175,115,254.95 180,631,092.66 -129.29% 266,270,984.93 264,157,193.89 activities Increase/ At the end of At the end of 2006 decrease than last At the end of 2005 2007 year Before Before Before Adjustment After Adjustment After Adjustment Adjustment Adjustment Total assets 2,302,724,936.60 2,391,441,694.13 2,392,948,463.16 -3.77% 2,280,306,748.29 2,290,152,751.99 Owners’ equity (shareholders’ 1,093,956,870.51 1,130,710,841.90 5.08% 1,056,972,101.87 1,057,335,101.87 equity) 1,188,146,644.01 3 2. Major financial index Increase/ decrease 2007 2006 2005 than last year (%) Before adjustment After adjustment After adjustment Before adjustment After adjustment Basic earnings per 0.0386 0.019 0.0199 93.97% 0.012 0.123 share Diluted earnings 0.0386 0.019 0.0199 93.97% 0.012 0.123 per share Basic earnings per share after deducting 0.0084 0.0537 0.059 -85.76% -0.04 -0.04 non-recurring gains and losses Fully diluted return on equity 3.28% 1.76% 1.78% 1.5% 1.14% 1.18% (%) Weighted average return on equity 3.39% 1.81% 1.89% 1.5% 1.20% 1.24% (%) Fully diluted return on equity after deducting 0.72% 4.97% 5.27% -4.55% -3.83% -3.79% non-recurring gain and loss (%) Weighted Average return on equity after deducting 0.74% 5.09% 5.59% -4.85% -4.02% -3.98% non-recurring gain and losses (%) Net cash flow per share from -0.05 0.17 0.18 -127.78% 0.26 0.26 operating activities At the end of Increase/ decrease At the end of 2006 At the end of 2005 2007 than last year Before Adjustment After Adjustment After Adjustment Before Adjustment After Adjustment Net assets per share attributable 1.17 1.081 1.12 4.46% 1.045 1.045 to shareholders of listed companies (III)Changes in shareholders’ equity in the report period Consolidated Changes in Owners’ Equity 2007 Compiling Unit: Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd Unit: RMB 4 CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan 2007 Attributable to equity holders of the Company Items Translation Minority Total owners' Capital difference of foreign Surplus Undistributed interest equity Share capital surplus currency financial reserves profits statements Balance at the end of the 7,595,803.64 1、 last year： 1,011,660,000.00 978,244,858.10 118,910,686.94 (1,022,454,478.17) - 1,093,956,870.51 Changes of Add： accounting policy - - - - 36,753,971.39 (13,284,952.70) 23,469,018.69 Error correction of the last period - - - - 12,057,268.86 - 12,057,268.86 Balance at the beginning 7,595,803.64 2、 of this year 1,011,660,000.00 978,244,858.10 118,910,686.94 (973,643,237.92) (13,284,952.70) 1,129,483,158.06 Increase/ Decrease in 6,370,540.71 3、 this year - - - 39,007,992.54 6,510,210.98 51,888,744.23 （1） Net profit - - - - 39,007,992.54 (74,360.30) 38,933,632.24 Profits and losses （2） calculating into - - 6,370,540.71 - - 6,584,571.28 12,955,111.99 Net changing a、 amount of fair value - - - - - - Effect of changes of other owners' b、 equity of invested - - - - - - Effect of income c、 tax related to - - - - - - - 6,370,540.71 12,955,111.99 4、 Others - - - - 6,584,571.28 6,370,540.71 51,888,744.23 sub-total（1）&（2） - - - 39,007,992.54 6,510,210.98 Owners' devoted and （3） decreased capital - - - - - - - Owners' devoted a、 capital - - - - - - - Amount calculated b、 into owners' equity - - - - - - - c、 Others - （4） Profit distribution - - - - - - - Withdrawal of a、 surplus reserves - - - - - - - Distribution to b、 shareholders - - - - - - - c、 Others - - - - - - Carrying forward （5） internal owners' - - - - - - - Capital surplus a、 conversed to capital - - - - - - - Surplus reserves b、 conversed to capital - - - - - - - Remedying loss with c、 profit surplus - - - - - - - d、 Others - - - - - - Balance at the end of 4、 this 1,011,660,000.00 978,244,858.10 13,966,344.35 118,910,686.94 (934,635,245.38) (6,774,741.72) 1,181,371,902.29 Section IV. Change of Share Capital and Particulars of Shareholders I. Change in share capital (I) The Company has completed the share merger reform on Feb. 15, 2006. In accordance with the share merger reform plan, there were 50,583,000 shares subject to moratorium were freed from the trading moratorium as shares not subject to moratorium on Feb. 26, 2007. The Company’s equity structure was adjusted as follows: 5 Before the change Increase/decrease in this time (+, -) After the change Item Issuance of Capitalizatio Proportion Issuance of Bonus Sub- Number new share n of public Others Number (%) new share shares total reserve I. Shares subject to 672,864,200 66.51% -50,584,850 -50,584,850 622,279,350 61.51% moratorium 1. Shares held by the State 2. Shares held by state-owned legal 672,856,800 66.51% -50,583,000 -50,583,000 622,273,800 61.51% person 3. Shares held by other domestic 7,400 -1,850 -1,850 5,550 investors Of which: Shares held by 0 non-state-owned legal person Shares held by domestic natural 7,400 -1,850 -1,850 5,550 persons 4. Shares held by 0 foreign investors Of which: Shares held by 0 overseas legal persons Shares held by overseas natural 0 persons II. Shares not subject 338,795,800 33.49% 50,584,850 50,584,850 389,380,650 38.49% to moratorium 1. RMB ordinary 218,795,800 21.63% 50,584,850 50,584,850 269,380,650 26.63% shares 2. Domestically listed 120,000,000 11.86% 120,000,000 11.86% foreign shares 3. Overseas listed foreign shares 4. Others III. Total shares 1,011,660,000 100.00% 1,011,660,000 100.00% (II) Changes in shares subject to moratorium (Unit: Share) Number of shares Number of share Number of share Number of shares subject to Date of Name of subject to subject to Unconditional terminated in this moratorium terminating shareholder moratorium at the moratorium at the sales year increased in this moratorium year-begin year-end year Implementing the commitment of terminating Shenzhen moratorium Investment 672,856,800 50,583,000 0 622,273,800 according to the Feb. 26, 2007 Holding Split Share Corporation Structure Reform of Listed Company Total 672,856,800 50,583,000 0 622,273,800 － － II. Issuance and listing of shares 1. Over the past three years as at the end of the report period, the Company issued neither new shares nor derived securities. 2. On Feb. 26, 2007, the shares subject to moratorium amounting to 50,583,000 shares 6 held by Shenzhen Investment Holding Co., Ltd., the only shareholder holding non-tradable shares, was freed from the trading moratorium, taking up 5% of the total share capital of the Company, 7.52% of the total shares subject to moratorium, as well as 14.93% of total shares not subject to moratorium. 3. The Company’s inner employees’ shares we re listed for trading t hrough approva l on Aug. 26, 1994. At present, the Company has no inner employees’ shares. III. About shareholders 1. The number of shareholders and shares held by the shareholders Total number of shareholders 103,797 Particulars about shares held by the top ten shareholders Type of Name of Type of Name of shareholder Name of shareholder Type of shareholders shareholders shareholder shareholders Shenzhen Investment Holding State-owned 64.82% 655,800,149 622,273,800 0 Corporation legal person Domestic natural Jiang Hangfei 0.26% 2,601,815 0 0 person Bank of China-Jiashi Hushen 300 Index Securities Other 0.19% 1,936,311 0 0 Investment Fund Domestic natural He Junquan 0.13% 1,333,168 0 0 person Domestic natural Su Yanqin 0.11% 1,100,196 0 0 person Domestic natural lAI,KONG SUNG 0.07% 753,500 0 0 person Domestic natural CHU KOON YUK 0.07% 720,000 0 0 person Domestic natural Chen Kangliang 0.07% 683,417 0 0 person Domestic natural Zhan Xiaomin 0.06% 665,800 0 0 person Domestic natural He Yanfen 0.06% 600,800 0 0 person Particulars about shares held by the top ten shareholders holding tradable shares Name of shareholders Number of shares not subject to trading Category of share moratorium held Shenzhen Investment Holding Corporation 33,526,349 RMB ordinary share Jiang Hangfei 2,601,815 RMB ordinary share Bank of China-Jiashi Hushen 300 Index RMB ordinary share 1,936,311 Securities Investment Fund He Junquan 1,333,168 RMB ordinary share Su Yanqin 1,100,196 RMB ordinary share lAI,KONG SUNG 753,500 Domestically listed foreign share CHU KOON YUK 720,000 Domestically listed foreign share Chen Kangliang 683,417 Domestically Zhan Xiaomin 665,800 RMB ordinary share Hu Yanfen 600,800 RMB ordinary share Explanation on associated relationship or Unknown action-in-concert among the above shareholders or 2. The controlling shareholder of the Company: Shenzhen Investment Holdings Co., Ltd. is a sole state-funded company limited, who was founded on Oct. 13, 2004 with a registered capital of RMB 4 billion as well as legal representative Chen Hongbo. Its business scope included: providing guarantees for municipal state-owned enterprises, management of state-owned equity, and assets restructure reformation, capital operation and equity investment of enterprises etc. The ultimate controller of the 7 Company was Shenzhen State-owned Assets Supervision Administrative Committee. SASAC of Shenzhen was located at Investment Building, Shennan Av., Futian District, Shenzhen, as well as the post code 518029. The property right and controlling relationship between the Company and the actual controller are as follows: SASAC of Shenzhen Shenzhen Investment Holdings Co., Ltd. The Company Section V. Directors, Supervisors, Senior Executives and Employees I. About Directors, Supervisors and Senior Executives: Amount of Equity incentive awarded in the report payment period Numb Numb received Equity er of er of from the Reaso incentive Beginning End date share share Company Number Number Number Number n for awarded Name Title Sex Age date of of office held at held at in the of share of share of share of share chang in the office term term the the report available available available available es report year-b year-e period for for for for period egin nd ( Unit:’000 exercise exercise exercise exercise 0) ( pre-tax) Chairman Shao Zhihe of the Male 57 2002-12-28 7,400 7,400 44.00 0 0 0.00 0.00 No Board Guo Male General Hongzhuan 49 2006-08-21 0 0 44.00 0 0 0.00 0.00 No Manager g Chairman Male of the Zhuang Superviso 53 2003-01-28 0 0 44.00 0 0 0.00 0.00 No Chuanghui ry Committe e Peng Male Director 58 1996-09-28 0 0 33.00 0 0 0.00 0.00 No Naidian Xu Male Director 54 2003-01-28 0 0 0.00 0 0 0.00 0.00 Yes Zhenhan Liu Ying Director Female 45 2006-09-08 0 0 0.00 0 0 0.00 0.00 Yes Wen Li Director Female 38 2006-09-08 0 0 0.00 0 0 0.00 0.00 Yes Independe Zong nt Male 66 2004-06-28 0 0 3.60 0 0 0.00 0.00 No Dechun Director Independe Hou Liying nt Female 53 2004-06-28 0 0 3.60 0 0 0.00 0.00 No Director Independe Male Li 2008-02-2 nt 44 2005-02-02 0 0 3.60 0 0 0.00 0.00 No Qiusheng 6 Director Superviso Male Chen Junyi 50 2006-04-11 0 0 14.22 0 0 0.00 0.00 No r Zhang Superviso Male 31 2006-04-11 0 0 11.45 0 0 0.00 0.00 No Xuxi r Xiong Superviso Male 50 2004-06-28 0 0 11.45 0 0 0.00 0.00 No Xingnong r 8 Deng Superviso Male 40 2004-06-28 0 0 0.00 0 0 0.00 0.00 Yes Kangcheng r Vice Luo General Male 52 2003-01-28 0 0 33.00 0 0 0.00 0.00 No Kunquan Manager Vice Luo Zichao General Male 47 2003-08-12 0 0 33.00 0 0 0.00 0.00 No Manager Vice Song General Male 51 2006-08-21 0 0 33.00 0 0 0.00 0.00 No Gongli Manager Vice Yang General Male 35 2006-08-21 0 0 33.00 0 0 0.00 0.00 No Jiayong Manager Secretary Chen Ji of the Male 35 2003-01-28 0 0 14.73 0 0 0.00 0.00 No Board Total - - - - - 7,400 7,400 - 359.65 0 0 - - - Note: Xu Zhenhan, Liu Ying and Wen Li, the Directors of the Company, and Deng Kangcheng, the Supervisor of the Company, held positions in shareholding units. For their positions and office term, please refer to following text. II. Particulars about the main working experiences and concurrent posts of the directors, supervisors and senior administrative personnel 1. Shao Zhihe: Aug. 1981 - Sep. 1983, commander, 13th company, 4th barrack, 302 regiment, Capital Construction Engineer Corps; Sep. 1983 to Oct. 1995, Manager, Installation Branch, Shenzhen Municipal Engineering Corporation; Oct. 1995 – May 1999, Vice General Manager of Shenzhen Tonge Group; May 1999 to Dec. 2002, General Manager and Deputy Secretary of CPC, Shenzhen Urban Construction Investment & Development Company; Dec. 2002 till now, Secretary of the CPC and Chairman of the Board of the Company. 2. Guo Hongzhuang, male, the Han nationality, party member of CPC, on-the-job master degree, Engineer. He was born in Chaoyang, Guangdong in Dec. 1958. He ever took posts of clerk in Cadre Department, the 16th regiment, Capital Construction Engineer Corps; Director of the Office of Shenzhen Nanyang Enterprise Corporation, of clerk of Labor Union and secretary of GM in Shenzhen Construction (Group) Corporation, Deputy GM in Shenzhen Construction Engineering General Contract Corporation, Manager in Longgang Real Estate Company of Shenzhen Construction (Group) Corporation, Deputy GM in Real Estate Development in Shenzhen Construction Investment Holding Corporation, Secretary of CPC and GM in Shenzhen Kingon (Group) Co., Ltd., Vice Secretary of CPC, GM, Secretary of CPC and Chairman of the Board in Shenzehn Cities Construction Development (Group) Corporation. He acted as GM, Vice Secretary of CPC and Director of the Company since Aug. 2006. 3. Zhuang Chuanghui: Feb. 1983 to Mar. 1986, promulgation chief, Cannon Regiment, 42 Army; Mar. 1986 to Dec. 1987, deputy section chief of the Cadre Section, deputy director of the Office, Economic Work Department, Huizhou Local CPC Committee; Dec. 1987 to Jul. 1989, deputy director of the Office, section chief of the Statistics Section, Huizhou local Administration for Industry & Commerce; Jul. 1989 to Feb. 1997, senior staff member, principal staff member, discipline inspector of deputy section chief level, vice director of the Office (section chief level), No. 1 Office, Shenzhen Commission for Discipline Inspection; Feb. 1997 to May 1999, Vice 9 Secretary of Commission for Discipline Inspection, Shenzhen Construction Investment Holdings Corporation; May 1999 to Jan. 2003, Vice Secretary of CPC, director in SPG. Jan. 2003 till now, Vice Secretary of CPC, Chairman of the Supervisory Committee of the Company 4. Xu Zhenhan: once had been commander-level secretary in charge, 802 Regiment, Capital Construction Engineer Corps; clerk, Vice Secretary of Discipline Inspection Committee, director at the CPC Office, Secretary of Discipline Inspection Committee, Vice Secretary of the CPC in Shenzhen Mechanical Equipment Installation Company; Vice Secretary of Discipline Inspection Committee, Shenzhen Construction Investment Holdings Corporation. He held the post of Vice Secretary of Discipline Inspection Committee of Shenzhen Investment Holdings Co., Ltd. since Oct. 2004. 5. Peng Naidian: Jul. 1973 to Dec. 1984, section chief, vice minister, and standing member, Secretary Department, Young Farmer Department, Publicity Department, Secretariat, Communist Youth League Guangdong Committee, and concurrently director of the Publicity Department; Jan. 1985 to May 1992, superintendent, and member of the CPC Organization, Guangdong Institute of Foreign Trade & Economic Development; Jun. 1992 to Sep. 1996, Assistant General Manager, Chairman of the Labor Union in Shenzhen Huihua Group Co., Ltd.; Sep. 1996 till now, Director and Vice Secretary of Discipline Inspection Committee. 6. Li Qiusheng, male, nationality of Han, party member of CPC, was born in Hunan in July 1963, three-year college education, CPA and Certified Tax Agent. He ever held the posts of section chief of Hunan Hengshan County Auditing Bureau, auditor of Shenzhen Special Economic Zone Auditors Firm, deputy principal of Shenzhen Minzheng Certified Public Accountants. Now he acts as deputy principal of Shenzhen Zhongheng Certified Public Accountants. 7. Zong Dechun: Jan. 1981 to Aug. 1983, Director of the Political Department, 304 Regiment, Capital Construction Engineer Corps; Sep. 1983 to Feb. 1986, Vice Secretary of the CPC, Shenzhen No. 5 Construction Engineering Co., Ltd.; Mar. 1986 to Nov. 1996, Division Chief of the HR Department, Chairman of the Labor Union, Chairman of the Supervisory Committee, Shenzhen Construction Group; Dec. 1996 to Jun. 2002, Secretary of the Discipline Inspection Committee, Chairman of the Supervisory Committee in Shenzhen Construction Investment Holdings Corporation; Jul. 2002, retired; Jun. 2004, independent director of the Company. 8. Hou Liying: Aug. 1982 to Aug. 1984, Assistant Economist, Development & Design Research Institute, China National Offshore Oil Corp.; Sep. 1984 till now, associate professor, masters’ instructor, College of Management, Shenzhen University. Jun. 2004, she was engaged as the independent director of the Company. 9. Liu Ying, female, the Han nationality, bachelor degree, economic engineer. She was born in Changchun, Jili in Jul. 1962. She ever took the posts of clerk and Senior Staff Member in China Power Equipment Bidding Center of State Commodities Bureau, of Principal Staff Member and League Secretary in China Power Equipment Bidding Center of Economic and Trade commission of the State Council, of Deputy Manager of Security Dept., Manager and Director of GM Office in Shenzhen Hongchang Industrial Co., Ltd., of Deputy Director of the Office and principal Head of Assets Operation 10 Dept. in Shenzhen Trade Investment Holding Corporation, and of senior Head of the Assets Operation and Management Dept. and principal Head of the Property Management Dept., Assets Management Dept., the 2nd Enterprise in Shenzhen Investment Holdings Co., Ltd. 10. Wen Li, female, the Han nationality, master degree, engineer as well as economic engineer. She was born in Sichuan in Dec. 1969. She ever took the posts of Engineer of Real Estate Development Dept. in Shenzhen Zhenye (Group) Co., Ltd., of Assistant GM, Project Manager as well as Manager of Market Planning Dept. in Fantasia Investment Development Co., Ltd., and of Deputy Manager in Shenzhen Investment Holdings Co., Ltd. 11. Chen Junyi, male, aged 49, party member of CPC, bachelor degree, political engineer. He was born in Xiangyin, Hunan. He ever took the posts of Section Chief of Organization Department in Bureau of Mine, of Director of GM Office in Shenzhen Xinguang Milk Union Corporation, of Director of GM Office in Shenzhen North-South Industrial Co., Ltd., of Section Chief and Deputy Director of Shenzhen Huihua Group Corporation, of Deputy Director of Discipline Inspection Supervisory Office in SPG Group, of Deputy GM in Shenzhen Properties & Resources Development (Group) Ltd., of Deputy GM and concurrently Secretary of Labor Union in Shenzhen Petrel Hotel Co., Ltd. He now acts as Deputy Director of Work Dept. of CPC and Discipline Inspection Commission in SPG Group. From Apr. 11, 2006, he acted as the employee supervisor of the Company. 12. Zhang Xuxi, male, the Han nationality. He was born in Meizhou, Guangdong in May 1976. He ever took the posts of Enterprise Law Adviser and Deputy Manager of Law Affair Office in the Company. From Apr. 11, 2006, he acted as the employee supervisor of the Company. 13. Xiong Xingnong: Jan. 1982 to Jan. 1983, trainee, Party school, Guangzhou Railway Administration; Jan. 1983 to Dec. 1995, office secretary, consultant, section chief, Guangzhou Railway Administration; Jan. 1996 to Mar. 2004, office director of SPG; Mar. 2004 till now, Vice Director of Office of the Supervisory Committee. From Jun. 2004, he took the post of supervisor of the Company. 14. Deng Kangcheng: Jul. 1991 to Dec. 1991, technician of Shenzhen Luohu Material Trading Center; Dec. 1991 to Mar. 1997, Assistant Engineer, deputy section chief and section chief in Shenzhen Construction Earthwork Mechanical Engineering Company; Apr. 1997 to Sep. 2004, supervisor, vice director and director in Discipline Inspection and Supervision Office of Shenzhen Construction Investment Holdings Corporation; Oct. 2004 till now, deputy director, director of the Office of Shenzhen Investment Holdings Co., Ltd.. In Jun. 2004, he was elected as supervisor of the Company. 15. Luo Kunquan: Oct. 1987 to Sep. 1990, vice factory director, Guangdong Xingning County Brewage Machinery Factory; Sep. 1990 to Jul. 1993, Manager, Guangdong Xingning County Foreign-Invested Enterprise Resources Company; Aug. 1993 to Dec. 1993, General Manager, Shenzhen Communist Youth Industrial Park Industrial Company; Dec. 1993 to Jun. 1994, Manager of Shenzhen Shenhua Enterprise Company; Jun. 1994 to Nov. 1998, Manager of Shenzhen Shenhua Property Development Company; Nov. 1998 to Dec. 2002, Deputy General Manager of 11 Shenzhen Shenhua Group Company; Dec. 2002 to Dec. 2005, Deputy General Manager of the Company. He took the post of Standing Deputy General Manager of the Company since Dec. 2002. 16. Luo Zichao: Oct. 1984 to May 1993, assistant, office director, chief assistant, Shenzhen Design & Decoration Engineering Company; May 1993 to Jul. 2003, General Manager and Vice Secretary of the CPC Committee in Shenzhen Design & Decoration Engineering Company; May 1999 to Jul. 2003, General Manager, Shenzhen Construction Engineering Contractor Corporation; May 1999 to Jul. 2002, Chairman of the Board, Shenzhen Architectonic Industrial Co., Ltd.; he took the post of Deputy General Manager of the Company since Jul. 2003. 17. Song Gongli, male, the Han nationality, party member of CPC, master degree. He was born in Changgeng, Henan in June 1956. He ever took the posts of officer and Senior Staff Member of budget office in Guizhou Provincial Department of Finance, of Principal Staff Member of Economic Development Bureau of Shenzhen Municipality Office, of Deputy Manager in Shenzhen Foreign Trade Investment Corporation, of Deputy Division Chief of Travel Service and Division Chief of Planning & Financial Division in Shenzhen Trade Development Bureau, of Director General in Shenzhen Travel Bureau Quality Supervision Institute; of the Principal in charge of Financing, Head of Enterprise Management Dept, Director of the Office and Assistant President in Shenzhen Trade Investment Holding Corporation, of Director of the Office in Shenzhen Investment Holdings Co., Ltd. Since Aug. 2006, he acted as the post of Deputy GM of the Company. 18. Yang Jiayong, male, the Han nationality, party member of CPC, master degree, economic engineer. He was born in Maoming, Guangdong in Nov. 1972. He ever took the posts of Assistant Economic Engineer, Assistant Manager of HR Dept. in Shenzhen Tonge (Group) Co., Ltd, of Director of the Office, Secretary of Party General Branch, Manager of HR Dept. and Assistant GM in Shenzhen Cities Construction Investment Development Corporation, of Director of the Office and Assistant GM in SPG, of GM and Secretary of Party General Branch in Shenzhen SPG Tariff Free Trade Co., Ltd. Since Jul. 2006, he acted as the post of Deputy GM of the Company. 19. Chen Ji: Jul. 1995 to Jul. 1996, secretary in charge of the Comprehensive Office, Tonge Truck Transportation Company; Jul. 1996 to Mar. 2001, secretary of the CPC Office in Shenzhen Construction Investment Holdings Corporation; Mar. 2001 to Dec. 2002, director of the CPC Office of Shenzhen Urban Construction Investment Development Company; Dec. 2002 till now, he took the posts of Secretary of the Board, Director of the Board Office of the Company and office director. III. Annual remunerations Annual payment system had been introduced into the rewards for the proprietors, whose annual remuneration level and distribution regulation was implemented in compliance with the relevant regulation of the State-owned Assets Supervision and Administration Commission and municipal investment holdings company, the basic payment was RMB 20,000 per month and performance annual remuneration and encourage annual remuneration would be distributed after approving by municipal investment holdings company. The remuneration level and distribution regulation of Chairman of the Supervisory Committee of the Group Company would be decided in 12 line with the remuneration level of General Manager of the Group Company that was: the basic payment was RMB 20,000 per month. The remuneration level and distribution regulation of deputy leaders of the Group Company was decided in line with the remuneration level as well as the performance appraisal of the proprietors that was: the basic payment was RMB 15,000 per month. Xu Zhenhan, Liu Ying and Wen Li, the Director of the Company, Deng Kangcheng, the Supervisor of the Company, drew their salaries from shareholding companies, not from the Company. Annual allowance for each Independent Director in 2007 was RMB 36,000 (Pre-tax ), and they received no other rewards besides this from the Company. In conformity with the requirements of the Circular of Fulfilling the Annual 2007 Report and Concerning Matters of Listed Companies from CSRC, the Remuneration and Examination Committee of the Board examined and approved seriously the remuneration of Directors, Supervisors and Senior Executives disclosed in Annual Report 2007, and believed that: the decision-making of remuneration for Directors, Supervisors, Senior Executives of the Company was in line with the relevant requirements; the remuneration standards of Directors, Supervisors, Senior Executives of the Company was in compliance with the requirements of the salary system; the remuneration information disclosed in Annual Report 2007 was true and accurate. IV. Particulars about leaving post, engaging and dismissing 1. In the report period, there were no Directors, Supervisors and Senior Executives who left their posts. Li Qiusheng was dismissed through the Temporary Shareholders’ General Meeting held on Feb. 26, 2008 with the reason that he couldn’t attend the Board meeting for long time due to his individual affairs. 2. In the report period, there were no Directors, Supervisors and Senior Executives elected. Zhou Hanjun was elected as the Independent Director of the Company through the Temporary Shareholders’ General Meeting held on Feb. 26, 2008. V. The number of employees, professional/occupational composition, education background and retired employees By the end of the year 2007, the Group had totally 1886 employees, including 1330 production personnel, 48 sales personnel, 481 technicians, 51 financial personnel and 66 administrative personnel. Among them, 143 undergraduates or above, 214 graduated from there-years regular college, 186 from technical secondary school, 1343 from senior high school or below. The Company had 297 retirees. 13 Section VI. Corporate Governance I. Actual status of corporate governance In the report period, abiding by the requirements of Company Law, Securities Law, Administrative Rules for Listed Companies and other laws and regulations, in accordance with the requirements of the special campaign to Strengthen the corporate governance form the CSRC and the rectification requirements after in-process checking from the Shenzhen Securities Bureau, the Company continuously perfected its corporate governance, standardized its operation. The actual situation of legal person governance was in line with the requirements of the relevant normative documents. (I) preparations and holding of the shareholders’ general meeting and disclosure of the meetings were carried through normatively in line with the regulations; all shareholders were on an equal footing and could fully exercise their legal rights. (II) Directors and the Board of Directors: preparations and holding of the Board meeting and disclosure of the meetings were carried through normatively in line with the Articles of Association and Rules of Procedure for the Board of Directors; All directors and independent directors could perform their obligations in an honest and diligence manner. In order to perfect the decision-making mechanism of the Board, the Company set down the working instruction for the strategy, audit, nomination and remuneration and examination committee, providing the guarantee for the Board of Directors’ scientific operation. (III) Supervisors and the Supervisory Committee: the members composing of the Supervisory Committee were reasonable. The Supervisory Committee conducted the supervision and inspection for the significant events of the Company strictly in accordance with the Rules of Procedure for the Supervisory Committee, and exert its supervision right effectively and brought its supervision function into full play. (IV) Manager level: the manager level of the Company was fully responsible for the production and management of the Company, other Senior Executives performed their obligations in an honest and diligence manner. The manager level of the Company implemented the resolution of the Board with efficient supervision and control. (V) Information disclosures and transparency: the Board of Directors seriously performed information disclosure obligations strictly according to the relevant laws and regulations and the Articles of Association of the Company, paid much attention to the investors’ management, opened the Company’s communication platform, performed the obligation of information disclosure, and could publish all significant information in true, accurate, complete and timely manner. II. Duty performance of Independent Directors In the report period, the Company’s independent directors fully performed their duties in line with the requirements of the relevant laws and the Articles of Associations, expressed independent opinion seriously and analyzed professionally on significant matters, played the important roles on normative operation of the Company. Independent Directors, Li Qiusheng didn’t attend the Boarding meeting more than 3 times due to the private affairs, which qualified the standards to change in accordance with the relevant rules for Independent Directors. 14 Independent Directors’ attendance of Board meetings: Times of Times of Name of Times of Times of meetings meetings Independent meetings meetings attended in attended by Director should attended absend person proxy Zong Dechun 5 5 0 0 Hou Liying 5 5 0 0 Li Qiusheng 5 1 0 4 III. The Company was independent from the controlling shareholders in business, personnel, assets, organization and financing of the Company, possessed independent operation capabilities facing market. (I) Business: The Company possessed independent production, supply and distribution system; (II) Personnel: the Company was absolutely independent in management of labor, personnel and salaries from the controlling shareholders. All the senior executives of the Company took no office title concurrently and received no remunerations from the Shareholder Company. (III) Assets: The Company possessed independent and integrated assets and the property of the Company is transparent. (IV) Organization: The Board of Directors and the Supervisory Committee operated independently. There existed no superior-inferior relationship between the controlling shareholder and its function department and the Company. (V) Financing: the Company has independent financial department, independently accounted and paid taxes according to the law. The Company established a complete set of accounting systems and financial accountng system and financial administrative systems. The Company opened independent bank accounts. IV. Establishment and improvement of internal control The Company attached great importance to the construction and improvement of the internal control, set down the Rules Collections of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd., totaling 32 rules covering meeting, human resource, management on production operation, financial management, audit management and construction of the enterprise culture. The Company produced the management and control system and 68 business procedure in 2007, which was implemented fully to strengthen the regulated operation and internal control, to ensure the healthy operation of all business activities. (I) Self-evaluation of internal control 1. General appraisal on internal control expressed from the Board of Director: The rules on internal control of the Company was established and improved basically and implemented efficiently, which could regulated the operation management of the Company, safeguarded the safety and completeness of the assets, provided the reasonable guarantee for the true and fair financial statements, ensured the implementation of the national relevant laws and regulation, and internal rules of the Company. The internal control of the Company reflected the completeness, rationality and validity generally. In accordance with the relevant regulations of the Guidelines on Internal Control of Listed Companies, the internal control system established by the Company covered the all parts and links of the Company’ operation, the plan of internal control was implemented efficiently, the supervision setting of the internal 15 control and its relevant personnel was prepared well to run the related responsibility, all these was in line with the related requirement from CSRC and Shenzhen Stock Exchange. 2. Key activities of internal control of the Company In aspect of corporate governance: in accordance with the guidelines of Company Law, Guidelines on Internal Control in Listed Company from Shenzhen Stock Exchange, Articles of Association, the Company revised the Rules of Procedure of the Shareholders’ General Meeting, Working Instruction for General Manager, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee, Working Rules on Independent Directors, to ensure management and control in order of all levels in the Company. In accordance with actual working demand, the Board of Directors set down the Implementation Details for the Audit Committee of the Board, Implementation Details for the Strategy Committee of the Board, Implementation Details for the Nomination Committee of the Board, Implementation Details for the Remuneration and Examination Committee of the Board, to ensure normative operation of all committee. In aspect of finance management: the Company established the perfected the Rules on Finance Management (Trial), based on which, the Company set up the special working procedure in terms of the budget, settlement, cash payment, payment by banker, expense, creditor’s right, engineering cost, real estate sale, mortgage, lease, fixed assets, financing, internal borrowing, consolidation statement, the file, to ensure the normative finance and control the risks. In aspect of internal audit: the Company set down the Temporary Rules on Internal Audit Work (Trail), Temporary Rules on Internal Audit Files Work (Trail), Operation Rules on Internal Audit Work (Trail), and Rules on Internal Audit (Trail). In aspect of development of main business, the Company established and perfected the rules on property management, investment management, sale management, lease management, tendering and bidding management and safety management, further set down 28 business procedures in details. Internal organization of the Company 16 Shareholders’ General Meeting Audit Committee Strategy Committee The Supervisory Committee The Board of Directors Remuneration and Examination Committee Management Leader Vice General Manager Secretariat of the Board Office room Human Resource Department Planning Finance Department Audit Supervisor Department Enterprise Investment Management Dept Design Department Cost Control Department Engineering Technology Department Marketing Service Department Property Management Department Shenzhen Petrel Hotel Co., Ltd. (100%) Shenzhen Property Management Co., Ltd. (100%) Shenzhen Zhentong Engineering Co., Ltd. (100%) Shenzhen Huazhan Construction Supervision Co., Ltd. (100%) Shenzhen SPG Mini-bus Rent Co., Ltd. (100%) Shenzhen SPG Longgang Development Co., Ltd (100%) Shenzhen Special Economic Zone Real Estate (Group) Guangzhou Real Estate Co., Ltd (100%) Xin Feng Property Co., Ltd (100%) Great Wall Estate Co., Inc (70%) Xin Feng Enterprise Co., Ltd. (100%) Stock Participant Enterprises 4. Inspection and disclosure of internal control In accordance with the requirement of the Implementation Details of Evaluating the 17 Internal Control, the Company set down the auditing supervisor department as internal audit organization, which was responsible for evaluating the internal control work. The audit supervisor departments run the audit combining with the dynamic and regular audit, appraising its effects and efficiency of implementation through the financial audit, special audit, special inspection on rules and inspection on implementation of work plan, brought forward the improved suggestion over submitting the auditors’ report and management opinions, submitted the report to the Board of Directors. (II) Independent opinions on self-evaluation of internal control expressed from the Independent Directors We reviewed the annual self-evaluation of internal control 2007 submitted by the Board of Directors, now the appraisal opinions as follows: in 2007, taking the advantage of the special campaign to strengthen the corporate governance, the Company revised and perfected the all kinds of rules of internal control; aiming to strengthen internal control, the Company established the management and control system and business procedure, let the internal control system covered the all operation parts and links of the Company basically, defended, found and rectified the deviation which was possible to happen in the process of operation, safeguarded the rights and benefits of all shareholders, confirmed the accounting records and accounting information’ s trueness, accuracy and timeliness. The key activities of internal control operated in conformity with the relevant regulations of internal control in the Company. The self-evaluation of internal control was in line with its actual situation. V. Regulated activities of corporate governance and rectification of in-process check from Shenzhen Securities Bureau According to the unified deployment of special campaign to strengthen the corporate governance from CSRC and the Circular of Concerning Matters on Carrying out Special Campaign to Strengthen the Corporate Governance in Listed Companies, the Company set down the Working Plan on Carrying out Special Campaign of Corporate Governance of SPG on Apr. 26, 2007 then carried out the related work of special campaign of corporate governance formally. Under the guideline from regulatory organization, combining with actual situation of corporate governance of the Company, the Company finished the Self-inspection Report and Rectification Plan and produced the working paper of self-inspection through serious, meticulous, objective and true self-inspection. The Supervisory Committee and Independent Directors expressed the relevant appraisal opinions after the Self-inspection Report and Rectification Plan was submitted to the Board of Directors of the Company for approval on Jun. 8, 2007. On Jun. 9, 2007, the Company published the public notice on contact method of special campaign of corporate governance in order to communicate and contact with vast investors. On Jul.13, 2007, Self-inspection Report and Rectification Plan was uploaded outward. On Sep. 1, 2007, the website of the Company was built as communication platform with the investors. On Sep. 26, 2007, the Company published the public notice with contents like telephone, fax, e-mail and net platform for receiving the comments from the public. On Oct. 30, 2007, the Company disclosed the Self-inspection Report and Rectification Plan, which mean the rectification finished fully. Shenzhen Securities Regulatory Bureau made the on-site inspection to the Company during Sep. 13, 2007 to Sep. 29, 2007 and issued the Circular on Demanding Shenzhen 18 Special Economic Zone Real Estate & Properties (Group) Co., Ltd to Make Rectifications within a certain time limit (SZJ [2007] Document No. 127) (Hereinafter referred to as “the Circular”), which pointed that there was some problems in the independence of the company, “three meeting” operation, rules, information disclosure, finance management and accounting settlement. The management officer of the Company paid much attention the problems showed in the Circular, organized relevant organization to reform comprehensively. On Jan. 25, 2007, the Board of Director examined and approved the Rectification Report on Problems Found In-process Check from Shenzhen Securities Bureau of CSRC and regulated the person in charge the rectification and time limit, finally the problems showed in the Circular was reformed efficiently. (For further information, please refer to China Securities Journal, Ta Kung Pao and http://www.cninfo.com.cn on Jan. 26, 2008) Section VII. Shareholders’ General Meeting th The 15 Shareholders’ General Meeting (Annual Shareholders’ General Meeting 2006) was held at 9:30 on Jun. 29, 2007, in which examined and approved the Working Report of Annual the Board of Directors 2006, Working Report of Annual the Supervisory Committee 2006, Plan of Annual Profit Distribution 2006, Annual Report 2006, Proposal of Renewing Engagement of Certified Public Accountant, and relevant resolutions formed published in China Securities Journal and Ta Kung Pao and website appointed by CSRC on Jun. 30, 2007, the Board of Directors implemented the resolutions strictly with the authority under the shareholders’ general meeting. Section VIII. Report of the Board of Directors I. Analysis on overall operation in the report period (I) Discussion and Analysis of the Management The year 2007 was the changeful year of the domestic real estate market, the real estate market fell back after short booming under the background of strong macro adjustment, the competition and elimination was fiercer, and the market was more changeful. As for the Company, the year 2007 was the reform year of speeding up the development, changing mechanism and aligning overall market, therefore, with orientation of market and profit and guideline of “Strengthening foundation, standardizing management and as quickly as possible, the Company focused on expanding the owners, perfect of management and control system, reform of operating mechanism and strengthening execution, further annual activity of development management, prompted the competition competence of the enterprise, explored on realization of system innovation and new breakthrough of operating achievements, and laid the foundation for the sustainable and healthy development of the Company, which was embodied: basically fulfilled the development & research as quickly as possible; formulated the management & control system and operation procedure, strengthened foundation management; deepened three projects reforms, innovated personnel and distribution mechanism; Deeply developed the budget management, effectively controlled the expenses and risks of the Company; broke resource limit, accumulated information of resource reserve; actively recreated enterprise culture and cultivated the market consciousness of all the employees. (II) Overall operation 19 1. In 2007, the Company realized total profit amounting to RMB 51.66 million, with an increase of RMB 30.44 million compared with RMB 21.22 million realized in the same period of previous year, as well as growing range of 143.46%; realized net profit attributed to shareholders of listed company amounting to RMB 39.01 million, with an increase of RMB 18.86 million compared with RMB 20.15 million, as well as growing range of 93.58%. In 2007, the Company realized operating income amounting to RMB 845.13 million, with a decrease of RMB 150.81 million compared with RMB 995.94 million realized in the same period of previous year, as well as damping range of 15.14%; mainly because sales income decreased year-on-year and discontinued operating activities in commercial industry. 2. The increase or decrease of main operations is as follows: The sales income from real estates industry, the core industry of the Company, was RMB 510.54 million, up 15.10% compared with RMB 601.32 million realized in the same period of last year. The headquarters of SPG achieved the sales income from real estate amounting to RMB 183.3 million, sales income from real estate of Shantou Jinye Island project amounting to RMB 152.61 and sales income from real estate of Guangzhou Whampoa Xincun 174.63 million. Income from property lease and management was RMB 132.36 million, an increase of 12.73% compared with RMB 117.41 million realized in the same period of last year, which was mainly due to increase of leasing areas. Income from construction fixing, hotel and other service industries decreased a few compared with the same period of last year. II. Scope of main operation and status The Company belongs to real estate industry and is engaged in the development of real estate and sales of commercial house, lease and management of property, construction decoration and fixing, retail and trade of commodities and hotel and dietetic service. 1. Particulars about composing of income from main operations and profit from main operations classified according to industry: Operating income Operating cost Operating gross profit Industries 2007 2006 2007 2006 2007 2006 Income from main operations Sales of real estate 510,543,751.94 601,324,785.09 342,581,402.58 419,239,800.48 167,962,349.36 182,084,984.61 Construction fixing 168,119,414.61 177,026,747.42 156,567,107.62 155,075,103.45 11,552,306.99 21,951,643.97 Commerce -- 60,798,063.27 -- 59,762,591.59 -- 1,035,471.68 Lease and property management 132,358,887.08 117,410,877.47 98,591,253.12 98,955,733.17 33,767,633.96 18,455,144.30 Hotel & other services 34,105,472.81 39,375,089.97 23,901,274.60 17,957,867.63 10,204,198.21 21,417,222.34 Total 845,127,526.44 995,935,563.22 621,641,037.92 750,991,096.32 223,486,488.52 244,944,466.90 3. Particulars about composing of income from main operations and profit from main operations according to areas: 20 Operating income Operating cost Operating gross profit Items 2007 2006 2007 2006 2007 2006 Domestic: Guangdong Province 807,591,819.59 990,148,841.18 586,532,417.61 747,463,983.14 221,059,401.98 242,684,858.04 Other Provinces 36,727,636.69 5,041,559.48 35,108,620.31 3,527,113.18 1,619,016.38 1,514,446.30 Overseas 808,070.16 745,162.56 808,070.16 745,162.56 Total 845,127,526.44 995,935,563.22 621,641,037.92 750,991,096.32 223,486,488.52 244,944,466.90 III. Operations achievements of wholly-owned affiliated company and shareholding company (the consolidated statement) (Unit: RMB) Names of companies Registered Registered Business type and Balance of net Equity Total assets Net assets Operating Net profit address capital scope investment (RMB’0000) (RMB’0000) income (RMB’0000) (RMB’0000) (RMB’0000) (RMB’0000) Shenzhen Petrel Hotel Co., Ltd. Shenzhen 3,000 Hotel Service 3,000 100% 7,265 3,619 2,933 70 Shenzhen Property Property management 782 518 Shenzhen 725 725 100% 7,835 8,522 Management Co., Ltd. Shenzhen Zhentong Fixing and maintenance 828 47 Shenzhen 1,000 1,000 100% 4,230 17,015 Engineering Co., Ltd. of projects Shenzhen Huazhan Construction and 732 16 Construction Supervision Co., Shenzhen 800 supervision 800 100% 808 312 Ltd. Shenzhen SPG Mini-bus Rent Rent of mini-bus 1,121 52 Shenzhen 1,029 1,029 100% 1,556 464 Co., Ltd. Shenzhen SPG Longgang Development of real -1,173 -127 Shenzhen 3,000 3,000 100% 16,925 - Development Co., Ltd estate Shenzhen Special Economic Development of real 2,012 -13 Zone Real Estate (Group) Guangzhou 2,000 estate 2,000 100% 2,373 - Guangzhou Real Estate Co., Ltd Investment and -3,141 105 Xin Feng Property Co., Ltd Hongkong HKD100 management 9,870 100% 56,305 15,261 Development of real -9,261 -12 .Great Wall Estate Co., Inc. USA USD50 11,122 70% 2,069 81 estate Investment and -45,903 2,339 Xin Feng Enterprise Co., Ltd. Hongkong HKD100 66,358 100% 26,087 17,598 management IV. Main suppliers and customers Unit: RMB’ 0000 2007 2006 Items Total amount Proportion in the total Total amount of Proportion in the total of sales amount of sales income sales amount of sales income Total amount of sales of the top five customers 5,064 5.99% 4,082 4.10% V. Problems, difficulties, and dissolution plans in operation 1. Operation problem and difficulty: 21 (1) Bottleneck of Resource has not broken through, and there were hidden troubles in sustainable development. In 2007, there were not gains in land reserves of the Company, owing to the further rising price of land and tightened macro adjustment policies, it was more difficult to break through the bottleneck of resource and the risk of investment and decision-making was increasing. (2) Zoology of industry still evolved, and the condition of existing was more austere. Along with the alternate inflation of real estate and capital market, relationship of the development operation and capital market & financial capital was more closed, and the centralization and access of the market prompted by a large margin. (3) The degree of specialization was not very high, and there were many historical burdens and defects. The historical burdens on multi development of the Company badly influenced the upgrade of competition competence, and the profit of enterprises with non-core business was low; on the other hand, the low turnover rate of project development, intensive operation and efficiency of management would be prompted. (4) Owing to the deficiency of core competitive, the development of the Company lacked internal dynamic mechanism. It represented in the shortage of talent, non-perfected incentive mechanism, lag of culture construction of the Company, and shortage of construction of long effective incentive mechanism and internal dynamic mechanism which were suitable for the sustainable development of the Group. (5) Part consciousness of the managements and employees was timeworn and lacked the market consciousness. 2. Proposed solutions for the above problem and difficulty: (1) Caught the chance of the macro adjustment on land market adopted by the country and punishment on hoarding land, and obtained land resources in various ways. (2) Strengthened the foundation management of the Company, introduced advanced concept and method of management, improved the specialization management level and service level, and enhanced core competitive of the Company. (3) Strengthened cultivation and introduction of the talent, actively explored the long effective inventive mechanism of the Company, established new culture of the Company, and fully exerted the effect of human resources in the Company. (4) Intensified marketing expanding of the products, and recreated the images on market and social of the Company. VI. Investment 1. In the report period, the Company had no raised proceeds, nor raised proceeds lasting to the report period. 2. Investment with non-raised proceeds Name of projects Amount of projects Rate of progress of projects Income from projects The civil construction and equipments installation The 3# Building phase of Star Lake 1,018.22 & testing of the project had been accomplished in No benefit in the report period Garden Dec. 2007 The 2nd phase of Whampoa Xincun 0.00 It has been accomplished on 30 Dec. 2006 22,726,400 Dragon & Phoenix Mountain Village 13,169.92 Report of resolution on construction No benefit in the report period Shantou Jinye Island International Switching back profit of RMB 11,691.66 Development by stages Garden 33,412,000 in the 6th and 7th phase Di Jing Ming Garden of East Lake 989.39 Report of resolution on expanding construction No benefit in the report period Total 26,869.19 - - VII. In the report period, analysis on financial status and operating results (I) Analysis of financial status 1. Comparison on major financial indexes 22 Unit: RMB Amount at the Amount at the Increase or Increase or Items end of the beginning of decrease decrease Main reason report the report amount range（%） Transaction 645,470.00 - 645,470.00 Subscription of new stock monetary assets Accounts in advance 20,400,102.24 31,832,111.61 -11,432,009.37 -35.91 Payment for project Mainly because of disposal of arrearage and relevant bad debit reserve of Shenzhen Baoxing Real Estate Other receivables 50,512,052.62 -114,611,632.9 -69.41 165,123,685.59 Development (Shenzhen) Co., Ltd at the same time 7 of disposal of Guoxing Building in current year. Mainly because switching back the equity investment Long-term equity on Shenyang Tongxin Real estate Development Co., -49.65 investment 85,978,361.05 170,768,682.20 -84,790,321.15 Ltd and Shenzhen Bafangtong Railway Storage & Transportation Co., Ltd Payment for overdue price difference for car license of Intangible assets 6,312,140.00 3,946.60 6,308,193.40 Shenzhen SPG Mini-bus Rent Co., Ltd Long-term deferred Expenses of office decoration of Shenzhen Petrel 825,350.08 255,438.75 569,911.33 223.11 expenses Hotel Co., Ltd, subsidiary of the Company - Due to increase of the accounts payable of Shantou Accounts payable 181,259,988.97 118,823,146.61 62,436,842.36 52.55 Hualin Company, subsidiary of the Company. Mainly because Shantou Jinye Island project of subsidiary company prepaid for land appreciation tax Tax payable (3,041,657.01) 4,486,766.78 -7,528,423.79 -167.79 and enterprise income tax when receival of payment of advance sales of housing. Payment of Interest from loan of Shenzhen Investment Interest payable 2,901,306.85 - 2,901,306.85 Holding Co., Ltd Mainly because the Company disposed the receipts of Other payables 277,615,580.37 457,312,382.41 -179,696,802 -39.29 share transfer of Shenyang Tongxin Real estate .04 Development Co., Ltd Long-term non-current liabilities 25,280,129.52 110,000,000.00 -84,719,870.48 -77.02 Decreased of the long-term loan due with one year due with one year -118,424,900.0 Long-term loan of the bank increased due to Short-term loan 47,000,000.00 165,424,900.00 -71.59 0 optimization of loan structure and adjustment on Long-term loan 342,214,327.80 65,000,000.00 277,214,327.80 426.48 short-term loan. Converted difference in foreign currency 83.87 Mainly because the fluctuation of exchange rate. 13,966,344.35 7,595,803.64 6,370,540.71 statements 2. Comparison on structure of major financial indexes 31 Dec. 2007 31 Dec. 2006 Growing percentage point of proportion Items Proportion in Proportion in in total assets Amount Amount total assets (%) total assets (%) Total assets 230,272 100.00 239,295 100.00 - Monetary capital 45,192 19.63 47,250 19.75 -0.14 Other receivables 5,051 2.19 16,512 6.90 -4.71 Inventories 84,270 36.60 67,045 28.02 8.55 Including: Products accomplished progress 27,054 11.75 12,658 5.29 6.45 Products in progress 55,059 23.91 52,178 21.80 2.09 Total current assets 138,157 60.00 135,637 56.68 3.27 Long-term equity investment 8,598 3.73 17,077 7.14 -3.41 Investment real estate 72,929 31.67 75,713 31.64 0.00 Fixed assets 7,632 3.31 7,673 3.21 0.10 Total non-current assets 92,116 40.00 103,658 43.32 -3.27 Accounts payable 18,126 7.87 11,882 4.97 2.89 23 Advance receivable 20,699 8.99 29,025 12.13 -3.15 Other payables 12.06 45,731 19.11 -6.54 27,762 Long-term non-current liabilities due with one year 2,528 1.10 11,000 4.60 -3.50 Short-term loan 4,700 2.04 16,542 6.91 -4.87 Long-term loan 34,221 14.86 6,500 2.72 12.13 Total liabilities 112,135 48.70 127,552 53.30 -3.61 (II) Analysis of operating results In the report period, with lead of the Board of Directors, the senior executives of the Company focused on operating target, the topic of development and center of economy construction, and actively responded to the change of market, therefore, the finance was stable, the sales expenses and administrative expenses decreased year-on-year, and the profitability of the Company prompted gradually. 1. In 2007, the Company realized total profit amounting to RMB 51.66 million, with an increase of30.44million compared with RMB 21.22 million realized in the same period of the previous year, as well as growing range of143.46%; realized net profit attributed to shareholders of the listed company amounting to RMB 39.01 million, with an increase of18.86 million compared with RMB 20.15 million realized in the same period of the previous year, as well as growing range of 93.58%. 2. In 2007, the Company realized operating income RMB 845.13 million, with a decrease of RMB 150.81 million compared with RMB 995.94 million realized in the same period of the previous year, as well as damping range of 15.14%; mainly because the sales income from real estate decreased and the operating activities of commerce industry discontinued in the report period. 3. Operating profit was RMB53.29million, 116.97% up compared with RMB 24.56 realized in the same period of the last year, the main reasons were: (1) Operating gross profit was RMB 113.49 million, 8.76% down compared with RMB 244.95 million realized in the same period of the last year. (2) Operating tax and other tax was RMB 65.53 million, 26.5% up compared with RMB 51.8 million realized in the same period of the last year. Items Year 2007 (RMB) Year 2006 (RMB) Operating tax 40,560,987.12 43,736,405.09 Urban maintenance and construction tax 362,286.05 394,388.19 Educational surtax 870,312.81 1,148,123.50 Property tax 6,409,368.10 4,085,525.39 Land value tax 16,869,744.90 2,381,229.76 Other 456,093.61 55,226.42 Total 65,528,792.59 51,800,898.35 (3) Sales expenses were RMB 10.17 million, 49.1% down compared with RMB 19.97 million realized in the same period of the last year. (4) Administrative expenses were RMB69.92 million, 44% down compared with RMB 124.87 million realized in the same period of the last year. This year the welfare funds payable were RMB11.87 million, reduced in the administrative expenses.Administrative expenses included three-system Reformation Economic Compensation funds. 24 (5) Financial expenses were RMB 53.39 million, 71.51% up compared with RMB 31.13 million, which was mainly because of great increase of exchange loss due to depreciation of USD. Items Year 2007 (RMB) Year 2006 (RMB)） Interest expenditure 42,036,666.93 30,030,911.39 Less: expenses of capitalization of interest 25,566,161.56 6,959,366.62 Less: interests income 4,920,817.96 4,245,461.40 Exchange loss 41,658,689.44 13,901,621.39 Less: exchange gains 74,905.46 2,386,732.58 Other 258,135.05 790,751.74 Total 53,391,606.44 31,131,723.92 (6) Investment imcome was RMB 28.47 million, which decreased by a big margin compared with RMB 6.12 million realized in the same period of last year, the main reason was investment income amounting to RMB 11.02 million and RMB 16.37 million respective arising from disposal of shareholdings of Shenyang Tongxin Real Estate Development Co., and Shenzhen Bafangtong Railway Storage & Transportation Co., Ltd. 4. Non-operating income and noon-operating expenditure (1) Non-operating income Items Year 2007 (RMB) Year 2006 (RMB)） 1、Total gains on disposal of non-current 94,170.00 302,680.00 Including: gains on disposal of fixed assets 94,170.00 302,680.00 2、Amercement income 66,360.09 -- 3、Breach penalty 2,233,288.00 345,820.11 4. Other 47,738.39 252,118.71 Total 2,441,556.48 900,618.82 (2) Non-business expenditure Type 2007 (RMB) 2006 (RMB) 1. Loss from non-current asset disposal 113,850.02 167,335.28 Of which: loss from fixed asset disposal 113,850.02 167,335.28 2. Expenditure of penalty 2,727,368.63 157,089.23 3. Donation expenditure 218,000.00 34,000.00 4. Expenditure for loss 918,156.31 3,291,150.94 5. Other 100,683.37 596,468.26 25 Total 4,078,058.33 4,246,043.71 5. Income tax expense Item 2007 2006 Income tax expense in 2007 3,460,653.51 954,500.78 Deferred income tax expense 9,264,644.01 -- Total 12,725,297.52 954,500.78 6. Influence on profit brought by the items measured by employing fair value (unit: RMB) Balance at Amount Balance at the Name of item the Current change influenced on the period-end period-begin current profit Trading financial assets 645,470.00 645,470.00 342,635.00 Total 645,470.00 645,470.00 342,635.00 7. Net cash flow arising from operating activities was RMB -52.90 million, reducing by RMB 233.53 million compared to that of RMB 180.63 million over the same period in last year, mainly because of the decrease of revenue from development projects in 2007; net cash flow arising from investing activities was RMB 10.45 million, increasing by RMB 7.74 million compared to that of RMB 2.71 over the same period in last year, mainly because investment income was obtained respectively by RMB 11.02 million and RMB -16,37 million by disposing equity of Shenyang Tongxin Real Estate Development Limited Company and Shenzhen Bafangtong Railway Storage & Transportation Co., Ltd; net cash flow arising from financing activities was RMB 24.49 million, increasing by RMB 55.37 million compared to that of RMB -30.88 million over the same period in last year, mainly because of the new-added loan. VIII Prospect for the future development of the Company The year 2008 will be the one to develop and improve all the work of the Company, as well as a transition to finish three-system reform and realize to link up with the market, therefore, the Company regarded “Development and Improvement” as the strategic task in phases. The operating work will meet the principle and policy of Advance Management, Create Brand, Quicken as Quick as Possible, Boost Reserves, as to obtain obvious development and enhancement in such aspects as simulating the real estate, the main business, to grow stronger, boosting reserves stably, enhancing the minute division management level in all sides, focusing on promoting corporate image by creating masterpiece, breaking the financing bottleneck with efforts. The enterprise culture will be attached importance to foster the custodians possessing the ability to keep up with market, innovate and learn, and the personnel reserves will be built up, which help to lay a solid foundation for the continuous and healthy development of the Company. (I) Quicken the progress of the development of the existing projects as well as sales. The year 2008 is the period to focus on investing real estate projects by the Company, 26 so the scientific coordinated development among brand, efficiency and progress should be realized. The principal projects are: Shantou Jinye Island Phase 9 and 10; the Dragon-Phoenix Resort is in fully operative, which is strived for the best building. The Company must perfect the management structure in the project management team, standardize the process, and compile the project manual and the engineering plan. The Company will impose the management task upon and assign responsibility to every person to exert itself to the utmost on the plan and design and the engineering management, implement total marketing and carry out the control on goal cost, which can ensure the successful implementation of development plan. (II) Strive for the breakthrough in the resource reserves. The Company will arouse awareness of danger and urgency and make decision with right direction, because there is no turning back in boosting resource reserves. As for the project of seeking land, the management and all custodians shall make efforts together by setting goal and grasping the position to improve and enhance the organization and quality of the feasibility study, also reinforce the support for decisions. The attention of increasing the land reserve is paid to the district around Pearl River Delta and East of Guangdong which possesses the local management team with experience. (III) Enhance the level of advanced management of the Company, renew the business process to improve the efficiency and modernized level. (VI) Strengthen the ability of financing of the Company, research the financing way in fund market and capital market of the Company positively. (V) Special stress must be laid on the training and assigning talents in order to foster kind of technology team, management team and marketing team which can meet the market competition. IX. Routing work of the Board of Directors (I) Particulars about the Board meetings and the content of resolutions in the report period The details of the Board of Directors in 2007 were as follows: 1. On Jan. 10, the 1st meeting was held at the meeting room of the Company, 9 directors present the meeting, at which the Proposal on Transferring Friendship Parking Lot by Auctioning Legally was examined and approved. 2. On Apr. 18, the 2nd meeting was held at the meeting room of the Company, 8 directors present at the meeting and 1 absent, at which the following proposals were examined and approved: Annual Report in 2006 and Its Abstract, Preplan of Profit Distribution in 2006, Work Report on the Board of Directors in 2006, Proposal on Engagement of Certified Public Accountants, Proposal on Provisional Regulations for Salary Management on Staffs of SPG. The related resolutions of the Board of Directors were published in China Securities Journal, Ta Kung Pao and http//: www. cninfo.com.cn on Apr. 20. 3. On Apr. 25, the 3rd meeting was held through telecommunication, 8 directors present at the meeting and 1 absent, at which the two proposals were examined and approved: 27 the 1st Quarterly Report in 2007, Draft of Accounting Policies, Accounting Estimates of the Company and Implementation Guidance. The related resolutions of the Board of Directors were published in China Securities Journal, Ta Kung Pao and http//: www. cninfo.com.cn on Apr. 26. 4. On Jun. 8, the 3rd meeting was held, 8 directors present at the meeting and 1 absent, at which the two proposals were examined and approved: Self-inspection and Rectification Plan of the Special Campaign of Corporate Governance of SPG, Proposal on Convening Shareholders’ General Meeting. The related resolutions of the Board of Directors were published in China Securities Journal, Ta Kung Pao and http//: www. cninfo.com.cn on Jun. 9 5. On Aug. 21, the 5th meeting was held, 6 directors attending the meeting while 2 entrusting other directors for voting, at which the following proposals were examined and approved: Semi-annual Report in 2007 and Its Abstract, Work System for Independent Directors, Management System for Investors’ Relationship, Internal Report System for Significant Information, Management System for the Share of the Company Held by Directors, Supervisors and the Senior Managements and Its Change, Implementing Regulations of the Audit Committee of the Board of Directors, Implementing Regulations of Nomination Committee of the Board of Directors, Implementing Regulations of Strategic Committee of the Board of Directors, Implementing Regulations of Remuneration and Approval Committee of the Board of Directors. The related resolutions of the Board of Directors were published in China Securities Journal, Ta Kung Pao and http//: www. cninfo.com.cn on Aug. 23. 6. On Oct. 29, the 6th meeting was held, 6 directors present at the meeting, at which the 3rd Quarterly Report in 2007 and the Rectification Report of Special Campaign of Corporate Governance of the Company were examined and approved. The related resolutions of the Board of Directors were published in China Securities Journal, Ta Kung Pao and http//: www. cninfo.com.cn on Oct. 31. (II) Execution of the resolutions at the Shareholders’ General Meeting by the Board of Directors On Jun. 30, 2007, the 15th Shareholders’ General Meeting was held, at which the following proposals were examined and approved: Work Report of the Board of Directors in 2006, Work Report of the Supervisory Committee in 2006, Preplan of Profit Distribution in 2006, Annual Report in 2006, Proposal on Engagement of Certified Public Accountants for Auditing, which were composed of the resolutions thereof. The Board of Directors executed the above resolutions strictly according to the authorization from Shareholders’ General Meeting. In the report period, the Company had no scheme of profit distribution and capitalization of common reserves, neither had share placement and additional share. (III) Performance of the Audit Committee of the Board of Directors In accordance with CSRC, Circular on Properly Handling the 2007 Annual Reports of 28 Listed Companies and the Related Work and Guidelines for the Contents and Formats for Information Disclosures by Companies That Offer Securities to the Public No. 2 (amending in 2007), the auditing work of the Company in 2007 done by Shenzhen Nanfang Minhe Certified Public Accountants was summed up as follows: (1) Forming the auditing work regulation of the Audit Committee for the Annual Report in 2007. (2) After the accountant firm issued preliminary audit opinion, the Audit Committee reviewed financial statements and formed written opinion: on Apr. 8, 2008, the accountant firm issued preliminary audit opinion of the Company on schedule according to the overall arrangement for auditing. The Audit Committee reviewed the financial statements which was issued the preliminary audit opinion, believing that: the Financial Statements of the Company in 2007 reflected the assets and liabilities of the Company by Dec. 31, 2007 and the results of production and operation of the Company in 2007 in all significant aspects, and the Annual Report of the Company in 2007 and the corresponding abstract should be made according to the Financial Statements. X. Preplan of profit distribution for the year 2007 The Company’s financial report for the year 2007 has been audited by Shenzhen Nanfang Minhe Certified Public Accountants, the Company’s net profit for the year 2007 was RMB 39,007,992.54, while the profit available for distribution for the year 2007 was RMB-934,635,245.38. In accordance with the relevant rules and the regulations of the Articles of Association of the Company, there was no profit distribution condition, thus, the Board of Directors decided that the Company would not distribute profit or conduct capitalization of common reserves for the year 2007 after discussion. XI. The newspapers chosen by the Company for information disclosure remained unchanged, namely China Securities Journal (domestic) and Ta Kung Pao (overseas). XII. Special explanation of independent directors on the Company’s guarantee and performing the regulations of Circular Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties and independent opinions We checked and approved the external guarantee, capital occupied by related parties disclosed in Annual Report 2007 and Financial Report of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. and the relevant information, and made the following explanation on the external guarantee and capital occupied by related parties: 1. No external guarantee occurred in the report period. There was the balance of mortgage guarantee amounting to RMB 21.06 million the Company did not settle yet in the report period. The said guarantee belonged to a general situation in the industry. Within the guarantee period, namely from the date of money set out by mortgage banker to Certificate of Real Estate of house buyers was transacted by mortgage banker, if house buyer did not perform the debtor’s duties, the Company can take back the property sold, thus, there was no actual losses occurred to the Company, and possibility of jointly discharging responsibility borne by the Company was slim. 29 2. The largest shareholder of the Company did not occupy capital of the Company. Some existing accounts receivable from related parties are due to loan that the Company invested subsidiaries over the past years. Thus, we believed that the Company could quite perform Circular Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties. Section IX Report of the Supervisory Committee In 2007, the Supervisory Committee had dutifully performed the supervisory obligations endowed by laws and regulations in accordance with regulations of Company Law, Securities Law, and Articles of Association of the Company and with the support of the Board, the management team and the vast shareholders. I. Meetings held by the Supervisory Committee in the report period (I) On Apr. 18, 2007, the 1st meeting was held, at which three proposals were examined and approved: Annual Report in 2006 and Its Abstract, Preplan of Profit Distribution in 2006 and Work Report of the Supervisory Committee in 2006. (II) On Aug. 21, 2007, the 2nd meeting was held, at which Semi-annual Report in 2007 and Its Abstract was examined and approved. (III) On Oct. 29, the 3rd meeting was held, at which three proposals were examined and approved: the 3rd Quarterly Report in 2007, Proposal on Significant Accounting Errors Adjusting Balance at the Period-begin and Rectification Report on Special Campaign of Corporate Governance of the Company. II. Independent opinion on related issues from the Supervisory Committee (I) Operation of the Company according to laws: in 2007, the members of the Supervisory Committee attended all the Board meetings. In the opinion of the Supervisory Committee: the procedure of decision-making of the Company was in line with laws, the internal management mechanism and control system were further improved, and the directors and the management staffs did not disobey laws and rules and the Article of Association of the Company, nor harm the interest of the Company or shareholders when performing their duties. (II) Financial status of the Company: in the opinion of the Company: the audit opinion issued by Shenzhen Nanfang Minhe Certified Public Accountants was objective, the analysis of the financial report was consistent with the actual situation, truly reflecting financial status and operating results of the Company. (III) In the report period, the Company had no raised proceeds. (IV) In the report period, the Company had no related transactions. 30 Section X Significant Events I. Significant lawsuits and arbitrations As to the significant lawsuits and arbitrations in which the Company had been involved in the report period, please refer to Note XV of the Financial Statements. II. The Company had not made any significant purchases or sales of assets in the report period. III. Please refer to Note X of the Financial Statements for related parties of and related transactions of the Company. IV. The Company had not signed any important contracts of entrustment, contracting or leasing in the report period, nor had it entrusted others with assets management. V. Guarantee Unit: RMB’ 0000 External guarantees of the Company (excluding guarantees for holding subsidiaries) Name of the Date of happening (the Amount of Type of Guarantee term Accomplished For related parties guarantee agreement-signing day) guarantee guarantee or not or not Naught Total guarantee amount in the report period Total guarantee balance at the end of the report period Guarantees for holding subsidiaries of the Company Total guarantee amount for holding subsidiaries in 2800 the report period Total guarantee balance for holding subsidiaries at 2800 the end of the report period Total guarantee amount of the Company (including guarantees for holding subsidiaries) Total guarantee amount 2800 Total guarantee amount taking up the net assets of 2.40% the Company Irregular guarantees of the Company Amount of the guarantees for holding shareholders and other related parties of which the Company held 0.00 less than 50% shares Amount of the debt guarantees directly or indirectly for guarantees with an asset-liability ratio exceeding 70% Guarantee amount exceeding 50% of the net assets or No not (yes or no) Total irregular guarantee amount 0.00 In the report period, there was a balance of mortgage guarantee for the owner’s building amounting to RMB 21.06 million still remaining unaccomplished. The kind of guarantee belonged to a general situation in the industry. Within the guarantee period, namely from the date of money set out by mortgage banker to Certificate of Real Estate of house buyers was transacted by mortgage banker, if house buyer did not perform the debtor’s duties, the Company can take back the property sold, thus, there was no actual losses occurred to the Company, and possibility of jointly discharging responsibility borne by the Company was slim. VI. Commitments made by the controlling shareholder of the Company in the share merger reform and performance Shenzhen Investment Holding Co., Ltd promised on the relevant matters related with the share merger reform of SPG: “1. the company would abide by the relevant laws, 31 regulations and rules, and fulfill the legal responsibilities promised obligation; 2. the company declared: “The promisor would dutifully fulfill its commitments and shoulder corresponding legal responsibilities. Only if the assignee agree and have the ability to shoulder the commitment responsibility, the promisor would never transfer the held shares.”; and, 3. the company made the commitment: “The promisor hereby promises that, should the promisor failed to fulfill its commitment or not fully fulfill its commitment, it would compensate other shareholders for their losses suffered thereafter”. The commitment now is under way. The commitment with conditional sales made by Shenzhen Investment Holding Co., Ltd: from the date of implementation of the reform plan, the shares would not be listed or transferred within 12 months; when the aforesaid provision reached its mature term, by means of selling former non-current shares listed in Stock Exchange, the proportion for selling could not take up over 5% of the total shares of the said company within 12 months nor over 10% within 24 months. The commitment now is under way. Shenzhen Investment Holding Co., Ltd promised to implement the equity incentive plan during share merger reform, selling the owned shares which did not surpass 10% share capital of SPG to its managements within 3 years in installment. On Sep. 30, 2006, the State-Owned Assets Supervision and Administration Commission of the State Council distributed the Trial Measures for Implementing Equity Incentive Plans by State Holding Listed Companies (Domestic) (GZFFP [2006] No. 175), of which Article 9 stipulates that the source of the subject shares for implementing the equity incentive plan may not be paid by a single state shareholder, who may not gratuitously quantize the state equity either. Otherwise, the Company could not implement the equity incentive plan, nor Investment Holding Company could perform the commitment. VII. Particulars about equity incentive The Company declared clearly when implementing share merger reform: the large shareholders should sell the owned shares which did not surpass 10% share capital of SPG to its managements within 3 years in installment, of which the selling price was defined as the net value of assets per share through the Company’s auditing in the latest period during implementation. The policies related to implementation of equity incentive plan by state holding enterprises were then not introduced by the State-Owned Assets Supervision and Administration Commission of the State Council, so the Company didn’t implement according to the content of the reform scheme on implementing equity incentive plan. On Sep. 30, 2006, the State-Owned Assets Supervision and Administration Commission of the State Council distributed the Trial Measures for Implementing Equity Incentive Plans by State Holding Listed Companies (Domestic) (GZFFP [2006] No. 175), which stipulates clearly that: the granting price of equity of a listed company shall not be lower than the closing price of the subject shares on the trading day before the promulgation of the equity incentive plan or the average closing price of the subject shares within 30 trading days before, therefore, the commitment made by the large shareholders could not be realized, nor could the equity incentive plan. On Mar. 17, 2008, the State-owned Assets Supervision and Administration Commission of Shenzhen introduced Interim Measures of Shenzhen on Establishment for Long-term Efficiency Incentive Mechanism by State-owned Enterprises, the Company would explore ways and avenues of equity incentive in the policy range mentioned by the State-owned Assets Supervision and Administration 32 Commission of Shenzhen. VIII. The Company engaged Shenzhen Nanfang Minhe Certified Public Accountants to take care of the auditing work for the year 2007 of the Company. The said Certified Public Accountants had provided annual auditing services to the Company since 2001. According to agreement, the Company would pay RMB 0.88 million to Shenzhen Nanfang Minhe Certified Public Accountants as the auditing fee. IX. In the report period, the Company, the Board of Directors of the Company and its directors were not criticized or condemned. X. Reception of investigation and interview of the Company Reception Main content of discussion and Reception time Reception way Reception object place information provided Communication by Individual Inquiring operation of the Company in Jan. 10, 2007 Office room telephone investor 2006, not providing information Communication by Individual Inquiring projects of the Company, not Feb. 6, 2007 Office room telephone investor providing information Inquiring financial status of the Communication by Individual Apr. 15, 2007 Office room Company in 2006, not providing telephone investor information Inquiring the construction of the Communication by Individual Jul. 6, 2007 Office room Company’s website and the operation of telephone investor the Company, not providing information Inquiring the share price of the Company Communication by Individual Jul. 13, 2007 Office room and progress of the equity incentive plan, telephone investor not providing information Communication by Individual Inquiring the share price of the Aug. 22, 2007 Office room telephone investor Company, not providing information Inquiring assets of the Company and Communication by Individual Aug. 24, 2007 Office room house price in Shenzhen, not providing telephone investor information Inquiring development of major business Communication by Individual Sep. 17, 2007 Office room of the Company, not providing telephone investor information Realizing and inquiring corporate Communication by Individual Oct. 16, 2007 Office room governance development of the telephone investor Company, not providing information Communication by Individual Inquiring operation of the Company, not Oct. 30, 2007 Office room telephone investor providing information Communication by Individual Inquiring operation of the Company, not Dec. 10, 2007 Office room telephone investor providing information XI. Influence by drawing land appreciation tax in advance The policy of land appreciation tax adopted by the Company was according to Circular on Starting to Impose Land Appreciation Tax in Our City (SDSG [2005] No. 6) issued by Shenzhen Local Taxation Bureau on Nov. 2, 2005, the value-added amount obtained from selling real estate of which contract was signed after Nov. 1, 2005 (including on Nov. 1, 2005) should be paid land appreciation tax. The way of First Pay, then Clear, Return the Overcharge and Demand Payment of the Shortage for impose land appreciation tax was employed by real estate development enterprises, including that: 1. the revenue from transferring villa, resort and hotel-type apartment should be 33 prepaid by 1%; 2. apart from villa, resort and hotel-type apartment, the revenue from transferring other real estate should be prepaid by 0.5%. According to the Notice on the Relevant Issues Concerning the Settlement Management of Land Value-added Tax on Real Estate Enterprises (GSF [2006] No. 187) published by the State Administration of Taxation on Dec. 28, 2006, since Feb. 1, 2007, the land appreciation tax has been settled on the basis of real estate development projects approved by the related state departments, and the projects developed in installment has been settled based on progressive project. In accordance with the above policies, by Dec. 31, 2007, the land appreciation tax drawn in advance was RMB 33,327,984.00 after the development project of the Company, namely Villa of Jinye Island Phase 6, 7 and 8, was prepaid land appreciation tax by 0.5% of the revenue from selling. The specific affected amount of the Company could not be recognized for the material settlement regulation was not come out. XII Adjustment of income statement items （2006.1.1—12.31） UNIT：（RMB）Yuan Before After Revenue 996,494,246.13 995,935,563.22 Cost of sales 930,842,177.39 750,991,096.32 Selling and distribution expenses 19,540,568.09 19,971,809.98 General and administrative expenses -89,035,049.96 124,867,324.74 Income from change of fair value 0.00 0.00 Investment income 3,604,713.17 6,122,496.75 Income tax 954,500.78 954,500.78 Net profit 19,259,485.35 20,150,368.49 Section XI. Financial Report (Financial Statements and Auditors’ Report accompanying) Section XII. Documents Available for Reference 1. Accounting statements with personal signatures and seals of legal representative, chief accountant and person in charge of accounting organization. 2. Original of the Report with the seals of accountant office and the signatures and seals of certified public accountant. 3. Originals of all documents of the Company ever disclosed publicly in China Securities Journal and Ta Kung Pao as well as the originals of all the public notices. Board of Directors of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Apr. 21, 2008 34 * Confidential * REPORT OF THE AUDITORS 深 南 财 审 报 字 （ 2008） 第 CA298 号 TO THE SHAREHOLDERS OF SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO. LTD: We have audited the accompanying consolidated financial statements of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (the “Company”) and its subsidiaries (together with the Company referred to as the “Group”), which comprise the consolidated balance sheet as at 31 December 2007, and the consolidated income statement, the consolidated cash flow statement, the consolidated statement of changes in equity for the year then ended and notes to these financial statements. 1、 Management responsibility for the financial statements Management is responsible for the preparation of these financial statements in accordance with the Enterprise Accounting Standard.This responsibility includes ：（ 1 ） 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;（ 2） selecting and applying appropriate accounting policies;（ 3） making accounting estimates that are reasonable in the circumstances. 2、 Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the China Auditing Standards. 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. 35 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 entity’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. 3、 Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2007, and of its financial performance and its cash flows for the year then ended and prepared in accordance with the Enterprise Accounting Standards. ShenZhen Nanfang-Minhe CPAs Ltd. Certified Public Accountant Certified Public Accountant ShenZhen, China 21 April 2008 36 CONSOLIDATED BALANCE SHEET 31 December 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan ASSETS Note 2007-12-31 2006-12-31 Current assets Cash at bank and on hand 8、1 451,915,145.77 472,503,198.17 Financial assets held for trading 8、2 645,470.00 - Accounts receivable 8、3 15,396,075.35 16,454,141.40 Advances to suppliers 8、4 20,400,102.24 31,832,111.61 Other receivables 8、5 50,512,052.62 165,123,685.59 Inventories 8、6 842,698,521.07 670,454,683.64 Total current assets 1,381,567,367.05 1,356,367,820.41 Non-current assets Long-term equity investments 8、7 85,978,361.05 170,768,682.20 Investment Property 8、8 729,287,621.87 757,132,913.33 Fixed assets 8、9 76,324,451.29 76,725,372.60 Intangible assets 8、10 6,312,140.00 3,946.60 Long-term deferred and prepaid expenses 8、11 825,350.08 255,438.75 Deferred tax assets 8、12 22,429,645.26 31,694,289.27 Total non-current assets 921,157,569.55 1,036,580,642.75 TOTAL ASSETS 2,302,724,936.60 2,392,948,463.16 The Notes on page 49 to 120 form part of these financial statemtents 37 CONSOLIDATED BALANCE SHEET（Continued） 31 December 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan LIABILITIES AND OWNERS' EQUITY Note 2007-12-31 2006-12-31 Current liabilities Short-term borrowings 8、15 47,000,000.00 165,424,900.00 Account payable 8、16 181,259,988.97 118,823,146.61 Prepayment received 8、17 206,993,814.01 290,251,210.51 Employee benefits payable 8、18 31,957,382.75 55,638,381.69 Tax payable 8、19 (3,041,657.01) 4,486,766.78 Interest payable 8、20 2,901,306.85 - Other payables 8、21 277,615,580.37 457,312,382.41 Non-current liability due in one year 8、22 25,280,129.52 110,000,000.00 Total of current liability 769,966,545.46 1,201,936,788.00 Non-current liabilities Long-term borrowings 8、22 342,214,327.80 65,000,000.00 Long-term payable 8、23 9,172,161.05 8,585,785.96 Total non-current liabilities 351,386,488.85 73,585,785.96 Total liabilities 1,121,353,034.31 1,275,522,573.96 Owners' equity Share capital 8、24 1,011,660,000.00 1,011,660,000.00 Capital surplus 8、25 978,244,858.10 978,244,858.10 Less: Shares in stock - - Surplus reserve 8、26 118,910,686.94 118,910,686.94 Undistributed profits 8、27 (934,635,245.38) (985,700,506.78) Translation difference of foreign currency 13,966,344.35 7,595,803.64 financial statements Total equity attributable to equity holders of 1,188,146,644.01 1,130,710,841.90 the Company Minority interest 8、28 (6,774,741.72) (13,284,952.70) Total owners' equity 1,181,371,902.29 1,117,425,889.20 TOTAL LIABILITIES AND OWNER'S EQUITY 2,302,724,936.60 2,392,948,463.16 The Notes on page 49 to 120 form part of these financial statemtents 38 CONSOLIDATED INCOME STATEMENT 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan Items Note 2007 2006 1、 Revenue 8、29 845,127,526.44 995,935,563.22 Less： Cost of sales 8、29 621,641,037.92 750,991,096.32 Tax and levies on operations 8、30 65,528,792.59 51,800,898.35 Selling and distribution expenses 10,165,581.70 19,971,809.98 General and administrative expenses 8、31 69,919,988.99 124,867,324.74 Finance expenses 8、32 53,391,606.44 31,131,723.92 Asset impairment losses 8、33 - (1,268,763.04) Add: Income from change of fair value 342,635.00 - Investment income 8、34 28,472,277.81 6,122,496.75 Including： Investment income from affiliates 8、34 985,946.73 1,559,962.49 2、 Operating profit 53,295,431.61 24,563,969.70 Add: Non-operating income 8、35 2,441,556.48 900,618.82 Less： Non-operating expenses 8、36 4,078,058.33 4,246,043.71 Including： Loss from disposal of 94,170.00 302,680.00 8、36 non-current assets 3、 Total profit 51,658,929.76 21,218,544.81 Less： Income tax expenses 8、37 12,725,297.52 954,500.78 4、 Net profit 38,933,632.24 20,264,044.03 Attributable to equity holders of the Company 39,007,992.54 20,150,368.49 Minority profit or loss (74,360.30) 113,675.54 5、 Earnings per share （一）Basic earnings per share 8、38 0.0386 0.0199 （二）Diluted earnings per share 8、38 0.0386 0.0199 The Notes on page 49 to 120 form part of these financial statemtents 39 CONSOLIDATED CASH FLOW STATEMENT 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan Items Note 2007 2006 1、 Cash flows from operating activities Cash received from sales of goods or rendering of services 677,835,550.23 990,434,509.98 Refund of taxes and levies - 12,403,584.57 Cash received relating to other operating activities 8、39.1 29,806,680.06 134,771,721.44 Sub-total of cash inflows 707,642,230.29 1,137,609,815.99 Cash paid for goods and services 514,082,303.62 718,927,859.33 Cash paid to and on behalf of employees 110,609,549.61 81,764,495.91 Payments of taxes and levies 72,483,132.26 52,830,792.97 Cash paid relating to other operating activities 8、39.2 63,368,814.94 103,455,575.12 Sub-total of cash outflows 760,543,800.43 956,978,723.33 Net cash flows from operating activities (52,901,570.14) 180,631,092.66 2、 Cash flows from investing activities Cash received from investment retrieving 31,850,000.00 1,704,214.79 Cash received as investment gains 1,087,268.66 6,062,974.29 Net cash received from disposal of fixed assets, intangible 323,220.78 319,700.00 assets and other long-term assets Net cash received from disposal of subsidiaries or - - other operational units Cash received relating to other investing activities - - Sub-total of cash inflows 33,260,489.44 8,086,889.08 Cash paid to acquire fixed assets, intangible assets and 13,898,642.52 5,379,136.47 other long-term assets Cash paid to acquire investments 302,835.00 - Net cash received from subsidiaries and other operational 4,440,753.40 - units Cash paid relating to other investing activities 8、39.3 4,170,000.00 - Sub-total of cash outflows 22,812,230.92 5,379,136.47 Net cash flows from investing activities 10,448,258.52 2,707,752.61 3、 Cash flows from financing activities Cash received as investment - - Including： Cash received as investment from minor - - shareholders Cash received from borrowings 424,000,000.00 244,471,720.00 Cash received relating to other financing activities - - Sub-total of cash inflows 424,000,000.00 244,471,720.00 Cash repayments of borrowings 352,930,442.68 252,021,198.56 Cash payments for interest expenses and distribution of 46,576,290.57 23,333,501.23 dividends or profits Including： Cash payments for dividends or profit to - - minority shareholders of subsidiaries Cash payments relating to other financing activities - - Sub-total of cash outflows 399,506,733.25 275,354,699.79 Net cash flows from financing activities 24,493,266.75 (30,882,979.79) Effect of foreign exchange rate changes on cash and cash (1,609,507.54) (2,419,331.77) 4、 equivalents 5、 Net increase in cash and cash equivalents (19,569,552.41) 150,036,533.71 Add: Cash and cash equivalents at beginning of year 457,420,698.17 307,384,164.46 6、 Cash and cash equivalent at end of year 437,851,145.76 457,420,698.17 The Notes on page 49 to 120 form part of these financial statemtents 40 CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan 2007 Attributable to equity holders of the Company Items Translation Minority Total owners' Capital difference of foreign Surplus Undistributed interest equity Share capital surplus currency financial reserves profits statements Balance at the end of the 7,595,803.64 1、 last year： 1,011,660,000.00 978,244,858.10 118,910,686.94 (1,022,454,478.17) - 1,093,956,870.51 Changes of Add： accounting policy - - - - 36,753,971.39 (13,284,952.70) 23,469,018.69 Error correction of the last period - - - - 12,057,268.86 - 12,057,268.86 Balance at the beginning 7,595,803.64 2、 of this year 1,011,660,000.00 978,244,858.10 118,910,686.94 (973,643,237.92) (13,284,952.70) 1,129,483,158.06 Increase/ Decrease in 6,370,540.71 3、 this year - - - 39,007,992.54 6,510,210.98 51,888,744.23 （1） Net profit - - - - 39,007,992.54 (74,360.30) 38,933,632.24 Profits and losses （2） calculating into - - 6,370,540.71 - - 6,584,571.28 12,955,111.99 Net changing a、 amount of fair value - - - - - - Effect of changes of other owners' b、 equity of invested - - - - - - Effect of income c、 tax related to - - - - - - - 6,370,540.71 12,955,111.99 4、 Others - - - - 6,584,571.28 6,370,540.71 51,888,744.23 sub-total（1）&（2） - - - 39,007,992.54 6,510,210.98 Owners' devoted and （3） decreased capital - - - - - - - Owners' devoted a、 capital - - - - - - - Amount calculated b、 into owners' equity - - - - - - - c、 Others - （4） Profit distribution - - - - - - - Withdrawal of a、 surplus reserves - - - - - - - Distribution to b、 shareholders - - - - - - - c、 Others - - - - - - Carrying forward （5） internal owners' - - - - - - - Capital surplus a、 conversed to capital - - - - - - - Surplus reserves b、 conversed to capital - - - - - - - Remedying loss with c、 profit surplus - - - - - - - d、 Others - - - - - - Balance at the end of 4、 this 1,011,660,000.00 978,244,858.10 13,966,344.35 118,910,686.94 (934,635,245.38) (6,774,741.72) 1,181,371,902.29 The Notes on page 49 to 120 form part of these financial statemtents 41 CONSOLIDATED STATEMENT OF CHANGES IN OWNER'S EQUITY(Continued) 2006 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan 2006 Attributable to equity holders of the Company Items Translation Minority Total owners' Capital difference of foreign Surplus Undistributed Paid-in capital interest equity surplus currency financial reserves profits statements 1、 Balance at the end of the 1,011,660,000.00 978,244,858.10 (10,129,479.65) 118,910,686.94 (1,041,713,963.52) - 1,056,972,101.87 Changes of 22,464,460.01 Add： accounting policy - - - - 35,863,088.25 (13,398,628.24) Error correction of the last period - - - - - - - 2、 Balance at the beginning o 1,011,660,000.00 978,244,858.10 (10,129,479.65) 118,910,686.94 (1,005,850,875.27) (13,398,628.24) 1,079,436,561.88 17,725,283.29 3、 Increase/ Decrease in this - - - 20,150,368.49 113,675.54 37,989,327.32 （1） Net profit - - - - 20,150,368.49 113,675.54 20,264,044.03 Profits and losses （2） calculating into - - 17,725,283.29 - - - 17,725,283.29 Net changing a、 amount of fair value - - - - - - - Effect of changes of other owners' equity of invested units under equity b、 method - - - - - - - tax related to c、 owners' equity - - - - - - - 4、 Others - 17,725,283.29 - - - 17,725,283.29 17,725,283.29 113,675.54 sub-total（1）&（2） - - - 20,150,368.49 37,989,327.32 Owners' devoted and （3） decreased capital - - - - - - - Owners' devoted a、 capital - into owners' equity b、 paid in shares - - - - - - - c、 Others - （4） Profit distribution - - - - - - - Withdrawal of a、 surplus reserves - - - - - - - Distribution to b、 shareholders - - - - - - c、 Others - - - - - - - internal owners' （5） equity - - - - - - - Capital surplus a、 conversed to capital - - - - - - - Surplus reserves b、 conversed to capital - - - - - - - Remedying loss with c、 profit surplus - - - - - - - d、 Others - - - - - - - Balance at the end of this 4、 report period 1,011,660,000.00 978,244,858.10 7,595,803.64 118,910,686.94 (985,700,506.78) (13,284,952.70) 1,117,425,889.20 The Notes on page 49 to 120 form part of these financial statemtents 42 BALANCE SHEET 31 December 2007 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (Parent) CO., LTD. Units:Rmb Yuan ASSETS Note 2007-12-31 2006-12-31 Current assets Cash at bank and on hand 219,453,189.28 259,588,370.18 Financial assets held for trading 645,470.00 - Accounts receivable 9、1 8,877,807.66 9,753,136.89 Advances to suppliers 215,537.63 4,680,553.16 Other receivables 9、2 597,447,535.25 718,689,212.14 Inventories 9、3 158,995,156.01 176,377,944.75 Total current assets 985,634,695.83 1,169,089,217.12 Non-current assets Long-term equity investments 9、4 310,584,126.62 330,374,882.84 Investment Property 668,607,908.15 694,286,287.17 Fixed assets 44,054,270.10 45,635,311.64 Deferred tax assets 10,172,116.09 10,214,780.85 Total non-current assets 1,033,418,420.96 1,080,511,262.50 TOTAL ASSETS 2,019,053,116.79 2,249,600,479.62 The Notes on page 49 to 120 form part of these financial statemtents 43 BALANCE SHEET（Continued） 31 December 2007 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (Parent) CO., LTD. Units:Rmb Yuan LIABILITIES AND OWNERS' EQUITY Note 2007-12-31 2006-12-31 Current liabilities Short-term borrowings 47,000,000.00 139,424,900.00 Account payable 32,338,787.84 75,566,575.24 Prepayment received 4,268,071.92 92,675,917.54 Employee benefits payable 15,086,558.23 15,814,721.51 Tax payable 2,877,169.33 3,974,936.67 Interest payable 2,901,306.85 - Other payables 371,180,760.18 544,529,587.71 Non-current liability due in one year 10,280,129.52 110,000,000.00 Total of current liability 485,932,783.87 981,986,638.67 Non-current liabilities Long-term borrowings 254,214,327.80 - Total non-current liabilities 254,214,327.80 - Total liabilities 740,147,111.67 981,986,638.67 Owners' equity share capital 1,011,660,000.00 1,011,660,000.00 Capital surplus 978,244,858.10 978,244,858.10 Less: Shares in stock - - Surplus reserve 113,936,295.79 113,936,295.79 Undistributed profits (824,935,148.77) (836,227,312.94) Total owners' equity 1,278,906,005.12 1,267,613,840.95 TOTAL LIABILITIES AND OWNER'S EQU 2,019,053,116.79 2,249,600,479.62 The Notes on page 49 to 120 form part of these financial statemtents 44 INCOME STATEMENT 2007 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (Parent) CO., LTD. Units:Rmb Yuan Items 附注 2007 2006 1、 Revenue 9、5 232,443,851.16 582,490,995.82 Less： Cost of sales 9、5 148,460,789.08 412,295,320.78 Tax and levies on operations 19,787,867.28 36,281,692.29 Selling and distribution expenses 1,429,274.76 5,754,112.58 General and administrative expenses 33,801,427.20 69,948,736.56 Finance expenses 33,552,657.45 19,184,457.14 Asset impairment losses - (1,268,763.04) Add: Income from change of fair value 342,635.00 - Investment income 9、6 17,089,822.66 2,547,034.48 Incl. Investment income from affiliates 723,822.66 189,775.80 2、 Operating profit 12,844,293.05 42,842,473.99 Add: Non-operating income 2,284,175.09 42,431.23 Less： Non-operating expenses 3,720,688.74 3,386,027.18 Incl. Loss from disposal of non-current assets 94,170.00 - 3、 Total profit 11,407,779.40 39,498,878.04 Less： Income tax expenses 115,615.23 15,901.71 4、 Net profit 11,292,164.17 39,482,976.33 5、 Earnings per share （一）Basic earnings per share （二）Diluted earnings per share The Notes on page 49 to 120 form part of these financial statemtents 45 CASH FLOW STATEMENT 2007 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (Parent) CO., LTD. Units:Rmb Yuan Items 2007 2006 1、 Cash flows from operating activities Cash received from sales of goods or rendering of services 58,321,425.86 450,320,062.17 Refund of taxes and levies - - Cash received relating to other operating activities 275,637,326.22 284,318,716.31 Sub-total of cash inflows 333,958,752.08 734,638,778.48 Cash paid for goods and services 61,837,252.92 241,390,949.94 Cash paid to and on behalf of employees 32,346,439.16 27,323,275.91 Payments of taxes and levies 35,484,815.00 41,090,379.53 Cash paid relating to other operating activities 296,798,754.81 325,044,393.62 Sub-total of cash outflows 426,467,261.89 634,848,999.00 Net cash flows from operating activities (92,508,509.81) 99,789,779.48 2、 Cash flows from investing activities Cash received from investment retrieving 31,850,000.00 403,211.25 Cash received as investment gains 723,822.66 2,357,258.68 Net cash received from disposal of fixed assets, intangible - - assets and other long-term assets Net cash received from disposal of subsidiaries or - - other operational units Cash received relating to other investing activities - - Sub-total of cash inflows 32,573,822.66 2,760,469.93 Cash paid to acquire fixed assets, intangible assets and 2,908,301.52 379,136.47 other long-term assets Cash paid to acquire investments 302,835.00 - Net cash received from subsidiaries and other operational - - units Cash paid relating to other investing activities 4,170,000.00 - Sub-total of cash outflows 7,381,136.52 379,136.47 Net cash flows from investing activities 25,192,686.14 2,381,333.46 3、 Cash flows from financing activities Cash received as investment - - Incl. Cash received as investment from minor shareholders - - Cash received from borrowings 336,000,000.00 168,471,720.00 Cash received relating to other financing activities - - Sub-total of cash inflows 336,000,000.00 168,471,720.00 Cash repayments of borrowings 276,930,442.68 221,521,198.56 Cash payments for interest expenses and distribution of 30,279,407.01 20,245,501.23 dividends or profits Incl. Cash payments for dividends or profit to minority - - shareholders of subsidiaries Cash payments relating to other financing activities - - Sub-total of cash outflows 307,209,849.69 241,766,699.79 Net cash flows from financing activities 28,790,150.31 (73,294,979.79) Effect of foreign exchange rate changes on cash and cash (1,609,507.54) (1,400,374.52) 4、 equivalents 5、 Net increase in cash and cash equivalents (40,135,180.90) 27,475,758.63 Add: Cash and cash equivalents at beginning of year 259,588,370.18 232,112,611.55 6、 Cash and cash equivalent at end of year 219,453,189.28 259,588,370.18 The Notes on page 49 to 120 form part of these financial statemtents 46 CHANGES IN OWNER'S EQUITY 2007 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan 2007 Items OWNER'S EQUITY Total owners' Capital Less: Shares Surplus Undistributed equity Share capital surplus in stock reserves profits 1、 Balance at the end of the last year： 1,011,660,000.00 978,244,858.10 - 113,936,295.79 (1,004,367,961.05) 1,099,473,192.84 Add： Changes of accounting policy - - - - 168,140,648.11 168,140,648.11 Error correction of the last period - - - - - - 2、 Balance at the beginning of this year 1,011,660,000.00 978,244,858.10 - 113,936,295.79 (836,227,312.94) 1,267,613,840.95 3、 Increase/ Decrease in this year - - - - 11,292,164.17 11,292,164.17 （1） Net profit - - - - 11,292,164.17 11,292,164.17 Profits and losses calculating into （2） owners' equity - - - - - - Net changing amount of fair value of a、 financial assets available for sale - - - - - - Effect of changes of other owners' equity of invested units under equity b、 method - - - - - - Effect of income tax related to owners' c、 equity - - - - - - 4、 Others - - - - - - sub-total（1）&（2） - - - - 11,292,164.17 11,292,164.17 （3） Owners' devoted and decreased capital - - - - - - a、 Owners' devoted capital - - - - - - Amount calculated into owners' equity b、 paid in shares - - - - - - c、 Others - - - - - - （4） Profit distribution - - - - - - a、 Withdrawal of surplus reserves - - - - - - b、 Distribution to shareholders - - - - - - c、 Others - - - - - - Carrying forward internal owners' （5） equity - - - - - - a、 Capital surplus conversed to capital - - - - - - b、 Surplus reserves conversed to capital - - - - - - c、 Remedying loss with profit surplus - - - - - - d、 Others - - - - - - Balance at the end of this 4、 report period 1,011,660,000.00 978,244,858.10 - 113,936,295.79 (824,935,148.77) 1,278,906,005.12 The Notes on page 49 to 120 form part of these financial statemtents 47 CHANGES IN OWNER'S EQUITY (Continued) 2006 Preparation of company：SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Units:Rmb Yuan 2006 Items OWNER'S EQUITY Total owners' Capital Less: Shares Surplus Undistributed equity Share capital surplus in stock reserves profits 1、 Balance at the end of the last year： 1,011,660,000.00 978,244,858.10 113,936,295.79 (1,018,336,782.03) 1,085,504,371.86 Add： Changes of accounting policy - - - - 142,626,492.76 142,626,492.76 Error correction of the last period - - - - - - 2、 Balance at the beginning of this year 1,011,660,000.00 978,244,858.10 - 113,936,295.79 (875,710,289.27) 1,228,130,864.62 3、 Increase/ Decrease in this year - - - - 39,482,976.33 39,482,976.33 （1） Net profit - - - - 39,482,976.33 39,482,976.33 Profits and losses calculating into （2） owners' equity - - - - - - Net changing amount of fair value of a、 financial assets available for sale - - - - - Effect of changes of other owners' equity of invested units under equity b、 method - - - - - Effect of income tax related to owners' c、 equity - - - - - - 4、 Others - - - - - sub-total（1）&（2） - - - - 39,482,976.33 39,482,976.33 （3） Owners' devoted and decreased capital - - - - - - a、 Owners' devoted capital - - - - - - Amount calculated into owners' equity b、 paid in shares - - - - - - c、 Others - - - - - - （4） Profit distribution - - - - - - a、 Withdrawal of surplus reserves - - - - - - b、 Distribution to shareholders - - - - - c、 Others - - - - - - Carrying forward internal owners' （5） equity - - - - - - a、 Capital surplus conversed to capital - - - - - - b、 Surplus reserves conversed to capital - - - - - - c、 Remedying loss with profit surplus - - - - - - d、 Others - - - - - - Balance at the end of this 4、 report period 1,011,660,000.00 978,244,858.10 - 113,936,295.79 (836,227,312.94) 1,267,613,840.95 The Notes on page 49 to 120 form part of these financial statemtents 48 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 1、The company's basic information (1) General information Shenzhen Special Economic Zone Real Estate and Properties (Group) Co., Ltd. (the “Company”) In July 1993, as approved by the Shenzhen Municipal Government with document SFBF (1993) 724, Shenzhen Special Economic Zone Real Estate Company was reorganized as joint stock limited company. A and B shares were issued by the Company on 15 September 1993 and 10 January 1994 respectively. On 31 August 1994, the Company issued B-shares were listed ADR as a sponsor in New York trading. The share capital total is 1,011,660,000 shares, among them, the A share is 891,660,000 shares, the B share is120, 000,000 shares.The company’s business license“ shen si zi N 2 3 3 8 7”， registered capital of RMB 1,011,660,000.00. On 13 October 2004 ， As approved by Shenzhen Municipal State Owned Assets Management and Supervisory Committee with document No. (2004) 223 “Decision on establishing Shenzhen investment Holding Co., Ltd.” this company original major stockholder -- Shenzhen Constructs Investment Holding company to set up Shenzhen with other two cities property management consolidation of corporation to Investment Shareholding Limited Company. As a state-owned sole ownership Co., Ltd., the resulting company’s change of equity， By the State-owned Assets Supervision and Administration Commission of the state council， And quasi-exempt obligations tender offer as approved by China Security Regulatory Committee with document No. (2005)116, This issue of consolidated has been authorized and the registration changing has been done at 15th of Feb 2006.As of the end of report term， Shenzhen Investment Holding Corporation held 655,800,149 shares of the Company（ 64.82%），thereinto share with conditional subscription622,273,800, share with unconditional subscription33,526,349 The company trades nature: This company belongs to the real estate industry. Business scope： mainly engaged in real estate development and sales, property leaseing and management, retail operations and trading, hotel operations, equipment installation and maintenance, construction, fitting-out and others. The main product or provides service： The company provides commodity housing 49 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 housing is a major product, property leaseing and management services, hotel room service， And construction and installation, renovation services (2) Approved financial report The financial statements were authorized for issue by the board of directors on 21 April 2008. NOTE 2、Basis of preparation The Company on a going concern basis,in accordance with actual transactions and matters, financial statements according to the accrual system. The New Accounting Standards- Basic Standards and Accounting Standards for Business Enterprises NO.1- Inventories and 38 Specific standards issued by the Minsistry of Finance on15 February 2006 ， Accounting Standards for Business Enterprises—Application Guide issued on 30 October 2006 ， Formed Accounting Standards system for Business Enterprises.The system all refers to the Accounting Standards system unless it is mentioned with Application Guide together. On 15 February 2007, China Securities Regulatory Commission issued the file of “The comparison of financial statements and its disclosure between old and new accounting standards during the transition period”, implemented the New Accounting Standards on 1 January 2007,and in accordance with Article 5 to Article 19 "No. 38 of Accounting Standards for Business Enterprises -- the first time to implement the Accounting Standards for Business Enterprises" The comparable period a profit statements and beginning of balance sheet, in accordance with the retrospective adjustments ，After the adjustment, the comparable income statement and balance sheet, as a comparable period financial statements are reported. NOTE 3、Statement of compliance with the Accounting Standards for Business Enterprises. The company’s financial statements for the year ended 31 December 2007 truly and completely present the financial position of the Company and of their financial performance and their cash flows for the year then ended in compliance with the Accounting Standards for Business Enterprises. NOTE 4、 Summary of significant accounting policies,accounting estimates and prepare the consolidated financial statements 50 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 1） Accounting period The Company’s accounting year starts on 1 January and ends on 31 December. （2） Recording currency The enterprise chooses Renminbi (RMB) as its recording currency in China, functional curreny of companies registered in Hk should change into RMB this year, a foreign operation shall consider the local currency where it registered as its recording currency . （3） Accounting basis and Accounting measurement The accounting basis of the Group is the accrual system. Accounting measurement basis mainly comprise: historical cost, replacement cost, net realisable value, present value, fair value. An enterprise shall generally adopt historical cost as the measurement basis for accounting elements. If the accounting elements are measured at replacement cost, net realisable value, present value or fair value, the enterprise shall ensure such amounts can be obtained and reliably measured. （4） Translation of foreign currency Accounting year of economic business involving foreign currency， Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. The foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. Translation differences recorded into the profits and losses at the current period. The foreign currency non-monetary items measured at the historical cost shall still be translated at the spot exchange rates at the dates of the transactions, the amount in recording currency shall remain unchanged. Exchange differences arising from foreign currency borrowings for the acquisition or construction of qualified assets, According to the principle of borrowing costs （5） Cash and cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. （6） Recognition and Measurement of financial assets and financial liability 1、 Categories 51 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Financial assets and Financial liability are classified into the following categories : financial assets and financial liability held for trading,held-to-maturity investments, receivables, financial assets available for sale, other financial liabilities. 2、 Determination of the Fair Value of the financial assets and financial liability （ 1） If there is an active market for a financial asset or financial liability, the quoted prices in the active market shall be used to establish the fair value of the financial assets and financial liability. （ 2） If no active market exists for a financial instrument, an enterprise establishes fair value by using a valuation technique. （ 3）As for the financial assets initially obtained or produced at source and the financial liabilities assumed, the fair value thereof shall be determined on the basis of the transaction price of the market. （ 4） In applying discounted cashflow analysis to determine the fair value of a financial instrument, it shall use the market returns ratio of other financial instruments with essentially the same contractual stipulations and features as the rate of capitalization. short-term receivable and payable with no state interest rate may be measured at the actual transaction amount if the difference between that amount and its present value is immaterial. 3、 Financial assets and financial liability held for trading The initial recognization of a financial asset or financial liability held for trading shall measure it at fair value.Transaction costs shall be charged to the profit or loss for the current period..the payment has been including in the declared but not yet paid cash dividends or interest paid to the period but not yet receiving interest, recognized as receivables. Enterprises in the trading of financial assets held during the cash dividends or interest, recognized as investment income. The balance sheet date，financial assets and financial liability held for trading using fair value measurement,at fair value through profit or loss Difference between the fair value and initial book value is recognized as investment income upon disposal. Adjustment is made to gain or loss from changes in fair values. 52 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 The disposition of the financial assets or financial liabilities, the amount of the difference between the fair value and the initial recorded recognized as investment income, and adjust the fair value profit and losses. 4、 Held-to-maturity investments The initial recognition value of held-to-maturity investments should be taken into accounts of the fair value and related transaction fees. the interest should be recognized as the interest receivable if it is claimed but not gain yet. During the holding period, interest income is recognized as investment income based on the amortized cost and actual interest rate. The actual interest rates are determined upon acquisition and remain unchanged during the investment holding period， if there has difference between the actual interest rate and the nominal interest rate, calculation is based on the nominal interest rate Difference between the amount received and book value of the investment is charged to profit and loss of the period upon disposal. 5、 Receivables Should be receiving amount according to the take initial confirmation amount with debtors between the contract or the agreement The date of the balance sheet, the receivable amount must account to the amortized cost measurement. Disposal or recovery of receivables， account into the income statement which the difference between the amount and the book value. 6、 Financial assets available for sale Financial assets available for sale should be made according to the sum of fair values and relevant transaction expenses is deemed as the initial confirmation amount The payment cost contains to has paid interests time but not yet receive or do not issue the cash dividends， should be confirmed the receivable alone. Financial assets available for sale must have the period interest and cash dividends, then it account into the investment income. At the balance sheet date, the financial assets for sale should be measurement its fair value, and this fair value should be account into the 53 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 capital reverse if the amount change. 7、 Other financial liabilities Other financial liabilities at fair values and relevant transaction expenses to get them are deemed as the initial confirmation amount. The subsequent calculation adopts the amortized cost method. 8、 Impairment of Financial Assets At end of the period, In addition to the financial assets outside of the financial assets, it has the objective evidence to indicate that has had the depreciation. On the base the cash flow amount according to its estimate the differential value raise the depreciation preparation in the future. （ 1） Receivables Provide of the bad debts using the allowance method。 At the end of period, if has the objective evidence to indicate that the receivable amount reduce, then the net book value and the estimate in the future between the cash flow current value differential computation confirmation the impairment loss. The end of the period, receivables that are individually significant are subject to individual impairment assessment, separate impairment test.If there is objective evidence that the incidence of impairment,a provision for impairment of the receivable is established at the difference between the carrying amount of the receivable and the present value of estimated future cash flows. Receivables that are not individually significant for the bad debts according to these receivables portfolio (including receivables and other receivables, but excluding mortgage payments receivable) together with those receivables that have been individually evaluated for impairment and found not to be impaired are ending balance and aging analysis method provision identified by the ratio of the product provision for bad debt. Reflect the proportion of the actual impairment loss, that each combination of book value over its future cash flow is the amount of value. The company according to the previous year with it same or similar, which had the similar credit risks of the receivable amount actual loss is the foundation, then depend 54 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 on the case, provision for bad debt individual of recognition method. The criterion of the bad debts: A, the debtor goes bankrupt or the death, pay off the legally after its bankrupt property or the inheritance, still still that is unable to recover the funds. B, the debtor default overdue, and that is unable to recover the funds. To the notes of the receivable and prepay credit，this company carries on the impairment test alone, which has the objective evidence to indicate that it has had the impairment, will be lower than its book value according to the future cashflow the current value the difference, it is the impairment loss, the provision for bad debt. （ 2） Held-to-maturity investments Has the objective evidence to indicate that has had the impairment to the due investment, that should be calculate this investment the cash flow current value in the future, this current value is lower than the book vale which the difference is the revaluation deficit.。 （ 3） Financial assets available for sale In the case of a significant or prolonged decline in the fair value of an available-for-sale financial asset, this is should be recognize that is the financial assets to have the impairment, when confirmation the impairment loss, the accumulated loss arise from the decline of fair value in owner's equity should be turned out,account to impairment loss. Debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current period.but for an investment in an equity instrument classified as available-for-sale on which impairment losses have been occur, does not return through the profit or loss. Disposal financial assets available for sale， the different between the value and this financial asset book value account into the income statements；the disposal part of the accumulated amount included in the owner's equity should be turned out at the same time, account into the investment loss. （ 7） Inventories 1、 Categories of Inventories 55 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Inventory classification according to real estate development and non-development of products. The real estate development products are the real estate development products under construction development products which have been completed, the lands to be developed, etc. The non-real estate development products including raw materials, finished products and stocks, low-value consumable products and Construction. 2、 Measurement of Inventories: (1) The Real Estate development refers to products have been completed and expected for sell. The non-development products refer to those expected for sell but not yet complete. The property extends to explore refers to the land purchase for sell or rent. Before the whole project complete, the proposed land should be put into the account of the non-development products. In the situation of phases, the phased development land should be measured in the process of products, while the others remain in the land planned to be developed account. (2) Public Facilities Fee: The cost is the actual construction cost incurred. Measured in the non-development product account. If several estate projecs benefit from the same facility, and they stay in the same category. The cost of fee should be measured according to the allocation of sales area.If they got benefit but in different categories, the cost measured according to the allocation of the area under its prorated. Until the project complete, the cost measures in the assessment into the real estate development products. (3) Utility Reserve Fund:In Special Administrative Region, the fund is the ratio of 2% of the whole constructive investment that included the land price of delivery of completed estate. Outside the Region, is the ratio of 2% of the whole constructive investment of the estate. But it all measures in the non-development products. (4) Quality Guarantees:According to the contract amount puts into the account of real estate development. Also record in the accounts payable at the same time. The actual payment incurs after the expiry of guarantee. (5) Implement the perpetual inventory system, all kinds of inventories are recorded in the actual cost, a weighted-average valuation for sell. The real estate development records in the measurement of identification. As for the low value propertys, implement one amortization method when used. (6) Inventories are written down to the lower of the cost and the revised net realizable 56 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 value. On the basis of comprehensive inventory, those destroyed,in whole or part outdated or the sales price is lower than its cost. Should decline the value. And the value is the difference from the cost and net realizable value.Longterm equity investments. （ 8） Long term equity investment 1、 Long term equity investment can be classified: Investment in subsidiary; investment in associate; investment in joint venture; other long term investment in an entity which the investor does not have jointly control and significant influence, and also the fair value of this long term investment can not measure reliably in the active market. 2、 Investment in subsidiary For the investment in subsidiary, initially cost of investment should be accounted for at its carrying value of the investing entity. The direct cost relating to the acquisition, are recognised as expenses to income statement. The difference between the initially cost of investment and the fair value paid for the investment should be adjusted to capital reserve. If the capital reserve is not enough to deduct the difference, the surplus should be adjusted to retained earnings. For the investment in subsidiary, which is not under the same control, initially cost of investment should be accounted for at its fair value paid for the investment and all the direct cost relating to the investment. The difference between initially cost of investment and carrying value of the investing entity at the date of acquisition are recognised as profit/loss for the year. If the initially cost of investment is more than identifiable assets and liabilities for the investment entity at the date of acquisition, the surplus should be treated as long term investment in the investor/parent’s book. This surplus can be treated as goodwill, recorded in the consolidated accounts. If the initial cost of investment is less than the identifiable assets and liabilities of the investing entity at the date of acquisition, the difference should be recognised as expense for the year. Goodwill should not be amortised, but acquirer shall test it for impairment annually instead. Impairment test for goodwill is part of impairment testing the cash generating units to which it related. Once the impairment loss is recognised, it cannot be reverse back. 57 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 In the investor/parent’s financial statement, costing method are used to account for the long term equity investment. Consolidated financial statement should be included subsidiary. If subsidiary has the indication for impairment as at the balance sheet date, recoverable amount should be measured. If the recoverable amount is less than its fair value, impairment loss should be provided. Provision for impairment cannot be reverse back in the following accounting period. For disposal of the long term investment, the difference between sales proceeds and carrying value, recognised as profit/loss for the investment. 3、 Investment in associate and joint venture For the investment in associate, initial cost of investment should be account for the fair value paid for the investment and related cost for the investment. Investment in associate is acquired by non-monetary asset, if this transaction has business value, and the fair value of exchangeable assets can be measured reliably, therefore, initial cost of investment should be account at fair value of the exchangeable assets and related tax expenses. Difference of fair value and carrying value of the exchangeable assets, should be recognised as profit and loss for the year. if the two requirements are not met, then carrying value of the exchangeable assets and related tax expenses should be account at initial cost of investment. If the associate is acquired by debt restructuring, initial cost of investment should be the market value of the shares acquired. The difference of the initial cost of investment and carry value of the debt, should be recognised as profit/loss for the year. Equity method should be used for subsequent measurement of investment in associate. Once measuring gain/loss for investing in associate, it should be based on the fair value of identifiable net assets as at acquisition date. If associated company’s accounting policy and accounting period is difference with investing company, then it should follow investing company’s accounting policy and accounting period, and measure the investment profit or loss If associated company is making a loss, carrying value of this investment and net investment equity can be reduce to zero, except for other responsibilities to be bear by 58 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 the investing company. If associate company has the indication for impairment as at the balance sheet date, recoverable amount should be measured. If the recoverable amount is less than its fair value, impairment loss should be provided. Provision for impairment cannot be reverse back in the following accounting period. For disposal of the long term investment, the difference between sales proceeds and carrying value, recognised as profit/loss for the investment. Any movements which recorded in owner’s equity, during the disposal, it should be reverse out, and recognised as profit/loss for the year proportionately. The treatment of accounting principal for investment in joint venture is the same as investment in associate. 4、 Other long term investment, (no control and significant influence for the investing entity; no active market price; fair value can not be measured reliably) Investment in an entity which has no control power and significant influence, no active market value and fair value can not be measured reliably, called other long term investment. The recognition criteria of the initial cost of investment are same as the investment in associate. Costing method is used for subsequent measurement for other long term investment When impairment appears, the difference between net present value of the market yield for similarity financial instrument and carrying value of the investment should be recognised impairment loss, recorded in income statement. Impairment can not be reverse back in the following accounting period. For disposal of the long term investment, the difference between sales proceeds and carrying value, recognised as profit/loss for the investment （ 9） Investment Property 1、 Recognition of Investment property Investment property shall be recognized as an assets when,and only when both of the 59 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 following conditions are satisfied: （ 1 ） The held for earn rentals and/or capital appreciation,or both. （ 2） Investment property shall be capable of being measured and sold separately. （ 3） The economic benefits pertinent to this investment real estate are likely to flow into the enterprise; （ 4） The initial measurement of the investment real estate shall be made at its cost. 2、 Initial measurement Investment property should be measured in cost model The cost of investment property from the transfer of non-monetary assets were taken into accounts of the transfer assets and the related expenditure, if it is the real exchange with commercial and the value of assets could be measured reliably. If not, the difference between the fair valure and cost of the transfer assets should be taken into accounts of current profit and loss. The costs of investment property from debt restrcution use the fair value as the initial investment cost. The diffenerce between the cost and book value includes in current profit and loss. 3、 Subsequent Measurement An enterprise shall use the cost model for subsequent measurement of investment property at the balance sheet date. 4、 Transfer and Disposals Transfer to, or form, investment property shall be made when ,and only when,there is a change in use An investment property shall be derecognized on disposal, the enterprise shall deduct the book value of the investment property as well as the relevant taxes from the disposal income, and include the amount in the current profits and losses. （ 10） Recognition standard of fixed assets, Classification and Depreciation 1、 Standard of fixed assets Fixed assets are tangible assets that are held for use in the production or supply of services, for rental to others, or for administrative purposes; they have useful lives over 60 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 one fiscal year. 2、 Recognition standard of fixed assets （ 1） It is probable that economic benefits associated with the assets will flow to the enterprise; （ 2） The cost of the fixed assets can be measured reliably. 3、 Classification of fixed assets: The Company’s fixed assets are classified as buildings and constructions, machinery equipment, transportation equipment, other equipment and fixed assets fitment. 4、 Initial measurement of fixed assets Fixed assets are recorded at the actual cost on acquisition. The cost of fixed assets purchased includes purchase price, Import tariffs, transport and insurance and and other related costs as well as the fixed assets reached before the intended use of the necessary expenditure. Where payment for the purchase price of a fixed asset is deferred beyond normal credit terms, such that the arrangement is in substance of a financing nature, the cost of the fixed asset shall be determined based on the present value of the purchase price, The difference between the purchase price and its present value shall be recognized in profit or loss over the period of credit.except where it is capitalized in accordance with borrowing cost principle. 5、 Depreciation method Depreciation of fixed assets is provided for on a straight-line basis, the depreciation rate is recognized in accordance with fix assets, estimated useful life(5% of original value) and estimated residual rate of fixed assets. Annual depreciation rate of fixed assets by categories are as follows： Annual depreciation Category Estimated useful life (year) rate(％) Buildings and constructions 30 3.17% Machinery equipment 7 13.57% Transportation equipment 6 15.83% Other equipment 5 19% 61 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 6、 Subsequent Expenditure of Fixed Assets Subsequent expenditure is only recognized as an asset when it meets two conditions at the same time: Fristly, it is probable that future economic benefits associated with the expenditures will flow into the enterprise. Secondly, the cost can be measured reliably. If not meets that, the expenditures should be included in the current profit and loss. Subsequent expenditure of operating lease should be capitalized, as a long-term prepaid expenses, which amortize in a reasonable period. Impairment of Fixed Assets Fixed Assets should be estimated the recoverable amount if there is an indication. The recoverable amount is according to the high one of net value of fair value minus the disposal with the present value of the future cash flows. The estimation should be based on individual assets, if it is difficult to estimate the recoverable amount, change into estimating the group of assets it belongs to. Once provision for impairment, it could not be reversed in later accounting period. （ 11） Construction-in-progress Construction-in-progress includes the pre-construction prepation, the under construction, installation, technical construction ,overhaul project and so on. It measures in actual cost incurred. And are taken into accounts of fixed assests to record before used. On the balance sheet day , estimate the impairment of those long-term suspension and will not re-started in three years,. The imparirment estimation is book value minus the recoverable amount. Once provision for impairment, it could not be reversed in later accounting period. （ 12） Intangible assets Intangible assets including intangible assets with a finite useful life and intangible assets.with an indefinite useful life 1、 Calculation method of intangible assets An intangible asset shall be measured initially the cost of self-developed intangible assets shall include the total expenditures incurred during the period from the time when it meets the provisions of Standards to the time 62 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 when the expected purposes of use are realized. 2、 Amortization of intangible assets （ 1） With regard to intangible assets with limited service life, Useful life in the priod, with the use of intangible assets related to the economic interests of the consistent realization of the expected amortization method, not a reliable way of determining expected to achieve, intangible assets shall be amortized by the straight-line method. Taxi licence shall be amortized for 38 years. （ 2） Intangible assets with uncertain service life may not be amortized. 3、 Impairment of Intangible Assets On balance sheet day, make impairment testing to the uncertain life of intangible assets. If there is an indication of impairment on balance sheet day for intangible assets with the a finite useful life. Estimate the recoverable amount. If the amount is lower than the book value, the carrying value of intangible assets will be written down to its recoverable amount. And the cut amount recognized as impairment losses, included in the current profit and loss period. Once provision for impairment, it could not be reversed in later accounting period （ 13） Other assets accounting method Long-term prepaid expenses amortize among the benefit periods average. （ 14） Borrowing costs The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. 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 63 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 recorded into the current profits and losses. 1、 capitalized The borrowing costs shall not be capitalized unless they simultaneously meet the following 3 requirements: （ 1） expenditure for the asset are being incurred； （ 2） borrowing cost are being incurred； （ 3）The necessary construction or production activities to make the assets ready for use or sales have been launched. 2、 Determination of the amount of capitalized 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. Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. 3、 capitalized of Suspension 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 64 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 capitalization of the borrowing costs shall continue. 4、 capitalized of ceased When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. After the borrowing costs incurred in the current period expenses （ 15） Employee Benefits The term " employee benefits " refers to all kinds of payments and other relevant expenditures given by enterprises in exchange of the services offered by the employees. Employee benefits 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 benefits;(7) Compensations for the cancellation of the labor relationship with the employees; and (8) Other relevant expenditures of services offered by the employees. 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; cost of product, cost of sercices, cost of fixed assets, intangible assets or profit or loss for the current period, shall be recognized. （ 16） Contigent liability The obligation pertinent to a Contingency shall be recognized as a provision when the following conditions are satisfied simultaneously: （ 1） the obligation is a current obligation of the enterprise; （ 2） it is probable that an outflow of economic benefit will be required to settle the obligation; （ 3） the amount of the obligation can be measured reliably A provision shall be recognized when an onerous contract and obligation to restructure incurred by an enterprise satisfies the requirements of the above conditions 65 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 The amount of a provision recognized of expenditure required to settle a provision is expected to be reimbursed of the best estimates of measurement. （ 17） Revenue （ 1） revenue from sales goods shall be recognized only when all of the following conditions are satisfied: A the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; B the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; C the amount of revenue can be measured reliably； D it is probable that the economic benefits associated with the transaction will flow to the enterprise;； E the associated costs incurred or tobe incurred can be measured reliably According to the principles above,，The Company established real estate sales revenue is recognized, must satisfied the following four conditions at the same time: A、 Real estate is completed,， and is completed checking and accepting; B、 Signed a contract of sale and make recording in Land Department. Installment, if it is deferred for receiving money with financing, the cost should be measured in present value according to the contract price. ； Mortgage, has been received, and have completed the first phase of the mortgage loan approval procedures; D、 Agreed in the contract of sale and transfer the property to buyers. （ 2） Rendering of service， In case on the preparation date of balance sheet the results about service transaction can be reliably evaluated, the labor income will be confirmed by the completion percentage method. Company have estimated the costs of determining the proportion of the total cost of providing labor services, determinate of the progress of the completion of transactions. In case the service transaction results on the preparation date of balance sheet cannot be reliably evaluated,， In case the service costs that have occurred can be compensated, 66 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 the service income will be confirmed based on such service costs and the same amounts will be settled as the service costs. In case the service costs that have occurred cannot be compensated, such service costs will be accrued to the current profit and loss and will not be confirmed as the service costs. （ 3） Use by others of enterprise assets， In case the economic benefits related to the transaction will probably flow into the enterprise and the income amounts can be reliably calculated, The interest income amount will be calculated and determined based on the use time of currency capital from the Company by others and actual interest rate. The income amount of use expenses will be calculated and determined subject to the charging time and method agreed in the relevant contracts and agreements. （ 18） Government Grants A government grant are transfer of monetary assets or non-monetary assets from the government to an enterprise at no consideration, excluding the contribution from the government as the owner of the enterprise to enterprise.the company’s government grants are classified into government grants relate to assets and government grants relate to income. If a government grant is a monetary asset, it shall be measured in the light of the received or receivable amount.If a government grants is a non-monetary asset, it shall be measured at its fair value. If its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount. The government grant 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 grants measured at their nominal amounts shall be directly included in the current profits and losses. The government grant related to income, the grant 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; the grant used for compensating the related expenses or losses incurred to the enterprise shall be directly included in the current profits and losses. 67 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 19） Income Taxes The enterprise imply the balance sheet liability method to measure its income tax. Deferred tax assets and deferred tax liability arises from the temporary differences between taxable base of an asset or liability and its carrying amount in the balance sheet. The deferred tax assets and derred tax liability measure in the applicable tax rates in accordance with the expected recovery of assets or liquidation of liabilities on balance sheet day. The confirmation of deferred tax assets use the probable deductions to the deductible temporary difference as its limits in future period. It prohibits the recognition of such deferred tax assets and liabilities of subsidiaries and associates to the extent that: a. it is probable that the temporary difference will not reverse in the foreseeable future b. the parent is able to control the timing of the reversal of the temporary difference （ 20） Business Combinations A business combinations refers to a transaction or event that brings together of separate enterprises into one reporting entity.Business combinations are classified into the business combinations involving enterprise common control under and the business combinations not involving enterprise under common control. 1.For a business combination involving enterprise common control: A business combination in which all of the combining enterprises are ultimately controlled by the same party or the same parties both before and after the business combination and on that control is not transitory.Assets and liabilities that are obtained by the absorbing party in a business combination shall be measured at their carrying amounts at the combination date as record by the party being absorbed.The different between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for combination(or the aggregate face value of shares issued as consideration), adjust the share premium (or capital prmium) in capital surplus, if it is insufficient for reduction, adjust retained earnings. Date of acquisition is the date on which control of the net assets and operations of the acquiree is effectively transferred to the acquirer. 68 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 2、 For a business combination not involving enterprise common control:is a business combin in which all of the combining enterprises are not ultimately controlled by the same party or parties before and after the combination.The company shall measure the assets given and liabilities incurred or assumed as consideration of the business combination at their fair values on the acquisition date;any difference between the fair value and the carrying amount of an item shall be recognized in profit or loss for the current period.Acquisition date is the date on which the group effectively obtain control of the acquiree. （ 21） Preparation of Consolidated Accounting Statements 1、 Preparation of consolidated accounting statements The basis for the consolidated to the consolidated of the parent companies and incorporated subsidiary of the accounting statements， Will be consolidated with the parent company of the important inter-subsidiary investment, demand, inventory and procurement, and marketing of insider trading profits to offset itemized consolidated And calculate interests of minority shareholders and minority shareholders of profit and loss. 2、 Reported of minority interest and the profit or loss The portion of net profits or losses of subsidiaries for the period attributable to minority profit or loss shall be presented in the consolidated income statement below the net profit line item as “minority profit or loss” That portion of a subsidiary’s equity attributable to minority interests shall be presented as “minority interest”in the consolidated balance sheet within owners’equity. 3、 Deal with the excess loss When the amount of loss for the current period attributable to the minority shareholders of a subsidiary exceeds the minority shareholders’portion of the opening balanace of owners’equity of the subsidiary, if the minority shareholders have a binding obligation under a statute or an agreement and are able to make an additional investment to cover the loss, the excess amount of loss shall be allocated against minority interests. Otherwise, the excess amount of loss shall be allocated against owners’equity attributable to the parent,the subsidiary subsequently reports profits,such profits shall be allocated to owners’equity attributable to the parent until the minority 69 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 shareholders’share of losses previously absorbed by the parent has been recovered. 4、 Current increases and decreases in consolidated statement handling of the subsidiary Where a subsidiary has been acquired through a business combination involving enterprises under common control, the subsidiary’s revenue, expenses and profit from the beginning to the end of the reporting period in which the combination takes place shall be included in the consolidated income statement. And adjust the opening number.Where a subsidiary has been acquired through a business combination not involving enterprises under common control,the revenue, expenses and profit of that subsidiary from the acquisition date to the end of the reporting period shall be included in the consolidated income statement. During the reporting period,disposed of a subsidiary,expenses and profit of the subsidiary from the beginning of the reporting period to the date of disposal shall be included in the consolidated income statement. （ 22） Determined of first-time adoption date According to notice of the ministry of finance on publishing the “Accounting Standard for Business Enterprises no.1-Inventories” and other 38 specific standards，and notice of disclosure of the new accounting standards related to financial accounting information , 1 January 2007, determined of first-time adoption date. NOTE 5、Significant accounting policies and changes in accounting estimates and corrections of significant accounting errors Change in accounting policies According to notice of the Ministry of Finance on publishing the “Accounting Standard for Business Enterprises no.1-Inventories” and other 38 specific standards, since 1 January 2007, the company implemented it which issued on 15 February 2006 by the Ministry of Finance. In view of the above changes in accounting policy, The comparable financial reporting retroactive application follow "Accounting Standard for Business Enterprises No. 38 - first time adoption of Accounting Standards for Business Enterprises" and the retroactive application of the financial report detailed in NOTE、 19. 70 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 6、Taxation The main tax type and tax rate： Type Taxable basis Tax rate Business tax proceeds from sales of properties、leasing income、 property management income 5% Construction, installation of income 3% Value added tax (“VAT”) Goods sales income 17% Construction tax Business tax and value added tax payable 1% Education surcharge Business tax and value added tax payable 3% Increment tax on land value Sales revenue of properties *1 Income tax Income tax payable *2 * 1 (According to Provisions of Shenzhen Municipal People’s Government and the local Inland Revenue Department. From Nov 1st 2005, the company or individuals should pay land value-added tax if they gain income from the real estate development or transfer in Shenzhen. Adopt the way of prepaid first and liquidation later to the real estate company, in other words, prepaid the tax on the basis of the income from real estate transfer before the project completed( the pre-charge rate of villas, resorts, hotel–style apartment on sales of 1%, while 0.5% of other real estate sales). Till it all completed , handle settlement after liquidation. The liquidation of value of land used ultra-progressive tax rate. It follows 30% for the value-added tax if the added value doesn’t exceed 50%, follows 40% if the added value betweens 50% to 100%, follows 50% if it betweens 100% to 200%, at last follows 60% if it exceeds 200%. * 2、 Enterprise income tax rate is as follows： Items Income tax rate Domestic Enterprises - enterprises in Shenzhen 15% - enterprises outside Shenzhen 33% Enterprises in HK 17.50% NOTE 7、Enterprises combination and the consolidated financial statements 1、 Include in the scope of the consolidated of the subsidiarise subsidiaries included in the scope of consolidated in 2007 is as follows: ( 1) Achieved the subsidiary through acquisition of minority interest. A、 Subsidiaries has been acquired through a business combination involving business 71 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 combination under common control of the subsidiaries; The company haven’t subsidiaries has been acquired through a business combination involving enterprise combination under common control B 、 Subsidiarries has been acquired through a business combination not involving business combination under common control Net 31 December 2007 Actual investment in Registered Nature of invenstment subsidiary in Equity Name of Voting power Registered capital business and holding (in ten substance (%) place (in ten thousand principal percentage (%) subsidiaries thousand (in ten Yuan) activities thousand Direct Indirect Direct Indirect Yuan） Yuan） Shan Tou Special Property Shan Tou HKD3000 2108 2108 -- 100 -- 100 Economic Zone development Real Estate Ltd. 72 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 ( 2) Subsidiaries has been acquired through new establishment Net investment Actual 31 December 2007 Registered Nature of in subsidiary invenstment Equity Name of Registered capital (in ten business and in substance (in ten holding Voting power the Subsidiarry place thousand principal (in ten thousand (%) (%) Yuan) activities thousand Yuan） Direct Indirect Direct Indirect Yuan） Shenzhen 31. Hotel 68.10 68.10 Petrel Hotel ShenZhen ￥3,000 3,000 3,000 31.90% 90 operations % % Co. Ltd. % Shenzhen City Property Property ShenZhen ￥725 725 725 95% 5% 95% 5% Management management Ltd. Shenzhen Zhen Fitting-out Tung contracting 27 ShenZhen ￥1,000 1,000 1,000 73% 27% 73% Engineering and % Ltd maintenance Shenzhen City Wa Gen Constructio 25 Construction ShenZhen ￥800 n project 800 800 75% 25% 75% % Management management Ltd. Shenzhen City 45 ShenZhen ￥1,029 Car rental 1,029 1,029 55% 45% 55% Car Rental Ltd. % Shenzhen Develop and 30 Shenfang Car ShenZhen ￥4,250 operate car 4,250 4,250 70% 30% 70% % Park Ltd. park Shenzhen City Investment Shenfang 10 ShenZhen ￥1,000 and 1,000 1,000 90% 10% 90% Investment % Ltd. management Shenzhen City Trading of Shenfang Free ShenZhen ￥500 Import and 500 3,729 95% 5% 95% 5% Trade Trading export Ltd. Shenzhen City Property SPG Bao An ShenZhen ￥2,000 development 2,000 2,000 95% 5% 95% 5% Development Ltd. Shenzhen City SPG Long Property Gang ShenZhen ￥3,000 3,000 3,000 95% 5% 95% 5% Development development Ltd. Shenzhen Special Economic Zone Real Property Guangzhou ￥2,000 2,000 2,000 95% 5% 95% 5% Estate (Group) development Guangzhou Property and Estate Co., Ltd. Shenzhen Information Cyber port Technology information ShenZhen ￥2,000 1,400 1,400 70% -- 70% -- Technique Advisory training centre Beijing fresh peak property development operating of 25 ShenZhen US$1,000 7,671 7,671 75% 25% 75% management Real estate % limited company Beijing SPG Property Property 90 Beijing ￥50 50 703 10% 90% 10% Management management % Limited Shenzhen Lian Trading of Hua Industry ShenZhen ￥1,000 equipment 1,000 2,607 95% 5% 95% 5% and Trading and 73 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Net investment Actual 31 December 2007 Registered Nature of in subsidiary invenstment Equity Name of Registered capital (in ten business and in substance (in ten holding Voting power the Subsidiarry place thousand principal (in ten thousand (%) (%) Yuan) activities thousand Yuan） Direct Indirect Direct Indirect Yuan） Co. Ltd. provision of renovation material Investment Fresh Peak 100 Hong Kong HKD100 and HKD82 9,870 -- 100% -- Enterprise Ltd. % management Investment 100 Wellam Ltd. Hong Kong HKD1 HKD1 HKD1 -- 100% -- holding % Shantou SEZ Property 100 Wellam Fty shantou US$600 US$600 US$600 -- 100% -- development % Bldg., Dev. Co. Great Wall Property U.S.A USD50 USD35 11,122 70% -- 70% -- Estate Co., Inc development Investment Fresh Peak 100 Hong Kong HKD100 and HKD100 66,358 -- 100% -- Holdings Ltd. % management orporate 100 Skill Elite Ltd. Hong Kong HKD1 HKD1 HKD1 -- 100% -- financing % Fresh Peak Properties 55 Investment Hong Kong HKD100 HKD55 HKD55 -- 55% -- investment % Ltd. Investment 80 Openice Ltd. Hong Kong HKD100 and HKD120 HKD120 20% 80% 20% % management Barenie Co. Properties 80 Hong Kong HKD1 HKD0.8 HKD0.8 -- 80% -- Ltd. investment % Keyear Investment 100 Development Hong Kong HKD100 HKD100 HKD100 -- 100% -- holding % Ltd. Guangzhou Huangpu Property 100 Xizun real Guangzhou HKD3980 HKD3980 HKD3980 -- 100% -- development % estate limited company Xin-Feng Real Estate Dev. Property 100 Construction Wuhan US$400 developme US$400 US$400 -- 100% -- % (Wuhan) Co. nt Ltd. 74 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 2、 Companies excluded from the scope of combination Net Registered Actual 31 December 2007 Nature of investment in Place of capital (in invenstment Equity Name of business and companies in registration ten (in ten holding Voting power the Companies principal substance thousand thousand (%) (%) activities (in ten thousand Yuan) Yuan） Yuan） Direct Indirect Direct Indirect Shenzhen Shenfang ShenZhen ￥1,000 1,000 1,000 95% 5% 95% 5% Department Store Commercial Co. Ltd. goods supplier Shenzhen Real Estate Construction ShenZhen ￥1,371 596 689 100% -- 100% -- Consolidated material, Service Co., Ltd. consume goods Shenzhen Shen Invest in Fang Industrial industrial ShenZhen ￥300 450 450 100% -- 100% -- Development Co., projects Ltd. Shenzhen Tefa Real Estate ShenZhen ￥221 818 818 100% -- 100% -- Consolidated Construction Service Co., Ltd. and decoration Bekaton Property Property Australia US$20 91 1,347 60% -- 60% -- Limited Development Property construction and Paklid Limited Hong Kong HKD50 20 1,127 60% 40% 60% 40% trading of construction materials Shenzhen City Shenfang Construction and ShenZhen ￥268 268 1,101 100% -- 100% -- Decoration construction Materials Ltd. materials Shenzhen Zhonggang ShenZhen ￥1,900 1,294 1,294 68% -- 68% -- Haiyan Enterprise Tourism Ltd. Restaurant Shenzhen Xin Domestic 92.5 92.5 Dongfang Store ShenZhen ￥2,000 commercial 1,850 1,850 7.5% 7.5% % % Ltd. goods supply Guangdong Province Fengkai Manufacturing Guangdong Lian Feng Cement US$800 and trading 12,126 12,126 -- 90% -- 90% fengkai Manufacturing in cement Co., Ltd. products *1 ShenZhen Shenfang Department Store Co. Ltd.： On 24 Sepember 2004,ShenZhen shengfang Department Store’s import and export trade tax was checked by State Revenue Auditing Department. The tax treatment paper is issued on Jan 24th, 2006. But the government re-issued the paper of tax treatment on Apr 30,2007. The paper requires RMB 9,296,500 to recover tax , in addition to a fine of RMB 7,568,900. The store company had closed in 2004, the Revenue Department has got RMB 1,121,100 combined of the tax and fine by forcible seize the store’s bank account and the property auction.The balance had not been implemented, up to Dec 31, 2007. The store carries negative net assets, and with no property available for the implementation. On 29 Octorber 2007, Shenzhen shengfang Department Store holds the shareholders 75 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 meeting to form a liquidation group. The liquidation teams issued Notice on Dec 7th, 2007. According to the paper of consolidation financial statements, the company is not included in the scope of merger. The investment value to the store company is zero in book value. *2 All the properties is auctioned on Feb 22th, 2006. the investment value of Fresh Peak Enterprise to store company is zero in book value. In addition to the above*1、 *2 . the above companys refered are not included in the scope of merger for they has ceased operations many years ago, and the business licences had been taken off for many years, these companys can not control their business activities already. In accordance with “Accounting Standard No.33—consolidated financial statements ” these companies are not in the scope of consolidated financial statements. The book value of investment to these companies is zero. 3、 Changes in the scope of combination in 2007 New company included in the scope of combination Acquired 100% shares of Shan Tou Special Economic Zone real estate Ltd. this year, the acquisition money is paid fully till 30 Jan 2007, which is the acquisition day. The company is included in the scope of consolidated financial statements this year. The assets and liabilities of Shan Tou Special Economic Zone real estate Ltd on 30 Jan 2007. Acquisition day Total assets 21,084,056.05 Total liabilities -- Total owners' equity 21,084,056.05 The operating situation of Shan Tou Special Economic Zone real estate Ltd from Feburary to December of 2007. Since the date of purchase to the end of the reporting period 110,000.00 103,898.08 Net cash flows from operating activities -- Net cash flows from financing activities -- Net cash flows from investing activities -- Shenzhen Shengfang Car Park Ltd., Shenzhen City SPG Bao An Ltd., Shenzhen City 76 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 SPG LongGang development Ltd., Shenzhen Cyberport Invesment Co. Ltd., Beijing SPG property management Ltd., Shenzhen Lianhua Industry and Trading Co.Ltd. are not included in the scope of combination according to the original standards. But in accordance with the accounting standard No.33---consolidtion financial statements. These companies should be included in the scope of consolidation financial statements. The summary balance sheet, income statement are as follows: Shenzhen Shengfang Car Park Ltd., 2007 2006 Total current assets 42,655,880.03 42,652,481.99 including: Other receivables 42,655,880.03 42,652,481.99 Total non-current assets -- -- Total assets 42,655,880.03 42,652,481.99 Total current liabilities 31,161.34 31,161.34 Total non-current liabilities -- -- Total liabilities 31,161.34 31,161.34 Total owner’s equity 42,624,718.69 42,621,320.65 Operating Income -- -- Operating profit 3,398.04 -- Net profit 3,398.04 -- Shenzhen City SPG Bao An Ltd., 2007 2006 Total current assets 20,614,087.89 21,828,830.19 including: Other receivables 13,546,408.64 13,771,804.64 Total non-current assets 53,455.62 88,801.62 Total assets 20,667,543.51 21,917,631.81 Total current liabilities 108,612.98 1,316,874.20 Total non-current liabilities -- -- Total liabilities 108,612.98 1,316,874.20 Total owner’s equity 20,558,930.53 20,600,757.61 Operating Income -- 2,971,694.00 Operating profit (39,444.08) (966,216.81) Net profit (41,827.08) (988,765.16) 77 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Shenzhen City SPG LongGang development Ltd., 2007 2006 Total current assets 161,878,256.35 29,832,362.43 including: inventories 161,020,591.71 29,321,421.26 Total non-current assets 7,376,585.16 7,387,307.52 Total assets 169,254,841.51 37,219,669.95 Total current liabilities 181,004,037.36 47,680,475.82 including: Other payables 179,499,854.19 46,176,292.65 Total non-current liabilities -- -- Total liabilities 181,004,037.36 47,680,475.82 Total owner’s equity (11,749,195.85) (10,460,805.87) Operating Income -- -- Operating profit (1,288,289.98) 9,464.71 Net profit (1,288,389.98) 9,464.71 Shenzhen Cyberport Invesment Co. Ltd., 2007 2006 Total current assets 14,111,968.73 14,371,089.82 Including : Other receivables 11,378,857.54 11,393,107.69 Total non-current assets 307,852.08 498,883.34 Total assets 14,419,820.81 14,869,973.16 Total current liabilities 1,170,700.05 1,221,445.36 Total non-current liabilities -- -- Total liabilities 1,170,700.05 1,221,445.36 Total owner’s equity 13,249,120.76 13,648,527.80 Operating Income 132,761.65 334,583.54 Operating profit (399,407.04) (613,306.52) Net profit (402,357.70) (397,449.69) Beijing SPG property management Ltd. 2007 2006 Total current assets 2,582,914.32 2,585,719.50 Including : Other receivables 2,509,684.98 2,353,553.55 Total non-current assets 61,258.42 62,115.50 Total assets 2,644,172.74 2,647,835.00 Total current liabilities 8,482,247.59 8,527,084.62 Total non-current liabilities -- -- Total liabilities 8,482,247.59 8,527,084.62 Total owner’s equity (5,838,074.85) (5,879,249.62) Operating Income 946,533.69 1,112,092.25 Operating profit 107,442.88 (39,253.65) Net profit 41,174.77 (40,933.65) 78 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Shenzhen Lian Hua Industry and Trading Co. Ltd. 2007 2006 Total current assets 20,751,496.83 20,695,660.85 Including: Other receivables 11,232,744.03 11,236,132.03 Total non-current assets 410,922.62 3,253,353.04 Total assets 21,162,419.45 23,949,013.89 Total current liabilities 31,284,082.87 34,096,678.66 Total non-current liabilities -- -- Total liabilities 31,284,082.87 34,096,678.66 Total owner’s equity (10,121,663.42) (10,147,664.77) Operating Income -- 136,752.00 Operating profit (71,577.95) (251,838.51) Net profit 26,001.35 (329,052.86) 4、 Translation of financial statements denominated in foreign currency Great Wall Estate Co.,Inc. used dollar as its recording currency, on the translation of financial statements, all the accounts of assets and liabilities used the spot exchange rate. The owner’s equity account use spot exchange rate except “retained earnings”.The accounts of revenue and expense in income statement used the approximate rate of spot exchange. The translation difference should list as “translation differences of foreign currency financial statements ” in owner’s equity of balance sheet. NOTE 8 、Notes to the consolidated and the Company’s financial statements 1、 Cash at bank and at hand 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent Cash on hand RMB 730,643.86 730,643.86 306,973.58 306,973.58 HKD 84,187.39 0.9376 78,934.10 308,333.91 1.0055 310,029.75 USD 2,000.00 7.3195 14,639.00 2,100.00 7.8087 16,398.27 824,216.96 633,401.60 Cash at bank RMB 421,103,063.48 421,103,063.48 415,300,553.57 415,300,553.57 HKD 19,025,780.27 0.9376 17,838,571.58 26,194,550.53 1.0055 26,338,620.55 USD 83,659.16 7.3195 612,343.22 2,798,728.09 7.8087 21,854,428.04 CAD 188,736.99 7.4468 1,405,486.62 182,531.98 6.7142 1,225,561.01 AUD 45,327.78 6.3893 289,612.79 43,177.73 6.1682 266,330.59 441,249,077.69 464,985,493.76 79 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent Other cash balances RMB 4,065,365.64 4,065,365.64 2,936,807.71 2,936,807.71 HKD 6,160,927.36 0.9376 5,776,485.48 3,925,902.63 1.0055 3,947,495.10 9,841,851.12 6,884,302.81 451,915,145.77 472,503,198.17 Other cash balances are funds deposited in the securities account which not invest before. The mortgage amount HKD 15,000,000 for company’s short-term borrowings and long-term borrowings in Bank deposits 2、 Financial assets held for trading 31 December 2007 31 December 2006 stock investment 645,470.00 -- Including.：cost 302,835.00 -- Change in the fair value 342,635.00 -- 3、 Accounts receivable （ 1） The aging of accounts receivable by categories: 31 December 2007 31 December 2006 aging proportion Provision for proportion Provision for Amount Amount % bad debts % bad debts Within 1 year 852,074.60 2.37 -- 832,386.66 2.25 -- 1 to 2 years 234,998.80 0.65 -- 6,125,217.71 16.53 1,533,428.75 2 to 3 years 5,974,517.01 16.60 1,533,428.95 4,754,873.42 12.83 1,666,185.55 19,068,953.9 Over 3 year 28,936,867.79 80.38 25,344,046.46 68.39 17,402,768.55 0 35,998,458.20 100 20,602,382.85 37,056,524.25 100 20,602,382.85 80 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 2） The symbol of credit risk identified by customers categories 31 December 2007 31 December 2006 Proportion Provision for Proportion Provision for Book balance % bad debts Book balance % bad debts category 1 -- -- -- -- -- -- category 2 18,441,322.87 51.23 13,566,657.46 16,132,067.41 43.53 13,547,259.74 category 3 17,557,135.33 48.77 7,035,725.39 20,924,456.84 56.47 7,055,123.11 35,998,458.20 100 20,602,382.85 37,056,524.25 100 20,602,382.85 category 1： are accounts receivable with significant individual amount,such individual amount is more than 10 million yuan category 2: individual amount is not significant but the portfolio’r risk is greater since the amounts combined in the type of credit risk. The aging of amounts is more than three years and can’t recover probably. category 3： Other is not significant accounts receivable （ 3） As At 31 December 2007， Top five of accounts receivable Units (Personal) as follows: 31 December 2007 31 December 2006 Amount 17,062,684.11 17,441,594.72 Proportion of total other receivable accounts 47.40% 47.08% （ 4 ） No ending balances included in above accounts receivable are due to the shareholders of the Company who hold over 5% shares with voting right. （ 5 ） The ending balance of related parties accounts of accounts receivable ,For particulars see Note 10（ 3）、 4 4、 Advance to suppliers 31 December 2007 31 December 2006 aging Amount proportion % Amount proportion % Within 1 year 9,708,315.71 47.59 22,368,547.67 70.27 1 to 2 years 1,364,450.37 6.69 2,550,836.50 8.01 2 to 3 years 2,414,608.72 11.84 11,000.00 0.03 Over 3 year 6,912,727.44 33.88 6,901,727.44 21.69 20,400,102.24 100 31,832,111.61 100 81 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 The group did not have any balances which were due to parties having 5% or above shareholdings in the Company. 5、 Other receivables （ 1） The aging of accounts receivable by categories: 31 December 2007 31 December 2006 aging proportion Provision for proportion Provision for Amount Amount % bad debts % bad debts Within1year 7,731,346.93 3.22 -- 57,601,863.41 12.73 1,300,000.00 1to 2 years 12,256,168.54 5.10 -- 9,760,572.33 2.16 1,270,000.00 2to 3 years 3,759,082.03 1.56 1,698,653.51 178,323,219.58 39.41 103,177,233.67 Over3 year 216,725,067.54 90.12 188,260,958.91 206,785,916.36 45.70 181,600,652.42 240,471,665.04 100 189,959,612.42 452,471,571.68 100 287,347,886.09 （ 2） customers categories as follows: customers 31 December 2007 31 December 2006 proportion Provision for proportion Provision for categories Book balance % bad debts Book balance % bad debts category 1 135,125,297.28 56.19 135,125,297.28 318,076,254.14 70.30 232,513,570.95 category 2 65,487,723.11 27.23 45,934,734.58 65,783,307.75 14.54 46,223,694.58 category 3 39,858,644.65 16.58 8,899,580.56 68,612,009.79 15.16 8,610,620.56 240,471,665.04 100 189,959,612.42 452,471,571.68 100 287,347,886.09 category 1：are receivables with significant individual amount,such individual amount is more than 10 million yuan category 2: individual amount is not significant but the portfolio’r risk is greater since the amounts combined in the type of credit risk. The age of amounts is more than three years and can’t recover probably.； category 3： Other is not significant receivables （ 3）As At 31 December 2007，Top five of other receivable Units (Personal) as follows: 31 December 31 December 2007 2006 Amount 131,459,488.36 331,430,034.06 Proportion of total other receivable accounts 54.67% 73.25% 82 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 4）Substantially reduction of the ending balance occurred compare with previous year, the main reason is for transfer RMB 166,109,047.00 out of this account when handling the project of GuoXin Building, with its bad debits of RMB 97,388,273.67. （ 5）The group did not have any balances which were due to parties having 5% or above shareholdings in the Company. （ 6） The ending balance of related parties accounts of other receivable, For particulars see Note 10（ 3）、 4. 6、 Inventories 31 December 2007 31 December 2006 Provision Provision Amount Amount for declines for declines Real estate development products 270,541,384.78 -- 145,450,127.06 18,872,622.96 Real estate developing products 690,773,570.02 140,181,437.03 668,255,582.57 146,475,169.73 Raw materials 3,450,958.41 -- 4,084,288.28 -- finished products 440,678.84 278,891.91 513,329.09 278,891.91 low-value consumable products 32,883.38 -- 13,174.03 -- Construction 17,919,374.58 -- 17,764,867.21 -- 165,626,684. 983,158,850.01 140,460,328.94 836,081,368.24 60 (1) Real estate development products Completion 31 December Current year Current year 31 December time (year) 2006 additions reductions 2007 Jinyedao villa 1 1996 3,141,098.72 -- -- 3,141,098.72 Jinyedao multi-storey apartment 1997 36,716,736.21 121,947.00 253,778.28 36,584,904.93 Jinyedao villa 4 2006 7,660,944.34 1,305,359.23 8,966,303.57 -- Jinyedao villa 5 2006 22,805,408.20 -- 22,805,408.20 -- Jinyedao villa 6 2007 -- 83,790,590.38 28,072,936.86 55,717,653.52 Jinyedao villa 7 2007 -- 81,920,955.47 35,260,878.62 46,660,076.85 Jinyedao villa 8 2007 -- 80,757,916.17 -- 80,757,916.17 Huang Pu 1 1994 1,979,320.92 -- -- 1,979,320.92 Huang Pu 2 1996 -- 170,150,437.78 141,671,059.54 28,479,378.24 Cui Tian 1999 18,106,847.32 675,000.00 18,781,847.32 -- 83 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Completion 31 December Current year Current year 31 December time (year) 2006 additions reductions 2007 Jinxiu Building 1994 252,242.09 -- 252,242.09 -- Huamin Building 2,912,786.08 -- -- 2,912,786.08 Jin Tingyuan 1999 2,071,055.38 1,265,036.45 3,336,091.83 -- Huafeng Building 2000 2,378,306.49 -- 746,562.85 1,631,743.64 Huijing Garden 2,325,600.00 -- 2,325,600.00 -- Xinhu Garden multi-storey 2003 1,721,601.50 -- 1,205,390.91 516,210.59 Xinhu Garden 8 2005 11,116,243.72 -- 482,732.55 10,633,511.17 Yitai Center 29,480,014.34 -- 29,480,014.34 -- Bi Tonghaiyuan 2005 805,141.64 -- 805,141.64 -- Dongle Garden 449,996.16 -- 449,996.16 -- Ri Yuege 854,963.28 -- -- 854,963.28 Beijing Fresh Peak Building 671,820.67 -- -- 671,820.67 145,450,127.06 420,346,188.72 295,254,931.00 270,541,384.78 （ 2） Real estate developping products Expected Expected Starting time 31 December 31 December Completion total (year) 2006 2007 time investment Dongle Garden 2006 119,038,879.44 128,932,800.58 Huangpu 2 134,969,135.40 -- USA land 120,488,666.21 112,820,364.88 Xinhu Garden 3 2006 4,105,865.57 14,288,103.95 Jin yedao 5--8 212,667,115.38 -- Jin yedao 9--11 2007 -- 204,963,153.54 Longfeng villa 2005 76,905,920.57 208,605,091.02 Shantou fresh peak Building -- 21,084,056.05 Haiyan Car Park restructions 1992 80,000.00 80,000.00 668,255,582.57 690,773,570.02 （ 3） Provision for declines in the value of inventories 31 December Current year Current year 31 December 2006 additions reductions 2007 finished products 278,891.91 -- -- 278,891.91 Longfeng Villa 47,584,499.31 -- -- 47,584,499.31 USA land*1 98,890,670.42 -- 6,293,732.70 92,596,937.72 Yitai Center*2 17,472,622.96 -- 17,472,622.96 -- Jing Tingyuan*2 1,400,000.00 -- 1,400,000.00 -- 165,626,684.60 -- 25,166,355.66 140,460,328.94 *1 The reduction was due to the change in exchang rate. 84 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 *2The reduction was due to the sales of Yitai Center、Jing Tingyuanwhile the provisions for decline in inventories reduce at the same time. In development products,the rights of land in the period of 9 to 11 of Golden Leaf Island has been mortgaged for company’s borrowings. The amount of capitalize borrowing money is RMB 25,566,161.56. 7、 Long-term equity investments 31 December 2007 Impairment Amount provision Net value Joint venture investment 91,678,556.86 62,236,756.27 29,441,800.59 Associate investment 59,058,940.66 2,522,380.20 56,536,560.46 Other equity investment 178,642,972.78 178,642,972.78 -- 329,380,470.30 243,402,109.25 85,978,361.05 31 December 2006 Impairment Amount provision Net value Joint venture investment 91,678,556.86 62,236,756.27 29,441,800.59 Associate investment 69,558,940.66 2,522,380.20 67,036,560.46 Other equity investment 297,605,189.39 223,314,868.24 74,290,321.15 458,842,686.91 288,074,004.71 170,768,682.20 85 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 1） According to equity method Cash investment dividends proportion of Initial Equity increased(de declared to Name of investees the investment 31 Dec 2006 adjustment creased)in be investment amount in this year this year distributed 1 、 joint venture investment： Guangdong province Huizhou Luofu Hill cooperation 9,969,206.09 9,969,206.09 -- -- -- mineral water Co.,Ltd Fengkia Xinhua Hotel cooperation 9,455,465.38 9,455,465.38 -- -- -- Jiangmen Xinjian Real cooperation 9,037,070.89 9,037,070.89 -- -- -- Estate Co. Ltd. Xian Fresh Peak cooperation 32,840,729.61 32,840,729.61 -- -- -- Building Co. Ltd. Tung Yick Property cooperation 30,376,084.89 30,376,084.89 -- -- -- Co., Ltd. Sub-total 91,678,556.86 91,678,556.86 -- -- -- 2 、 Associate investment： Shenzhen Shatoujiao 50% 2,850,618.06 2,850,618.06 -- -- -- Nantian Store Shenzhen Runhua automobile trading 50% 1,445,425.56 1,445,425.56 -- -- -- Co.,Ltd Zhaoqing guifeng 50% 15,112,000.00 15,112,000.00 -- -- -- cement Co.,Ltd Kunshan Diao Feng 50% 32,471,239.25 32,471,239.25 -- -- -- Electricity Power Co. 86 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Cash investment dividends proportion of Initial Equity increased(de declared to Name of investees the investment 31 Dec 2006 adjustment creased)in be investment amount in this year this year distributed Ltd. Shenzhen Dongfang New world store 50% 15,000,000.00 -- -- -- -- Co.,Ltd Shenzhen City Wing 25% 1,250,000.00 1,715,417.05 -- -- -- Wah Engineering Ltd. Shenzhen Fresh Peak property consultant 20% 600,000.00 -- -- -- -- Co.,Ltd Shenzhen Bafangtong Railway Storage & 35% 10,500,000.00 10,500,000.00 (10,500,000.00) -- -- Transportation Co.,Ltd*1 Yunnan Kun Peng 25% 5,464,240.74 5,464,240.74 -- -- -- Aviation Service Ltd. 84,693,523.61 69,558,940.66 (10,500,000.00) -- -- 176,372,080.47 161,237,497.52 (10500,000.00) 87 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 2） According to cost method. Proportion Initial Investment 31 December Name of investees of the investment increased/decrea 2006 investment amount sed in this year 1、Other investments： Shenzhen Shen Fang Industrial 100% 4,500,000.00 4,500,000.00 -- Development Co., Ltd Shenzhen Zhonggang Haiyan Enterprise 68% 12,940,900.00 12,940,900.00 -- Ltd. Shenzhen Real Estate Consolidated 100% 5,958,305.26 5,958,305.26 -- Service Co., Ltd. Paklid Limited 100% 201,100.00 201,100.00 -- Bekaton Property Limited 60% 906,630.00 906,630.00 -- Shenzhen Tefa Real Estate Consolidated 100% 8,180,003.63 8,180,003.63 -- Service Co., Ltd. Shenzhen Xin Dongfang Store Ltd. 100% 18,500,000.00 18,500,000.00 -- Shenzhen City Shenfang Construction 100% 2,680,000.00 2,680,000.00 -- and Decoration Materials Ltd. Shenzhen Shenfang Department Store 100% 10,000,000.00 10,000,000.00 -- Co. Ltd. ShenYang Tongxin Real Estate 108,778,308.43 108,778,308.43 (108,778,308.43) development Co.,Ltd *2 Guangdong Province Fengkai Lian Feng 90% 121,265,000.00 56,228,381.64 -- Cement Manufacturing Co., Ltd. Shantou Fresh Peak Building 68,731,560.43 68,731,560.43 (10,183,908.18) 362,641,807.75 297,605,189.39 （118,962,216.61） 88 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 *1 Shenzhen Bafangtong Railway Storage ＆ Transportation Co., Ltd. On February 16, 2007, Arbitration Tribunal of China International Economic and Trade Ambition Commission entrusted Shenzhen United Auction Co., Ltd. to openly, auction all stock equities of Shenzhen Bafangtong Railway Storage ＆ Transportation Co., Ltd., and Huangjia Investment Holdings Co., Ltd. won the bid at the price of RMB 91 million yuan. 35% of stock equities held by our company was also auctioned. Our company invested RMB 10.5 million yuan to the company, after deducting the related fees about the equity operation, our company gained RMB 16.366 million yuan of investment income. * 2 Shenyang Tongxin Real Estate Development Co., Ltd. Shenyang Tongxin Real Estate Development Co., Ltd (hereinafter referred as Shenyang Tongxin Company) mainly engaged in the development of Shenyang Fresh Peak Commercial Square, which was a joint venture in Shenyang established by Hongkong Fresh Peak Enterprise Co., Ltd (hereinafter referred as Fresh Peak Company) and who was a wholly-owned subsidiary of our company. On January 5, 2005, we signed the Agreement for Acknowledgement of Rights and Liabilities and Payment with Fresh Peak Company and Shenyang Tongxin Company, the three parties agreed that: Fresh Peak Company confirmed it owed our company RMB 87,181,320.88 yuan of principal on this project and promised to pay off the debts by January 30, 2005; Shenyang Tongxin Company shall bear joint liquidation and guarantee liability for this debt, and the guarantee liability limit is RMB59,026,688.18 of principal borrowed from Fresh Peak Company and interests thereof. Whereas Fresh Peak Company and Shenyang Tongxin Company didn’t keep their promises, our company filed a lawsuit against Fresh Peak Company and Shenyang Tongxin Company to Shenzhen Intermediate People’s Court on March 1, 2005. On May 10, 2005, a reconciliation agreement was reached among our company, Fresh Peak Company and Shenyang Tongxin Company, which said the principal and interest of debts and joint liability therein were reconfirmed. This agreement was checked and confirmed by Civil Mediation Agreement (SHZHFMSCH Zi NO. 91) issued by Shenzhen Intermediate People’s Court and had the legal force. However, the two companies didn’t perform their respective obligations and duties; on June 21, 2005, our company applied to Shenzhen Intermediate People’s Court for coercive enforcement. On November 23, 2005, the Civil Ruling paper (SHZHFZH Zi NO. 737) issued by Shenzhen Intermediate People’s Court ordered: to auction 93.1% stock 89 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 equities of Shenyang Tongxin Company held by Shenyang Fresh Peak Company and on January 22, 2006 it was auctioned at the price of RMB 89.3 million yuan. As the equity transfer was handled in 2007, RMB 108,778,308.43 yuan of investment in the year and RMB 44,671,895.46 yuan of depreciation reserves thereof shall be resold. After deducting the book value of the investment, debts of Shenyang Tongxin Company to our company and other related fees about equity transfer, our company gained RMB 11,019,009.15 yuan of investment income. （ 3） Impairment Provision for Long-term equity investment are as follows: Current year Current reductions Name of investees Opening balance year Closing balance Transfer addition Wright-off back Shenzhen City Wing Wah Engineering Ltd. 1,076,954.64 -- -- -- 1,076,954.64 Shenzhen Shen Fang Industrial Development Co., Ltd 4,500,000.00 -- -- -- 4,500,000.00 Shenzhen Zhonggang Haiyan Enterprise Ltd. 12,940,900.00 -- -- -- 12,940,900.00 Shenzhen Real Estate Consolidated Service Co., Ltd. 5,958,305.26 -- -- -- 5,958,305.26 Paklid Limited 201,100.00 -- -- -- 201,100.00 Bekaton Property Limited 906,630.00 -- -- -- 906,630.00 Shenzhen Tefa Real Estate Consolidated Service Co., 8,180,003.63 -- -- -- 8,180,003.63 Ltd. Shenzhen Xin Dongfang Store Ltd. 18,500,000.00 -- -- -- 18,500,000.00 Shenzhen City Shenfang Construction and Decoration 2,680,000.00 -- -- -- 2,680,000.00 Materials Ltd. Shenzhen Shenfang Department Store Co. Ltd. 10,000,000.00 -- -- -- 10,000,000.00 ShenYang Tongxin real estate development limited 44,671,895.46 -- -- 44,671,895.46 -- company * Guangdong Province Fengkai Lian Feng Cement 56,228,381.64 -- -- -- 56,228,381.64 Manufacturing Co., Ltd. Shenzhen Runhua automobile trading Co.,Ltd 1,445,425.56 -- -- -- 1,445,425.56 Guangdong province Huizhou Luofu Hill mineral 9,969,206.09 -- -- -- 9,969,206.09 water Co.,Ltd Fengkai xinhua hotel 9,455,465.38 -- -- -- 9,455,465.38 Jiangmen Xinjian Real Estate Co. Ltd. 912,537.16 -- -- -- 912,537.16 Xian Fresh Peak Properity Management & Trading 20,673,831.77 -- -- -- 20,673,831.77 Co. Ltd. Tung Yick Property Co., Ltd. 21,225,715.87 -- -- -- 21,225,715.87 Shantou Fresh Peak Building 58,547,652.25 -- -- -- 58,547,652.25 44,671,895.4 288,074,004.71 -- -- 243,402,109.25 6 For particulars see Note 8、 7（ 2） *2. 90 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 8、 Investment Property If the cost measurement model is applied 31 December Current year Current year 31 December 2006 additions reductions 2007 Original cost Buildings 977,637,660.83 3,779,223.52 19,738,604.51 961,678,279.84 977,637,660.83 3,779,223.52 19,738,604.51 961,678,279.84 Accumulated depreciation Buildings 185,482,296.99 31,624,514.98 -- 217,106,811.97 185,482,296.99 31,624,514.98 -- 217,106,811.97 Investment property provision for impairment losses Buildings 35,022,450.51 -- 19,738,604.51 15,283,846.00 35,022,450.51 -- 19,738,604.51 15,283,846.00 Investment property on book value Buildings 757,132,913.33 729,287,621.87 The reduction of provision was due to the wright-off of investment property. The book value of mortgage for company’s borrowings in investment property account is RMB 554,914,699.57. 9、 Fixed assets and Accumulated depreciation 31 December Current year Current year 31 December 2006 additions reductions 2007 cost Buildings 118,675,782.95 2,535,537.42 2,220,738.00 118,990,582.37 Transport equipment 19,089,999.68 3,912,902.06 1,152,325.62 21,850,576.12 Electronic equipment and others 17,440,893.46 627,119.85 1,385,884.77 16,682,128.54 155,206,676.09 7,075,559.33 4,758,948.39 157,523,287.03 Accumulated depreciation Buildings 49,827,244.76 4,908,995.73 1,833,843.80 52,902,396.69 Transport equipment 14,363,266.66 1,232,038.60 1,080,770.18 14,514,535.08 electronic equipment and others 14,159,064.11 605,651.33 1,114,539.43 13,650,176.01 78,349,575.53 6,746,685.66 4,029,153.41 81,067,107.78 Net book value 76,857,100.56 76,456,179.25 less：Provision for impairment loss 131,727.96 131,727.96 Net amount 76,725,372.60 76,324,451.29 Fixed assets of the company for the short-term borrowing and long-term borrowings (including due within one year of long-term borrowings) to the book value of pledged as RMB 16,303,510.44yuan. 91 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 10、 Intangible assets Current 31 31 Current year year Current year Accumulative Manners Original cost December December additions transfer amortization amortization 2006 2007 out Software outsourcing 159,154.60 3,946.60 -- -- 3,946.60 159,154.60 -- Taxi licence outsourcing 6,368,000.00 -- 6,368,000.00 -- 55,860.00 55,860.00 6,312,140.00 6,527,154.60 3,946.60 6,368,000.00 -- 59,806.60 215,014.60 6,312,140.00 less：Provision for -- -- impairment loss Net amount 3,946.60 6,312,140.00 11、 Long-term deferred and prepaid expenses 31 December Current year Current year Accumulative 31 December Original cost 2006 additions amortization amortization 2007 Decoration costs 1,730,457.87 235,989.86 812,226.00 231,201.11 913,443.12 817,014.75 Employee canteen 78,182.37 19,448.89 -- 11,113.56 69,847.04 8,335.33 1,808,640.24 255,438.75 812,226.00 242,314.67 983,290.16 825,350.08 12、 Deferred tax assets 31 December 2007 31 December 2006 Provision for bad debts -- 6,201,880.80 Inventories Impairment provision 7,137,674.90 9,968,568.35 Employee benefits payable 764,827.91 4,543,211.55 Unused operating losses against tax 14,527,142.45 10,980,628.57 22,429,645.26 31,694,289.27 The confirmation of deferred tax assets use the probable deductions to the deductible temporary difference as its limits in future period. 13、 Impairment provision of assets Current Current year reductions 31 December 31 December year Transfer 2006 Wright-off 2007 additions back Provision for bad debts *1 307,950,268.94 -- -- 97,388,273.67 210,561,995.27 Inventories impairment provision *2 165,626,684.60 -- -- 25,166,355.66 140,460,328.94 Longterm equity investment impairment provision *3 288,074,004.71 -- -- 44,671,895.46 243,402,109.25 Investment property impairmentprovision *4 35,022,450.51 -- -- 19,738,604.51 15,283,846.00 Fixed assets impairment provision 131,727.96 -- -- -- 131,727.96 796,805,136.72 -- -- 186,965,129.30 609,840,007.42 92 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 14、 Restrictions on the ownership of assets Items Book value on 31 December 2007 Cash at bank HKD Fixed term deposits 14,064,000.00 Development costs Land rights of Jinyedao 120,610,381.35 Investment property Shengfang square 467,661,852.68 Investment property Floor 2 of guoshan north building 85,795,260.64 Investment property Real estate Building 1,457,586.25 Fixed assets Floor 46 of Shengfang Building 16,303,510.44 705,892,591.36 Restrictions on the ownership of the assets above are used in the mortgage for the company’s borrowings , included short-term and long-term. 15、 Short-term borrowings Borrowing conditions 31 December 2007 31 December 2006 Mortgage borrowings 47,000,000.00 125,424,900.00 Guaranteed borrowings -- 40,000,000.00 47,000,000.00 165,424,900.00 *1 About Mortgage borrowings, For particulars see Note 8、 14。 The reduction in ending balance of short-term borrowings over the previous year, was due to the return of the borrowings. 16、 Accounts payable （ 1） The year ending,the Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. （ 2） No amount in the end balance of account payable to the related companies； （ 3） Compare with last year, it increases by RMB 62,436,842.36 this year, or 52.55 percent in other words. Mainly because of the increase in projects. 17、 Advances from customers （ 1） The year ending, the Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. （ 2 ） No amount of the related companies in the end balance of advances from customers； Up to 31 December 2007. the amount of advances ftom customers is 93 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 RMB 165,897,129.52, the details are as follows.： Closing Project names Opening balance balance Completion time aging Guangzhou H Within 1year Huangpu yuan 105,438,965.00 20,288,013.52 Completion Yitai Center 18,349,479.00 -- Bi Tongyuan 439,287.78 -- Jinyedao villa 4 10,221,676.00 Jinyedao villa 5 34,554,413.60 Jinyedao villa 6 -- 20,053,064.00 Completion Within1year Jinyedao villa 7 -- 34,434,918.00 Completion Within1year Jinyedao villa 8 -- 91,121,134.00 Completion Within1year Guoxin Building 68,720,773.33 Total 237,724,594.71 165,897,129.52 18、 Employee benefits payable 31 December Current year Current year 31 December 2006 additions reductions 2007 Wages and salaries, bonuses, allowances and 14,300,213.64 78,096,922.12 72,821,104.43 19,576,031.33 subsidies Staff welfare 11,913,966.89 687,788.75 12,601,755.64 -- Social security 1,269,876.08 13,288,048.15 8,926,322.68 5,631,601.55 contributions Labor union and employee 274,281.08 1,814,512.67 1,569,191.07 519,602.68 education funds Compensation to employees for termination of 27,880,044.00 593,012.29 22,741,965.23 5,731,091.06 employment relationship Others -- 1,116,397.87 617,341.74 499,056.13 55,638,381.69 95,596,681.85 119,277,680.79 31,957,382.75 19、 Taxes payable 31 December 2007 31 December 2006 Value added tax (“VAT”) (3,866,883.58) (3,521,605.48) Income tax (3,286,758.31) 590,007.03 construction tax (70,405.32) 10,537.54 Individual income tax 597,249.52 266,366.19 Business tax 2,432,137.35 3,530,762.40 Education surcharge 277,972.99 165,894.06 Embankment 69,911.04 Real estate tax 1,896,744.04 3,157,516.71 Increment tax on (1,092,935.93) 287,154.83 land value others 1,311.19 133.50 (3,041,657.01) 4,486,766.78 94 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 The substantially reduction compare with last year, maily due to the pre-paid of increment tax on land value and income tax in the pre-sale of project in Shantou Golden Leaf Island. 20、 Interests payable Company name 31 December 2007 31 December 2006 Shenzhen Investment 2,901,306.85 -- Shareholding Co.，Ltd 21、 Other payables （ 1） The reduction compare with last year is RMB 179,690,000, or 39.29 percentage in other words. Maily due to the the transfer amounts received in the disposal of shares transfer in Shenyang project. For particulars see Note 8、 7 ( 2)*2 （ 2） The Groups did not have any balances which were due to parties holding 5% or above shareholdings of the Company. as follows: Company name Shareholder company 31 December 2007 name 31 December 2006 Nature Shenzhen Investment Shenzhen Investment 83,848,819.24 86,848,819.24 Borrowing Shareholding Co.，Ltd Shareholding Co.，Ltd （ 3） The amount owe to the related companies in the end balance For particulars see Note 10 (3)、 4 22、 Long-term borrowings Borrowing conditions 31 December 2007 31 December 2006 Mortgage borrowings 367,494,457.32 175,000,000.00 Total 367,494,457.32 175,000,000.00 Including.：non-current liability 25,280,129.52 110,000,000.00 due in one year long term borrowings 342,214,327.80 65,000,000.00 The ending balance of borrowings are as follows according to the enterprises’names. 31 December Name of borrowing enterprises 2007 Borrowing Maturity Date currency conditions Shenzhen Rural Commerical Bank 70,000,000.00 Mortgage 2010.10.15 Shenzhen Rural Commerical Bank 40,000,000.00 Mortgage 2010.12.6 Shenzhen Rural Commerical Bank Shangbu Branch 97,000,000.00 Mortgage 2010.6.21 Shenzhen Nanyang Commerical Bank 15,000,000.00 Mortgage 2008.3.29 Shenzhen Nanyang Commerical Bank 57,494,457.32 Mortgage 2017.5.29 China Commerical Bank in Shenzhen 10,000,000.00 Mortgage 2010.6 China Commerical Bank in Shenzhen 18,000,000.00 Mortgage 2010.7.10 Bank of Communication in Shantou 60,000,000.00 Mortgage 2010.7.30 367,494,457.32 95 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 *1Details of mortgage borrowings for particulars see Note8、 14。 The substantial increase in long-term borrowing is mainly because of the growing operating needs 23、 Long-term payables 31 December 2007 31 December 2006 Maintenance fund 9,172,161.05 8,585,785.96 24、 Share capital Current year Current year 31 December 2006 31 December 2007 additions reductions 一、Shares with restriction on disposals 1、State-owned shares 672,856,800.00 -- 50,583,000.00 622,273,800.00 2、PRC legal person shares -- -- -- -- 3、PRC legal nature person shares -- -- -- -- 4、Others 7,400.00 -- 1,850.00 5,550.00 Total of shares with restriction on 672,864,200.00 -- 50,584,850.00 622,279,350.00 disposals 二、Shares without restriction on disposals 1、Domestically listed PRC public shares 218,795,800.00 50,584,850.00 -- 269,380,650.00 2、Domestically listed foreign shares 120,000,000.00 -- -- 120,000,000.00 3、Overseas listed foreign shares -- -- -- -- 4、Others -- -- -- -- Total of shares without restriction on 338,795,800.00 50,584,850.00 -- 389,380,650.00 disposals 三、Total 1,011,660,000.00 50,584,850.00 50,584,850.00 1,011,660,000.00 25、 Capital surplus Current year Current year Opening balance Closing balance additions reductions Capital premium 557,433,036.93 -- -- 557,433,036.93 Other capital surplus 420,811,821.17 -- -- 420,811,821.17 978,244,858.10 -- -- 978,244,858.10 26、 Surplus reserve Current year Current year 31 December 2006 additions reductions 31 December 2007 Reserve fund 118,910,686.94 -- -- 118,910,686.94 96 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 27、 Profit distribution 2007 2006 Net profit for parent company’s shareholders 39,007,992.54 20,150,368.49 add：Undistributed profit at beginning of year (985,700,506.78) (1,005,850,875.27) add： other transfer in 12,057,268.86 -- less：Profit distribution -- -- Including.：withdrawal legal surplus -- -- withdrawal free surplus reserves -- -- common shares dividends payable -- -- Undistributed profit at ending of year (934,635,245.38) (985,700,506.78) 28、 Minority Interest and profit or loss Porprotion of minority 31 December 2007 31 December 2006 Name of investees shareholdings Fresh Peak Investment L 45% (10,733,643.11) (10,290,035.63) Barenie Co. Ltd. 20% (1,920,929.04) (1,920,505.00) Shenzhen Cyber Port 30% 4,163,988.81 Co.,Ltd 4,050,346.85 Shenzhen City Wa Gen 25% 1,790,201.92 Construction 1,829,483.58 Management Ltd. Fresh Peak Enterprise -- -- (7,028,602.80) Ltd. -- (6,774,741.72) (13,284,952.70) 29、 Revenue and cost of sales Revenue Cost Gross profit 2007 2006 2007 2006 2007 2006 Revenue from main operations: Sales of 510,543,751.94 601,324,785.09 342,581,402.58 419,239,800.48 167,962,349.36 182,084,984.61 properties Construction 168,119,414.61 177,026,747.42 156,567,107.62 155,075,103.45 11,552,306.99 21,951,643.97 Business -- 60,798,063.27 -- 59,762,591.59 -- 1,035,471.68 Leasing and property 132,358,887.08 117,410,877.47 98,591,253.12 98,955,733.17 mangement 33,767,633.96 18,455,144.30 Hotel and others 34,105,472.81 39,375,089.97 23,901,274.60 17,957,867.63 10,204,198.21 21,417,222.34 service 845,127,526.44 995,935,563.22 621,641,037.92 750,991,096.32 223,486,488.52 244,944,466.90 （ 1） The sales of top five: 2007 2006 Proportion of Sales (in ten Sales (in ten Proportion of the the company’s thousand thousand Yuan） company’s total sales total sales Yuan）） Total sales of top five 5,064 5.99% 4,082 4.10% 97 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 (2) main operations by geographical segments as follows: Revenue Cost Gross profit 2007 2006 2007 2006 2007 2006 PRC： Guangdong 807,591,819.59 990,148,841.18 586,532,417.61 747,463,983.14 province 221,059,401.98 242,684,858.04 Other 36,727,636.69 5,041,559.48 35,108,620.31 3,527,113.18 provinces 1,619,016.38 1,514,446.30 Overseas： 808,070.16 745,162.56 808,070.16 745,162.56 845,127,526.44 995,935,563.22 621,641,037.92 750,991,096.32 223,486,488.52 244,944,466.90 30、 Tax and levies on operations 2007 2006 Business tax 40,560,987.12 43,736,405.09 City maintenance and construction tax 362,286.05 394,388.19 Educational surcharge 870,312.81 1,148,123.50 Real estate tax 6,409,368.10 4,085,525.39 Increment tax on land value 16,869,744.90 2,381,229.76 others 456,093.61 55,226.42 65,528,792.59 51,800,898.35 31、 General and administrative expenses Compared with previous year, it decreased by RMB 54,947,335.75, with 34% decrease in perecentage. Mainly because the compensation pay to the emlopees of the termination of employment relationships last year, while no amount for this year 32、 Finance expenses 2007 2006 Interest expenses 42,036,666.93 30,030,911.39 Less：expenses of capitalizationinterest 25,566,161.56 6,959,366.62 Less: interest income 4,920,817.96 4,245,461.40 Exchange losses 41,658,689.44 13,901,621.39 Less: exchange gains 74,905.46 2,386,732.58 Others 258,135.05 790,751.74 53,391,606.44 31,131,723.92 The substantial increase is maily due to the increase in exchange currency losses. 98 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 The Company, a subsidiary registered in Hong Kong, The enterprise chooses Hong Kong Dollar(HKD) as its recording currency the previous year, Accounting Standards for Enterprises No.19 - Foreign Currency Translation[2006] Chapter II Article 4 The "functional currency" refers to the currency of the primary economic environment in which the enterprise is operated. Because after the establishment of such subsidiary of main operative activity in domestic, Sales of goods and services prices was mainly affected by the RMB, and generally the goods and services are valuated and settled by the RMB; The company mainly the labor, materials and other costs for the goods and services, and generally the goods and services are valuated and settled in RMB,the company the currency acquired in financing activities as well as the currency utilized to preserve the money charged in the business operation. therefore, these subsidiaries used the RMB as a functional currency to be able to provide is more reliable, the related accounting information, these subsidiaries used the RMB as a functional currency from January 1, 2007. And January 1, 2007 the amount in the HKD shall be translated into the amount in the RMB at the spot exchange rate of the transaction date,after the translated RMB amounts as a newly functional currency the historical cost, This change reduced financial expenses in 2007 - exchange loss RMB 10,626,085.47 33、 Assets impairment losses 2007 2006 Reverse Impairment losses for fixed asset -- (1,268,763.04) 34、 Investment income 2007 2006 Sale income from financial assets held for trading 101,321.93 4,519,295.90 Long-term equity investment income 28,370,955.88 1,576,246.59 including：dividends income from investees 985,946.73 1,559,962.49 Income from disposal of subsidiaries 11,019,009.15 -- Income from disposal of other operational units 16,366,000.00 -- Change in net profit of investees according to -- 16,284.10 equity method. Others -- 26,954.26 28,472,277.81 6,122,496.75 The amount is RMB 22,350,000 in increase compare with last year, is mainly due to the investment income from the disposal of shares of Shenyang TonXin real estate company and Shenzhen Bafantong Railway Co.Ltd., the income is RMB 11,019,009.15 and RMB 16,366,000.00 separately. For particulars see Note 8 7 *1 *2. 35、 Non-operating income 99 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 2007 2006 1、Total gain on disposal of non current assets 94,170.00 302,680.00 including：Gain on disposal of fixed assets 94,170.00 302,680.00 2、Fine income 66,360.09 -- 3、Penalty income 2,233,288.00 345,820.11 4、Others 47,738.39 252,118.71 2,441,556.48 900,618.82 36、 Non-operating expenses 2007 2006 1、Total losses on disposal of non current assets 113,850.02 167,335.28 including：Loss on disposal of fixed assets 113,850.02 167,335.28 2、Fine expenses 2,727,368.63 157,089.23 3、Donation expenses 218,000.00 34,000.00 4、Penalty expenses 918,156.31 3,291,150.94 5、Others 100,683.37 596,468.26 4,078,058.33 4,246,043.71 37、 Income tax expenses 2007 2006 Current year income tax expenses 3,460,653.51 954,500.78 Deferred income tax expenses 9,264,644.01 -- 12,725,297.52 954,500.78 38、 Earning per share Calculation process of EPS 2007 2006 Net profit attributable to equity holders of the company 39,007,992.54 20,150,368.49 Weighted average number of ordinary shares 1,011,660,000.00 1,011,660,000.00 outstanding Basic earnings per share（per share RMB yuan） 0.0386 0.0199 Earnings per share - diluted（per share RMB yuan） 0.0386 0.0199 39、 Cash flow statements （ 1） Cash received relating to other operating activities 100 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 2007 2006 interest income 4,920,817.96 4,245,461.10 Mortage、Guaranteen 4,094,725.16 4,753,668.80 Other debits 14,136,400.00 109,760,845.90 Maintenance fund 3,756,612.39 3,579,226.13 Others 2,898,124.55 12,432,519.51 29,806,680.06 134,771,721.44 （ 2） Cash paid relating to other operating activities 2007 2006 Cash paid to General and administrative expenses 26,092,248.17 32,963,518.99 Cash paid to operating expenses 1,334,784.85 4,327,073.00 Intermediary organs 4,603,913.05 9,061,746.12 Mortage and Guaranteen 3,274,198.32 4,844,077.08 Other credits 18,485,443.60 33,674,877.82 Advertising fees 4,563,712.45 5,754,112.58 Others 5,014,514.50 12,830,169.53 63,368,814.94 103,455,575.12 （ 3） Cash paid relating to other investing activities 2007 2006 Cost of shares disposal of Bafangtong 4,170,000.00 -- Company （ 4） Cash and cash equivalents 2007 2006 1、Cash 437,851,145.76 457,420,698.17 including：Cash on hand 824,216.95 633,401.60 the bank deposits for available payment 437,026,928.81 456,787,296.57 2、Cash equivalents -- -- 3、Cash and cash equivalent at end of year 437,851,145.76 457,420,698.17 101 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 5） Cash flow statement(countinued) Supplementary information 2007 2006 1、Reconciliation from the net profit to the cash flows from operating activities Net profit 38,933,632.24 20,264,044.03 Add：Provisions for assets impairment (1,268,763.04) Depreciation of fixed assets and investment property 38,371,200.64 13,363,521.78 Amortization of intangible assets 59,806.60 32,668.42 Long-term deferred and prepaid expenses amortization 242,314.67 959,957.10 Losses on disposal of fixed assets, intangible assets and other long-term assets（gains used“()”） 19,680.02 135,344.72 Scrapping of fixed assets losses （gains used“()”） -- -- Exchange of fair value losses（gains used“()”） -- -- Finance expenses （gains used“()”） 58,054,289.35 34,586,433.58 Investment losses（gains used“()”） (28,472,277.81) (6,122,496.75) Decrease in deferred tax assets（gains used“()”） 9,264,644.01 -- Increase in deferred tax liabilities （gains used“()”） -- -- Decrease in inventories（gains used“()”） (172,243,837.43) 39,138,044.15 Decrease in operating receivables （gains used“()”） 228,489,982.06 (18,671,601.85) Increase in operating payables（gains used“()”） (225,278,369.49) 98,213,940.52 Others -- -- Net cash flows from operating activities (52,901,570.14) 180,631,092.66 2、Investment and financing activities not involving cash -- -- 3、Net increase/ (decrease) in cash and cash equivalents Cash at end of the year 437,851,145.76 457,420,698.17 Less: cash at beginning of the year 457,420,698.17 307,384,164.46 Add：cash equivalents at end of the year -- -- Less: cash equivalents at beginning of the year -- -- Net increase in cash and cash equivalents (19,569,552.41) 150,036,533.71 102 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 9、Notes to the parent company financial statements 1、 Accounts receivable Aging analysis 31 December 2007 31 December 2006 aging proportion Provision for proportion Provision for Amount Amount % bad debts % bad debts Within 1 year 278,938.00 1.82 -- 64,474.75 0.40 -- 1 to 2 years -- -- -- 4,334,344.19 26.74 -- 2 to 3 years 4,333,055.00 28.26 -- 3,942,207.24 24.31 1,214,618.77 Over 3 year 10,723,068.68 69.92 6,457,254.02 7,869,364.73 48.55 5,242,635.25 15,335,061.68 100 6,457,254.02 16,210,390.91 100 6,457,254.02 2、 Other receivables Aging analysis 31 December 2007 31 December 2006 aging proportion Provision for proportion Provision for Amount Amount % bad debts % bad debts Within 1 year 226,370,886.99 15.50 -- 197,743,802.79 11.78 3,259,580.42 1 to 2 years 154,315,379.41 10.56 4,001,634.89 96,301,803.93 5.73 28,061,667.33 2 to 3 years 71,859,551.18 4.92 28,201,360.84 244,497,043.15 14.56 103,188,273.67 Over 3 year 1,008,094,897.69 69.02 830,990,184.29 1,140,737,480.67 67.93 826,081,396.98 1,460,640,715.27 100 863,193,180.02 1,679,280,130.54 100 960,590,918.40 3、 Inventories 31 December 2007 31 December 2006 Provision for Provision for Amount Amount declines declines Real estate development 15,694,251.48 -- 72,025,822.70 18,872,622.96 products Construction development 143,300,904.53 -- 123,224,745.01 -- products 158,995,156.01 -- 195,250,567.71 18,872,622.96 103 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 4、 Long-term equity investments （ 1） Long-term equity investments 31 December 2007 31 Decem Impairment Impa Amount Net value Amount provision provi Subsidiaries investment 291,983,046.15 -- 291,983,046.15 291,089,894.19 joint venture investment 19,424,671.47 19,424,671.47 -- 19,424,671.47 19,424 associate investment 21,123,460.67 2,522,380.20 18,601,080.47 31,623,460.67 2,522 other equity investment 121,914,591.14 121,914,591.14 132,098,499.32 121,914 454,445,769.43 143,861,642.81 310,584,126.62 474,236,525.65 143,86 104 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 2） According to equity method Cash Initial investment Equity proportion of 31 December dividends Name of investees investment increased(decre adjustment the investment 2006 declared to be amount ased)in this year in this year distributed 1、joint venture investment： Guangdong province Huizhou Luofu Hill mineral water cooperation 9,969,206.09 9,969,206.09 -- -- -- Co.,Ltd Fengkai Xinhua Hotel cooperation 9,455,465.38 9,455,465.38 -- -- -- 19,424,671.47 19,424,671.47 -- -- -- 2、associate investment： Shenzhen Shatoujiao 50% 2,850,618.06 2,850,618.06 -- -- -- Nantian Store Shenzhen Runhua automobile 50% 1,445,425.56 1,445,425.56 -- -- -- trading Co.,Ltd Zhaoqing guifeng cement Co.,Ltd 50% 15,112,000.00 15,112,000.00 -- -- -- Shenzhen Dongfang New world 50% 15,000,000.00 -- -- -- -- store Co.,Ltd Shenzhen City Wing Wah 25% 1,250,000.00 1,715,417.05 -- -- -- Engineering Ltd. Shenzhen Fresh Peak property 20% 600,000.00 -- -- -- -- consultant Co.,Ltd Shenzhen Bafangtong Railway *1 35% 10,500,000.00 10,500,000.00 (10,500,000.00) -- -- Storage &Transportation Co.Ltd 46,758,043.62 31,623,460.67 (10,500,000.00) -- -- 66,182,715.09 51,048,132.14 (10,500,000.00) 105 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 3） According to cost method Investmen Proportion Initial investment 31 December increased Name of investees of the amount 2006 decreased investment this year 1、Subsidiaries investment： Shenzhen City Property Management Ltd. 95% 12,821,791.52 12,821,791.52 Shenzhen Petrel Hotel Co. Ltd. 68.10% 20,605,047.50 20,605,047.50 Shenzhen City Shenfang Investment Ltd. 90% 9,000,000.00 9,000,000.00 Fresh Peak Holdings Ltd. 100% 556,500.00 556,500.00 Fresh Peak Enterprise Ltd. 100% 20,824,545.77 20,824,545.77 893,15 Shenzhen Special Economic Zone Real Estate (Group) 100% 20,000,000.00 20,000,000.00 Guangzhou Property and Estate Co., Ltd. Shenzhen Zhen Tung Engineering Ltd. 73% 11,332,321.45 11,332,321.45 Great Wall Estate Co., Inc. 70% 1,435,802.00 1,435,802.00 Shenzhen City Shenfang Free Trade Trading Ltd. 95% 4,750,000.00 4,750,000.00 Shenzhen City Wa Gen Construction Management Ltd. 75% 6,000,000.00 6,000,000.00 Shenzhen Shengfang Car rental Ltd. 100% 11,809,500.00 11,809,500.00 Openice Ltd. 20% 212,280.00 212,280.00 Beijing SPG Property Management Limited 100% 500,000.00 500,000.00 Shenzhen Lian Hua Industry and Trading Co. Ltd. 95% 13,458,217.05 13,458,217.05 Shenzhen City SPG Long Gang Development Ltd. 95% 30,850,000.00 30,850,000.00 Shenzhen Cyber Port Co.,Ltd 70% 14,000,000.00 14,000,000.00 Beijing fresh peak property development management 64,183,888.90 64,183,888.90 limited company 75% 106 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Investmen Proportion Initial investment 31 December increased Name of investees of the amount 2006 decreased investment this year Shenzhen City SPG Bao An Development Ltd. 95% 19,000,000.00 19,000,000.00 Shenzhen Shenfang Car Park Ltd. 70% 29,750,000.00 29,750,000.00 291,089,894.19 291,089,894.19 893,151 2、others investment： Shenzhen Shen Fang Industrial Development Co., Ltd. 100% 4,500,000.00 4,500,000.00 Shenzhen Zhonggang Haiyan Enterprise Ltd. 68% 12,940,900.00 12,940,900.00 Shenzhen Real Estate Consolidated Service Co., Ltd. 100% 5,958,305.26 5,958,305.26 Paklid Limited 100% 201,100.00 201,100.00 Bekaton Property Limited 60% 906,630.00 906,630.00 Shenzhen Tefa Real Estate Consolidated Service Co., Ltd. 100% 8,180,003.63 8,180,003.63 Shenzhen Xin Dongfang Store Ltd. 100% 18,500,000.00 18,500,000.00 Shenzhen City Shenfang Construction and Decoration 100% 2,680,000.00 2,680,000.00 Materials Ltd. Shenzhen Shenfang Department Store Co. Ltd. 95% 9,500,000.00 9,500,000.00 Shantou Fresh Peak Building 68,731,560.43 68,731,560.43 (10,183,908 132,098,499.32 132,098,499.32 -10,183,908 423,188,393.51 423,188,393.51 (9,290,756 107 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 （ 4） impairment Provision of long-term equity investments Impairment Provision Name of investees Current year Current year Opening balance Closing addition reductions Shenzhen City Wing Wah Engineering Ltd. 1,076,954.64 -- -- 1,07 Shenzhen Shen Fang Industrial DevelopmentCo., Ltd. 4,500,000.00 -- -- 4,50 Shenzhen Zhonggang Haiyan Enterprise Ltd. 12,940,900.00 -- -- 12,94 Shenzhen Real Estate Consolidated Service Co.,Ltd. 5,958,305.26 -- -- 5,95 Paklid Limited 201,100.00 -- -- 20 Bekaton Property Limited 906,630.00 -- -- 90 Shenzhen Tefa Real Estate Consolidated ServiceCo., Ltd. 8,180,003.63 -- -- 8,18 Shenzhen Xin Dongfang Store Ltd. 18,500,000.00 -- -- 18,50 Shenzhen City Shenfang Construction and 2,680,000.00 -- -- 2,68 Decoration Materials Ltd. Shenzhen Shenfang Department Store Co. Ltd. 9,500,000.00 -- -- 9,50 Shenzhen Runhua automobile trading Co.,Ltd 1,445,425.56 -- -- 1,44 Guangdong province Huizhou Luofu Hill mineral 9,969,206.09 -- -- 9,96 water Co.,Ltd Fengkia Xinhua Hotel 9,455,465.38 -- -- 9,45 Shantou Fresh Peak Building 58,547,652.25 -- -- 58,54 143,861,642.81 -- -- 143,861 108 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 5、 Revenue and cost of sales Revenue Cost Gross profit 2007 2006 2007 2006 2007 2006 Revenue from main operations Including：Sales of 182,933,260.47 543,057,160.53 114,294,772.82 384,592,837.28 68,638,487.65 158,464,323.25 properties Leasing income 49,510,590.69 39,433,835.29 34,166,016.26 27,702,483.50 15,344,574.43 11,731,351.79 232,443,851.16 582,490,995.82 148,460,789.08 412,295,320.78 83,983,062.08 170,195,675.04 main operations by geographical segment are as follows: Revenue Cost Gross profit Region 2007 2006 2007 2006 2007 2006 Shenzhen 232,443,851.16 582,490,995.82 148,460,789.08 412,295,320.78 83,983,062.08 170,195,675.04 6、 Investment income 2007 2006 Sale income from financial assets held for trading -- 2,330,304.42 Sale income from available-for-sales financial assets -- -- Long-term equity investment income 17,089,822.66 189,775.80 including：Dividends income from investees 723,822.66 -- Income from disposal of subsidiaries 16,366,000.00 -- Changes in net profit of investees according to equity method -- 189,775.80 others -- 26,954.26 17,089,822.66 2,547,034.48 109 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 10、Related parties and related party transactions （ 1） The standards of related parties recoginzation If a party has the power to control, jointly control or exercise significant influences over another party, they are regarded as related parties. Two or more parties are also regarded as related parties if they are subject to control, joint control or significant influence from the same party. （ 2） Related party relationships 1、 Related parties with controlling relationship Nature of Equity Place of business Voting Registered Registered Holding company registration and power code capital of the principal company activities Shenzhen Investment Guangdong Shareholding Limited province * RMB 4 billion 64.82% 64.82% Company Shenzhen *Guarantees for Municipal State-owned enterprises; stated-owned shares management excluded from the enterprises of direct control by SAC; on assets restructurings of controlled enterprises as well as its capital operation. Other businesses authorized by city SAC. The unltimate control company is the direct control one. 2、 Subsidiaries Detail informations about subsidiaries for particulars see NOTE 7、 1 & 2 3、 Joint ventures, associates Detail informations about joint ventures and associates for particulars see NOTE 7 （ 3） Related party transactions the related party transactions in 2007 mainly about emoluments for key management personnel , detail is as follows: a) Emoluments 110 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 2007 2006 Items (in ten thousand Yuan） (in ten thousand Yuan） Total emoluments for key management personnel 359.66 244.05 Total of top 3 132.00 85.49 b) Borrowings from related party Name 2007 2006 Shenzhen Investment Shareholding Limited Company 83,848,819.24 86,848,819.24 c) Interest pay to the related party Name 2007 2006 Shenzhen Investment Shareholding Limited Company 4,954,619.23 504,000.00* *Interest calculation starts from December 2006 Inerest: annual interest of 6.12%, according to the borrowing agreement. d) Receiveables and Payables of related parties 31 December 2007 31 December 2006 Name of related parties Provision for Provision for Amount Amount bad debts bad debts Guangdong province Huizhou Other receivables 10,465,168.81 10,465,168.81 10,465,168.81 10,465,168.81 Luofu Hill mineral water Co.,Ltd Shenzhen Runhua automobile 3,072,764.42 3,072,764.42 3,072,764.42 3,072,764.42 trading Co.,Ltd Fidelity Development Limited 89,035,748.07 89,035,748.07 89,035,748.07 89,035,748.07 Bekaton Property Limited 12,559,290.58 12,559,290.58 12,559,290.58 12,559,290.58 Paklid Limited 19,205,883.66 19,197,730.76 19,197,730.76 19,197,730.76 Shenzhen Shenfang Department 189,179.82 139,693.51 189,179.82 139,693.51 Store Co. Ltd. ShenYang Tongxin real estate -- -- 16,841,909.86 -- development limited company Shenzhen Real Estate 927,136.22 901,956.22 927,136.22 901,956.22 Consolidated Service Co., Ltd. Shenzhen City Shenfang 8,327,180.71 7,064,855.69 8,327,180.71 7,064,855.69 Construction and Decoration 111 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 31 December 2007 31 December 2006 Name of related parties Provision for Provision for Amount Amount bad debts bad debts Materials Ltd. Shenzhen City Wing Wah 1,187,723.46 -- 475,223.46 -- Engineering Ltd. Shenzhen Bafangtong Railway -- -- 814,000.00 -- Storage & Transportation Co.,Ltd Xi’an Fresh Peak property 8,419,205.19 -- 8,419,205.19 -- management& Trading Co.,Ltd Account Shenzhen Fresh Peak property 4,333,055.00 -- 4,334,344.19 -- receivable consultant Co.,Ltd Shenzhen Tefa Real Estate Other payables 598,012.16 598,012.16 Consolidated Service Co., Ltd. Shenzhen Shen Fang Industrial 1,534,854.91 1,534,854.91 Development Co., Ltd Shenzhen Zhonggang Haiyan 135,853.52 135,853.52 Enterprise Ltd. Shenzhen Dongfang New world 902,974.64 902,974.64 store Co.,Ltd Shenzhen Xin Dongfang Store 1,394,704.21 1,394,704.21 Ltd. Guangdong Province Fengkai Lian Feng Cement 1,880,577.00 1,880,577.00 Manufacturing Co., Ltd. Shenzhen Shatoujiao Nantian 1,200,000.00 1,200,000.00 Store NOTE 11、Exchange of non-monetary assets No disclosures for exchange of non-monetary assets in 2007 NOTE 12、Share-based payment No Share-based payment contracts. NOTE 13、Debt restructurings 112 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 No debt restructurings disclosures this year. NOTE 14、Segment reporting 2007 provide information in main operations reportings Real estate and Property Hotels and other real estate management Construction services counteract Total leasing business business 1、Revenue 560,193,019.83 86,164,402.18 173,270,962.61 35,760,689.82 (10,261,548.00) 845,127,526.44 Including:Revenue external transactions 560,193,019.83 86,164,402.18 173,270,962.61 35,760,689.82 845,127,526.44 2、operating expenses 529,850,172.01 82,813,058.99 172,727,312.82 43,774,564.07 (8,518,100.25) 820,647,007.64 3、Operating profit(loss) 30,342,847.82 3,351,343.19 543,649.79 (8,013,874.25) (1,743,447.75) 24,480,518.80 4、Total assets 2,840,169,519.26 80,989,252.36 50,382,892.95 418,801,223.66 (1,087,617,951.63) 2,302,724,936.60 973,493,254.16 5、Total liabilities 1,499,620,364.41 81,303,003.04 34,876,918.30 (1,467,940,505.60) 1,121,353,034.31 2006 provide information in main operations reportings Real estate and Property Hotels and other real estate management Construction services counteract Total leasing business business 1、Revenue 638,060,916.90 88,041,816.46 177,026,747.42 97,806,082.44 (5,000,000.00) 995,935,563.22 including：Revenue external transactions 638,060,916.90 88,041,816.46 177,026,747.42 92,806,082.44 995,935,563.22 2、operating expenses 607,667,605.79 84,801,484.00 179,545,607.95 117,697,907.11 (10,949,751.54) 978,762,853.31 3、Operating profit(loss) 30,393,311.11 3,240,332.46 (2,518,860.53) (19,891,824.67) 5,949,751.54 17,172,709.91 4、Total assets 2,694,501,056.35 106,221,303.79 59,441,476.89 486,942,600.65 (954,157,974.52) 2,392,948,463.16 5、Total liabilities 1,586,102,806.11 112,170,698.82 44,472,863.63 1,073,064,744.94 (1,540,288,539.54) 1,275,522,573.96 113 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 15、Contingencies 1、 Significant litigation （ 1） On March 21 1997,the company executed an agreement with Baoxin real Estate Development (Shenzhen) Company limited ( called Baoxin below) to sell its share of 68% interest in Guoxin Building at a consideration of RMB145,000,000.In addition, the construction cost for the building of RMB15,000,000 was undertaken by Baoxin. Baoxin has paid a deposit of RMB45, 000,000. But outstanding purchase consideration of RMB100, 000,000 and the construction cost of RMB15, 000,000 have still not been settled. So the company lodged a claim. As sentence by the Guangdong High People’s Court on September 28 2002, Baoxin should pay the outstanding purchase consideration of RMB 98,948,060 and the interests to the company. Upon a second sue of the case in 2003, the outcome remained unchanged and in the favour of the company. Up to 31 December 2007, the amount RMB 63,701,645.33 has been received on the case. The company has made an agreement with BaoXin on Feb 22 2008. According to the agreement, the company should give up the rights of disposal and arrangement of BaoXin Building in LongGang District on the condition of BaoXin payment RMB 15,000,000.00 to the company Up to 31 December 2007, the accounting treatment has been finished about the case. （ 2）A subsidiary, Fresh Peak Holding limited company (called Fresh Peak below),entered into a joint venture agreement with a third party to establish a contractual joint venture, Xi’an Fresh Peak Estate Commercial limited company (called Xi’an Fresh Peak Estate below) in Xi’an. Its principal activities are the development and management of commercial buildings in Xi’an. Pursuant to the aforesaid agreement, Fresh Peak hold 84% of Xi’an Fresh Peak and the third party provide the land for development and hold 16% of Xian Fresh Peak. The development of the commercial building started in November 1995 and suspended in 1996 due to disagreement between Fresh Peak and the third party. In 1997, the Xi’an government mandatorily received the project and transferred to an enterprise under a department of the Xi’an government. Xi’an Fresh Peak then lodged a litigation regarding the compensation. Subsequently, the court judgment in Xi’an was that 1: the enterprise of the department of Xian government has to pay compensation to Xian Fresh Peak of RMB36 million plus interest and 2: the development of Xian government is jointly liable for the interest payment. 114 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Up to Dec 31 2007, the company has received RMB 11,500,000.00. The two defendants still owe Xi’an Fresh Peak RMB 21million of the unauthority credit cost and its interest. The case still in the process but get no actual performace in the period of this report. Up to Dec 31 2007, the carrying value of long-term investment to Xi’an Fresh Peak is RMB 32,840,729.61( RMB 20,673,831.77 of the impairment provision), and the receivables to it is the amount of RMB 8,419,205.19 （ 3） On January 8, 1985, The Contract for Cooperative Operation and Development of Tourism Company was made by and between our company and General Company of Agriculture, Industry & Commerce of Boluo County, which is former name of Luofushan Tourism Co., Ltd. The two parties agreed that: Tefa Company shall invest RMB30 million yuan to establish Luofushan Tourism Co., Ltd to develop Luofushan Scenic Spot with the cooperative period of 30 years. And a Supplementary Agreement was made on June 16, 1986, in which the two parties agreed that Luofushan Tour Co., Ltd. shall be responsible to pay off RMB10 million yuan of principal and interest within eight years (1988-1995), and to pay RMB 6 million of after-tax dividend to Tefa Co., Ltd within the period from 1996 to 2002, the cooperative period was changed into 18 years. And on the termination of the contract duration the cooperative project shall be operated by our company from Tefa Company. On June 2, 1989, a Supplementary Agreement Ⅱ was made by and between our company and Luofushan Tourism Co., Ltd., which confirmed the investment of RMB10 million yuan of our company (including RMB400,000 yuan of prepaid interest and RMB9.6 million yuan of actual investment, and agreed that Luofushan Tour Co., Ltd. shall be responsible to pay off RMB14.796 million yuan of principal and interest, and to pay RMB7.07 million yuan of after-tax dividend to our company within the period from January 1999 to December 2002.On February 9, 2002, our company signed the Agreement for Terminating ‘The Contract for Cooperative Operation and Development of Tourism Company’ and the Supplementary Agreements thereof and Liquidation of Principal and Interest Investment with Luofushan Tourism Co., Ltd. and Luofushan Administration Committee, which agreed that Luofushan Administration Committee shall be responsible to pay off RMB7 million yuan of investment by four installments before the end of October, 2002, our company would not claim the RMB7.07 million yuan of dividend if the payment was made on time, or we shall claim the dividend, interest and related penalty, etc. However, Luofushan Tourism Co., Ltd. didn’t perform the agreement within the designated period after its payment of RMB3 million yuan. After that, three supplementary agreements was made on March 5, 2004, January 9, 2005 and September 28, 2005 respectively to delay the period of payment, but Luofushan Tour Company didn’t keep its 115 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 promise, consequently, on April 17, 2006, our company filed a lawsuit against Luofushan Tourism Co., Ltd to Huizhou Intermediate People’s Court to demand Luofushan Tourism Co., Ltd. and Luofushan Administration Committee to pay RMB12.57 million yuan of the arrearages and RMB2.647 million yuan of interests and undertake all the litigation fees. On April 29, 2007, Huizhou Intermediate People’s Court made the judgement, but our company didn’t agree with the judgement and appealed to Guangdong Supreme People’s Court, which made the judgement on December 21, 2007 and our company received the Final Judgement on January 6, 2008, which said: 1. Luofushan Tourism Co., Ltd. should pay off RMB9.6 million yuan to the real estate company of Shenzhen within ten days since the effective day of this judgement; 2. Luofushan Tourism Co., Ltd. should pay off the interests of RMB9.6 million yuan produced in the actual occupied period according to the interest rate of loan of the People’s Bank of China in the same period within ten days since the effective day of this judgement, the interest of 4.4 million yuan shall be calculated from May 1, 1986 till it is paid off, and the interest of 4.1 million yuan shall be calculated from February 1, 1988 till it is paid off and the interest of 1.1 million yuan shall be calculated from June 15, 1989 till it is paid off; RMB8.58 million yuan of paid interest shall be deducted from the interest sum; 3. Luofushan Administration Committee shall undertake one third of the debts which Luofushan Tourism is unable to pay; 4. Provided that Luofushan Tourism Co., Ltd. and Luofushan Administration Committee fail to perform their duties within the designated period of this judgement, the interest of debts within the delayed period shall be doubled; 5. Luofushan Tourism Co., Ltd. undertakes all the litigation fees (RMB167,714 yuan) of the first instance and the second instance, and pays them to our company during payment of debts. 2、 Debts guarantees Up to 31 December 2007, balance of guarantees are as follows: Amount Currency (in ten thousand Yuan) Internal guarantees in the group RMB 2,800.00 Guarantees for outstanding mortgage RMB 2,105.70 NOTE 16、Commitments No Commitments disclosures 116 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 NOTE 17、other significant events: About land value-added tax withholding The land value-added tax policy adopted of the notice signed by Shenzhen Local Inland Revenue Department on 2 November,2005. From 1 November 2005, the company should pay land value-added tax if they gain income from the real estate sales. Adopt the way of prepaid first and liquidation later to the real estate company, the pre-charge rate of villas, resorts, hotel-style apartment on sales of 1%, while 0.5% of other real estate sales. According to the notice of land value-added tax liquidation management signed by State Inland Revenue Department on December 28,2006. From February 1,2007 , liquidate of projects which approved by government department as units. If the project in phased development, take the phased projects as units to liquidate. According to the policy mentioned above, up to December 31,2007. The project of “ period of 6、 7、 8 villas of Jinyedao ” pre-paid land value-added tax of 5% on sales revenues. The land value-added tax withholding this year is RMB 33,327,984.00 according to “the temporary regulation of value-added tax measurement”. For detail policies have not been announced, the specific impact amount is uncertain now for the company. NOTE 18、Extraordinary gains or losses and Financial indicators （ 1） extraordinary gains and losses * The extraordinary gains or losses incurred in the reporting period are as follows: Amount Gain from disposling of shares of Shenzhen Bafangtong 16,366,000.00 Railway Storage & Transportation Co.,Ltd Gain from disposling of shares of Shenyang TonXin Real 11,019,009.15 Estate Development Co.,Ltd The balance of welfare funds payable is wright-off 8,195,054.65 Gain on disposal of fixed assets (19,680.02) net value of non-operating income and expenses (1,616,821.83) Deduct the effect by income tax (3,438,682.92) Total 30,504,879.03 * According to the “NO.1 answer of standardize information disclosure about public 117 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 securities companies—extraordinary gains or losses ” （2） Net assets yield and Earnings per share Profit during Net assets yield (%) Earnings per Items the reporting share ( yuan/share) period Fully Weighted basic diluted diluted average 2007 Net profit parent company to common shareholders 39,007,992.54 3.28 3.39 0.0386 0.0386 Net profit parent company to common shareholders after deducting extraordinary gains 8,503,113.51 0.72 0.74 0.0084 0.0084 or losses NOTE 19、References for comparison of financial statements during transition period a) The adjustment procress on the initial implement day of owner’s equity Difference adjustment of Shareholder Equities No. Notes Items Amount To correct Corrected amount amount Shareholder equities on December 31,2006 1,093,956,870.51 1,093,956,870.51 ( old accounting standards) 1 -- -- -- Differences of long-term equity investments including. ： Difference of long-term equity investments resulting from consolidation under the (1,503,986.27) -- (1,503,986.27) same control Other lender differences of long-term equity -- -- -- investments accounted with the method of equity 2 Investment properties measured according to -- -- -- fair value 3 Additional depreciation of previous year for -- -- -- expected disposal costs of asset 4 Termination Compensation under confirming -- -- -- conditions of provisions 5 -- -- -- Share-based payments 6 Restructuring obligation under confirming -- -- -- conditions of provisions 7 -- -- -- Consolidation of entities Including: book value of goodwill of -- -- -- consolidation under the same control Write back of devaluation of goodwill upon new -- -- -- accounting standards 8 Fair value adjustment for the change in -- Available-for –sale financial assets 9 Financial liability measured according to fair value -- -- -- whose change is accrued to the current gain and loss 10 Increased equity due to the split of financial -- -- -- tools 11 -- -- -- Derivative financial tools 12 1 30,433,178.19 1,261,111.08 31,694,289.27 Income tax 13 2 (4,960,550.27) 11,524,218.66 6,563,668.39 Others 14 3 Adjustment of minority shareholders’equity (12,705,986.19) (578,966.51) (13,284,952.70) upon new accounting standards 118 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 Shareholder equities on January 1,2007 ( new 1,105,219,525.97 12,206,363.23 1,117,425,889.20 accounting standards) Notes： *1 The difference of RMB 1,260,111.08 mainly is due to the deductible temporary differences re-measurement of the company and its subsidiaries according to the new accounting standard. Using the retrospective application method. *2 the difference of RMB 11,524,218.66 mainly beacuse: Beijing Shengfang property management Co.Ltd., Shenzhen Lian Hua Industry and Trading Co. Ltd. are not included in the scope of business combination.but in accordance with Accounting Standard for Business Enterprise No.33—Consolidated Financial Statements, they should be in the scope. *3 the difference of RMB (578,966.51) is the re-measurment of minority interest in accordance with actual situation. b） The adjustment process of Income Statement in 2006 It assumes that implement the new accounting standards(No.1 to No.37) from 2006, the differences are described as follows compare with the old accounting standards. Amount Net profit of 2006 ( old accounting standards) 19,259,485.35 Plus: total retroactive adjustment amounts 1,004,558.68 including： Investment gain 1,503,986.27 Assets impairment loss -- Gains frm change of fair value -- Income tax -- others (499,427.59) Less: retrospective adjustments affected minority profit or loss 113,675.54 Net profit of 2006 ( new accounting standards) 20,150,368.49 Information for assuming fully implementation of the new accounting standards Plus: other projects affected amounts* (1,268,763.04) Including: Assets impairment loss( provisions for fixed assets (1,268,763.04) impairment) plus: retrospective adjustments affected minority profit or loss 113,675.54 119 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO.,LTD For the year ended 31 December 2007 plus：minority profit or loss of original statements -- Simulation net profit for 2006 18,995,280.99 *Affected amount of net profit by the change of combination scope c) Re-measurement of financial indicators for 2006 Earnings per share Net assets yield（%） （RMB/share） Profit during the reporting period Fully diluted Weighted average basic diluted The original The original Re-measurement Re-measurement Re-measurement Re-measurement report report Net profit attributable to 1.76 1.78 1.88 1.89 0.0199 0.0199 common shareholders Net profit attributable to common shareholders after 4.97 5.27 5.09 5.59 0.0589 0.0589 deducting extraordinary gain or loss NOTE 20、supplementary informations Financial statements difference adjustment according to different accounting standards. （ units ： RMB） CAS IFRS Net profit 39,007,992.54 39,007,992.54 Net assets 1,188,146,644.01 1,188,146,644.01 Difference No difference These financial statements have been issued in Chinese. This English translation copy is prepared for reference only. If there is any conflict of meaning between the Chinese and English versions, the Chinese version will prevail. 120