ST中华B(200017)2007年年度报告英文版（修订稿）

深圳中华自行车（集团）股份有限 公 司 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED 2007 ANNUAL REPORT April 29, 2008 1 IMPORTANT NOTICES: Directors, supervisors and senior executives of the Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as the Company) hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinions for the Company. The Board of Directors of the Company made specific explanations on the relevant matters; the Supervisory Committee of the Company expressed definite opinions on the specific explanations by the Board of Directors. The investors are suggested to read for details. No director, supervisor and senior executives stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of 2007 Annual Report or have objection for this report. Director Mr. Shi Zhanxiong was absent from the board meeting due to business and he entrusted Director Mr. Liu Linfeng to attend and vote on his behalf; Independent Director Mr. Li Chun did not attend the meeting entirely due to business and entrusted Independent Director Ms. Zhang Xinmiao to vote on his behalf. Chairman and Person in Charge of the Company Mr. Shang Shijun, President and Person in Charge of Accounting Works Mr. Ye Qing and Chief Accountant Ms. He Yili hereby confirm that the Financial Report of 2007 Annual Report is true and complete. Content I. Company Profile---------------------------------------------------------------------------- II. Summary of Accounting Highlight and Bussiness Highlight ---------------------- III. Changes in Share Capital & Particulars about Shareholders---------------------- IV Particulars about Directors, Supervisors, Senior Executives & Employees----- V. Administrative Structure------------------------------------------------------------------ VI. Particulars about Shareholders’ General Meetings---------------------------------- VII. Report of the Board of Directors--------------------------------------------------------- VIII. Report of the Supervisory Committee------------------------------------------------- IX. Significant Events---------------------------------------------------------------------------- X. Financial Report----------------------------------------------------------------------------- Documents Available for Documents---------------------------------------------------- 2 I. Company Profile 1. Legal Name of the Company in Chinese: 深圳中华自行车（集团）股份有限公司 In English: SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED Short form of English Name: CBC 2. Legal Representative: Mr. Shang Shijun 3. Secretary of the Board of Directors: Mr. Li Hai Representatives for Securities Affairs: Cui Hongxia Tel: (86) 755 –28181666 Contact Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Fax: (86) 755 –28181009 E-mail: dmc@szcbc.com 4. Registered Address and Office Address: No. 3008, Buxin Road, Shenzhen, Guangdong Province, PRC Post Code: 518019 Office Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Post Code: 518131 The Company’s Internet Website: www.cbc.com.cn E-mail: cbc@szcbc.com 5. Newspapers Chosen for Disclosing the Information: Securities Times and Hong Kong Wen Wei Po Internet Website Designated for Publishing the Annual Report: www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors 6. Stock Exchange Listed with, Short Form of the Stock and Stock Code: Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SST ZHONGHUA – A, ST ZHONGHUA – B Stock Code: 000017 for A-share, 200017 for B-share 7. Other Information about the Company (1) Initial registered date: Aug. 24, 1984 (2) Initial registered place: Buxin Road, Shenzhen (3) Registration number for business license of legal person of corporation: PGYSZZi No.101165 (4) Registration number of tax: State Revenue SHEN ZI No. 440301618830452, Land Tax SHEN ZI No. 440303618830452 (5) Name and office address of the Certified Public Accountants engaged by the Company: Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Office Address: 5/F, Baofeng Building, 2006 South Dongmen Road, Shenzhen II. Summary of Accounting Highlight and Bussiness Highlight 1. Major profit indexes as of the year 2007 Unit: RMB Operating profit 3,573,511.37 Total profit 72,885,796.46 3 Net profit attributable to shareholders of the listed company 63,036,241.24 Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses -6,276,043.85 Net cash flow arising from operating activities -2,591,980.11 2. Items of non-recurring gains and losses Unit: RMB Detailed item 2007 2006 1.Disposal profit and loss on non-current assets 757,452.53 4,735.50 2. Tax refund and exemption approved by exceeding authority or without formal document of approval --- --- 3. government subsidy recorded into the current gains and losses --- --- 4. Capital occupation received from non- financial enterprises and recorded into the current gains and losses --- --- 5. Profit and loss resulting from the discrepancy between enterprise combination cost and the fair value of the identifiable net assets of the --- --- combined enterprise 6. Profit and loss on exchange of non-monetary assets --- --- 7. Profit and loss on entrusted investment --- --- 8. Assets devalue provisions withdrawn for force majeure, such as natural disaster --- --- 9. Debt restructuring expense 68,568,701.43 --- 10. Enterprise restructuring expense --- --- 11. Profit and loss exceeding fair value, resulting from unfair transactions --- --- 12. Net profit and loss of the current period from the beginning of th subsidiary to combination date, resulting from enterprise combination unde the same control --- --- 13. Profit and loss on predicted liabilities unrelated to main business of the Company --- --- 14. Net amount of other non-operating income and expense except the above items --- --- 15. Others -13,868.87 28,913.72 Total 69,312,285.09 33,649.22 Minus: corresponding income tax of non-recurring profit and loss --- --- Minus: the part shared by minority shareholders --- --- Net profit influenced by non-recurring profit and loss 69,312,285.09 33,649.22 Net profit on the statement 63,036,241.24 -12,012,582.39 Minus: profit and loss of minority shareholders --- --- Net profit attributable to shareholders of parent company 63,036,241.24 -12,012,582.39 The ratio of non-recurring profit and loss to net profit attributable to shareholders of parent company in the same period 109.96% --- Net profit attributable to shareholders of parent company after deducting non-recurring profit and loss -6,276,043.85 -12,046,231.61 3. Differences on CAS and IAS CAS IAS Net profit 63,036,241.24 63,036,241.24 Net asset -1,784,339,460.68 -1,784,339,460.68 Explanation on the No differences 4 difference 2. Major accounting data and financial indexes over the recent three year at the end of report year (Unit: RMB) (1) Main accounting data Unit: RMB Increase/de crease in this year 2006 2005 2007 compared with last year (%) After Before Before adjustment After adjustment After adjustment adjustment adjustment Operating income 234,601,314.71 219,673,260.11 232,525,287.59 0.89% 164,222,481.91 164,222,481.91 Total profit 72,885,796.46 -12,024,258.74 -12,012,582.39 -706.75% 3,326,148.84 917,998.70 Net profit attributable to shareholders of the listed company 63,036,241.24 -9,648,015.34 -12,012,582.39 -624.75% 3,738,730.58 3,738,730.58 Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses -6,276,043.85 -9,681,664.56 -12,046,231.61 -47.90% -9,520,236.83 -9,520,236.83 Net cash flow arising from operating activities -2,591,980.11 -9,953,587.30 -8,950,557.42 -71.04% 22,377,763.45 22,377,763.45 Basic earnings per share 0.1315 -0.0201 -0.0251 0.0078 0.0078 Diluted earnings per share 0.1315 -0.0201 -0.0251 - 0.0078 0.0078 Basic earnings per share after deducting non-recurring gains and losses 234,601,314.71 219,673,260.11 232,525,287.59 0.89% 164,222,481.91 164,222,481.91 Fully diluted return on equity 72,885,796.46 -12,024,258.74 -12,012,582.39 -706.75% 3,326,148.84 917,998.70 Weighted average return on equity 63,036,241.24 -9,648,015.34 -12,012,582.39 -624.75% 3,738,730.58 3,738,730.58 Fully diluted return on equity after deducting non-recurring gains and losses -6,276,043.85 -9,681,664.56 -12,046,231.61 -47.90% -9,520,236.83 -9,520,236.83 Weighted average return on equity after deducting non-recurring gains and losses -2,591,980.11 -9,953,587.30 -8,950,557.42 -71.04% 22,377,763.45 22,377,763.45 Net cash flow arising from operating activities per share 0.1315 -0.0201 -0.0251 0.0078 0.0078 5 (2) Main financial indexes Increase/decrease in 2007 2006 this year compared 2005 with last year (%) Before After Before After After adjustment adjustment adjustment adjustment adjustment Basic earnings per share 0.1315 -0.0201 -0.0251 0.0078 0.0078 Diluted earnings per share 0.1315 -0.0201 -0.0251 - 0.0078 0.0078 Basic earnings per share after deducting non-recurring gains and losses -0.0131 -0.0202 -0.0251 - -0.0199 -0.0199 Fully diluted return on equity -0.0054 -0.0208 -0.0187 0.0000 0.0467 0.0467 Weighted average return on equity 0.1315 -0.0201 -0.0251 0.0078 0.0078 Fully diluted return on equity after deducting non-recurring gains and losses 0.1315 -0.0201 -0.0251 - 0.0078 0.0078 Weighted average return on equity after deducting non-recurring gains and losses -0.0131 -0.0202 -0.0251 - -0.0199 -0.0199 Net cash flow arising from operating activities per share -0.0054 -0.0208 -0.0187 0.0000 0.0467 0.0467 Increase/decrease at the end of this year At the end At the end of 2006 compared with that At the end of 2005 of 2007 at the end of last year (%) Before After Before After After adjustment adjustment adjustment adjustment adjustment Net asset per share attributable to shareholders of listed company -3.72 -3.89 -3.85 -3.79 -3.86 3. Supplemental statement of profit (return on equity and earnings per share) in the report period 4. Changes in shareholders’ equity in the report period III. Changes in Share Capital & Particulars about Shareholders (I) Particulars about change in share capital 1. Change in shares Unit: share Before the change Increase/decrease of this time (+, - ) After the change Capitali Ration zation Addition Propor Bonus Subtot Proporti ed of al Others Amount Amount tion shares al on (%) share public issuing （%） reserve I. Unlisted Shares 186,713,192 38.94 186,713,192 38.94 1. Sponsors’ shares 186,713,192 38.94 186,713,192 38.94 Including: State-owned share 6 Domestic legal person’s shares 111,607,002 23.28 111,607,002 23.28 Foreign legal person’s shares 75,106,190 15.67 75,106,190 15.67 Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others II. Listed Shares 292,719,811 61.06 292,719,811 61.06 1. RMB ordinary shares 76,752,000 16.01 76,752,000 16.01 2. Domestically listed foreign shares 215,967,811 45.05 215,967,811 45.05 3. Overseas listed foreign shares 4. Others III. Total shares 479,433,003 100 479,433,003 100 2. Issuance and listing of the share: (1) The Company has not issued new shares and derivative securities over the recent three years ended the report period. (2) In the report period, the shares of the Company have not been changed. The Company issued 5.3 million inner employee’s shares at the issuance price of RMB 3.75 per share dated Dec.28, 1991. Of the total, the Company hold 135,000 inner employee’ shares now (of which 75,000 shares were held by present the directors of the Company), and entrusted Shenzhen Securities Registration Company Limited for the trusteeship; other 5,165,000 shares were all listed. (II) About shareholders at the report period 1. In the report period, the Company had no changes on share capital. Ended Dec. 31, 2007, the Company had 33,824 shareholders in total, including 16,870 shareholders of A-shares and 16,954 shareholders of B-shares, 2. Particulars about shares held by the top ten shareholders (Unit: share) Amount of Amount of Amount of Propor non-circulati shares Nature of Full name of shareholders shares held tion ng shares pledged or shareholders in year-end (%) held frozen Shenzhen Guocheng Energy Investment Development Co., 65,098,412 13.58 65,098,412 0 Other Ltd. Hong Kong Zhuorun Foreign-funded 44,104,246 9.20 44,104,246 44,104,246 Technology Co., Ltd. shareholder Hong Kong (Link) Bicycles Foreign-funded 26,000,000 5.24 26,000,000 26,000,000 Limited shareholder Shenzhen Kangsheng Investment Development Co., 11,968,590 2.50 11,968,590 0 Other Ltd. Xinliyi Investment Management State-owned 11,200,000 2.34 11,200,000 0 Co., Ltd. shareholder Airline Trust and Investment State-owned 10,340,000 2.16 10,340,000 10,340,000 Co., Ltd. shareholder 7 Shenzhen New Land Tool 9,857,556 2.06 0 0 Other Consultants PTE. LTD Shenzhen International Trust & 6,000,000 1.25 6,000,000 0 Other Investment Co., Ltd. Foreign-funded Jingchao Investment Co., Ltd. 5,001,944 1.04 5,001,944 0 shareholder Shanghai Yanxin Industrial 3,500,000 0.73 3,500,000 0 Other Investment Co., Ltd. Note: Among the top ten shareholders of circulation share, the Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies; among the other circulating shareholders, The Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies 3. Introduction of the controlling shareholder or actual controller of the Company (1) The controlling shareholder and the actual controller of the Company remained unchanged in the report period. In accordance with the Contract on Stock Right Assignment between Shenzhen China Huarong Assets Management Corporation (Hereinafter referred to as the Huarong Corporation) and Guocheng Energy Investment Development Co., Ltd. (Hereinafter referred to as the Guocheng Energy) and Shenzhen Julongsheng Industrial Development Co, Ltd. dated Nov. 13, 2006 (For details, please see the notice of the Company dated Nov.17, 2006); Guocheng Energy accepted A legal person’s shares of the Company held by Huarong Corporation amounting to 65,098,412 shares and accomplished the procedure on transferring the ownership on April 30, 2007. Shenzhen Guocheng Enegy Investment Development Co., Ltd became the fisrt largest shareholder of the Company and the shares held in total amount of the Company was 13.58%. (2) Introduction of the controlling shareholder or actual controller of the Company i. Introduction to controlling shareholders: Shenzhen Guocheng Energy Investment Development Co., Ltd. Address: 501C Pacific Commercial Town of New Asia, No. 8 Zhonghang Road, Futian District, Shenzhen. Legal representative: Shang Shijun Registeration capital: RMB 70 million Operation scope: Establishing industry (additional application for specific items); domestic commerce, industry of supply and distribution of materials (excluded commoditie which were monoplized, under special control and sold exclusively). The controlling shareholder of Shenzhen Guocheng Energy Investment Development Co., Ltd was Shenzhen Guomin Investment Development Co., Ltd with holding 100% shares. ii. Introduction to actual controller: Shenzhen Guomin Investment Development Co., Ltd. Controlling shareholder: Zhang Yanfen with holding 44% shares, Chen Linsheng with holding 20% shares; Ji Hanfei with holding 20% shares, Huang Yinquan with holding 16% shares. Address: Pacific Commercial Town of New Asia, Junction between Zhenzhong Road and Zhonghang Road, Futian District, Shenzhen; Legal representative: Zhang Yanfen; Registeration capital: RMB 250 million; Operation scope: Establishing industry (additional application for specific items); domestic commerce, industry of supply and distribution of materials (excluded commoditie which were monoplized, under special control and sold exclusively); supply and distribution of automobiles (excluded cars); and open and manage E-Town of New Asia. Main business: Commerce, operation and management of real-estate, and industry investment. 8 3. The property relationship between the actual controller and the Company was as follows: Zhang Yanfen Ji Hanfei Chen Linsheng Huang Yinquan 44% 20% 20% 16% 100% Shenzhen Guomin Investment Development Co., Ltd. 100% Shenzhen Guocheng Energy Investment Development Co., Ltd. 13.58% Shenzhen China Bicycle Company (Holding) Limited 司 4. The top ten circulating shareholders of the Company. Amount of Circulating Name of shareholders shares held shareholders Types (share) Shenzhen New Land Tool Consultants PTE. 9,857,556 RMB common share LTD Xiao lizhu 3,431,320 Domestically listed foreign shares Zhang Huiling 2,232,373 Domestically listed foreign shares TANG JING YUAN 1,924,500 Domestically listed foreign shares ABN AMRO BANK NV 1,792,400 Domestically listed foreign shares Jiang Lan 1,213,000 Domestically listed foreign shares Li Jinling 1,181,802 Domestically listed foreign shares Cao Pingwei 1,157,600 Domestically listed foreign shares Zhang Genyou 1,059,204 Domestically listed foreign shares Zhu Juan 1,005,500 Domestically listed foreign shares IV. Particulars about Directors, Supervisors, Senior Executives & Employees (I) Directors, supervisors and senior executives 1. Basis information: Amount of shares held （share） Name Title Sex Age Office term Holding Holding shares at shares at the the year-begin year-end Shang Shijun Chairman of the 44 Sep.2007-Sep.2010 0 0 Male Board 9 Yang Fenbo Director Male 50 Sep.2007-Sep.2010 0 0 Jiang Houjin Director, Vice 38 Sep.2007-Sep.2010 0 0 Male President Li Ronghui Director Male 36 Sep.2007-Sep.2010 0 0 Zhang Xiang Director Male 32 Sep.2007-Sep.2010 0 0 Liu Linfeng Director Male 50 Sep.2007-Sep.2010 0 0 Shi Zhanxiong Director Male 63 Sep.2007-Sep.2010 75,000 75,000 Li Chun Independent 50 Sep.2007-Sep.2010 0 0 Male Director Shao Liangzhi Independent 43 Sep.2007-Sep.2010 0 0 Male Director Zhang Independent 39 Sep.2007-Sep.2010 0 0 Female Qingmiao Director Wei Chuanyi Independent 36 Sep.2007-Sep.2010 0 0 Male Director Convener of the Yao Supervisory Male 32 May 2007-June 2008 0 0 Zhengwang Committee Lan Qihua Supervisor Male 57 June 2005-June 2008 0 0 Zheng Supervisor Male 45 July 2007- June 2008 10,500 10,500 Zhonghuan Ye Qing President Male 45 Sep.2007-Sep.2010 0 0 Vice President, Li Hai Secretary of the Male 39 Sep.2007-Sep.2010 0 0 Board He Yili Chief Female 35 Sep.2007-Sep.2010 0 0 Accountant Xia Bofu Vice President Male 37 Sep.2007-Sep.2010 0 0 Note: In the report period, the on-job supervisor Zheng Zhonghuan holds 10,500 A-shares of the Company by purchasing from the secondary market, there was no increase or decrease in shares of the Company held by other directors, supervisors, and senior executives of the Company in the report period. 2. Particulars about directors or supervisors holding the position in Shareholding Company Title in Name Name of Shareholding Company Shareholding Office term Company Shang Shijun Shenzhen Guocheng Energy Investment Chairman 2007 till now Development Co., Ltd. Shi Zhanxiong Hong Kong (Link) Bicycles Limited General Manager April 2006 till now Li Ronghui Shenzhen Guomin Investment Supervisor Nov.2003 till now Development Co., Ltd. Yao Shenzhen Guomin Investment Deputy General Feb.2003 till now Zhengwang Development Co., Ltd. Manager of 10 Investment Department 3. Main work experiences of directors, supervisors and senior executives Mr. Shang Shijun, with master degree of management engineer, from 2002 till now, took post of Deputy General Manager and General Manager of Shenzhen Guomin Investment Development Co. Ltd.; Board Chairman and General Manager of Shenzhen Guoli Investment Development Co. Ltd.; Board Chairman and General Manager of Shenzhen Guocheng Energy Investment Development Co., Ltd.; Director of Sino Life Insurance Co., Ltd. He has engaged in industry of security investment, and has lots of experiences on management. Mr. Jiang Houiin, accountant with bachelor degree of management, from 2002 to Apr., 2006, successively took the post of Senior Manager of Investment Department, Chief Financial Planner of China Merchants Dichain Group Co. Ltd. and Vice Present of China Merchants Dichain Investment Holding Co. Ltd. From May 2006 to August 2007, he took the post of General Manger of Investment Management Center of Shenzhen Guomin Investment Development Co. Ltd.; now, he is the Director and Vice President of the Company. Mr. Li Ronghui, China certified public accountant and China Certified Tax Agents with master degree of MBA. From Jun., 2001 to Jun., 2006, he took the post of auditor of Andersen.HuaQiang CPAs; from Jul., 2002 to Jan., 2003, he took the post of auditor of PricewaterhouseCoopers Zhong Tian CPAs Limited Company; since Feb., 2003, he entered Shenzhen Guomin Investment Development Co. Ltd as superbisor. Since 1997, he acted the supervisor of Chia Tai Energy Development (China) Co., Ltd, and the superbisor of Shandong Century Electric Power Development Co.Ltd. Mr. Zhang Xiang, with master degree, from Sep., 1997 to Mar., 2000, took post in Shenzhen Huikai Trading Co. Ltd.; from Mar., 2000 to Oct., 2003, took the post of Deputy General Manager of Shenzhen Ju Longsheng Development Co. Ltd.; from Nov., 2003 till now, took the post of Chairman of the Board of Shenzhen Sourcecore Microelectronics Technology Co., Ltd. Mr. Yang Fenbo, China senior economist with master degree of MBA and engineer, held the position of minister of development department, concurrently minister of science and technology department, assistant general manager, assistant to chairman, deputy chief engineer and chief engineer at Shenzhen Lionda Group; took the chairman and concurrently general manager of Guangdong Sunrise Holding Co., Ltd.; now, he is the chairman of Shenzhen Liona Group Co., Ltd. Mr. Liu Linfeng, MBA, born in 1957, senior engineer, ever took the post of director, general manager, standing deputy general manager and secretary of Communist Party of Shenzhen China Bicycle Company (Holdings) Limited; now he is the Vice-president of Shenzhen Furuide Group Co., Ltd and Executive President of Shenzhen Angel Drinking Water Group Co., Ltd. Mr. Shi Zhanxiong, member of CPPCC, born in 1944, director of National Association of Enterprises with Foreign Investment, Vice-chairman of Shenzhen Association of Enterprises with Foreign Investment, has lots of experiences on management of enterprise operation and international business, and has engaged in industry of bicycles for over 20 years. Mr. Li Chun, born in 1957, scholar of Company Law and Security Law, founder of the first legal group of China- Grandall Legal Group, now took the post of Chairman of Shenzhen Lawyers Association, Vice-Chairman of Guangdong Lawyers Association, Vice-director of Development Strategy Committee of Chinese National Lawyers Association, Development Strategy Committee of National Counsel Association, Finance and Securities Committee of National Counsel Association, 11 Chief Researcher of Venture Investment Law Research Center and Managing Partner of Grandall Legal Group. He has ever been the first committee member of Listing Committee of Shenzhen Security Exchange, Chief Expert of Law Committee of studying team of Natinal Debt Reorganization of State-owned Enterprises; successively took part in the drafting and discussing work of several laws and regulations such as Company Law, Security Law and Interim Provisions on the Takeover of Domestic Enterprises by Foreign Investors. Mr. Shao Liangzhi, born in 1964, senior accountant with master degree of economic, from Mar., 2000 to Mar., 2004, took the post of Deputy Manager and Manager of Audit Department of Shenzhen Nanyoh Group Co. Ltd., committee member of Discipline Inspection Committee and Employee Supervisor of Supervisory Committee of Nanyoh Group Co. Ltd., and concurrently took the post of Chief Supervosor of the subsidiary company of Nanyoh Group Co. Ltd.- Nanyoh Jujian House Priority Company; from Mar.,2004 till now, took the post of Deputy General Manager concurrent CFO of Shenzhen Square Automobile Zone Co. Ltd. He has ever concurrently took the post of Vice Secretary of Chinese Institute of Finance and Cost for Young and Mid-career Professionals, Standing Director of Shenzhen Internal Audit Association; now concurrently took the post of Standing Director of Chinese Institute of Finance and Cost for Young and Mid-career Professionals and committee member of the third Jury Committee of Guangdong senior accountant qualification. Ms. Zhang Xinmiao, born in 1968, with bachelor degree, successively engaged legal affairs in the First Engineering Bureau of Water Resources & Electric Power Department, Shenzhen Jinhu Law Firm, and Guangdong Guanghe Law Firm. She obtained certification of lawyer issued by Ministry of Justice of People’s Republic of China in 1994. From 1999 till now, she took the post of partnership lawyer of Guangdong Chuangji Law Firm. Mr. Wei Chuanyi, born in 1971, economist with bachelor degree, took the post in Shenzhen Zhonghe Group Co. Ltd., and now is the Chairman of the Board of Yibang Craftwork Co. Ltd.(Shenzhen). Mr. Yao Zhengwang, born in 1975, with bachelor degree of law, successively took the post of Supervisor of Supervision Office, Deputy Manager of Sales Department, and Deputy Manager of Legal Affairs Department of Shenzhen Guomin Investment Development Co. Ltd. Now he is Deputy Manager of Investment Department of Shenzhen Guomin Investment Development Co. Ltd. He has engaged in real estate development and investment business for ten years and has lots of experiences of relevant business. Mr. Lan Qihua, graduated from three-years regular college, has ever worked in the army, and taken the post of director; successively took the post of Deputy Director of Supervision Office, Director of Party Office and concurrent Secretary of Party Committee of Lionda Group Corporation, General Manager and concurrent Secretary of Party Branch of Shenzhen Papermaking Company. Since Jun., 2000, he has taken the post of Chairman of the Trade Union of Shenzhen China Bicycle (Group) Holdings Co. Ltd. with lots of Experiences of management of enterprise. Mr. Zheng Zhonghuan, engineer with bachelor degree, successively took the post in Shenzhen Light Texile Industry Company and Shenzhen Light Industry Company; since Oct., 1985, entered Shenzhen China Bicycle (Group) Holdings Co. Ltd. and successively took the post of Deputy Manager, Manager of Planning Department and Manager of Material Department; now is Manager of Manufacture Department of the Company. 12 Mr. Ye Qing, China economist with bachelor degree, had ever taken post in North Jiaotong Univercity and China Guang Da International. Affiance Investment Company; from Apr. 2000 he entered to work at China Huarong Assets Management Company, and took the post of senior deputy general manager of China Huarong Assets Management Company from Apr. 2001 till now. From March 2002 held the position of director and standing general manager of the Company and now is in charge of President of the Company. Mr. Li Hai graduated from Economic department of Shenzhen University in major of accounting, on-study Doctorate of MBA; he took the turns of deputy manager of finance department, chief supervisor associate of finance department and secretary of the Board, etc. of the Company, and now is in charge of vice president of the Company. Ms. He Yili, two degrees of Economics and Law, China CPA. She respectively was the Chief Accountant, principal of Investment Planning Department of Shenzhen Fountain Corporation, Financing Manager, and Administration Manager of Embest Info & Tech Co., Ltd, Financing Manager, Investment Consultant of China Shenzhen Color TV Corp. Since April 2005, she entered the Company and holds the Chief Accountant of the Company. Mr. Xia Bofu, graduated from the Central Party School with bachelor degree of law. He successively took the post of Manager of Business Department of Shenzhen Jiabeinianhua Industry Co. Ltd., Office Director of Shenzhen Lionda Technology Co. Ltd. and Chairman of the Board of Shenzhen Taiyang PCCP Co. Ltd. Since Oct.,2007, he has taken the post of Vice Present of the Company. II. Particulars about the annual salary of directors, supervisors and senior executives Referring to the standard of the same industry and local salary situation, the Company decided the annual salary of the above personnel integrated the operating achievements of the Company. (1) There are total 17 of directors, supervisors and senior executives in the Company, total 8 persons drew the remuneration from the Company, they are: Mr. Jiang Houjin amounting to RMB 188,500 (total from Jun. to Dec. of 2007), Mr. Lan Qihua amounting to RMB 124,200, Mr. Zheng Zhonghuan amounting to RMB 84,100(was elected as employee supervisor), Mr. Ye Qing amounting to RMB 371,800, Mr. Li Hai amounting to RMB 285,800, Ms. He Yili amounting to RMB 264,900, Mr. Xia Bofu amounting to RMB 44,100 (total from Nov. to Oct. of 2007) and Ms. Hu Er’yi amounting to RMB 220,300 (total from Jan. to Oct. of 2007). The total annual salary of directors, supervisors and senior executives received from the Company was RMB1, 318,800. (2) The Company paid the allowance of independent director of RMB 40,000 respectively. The Company reimbursed the expenses for business trips according to the actual situation, which independent directors attended the Board meeting and shareholders’ general meeting. (3) Other directors and supervisors drew salary from the controlling shareholder’s company. III. Directors, supervisors and senior executives leaving the office and the reason in the report year 1. According to the relevant engagement of Equity Transfer Agreement signed by Shenzhen Guocheng Energy Investment Development Co., Ltd. and China Huarong Asset Management Corporation on Noc.13, 2006, after the approval of the 16th Shareholders’ General Meeting, Mr. Shang Shijun, Mr. Li Ronghui and Mr. Jiang Houjin were elected as Directors of the sixth Board of Directors, Mr. Yao Zhangwang was elected as Supervisor of the fifth Supervisory Committee; Mr. Zhang Xiaofeng, Mr. Ye Qing and Mr. Yi Xiaoming resigned the post of Directors of the sixth Board of Director, and Mr. He Xiongsen resigned the post of Supervisor of the fifth Supervisory Committee. 13 2. The tenure of the sixth Board of Director of the Company expired, and the 3rd Extraordinary Shareholders’ General Meeting of 2007 was held on Jul.31, 2007, which held exchange election of the Board of Director, and elected Directors of the seventh Board of Director. 3. The 1st Meeting of the seventh Board of Director on Jul.31, 2007 elected Mr. Shang Shijun as Chairman of the Board of the seventh Board of Director. 4. The 2nd Meeting of the seventh Board of Director on Aug.22, 2007 elected Mr. Li Hai as Secretary of the seventh Board of Director. 5. The 6th Meeting of the fifth Supervisory Committee on Jun.1, 2007 elected Mr. Yao Zhangwang as Convener of Supervisory Committee. 6. Supervisor of the Company Mr. Peng Tiesheng has applied for resign of the post of Supervisor of the fifth Supervisory Committee. Union Committee of the Company held Employee Representatives Meeting on Jul.23, 2007 and elected Mr. Zheng Zhonghuan as Supervisor of the fifth Supervisory Committee. 7. The 3rd Meeting of the seventh Board of Director on Oct.25, 2007 elected Ye Qing as President of the Company, Jiang Houjin, Li Hai and Xia Bofu as Vice Present, and He Yili as a member of new operation group of Chief Accountants. IV. About staff 1. The Company has totally 440 employees at present, including: (1) Classified according to professional/occupational composition: 317 production personnel; 30 salespersons; 17 technicians; 17 financial personnel and 59 administrative personnel. (2) Classified according to the educational background: master degree or above: 6 persons of Master degree, 31 persons of bachelor degree; 60 persons of junior college graduates. Proportion of the personnel with education background of junior college or above in the whole staff: 22.05%. 2. The Company needs to bear the expenses of 2 retirees. V. Administrative Structure I. Administration of the Company In the report period, the Company conformed to regulations of standard documents like Company law, Securities Law and Code of Corporate Governance for Listed Companies, as well as Articles of Association, in comparison with the Company’s actual conditions, perfected the administrative structure and regulated the operations of the Company, including: (1) Board of director established special committees: In order to promote board of director further make its key effect in the company administration, in Oct. 2007, the Company established Examination Committee and Remuneration Committee, made members of every committee, and independent directors had great proportion to be callers. (2) Made the following systems: Working Rules for Examination Committee of Board of Directors (in July 2007), Working Rules for Remuneration Committee of Board of Directors (in July 2007), Management System of Equity Owned by Directors of the Board, Supervisors and Senior Executors as well as Equity Change(Oct 2007) and Reception and Promoting Working Rules of the Company (in July 2007). (3) Modified the following systems: Articles of Association (in Dec. 2007), Rules of Procedure for Board of Director’s Meeting (in Dec. 2007) and Information Disclosure Management System (in July 2007) were modified. (4) The Company actively took special governance campaign, made change plan for problems found in self inspection and made change according to change plan. (5) According to actual condition, the Company set up special telephone and emails to hear opinions and suggestions from investors and the public, fully took use of web media, established mutual stage of investor relationship, further strengthen systematic and standard construction for investor relationship management. 14 II. Particulars about special governance campaign In the report period, according to requirement of CSRC, the Company timely started special governance campaign, finished three phrases work of self inspection, public comment and change increase. The 1st extraordinary meeting of the 7th directors’ meeting held on Aug. 17th, 2007 examined and passed Self Inspection Report and Change Plan on Special Governance Campaign of the Company, and above self inspection reports were published. On Sep. 5th, 2007, Shenzhen Security and Supervisory Bureau made Supervisory Opinions on Special Governance Campaign for China Bicycle Company (Holdings) Limited (No.100[2007]of Shenzhen Security and Supervisory Bureau). Board of directors, supervisors and senior executors of the Company paid lots of attention to it, on standardizing directors’ meeting, supervisors’ meeting and shareholders’ general meeting made complete system construction to supervisory opinions and made feasible rectification and reform plan to change. The 3rd meeting of the 7th directors’ meeting held on Oct. 25th, 2007, examined and passed Change Report of Supervisory Opinion for the Company’s administration, and independent directors of the Company also made comments disclosed later according to requirements. The detailes for rectification and reform were: the 4th extraordinary shareholders’ general meeting 2007 was held on Dec.24, 2007, in which Articles of Associations and Rules of Procedures of Board of Directors were revised and system construction was perfected; after the 3rd meeting of the 7th board of directors held on Oct.25, 2007, the meetings on directors’ meeting, supervisors’ meeting and shareholders’ general meeting of the Company would be operate in accordance with relevant laws and regulations and relevant systems on directors’ meeting, supervisors’ meeting and shareholders’ general meeting. Through self-rectification, in 2007, there were no nonstandard situations on administration of the Company such as supply private informations to large shareholder and actual controller. III. Particulars about duty taking of independent directors In the report period, independent directors of the Company can all earnestly took their responsibility, actively took part in work of board of directors’ special committees, fully took their responsibility on equity division, examined proposals of board of directors, change report of governance campaign and making and disclosing of annual report, and made independent directors’ opinion on related issues. In July of 2007, board of directors of the Company had election, and now the Company has four independent directors. Independent directors of two rounds attended all directors’ meeting and particulars about independent directors attending the Board Meeting are as follows: This year Entrusted Presence in Absence Name should attend presence person (times) (times) (times) (times) Yang Lixun 4 4 0 0 Ma Hong 4 3 1 0 Wang Fuqing 4 3 1 0 Zhuang Yuemin 4 4 0 0 Li Chun 4 4 0 0 Shao liangzhi 4 4 0 0 Zhang Xinmiao 4 4 0 0 Wei Chuanyi 4 4 0 0 In the report period, independent directors of the Company had no different opinions on various 15 proposals approved by the Board of Directors of the Company or other significant events. IV. Separation from the Controlling Company in respect of Business, Personnel, Organization and Finance etc. The Company totally separated its Business, Personnel, Organization and Finance etc. with majority shareholders and related parties, and had independent and complete operation ability. V. Implementation of internal control system and self appraisal (I) The existing internal control system and its implementation The Company made series of governance rules combined with the characteristics and form of the Company based on the Company Law and relevant laws and regulations for the listed companies, including: Articles of Association, Rules of Procedure for Shareholders’ General Meeting of China Bicycle Company (Holdings) Limited, Rules of Procedure for Board of Director’s Meeting of China Bicycle Company (Holdings) Limited, Working Rules for General Manager of China Bicycle Company (Holdings) Limited. In 2007, the Company made the Working Rules for Remuneration and Examination Committee of Board of Directors, Working Rules for Auditing Committee of Board of Directors, Management System of Equity Owned by Directors of the Board, Supervisors and Senior Executors as well as Equity Change. The Directors of the Board, Supervisory Committee of the Company took decision-making and operation according to the above regulations and systems, played the functions of decision-making and supervising of Shareholders’ General Meeting, Directors of the Board, Supervisory Committee of the Company Internal control system of the Company divides into environment control, business control, and operation target and result control, financial system control, subsidiary control, information passing control and internal examining control. 1. On environment control: According to target of establishing standard administration structure, the Company endlessly perfected internal control system, established and completed regulations and systems of shareholders’ general meeting, board of directors’ meeting and supervisory committee’ meeting, to ensure its right for decision making, implementing and supervising. In the report period, board of directors established Auditing, Remuneration and Examination Committee. Special committees, in accordance with relevant working rules, took discussing and decision making responsibility of significant events and improved the working efficiency of the board of directors of the Company. 2. On business control: Its main operation bicycle and electric bicycle both took ISO9001: 2000 Quality Management System and continuously improved its effectiveness. On uncovered business control fields, the Company will endlessly perfect related management system, and procedure to implement them. The Company made a series of management system on five aspects of products, technical material, purchase, manufacture, quality management and sales. 3. On operation target and result control: According to annual operation plan and annual budget made by the board of directors, operation group had assessing and examination on work of departments and the second level companies. In accordance with annual sales plan signed with franchisers of every level, the Company had annual comprehensive examination to give them prize or penalty. 4. On financial system control: According to Financial Law of PRC, Financial Codes, Enterprise Financial System, Basic Financial Working Standards and related regulations for listing companies, the Company combined its own operation characteristic and made a series internal control system related to financial work. 5. On subsidiary control: The control divides into control and internal management on subsidiaries of the Company. Control on subsidiaries was realized by assigning senior executors and related systems, and monthly operation plan includes in the Group’s operation plan to implement. Financial department regularly got its subsidiaries’ monthly, quarterly and annual financial report as well as 16 financial reports of relevant data, was on the trail of subsidiaries’ operation status and existing problems, and related department had performance examination on its subsidiaries. 6. On information passing control: According to related laws and regulations of information disclosure for listing companies, the Company made Information Disclosure Management System, identified information disclosure responsibility, ensured secretary of the board of directors to know information timely and disclose it accurately and in time. 7. On internal examining control: According to its actual condition, the Company made working procedure for internal control system auditing to take responsibility of every department and subsidiaries’ internal auditing, independently took supervising and checking implementation of internal control system, comment effectiveness of internal control and make change suggestions on perfecting internal control. (II) Key control activities 1. Internal control on controlling subsidiaries of the Company In 2007, the Company emphasized strengthening the internal examinations on controlling subsidiaries in some aspects such as related transactions and significant events information based on Internal Control System of Listed Company. Diagram for Organization Structure and Proportion of Shares Held for Controlling Subsidiary is: Shenzhen China Bicycle Company (Holdings) Holding 95% Holding 70% Holding 100% Shenzhen Anjule Shenzhen Emmelle China Bicycles (Hong Property Management Industry Co., Ltd. Kong) Co., Ltd. Co., Ltd. 2. Internal control on related transactions of the Company The Company strictly performed the parties, contents, approval procedure and disclosure of the related transactions based on relevant laws and regulations such as Listed Rules of the Stock and Articles of Association promulgated by Shenzhen Exchange Stock. The price-fixing of the related transaction of the Company was taken the fair value of the market and public bidding price as the basis, obeyed the principles of justice, openness and fairness of the transactions. 3. Internal control of external guarantee of the Company The internal control of external guarantee of the Company obeyed the principles of legality, prudence and security, strictly controlled the guarantee risks. The board of the directors took strict regulations on approval authorities and procedures of the external guarantee of the Company in Articles of Association. In year 2007, the Company had no external guarantees. 4. Internal control on usage of raised fund of the Company In 2007, there existed no usages of raised fund, nor fund raised in previous years used till the report period for the Company. 5. Internal control on significant investment of the Company In Articles of Association, the board of the directors definitely regulated the approval authorities on significant investment. In 2007, the Company had no significant investment. 6. Internal control of information disclosure of the Company The Company performed according to the regulations and laws promulgated by the Shenzhen Exchange Stock such as Listed Rules for the Stock, Code of Corporate Governance for Listed 17 Companies, Guidelines for the Fair Information Disclosure of Listed Companies, Articles of Association and Information Disclosure Management System of China Bicycle Company (Holdings) Limited. The Company adopted many methods to take information disclosure to the investors timely, fairly and accurately. (III) Problems and reform plan 1. The present risk evaluation of the Company. The Company’s main businesses-bicycle and electronic bicycle industries have nearly stopped growth in 2007 after a rapid development in previous years, besides, the uncertainty brought by the new standard for industry of electronic bicycle and the releasing time bring negative influence to sale of electronic bicycle. At the same time, the lasting sharp rise in prices for raw material resources, domestic and international, results in rise in cost for manufacturing and using electronic bicycle, which seriously affect the market demand trend, even the develop potential of the whole industry of electronic bicycle. Competition in industry presents more fury. Due to that the Company is facing risks from industry, market, debt and restructure; these risks may influence the Company to realize its aim of internal control (such as establishment and practice of the long-term operation plan) 2. During the special administrative activity carried by the Company in 2007, the Company has already practically made reform and perfected its internal control system according to the reform plan, the supervision suggestion presented by Shenzhen Securities Regulatory Bureau as well as the advice offered by the investors and the public. 3. In 2007, no public punishment has been received by the Company from CSRC and Shenzhen Securities Exchange. (IV) General review on the internal control of the Company In general, the internal control of the Company is effective, but still needs to be improved. (V) Opinions presented by the Supervisory Committee on self-evaluation of internal control According to the related regulations of Guideline for Internal Control of Listed Companies and Notice on 2007 Annual Report of Listed Companies issued by Shenzhen Securities Exchange, the Supervisory Committee made the following suggestions on self-evaluation of internal control: Following the related regulations of CSRC and Shenzhen Securities Exchange, and the basic principle of internal control, as well as considering its actual condition, the Company continuously establishes and improves its internal control system, which assures the Company with a normal operation and maintains safety and completeness for the Company’s assets. In 2007, the Company has never broken Guideline for Internal Control of Listed Companies issued by Shenzhen Securities Exchange. For all, the Supervisory Committee holds that: self-evaluation of internal control of the Company is full and real, and accurately reflects the actual condition of the internal control system of the Company. (VI) Opinions on self appraisal of internal control of the Company from the independent directors of the Company As the independent directors of the Company, we took serious examinations on internal control of the Company in 2007, we thought: in 2007, in accordance with the requirements of Guidelines for Internal Control of the Listed Companies promulgated by Shenzhen Exchange Stock, with combining the problems on Special Activities of Governance of the Company discovered by CSRC, the Company timely revised and perfected the internal control management system, and made rectifications on all the problems existed in examination and self-examination. The Self-appraisal Report on Internal Control of the Company reflected the implementations and effects of internal control system of the Company truly, objectively and completely. 18 VI. Establishment and Implementation of Performance Evaluation and Encouragement Mechanism and Relevant Rewarding System for Senior Executives The Company firstly has established open and transparent performance evaluation criteria and encouragement and restriction mechanism for directors, supervisors and managers. The engagement of the managers conformed to the regulations of laws with openness and transparency. VI. Brief Introduction to the Shareholders’ General Meeting In the report period, the Company held annual shareholders’ general meeting, related shareholders’ general meeting of A-share market and the 4th extraordinary shareholders’ general meeting, and basic conditions are as follows: 1. On Jan. 11, 2007, the 1st extraordinary shareholders’ general meeting was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Jan.12, 2007. 2. On Feb. 1, 2007, the 2nd extraordinary shareholders’ general meeting was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Feb. 2, 2007. 3. On Feb. 1, 2007, the related shareholders’ general meeting of A-share market was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Feb. 2, 2007. 4. On May 18, 2007, the 16th shareholders’ general meeting (of 2006) was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated May 19, 2007. 5. On July 31, 2007, the 3rd extraordinary shareholders’ general meeting was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Aug. 1, 2007. 6. On Dec. 24, 2007, the 4th extraordinary shareholders’ general meeting was held, and the resolution of the Meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Dec. 25, 2007. VII. Report of the Board of Directors I. Discussion and analysis of whole operation in the report period In the report period, confronting with more furious competition, superfluous production ability trend, standard reshuffle market environment, in order to adjust to change of market environment, the Company enlarged change of operation model which means increasing OEM market share, thus originally realizing cost decrease and closing to market. Under leading of board of directors as well as operation group, all staff made effort to expand business and develop main business of electric bicycle, thus making stable increase of its main business. From Jan. to Dec. of 2007, the Company realized operation income of RMB 234,601,300, 0.91% higher than the same time of last year. During the report period, the Company made comparatively big progress in the restructure of the Company’s external debt through active communication and negotiation with its creditors: as to the debt with the principal being USD 3.87 million and the accrued interest RMB 42,780,000 that the Company owned to the International Finance Corporation, by friend negotiation between the two parties, the Company and International Finance Corporation signed Reconciliation Agreement dated Mar 29th of 2007, which stipulated that all the credit and liability would be settled with US dollars equivalent to RMB 2 million. The Company has already remitted the aforesaid amount to the appointed account of International Finance Corporation on Apr 4th of 2007. According to the regulation of Accounting Standard for Enterprise No.12-Debt Restructuring, the conclusion of the above reconciliation agreement will bring profit from debt restructure of RMB68, 568,700. The 19 Company turns to make profit in 2007, realizing the net profit of RMB63, 066,200. In the report period, the Company made effort to promote Share Merger Reform. Proposal of Share Merger Reform was passed on shareholders’ general meeting on Share Merger Reform of A Share Market held on Feb.1, 2007, and it got approval from Ministry of Commerce, PRC No.1343 [2007] and Approval of Adding Total Capital Shares of Shenzhen China Bicycle (Holdings) Co., Ltd from Shenzhen Commerce and Industry Bureau SCS No2257[2007]. According to Working Guidelines on Share Merger Reform for Listed Companies, related Share Merger Reform procedures are under dealing in China Security Registration Settlement Co., Ltd. 2. Analysis to main business and operation of the Company The Company was mainly engaged in the production and sales of bicycles, electronic bicycles and accessories and fittings. In the report period, the Company realized revenue from main operation amounting to RMB 226,573,479.63, and profit from main operation amounting to RMB3, 338,689.10. (1) Statement of main operations classified according to products Unit: RMB’0000 Increase/d ecrease of Increase/dec Increase/decrea Income income rease of cost Gross se of gross from Cost of from main of main profit profit ratio Products main main operations operations ratio compared with operation operations compared compared (%) the last year s with the with the last (%) last year year (%) (%) Bicycles and accessories 22,284.00 21,043.00 5.57% 4.05% 4.11% -0.05% and fittings Including: related transaction Principle of pricing of related transaction Explanation of necessity and durative of related transaction (2)Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease of income Income from main from main operations Areas operations compared with the last year (%) Shandong 5,938 0.82 Henan 5,302 13.41 Hebei 2,892 -18.78 Jiangsu 2,928 26.26 (3)Major suppliers and customers In the report period, the purchasing amount of top five suppliers amounted to RMB181, 830,000, taking 79.15% of annual purchasing amount; the sales amount to top five suppliers amounted to RMB 179,570,000, taking 76.55% of annual sales amount. 3. Change on formation of asset and expenses of the Company in the report period. 20 Unit: RMB 2007 2006 Increase/ Propor Propor decrease tion in tion in ratio in Amount total Amount total proportio asset asset n in total （%） （%） asset (%) Monetary fund 14,062,198.43 6.56% 16,982,883.27 6.01 0.55% Account receivable 482,050.51 0.22% 10,684,966.02 3.78 -3.56% Inventory 41,116,795.51 19.18 43,709,649.82 16.37 % -5.93% Long-term investment of 27,406,483.51 12.78 28,563,096.50 10.7 equity % -4.05% Net values of fixed asset 68,561,480.10 31.98 116,092,148.16 41.23 % -9.25% Short-term loan 418,165,449.05 195.06 438,825,765.41 164.34 % 30.72% Long-term loans due 915,134,453.92 426.87 1,027,960,035.56 363.74 63.13% within one year % Increase/ Item 2007 2006 decrease (%) Operating expense 5,542,241.79 6,742,974.66 -17.81% Administrative expense 16,217,410.39 16,813,215.11 -3.54% Financing expense -34,285,597.04 -14,465,143.27 137.02% --- Income tax 9,849,555.22 4. Changes on cash flow of the Company Increase/decr Increase/decreas ease Item 2007 2006 e amount proportion (%) Net cash flow arising from operating activities -2,591,980.11 -8,950,557.42 6,358,577.31 -71.04% Net cash flow arising from investing activities -277,032.46 -57,945.05 -219,087.41 378.10% Net cash flow arising from financing activities --- --- --- --- 21 5. The operation and analysis to the operation and achievements of the main holding company and shareholding companies of the Company (1)Shenzhen Emmelle Industry Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in establishing industry. The asset scale of the Company amounted to RMB 23,887,300 and the net profit amounted to RMB122, 500. (2)Shenzhen Anjule Property Management Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in property management. The asset scale of the Company amounted to RMB 4,429,600and the net profit amounted to RMB-2,088,400. (3)China Bicycles (Hong Kong) Co., Ltd.: Its registered capital is HKD 5 million and its place of registration is Hong Kong, with its main business scope in bicycle trading. The Company hasn’t any trading business in recent years. 6. After the implementation of New Accounting Standards, the possible changes in accounting policy, accounting estimate and the influences on financial and operational results of the Company After the implementation of New Accounting Standards promulgated by Ministry of Finance by the Company since Jan.1, 2007, the possible changes in accounting policy, accounting estimate and the influences on financial and operational results of the Company: Main influences on financial status 2006 of the Company while implementing the New Accounting Standards: According to the regulations of Accounting Standard for Business Enterprises No.18 Income Tax, the Company transferred the taxes payable method to Tax-affect-accounting method of balance sheet, the deferred income tax asset of the Company amounting to RMB 9,849,555.22 and shareholders’ equity amounting to RMB 9,849,555.22 while implementing the New Accounting Standards. In the future, the mains influences on operation resulted and financial status of the Company (2006) by implementing the New Accounting Standards: 1. According to the regulations of Accounting Standard for Business Enterprises No.2—Long-term Equity Investments, the Company will transfer the calculation method of long-term equity investment for subordinate subsidiaries from equity method to cost method, the alteration will reduce the current net profit of parent company, but no influence on net profit and shareholders’ equity in the Company’s consolidation on financial statement. 2. According to the regulations of Accounting Standard for Business Enterprises No.3—Investment Properties, the Company will calculate investment properties by adopting cost measurement, thus, the profit and shareholders’ equity of the Company will not be influenced. 3. According to the regulations of Accounting Standard for Business Enterprises No.12—Debt Restructurings, while taking debt restructurings, the debtor should take the differences on the book value of restructurings debts which exceeded the fair value of asset paid off the debts in stead, fair value of shares held or debt book value after restructurings acknowledged as gains from debt restructurings and calculated into income from non-operating activities, and will influence the current net profit and shareholders’ equity. 3. According to the regulations of Accounting Standard for Business Enterprises No. 18—Income Taxes, the Company will transfer the calculation method of income tax from taxes payable method to Tax-affect-debt method of balance sheet, the alteration will influence the income tax expense and profit in current period, and further influence the current net profit and shareholders’ equity of the Company. 4. According to the regulations of Accounting Standard for Business Enterprises No. 33—Consolidated financial statements, the Company changed the minority shareholders’ equity separately listed in balance sheet under existing accounting policy to minority shareholders’ equity item listed under the item of owners’ equity in balance sheet. The alteration will influence the shareholders’ equity of the Company. The item of unconfirmed investment losses was cancelled in 22 profit statement and will influence the current net profit of the Company. The aforesaid events and influences events are likely to adjust to the further explanation of New Accounting Standards by Ministry of Finance. II. Prospect for the future development of the Company 1. The development trend in the industry of the Company and the market competitive pattern the Company faces The Company set foot in industry of electronic bicycle since 2002. In 2007, the competition in industry of electronic bicycle and bicycle present more fury, while the uncertainty brought by the new standard for industry of electronic bicycle and the releasing time brings negative influence to sale of electronic bicycle. The industry starts to walk into the step of standardized riffle. At the same time, the lasting sharp rise in prices for raw material, such as lead, steel, copper, rubber and oil, results in rise in cost for manufacture and use electronic bicycle. Particularly the sharp price rise in consume fittings such as battery seriously affect the market demand trend, even the develop potential of thw whole industry of electronic bicycle. 2. The development chances and challenges for the future of the Company (1)Quicken the general reorganization progress including liabilities reorganization in order to improve the wicked internal and external operating environment of the Company in the several years. (2)Actively deal with relevant examination and approval procedures of the Share Merger Reform Scheme, accomplish the implementation of the scheme as soon as possible. (3)Take chance of busy season for sale, further enlarge the current scale of production and sale of main business and make efforts to realize a high speed increase of main business. (4)Continue to quicken stimulating the present deposit assets to supply current capital for the production and operation and further relieve the intense situation of current capital. (5)Further perfect legal person administration structure and establish high-efficiency encouragement and binding mechanism. 3. The risk that not good for the development of the Company (1)At present, the main business still has not achieved to support its operation scale in true sense. (2)Under the significant circumstance of reorganization of the Company, there are still many uncertain factors. Faced with the aforesaid problems, on one hand, the Company tries to expand its products sales, especially in the production and sales of electronic bicycles with high additional values; on the other hand, the Company actively promotes the integrated reorganization of the Company, including the debts reorganization. III. Investment of the Company During the report period, the Company has not raised funds and significant investment. IV. Auditor’s opinion and accounting policy 1. Auditor’s opinion offered by Shenzhen Pengcheng Certified Public Accountants Firm Co., Ltd.: Shenzhen Pengcheng Certified Public Accountants Firm Co., Ltd. offered 2007 audit report with disclaimer of opinion. 2. Explanations of the Board of Directors about 2007 audit report of the Company disclaimer of opinions issued by Shenzhen Pengcheng Certified Public Accountants Firm Co., Ltd.: Explanations of the Board of Directors about 2007 audit report of the Company with disclaimer of opinions issued by Shenzhen Pengcheng Certified Public Accountants: The Board of Directors agreed the audit report on A-shares offered by Shenzhen Pengcheng 23 Certified Public Accountants. Due to that the debt restructure work of the Company had not been finally finished in 2007, so risk of bearing huge debt still remained with many significant uncertainties. The CPAs was not able to offer opinion on the financial debt, tax payable, contingent proceedings, lawsuits and sustainable operation. For so, the Board of the Company made explanation as follows: I. Financial debt Shenzhen Pengcheng CPAs held that the replied letters from the financial creditors for the inquiry showed a balance of RMB 591,837,892.0 in interest; some letters were replied with uncertain on the debt whose interest withdrawal from its book value was RMB 19,640,522.48; those unreplied letters were sent to ensure the debt whose interest on principal withdrawal from its book value was RMB 24,765,110.54. These made it impossible to ensure the influence received by the financial statements of the Company brought by the amount of financial debt. The Company provided explanation in Note 13.1 for details of interest confirmation balance: when some creditors implemented the document ((2004) No.6) released by China Committee on Bank Supervision, they had different understanding on this document with the Company. The document noticed that: Bank of China and other 10 financial organizations stop calculating the interest of the Company for 3 years since Jan 1st of 2002 and at the same time, exempt all the interest payable of the Company (including penalty interest and compound interest) occurred before Dec 31st of 2001. Some assets management companies and banks considered that the Company was expected to return the interest exempted and stop-calculated and some assets management companies had not confirmed the proceeding of interest calculation. The Company had transferred all the interest of loans payable occurred before Dec 31st of 2001, RMB 357,993,665.24, (including penalty interest and compound interest) to capital public reserve. Interest was stopped with calculation from Jan 1st of 2002 to Dec 31st of 2004. The exempt term was due on Dec 31st of 2004. The Company held it was not necessary for him to return the interest exempted and stop-calculated, so when the term was due, the Company started to withdraw interest according to normal loan for those interests which needed to be returned. The stop-calculated interest and compound interest from Jan 1st of 2002 to Dec 31st of 2004 was not accrued. For whether to return the interest or not, negotiation was still being made. Besides, the financial debt of the Company was formed in history which had occurred for a long time and the amount of period –end had not changed for years. Body qualification of some creditors had been transferred and the particular personnel for handling had also changed, so the creditors needed time to check clearly the amount of creditor and debt of both involved parties and that was why some creditors had not replied the letters to confirm. The Company would continuously advance the account-check work with the relevant creditors of financial debt, trying as soon as possible to check clearly the interest on principal of the financial debt. Once progress is made, relevant information would be disclosed according to relevant regulation. II. Issues on tax payable Shenzhen Pengcheng Certified Public Accountants Firm Co., Ltd. thought that, in the audit process implemented audit procedures including inspection and inquiry, inquired book tax amount payable, custom guarantee and penalty balance totally were RMB 118,571,072.71, which all did not receive letters from tax department; otherwise found the Company was not able to receive reliable evidence of loss amounts which could be used as offset of profit before tax in later years affirmed by tax department, and deferred income tax assets RMB 9,849,555.22 were affirmed at the beginning of 2007 and switched back in 2007 in accordance with new Accounting Standards; for these undetermined issues, we are not able to ensure the effects on the Company’s financial report. 1. Issues on not replying to tax payable Due to the Company’s tax payable was formed in the past, which had a long time, there was no 24 newly increased tax payable in the report period, forming reasons were complex, personnel of specific affairs had changed, and tax department needed time to check clear the debts rights and amounts of both sides, therefore, we are not able to receive confirmation letter of tax department. The Company will continue to follow up the work of checking account of tax department, check clear the amount of tax payable as soon as possible, and will disclose information according to the requirements of relevant regulations if there is some progress. 2. Issues on estimating and switching back deferred income tax According to new Accounting Standards, considering possible realization of debt restructuring income of International Finance Corporation and possible affirmation of bad account loss of 2006 by tax department, the Company estimated the deferred income tax assets RMB 9,849,555.22. In 2006, Board of Directors and Shareholders’ General Meeting passed to verify the bad debt loss RMB 604,594,981.22 of amount payable of Hong Kong Link Bicycles Co., Ltd. which was bankrupted and liquidated in Hong Kong Court in 1998. In Apr., 2007, the Company applied to tax department to take the bad debt loss RMB 604,594,981.22 of amount payable of Hong Kong Link Bicycles Co., Ltd. as loss in 2006, which could be offset by annual tax payable income, and tax department thought that they needed more related bankruptcy and liquidation information of Hong Kong Court. According to liquidation progress report of Hong Kong Deloitte Certified Public Accountants- the liquidation institution appointed by Hong Kong Court, the assets will be distributed to liquidate with the proportion of 0.15%, and will offer liquidation report in May, 2008. The Company thought that the amount payable was not able to be called back and the bad debt loss accord with relevant regulations of listing in loss of 2006, therefore, according to new Accounting Standards, the Company affirmed deferred income tax assets in the beginning of 2007, and after realize debt restructuring of International Finance Corporation, switched back the deferred income tax assets in 2007. The Company will supply relevant information as soon as possible to get approval of relevant affairs of tax department. 3. Contingent events and lawsuits Shenzhen Pengcheng Certified Public Accountants believed that non correspondent loan card information for system updating and other seasons; during the auditing, lawsuit caused by external guarantee and delayed debt implemented court involved substitute site checking audit procedure, thus not getting identified documents from relevant courts. And the hard implemented other effective auditing procedure made us unable to judge the disclosed contingent events and lawsuits’ impacts on its financial statement. The historically formed loan and guarantee lawsuit had rather long time; in the report period there had no newly added undisclosed guarantee events and lawsuits; parts of courts changed and specific responsible people also altered; the court needs time to check details and amount of the case, so the court didn’t write back for ensuring. The Company will continue following up the check work by certified public accountants with related courts, and check involved contingent events as well as lawsuits as soon as possible. If there is any progress, information disclosure will be made to requirements of relevant regulations. 4. Matters on continuous operations Shenzhen Pengcheng Certified Public Accountants thought that, the Company’ asset could seriously not offset the debt; the measures on the reconciliation procedure of the bankruptcy to settle the debts had no material progress and could not be able to get adequate and proper audit evidence to confirm it could effectively improve the continuous operations of the Company; thus, we could not judge whether the financial report 2007 was proper compiled based on continuous operations of the Company. Since March 2003, the promotion on debt restructuring by the former largest creditor China Huarong Asset Management Corporation was acquiring breakthrough development, the Plan on Reorganization of Shenzhen China Bicycle Company (Holdings) Limited has obtained the approval from relevant department such as China Banking Regulatory Commission, in which all 25 the interests of the financial debts the Company owed ended Dec.30, 2004 were exempted and stopped calculation, and it was under the stage of implementation. The Company and International Finance Corporation signed Reconciled Agreement on Mar 29th of 2007, in which it was agreed to settle all the credits and liabilities between the two parties with USD equivalent to RMB 2 million. The liabilities amount was consisted of a principal approximately amounting to USD 3.87 million and an accrued interest approximately amounting to RMB 4.278 million. The two biggest creditors of the Company-Shenzhen Guocheng Energy Investment Development Co., Ltd and Guangdong Sunrise Group Co., Ltd agreed to stop recording the debt interest of the Company occurred in the whole year of 2007, with the interest amounts which had been stopped recorded being RMB 5.476 million and RMB 1.485 million respectively. These interests also won’t be collected any longer in the following years. Beside progress is made in debt restructure, the Company also makes continuous growth in its main operation and the main operation continues to make profit. Pressure of the Company for short-term payment has been sharply brought down; the lasting operation ability has been improved comparatively. On Dec. 30, 2006, China Huarong Asset Management Corporation transferred its owned debt to Shenzhen Guocheng Energy Investment Development Co., Ltd., after the changes of biggest creditor, the former biggest creditor China Huarong Asset Management Corporation applied to Shenzhen Intermediate People’ Court for bankruptcy on August 1, 2005, planned to settle the debts of the Company completely through bankruptcy and reform measures; the new creditor Shenzhen Guocheng Energy Investment Development Co., Ltd. was responsible for promoting the restructuring works on relevant debts and reorganization, and speeded up making scheme of debt restructuring and got certain development. The board of directors thought with the development of debt and asset reorganizations of the Company and the unceasingly growth of the achievements of the Company, the operation environment and operation status would surely be further improved for the Company. And the continuous operations would be further improved. V. Routine work of the Board of Directors (I) The board of directors of the Company totally held 8 meetings in the report period, the details and resolutions of the board meeting: 1. On Jan 8th of 2007, the 19th meeting of the 6th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Jan 9th of 2007. 2. On Apr 24th of 2007, the 20th meeting of the 6th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Apr 28th of 2007. 3. On Jun 1st of 2007, the 21st meeting of the 6th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Jun 2nd of 2007. 4. On Jul 12th of 2007, the 22th meeting of the 6th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Jul 13th of 2007. 5. On Jul 31st of 2007, the 1st meeting of the 7th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Aug 1st of 2007. 6. On Aug 22th of 2007, the 2nd meeting of the 7th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Aug 23th of 2007. 7. On Oct 25th of 2007, the 3rd meeting of the 7th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Oct 26th of 2007. 8. On Dec 3rd of 2007, the 4th provisional meeting of the 7th board of directors was held by way of communication, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Dec 5th of 2007. (II) Implementation of resolutions of shareholders’ general meeting by the board of directors 26 1. The Board of Directors strictly implemented all resolutions of shareholders’ general meeting in the report period with no material warps or errors. 2. In the report period, the Company had no profit distribution plan, or plan of converting public reserve into share capital, had no proposal on shares allotment or proposal on additionally issuing new shares. (III) Duty performance of the special committee of the board of directors During the report period, the Company set the Audit Committee and the Remuneration and Examination Committee of the Board. The special committees of the board of directors earneastly perform their duty according to the Governing Principle for Listed Companies, the Articles of Association and the right and obligation endowed by the working statute for the special committee of the board of directors. 1. Duty performance of the Audit Committee of the Board During the report period, the Audit Committee examined the annual financial statements formed by the Company, with its professional knowledge and experience. According the the relevant regulation of CSRC, the Audit Committee issued examination opinion for the annual financial statements twice. Before the certified public accountants enter for annual audit, the Audit Committee issued the first written opinion on the un-audited financial statements: according to the 38 detailed principle of Accounting Standard for Enterprise-Basic Standard, Accounting Standard for Enterprise No.1-Inventory and the relevant regulation in the Company’s financial system, the Audit Committee takes close eye on the reality and completeness of the financial statements, and on the preparation of the statements whether they were prepared in strict accordance to the new Accounting Standard for Enterprise and relevant regulation in the Company’s financial system. With inquiry and analysis on the financial files, the Audit Committee holds that: the Company stipulated its rational accounting policy and adequate accounting estimation, according to the relevant request of the new Accounting Standard for Enterprise and taking the actual status of the Company into consideration; the transaction records were real and complete; and the financial accounting statements prepared by the Company really reflected the financial status of the Company till Dec 31st of 2007, and the operation achievement and cash flow of the Company in 2007. It is agreed to take these financial statements as basis to carry out the financial audit work of 2007. After the CPA issued the initial audit opinion, the Audit Committee read the first audit report in time and negotiated the CPA. The Audit Committee and the CPA had no any disputation on the important issues concerned by the annual financial report of the Company. The financial report of the Company complies with the Accounting Standard for Enterprise and regulations of relevant laws. The Audit Committee agreed to take these financial statements as basis to prepare the 2007 Annual Report and its Summary, which made it available for the Company to disclose the 2007 Annual Report in time. 2. Duty performance of the the Remuneration and Examination Committee of the Board: During the report period, the Remuneration and Examination Committee of the Board examined the remuneration policy and scheme of the directors, supervisors and senior executives of the Company. It is believed that the remuneration of the directors, supervisors and senior executives of the Company disclosed in the section 5 of this report is real and accurate. VI. Profit distribution plan or preplan of capitalization As audited by Shenzhen Pengcheng Certified Public Accountants, the profit of the Company amounted to RMB 63,066,200 in 2007 and has neither dividend distribution nor transfer from capital public reserve into share capital, which is to make up the losses of previous years. 27 VII. Other issues (I) Explanation on the external guarantees of the Company, accumulative total and the current ones, issued by the independent directors: According to the regulations of the notice (CSRCF (2003) No.56) on Standardize Fund Exchange Between Listed Companies and Related Parties and on Problem of External Guarantee of Listed Companies, as the independent directors of Shenzhen China Bicycle Company (Holdings) Limited, we made inspection on the accumulative and current external guarantees of the Company and also on the guarantee getting out of line, together according to the document (SPSZSZ[2008]262) issued by Shenzhen Pengcheng CPAs on Special Explanation on Fund Occupancy and Guarantee Getting out of Line of the Controlloing Shareholders and Other Related Parties of Shenzhen China Bicycle Company (Holdings) Limited and relevant data. Here comes next the detail information: During the report period, no guarantee or guarantee out of line has been provided by the Company for its controlloing shareholders and the enterprises where they take position. The guarantee or guarantee out of line provided by the Company for its controlloing shareholders and the enterprises where they take position were those happened from 1996 to 1999, belonging to the events left in history. Due to that most units receiving guarantee are not able to repay, the Company treated most guarantees as disposal of prejected liabilities which amounted to RMB 161,441,142.92. (II) In the report period, the domestic newspapers for information disclosure engaged by the Company are China Securities and Securities Times, and the overseas newspaper for information disclosure is Hong Kong Wen Wei Po. VIII. Report of Supervisory Committee In the spirit of being responsible to shareholders and strictly according to regulations in PRC Company Law, Securities Law and Articles of Association of the Company, the Supervisory Committee has dutifully performed its obligations endowed by relevant laws and legislations, carried out work positively and hard, and safeguarded the legal rights and interests of the Company and shareholders in 2007. It has also put forward its opinions and suggestions promptly towards significant decisions made for productions, management and investment, and supervised the behaviors of directors and senior executives in terms of implementation of their obligations. I. Work of the Supervisory Committee in the report period In the report period, the Supervisory Committee of the Company held altogether 5 meetings. 1. The 5th meeting of the 5th Supervisory Committee was held on Jan 8th of 2007. The resolution of Converting Share Capital with Capital Public Reserve has been examined and approved in this meeting. 2. The 6th meeting of the 5th Supervisory Committee was held on Apr 24th of 2007. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated Apr 28th of 2007. 3. The 7th meeting of the 5th Supervisory Committee was held on Jun 1st of 2007. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated Jun 4th of 2007. 4. The Employee Representative Conference was held on Jul 23rd of 2007 by the Labor Union Committee of the Company. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated Aug 1st of 2007. 5. The 8th meeting of the 5th Supervisory Committee was held on Oct 25th of 2007. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated Oct 26th of 2007. II. Opinions on relevant issues in 2007 expressed by the Supervisory Committee 1. Operation according to law: 28 In accordance with relevant national laws and regulations, the Supervisory Committee has carried out supervision work on the holding procedures of Shareholders’ General Meetings and Board meetings, resolution, implementation of resolutions of Shareholders’ General Meetings by the Board of Directors, performance of duties of senior executives as well as the Company’s administration system etc.; it believes that, in 2007, the Board of Directors strictly complied with PRC Company Law, Securities Law, Rules for Stock Listing, Articles of Association and other relevant regulations and systems, operated in a standardized manner, worked conscientiously, conducted business and made decisions in a scientific and reasonable way, and further improved internal administration and internal control system; the directors and managers haven’t violated any laws, regulations, the Articles of Association or done harm to the interests of the Company and shareholders when performing duties. 2. Financial Inspection In the report period, Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinion for the Financial Statement 2007 of the Company. The Financial Report of the Company objectively and truly reflected the financial status and operation achievements of the Company this year. 3. Use of raised funds: The Company has not raised funds in the report period. 4. Purchases and sales of assets: In the report period, the Company has no purchases or sales of assets. 5. Opinions towards related transactions Related transactions conducted by the Company are fair and square, and haven’t done harm to the interests of the Listed Company, and there was no insider dealing. 6. Implementation on resolution of shareholders’ general meeting by the Board Supervisors of the Company attended shareholders’ general meeting and presented meeting of the Board without voting. The Supervisory of the Company supervised implementation on resolution of shareholders’general meeting, and it thought that the Board earnestly implemented the various resolutions of shareholders’general meeting. III. Opinion issued by the Board on the auditor’s report with disclaimer of opinion issued by Shenzhen Pengcheng Certified Public Accountants Shenzhen Pengcheng CPAs issued the audit report with disclaimer of opinion for 2007. The Board had made special explanation on the events concerned by the report. The Supervisoty Committee believed that: the audit report issued by Shenzhen Pengcheng CPAs truthfully reflected the financial condition and operation achievement of the Company; the explanation presented by the Board of the Company on the events concerned by the audit opinion complied with the actual condition of the Company. The Supervisory Committee would actively cooperate with the Board to carry out its works, supervise and urge the Board to intensify power in debt restructure and try to improve the persistent operating ability of the Company. IX. Significant Events I. Material lawsuits and arbitrations in the report period: The details about the material lawsuits or arbitrations that occurred in the previous years are in the notes 12 of the Financial Statement. 29 II. The Company had no active purchase and sales of assets in the report period. III. Significant related transactions in the report period In the report period, there was no new significant related transaction; details about the significant related transactions that occurred in the previous years are in the notes 10 of Financial Statement. IV. Significant Contracts and Implementation of Contracts 1. In the report period, the Company had not entrusted, contracted or leased the assets of other companies, nor had other companies entrusted, contracted or leased the assets of listed companies. 2. In the report year, the Company had no new offering of guarantee; details about the significant guarantee events that occurred in the previous year are in the notes of financial statement. 3. In the report period, the Company did not happenthe situations of guarantees on controlling subsidiary, the guaranteed occurred in previous years were as follows: Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Complete Guarantee Date of happening Amount Name of the Company Guarante Impleme for related (Date of signing of Guarantee type guaranteed e term ntation or party (Yes or agreement) guarantee not no) Guangdong Sunrise Group Joint June 20, 1996 614.20 6 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint July 26, 2006 2,800.00 4 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint Sep. 30, 1999 830.00 1 year No No Co., Ltd. responsibility Guangdong Sunrise Group Joint 11 Apr. 30, 1998 260.00 No No Co., Ltd. responsibility months Guangdong Sunrise Group Joint July 30, 1997 250.00 7 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint June 4, 1997 300.00 8 months No No Co., Ltd. responsibility Gintian Industry (Group) Co., Joint Oct. 30, 1998 5,000.00 6 months No No Ltd. responsibility Shenzhen Tianma Cosmetics Joint Sep. 30, 1994 800.00 1 year No No Co., Ltd. responsibility Total amount of guarantee in the report period 0.00 Total balance of guarantee at the end of the report 10,854.20 period Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries during the 0.00 report period Total balance of guarantee for controlling subsidiaries at the end of 8,351.89 the report period Total amount of guarantee of the Company (including guarantee for controlling subsidiaries) Total amount of guarantees 19,206.09 Ratio of total guarantee to net assets of 0.00% the Company Including: Amount of guarantee for shareholders, 0.00 actual controller and its related parties The debts guarantee amount provided 19,206.09 30 for the guarantee of which the assets-liability ratio exceeded 70% directly or indirectly Proportion of total amount of guarantee in net assets of the Company 19,206.09 exceeded 50% Total amount of the aforesaid three 38,412.18 guarantees Note: Guangdong Sunrise Group Co., Ltd. was the shareholder of the Company, its equity was auctioned by the court and now it is not the shareholder of the Company. V. Commitments of the Company and the shareholders holding more than 5% equity in the report period or lasting to the report period The Company or the shareholders holding more than 5% equity had no commitments made in the report period or made in previous period but carried forward to the report period that were likely to produce significant influence on the operation achievements and financial status of the Company. VI. Engagement and Disengagement of Certified Public Accountants of the Company In the report period, the Company engaged Shenzhen Pengcheng Certified Public Accountants as the auditing organ in this year with term of one year. In 2007, the Company paid auditing fee amounting to RMB 0.5 million to Shenzhen Pengcheng Certified Public Accountants. VII. Particulars about punishment received by the Company, the Board of Directors of the Company and the directors from supervisory department. In the report period, the Company, the Board of Directors of the Company and the directors have not been inspected, given administrative punishment or public criticism by CSRC, or publicly condemned by Shenzhen Stock Exchange. VIII. Particulars about the Company’s Reception of Investigation and Interview In accordance with the requirements of Guidance for Fair Information Disclosure for Listed Companies of Shenzhen Stock Exchange, the Company earnestly implements the System of Reception and Popularization. The Company and relevant personnel in charge of information disclosure strictly follow the principle of fair information disclosre. Situation that different treaty policy is implemented, information is disclosed for appointed person or non-public significant information is disclosed or leaked out has never happened. Reception Main content of talk and Reception place Reception way Person receipted date information provided Progress of the share merger Office of the Phone Shareholders of 2007 reform and the debt restructure Company communication circulating shares project of the Company IX. Other significant events 1. The Company received Notice on Confirmation on Ownership Transfer of Shares from Shenzhen Guocheng Energy Investment Development Co., Ltd dated May 8th of 2007: according the the Equity Transfer Agreement (details could be found in the notice of the Company published on Nov 17th of 2006) signed by China Huarong Asset Management Corporation, Shenzhen Guocheng Energy Investment Development Co., Ltd and Shenzhen Jushenglong Industry Development Co., Ltd on Nov 13th of 2006, equity of the 65,098,412 A legal person shares of the Company held by Huarong Corporation has been transferred to Guocheng Energy and the relevant procedure for 31 ownership transfer has been transacted dated Apr 30th of 2007. Thus, Shenzhen Guocheng Energy Investment Development Co., Ltd becomes the No.1 big shareholder of the Company, holding 13.58% of the total shares of the Company. 2. The Company owed the principal of International Finance Company amounting to USD 3,870,000 and withdrwal of interest amounted to RMB 42,780,000(Please see the 2006Annual Report); with the friendly negotiation between the two parties, the Company signed Reconciliation Agreement with International Finance Company dated March 29, 2007, in which agreed to settele all the debts and liabilities in USD with the equivalent of RMB 2 million. The Company paid once the aforesaid item into othe designated bank account by International Finance Company on April 4, 2007. In accordance with the regulations of Accounting Standard for Enterprise No.12-Debt Restructuring, the conclusion of the above reconciliation agreement will bring profit from debt restructure of RMB 68,568,700. X. Financial Report (Please refer to the appendixes) XI. Documents Available For Reference 1. Accounting statements carrying the personal signatures and seals of legal representative, person in charge of the accounting affairs and person in charge of the accounting department. 2. Original of Auditors’ Report carrying the seal of the Certified Public Accountants as well as personal signatures and seals of certified public accountants. 3. Originals of all documents and public notices disclosed publicly on the newspapers as designated by China Securities Regulatory Commission in the report period. 4. English version of the 2007 Annual Report. Board of Directors of Shenzhen China Bicycle Company (Holdings) Limited April 29, 2008 32 Shenzhen China Bicycle Company (Holdings) Limited 2007 Financial Report Auditors’ report SPSGSZi[2008]No. 107 To the shareholders of Shenzhen China Bicycle Company (Holdings) Limited, We have audited the accompanying financial statements of Shenzhen China Bicycle Company (Holdings) Limited (“the Company”), including consolidated balance sheet of the Company of 31 December 2007, and consolidated profit statement of the Company, and consolidated statement on changes of shareholders’ equity of the Company, and consolidated cash flow statement of the Company for the year ended, and notes to the financial statements for the year ended. I. Management's responsibility for the financial statements It is the responsibility for the management of the Company to prepare financial statements according to the stipulations of the business accounting rules. This responsibility includes: (1) devising, implementing and maintaining internal control related to the preparation of the financial statements so as to ensure that the financial statements do not contain major errors caused by fraudulence or mistake; (2) choosing and adopting appropriate accounting policies; and (3) making reasonable accounting estimations. II. Proceedings which result in disclaimer of opinion We noticed that: 1. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the financial debts of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2007. Until the audit report day, the replied letters told that a balance in interest of RMB 591,837,892.02 has been omitted by Shenzhen China Bicycle Company (Holdings) Limited; besides, some letters were replied to show uncertain on the total owed interest converting to RMB 19,640,522.48 just as the Company’s book said; to the un-replied letters, the total owed interest on principal was converted into RMB 24,765,110.54 as the Company’s book said. As to the aforesaid omitted interest balance, the Company provided explanation in Note 13.1 that when implementing the document (YJBT (2004) No.6) released by China Committee on Bank Supervision for offering a reference of the loan interest restructure of Shenzhen China Bicycle Company (Holdings) Limited, the Company and some creditors had different understanding on this document, which brought the aforesaid omission. Since the accounts had not been adjusted, we are not able to ensure the influence of this balance to the financial statements of the Company. 2. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the tax payable of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2007, in want of verification that whether the unpaid tax, tariff bond and amercement balance was totaling up to RMB 118,571,072.71 as the Company’s book said. While until the audit report day, nothing got replied. Besides, we also found that Shenzhen China Bicycle Company (Holdings) Limited had not obtained reliable evidence that tax department had confirmed the loss limit of the Company till the year-begin of 2007 which could be made up with the profit (before taxed) created in future years, while the Company still confirmed the limit at the year-begin of 2007 and turned back deferred income tax assets of RMB 9,849,555.22 for 2007 according to the new Accounting Standard. Thus, 33 it was impossible for us to ensure the influence on the financial statements of the Company brought by the uncertainty. 3．In the process of audit, the information of credit card which we received from the account bank of Zhonghua Bicycles Co. Ltd. is not able to be checked whether contingency such as related guarantee information accord with disclosure, for it did not be annually inspected and credit card system did not upgrade related information. Therefore, we implement substitutive audit procedure of field checking the related courts to the claims of Zhonghua Bicycles Co. Ltd. caused by external guarantee and overdue loan. However, related courts all only make some oral explanations or provide some information which could only be used as reference. Otherwise, we are not able to implement other efficient audit procedure, so that we are not able to judge the integrity of the contingency disclosed in Note 11 and the claims disclosed in Note 12 of Zhonghua Bicycles Co. Ltd. and possible effects of the issues on the Company’s financial report. 4. Refer to Note 15, until Dec. 31, 2007, total asset of Shenzhen China Bicycle Company (Holdings) Limited was RMB 214.38 million; total debt was RMB 1,998,720,000; net asset was RMB-1,784,340,000 with debts beyond assets. Shenzhen China Bicycle Company (Holdings) Limited disclosed improving methods in Note 15 of financial statement, however, the main measurement adopted till 2006, that planed to accomplish the debt restructure of Shenzhen China Bicycle Company (Holdings) Limited through reconciled procedure of bankruptcy has not made any practical progress from 2007 to the audit report day of 2008,thus making us unable to get complete and appropriate auditing evidence to identify whether it can improve continuous operation ability for Shenzhen China Bicycle Company (Holdings) Limited effectively. Therefore, we can not judge whether the 2007 financial statement which was made under continuous operation assumption of Shenzhen China Bicycle Company (Holdings) Limited is appropriate or not. III. Auditing Opinion Due to that the aforesaid events could possibly occur very significant and aboard influences, we could not issue auditor’ opinion on the financial statement of the Company. Shenzhen Pengcheng Certified China Accountant Public Accountants Shenzhen y P.R.C. April 25, 2008 Li Hailin China Accountant 34 Balance Sheet December 31, 2007 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB Amount at period-end Amount at period-begin Items Merger Parent Company Merger Parent Company Current assets: Monetary funds 14,062,198.43 477,660.27 16,982,883.27 504,436.50 Settlement provisions Capital lent Transaction finance asset Notes receivable 1,673,960.00 Accounts receivable 482,050.51 144,678,350.46 10,684,966.02 190,887,836.94 Accounts paid in advance 1,304,193.48 117,100.00 2,406,516.88 1,641,102.08 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Other receivables 20,774,519.57 66,544,849.86 13,814,016.03 26,274,597.75 Purchase restituted finance asset Inventories 41,116,795.51 33,892,709.90 43,709,649.82 38,635,307.97 Non-current asset due within one year Other current assets Total current assets 79,413,717.50 245,710,670.49 87,598,032.02 257,943,281.24 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity 27,406,483.51 27,406,483.51 28,563,096.50 28,563,096.50 investment Investment property 10,956,836.08 10,956,836.08 11,602,410.75 11,602,410.75 Fixed assets: 68,561,480.10 67,962,140.33 80,182,046.09 79,378,262.13 Construction in progress Engineering material Disposal of fixed asset 35,910,102.07 35,910,102.07 Consumable biological asset Oil and gas asset Intangible assets 28,043,013.38 28,043,013.38 28,905,875.42 28,905,875.42 Expense on Research and Development Goodwill Long-term expenses to be 35 apportioned Deferred income tax asset 9,849,555.22 9,849,555.22 Other non-current asset Total non-current asset 134,967,813.07 134,368,473.30 195,013,086.05 194,209,302.09 Total assets 214,381,530.57 380,079,143.79 282,611,118.07 452,152,583.33 Current liabilities: Short-term loans 418,165,449.05 353,451,323.08 438,825,765.41 369,338,359.02 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable Accounts payable 135,329,891.70 338,652,954.48 144,593,261.31 360,599,834.28 Accounts received in 18,086,124.15 14,605,306.04 1,591,292.38 1,591,292.38 advance Selling financial asset of repurchase Commission charge and commission payable Wage payable 1,392,052.21 1,250,670.90 1,822,548.73 1,559,302.89 Taxes payable 95,460,222.24 94,178,777.08 94,570,414.38 93,854,457.12 Interest payable Other accounts payable 167,601,705.14 131,309,401.97 166,558,359.08 119,120,001.91 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Long-term liabilities due 915,134,453.92 915,134,453.92 1,027,960,035.56 1,027,960,035.56 within 1 year Other current liabilities 86,109,949.92 86,097,636.52 92,188,218.48 92,885,770.17 Total current liabilities 1,837,279,848.33 1,934,680,523.99 1,968,109,895.33 2,066,909,053.33 Non-current liabilities: Long-term loans Bonds payable Long-term account payable Special accounts payable Projected liabilities 161,441,142.92 161,441,142.92 161,876,924.66 161,876,924.66 Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 161,441,142.92 161,441,142.92 161,876,924.66 161,876,924.66 Total liabilities 1,998,720,991.25 2,096,121,666.91 2,129,986,819.99 2,228,785,977.99 Owner’s equity (or shareholders’ equity): Paid-in capital (or share 479,433,003.00 479,433,003.00 479,433,003.00 479,433,003.00 capital) Capital public reserve 362,027,636.64 362,027,636.64 362,027,636.64 362,027,636.64 Less: Inventory shares Surplus public reserve 32,673,227.01 32,673,227.01 32,673,227.01 32,673,227.01 Provision of general risk Retained profit -2,658,473,327.33 -2,590,176,389.77 -2,721,509,568.57 -2,650,767,261.31 36 Balance difference of foreign currency translation Total owner’s equity attributable to parent -1,784,339,460.68 -1,716,042,523.12 -1,847,375,701.92 -1,776,633,394.66 company Minority interests Total owner’s equity -1,784,339,460.68 -1,716,042,523.12 -1,847,375,701.92 -1,776,633,394.66 Total liabilities and owner’s 214,381,530.57 380,079,143.79 282,611,118.07 452,152,583.33 equity Legal representative of the Company: Shang Shijun Director in charge of accounting organ: Ye Qing Person in charge of accounting organ: He Yili 37 Profit Statement December 31, 2007 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB This period Same period of last year Items Merger Parent Company Merger Parent Company I. Total operating income 234,601,314.71 22,683,649.92 232,525,287.59 36,818,191.13 Including: Operating income 234,601,314.71 22,683,649.92 232,525,287.59 36,818,191.13 Interest income Insurance gained Commission charge and commission income II. Total operating cost 229,691,189.35 20,384,490.69 243,397,959.60 41,030,508.50 Including: Operating cost 230,244,832.81 24,154,789.84 224,910,013.85 36,888,095.55 Interest expense Commission charge and commission expense Cash surrender value Net amount of expense of compensation Net amount of withdrawal of insurance contract reserve Bonus expense of guarantee slip Reinsurance expense Operating tax and extras 175,378.59 880.36 255,622.71 5,510.77 Sales expenses 5,542,241.79 1,393,554.08 6,742,974.66 1,768,339.08 Administration expenses 16,217,410.39 12,771,829.00 16,813,215.11 10,520,106.11 Financial expenses -34,285,597.04 -29,733,485.40 -14,465,143.27 -14,292,785.12 Losses of devaluation of asset 11,796,922.81 11,796,922.81 9,141,276.54 6,141,242.11 Add: Changing income of fair value Investment income -1,336,613.99 -1,156,612.99 -1,173,559.60 -5,476,716.41 Including: Investment income on affiliated company and joint venture Exchange income III. Operating profit 3,573,511.37 1,142,546.24 -12,046,231.61 -9,689,033.78 Add: Non-operating income 71,247,901.44 71,233,496.87 135,901.58 126,164.08 Less: Non-operating expense 1,935,616.35 1,935,616.35 102,252.36 85,145.64 Including: Disposal loss of non-current asset IV. Total Profit 72,885,796.46 70,440,426.76 -12,012,582.39 -9,648,015.34 Less: Income tax 9,849,555.22 9,849,555.22 V. Net profit 63,036,241.24 60,590,871.54 -12,012,582.39 -9,648,015.34 Net profit attributable to 63,036,241.24 60,590,871.54 -12,012,582.39 -9,648,015.34 owner’s equity of parent company Minority shareholders’ gains and losses VI. Earnings per share i. Basic earnings per share 0.13135 -0.02508 ii. Diluted earnings per share 0.13135 -0.02508 38 Legal representative of the Company: Shang Shijun Director in charge of accounting organ: Ye Qing Person in charge of accounting organ: He Yili Cash Flow Statement December 31, 2007 Prepared by Shenzhen China Bicycle Company (Holdings) Limited Unit: RMB This period Same period of last year Items Merger Parent Company Merger Parent Company I. Cash flows arising from operating activities: Cash received from selling 161,272,081.30 20,891,671.25 163,498,443.54 15,173,429.00 commodities and providing labor services Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commission Net increase of capital borrowed Net increase of returned business capital Write-back of tax received Other cash received concerning 7,009,777.82 31,549,664.93 operating activities Subtotal of cash inflow arising from 161,272,081.30 20,891,671.25 170,508,221.36 46,723,093.93 operating activities Cash paid for purchasing commodities 131,243,202.76 7,196,032.27 149,346,224.98 9,751,762.65 and receiving labor service Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of guarantee slip Cash paid to/for staff and workers 18,456,590.20 3,688,775.28 15,945,592.40 3,063,397.94 39 Taxes paid 4,132,851.41 2,299,281.44 3,206,915.85 1,124,532.09 Other cash paid concerning operating 10,031,417.04 7,597,313.04 10,960,045.55 33,364,129.92 activities Subtotal of cash outflow arising from 163,864,061.41 20,781,402.03 179,458,778.78 47,303,822.60 operating activities Net cash flows arising from operating -2,591,980.11 110,269.22 -8,950,557.42 -580,728.67 activities II. Cash flows arising from investing activities: Cash received from recovering investment Cash received from investment income Net cash received from disposal of 187,507.00 187,507.00 195,080.00 195,080.00 fixed, intangible and other long-term assets Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow from investing 187,507.00 187,507.00 195,080.00 195,080.00 activities Cash paid for purchasing fixed, 284,539.46 259,315.46 253,025.05 231,064.00 intangible and other long-term assets Cash paid for investment Net increase of mortgaged loans Net cash received from subsidiaries 180,000.00 and other units Other cash paid concerning investing activities Subtotal of cash outflow from 464,539.46 259,315.46 253,025.05 231,064.00 investing activities Net cash flows arising from investing -277,032.46 -71,808.46 -57,945.05 -35,984.00 activities III. Cash flows arising from financing activities Cash received from absorbing investment Including: Cash received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans Cash received from issuing bonds Other cash received concerning financing activities Subtotal of cash inflow from financing activities Cash paid for settling debts Cash paid for dividend and profit distributing or interest paying Including: Dividend and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing activities Subtotal of cash outflow from financing activities Net cash flows arising from financing activities 40 IV. Influence on cash due to fluctuation in -51,672.27 -65,236.99 -255.04 exchange rate V. Net increase of cash and cash equivalents -2,920,684.84 -26,776.23 -9,008,757.51 -616,712.67 Add: Balance of cash and cash 16,982,883.27 504,436.50 25,991,640.78 1,121,149.17 equivalents at the period -begin VI. Balance of cash and cash equivalents at 14,062,198.43 477,660.27 16,982,883.27 504,436.50 the period -end Legal representative of the Company: Shang Shijun Director in charge of accounting organ: Ye Qing Person in charge of accounting organ: He Yili 41 Statement on Changes of Owners' Equity December 31, 2007 Prepared by Shenzhen China Bicycle Company (Holdings) Limited U Amount in this report period Owners' equity belonged to the parent company Owners' equity belong Paid-up General Minorit Total Paid-up Items Less: Surplus Less: capital Capital risk Retaine y owners’ capital Capital Su Treasur reserves provisio d profit Others Treasur (Share reserves interest equity (Share reserves res y Stock n y Stock capital) capital) -2,660,5 -1,786,4 I. Balance at the end of the last 479,433, 362,027, 32,673,2 479,433, 362,027, 32 98,088.9 64,222.2 year 003.00 636.64 27.01 003.00 636.64 3 8 Add: Changes of accounting policy Error correction of the last period -2,660,5 -1,786,4 II. Balance at the beginning of 479,433, 362,027, 32,673,2 479,433, 362,027, 32 98,088.9 64,222.2 this year 003.00 636.64 27.01 003.00 636.64 3 8 III. Increase/ Decrease in this 60,572,1 60,572,1 year (Decrease is listed 43.94 43.94 with'"-") 60,572,1 60,572,1 (I) Net profit 43.94 43.94 (II) Profits and losses calculating into owners' equity 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3.Effect of income tax related to owners' equity 4. Others 60,572,1 60,572,1 Total of (I)and (II) 43.94 43.94 (III) Owners' devoted and decreased capital 1. Owners' devoted capital 2. Amount calculated into owners' equity paid in shares 3. Others (IV) Profit distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk provisions 3.Distribution for owners (shareholders) 4.Others (V) Carrying forward internal owners' equity 1.Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital) 3.Remedying loss with profit surplus 4.Others -2,600,0 -1,725,8 IV. Balance at the end of this 479,433, 362,027, 32,673,2 479,433, 362,027, 32 25,944.9 92,078.3 report period 003.00 636.64 27.01 003.00 636.64 9 4 Legal representative of the Company: Shang Shijun Director in charge of accounting organ: Ye Qing Person in charge of accounting organ: He Yili SHENZHEN CHINA BICYCLE COMPANY （HOLDING） LIMITED Notes of Financial Statement For Year 2007 Otherwise stated, all amounts are stated in RMB Yuan. Annotation 1. COMPANY PROFILE Approved by Shenzhen People’s Government—ShenFuBanFu (1991) No 888, the Company was restructured to be a stock company limited. On Dec. 28, 1991, approved by the People’s Bank of China—Shenzhen Special Economic Zone Branch (ShenRenYinFu Zi (1991) No. 119), the Company was listed with Shenzhen Stock Exchange. The corporate business license was QGYSZF Zi No. 101165, with a registered capital of RMB 479,433,003.00. The Company was engaged in machine manufacturing industry. The main operations include: producing and assembling types of bicycles, the parts, fittings, mechanical products, sports instrument, fining chemicals, carbon-fiber compound materials, household electronic appliances and the fittings. Prime products are: Emmelle bicycle, Chimo bicycle, Diamondback bicycle and electric bicycle. Brief on production and management: The Company produces medium and top grade bicycles, mainly for exporting. Influenced by antidumping lawsuits in recent years; the sales volume slided down. The Company focuses on debts restructure as well as products research and development. The Company has developed series of electric bicycle, and has been working to exploit domestic market. Main businesses continue to make positive profit in the year. Annotation 2. Compiling basis of financial statement Compilation of financial statement of the company is based on continuous business according to actual trade based on continuous operations and actual occurred transactions and matters, and in according to the original Accounting Standards for Business Enterprises promulgated before Feb.15, 2006 and original Accounting System for Business Enterprises (hereinafter refers to Original Accounting Standards and Systems for Business Enterprises) promulgated on Dec.29, 2000 by Ministry of Finance. Since Jan.1, 2007, the Company implemented Accounting Standards for Business Enterprises (hereinafter refers to Accounting Standards for Business Enterprises) promulgated in Feb.15, 2006 by Ministry of Finance. The financial statement was the first financial statement compiled based on Accounting Standards for Business Enterprises. While compiling the financial statements, the comparative data between the period-begin amount in balance sheet and the same period of last year in profit sheet were taken retroactive adjustment according to the relevant regulations on 5th to the 19th item in Accounting Standard for Business Enterprises No. 38 - First time adoption 44 of Accounting Standards for Business Enterprises and Information Disclosure Standard Interlocution No.7 of Companies Publicly Issuing Securities---Comparison on Compilation and Disclosure of Financial Accounting Information During the Transition Period of New and Former Accounting Standards and relisted based on Accounting Standards for Business Enterprises. The financial statement of the Company compiled based on the aforesaid compilation basis conformed to the requirements of Accounting Standards for Business Enterprises; reflected the financial status of the Company as of Dec.31, 2007 truly and completely and the operation results and cash flow of year 2007 Annotation 3. Approving and delivering person of financial report and the approving and delivering date of financial report. The financial report of the Company was approved and delivered by the 5th meeting of 7th the board of directors dated. Annotation 4. Compilation method of main accounting policy, accounting estimate and consolidated financial statement. 1. Accounting policy Accounting policy of the company complies to "Enterprise Accounting Standard 2006" and application guidance issued by Ministry of Finance People's Republic of China as 【 2006】3 of accounting and financial. 2. Fiscal year It shall adopt calendar year, namely, one calendar year means period from January 1th to December, 31st. 3. Recording currency RMB is used as the recording currency. 4. Foundation to charge to an account and price-calculating principle Foundation to charge to financial accounting is accrual basis. Price-calculating principle of every asset (except other price-calculating principles or required by "Enterprise Accounting Standard") refers to historical cost when obtaining. 5. Foreign-currency business, translation and accounting methods of foreign currency statement. Foreign currency payment shall be translated into recording currency amount by adopting spot exchange rates issued by People's Bank of China during initial confirmation. Treatments of foreign currency cash items and foreign currency non-cash items on balance sheet date are as follows： 1）Foreign currency cash items shall be translated by spot exchange rates on balance sheet date. Exchange differences caused by difference of spot exchange rates of balance sheet date and that during initial confirmation or that of former balance sheet date is accounted for current gains or losses. 2）Foreign currency non-cash items measured by historical cost can be translated by exchange rates of transaction date without changing recording currency amount. 3）Foreign currency non-cash items measured by fair value are translated by exchange rates on fair value confirmation date. Difference of translated recording currency amount and original carrying amount is accounted for current gains or losses as 45 variation treatment of fair value. 4）Exchange gains or losses caused by debts with regard to construction of fixed assets shall be handled according to capitalization principle of borrowing expenses. Exchange gains or losses with regard to development of real estate shall be capitalized before completion of real estate. 6. Defined standard of cash equivalent The company uses investment with short holding period (generally refers to three months form procurement date), strong liquidity, eligibility to convert into cash of known amount and very small value variation risk as cash equivalent during preparation of cash flow statement. 7. Translation method of financial instruments Financial instruments of the company include financial assets and financial debts. 1）Accounting for financial assets： --- Confirmation standard of fair value of financial assets Confirmation standard of fair value of financial assets of the company is as follows： A. Price of balance sheet date is used as fair value if there are financial assets in active market. B. Fair value is confirmed by present value calculated by appropriate discount rate (current bank loan rate is generally used as discount rate) according to future cash flow if there are no financial assets in active market. Classification of financial assets Financial assets of the company are classified as follows： A. Financial assets measured by fair value and whose variation is accounted for current gains or losses（including tradable financial assets and financial assets measured by fair value and whose variation is accounted for current gains or losses）； B. Holding or due investment； C. Receivable accounts； D. Financial assets can be sold Measurement of financial assets A. Initially confirmed financial assets shall be measured by fair value. Relevant transaction expenses of financial assets which are measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses directly；Relevant transaction expenses of other kinds of financial assets shall be accounted for initial confirmation amount. B. The company will measure financial assets consequently according to fair value without deducting possible transaction expenses during future financial assets treatment. However, following conditions are not included： ① Holding or due investment and receivable accounts shall be measured according to amortized cost by practical rate method； ② Equity instrument investment which has no active market or no quotation in active market and whose fair value can not be measured and derivative financial assets which link to equity instruments and shall be settled by delivery of equity instruments shall be measured by cost. C. Difference of reclassified fair value of financial assets and cost of book value due to 46 classification change of financial assets caused by business holding purpose change shall be accounted for capital reserves. It shall be accounted for current gains or losses when confirmation is terminated or value is depreciated. Depreciation of financial assets Carry out depreciation test of book value of financial assets except those which shall be measured by fair value and whose variation is accounted for current gains or losses on balance sheet date. Objective evidences show that when financial assets depreciate, the difference of expected cash flow present value of financial assets and book value shall be reserved and accounted for current gains or losses. Objective evidences of depreciation of financial assets shall include following contents： A. Issue party or debtor has serious financial difficulties； B. Debtor has breached contract clauses, such as breach or exceeding the time limit to pay for interests or corpus； C. The company concedes to debtor who has difficulty by considering economical or legal factors； D. Bebtor may have bankruptcy or other financial reorganizations because of uncertainty of continuous business； E. The company's financial assets can not continue to trade in active market because of serious financial difficulty of issue party； F. The company can not recover investment cost because of serious disadvantageous changes of technical, market, economical and legal environment of debtor； G. Fair value of equity instrument investment falls seriously or non-provisionally； H. Although we can not determine whether cash flow of a certain asset of financial asset combination decreases or not, the company discover that expected future cash flow since initial confirmation of the group of financial assets has decreased and it can be measured after overall evaluation according to open data. I. Other objective evidences which can show depreciation of financial assets. Measurement of depreciation loss of financial assets A. Financial assets measured by fair value and whose variation is accounted for current gains or losses need no depreciation testing； B. Measurement of depreciation loss of holding or due investment：The difference of expected future cash flow present value and book value at the end of period shall be reserved and accounted for current gains or losses； C. Measurement of depreciation loss of receivable accounts：The company shall adopt allowance method of bad debt loss for translation, carry out depreciation test of receivable accounts and prepare for reserve in bad debt on balance sheet date. ① Carry out depreciation test of receivable accounts with large amount individually. If objective evidences show that the value has depreciated, the company will confirm depreciation loss and prepare for reserve in bad debt according to difference of future cash flow present value and book value. ② Reserve 3‰ of sum of receivable accounts at the end of year and other receivable accounts as for receivable accounts with not large amount and un-predicated receivable accounts after individual test. Preparation of bad debt reservation is accounted for 47 current management expenses. ③ Reserve 100% of bad debts after individual confirmation of bad debts. Confirmation standard of bad debts of the company is as follows：① Property of debtor can not be recovered after payment due to bankruptcy or death；② Debtor can not pay for due debts with obvious evidence. D. Depreciation judgment of financial assets that can be sold：The financial assets can be thought to depreciate if fair value of the financial asset decreases continuously and non-provisionally. Gains or losses caused by variation of fair value of financial assets shall be handled according to following stipulations： A. Gains or losses caused by variation of fair value of financial assets measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses. B. Gains or losses caused by variation of fair value of saleable financial assets can be accounted for owners equity directly except exchange rate difference caused by depreciation loss and foreign currency cash financial assets. They shall be accounted for current gains or losses when financial assets are transferred confirmation termination. C. Exchange rate difference caused by saleable foreign currency cash financial assets shall be accounted for current gains or losses. Interests of saleable financial assets calculated by actual rate method shall be accounted for current gains or losses；Cash dividends of saleable equity instrument investment shall be accounted for current gains or losses during announcement of dividends issuing of invested unit. 2）Accounting of financial debts Financial debts are divided to following two categories： A. Financial debts measured by fair value and whose variation is accounted for current debts include transaction financial debts and financial debts measured by fair value and whose variation is accounted for current gains or losses. B. Other financial debts. Relevant transaction expenses of financial debts which are measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses directly；Relevant transaction expenses of other kinds of financial debts shall be accounted for initial confirmation amount. Consequent measurement of financial debts shall be handled according to following principle： A. Financial debts measured by fair value and whose variation is accounted for current gains or losses shall be measured by fair value. B. Equity instrument which has no active market or no quotation in active market and whose fair value can not be measured and derivative financial debts which link to equity instruments and shall be settled by delivery of equity instruments shall be measured by cost. Financial debts measured by fair value and whose variation is accounted for current debts shall be accounted for current gains or losses. Difference of book value of confirmation termination and paid consideration during 48 complete or partial confirmation termination of financial debts shall be accounted for current gains or losses. 8, Accounting method of stock in trade Stock in trade shall be divided into raw material, products in the process, commodity stocks, low-value consumption goods, etc. Procurement and warehousing of every kind of stocks in trade shall be valuated according to actual cost. Cost of holding inventory includes procurement cost, processing cost and other expenses which belong to cost of holding inventory and disbursement which meets capitalization conditions of borrowing costs. Stock quantity shall be determined by perpetual inventory system. It shall be valuated by weighed average method when the stock quantity is issuing. Low-value consumption goods shall adopt one-off amortization method. Prepare for inventory falling price reserves of goods at the end of period whose costs are unexpected to recover for damaged stocks, completely or partially worn stocks or those whose sale prices are less than costs on basis of wall-to-wall inventory of stock-in-trade. Define inventory falling price reserves according to difference of cost of single stock item and net realizable value and it shall be accounted for current gains or losses. 9, Translation method of long-term investment on stocks Long-term dividend investment reflects that of subsidiary company, consortium and joint venture held by the company. In the meanwhile, it includes equity investment of invested unit without control, common control or important influence, quotation in active market and measurement of fair value. The company will calculate long-term dividend investment caused by enterprise combination and that except for enterprise combination. Calculation is divided into four phases including initial cost confirmation, consequent measurement, income and settlement. Confirmation of initial investment cost： （1）Initial investment cost of long-term dividend investment of the company caused by enterprise combination form is determined according to following methods： A. Long-term dividend investment caused by enterprise combination under the same control ① Unify accounting policy and accounting period of combined party first under premise to adhere to significance principle. ② Obtained share of book value of owners equity of combined party on combination date shall be thought as initial investment cost of long-term dividend investment when the company adopts methods of payment in cash, conversion of non-cash capital or obligation incurred as combined consideration. Adjust capital reserves--stock premium of the company according to difference of initial investment cost and paid cash, transferred non-cash capital and book value of undertaken debts；Adjust reinvested earnings when amount of stock premium is insufficient. ③ The company will use equity securities as combined consideration. Aggregate nominal amount of shares shall be used as capital stock. Adjust capital reserves--stock premium according to difference of initial investment cost of long-term dividend 49 investment and aggregate nominal amount of shares；Adjust reinvested earnings when amount of stock premium is insufficient. ④ Every direct relevant expense during combination, including auditing expense paid for enterprise combination, evaluation expense, legal service expense and so on shall be accounted for current gains or losses during occurrence. ⑤ Securities issued for enterprise combination or commission charges, brokerage expenses and so on paid for other debts shall be accounted for issued securities and initial measurement amount of other debts. ⑥ Commission charges, brokerage expenses and so on caused by issuing of equity securities during enterprise combination shall offset gain on disposal of assets. Offset capital reserves, surplus reserves, undistributed profit sequentially if gain on disposal of assets is insufficient. B. Long-term dividend investment caused by enterprise combination under different control ① Combination cost of one-off enterprise combinations of capital, occurred or undertaken debts paid for control rights of purchased party on procurement date of the company and fair value of issued equity securities. Difference of fair value and book value shall be accounted for current gains or losses. ② Combination cost of enterprise combinations by multiple transactions and step-by-step dividend obtainment is sum of every transaction cost. ③ Every direct relevant expense of the company during enterprise combination shall be accounted for enterprise combination cost. ④ If expected future items may occur on procurement date and the influence amount of combination cost can be measured under promise of future items that may influence combination cost in combination contract or agreement, it shall be accounted for combination cost. ⑤ The company will confirm difference of procurement cost and fair value of recognizable capital of combined party obtained in combination as commercial goodwill；Commercial goodwill after initial confirmation shall be measured by difference of cost and aggregate depreciation. Difference of procurement cost and fair value of recognizable net capital of combined party obtained in combination shall be accounted for current gains or losses. Fair value of recognizable net capital of combined party refers to difference of fair value of recognizable capital of combined party obtained in combination and debts or fair value with debts. The company will confirm every item of recognizable capital, debt of combined party which meets following conditions individually： ① The company will confirm individually and measure according to fair value if economical interests of other assets (not limited to original assets confirmed by combined party) besides intangible assets of combined party during combination may flow into the company with reliable measurement. Intangible assets obtained in combination and whose fair value can be reliably measured can be confirmed as intangible assets and measured according to fair value. ② Other debts whose implementation of relevant obligations may lead economical 50 interests flow out of the company with reliable measurement of fair value besides existing debts obtained by combined party during combination shall be confirmed individually and measured according to fair value. If combined party may have debts obtained in combination with reliable measurement of fair value, it shall be confirmed individually and measured according to fair value. (2) Long-term dividend investment obtained out of enterprise combination shall enter in an account during obtainment according to initial investment cost. Initial investment method shall be defined according to following methods： A. Long-term dividend investment purchased in cash shall be used as initial investment cost according to total price of actual payment (including relevant expenses such as paid taxation, commission charges). B. Long-term dividend investment obtained by issuing equity securities shall be used as initial investment cost according to fair value of issuing of equity securities. C. Long-term dividend investment paid by investor shall be used as initial investment cost according to value stipulated by investment contract or agreement except unfair value stipulated by contract or agreement. D. Long-term dividend investment obtained by debtor by way of payment of debts of non-cash capital or that converted by receivable creditor's rights shall be used as initial investment cost according to fair value and receivable relevant expenses of taxation. E. If transaction of conversion from non-cash trade to long-term dividend investment has commercial essence, converted long-term dividend investment shall be used as initial investment cost according to fair value and receivable relevant expenses of taxation；If the transaction has no commercial essence, sum of book value caused by capital conversion by invested long-term dividend investment and receivable relevant expenses of taxation shall be used as initial investment cost. Price of actual payment includes announced but not drawn cash dividend. Difference of price of actual payment and announced but not drawn cash dividend shall be used as initial investment cost. Consequent measurement of long-term dividend investment Consequent measurement of long-term dividend investment of the company shall be calculated by cost method and equity method. The company's investment to subsidiary company and long-term dividend investment which has no common control or significant influence to invested unit, quotation in active market and reliable measurement of fair value shall be calculated by cost method. Adjust cost of long-term dividend investment calculated by cost method during super addition or recovery of investment. The company will calculate joint venture which has common control to invested unit and consortium which has significant influence to invested unit by equity method. Confirmation method of long-term dividend investment gains Confirm gains of enterprises which are calculated by cost method when invested unit declares to issue cash dividend but the investment income is limited to obtained quota of aggregate net profit of invested unit after receiving investment. If obtained cash dividend declared by invested unit exceeds above amount, the surplus shall be used as offset of initial investment cost to offset book valve of investment. 51 As for enterprises which are calculated by equity method, net gains or losses after receiving stock rights of invested unit shall be thought as the foundation. It is required to confirm investment gains and adjust book value of long-term dividend investment at the end of every accounting period according to net profit or share of net loss of invested unit that the company shall share or undertake. The company shall decrease book value of long-term dividend investment correspondingly according to calculated profit or cash dividend declared by invested unit. Disposal of long-term dividend investment Difference of book value of investment and actually obtained price during disposal of equity investment shall be used as current investment gains. 10, Investment real estate 1) Definition of investment real estate Investment real estate of the company refers to real estate whose purpose includes rental-earning, capital appreciation or both. 2) Scope of investment real estate Investment real estate of the company includes leased building. 3) Investment real estate of the company shall be measured by cost mode. Measure, calculate and deduct depreciation charge or amortize investment real estate under cost mode according to regulations of "Accounting Standard for Business Enterprises No. 4-Fixed assets" and "Accounting Standard for Business Enterprises No. 6- Intangible assets"；Handle depreciation according to regulations of "Accounting Standard for Business Enterprises No. 8-Impairment of assets". 11. Valuation and depreciation methods of fixed assets Fixed assets refer to the tangible assets held for commodity production, labor service, lease, operation or management and with a use term of over 1 fiscal year. The related economic interest to the fixed assets is likely to flow into the company and the cost of it can be measured reliably. 1). Fixed assets of the company shall be initially measured according to the cost. The fixed assets include purchasing price, related taxes, and other expenditures that could be directly included in this assets and is used before making fixed assets in the usable condition, such as transportation fees, loading and unloading fees, service charge of career men, estimated discarding expense and etc. As to the fixed assets which are bought at a total price, according to the fair value proportion of every fixed asset, we distribute the total cost and fix their cost. The cost of the self-built fixed asset is composed of the expenses needed in constructing before the expected applicable state. The loan cost expenditure which accords with the capitalization requirements is recorded in fixed asset cost. As to the fixed asset of which deferred payment is made under the abnormal credit condition, the fixed asset cost is measured on the basis of the present value of the purchasing price. The margin between the actual price and the present value of purchasing price, except the part which is capitalized according to China Accounting Standard No.17—loan cost, shall be recorded in current profit and losses. 52 2). If the follow-up expenditures related to fixed assets are proved to make economic interests which are going to flow to the enterprise and the cost can be measured reliably, then it should be capitalized. 3). At least, the service life, the estimated residual value and the depreciation method of the fixed asset should be checked at the end of the year, and discover: if the expected service life is discrepant to the initial, adjust the service life of the fixed asset, if the estimated residual value is discrepant to the initial, adjust it, and if the expected achieving method of the economic interest related to the fixed asset is changed greatly, the depreciation method of the fixed asset should be changed. 4). The changes to the service life, estimated residual value and the depreciation method of the fixed asset should be dealt as accounting estimate change. 5). The depreciation of fixed assets adopts the straight-line method to set the average, and according to the original value of various fixed assets and the expected service life of fixed assets minus residual value ratio (10% of the original) to set the depreciation rate, the year assorted depreciation rate as follows: sort of the asset service life year depreciation ratio houses and 20 years 4.5% buildings machinery and 10 years 9% equipment office equipment 5 years 18% electronic 5 years 18% equipment means of transportation 5 years 18% other equipment 5 years 18% 6). If the following occur, on the date of balance sheet, the fixed asset should be measured according to the lesser one between the book value and the recoverable amount, and withdraw preparation of fixed asset measurement to the margin when the recoverable amount is less than the book value: A. It is proved that the asset is outdated or its entity is ruined, B. The asset has been or will be left unused, ended to use, or planed to be dealt with in advance, C. The enterprise interior report shows that the economic performance of the asset is or will be less than expected, D. Other evidence shows that the asset may have been under devaluating. After the recognition to the loss of asset devaluation, adjust the depreciation expense with asset devaluation to depreciate the asset after deducting the asset devaluation in the rest service life of the asset. 7). It shouldn’t be conversed in the future accounting period after the recognition of the asset devaluation loss. 12. Measurement method of construction in progress The construction in progress is recorded in book according to the actual expenditure of each construction. When the built asset is in the expected applicable state, transfer to the fixed assets according to the final accounts of the construction, construction budget, 53 cost or the actual cost measurement of the construction. Before the fixed assets achieve the expected applicable state, the loan cost which accords with the capitalization requirements and foreign currency conversion margin should be recorded in construction cost, and after that they should be recorded in current financial expense. On the date of balance sheet, for the construction in progress which is proved to have been devaluated or stopped construction and estimated that it will not be reconstructed within three years, the recoverable value should be estimated, and withdraw devaluation preparation according to the margin when the recoverable amount is less than the book value. 13. Measurement method to loan cost Loan costs refer to the interest, amortization of overate or discount price （including commission charge and so on）and difference of currency exchange caused by borrowing. 1). Capitalization requirements, if the following three requirements are all achieved, the loan cost before the fixed asset constructed achieving the expected applicable state should be capitalized. (1) The capital expenditure has been materialized (2) The loan cost has been materialized (3) The needed purchasing and construction activities for making the asset achieve the expected applicable state have already started 2) Recognition to the capitalization amount (1) The special loan borrowed for constructing or producing asset which accords with the capitalization requirements is recognized with the actually materialized interest expense of the special loan minus the interest income of the unused loan deposited in bank or the investing profit from application to the temporary investment. (2) For the general loan used to construct or produce asset which accords with the capitalization requirements, the company calculate the interest amount which should be capitalized of the general loan by multiplying the weighted average of the asset expenditure which is the exceeded part of the accumulated asset expenditure comparing with the special loan to the capital ratio of the general loan used. The capital ratio is calculated according to the weighted interest rate of the general loan. (3) If the discount or premium occurred to the loan, confirm the amortization value of every accounting period and adjust the interest amount of every period according to the actual interest rate. (4) During the capitalization, the exchange margin of the principal and interest of the foreign currency special loan should be capitalized and recorded in the asset cost which accords with the capitalization requirement. (5) As to The auxiliary expense of the loan, if it is materialized before the constructed asset, accordant to the capitalization requirement, achieving the expected applicable state or salable sate, it should be capitalized while materializing according to the materialized amount and recorded in the asset cost accordant to the capitalization requirements. If it is materialized before the constructed asset, 54 accordant to the capitalization requirement, achieving the expected applicable state or salable sate, it should be recognized as expense while materializing according to the materialized amount and recorded in the current profit and losses. (6) Capitalization of loan costs will be stopped when abnormal suspension occurrs to assets accordant to capitalization period while purchasing or construction goes on continuously for 3 months. The loan cost during suspension will be determined as expenses and recorded in current profit and losses until the constructing activity of assets restarted. 14. Valuation and amortization method of intangible assets 1) For the intangible asset purchased or obtained through legal procedures, it should be recorded according to the actual price. For the accepted intangible asset as investment, it should be recorded to the contract or recognized measurement. For the intangible asset developed by ourselves, all the expenditures during researching should be recognized as expense and recorded in current profit and losses, and the expenditures during researching shall be capitalized if it accords with the following requirements: (1) It is technically feasible to finish the intangible asset to make it able to be used or sold (2) There is an intention to complete the intangible asset to use or sell (3) The intangible asset can bring about economic benefit (4) Having enough technical, financial and other resources to support to complete the development of the intangible asset and capable of using or selling it (5) The expenditure to the developing period of the intangible asset can be measured reliably 2) For the intangible asset of which the service life can be recognized, amortize with the straight-line method within its validity period. 3) For the intangible asset of which the service life can not be recognized, it will not be amortized within the holding period. 4) On the date of balance sheet, the intangible asset should be measured according to the lesser one between the book value and the recoverable amount, and withdraw devaluation preparation to the margin when the recoverable amount is less than the book value. Check the service life and amortization method of the intangible asset of which the service life is limited to ensure whether the service life and amortization method of the intangible asset should be changed or not. For the one need to be re-estimated, change the amortization time limit and method. After the recognition to the devaluation losses of the intangible asset, adjust the amortization expense of the devaluated intangible asset in the future, and amortize according to the book value after deducting the asset devaluation. It should not be conversed in the future accounting period after the recognition to the intangible asset devaluation. 15. The measurement method of long-term unamortized expenses 1) Organization costs: gather the organization costs in the long-term unamortized expenses when they occur, and recorded in the current profit and losses completely 55 in the first monthly when the company begins to operate. 2) Long-term unamortized expenses: evaluate according to the actual materialized amount, if there is definite beneficial period, amortize according to the beneficial period, and if there is no beneficial period, amortize averagely in five years. 3) Fitment cost: amortize according to the beneficial period and the shorter fixed number of year of two fitments, usually the amortization is less than 5years. 16. Recognition principle of anticipated liabilities If the duty related to the contingent items accords with all the following requirements, it should be recognized as liability: 1) The duty is the current duty of the company 2) The execution of the duty may cause outflow of economic interest from the company 3) The duty can be measured reliably 17. Revenue Recognition 1) The recognition principle and method of product selling income (1) The product selling income of the company shall be recognized when it meets all the following requirements: A. the main risk and reward of the product property have been transferred to the purchasers B. the company has not retained the continued management authority usually related to the property or control effectively the products sold. C. the income can be measured reliably D. the related economic interest is likely to flow into the company E. the related cost materialized or going to be materialized can be measured reliably (2) The company confirms the amount of product selling income according to the contract or negotiated price received or going to be received from the purchasers except the unfair contract or negotiated price received or going to be received. (3) The deferred method is applied to the collection of the contract or negotiated price, and the product selling amount is recognized according to the fair value of the receivable contract or negotiated price. The margin between the contract or negotiated price and their fair value should be amortized with the effective interest method during the period of contract or agreement and recorded in the current profit and losses. (4) If the contract or agreement signed by the company with others includes both products selling and rendering of service which can be distinguished and measured separately, product selling should be dealt with as product selling, and the rendering of service should be dealt with as rendering of service. (5) If the product selling and rendering of service cannot be distinguished or cannot be measured separately though distinguished, both of them should be dealt with as product selling. (6) If the product recognized as product selling income is returned back, counteract the current product selling income while occurring. 2) Rental income The rental date set in the contract or agreement signed by the company and the leaser 56 is taken as the beginning to confirm rental income, and the amount is amortized monthly to confirm the rental income. 3) The usufruct income of the released assets will be recognized only when it meets all the following requirements: the related economic interest is likely to flow into the company and the income can be valuated reliably. The usufruct income of the released assets is recognized according to the following operations: interest income, recognized according to the time and effective interest rate of the capital used by others, other charges income, recognized by the charging time and method of related contract and agreement. 4) Rendering of service: the construction started and finished in the same year, when the service has been provided, and the charge or the charge proof has been collected, the service income should be recognized, if the beginning and ending of the service belongs to different accounting year, and the result to the rendering of service can be valuated reliably, the related service income should be recognized according to the percentage of completion on the date of balance sheet. The detailed disposal is as follows: (1) If the result to the rendering of service can be valuated reliably on the date of balance sheet, the service income should be recognized according to the percentage of completion. The total income of rendering of service should be recognized according to the received or to be received contract or agreement price. (2) On the date of balance sheet, the current service income should be recognized by multiplying the total service income to the completion rate of progress and deducting the accumulated service income recognized in the former accounting period. At the same time, carry forward the current service cost by multiplying the estimated total service cost to the completion rate of progress and deducting the accumulated service cost recognized in the former accounting period. (3) If the result to the rendering of service cannot be valuated reliably on the date of balance sheet, deal separately according to the following conditions: for the materialized service cost which is estimated to be compensated, confirm the service cost according to the materialized service cost, and carry forward the service cost with the same value, for the materialized service cost which is estimated not to be compensated, record the materialized service cost in current profit and losses, and do not confirm the service income. 5) Property management income, when the property management service is provided, the related economic interest can flow into the company and the related cost can be measured reliably, the property management income should be recognized. 18. Measurement method to employees’ payment 1) Recognition and measurement to employee’s payment All kinds of payments to the employees for the service they provided should be measured as employees’ payment in the company. For measurement to the accrued wages, if the withdraw basis and withdraw proportion have been regulated by the nation, withdraw according to the national standard. If there is no definite withdraw basis and proportion, estimate the current accrued wages rationally according to the related payment system. If the current actual amount is 57 more than the estimated amount, compensate the accrued wages. If the current actual amount is less than the estimated amount, withdraw the exceeded accrued wages. As to the accrued wages of which the validity is over one year after the date of balance sheet with the service provided by employees, record the discount value of the accrued wages in the related asset cost or current profit and losses by taking the corresponding bank lending rate as discounting rate. For the non-currency welfare to which the beneficiary cannot be recognized, record it directly in the current profit and losses and accrued wages. 2) The dismissed welfare is recorded in the current management cost, and the accrued wages is recognized. For the planed dismissing, follow the dismissing planed item, estimate and confirm rationally the accrued wages result from dismissing welfare. The quantity of the employees planned to be dismissed according to the planning item and each of their dismissing compensation is withdrawn as accrued wages and recorded in accrued wages. For the case which the material dismissing is finished within a year and the payment time is over a year, record the discount value as the accrued wages by taking the corresponding bank lending rate as discounting rate. 3) Recognition and measurement to the retiring welfare If there is a retiring welfare system in the company, follow the standard of the system, record the discount value as the accrued wages in the current profit and losses by taking the corresponding bank lending rate as discounting rate. 19. Measurement method of liabilities restructuring 1) Measurement method of debt restructuring If the liabilities conditions are changed, take the fair value after the liabilities conditions are changed as the recorded value of the liabilities after restructuring. For the margin between the book value and the recorded value of the restructured liabilities, if the anticipated liabilities is involved, the margin between the recorded value of the liabilities after restructuring and the anticipated liabilities value should be recorded in current profit and losses. If the liabilities restructuring is carried out by combining the method of discharging with cash, discharging with non-cash assets, forwarding the liabilities to assets, changing other liabilities conditions, counteract the book value of the restructured liabilities and the margin between the book value and recorded value of the restructured liabilities with the cash paid, the fair value of the transferred non-cash asset and the fair value taking shares in turn. If the anticipated liabilities are involved, the margin between the recorded value of the liabilities after restructuring and the anticipated liabilities value should be recorded in current profit and losses. 2) Measurement method of credit restructuring If the credit of the company is discharged with cash, record the margin between the book balance of the restructured credit and the cash received in the current profit and losses. If the credit has been withdrawn devaluation preparation, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation 58 which is deficient in counteracting; record it in the current profit and losses. For the discharging with non-cash assets, record the fair value of the received non-cash assets in book, and record the margin between the book balance of the restructured credit and the fair value of the received non-cash asset in current profit and losses after deducting the withdrawn devaluation preparation. For the credit forwarded to assets, confirm the fair value taking shares as the investment to debtors. For the margin between the book balance of the restructured credit and the air value of the share, if the devaluation preparation to the credit has been already withdrawn, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation which is deficient in counteracting; record it in the current profit and losses. If the credit is discharged by combining the method of discharging with cash, discharging with non-cash assets, forwarding the liabilities to assets, changing other liabilities conditions, counteract the book balance of the restructured credit and the margin between the book balance and the fair value of the share with the cash paid, the fair value of the received non-cash asset and the fair value taking shares in turn. If the devaluation preparation to the credit has been already withdrawn, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation which is deficient in counteracting; record it in the current profit and losses. 20. Accounting method to income tax The balance sheet liability method is applied to the accounting of the income tax expense 1) On the date of balance sheet, according to the discrepancy between tax law and accounting, it should be divided to taxable temporary discrepancy and counteractable temporary discrepancy and recognized as deferred income tax asset and deferred income tax liabilities separately, and measured with anticipated taxable (or given back) income tax value according to the tax law. If the effective tax rate is changed, reevaluate the recognized deferred income tax asset and deferred income tax liabilities with the new tax rate, and record the influenced value in the income tax expense corresponding to the tax rate changes. Record the income tax caused by enterprise combination and the exchanges occurs directly in owner’s equity in current income. On the date of balance sheet, check the book value of the deferred income tax asset. If it is proved that in the future there may be no sufficient taxable income to counteract the deferred income tax asset, deduct the book value of the deferred income tax asset according to the discrepancy between them. 2) Recognition to the deferred income tax asset (1) The company recognizes the deferred income tax asset result from the counteractable temporary discrepancy in the limit of the taxable income which is likely to be obtained to counteract the counteractable temporary discrepancy. However, the deferred income tax asset which own the following features and result from the initial recognition to assets and liabilities in exchanging should not be recognized. A. the exchange is not enterprise combination 59 B. while exchanging, neither the accounting profit nor the taxable income is influenced (or the loss can be counteracted) (2) For the counteractable temporary discrepancy related to investment to subsidiary companies, affiliated companies and joint ventures, if it meets all the following requirements, the company recognizes the corresponding deferred income tax asset: A. the temporary discrepancy is likely to be conversed in the foreseeable feature B. the taxable income is likely to be obtained to counteract the temporary discrepancy in the future 3) Recognition to deferred income tax liabilities The company recognizes all the deferred income tax liabilities result from taxable temporary discrepancy except the deferred income tax liabilities result from the following conditions: (1) Initial recognition to goodwill (2) The initial recognition of asset or liability caused by exchanges owning all the following features: A. the exchange is not enterprise combination B. while exchanging, neither the accounting profit nor the taxable income is influenced (or the loss can be counteracted) (3) For the counteractable temporary discrepancy related to investment to subsidiary companies, affiliated companies and joint ventures, if it meets all the following requirements, the company recognizes the corresponding deferred income tax liabilities: A. the investing company has the ability to control the conversing time of the temporary discrepancy B. it is likely that the temporary discrepancy in the foreseeable will not be conversed 4) Measurement to income tax expenses The company records the current income tax and deferred income tax in the current profit and losses as income tax expenses income, except the income tax result from the following cases: (1) Enterprise combination (2) The exchanges or items directly recognized in the owner’s equity 21. Preparation method for consolidated accounting statements The principle to consolidate accounting statements: consolidate the accounting statements of the invested companies of which more than 50% of its voting capital are belong to parent company or the subsidiary companies to which parent company has the actual control power though no more than 50% of its voting capital are belongs to parent company. The method is to take the accounting statements of the parent company and the included subsidiary companies as basis, prepare according to other related data after adjusting the long-term investment on shares from the parent company to the subsidiary companies according to the equity law. While consolidating, counteracting the interior exchanges between the parent company and the subsidiary companies or 60 among the subsidiary companies such as important investment, exchange, stock, purchase and sell and unfulfilled profit, and calculate the minority shareholders’ equity. The parent company is to prepare the consolidated accounting statement. Shenzhen China Bicycle Company (Holdings) Limited Annotation 5: Accounting policies, accounting estimation changes, accounting error rectification and the influence of changes to the range of the consolidated accounting statement 1. Accounting policy changing: From Jan. 1st 2007, the Company began to execute the Accounting Standards for Business Enterprises issued by the ministry of finance in 2006, and prepare the beginning balance sheet in 2007 and the income statement in the same period of last year according to Accounting Standards for Business Enterprises No.38--First time adoption of Accounting Standards for Business Enterprises (hereafter referred as “new accounting standard” for short) and Question and Answer No.7 Regarding the Rules on Information Disclosure for Companies That Publicly Offer Securities—Compilation and Disclosure of Comparative Financial and Accounting Information During the Transition Period between the New and Old Accounting Standards. 1) Adjustment to the unrecognized investment loss According to the regulations of Accounting Standards for Business Enterprises No.33-Consolidated financial statement, abolishing the unrecognized investment loss in the balance sheet and profit statement causes reducing of RMB 69, 837,014.72 Yuan to the undistributed profit belongs to the parent company at the beginning. 2) Adjustment to the deferred income tax asset According to the new accounting standard, the Company has added the income tax influential value of RMB 9,849,555.22 result from the liability of RMB 65,663,701.43 exempted from the Pacification Agreement signed with International Financial Corporation on March 29th 2007 to the subsistence income on Jan. 1st 2007. The adjustments all belong to the increased value of the equity of parent company. 3）Adjustment in consolidation scope Because it had stopped operation before 2006, with losses made in every year and the net profit being negative, China Internatioanl had not been considered into consolidation according to the old Accounting Standard. While according to the new Accounting Standard, the Company will consolidate China International and make retroactive adjustment on the amount of period-begin, decreasing retained income of Jan 1st of 2007 with RMB 924,020.14. 2. Revision to accounting errors During the liquidation of current account of the Company, it is found that the income RMB 7,229,274.45 Yuan of the previous year has not been counted. Related accounting error has been made and it is restated as follows: (1) It is verified that after collection the debit balance of the subsidiaries with charge 61 account and distributors with long account in the “account receivable-account receivable in 2005” of the controlled subsidiary Shenzhen Emmelle Industry Co., Ltd. is RMB 4,736,994.02 Yuan (including total debit balance RMB 3,545,347.30 Yuan and total credit balance RMB 8,282,341.32 Yuan). The balance is caused by the undercounted income of the Company resulting from sales income from buyout of inventory disposal and normal sales return after products buyout collected by Shenzhen Emmelle Industry Co., Ltd. on behalf of the Company before 2005, and detail account error during accounting treatment. Now the accounting error is restated and adjusted as follows, and the comparative financial statement of 2006 is adjusted: Add RMB 4,736,994.02 Yuan to account receivable-Shenzhen Emmelle Industry Co., Ltd., at the same time, add RMB 4,041,830.03 Yuan to undistributed profit at the beginning of the year, and add RMB 695,163.99 Yuan to tax payable. Shenzhen Emmelle Industry Co., Ltd. adds RMB 4,736,994.02 Yuan to “account receivable-account receivable in 2005”, and correspondingly subtracts RMB 4,736,994.02 Yuan from account receivable- Shenzhen China Bicycle Company (Holdings) Limited. (2) After Verifying the balance RMB 3,356,971.48 Yuan on the “expense in advance” account of the controlled subsidiary Shenzhen Emmelle Industry Co., Ltd., it is discovered that the balance is brand using charge which was not withdrawn by the Company in the previous years, including RMB 588,264.10 Yuan for 2003 and RMB 2,768,707.38 Yuan for 2004. The accounting error is restated and adjusted as follows, and the comparative financial statement of 2006 is adjusted: Add RMB 3,356,971.48 Yuan to other account receivable-Shenzhen Emmelle Industry Co., Ltd., at the same time, add RMB 3,187,444.42 Yuan to undistributed profit at the beginning of the year, and add RMB 169,527.06 Yuan to tax payable. Shenzhen Emmelle Industry Co., Ltd. adds RMB 3,356,971.48 元 Yuan to other account payable-Shenzhen China Bicycle Company (Holdings) Limited, and correspondingly reduces the expense in advance. 3. Changes to the range of consolidation China Bicycle (International) Co. Ltd. ）（ hereafter referred to as simply "China International"） is a company registered in J Hong Kong on August 7th , 2000 by two natural persons. According to the backup information for registration on March 4th, 2003, the company has been assigned the 19998 Hong Kong dollar shares of the 20000 Hong Kong dollars shares in total issued by China International. However, the finance and operation of China International is controlled by original shareholders. Therefore, the company has not put the China International into merger for the years before 2006. On December 27th, 2006, China International reelected the members of Board and three directors in total are appointed. One natural person resigned the position of director and Yeqing, Lihai, two senior management of the company were elected as new directors. On January 4th, 2007 the original shareholders transferred the shares they held, 1 Hong Kong dollar shares to China Bicycle（Hong Kong）, Co., Ltd, the subsidiary of China International. On March 19th, 2007, China International modify the directors accreditation of deposit account in Hong Kong and Shanghai 62 Corporation, which is the only valid assets of the company to the two news directors of the company. They can control the account by their signature. One of the appointed drawee is changed to Yeqing. Since the date, the Company acquired the working control to China International on both finance and Operation. Therefore, the Company has put it into the consolidated financial statement. Currently, China International is in the closed out state. As of the December 31st, 2007, the total assets are 32,781.14 RMB with net assets of - 856,842.38 RMB a retained profits of - 13,160.48 RMB. Annotation 6: Tax The main taxes adopted by the Company include: VAT, business tax, city construction and maintenance tax, extra charges for education and enterprise income tax, etc. The respective tax rate of the turnover tax is: 17% for VAT, 5% for business tax, 1% for the city construction and maintenance tax, 3% for the extra charges for education. The tax rate of enterprise income tax is 15%. Annotation 7: Controlled subsidiaries and associated enterprises 1. Controlled subsidiaries Name of controlled Registered Business scope Investment Shareholdin Consolida subsidiaries capital amount g ted or not proportion China Bicycle (Hong Kong) HK$5000, Distribution of 5,350,000.00 99% Yes Co., Ltd. 000 bicycle and parts Shenzhen Anjule Property ￥2000,00 Self-owned property 2,000,000.00 100% Yes Management Co., Ltd. 0 management Shenzhen Emmelle ￥2000,00 Distribution of 1,400,000.00 70% Yes Industry Co., Ltd. 0 bicycle and parts China Bicycle HK$20,00 20,000.00 100% Yes (International) Co., Ltd. 0 China Bicycle (Ha’erbing) ￥1,200,00 Distribution of 720,000.00 60% No (1) Co., Ltd. 0 bicycle and parts China Bicycle (Shangxi) ￥1,720,00 Distribution of 1,204,000.00 70% No Co., Ltd. 0 bicycle and parts China Bicycle (Gansu) Co., Distribution of ￥600,000 480,000.00 80% No Ltd. bicycle and parts Real estate Jiujiang Huatian Real US$14000 developing and 3,621,631.00 100% No Estate Co., Ltd 00 operation Real estate Hangzhou Zhongjiang ￥32,800,0 developing and 5,045,700.00 51% No Industry Co., Ltd 00 operation Shenzhen Huajiaming National commerce ￥2,000,00 Industry and Trading and commodity 1,960,000.00 98% No developing Co. Ltd 0 distributor China Bicycle (Jiangxi) ￥2,000,00 Distribution of 551,668.30 55% No Co., Ltd. 0 bicycle and parts China Bicycle (Guangzhou) ￥2,000,00 Distribution of 2,000,000.00 100% No Co., Ltd. 0 bicycle and parts 63 Name of controlled Registered Business scope Investment Shareholdin Consolida subsidiaries capital amount g ted or not proportion China Bicycle (Hainan) ￥2,000,00 Distribution of 350,000.00 70% No Co., Ltd. 0 bicycle and parts Real estate Jiangxi Hongji Real Estate HK$20,00 developing and 4,716,670.00 51% No Co., Ltd 0 operation Distribution of Zoria Pte Ltd SD100,000 497,000.00 100% No bicycle and parts According to requirements of new financial codes, the Company made liquidation and checking for the 11 zero-book-value and unconsolidated subsidiaries like China Bicycle (Ha’erbing) Co., Ltd, China Bicycle (Shangxi) Co., Ltd, China Bicycle (Gansu) Co., Ltd, Jiujiang Huatian Real Estate Co., Ltd, Hangzhou Zhongjiang Industry Co., Ltd, Shenzhen Huajiaming Industry and Trading developing Co. Ltd, China Bicycle (Jiangxi) Co., Ltd, China Bicycle (Guangzhou) Co., Ltd, China Bicycle (Hainan) Co., Ltd, Jiangxi Hongji Real Estate Co., Ltd and Zoria Pte Ltd. 2. Associated enterprises Name of associated enterprises Registered Business scope Investment Share capital amount proportio n Manufacture of automobile Hunan KYMCO Motorcycle Co., US$29500 and motorcycle parts and so 5,679,300.00 5.5% Ltd. ,000 on ￥130000, Commercial industry and Jiangxi Lihua Industry Co., Ltd. 35,315,474.40 39.83% 000 service industry Manufacture of bicycle, Shenzhen Golden Ring Printing US$3700, automobile and motorcycle 14,883,560.00 38% Co., Ltd. 000 parts and so on Development of computer software and hardware; machining, assembly, Chengdu Emmelle Technology ￥600,000 distribution and technical 180,000.00 30% Co., Ltd. consultation of electric bicycle and other legal program Annotation 8: Notes to the main items presented in the financial statements (unless otherwise specified, the data below is after consolidation) 1. Monetary fund 2007/12/31 2007/1/1 Original Converted to Original Converted to Item Currency currency RMB currency RMB Cash RMB 131,454.91 131,454.91 72,240.22 72,240.22 Hong Kong dollar 1.25 9.13 68,394.27 68,715.72 US dollar 1,894.27 1,773.76 34.25 267.45 Subtotal 133,237.80 141,223.39 Bank deposit RMB 13,555,013.78 13,555,013.78 15,412,300.31 15,412,300.31 Hong Kong dollar 53,044.89 347,619.39 20,265.84 21,216.84 US dollar 13,107.84 12,273.92 48,808.73 405,112.85 64 Subtotal 13,914,907.09 15,838,630.00 Other monetary fund RMB - - - - Subtotal 14,048,144.89 15,979,853.39 2. Note receivable Note type 2007/12/31 2007/1/1 Bank acceptance 1,673,960.00 - Total 1,673,960.00 - List as follows based on clients: Name of client Face amount Reason Expiry date Shijiazhuang Dasong 100,000.00 Sale 2008.6.13 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 65,696.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Jinan Yusign Sales Co., Ltd 100,000.00 Sale 2008.6.24 Zhengzhou Daming Technology and Trade Co., Ltd. 18,232.00 Sale 2008.6.12 Zhengzhou Daming Technology and Trade Co., Ltd. 97,997.00 Sale 2008.6.12 Zhengzhou Daming Technology and Trade Co., Ltd. 45,740.00 Sale 2008.6.12 Zhengzhou Daming Technology and Trade Co., Ltd. 13,320.00 Sale 2008.6.20 Zhengzhou Daming Technology and Trade Co., Ltd. 24,750.00 Sale 2008.6.20 Zhengzhou Daming Technology and Trade Co., Ltd. 22,430.00 Sale 2008.6.20 Zhengzhou Daming Technology and Trade Co., Ltd. 53,200.00 Sale 2008.6.20 Zhengzhou Daming Technology and Trade Co., Ltd. 25,520.00 Sale 2008.6.20 Zhengzhou Daming Technology and Trade Co., Ltd. 46,112.70 Sale 2008.6.25 Zhengzhou Daming Technology and Trade Co., Ltd. 16,923.80 Sale 2008.6.25 Zhengzhou Daming Technology and Trade Co., Ltd. 85,738.50 Sale 2008.6.25 Zhengzhou Daming Technology and Trade Co., Ltd. 113,950.00 Sale 2008.6.25 Zhengzhou Daming Technology and Trade Co., Ltd. 114,350.00 Sale 2008.6.25 After-sale service Department of Xi’an Fuxing Electric Bicycle 130,000.00 Sale 2008.6.24 Total 1,673,960.00 3. Account receivable Age of the 2007/12/31 65 account Amount Proportion Bad debt reserve Net amount Within one year 251,184.98 0.02% 95.85 251,089.13 1-2 years 24.00 0.00% - 24.00 2-3 years 104,844.07 0.01% 17,560.08 87,283.99 Over 3 years 1,040,796,109.98 99.97% 1,040,652,456.59 143,653.39 Total 1,041,152,163.03 100.00% 1,040,670,112.52 482,050.51 Age of the 2007/1/1 account Amount Proportion Bad debt reserve Net amount Within one year 3,333,512.93 0.32% 1,274.31 3,332,238.62 1-2 years 2,497,751.35 0.24% 1,606.96 2,496,144.39 2-3 years 139,094.32 0.01% 19,505.33 119,588.99 Over 3 years 1,046,498,403.09 99.43% 1,041,761,409.07 4,736,994.02 Total 1,052,468,761.69 100.00% 1,041,783,795.67 10,684,966.02 (1) Risk analysis for the account receivable at the end of the period 2007/12/31 Age of the account Amount Proportio Bad debt reserve Net amount n Account receivable with single big amount 908,571,410.20 87.27% 908,571,410.20 - Account receivable with no single big amount but with big risk after combined according to the characteristics of credit risk 132,224,699.78 12.70% 132,081,046.39 143,653.39 Other accounts receivable without single big amount 356,053.05 0.03% 17,655.93 338,397.12 Total 1,041,152,163.0 1,040,670,112.5 3 100.00% 2 482,050.51 The standard for account receivable with single big amount of the Company is set as RMB 5 million Yuan according to the business scale and business nature of the Company and settlement condition of clients. (2) The balance at the end of the period does not include the account receivable of shareholders holding 5% (5% included) or above shares with voting rights of the Company. (3) Total amount of the top five in the balance at the end of the period is RMB 683,071,013.01 Yuan, accounting for 65.53% of the total amount of account receivable. (4) The main details of the bad debt reserve with big proportion （100% withdrawn） withdrawn accumulatively at the end of the current period for account receivable are as follows: Amount of With bad debt draw Age of reserve Reason for Debtor Amount prop the withdrawn withdraw \ ortio account accumulative n ly Diamond Back Long age 350,183,397. 100 350,183,397. Over 3 (Hong Kong) Co. of the 14 % 14 years Ltd. account/the 66 debtor is in bad condition Long age of the Zhigao Resources 140,887,132. 100 140,887,132. Over 3 account/the International Co., 85 % 85 years debtor is in Ltd. bad condition Long age of the 97,930,571.1 100 97,930,571.1 Over 3 account/the STARWAY 6 % 6 years debtor is in bad condition Long age Shenzhen Jinfeng of the Industrial 52,406,319.6 100 52,406,319.6 Over 3 account/the Development 9 % 9 years debtor is in Company bad condition Long age of the 41,663,592.1 100 41,663,592.1 Over 3 account/the AUGUSTA 7 % 7 years debtor is in bad condition Long age Shenzhen Suangli of the Industrial 39,225,011.2 100 39,225,011.2 Over 3 account/the Development 9 % 9 years debtor is in Company bad condition Long age of the 37,162,850.0 100 37,162,850.0 Over 3 account/the PROFITPROOF 0 % 0 years debtor is in bad condition Long age Shenzhen of the Qianfeng 36,094,697.9 100 36,094,697.9 Over 3 account/the Investment Co., 8 % 8 years debtor is in Ltd. bad condition Long age Shenzhen of the Jiatianli 29,276,556.2 100 29,276,556.2 Over 3 account/the Industrial 9 % 9 years debtor is in Development bad Co., Ltd. condition Long age of the 24,074,959.6 100 24,074,959.6 Over 3 account/the KOMIX 6 % 6 years debtor is in bad condition 67 848,905,088. 848,905,088. Subtotal 23 23 (5) The net amount at the end of the period is less than that at the beginning of the period for RMB 5,605,961.16 Yuan, which is mainly caused by arrearage collection. 4. Account prepaid Structure of age of the 2007/12/31 2007/1/1 account Amount Proportion Amount Proportion Within 1 year (1 year 1,187,093.48 91.02% 765,414.80 31.81% included) 1 year to 2 years (2 - - 1,641,102.08 68.19% years included) 2 years to 3 years (3 117,100.00 8.98% - - years included) Over 3 years - - - - Total 1,304,193.48 100.00% 2,406,516.88 100.00% (1) The balance at the end of the period does not include the account prepaid to shareholders holding 5% (5% included) or above shares with voting rights of the Company. (2) The balance at the end of the period is less than that at the beginning of the period for RMB 1,102,323.40 Yuan, which is mainly caused by reclassification adjustment. 5. Other account receivable Age of the 2007/12/31 account Amount Proportion Bad debt reserve Net amount Within one year 9,436,385.37 1.71% 12,276.37 9,424,109.00 1-2 years 1,594,976.28 0.29% 4,705.53 1,590,270.75 2-3 years 9,225,788.74 1.67% 27,677.37 9,198,111.37 Over 3 years 531,647,245.61 96.33% 531,085,217.16 562,028.45 Total 551,904,396.00 100.00% 531,129,876.43 20,774,519.57 2007/1/1 Age of the account Amount Proportion Bad debt reserve Net amount Within one year 7,289,777.92 1.32% 4,756.59 7,285,021.33 1-2 years 1,896,853.52 0.34% 393,491.59 1,503,361.93 2-3 years 5,039,237.20 0.92% 13,604.43 5,025,632.77 Over 3 years 536,233,476.45 97.42% 536,233,476.45 - Total 550,459,345.09 100.00% 536,645,329.06 13,814,016.03 (1) Risk analysis for account receivable at the end of the period: 2007/12/31 Ago of the account Proportio Amount n Bad debt reserve Net amount Account receivable with 470,805,148.5 85.17% 462,011,209.76 8,793,938.80 single big amount 6 68 Account receivable without single big amount but with big risk after combined 69,074,007.40 12.50% 69,074,007.40 - according to the characteristics of credit risk Other accounts receivable without single big amount 12,025,240.04 2.18% 44,659.27 11,980,580.77 Total 551,904,396.0 531,129,876.4 0 100.01% 3 20,774,519.57 The standard for account receivable with single big amount of the Company is set as RMB 5 million Yuan according to the business scale and business nature of the Company and settlement condition of clients. (2) Total amount of the top five in the balance at the end of the period is RMB 357,711,532.44 Yuan, accounting for 64.71% of the total amount of other account receivable. (3) The main details of the bad debt reserve with big proportion （100% withdrawn） withdrawn accumulatively at the end of the current period for other account receivable are as follows: Amount of bad Age of Withdraw debt reserve Reason for Debtor Amount the proportion withdrawn withdraw \ account accumulatively Long age of the Over 3 account/the STARWAY 220,038,935.10 100% 220,038,935.10 years debtor is in bad condition Long age China of the Composite Over 3 account/the Material 60,541,700.96 100% 60,541,700.96 years debtor is in (Shenzhen) Co., bad Ltd. condition Long age of the Over 3 account/the MORE-LARGE 30,059,193.03 100% 30,059,193.03 years debtor is in bad condition Shenzhen Long age Huajiaming of the Industrial Over 3 account/the 26,541,041.11 100% 26,541,041.11 Trading years debtor is in Development bad Co., Ltd. condition Long age of the Over 3 ZORIA 20,530,662.24 100% 20,530,662.24 account/the years debtor is in bad 69 condition Total 357,711,532.44 357,711,532.44 (4) The balance at the end of the period is more than that at the beginning of the period for RMB 6,960,503.54 Yuan, which is mainly caused by reclassification adjustment. 6. Inventory and inventory devalue provision (1) The changes to inventory are listed as follows: Type 2007/1/1 Increase of the Decrease of the 2007/12/31 current period current period Raw material 255,751,614.77 9,051,951.63 15,593,389.55 249,215,915.55 Low-value 2,060,544.83 16,133.92 100,871.32 1,470,068.73 consumables Self-manufactured 4,492,881.54 23,704,995.67 23,075,102.10 5,622,775.11 half-finished products Goods in stock 29,539,647.61 236,393,466.92 226,702,266.08 39,069,218.53 Total 291,844,688.75 269,166,548.14 265,471,629.05 295,377,977.92 (2) Changes to inventory devalue provision are listed as follows: Type Decrease of the current Increase of period 2007/1/1 the current 2007/12/31 Turn Write-off period back Raw material 229,667,161.87 - - - 229,667,161.87 Low-value 1,793,131.95 - - 477,712.22 1,315,419.73 consumables Self-manufactured - 2,611,095.99 - - 2,611,095.99 half-finished products Finished products 16,674,745.11 5,718,341.94 - 1,725,582.23 20,667,504.82 Total 248,135,038.93 8,329,437.93 - 2,203,294.45 254,261,182.41 The assured basis for the inventory above to be converted into present net value is: the raw material is converted according to the average unit price of the latest purchase; the material which is out of expiration period, outdated, or unsuitable for transformation and awaiting scrap is converted according to the recoverable amount; finished products is converted according to the unit price of the latest sale minus the direct expense and tax that may be necessary for conversion. 7: Long-term equity investment (1) The long-term equity investment is listed as follows: Item Amount at the Increase of Decrease of the Amount at the beginning of the the current current end of the period period* period** period Long-term equity 180,000.00 24,115,524.40 investment 70,221,674.48 46,286,150.08 Minus: devalue --- provision 41,658,577.98 22,778,911.41 18,879,666.57 Net amount of long-term 180,000.00 1,336,612.99 equity investment 28,563,096.50 27,406,483.51 * Increase of the current period is the investment to Chengdu Emmelle Technology Co., Ltd made by the controlled subsidiary Shenzhen Emmelle Industry Co., Ltd. Refer to 70 the Explanation to Annotation 7. **Decrease of the current period, among which the RMB 1,336,612.99 Yuan is the investments to Jiangxi Lihua Industry Co., Ltd made by the Company and to Chengdu Emmelle Technology Co., Ltd made by the controlled subsidiary Shenzhen Emmelle Industry Co., Ltd. based on equity rights adjustment. Others （including devalue provision） are the investments to related companies written off after verification through the resolution 5th meeting of the 7th board of directors on April, 25, 2008. (2) Long-term equity investment a. Other equity investment calculated through cost method Proportion in the Amount at Increase Decrease Investm registered Initial Amount at Name of company the of the of the ent time capital of investment the end of invested beginning of current current limit the cost the period the period period period company invested Shenzhen Xinlian 50,000.00 50,000.00 --- Consultation Co., Ltd. 50,000.00 Hunan Guangnan 5,679,300.0 50 years 5.5% 5,679,300.00 5,679,300.00 --- 0 Motorcycle Co., Ltd. 0 Shenzhen Junbao 3,535,000 50 years 12.5% 3,535,000.00 3,535,000.00 --- 0 Industry Co., Ltd. .00 3,585,000 5,679,300.0 Subtotal 9,264,300.00 9,264,300.00 --- .00 0 b. Other equity investment calculated through equity method Proportion Other in the Amount at Equity Invest increase/ Name of registered Initial the adjustment Accumulativ Amount at ment decrease company capital of investment beginning during the e equity the end of time of the invested the cost of the current adjustment the period limit current company period period period invested Shenzhen Danxia ( 941,600.00 20% 941,600.00 --- --- --- --- Bicycle Parts ) Co., Ltd. Jiangsu Huaiyin Huayu 30 6,138,559.0 (6,138,559.0 25% --- --- --- --- Bicycle Parts years 0 0) Manufacturer Co., Ltd. Shantou S.E.Z. 20 5,425,150.3 4,285,165. -4,285,16 (1,139,985.2 Dapeng 30% --- years 0 03 5.03 7) Industry Co., Ltd. Shenzhen Canghai 10 30% 178,000.00 --- --- 0 (178,000.00) --- Industry years Co., Ltd. 71 Proportion Other in the Amount at Equity Invest increase/ Name of registered Initial the adjustment Accumulativ Amount at ment decrease company capital of investment beginning during the e equity the end of time of the invested the cost of the current adjustment the period limit current company period period period invested Yangzhou Xinghua 30 1,821,606.0 1,359,361. -1,359,36 Bicycle 30% --- (462,244.75) years 0 25 1.25 Material Co., Ltd. Jiangxi Lihua 30 35,314,474. 26,879,90 -1,156,612 (9,036,836.8 25,723,290. Industry Co., 39.83% 0 years 40 3.07 .99 1) 08 Ltd. Shenzhen Golden Ring 20 14,883,560. 14,883,56 14,883,560. 38% --- 0 --- Printing Co., years 00 0.00 00 Ltd. Jiangxi Hongji Real 39 4,716,670.0 (4,716,670.0 Estate 51% --- --- 0 years 0 0) Developmen t Co., Ltd. Hangzhou Zhongjiang 5,045,700.0 5,045,700. -5,045,70 --- 51% --- --- Industry Co., 0 00 0.00 Ltd. China Bicycle Harbin 60% 720,000.00 --- --- 0 -720,000.00 --- Distribution Co., Ltd Shenzhen China Bicycle 1,204,000.0 -1,204,000.0 Shaanxi 70% --- --- 0 --- 0 0 Distribution Co., Ltd. Shenzhen China Bicycle Gansu 80% 480,000.00 --- --- 0 -480,000.00 --- Distribution Co., Ltd. Shenzhen China Bicycle (Group) 551,668.3 -551,668. --- 55% 551,668.30 --- --- Jiangxi 0 30 Distribution Co., Ltd. Shenzhen China Bicycle (Group) 370,385.8 -370,385. --- 70% 350,000.00 --- 20,385.83 Hainan 3 83 Distribution Co., Ltd. Shenzhen 2,000,000.0 2,000,000. -2,000,00 China Bicycle --- 100% --- --- 0 00 0.00 (Group) 72 Proportion Other in the Amount at Equity Invest increase/ Name of registered Initial the adjustment Accumulativ Amount at ment decrease company capital of investment beginning during the e equity the end of time of the invested the cost of the current adjustment the period limit current company period period period invested Guangzhou Distribution Co., Ltd. Shenzhen Huajiaming Industrial 20 1,960,000.0 1,960,000. -1,960,00 98% --- --- Trading years 0 00 0.00 Development Co., Ltd. Jiujiang Huatian Real 40 3,621,631.0 3,621,631. -3,621,63 100% --- --- Estate Co., years 0 00 1.00 Ltd. Zoria Pte --- 100% 497,000.00 --- 0 (497,000.00) --- Ltd Chengdu Emmelle Perma -180,000.0 180,000. 30% 180,000.00 Technology nent 0 00 Co., Ltd. 86,029,619. 60,957,37 -1,336,612 -19,013,9 -25,494,510. 40,606,850. Total 00 4.48 .99 11.41 00 08 c. Changes to devalue provision Name of the company invested Amount at the Decrease of Increase of the Amount at the end beginning of the current current period of the period the period period Shenzhen Xinlian Consultation Co., 50,000.00 50,000.00 Ltd. Hunan Guangnan Motorcycle Co., 4,719,777.37 0 4,719,777.37 Ltd. Shenzhen Junbao Industry Co., Ltd. 3,535,000.00 3,535,000.00 0 Shantou S.E.Z. Dapeng Industry 4,285,165.03 4,285,165.03 0 Co., Ltd. Yangzhou Xinghua Bicycle 1,359,361.25 1,359,361.25 0 Material Co., Ltd. Jiangxi Lihua Industry Co., Ltd. 3,209,889.20 0 3,209,889.20 Shenzhen Golden Ring Printing 10,950,000.00 0 10,950,000.00 Co., Ltd. Hangzhou Zhongjiang Industry 5,045,700.00 5,045,700.00 0 Co., Ltd. Shenzhen China Bicycle (Group) 551,668.30 551,668.30 0 Jiangxi Distribution Co., Ltd. Shenzhen China Bicycle (Group) 370,385.83 370,385.83 0 Hainan Distribution Co., Ltd. Shenzhen China Bicycle (Group) 2,000,000.00 2,000,000.00 0 Guangzhou Distribution Co., Ltd. Shenzhen Huajiaming Industrial 1,960,000.00 1,960,000.00 0 Trading Development Co., Ltd. 73 Jiujiang Huatian Real Estate Co., 3,621,631.00 3,621,631.00 0 Ltd. Total 41,658,577.98 22,778,911.41 18,879,666.57 8. Investment real estate Item 2007/1/1 Increase of Decrease of 2007/12/31 the current the current period period 1. Total original price 14,346,102.94 - - 14,346,102.94 1) Houses, buildings 14,346,102.94 14,346,102.94 2) Land-use right 2. Total accumulative 2,743,692.19 645,574.67 - 3,389,266.86 depreciation and accumulative amortization 1) Houses, buildings 2,743,692.19 645,574.67 3,389,266.86 2) Land-use right 3. Total devalue - - - - provision amount 1) Houses, buildings 2) Land-use right 4. Total book value 11,602,410.75 - - 10,956,836.08 1) Houses, buildings 11,602,410.75 10,956,836.08 2) Land-use right The Company adopts cost method for the subsequent calculation of investment real estate. 9. Fixed assets and accumulated depreciation Type 2005/12/31 Increase of Decrease of 2006/12/31 the current the current period period Original value of fixed assets Houses and buildings 286,914,125.91 7,714,943.93 236,056,082.90 Machinery equipments 772,300.00 567,400.00 1,339,700.00 Transport equipments 2,123,777.00 345,750.00 1,778,027.00 Other equipments 1,504,652.78 183,573.52 7,643.00 1,680,583.30 Total 291,314,855.69 750,973.52 8,068,336.93 240,854,393.20 Accumulative depreciation Houses and buildings 176,847,838.90 10,981,284.06 6,644,685.40 166,947,213.90 Machinery equipments 695,070.00 36,422.39 - 731,492.39 Transport equipments 1,374,496.96 263,985.91 311,175.00 1,327,307.87 74 Other equipments 1,224,654.09 472,830.82 495,460.20 1,202,024.71 Total 180,142,059.95 11,754,523.18 7,451,320.60 170,208,038.87 Devalue provision 2,084,874.23 2,084,874.23 Net amount of fixed assets 109,087,921.51 68,561,480.10 (1) The original value at the end of the period is less than that at the beginning of the period for RMB 7,317,363.41 Yuan, which is mainly caused by inventory loss RMB 7,304,831.93 Yuan. 10. Liquidation of fixed assets Item 2007/12/31 2007/1/1 Houses - 19,334,138.97 Machinery equipments - 16,044,270.02 Transport equipments - 32,488.29 Office equipments - 359,297.63 Other equipments - 139,907.16 Total - 35,910,102.07 The No.2 assembly building, No.3 big workshop, No.5 warehouse building and all machinery equipments of the workshop of the factory in the Dushu Village, Shuibei Industrial Zone has been reserved as mortagage for the 8-year long-term loan US$8.5 million from International Finance Corporation (IFC). The mortgaged equipments and buildings above has been auctioned in 2001 by Shenzhen Yichui International Auction Co., Ltd and Shenzhe Real Estate Transaction Center entrusted by Shenzhen Intermediate People’s Court so as to compensate for the US$4.63 million among the loan US$8.5 million from the IFC. As for the rest US$3.87 million, the debt restructuring between the Company and IFC is successful this year, so the liquidation of this sum of fixed assets is finished. 11. Intangible assets Increase Amortization Accumulated Obtaining of the of the Item Original value amortization 2007/1/1 method current current amount period period Land-use right 43,143,099.08 Purchase 15,100,085.70 28,905,875.42 862,862.04 Total 43,143,099.08 15,100,085.70 28,905,875.42 862,862.04 The 127,333 ㎡ land in the Yousong Village, Longhua Town, Bao’an District, Shenzhen, of which the land-use right is valid from July 1st, 1990 to June 30th, 2040. 12. Deferred income tax assets Item 2007/12/31 2007/1/1 Profit from prospective debt - 9,849,555.22 restructuring Total - 9,849,555.22 13. Assets devalue provision 75 The The amount Increase amount turned of the written off Item 2007/1/1 back of 2007/12/31 current of the the period current current period period 1. Bad debt 1,578,429,1 3,945,197. 10,574,33 1,571,799,98 reserve 24.73 10 - 2.88 8.95 Inc: accounts 1,041,783,7 -1,113,683 1,040,670,11 receivable 95.67 .15 - - 2.52 Other accounts 536,645,329 5,058,880. 10,574,33 531,129,876. receivable .06 25 - 2.88 43 2. Inventory 248,135,038 8,329,437. 2,203,294. 254,261,182. devalue provision .93 93 - 45 41 Inc: raw 229,667,161 229,667,161. material .87 - - - 87 Low-value 1,793,131.9 477,712.2 consumables 5 - - 2 1,315,419.73 Self-manufactured half-finished 2,611,095. products - 99 - - 2,611,095.99 Goods in stock 16,674,745. 5,718,341. 1,725,582. 20,667,504.8 11 94 - 23 2 3. Devalue provision for long-term 41,658,577. 41,658,577.9 investment 98 - - - 8 4. Devalue provision of 2,084,874.2 fixed assets 3 - - - 2,084,874.23 Total 1,870,307,6 12,274,63 12,777,62 1,869,804,62 15.87 5.03 - 7.33 3.57 14. Assets with restricted ownership Original value Increase of Decrease of at the Original value the current the current beginning of at the end of period period Assets assort the period the period 1. Assets reserved as mortgages for loan * Inc: house and 230,684,010.96 43,143,099.08 187,540,911.88 buildings Intangible 43,143,099.08 43,143,099.08 assets 2. Houses and 4,768,111.78 4,768,111.78 buildings ** Total 230,684,010.96 43,143,099.08 43,143,099.08 230,684,010.96 * The Company had guaranteed for US$7.5 million loan of the subsidiary China Bicycle (Hong Kong) Co., Ltd. borrowed from China Merchants bank. Since China 76 Bicycle (Hong Kong) Co., Ltd could not pay off the loan after the expiration period, the Company was brought into Shenzhen Intermediate People’s Court by China Merchants Bank. The Court had seized the 127,333 ㎡ land in the Yousong Village, Longhua Town, Baoan District, Shenzhen and buildings on the land. The land and buildings on the land were also reserved as mortagage for the US$7,330,334.84 loan from China Orient Asset Management Corporation. **The Company was brought into Shenzhen Luohu Court for the arrearage of US$500,000 advance for letter of credit and interest to Agricultural Bank of China, Shenzhen Luohu Branch. The court was intended to auction the Company’s house property in Seg Park, South Huangqiang Road Shenzhen to pay the arrearage. 15. Short-term loans (1) Listed according to loan types Dec. 31 2007 Jan. 1 2007 Loan type Original Converted to Original Converted to Currency currency RMB currency RMB Credit RMB HKD USD 21,089,522.66 154,050,527.22 21,089,522.66 164,681,755.60 Subtotal 154,050,527.22 164,681,755.60 Mortagage RMB 620,000.00 620,000.00 HKD USD 7,330,334.84 53,545,163.87 7,330,334.84 57,240,385.67 Subtotal 54,165,163.87 57,860,385.67 Guarantee RMB 123,057,930.00 123,057,930.00 HKD 8,000,000.00 7,491,040.00 8,000,000.00 8,038,080.00 USD 9,510,604.55 79,400,787.96 9,510,604.55 85,187,614.14 Subtotal 209,949,757.96 216,283,624.14 Total 418,165,449.05 438,825,765.41 (2) Listed according to financial institution Loan institution Loan amount Loan Overdue reason Prospective application date for loan repayment China Orient Asset Loan for Management turnover of Corporation 102,059,203.87 production Fund shortage Unpredictable China Cinda Asset Loan for Management turnover of Corporation 62,373,979.40 production Fund shortage Unpredictable China Huarong Loan for Asset Management turnover of Corporation 39,458,353.75 production Fund shortage Unpredictable Loan for The Export-Import turnover of Bank of China 114,557,930.00 production Fund shortage Unpredictable Loan for China Merhcants turnover of Bank, Luohu Branch 19,695,194.07 production Fund shortage Unpredictable Loan for China Everbright turnover of bank 14,686,661.99 production Fund shortage Unpredictable 77 Loan for China Merchants turnover of Bank Head Office 64,714,125.97 production Fund shortage Unpredictable China Construction Loan for Bank, Sichuan turnover of Mianyang Branch 620,000.00 production Fund shortage Unpredictable Total 418,165,449.05 16. Accounts payable Item 2007/12/31 2007/1/1 Accounts payable 135,329,891.70 143,368,055.14 The accounts payable does not include the arrearage to shareholders holding 5% (5% included) or above shares with voting rights of the Company. 17. Deposit received Item 2007/12/31 2007/1/1 Deposit received 18,086,124.15 1,591,292.38 (1) The deposit received does not include the arrearage to shareholders holding 5% (5% included) or above shares with voting rights of the Company. (2) The balance at the end of the period is more that that at the beginning of the period for RMB 16,857,439.47 Yuan, which is mainly caused by reclassification adjustment. 18. Wages payable Item 2007/12/31 2007/1/1 1 Wage 537,498.91 524,216.70 2 Bonus 3 Allowance 4 Subsidy Employees’ welfare 5 expenses 396,014.15 6 Social insurance expense (1) Medical insurance (2) Endowment insurance (3) Unemployment insurance （4）Work-related injury insurance (4) Pregnant and birth insurance 7 Housing fund 8 Trade union funds 854,553.30 902,317.88 9 Personnel education fund 10 Non-monetary welfare 11 Dismission welfare Share-based payment 12 settled in cash Total 1,392,052.21 1,822,548.73 78 19. Tax payable Tax type 2007/12/31 2007/1/1 Enterprise income tax 33,753,125.02 33,753,125.02 VAT 54,139,347.10 53,419,236.08 Business tax 447,794.29 401,476.52 Housing property tax 7,303,655.67 7,154,079.46 City construction and maintenance tax -15,823.39 -20,987.32 Withheld individual income tax -186,992.91 -123,486.15 Others 19,116.46 -13,029.23 Total 95,460,222.24 94,570,414.38 20. Other accounts payable Item 2007/12/31 2007/1/1 Other accounts payable 169,601,705.14 166,832,917.96 The other accounts payable does not include the arrearage to shareholders holding 5% (5% included) or above shares with voting rights of the Company. 21. Long-term liabilities due in 1 year 2007/12/31 2007/1/1 Loan institution Curre Original Converted Original Converted to ncy currency to RMB currency RMB China 2,157,395.9 15,758,914. 2,157,395.9 16,846,457.6 Everbright Bank USD 4 37 4 7 World Bank 8,500,000.0 67,636,664.0 (IFC) USD - 0 1 Shenzhen Guosheng Energy Investment Development 84,797,624. 619,412,728 84,797,624. 662,159,210. Co., Ltd. USD 57 .42 57 98 Shenzhen Guosheng Energy Investment Development 19,300,058. 38,059,320.0 Co., Ltd. RMB - 59 - 0 Guangdong Sunrise Holdings Co., 232,801,657 214,036,395. Ltd. RMB - .06 - 65 Guangdong Sunrise Holdings Co., 1,599,595.4 Ltd. USD 204,847.86 8 204,847.86 1,700,237.25 China Orient Asset Management 3,000,000.0 Corporation RMB - 0 - 3,000,000.00 79 Great Wall Asset Management 2,500,000.0 18,261,500. 2,500,000.0 19,521,750.0 Corporation USD 0 00 0 0 Great Wall Asset Management 3,000,000.0 Corporation RMB - 0 - 3,000,000.00 913,134,453 1,025,960,03 Total .92 5.56 The decrease of the current period is mainly caused by the agreement on debt restructuring signed with IFC this year, which releases the Company from the loan of US$ 8.5 million. 22. Other current liabilities Item 2007/12/31 2007/1/1 Reason for balance Loan and note interest 86,097,636.52 92,188,218.48 Unpaid Audit expenses 12,314.00 Unpaid Rental fee 116,388.25 Unpaid Labour insurance Unpaid expenses 182,896.75 Utility expense 4,519.60 Unpaid Others 707,478.67 Unpaid Total 86,097,636.52 93,211,815.75 The decrease of the current period is mainly caused by the agreement on debt restructuring signed with IFC this year, which releases the Company from the loan payable interest RMB 40,742,296.96 Yuan. 23. Prospective liabilities Item 2007/12/31 2007/1/1 Reason for withdraw The company guaranteed Loan guarantee for ZoriaPteLTd 78,087,000.00 78,087,000.00 has gone into serious insolvency. The company guaranteed Loan guarantee for Jintian 50,000,000.00 50,000,000.00 has gone into serious Industry (Group) Co., Ltd. insolvency. The company guaranteed Loan guarantee for Guangdong 25,271,000.00 25,271,000.00 has gone into serious Sunrise Holdings Co., Ltd. insolvency. Loan guarantee for Shenzhen The company guaranteed 8,000,000.00 8,000,000.00 Tianma Cosmetics Co., Ltd. has gone bankrupt. The company guaranteed Loan Guarantee for Shandong 83,142.92 518,924.66 has gone into serious Huajiaming Trading Co., Ltd. insolvency. Total 161,441,142.92 161,876,924.66 Refer to annotation 11 for detailed reason for withdraw. 80 24. Capital stock 2006.12.31 Increase/decrease of the current year(＋, －) Converted from public Bonus accumulated Equity Item Quantity Proportion share funds incentive others Subtota 1. Shares with limited sales condition 204,747,836.00 42.71% - - - - - 1) Shares held by state legal person 0.00% - - - - - 2) Other domestic capital share 204,612,836.00 42.71% - - - - - Inc: shares held by domestic legal person - - - - - - - Shares held by domestic non-state legal person - - - - - - - 3) Others 135,000.00 0.03% - - - - - 2. Shares with no limited sales condition 274,685,167.00 57.29% - - - - - Domestically listed RMB ordinary share 76,617,000.00 15.98% - - - - - Domestically listed foreign capital shares 198,068,167.00 41.31% - - - - - 3. Total share amount 479,433,003.00 100.00% - - - - - The capital stock of the Company has been verified with (96) YANZIZI No.076 Capital Verification Report issued by Shenzhen Accountant Office. 25. Capital reserves Item 2007/1/1 Increase of the Decrease of the 2007/12/31 current period current period Other capital reserve 362,027,636.64 - - 362,027,636.64 Inc: profit from debt 358,019,011.67 - - 358,019,011.67 restructuring Arrearage need not 690,624.97 - - 690,624.97 to be paid Price difference of 3,318,000.00 - - 3,318,000.00 related transactions Total 362,027,636.64 - - 362,027,636.64 26. Surplus reserves Item 2007/1/1 Increase of the Decrease of the 2007/12/31 current period current period 81 Statutory surplus reserve 32,673,227.01 - - 32,673,227.01 27. Undistributed profit Item 2007/12/31 2007/1/1 Undistributed profit at the -2,720,585,548.43 beginning of the period -2,708,561,289.69 Net profit 62,974,630.60 -12,024,258.74 Minus：withdraw statutory surplus reserve Withdraw statutory welfare reserve Ordinary shares dividends Profit converted to capital stock Undistributed profit at the -862,409.50 end of the period 28. Operating income and cost 2007 2006 Type of Operating Operating cost Operating Operating cost business item income income Main business: Distribution of bicycle and parts 224,545,279.20 219,349,717.13 216,471,342.65 211,094,213.67 Property management income 2,028,200.43 3,885,073.40 3,201,917.46 3,944,268.42 Subtotal 226,573,479.63 223,234,790.53 219,673,260.11 215,038,482.09 Other business Fixed assets rental income 5,968,464.76 3,363,048.66 7,028,967.93 4,547,638.08 Utility income 1,422,770.31 2,243,548.75 5,793,646.50 5,323,893.68 Material distribution 456,600.01 298,831.92 - - Others 180,000.00 1,104,612.95 - - Subtotal 8,027,835.08 7,010,042.28 12,822,614.43 9,871,531.76 Total 234,601,314.71 230,244,832.81 232,495,874.54 224,910,013.85 29. Business tax Tax type 2007 2006 Calculation and payment standard Business tax 167,786.77 160,777.40 Rental income*5% City construction Amount of turnover and maintenance tax 2,558.22 29,539.18 tax*1% Extra charges for Amount of turnover education 5,033.60 65,306.13 tax*3% Total 175,378.59 255,622.71 82 30. Financial expenses Type 2007 2006 Interest expense 34,268,445.38 34,369,652.90 Minus interest income 140,629.79 194,531.65 Minus: exchange gains 68,378,586.97 48,673,557.85 Others 26,784.98 33,293.33 Total -34,223,986.40 -14,465,143.27 The financial expense of this year is less than that of the previous year for RMB 19,758,843.13 Yuan, which is mainly caused by increase to exchanges gains result from changes to exchange rate. 31. Asset impairment loss Type 2007 2006 Bad debt loss 3,945,197.10 3,843,818.78 Inventory devalue loss 7,851,725.71 1,591,437.87 Long-term equity investment devalue loss - 3,706,019.89 Total 11,796,922.81 9,141,276.54 32. Investment income Item 2007 2006 Gains and loss adjustment calculated through equity method -1,336,613.99 -1,173,559.60 Total -1,336,613.99 -1,173,559.60 33. Non-operating income Item 2007 2006 Disposal profit on fixed assets 2,652,336.90 4,735.50 Profit from debt restructuring 68,568,701.43 Others 26,863.11 131,166.08 Total 71,247,901.44 135,901.58 The profit from debt restructuring is caused by the agreement on debt restructuring signed with IFC this year, which has exempted the Company from the principal and interest of loan payable. 34. Non-operating expenses Item 2007 2006 Disposal loss on fixed assets 2,775.00 - Commonweal donation 14,615.00 80,819.68 Loss on fixed assets inventory shorts 1,892,109.37 - Amercement expense 3,025.96 Others 26,116.98 18,406.72 Total 1,935,616.35 102,252.36 35. Income tax 83 Item 2007 2006 Income tax expense of the current period - - Deferred income tax expense 9,849,555.22 Subtotal 9,849,555.22 Annotation 9: Notes to main items of the financial statement of parent company 1. Accounts receivable Age of the 2007/12/31 accounting Amount Proportion Bad debt reserve Net amount Within 1 year 31,950.00 0.00% 95.85 31,854.15 1 year to 2 years - - - - 2 years to 3 years 1,127,063.59 0.10% 17,560.08 1,109,503.51 Over 3 years 1,180,317,672.69 99.90% 1,038,158,184.19 142,159,488.50 Total 1,181,476,686.28 100.00% 1,038,175,840.12 143,300,846.16 Age of the 2007/1/1 accounting Amount Proportion Bad debt reserve Net amount Within 1 year 23,072,380.79 1.88% 1,274.31 23,071,106.48 1 year to 2 years 1,092.60 0.00% 21.00 1,071.60 2 years to 3 years 108,444.07 0.01% 325.33 108,118.74 Over 3 years 1,205,617,938.45 98.11% 1,037,910,398.33 167,707,540.12 Total 1,228,799,855.91 100.00% 1,037,912,018.97 190,887,836.94 (1) The balance at the end of the period does not include the account receivable of shareholders holding 5% (5% included) or above shares with voting rights of the Company. (2) Total amount of the top five in the balance at the end of the period is RMB 683,071,013.01 Yuan, accounting for 65.53% of the total amount of account receivable. 2. Other accounts receivable Age of the 2007/12/31 accounting Amount Proportion Bad debt reserve Net amount Within 1 year 2,436,436.85 0.42% 7,309.31 2,429,127.54 1 year to 2 years - - - - 2 years to 3 years 9,129,289.40 1.57% 27,387.87 9,101,901.53 Over 3 years 571,247,506.43 98.02% 516,233,685.64 55,013,820.79 Total 582,813,232.68 100.01% 516,268,382.82 66,544,849.86 Age of the 2007/1/1 accounting Amount Proportion Bad debt reserve Net amount Within 1 year 18,089,344.51 3.30% 2,874.96 18,086,469.55 1 year to 2 years 862,639.53 0.16% 2,495.72 860,143.81 84 2 years to 3 years 3,888,787.70 0.71% 11,582.48 3,877,205.22 Over 3 years 525,217,661.46 95.83% 521,766,882.29 3,450,779.17 Total 548,058,433.20 100.00% 521,783,835.45 26,274,597.75 (1) The balance at the end of the period does not include the account receivable of shareholders holding 5% (5% included) or above shares with voting rights of the Company. (2) Total amount of the top five in the balance at the end of the period is RMB 357,711,532.44 Yuan, accounting for 64.71% of the total amount of other accounts receivable. 3. Long-term investment (1) The long-term equity investment is listed as follows: Item Amount at the Increase of Decrease of the Amount at the beginning of the the current current end of the period period* period** period Long-term equity investment 78,971,674.48 18,727.60 23,935,524.40 55,054,877.68 Minus: devalue provision 50,408,577.98 18,727.60 22,778,911.41 27,648,394.17 Net amount of long-term equity investment 28,563,096.50 27,406,483.51 * Increase of the current period is the investment to China Bicycle (International) Co., Ltd. Refer to the Explanation to Annotation 7. **Decrease of the current period, among which the RMB 1,156,612.99 Yuan is the profit and loss adjustment to Jiangxi Lihua Industry Co., Ltd. Others （including devalue provision ） are the investment to related companies written off after verification through 5th meeting of the 7th board of directors on April 25, 2008. (2) Long-term equity investment a. Other equity investment calculated through cost method Proportion in the Amount at Increase Decrease Investm registered Initial Amount at Name of company the of the of the ent time capital of investment the end of invested beginning of current current limit the cost the period the period period period company invested Shenzhen Xinlian 50,000.00 50,000.00 --- Consultation Co., Ltd. 50,000.00 Shenzhen Anjule 2,000,000.0 Property Management 100% 2,000,000.00 2,000,000.00 0 Co., Ltd. China Bicycle 18,727.6 (International) Co., 100% 18,727.60 18,727.60 0 Ltd. China Bicycle (Hong 5,350,000.0 100% 5,350,000.00 5,350,000.00 Kong) Co., Ltd. 0 85 Shenzhen Emmelle 1,400,000.0 70% 1,400,000.00 1,400,000.00 Industry Co., Ltd. 0 Hunan Guangnan 5,679,300.0 50 years 5.5% 5,679,300.00 5,679,300.00 --- 0 Motorcycle Co., Ltd. 0 Shenzhen Junbao 3,535,000 50 years 12.5% 3,535,000.00 3,535,000.00 --- 0 Industry Co., Ltd. .00 Subtotal 18,033,027.6 18,014,300.0 18,727.6 3,585,000 14,448,027. 0 0 0 .00 60 b. Other equity investment calculated through equity method Proportion Other in the Amount at Equity Invest increase/ Name of registered Initial the adjustment Accumulativ Amount at ment decrease company capital of investment beginning during the e equity the end of time of the invested the cost of the current adjustment the period limit current company period period period invested Shenzhen Danxia ( 941,600.00 20% 941,600.00 --- --- --- --- Bicycle Parts ) Co., Ltd. Jiangsu Huaiyin Huayu 30 6,138,559.0 (6,138,559.0 25% --- --- --- --- Bicycle Parts years 0 0) Manufacturer Co., Ltd. Shantou S.E.Z. 20 5,425,150.3 4,285,165. -4,285,16 (1,139,985.2 Dapeng 30% --- years 0 03 5.03 7) Industry Co., Ltd. Shenzhen Canghai 10 30% 178,000.00 --- --- 0 (178,000.00) --- Industry years Co., Ltd. Yangzhou Xinghua 30 1,821,606.0 1,359,361. -1,359,36 Bicycle 30% --- (462,244.75) years 0 25 1.25 Material Co., Ltd. Jiangxi Lihua 30 35,314,474. 26,879,90 -1,156,612 (9,036,836.8 25,723,290. Industry Co., 39.83% 0 years 40 3.07 .99 1) 08 Ltd. Shenzhen Golden Ring 20 14,883,560. 14,883,56 14,883,560. 38% --- 0 --- Printing Co., years 00 0.00 00 Ltd. Jiangxi Hongji Real 39 4,716,670.0 (4,716,670.0 Estate 51% --- --- 0 years 0 0) Developmen t Co., Ltd. Hangzhou 5,045,700.0 5,045,700. -5,045,70 --- 51% --- --- Zhongjiang 0 00 0.00 86 Proportion Other in the Amount at Equity Invest increase/ Name of registered Initial the adjustment Accumulativ Amount at ment decrease company capital of investment beginning during the e equity the end of time of the invested the cost of the current adjustment the period limit current company period period period invested Industry Co., Ltd. China Bicycle Harbin 60% 720,000.00 --- --- 0 -720,000.00 --- Distribution Co., Ltd Shenzhen China Bicycle 1,204,000.0 -1,204,000.0 Shaanxi 70% --- --- 0 --- 0 0 Distribution Co., Ltd. Shenzhen China Bicycle Gansu 80% 480,000.00 --- --- 0 -480,000.00 --- Distribution Co., Ltd. Shenzhen China Bicycle (Group) 551,668.3 -551,668. --- 55% 551,668.30 --- --- Jiangxi 0 30 Distribution Co., Ltd. Shenzhen China Bicycle (Group) 370,385.8 -370,385. --- 70% 350,000.00 --- 20,385.83 Hainan 3 83 Distribution Co., Ltd. Shenzhen China Bicycle (Group) 2,000,000.0 2,000,000. -2,000,00 --- 100% --- --- Guangzhou 0 00 0.00 Distribution Co., Ltd. Shenzhen Huajiaming Industrial 20 1,960,000.0 1,960,000. -1,960,00 98% --- --- Trading years 0 00 0.00 Development Co., Ltd. Jiujiang Huatian Real 40 3,621,631.0 3,621,631. -3,621,63 100% --- --- Estate Co., years 0 00 1.00 Ltd. Zoria Pte --- 100% 497,000.00 --- 0 (497,000.00) --- Ltd 86,029,619. 60,957,37 -1,156,612 -19,193,9 -25,494,510. 40,606,850. Total 00 4.48 .99 11.41 00 08 c. Changes to devalue provision 87 Name of the company Amount at the Increase Decrease of the Amount at the invested beginning of of the current end of the the period current period** period period* Shenzhen Xinlian Consultation Co., Ltd. 50,000.00 50,000.00 Hunan Guangnan Motorcycle Co., Ltd. 4,719,777.37 - 4,719,777.37 Shenzhen Junbao Industry Co., Ltd. 3,535,000.00 3,535,000.00 - Shantou S.E.Z. Dapeng Industry Co., Ltd. 4,285,165.03 4,285,165.03 - Yangzhou Xinghua Bicycle Material Co., Ltd. 1,359,361.25 1,359,361.25 - Jiangxi Lihua Industry Co., Ltd. 3,209,889.20 - 3,209,889.20 Shenzhen Golden Ring Printing Co., Ltd. 10,950,000.00 - 10,950,000.00 Hangzhou Zhongjiang Industry Co., Ltd. 5,045,700.00 5,045,700.00 - Shenzhen China Bicycle (Group) Jiangxi Distribution Co., Ltd. 551,668.30 551,668.30 - Shenzhen China Bicycle (Group) Hainan Distribution Co., Ltd. 370,385.83 370,385.83 - Shenzhen China Bicycle (Group) Guangzhou Distribution Co., Ltd. 2,000,000.00 2,000,000.00 - Shenzhen Huajiaming Industrial Trading Development Co., Ltd. 1,960,000.00 1,960,000.00 - Shenzhen Anjule Property Management Co., Ltd. 2,000,000.00 2,000,000.00 China Bicycle (International) Co., Ltd. 18,727.60 18,727.60 China Bicycle (Hong Kong) Co., Ltd. 5,350,000.00 5,350,000.00 Shenzhen Emmelle Industry Co., Ltd. 1,400,000.00 1,400,000.00 Jiujiang Huatian Real Estate Co., Ltd. 3,621,631.00 3,621,631.00 - Total 50,408,577.98 18,727.60 22,778,911.41 27,648,394.17 4. Main business income and cost Item 2007 2006 Main business income 10,122,401.15 19,210,025.98 Main business cost 17,556,401.02 26,514,397.10 Gross profit from main business -7,433,999.87 -7,304,371.12 5. Investment income Item 2007 2006 Long-term investment devalue -3,706,019.89 -18,727.60 provision withdrawn 88 Gains and loss adjustment -1,770,696.52 -1,156,612.99 calculated through equity method Total -1,175,340.59 -5,476,716.41 Annotation 10: affiliated party relationships and the transactions among them (1) Affiliated companies with controlling relationship Name of affiliated Enterpri Legal Registered Business scope Shares or Relationship company se type representat capital equity held with the ive Company Limited Shang ￥70000,00 Set up industry, 13.58% Controlling liability shijun 0 domestic business, shareholder compan material supply Shenzhen y (legal and marketing Guosheng person (excluding Energy sole exclusive, Investment propriet controlled and Development orship) monopoly Co., Ltd. commodity) (2) Affiliated companies with no controlling relationship Name of affiliated company Relationship with the Company Shenzhen Huajiaming Industrial Trading Subsidiary Development Co., Ltd. Shenzhen Danxia Bicycle Parts Co., Ltd. Affiliated company Shenzhen Canghai Industry Co., Ltd. Affiliated company Jiangsu Huaiyin Huayu Bicycle Parts Affiliated company Manufacturer Co., Ltd. Yangzhou Xinghua Bicycle Material Co., Ltd. Affiliated company Shantou S.E.Z. Dapeng Industry Co., Ltd. Affiliated company Shenzhen Golden Ring Printing Co., Ltd. Affiliated company Name of related company Relationship with the Company Hong Kong Dahuan Bicycle Co., Ltd. Shareholders holding more than 5% shares Director of the Company is the General Daming International Co., Ltd Manager of this company Director of the Company is the General DiamondBack（Hong Kong）Co., Ltd. Manager of this company Director of the Company is the General Zhigao International mechanical Co., Ltd. Manager of this company Director of the Company is the General Zhigao Resource international Co., Ltd. Manager of this company China Composite Material (Shenzhen) Co., Director of the Company is the Ltd. chairman of the board of this company Hong Kong Huajiaming Industrial Trading Director of the Company is the Industry Co., Ltd chairman of the board of this company (3) Dealings of affiliated companies Amount at the Amount at the Economic Item Name of affiliated company end of the beginning of content period the period 89 Amount at the Amount at the Economic Item Name of affiliated company end of the beginning of content period the period Account Payment for receivable DiamondBack(HongKong)Co.Ltd. goods 174,219,907.69 174,219,907.69 Zhigao Resource International Payment for Co., Ltd. goods 139,582,568.23 139,487,301.22 Subtotal 313,802,475.92 313,707,208.91 Account Hong Kong Huajiaming Industrial Payment for payable Trading Industry Co., Ltd goods 8,431,448.99 8,961,977.50 Shenzhen Canghai Industry Co., Payment for Ltd. goods 100,385.48 100,385.48 Shenzhen Danxia Bicycle Parts Payment for Co., Ltd. goods 429,566.27 456,593.30 Jiangsu Huaiyin Huayu Bicycle Payment for Parts Manufacturer Co., Ltd. goods 4,965,269.13 4,965,269.13 Shantou S.E.Z. Dapeng Industry Payment for Co., Ltd. goods 6,887,436.89 6,887,436.89 Subtotal 20,814,106.76 21,371,662.30 Other China Composite Material account Dealings (Shenzhen) Co., Ltd. receivable money 60,541,700.96 60,541,700.96 Shenzhen Huajiaming Industrial Dealings Trading Development Co., Ltd. money 26,541,041.11 27,541,041.11 Subtotal 87,082,742.07 88,082,742.07 Other Shenzhen Canghai Industry Co., account Dealings Ltd. payable money 89,000.00 89,000.00 Money Shenzhen Golden Ring Printing received Co., Ltd. temporarily 600,000.00 600,000.00 Zhigao International mechanical Dealings Co., Ltd. money 21,805,856.49 24,917,519.01 Commission Daming International Co., Ltd expense 10,834,362.33 10,834,362.33 Hong Kong Huajiaming Industrial Dealings Trading Industry Co., Ltd money 1,796,922.26 1,796,922.26 Diamond Back (Hong Kong) Co., Dealings Ltd. money 2,231,513.11 2,394,471.38 Subtotal 37,357,654.19 40,632,274.98 Long-equity liability due Shenzhen Guocheng Energy Principal in 1 year Investment Development Co., Ltd. sum of loan 638,712,787.01 700,218,530.98 Subtotal 871,613,930.42 915,955,163.88 Annotation 11: Contingency Item Amount involved Influence on the company’s Nature financial situation, operating results and cash flow during the current period and in the future Loan guarantee for Guangdong RMB36,100,000.0 * Guarantee Sunrise Holdings Co., Ltd. 0 90 USD1,740,000.00 Loan guarantee for Jintian Industry RMB50,000,000.0 ** Guarantee (Group) Co., Ltd. 0 Loan guarantee for Shenzhen RMB8,000,000.00 *** Guarantee Tianma Cosmetics Co., Ltd. ZoriaPteLtdc USD10,000,000.00 **** Guarantee Shandong Huajiaming Trading Co., RMB518,924.66 ***** Guarantee Ltd. RMB94,618,924.6 Total 6 USD11,740,000.00 * 50% of the guarantee amount for the company is predicted for loss, equal to RMB 25,271,000.00 Yuan. ** The company is a listed limited company, and has gone into serious insolvency. Therefore, the total guarantee amount is predicted for loss. *** The company is closed down. Therefore, the total guarantee amount is predicted for loss. **** The company, a controlled subsidiary (unconsolidated) of the Company, has gone into serious insolvency, and is under liquidation now. Therefore, the total guarantee amount is predicted for loss. ***** This company is the subsidiary of Shenzhen Huajiaming Industrial Trading Development Co., Ltd. - the subsidiary of the Company, and has gone into serious insolvency. Therefore, the total guarantee amount is predicted for loss. Annotation12: Law suit 1. As of Dec. 31st, 2007, the company has been claimed by 16 financial organs for failure of repaying the loan in due with principal and interest of RMB 408,555,000 Yuan, 99,160,100 US dollars and 8,261,600 Hong Kong dollars. Most of the law suits have been judged and the Company has been defeated or mediated. Before end of 2000 year, China Bank, Agricultural Bank of China and Industrial and Commercial Bank of China has made assignment to related asset management corporations for all or part of financial claim and the main body involved changed correspondingly. 2. As of Dec. 31st, 2007, the Company has been claimed by 29 supplier with amount of RMB 30,580,800 Yuan, 17,650,800 Hong Kong Dollars and 1,668,500 US dollars. Most of the law suits have been judged and the Company has been defeated. Annotation 13: Interpretation for important issues In accordance with yinjianbantong [ 2004] 6 document issued on January 7th, 2004 by China Banking Regulatory Commission,General Offices, 11 financial organs including BOC stopped collecting interest of load of the Company for 3 years since January 1st, 2002 and exempted from all interest in red（including default interest and Compound Interest）made by the Company before Dec 31st, 2001. The Company has made all interest payable （ including default interest and Compound Interest ） , namely, 91 357,993,665.24 Yuan RMB into " capital reserve " and stopped to deduct interest for the period between January 1st, 2002 and Dec 31st , 2004. The exemption expires on Dec 31st, 2004. In 2005, China Huarong Asset Management Corporation, Shenzhen office, China Orient Asset Management Corporation, Shenzhen office, China Xinda Asset Management Corporation, Shenzhen office, China Great Wall Asset management Corporation, Shenzhen office gave up the annual interest for 2005. From2006 to 2007, the Company has deducted the interest according to the normal loan rate. For the ambiguity made by "stop to collect interest", "General Rules on Loan" has not interpreted it. For this reason, China Huarong Asset Management Corporation, Shenzhen office, China Orient Asset Management Corporation, Shenzhen office, China Xinda Asset Management, Shenzhen office and Great Wall Asset management corporation, Shenzhen office did not claimed for the interest. Yet, Shenzhen Development Bank Claimed for the interest and compound interest for the period between January 1st, 2002 and Dec 31st, 2004. The Company holds the idea that it needs not to pay the interest stopped to calculate and has not deducts the interest and compound interest for the period between January 1st, 2002 and Dec 31st, 2004. For the interest made after the exemption, the Company has deduced the loan interest according to normal loan. It is still being negotiated for the payment or not for the interest. 2. Debt Restructuring with International Finance Corporation The Company has signed a “deed of arrangement" as of March 29th, 2007 with friendly negotiation. It is agreed to settle all debts between the two parties with amount equivalent to RMB 2 million Yuan. The Company has paid the fund mentioned above to the account appointed by International Finance Corporation on April 4th, 2007. In accordance with the provision in new "Accounting Standards for Business Enterprises No.12 - Debt restructuring", the agreement of the deed of arrangement has made RMB 68.57 million Yuan for the Company. 3. Shenzhen Guosheng Energy Investment Development Co., Ltd. become the biggest shareholder of the Company The Company received from Shenzhen Guosheng Energy Investment Development Co., Ltd. on May 8th, 2007 the "Confirming letter for company share transfer” which stated Shenzhen Guosheng Energy Investment Development Co., Ltd. is to be assigned the 65,098,412 corporate shares of "A" shares from Huarong Corporation. The ownership right was transferred on April 30th, 2007. Shenzhen Guosheng Energy Investment Development Co., Ltd. became the biggest shareholder of the Company, with shares accounting for 13.58% of the total shares of the Company. Annotation 14: Non adjustment items after the date of balance sheet 1. Capital reserve transferring to capital stock and Share Merger Reform According to the resolution of capital reserve to convert share capital voted through by the corporate shareholder meeting on February 1st, 2007, the Company makes share 92 capital conversion of 39,519,800 to circulating‘A’ shares shareholder and the Non- floating stock obtained the floating right. The 'B' shares shareholder was added 1.5 shares to each 10 shares and 32,395,200 shares were issued. Among the converted shares to the ‘A’ shares shareholder, deducting the 11,512,800 shares gained for the share capital expansion, the 28,007,000 shares are quid pro quo shares arranged to ‘A’ shares shareholder from the non floating share shareholder. After conversion, the shareholding equity increases to 551,348,000 shares and the floating ‘A’ shares increased to 116,271,800 from 76,752,000, among which 28,007,000 shares are quid pro quo shares. According to "Share Merger Reform memoranda No. 2—information release (1)" the quid pro quo arrangement rate is 28,007,000÷88,264,8 00= 0.3173 with converted ‘A’ shares share capital (88,264,800 shares) as base. Therefore, in the conversion, the floating ‘A’ shares shareholder obtained 3.173 shares for each 10 shares. The Share Merger Reform of the Company has obtained the Reply of SZPi[2007] No. 1343 from Ministry of Commerce and the Reply of SMGZFu[2007] No.2257on Increasing the Total Shares of Shenzhen China Bicycle Company (Holdings) Limited from Shenzhen Trade and Industry Bureau, in which agreed the share merger reform scheme of the Company examined and approved in Shareholders’ Meeting dated Feb.1, 2007. In accordance with Guidelines on Practice and Operations of Share Merger Reform of the Listed Companies; the relevant procedures on Share Merger Reform of the Company was under the progress in Shenzhen Company of China Securities Depository and Clearing Corporation Limited. 2. Issues of economical staff cuts Due to that sale market of the Company is mainly located in north and east China besides Shenzhen, and cost for production and logistics in local Shenzhen is too high, so it is not strong enough of the cost competition for the products made in Shenzhen. With decreased performance in sales, it is impossible to maintain the workers scale in Shenzhen.To implement the work guideline of cutting employees and improve working efficiency and realizing development in market economy mode, the company decided to cut employees for economical efficiency according the relevant regulations of Labor Contract Law of PRC since April 1st, 2008. The employees planed to cut are 188 and RMB 7.05 million Yuan is needed for the compensation in the budget. Annotation 15: Sustained operation interpretation As of Dec 31st, 2007 the total assets of the Company is RMB 214,381,500 Yuan and the total liabilities is RMB 1,998,721,000 Yuan with net assets of RMB 1,784,339,500 Yuan. The Company is in insolvency and it may fail to liquidate assets to clear off debts during the normal operation. Therefore, the Company and the original first creditor adopted the measures as follows: Since March 2002, the first creditor of the Company, China Huarong Asset Management Corporation made breakthrough advance on the debt restructing. " Shenzhen China restructing scheme " has approved by the China Banking Regulatory Commission. The monetary liabilities of 93 the company before December 31st, 2004 has been exempted. China Huarong Asset Management Corporation and Shenzhen Julongsheng Industrial Development Co., Ltd, Shenzhen Guosheng Energy Investment Development Co., Ltd. agreed and signed on November 13th 2006 "Letter of Agreement". The Guosheng Energy accepted the 65,098,412 ‘A’ shares of corporate share from Huarong Coporation. The ownership right was transferred on April 30th, 2007. Shenzhen Guosheng Energy Investment Development Co., Ltd. became the biggest shareholder and biggest creditor of the Company and handled the debt restructuring issues. The company is making debt restructing scheme and has made certain achievement. The company has signed with International Finance Corporation on March 29th, 2007 the " Deed of arrangement ". Both parties are agreed to settle all right of credit and liability between the two parties by paying the amount equivalent to 2 million Yuan RMB. The debt amount is about 3.87million U.S. dollars and about 42.78 million RMB. The two biggest debtees of the company, Shenzhen Guosheng Energy Investment Development Co. Ltd. and Guangdong sunrise Holdings Co. Ltd. has agreed to collect the interest of debt in 2007. The exempted interest amount are 54.76 million Yuan and 14.85 million Yuan. This item of interest exempt will continue to the future years. Whie making liability restructing, the main businesses of the company increase great and make profit. In this sense, the payment pressure for the company in the short term reduces great and the sustained operation improves . With restructuring of the debt and assets of the Company and the development of the company, the business environment and operation state will improve further. Annotation 16: supplementary information 1. Supplementary information of cash flow statement (1) Supplementary information of consolidated cash flow statement Item 2007 2006 1. Reconciliation of net profit/ (loss) to cash flows from operating activities Net profit 62,974,630.60 -12,024,258.74 Plus: assets devalue provision 11,796,922.81 9,141,276.54 Fixed assets depreciation 11,754,523.18 12,396,831.07 Amortization of intangible assets Amortization of long-term deferred expenses Loss on disposal of fixed assets, intangible assets and other long-term assets (income is listed with“-”) -2,649,561.90 - Scrap loss of fixed assets (income is listed with“-”) 1,892,109.37 - Loss on changes to fair value (income is listed with“-”) - - Financial expense (income is listed with“-”) -34,223,986.40 -14,465,143.27 Investment loss (income is listed with“-”) 1,336,613.99 4,879,579.49 Decrease of deferred income tax assets (increase is listed with“-”) 9,849,555.22 -9,849,555.22 94 Item 2007 2006 Increase of deferred income tax liabilities (decrease is listed with“-”) - - Inventory decrease (increase is listed with“-”) -3,533,289.17 2,014,914.10 Decrease in operating receivables (increase is listed with“-”) 10,973,871.15 -10,169,692.22 Increase in operating payables (decrease is listed with“-”) -3,191,637.65 -33,904,862.32 Others -68,568,701.43 42,027,323.27 Net amount of cash flows from operating activities -1,588,950.23 -9,953,587.30 2. Investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Reclassification of convertible bonds expiring within one year as current liability Fixed assets acquired under finance leases 3. Net increase /(decrease) in cash and cash equivalents Cash balance the end of the year 14,062,198.43 15,979,853.39 Minus: cash balance at the beginning of the year 15,979,853.39 25,991,640.78 Plus: balance of cash equivalents at the end of the year - - Minus: balance of cash equivalents at the beginning of the year - - Net amount of increase /(decrease) in cash and cash equivalents -1,917,654.96 -10,011,787.39 (2) Supplementary information of the Company’ cash flow statement Item 2007 2006 1. Reconciliation of net profit/ (loss) to cash flows from operating activities Net profit 60,572,143.94 -9,648,015.34 Plus: assets devalue provision 11,796,922.81 7,732,679.98 Fixed assets depreciation 11,449,561.79 12,035,249.49 Amortization of intangible assets - - Amortization of long-term deferred expenses - - Loss on disposal of fixed assets, intangible assets and other long-term assets (income is listed with“-”) -2,646,561.90 - Scrap loss of fixed assets (income is listed with“-”) 1,892,109.37 - Loss on changes to fair value (income is listed with“-”) - - Financial expense (income is listed with“-”) -29,733,485.40 -14,292,785.12 Investment loss (income is listed with“-”) 1,175,340.59 5,476,716.41 Decrease of deferred income tax assets (increase is listed with“-”) 9,849,555.22 -9,849,555.22 Increase of deferred income tax liabilities (decrease is listed with“-”) - - Inventory decrease (increase is listed with“-”) -1,383,545.41 -2,040,109.24 Decrease in operating receivables (increase is 14,092,372.23 -21,402,309.17 95 Item 2007 2006 listed with“-”) Increase in operating payables (decrease is listed with“-”) -8,385,442.59 -12,039,277.73 Others -68,568,701.43 43,446,677.27 Net amount of cash flows from operating activities 110,269.22 -580,728.67 2. Investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital - - Reclassification of convertible bonds expiring within one year as current liability - - Fixed assets acquired under finance leases - 3. Net increase /(decrease) in cash and cash equivalents Cash balance the end of the year 477,660.27 504,436.50 Minus: cash balance at the beginning of the year 504,436.50 1,121,149.17 Plus: balance of cash equivalents at the end of the year - - Minus: balance of cash equivalents at the beginning of the year - - Net amount of increase /(decrease) in cash and cash equivalents -26,776.23 -616,712.67 2. Detailed statement of non-recurring profit and loss items Detailed item 2007 2006 1.Disposal profit and loss on non-current assets 757,452.53 4,735.50 2. Tax refund and exemption approved by exceeding authority or without formal document of approval - - 3. government subsidy recorded into the current gains and losses - - 4. Capital occupation received from non- financial enterprises and recorded into the current gains and losses - - 5. Profit and loss resulting from the discrepancy between enterprise combination cost and the fair value of the identifiable net assets of the combined enterprise - - 6. Profit and loss on exchange of non-monetary assets - - 7. Profit and loss on entrusted investment - - 8. Assets devalue provisions withdrawn for force majeure, such as natural disaster - - 9. Debt restructuring expense 68,568,701.43 - 10. Enterprise restructuring expense - - 11. Profit and loss exceeding fair value, resulting from unfair transactions - - 12. Net profit and loss of the current period from the beginning of the subsidiary to combination date, resulting from enterprise combination under the same control - - 13. Profit and loss on predicted liabilities unrelated to main business of the Company - - 14. Net amount of other non-operating income and expense except the above items - - 15. Others -13,868.87 28,913.72 Total 69,312,285.09 33,649.22 Minus: corresponding income tax of non-recurring profit and loss - - Minus: the part shared by minority shareholders - - Net profit influenced by non-recurring profit and loss 69,312,285.09 33,649.22 96 Detailed item 2007 2006 Net profit on the statement 62,974,630.60 -12,024,258.74 Minus: profit and loss of minority shareholders - - Net profit attributable to shareholders of parent company 62,974,630.60 -12,024,258.74 The ratio of non-recurring profit and loss to net profit attributable to shareholders of parent company in the same period 110.06% - Net profit attributable to shareholders of parent company after deducting non-recurring profit and loss -6,337,654.49 -12,057,907.96 3. Rate of return on common stockholders' equity and earnings per share Rate of return on common Earnings per share (RMB stockholders' equity Yuan/share) Period Financial index Basic Diluted Weighted earnings earnings Fully diluted average per share per share Net profit attributable to common shareholders 0.1314 0.1314 Net profit attributable 2007 to common shareholders after deducting non-recurring profit and loss -0.0132 -0.0132 Net profit attributable to common shareholders -0.0251 -0.0251 Net profit attributable 2006 to common shareholders after deducting non-recurring profit and loss -0.0252 -0.0252 Item 2007 2006 Calculation of basic earnings per share and diluted earnings per share 1. Numerator Net profit after tax 62,974,630.60 -12,024,258.74 Adjust: preference share dividend and influence of other instruments Profit and loss attributable to common shareholders of 62,974,630.60 -12,024,258.74 parent company, in the calculation of basic earnings per share Adjust: Dividend and interest related to diluted potential - - common share Changes to income or expense, caused by converting - - diluted potential common share Profit and loss attributable to common shareholders of 62,974,630.60 -12,024,258.74 parent company, in the calculation of diluted earnings per share 2. Denominator 97 Weight average of common shares issued externally 479,433,003.00 479,433,003.00 during the current period, in the calculation of basic earnings per share Plus: the weighted average while all diluted potential - - common shares are converted into common shares Weight average of common shares issued externally 479,433,003.00 479,433,003.00 during the current period, in the calculation of diluted earnings per share 3. Earnings per share Basic earnings per share 0.1314 -0.0251 Diluted earnings per share 0.1314 -0.0251 4. Comparison table of 2006 profit statement difference after retroactive adjustment according to new accounting standard Item Amount Net profit in 2006 (old accounting standard) -9,648,015.34 Plus: total influence of retroactive adjusted item -2,376,243.40 Inc: income tax - Minus: profit and loss of minority shareholders influenced by retroactive adjusted item - Net profit attributable to shareholder of parent company in 2006 (new accounting standard) -12,024,258.74 Spare reference information for assumption of full adoption of new accounting standard 1. Total influence of other item - 2. Plus: profit and loss of minority shareholders influenced by retroactive adjusted item - 3. Plus: profit and loss of minority shareholders listed in the original interim financial statement - Simulated net profit in 2006 -12,024,258.74 According to the new and old accounting standard, the “unrecognized investment loss” will not be recognized any more. The “unrecognized investment loss” RMB 2,376,243.40 Yuan of 2006 is transferred into the net profit attributable to shareholders of parent company. The spare reference profit table above is prepared according to the provisions of “Question and Answer No.7 Regarding the Rules on Information Disclosure for Companies That Publicly Offer Securities—Compilation and Disclosure of Comparative Financial and Accounting Information During the Transition Period between the New and Old Accounting Standards”. And it is assumed that the Company has fully implement the “Accounting Standards for Business Enterprises” (2006 edition) at the beginning period of comparison. 5. Comparative disclosure statement of the difference adjustment table of shareholders’ equity according to the new and old accounting standards Original Disclosure of disclosure of Reas No. Name of item 2007 annual Difference 2006 annual on report report Shareholders’ equity on Dec. 31 2006 -1,863,530,511. -1,863,530,511. (old accounting standard) 45 45 - - 1 Long-term equity difference - 98 Original Disclosure of disclosure of Reas No. Name of item 2007 annual Difference 2006 annual on report report Inc: long-term equity investment - difference resulting from enterprise combination under the same control Credit difference of other - long-term equity investment calculated through equity method Investment real estate intend to be 2 measured at fair value - 3 Supplementary depreciation of - previous years withdrawn because of predicted expense on discarded assets Dismission compensation accordant to recognition conditions for predicted 4 liabilities - 5 Share-based payment - Restructuring obligation accordant to recognition conditions for predicted 6 liability - 7 Enterprise combination - Inc: book value of business reputation resulting from enterprise combination under the same control - Business reputation devalue provision withdrawn according to new accounting standard - 8 Financial assets measured at fair value - and of which changes recorded as profit and loss for the current period, and financial assets available for sale 9 Financial liabilities measured at fair - value and of which changes recorded as profit and loss for the current period Equity added through financial 10 instrument partition - 11 derivative financial instruments - 12 Income tax 9,849,555.22 9,849,555.22 - - 13 Equity of minority shareholders - 14 Others - Shareholders’ equity on Jan. 1 2007 -1,853,680,956. -1,853,680,956. (new accounting standard) 23 23 - - During the compilation of 2007 annual report, the Company has rechecked the book balance related to assets, liabilities and shareholders’ equity on the first adoption date. The Company has no economic business corresponding to other adjustment item except the adjustment to income tax, so there is no difference. The consolidated financial statement for 2007 of the Company and annotations are compiled according to Accounting Standards for Business Enterprises No.1 to No.37 issued by the state. 99