*ST珠江B(200505)2007年年度报告（英文版）

HAINAN PEARL RIVER HOLDINGS CO., LTD. ANNUAL REPORT 2007 §1. Important Notice 1.1 The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives of Hainan Pearl River Holdings Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. 1.2 No director stated that he/she couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Daxin Certified Public Accountants issued a standard unqualified Auditor’ s Report for the Company. 1.4 Mr. Zheng Qing, Chairman of the Board as well as General Manager, Mr. Chen Binglian, Deputy General Manager as well as Chief Financial Officer Mr. Yang Daoliang hereby guarantee that the financial report enclosed in this Annual Report 2007 is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock Pearl River, Pear River B Stock code 000505, 200505 Listed stock exchange Shenzhen Stock Exchange Registered address and office address 29/F, Royal Empire Building, Pearl River Plaza, Binhai Avenue, Haikou Post code 570125 Internet website of the Company Naught E-mail of the Company Hnpearl@public.hk.hi.cn 2.2 Contact person and method Secretary of the Board Securities Affairs Representative Name Feng Pai Gu Lirong Contact 29/F, Royal Empire Building, Pearl River 29/F, Royal Empire Building, Pearl River address Plaza, Binhai Avenue, Haikou Plaza, Binhai Avenue, Haikou Telephone (86)898-68581888 ext. (86)898-68581888 ext. Fax (86)898-68581026 (86)898-68581026 E-mail Hnpearl@public.hk.hi.cn Hnpearl@public.hk.hi.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/ decrease than 2007 2006 2005 last year（％） Before After Before After After adjustment adjustment adjustment adjustment adjustment 153,716,14 Operating income 493,820,980 499,154,377 -69.20 28,585,396 39,857,816 8 Total profit -18,615,927 83,456,457 83,458,598 -122.31 -86,488,082 -86,471,598 Net profit attributable to shareholders -31,199,957 59,962,863 58,326,224 -153.49 -79,937,133 -85,463,460 of listed company Net profit after deducting non-recurring gain and loss attributable to -32,939,500 9,059,219 7,431,868 -543.22 -84,664,110 -90,190,437 shareholders of listed company Net cash flow arising from operating -21,343,983 137,509,537 137,680,434 -115.50 -52,584,829 -48,890,544 activities Increase/ decrease than At the end At the end of 2006 the end of the last year At the end of 2005 of 2007 （％） Before After Before After adjustment adjustment adjustment adjustment 939,167,23 Total assets 739,722,953 740,910,491 26.76 850,866,853 855,406,519 8 195,690,31 Owners’ equity (shareholders’ equity) 226,890,270 226,890,270 -13.75 71,924,850 71,924,850 3 3.2 Major financial indexes Unit: RMB Increase/ decrease than 2007 2006 2005 last year（％） Before After adjustment Before After adjustment adjustment adjustment Basic earnings per share -0.07 0.14 0.14 -150.00 -0.21 -0.23 Diluted earnings per share -0.07 0.14 0.14 -150.00 -0.21 -0.23 Basis earnings per share after deducting -0.08 0.02 0.02 -500.00 -0.22 -0.24 non-recurring gain and loss Fully diluted return on equity -15.94% 26.43% 25.71% -41.65 -111.14% -118.82% Weighted average return on equity -14.77% 40.13% 43.76% -58.53 -69.72% -74.54% Fully diluted return on equity after deducting -16.83% 3.99% 3.28% -20.11 -117.71% -125.40% non-recurring gain and loss Weighted average return on equity after -15.59% 6.06% 5.58% -21.17 -73.84% -78.66% deducting non-recurring gain and loss Net cash flow per share arising from -0.05 0.32 0.32 -115.63 -0.14 -0.13 operating activities Increase/ decrease than At the end At the end of 2006 the end of the last year At the end of 2005 of 2007 （％） Increase/ decrease At the end At the end of At the end of At the end than the end of the At the end of 2005 of 2007 2006 2007 of 2006 last year（％） Net assets per share attributable to 0.46 0.53 0.53 -13.21 0.19 0.19 shareholders of listed company Items of non-recurring gains and losses v Applicable □Inapplicable Items of non-recurring gains and losses Amount Gains and losses arising from disposal of non-current assets 8,654.00 Accrued payroll-welfare offset 1,477,392.82 Other net non-operating income 124,010.53 Impact on Income tax 116,812.29 Impact on minority interest 12,673.85 Total 1,739,543.49 Items measured by fair value □Applicable √Inapplicable 3.3 Difference in net profit as audited by PRC GAAP and IFRS vApplicable □Inapplicable Net profit of 2007 Net assets as for 31 Dec. 2007 RMB’000 RMB’000 As reported in statutory accounts -30,363 210,183 Impact of IFRS adjustments - unrecognition of reversal of provision for - -44,035 impairment loss for an available-for-sale investment - amortization of land use right - -1,337 - adjustment to income from an associate - -9,929 Amount after adjustment -30,363 154,882 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share (Unit: Share) Before the change Increase/decrease in this time (+, - ) After the change Proportio Issuance of Bonus Subto Proportio Number Number Other Number n (%) new shares shares tal n (%) I. Shares subject to moratorium 206,770,609 48.45 -76,030,000 130,740,609 30.64 1. Shares held by the State 2. Shares held by state -owned legal persons 120,023,678 28.13 -2,242,700 117,780,978 27.60 3. Shares held by other domestic investors Including: Shares held by domestic legal persons 86,721,300 20.32 -73,787,,300 12,934,000 3.03 Share held by domestic natural person 25,631 0.01 25,631 0.01 4. Shares held by fo reign investors Among which: Shares held by overseas legal persons Shares held by overseas natural person II. Shares not subject to moratorium 219,974,795 51.55 76,030,000 296,004,795 69.36 1. RMB ordinary shares 154,999,795 36.32 231,029,795 54.14 2. Domestically listed foreign shares 64,975,000 15.23 64,975,000 15.23 3. Overseas listed foreign shares 4. Others III. Total shares 426,745,404 100 426,745,404 100 Statement of change in shares subject to trading moratorium Unit: Share Number of shares Number of Number of Number of subject to trading shares can be additional shares Shares subject to Date of listing for moratorium at the listed for subject to trading trading Reason for trading moratorium Name of shareholders trade beginning of the year trading in this moratorium in this moratorium at the year year end of the year Beijing Wanfa Real Estate Development Co., Ltd. 107,993,698 0 3,289,780 111,283,478 Reform of shares subject to trading moratorium 17 Aug. 2009 Guangzhou Lishengde Investment Co., Ltd. 17,000,000 17,000,000 4,896,000 4,896,000 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Central South Investment and Management Co., Ltd. 11,000,000 11,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Henglong International Co., Ltd. 13,570,000 13,570,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Yueyin Science & Technology Co. Ltd 2,660,000 2,660,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Wanxin Investment Management Co., Ltd 200,000 200,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Guilin Ciangguiyuan Restaurant Co., Ltd 535,620 474,000 -61,620 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Rongxin Investment Consulting Co., Ltd 1,469,000 1,300,000 -169,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Baiqin Investment Consulting Co., Ltd 500,000 500,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Pulin Investment Management Co., Ltd 452,000 400,000 -52,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shenzhen Ping An Future Brokerage Co., Ltd 2,599,000 2,300,000 -299,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Jiangmen Huisheng Investment Management Co., Ltd 2,200,000 2,200,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Langdi Industrial Co., Ltd 100,000 100,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Funan International Trust & Investment Co.,Ltd 8,836,600 7,820,000 -1,016,600 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Ping An Insurance (Group) Company of China, Ltd. 3,898,500 3,450,000 -448,500 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Beijing Huixin Anda Scientific & Technology Co.,Ltd 1,000,000 1,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Jiaqi Trading Co., Ltd 300,000 300,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Jiaqi Trading Co., Ltd 1,299,500 1,150,000 -149,500 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Dazhanlan Machinery Co., Ltd 56,500 50,000 -6,500 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Jinghai Construction Installation Engineering Co.,Ltd. 67,800 60,000 -7,800 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Parker Culture & P.E. Information Co., Ltd 56,500 50,000 -6,500 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Faxiong Information Consulting Co., Ltd 45,200 40,000 -5,200 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Sikeda Commercial Consulting Co., Ltd 730,000 730,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Ruilida Assets Management Service Co., Ltd 1,000,000 1,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Qingpu Aisite Knitting Factory 169,500 150,000 -19,500 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Zhenyang Commerce& Trade Co., Ltd 368,380 326,000 -42,380 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Jiachun Commerce & Trade Co., Ltd 1,700,000 1,700,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Mingxin Industrial & Trading Co., Ltd 1,250,000 1,250,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Hongxin Economic Development Co., Ltd 1,450,000 1,450,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Denian Trade Co., Ltd 1,000,000 1,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Shanghai Yuemei Trade Co., Ltd 1,000,000 1,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Fuzhou Maidian Adverting Co., Ltd 1,000,000 1,000,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Hainan Tianxu Investment Consulting Co., Ltd 500,000 500,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Yangpu Zhongyang Industrial Co., Ltd 300,000 300,000 0 Reform of shares subject to trading moratorium 27 Aug. 2007 Haikou Ningxia Economic Development Co., Ltd 779,700 0 -89,700 690,000 Reform of shares subject to trading moratorium Note 1 Shanghai Dekai Clothing Co., Ltd 113,000 0 -13,000 100,000 Reform of shares subject to trading moratorium Note 1 Dongyang City Huayi Computer Co., Ltd 226,000 0 -26,000 200,000 Reform of shares subject to trading moratorium Note 1 Shanghai Pei Industrial & Trading Co., Ltd 113,000 0 -13,000 100,000 Reform of shares subject to trading moratorium Note 1 Shanghai Chenwen Trade Co., Ltd 113,000 0 -13,000 100,000 Reform of shares subject to trading moratorium Note 1 Shanghai Minxiong Trade Co., Ltd 565,000 0 -65,000 500,000 Reform of shares subject to trading moratorium Note 1 Guangzhou Pearl River Foreign Capital Contraction Design Reform of shares subject to trading moratorium 5,532,480 0 -5,532,480 0 Note 2 Institute, Hainan Branch China Construction Bank Tianjin Jinghai Sub-branch 1,299,500 0 -149,500 1,150,000 Reform of shares subject to trading moratorium Note 1 Hebei Securities Co., Ltd. 6,497,500 0 6,497,500 Reform of shares subject to trading moratorium Note 3 Shenzhen Gintian Industry Co., Ltd 2,599,000 0 2,599,000 Reform of shares subject to trading moratorium Note 3 Nanhua Finance Co., Ltd 1,299,500 0 1,299,500 Reform of shares subject to trading moratorium Note 3 Guangzhou Pearl River Industrial Group Finance Co., Ltd 1,299,500 0 1,299,500 Reform of shares subject to trading moratorium Note 3 Total 206,744,978 76,030,000 0 130,714,978 Note 1: The shareholders repaid the consideration of share merger reform of Beijing Wanfa Real Estate Development Co., Ltd, the shares subject to trading moratorium would list for trade one time half a year according to provisions stipulated by Shenzhen Stock Exchange. It was forecast to release in Feb. 2008. Note 2: The shares subject to trading moratorium held by the shareholders judicially transferred to Guangzhou Lishengde Investment Co., Ltd Note 3: The shareholder has not repaid the consideration of share merger reform of Beijing Wanfa Real Estate Development Co., Ltd, and would handle the list events after repayment. 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders holding shares not subject to moratorium Total number of shareholders 33957 Particulars about shares held by the top ten shareholders Type of Total number of shares Number of shares Full name of Shareholders Type of shareholders Proportion shareholders held subject to moratorium Beijing Wanfa Real Estate Development Co., Ltd. State-owned legal person 26.08 111,283,478 111,283,478 0 Henglong International Co., Ltd. Domestic non-state-owned legal person 3.18 13,569,900 0 0 Guangzhou Lishengde Investment Co., Ltd Domestic non-state-owned legal person 2.55 10,896,000 4,896,000 0 Hebei Securities Co., Ltd State-owned legal person 1.52 6,497,500 6,497,500 0 Anhui Hengrun Mining Research & Development Co., Ltd Domestic non-state-owned legal person 1.33 5,669,138 0 0 Yang Bochen Domestic natural person 1.28 5,450,000 0 0 Liu Nan Domestic natural person 1.17 5,000,000 0 0 Jian Yunfen Domestic natural person 1.39 4,859,500 0 0 Gu Hongjuan Domestic natural person 0.94 4,007,700 0 0 Ping An Insurance Company Of China, Ltd Domestic non-state-owned legal person 0.81 3,450,000 0 0 Particulars about shares held by the top ten shareholders of tradable share Name of shareholders Numbers of shares not subject to moratorium held Type of shares Henglong International Co., Ltd 13,569,900 RMB ordinary shares Guangzhou Lishengde Investment Co., Ltd. 6,000,000 RMB ordinary shares Anhui Hengrun Mining Research & Development Co., Ltd 5,669,138 RMB ordinary shares Yang Bochen 5,450,000 RMB ordinary shares Liu Nan 5,000,000 RMB ordinary shares Jian Yunfen 4,859,500 RMB ordinary shares Gu Hongjuan 4,007,700 RMB ordinary shares Ping An Insurance Company Of China, Ltd 3,450,000 RMB ordinary shares Yang Jianhong 2,980,000 RMB ordinary shares Shenzhen Ping An Future Brokerage Co., Ltd 2,300,000 RMB ordinary shares Explanation on associated relationship among the top ten shareholders Among the above shareholders, there existed no associated relationship between the first largest shareholder and the other or consistent action shareholders. Neither of the first largest shareholder is acting-in-concert with any other shareholders as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among other shareholders; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. 4.3 Particulars about the controlling shareholders and actual controllers of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controllers of the Company □Applicable √Inapplicable 4.3.2 Introduction to detail situation for the controlling shareholders and the actual controllers Beijing Wanfa Real Estate Development Co., Ltd. (“Wanfa Real Estate”), the first largest shareholder of the Company, was established in Nov. 1995 with registered capital amounting to RMB 280 million, whose legal representative is Meng Qiao. Its main business includes the development and operation of real estate. As a joint-stock company, its major shareholders are Beijing Xinxing Real Estate Development General Company, Beijing Jiahengtai Industrial Co., Ltd., Beijing Shengcai Science and Trade Co., Beijing Jiuzhu Property and Management Co., Ltd. and Beijing Yitai Co.. The actual controller of the Company’s controlling shareholder, Beijing Xinxing Real Estate Development General Company (“Xinxing Real Estate”) is one of the shareholders of Beijing Wanfa Real Estate Development Co., Ltd., who was established in 1992 with registered capital of RMB 10 million and legal representative Zheng Qing. The said company is principally engaged in the development and operation of real estate as a collective enterprise. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows: State-owned Assets Supervision and Administration Commission of Beijing Municipal Government Beijing Xinxing Real Estate Development General Company 18.065% 80% Jiahengtai Industrial Co., Ltd. 19.253% Jiuzhu Property Management Co., Ltd 14.968% Shengcai Science & Trading Corporation 17.955% Tianzheng Construction Supervision Co., Ltd. 14.809% Yitai Corporation 14.950% Beijing Wanfa Real Estate Development Co., Ltd. 25.31% Hainan Pearl River Holdings Co., Ltd §5 Particulars about Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives and their remuneration Drawing payment Total payment Shares from the Shares Reason drawn from the held at shareholding Name Title Sex Age Office term held at the for Company in the the companies or other year-begin change report period year-end related parties or (RMB’0000) not (Yes / No) Zheng Qing Chairman of the Board / 21 No Male 41 20 Jul. 2006-20 Jun. 2009 34175 34175 Naught General Manager Peng Shuyin Director Male 50 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Wu Xiaojing Director Male 56 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Shi Yonghui Director Male 43 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Zhang Jian Director Male 54 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Tan Shuguang Director Male 37 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Yang Kaijun Independent Director Male 51 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 No Zhang Taowei Independent Director Male 44 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 No Yang Weiping Independent Director Female 48 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 No Chairman of Supervisory Sun Xianli Male 61 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Committee She Jianhui Supervisor Female 54 20 Jul. 2006-20 Jun. 2009 0 0 Naught 0 Yes Yang Daoliang Supervisor Male 37 20 Jul. 2006-20 Jun. 2009 0 0 Naught 8 No Feng Pai Deputy General Manager Male 44 20 Jul. 2006-20 Jun. 2009 0 0 Naught 13 No Chen Binglian Deputy General Manager Male 48 20 Jul. 2006-20 Jun. 2009 0 0 Naught 13 No Total - - - - 34175 34175 Naught 55 - Equity of the Company held by the above person and quality of shares subject to moratorium Applicable v Inapplicable §6 Report of the Board of Directors 6.1 Discussion and analysis by the management team 2007, the state implemented macro-control policy over the real estate market continuously , through financial control and land control, these two main lines to curb speculation, improve market structure and ease the supply and demand problems. In the long run, policies to regulate and control the real estate industry were beneficial for the sustained and healthy development in view of situation of the people’s livelihood, which also standardized the industry order. The long-term good situation of China economy and the increasing urbanization process would provide sufficient space for superior enterprises’development. 2007 was the year that the link between the past and future after finishing the share merger reform of Hainan Pearl River Holdings Co., Ltd., which was also accumulated year, the Company pushed forward its housing estate and tourism projects steadily, focusing on the real estate as major business. (I) Opening of Days Hotel & Suits Sanya Resort The five-star hotel located in Sanya bay invested by the Company was finished comprehensively in 2007, which was managed by the global rankings United States Days Hotel Management Company to manage in ent rust. After intense and orderly transfer of the works and opening preparation, Days Hotel & Suits Sanya Resort opened on Dec. 28; meanwhile, the three villas matching with the hotel were completed and transferred for use. Overall hotel has a thick tropical coastal leisure style, shaped parallel font located in Sanya Bay, with 188 sets including the president and the executive suites of rooms, occupying building area of 27,000 square meters, the volume rate was only 0.59, Green area was as high as 70%, large SPA, VIP conference center, and other facilities, which was a full- featured, well-equipped, high taste garden-style resort hotel. (II) Accomplishment of starting preparation of the 2nd phase of Wuhan project 1014 sets house of 1st phase of Qincheng project in Zhujiang, Hubei were sold out including 85 sets house left in 2007, the amount of sale reached to RMB 560.00 million, and supporting community schools, kindergartens and clubs have delivered for use. Good performance and brand development of the 1st phase of project laid a solid foundation for 2nd phase of project. 2007 was the year that linked between past and future year for the development of project in Zhujiang, Hubei, the Company would fulfill the preparatory work for the projects. In design of project, summing up the shortcomings and good experience from the 1st phase of project and combining with the requirements of the new policies,he Company decided the nature of products and design plan after communicating with design parties and related professional units for 19 times, which took the most of the volume, optimized the product configuration and increased our market competitiveness at the same time. The Company received the state-owned land use certificates for 2nd phase of project in July; the layout plan was approved in August; obtained the construction project planning permit in October; obtained the construction work permit procedures on Dec. 11, which lasted 13 months. The Company finished the development construction procedure of the 2nd phase of project with the fully cooperation of more than 10 companies and all department of the Company, through examination and approval of almost 50 related departments in Wuhan city and district. The pile foundation project was carried out in October, and the A and B districts of 2nd phase of project was started on Jan. 6. (III) Fully implementation of third phase of Longzhu new town The personnel and organization of project of the third phase of Longzhu new town were prepared well; the pre-construction work was implemented fully. The plan of this project was shaped initially with the fully affirmation from the leaders of Haikou after communicating with municipal government and planning departments for many times, and further revised up to the requirement of construction application. Meanwhile, the market research and positioning, seismic safety evaluation of the red line pile point survey work, the investigation of original pile foundation, removal work etc. was in a tense and orderly manner, aiming to start working at the first half year of 2008 in line with the requirement of key projects in Haikou. (IV) Planning and preparing the new projects Sanya Golf projects and the development of cooperation projects in Hefei were examined and approved at the Boarding meeting 2007. The 5th Meeting of the 5th Board of Directors of the Company held in Apr. examined and approved the resolution that taking the advantage of the Company’s good location in Hainan to develop the tourism property projects, planning to invest the construction of Sanya Nantian Golf Club with lease land . At present, the project has already set up, and went on the hard and meticulous work on the stadium land with the local government and farmers. The planning and preparation of new projects wo uld reserve force for the company’s main business development in future. 6.2 Statement of main operations classified according to industries or products Unit: RMB Increase/decrease of Increase/decrease of Increase/decrease of Classified according Income from income from main cost of main profit ratio of main Cost of main Profit ratio of main to industries or main operations compared operations compared operations compared operations operations ( % ) products operations with the previous year with the previous year with the previous year (%) (%) (%) Sales of real estate 106,961,905 63,983,019 40.18 -77.17 -80.82 + 11.37 Service of properties management 43,975,332 38,298,184 12.91 55.05 68.18 - 6.8 Tour service 1,055,985 626,465 40.67 -27.58 -49.99 +26.59 6.3 Particulars about main operations classified according to areas Unit: RMB Increase/decrease of income from main operations compared with the Areas Income from main operations previous year (%) Hainan 49,821,646 46.59 Hubei 102,026,575 -78.03 Shanghai 145,000 6.4 Application of the raised proceeds Applicable v Inapplicable Particulars about the changed projects Applicable v Inapplicable 6.5 Application of the non-raised proceeds v Applicable Inapplicable Amount of Earning of Name of project Progress of project project(RMB’0000) project Wuhan Meilin Qingcheng The 1st phase sold out 736 ５７５２ Sanya Wanjia Meritus Hotel Newly Open Naught ４０３２ 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants Applicable v Inapplicable 6.7 The preplan on the profit distribution and capitalization of capital reserve made by the Board of Directors v Applicable Inapplicable In the report period, the Company would conduct neither profit distribution nor converting capital reserve into share capital due to deficit. The Company did not appropriate distribution preplan in cash though the Company achieved the profit in the report period Applicable v Inapplicable §7 Significant Events 7.1 Purchase of assets Applicable v Inapplicable 7.2 Sales of assets Applicable v Inapplicable Influences of events referred in 7.1 and 7.2 to continuity of operation and stability of management level of the Company. Naught 7.3 Significant guarantees Applicable v Inapplicable 7.4 Significant related transactions 7.4.1 Related transactions concerning routine operation Applicable v Inapplicable 7.4.2 Related credits and liabilities current v Applicable Inapplicable Unit: RMB’0000 To supply funds to related Related parties supplies funds to Related parties Related relationship parties Listed Company Occurred Balance at Occurred Balance at the amount the amount period-end period-end Beijing Xinxing Real Estate Development Controlling shareholder of the General Company (the actual controller top one shareholder of the controlling shareholder) 130,650,000.00 204,160,447.00 Beijing Wanfa Real Estate Development The top one shareholder of Co., Ltd. (the controlling shareholder) the Company 55,725,000.00 72,025,000.00 Beijing Yulong Jisheng Real Estate Co., Controlled by the same party Ltd. 0.00 1,500,000.00 Bohua Assets Adiministration Co., Ltd. Controlled by the same party -9,000,000.00 3,200,000.00 Total 177,375,000.00 280,885,447.00 Including: Amount occurred and balance that the Company supplied funds to the controlling shareholder and its subsidiaries was RMB 0.00 and RMB 0.00 respectively in the report period. 7.4.3 Progress of repayment on the capital occupied in the year 2007 Applicable v Inapplicable New capital occupation in the year 2007 Applicable v Inapplicable In case of the Company’s failure to complete the repayment of the capital occupation of non-operating as at the end of 2007, relevant reason, measures for debt repayment and plan for responsibility ascertainment Applicable v Inapplicable 7.5 Entrust financing Applicable v Inapplicable 7.6 Implementation of commitments 7.6.1 The commitments made by the original shareholders holding non-tradable shares during the Share Merger Reform and their implementation v Applicable Inapplicable Name of Implementation Remarks Commitment shareholders of commitments Beijing Wanfa The non-tradable shares held by it should not get listed or Implemented transacted within 36 months since the day of listing and Naught strictly circulating option in A share market. 7.7 Significant lawsuit and arbitrations v Applicable Inapplicable The Company published notices in Securities Times and Hong Kong Ta Kung Pao dated Dec. 4, 2007 that, the Company borrowed the loans RMB 130,000,000.00 from Chongqing Putian Communication Equipment Co., Ltd. with 6 months time limit and 6.804% lending rate per year, which was disclosed in interim report 2007. Because the Company didn’t compensate it exceeding the time limit, Chongqing Putian Communication Equipment Co., Ltd. (The accuser) lodged the civil lawsuit in Chongqing the 5th Internediate People ’s Court, and requested HAINAN PEARL RIVER HOLDINGS CO., LTD.( The defendant) compensated the principal of RMB 130,000,000.000 and corresponding interest ( interest balance was RMB 1,031,940.00 dated Nov. 1, 2007). Then the Company received the civil petition and Document No. 377 of civil ruling with (2007) YWZMCZi from Chongqing the 5th Internediate People’ s Court via e-mail on Nov. 30, 2007. The document No. 377 of civil ruling ordered that 75.00 million shares of Southwest Securities Co., Ltd. held by the Company was sealed up , in accordance with the application for property preservation from Chongqing Putian Communication Equipment Co., Ltd. ( The accuser). It was unknown the influence on the Company because this lawsuit wasn’t heard formally till now, so the possible results as follows: (I) Out of court settlement (II) Disposal of part of guaranty. It was possible that the 2nd result influenced the quality and proportion of shares of the Southwest Securities held by the Company, and couldn’t forecast the influence on future profit of the Company. 7.8 Other significant events and explanation on analysis to their influences and solutions 7.8.1 Securities investment Applicable v Inapplicable 7.8.2 Equity of other listed companies held by the Company Applicable v Inapplicable 7.8.3 Equity of non- listed financial enterprises held by the Company v Applicable Inapplicable Gains Changes on and Proportion of equity of Item of Name of object held by the Amount of initial Quality of Book value at losses in Source of shares of the owners in accounting Company investment share held the period-end the shares Company the report calculation report period period Long-term Direct Equity of Southwest Securities Co., RMB150 million 75 million 3.21% 68,000,451.80 investment investment Ltd. on stock 7.8.4 Trading of shares of other listed companies Applicable v Inapplicable §8 Report of the Supervisory Committee Applicable v Inapplicable §9 Financial Report 9.1 Auditing opinion Auditors’Report Daxin Jing Shen Zi [2008] No.0765 To the Shareholders of Hainan Pearl River Holding Company Limited: We have audited the accompanying financial statements of Hainan Pearl River Holding Company Limited (“the Company”), including balance sheet and consolidated balance sheet as of 31 December 2007, income statement and consolidated income statement, cash flow statement and consolidated cash flow statement, statement of changes in equity and consolidated statement of changes in equity, and notes to the financial statements for the year then ended. I. Management's responsibility for the financial statements The Company's management is responsible for the preparation of the financial statements in accordance with the Enterprises Accounting Standards. The responsibility includes: (1) designing, implementing and maintaining an internal control system for the preparation of the financial statements so that they are free of material misstatement due to frauds or errors; (2) choosing and applying appropriate accounting principles; (3) making reasonable accounting estimates. II. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the Chinese Auditing Standards. Those standards require that we comply with professional ethics, plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. The testing methods and procedures are based on auditor's judgment, including the evaluation of the risk of material misstatement due to frauds or errors. When evaluating risk, we consider the internal control system in relating to financial statements in order to design auditing procedures, but not for the purpose of expressing an opinion on the system’ s effectiveness. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that we have obtained sufficient and appropriate evidence to provide a reasonable basis for our audit opinion. III. Auditing opinion In our opinion, the Company’s financial statements have been prepared in accordance with the Enterprises Accounting Standards, and they fairly present, in all material respects, the financial position of the Company as of 31 December 2007, and the results of its operations and its cash flows for year then ended. DaXin Certified Public Accountants Co., Ltd Chinese Certified Public Accountant: Chen Lixin Beijing ·China Chinese Certified Public Accountant: Zou Chongbo Apr. 14, 2008 9.2 Financial Statement (Attachment) 9.3 Explanation on changes of accounting policy, accounting estimation and settlement method compared with the latest annual report v Applicable Inapplicable 1. Changes of accounting policies On 1 January 2007, the Company performs Enterprises Accounting Standards promulgated by the Ministry of Finance on 15 February 2006. The changes of accounting policies are dealt as follows: (1) Long-term equity investment According to the rules, the Company makes retroactive adjustment for long-term equity investment adopting the equity method originally, which is regarded that the subsidiary adopted cost method initially. In the past year the accumulated profit and loss is RMB 44,094,709.83 and is adjusted to undistributed profit of parent company; initial amount of long-term equity of parent company is decreased by RMB 44,094,709.83, the adjustment doesn’t influence items in consolidated balance sheet. (2) Unrecognized investment losses According to the rules, the excess loss of Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. which is the wholly-owned subsidiary of the Company was list in unrecognized investment losses originally and now is changed to list in undistributed profit, so initial amount of undistributed profit is decreased by RMB 13,958,593.95. (3) Minority interests Hainan Pearl River Estate Cleaning Company which is the subsidiary of the Company was included in the financial statements consolidation scope in 2006 due to its smaller scale. According to the requirements of New Enterprises Accounting Standards, it is included in the consolidation scope in 2007. The comparative data of the financial statements are re-presented at the same time, so initial amount of minority interests is increased by RMB 6,424.55. 2. There was no change of accounting estimates. 9.4 Contents, correct amount, reason and its influence of significant accounting errors Applicable v Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report v Applicable Inapplicable Wuhan Pearl River Meilin Hotel Management Co., Ltd. and Sanya Wanjia Golf Co., Ltd. were the subsidiaries of the Company established in Mar. 2007 and May 2007, which were brought into the consolidated statements. Because the scope of Hainan Pearl River Environmental Projects Co., Ltd., Hainan Pearl River Estate Cleaning Company, Hainan Pearl River Estate Machine Engineering Company and Hainan Pearl River Estate Marketing Co., Ltd. was small, and all these four companies didn’t brought into the financial consolidated statements in 2006, however, according to the requirement of new enterprise accounting standards, those were brought into the financial consolidated statements in 2007. The Company reorganized the date in the profit statement and balance sheet at the same period of the last year, in accordance with the regulations of Questions and Responses of Information Disclosure Standard by Companies Publicly Issuing Securities No. 7 --- Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standard. HAINAN PEARL RIVER HOLDINGS CO., LTD. The Board of Directors Apr. 2008 Consolidated Balance Sheet Dec. 31, 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount at the Amount at the Assets Note year-end year-begin Current assets: Monetary funds V. 1 110,933,403.84 25,848,868.95 Financial assets held for trading Notes receivable Accounts receivable V. 2 2,574,234.70 2,179,360.17 Advances to suppliers V. 3 24,141,033.43 58,655,036.09 Interest receivable Dividend receivable 260,015.00 Other receivables V. 4 95,953,771.19 45,380,433.59 Inventories V. 5 286,795,984.18 309,519,417.34 Non-current asset due within 1 year Other current assets Total current assets 520,658,442.34 441,583,116.14 Non-current assets: Available-for-sale financial assets Held-to-maturity securities Long-term receivables Long-term equity investments V. 6 81,106,599.76 81,000,914.09 Investment real estates V. 7 19,655,005.82 20,558,072.76 Fixed assets V. 8 281,825,967.73 15,740,643.08 Construction in progress V. 9 3,042,163.40 149,805,846.26 Engineering material 606,206.60 Disposal of fixed assets Bearer biological assets Oil and gas assets Intangible assets V. 10 32,272,852.44 31,207,892.14 Expense on research and development Goodwill Long-term prepayments V. 11 1,014,006.50 Deferred income tax assets Other non-current asset Total non-current assets 418,508,795.75 299,327,374.83 Total assets 939,167,238.09 740,910,490.97 Legal representative: Person in change of accounting department: Accounting Supervisor: Consolidated Balance Sheet (Con.) Dec. 31, 2007 式 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount at the Amount at the Liabilities and owners’equity Note year-end year-begin Current liabilities: Short-term loans V. 14 42,900,000.00 68,880,000.00 Financial liabilities held for trading Notes payable Accounts payable V. 15 64,703,931.72 45,930,617.01 Advances from customers V. 16 2,957,171.99 12,781,090.68 Accrued payroll V. 17 2,737,249.57 3,271,732.88 Taxes payable V. 18 7,993,661.33 12,727,907.94 Interest payable V. 19 37,742,133.73 23,539,548.91 Dividend payable 3,213,302.88 3,213,302.88 Other payables V. 20 449,736,971.73 137,829,843.39 Deferred gains and losses Non-current liabilities due within 1 year V. 21 43,190,000.00 Other current liabilities Total current liabilities 611,984,422.95 351,364,043.69 Non-current liabilities: Long-term borrowings V. 22 117,000,000.00 149,000,000.00 Bonds payable Long-term payables Special payables Accrued liabilities Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 117,000,000.00 149,000,000.00 Total liabilities 728,984,422.95 500,364,043.69 Owner's equity: Share capital V. 23 426,745,404.00 426,745,404.00 Capital surplus V. 24 334,260,156.98 334,260,156.98 Less: treasury stock Surplus reserves V. 25 114,177,485.88 114,177,485.88 Undistributed profits V. 26 -679,492,733.72 -648,292,776.64 Foreign currency translation differences Total owner's equity attributable to parent company 195,690,313.14 226,890,270.22 Minority interests 14,492,502.00 13,656,177.06 Total owner’ s equity 210,182,815.14 240,546,447.28 Total liabilities and owner's equity 939,167,238.09 740,910,490.97 Legal representative: Person in change of accounting department: Accounting Supervisor: Consolidated Profit Statement ２００７ Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount of this Amount of the Items Note year last year I. Operating income V. 27 153,716,147.93 499,154,376.92 Less: Operating costs V. 27 103,742,044.42 358,780,043.69 Operating taxes and extras V. 28 11,258,127.86 28,063,913.53 Sales expenses V. 29 5,299,270.10 23,256,407.86 General and administrative expenses V. 30 27,824,695.80 15,937,023.98 Financial expenses V. 31 17,648,564.56 16,683,022.60 Loss of devaluation of assets V. 32 7,057,737.56 -21,641,086.41 Add: Changing income of fair value (“-”means loss) Investment income (“-”means loss) V. 33 365,700.67 5,333,240.60 Including: investment income on affiliated 297,870.67 -576,924.37 company and joint venture II. Operating profit (“-”means loss) -18,748,591.70 83,408,292.27 Add: Non-operating income V. 34 862,466.25 222,070.45 Less: Non-operating expenses V. 35 729,801.72 171,765.12 Including: disposal loss of 78,521.70 23,428.49 non-current asset III. Total profit (“-”means loss) -18,615,927.17 83,458,597.60 Less: income tax V. 36 11,747,704.97 17,520,886.22 IV. Net profit (“-”means loss) -30,363,632.14 65,937,711.38 Including: net profit realized from consolidated parties before consolidating Net profit attributable to parent company's -31,199,957.08 58,326,224.33 owner Profit and loss of minority interests 836,324.94 7,611,487.05 V. Earnings per share (I) Basic earnings per share -0.07 0.14 (II) Diluted earnings per share -0.07 0.14 Legal representative: Person in change of accounting department: Accounting Supervisor: Consolidated Cash Flow Statement 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Items Note Amount of this year Amount of the last year I. Cash flows from operating activities: Cash received from sales of goods or rendering of services 146,735,903.24 376,050,493.33 Refunds of taxes Cash received relating to other operating activities V. 37 7,140,650.33 5,810,464.98 Subtotal of cash inflows 153,876,553.57 381,860,958.31 Cash paid for goods and services 100,313,157.06 163,062,220.87 Cash paid to and on behalf of employees 28,552,597.99 24,571,814.32 Payments of all types of taxes 28,311,533.45 30,875,066.77 Cash paid relating to other operating activities V. 37 18,043,248.17 25,671,422.46 Subtotal of cash outflows 175,220,536.67 244,180,524.42 Net cash flows from operating activities -21,343,983.10 137,680,433.89 II. Cash flows from investing activities: Cash received from return of investments 1,771,157.87 Cash received from return on investments Net cash received from the sale of fixed assets, intangible assets and other long-term assets 395,450.00 650.00 Net cash received from selling subsidiary company and joint venture Cash received relating to other investing activities Subtotal of cash inflows 395,450.00 1,771,807.87 Cash paid to acquire fixed assets, intangible assets and other long-term assets 37,463,525.53 48,150,228.13 Cash paid to acquire investments 760,000.00 Net cash paid to purchase subsidiary company and joint venture Cash paid relating to other investing activities Subtotal of cash outflows 37,463,525.53 48,910,228.13 Net cash flows from investing activities -37,068,075.53 -47,138,420.26 III. Cash flows from financing activities: Cash received from investments by others Cash received from borrowings V. 37 414,275,000.00 171,130,000.00 Cash received relating to other financing activities 724,295.30 Subtotal of cash inflows 414,275,000.00 171,854,295.30 Cash repayments of amounts borrowed V. 37 259,070,000.00 253,810,000.00 Cash paid for distribution of dividends or profits and for interest expenses 11,633,185.82 10,819,175.48 Cash paid relating to other financing activities 75,220.66 68,693.78 Subtotal of cash outflows 270,778,406.48 264,697,869.26 Net cash flows from financing activities 143,496,593.52 -92,843,573.96 IV. Effect of foreign exchange rate changes on cash V.Net increase in cash and cash equivalents 85,084,534.89 -2,301,560.33 Add: balance of cash and cash equivalents at the beginning of the year 25,848,868.95 28,150,429.28 VI. Balance of cash and cash equivalents at the end of the year 110,933,403.84 25,848,868.95 Legal representative: Person in change of accounting department: Accounting Supervisor: Consolidated Statement of Changes in Equity 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB 2007 Total owner's equity attributable to parent company Items Minority Total owner's Less :treasury Undistributed Share capital Capital reserves Surplus reserves Others interests equity stock profits I. Amount at the end of last year ４２６，７４５，４０４．００ ３３４，２６０，１５６．９８ １１４，１７７，４８５．８８ －６３４，３３４，１８２．６９ －１３，９５８，５９３．９５ １３，６４９，７５２．５１ ２４０，５４０，０２２．７３ 1.Amount because the change of accounting policy －１３，９５８，５９３．９５ １３，９５８，５９３．９５ ６，４２４．５５ ６，４２４．５５ 2.Amount because correction of accounting error II. Amount at the beginning of this year ４２６，７４５，４０４．００ ３３４，２６０，１５６．９８ １１４，１７７，４８５．８８ －６４８，２９２，７７６．６４ １３，６５６，１７７．０６ ２４０，５４６，４４７．２８ III. Increment and decrement of this year (“-”means loss) －３１，１９９，９５７．０８ ８３６，３２４．９４ －３０，３６３，６３２．１４ 1.Net profit －３１，１９９，９５７．０８ －３１，１９９，９５７．０８ 2.Profit and loss through owner's equity directly (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4) Other Subtotal of above 1 and 2 －３１，１９９，９５７．０８ －３１，１９９，９５７．０８ 3.Owners invest or reduce capital (1) Owners invest capital (2) Share -based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Draw common risk provision (3) Distribute to owners (shareholders) (4) Other 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV. Amount at the end of this year 426,745,404.00 334,260,156.98 114,177,485.88 -679,492,733.72 14,492,502.00 210,182,815.14 Legal representative: Person in change of accounting department: Accounting Supervisor: Consolidated Statement of Changes in Equity (Con.) 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB 2006 Total owner's equity attributable to parent company Total owner's Minority Items Less: equity Capital Surplus Undistributed interests Share capital treasury Others Capital reserves reserves profits Share capital stock reserves I. Amount at the end of last year ３７７，６５０，８００．００ ２８６，７１５，５６５．０６ １０９，９９４，９６６．２０ －６９０，１１４，５２６．２４ －１２，３２１，９５５．０５ ６，０９７，８５４．７９ ７８，０２２，７０４．７６ 1.Amount because the change of accounting policy －１２，３２１，９５５．０５ １２，３２１，９５５．０５ ２，１４０．９３ ２，１４０．９３ 2.Amount because correction of accounting error ０．００ II. Amount at the beginning of this year ３７７，６５０，８００．００ ２８６，７１５，５６５．０６ ０．００ １０９，９９４，９６６．２０ －７０２，４３６，４８１．２９ ０．００ ６，０９９，９９５．７２ ７８，０２４，８４５．６９ III. Increment and decrement of this year (“-”means loss) ４９，０９４，６０４．００ ４７，５４４，５９１．９２ ０．００ ４，１８２，５１９．６８ ５４，１４３，７０４．６５ ０．００ ７，５５６，１８１．３４ １６２，５２１，６０１．５９ 1.Net profit ５８，３２６，２２４．３３ ７，６１１，４８７．０５ ６５，９３７，７１１．３８ 2.Profit and loss through owner's equity directly ９６，６３９，１９５．９２ ０．００ ０．００ ０．００ ９６，６３９，１９５．９２ (1) Net changing amount of fair value of available -for-sale financial ０．００ assets (2) Influence of other owner's equity change of invested enterprise ０．００ under equity method (3) Relating income tax effect through owner's equity items ０．００ (4) Other ９６，６３９，１９５．９２ －５５，３０５．７１ ９６，５８３，８９０．２１ Subtotal of above 1 and 2 ０．００ ９６，６３９，１９５．９２ ０．００ ０．００ ５８，３２６，２２４．３３ ０．００ ７，５５６，１８１．３４ １６２，５２１，６０１．５９ 3.Owners invest or reduce capital ０．００ ０．００ ０．００ ０．００ ０．００ ０．００ ０．００ ０．００ (1) Owners invest capital ０．００ (2) Share -based payment recorded into owner's equity ０．００ (3) Other ０．００ 4. Profit distribution ０．００ ０．００ ０．００ ４，１８２，５１９．６８ －４，１８２，５１９．６８ ０．００ ０．００ (1) Draw surplus reserves ４，１８２，５１９．６８ －４，１８２，５１９．６８ ０．００ (2) Draw common risk provision ０．００ (3) Distribute to owners (shareholders) ０．００ (4) Other ０．００ 5. Inner rotation within owner's equity ４９，０９４，６０４．００ －４９，０９４，６０４．００ ０．００ ０．００ ０．００ ０．００ ０．００ (1) Capital reserves transfer to share capital ４９，０９４，６０４．００ －４９，０９４，６０４．００ ０．００ (2) Surplus reserves transfer to share capital ０．００ (3) Surplus reserves offset loss ０．００ (4) Other ０．００ IV. Amount at the end of this year ４２６，７４５，４０４．００ ３３４，２６０，１５６．９８ ０．００ １１４，１７７，４８５．８８ －６４８，２９２，７７６．６４ ０．００ １３，６５６，１７７．０６ ２４０，５４６，４４７．２８ Legal representative: Person in change of accounting department: Accounting Supervisor: Balance Sheet Dec. 31, 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount at the Assets Note Amount at the year-end year-begin Current assets: Monetary funds 2,188,333.46 947,121.85 Financial assets held for trading - Notes receivable - Accounts receivable VI. 1 2,254,318.60 1,871,971.17 Advances to suppliers 3,612,122.00 810,000.00 Interest receivable - Dividend receivable 260,015.00 Other receivables VI. 2 126,706,272.29 128,704,948.94 Inventories 97,849,732.24 110,039,476.56 Non-current asset due within 1 year Other current assets Total current assets 232,870,793.59 242,373,518.52 Non-current assets: Available-for-sale financial assets - Held-to-maturity securities - Long-term receivables - Long-term equity investments VI. 3 269,511,761.70 209,703,946.70 Investment real estates - Fixed assets 13,769,867.95 10,387,091.22 Construction in progress 3,042,163.40 1,863,001.41 Engineering material - Disposal of fixed assets - Bearer biological assets - Oil and gas assets - Intangible assets 1,795,268.80 1,846,842.44 Expense on research and development Goodwill Long-term prepayments Deferred income tax assets Other non-current asset Total non-current assets 288,119,061.85 223,800,881.77 Total assets 520,989,855.44 466,174,400.29 Legal representative: Person in change of accounting department: Accounting Supervisor: Balance Sheet (Con.) Dec. 31, 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount at the Amount at the Liabilities and owners’equity Note year-end year-begin Current liabilities: Short-term loans 42,900,000.00 68,880,000.00 Financial liabilities held for trading Notes payable Accounts payable 3,220,218.99 2,427,655.89 Advances from customers 15,000.00 10,000.00 Accrued payroll 897,002.47 1,227,534.25 Taxes payable -3,250,149.80 -3,082,495.42 Interest payable 20,792,361.40 14,160,064.46 Dividend payable 3,213,302.88 3,213,302.88 Other payables 299,780,953.18 51,457,387.41 Deferred gains and losses Non-current liabilities due within 1 year 15,000,000.00 Other current liabilities Total current liabilities 367,568,689.12 153,293,449.47 Non-current liabilities: Long-term borrowings 127,000,000.00 Bonds payable Long-term payables Special payables Accrued liabilities Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 127,000,000.00 Total liabilities 367,568,689.12 280,293,449.47 Owner's equity: Share capital 426,745,404.00 426,745,404.00 Capital surplus 337,276,496.52 337,276,496.52 Less: treasury stock Surplus reserves 109,487,064.39 109,487,064.39 Undistributed profits -720,087,798.59 -687,628,014.09 Total owner’ s equity 153,421,166.32 185,880,950.82 Total liabilities and owner's equity 520,989,855.44 466,174,400.29 Legal representative: Person in change of accounting department: Accounting Supervisor: Profit Statement 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Items Notes Amount in this year Amount in last year I. Operating income VI. 4 6,498,295.56 4,992,674.05 Less: Operating costs VI. 4 6,302,366.79 5,843,763.78 Operating taxes and extras 357,406.29 273,258.04 Sales expenses 382,768.50 102,381.04 General and administrative expenses 10,811,368.16 9,078,147.00 Financial expenses 16,506,112.19 16,004,929.03 Loss of devaluation of assets 5,289,546.28 -24,352,767.56 Add: Changing income of fair value (“-”means loss) Investment income (“-”means loss) VI. 5 67,830.00 5,889,417.13 Including: investment income on affiliated company -20,747.84 and joint venture II. Operating profit (“-”means loss) -33,083,442.65 3,932,379.85 Add: Non-operating income 672,628.20 139,113.16 Less: Non-operating expenses 48,970.05 41,006.26 Including: disposal loss of non-current asset 40,970.05 4,960.80 III. Total profit (“-”means loss) -32,459,784.50 4,030,486.75 Less: income tax - - IV. Net profit (“-”means loss) -32,459,784.50 4,030,486.75 V. Earnings per share (I) Basic earnings per share -0.08 0.01 (II) Diluted earnings per share -0.08 0.01 Legal representative: Person in change of accounting department: Accounting Supervisor: Cash Flow Statement ２００７ Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Items Note Amount in this year Amount in last year I. Cash flows from operating activities: Cash received from sales of goods or rendering of services 7,214,220.61 4,863,147.78 Refunds of taxes Cash received relating to other operating activities 54,117,215.91 14,110,155.36 Subtotal of cash inflows 61,331,436.52 18,973,303.14 Cash paid for goods and services 3,322,336.29 43,875.52 Cash paid to and on behalf of employees 2,792,221.13 2,508,622.43 Payments of all types of taxes 864,965.05 936,631.00 Cash paid relating to other operating activities 7,310,860.78 6,658,071.04 Subtotal of cash outflows 14,290,383.25 10,147,199.99 Net cash flows from operating activities 47,041,053.27 8,826,103.15 II. Cash flows from investing activities: Cash received from return of investments 1,828,273.13 Cash received from return on investments Net cash received from the sale of fixed assets, intangible assets and other long-term assets 152,250.00 Net cash received from selling subsidiary company and joint venture Cash received relating to other investing activities Subtotal of cash inflows 152,250.00 1,828,273.13 Cash paid to acquire fixed assets, intangible assets and other long-term assets 4,071,765.50 1,346,500.00 Cash paid to acquire investments 60,000,000.00 760,000.00 Net cash paid to purchase subsidiary company and joint venture Cash paid relating to other investing activities Subtotal of cash outflows 64,071,765.50 2,106,500.00 Net cash flows from investing activities -63,919,515.50 -278,226.87 III. Cash flows from financing activities: Cash received from investments by others Cash received from borrowings 238,375,000.00 122,630,000.00 Cash received relating to other financing activities 5,179.90 Subtotal of cash inflows 238,375,000.00 122,635,179.90 Cash repayments of amounts borrowed 210,880,000.00 127,500,000.00 Cash paid for distribution of dividends or profits and for interest expenses 9,300,105.50 5,221,697.98 Cash paid relating to other financing activities 75,220.66 21,323.00 Subtotal of cash outflows 220,255,326.16 132,743,020.98 Net cash flows from financing activities 18,119,673.84 -10,107,841.08 IV. Effect of foreign exchange rate changes on cash V.Net increase in cash and cash equivalents 1,241,211.61 -1,559,964.80 Add: balance of cash and cash equivalents at the beginning of the year 947,121.85 2,507,086.65 VI. Balance of cash and cash equivalents at the end of the year 2,188,333.46 947,121.85 Legal representative: Person in change of accounting department: Accounting Supervisor: Statement of Changes in Equity 2007 Compiling Unit: Hainan Pearl River Holding Co., Ltd. Unit: RMB Amount in this year Less: Total owner's Items Capital treas Surplus Undistributed equity Share capital reserves ury reserves profits Capital stock reserves I. Amount at the end of last year ４２６，７４５，４０４．００ ３３７，２７６，４９６．５２ １０９，４８７，０６４．３９ －６４３，５３３，３０４．２６ ２２９，９７５，６６０．６５ 1.Amount because the change of accounting policy －４４，０９４，７０９．８３ －４４，０９４，７０９．８３ 2.Amount because correction of accounting error II. Amount at the beginning of this year ４２６，７４５，４０４．００ ３３７，２７６，４９６．５２ １０９，４８７，０６４．３９ －６８７，６２８，０１４．０９ １８５，８８０，９５０．８２ III. Increment and decrement of this year (“-”means loss) －３２，４５９，７８４．５０ －３２，４５９，７８４．５０ 1.Net profit －３２，４５９，７８４．５０ －３２，４５９，７８４．５０ 2.Profit and loss through owner's equity directly (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4) Other Subtotal of above 1 and 2 －３２，４５９，７８４．５０ －３２，４５９，７８４．５０ 3.Owners invest or reduce capital (1) Owners invest capital (2) Share-based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Draw common risk provision (3) Distribute to owners (shareholders) (4) Other 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV. Amount at the end of this year ４２６，７４５，４０４．００ ３３７，２７６，４９６．５２ １０９，４８７，０６４．３９ －７２０，０８７，７９８．５９ １５３，４２１，１６６．３２ Legal representative: Person in change of accounting department: Accounting Supervisor: Statement of Changes in Equity (Con.) ２００７ Compiling Unit: Hainan Pearl River Holding Co., Ltd Unit: RMB Amount in last year Less: Total owner's Items Capital Surplus Undistributed Share capital treasury equity reserves reserves profits stock Capital reserves I. Amount at the end of last year ３７７，６５０，８００．００ ２８９，２１３，６７６．５３ １０９，４８７，０６４．３９ －７０３，００６，４３８．６０ ７３，３４５，１０２．３２ 1.Amount because the change of accounting policy １１，３４７，９３７．７６ １１，３４７，９３７．７６ 2.Amount because correction of accounting error ０．００ II. Amount at the beginning of this year ３７７，６５０，８００．００ ２８９，２１３，６７６．５３ １０９，４８７，０６４．３９ －６９１，６５８，５００．８４ ８４，６９３，０４０．０８ III. Increment and decrement of this year (“-”means ４９，０９４，６０４．００ ４８，０６２，８１９．９９ ４，０３０，４８６．７５ １０１，１８７，９１０．７４ loss) 1.Net profit ４，０３０，４８６．７５ ４，０３０，４８６．７５ 2.Profit and loss through owner's equity directly ９７，１５７，４２３．９９ ０．００ ０．００ ９７，１５７，４２３．９９ (1) Net changing amount of fair value of ０．００ available-for-sale financial assets (2) Influence of other owner's equity change of ０．００ invested enterprise under equity method (3) Relating income tax effect through owner's equity ０．００ items (4) Other ９７，１５７，４２３．９９ ９７，１５７，４２３．９９ Subtotal of above 1 and 2 ０．００ ９７，１５７，４２３．９９ ０．００ ４，０３０，４８６．７５ １０１，１８７，９１０．７４ 3.Owners invest or reduce capital ０．００ ０．００ ０．００ ０．００ ０．００ (1) Owners invest capital ０．００ (2) Share-based payment recorded into owner's equity ０．００ (3) Other ０．００ 4. Profit distribution ０．００ ０．００ ０．００ ０．００ ０．００ (1) Draw surplus reserves ０．００ ０．００ (2) Draw common risk provision ０．００ (3) Distribute to owners (shareholders) ０．００ (4) Other ０．００ 5. Inner rotation within owner's equity ４９，０９４，６０４．００ －４９，０９４，６０４．００ ０．００ ０．００ ０．００ (1) Capital reserves transfer to share capital ４９，０９４，６０４．００ －４９，０９４，６０４．００ ０．００ (2) Surplus reserves transfer to share capital ０．００ (3) Surplus reserves offset loss ０．００ (4) Other ０．００ IV. Amount at the end of this year ４２６，７４５，４０４．００ ３３７，２７６，４９６．５２ １０９，４８７，０６４．３９ －６８７，６２８，０１４．０９ １８５，８８０，９５０．８２ Legal representative: Person in change of accounting department: Accounting Supervisor: I. General information The old name of Hainan Pearl River Holding Company Limited (the "Company") was Hainan Pearl River Industry Company Limited. Hainan Provincial People's Government Office approved the reorganization of the Company into a joint stock limited company according to the document of Qiong Fu Ban [1992] No.1. The Company was registered in Hainan Administration for Industry and Commerce in January 1992. The Company issued 21,086,400 shares of RMB common stock to the public and was listed on Shenzhen Stock Exchange according to the document of securities administration office [1992] No. 83 of the People's Bank of China in December 1992. The Company issued the domestic listing foreign capital stock (B-share) with the approval of China Securities Regulatory Commission in June 1995. The Company changed to present name in January 2007. In August 2006, the Company increased stocks with capital surplus to all shareholders, and the registered capital was changed to 426,745,400 Yuan from 377,650,800 Yuan. The business license number: 4600001006830 Office address: 29/F., Dihao Building, Pearl River Plaza, Binhai Avenue, Haikou, Hainan, the PRC. Corporate representative: Zheng Qing The operation scope: Industrial investment, tropical farming, aquaculture, real estate development and management, hotel investment and management, material supply, construction equipment purchasing, leasing, hardware, chemical, trade of household items, decoration, vehicle parking, and high-tech investment projects, investment in environmental protection projects, investment advice. The company mainly engaged in real estate development and property management, which belong to real estate aspect. The Company's basic organizational structure: General meeting of shareholders is the highest organ of power. Board of directors is the executing agency. Supervisory board is the Company's internal auditing agency. General Manager is responsible for the Company's daily operational management. There are General Manager Office, Securities Department, Tourism Real Estate Department, Financial Department, Management Department, Auditing Department and others in the Company. II. Accounting policies, accounting estimates and error correction of previous years 1. Announcement about compliance with Enterprises Accounting Standards The Company’s financial statements are prepared in accordance with the requirements of the Enterprises Accounting Standards, and they fairly and completely present the financial position, operation results, cash flow and other relevant information of the Company. 2. Preparation basis of financial statement Preparation of the financial statements is based on going concern postulate. Recognition and measurement comply with actual transactions or events, and the Company prepares financial statements on these bases. In accordance with the provisions of “Information disclosure requirement No.7 for the companies issuing securities publicly – comparative financial information’ s preparation and disclosure during the transition period of new and old enterprises accounting standards”(Zheng Jian Kuai Ji Zi [2007] No.10) issued by China Securities Regulatory Commission and "Enterprise Accounting Standard No. 38 – the first time of implementation of the Enterprise Accounting Standards", the Company re-presents financial statements during the comparative periods according to Enterprises Accounting Standards. 3. Accounting year The financial statements’accounting period is from January 1st to December 31st of 2007. 4. Reporting currency The Company’s reporting and presentation currency is the Renminbi (“RMB”). Unless otherwise stated, the unit of the currency is RMB. II. Accounting policies, accounting estimates and error correction of previous years (continued) 5. Accounting measurement characters The main measurement method of financial statements’items is history cost system. Financial assets and financial liabilities that measured by fair value and changes recorded into current profit and loss, and financial assets available for sale and derivative instrument are measured by fair value. Purchasing inventory and fixed assets that exceed normal credit terms deferred payment are measured by present value of purchase price. Stocks occurring impairment losses are measured by net realizable value. Other impairment assets are measured by recoverable amount (the higher one between fair value and present value). Surplus assets are measured by the replacement cost. 6. Cash and Cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, and short term, highly liquid investments, which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. 7. Foreign currency transactions Foreign currency (currency other than the reporting currency) transactions are translated into reporting currency at spot exchange rates prevailing on the day in which the transactions take place. Monetary items are adjusted according to spot exchange rates at the balance sheet date. The exchange balance on foreign currency shall be capitalized and recorded into the cost of relevant assets if it is eligible for capitalization; other exchange balance on foreign currency shall be recorded into current profit and loss. Foreign currency non-monetary items measured with history cost are translated into reporting currency at spot exchange rates on the occurrence date. Foreign currency non-monetary items measured with fair value are translated into reporting currency at spot exchange rates of fair value confirming date; the difference is recorded as the changes in the profit and loss of fair value. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are translated into reporting currency at spot exchange rates on the occurrence date except the item of undistributed profits. Income Statement items are translated into reporting currency at spot exchange rate on the occurrence date. The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. II. Accounting policies, accounting estimates and error correction of previous years (continued) 8. Financial assets and financial liabilities (1) Classification of financial assets and financial liabilities Financial assets shall be classified into the following four categories when they are initially recognized: the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and the financial assets which are measured at their fair values and of which the variation is included in the current profits and losses; held-to-maturity investments; loans and account receivables; available-for-sale financial assets. Financial liabilities shall be classified into the following two categories when they are initially recognized: the financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; and other financial liabilities. (2) Recognition and measurement of financial instruments When an enterprise becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. The financial assets and financial liabilities initially recognized by an enterprise except loans and account receivables shall be measured at their fair values; loans and account receivables initially recognized by an enterprise shall be measured at price in the contract or agreement. For the financial assets and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, the transaction expenses thereof shall be directly recorded into the profits and losses of the current period; for other categories of financial assets and financial liabilities, the transaction expenses thereof shall be included into the initially recognized amount. An enterprise shall make subsequent measurement on its financial assets according to their fair values, and may not deduct the transaction expenses that may occur when it disposes of the said financial asset in the future. However, those under the following circumstances shall be excluded: a. The investments held until their maturity, loans and accounts receivable shall be measured on the basis of the post-amortization costs by adopting the actual interest rate method; b. The equity instrument investments for which there is no quotation in the active market and II. Accounting policies, accounting estimates and error correction of previous years (continued) 8. Financial assets and financial liabilities (continued) whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. An enterprise shall make subsequent measurement on its financial liabilities on the basis of the post-amortization costs by adopting the actual interest rate method, with the exception of those under the following circumstances: a. For the financial liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, they shall be measured at their fair values, and none of the transaction expenses may be deducted, which may occur when the financial liabilities are settled in the future. b. For the derivative financial liabilities, which are connected to the equity instrument for which there is no quotation in the active market and whose fair value cannot be reliably measured, and which must be settled by delivering the equity instrument, they shall be measured on the basis of their costs. c. For the financial guarantee contracts which are not designated as a financial liability measured at its fair value and the variation thereof is recorded into the profits and losses of the current period, and for the commitments to grant loans which are not designated to be measured at the fair value and of which the variation is recorded into the profits and losses of the current period and which will enjoy an interest rate lower than that of the market, a subsequent measurement shall be made after they are initially recognized according to the higher one of the following: the best estimation required to pay when carrying out the prevailing obligations, and initially recognized amount deducting accumulative amortization which adopts the actual interest rate method. (3) Recognition and measurement of transfer of financial assets Where an enterprise has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee, it shall stop recognizing the financial asset. If it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall not stop recognizing the financial asset. Where an enterprise does not transfer or retain nearly all of the risks and rewards related to the ownership of a financial asset, it shall deal with it according to the circumstances as follows, respectively: a. If it gives up its control over the financial asset, it shall stop recognizing the financial asset; b. If it does not give up its control over the financial asset, it shall, according to the extent of its continuous involvement in the transferred financial asset, recognize the related financial asset and recognize the relevant liability accordingly. II. Accounting policies, accounting estimates and error correction of previous years (continued) 8. Financial assets and financial liabilities (continued) If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following 2 items shall be recorded in the profits and losses of the current period: a. The book value of the transferred financial asset; b. The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the entire book value of the transferred financial asset shall, between the portion whos e recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative fair value, and the difference between the amounts of the following 2 items shall be included into the profits and losses of the current period : a. The book value of the portion whose recognition has been stopped; b. The sum of consideration of the portion whose recognition has been stopped, and the portion of the accumulative amount of the changes in the fair value originally recorded in the owner's equities which is corresponding to the portion whose recognition has been stopped. (4) Determination of the fair value of main financial assets and financial liabilities As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. 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. (5) Impairment of financial assets An enterprise shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. An impairment test shall be made on the financial assets with II. Accounting policies, accounting estimates and error correction of previous years (continued) 8. Financial assets and financial liabilities (continued) significant single amounts. With regard to the financial assets with insignificant single amounts, they shall be included in a combination of financial assets with similar credit risk features so as to carry out an impairment-related test. Where, upon independent test, the financial asset (including those financial assets with significant single amounts and those with insignificant amounts) has not been impaired, it shall be included in a combination of financial assets with similar risk features so as to conduct another impairment test. Where a financial asset measured on the basis of post-amortization costs is impaired, the carrying amount of the said financial asset shall be written down to the current value of the predicted future cash flow (excluding the loss of future credits not yet occurred), and the amount as written down shall be recognized as loss of the impairment of the asset. Where there is a very small gap between the predicted future cash flow of a short-term account receivable item and the current value thereof, the predicted future cash flow is not required to be capitalized when determining the relevant impairment-related losses. Where an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or a derivative financial asset which is connected with the equity instrument and which must be settled by delivering the equity instrument, suffers from any impairment, the gap between the carrying amount of the equity instrument investment or the derivative financial asset and the current value of the future cash flow of similar financial assets capitalized according to the returns ratio of the market at the same time shall be recognized as impairment-related losses. Where available-for-sale financial assets are impaired due to significant drop of fair value and the drop is not temporary, the accumulative losses arising from the decrease of the fair value of the owner’ s equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. II. Accounting policies, accounting estimates and error correction of previous years (continued) 9. Accounts receivable and bad debts (1) Measurement method and the percentage of bad debts Measurement method of bad debts: accounted with allowance method. At the end of the period, impairment test shall be made on individual accounts receivable with significant amounts. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of future cash flows. For those individual accounts receivable without significant amounts at the end of the period, along with those accounts receivable that have been tested individually but not impaired, the Company classifies them in line with similar credit risk characteristics into several groups, and make a specific percentage of bad debts provision on the accounts receivable balances at balance sheet date. On the basis of the actual loss rate of receivable accounts, with same or similar credit risk characteristics of accounts receivable package in previous year, the Company also considers current situation and determine the percentage of bad debt provision. Here is the Company’ s bad debts provision policy: Ages Percentage (%) Within 1 year (including 1 year, same as following) 2 1 year to 2 years 5 2 years to 3 years 10 3 years to 4 years 20 4 years to 5 years 30 Over 5 years 50 There is strong evidence that accounts receivable can’t be recovered or little possibility of recovery (it is unable to pay in the short term due to bankruptcy, insolvent, serious shortage of cash flow, serious natural disasters and etc. ) as well as other evidences of occurring loss, the Company can make full provision for the accounts receivable. (2) The accounts receivable meeting the following criteria are recognized as bad debts: For accounts receivable that are surely uncollectible, such as they can be written off as bad debts after the approval of the general meeting of shareholders or the board of directors. II. Accounting policies, accounting estimates and error correction of previous years (continued) 10. Inventories (1) Inventories include: development cost (constructing development product), development product, finished goods, low-value consumable supplies and etc. All inventories are calculated at actual cost when acquire. The issue of inventories is calculated according to individual cognizance method. The low–value consumable supplies are amortized at one time. Inventories stock physical count system: perpetual inventory method Measurement method of land used for development: the land used for development is included in “Inventories - development cost”. Public facilities costs: public facilities such as schools, as well as public facilities fees acquired by government departments, the cost is included in "development costs" and its apportionment and detailed calculation are in accordance with calculation objects and cost items. (2) For inventories at balance sheet date, the evaluation criteria should base on the lower value between costs and net values that can be converted into cash. When net values that can be converted into cash are lower than costs, provision for impairment loss of inventories shall be made and recorded into current profit and loss. 11. Long-term equity investment (1) The initial cost of the long-term equity investment For the business combination under the same control, it shall, on the date of merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. For the business combination not under same control, the initial cost of long-term equity investment is fair value of assets paid, liabilities undertaken, the equity securities issued by the Company, and includes all direct expenses and future events that will influence combination cost. Besides the long-term equity investments formed by the business combination, the initial cost of a long-term equity investment obtained by other means shall be ascertained in accordance with the provisions as follows: The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid; the initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued; the initial cost of a long-term equity investment of an investor shall be the value stipulated in the investment contract or agreement. II. Accounting policies, accounting estimates and error correction of previous years (continued) 11. Long-term equity investment (continued) (2) Subsequent measurement The Company uses cost method for the following conditions: a long-term equity investment where the investing enterprise can exercise control over the investee, or the investing enterprise does not have joint control or significant influence over the investee, the investment is not quoted in an active market and its fair value can’t be reliably measured. For a long-term equity investment where the investing enterprise can exercise control over the investee, the investing enterprise shall make an adjustment by employing the equity method when it works out consolidated financial statements. When adopting cost method, the dividends or profits declared to distribute by the invested entity shall be recognized as the current investment income. The investment income recognized by the investing enterprise shall be limited to the amount received from the accumulative net profits that arise after the invested entity has accepted the investment. Where the amount of profits or cash dividends obtained by the investing entity exceeds the aforesaid amount, it shall be regarded as recovery of initial investment cost. A long-term equity investment of the investing enterprise that does joint control or significant influences over the invested entity shall be measured by employing the equity method. If the initial cost of a long-term equity investment is more than the investing enterprise' attributable share of the fair value of the invested entity's identifiable net assets for the investment, the initial cost of the long-term equity investment may not be adjusted. If the initial cost of a long-term equity investment is less than the investing enterprise' attributable share of the fair value of the invested entity's identifiable net assets for the investment, the difference shall be included in the current profits and losses and the cost of the long-term equity investment shall be adjusted simultaneously. After an investing enterprise obtains a long-term equity investment, it shall, in accordance with the attributable share of the net profits or losses of the invested entity, recognize the investment profits or losses and adjust the book value of the long-term equity investment. Where any change is made to the owner's equity other than the net profits and losses of the invested entity, the book value of the long-term equity investment shall be adjusted and be included in the owner's equity. II. Accounting policies, accounting estimates and error correction of previous years (continued) 11. Long-term equity investment (continued) The Company should have impairment test for any long-term equity investment on very balance sheet date. When the estimated value in use is less than its book value, it will be treated as impairment loss. And this loss should be transferred into current profit and loss account; meanwhile, the company should set up provision for the long-term equity investment impairment loss. To any long-term equity investments, which are measured by cost method, there is no price or its fair value can not be measured reliably, the impairment loss of these investments should be the difference between the book value and the present value of the future cash flow calculated by using current market rate of similar financial asset. For other long-term equity investment, where any evidence shows that there is possible assets impairment, the impairment provision is made according to relevant regulations and methods. (3) Recognization basis of joint control and significant influences The term "joint control" refers to the control over an economic activity in accordance with the contracts and agreements, which does not exist unless the investing parties of the economic activity with one an assent on sharing the control power over the relevant important financial and operating decisions. The term "significant influences" refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not to control or do joint control together with other parties over the formulation of these policies. (4) Disposal of long-term equity investment When disposing of a long-term equity investment, the difference between its book value and the actual purchase price shall be included in the current profits and losses. If any change other than the net profits and losses of the invested entity occurs and is included in the owner's equity, the portion previously included in the owner's equity shall, when disposing of a long-term equity investment measured by employing the equity method, be transferred to the current profits and losses according to a certain proportion. II. Accounting policies, accounting estimates and error correction of previous years (continued) 12. Business combinations (1) Business combinations under the same control A business combination under the same control is 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 which the control is not temporary. The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital shall be adjusted. If the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted. (2) Business combinations not under the same control A business combination not under the same control is a business combination in which the combining enterprises are not ultimately controlled by the same party or the same parties both before and after the business combination. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. The business reputation upon initial measurement shall be measured on the basis of its costs minus the accumulative impairment provisions. If the combination costs are less than the fair value of the identifiable net assets it obtains from the acquiree, after the reexamination, it shall record the balance into the profits and losses of the current period. 13. Investment real estates The term "investment real estates" refers to the real estates held for generating rent and/or capital appreciation. Including: the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. The initial measurement of the investment real estate shall be made at its cost. An enterprise shall make a follow-up measurement to the investment real estate through the cost pattern. For buildings which have already been rented, the Company calculates depreciation as the same method of fixed assets. For the right to use any land, it is amortized with straight-line method according to the serviceable life. At the balance sheet date, where any evidence shows that there is possible assets impairment, the impairment provision is made. II. Accounting policies, accounting estimates and error correction of previous years (continued) 14. Fixed assets (1) Recognition of fixed assets Fixed assets are tangible assets that are held for use in production or supply of goods or services, for rental to others, or for administrative purpose, and have useful lives more than one accounting year. The expected discard expenses should be taken into consideration in the ascertainment of the cost of a fixed asset. (2) The category and depreciation method of fixed assets Fixed assets include buildings and structures, vehicles, general equipments, specific equipments and other equipments. Straight-line method is in used to calculate the depreciation of fixed assets. The estimated useful lives, expected residual value and annual depreciation rate of various types fixed assets are listed as follows: Estimated useful lives Expected residual Annual depreciation Category (years) value (%) rate (%) Buildings and structures 25 5 3.8 Vehicles 5 5 19.0 General equipments 10 5 9.5 Specific equipments 5 5 19.0 Other equipments 5 5 19.0 Depreciation shall be made for the fixed assets on a monthly basis. Fixed assets increased this month shall make depreciation from next month; fixed assets decreased this month shall stop making depreciation from next month. An enterprise shall, at least at the end of each year, have a check on the useful life, expected residual value and the depreciation method of the fixed assets, and adjust them when necessary. At the balance sheet date, where any evidence shows that there is possible assets impairment, the impairment provision is made according to Notes II. 17. (3) Idle fixed assets Fixed assets that are not used for six months continuously due to underemployment or natural disasters are identified as idle fixed assets (except for seasonal break). The depreciation method of idle fixed assets is consistent with other fixed assets. II. Accounting policies, accounting estimates and error correction of previous years (continued) 14. Fixed assets (continued) (4) Fixed assets under financing lease When one or more of the following criteria are met, a lease shall be classified as a financial lease: a. the lease transfers ownership of the leased asset to the lessee by the end of the lease term; b. the lessee has the option to purchase the leased asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised by the lessee; c. the lease term is for the major part of the useful life of the leased asset even if title is not transferred; d. in the case of the lessee, at the inception of the lease the present value of the minimum lease payments amounts to substantially all of the fair value of the leased asset; in the case of lesser, at the inception of the lease the present value of the minimum lease receipts amounts to substantially all of the fair value of the leased asset; e. the leased assets are of a specialized nature such that only the lessee can use them without major modifications being made. Fixed assets under financing lease shall be recorded at the lower one of the fair value of the leased asset and the present value of the minimum lease payments. The depreciation method is consistent with fixed assets of the Company. 15. Construction in progress Construction in progress (“CIP”) includes all costs incurred during the preparation period before commencement of construction and until the asset is ready for its intended use. These costs include direct materials, direct labour, equipment for installation, construction and installation charges, management fees, gain or loss on trial run production and borrowing costs which are qualified for capitalization. CIP is transferred to fixed assets when the asset is ready for its intended use. At the balance sheet date, where any evidence shows that there is possible CIP impairment, the impairment provision is made according to Notes II.17. II. Accounting policies, accounting estimates and error correction of previous years (continued) 16. Intangible assets The term "intangible assets" refers to the identifiable non-monetary assets possessed or controlled by enterprises which have no physical shape. If it is unable to forecast the period when the intangible asset can bring economic benefits to the enterprise, it shall be regarded as an intangible asset with uncertain service life. The intangible assets shall be initially measured according to its cost. If it is unable to determine the expected realization pattern reliably, intangible assets shall be amortized by the straight-line method. An enterprise shall, at least at the end of each year, check the service life and the amortization method of intangible assets with limited service life, and adjust them when necessary. Intangible assets with uncertain service life may not be amortized. An enterprise shall check the service life of intangible assets with uncertain service life during each accounting period. Where any evidence shows that there is possible assets impairment, the impairment provision is made. 17. Impairment of assets At the balance sheet date, where there is any evidence indicating a possible impairment of assets except inventories, investment real estates measured at fair value model, deferred income tax assets and financial assets whose impairment losses are calculated according to special regulations, the enterprise shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset group to which the asset belongs. When the recoverable amount of the asset is less than its carrying amount, the differences are recognized as impairment loss and accounted for profit and loss in current period. Once the impairment loss is recognized, it can not be reversed in subsequent years. The recoverable amount shall be determined in light of the higher one of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets. No matter whether there is any sign of possible assets impairment, the business reputation form ed by the merger of enterprises and intangible assets with uncertain service lives shall be subject to impairment test every year. II. Accounting policies, accounting estimates and error correction of previous years (continued) 18. Borrowing Costs Borrowing costs are interest and other related costs incurred by the Company in connection with the borrowing of funds, and include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. The amounts of other borrowing costs incurred shall be recognized as an expense in the period in which they are incurred. Qualifying assets are assets (fixed assets, investment property, inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale. The capitalization of borrowing costs can commence only when all of the following conditions are satisfied: (1) expenditures for the asset are being incurred; (2) borrowing costs are being incurred; (3) activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced. 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; then the borrowing costs incurred shall be recorded into the profits and losses of the current period. Borrowing costs due to loans from real estate development are recorded into development cost before the completion of the project and recorded into current profit and loss after the completion of the project. Borrowing costs are recorded into development cost and amortized quarterly. 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. During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as follows: (1) for a specific-purpose borrowing, the amount of interest to be capitalized shall be the actual interest expense incurred for the period less temporary deposit’ s interest or investment income; II. Accounting policies, accounting estimates and error correction of previous years (continued) 18. Borrowing Costs (continued) (2) where funds are borrowed under general-purpose borrowings, the Company shall determine the amount of interest to be capitalized by applying a capitalization rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalization rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings. 19. Payroll The term "employee compensation" refers to all kinds of payments and other relevant expenditures given by enterprises in exchange of the services offered by the employees. The employee compensation shall include: wages, bonuses, allowances and subsidies for the employees, non-monetary welfare and etc. During the accounting period of an employee' providing services to an enterprise, the enterprise shall, in accordance with beneficiaries of the services offered by the employee, treat the following circumstances respectively: (1)The compensation for the employee for producing products or providing services shall be recorded as the product costs and service costs; (2)The compensation for the employee for any on-going construction project or for any intangible asset shall be recorded as the costs of fixed asset or intangible assets; (3)The compensation for the cancellation of the labor relationship with the employee shall be recorded into general and administrative expenses of the current period. The compensation for the employee other than those as mentioned above shall be recorded as profit or loss for the current period. 20. Accrued liabilities The obligation pertinent to a Contingencies shall be recognized as accrued liabilities when the following conditions are satisfied simultaneously: (1)That obligation is a current obligation of the enterprise; (2)It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; (3)The amount of the obligation can be measured in a reliable way. The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation. II. Accounting policies, accounting estimates and error correction of previous years (continued) 21. Share-based payments The term "share-based payment" refers to a transaction in which an enterprise grants equity instruments or undertakes equity-instrument-based liabilities in return for services from employee or other parties. The share-based payments shall consist of equity-settled share-based payments and cash-settled share-based payments. The equity-settled share-based payment in return for employee services shall be measured at the fair value of the equity instruments granted to the employees. An equity-settled share-based payment in return for the service of any other party shall be measured at the fair value of the service on the acquisition date; If the fair value of the service of any other party can not be measured in a reliable way, it shall be measured at the fair value of the equity instruments on the acquisition date. The fair value of the equity instruments is recognized according to following methods: (1) For which there is an active market, the quoted prices in the active market shall be used to determine the fair values. (2) Where there is no active market for equity instrument, the enterprise concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. The Company makes the best estimation to the equity instruments can be exercised rights according to subsequent information, for example, change of employees who can exercise rights as currently obtained. 22. Revenue recognition (1) Revenue from the sale of 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; II. Accounting policies, accounting estimates and error correction of previous years (continued) 22. Revenue recognition (continued) d. it is probable that the associated economic benefits will flow to the enterprise; e. the associated costs incurred or to be incurred can be measured reliably. Real estate sales revenue: the Company can recognize real estate sales revenue after the completion and acceptance of the property, signing sale contract, acquiring payment proof from buyer and delivery. When the buyer receives written delivery notice and has no warrant to refuse to accept it, the sales revenue is realized after delivery limit closed of delivery notice. For the development project consigned by other, as well as in accordance with "Enterprises Accounting Standards -Construction Contract", the revenue shall be recognized in light of the percentage-of- completion method. The percentage-of- completion is determined by the proportion of finished workload. (2) Rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably at the balance sheet date (including: the amount of revenue can be measured reliably; it is probable that the associated economic benefits will flow to the enterprise; the stage of completion of the transaction can be measured reliably; the costs incurred and to be incurred for the transaction can be measured reliably), revenue associated with the transaction shall be recognized using the percentage of completion method, and the stage of completion of the transaction is recognized according to the proportion of the cost having taken place occupied the estimated total cost. When the outcome of a transaction involving the rendering of services can not be estimated reliably at the balance sheet date: when the costs incurred are expected to be recoverable, revenue shall be recognized to the extent of costs incurred and an equivalent amount shall be charged to profit or loss as service costs; when the costs incurred are not expected to be recoverable, the costs incurred shall be recognized in profit or loss for the current period and no service revenue shall be recognized. The revenue of property management service is recognized when following conditions are satisfied: the property management service has been offered; the associated economic benefits will flow to the enterprise; the associated costs can be measured reliably. II. Accounting policies, accounting estimates and error correction of previous years (continued) 22. Revenue recognition (continued) (3) Use by others of enterprise assets Revenue arising from the use by others of enterprise assets shall be recognized only when both of the following conditions are satisfied: it is probable that the associated economic benefits will flow to the enterprise; the amount of the revenue can be measured reliably. The amount of interest shall be determined according to the length of time for which the enterprise’ s currency fund is used by others and the effective interest rate. The amount of royalties shall be determined according to the period and method of charging as stipulated in the relevant contract or agreement. 23. Government grants Government grants shall be recognized at fair value on the conditions that the Company can receive the grant and comply with the conditions attaching to the grant. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred by the Company in subsequent period, the grant shall be recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset. 24. Income tax The Company shall use the balance sheet liabilities method to measure income tax. The income tax expenses include income tax of current period and deferred income tax expense (or income). The income taxes of the current period and deferred income tax of an enterprise shall be treated as income tax expenses or incomes, and shall be recorded into the current profits and losses, excluding the income taxes incurred under the following circumstances: the business combination; and )the transactions or events directly recognized as the owner's rights and interests. The current income tax is calculated with the amounts of taxable income of enterprises for the current period. The taxable income is adjusted according to Tax Law and based on current profit. II. Accounting policies, accounting estimates and error correction of previous years (continued) 24. Income tax (continued) At the balance sheet date, the Company analyzes the carrying amount of assets or liabilities and its tax base; where there is difference between the carrying amount of the assets or liabilities and its tax base, the deferred income tax assets, the deferred income tax liabilities or corresponding deferred income tax expense (or income) shall be determined. When the carrying amount of assets is higher than its tax base or the carrying amount of liabilities is lower than its tax base, the taxable temporary differences occur and the deferred income tax liabilities shall be recognized; When the carrying amount of assets is lower than its tax base or the carrying amount of liabilities is higher than its tax base, the deductible temporary differences occur and the deferred income tax assets shall be recognized. 25. Maintenance fund The Company’s property management company receives and manages public maintenance fund consigned by owners, and charges to “agency fund”. The fund is used in the maintenance and update of the common apparatus and common position of the house and communal facilities of property management region. 26. Quality assurance reserve funds Construction party should remain quality assurance reserve funds according to the amount in the construction contract, and list in "accounts payable". The funds should be paid according to the actual conditions and contract after guarantee period. 27. Preparation method of consolidated financial statements The Company shall include all subsidiaries within the scope of consolidation. The consolidated financial statements shall be prepared by parent based on the financial statements of the parent and its subsidiaries, using other related information and after adjusting the long-term equity investments in subsidiaries using the equity method according to “Enterprises Accounting Standard No.33— Consolidated Financial Statements”. II. Accounting policies, accounting estimates and error correction of previous years (continued) 28. Changes of accounting policies and accounting estimates and error correction (1) Changes of accounting policies On 1 January 2007, the Company performs Enterprises Accounting Standards promulgated by the Ministry of Finance on 15 February 2006. The changes of accounting policies are dealt as follows: a. Long-term equity investment According to the rules, the Company makes retroactive adjustment for long-term equity investment adopting the equity method originally, which is regarded that the subsidiary adopted cost method initially. In the past year the accumulated profit and loss is 44,094,709.83 Yuan and is adjusted to undistributed profit of parent company; initial amount of long-term equity of parent company is decreased by 44,094,709.83 Yuan, the adjustment doesn’tinfluence items in consolidated balance sheet. b. Unrecognized investment losses According to the rules, the excess loss of Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. which is the wholly-owned subsidiary of the Company was list in unrecognized investment losses originally and now is changed to list in undistributed profit. So initial amount of undistributed profit is decreased by 13,958,593.95 Yuan. c. Minority interests Hainan Pearl River Estate Cleaning Company which is the subsidiary of the Company was included in the financial statements consolidation scope in 2006 due to its smaller scale. According to the requirements of New Enterprises Accounting Standards, it is included in the cons olidation scope in 2007. The comparative data of the financial statements are re-presented at the same time, so initial amount of minority interests is increased by 6,424.55 Yuan. (2) Changes of accounting estimates and error correction Not applicable. III. Taxation The main taxes include: business tax, city construction and maintenance tax, education fee, income tax and etc. The tax rates are as following: Category Rate Taxable base Business tax 5% Revenue of house property sale and lease, property management income and etc. City construction and maintenance tax 5%,7% Business tax and value-added tax Education fee 3% Business tax and value-added tax Income tax 15%, 33% Taxable income Note: Except that income tax of companies in Hainan District and Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. is levied at 15% of taxable income, the income tax of other companies is levied at 33% of taxable income. IV. Business combinations and consolidation financial statements 1. Subsidiaries established by the Company Amount Registered Voting invested by Registered capital Principal Holding Subsidiary’s name rights the address (RMB activities proportion proportion Company 0’000) (RMB 0’000) Hainan Pearl River Properties and Hotels Properties Management Co., Ltd. Hainan 500 and Hotels 98% 98% 490 Haikou 海南珠江物业酒店管理有限公司 Management Hainan Pearl River Environmental Projects Gardens Hainan Co., Ltd. 100 engineering 100% 100% 100 Haikou 海南珠江绿化工程有限公司 construction Hainan Pearl River Estate Cleaning Hainan Cleaning Company 50 95% 95% 20 Haikou projects 海南珠江物业清洁有限公司 Mechanical Hainan Pearl River Estate Machine Hainan and electrical Engineering Company 150 100% 100% 150 Haikou products 海南珠江物业机电工程公司 sales Hainan Pearl River Estate Marketing Co., Real Estate Hainan Ltd. 100 Marketing 100% 100% 100 Haikou 海南珠江不动产营销策划有限公司 Planning Sanya Wanjia Hotel Management Co., Ltd. Hainan 10,800 Hotel service 100% 100% 10,800 三亚万嘉酒店管理有限公司 Sanya Cultural and Hainan Sanya Wanjia Golf Co., Ltd. 2,000 sports 100% 100% 2,000 Sanya 三亚万嘉高尔夫有限公司 services Real estate Hubei Pearl River Real Estate Development Hubei development 6,500 88% 88% 5,720 Co., Ltd. Wuhan and 湖北珠江房地产开发有限公司 management Wuhan Pearl River Meilin Hotels Hubei Management Co., Ltd. 50 Service 100% 100% 50 Wuhan 武汉珠江美林酒店管理有限公司 Hainan Pearl River Enterprises Holding Real estate Co., Ltd. Shanghai Real Estate Co. development Shanghai 4,000 100% 100% 4,000 海南珠江实业股份有限公司上海房 and 地产公司 management IV. Business combinations and consolidation financial statements (continued) 2. Changes of consolidation scope Wuhan Pearl River Meilin Hotels Management Co., Ltd. and Sanya Wanjia Golf Co., Ltd. were established in March and May 2007, and are included in the consolidation scope of this year. Hainan Pearl River Environmental Projects Co., Ltd., Hainan Pearl River Estate Cleaning Company, Pearl River Estate Machine Engineering Company and Hainan Pearl River Estate Marketing Co., Ltd. were not included in the financial statements consolidation scope in 2006 due to their smaller scales. According to the requirements of New Enterprises Accounting Standards , they are included in the consolidation scope in 2007. According to the provisions of “Information disclosure requirement No.7 for the companies issuing securities publicly – comparative financial information’ s preparation and disclosure during the transition period of new and old enterprises accounting standards”issued by China Securities Regulatory Commission (Zheng Jian Kuai Zi [2007] No.10), items of income statement of last year and initial amounts of balance sheet are re-presented. 3. Information about minority interest of subsidiaries Minority interest on Minority interest on Subsidiary’s name Increment decrement 1 Jan 2007 31 Dec 2007 Hubei Pearl River Real Estate Development Co., Ltd. 13,503,435.92 823,582.83 14,327,018.75 湖北珠江房地产开发有限公司 Hainan Pearl River Properties and Hotels Management Co., 146,316.59 7,096.06 153,412.65 Ltd. 海南珠江物业酒店管理有限公司 Hainan Pearl River Estate Cleaning Company 6,424.55 5,646.05 12,070.60 海南珠江物业清洁有限公司 Total 13,656,177.06 836,324.94 14,492,502.00 V. Notes to significant items of the consolidated financial statements 1. Monetary funds Items Dec 31, 2007 Jan 1, 2007 Cash 456,917.03 273,395.48 Bank deposit 110,446,486.81 25,529,274.82 Other monetary funds 30,000.00 46,198.65 Total 110,933,403.84 25,848,868.95 Note: Ending amount of monetary funds is increased by 329.16% compared with initial amount. It is mainly due to the increase of long-term borrowings of Hubei Pearl River Real Estate Development Co., Ltd. which is the subsidiary of the Company and part funds used for real estate development are deposited in bank temporarily. 2. Accounts receivable (1) Detailed information 31 Dec 2007 1 Jan 20 07 Items Proportio Proportio Balance n (%) Bad debts Net value Balance n (%) Bad debts Net value Individual with 7,761,707.6 7,761,707.60 61.87 7,761,707.60 61.87 7,761,707.60 significant amount 0 Individual without significant amount,but 2,019,368.3 2,297,393.97 18.30 278,025.61 3,532,933.75 27.20 2,635,981.86 896,951.89 with significant credit 6 risk Other unimportant 2,296,209.0 1,282,408.2 2,486,995.57 19.83 190,786.48 1,386,859.44 10.93 104,451.16 receivables 9 8 9,971,862.4 2,574,234.7 12,681,500.7 10,502,140.6 2,179,360.1 12,546,097.14 100.00 100.00 Total 4 0 9 2 7 (2) Analysis according to ages 31 Dec 2007 1 Jan 2007 Ages Proportion Proportion Balance (%) Bad debts Net value Balance (%) Bad debts Net value Within 1 year 1,163,954.75 9.28 23,279.09 1,140,675.66 780,388.59 6.15 15,607.77 764,780.82 1-2 years 754,685.82 6.02 37,734.29 716,951.53 138,115.85 1.09 6,905.79 131,210.06 2-3 years 100,000.00 0.8 10,000.00 90,000.00 207,334.00 1.63 20,733.40 186,600.60 3-4 years 207,334.00 1.65 41,466.80 165,867.20 261,021.00 2.06 52,204.20 208,816.80 4-5 years 261,021.00 2.08 78,306.30 182,714.70 Over 5 years 10,059,101.57 80.18 9,781,075.96 278,025.61 11,294,641.35 89.06 10,406,689.46 887,951.89 Total 12,546,097.14 100 9,971,862.44 2,574,234.70 12,681,500.79 100 10,502,140.62 2,179,360.17 V. Notes to significant items of the consolidated financial statements (continued) 2. Accounts receivable (continued) Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. Note 2: The first five debtors’ending total balance is 8,395,856.42 Yuan, and is 66.92% of accounts receivable total amount. Note 3: There are 254,871.00 Yuan within 1 year, 379,277.82 Yuan between 1-2 years and 7,761,707.60 Yuan over 5 years in the first five debtors’ending total balance. Note 4: The bad debts proportion and reasons for individual accounts receivable with significant amount At the end of this year, the individual accounts receivable with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of accounts receivable portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 7,761,707.60 Yuan. Note 5: The bad debts proportion and reasons for individual accounts receivable without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the accounts receivable over 5 years, the bad debts proportion is 50% of the balance. For accounts receivable that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual accounts receivable with significant amount from accounts receivable satisfied with above situations, the leavings are individual accounts receivable without significant amount, but with significant credit risk. V. Notes to significant items of the consolidated financial statements (continued) 3. Advances to suppliers 31 Dec 2007 1 Jan 2007 Ages Balance Proportion (%) Balance Proportion (%) Within 1 year 23,804,462.93 98.61 41,302,756.72 70.42 1-2 years 36,570.50 0.15 13,906,422.25 23.71 2-3 years 300,000.00 1.24 3,445,857.12 5.87 Over 3 years Total 24,141,033.43 100.00 58,655,036.09 100.00 Note 1: The year end balance did not conta in any debt owned by major shareholders who own more than 5% of the Company’s share capital. Note 2: Ending amount of advances to suppliers is decreased by 58.84% compared with initial amount. It is mainly due to settle advances to suppliers for completion of Sanya Wanjia Hotel. 4. Other receivables (1) Detailed information 31 Dec 2007 1 Jan 2007 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with significant amount 109,250,125.00 79.88 16,846,125.00 92,404,000.00 48,650,125.00 56.69 12,799,375.00 35,850,750.00 Individual without significant 24,396,452.67 17.84 23,752,829.34 643,623.33 30,280,055.42 35.29 27,196,226.20 3,083,829.22 amount,but with significant credit risk Other unimportant receivables 3,129,305.48 2.28 223,157.62 2,906,147.86 6,884,349.39 8.02 438,495.02 6,445,854.37 Total 136,775,883.15 100.00 40,822,111.96 95,953,771.19 85,814,529.81 100.00 40,434,096.22 45,380,433.59 (2) Analysis according to ages 31 Dec 2007 1 Jan 2007 Ages Proportion Proportion Balance (%) Bad debts Net value Balance (%) Bad debts Net value Within 1 year 66,962,582.60 48.96 1,339,251.65 65,623,330.95 6,956,231.88 8.11 139,124.64 6,817,107.24 1-2 years 876,710.80 0.64 43,835.54 832,875.26 7,870,827.45 9.17 393,541.37 7,477,286.08 2-3 years 6,087,319.88 4.45 608,731.99 5,478,587.89 24,223,790.06 28.23 2,422,379.01 21,801,411.05 3-4 years 21,969,192.20 16.06 4,393,838.44 17,575,353.76 4,001,000.00 4.66 800,200.00 3,200,800.00 4-5 years 4,001,000.00 2.93 1,201,000.00 2,800,000.00 Over 5 years 36,879,077.67 26.96 33,235,454.34 3,643,623.33 42,762,680.42 49.83 36,678,851.20 6,083,829.22 Total 136,775,883.15 100.00 40,822,111.96 95,953,771.19 85,814,529.81 100 40,434,096.22 45,380,433.59 V. Notes to significant items of the consolidated financial statements (continued) 4. Other receivables (continued) Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. Note 2: The first five debtors’ending total balance is 100,250,125.00 Yuan, and is 73.30% of other receivables total amount. Note 3: There are 60,000,000.00 Yuan within 1 year, 600,000.00 Yuan between 1-2 years, 6,000,000.00 Yuan between 2-3 years, 21,167,500.00 Yuan between 3-4 Years and 12,482,625.00 Yuan over 5 years in the first five debtors’ending total balance. Note 4: Ending amount of other receivables is increased by 59.39% compared with initial amount. It is mainly due to the Company lend 60 million Yuan to Zhejiang Guangsha Corporation Anhui Zhiye Co.,Ltd. which used for “Tian Xia Jin Cheng”project development. Details refer to Notes XIII. Other important events 4. Note 5: The bad debts proportion and reason for individual other receivables with significant amount At the end of this year, the individual other receivables with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of other receivables portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 12,482,625.00 Yuan. Note 6: The bad debts proportion and reason for individual other receivables without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the other receivables over 5 years, the bad debts proportion is 50% of the balance. For other receivables that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual other receivables with significant amount from other receivables satisfied with above situations, the leavings are individual other receivables without significant amount, but with significant credit risk. V. Notes to significant items of the consolidated financial statements (continued) 5. Inventories (1) Inventories category 31 Dec 2007 1 Jan 2007 Items Impairment Impairment Balance Balance provision provision Finished goods 905,819.53 436,497.91 - Constructing development product 261,730,986.32 41,686,535.83 219,682,885.17 34,486,535.83 Development product 85,666,334.76 19,820,620.60 152,236,428.71 28,349,858.62 Total 348,303,140.61 61,507,156.43 372,355,811.79 62,836,394.45 Net value 286,795,984.18 309,519,417.34 Note 1: Net realizable value of inventories is the net value of market price in the voluntary transactions deducting further development or sales costs according to the individual stock item in a fair market transaction. Details of inventory impairment provision refer to Notes V. 5 (4). Note 2: Inventory mortgage is as follows: a. The area of Pearl River Plaza 4th and 5th floor is 6,418.10 square meters, the book value is 28,083,756.50 Yuan; the area of Longzhu Plaza 21st floor is 792.2 square meters, the book value is 1,048,000 Yuan; Shanghai Pudong Avenue 1097 No. 23 and 24 attaching building two story, the area is 749.65 square meters, the book value is 3,362,144.37 Yuan; investment real estates listed in Notes V. 7 note 2; fixed-assets listed in Notes V. 8 note 1; these assets have been mortgaged to the Bank of Communication Hainan Branch, and loan amount is 42,900,000 Yuan. b. Meilin Qingcheng land use right and commercial house of 63,327.00 square meters in the Road No.20 Wuchang District of Wuhan, the book value is 74,946,255.99 Yuan, have been mortgaged to the Construction Bank of China Wuchang Branch, the loan amount is 100,000,000 Yuan. Note 3: Capitalized interest amount is 788,400.00 Yuan included in the increase of inventories. Capitalization rate is same as the bank lending rate over the same period. V. Notes to significant items of the consolidated financial statements (continued) 5. Inventories (continued) (2) Constructing development product is as follows: Estimated Estimated total Commencement Project name time for investment 31 Dec 2007 1 Jan 2007 date completion (0’000) Wuhan Meilin Qingcheng second and third period projects In Sep 2006 In 2011 79,929.00 153,609,255.29 116,502,671.00 Longzhu third period project Note 1 46,949,654.23 42,008,137.37 Along No.1 road engineering project Note 2 61,172,076.80 61,172,076.80 Total 261,730,986.32 219,682,885.17 Note 1: The Company and Haikou Land Resources Bureau signed the "supplementary agreement of land for construction" on 31 August 2004. The Land Resources Bureau agreed that the Company can defer exploiting the land of 16,512.62 square meters, locating in Longkun North Road No.2 (Pearl River International Hotel land). The project plan is waiting for the government’ s examining and approving. Note 2: According to “Equity application letter about Changdi along river No.1 road project”of Haikou City Development Co., Ltd (dismantlement and direct department of Changdi along river No.1 road) on 23 September 2006, it is required the Company applies relevant equity and data of the project. On 11 October 2006, the basic intention of the Company for the project is to obtain land with same value in Haikou according to actual capital invested by the Company or transfer the investment to new investors. V. Notes to significant items of the consolidated financial statements (continued) 5. Inventories (continued) (3) Development product is as follows: Time for Project name 1 Jan 2007 Increment Decrement 31 Dec 2007 completion F2 Dihao In 1995 208,046.94 208,046.94 F4 Pearl River Plaza attaching building In 1995 8,187,691.40 8,187,691.40 Pearl River Plaza F2 Dihao In 1995 16,872,946.97 1,437,225.47 18,310,172.44 0.00 Pearl River Plaza F3 Dijing In 1995 5,327,388.94 1,712,994.25 3,614,394.69 Pearl River Plaza F4 attaching building In 1995 21,216,601.30 125,442.02 21,342,043.32 Longzhu Plaza In 1992 1,598,659.60 1,598,659.60 Pearl River Plaza underground garage In 1995 6,919,373.98 6,919,373.98 Longzhu Plaza underground garage In 1992 2,664,000.00 2,664,000.00 Rose garden high floor In 2000 1,908,873.88 1,908,873.88 Rose garden attaching building In 2000 4,499,958.12 4,499,958.12 Rose garden underground garage two floor In 2000 30,345,040.97 30,345,040.97 Wuhan Meilin Qingcheng first period project In Aug 2006 52,487,846.61 14,862,629.8062,972,224.55 4,378,251.86 Total 152,236,428.71 16,425,297.2982,995,391.2485,666,334.76 Note: Ending amount of development product is decreased by 43.73% compared with initial amount. It is mainly due to transfer out commercial house sales of Wuhan Meilin Qingcheng first period project owned by Hubei Pearl River Real Estate Development Co., Ltd. (4) Inventories impairment provision Decrement Items 1 Jan 2007 Increment 31 Dec 2007 Transfer back Write off Development product 28,349,858.62-3,292,506.67 5,236,731.3519,820,620.60 Constructing development product 34,486,535.83 7,200,000.00 41,686,535.83 Total 62,836,394.45 3,907,493.33 5,236,731.3561,507,156.43 Note: Part house property of Dihao Plaza is sold, so inventories impairment provision made for the project originally is written off this year. V. Notes to significant items of the consolidated financial statements (continued) 6. Long-term equity investment (1) Category 31 Dec 2007 1 Jan 2007 Items Balance Provision Book value Balance Provision Book value Investment to joint venture 410,288.90 332,092.00 78,196.90 359,788.45 332,092.00 27,696.45 Investment to 1,616,641.1 affiliate 1,616,641.16 6 1,369,270.94 1,369,270.94 Other equity 206,200,703. 126,788,941. 79,411,761.7 206,392,888. 79,603,946.7 investment 44 74 0 44 126,788,941.74 0 208,227,633. 127,121,033. 81,106,599. 208,121,947. 81,000,914.0 Total 50 74 76 83 127,121,033.74 9 (2) Adopting equity method Equity increment or Initial decrement Percentage investing Name 1 Jan 2007 of invested companies 31 Dec 2007 % amount Amount of Accumulative this year amount Beijing Yangguang Tiancheng Property Management Co., Ltd 30 1,500,000.00 1,369,270.94247,370.22 116,641.16 1,616,641.16 Shanghai Bright Pearl at Sea Property Management Company 50 832,000.00 359,788.45 50,500.45 -421,711.10 410,288.90 Total 2,332,000.00 1,729,059.39297,870.67 -305,069.94 2,026,930.06 (3) Adopting cost method Initial Percentage Increm Name investing 1 Jan 2007 Decrement 31 Dec 2007 % ent amount Southwest Security 3.21 150,000,000.00 159,705,748.15 159,705,748.15 Guangzhou Pearl River Investment Management Co., Ltd 9.4785 18,177,240.29 18,177,240.29 18,177,240.29 China Net Promoting Science and Technology Investment Company 10 10,000,000.00 10,000,000.00 10,000,000.00 China (Hainan) Reform Development Academe 8,640,000.00 8,640,000.00 8,640,000.00 Hainan Tongsheng Harbor Company 15 6,000,000.00 6,000,000.00 6,000,000.00 Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 1,680,000.00 Nanli Lake member card 662,400.00 662,400.00 662,400.00 Hainan Pearl River Pipe and Peg Co., Ltd 1.33 618,500.00 618,500.00 192,185.00 426,315.00 Hainan General Commercial Board 6.67 500,000.00 500,000.00 500,000.00 Nanli Lake Golf member card 249,000.00 249,000.00 249,000.00 Hainan Huadi Pearl River Base-Project Co., Ltd 2 160,000.00 160,000.00 160,000.00 Total 196,687,140.29 206,392,888.44 0.00 192,185.00 206,200,703.44 Note: The decrement 192,185.00 Yuan is due to that Hainan Pearl River Pipe and Peg Co., Ltd distributes dividends. V. Notes to significant items of the consolidated financial statements (continued) 6. Long-term equity investment (continued) (4) Long-term investment impairment provision Decrement Name 1 Jan 2007 Increment Transfer Write 31 Dec 2007 Reason back off Southwest Security 91,705,296.35 91,705,296.35 Huge loss Guangzhou Pearl River Investment Deterioration of the Management Co., Ltd 7,352,245.39 7,352,245.39 financial situation China Net Promoting Science and Technology Investment Be revoked the Company 10,000,000.00 10,000,000.00 business license China (Hainan) Reform Development Unable to recover Academe 8,640,000.00 8,640,000.00 investment Hainan Tongsheng Harbor Project has already Company 6,000,000.00 6,000,000.00 been suspended Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 Negative net assets Nanli Lake member Unable to recover card 662,400.00 662,400.00 investment Hainan General Unable to recover Commercial Board 500,000.00 500,000.00 investment Shanghai Bright Pearl at Sea Property Deterioration of the Management Company 332,092.00 332,092.00 financial situation Nanli Lake Golf Unable to recover member card 249,000.00 249,000.00 investment Total 127,121,033.74 127,121,033.74 V. Notes to significant items of the consolidated financial statements (continued) 7. Investment real estates Items 1 Jan 2007 Increment Decrement 31 Dec 2007 I. Original value 22,822,290.87 22,822,290.87 (1) Buildings and s tructures 22,822,290.87 22,822,290.87 (2) Land use right II. Accumulated depreciation and amortization 903,066.94 903,066.94 (1) Buildings and structures 903,066.94 903,066.94 (2) Land use right III. Impairment provision 2,264,218.11 2,264,218.11 (1) Buildings and structures 2,264,218.11 2,264,218.11 (2) Land use right IV. Book value 20,558,072.76 903,066.94 19,655,005.82 (1) Buildings and structures 20,558,072.76 903,066.94 19,655,005.82 (2) Land use right Note 1: The Company adopts cost pattern to measure investment real estates . Note 2: Shanghai Pudong Avenue 1097 No. 23 and No. 24 attaching building first floor, parking area is 749.64 square meters, the book value is 2,846,256.86 Yuan; underground garage one-floor with 104 parking spaces, parking area is 3,517.28 square meters, the book value is 15,487,713.32 Yuan. All these have been mortgaged to Bank of Communication Hainan Branch, details refer to Notes V. 5 (1) note 2. V. Notes to significant items of the consolidated financial statements (continued) 8. Fixed assets and accumulated depreciation Items 1 Jan 2007 Increment Decrement 31 Dec 2007 I. Original value Buildings and structures 28,638,979.47 229,409,229.80 342,081.45 257,706,127.82 General equipments 17,893,050.37 21,954,963.98 39,848,014.35 Vehicles 11,295,576.79 3,590,931.68 2,439,309.11 12,447,199.36 Other equipments 9,287,497.03 17,790,194.87 190,729.70 26,886,962.20 Total 67,115,103.66 272,745,320.33 2,972,120.26 336,888,303.73 II.Accumulated depreciation Buildings and structures 8,264,068.54 535,019.40 169,495.97 8,629,591.97 General equipments 15,992,801.37 202,611.00 16,195,412.37 Vehicles 7,177,693.78 1,067,165.36 1,902,589.46 6,342,269.68 Other equipments 6,082,675.84 957,309.81 176,551.37 6,863,434.28 Total 37,517,239.53 2,762,105.57 2,248,636.80 38,030,708.30 III. Impairment provision Buildings and structures 13,857,221.05 3,174,406.65 17,031,627.70 General equipments Vehicles Other equipments Total 13,857,221.05 3,174,406.65 - 17,031,627.70 IV. Book value Buildings and structures 6,517,689.88 225,699,803.75 172,585.48 232,044,908.15 General equipments 1,900,249.00 21,752,352.98 - 23,652,601.98 Vehicles 4,117,883.01 2,523,766.32 536,719.65 6,104,929.68 Other equipments 3,204,821.19 16,832,885.06 14,178.33 20,023,527.92 Total 15,7 40,643.08 266,808,808.11 723,483.46 281,825,967.73 Note 1: Longzhu Plaza’ s twenty-two floor and its east side 2-floor are 792.20 and 1,669.13 square meters respectively, and the total carrying amount is 2,745,244.42. The two properties have been mortgaged to the Bank of Communication Hainan Branch; details refer to Notes V. 5 (1) note 2. Equipment: 2 sets of air conditionings, 2 sets of diesel generators, and 8 Elevators of Huayu brand (included in property value), the book value is 7,136,600.00 Yuan, as well as the right to use land in Sanya hotel, these have been mortgaged to the Bank of China Hainan Yeshumeng branch, and loan amount is 17,000,000 Yuan. Note 2: Real estates’carrying amount of Sanya Wanjia Deiss Hotel Co., Ltd is 193,715,873.01 Yuan, real estates’carrying amount of Wuhan Meilin Club is 6,616,310.00 Yuan. The relevant property ownership certificates are in course of handling. V. Notes to significant items of the consolidated financial statements (continued) 8. Fixed assets and accumulated depreciation (continued) Note 3: Ending carrying amount of fixed assets is increased by 1690.43% compared with initial amount. It is mainly due to the completion of Sanya Wanjia Deiss Hotel and it is transferred into fixed assets. Note 4: The increment of fixed assets is 272,745,320.33 Yuan, including real estates and general equipment 240,054,533.11 Yuan of Sanya Wanjia Deiss Hotel transferred from construction in progress. 9. Construction in progress Transferred to Other Source of Project name 1 Jan 2007 Increment 31 Dec 2007 fixed assets decrement fund Sanya villa 1,863,001.41 1,179,161.99 3,042,163.40 Self-financing Sanya hotel 147,942,844.85 92,717,894.86 240,054,533.11 606,206.60 Self-financing Total 149,805,846.26 93,897,056.85 240,054,533.11 606,206.60 3,042,163.40 Note 1: The increment of construction in progress is mainly due to Sanya Wanjia Deiss Hotel Co., Ltd which is the subsidiary of the Company increases investment to the project. Note 2: Capitalized interest amount is 16,113,655.78 Yuan included in the construction in progress, and interest increased this year is 7,987,173.00 Yuan. Capitalization rate is same as the bank lending rate over the same period. V. Notes to significant items of the consolidated financial statements (continued) 10. Intangible assets Items 1 Jan 2007 Increment Decrement 31 Dec 2007 I. Original value 31,411,744.44 1,900,422.03 0.00 33,312,166.47 Land use right of Sanya hotel 28,840,000.00 0.00 28,840,000.00 Sanya villa land 1,839,022.44 0.00 1,839,022.44 Wuhan club land 0.00 1,443,725.13 1,443,725.13 Shanghai hous e use right 695,732.00 0.00 695,732.00 Software 36,990.00 456,696.90 493,686.90 II.Accumulative amortization 203,852.30 835,461.73 0.00 1,039,314.03 Land use right of Sanya hotel 0.00 747,473.00 747,473.00 Sanya villa land 0.00 47,663.64 47,663.64 Wuhan club land 0.00 11,558.63 11,558.63 Shanghai house use right 188,658.90 13,914.64 202,573.54 Software 15,193.40 14,851.82 30,045.22 III. Carrying amount 31,207,892.14 1,064,960.30 0.00 32,272,852.44 Note 1: The right to use land of 30,780.13 square meters in Sanya hotel has been mortgaged to the Hainan Yeshumeng branch of the Bank of China. Details refer to Notes V. 8. Note 2: The carrying amount of land use right in Wuhan Club is 1,432,166.50 Yuan; the relevant property ownership certificate is in course of handling. 11. Long-term prepayments Original Amortization Accumulative 31 Dec Items value 1 Jan 2007 Increment this year amortization Decrement 2007 Startup costs 1,009,340.50 1,009,340.50 1,009,340.50 1,009,340.50 0.00 Decoration costs 28,000.00 4,666.00 4,666.00 28,000.00 0.00 Total 1,037,340.50 1,014,006.50 1,014,006.50 1,037,340.50 0.00 V. Notes to significant items of the consolidated financial statements (continued) 12. Assets impairment provision Decrement Items 1 Jan 2007 Increment 31 Dec 2007 Transfer back Write off Bad debt provision 50,936,236.84 1,827,850.03 1,970,112.47 0.00 50,793,974.40 Inventories impairment provision 62,836,394.45 3,907,493.33 0.00 5,236,731.35 61,507,156.43 long-term equity investment impairment provision 127,121,033.74 0.00 0.00 0.00 127,121,033.74 Investment real estates impairment provision 2,264,218.11 0.00 0.00 0.00 2,264,218.11 Fixed assets impairment provision 13,857,221.05 3,292,506.67 0.00 118,100.02 17,031,627.70 Others 0.00 0.00 0.00 0.00 0.00 Total 257,015,104.19 9,027,850.03 1,970,112.47 5,354,831.37258,718,010.38 Note: The increment of fixed assets impairment provision is 3,292,506.67 Yuan; it is due to inventories transferred to fixed assets as office building of the Company, at the same time inventories impairment provision transferred to fixed assets impairment provision. V. Notes to significant items of the consolidated financial statements (continued) 13. Assets with restricted ownership Items Assets name Area Amount Remark 1.Inventories Subtotal 107,440,237.46 Development product Pearl River Plaza attaching building 4-floor and 5-floor real estates 6,418.10 28,083,756.50 They have been mortgaged to the China Longzhu Plaza 21-floor 792.2 1,048,080.60 Construction Bank Hainan Branch for loan 42.9 Shanghai Pudong Avenue 1097 No. 23 and No.24 attaching buildings 749.65 3,362,144.37 million Yuan. 2-floor real estates It has been mortgaged to the Construction Bank of Constructing development product Land use right of Wuhan Meilin Qingcheng second period project 63,327.00 74,946,255.99 China Wuchang Branch for loan 100 million Yuan. 2.Investment real estates Subtotal 18,333,970.18 Shanghai Pudong Avenue 1097 No. 23 and No.24 attaching buildings They have been mortgaged to the China 749.64 2,846,256.86 Buildings and structures 1-floor real estates Construction Bank Hainan Branch for loan 42.9 Buildings and structures Underground garage 1-floor with 104 parking spaces 3,517.28 15,487,713.32 million Yuan. 3.Fixed assets Subtotal 9,881,844.42 They have been mortgaged to the China Buildings and structures Longzhu Plaza 22-floor and its northeast 2-floor real estates 2,461.33 2,745,244.42 Construction Bank Hainan Branch for loan 42.9 million Yuan. It has been mortgaged to the Bank of China Hainan Equipments General equipments 7,136,600.00 Yeshumeng branch for loan 17 million Yuan. 4.Intangible assets Subtotal 28,092,527.00 It has been mortgaged to the Bank of China Hainan Land Land use right of Sanya hotel 30,780.13 28,092,527.00 Yeshumeng branch for loan 17 million Yuan. 5.Long-term equity investment Subtotal 68,000,451.80 Other equity investment 75 million shares of Southwest Security 68,000,451.80 Details refer to Notes VIII. Note: Assets with restricted ownership are used for guarantee of bank loans. V. Notes to significant items of the consolidated financial statements (continued) 14. Short-term loans Category 31 Dec 2007 1 Jan 2007 Guaranteed loans Pledge loans 42,900,000.00 68,880,000.00 Total 42,900,000.00 68,880,000.00 Note 1: Beijing Wangfa Real Estate Development provides loan guarantee of 43,000,000 Yuan that the Company gets from the Bank of Communication Hainan Branch, and the ending amount of the loan is 42,900,000 Yuan. At the same time, the Company provides mortgage for the loan, details refer to Notes V. 13. Note 2: There are no unpaid overdue short-term loans this year. 15. Accounts payable Ages 31 Dec 2007 1 Jan 2007 Within 1 year 56,542,515.07 37,984,917.12 1-2 years 311,689.72 213,879.00 2-3 years 151,674.11 315,768.00 Over 3 years 7,698,052.82 7,416,052.89 Total 64,703,931.72 45,930,617.01 Note 1: The year end balance did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Note 2: Accounts payable over 3 years is unpaid project fund. Note 3: Ending carrying amount of accounts payable is increased by 40.87% compared with initial amount. It is mainly due to settle costs of Sanya Wanjia Deiss Hotel and increase accounts payable Ｖ． Ｎｏｔｅｓ ｔｏ ｓｉｇｎｉｆｉｃａｎｔ ｉｔｅｍｓ ｏｆ ｔｈｅ ｃｏｎｓｏｌｉｄａｔｅｄ ｆｉｎａｎｃｉａｌ ｓｔａｔｅｍｅｎｔｓ （ｃｏｎｔｉｎｕｅｄ） 16. Advances from customers Ages 31 Dec 2007 1 Jan 2007 Within 1 year 2,957,171.99 12,781,090.68 1-2 years 2-3 years Over 3 years Total 2,957,171.99 12,781,090.68 Note 1: The year end balance did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Note 2: Ending carrying amount of accounts payable is decreased by 76.86% compared with initial amount. It is mainly due to commercial house sales and settlement of Wuhan Meilin Qingcheng first period project 17. Accrued payroll Items Jan 1, 2007 Increment Decrement Dec 31, 2007 I. Salary, bonus, allowance 307,000.00 22,255,538.60 21,705,984.71 856,553.89 II. Employee Welfare expenses 1,477,392.82 1,466,370.49 2,943,763.31 III. Social insurance 570.50 462,062.19 462,062.19 570.50 Including: 1. medicare 103.80 813,877.13 813,877.13 103.80 2. basic endowment insurance 414.80 2,527,241.62 2,527,241.62 414.80 3. annuity Items Jan 1, 2007 Increment Decrement Dec 31, 2007 4.unemployment insurance 51.90 281,417.43 281,417.43 51.90 5.labour injury insurance 70,452.32 70,452.32 6.bearing insurance 49,476.94 49,476.94 IV. Housing accumulation fund 308.00 216,972.00 216,972.00 308.00 V. Labor union outlay and employee education outlay 1,486,461.56 730,948.10 337,592.48 1,879,817.18 VI. Non-monetary welfares VII. Compensation for dismissal VIII. Othe r Total 3,271,732.88 25,131,891.38 25,666,374.69 2,737,249.57 Note: There is no accrued payroll without paid on time or linking with work efficiency. V. Notes to significant items of the consolidated financial statements (continued) 18. Taxes payable Items Dec 31, 2007 Jan 1, 2007 VAT -222,962.66 -120,349.98 Individual income tax 52,241.92 32,675.70 City construction and maintenance tax 79,045.54 556,631.82 Corporate income tax 8,768,437.36 6,095,462.57 Property tax 2,195.73 -66,844.70 Business tax 517,349.17 7,361,180.19 Land use tax 7,695.03 7,695.03 Education fee -95,387.81 111,570.12 Local education fee 49,217.84 173,410.94 Land value-added tax -1,294,253.75 -1,800,450.52 Others 130,082.96 376,926.77 Total 7,993,661.33 12,727,907.94 19. Interest payable Item Dec 31, 2007 Jan 1, 2007 Loan interest 37,742,133.73 23,539,548.91 Total 37,742,133.73 23,539,548.91 Note 1: The year end balance did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Details refer to Notes VII. Related party relationship and transactions . Note 2: Ending carrying amount of interest payable is increased by 60.33% compared with initial amount. It is mainly due to unpaid loan interest of shareholder’ s loan. Details refer to Notes VII. Related party relationship and transactions . V. Notes to significant items of the consolidated financial statements (continued) 20. Other payables Ages 31 Dec 2007 1 Jan 2007 Within 1 year 326,758,453.67 64,859,635.34 1-2 years 64,022,142.74 21,938,451.34 2-3 years 20,605,700.13 13,372,986.90 Over 3 years 38,350,675.19 37,658,769.81 Total 449,736,971.73 137,829,843.39 Note 1: The year end balance did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Details refer to Notes VII. Related party relationship and transactions . Note 2: Ending carrying amount of interest payable is increased by 226.30% compared with initial amount. It is mainly due to loan 0.13 billion Yuan from Chongqing Putian Communication Equipment Co., Ltd. and loan increment from shareholder. Details refer to Notes VII. Related party relationship and transactions . 21. Non-current liabilities due within 1 year Category 31 Dec 2007 1 Jan 2007 Credit loans 15,000,000.00 Pledge loans 28,190,000.00 Total 43,190,000.00 22. Long-term borrowings Category 31 Dec 2007 1 Jan 2007 Credit loans 127,000,000.00 Pledge loans 117,000,000.00 22,000,000.00 Total 117,000,000.00 149,000,000.00 Note 1: The information about pledge loans 117 million Yuan refers to Notes V. 13. Among them, Beijing Wangfa Real Estate Development provides loan guarantee for loan 17 million Yuan from the Bank of China Haikou Yeshumeng branch, the amount in the loan contract is 30 million Yuan and ending balance is 17 million Yuan. Note 2: There are no unpaid overdue long-term borrowings this year. V. Notes to significant items of the consolidated financial statements (continued) 23. Share capital 1 Jan 2007 Increment or decrement (+,-) 31 Dec 2007 Items Percentage Increased by Percentage Shares Others Subtotal Shares (%) capital surplus (%) 1. Unlisted shares 206,779,153.00 48.45 -76,038,544.00 -76,038,544.00 130,740,609.00 30.64 State owned shares State corporate shares 120,023,678.00 28.13 -2,242,700.00 -2,242,700.00 117,780,978.00 27.60 Other domestic shares 86,755,475.00 20.33 -73,795,844.00 -73,795,844.00 12,959,631.00 3.04 Including:Domestic corporate shares 86,721,300.00 20.32 -73,787,300.00 -73,787,300.00 12,934,000.00 3.03 Domestic natural person shares 34,175.00 0.01 -8,544.00 -8,544.00 25,631.00 0.01 2.Listed shares 219,966,251.00 51.55 76,038,544.00 76,038,544.00 296,004,795.00 69.36 A Shares 154,991,251.00 36.32 76,038,544.00 76,038,544.00 231,029,795.00 54.14 B Shares 64,975,000.00 15.23 64,975,000.00 15.23 3. Total shares 426,745,404.00 100.00 426,745,404.00 100.00 Unit: share 24. Capital surplus Items 31 Dec 2007 1 Jan 2007 Share premium 224,960,139.16 224,960,139.16 Other capital surplus 109,300,017.82 109,300,017.82 Total 334,260,156.98 334,260,156.98 25. Surplus reserves Items 31 Dec 2007 1 Jan 2007 statutory surplus reserve 76,542,657.95 76,542,657.95 General surplus reserve 37,634,827.93 37,634,827.93 Total 114,177,485.88 114,177,485.88 V. Notes to significant items of the consolidated financial statements (continued) 26. Undistributed profits Items 2007 2006 Balance at the end of last year -634,334,182.69 -690,114,526.24 Add: Change in accounting policy -13,958,593.95 -12,321,955.05 Balance at the beginning of this year -648,292,776.64 -702,436,481.29 Add: Net profit attributable to parent company this year -31,199,957.08 58,326,224.33 Profit available for distribution -679,492,733.72 -644,110,256.96 Less: Draw statutory surplus reserve 4,182,519.68 Draw legal public welfare funds Profit available for distribution of investors -679,492,733.72 -648,292,776.64 Less: Preferred shares dividends payables Draw free surplus reserves Common stock dividends payables Common stock dividends transferred to capital stock Undistributed profits at the end of the year -679,492,733.72 -648,292,776.64 Note: The adjustment to undistributed profits at the beginning of the year is -13,958,593.95 Yuan; it is due to unrecognized investment losses charge off initial amount of undistributed profits. Details refer to Notes II. 28. 27. Operating income and cost Items 2007 2006 Main operating income 151,993,221.51 498,364,103.15 Other operating income 1,722,926.42 790,273.77 Total 153,716,147.93 499,154,376.92 Main operating costs 102,907,668.74 357,591,156.38 Other operating costs 834,375.68 1,188,887.31 Total 103,742,044.42 358,780,043.69 V. Notes to significant items of the consolidated financial statements (continued) 27. Operating income and cost (continued) The details of main operating income and cost are as follows according to products : Items 2007 2006 Main operating income Real estate sales 106,961,905.14 468,543,939.00 Property management services 43,975,331.72 28,362,099.16 Tourist hotel services 1,055,984.65 1,458,064.99 Subtotal 151,993,221.51 498,364,103.15 Main operating costs Real estate sales 63,983,019.21 333,566,108.95 Property management services 38,298,184.18 22,772,313.93 Tourist hotel services 626,465.35 1,252,733.50 Subtotal 102,907,668.74 357,591,156.38 Gross profit Real estate sales 42,978,885.93 134,977,830.05 Property management services 5,677,147.54 5,589,785.23 Tourist hotel services 429,519.30 205,331.49 Subtotal 49,085,552.77 140,772,946.77 The details of main operating income and cost are as follows according to regions: Items 2007 2006 Main operating income Hainan 49,821,646.46 33,986,564.15 Hubei 102,026,575.05 464,377,539.00 Shanghai 145,000.00 Total 151,993,221.51 498,364,103.15 Main operating costs Hainan 44,772,295.04 29,676,568.88 Hubei 58,012,344.83 327,914,587.50 Shanghai 123,028.87 Total 102,907,668.74 357,591,156.38 Note 1: The first five customers’total balance is 8,267,820.60 Yuan, and is 5.44% of total income. Note 2: Main operating income in 2007 is decreased by 69.50% compared with income in 2006; it is mainly due to that commercial house sales of Wuhan Meilin Qingcheng first period project owned by Hubei Pearl River Real Estate Development Co., Ltd. have been finished, so area available for sale is decreased this year. V. Notes to significant items of the consolidated financial statements (continued) 28. Operating taxes and extras Items 2007 2006 City construction and maintenance tax 532,306.32 1,762,849.57 Education fee 331,969.61 755,506.96 Business tax 7,630,913.67 25,183,565.27 Land value-added tax 2,558,263.80 Others 204,674.46 361,991.73 Total 11,258,127.86 28,063,913.53 Note: Rate and taxable base refer to Notes III. Taxation. 29. Sales expenses Items 2007 2006 Total 5,299,270.10 23,256,407.86 Note: Sales expenses are decreased significantly this year compared with same period of last year. It is mainly due to that main commercial houses of Wuhan Meilin Qingcheng first period project owned by Hubei Pearl River Real Estate Development Co., Ltd. have been sold last year; the residual commercial houses have been sold this year. 30. General and administrative expenses Items 2007 2006 Total 27,824,695.80 15,937,023.98 Note: General and administrative expenses is increased significantly this year compared with same period of last year. It is mainly due to one-time amortization to start-up costs of Sanya Wanjia Hotel Management Co., Ltd and general and administrative expenses included in current profit and loss. V. Notes to significant items of the consolidated financial statements (continued) 31. Financial expenses Items 2007 2006 Interest expenses 17,614,479.50 16,683,490.98 Less: Interest income 320,709.55 1,060,139.80 Loss or gain of exchange 1,641.32 Commission charge 354,794.61 1,058,030.10 Other Total 17,648,564.56 16,683,022.60 32. Loss of devaluation of assets Items 2007 2006 Bad debt -142,262.44 5,448,845.88 Inventories impairment provision 7,200,000.00 8,681,404.00 Long-term investment impairment provision -35,771,336.29 Total 7,057,737.56 -21,641,086.41 33. Investment income Items 2007 2006 Net increase or decrease of invested enterprise’ s owner’ s equity adjusted at the end of the year 297,870.67 -576,924.37 Income from transferring equity investment 5,910,164.97 Dividend distributed by invested enterprise 67,830.00 Total 365,700.67 5,333,240.60 34. Non-operating income Items 2007 2006 Profit on disposal of fixed assets 87,175.70 650.00 Net income from penalty 763,980.50 80,124.22 Others 11,310.05 141,296.23 Total 862,466.25 222,070.45 V. Notes to significant items of the consolidated financial statements (continued) 35. Non-operating expenses Items 2007 2006 Loss on disposal of fixed assets 78,521.70 23,428.49 Donation 218,000.00 Penalty payout 67,947.64 Indemnity for breaking a contract 216,000.00 Others 149,332.38 148,336.63 Total 729,801.72 171,765.12 36. Income tax Items 2007 2006 Income tax this year 11,747,704.97 17,520,886.22 Deferred income tax Total 11,747,704.97 17,520,886.22 37. Information of cash flow statement (1) Cash received relating to other operating activities Items 2007 2006 Fee of handling certificate from customer 340,328.50 643,884.00 Deposit due to decoration of water and electricity 2,333,028.00 3,109,684.62 Deposit of Wuhan construction engineering trading center 450,000.00 Others 4,467,293.83 1,606,896.36 Total 7,140,650.33 5,810,464.98 (2) Cash paid relating to other operating activities Items 2007 2006 Information disclosure fee 525,000.00 220,000.00 Audit and consultation fee 1,439,679.17 1,041,727.20 Advertisement publicity expenses 1,320,396.00 4,737,368.00 Agent and lawyer fee 1,870,791.00 9,219,758.00 Travel expenses 2,687,483.90 1,513,542.12 Business serving fee 1,438,290.30 1,381,966.64 Office expenses 1,093,824.00 1,290,182.28 Wanjia Hotel expense 3,657,672.00 1,980,022.18 Rent 483,090.70 568,924.30 Others 3,527,021.10 3,717,931.74 Total 18,043,248.17 25,671,422.46 V. Notes to significant items of the consolidated financial statements (continued) 37. Information of cash flow statement (continued) (3) “Cash received from borrowings”includes loan 271,375,000.00 Yuan from Beijing Xinxing Real Estate Development Company and Beijing Wangfa Real Estate Development Holdings Co., Ltd; “Cash repayments of amounts borrowed”includes repayment 15,000,000.00 Yuan to Beijing Xinxing Real Estate Development Company. (4)Supplementary information of cash flow statement Items 2007 2006 1 ． Reconciliation of net profit to cash flows from operating activities: Net profit -30,363,632.14 65,937,711.38 Add: Provision for impairment of assets 7,057,737.56 -21,641,086.41 Depreciation of fixed assets 3,659,948.79 2,415,608.61 Amortization of intangible assets 835,461.73 22,734.44 Amortization of long-term prepayments 1,014,006.50 13,629.55 Losses on disposal of fixed assets, intangible assets and other long-term assets 8,654.00 13,788.48 Losses on scrapping of fixed assets 0.00 18,467.69 Losses on fair value change 0.00 Financial expenses 17,614,479.50 16,683,490.98 Investment losses -365,700.67 -5,333,240.60 Decrease in deferred income tax assets 0.00 Increase in deferred income tax liabilities 0.00 Decrease in inventories 15,523,433.16 124,647,674.94 Decrease in operating receivables -57,964,772.56 26,284,017.28 Increase in operating payables 21,636,401.03 -71,382,362.45 Others 0.00 0.00 Net cash flows from operating activities -21,343,983.10 137,680,433.89 2．Significant investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under finance lease 3．Net increase in cash and cash equivalents Cash at the end of the period 110,933,403.84 25,848,868.95 Less: Cash at the beginning of the period 25,848,868.95 28,150,429.28 Add: Cash equivalents at the end of the period 0.00 Less: Cash equivalents at the beginning of the period 0.00 Net increase in cash and cash equivalents 85,084,534.89 -2,301,560.33 V. Notes to significant items of the consolidated financial statements (continued) 37. Information of cash flow statement (continued) (5) Cash and cash equivalents Items 2007 2006 1. Cash 110,933,403.84 25,848,868.95 Including: Cash on hand 456,917.03 273,395.48 Bank deposit paid at any time 110,476,486.81 25,575,473.47 Other monetary funds paid at any time 2. cash equivalents 3. Cash and cash equivalents at the end of year 110,933,403.84 25,848,868.95 VI. Notes to significant items of the parent company’s financial statements 1. Accounts receivable (1) Detailed information 31 Dec 2007 1 Jan 2007 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with 7,761,707.60 61.87 7,761,707.60 0.00 7,761,707.60 61.87 7,761,707.60 0.00 significant amount Individual without significant amount,but with 2,205,404.55 20.31 1,927,378.94 278,025.61 2,692,964.33 23.58 2,488,160.22 204,804.11 significant credit risk Other unimportant 2,160,550.57 17.82 184,257.58 1,976,292.99 1,779,470.44 14.55 112,303.38 1,667,167.06 receivables Total 12,127,662.72 100.00 9,873,344.12 2,254,318.60 12,234,142.37 100.00 10,362,171.20 1,871,971.17 (2) Analysis according to ages 31 Dec 2007 1 Jan 2007 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 1 year 837,509.75 6.91 16,750.19 820,759.56 872,999.59 7.14 17,459.99 855,539.60 1-2 years 754,685.82 6.22 37,734.29 716,951.53 438,115.85 3.58 21,905.79 416,210.06 2-3 years 100,000.00 0.82 10,000.00 90,000.00 207,334.00 1.69 20,733.40 186,600.60 3-4 years 207,334.00 1.71 41,466.80 165,867.20 261,021.00 2.13 52,204.20 208,816.80 4-5 years 261,021.00 2.15 78,306.30 182,714.70 0.00 0.00 Over 5 years 9,967,112.15 82.18 9,689,086.54 278,025.61 10,454,6 71.93 85.45 10,249,867.82 204,804.11 Total 12,127,662.72 100.00 9,873,344.12 2,254,318.60 12,234,142.37 100.00 10,362,171.20 1,871,971.17 VI. Notes to significant items of the parent company’ s financial statements (continued) 1. Accounts receivable (continued) Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. Note 2: The first five debtors’ending total balance is 8,395,856.42 Yuan, and is 69.23% of accounts receivable total amount. Note 3: There are 254,871.00 Yuan within 1 year, 379,277.82 Yuan between 1-2 years and 7,761,707.60 Yuan over 5 years in the first five debtors’ending total balance. Note 4: The bad debts proportion and reasons for individual accounts receivable with significant amount At the end of this year, the individual accounts receivable with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of accounts receivable portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 7,761,707.60 Yuan. Note 5: The bad debts proportion and reasons for individual accounts receivable without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the accounts receivable over 5 years, the bad debts proportion is 50% of the balance. For accounts receivable that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual accounts receivable with significant amount from accounts receivable satisfied with above situations, the leavings are individual accounts receivable without significant amount, but with significant credit risk. VI. Notes to significant items of the parent company’ s financial statements (continued) 2. Other receivables (1) Detailed information 31 Dec 2007 1 Jan 2007 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with significant amount 146,700,025.99 85.25 21,915,500.57 124,784,525.42 136,277,709.85 77.65 18,386,897.63 117,890,812.22 Individual without significant amount,but with significant credit risk 24,005,900.78 13.95 23,377,607.45 628,293.33 32,010,230.03 18.24 28,314,292.44 3,695,937.59 Other unimportant receivables 1,382,630.32 0.80 89,176.78 1,293,453.54 7,220,920.50 4.11 102,721.37 7,118,199.13 Total 172,088,557.09 100.00 45,382,284.80 126,706,272.29 175,508,860.38 100.00 46,803,911.44 128,704,948.94 (2) Analysis according to ages 31 Dec 2007 1 Jan 2007 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 1 year 60,828,950.90 35.35 1,216,579.02 59,612,371.88 28,715,477.37 16.36 574,309.55 28,141,167.82 1-2 years 252,360.80 0.15 12,618.04 239,742.76 25,102,352.84 14.30 1,255,117.64 23,847,235.20 2-3 years 2,840.00 0.00 284.00 2,556.00 27,015,978.62 15.39 2,701,597.86 24,314,380.76 3-4 years 21,465,978.62 12.47 4,293,195.72 17,172,782.90 0.00 4-5 years 0.00 0.00 0.00 0.00 Over 5 years 89,538,426.77 52.03 39,859,608.02 49,678,818.75 94,675,051.55 53.95 42,272,886.39 52,402,165.16 Total 172,088,557.0 9 100.00 45,382,284.80 126,706,272.29 175,508,860.38 100.00 46,803,911.44 128,704,948.94 Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. Note 2: The first five debtors’ending total balance is 146,700,025.99 Yuan, and is 85.25% of other receivables total amount. Note 3: There are 60,000,000.00 Yuan within 1 year, 21,167,500.00 Yuan between 3-4 Years and 65,532,525.99 Yuan over 5 years in the first five debtors’ending total balance. Note 4: The bad debts proportion and reason for individual other receivables with significant amount VI. Notes to significant items of the parent company’ s financial statements (continued) 4. Other receivables (continued) At the end of this year, the individual other receivables with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of other receivables portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 65,532,525.99 Yuan. Note 5: The bad debts proportion and reason for individual other receivables without significant amount, but with significant credit risk according to credit risk characteris tics portfolio For the other receivables over 5 years, the bad debts proportion is 50% of the balance. For other receivables that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual other receivables with significant amount from other receivables satisfied with above situations, the leavings are individual other receivables without significant amount, but with significant credit risk. 3. Long-term equity investment (1) Category 31 Dec 2007 1 Jan 2007 Items Balance Provision Book value Balance Provision Book value Investment to subsidiary 230,100,000.00 40,000,000.00 190,100,000.00 170,100,000.00 40,000,000.00 130,100,000.00 Investment to affiliate Other equity investment 205,951,703.44 126,539,941.74 79,411,761.70 206,143,888.44 126,539,941.74 79,603,946.70 Total 436,051,703.44 166,539,941.74 269,511,761.70 376,243,888.44 166,539,941.74 209,703,946.70 VI. Notes to significant items of the parent company’ s financial statements (continued) 3. Long-term equity investment (continued) (2) Investment to subsidiary Equity Accumulative Initial increase Holding equity Name investing 1 Jan 2007 Increment or Decrement 31 Dec 2007 proportion increase or amount decrease decrease this year Hainan Pearl River Properties and 98% 4,900,000.00 4,900,000.00 4,900,000.00 Hotels Management Co., Ltd. Sanya Wanjia Hotel Management Co., 100% 68,000,000.00 68,000,000.00 40,000,000.00 108,000,000.00 Ltd. Sanya Wanjia Golf 100% 20,000,000.00 20,000,000.00 20,000,000.00 Co., Ltd. Hubei Pearl River Real Estate 88% 57,200,000.00 57,200,000.00 57,200,000.00 Development Co., Ltd. Hainan Pearl River Enterprises Holding 100% 40,000,000.00 40,000,000.00 40,000,000.00 Co., Ltd. Shanghai Real Estate Co. Total 190,100,000.00 170,100,000.00 60,000,000.00 0.00 0.00 0.00 230,100,000.00 (3) Other equity investment Holding Initial Name proportion investing 1 Jan 2007 Increme nt Decrement 31 Dec 2007 % amount Southwest Security 3.21 150,000,000.00 159,705,748.15 159,705,748.15 Guangzhou Pearl River Investment Management Co., Ltd 9.4785 18,177,240.29 18,177,240.29 18,177,240.29 China Net Promoting Science and Technology Investment Company 10 10,000,000.00 10,000,000.00 10,000,000.00 China (Hainan) Reform Development Academe 8,640,000.00 8,640,000.00 8,640,000.00 Hainan Tongsheng Harbor Company 15 6,000,000.00 6,000,000.00 6,000,000.00 Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 1,680,000.00 Nanli Lake member card 662,400.00 662,400.00 662,400.00 Hainan Pearl River Pipe and Peg Co., Ltd 1.33 618,500.00 618,500.00 192,185.00 426,315.00 Hainan General Commercial Board 6.67 500,000.00 500,000.00 500,000.00 Hainan Huadi Pearl River Base-Project Co., Ltd 2 160,000.00 160,000.00 160,000.00 Total 196,687,140.29 206,143,888.44 192,185.00 205,951,703.44 Note: The decrement 192,185.00 Yuan is due to that Hainan Pearl River Pipe and Peg Co., Ltd distributes dividends. VI. Notes to significant items of the parent company’ s financial statements (continued) 3. Long-term equity investment (continued) (4) Long-term investment impairment provision Decrement Name 1 Jan 2007 Increment 31 Dec 2007 Reason Transfer back Write off Southwest Security 91,705,296.35 91,705,296.35 Huge loss Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. 40,000,000.00 40,000,000.00 Huge loss Guangzhou Pearl River Investment Deterioration of th e Management Co., Ltd 7,352,245.39 7,352,245.39 financial situation China Net Promoting Science and Technology Be revoked the Investment Company 10,000,000.00 10,000,000.00 business license China (Hainan) Reform Development Unable to recover Academe 8,640,000.00 8,640,000.00 investment Project has already Hainan Tongsheng Harbor Company 6,000,000.00 6,000,000.00 been suspended Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 Negative net assets Unable to recover Nanli Lake member card 662,400.00 662,400.00 investment Unable to recover Hainan General Commercial Board 500,000.00 500,000.00 investment Total 166,539,941.74 0.00 0.00 0.00 166,539,941.74 4. Operating income and cost Items 2007 2006 Main operating income 5,303,369.14 4,166,400.00 Other operating income 1,194,926.42 826,274.05 Total 6,498,295.56 4,992,674.05 Main operating costs 6,248,029.18 5,651,521.45 Other operating costs 54,337.61 192,242.33 Total 6,302,366.79 5,843,763.78 The details of main operating income and cost are as follows according to products : Items 2007 2006 Main operating income Real estate sales 5,303,369.14 4,166,400.00 Main operating costs Real estate sales 6,248,029.18 5,651,521.45 Gross profit Real estate sales -944,660.04 -1,485,121.45 VI. Notes to significant items of the parent company’ s financial statements (continued) 5. Investment income Items 2007 2006 Net increase or decrease of invested enterprise’s owner’ s equity adjusted at the end of the year -20,747.84 Income from transferring equity investment 5,910,164.97 Dividend received 67,830.00 Total 67,830.00 5,889,417.13 Note: At the balance sheet date, there were no significant restrictions on the return from investments. VII. Related party relationship and transactions 1. Related party relationship (1) Related parties with control relationship a. Parent company and ultimate controller: Relationship Voting Registered Organization Principal Registered Holding Name with rights address code operating capital proportion the Company proportion Real estate Beijing Wangfa Real development The first largest Estate Development Beijing 280 million and shareholder Holdings Co., Ltd Yuan 60003715-7 operation 25.31% 25.31% Real estate Beijing Xinxing Real Controller of the development 10 million Estate Development Beijing first largest and Yuan Company shareholder 10113538-5 operation b. Registered capital and its changes about related party with controlling relationships 1 Jan 2007 Increment Decrement 31 Dec 2007 Beijing Wangfa Real Estate Development Holdings Co., Ltd 280 million Yuan 280 million Yuan c. Equity and its changes about related party with controlling relationships 1 Jan 2007 Increment Decrement 31 Dec 2007 Name Balance % Balance Balance Balance % Beijing Wangfa Real Estate Development 107,993,700 25.31 107,993,700 25.31 Holdings Co., Ltd. d. Information about subsidiaries Details refer to IV. Business combinations and consolidation financial statements. Notes to Financial Statements (continued) VII. Related party relationship and transactions (continued) 1. Related party relationship (continued) (2) Information about joint venture and affiliate of the Company Organization Registered Principal Registered Holding Voting Name rights code address operating capital proportion proportion Shanghai Bright Pearl at Sea Property Property Management management Company 60732602-3 Shanghai service 1,660,000 50% 50% Beijing Yangguang Tiancheng Property Property Management Co., management Ltd 77954738-3 Beijing service 5,000,000 30% 30% (3) Other related parties Relationship with Name the Company Beijing Yulong Jisheng Real Estate Development Co., Ltd. With same controller Bohua Asset Management Co., Ltd. With same controller 2. Related party transactions (1) Providing funds a. The Company borrowed 58.15 million Yuan from Beijing Xinxing Real Estate Development Company this year, the accumulative loan balance is 65.46 million Yuan at the end of this year; the Company borrowed 52.325 million Yuan from Beijing Wangfa Real Estate Development Holdings Co., Ltd. this year, the accumulative loan balance is 52.325 million Yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. b. The Company’ s subsidiary Hubei Pearl River Real Estate Development Co., Ltd. borrowed 20 million Yuan from Beijing Xinxing Real Estate Development Company this year; the accumulative loan balance is 23.5 million Yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. c. The Company’s subsidiary Sanya Wanjia Hotel Management Co., Ltd borrowed 52.5 million Yuan from Beijing Xinxing Real Estate Development Company this year, the accumulative loan balance is 115.2 million Yuan at the end of this year; it also borrowed 3.4 million Yuan from Beijing Wangfa Real Estate Development Holdings Co., Ltd. this year, the accumulative loan balance is 19.7 million Yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. VII. Related party relationship and transactions (continued) 2. Related party transactions (continued) During the report period, the Company increased related party borrowing interest 10,212,451.82 Yuan for the above 3 events, the accumulated unpaid interest is 19,798,757.99 Yuan at the end of this year. d. During the report period, the Company repaid 9 million Yuan to Bohua Asset Management Co., Ltd.; the accumulative loan balance is 3.2 million Yuan at the end of this year. The Company increased borrowing interest 414,750.00 Yuan for the event, the accumulated unpaid interest is 4,343,577.81 Yuan at the end of this year. (2) Loan guarantee Beijing Wangfa Real Estate Development Holdings Co., Ltd provided loan guarantee of 42,900,000 Yuan that the Company got from the Bank of Communication Hainan Branch. It also provided loan guarantee of 17,000,000 Yuan that the Company’ s subsidiary company Sanya Wanjia Hotel Management Co., Ltd got from the Bank of China Haikou Yeshumeng Branch. 3. Balances of related party receivable and payable 1 Jan 2007 31 Dec 2007 Items Increment Decrement Balance % Balance % 1. Other payable Beijing Xinxing Real Estate Development 73,510,447.00 53.33 145,650,000.00 15,000,000.00 204,160,447.00 45.40 Company Beijing Wangfa Real Estate Development 16,300,000.00 11.83 185,725,000.00 130,000,000.00 72,025,000.00 16.01 Holdings Co., Ltd. Beijing Yulong Jisheng Real Estate 1,500,000.0 0 1.09 1,500,000.00 0.33 Development Co., Ltd. Bohua Asset Management Co., Ltd. 12,200,000.00 8.85 9,000,000.00 3,200,000.00 0.71 Total 103,510,447.00 75.10 331,375,000.00 154,000,000.00 280,885,447.00 62.46 2. Interest payable Beijing Xinxing Real Estate Development 6,878,934.11 29.22 7,082,844.54 13,961,778.65 36.99 Company Beijing Wangfa Real Estate Development 2,707,372.06 11.50 3,129,607.28 5,836,979.34 15.47 Holdings Co., Ltd. Bohua Asset Management Co., Ltd. 3,928,827.81 16.69 414,750.00 4,343,577.81 11.51 Total 13,515,133.98 57.41 10,627,201.82 0.00 24,142,335.80 63.97 VII. Related party relationship and transactions (continued) 4. Reward of key managers Name 2007 2006 Remark Zheng Qing 217,000.00 210,000.00 Chairman of the board, General Manager Feng bai 154,000.00 130,000.00 Vice General Manager Chen Binglian 133,000.00 130,000.00 Vice General Manager Yang Daoliang 80,000.00 80,000.00 Employee supervisor Total 584,000.00 470,000.00 Note: The other directors and supervisors of the Company do not draw reward from the Company. VIII. Contingent events Litigation matters On 15 March 2007, the Company borrowed 130,000,000.00 Yuan from Chongqing Putian Communication Equipment Co., Ltd. with duration of six months and annual interest rate 6.804%. But the Company failed to repay the loan on time. On 16 October 2007, Chongqing Putian Communication Equipment Co., Ltd. brought the civil action to Fifth Intermediate People's Court in Chongqing and required the Company to repay principal 130,000,000.00 Yuan and interest 2,256,471.00 Yuan (up to 31 December 2007). On 31 November 2007, the Company received civil record and civil judgment letter. According to the civil judgment letter, 75 million shares of Southwest Security held by the Company were seized. At the end of this year, this case has not been adjudicated. IX. Commitments 1. On 25 August 2004, the Company and the Bank of China Haikou Yeshumeng branch signed loan agreement with total contract amount 30 million Yuan, and the Company shall repay the loan at 6 times up to 25 August 2012. The actual using loan amount is 17 million Yuan up to 31 December 2007. 2. On 8 January 2004, the Company and the Bank of Communication Hainan Branch signed repayment agreement; the Company shall repay loan interest 11.9 million Yuan within 5 years from third quarter in 2004 to fourth quarter in 2008. The unpaid balance is 10,144,350.59 Yuan at the end of this year. X. Non-adjusting events after the balance sheet date On 17 March 2008, the Company received the notice from the first largest shareholder Beijing Wangfa Real Estate Development Holdings Co., Ltd and actual controller Beijing Xinxing Real Estate Development Company, the investors of Beijing Xinxing Real Estate Development Company are negotiating and communicating with CITIC Group about the assets reorganization of Beijing Xinxing Real Estate Development Company. XI. Non-monetary transactions Not applicable. XII. Debt restructuring Not applicable. XIII. Other important events 1. In March 2007, the Company and Chongqing Putian Communication Equipment Co., Ltd. signed loan agreement that the Company borrowed 0.13 billion Yuan from Chongqing Putian Communication Equipment Co., Ltd. and 75 million shares of Southwest Security held by the Company were pledged at Chongqing Banan District Rural Credit Cooperative. But the Company failed to repay the loan on time. On 16 October 2007, Chongqing Putian Communication Equipment Co., Ltd. brought the civil action to Fifth Intermediate People's Court in Chongqing. Details refer to Notes VIII. Contingent events. 2. On 23 November 2007, the Company convened 12th session of fifth board of directors . The company agreed to use 75 million shares of Southwest Securities before the merger of Southwest Securities , occupied 3.21% of registered capital, to exchange additional shares of Chongqing Changjiang River Transport Limited Company. After the completion of the absorption merger, the Company will be the shareholder of Changyun Stock holding 82.5 million shares , occupied 2.931% of total shares. Changyun Stock applies to change its name to "Southwest Securities Co., Ltd.". The matter still needs the approval of the China Securities Regulatory Commission or other departments . 3. The Company plans to offer shares non-publicly to controlling shareholder Beijing Wangfa Real Estate Development Holdings Co., Ltd and actual controller Beijing Xinxing Real Estate Development Company. Details and progress refer to the announcement of the Company. 4. The company plans to cooperate with Bengbu New Area Development Co., Ltd with the method of equity transfer, and develop “Tian Xi Jin Cheng”project locating in Hefei Baohe district. Details and progress refer to the announcement of the Company. XIV. Supplementary information 1. According to “Information disclosure requirement No.7 for the companies issuing securities publicly – Non-recurring Profit and Loss”issued by China Securities Regulatory Commission (revised in 2007), the amount of non-recurring profit and loss is as follows (profit is “+”, loss is “-”): Balance before deducting Balance after deducting Items amount affected by income tax amount affected by income tax 2007 2006 2007 2006 1.Profit and loss on disposal of non-current assets 8,654.00 5,887,386.48 19,946.17 5,887,386.48 (1)Income on disposal of long-term assets 87,175.70 5,910,814.97 87,175.70 5,910,814.97 Including: fixed assets disposal income 87,175.70 650.00 87,175.70 650.00 (2)Loss on disposal of long-term assets 78,521.70 23,428.49 67,229.53 23,428.49 Including: fixed assets disposal loss 78,521.70 23,428.49 67,229.53 23,428.49 2.Transfer back impairment provision of previous years 0.00 44,034,981.68 0.00 44,034,981.68 3.Capital using fee recorded in current profit and loss from non-finance enterprise 0.00 898,714.13 0.00 898,714.13 4.Accrued payroll according actual condition and welfare plan 1,477,392.82 1,477,392.82 5.Net amount of other non-operating income and expenses except above items 124,010.53 106,823.54 229,530.65 80,382.55 (1)Non-operating income 775,290.55 257,528.49 716,376.31 231,087.50 Including: penalty income 0.00 0.00 refunds of VAT 0.00 0.00 (2)Less: non-operating expenses 651,280.02 150,704.95 486,845.66 150,704.95 Including: tax late fee, penalty 67,947.64 45,524.92 donation 218,000.00 185,000.00 Non-recurring profit and loss before deducting minority interests 1,610,057.35 50,927,905.83 1,726,869.64 50,901,464.84 Less: amount affected by minority interests affect amount -26,691.33 7,109.17 -12,673.85 7,109.17 Non-recurring profit and loss after deducting minority interests 1,636,748.68 50,920,796.66 1,739,543.49 50,894,355.67 XIV. Supplementary information (continued) 2. According to “Rules for the Compilation of Information Disclosures by the Companies That Offer Securities to the Public No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings Per Share”issued by China Securities Regulatory Commission (revised in 2007), the return on net assets and earnings per share are as follows: (1) Return on net assets Return on net assets Profit of this year Fully diluted Weighted average 2007 2006 2007 2006 Net profit attributable to -15.94% 25.71% -14.77% 43.76% common shareholders Net profit excluding non-recurring Profit and Loss -16.83% 3.28% -15.59% 5.58% attributable to common shareholders (2) Earnings per share Earnings per share Profit of this year Basic earnings per share Diluted earnings per share 2007 2006 2007 2006 Net profit attributable to common shareholders -0.07 0.14 -0.07 0.14 Net profit excluding non-recurring Profit and Loss attributable to common shareholders -0.08 0.02 -0.08 0.02 Items 2007 2006 Calculation of basic earnings per share and diluted earnings per share 1. Numerator Net profit deducting tax -31,199,957.08 58,326,224.33 Profit and loss attributable to common shareholders of parent -31,199,957.08 58,326,224.33 company 2. Denominator Outstanding weighted average of ordinary shares 426,745,404.00 426,745,404.00 3. Earnings per share Basic earnings per share -0.07 0.14 Diluted earnings per share -0.07 0.14 XIV. Supplementary information (continued) (3) Calculation process Fully diluted return on net assets = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ net assets attributable to common shareholders at the end of this year Weighted average return on net assets = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ (net assets at the beginning of this year + net profit attributable to common shareholders ÷ 2) Basic earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares Diluted earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares after adjusted There are no potential diluted ordinary shares in the Company during the report period. XIV. Supplementary information (continued) 3. Influence on implementing New Enterprises Accounting Standards (1) According to the provisions of “the notice about financial accounting information disclosure relating with New Enterprises Accounting Standards” (Zheng Jian Fa [2006] No.136) issued by the China Securities Regulatory Commission and information disclosed in 2006 annual report, the Company prepares the Reconciliation Statement of Shareholders’Equity Based on New and Old Enterprises Accounting Standards as at 31 December 2006 again: Reconciliation Statement of Shareholders’Equity Based on New and Old Enterprises Accounting Standards Unit: RMB Yuan Balance disclosed Original balance Items in 2007 annual disclosed in 2006 Difference report annual report Shareholders’equity on 31 December 2006 (Old Enterprises Accounting 226,890,270.22 226,890,270.22 Standards) Long-term equity investment differences Including: long-term equity investment differences due to business combination under same control Minority interests 13,656,177.06 13,656,177.06 Corporate income tax Others Shareholders’equity on 1 January 2007 (New Enterprises Accounting 240,546,447.28 240,546,447.28 Standards) The Company has taken into account the change of consolidation scope after the implementation of the New Enterprises Accounting Standards, so the balances of Reconciliation Statement of Shareholders’ Equity disclosed in 2006 are same with them on 1 Jan 2007. XIV. Supplementary information (continued) 3. Influence on implementing New Enterprises Accounting Standards (continued) (2) Difference reconciliation statement of net profit Difference Reconciliation Statement of Net Profit on New and Old Enterprises Accounting Standards Unit: RMB Yuan Items Balance Net profit in 2006(Old Enterprises Accounting Standards) 59,962,863.23 Total balance influenced by retroactive adjustments Including: General and administrative expenses Loss of devaluation of assets Changing income of fair value Investment income Unrecognized investment loss -1,636,638.90 Minority interests(Old Enterprises Accounting Standards) 7,609,346.12 Minority interests (combination adjustment) 2,140.93 Net profit in 2006(New Enterprises Accounting Standards) 65,937,711.38 Note: The increase of minority interests is due to Hainan Pearl River Estate Cleaning Company was not included in the financial statements consolidation scope in 2006 due to smaller scale. According to the requirements of New Enterprises Accounting Standards , it is included in the consolidation scope in 2007. The Company re-presents comparative information in the financial statements and increases initial amount of minority interests 2,140.93 Yuan in 2006. XV. The financial statements were approved by 14th session of fifth board of directors of the Company. Hainan Pearl River Holding Company Limited 14 April 2008