皖美菱Ｂ(200521)2008年年度报告（英文版）

合肥美菱股份有限公司 2008 年年度报告 Annual Report Of Hefei Meiling Co., Ltd. Important Notice Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Hefei Meiling Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Sichuan Jun He Certified Public Accountants Co., Ltd. issued standard unqualified Auditors’ Report for the Company. Principal of the Company Mr. Zhao Yong, President Mr. Wang Yong, Vice-president Mr. Yu Wanchun and Person in Charge of Accounting Organ Mr. Wang Shaozhuo hereby confirm that the Financial Report of the Annual Report is true and complete. Contents Section I. Company Profile------------------------------------------------------------------------------ Section Ⅱ. Summary of Financial Highlight and Business Highlight-------------------------- Section Ⅲ. Changes in Capital Shares and Particulars about Shareholders----------------- Section Ⅳ. Particulars about Directors, Supervisors, Senior Executives and Employees- Section Ⅴ. Administrative Structure----------------------------------------------------------------- Section Ⅵ. Brief Introduction to the Shareholders’ General Meeting------------------------- Section Ⅶ. Report of the Board of Directors------------------------------- ------------------------ Section Ⅷ. Report of the Supervisory Committee------------------------------------------------- Section Ⅸ. Significant Events-------------------------------------------------------------------------- Section Ⅹ. Financial Report -------------------------------------------------------------------------- Section XI. Documents for Reference---------------------------------------------------------------- Section I. Company Profile 1. Legal Name of the Company In Chinese: 合肥美菱股份有限公司 In English: HEFEI MEILING CO., LTD. Abbr. in English: HFML 2. Legal Representative: Mr. Zhao Yong 3. Secretary of the Board of Directors and Securities Affairs Representative Secretary of the Board of Directors: Xue Hui Contact address: No. 2163, Lian Hua Road, Economic and Technology Development Zone, Hefei Tel: 0551-2219021 Fax: 0551-2219021 E-mail: wyxuehui@126.com Securities Affairs Representative: Qi Dunwei E-mail: qi_dunwei@sohu.com 4. Registered Address: No. 2163, Lian Hua Road, Economic and Technology Development Zone, Hefei Post Code: 230601 Office Address: No. 2163, Lian Hua Road, Economic and Technology Development Zone, Hefei Post Code: 230601 Company’s Internet Website: http://www.meiling.com E-mail of the Company: info@meiling.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Hong Kong Wen Wei Po Internet Website for Publishing the Annual Report of the Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors, on 2/F of the Company’s Office Bldg. 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: MEILINGDIANQI, WANMEILING-B Stock Code: 000521, 200521 7. Initial registration date: December 31, 1992 Registration address: Hefei Municipal Administration Bureau of Industrial and Commerce Registration date after change: May 19, 2008 Address for change: Anhui Province Administration Bureau of Industrial and Commerce Legal Person Business License Registration No.: 340000400001278 Taxation Registration No.: GSWZi No.34010414918555X Domestic Certified Public Accountants Engaged by the Company: Name: Sichuan Jun He Ceritified Public Accountants Co., Ltd. Address: 22nd Floor, Guoxin Square, No.88, Ba Bao Street, Chengdu, Sichuan Section II. Summary of Financial Highlight and Business Highlight 1. Main financial highlight in the report period Unit: RMB Items Amount Operating profit 21,514,665.32 Total profit 29,923,942.49 Net profit attributable to the shareholders of the listed company 25,678,991.58 Net profit attributable to the shareholders of the listed company after 25,678,991.58 deducting non-recurring gains and losses Net cash flow arising from operating activities 189,920,582.22 Items of non-recurring gains and losses deducted and the involved amounts are as following: Unit: RMB Items of non-recurring gains and losses Amount (1) Gains and losses from the disposal of non-current asset 197,254.70 (2) Governmental subsidy calculated into current gains and losses, while closely related with the business of the Company, excluding the 10,029,210.00 fixed-amount or fixed-proportion governmental subsidy according to the unified national standard (3) Net amount of other non-operating income and expenditure beside -1,817,187.53 for the above items (4) Influences on current gains/losses on current gains/losses by once adjustment in accordance with the requirements of laws and regulations -4,287,833.15 of taxation and accounting. (5)Other items of non-recurring gains and losses recognized by CSRC Sub-total for non-recurring gains and losses 4,121,444.02 2. Major accounting data and financial indexes over the past three years ended by the report period (1) Main accounting data Unit: RMB Increase/decrease this year 2008 2007 2006 compared with that last year (%) Before adjustment After adjustment Operating income 4,335,936,296.544,052,218,686.60 7.00% 2,903,117,810.77 2,903,117,810.77 Total profit 29,923,942.49 22,866,695.96 28.15% 12,548,541.46 12,086,673.22 Net profit attributable to shareholders of the 25,678,991.58 17,707,985.60 42.18% 11,965,716.54 8,592,861.24 listed company Net profit attributable to shareholders of the 21,557,547.56 -36,084,053.18 158.35% 4,201,265.67 828,410.37 listed company after deducting non-recurring gains and losses Net cash flow arising from operating 189,920,582.22 179,108,377.43 6.04% 13,475,867.01 13,475,867.01 activities Increase/decrease at the end of this At the end of At the end of year compared At the end of 2006 2008 2007 with that at the end of last year (%) Before adjustment After adjustment Total assets 3,390,314,408.863,296,107,615.09 2.86% 2,372,505,077.32 2,432,286,112.87 Owners’ equity(Shareholders’ 1,076,341,125.90 948,974,346.39 13.91% 875,499,801.20 947,835,893.03 equity) (2) Main financial indexes Unit: RMB Increase/decrease this 2008 2007 year compared with 2006 that last year (%) Before After adjustment adjustment Basic earnings per share 42.29% 0.0289 0.0208 0.0621 0.0428 Diluted earnings per share 42.29% 0.0289 0.0208 0.0621 0.0428 Basic earnings per share after deducting non-recurring gains and 0.0521 -0.0872 158.37% 0.0102 0.0020 losses Fully diluted return on equity 2.42% 1.90% 0.48% 1.37% 0.91% Weighted average return on equity 2.72% 1.87% 0.80% 1.39% 0.97% Fully diluted return on equity after deducting non-recurring gains and 2.03% -3.88% 5.87% 0.48% 0.09% losses Weighted average return on equity after deducting non-recurring 2.29% -3.91% 6.15% 0.49% 0.09% gains and losses Net cash flow per share arising 0.46 0.43 6.98% 0.03 0.03 from operating activities Increase/decrease at At the end of At the end of the end of this year At the end of 2006 2008 2007 compared with that at the end of last year (%) Before After adjustment adjustment Net asset per share attributable to 2.5632 2.2489 13.91% 2.1166 2.2463 shareholders of listed company 3. The Company’s return on equity and earnings per share as of the year 2008 as calculated in accordant with Requirements on the Information Disclosure of Companies Publicly Issuing Shares No. 9----Calculation and Disclosure on Return on Equity and Earnings per Share, as follows: Unit: RMB Return on equity Earnings per share Items Weighted Fully diluted Weighted average Fully diluted average Net profit attributable to common 2.42% 2.72% 0.0621 0.0621 shareholders of the Company Net profit attributable to common shareholders of the Company after 2.03% 2.29% 0.0521 0.0521 deducting the non-recurring losses and gains Section III. Changes in Capital Shares and Particulars about Shareholders (I) Changes in share capital 1. Particulars about the changes in shares of the Company (ended of Dec.31, 2008) Unit: Share Before the change Increase/Decrease of this time (+, -) After the change New Capitalization Bonus Amount Proportion shares of public Others Subtotal Amount Proportion shares issued reserve I. Shares with conditional 126,359,625 30.55% -12,543,559 -12,543,559 113,816,066 27.52% subscription 1. State-owned 69,135,006 16.71% 1,710,671 1,710,671 70,845,677 17.14% shares 2. State-owned legal person’s 32,078,846 7.76% 32,078,846 7.77% shares 3. Other 25,145,773 6.08% -14,254,230 -14,254,230 10,814,973 2.61% domestic shares Including: Domestic 25,069,203 6.06% 10,738,403 2.59% non-state-owned legal person’s shares Domestic natural person’s 76,570 0.02% 76,570 0.02% shares 4. Foreign shares Including: Foreign legal person’s shares Foreign natural person’s shares II. Shares with unconditional 287,283,324 69.45% 12,543,559 12,543,559 299,826,883 72.48% subscription 1. RMB 174,183,324 42.11% 12,543,559 12543,559 186,726,883 45.14% common shares 2. Domestically listed foreign 113,100,000 27.34% 113,100,000 27.34% shares 3. Overseas listed foreign shares 4. Others III. Total shares 413,642,949 100.00% 413,642,949 100.00% 2. Particulars about shares held by the top ten shareholders and the top ten shareholders with unconditional subscription Unit: Share Total shareholders 74,522 Particulars about shares held by the top ten shareholders Proportion Amount of Nature of Amount of Shares pledged or Names of shareholders of share conditional shares shareholder share held frozen held held Sichuan Changhong Electric Co., State shares 10.25 42, 413,106 38,135,951 5,525,985 Ltd Sichuan Changhong Electric Group State-owned 7.76 32,078,846 32,078,846 4,648,297 Co., Ltd. Hefei Xingtai Holding Group Co., Domestic 6.38 26,396,258 26,396,258 Ltd legal person Changhong (Hong Kong) Trade Foreign legal 2.63 10,863,329 Co., Ltd. person Hefei Meiling (Group) Holdings State shares 1.53 6,313,468 6,313,468 6,313,468 Co., Ltd. Foreign CAO SHENGHUN 1.41 5,815,247 natural person Li Hong Domestic 0.82 3,390,000 natural person Domestic Long Qinfang 0.51 2,098,066 natural person SHANGHAI WORLD TRADE Domestic 0.43 1,771,900 AUTOMOBILE CO. , LTD. legal person Foreign CHEN YI QING 0.39 1,608,859 natural person Particulars about shares held by the top ten unconditional shareholders Name of shareholder Amount of unconditional shares held Type of share Changhong (Hong Kong) Trade 10,863,329 Domestically listed foreign share Co., Ltd. CAO SHENGHUN 5,815,247 Domestically listed foreign share Sichuan Changhong Electric Co., 4,277,155 RMB common share Ltd Li Hong 3,390,000 RMB common share Long Qinfang 2,098,066 Domestically listed foreign share SHANGHAI WORLD TRADE 1,771,900 RMB common share AUTOMOBILE CO. , LTD. CHEN YI QING 1,608,859 Domestically listed foreign share Wo Liangliang 1,450,000 RMB common share Anhui Guofeng Group Co., Ltd. 1,447,259 RMB common share Yongsheng Industrial Co., Ltd. 1,341,000 Domestically listed foreign share Among the above shareholders, Sichuan Changhong Electric Group Co., Ltd. is the largest shareholder of Sichuan Changhong Electric Co., Ltd., Changhong (Hong Kong) Trade Co., Ltd. is the controlling subsidiary of Sichuan Changhong Electric Co., Ltd.; there existed no associated relationship or belong to the concerted actors as specified in Explanation on associated the Measures for the Administration of Information Disclosure of Shareholder Equity Changes of Listed Companies among Sichuan Changhong Electric Co., Ltd., Sichuan relationship or accordant action Changhong Electric Group Co., Ltd., Changhong (Hong Kong) Trade Co., Ltd. and among the aforesaid shareholders other top 7 shareholders; and top ten shareholders with unconditional subscription; as the Company has no idea on whether there exists any business relationship among the above shareholders with unconditional subscription or they belong to the concerted actors as specified in the Measures for the Administration of Information Disclosure of Shareholder Equity Changes of Listed Companies. 3. Statement on changes of conditional shares Unit: Share Conditional Conditional Conditional Conditional shares shares Reason for Date of Name of shareholders shares in shares in released increased condition releasing year-begin year-end this year this year Commitment for Share August 27, Sichuan Changhong Electric Co., Ltd. 38,135,951 0 0 38,135,951 Merger 2009 Reform Commitment Sichuan Changhong Electric Group for Share August 27, 32,078,846 0 0 32,078,846 Co., Ltd. Merger 2009 Reform Commitment Hefei Xingtai Holding Group Co., for Share August 27, 26,396,258 0 0 26,396,258 Ltd Merger 2009 Reform Commitment Hefei Meiling (Group) Holdings for Share August 27, 6,313,468 0 0 6,313,468 Co., Ltd. Merger 2009 Reform (II) Issuance and Listing of shares In 1996, through approval by China Securities Regulatory Commission, the Company issued 100 million shares of domestically listed foreign shares (B-shares) at the price of RMB 3.30 per share on Aug. 14, 1996, which was listed with Shenzhen Stock Exchange for trading on Aug. 28, 1996. In June 1997, the Company implemented the dividend distribution plan by distributing bonus shares at the rate of 3.5 shares for every 10 shares. As a result, the share capital increased by 82.3549 million shares, up to 380,226,255 shares. From July 29 to August 11, 1997, the Company conducted allotment for A-shares. Totally 33.4167 million shares were placed and were listed on Aug. 23, 1997. Up to then, the Company’s total share capital increased to 413,642,949 shares at present. On Aug. 24, 2007, the Company implemented Share Merger Reform Scheme, the non-tradable share shareholders of the Company carried out the price computation on A-share tradable shareholders with its possessed shares to acquire the listing and circulation right of its possessed non-tradable shares, and A-share tradable shareholders will obtain 1.5 shares of price computation for holding every 10 shares of MEILING DIANQI A-share tradable shares; and the total shares of the Company have not changed. On October 28, 2008, 12,543,559 tradable shares with conditional subscription of the Company were listed for trading. (III) Controlling shareholder and actual controller 1. Changs on shares held (1) On Dec. 26, 2008, the Company received the Document on Reply of Shares Transfer Held by State-owned Shareholders of Hefei Meiling Co., Ltd.(GZCQuan〔2008〕No.1413) delivered from the second largest shareholder Sichuan Changhong Electric Group Co., Ltd.(hereinafter refers to Changhong Group) issued by State-owned Assets Supervision and Administration Commission of the State Council, in which 32,078,846 shares of the Company held by Changhong Group were approved to be transferred to Sichuan Changhong Electric Co., Ltd (hereinafter refers to Sichuan Changhong). After the transfer, 70,214,797 tradable shares with conditional subscription held by the first largest shareholder Sichuan Changhong of the Company accounted for 16.98 percent in the total shares of the Company. On Jan. 22, 2009, the Company received the Registration and Transfer Confimation from Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, Sichuan Changhong accepted 32,078,846 tradable shares with conditional subscription of the Company held by Changhong Group in agreement, and the procedure on transferring the securities ownerships was accomplished in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited on Jan. 21, 2009. After the transfer, there was no change in the controlling rights of the Company. (2) On August 13, 2008, the Company received the Document on Reply of Shares Transfer Held by State-owned Shareholders of Hefei Meiling Co., Ltd. Without Payment(GZCQ 〔2008〕No.752) delivered from Hefei Meiling (Group) Holdings Co., Ltd. (hereinafter refers to Meiling Group) issued by State-owned Assets Supervision and Administration Commission of the State Council., in which 8.31% state-owned equity of Meiling Dianqi held by Meiling Group amounting to 34,359,384 shares(including the 3,360,329 shares which were not taken back fixedly paid instead for other not-temporary tradable shares during the Share Merger Reform of the Company) were transferred to Hefei Xingtai Holding without payment, Hefei Xingtai Holding became the shareholder of Meiling Dianqi. On August 28, 2008, the Company received the Registration and Transfer Confimation from Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, the aforementioned transferred 263.96258 billion tradable shares with conditional subscription of the Company accounted for 6.38 percent in the total shares of the Company. And the procedure on transferring the securities ownerships of the aforesaid shares was accomplished in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited on August 27, 2008. 2. Brief introduction on controlling shareholder and actual controller According to Reply of Shares Transfer Held by State-owned Shareholders of Hefei Meiling Co., Ltd issued by State-owned Assets Supervision and Administration Commission of the State Council and the Registration and Transfer Confimation issued by Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, Sichuan Changhong Electric Co., Ltd is the controlling shareholder of the Company. Sichuan Changhong Electric Co., Ltd.: Legal representative: Mr. Zhao Yong; registered capital: RMB 1,898,210,000; registered address: No. 35, Mianxing (E) Road, Hi-tech Zone, Mianyang, Sichuan; business scope: production, sales and road transportation of video products, audiovisual products, air-conditioner products, companion products of buttery, network products, companion products of laser reading and writing, satellite TV & Broadcast ground receiving equipment, video movie, electric medicine products, electrical equipment, security technology, organization products, digital camera, communication and computer products and chemical industry products; packaging goods and technical service; maintenance and sales of electric products and components; house leasing; transit trade, e-commerce, hi-tech risk investment and other state-permitted business. Ended Dec. 31, 2008, Sichuan Changhong Electric Group Co., Ltd holds 581,689,800 shares of Sichuan Changhong Electric Co., Ltd, which accounts for 30.64 percent in total shares of Sichuan Changhong. The actual controller of Sichuan Changhong Electric Group Co., Ltd is State-owned Assets Supervision & Administration Commission of Mianyang Municipality. Equity structure chart of the Company is as follows: State-owned Assets Supervision & Administration Commission of Mianyang Municipality 100% Sichuan Changhong Electric Group Co., Ltd. 30.64% Sichuan Changhong Electric Co., Ltd. 100% Changhong (Hong Kong) Trade Co., Ltd. 7.76% 2.63% Hefei Meiling Co., Ltd. Section IV. Particulars about Directors, Supervisors, Senior Executives and Employees 1. Shares held by directors, supervisors and senior executives, their office term and remuneration Total Drawing remuneration remuneration Shares Shares Reason drawn from from held at Name Title Sex Age Office term held at for the Company shareholders’ year-b year -end change in the report units or other egin period related units (RMB’0000) or not Chairman of April 15, 2008- Zhao Yong Male 46 0 0 60.00 Yes the Board April 15, 2011 Vice Wang April 15, 2008- Chairman of Male 58 77,977 77,977 58.54 Yes Jiazhang April 15, 2011 the Board April 15, 2008- Li Jin Director Male 42 0 0 36.00 Yes April 15, 2011 Director, April 15, 2008- Wang Yong Male 42 0 0 41.26 No President April 15, 2011 April 15, 2008- Li Wei Director Male 36 0 0 36.00 Yes April 15, 2011 April 15, 2008- Ye Honglin Director Male 38 0 0 36.00 Yes April 15, 2011 Standing April 15, 2008- Liu Hongwei Vice Male 46 0 0 37.43 No April 15, 2011 President Vice April 15, 2008- Yu Wanchun Male 39 0 0 33.40 No President April 15, 2011 Vice April 15, 2008- Li Daijiang Male 43 0 0 33.44 No President April 15, 2011 Xue Hui Vice Male 46 April 15, 2008- 0 0 33.49 No President, April 15, 2011 Secretary of the Board Wang Independent April 15, 2008- Male 65 0 0 6.00 No Xingzhong April 15, 2011 Director Independent April 15, 2008- Song Baozeng Male 69 0 0 6.00 No April 15, 2011 Director Independent April 15, 2008- Liu Youpeng Male 55 0 0 6.00 No April 15, 2011 Director Chairman of April 15, 2008- Fei Minying Supervisory Female 51 0 0 6.00 Yes April 15, 2011 Committee April 15, 2008- Yu Xiao Supervisor Male 41 0 0 6.00 Yes April 15, 2011 Yong April 15, 2008- Supervisor Male 41 0 0 6.00 No Fengshan April 15, 2011 Employee April 15, 2008- Zhang Ruhe Male 50 0 0 3.62 Yes Supervisor April 15, 2011 Total 77,977 77,977 445.18 Main work experience of directors, supervisors and senior executives for the recent five years: (1) Zhao Yong, Male, Han nationality, was born in Santai, Sichuan dated June, 1963, Member of CPC, Senior Engineer and Post Doctorate. He ever held the posts of Deputy General Manager, Vice Chairman of the Board, Member of Standing CPC Committee, General Manager, Vice Secretary of CPC Committee of Sichuan Changhong Electric Co., Vice Chairman of the Board, Member of Standing CPC Committee, Vice Secretary of CPC Committee of Sichuan Changhong Electric Group Co., Ltd. and Deputy Mayor and Member of CPC Organization of Mianyang City; now he holds the posts of Chairman of the Board and Secretary of CPC Committee of Sichuan Changhong Electric Group Co., Ltd., Chairman of the Board and Secretary of CPC Committee of Sichuan Changhong Electric Co., and Chairman of the Board of the Company. (2) Wang Jiazhang, Male, Han nationality, Member of CPC, was born in Jan., 1951. He was successively held the posts of Assistant of Factory Director and Vice Factory Director of Hefei Refrigerator Headquarter, and Vice Chairman of the Board and Chairman of the Board of Hefei Meiling Co., Ltd.; now he holds the posts of Chairman of the Board and Secretary of CPC Committee of Hefei Meiling (Group) Holdings Co., Ltd., and Vice Chairman of the Board of the Company. (3) Li Jin, Male, Han nationality, was born in Anhua, Hunan dated April, 1967, Member of CPC and Senior Engineer with Doctor’s Degree. He has been in charge of Head of Air-conditioner Research Center of Air-conditioner Division, Deputy Minister of Air-conditioner Department and concurrently chief engineer of Sichuan Changhong Electric Co., Ltd., and General Manager of Changhong Air-conditioner Corp., etc. Now he holds the posts of Director of Sichuan Changhong Electric Group Co., Ltd., and Deputy General Manager of Sichuan Changhong Electric Co., Ltd., and Director of the Company. (4) Wang Yong, Male, Han nationality, was born in Ziyang, Sichuan dated July, 1967, Engineer with Bachelor’s Degree. He graduated from radio-technology major of Shanghai Jiao Tong University in July 1990 and then worked at Sichuan Changhong Electric Co., Ltd. He ever took the posts of Director of Management Committee in Marketing Management Department, Head of Administration Office, Vice Minister, and Deputy General Manager of Changhong Electric (China) Marketing Corp. and concurrently General Manager of North China Operation & Administration Center, etc. Now he is President of Hefei Meiling Co., Ltd. (5) Li Wei, Male, Han nationality, was born in Tongliang of Sichuan Province dated Feb., 1973, Assistant Economist with bachelor degree. He ever took the post of General Manager of Xi’an Sales Filiale of Sichuan Changhong Electric Co., Ltd and General Manger of Southeast Operation Management Center of Changhong Electric (China) Marketing Co., Ltd.; now, he is the General Manger of Changhong Air-condition Co., Ltd, and Director of the Company. (6) Ye Honglin, Male, Han nationality, was born in Pujiang of Sichuan Province dated Dec., 1971, Senior Accountant with bachelor degree. He ever took the posts of General Manager of Internal Bank of Sichuan Changhong Electric Co., Ltd., Deputy Minister and Minister of Financial Department, Deputy General Manager of Hefei Meiling Co., Ltd., now he is the CFO of Sichuan Changhong Electric Co., Ltd, and Director of the Company . (7) Liu Hongwei, Male, Han nationality, was born in Shangqiu, Henan dated July 1963, Doctor Degree of Department of Mechanical Engineering and Applied Mechanics of Pennsylvania State Lehigh University. He was ever worked in Pennsylvania State Kulicke and Soffa Industries, California State Tessera Technology Corporation and California State Intel Corporation; now, he is Standing Vice President of the Company. (8) Yu Wanchun, Male, Han nationality, was born in Renshou, Sichuan dated September, 1970, Senior Accountant with Bachelor’s Degree. He graduated from Finance major of Chongqing Business College (now, has its new name of Chongqing Technology and Business University) in July 1994 and started to work at Sichuan Changhong Electric Co., Ltd.; he ever held the positions of Section Chief of Accounting Department and Deputy Minister of Finance Department of Sichuan Changhong Electric Co., Ltd., etc.; now he is Vice President of the Company. (9) Li Daijiang, Male, Han nationality, was born in Shifang, Sichuan dated October, 1966, Member of CPC and Statistician with Bachelor’ Degree. He graduated from statistics major of Southwest University of Finance & Economics in July, 1987 and then worked at Sichuan Changhong Electric Co., Ltd.; he ever held the posts of Head of Price Department, Minister of Price Department, Vice Minister of Comprehensive Management Department and Vice Minster of the Ministry of Materials, etc. Now he is Vice President of the Company. (10) Xue Hui, Male, Han nationality, was born in Hefei of Anhui Porvince; successively held the posts of Director and concurrently General Manager of Hefei Huazhen Senior Composite Material Co., Ltd., Chief of Capital Management Office of Daxipu International Industry (Anhui) Co., Ltd., Standing Deputy General Manager of Anhui Chang’an Electronic Co., Ltd. and concurrently General Manager of Sales Company; now he holds the posts of Vice President and Secretary of the Board of the Company. (11) Wang Xingzhong, Male, Han nationality, was born in Guanghan of Sichuan Porvince dated August 1944, CPC member, senior accountant with Bachelor Degree; ever took the posts of Deputy Director of Economic Commission of Mianyang Municipality, Deputy General Director and General Director of Mianyang Finance Bureau and concurrently General Director of Mianyang Local Taxation Bureau; Assistant to Mayor, and Deputy Mayor of Mianyang People’s Government. Now, he was retired. And he is the Independent Director of the Company (12) Song Baozeng, Male, Han nationality, was born in Laizhou of Shandong Porvince dated Jan., 1940, CPC member, Researcher with Bachelor Degree. He ever took the posts of Engineer, Deputy Director and Deputy Superintendent of No. 2 Institute of Chinese Academy of Engineering Physics, and Vice-president of Chinese Academy of Engineering Physics. Now, he is the Director of Mianyang Meineng Materials Technology Co., Ltd., Chairman of Sichuan Kexuecheng Center Technology Co., Ltd, and concurrently Professor of Southwest University of Science and Technology and Sichuan University, and Consultant of Sichuan Provincial Advisery Commission, and the Independent Director of the Company. (13) Liu Youpeng, Male, Han nationality, was born in Hefei of Anhui Porvince dated Nov., 1954, Economics Doctor, Senior Economist, Senior Credit Manager. Now, he takes the posts of Professor of Shanghai Business School, Distinguished Expert Commisser of Training Department of China General Chamber of Commerce, Credit Manager of Training Department of China General Chamber of Commerce, and Independent Director of Anhui Gujing Group Co., Ltd. He ever worked in Weishu District of Beijing, Quanjiao Middle School of Anhui and Wanbei Branch of Anhui Agricultural College; he successively took the posts of Section Chief and Office Deputy Director of Education Department of Anhui Province, Deputy Mayor of Haozhou Municipality of Anhui Province and Office Director of Universities Admissions Office of Education Department of Anhui Province, and the Independent Director of the Company. (14) Fei Minying, Female, Han nationality, was born in Su County, Anhui dated November 1958, Member of CPC and Economist with Bachelor’s Degree; she ever held the posts of Director of Audit Office, Minister of Audit Ministry of Law, etc. of Sichuan Changhong Electric Co., Ltd. Now she holds the posts of Supervisor, Deputy Secretary of Committee for Disciplinary Inspection and Minister of Ministry of Audit of Sichuan Changhong Electric Co., Ltd., and Chairman of Supervisory Committee of the Company. (15) Yu Xiao, Male, Han nationality, was born in Yiwu, Zhejiang dated August, 1968, Member of CPC, Senior Accountant with Bachelor’s Degree. He ever held the posts of Deputy Director General of Finance & Accounting Office, Deputy Director General of Finance & Accounting Office of Sales Department, and Deputy Minster of Sales Department, Minister of Finance Department of Sichuan Changhong Electric Co., Ltd., and now he is CFO of Sichuan Changhong Eletric Group Co., Ltd.and Supervisor of the Company. (16) Yong Fengshan, Male, Han nationality, was born in Dingyuan of Anhui Province, Senior Accountant, successively held the posts of Director Assistant of Operation Department, Head of Financial Department of Hefei Cable Plant, and Deputy Chief Accountant concurrently Minister of Financial Department of Hefei Meiling Co., Ltd. Now he holds the posts of General Manager of Hefei Indutrial Investment Co., Ltd, and the Supervisor of the Company. (17) Zhang Ruhe, Male, Han nationality, was born in Feixi, Anhui Province, college degree, Member of CPC; he ever took the posts of Secretary of Army 60th Artillery Regiment, Office Director and Vice-secretary of Discipline Department of Hefei Plastic General Plant, Commissioner of Armed Forces, Deputy General Manager of Superintendence Department, Equipment Security Personnel of Extrusion Plate Plant of Hefei Meiling Co., Ltd., Party Affairs and Administration Officer in President Office of Hefei Meiling Co., Ltd. Now, he is the Charger of Materials Takeback in Materials General Warehouse of Hefei Meiling Co., Ltd., and the Employee Supervisor of the Company. 2. Particulars about office titles in Shareholding Company Drawing remuneration Start date of End date of Name Unit Title and office term office term allowance or not Sichuan Changhong Electric Co., Ltd. Chairman of May 31, May 31, Zhao Yong Yes Sichuan Changhong the Board 2008 2011 Electric Group Co., Ltd Wang Hefei Meiling (Group) Chairman of 2002 ----- No Jiazhang Holdings Co., Ltd. the Board Sichuan Changhong Director and May 31, May 31, Li Jin Yes Electric Co., Ltd Deputy GM 2008 2011 Sichuan Changhong Yes Yu Xiao CFO ----- ------ Electric Group Co., Ltd Sichuan Changhong Air- Li Wei GM Condition Co., Ltd. Sichuan Changhong Sep. 19, May 31, Ye Honglin CFO Yes Electric Co., Ltd. 2008 2011 Sichuan Changhong Chairman of May 31, May 31, Fei Minying Supervisor Yes Electric Co., Ltd. 2008 2011 Committee 3. Foundation of annual remuneration Foundation of annual remuneration received by directors, supervisors and senior executives: the Company conducted the performance examination on the task of directors, supervisors and senior executives according to the resolution Board of Directors, the relevant policies of labor authority and the checking system of linking their office position wages with performance; then the remuneration is decided and implemented on the basis of evaluation result which has been examined and approved by the Board of Directors or the Shareholders’ General Meeting. The Company respectively paid allowance of Independent Directors of RMB 60,000 per year (after taxation) to every independent director based on the decision of the Board of Directors. 4. Particular of the change of Director, Supervisor and Senior Executive (1) The 2007 Annual Shareholders’ General Meeting of the Company was held on Apr. 15, 2008, the Meeting elected Mr. Zhao Yong, Mr. Wang Jiazhang, Mr. Li Jin, Mr. Wang Yong, Mr. Li Wei and Mr. Ye Honglin as the Non-Independent Directors of the 6th Board of Directors of the Company; and Mr. Wang Xingzhong, Mr. Song Baozeng and Mr. Liu Youpeng as the Independent Directors of the 6th Board of Directors of the Company. The 2007 Annual Shareholders’ General Meeting elected Ms. Fei Minying, Mr. Yu Xiao and Mr. Yong Fengshan as the Supervisors of the 6th Supervisory Committee of the Company, who formed the 6th Supervisory Committee of the Company with Employee Supervisor Mr. Qi Dunwei and Mr. Zhang Ruhe chosen in Employee Representative Conference 5. The number of employees, professional composition, education background and retirement The Company has 3,493 employees, including 216 professionals holding medium and senior professional titles, 1,211 production personnel, 795 salespersons, and 143 administrative personnel. 1,565 of them hold college degrees or above. The Company did not bear the expenses of retired staff and there are only 208 internally retired staff employees. Professional composition of employees is as follow: Professional Number Proportion Production personnel 1,211 34.67% Salesperson 795 22.76% Administrative personnel 143 4.09% Technicians 216 6.18% Financial personnel 134 3.84% Other professional personnel 445 12.74 Section V. Administrative Structure I. Company Administration In the report period, in strict accordance with the requirements in Company Law, Securities Law, Code of Corporate Governance for Listed Companies in China, Rules Covering Listing of Stocks on Shenzhen Stock Exchange and other relevant laws and regulations by CSRC, the Company endlessly perfected its administration structure, established and promoted its internal management and control system, continuously deeply develop administration activities of the Company, further standardize operations and enhance its administrative level. Ended the report period, the practical condition of the Company’s administration accorded with the requirements on the administration of listed companies of standard documents promulgate by Code of Corporate Governance for Listed Companies and China Securities Regulatory Commission. 1. Shareholders and Shareholders’ General Meeting: Strictly in accordance with the Rules for the General Meetings of Shareholders of Listed Companies and the Rules for the General Meetings of Shareholders of the Companies, the Company convened and held Shareholder’s Meeting and ensure fair treatment toward all shareholders, especially minority shareholders to fully exercise their rights. 2. Controlling shareholders and listed companies: With independent business and management ability, the Company separated from the controlling shareholder, Board of Directors and Supervisory Committee and internal institution, in terms of business, personnel, assets, finance and organization. The controlling shareholder of the Company could strictly standardlize its behaviors and did not exceed the Shareholders’ General Meeting to intervene the decision-making and management activities directly or indirectly. 3. Directors and the Board of Directors: The Company elected directors in strict accordance with the director electing and engaging processes prescribed by Articles of Association .At present, there are three independent directors which covers one third of the Board of Directors, and the member formation of the Board of Directors was in accordance with the requirements of laws and regulations of Articles of Association. On the principle of Rules of the Board of Directors and Rules of the Independent Directors, all directors could carry out their work carefully and attend the Board of Directors and the Shareholders’ General Meeting seriously; take part in relevant trainings actively and get more familiar with relevant laws and regulations. 4. Supervisors and Supervisory Committee: The Company had set up Supervisory Committee, and the numbers and member formation of the Supervisory Committee were in accordance with the requirements of Articles of Association, Company Law and relevant laws and regulations. In accordance with Rules and Procedures of the Supervisory Committee, all the supervisors could earnestly perform their duties, supervise the significant events, related transaction, financial status, directors, presidents as well as other senior executives of the Company and express their independent opinions. 5. Performance valuation as well as encouragement binding mechanism: The Company continued to promote and perfect the equitable, transparent and normative performance valuation standard and encouragement binding mechanism for directors, supervisors and senior executives. The election for senior executives is normative and transparent, which is in accordance with laws and regulations. 6. Interest correlatives: The Company could fully respect and safeguard the legitimate rights and interests of interest correlatives, thus realizing interest balance for society, shareholders, the Company and its employees and promoting its stable development. 7. Information disclosures and its transparency: In strict accordance with the requirements of the Information Disclosure Management System and relevant laws, the Company strengthened information disclosure management, performed information disclosure obligations. And the Company assigned Securities Times, China Securities, Hong Kong Wen Wei Po and Ju Chao Information Web (www.cninfo.com.cn) for its information disclosure; disclosed relevant information truly, accurately, integrally and timely, and to ensured that all the shareholders enjoys the right of acquiring the information equally. II. Performances of Independent Directors 1. According to rules of System of Independent Director for Hefei Meiling Co., Ltd., independent directors can diligently and loyally perform their duties, actively attend related conference, and deeply get familiar with the Company’s operation and development of significant events, to make reasonable opinions and suggestions for its operation and development from professional prospective. And they expressed independent opinions for the related transactions as well as external guarantee and assets exchange with the related parties, performed an active function on the scientific decision-making of directors and the development of the Company, and preserved the interests of the Company and all shareholders in a diligent and responsible attitude as independent directors. 2. In accordance with the requirement os Document〔2008〕No. 48 promuglated by CSRC, the independent directors of the Company actively performed their responsiblities, fully exerted their independent functions in the work of annual report of the Company, and the main contents were: i. Combined with the actual conditions of the Company, through negotiating with accounting firm on annual report, the date for auditing the financial report of this year was confirmed and auditing work plan for annual report was established; ii. Before the annual auditing firm entered to audit on spot, personnel of auditing work group, auditing plan, risk judge, test and appraisal method of risk and embezzlement, auditing emphases of this year were negotiated with annual auditing accountants; iii. Heard the reports on financial status and operating results of the Company this year from the financial principal of the Company; iv. Auditing the financial statement compiled by the financial department of the Company before the annual auditing accountant, they thought: the financial statements truly reflected the financial status in year-end of 2008 and operating results in 2008 of the Company; v. Rechecked the financial statements of the Company after the annual auditing accountants issued the initial auditing opininons, they thought: the financial statements truly and objectively reflected the financial status and operating results in 2008 of the Company 3. Particulars about independent director attending the Board of Directors: Name of Due presence at the Board of Presence in Entrusted Absence independent Remarks this year (times) person (times) presence (times) (times) directors Wang Xingzhong 11 11 0 0 --- Song Baozeng 11 11 0 0 --- Liu Youpeng 11 11 0 0 --- 4. Particulars about independent director presenting different opinion on the relevant items of the Company: In the report period, the three independent directors had no different opinion on various proposals of the Annual Board of Meetings and other events of the Company. III. Separation between the Company and its controlling shareholder in terms of business, personnel, assets, organization and finance The Company separated from the first largest shareholder Sichuan Changhong Electric Co., Ltd. in terms of business, personnel, assets, finance and organization, examined and calculated independently, and undertook responsibility and risks independently. 1. Business. The Company had independent and integral business and self-operating ability; the Company set up specialized purchasing and sales departments, and operated and managed the Company’s business independently; the production and operating personnel were independent of the controlling shareholders and its subsidiaries. 2. Personnel. The Company possessed its own independent labor, human resource, and salary management departments and established its own labor, personnel, and salary management systems; President, Vice-president, Secretary of the Board and Person in Charge of Finance of the Company didn’t hold concurrent posts excluded director and supervisor and draw remunerations in the controlling shareholders and its subsidiaries, but all worked and drew their remuneration in the Company. 3. Assets. The Company owned independent prodcution operation place and integrated asset seperated from the controlling shareholder, owned the independent production system and supporting production facilities and fitting equipments, land use right and property ownership, and owned independent purchase and sales systems. 4. Organization. The Company established its own organizations completely independent of the controlling shareholder, and the Board of Directors, Supervisory Committee and internal organization could operate independently; there were no actions existing of the controlling shareholder’s intervening the operation decision of the Company. 5. Finance. The Company possessed independent financial and accounting departments, established independent accounting calculation system and financial management system, opened its account with the bank and declared to pay taxes independently. IV. Campaign to Strengthen Corporate Governance of the Companies According to ZJGSZ [2007] No.28--the Notice on Issues Concerning Campaign to Strengthen Corporate Governance of Listed Companies and relevant deployment of Anhui Securities Regulatory Bureau, the Company started Campaign to Strengthen Corporate Governance of the Companies from April, 2007, and completed relevant work of three phases including self-inspection, public comment and improvement, accepted special inspection of Anhui Securities Regulatory Bureau. On 5th November, 2007, the Company held the 28th meeting of the 5th Board of Directors and passed Reform Report of Campaign to Strengthen Corporate Governance of Hefei Meiling Co., Ltd. which was pulished in Securities Times, China Securities and Ju Chao Information Web(www.cninfo.com.cn) on 6th Nov., 2007. According to the requirements of Notice of China Securities Regulatory Commission ([2008] No.27) and Notice on Strengthen Corporate Governance of Listed Companies in its Districts ([2008] No.29), the Board of Directors of the Company required relevant departments to evaluate the completion and reform effection of Reform Report of Campaign to Strengthen Corporate Governance of Hefei Meiling Co., Ltd.. The Company has completed reform in term and received good effection. The reform, effection and next improvement plan listed in the reform report was as follows: (I) Reform in term Problem I: On standardizing operation (1) After Sichuan Changhong being part of the Company, the Board of Directors and Supervisory Committee took non-site communication method, which is the opposite way of spot meeting required by the Board of Directors and Supervisory Committee’ convene. Reform: From the recognization of the 6th Board of Directors, Supervisory Committee in April, 2008, in order to ensure the natural effection of decision-making, the Board of Directors and Supervisory Committee overcamed the difficulty to hold meeting in field due to dispersive work place, and tried the best to hold meeting in field. At the same time, the Company insisted on sending meeting notice and information to each director and supervisor before holding board and supervisory meetings, and made good communication with them on issues which would be discussed in meeting in order to ensure the effection of decission-making. (2) At present, the Company did not set relevant special committee underling of the Board of Directors or exert the specialized knowledge of specilized persons in independent board of directors. Reform: After setting new Board of Directors and Supervisory Committee, the Company set underling special committee according to relevant requirements. The Company could fully exert the function of the special committee, and improve the ability of making scientific decission and preventing risk. At the same time, the number of employee supervisors in new Supervisory Committee has accorded with the requirements of relevant regulations. Problem II: On Commitments Implemention. Sichuan Changhong Electric Co. Ltd. should transfer its holding 90% Hefei Changhong Meiling Refrigeration Co., Ltd. shares to the Company in 6 months after transferring Meiling Electric Co., Ltd. shares. Reform: Sichuan Changhong Electric Co. Ltd. had made public commitments that it would transfer its holding 90% Hefei Changhong Meiling Refrigeration Co. Ltd. shares to the Company in 6 months after transferring Meiling Electric Co., Ltd. shares. At present, Sichuan Changhong had transferred its holding 90% Hefei Changhong Meiling Refrigeration Co. Ltd. shares to the Company, so the related transaction between the Company and Sichuan Changhong and their potential competition problem had been resolved. Problem III: On Information Disclosure Reform: in order to ensure the information disclosure work, the Company orcognized the directors, supervisors, senior managers and relevant department to take deep study on the law and rules including the Company Law, the Securities Law, Code of Corporate Governance for Listed Companies and the Information Disclosure Management Bylaws, and took part in relevant training of supervisory department, deeply analyze the reasons of problems in information disclosure, which improved and strengthened the management of information disclosure, feasibly improved the information disclosure quality and ensured to do it strictly and normatively. Problem IV: On Investors Relationship Management (IPM). At present, the way of communication for the Company and investors is still simplex, and was lack of thorough communication. Reform: On investment relationship management, the Investment Relationship Management System had been revised, and the telephone, fax, e-mail and relevant web site of the Company had been disclosed by way of the special corporate governance activities of the Company. At present, the Company could adopt various methods such as network and investors’ meeting to further strengthen the communication with investors, to make investors comprehensively realize the development strategy and management achivement of the Company, which could promote their realization and identification of the Company and set up good image of the Company in capital market. (II) Continuous Reform Problem I: Further complete and perfect relvant system Reform: the Company held the 23rd of the 5th Board of Directors on Jul. 9th, 2007 and passed some internal system including the Information Disclosure Management System, Collect Fund Management System and Investment Relationship Management System. These systems were disclosed on Juchao website according to the requirement of Shenzhen Stock Exchange. Reform effection: through strengthening system construction, the administration system had basically achieved the requirement of standard documents on administration of listed company issued by CSRC, and improved the standard work level of the Company. Next improvement plan: further perfect administration system, improve standard work consciousness and administration level, take internal system building as breakthrough, tamp management basic, and promote the administration level to improve. Problem II: Exert the functions of each special committe to improve the scientificalness of decission-making. Reform: Under the new position, the Company strengthened the work of each special committee, further exerted the function of them and independent directors, improved the participation of external directors in the company’s management decission-making, and took the special committee building as a long term work. Reform effection: the Company highly recognized and strengthened the work of special committee, promoted them to futher exert their function, and provided support for scientifical decission-making. Next improvement plan: the Company would continue to exert the function of special committee, strengthen the reaserch and development of the work, to provide more powful support for high performance of the Board of Directors. V. Self-estimation on Internal Control According to the requirements of relevant law, regulations and rules including the Company Law and the Rules of Shenzhen Stock Exchange for the Listing of Stocks, the Board of Directors of Hefei Meiling Co., Ltd. thoroughly inspected the completion of each management regulation and system, and made conclusion and self-estimation. The Board of Directors thought, in the report period, the present internal control system accorded with the requirement of the state law and regulation and the actual demand of the present production management, and exerted good control and prevention function during each procedure of management and key tache. With the growth of the Company, the internal control need developing upto a higher level, the Company would constantly conclude experience, perfect internal control system, intensify the consciousness of standard operation, strengthen internal supervise system and promote the Company healthily and fleetly develop. The details of internal control report were as follows: (I) System building and actulization in internal control In 2008, the Company gradually perfected each internal control system and was effectively implemented: 1. Perfected legal person administration structure. The Company could strictly accord with the requirements of the Company Law, relevant law and regulation and modern enterprise system, and perfect the system of shareholders’ general meeting, the board of directors, supervisory committee, management and relevant rules of procedure, detailed rules and work system; could form an legal person administration structure that authority institution, decission-making institution, supervisory institution and management institution had clear right and duty, independent work, mutual restriction scientifical decission-making and harmony operation. 2. Built and perfected organization rules and management institution. Each department could do its work independently, take its own responsibility, mutually cooperate, mutually restrict, link by link, and ensure the orderly production and operation. 3. The senior excutives had the moral character of honestness and faithfulness, could insist on principles, be pragmatic, dedicated and probitied. The Present held the post for a long term in the Company, was familiar with the operation, and had great leading ability and exploring and innovating ability. With his leading, the leading group members had good faith and probity, took their own responsibility and also mutually cooperated, formed a reliable leading group with cohesion force and battle effectiveness, and received employees’ trust and support. The supervisory committee, as a supervisory institution, could effectively supervise the performance of senoir excutives; prevent illegal, violating and fraudulent behavior of senoir excutives when they performed duty. 4. The Company adopted labor contract system for all employees. Through signing labor contract, the Company built labor relationship with employees, bought labor insurance for them, and never had labor diputes. Fostered and retained excellent persons, and provided human resource guarantee for further development. 5. The Company paid attention to enterprise’s culture building. The Company published internal magazines such as Meiling Newspaper and Liangjian in the Company’s internal network for all employees to communication and study; organized various recreational activities to rich employees’ life, improve their identification degree to the Company and strengthen their spirit of team cooperation. (II) System and implementation in operation control 1. Management system Since a set of international standards including ISO9000, ISO14000, OHSMS18001 and IECQ QC080000: 2005 were issued, Meiling actively started the work of publicizing the standards and bulding system, and with international standard management and behavior, the Company passed the quality standard identification in Nov., 1995, the environment management system identification in Nov., 1997, the professional health security management system identification in Sep., 2006, and the RoHS identification of BSI in Jul., 2006. According to the requirements of GB/T19001-2000, GB/T24001-2004, GB/T28001-2001 and IECQ QC080000: 2005, the Company built procedure management systems of quality, environment, professional health security and dangerous matters, formed four in one three-level document system including management handbook, procedure document and exercise instrutor to regulate the management work and constantly improve its effectiveness. The Company set system management office, which made 1 totally internal audit of management system, 1 management appraisement, received 1 external audit of China Quality Certification Center (CQC) and China Certification Center for Quality Mark (CQM), and there was no significant non-consistent item in internal and external audit. 2. Operation and budget management system According to the requirement of relevant documents including Guidelines for Internal Control of Listed Companies and the actual situation of the Company, in order to standardize the operation behavior, control operation risk, safeguard legal interests of the Company and shareholders, strengthen operation management and improve financial benefit, the Company established operation management system to standardize the work of purchase, production, sales, development, item and relevant contract management. The operation management system included: sales management, purchase management, foreign purchase management, production and development management, project management, contract management and client information management. At present, the operation management operated normally. The Budget management system covered production, sales, development and project impementation, which included: organization and duty, contents and compilation rules, compilation and examination, revisement, implementation and control, analysis, appraisal and examine of implementation. The Company had built budget management system, which was decomposed by month in 2008 to improve planning in advance and control ability; technology reform and development item was implemented in the item budget approved by the Board of Directors. 3. Finance management system and accountant system The Company built finance management system and accounting system to standardize accounting calculation and finance management and ensure the trueness of finance information. Fianance management system included: accounting institution and accountant, capital management, accounts receivable management, property checking, fixed assets management, inventory management, finance loan and expenses reimbursement, accounting file management and accounting computerization management. 4. External guaranty and related transaction system The internal control of external guaranty followed the principles of legality, prudence, mutual benefit and security, and strictly controlled the risk of guaranty. According to the relevant regulations of relevant law, administrative law, department regulations and Listing Rules, the Company made clear the approval authority on external guaranty of the shareholders’ general meeting and the board of directors, and Responsibility Tracing System breaking the approval authority limitation and approval procedure. When confirming the approval authority, the Company implemented relevant regulations of accumulative calculation of external guranty in Listing Rules. The internal control of related transaction followed the principle of honesty, credit, equality, unconstrains, fairness, and publicity, and did not have damage the interests of the Company and other shareholders. According to the regulations of relevant law and rules, the Company made clear the approval authority and discussion procedure and voting avoidance requirement on related transaction 5. Information disclosure management system The Company established information disclosure management system, and the directorate secretary was the main responsible person of information disclosure work and managed the affairs. The directorate secretary office was the management department of information disclosure and directly led by the directorate secretary. The directorate secretary was also the responsible person of investors’ reationship, and organized all kinds of work of investors’ relationship after deeply realizing the operation, management, and business status and development strategies. 6. Internal audit system The Company set independent internal audit department, and independently took internal audit work and supervisory work with the direct leading of the audit committee according to the internal audit system. Audited and checked the financial income and expenses, production and operation activities of each department, estimated on the trueness, legality and rationality of economy benefit, supervised and inspected the implementation of internal management system and interna; control system on irregular dates. Combined with own management characters, the Company established a set of internal control regulations and system, and implemented effectively, which ensured the normal management. The Board of Directors thought that the internal control totally embodied integrality, rationality and validity. (III) Existing Problems on Internal Control In the actualization process, the following particulars on internla control still need to be strengthened and perfected: 1. At present, the systems in the Company were relatively perfected. However, with the growth of the Company, the internal control system needed to perfect and improve, and the company management system and contract management system of subsidiary company needed to be strengthened and perfected. 2. In the implementation of internal control system, firstly, the Company needed to strengthen internal control training to improve the risk control consciousness of employees’ especially the management group; secondly, needed to exert the function of each special committee and law consultant institution. (IV) Measures for construction and execution for improving and perfecting internal control system In concern of the problems existed in the internal control and proceedings advanced, the Company plans to take the following measures in 2009 to improve the situation: 1. Further strengthen the power of the internal audit organ, bring the effect of audit on controlling and supervising various businesses into play, make clear of the levels, and improve systematical character and validity of internal control. 2. Adequately amend and perfect the administration system and contract management system of its subsidiaries, in order to fulfill the demand for development; complete and perfect authorization system and authorization range of the Board and the operating level when significant proceedings occur, meanwhile, perfect the related supervision and examination systems and standardize decision-making; pay attention to the construction of the Nomination Committee, the Strategy Committee, Remuneration and Examination Committee, and the Audit Committee, detail the working procedure, which make sure that the Board effectively supervise the operating level and the various committees bring function in internal control. (V) The opinions presented by the Supervisory Committee on self-evaluation of internal control According and comparing to related regulations of Guideline for Internal Control of Listed Companies, the Supervisory Committee made the following opinions on the self-evaluation report of internal control: (1) In accordance with related regulations of CSRC and Shenzhen Stock Exchange, and referring to principles of internal control and practical condition of the Company, the Company has established and perfected internal control system which covers every step of its internal control to make sure the ordinary operation of its business as well as security and completeness of its assets. (2) The completeness of internal control structure as well as completeness staff of inner auditing department ensures effectiveness for execution of key activities for internal control. (3) In 2008, there is no breaking in Guidelines for Internal Control of Listed Company issued by Shenzhen Stock Exchange and related internal control system of the Company. Above all, the Supervisory Committee thought the self-evaluation of internal control of the Company is true, complete and accurate to reflect the reality of its internal control. (VI) The opinions presented by Independent Directors on Self-Evaluation of Internal Control In the report period, according to related regulations of Guideline for Internal Control of Listed Companies by Shenzhen Stock Exchange, the Board of Directors modified, perfected, examined and passed a series of company management system. The internal control system of the Company was comparatively complete and perfect, which was formed on the basis of environment control system, business control system, accounting control system, information disclosure system and internal audit control system. Key activities of internal control were carried out in accordance with regulations of systems of internal control. And its internal control on subsidiaries, external guarantee, significant investment and information disclosure was strict, complete and effective, which ensured the normal management and operation. The internal control system was of ration, completeness and effect. And the self-evaluation on the internal control was in accordance with the reality of the Company’s internal control. VI. Particulars on evaluation and encouragement of its Senior Executives In the report period, the Company endlessly perfected and standardized the performance evaluation standard and incentive system for directors, supervisors and senior executives, and identified the responsibility for its senior executives. The Company took the distribution & evaluation system, which was made according to operating performance, to evaluate its senior executives. According to their individual duty on the posts, the evaluation result from their job as well as the profits of the Company, the Company distributed the remuneration of the senior executives. Section VI．Brief introduction of the shareholder’s general meeting In the report period, the Company total held one Annual Shareholder’s General Meeting. The holding and voting for the meetings comply with regulation of Company Law, Rules for Shareholder Meeting and Article of Association and other relevant laws and rules. Particulars about the Annual Shareholder’s General Meeting The Company held the Annual Shareholder’s General Meeting for 2007 dated on April 15, 2008 and the resolution notice has been published in China Securities, Securities Times and Hong Kong Wen Wei Po dated on April 16, 2008 Section VII. Report of the Board of Directors I. Operation of the Company Executing the annual operation policy of Stabilizing the Foundation, Improving the System and Challenging the First and Wining on Execution, the Company has kept a comparative growth through the economic crisis in 2008. I) Main operation: 1. On marketing, Meiling continually steped forward into the field of the best brands of China and bore burden from its overseas market. In domestic market, the Company continued to make creation in sales and took chance to challenge the best in 2008. It further advanced the projects of Athena and Golden Triangle. Taking the opportunity of Olympic Games and activity of Appliance Sent to Countryside, the Company exerted its chain promotion and built core terminal, thus improved its covering rate and occupation rate in domestic market. The Company continued to occupy the second place in the domestic market and realized sales growth. Meanwhile, taking the advantage of good quality, complete network, excellent service, the Company had its 25 kinds of refrigerators and freezers successfully win the bid, which meaned that the Company was the enterprise which won most bids in electric appliance in Anhui province. In the first round, the Company also won bids for its 15 kinds of refrigerators and freezers. In market abroad, through the reform of foreign sales organization, strengthening of establishment of sales team, improving service quality, optimizing product and customer structure, developing new products with competition, and increasing the proportion of its own products, the Company weakened its risk and strengthened its profit-making ability in overseas market and anti-risk ability. In the first half year of 2008, its profit-making condition has got particularly improved. While as the economic crisis happened in the next half year, the export quantity has rapidly fallen down, thus made the decline in export for the whole year. 2. Good performance of high-tech product in technical field In the grand award ceremony of the 5th China Product Innovation Design Award for 2008, Meiling won the Golden Prize of Product Innovation Design with its product Athena BCD-450ZE9, a French door and multi-door refrigerator developed with the ideal of Self-innovation and Made in China. This represents the highest level for Chinese enterprises in field of product innovation in this year. The Terminator III, an energy-saving refrigerator with 0.27 degree as daily electricity-consumption and the coldest family-used refrigerator with 40 degree below which were all developed by Meiling Company itself have already passed the national identification. In order to fulfill the need of Chinese rural market, the 25 kinds of products which have won the bids in activity of Appliance Sent to Countryside were all newly designed according to the characteristic of local market and are comparatively strong competitors. This activity will be promoted to the whole nation from February of 2009. At present, the Company is actively engaged in developing the products for the third activity of Appliance Sent to Countryside and plans to join the bids at the beginning of 2009. 3. Capacity improved in manufacture system. The second phase project in Changhong Meiling Industry Park and the two manufacture bases in Jiangxi Meiling and Mianyang Meiling have been successfully put into operation, which improved the capacity and powerfully guaranteed the product supply. In the inner-manufacture-system, the Company persistently carried out the spot 5s activity, crafts fineness activity and full-round quality management activity, thus guaranteed the product quality; also, it strengthened the cost management of factory, intensified their operation awareness, and improved the economic benefit. 4. Improvement in operation management. The Company ensured “take product as the main line and information construction as support and completely improve the basic management level” as its administrative thought. It totally brought in the IPD developing ideal and working method. Through effective research and investigation from customers, it strengthened the conformity and program of products, increased the input in researching and developing products, speeded up the marketing of new products and improved the developing rate and successful rate for products. The ERP system has been perfected and optimized and the PDM, PPCO and Barcode systems have been promoted, which brought improvement in the Company’s basic management level. Meanwhile, the Company focused on asset safety and its operation quality, continued to promote the strategic cost-cut project and enhanced the Company’s whole operation efficiency and benefit by means of optimizing system, innovating organization and predigesting procedures. It continued to perfect and make innovation in the monthly operation plan and monthly operation analysis pattern; advanced the examination of plan and budget, the correction of process and reform of problems, in order to assure the Company’s operation quality, advanced the enterprise management level and enhanced the whole operation efficiency and operation benefit. 5. In 2008, the Company moved to Economic Technology Development Zone from the old industry park in downtown. The capacity could not fulfill the increasing market demand. Hefei Changhong Meiling High-tech Industry Park has already been established completely; Jiangxi Meiling Refrigeration Co., Ltd. and Mianyang Meiling Refrigeration Co., Ltd. have put into operation successfully, thus the capacity of Meiling will get a substantial jump. II) Main business scope and operation of the Company (1) Scope of main operations The Company belongs to the industry of household electric appliance, featuring in development, manufacture and sale of refrigerator. The main business scope contains manufacture, sale and service of household appliance refrigerator and relevant parts and components; sale and service of other household electric appliances (2) Operation of the products in 2008 is as follows: Unit: RMB’0000 Cost of Items Income Gross Increase/decrease Increase/decrease Increase/decrease main from main operation profit in income over in cost over the in gross profit operations ratio the same period same period of ratio over last (%) of last year last year (%) year (%) Refrigerators 394,838.75 299,606.29 24.12% 5.57% -4.58% 8.08% (Freezer) Total 394,838.75 299,606.29 24.12% 5.57% -4.58% 8.08% (3)Operation in 2008 classified according to areas: Unit: RMB’0000 The current year The last year Gross Areas Gross profit Income Cost profit Income Cost ratio ratio Export products 66,349.9 64,254.22 3.16% 98,342.21 99,211.62 -0.88% Domestic sales 330,898.19 237,785.59 28.14% 275,664.75 214,786.14 22.08% Total 397,248.09 302,039.81 23.97% 374,006.96 313,997.76 16.04% (4) Particulars about the main suppliers and customers Unit: RMB Total purchase amount of the top Proportion in the total 20.58% 693,717,428.34 five suppliers purchase amount Total sales amount of the top five 466,655,603.49 Proportion in the total sales 10.76% customers amount III) Particulars about the financial data and asset structure of the company during the report period. Unit: RMB’0000 Asset structure Increase or decrease Dec.31, 2008 Dec.31, 2007 (proportion taken in the total asset) scope (%) Accounts receivable (%) 8.33% 11.64% -3.31% Inventory (%) 15.87% 19.74% -3.87% Long-term equity investment (%) 0.95% 1.55% -0.60% Fixed assets (%) 19.68% 14.20% 5.48% Project in process (%) 1.77% 2.12% -0.35% Short-term loans (%) 9.92% 13.48% -3.56% Long-term loans (%) 0.57% 0.51% 0.06% Increase or decrease Financial data 2008 2007 over the same period of last year Sale expense rate (%) 16.65% 10.94% 5.71% Administrative expense rate (%) 3.27% 2.68% 0.59% Financing expense rate (%) 1.15% 0.81% 0.34% Income tax expense(RMB’0000) 428.78 509.11 -80.33 Reasons for the above changes: (1) The decrease of inventory proportion was due to the optimization adjustment on products constitution this year and reduced the occupation of inventories. (2) The climbing of fixed assets proportion due to the successive accomplishment of strategy investment projects Phase I and Phase II of Meiling Industrial Park of the Company. (3) The decrease of short-term loans proportion was due to strengthen the fund management this year, and the bank loans were reduced. (4) The increase of sale expense rate was due to the increasing expenses such as market support expense, relevant manual work expense, vehicle oil consumption, logistic storage fee and exhibition fee arising from the activity of Appliance to Country, base promotion, construction of the projects of Golden Triangle and Athena, intensifying marketing, further detailing market as well as further expanding sales channel and network. IV) Constitution of cash flow arising from the operating activities, investment and financing activities: Unit: RMB’0000 Increase or Items 2008 2007 decrease scope (%) 1. Net cash flow from operating activities 18,992.06 17,910.84 6.04% Cash inflow from operating activities 263,572.80 258,685.99 1.89% Cash outflow from operating activities 244,580.74 240,775.15 1.58% 2. Net cash flow from investment activities -11,674.83 -3,892.54 -199.93% Cash inflow from investment activities 4,214.10 4,489.59 -6.14% Cash outflow from investment activities 15,888.93 8,382.13 89.56% 3. Net cash flow from financing activities -12,998.78 -2,777.77 -367.96% Cash Inflow from financing activities 38,129.86 55,851.99 -31.73% Cash outflow from financing activities 51,128.64 58,629.76 -12.79% 4. Net increase of cash and cash equivalents -6,590.10 10,390.85 -163.42% Cash inflow total 305,916.76 319,027.57 -4.11% Cash outflow total 311,598.31 307,787.04 1.24% Reason for the above changes: (1) The increase of cash outflow from investment activities was due to payment on strategy project of Meiling Industrial Park and increase investment on Jiangxi Meiling. (2) The decrease of net cash flow from financing activities was due to strengthen the fund management this year and the bank loans were reduced. V) Operation and operating performance of the holding subsidiaries and joint stock subsidiaries of the Company Unit: RMB’0000 Share-holding Economic Registered proportion of Capital Net Companies Main business nature capital the scale profit companies US Hefei Meiling Domestic Produce and sell Dollars 48.28% 18.02 Packing Co., Ltd. joint-venture corrugated paper 3.067 14,567.94 million Zhongke Meiling Low-temperature Low-temperature Domestic RMB refrigerator and 70.00% 9,546.41 6.08 Technology Co., joint-venture 60 million freezer Ltd. Jiangxi Meiling Domestic Produce and sell RMB 40 Refrigeration Co., 90.00% 7,468.18 -41.98 joint-venture refrigerator million Ltd. (II) Prospects of the development of the Company 1. The operation guideline for 2009: Quality Comes First, Quick Response, Team Work and Diligence and Thrift. Strongly holding the chance of the activity of Appliance Sent to Countryside, the Company raises its market occupation rate; operates well aiming to increase profit; makes innovation in its products with customers’ need as center; makes effort to promote IPD and enhances its core competence. 2. Main operation strategy and measures for 2009 The Company continues to adopt the operation strategy: Taking Products as Mainline and Information Construction as Support to Fully Enhance the Basic Management Level. Besides, the focus is to carry out the aforesaid strategy: 1) Make innovation in its products with customers’ need as center; 2) Build the awareness: Rebuild Meiling Value View and Create Meiling Core Competence. Unite thought and face the crisis. 3) Fully advance the manufacture quality of products. 4) Raise the exactness rate of operation plan, and improve the quick response capacity of products, market and producing organization. 5) Make budget in view of diligence and thrift, administrate rigidly and strictly control expense. 6) Control inventory and accounts receivable to quicken turnover of capital. 7) Actively promote the cost-cut work with products as mainline. 8) Improve standardization and general utilization of designing products, and cut down cost for designing. 9) Continue to advance the information construction thus to support the improvement in the various basic management level. 3. Risks and countermeasures As the economic crisis will last and fluctuation in exchange rate is pricking up in 2009, the Company will still face the risks of overseas orders decreasing and domestic purchase capacity declining. In concern of the uncertainty of overseas and domestic market change, the Company will adopt measure of quick response at one side, besides; it will adjust its price clause in time when abnormal change happens to exchange rate. Anyway, it makes its best to receive orders. In 2009, fluctuation in materials cost is still going to pricking up, thus the Company will strictly control inventory and focus on cutting down cost. Considering the uncertainty in the warming-up of the market, in order to avoid the might-be capital risk, the Company will intensify communication with banks; inside, it will quicken turnover of capital and reduce accounts receivable, and adopt optimized payment method with its suppliers. II. Particulars about investment of the Company 1. Application of raised proceeds of the Company in the report period There is no share allotment and direct adding shares in this year and also no situation that the application of fund raised through share allotment last to this report period. 2. Investment with the non-raised proceeds in the report period. There was no material investment with the non-raised proceeds in the report period. III. Routine work of the Board of Directors 1. Meetings and resolution of the Board of Directors in the report period (1) On Feb. 27, 2008, the Company held the 30th meeting of the 5th Board of Directors. Relevant resolution of the meeting has been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated Feb. 29, 2008. (2) On Mar. 11, 2008, the Company held the 31st meeting of the 5th Board of Directors. Relevant resolution of the meeting has been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated Mar. 12, 2008. (3) On Apr. 15, 2008, the Company held the 1st meeting of the 6th Board of Directors. Relevant resolution of the meeting has been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated Apr. 16, 2008. (4) On May 23, 2008, the Company held the 3rd meeting of the 6th Board of Directors. Relevant resolution of the meeting has been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated May 27, 2008. (5) On Aug. 8, 2008, the Company held the 5th meeting of the 6th Board of Directors. Relevant resolution of the meeting has been published on China Securities, Securities Times and Hong Kong Wen Wei Po dated Aug. 12, 2008. 2. Implementation of resolutions of the Shareholders’ General Meeting by the Board of Directors During the report period, the Company held one Annual Shareholder General Meeting. The Board of Directors carefully implements every resolution of shareholder meeting according to the Articles of Association of the Company and relevant law and regulations. 3. Performance of the Strategy, Remuneration and Examination committees of the Board In 2008, in consideration of the Company’s development strategy, the Strategy Committee of the Company made discussion on development plan and external investment, presented suggestions on the external invested projects, which made the Company avoid market risk and used the capital efficiently. In 2008, the Remuneration & Examination Committee of the Company made examinations on the remunerations of the directors, supervisors and senior executives disclosed in annual report of the Company in accordance with the Working Rules of Remuneration & Examination Committee of the Board of the Company. In the report period, in accordance with the macro-economic status and development requirement, they earnestly worked out the examination method and self-remuneration systems of management level of the Company and operation group of controlling enterprises. On Feb 20th of 2009, the Remuneration & Examination Committee held the first meeting, examined the wages payable to the directors, supervisors and senior executives in 2008 and finally delivered the following opinion: the remuneration of the directors, supervisors and senior executives of the Company were honored from the Company strictly according to the remuneration examination system. The remuneration disclosed by the Company was real, accurate and complete, in accordance with the demand of Content and Format for Annual Report (emended in 2007) presented by CSRC. 4. Performance of the Audit committee of the Board In 2008, the Audit Committee discussed and examined the internal audit report on the internal management and financial condition of the Company and its subsidiaries presented by the Audit Department of the Company. The Committee also offered guidance for the work of the Audit Department of the Company. According to the regulations issued by CSRC and Shenzhen Stock Exchange, and the performance rules of the Audit Committee of the Board of the Company, Audit Committee earnestly perfomed supervision and examination functions in the 2008 annual audit work. (1) Audit Committee held the first meeting on Dec. 9, 2008, the following resolutions were approved; a. Examined the Unaudited Financial Report of the Company in 2008, they thought the unaudited financial report basically and objectively reflected the financial status and operating results of the Company in 2008; b. Examined Audit Schedule on Financial Statement of the Company in 2008. (2) On Dec. 20, 2008, Sichuan Jun He Ceritified Public Accountants Co., Ltd entered the Company to audit. In order to do well in audit on the financial report of the Company in 2008, and supervise and urge Sichuan Jun He Ceritified Public Accountants Co., Ltd issued the relevant audit report in negotiated time limit, during the audit, the Audit Committee of the Company entrusted the financial department of the Company to pre-examine the relevant matters such as undetermined matters, notes to financial report, date for initial audit draft and finanl audit report; and supervised and urged Sichuan Jun He Ceritified Public Accountants Co., Ltd. (3) After Sichuan Jun He Ceritified Public Accountants Co., Ltd issued the initial audit opinions, Audit Committee negotiated with annual audit certified accountant, and held the second meeting of Audit Committee on Feb. 16, 2009, in which re-examined the financial reports of the Company in 2008, and brought forward the detailed audit opinions: Audit Committee fully negotiated with certified accountant in charge of audit of the Company, the certified accountant in charge of audit of the Company reported to Audit Committee on the problems found in the process of audit and the matters which should be adjusted timely to Audit Committee, the matters which should be adjusted was adjusted in accordance with the audit opinions of annual audit certified accountant. In accordance with the audit condition knew by annual audit certified accountant and the production operation status reported by the management level of the Company, The Audit Committee examined the first draft of the 2008 financial reports which had been audited, and held that : the 2008 annual financial report which was initially audited by Sichuan Jun He Ceritified Public Accountants truly, accurately and completely reflected the operation status of the Company, and had no objections on the audit opinions of the financial report of the Company issued by Sichuan Jun He Ceritified Public Accountants. (4) Audit Committee held the third meeting on Feb. 20, 2009, in which the audited 2008 financial report of the Company was examined and formed the resolution: with the audit of Audit Committee, they thought the audited 2008 financial report truly, accurately, objectively and completely reflected the operation status of the Company, and they recognized the audit opinions on financial report of the Comnpany issued by Sichuan Jun He Ceritified Public Accountants Co., Ltd, and agreed to submit the 2008 financial report and audit report of the Company audited by Sichuan Jun He Ceritified Public Accountants Co., Ltd to the Board of the Directors of the Company for examination; Audit Committee thought Sichuan Jun He Ceritified Public Accountants Co., Ltd engaged by the Company could perform audit in accordance with The China's Independent Auditing Standards during the work of audit supplied for the Company in 2008, and the audit work was successfully accomplished following up the standards of independence, objectiveness and fairness; and they agreed to submit the summary report of the audit work this year audited by Sichuan Jun He Ceritified Public Accountants Co., Ltd to the Board of the Directors of the Company for examination. At the same time, with the suggestion of the Audit Committee, we plans to suggest re-engaging Sichuan Jun He Ceritified Public Accountants Co., Ltd as the accounting firm for the examination, certification and issuing written opinions for the annual financial report 2009 of the Company, and the re-engage term is one year, and the proposal could be implemented after submitting to the board of the directors and Shareholders’ General Meeting of the Company. IV. Preplan on the profit distribution and estimation of profit distribution policy for 2009 1. Preplan on the profit distribution in 2008 Due to that the Company had losses in operations in previous years, ended as Dec. 31, 2008, the accumulative undistributed profits were RMB -339,469,536.64, thus, the Company did not carry out profit distribution or take capitalization of capital public reserve in 2008, and the profit distribution would be conducted until offsetting the losses. This preplan also needs discussion and examination from the Annual Shareholder General Meeting of 2008 after it gets approval from the Board of Directors. 2. Estimation of profit distribution policy for 2009 The profit in 2009 will be firstly used for offsetting the accumulative losses, and will be conducted profit distribution after offsetting the losses. V. Other reporting proceedings The newspapers engaged by the Company for information disclosure of 2009 are Securities Times and Hong Kong Wen Wei Po. Section VIII. Report of the Supervisory Committee I. The work of the supervisory committee in the report period 1. During the report period, supervisors presented at every meeting of the Board of Directors witout voting rights and participated in discussion of significant proposals and got well know of the forming procedure of significant decisions, could know the operating process and operating achievements timely, issued the supervisory opinions on significant decision and proceedings, they played their roles as insider, examiner and legal supervisor. 2. The supervisory committee participated and organized the Campaign on Corporate Governance of Listed Companies in 2008. They made careful analysis in the problems existed in the administration of the Company and offered the detailed measure and suggestion in reform and criterion operation, which brought effects in the special administration activities of the Company, and the criterion operation have been obviously improved. 3. Five meetings of the Supervisory Committee held in the report period (1) On Feb. 27, 2008, the Company held the 14th meeting of the 5th Supervisory Committee by way of communication. The meeting approved proposals as follows: the Working Report of the Supervisory Committee for 2007, the 2007 Annual Report and Its Summary, the 2007 Financial Settlement Report, Preplan on the Profit Distribution for 2007 and Profit Distribution Plan for 2008, Proposal on Re-engaging the Finance Audit Organ of 2008 and Paying Remuneration, and Proposal on Canceling Accounts Receivable and Withdrawing Provision for Depreciation of Inventory. (2) On Mar. 11, 2008, the Company held the 15th meeting of the 5th Supervisory Committee by way of communication. The meeting approved proposals as follows: Proposal on Election on New Round Supervisory Committee, Proposal on Amending the Article of Association, and Proposal on the Daily Related Transaction of 2008. (3) On Apr. 15, 2008, the Company held the 1st meeting of the 6th Supervisory Committee. The meeting approved proposals as follows: Proposal on Electing Ms. Fei Minying as Chairman of the 6th Supervisory Committee and Proposal on Remuneration Management System of Hefei Meiling Co., Ltd. (4) On Aug. 8, 2008, the Company held the 2nd meeting of the 6th Supervisory Committee. The meeting approved the 2008 Semi-annual Report and Its Summary t. (5) On Oct. 21, 2008, the Company held the 3rd meeting of the 6th Supervisory Committee. The meeting approved the full text of the 3rd Quarterly Report of 2008. II. The independent opinion issued by the Supervisory Committee on significant events of 2008 1. The operation of the Company in line with laws In 2008, under the supervision of the supervisory department, the Company greatly improved the company administration level according to relevant policies and laws of the country. Particularly through further and continuously carrying out the special corporate governance of of listed company, those obvious problems and weak points existed in the Company have been reformed carefully. And in addition, the work of internal control system has received great progress and decision-making procedure has become clearer and more perfect which directly brought the prominent improvement in criterion management and operation level. It effectively solved the risk of decision-making and operation, maintaining the legal interests of the Company and investors. The directors and senior executives have obviously increased their awareness of diligence and responsibility and can earnestly know situation and offer opinions on significant problems. They also earnestly executed all the resolutions of the Shareholders’ General Meeting and meeting of the Board of Directors. It was not found that these aforesaid people violated the relevant laws of the country, the Articles of Association of the Company and hurt interests of the Company and shareholders when they performed their duties. And there was no such behavior that some important information should have been disclosed but not disclosed in time. 2. Inspection of the finance of the Company The opinions held by the Supervisory Committee: in the report period, the financial behaviors of the Company were done strictly according to accounting principles and internal system of financial management. The financial reports truly and completely reflect the financial state and operation achievements of the Company during the report period. The audit report issued by Sichuan Jun He CPAs is real and objective. 3. The use of raised proceeds of the Company In the report period, the Company had neither raised proceeds nor delayed use of raised proceeds from previous years to the report period. 4. The Supervisory Committee examined construction and operation of the internal control system, and the self-estimation report on the 2008 internal control of the Company issued by the Board, and held that: the Company had already built comparatively perfect internal control system and made sure that the system was executed effectively. The self-estimation report on the internal control of the Company could truly and objectively reflect the construction and operation of the internal control system of the Company. 5. Particulars about related transaction The Supervisory Committee holds that the transacting price of the related transaction occurred during the report period is fair and reasonable. It neither hurt profit of the non-related shareholders, nor profit of the listed company. Section IX. Significant Events I. There were no significant lawsuits and arbitrations of the Company in this report period. II.There was no bankruptcy and relevant issues of the Company in this report period. III. There was no share holding for other listed companies, share participating of commercial banks, securities companies, insurances companies, and trust and futures companies held by the Company in this report period. Unit: RMB Initial invest Balance in the Increase or Accumulated Balance in Name of the invested company decrease in equity amount year-begin adjustment the year-end thi China Pacific Insurance 580,000.00 580,000.00 -- -- 580,000.00 Co.,Ltd Commercial Bank of Hefei 5,000,000.00 5,000,000.00 -- -- 5,000,000.00 Anhui USTC Iflytek Co., Ltd. 18,960,000.00 18,960,000.00 -- -- 18,960,000.0 Hefei Knowledge Property 1,000,000.00 1,003,300.57 Exchange Total 25,540,000 25,570,000 IV. Briefs on the purchases and sales of assets, takeovers and mergers in the report period. The subsidiary-Jiangxi Meiling Company signed auction Bargain Confirmation Statement with Jiangxi Tianhe Commodity Auction Co., Ltd on Dec 24th of 2008, confirming that Jiangxi Meiling Company had successfully auctioned part bankrupt assets of Jingdezhen Huayi Electric General Corporation Refrigerator Factory on Nov 24th of 2008. Thus, Jiangxi Meiling Company became the legal buyer of the object, and the price was RMB 58,000,000.00. Till Dec 24th of 2008, Jiangxi Meiling Company had already made full payment RMB 58,000,000.00 to liquidation team of Jingdezhen Huayi Electric General Corporation. V. Significant related transactions occurred in the report period Pricing policy: the company’s business with the related companies is done in accordance with the marketing principle and enjoys equal treatment with the other business. Pricing for purchase or service between the Company and its related parties adopts the relevant national pricing policy if the policy is available, and if not available, the market price is used and if no market price is involved, then refers to the principle of actual cost and reasonable expense and priced by both two parties. As to some special services which could not be priced with the principle of cost and expense, both parties would have negotiation for pricing. 1. Related purchase Particulars about the purchase from the related parties in this year Unit: RMB’0000 Purchase for this year Purchase for last year Name of related parties （tax excluded） （tax excluded） Hefei Meiling Packaging Co., Ltd. 6,260.09 12,005.38 Sichuan Changhong Electric Co., Ltd 5,039.13 13,077.58 Sichuan Changhong Jiahua IT Information Products Co., -- 48.61 Ltd. Sichuan Changhong Minsheng Logistics Co., Ltd 878.68 354.60 Hefei Meiling Condenser Co., Ltd. 24,403.94 19,602.25 Sichuan Changhong Mold and Plastic Tech. Co., Ltd. 6,350.28 -- Sichuan Changhong Jijia Precision Machinery Co., Ltd. 56.92 -- 2. Related sales Particulars about the sales to the related parties in this year Unit: RMB’0000 Sales for this year Sales for last year Name of related parties （tax excluded） （tax excluded） Hefei Meiling Packaging Co., Ltd. -- 11.11 Sichuan Changhong Electric Co., Ltd -- 8,987.66 Hong Kong(Changhong) Trade Co., Ltd. 322.15 93.45 Sichuan Changhong Jijia Precision Machinery Co., Ltd. 67.86 6.49 Sichuan Changhong Mold and Plastic Tech. Co., Ltd. 4,102.51 675.54 Changhong Electric(Austrilia) Co., Ltd 157.02 -- Lejiayi Chains Management Co., Ltd. 356.88 25.10 Fuzhou Lejiayi Commerce & Trade Co., Ltd. 1.99 -- Guiyang Lejiayi Commerce & Trade Co., Ltd. 3.19 Jinan Lejiayi Commerce & Trade Co., Ltd. 2.05 Mianyang Lejiayi Commerce & Trade Chains Co., Ltd. 141.96 Taiyuan Lejiayi Commerce & Trade Chains Co., Ltd. 21.97 Tianjin Lejiayi Commerce & Trade Co., Ltd. 4.22 Chengdu Lejiayi Commerce & Trade Co., Ltd. 271.54 Explanation on the necessity and continuity of related transaction issued by the Company: Related transaction in purchase of materials of the Company guarantees the sufficient supply of raw materials in some degree, which makes sure that the producing operation of the Company is normal and cost for producing has been cut down. The above related transactions were done to ensure the normal producing operation and decrease in purchase cost. These transactions belong to the normal lasting long-term trades taking market price as transaction price and the annual happening amount as transaction amount, so it doesn’t hurt the profit of the Company. 3. Other associated transactions Please see the notes for details. VI. Creditor’s right, liability or guarantee existed between the Company and related parties in the report period 1. Creditor’s right and liability existed between the Company and related parties Unit: RMB’0000 Funds the listed company providing Funds the related party providing for for the related party the listed company The related parties Occurring amount Balance Occurring amount Balance Sichuan Changhong Electric Co., Ltd. 2,247.24 16,649.52 Total 2,247.24 16,649.52 2. Guarantee between the Company and the related parties in the report period (1) Ended Dec. 31, 2008, the guarantee for the bank acceptance bill balance of the Company amounting to RMB 36,000,000.00 from the Changhong Group was supplied. (2) External guarantee, guarantee for subsidiaries and guarantee of breaking regulations of the Company Unit: RMB’0000 Particulars about the external guarantee of the Company (barring the guarantee for controlling subsidiaries ) Name of Date of happening Complete Guarantee for the Amount of Guarantee Guarantee (date of signing Implementation related party (yes Company guarantee type term agreement) or not or not) guaranteed --- ---- ---- ---- ---- ---- ---- Total amount of guarantee during the report period 0.00 Total balance of guarantee at the end of the report 0.00 period Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling 3,300.00 subsidiaries during the report period Total balance of guarantee for controlling 3,300.00 subsidiaries at the end of the report period Total amount of guarantee of the Company (including guarantee for controlling subsidiaries) Total amount of guarantees 3,300.00 Ratio of total guarantee to net assets of the 3.11% Company Including: Amount of guarantee for shareholders, actual 0.00 controller and its related parties The debts guarantee amount provided for the guarantee of which the assets-liability ratio 0.00 exceeded 70% directly or indirectly Proportion of total amount of guarantee in net 0.00 assets of the Company exceeded 50% Total amount of the aforesaid three guarantees 0.00 The aforesaid company guaranteed was the controlling subsidiary of the Company, and the company was in normal operation and did not do harm to the financial status of the Company. VII. Commitment events of the Company or shareholders holding above 5% shares In line with the Share Merger Reform, Sichuan Changhong, Changhong Group and Meiling Group made the consensus: if the average increase rate of net profit made in 2006 compared with those of 2004 and 2005 by Meiling Electric, the increase rate of net profit made in 2007 compared with those of 2006, and the increase rate of net profit made in 2008 compared with those of 2007 are under 30%(taking the annual audit report of Meiling Meiling Electric, in the related periods as the standards ), Sichuan Changhong, Changhong Group and Meiling Group would add arrangement of consideration. The added consideration number is assured according to that every ten existed A circulating shares add one share and the total amount for shares needed for consideration is 15,153,034. Sichuan Changhong takes charge of 5,525,985 shares and Changhong Group, 4,648,297 shares, and 4,978,752 shares for Meiling Group. As the shares adding consideration, temporary keeping frozen procedure has been transacted in the Shenzhen Branch of China Securities Depository and Clearing Corporation. Commitment respectively made by Sichuan Changhong, Changhong Group and Meiling Group: the non-circulation shares of Meiling Appliance held by them will not come into market in Shenzhen Securities Exchange or be transferred within 24 months since the day when the shares receive circulation right. VIII. Engagement, change of the engagement or disengagement of Certified Public Accountants Board of Directors of the Company engaged Sichuan Jun He Certified Public Accountants Co., Ltd. to be in charge of the domestic financial auditing work in 2008 of the Company. The remuneration the Company paid Sichuan Jun He Certified Public Accountants Co., Ltd. was RMB 400,000. Sichuan Jun He Certified Public Accountants Co., Ltd. had provided auditing services for the Company for 3 years. IX. In the report period, the Company, the directors, the supervisors, senior executives, shareholder of the Company, actual controller, and purchaser haven’t received investigation from the authorized department, forceful measure from justice and inspection department, sent to justice organization or criminal responsibility, inspection and administrative penalty from CSRC, or received no access to securities market, administrative penalty from other administration department if being recognized as inappropriate people or public criticize by Shenzhen Stock Exchange. X. In the report period, there is no occurrence of significant events listed in the No. 67 of Securities Laws and No. 17 of Detailed Implementing Rules of Information Disclosure in Public of Share (Trial). Section X. Financial Report JunHeSZi(2009) No. 1 Auditors’ report To the shareholders of Hefei Meiling Co., Ltd., We have audited the accompanying financial statements of Hefei Meiling Co., Ltd. (“the Company”), including balance sheet and consolidated balance sheet of 31 December 2008, and profit statement and consolidated profit statement, and statement on changes of shareholders’ equity and consolidated statement on changes of shareholders’ equity, and cash flow statement and consolidated cash flow statement for the year ended, and notes to the financial statements and consolidated notes to the financial statements for the year ended. I. Management's responsibility for the financial statements The Company's management is responsible for the preparation and fair presentation of the financial statements in accordance with the Enterprises Accounting Standards and Enterprises Accounting System. The responsibility includes: (1) designing, performing and maintaining internal control related to the preparation and fair presentation of the financial statements, which are free from material misstatements whether due to frauds or errors; (2) choosing and applying right accounting policies; (3) making reasonable accounting estimates. II. Auditor's responsibility Our responsibility is to express an audit opinion on these financial statements based on our audit. We performed our audit in accordance with Chinese Certified Public Accountants' Auditing Standards. Those standards require us to comply with professional ethics, and to plan and perform our audit so as to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures of the financial statements. The selective audit procedures depend on auditor's judgment, including the evaluation of the risk of material misstatement of the consolidated financial statements due to frauds or errors. When evaluating risk, we consider internal control related to financial statements, in order to design auditing procedures, but not for the purpose of expressing an opinion on the internal control's effectiveness. An audit also includes assessing the appropriateness of the accounting policies adopted and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that we have obtained sufficient and appropriate audit evidences to provide a basis for our audit opinion. III. Auditing opinion In our opinion, the Company’s financial statements have been prepared in accordance with the Enterprises Accounting Standards and Enterprises Accounting System, and they fairly present, in all material respects, the financial position of the Company as of December 31, 2008, and its operation results and cash flows for the year ended. Sichuan Jun He Certified Public Accountants Co., Ltd. China Accountant: He Jun Chengdu, P.R.C China Accountant: Huang Zhifen February 23, 2009 Consolidation and Balance Sheet of Parent Company Prepared by Hefei Meiling Co., Ltd. Dec. 31, 2008 Unit: RMB Note Merger Parent Company Assets Parent Balance at Balance at Balance at Balance at Merger Company year-end year-begin year-end year-begin Current assets: Monetary funds 1 338,230,921.44 404,131,911.83 306,127,639.14 354,939,066.12 Settlement - - - - provisions Capital lent - - - - Transaction finance - - - - asset Notes receivable 2 176,893,815.75 241,290,060.33 176,893,815.75 241,290,060.33 Accounts receivable 3 1 282,278,322.28 383,641,450.20 283,645,063.75 222,554,186.47 Accounts paid in 4 134,938,234.66 77,441,395.59 87,116,862.99 75,912,761.56 advance Insurance - - - - receivable Reinsurance - - - - receivables Contract reserve of - - - - reinsurance receivable Interest receivable - - - - Dividend receivable - - - - Other receivables 5 2 40,200,759.80 34,240,914.94 39,517,439.05 38,982,908.15 Purchase restituted - - - - finance asset Inventories 6 538,043,077.21 650,814,778.03 522,957,717.07 634,544,279.35 Non-current asset - - - - due within one year Other current assets - - - - Total current assets 1,510,585,131.14 1,791,560,510.92 1,416,258,537.75 1,568,223,261.98 Non-current assets: Granted loans and - - - - advances Finance asset 7 166,220,000.00 - 166,220,000.00 - available for sales Held-to-maturity - - - - securities Long-term account - - - - receivable Long-term equity 8 3 32,058,769.12 51,122,961.20 139,199,441.99 131,122,961.20 investment Investment property 9 4,082,185.28 4,213,835.03 4,082,185.28 4,213,835.03 Fixed assets: 10 667,231,824.31 468,061,771.19 482,330,683.29 258,068,671.96 Construction in 11 60,139,261.97 69,832,564.91 60,139,261.97 69,832,564.91 progress Engineering - - - - material Disposal of fixed 12 358,013,123.80 288,302,478.67 358,013,123.80 288,302,478.67 asset Consumable - - - - biological asset Oil and gas asset - - - - Intangible assets 13 579,003,366.14 605,744,912.92 574,503,366.14 598,994,912.92 Expense on Research and - - - - Development Goodwill - - - - Long-term expenses - - - - to be apportioned Deferred income 14 12,980,747.10 17,268,580.25 12,501,079.42 16,387,448.04 tax asset Other non-current - - - - asset Total non-current asset 1,879,729,277.72 1,504,547,104.17 1,796,989,141.89 1,366,922,872.73 Total assets 3,390,314,408.86 3,296,107,615.09 3,213,247,679.64 2,935,146,134.71 Legal Representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Accounting Institution: Wang Shaozhuo Consolidation and Balance Sheet of Parent Company (Con.) Note Merger Parent Company Liabilities and Parent Balance at Balance at Balance at Balance at shareholder’s equity Merger Company year-end year-begin year-end year-begin Current liabilities: Short-term loans 17 336,427,193.11 444,282,198.47 306,427,193.11 424,282,198.47 Loan from central - - - - bank Absorbing deposit - - - - and interbank deposit Capital borrowed - - - - Transaction - - - - financial liabilities Notes payable 18 584,560,526.09 426,000,000.00 582,245,703.75 426,000,000.00 Accounts payable 19 636,288,350.79 807,839,524.53 657,248,796.03 815,085,465.48 Accounts received 20 319,411,065.64 376,609,630.83 318,498,724.58 211,715,836.44 in advance Selling financial - - - - asset of repurchase Commission charge - - - - and commission payable Wage payable 21 27,873,906.64 27,422,048.18 26,863,214.71 26,156,302.26 Taxes payable 22 13,616,162.10 -45,008,511.00 15,213,301.43 -48,718,171.19 Interest payable - - - - Dividend payable 23 1,387,950.42 1,473,337.42 1,387,950.42 1,473,337.42 Other accounts 24 350,937,168.31 249,676,886.28 197,903,731.23 104,960,254.98 payable Reinsurance - - - - payables Insurance contract - - - - reserve Security trading of - - - - agency Security sales of - - - - agency Long-term liabilities due within 1 25 - 20,000,000.00 - 20,000,000.00 year Other current - - - - liabilities Total current liabilities 2,270,502,323.10 2,308,295,114.71 2,105,788,615.26 1,980,955,223.86 Non-current liabilities: Long-term loans 26 19,198,200.00 16,849,100.00 16,198,200.00 16,849,100.00 Bonds payable - - - - Long-term account - - - - payable Special accounts - - - - payable Projected liabilities 27 1,650,759.86 21,989,053.99 1,650,759.86 21,989,053.99 Deferred income tax 28 22,002,000.00 - 22,002,000.00 - liabilities Other non-current - - - - liabilities Total non-current 42,850,959.86 38,838,153.99 39,850,959.86 38,838,153.99 liabilities Total liabilities 2,313,353,282.96 2,347,133,268.70 2,145,639,575.12 2,019,793,377.85 Owner’s equity (or shareholders’ equity): Paid-in capital (or 29 413,642,949.00 413,642,949.00 413,642,949.00 413,642,949.00 share capital) Capital public 30 701,168,078.72 596,857,478.72 701,168,751.59 578,717,478.72 reserve Less: Inventory - - - - shares Surplus public 31 284,889,548.51 284,889,548.51 284,889,548.51 284,889,548.51 reserve Provision of general - - - - risk Retained profit 32 -339,469,536.64 -365,148,528.22 -332,093,144.58 -361,897,219.37 Balance difference of foreign currency - - - - translation Total owner’s equity attributable to parent 1,060,231,039.59 930,241,448.01 1,067,608,104.52 915,352,756.86 company Minority interests 33 16,730,086.31 18,732,898.38 - - Total owner’s equity 1,076,961,125.90 948,974,346.39 1,067,608,104.52 915,352,756.86 Total liabilities and 3,390,314,408.86 3,296,107,615.09 3,213,247,679.64 2,935,146,134.71 owner’s equity Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Accounting Institution: Wang Shaozhuo Consolidation and Profit Statement of Parent Company Prepared by Hefei Meiling Co., Ltd. 2008 Unit: RMB Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company I. Total operating income 4,335,936,296.54 4,052,218,686.60 4,517,673,404.69 3,903,806,913.97 Including: Operating income 34 4 4,335,936,296.54 4,052,218,686.60 4,517,673,404.69 3,903,806,913.97 Interest income - - - - Insurance gained - - - - Commission charge and commission - - - - income II. Total operating cost 4,317,005,174.22 4,073,310,144.17 4,491,278,362.99 3,925,174,940.37 Including: Operating cost 34 4 3,358,495,332.69 3,437,736,376.56 3,563,641,648.93 3,365,124,524.68 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 35 16,871,330.40 10,760,482.72 16,027,793.90 9,061,403.92 Sales expenses 36 727,276,441.32 443,458,475.14 721,466,853.70 381,563,198.56 Administration expenses 37 143,153,165.08 108,653,837.80 121,062,058.64 98,808,833.86 Financial expenses 38 50,277,777.99 32,682,628.66 48,051,731.87 30,590,324.02 Losses of devaluation of asset 39 20,931,126.74 40,018,343.29 21,028,275.95 40,026,655.33 Add: Changing income of fair - - - - value(Loss is listed with “-”) Investment income (Loss is listed 40 5 2,583,543.00 36,353,801.42 2,225,670.35 36,353,801.42 with “-”) Including: Investment income on 675,807.92 821,524.22 675,807.92 821,524.22 affiliated company and joint venture Exchange income (Loss is listed with - - - - “-”) III. Operating profit (Loss is listed with 21,514,665.32 15,262,343.85 28,620,712.05 14,985,775.02 “-”) Add: Non-operating income 41 11,030,114.87 8,934,617.72 7,688,979.03 8,818,917.72 Less: Non-operating expense 42 2,620,837.70 1,330,265.61 2,619,247.67 1,329,974.33 Including: Disposal loss of 219,178.26 763,695.58 219,178.26 763,695.58 non-current asset IV. Total Profit (Loss is listed with “-”) 29,923,942.49 22,866,695.96 33,690,443.41 22,474,718.41 Less: Income tax 43 4,287,833.15 5,091,099.49 3,886,368.62 4,691,947.38 V. Net profit (Net loss is listed with “-”) 25,636,109.34 17,775,596.47 29,804,074.79 17,782,771.03 Net profit attributable to owner’s equity 25,678,991.58 17,707,985.60 29,804,074.79 17,782,771.03 of parent company Including: Current net gains/losses of the subsidiaries from period-begin to merger 62,835.98 day arising from enterprise merger under the conmmon control Minority shareholders’ gains and -42,882.24 67,610.87 losses VI. Earnings per share - - i. Basic earnings per share 0.0621 0.0428 0.0621 0.0430 ii. Diluted earnings per share 0.0621 0.0428 0.0621 0.0430 Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Accounting Institution: Wang Shaozhuo Consolidation and Cash Flow of Parent Company Prepared by Hefei Meiling Co., Ltd. 2008 Unit: RMB Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company I. Cash flows arising from operating activities: Cash received from selling commodities and 2,563,796,923.98 2,544,383,810.10 2,635,493,487.82 2,406,082,677.99 providing labor services Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company 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 32,902,056.94 33,021,173.30 30,174,087.64 32,487,862.94 received Other cash received concerning operating 53 39,029,034.96 9,454,900.00 35,569,192.59 9,034,900.00 activities Subtotal of cash inflow arising from 2,635,728,015.88 2,586,859,883.40 2,701,236,768.05 2,447,605,440.93 operating activities Cash paid for purchasing commodities 1,669,827,460.72 1,908,173,157.22 1,800,364,298.12 1,805,970,295.56 and receiving labor service Net increase of customer loans and - - - - advances Net increase of deposits in central bank - - - - and interbank Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company 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 292,220,280.08 142,828,542.41 274,726,532.67 133,987,766.73 and workers Taxes paid 106,231,248.57 70,002,459.05 93,293,559.07 52,232,825.11 Other cash paid concerning operating 54 377,528,444.29 286,747,347.29 368,853,765.76 280,114,304.41 activities Subtotal of cash outflow arising from 2,445,807,433.66 2,407,751,505.97 2,537,238,155.62 2,272,305,191.81 operating activities Net cash flows arising from operating 189,920,582.22 179,108,377.43 163,998,612.43 175,300,249.12 activities II. Cash flows arising from investing activities: Cash received from - - 17,642,127.35 - recovering investment Cash received from 2,134,902.56 41,682,157.20 2,134,902.56 41,682,157.20 investment income Net cash received from disposal of fixed, 36,431,136.70 189,894.60 36,431,136.70 189,894.60 intangible and other long-term assets Net cash received from disposal of - - - - subsidiaries and other units Other cash received concerning investing 55 3,574,937.06 3,023,837.08 3,162,086.53 2,660,677.22 activities Subtotal of cash inflow from investing 42,140,976.32 44,895,888.88 59,370,253.14 44,532,729.02 activities Cash paid for purchasing fixed, 138,521,923.42 83,821,318.06 75,143,931.87 74,117,329.07 intangible and other Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company long-term assets Cash paid for 20,367,400.00 - 47,367,400.00 18,000,000.00 investment Net increase of - - - - mortgaged loans Net cash received from subsidiaries and - - - - other units Other cash paid concerning investing 56 - - - - activities Subtotal of cash outflow from investing 158,889,323.42 83,821,318.06 122,511,331.87 92,117,329.07 activities Net cash flows arising from investing -116,748,347.10 -38,925,429.18 -63,141,078.73 -47,584,600.05 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 381,298,583.65 558,519,885.90 306,748,583.65 538,519,885.90 loans Cash received from - - - - issuing bonds Other cash received concerning financing 57 - - - - activities Subtotal of cash inflow from financing 381,298,583.65 558,519,885.90 306,748,583.65 538,519,885.90 activities Cash paid for 478,755,855.06 563,563,467.07 418,755,855.06 523,563,467.07 settling debts Cash paid for dividend and profit 30,570,565.50 22,734,163.35 28,576,230.50 20,064,253.35 distributing or interest paying Including: Dividend - - - - Note Merger Parent Company Items Parent Merger Balance this year Balance last year Balance this year Balance last year Company and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing 58 1,959,929.83 - - 9,302,305.89 activities Subtotal of cash outflow from financing 511,286,350.39 586,297,630.42 447,332,085.56 552,930,026.31 activities Net cash flows arising from financing -129,987,766.74 -27,777,744.52 -140,583,501.91 -14,410,140.41 activities IV. Influence on cash due to fluctuation in exchange -9,085,458.77 -8,496,673.36 -9,085,458.77 -8,496,673.36 rate V. Net increase of cash -65,900,990.39 103,908,530.37 -48,811,426.98 104,808,835.30 and cash equivalents Add: Balance of cash and cash equivalents 404,131,911.83 300,223,381.46 354,939,066.12 250,130,230.82 at the period -begin VI. Balance of cash and cash equivalents at the 60 338,230,921.44 404,131,911.83 306,127,639.14 354,939,066.12 period -end Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Accounting Institution: Wang Shaozhuo Consolidated Statement on Changes of Owners’ Equity Prepared by Hefei Meiling Co., Ltd. 2008 Amount in this year N Owners’ equity belonged to the parent company Items ot Share Surplus General risk e capital reserves provision 413,642,949. 596,857,478.7 284,889,548.5 I. Balance at the end of the last year - - 00 2 1 Add: Changes of accounting policy Error correction of the last period 413,642,949. 596,857,478.7 284,889,548.5 II. Balance at the beginning of this year - - 00 2 1 III. Increase/ Decrease in this year (Decrease is 104,310,600.0 - - - - listed with'"-") 0 (I) Net profit (II) Profits and losses calculating into owners' 104,310,600.0 - - - - equity 0 1. Net changing amount of fair value of 146,680,000.0 financial assets available for sale 0 2. Effect of changes of other owners' equity of invested units under equity method -22,002,000.0 3.Effect of income tax related to owners' equity 0 -20,367,400.0 4. Others 0 104,310,600.0 Total of (I) and (II) - - - - 0 (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 413,642,949. 701,168,078.7 284,889,548.5 IV. Balance at the end of this year - - 00 2 1 Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Ac Consolidated Statement on Changes of Owners’ Equity (C Amount last year Owners’ equity belonged to the parent company Items Note Less: Capital Surplus General risk Retained Share capital Treasury reserves profit Stock reserves provision I. Balance at the end 413,642,949.00 613,572,458.72 284,889,548.51 -382,856,513. of the last year Add: Changes of accounting policy Error correction of the last period II. Balance at the 413,642,949.00 613,572,458.72 - 284,889,548.51 - -382,856,513. beginning of this year III. Increase/ Decrease in this year (Decrease - -16,714,980.00 - - - 17,707,985. is listed with'"-") (I) Net profit 17,707,985. (II) Profits and losses calculating into - -34,714,980.00 - - - owners' equity 1. Net changing amount of fair value -34,714,980.00 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 Total of (I) and (II) - -34,714,980.00 - - - 17,707,985. (III) Owners' devoted - 18,000,000.00 - - - and decreased capital 1. Owners' devoted capital 2. Amount calculated into owners' equity paid in shares 3. Others 18,000,000.00 (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 IV. Balance at the end 413,642,949.00 596,857,478.72 - 284,889,548.51 - -365,148,528. of this year Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge o Statement on Changes of Owners’ Equity of Parent Company Prepared by Hefei Meiling Co., Ltd. 2008 Amount in this year Owners’ equity belonged to the parent company Items Note Less: General Capital Surplus Re Share capital Treasury reserves risk p Stock reserves provision I. Balance at the end of the 413,642,949.00 578,717,478.72 - 284,889,548.51 - -361, last year Add: Changes of accounting policy Error correction of the last period II. Balance at the 413,642,949.00 578,717,478.72 - 284,889,548.51 - -361, beginning of this year III. Increase/ Decrease in this year (Decrease is listed - 122,451,272.87 - - - 29, with'"-") (I) Net profit 29, (II) Profits and losses calculating into owners' - 122,451,272.87 - - - equity 1. Net changing amount of fair value of financial assets 146,680,000.00 available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3.Effect of income tax related to -22,002,000.00 owners' equity 4. Others -2,226,727.13 Total of (I) and (II) - 122,451,272.87 - - - 29, (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 IV. Balance at the end of this 413,642,949.00 701,168,751.59 - 284,889,548.51 - -332, year Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of Statement on Changes of Owners’ Equity of Parent Company (C Amount last year Owners’ equity belonged to the parent company Items Note Less: Capital Surplus General risk Share capital Treasury reserves Stock reserves provision I. Balance at the end of the last 413,642,949.00 613,432,458.72 - 284,889,548.51 - year Add: Changes of accounting policy Error correction of the last period II. Balance at the beginning of 413,642,949.00 613,432,458.72 - 284,889,548.51 - this year III. Increase/ Decrease in this - -34,714,980.00 - - - year (Decrease is listed with'"-") (I) Net profit (II) Profits and losses calculating - -34,714,980.00 - - - into owners' equity 1. Net changing amount of fair value of financial assets -34,714,980.00 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 Total of (I) and (II) - -34,714,980.00 - - - (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 IV. Balance at the end of this 413,642,949.00 578,717,478.72 - 284,889,548.51 - year Legal representative: Zhao Yong Person in Charge of Accounting Works: Yu Wanchun Person in Charge of A Annotations of Financial Statements of Hefei Meiling Co., Ltd From Jan. 1 to Dec. 31, 2008 I. Basic information of the company Hefei Meiling Co., Ltd (hereinafter referred to as “this company”) is an incorporated company established and reorganized by Hefei Meiling Refrigerator General Factory and approved on June 12th 1992 through [WanTiGaiHanZi (1992) No.039] issued by original Mechanism Reform Committee of Anhui Province. On August 30th 1993, through Anhui Provincial Government [Wanzhenmin (1993) No.166] and reexamination of China Securities Regulatory Commission, the company made first public issue for 3,000 A shares and the company was listed on Oct. 18th, 1993 in Shenzhen Stock Exchange. On August 13th, 1996, the company was approved to issue 10,000 B shares to investors abroad through [ZhengWeiFa(1996) No.26] issued by China Securities Regulatory Commission. The company went public in Shenzhen Stock Exchange on August 28th, 1996. On May 18, 2006, Hefei Meiling Group Holdings Company Limited (hereinafter abbreviated as Meiling Group) signed “Ownership of Meiling Co., Ltd. (also called as Company) Transfer Agreement” respectively with Sichuan Changhong Electric Co. Ltd (hereinafter abbreviated as Sichuan Changhong) and Sichuan Changhong Electronic Group Co., Ltd (hereinafter abbreviated as Changhong Group), Meiling Group transferred its holding 37,852,683 shares in 82,852,683 state-owned shares of the Company to Changhong Group, other 45,000,000 shares to Sichuan Changhong. On March 27, 2007, State-owned Assets Supervision & Administration Commission of the State Council approved such transfers with Document Guozi Chanquan No.253 in 2007 Reply on Matters of Hefei Meiling Group Holdings Company Limited Transferring Partial State-owned Ownership. On Aug 15, 2007, the above ownerships were transferred in Shenzhen Branch of China Securities Journal Depository and Cleaning Corporation Limited. After these ownerships transferred, Sichuan Changhong holds Meiling Group’s 45,000,000 shares (sponsor state shares), or 10.88% of total shares of the Company, is the Company’s first largest shareholder; Meiling Group holds Meiling Group’s 40,543,692 shares (sponsor state shares), or 9.80% of total shares of the Company, is the Company’s second largest shareholder; Changhong Group holds Meiling Group’s 37,852,683 shares (sponsor state corporate shares), or 9.15% of total shares of the Company, is the Company’s third largest shareholder. On May 18, 2006, Changhong Group issued Promise Letter, in which, whereas Ownership of Meiling Co., Ltd. Transfer Agreement signed with Meiling Group and 37,852,683 state-owned shares of and held by Meiling Group transferred to Changhong Group, Changhong Group promises that the Company’s these shares will be consigned to be managed by Sichuan Changhong, and Sichuan Changhong will begin to exercise voting right of these shares since such voting right obtained. The promise period is from the signature of Promise Letter to the date any document in written re-issued by Changhong Group on such matter. On July 31, 2007, State-owned Assets Supervision & Administration Commission of Anhui Provincial Government replied with Document Wan Guozi Chanquan Han No.309 in 2007 Reply on Related Matters of Share Merger Reformof Meiling Co., Ltd., agreed the Company’s ownership split reform plan. After ownership split reform completed, the total shares are still 413,642,949, including: 34,359,384 state shares held by Meiling Group, or 8.31% of total shares; 32,078,846 state corporate shares held by Changhong Group, or 7.76% of total shares; agreed that Meiling Group made prepayment for other non-tradable share holders who fails to exercise stock reform consideration, and when any such non-tradable shares shareholder circulates its non-tradable shares, it must return the prepayment made by Meiling Group, or approved by Meiling Group in advance. On Aug. 27, 2007, according to Share Merger Reform plan approved by Shareholders’ Meeting related to Share Merger Reformheld on Aug 6, 2007, the Company made consideration that non-tradable share holders deliver 1.5 share to A share holders per 10 shares, and Meiling Group made prepayment 3,360,329 shares for some non-tradable share holders as consideration, and as registered in Shenzhen Branch of China Securities Depository and Cleaning Corporation Limited after Share Merger Reform plan implemented, the structure of Company’s shareholders is following: Before Share Merger Reform After Share Merger Reform Share nature or holding Proportion Proportion Shares Shares Note enterprise % % Conditional 1. Non-tradable shares 149,012,606.00 36.02% 126,283,055.00 30.53% tradable shares (1) Sichuan Changhong 45,000,000.00 10.88% 38,135,951.00 9.22% State shares Electric Co., Ltd. (2) Heifei Meiling (Group) 40,543,692.00 9.80% 30,999,055.00 7.49% State shares Holding Co., Ltd. (3) Sichuan Changhong State-owned 37,852,683.00 9.15% 32,078,846.00 7.76% Electric Group Co., Ltd. corporate shares (4) Other corporate 25,616,231.00 6.19% 25,069,203.00 6.06% Unconditional 2. Tradable shares 264,630,343.00 63.98% 287,359,894.00 69.47% tradable shares (1) Domestically listed RMB 151,530,343.00 36.63% 174,259,894.00 42.13% A shares common shares (2) Domestically listed Foreign 113,100,000.00 27.34% 113,100,000.00 27.34% B shares shares Subtotal of shares 413,642,949.00 100.00% 413,642,949.00 100.00% After approved by State-owned Assets Supervision & Administration Commission of Anhui Provincial Government replied with Document WGZCQHan（2007） No.309 Meiling Group made prepayment 3,360,329 shares as consideration for some non-tradable shareholders, and after the situations of the Company’s structure of conditional tradable shares after consideration not prepaid and actually prepaid in Share Merger Reform as followings: After consideration not After consideration actually prepaid in Shareholders of conditional prepaid in Share Merger Difference Share Merger Reform tradable shares Reform Shares Proportion Shares Proportion Shares Proportion Sichuan Changhong Electric 38,135,951.0 38,135,951.00 9.22% 9.22% -- -- Co., Ltd. 0 Heifei Meiling (Group) 30,999,055.0 -3,360,329.0 34,359,384.00 8.31% 7.49% -0.81% Holding Co., Ltd. 0 0 Sichuan Changhong Electric 32,078,846.0 32,078,846.00 7.76% 7.76% -- -- Group Co., Ltd. 0 Other corporate 21,708,874.00 5.25% 25,069,203.0 6.06% 3,360,329.00 0.81% 0 Total of restricted circulating 126,283,055 30.54% 126,283,055 30.53% -- -- shares After the accomplishment of Share Merger Reform, Sichuan Changhong held 38,135,951.00 shares of the Company which accounted for 9.22% in total shares. On May 29, 2008, Hefei State-owned Assets Supervision & Administration Commission［HGZCQuan （2008）No.59］issued Notice On Meiling Dianqi Equities Held by Meiling Group without Payment, in which 34,359,384 state-owned shares of Meiling Group held by the Company (including 3,360,329 state-owned shares paid instead by Meiling Group for other non-tradable shareholders in the Share Merger Reform)were transferred to Hefei Xingtai Holding Group Co., Ltd(hereinafter refers to Xingtai Holding Company) without payment. On June 2, 2008, Meiling Group Company and Xingtai Holding Company signed Agreement on Equity Transfer Without Payment, in which Meiling Group Company agreed to transfer its holding 30,999,100 state-owned shares(accounting for 7.49% in total shares) to Xingtai Holding Company without payment; in the Share Merger Reform Scheme of the Company, the equities, which were formed from the share merger reform consideration paid by Meiling Group Company for other non-tradable shareholders, were also undertaken by Xingtai Holding Company. For the aforesaid event, State-owned Assets Supervision and Administration Commission of the State Council approved on August 7, 2008 with Reply to Related Matters on Transfer Shares Held by Part of State-owned Shareholders of Hefei Meiling Co., Ltd.Without Payment［GZCQuan（2007）No. 752］. On August 27, 2008, 24,685,587 shares of the aforesaid equity transfer have been accomplished procedure of transferring the ownership in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. On Nov. 24, 2008, 1,710,671 shares of the aforesaid equity transfer have been accomplished procedure of transferring the ownership in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. On Oct. 28, 2008, 12,543,559.00 tradable shares, the first batch of the Company with conditional subscription, were released conditional subscription, the share structure after releasing the conditional conditions were as follows: Before release After release Proportion Proportion Types Amount(share) Types Amount(share) in total in total h (%) h (%) I. Tradable shares I. Tradable shares with conditional 126,359,625 30.55 with conditional 113,816,066 27.52 subscription subscription Shares held by state 69,135,006 16.71 Shares held by state 70,845,677 17.13 State-owned legal State-owned legal 32,078,846 7.76 32,078,846 7.76 person’ shares person’ shares Public legal person’s Public legal person’s 25,069,203 6.06 10,814,973 2.61 shares shares Senior executives’ Senior executives’ 76,570 0.02 76,570 0.02 shares shares Foreign legal Foreign legal person’s － － － － person’s shares shares II. Tradable shares II. Tradable shares with unconditional 287,283,324 69.45 with unconditional 299,826,886 72.48 subscription subscription A Public shares 174,183,324 42.11 A Public shares 186,726,886 45.14 B shares 113,100,000 27.34 B shares 113,100,000 27.34 H shares and others — － H shares and others — － III. Total shares 413,642,949 100 III. Total shares 413,642,949 100 On Nov. 3, 2008, the Company received Sichuan Changhong Electric Group Co., Ltd.’s Letter on Transfer Shares of Hefei Meiling Co., Ltd in Agreement to Sichuan Changhong Electric Co., Ltd(hereinafter refers to Sichuan Changhong) delivered from the second largest shareholder Changhong Group Company: on Oct. 29, 2008, Changhong Group Company sigend Agreement on Euity Transfer of Hefei Meiling Co., Ltd with Sichuan Changhong, in which 32,078,846 tradable A-shares with conditioan subscription of the Company (accounting for 7.76% in total shares) held by Changhong Group Company. On Dec. 23, 2008, for the aforesaid event, State-owned Assets Supervision and Administration Commission of the State Council approved with Reply to Related Matters on Transfer Shares Held by State-owned Shareholders of Hefei Meiling Co., Ltd.［GZCQuan （2008）No. 1413］. Ended Dec. 31, 2008, the aforesaid equity transfer have not been accomplished the procedure of transferring the ownership in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. On Nov. 10, 2008, the Company received the Letter from the first shareholder Sichuan Changhong, from Nov. 5, 2008 to Nov. 10, 2008, Sichuan Changhong increased in holding A tradable shares of the Company amounting to 4,277,155 shares which accounts for 1.03% in total share through the trading system of Shenzhen Stock Exchange. Besides, in accordance with the plan on increasing in holding B shares of the Company through the wholly-funded subsidiary Changhong(Hong Kong) Trade Co., Ltd from Sichuan Changhong. Ended Nov. 10, 2008, Changhong(Hong Kong) Trade Co., Ltd totally increased in holding B tradable shares of the Company amounting to 5,888,405 share which accounting for 1.42% in total shares. Ended Dec. 31, 2008, Sichuan Changhong and its accordant actioner Changhong(Hong Kong) Trade Co., Ltd totally held 53,276,435 shares of the Company which accounts for 12.88% in total shares; in which Sichuan Changhong directly held 42,413,106 A shares of the Company accounting for 10.25% in total shares, and Changhong(Hong Kong) Trade Co., Ltd held 10,863,329 B shares of the Company accounting for 2.63% in total shares of the Company. Now the Company’s total shares are 413,642,949.00, including 113,816,066.00 conditional tradable shares, 186,726,883.0 unconditional RMB common shares, and 113,100,000.00 unconditional foreign shares listed in China. Legal Person Business License Registration number is 340000400001278; the business address is No. 2163, Lianhua Road, Ecomonic and Technological Development Zone, Hefei City; legal representative: Zhao Yong; business scope: manufacturing refrigerating appliance, air conditioner, washing machine, NC injection machine, computer water heater, plastic products, packing material and ornament, engaging in self-manufactured product and technique export business and import business of raw materials, machinery equipments, apparatus & instruments and technique import business, sales of general merchandise, transportation. 1. Registerd address, organization form and address of headquater of the Company Organization Registerd address address of headquater form No. 2163, Lianhua Road, Ecomonic No. 2163, Lianhua Road, Ecomonic Listed limited and Technological Development Zone, and Technological Development liability company Hefei City Zone, Hefei City 2. Business nature and main operations of the Company Business nature main operations Light manufacture The Company and its subsidiary are mainly engaged in production and industry sales of refrigerators and freezers at present. 3. Name of the parent company and final actual controller of the group Parent Company of the Company is Sichuan Changhong Electric Co., Ltd., ended Dec. 31, 2008, the equity proportion of the Company held by Sichuan Changhong (hereinafter refers to Sichuan Changhong) is 12.88%, the voting proportion is 20.64% and is the first largest shareholder; Changhong Group Company held 32,078,846 shares of the Company accounting for 7.76% and is the second largest shareholder; Xingtai Holding Company held 26,396,258 shares of the Company accounting for 6.38％ and is the third largest shareholder. Changhong Group Company has been transferred all the shares to Sichuan Changhong but the procedure of transfer the ownership has not been accomplished. The board of directors of the Company held the election of new term of the office on March 11, 2008, 9 person constituted the board of the directors, in which 5 person were chosen by Sichuan Changhong; 3 independent directors, chairman and general manager of the Company were taken by the person chose by Sichuan Changhong. Changhong Group Company held 581,347,658 shares of Sichuan Changhong, which accounts for 30.63% in total shares of Sichuan Changhong and is the largerst shareholder of Sichuan Changhong. State-owned Assets Supervision & Administration Commission of Mianyang Municipality held 100% equities of Changhong Group Company and is the final actual controller of the Company. 4. Approval reporter and approval report date of financial report Approval reporter of financial report Approvalreport date of financial report Board of the Directors of the Company Feb. 23, 2009 II. Compilation basis of the Company’s financial statements The Company’s operation is good now, has not made a decision to, or must, be liquidated or stop its business in current or next fiscal period, and the Company’s financial statement is based on sustainable operation, and compiled in accordance with related regulations of Corporate Accounting Rules issued by Ministry of Finance on Feb 15, 2006, and the No.7 Questions and Responses of Information Disclosure Standards of Public Companies ------ Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards, and the following main accounting policies, accounting assumptions. III. Statement on compliance with Corporate Accounting Rules Financial statements compiled by the Company are in compliance with Corporate Accounting Rules, and actually and completely reflect the Company’s financial situation, operational effects, cash flow and other related information. IV. Accounting policy, accounting estimation 1. Fiscal year It shall adopt calendar year, namely, one calendar year means period from January 1st to December 31st. 2. Accounting basis and valuation principle Accounting basis is accrual basis. Valuation principle of every asset (except other regulations) refers to historical cost when obtaining. 3. Standard currency and accounting methods to foreign currency transaction RMB is used as the standard currency. When foreign currency transaction occurs, approximate foreign exchange rate at first day of current month (medium price of foreign currency quote price) shall be adopted and RMB shall be used to record. Foreign currency monetary items and foreign currency non-monetary items measured by fair value shall be translated by spot exchange rates on balance sheet date. Exchange differences caused by difference of spot exchange rates compared to that during initial confirmation or that of former balance sheet date should be accounted for as follows: If it occurs in the preparing period to construct, it should be accounted for as long-term unamortized expense (it should be recorded into current gains or losses at current month of starting operation). It attributes to the assets that complies with capitalization principle (fixed assets, investing real estate and long-term inventory) and occurs in the capitalized period, it should be recorded as cost of capitalized assets. It attributes to foreign currency no-cash items measured by fair value; it should be recorded as fair value variation into current gains or losses. It occurs due to other reasons, it should be recorded into financial expense of current period. Foreign currency monetary items foreign currency non-monetary items measured by historical cost shall be translated by spot exchange rates of transaction date without changing recording currency amount. 4. Translation exchange rate of foreign currency statement and accounting methods to translation difference When accounting statements of the subsidiaries in foreign currency is combined, all assets and debts items should be translated by spot exchange rate on combination date, and all owners’ equity items except undistributed profit should be accounted for by spot exchange rate on transaction date. The undistributed profit should be based on the translated amount in Profit Distribution Sheet. After translation, the difference between assets, debts and owner equities as translations variation should be listed respectively under undistributed profit. The revenue and expense items in the Profit & Loss Sheet should be translated by average exchange rate between the approximate exchange rate (Middle price of foreign currency quote price) on starting date and ending date of reporting period. The cash flow of foreign currency and subsidiaries out of China should be translated by average exchange rate between the approximate exchange rate (Medium price of foreign currency quote price) on starting date and ending date of reporting period. The influence amount due to foreign exchange variation as adjustment item should be listed individually in the Cash Flow Sheet. 5. Defined standard of cash equivalent Our company and our subsidiaries use 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 upon preparation of cash flow statement. 6. Accounting method of tradable financial assets Tradable financial assets include stock, bond, fund and derived instruments not used as effective hedging tool that are classified into the same kind. It shall be verified initially at fair value when obtaining, while relevant transaction expense shall be accounted for current gains or losses when it occurs. Price of actual payment includes announced but not drawn cash dividend or due but not drawn bonds interest which shall be accounted for receivable items. The interest or cash dividend obtained during the holding period shall be accounted for investment gains. When tradable financial assets are disposed, the difference between fair value and initial book value shall be accounted for investment gains and at the same time fair value variation gains or loss shall be adjusted. Fair value variation shall be accounted for current gains or loss. 7. Confiming standard and withdrawal method of provision for bad debt received For the single account receivable had evidences to show that its occurred devaluated or single account receivable with single amount, took singly devaluation test; in according to current value of future cash flow was lower than the balance of its book value, confirmed the devaluation losses, withdrew the provision for bad debt. In balance sheet date, withdrew the provision for bad debt in according to credit risk characteristics of accout receivable combining with the experienced data of the Company in previous years and actural situation in accout age analysis, and the withdrawal proportion was as follows: From one From two From three From four Within one Above five Accounting age year to two years to years to years to year years years three years four years five years Reserve rate 5% 15% 35% 55% 85% 100% (%) Accounts receivable from associated parties, which are attributed to transaction settlement between associated parties, shall not be prepared reserve in bad debt due to controllable risk. The receivables paid for staff, interim borrowing of long term equity investment and other receivables will be reduced from staff salary monthly or carried forward to long term equity investment, so bad debts shall not be caused and reserve in bad debts shall not be prepared. 8. Accounting method of stock in trade (1) Stock in trade shall be divided into Real estate development products and non-development products. Real estate development products include completed development products, development products in process and planned development lands. Non-development products include raw materials, commodity stocks, work in process, self-made semi finished products, materials consigned to proceed, low-value consumption goods, etc. The inventory system of stock in trade is perpetual inventory system. The completed development products refer to properties that are built and prepared for sale. The development products in process refer to properties that is not completed and prepared for sale or operation. The planned development lands refer to the lands that are purchased and decided to be used for sale or rent. When overall development of project starts, all items shall be transferred into development products in process. When development of project starts in different periods, the used lands in different periods shall be transferred into development products in process, while unused lands at the ending shall keep in the original projects. Actual cost of public utilities shall be accounted for development cost. Upon completion, development cost shall be amortized as the cost of the housing and other properties saleable except the matching facilities that have economic value and have right of income, development cost of which shall be accounted for investment real estate. (2) Real estate development products in the stock in trade shall be calculated by actual cost, and raw material such as color kinescope and electronic apparatus shall be calculated by standard cost. At the end of each month, price difference shall be allocated according to actual dispatched quantities and production cost of current month shall be adjusted accordingly. Low-value consumption goods shall be calculated by standard cost in general and shall adopt one-off amortization method when dispatched. At the end of each month, price difference shall be allocated according to actual dispatched quantities and production cost of current month shall be adjusted into actual cost accordingly. Commodities stock shall be calculated by standard cost and carried forward into product sales cost. At the end of each month, price difference of commodities stock shall be amortized and sales expense of current month shall be adjusted, material in transit shall be recorded by actual cost. (3) Stock in trade shall be calculated at the lower price between historical cost and net realizable value. Inventory falling price reserves shall be made according to difference between costs of single stock item and net realizable value, the accrual of inventory falling price reserves shall be accounted for current gains or loss. 9. Accounting method of mould expense Mould expense shall be calculated by actual cost when obtaining and accounted for deferred expense. When mould is used, mould expanse shall be amortized within one year according to workload method. If the amortization period is within one year, mould expense shall be amortized according to actual workload; if it is more than one year, the remaining shall be transferred into current expense when one year expires 10. Accounting method of held-to-maturity investment Held-to-maturity investment refers to non-derived financial assets whose due date is fixed, whose recoverable amount may be fixed and are intentionally and full of capacity hold until due date. The held-to-maturity investment shall be confirmed by the total of fair value and relevant transaction expense. If the payment includes the bond interests that is due, but not drawn, the bond interests shall be individually recorded receivable items. Held-to-maturity investment during the holding period shall be measured according to amortized cost and practical rate so as to confirm interest revenue and invest gains. The difference between received payment and book value of this investment at disposal shall be accounted for investment gains. Objective evidences show that when financial assets depreciate on balance sheet date, the difference of expected cash flow present value of financial assets and book value should be accounted for current gains or losses. 11. Accounting method of saleable financial assets It refers to salable non-derivative financial assets when obtaining, accounting receivables, held-to-maturity to investment, and other financial assets out of tradable financial assets including saleable stock investment and bond investment. It shall be calculated by the total of fare value and relevant transaction expense. If the payment includes the bond interests and cash dividends that are due, but not drawn, the bond interests shall be individually recorded receivable items. The interest income or cash dividend obtained during the holding period shall be accounted for investment gains on balance sheet date. If saleable financial assets are measured by fair value on balance sheet date, fair value variation shall be accounted for capital reserve (other capital reserve). When it is disposed, the difference between the received payment and corresponding disposed amount of book value and accumulated fair value variation of owner’s equity shall be accounted for investment gains. On balance sheet date, whether saleable financial assets are depreciated or not shall be analyzed and judged. When depreciation loss is confirmed, accumulated loss due to reduction of fair value that is accounted for owners’ equity shall be transferred and accounted for depreciation loss. 12. Accounting method of long-term equity investment (1) Confirmation of initial investment cost: A．Long-term equity investment caused by enterprise combination Obtained book value of owner’s equity of combined party on combination date shall be taken as initial investment cost of long-term equity investment under the same control. The difference between initial cost and book value that are paid counter value shall be accounted for capital reserve. If capital reserve is not enough to be offset, retained earnings shall be adjusted. For long-term equity investment caused by enterprise combination under different control, the total of fair value of transferred assets, occurred or burden debts and issued equity securities shall be accounted for Long-term equity investment cost. During the merger, the difference between fair value of transferred net assets as counter value and book value shall be accounted for current gains or losses as asset disposal gain or loss. B．Long-term equity investment under other conditions If Long-term cash acquires equity investments, the actual payment shall be initial investment cost which includes direct relevant expenses, taxation and other necessary disburses related to acquisition of long-term equity investment. If Long-term equity investments are acquired by issuing equity securities, fair value of issuing equity investment shall be initial investment cost. If Long-term equity investments are invested, fair value or agreed price in contract or agreement shall be initial investment cost. If Long-term equity investments are acquired by non-cash assets exchange, fair value of non-cash assets and relevant taxation and fees shall be initial investment cost. If Long-term equity investments are acquired by debts restructuring, initial investment cost shall be confirmed according to Accounting Standards for Business Enterprises No.12–Debt Restructurings. If the actual payment for acquiring long-term equity investment includes cash dividends or profits that are already announced, but not withdrawn, this cash dividends or profits shall not be long-term equity investment cost. (2) Consequent measurement of long-term equity investment A. The long-term investment to subsidiary company and long-term equity investment that has no common control, no significant influence to invested unit, no quotation in active market or no reliable measurement of fair value shall be calculated by cost method. The consolidated financial statements to subsidiaries shall be adjusted from equity method to cost method. B. Long-term equity investments that are made to joint ventures and associated enterprises or, have common control or significant influences shall be accounted for by equity method that has common control to invested unit and consortium which has significant influence to invested unit by equity method. The investment gains receivable from invested units based on the fair values of all recognized assets when investing shall be confirmed upon the net profit of the invested units is adjusted. If the accounting policy and accounting periods are different from that of the invested units, the financial statements of the invested units shall be adjusted according to accounting policy and accounting periods of our company and then invest gains shall be confirmed accordingly. When net loss of the invested units is confirmed, the minimum of long-term equity investment book value and other long-term rights and interests to the invested units in essence shall be zero except that additional damage obligations shall be taken. If the invested units realize net profits, the share of profits shall be confirmed after unconfirmed loss share is made up. (3) Depreciation reserve of long-term equity investment For the long-term equity investments that are accounted for by cost method, have no quotation in active market or have no reliable fair value, the difference between book value of respective investment items and present value of future cash flow discounted at current market yield rate in similar financial assets shall be accounted for long-term equity investment appreciation. For other long-term equity investments, the amount that recoverable amount is lower than its book value shall be confirmed as depreciation. While the recoverable amount depends on the more between net value after fair value minus disposal expense and present value of future cash flow of assets. 13. Accounting method of investment real estate Cost of outsourcing investment real estate include purchase price, relevant taxation and fees and other disburse that can be attributed to this asset. The cost of self-built investment estate constitutes all necessary disburses before the built assets reaches usable conditions. Consequent measurement of investment estate shall be measured by cost method which account method is the same to fixed assets and land (intangible assets). When the evidence show that it is necessary to have depreciation test on balance sheet date, the amount that its recoverable amount is lower than book value shall be confirmed as assets depreciation loss and be accounted for current gains or loss, at the same time reserve for assets depreciation shall be made. 14. Pricing and depreciation method of fixed assets (1) Standard: Fixed assets refer to the houses, buildings, machines, appliances, transportation tools and other equipments and instruments related to production and operation whose service life is more than 2 years and unit price is more than RMB2, 000. 00. (2) Pricing: Fixed assets are accounted for actual cost. Financing rented fixed assets shall be accounted for based on the lower between the book value of leased assets on lease start date and present value of the minimum lease payment. (3)Depreciation: Deprecations of fixed assets shall be calculated on average in straight-line method. According to original value and service life, depreciation rate shall be decided after the net scrap value is reduced. When the fixed assets that already make depreciation reserve are depreciated, depreciation rate shall be confirmed on net book value after original value minus accumulated depreciation and accrual depreciation reserve. The accumulated depreciation that is made before depreciation reserve of fixed assets is made is not adjusted. The classifications and depreciation rates are as follows: Asset classifications Service life Scrap rate Annual depreciation rate House & building 30-40 years 4% 3.20%-2.40% Machinery equipment 10-14 years 4% 9.60%-6.86% Transport tool 5-12 years 4% 19.00%-8.00% Other equipments 8-12 years 4% 12.00%-8.00% (4)Depreciation reserve: Fixed assets should be inspected each by each on balance sheet date. If the market price goes down continuously or the recoverable amount is lower than its book value due to outdated skills, damage and long-term unused, the difference between the recoverable amount and book value shall be accounted for asset depreciation loss and accounted for current gains or loss. At the same time, depreciation reserve of fixed assets shall be made. The depreciation reserve of fixed asset shall be carried back. The fixed assets that satisfy the following conditions shall make depreciation reserve in full amount. i. The fixed assets that is not used for long period and shall not be used in the foreseeable future and have no transferable value. ii. The fixed assets are not already used due to technical advance. iii. The fixed assets through which the large volume of disqualified products shall be reduced as though the fixed assets can be still used. iv. The fixed assets that are damaged so as to have no useful value and transferable value. v. Other fixed assets that can’t provide economic value in essence. (5) Consequent disburses: The consequent disburses related to fixed assets shall be accounted for book value of fixed assets if the economic benefit that can flow into our company is more than original estimate such as the service life of fixed assets are prolonged, qualities of products are enhanced in essence and the cost of products are reduced in essence. The amount of fixed assets after increasing shall be more than recoverable amount of fixed assets. Other consequent disburses except the above shall be accounted for current gains or loss and shall not be accounted through accrual mode and deferred mode. ① The repair expense of fixed assets shall be accounted for current period expense. ② The improvement disburse of fixed assets shall be accounted for book value of fixed assets. The amount of fixed assets after increasing shall be more than recoverable amount of fixed assets. ③ If repair or improvement of fixed assets can not be distinguished or repair and improvement of fixed assets is mixed; the above-mentioned principle shall be adopted. The relevant consequent disburses shall be accounted for value or current period expense of fixed assets. ④ If the fitment expense of fixed assets comply with capitalization principle, it will be listed in the ledge account: Fixed assets- fitment it shall be depreciated within the shorter period between two fitment periods and useable life of fixed assets. If there is the balance of fitment of fixed assets when next fitment starts, the balance shall be accounted for current period non-operation disburse at one time. ⑤ Consequent disburses of financing leased fixed assets shall be accounted for according to above-mentioned principles. If the fitment expense of this fixed asset complies with capitalization principle, it shall be depreciated within the shortest period within two fitment periods, useable life of fixed assets and remaining leasing period by reasonable methods. ⑥ The improvement disburses of rented fixed assets under operation lease method shall be accounted for operation lease fixed assets improvement. It shall be depreciated within the shorter between remaining leasing period and service life of leased fixed assets by reasonable methods. 15. Accounting method of construction in process Construction in process refers to the disburses that are spent for building fixed asset or making technical reconstruction to fixed asset before the fixed assets satisfy the scheduled useable conditions which include equipments and materials used for project, advanced project amounts, uncompleted project disburses and capitalization disburses of borrowing expense. The capitalized amounts of borrowing expense for work in process shall be accounted for project cost according to Accounting Standards for Business Enterprises No.17–Borrowing costs. If construction in process satisfy the scheduled useable conditions, but is not transacted final settle formalities, the relevant project shall be estimated and transferred into fixed assets according to project budget, price or project cost from the date of reaching scheduled useable conditions. After final settlement is completed, the estimated price and accrual depreciation shall be adjusted according to final settlement figure. The overall inspection on work in process shall be taken on balance sheet date. If the strong evidence shows depreciations occurs because work in process are stopped to build for long period and are forecasted to not restart to construct within following 3 years or economic value is ascertained due to outdated skills and performance, depreciation reserve for work in process shall be made. 16. Confirmation principle of capitalized borrowing expense, capitalization period and calculation method of capitalized borrowing expense Borrowing expenses include interest expense, amortization of discount or premium, auxiliary expenses and exchange difference due to borrowing in foreign currency. The expense of special borrowing reduces relevant interest income or gains. The discount and premium of borrowing shall be confirmed amortizable amount at each period and interest amount shall be adjusted accordingly. Borrowing expenses shall be accounted for respectively according to financing purpose. If it occurs in the preparing period to construct, it should be accounted for as long-term unamortized expense (it should be recorded into current gains or losses at current month of starting operation). If it attributes to the assets (fixed assets, investment real estate and long-term inventory) that are satisfied with capitalization principle and is within capitalized periods, it should be capitalized before assets reach the scheduled useable or saleable conditions; other borrowing expense shall be accounted for current period financial expense. For the expenses of common borrowing during the preparation period or for purchasing or manufacturing assets satisfied with capitalization principle, it equals to the weighted average of the assets whose accumulated expense or capital disburse is more than common borrowing times capitalization rate of occupied common borrowing. So the long-term deferred expenses of common borrowing that are also called capitalized interest amount are fixed. If abnormal interruption occurs in the capitalization period which period is more than 3 months, capitalization of interest shall be paused and its interest shall be accounted for current period expense until development action restarts. 17. Accounting method of intangible assets (1) Intangible assets shall be recorded at actual cost when obtaining, during which the cost of self-developed intangible assets shall be accounted for according to Accounting Standards for Business Enterprises No.6–Intangible assets. (2) The intangible assets whose service life is uncertain shall be not amortized. At year-end, its service life shall be checked. If the evidence shows that its service life is limited, its service life should be estimated and it should be reclassified into the intangible assets with limited service life. The intangible assets with limited service life shall be amortized in straight line of which land use right shall be amortized on average from the date of receiving investment or confiscation date. The transferred land use right shall be amortized on remaining service life, and other intangible assets shall be amortized according to benefit period, benefit quantities or lawful protection period. Service life and amortization method of the intangible assets with limited life shall be checked on balance sheet date. If the above are different from previous estimate, amortization period and amortization method shall be changed. (3) Depreciation test on all intangible assets shall be done on balance sheet date. The amount that book value of intangible assets is lower than its recoverable amount shall be reserved for intangible assets depreciation. Depreciation reserve cannot be carried back. 18. Amortization methods and periods of long-term unamortized expense Long-term unamortized expense shall be accounted for by at actual expense and amortized on average within beneficial period. The improvement disburse of rented fixed assets under operation lease method shall be accounted for long term deferred expense and be amortized on average within beneficial period. 19. Accounting method of staff remunerations Payable staff remunerations excluding compensation for releasing labor contract with staff shall be treated as follows according to beneficial objects during their labor service period (1) If it attributes to products or labor service, it shall be accounted for inventory cost or labor service cost. (2) If it attributes to construction in process or intangible assets, it shall be accounted for cost of fixed assets or intangible assets. (3) Other staff remunerations shall be accounted for current period expense. If the staff labor service contracts are released before its expiry or the advice on compensation for the staffs that accept voluntary resign is given out and at the same time it satisfy that the company already make out official plan for releasing labor service contract or prepare the advice on voluntary resign plan, the above-mentioned releasing of labor service contract or advice on voluntary resign plan can not be withdrawn unilaterally, then forecasted liabilities due to compensation for releasing labor service contract with staff shall be accounted for current period expense. 20. Confirmation principle of revenue (1) Commodities sales: operation revenue shall be confirmed and recognized when major risk and remuneration are already transferred to buyer, consequent administration and actual control on it don’t exist, relevant revenue achieve or get the proof of receiving and relevant cost related to sales of commodities shall be measured reliably. The confirmations of export revenue are as follows: If the delivery term is FOB, the revenue shall be recognized when the goods are delivered to forwarder consigned by buyer. If the delivery term is CIF, the revenue shall be recognized when the goods are delivered to the port of buyer. The revenue by installation payment shall be recognized on different receipt dates respectively. The revenue of real estate shall be recognized when real estates are completed and accepted, the sales contracts are signed and buyer’s payment certificates for achieving real estimate according to sales contract are received (when subscription are received or remaining payment arrange are confirmed). (2) Properties leasing: its revenue shall be accounted for in straight line according to house leasing contract or agreement. (3) Labor service: its revenue shall be accounted for when labor services provided, payment are already received or relevant proofs are received. If Properties administration is already provided in properties administration service, relevant economic interest related to properties administration service can flow into the company and relevant cost related to properties administration service, the revenue of properties administration shall be recognized. (4) Release of assets: when relevant economic interests can flow into the company and the amount of revenue can be measured reliably, interest revenue and royalty revenue shall be recognized. 21. Accounting method of income tax Balance sheet debt method shall be adopted. The deferred income tax liability or deferred income tax asset and relevant deferred income tax expense or gains shall be recognized according to temporary variance and applicable income tax rate except the deferred income tax assets and deferred income tax liability in Accounting Standards for Business Enterprises No. 18–Income Tax shall not be recognized. The deferred income tax assets due to deductible temporary variance shall be recognized its limit is taxable income that can be used to deduct deductible temporary variance. If the strong evidence shows that the taxable income is enough to deduct deductible temporary variance in the future, the unrecognized deferred income tax assets of previous periods shall be made. 22. Debt reorganization (1) If debtor pays debt in cash, the difference between the book value of debt reorganization and actual payment shall be recognized as debt reorganization gains and shall be accounted for current gains or loss. If debtor pays debt in non-cash assets, the difference between the book value of debt reorganization and fair value of non-cash assets shall be accounted for debt reorganization gains, while the difference between the book value of non-cash assets and fair value of non-cash assets shall be accounted for asset transfer gains or loss and recognized as current gains or loss. If debts are turned into capital, the face value of share creditors enjoy and give up creditor’s right shall be recognized as capital stock or paid-in capital, while the difference between fair value of share and stock capital or paid-in capital shall be recognized as debt reorganization gains and accounted for current gains or loss. If the debt conditions are amended, the fair value of the debt under new debt conditions shall be recognized as book value of reorganized debts, while the difference between book value of reorganized debt and present value of payable amount shall be recognized as debt reorganization gains and accounted for current gains or loss. If contingent expenses are involved, it shall be put into payable amount and be discounted, and then debt reorganization gains shall be recognized. If debt reorganization is made by mixed mode, the following process order should prevail: assets, assets offsetting debt and amending debt conditions. (2) Creditor shall recognize the difference between book value of debt reorganization and cash, fair value of received non-cash assets, fair value of share right and present value of receivable (if depreciation reserve is made, depreciation reserve shall be written off) as debt reorganization loss and record it as current gains or loss. If creditor receives stock in trade, fixed assets, intangible assets, long-term equity investment and others, their fair value shall be accounted for. If contingent gains are involved, it shall be included in receivable to confirm debt reorganization loss. When contingent gains occur actually, it shall be recognized as current gains or loss. 23. Share payment (1) If the share payment in equity tool has no waiting period and can be exchanged to get staff service or other similar services, the fair value of equity tool on award date shall be accounted for relevant cost or expense and corresponding capital reserve shall be increased. After award, the optional right can be taken immediately in cash, the fair value of debt on award date shall be recorded as relevant costs or expenses and corresponding liabilities shall be increased and corresponding capital reserve shall be increased. If the payment is made in cash, the fair value of debt shall be recalculated and the increased debt shall be recognized accordingly. (2) If the share payment in equity tool has waiting period, the service rendered from staff or other parties shall be accounted for cost or expense. If equity settlement is related to staff, our company shall base on the best estimate of quantities of equity tools. The fair value of equity tool on award date shall be accounted for relevant cost or expense and corresponding capital reserve shall be increased. If payment is in cash, the fair value of debt on balance sheet date shall be recalculated and debt shall be increasing accordingly. If payment is involved in equity settlement and the services from other party’s service on acquisition date are rendered, fair value of other party’s services shall be measured and capital reserve shall be increased accordingly. (3) If payment is in equity settlement, stock capital and capital premium shall be confirmed on option date. At the same time, other capital reserve shall be carried forward that are confirmed within waiting period. If the equity tools are not taken, valid or cancelled wholly or partly, other capital reserve shall be transferred to undistributed profit on expiry date of option valid period and cost or expense shall be written off. (4) If payment is in cash, the cost or expense after option valid date shall not be confirmed. The fair value variation of debts shall be recognized as current gains or loss (fair value variation gains or loss). 24. Preparation method of consolidated accounting statements The consolidated scope should be based on control. According to financial statements of the company, subsidiary company and other relevant data, each item shall be combined according to Accounting Standards for Business Enterprises and Application Guidance to Accounting Standards for Business Enterprises. The internal major transactions and capital receivable and payable shall be offset when combining accounting statements. If the accounting policy of subsidiary company is different from that of the company, the accounting policy of the company shall prevail. The accounting statement of subsidiary company shall be adjusted for merger. If the sales (which include reducing investment proportion and sales of all holding share) or purchases of subsidiary company occur within report period, the relevant accounting method shall be followed according to regulations of Ministry of Finance. V. Changes to accounting policy and accounting estimation and correction on accounting mistakes. 1. Changes to accouting policy: In the report period, there were no changes to accounting policy. 2. Changes to accouting estimation: In the report period, there were no changes to accouting estimation. 3. Correction on accounting mistakes: In the report period,, there were no correction on accouting mistakes. VI. Taxation 1. The payable taxes and tax rate of the company are as follows: Categories of tax Taxation base Tax rate Production sale revenue and VAT 17% processing revenue City construction and maintenance tax Turnover tax 5-7% Extra charges for education Turnover tax 3% Local extra charges for education Turnover tax 1% Enterprise income tax Income taxable 15% * The Company and it subsidiary Zhongke Meiling Low-Temperature Technology Co., Ltd began to implement Enterprise Income Tax Rate of 25% since Jan. 1, 2008. In accordance with the Notice on Publicize the Recognition Lists on Second High and New Technology Enterprises of Anhui Province in 2008[KGao〔2009〕No. 13] jointly issued by Anhui Science&Technology Department, Anhui Finance Department, Anhui Provincial Office of State Administration Of Taxation, Local Taxation Bureau of Anhui Province dated Jan. 21, 2009, The Company and it subsidiary Zhongke Meiling Low-Temperature Technology Co., Ltd were confirmed as the Second High and New Technology Enterprises of Anhui Province in 2008 and got the Certificate on High and New Technology Enterprises(the certificate number were respectively GR200834000169 and GR200834000177 with 3 years’ validity). In accordance with the regulations on Enterprise Income Tax Law, the Company and Zhongke Meiling Low-Temperature Technology Co., Ltd began to enjoy the preferential policy like state enterprise income tax rate for high and new technology enterprises since Jan. 1, 2008, and enjoy the income tax rate of 15% for high and new technology enterprises within 3 years. Other companies pays the income tax as the rate of 25%. 2. Other taxes: according to state regulations. VII. Enterprise merger and consolidated financial statements (I) Controlling subsidiaries 1. Controlling subsidiaries directly obtained from external investment Registered Voting Registered Initial Economy Legal Holding rights Names capital investmen Business scope nature or representati place percentage proport t(0000) type ve (0000) ion Zhongke Research, development, production, sales and service Meiling Low of low temperature Temperature refrigeration equipment and Company Hefei 6,000.00 4,200.00 70.00% 70.00% products, self-operation and Wang Yong Technology limited agency for import & export Company LTD business of various kinds of commodities and （1） technologies Hefei Meiling Development and operation Real Estate of real estate, sales of Company Wang Hefei 2,000.00 1,800.00 90.00% 90.00% building material, design and Company LTD limited Jiazhang management of building （2） project Jiangxi Meiling Jiangxi.Ji R&D, manufatures and sales of refrigeration appliance, Company Refrigeration Co., ngde 4,000.00 4,000.00 97.00% 100.00% Wang Yong electronic products and limited Ltd.（3）* Town fittings *The Company held 90 percent equity of Jiangxi Meiling Refrigeration Co., Ltd., and 70 percent equity of Zhongke Meiling Low Temperature Technology Company LTD which held 10 percent equity of Jiangxi Meiling Refrigeration Co., Ltd. Therefore, in total, The Company held 97 percent equity of Jiangxi Meiling Refrigeration Co., Ltd. (1) Zhongke Meiling Low temperature Technology Company LTD（hereinafter called “Zhongke Meiling Company”） was established on Oct 29th of 2002 by the Company and CAS’s Physical & Chemical Technology Research, whose registered capital was RMB 60,000,000 yuan. The Company poured RMB 42,000,000.00 yuan for this investment, including material contribution of RMB 35,573,719.70 yuan and cash contribution of RMB 6,426,280.30 yuan which totally accounted for 70% of the registered capital. CAS’s Physical & Chemical Technology Research made investment by its intangible asset-new mixed throttle refrigeration technology and its application research in low-temperatured storage box. The estimated value for the license of this technology was RMB 18,000,000 yuan accounting for 30% of registered capital. Its registration Number was 3401001006416 and registered capital was RMB 60,000,000 yuan and its business scope included research, development, production, sales and service of low temperature refrigeration equipment and products, self-operation and agenct for import & export business of various kinds of commodities and technologies. (2) Hefei Meiling Real Estate Company LTD(hereinafter referred to as Meiling Real Estate Company): The Company made contribution by RMB 18,000,000 in cash accounting for 90% of registered capital, through the resolutions passed at the 9th meeting of the 5th board of directs in Jan. 4th, 2006. Sichuan Changhong Electronics Group Company made contribution by RMB 2,000,000 in cash accounting for 10% of registered capital. On July 20th, 2006, Hefei Industry & Commerce Administration Bureau issued the business license. Its Registration Number was 3401001007296 and registered capital was RMB 20,000,000 and its business scope included development and operation of real estate, sales of building material, design of building project, building decoration project, virescence project, properties administration, consultancy and investment of real estate. According to the resolution made by Meiling Real Estate Company in its shareholders’ meeting dated May 10th of 2008, it was decided to log-out the company. Till Aug 26th of 2008, the company had been written off. For details about this liquidation and written-off, please refer to annotation VII(I)4. (3) Jiangxi Meiling Refrigeration Co., Ltd (hereinafter referred to as Jiangxi Meiling Company): on Oct. 22, 2007, with the decision made in the 27th meeting of the 5th session of Board of Directors, the Company took cash RMB 18,000,000 as investment amount which accounted for 90% of the registered capital; while Zhongke Meiling took cash RMB 2,000,000 as investment amount which took 10% of the registered capital. The above real received capital has been validated by the Gan Jingde No.312 (2007) report issued by Jiangxi Jingde CPA on Nov. 2, 2007. Then on Nov. 6, 2007, Jiangxi Meiling Company made its enterprise registration license in Administration Bureau of Industry and Commerce of Jiangxi Jingde Town. The business license number for an enterprise as a legal person: 360200110000441; registered capital: RMB 20,000,000; office place: No. 558 of Cidu Avenue of Jingde Town; legal representative: Wang Yong; business scope: R&D, manufacture and selling of refrigerator appliances, electrical products and relevant fittings. On Dec 10th of 2008, Jiangxi Meiling Company increased its capital and shares. Its registered capital was increased to RMB 40 million, including the cash investment RMB 45 million from the Company, among which RMB 36 million was input as registered capital accounting for 90% of the registered capital and RMB 9 million was written into capital reserve of Jiangxi Meiling Company; and Zhongke Meiling poured cash RMB 5 million as investment, among which RMB 4 million was input as registered capital accounting for 9% of the registered capital and RMB 1 million was written into capital reserve of Jiangxi Meiling Company. The above real received capital has been validated by the Gan Jingde No.354 (2008) report issued by Jiangxi Jingde CPA on Dec. 22, 2008. Then on Dec.25, 2008, Jiangxi Meiling Company transacted the procedure for its change in registered capital in the Industry and Commerce Administration Bureau. 2. Controlling subsidiary obtained by enterprise merger (1)Enterprise merger under the same control refers to that the enterprises involved in merger, no matter before or after the merger, are controlled by the same party or several same parties. Besides, this control is not temporary. Judgement standards for enterprise merger under the same control include: 1) enterprise merger occurred between parent company and subsidiary in the same group (parent company), and subsidiary and subsidiary. 2) parties involved in merger are controlled by the terminal controller within a long time, no matter before the merger or after it. For details, it means that before the merger(also refers to before the merger date), the parties involved in the merger should be under the control of the terminal controller over 1 year(1 year included); 3) In judging the question whether the merger between enterprises belongs to enterprise merger under the same control, it should integrate the particulars of those enterprises which are involved in the merger, and principle of Substance Important than Formal should be adopt in judgement. (2)The terminal controller of the Company: the parent company of the Company is Sichuan Changhong, also the largest shareholder of the Company, which holds 12.88% equity of the Company and 20.64% of voting rights as of the end of 2008; Changhong Group Company holds 32,078,846 shares of the Company which accounts for 7.76% equity of the Company, so it is the second largest shareholder of the Company; Changhong Group Company holds 581,347,658 shares of Sichuan Changhong which accounts for 30.63% equity of Sichuan Changhong, so it is the largest shareholder of Sichuan Changhong. State-owned Assets Supervision and Administration Commission of Mianyang Municipal holds 100% equity of Changhong Group Company, thus also the terminal controller of the Company. (3)Particulars about the subsidiary obtained from enterprise merger under the same control Registered Registered Investment Voting Economy Holding Legal Names as of rights Business scope nature or place capital percentage representative year-end proportion type Producing, sales and R&D of appliance, electrical products, mechanic products and relevant fittings; technology Hefei Changhong counseling for Meiling RMB 20 RMB appliance and Company Hefei 100% 100% Li Jin Refrigeration Co., million 20,140,700 electrical products; limited Ltd. import and export business(operate with admission license for those projects referring to administrative admission). Hefei Changhong Meiling Refrigeration Co., Ltd.(hereinafter called as Changhong Meiling Refrigeration) was established by Sichuan Changhong and the Company. On Jan 19th of 2006, it was officially set after the registration in Hefei Industry and Commerce Administration Bureau and the registered number for its business license for an enterprise as a legal person was 3401001007201. The registered capital was RMB 20 million, among which Sichuan Changhong took RMB 18 million for this investment and RMB 2 million from the Company, which respectively accounted for 90% and 10% of the registered capital. The real reception of the registered capital has been validated by WZJ (2006) No.1003 report issued by Anhui Zhongjian CPA. The registered place of Changhong Meiling Refrigeration was No.111 Shimen road, Economy and Technology Industry Park, Hefei. Its legal representative was Li Jin. On Jan 28th of 2008, the proposal on Purchasing 90% Equity of Hefei Changhong Meiling Refrigeration Co., Ltd has been examined and approved in the 29th meeting of the 5th board of directors of the Company. In order to completely solve the related transactions and competition problem existed between the Company and Changhong Meiling Refrigeration in refrigerator manufacture and sale, and to further perfect the Company’s legal person administration structure as well, the Company was agreed to purchase 90% equity of Changhong Meiling Refrigeration held by Sichuan Changhong. According to Assets Appraisal Report on Equity Transfer Items of Hefei Changhong Meiling Refrigeration Co., Ltd.- CHH(2008)No.17 report issued by Sichuan Huaheng Asset Appraisal Co., Ltd on Jan 25th of 2008, Dec 31st of 2007 was taken as appraisal reference date and the appraisal value of the transferred equity of Changhong Meiling Refrigeartion was RMB 22,630,400. Negotiating with Sichuan Changhong, and on the basis of the appraisal value, the Company confirmed that the amount for transferring 90% equity of Changhong Meiling was RMB 20,367,400. On Jan 30th of 2008, the Company signed Equity Transfer Contract on Hefei Changhong Meiling Refrigeration Co., Ltd. with Sichuan Changhong. All the equity of Changhong Meiling held by Sichuan Changhong would be transferred to the Company. After this transfer, the Company would hold 100% equity of Changhong Meiling. On Mar 20th of 2008, Changhong Meiling Refrigeration finished its register information for change in shareholder in the industry and commerce bureau. The registered number for its business license for an enterprise as a legal person was 340107000003837. The registered capital was RMB 20 million, Its legal representative was Li Jin. The registered place of Changhong Meiling Refrigeration was No.111 Shimen road, Economy and Technology Industry Park, Hefei. The main business scope was Producing, sales and R&D of appliance, electrical products, mechanic products and relevant fittings; technology counseling for appliance and electrical products; import and export business(operate with admission license for those projects referring to administrative admission). (4)The purchase of equity of Changhong Meiling Refrigeration conducted by the Company belongs to enterprise merger under the same control: 1)Reason for judgement: the Company and Changhong Meiling Refrigeration are both controlled by Sichuan Changhong. 2)Reason for merger date confirmation: according to Equity Transfer Contract on Hefei Changhong Meiling Refrigeration Co., Ltd signed by the Company and Sichuan Changhong, it was promised that all gains and losses of Changhong Meiling Refrigeration from Jan 1st f 2008 to the transfer day belonged to the Company. Any material action of Sichuan Changhong from the appraisal reference day to the transfer day needed agreement from the Company. Though the day when Changhong Meiling Refrigeration changed its registered information was Mar 20th of 2008, the actual risk had been transferred to the Company on Jan 1st of 2008. According to the principle of substance important than formal, Jan 1st of 2008 was confirmed as the merger day. 3)The Company took the proportion of owners equity of the mergerd party obtained on the merger day as its initial investment cost. 4) The mergerd party took the same accountant policy with the mergering party. 5)Due to that mergering Changhong Meiling belonged to merger under the same control, the balance sheet as of Dec. 31st, 2007, profit statement and cashflow statement as of 2007 were written into consolidated financial statements. For details about the balance sheet and profit statement as of Dec 31st of 2007 of Changhong Meiling Refrigeration, please refer to 3. adjustment of comparative data, annotation 16. 3. In the report period, the change of consolidated scope in consolidated financial statements. Name This year Last year remark Zhongke Meiling Low Temperature Consolidation Consolidation Technology Company LTD Liquidation has been made this year, so only the Hefei Meiling Real Estate Company Consolidation Consolidation profit statement and cashflow statement from LTD from Jan. to Aug. Jan. to Aug. are consolidated The balance sheet Jiangxi Meiling Refrigeration Co., Consolidation Consolidation Ltd Hefei Changhong Meiling Due to the merger under the same contrl, the Consolidation Consolidation Company has took it into consolidation scope Refrigeration Co., Ltd. since 2007. 4. Particulars about the subsidiary- Meiling Real Estate Company which wasn’t written into consolidation scope in 2008: Taking Jun 30th of 2008 as liquidation basic day, Anhui Zhongjian Anlian Xinda CPAs issued the WALXDZSZ(2008) No. 048 audit report which read that the total assets of Meiling Real Estate Company as of Jun 30th of 2008 was RMB 19,611,651.68, RMB 12,353.33 for the total debt and RMB 19,599,298.35 for the total owners’equity. According to the Liquidation Report of Hefei Meiling Real Estate Co., Ltd. presented by the liquidation team of Meiling Real Estate Company dated Jul 2nd of 2008, the rest owners’equity RMB 19,599,298.35 would be distributed to the investor units according to their investment proportion. According to the above mentioned share-holding proportion, the Company was expected to get liquidation asset RMB 17,639,368.52. Respectively on Jul 29th and Aug 4th of 2008, the Company has already received the above liquidation assets in way of monetary asset. On Aug 26th of 2008, the Company received ((HGS)DJQYXZ(2008)No.280) Notice on Admission to Log-out Registration of Meiling Real Estate Company issued by Hefei Industry and Commerce Administration Bureau. The total asset, total debt, total owners’equity and net profit of Meiling Real Estate Company consolidated in 2007 were respectively RMB 20,126,039, RMB 41,593.02, RMB 20,084,446.42, and RMB -84,493.18. In 2008, the Company consolidated the profit statement and cashflow statement from Jan. to Aug. of Meiling Real Estate Company. The operating income, operating cost and net profit of Meiling Real Estate Company written into consolidated scope respectively amounted to RMB 0.00, RMB -482,389.24, and RMB -482,389.24. (II)Brief introduction to filiale Mianyang Filiale of the Company(hereinafter called as Mianyang Filiale): on Aug.28, 2007, with the resolution made in the 25th meeting of the 5th session of Board of Directors, the Company planned to take RMB 98,800,000 to establish a producing base (filiale) which could produce 1.2 million(double shifts) environment-protected and energy-saved refrigerators annually in Sichuan Mianyang, in order to realize rapid increase in capacity of refrigerator and thus fulfill market demand. On Oct.29, 2007, Mianyang Filiale made its enterprise registration license in Administration of Industry and Commerce of Sichuan Mianyang. The business license number for an enterprise: 510700500000272; office place: No.35 of Mianxing Road of High-tech Zone of Mianyang; person in charge: Li Daijiang; business scope: manufacture and selling of refrigerator appliances. The branch hired 46,000 square meter workshop and equipments which originally belonged to Sichuan Changhong Company. On Dec.26, 2007, the Company reached the Agreement of Construct Engineering Designing with Information and Electric No. 11 Designing Research Co., Ltd who would make design in the reconstruct project of the work line which annually produced 1.2 million environment-protected and energy-saved refrigerators in Mianyang Branch. In March of 2008, Mianyang Filiale officially started to run. (III)Particulars about other shareholding companies Initial Registered Holding Mergeredd Company investment Business scope capital percentage or not amount Huishang Bank Share RMB 550 1.15% 5,000,000.00 Insurance field No Company LTD million Chinese Pacific Insurance RMB 7.7 0.001299% 580,000.00 Insurance field No (Group) Company LTD billion Computer Anhui Zhongkeda Xunfei software and RMB Information Technology 6.16% 18,960,000.00 No 107,166,000 hardware Company LTD development Producing and Hefei Meiling Packing RMB 18.4 48.28% 25,055,600.00 selling of tile No Product Company Ltd * million paper box Meiling Sigma Electrics USD1 Home air 20.00% 1,660,000.00 No Company LTD million conditioner Enterprise Hefei Technology share right, Property Right RMB 3.5 28.57% 1,000,000.00 technical and No Transaction Company million other property LTD transaction * Hefei Meiling Packing Production Company LTD (hereinafter called Meiling Packing Company) was one joint venture that was established in Dec. 1993 by Hefei Paper Box Works, Meiling Group Company and Singapore Anda Development Company Limitd, with approval from Hefei External Economics & Trade Committee. Its registered capital was USD 3,067,000. On Dec 30th of 2002, Hefei External Economics & Trade Cooperation Bureau approved Hefei Paper Box Works to transfer the 48.28% equity of Meiling Packing Company held by it to the Company by releasing the document [HWJ (2002) No. 259]. The transaction price was RMB25,055,600. On Jul 20th of 2005, Hefei External Economics & Trade Cooperation Bureau approved Singapore Anda Development Company Ltd to transfer the 25% foreign capital equity of Meiling Packing Company held by it to Meiling Group Company by releasing the document [HWJ (2005) No. 90]. The transaction price was RMB25,055,600. after this equity transfer, Meiling Packing Company was no more a foreign-capitaled enterprise. Instead, the Company took 48.28% equity of Meiling Packing Company and 51.72% was held by Meiling Group Company. On August 11th, 2005, new business license was received whose registration number was No. 3401001007135, and whose registered capital was RMB18,400,000 and whose business scope included the production and sales of tile paper plate, paper box, paper core, EPS, froth packing materials and aluminum foil stick tap. VIII. Annotations of major items in consolidated financial statements Annotation 1. Monetary fund Book balance in year-end Book balance in year-begin Items Currency Original Exchange Converted into Original Exchange Converted into Currency rate RMB Currency rate RMB Cash RMB -- -- 38,861.09 -- -- 97,063.50 RMB -- -- 115,976,172.90 -- -- 211,533,252.93 USD 300,837.75 6.83 2,056,105.69 3,317,027.06 7.3046 24,229,555.85 HKD 950.51 0.88 838.25 940.90 0.93638 881.04 Bank EUR 238,034.38 9.66 2,299,174.05 242,409.88 10.6669 2,585,761.95 deposit JPY 211,212.00 0.08 15,978.19 4,984,601.07 0.064046 319,243.76 GBP 35.39 9.88 349.65 -- -- -- Subtotal 120,348,618.73 -- -- 238,668,695.53 Other RMB -- -- 197,702,631.59 -- -- 162,798,290.07 monetary fund * USD 2,238,895.94 6.8346 15,301,958.19 351,540.50 7.3046 2,567,862.73 EUR 317,041.45 9.659 3,062,303.39 -- -- -- GBP 95,332.52 9.8798 941,866.23 -- -- -- AUD 177,083.32 4.7135 834,682.22 -- -- -- Subtotal 217,843,441.62 165,366,152.80 Total 338,230,921.44 404,131,911.83 Book balance of year-end of monetary fund decreased RMB 65,900,990.39 compared with that of year-begin with the decrease ratio of 16.31%. * Other monetary fund mainly included acceptance draft deposit and foreign exchange bank deposit which still needed verification(under the new state foreign exchange administration policy for 2008, the foreign payment received by the Company should all be kept into the account waiting for verification. And it could not be used before it get released through the verification). Before the acceptance draft expired or other guaranteed items expired, the other monetary fund wer restricted to use. Except deposit, no such following funds were included in the aforementioned monetary fund: fund whose cashing procedure could be restricted by mortgage or frozen, fund which was kept abroad and fund which could not be callback potentially as well. Annotation 2. Notes receivable Book balance in Book balance in Item Remark year-end year-begin Bank acceptance Notes 176,893,815.75 241,290,060.33 Commerce Acceptance -- -- notes Total 176,893,815.75 241,290,060.33 (1) Bills in maturity in balance in year-end have not received already due to blemish: Date in maturity Total Amount Remark Bills in maturity in balance have no Before the end of Dec. 2007 1 200,000.00 received already due to blemish Bills in maturity in balance have no Before the end of Dec. 2008 1 10,000.00 received already due to blemish (2) Till the end of 2008, the Company has no unmatured commercial acceptance draft which has been already transferred by endorsement. (3) Till the end of 2008, the Company has no notes receivable used as mortgage. Annotation 3. Accounts receivable (1)Classified according to account receivable risks Book balance in year-end Book balance in year-begin Items Percent Provision for Percent Provision for Amount Amount age% bad debt age% bad debt Category 1 44,909,007.02 14.73 2,245,450.35 -- -- -- Category 2 -- -- -- -- -- -- Category 3 259,993,860.49 85.27 20,379,094.88 405,269,180.57 100.00 21,627,730.37 Total 304,902,867.51 100.00 22,624,545.23 405,269,180.57 100.00 21,627,730.37 Book value 282,278,322.28 383,641,450.20 Category 1 was significant account receivable as single amount(balance of period-end reached over RMB 20,000,000). Category 2 single amount is not significant but account receivable with bigger riskes after the combination of credit risk characteristics. Category 3 is other unsignificant acconnt receivable. (2) Classified according to account age of accounting receivable Book balance in year-end Book balance in year-begin Account age Provision for Provision for Amount Percentage% Amount Percentage% bad debt bad debt Within 1 year 268,462,289.16 88.06 11,401,244.73 370,783,552.40 91.49 13,345,092.96 1-2 years 18,949,023.71 6.21 2,834,054.43 25,659,952.91 6.33 4,786,709.03 2-3 years 9,131,483.96 2.99 3,196,019.39 6,754,572.79 1.67 2,341,870.80 3-4 years 6,392,723.81 2.10 3,515,998.10 2,037,877.53 0.50 1,120,832.64 4-5years 1,934,121.93 0.63 1,644,003.64 -- -- -- Above 5 years 33,224.94 0.01 33,224.94 33,224.94 0.01 33,224.94 Total 304,902,867.51 100.00 22,624,545.23 405,269,180.57 100.00 21,627,730.37 Net amount 282,278,322.28 383,641,450.20 The balance of account receivable as of year-end decreased RMB 100,366,313.06 compared to that of last year with the decrease ratio of 24.77%. This was mainly due to that the Company implemented credit management system instrument, strengthened credit policy and brought down risk of account receivable. Till the report day, RMB 241,620,000 has been called back. The balance of account receivable as of year-end didn’t include the accounts of the companies which held over 5% equity of the Company. (3) Arrearage owed by top 5 in the balance of accounts receivable as of year-end Book balance in year-end Book balancein year-begin Title of debtor units Amount Proportion% Amount Proportion% Total of top 5 in accounts 81,786,513.98 26.82 75,583,648.11 18.65 receivable (4)Main debtor units of account receivable Owed Title of debtor units Amount Owed date Remark reason Withdraw bad debt Nanking Purchase Center of Suning Within 1 Payment according to 44,909,007.02 Appliance Co., Ltd. year for goods enterprise’s policy on bad debt Electrolux Major Appliances, Latin Within 1 Payment 13,535,127.44 America year for goods Within 1 Payment Dshang Group Co., Ltd. 9,441,435.48 year for goods Within 1 Payment Littlewoods Shop Direct Group 7,031,578.60 year for goods Within 1 Payment FAGORBRANDT 6,869,365.44 year for goods Taking 26.82% in total amount of account Total 81,786,513.98 receivable (5)Special withdrawal provision of bad debt The Company had entrusted the bank to accept the credit with the amount of USD 3,752,421.40, EURO 1,286,320.33 and 42,379.85 pounds which converted into RMB 38,489,571.81 at the end of 2008. Thus,the Company didn’t withdraw bad debt reserve for this part of account receivable. (6)Cacelling and switching back of account receivable The account receivable which had been cancelled in previous years totaled to RMB 3,620,816.20 this year. No account receivable has been cancelled in this year. Annotation 4. Account paid in advance (1)The balance and accounting age of advance paid in advance at year-end are as follows: Book balance in year-end Book balance in year-begin Account age Amount Proportion% Amount Proportion% Within 1 year 131,748,743.44 97.64 69,067,562.73 89.19 1-2 years 10,528.72 0.01 3,597,486.59 4.65 2-3 years 474,141.41 0.35 2,073,076.93 2.68 Above 3 years 2,704,821.09 2.00 2,703,269.34 3.48 Total 134,938,234.66 100.00 77,441,395.59 100.00 Book balance of account paid in advance at year-end increased RMB 57,496,839.07 compared to that of last year-end, with an increase rate of 74.25%. The main reason is that: The subsidiary-Jiangxi Meiling Company paid RMB 58,000,000.00 to the liquidation team of Jingdezhen Huayi Electrics General Corporation in advance for auctioning part bankruptcy assets of Jingdezhen Huayi Electrics General Corporation Refrigeratory factory. Details could be found in appendix 15, Other Significant Proceedings, 6. (2)Account paid in advance to the top five totaled to RMB 105,652,949.17, taking 78.30% of the book balance of account paid in advance at year-end. (3)In the book balance of account paid in advance at year-end, there is no account paid in advance to the shareholders holding over 5% (5% included) equity of the Company. (4)Balance of account paid in advance whose book age exceeded 1 year at year-end amounted to RMB 3,189,491.22. Reason for why the material accounts paid in advance had not been settled at period-end and their settlement after the period are as follows: Arrearage Payment after Client Reason for unpayment balance period exceeding 1 year Hefei Customs 1,213,287.1 Unsettled temporarily Sinotrans Anhui Wuhu 474,141.41 Business halt Company Shanghai Landi Telecommunication 210,000.00 Business halt Component Factory Anhui Minmetals Development Import & 159,810.77 Business halt Export Co.,Ltd. Annotation 5. Other receivable (1)Classified according to account age Account age Book balance in year-end Book balancein year-begin Provision for Provision for Amount Proportion% Amount Proportion% bad debt bad debt Within 1 year 37,024,187.12 78.41% 1,817,973.70 35,304,389.98 85.47% 1,704,230.12 1-2 years 5,557,895.90 11.77% 829,784.39 377,738.68 0.91% 56,660.80 2-3 years 164,738.08 0.35% 49,374.67 243,998.12 0.59% 85,399.34 3-4 years* 2,301,075.05 4.87% 2,198,475.90 338,148.72 0.82% 185,981.80 4-5years 323,148.72 0.68% 274,676.41 3,616,021.96 8.75% 3,607,110.46 Above 5 years 1,848,254.69 3.91% 1,848,254.69 1,427,624.07 3.46% 1,427,624.07 Total 47,219,299.56 100.00% 7,018,539.76 41,307,921.53 100.00% 7,067,006.59 Net amount 40,200,759.80 34,240,914.94 *The book balance of the other receivable aging 3-4 years as of year-end RMB 2,301,075.05 is larger than The book balance of the other receivable aging 2-3years as of year-begin RMB 243,998.12, which is mainly due to that the exchange balance of Jiangxi Kesheng Industry&Trade Co., Ltd RMB 2,073,076.93 which was calculated in account paid in advance at last year-end with account age of 2-3 years is transferred to other receivable for calculation. (2) Classified according to risks Book balance in year-end Book balancein year-begin Items Provision for Provision for Amount Proportion Amount Proportion bad debt bad debt Category 1 21,904,067.99 46.39% 2,641,396.48 -- -- -- Category 2 2,405,856.33 5.10% 2,254,457.87 -- -- -- Category 3 22,909,375.24 48.52% 2,122,685.41 41,307,921.53 100% 7,067,006.59 Total 47,219,299.56 100% 7,018,539.76 41,307,921.53 100% 7,067,006.59 Book value 40,200,759.80 34,240,914.94 Category 1 was significant other account receivable of single amount(balance as of period-end was exceeding RMB 1 million). Category 2 single amount is not significant but other account receivable with bigger riskes after the combination of credit risk characteristics. Category 3 is other unsignificant of other account receivable. (3) Total arrearage of the top 5 in other accounts receivable at the end of the term is as follows: Book balance in year-end Book balancein year-begin Total of the top 5 Amount Proportion Amount Proportion 14,087,185.18 29.83% 14,083,978.43 30.20% (4)Main debtor units of other account receivable at the end of the year are as follows: Owed Owed Provisioon Reason for withdrawal Title of debtor units Amount for bad debt date reason of bad debt Ocean Freight 1-2 year Withdraw expense paid instead 4,757,804.41 according to Reserve fund of Within Reserve proportion Chengdu Branch 3,197,379.53 1year fund Transferred in from account paid in Jiangxi Kesheng advance, because of Payment Withdraw in Industry&Trade Co., 2,073,076.93 3-4 year difficulty in calling for goods sum Ltd. back the account, withdraw bad debt reserve in sum. Reserve fund of Within Reserve Withdraw Jinan Branch 2,067,891.81 1year fund according to Reserve fund of Within Reserve proportion Guangzhou Branch 1,991,032.50 1year fund Total 14,087,185.18 Taking up 29.83% in other account receivable in year-end (5)Special provision for withdrawing bad debt Due to that some current units owed a longer time, and they had difficulties in paying the owed debt in previous years. After liquidating the historical debt, provision for the withdrawal of 100 percent bad debt for the following units: Owed Owed Withdrawal Unit Book balance proportion Reason time reason Transferred in from account received in advance, Jiangxi Kesheng Payment 2,073,076.93 3-4 year 100% because of difficulty in Industry&Trade Co., Ltd for goods calling back the account, withdraw bad debt reserve in sum. (6)Cancelling of other receivable for this year: approved in the resolution of the 12th meeting of the 6th Board dated Feb 23rd of 2009, cancelled the tax deposit receivable RMB 3,148,479.34 from Wuhu Sales Company this year. Details could be found in Appendix 14 Balance Sheet after proceedings itemI(1)(2). Annotation 6. Inventory (1)The list of inventory classified according to kinds were as follows: Amount increased in Amount decreased Item Amount at year-begin Amount at year-end this year in this year Raw material 86,258,543.40 3,015,804,609.12 3,041,751,819.78 60,311,332.74 Material from entrusted process - 167,512,961.35 167,512,961.35 - Inventory commodities 450,043,929.96 5,019,906,067.22 5,070,463,079.10 399,486,918.08 Low value consumable articles 9,013,564.99 36,319,490.45 41,151,620.36 4,181,435.08 Goods in transit 93,346,475.62 3,978,055,335.66 3,984,375,889.26 87,025,922.02 Goods-in-process 35,046,178.21 2,699,927,231.49 2,713,591,817.79 21,381,591.91 Material purchase - 57,147,241.41 57,147,241.41 - Cost for developing 471,639.30 - 471,639.30 - Deferred expense for mold - 27,286,877.73 17,635,399.13 9,651,478.60 Total 674,180,331.48 15,001,959,814.43 15,094,101,467.48 582,038,678.43 Inventory has decreased RMB 92,141,653.05 at year-end with a decrease rate of 13.67%, which was mainly due to that the Company strengthened link between producing and selling, organized production strictly according to the sales orders, advanced the cashing rate of order and optimized inventory. (2) Inventory depreciation reserve Withdrawl Amount decreased in this Book balance at Book balance at Item amount of this year Notes year-begin year-end year reversing unamortized Raw material Withdraw 1,059,300.55 -- -- -- 1,059,300.55 proportionally in accordance with the Inventory rank and account merchandise 22,306,252.90 20,630,047.77 -- -- 42,936,300.67 age of inventories Total 23,365,553.45 20,630,047.77 -- -- 43,995,601.22 (3) Net value of inventory Net inventory Net amount at period-end Net amount at period-begin Raw material 59,252,032.19 85,199,242.85 Material from entrusted process － - Inventory commodities 356,550,617.41 427,737,677.06 Low value consumable articles 4,181,435.08 9,013,564.99 Goods in transit 87,025,922.02 93,346,475.62 Goods-in-process 21,381,591.91 35,046,178.21 Material purchase - - Cost for developing - 471,639.30 Deferred expense for mold 9,651,478.60 - Total 538,043,077.21 650,814,778.03 (4) Capitalized amount of borrowing expense: no. (5) Pledge provided for inventory in the year-end: no. Annotation 7. Financial assets available for sale Fair value at year-end Fair value at year-begin Item Change of fair Change of fair Cost Cost value value 1. Bond available for sale -- -- -- -- 2. Equity instrument 19,540,000.00 146,680,000.00 -- -- available for sale 3. Others -- -- -- -- Total 19,540,000.00 146,680,000.00 -- -- The Company holds 6,600,000 legal person shares (stock code 002230) of Anhui Keda Xunfei Information Technology Co., Ltd., taking 6.16% of its registered capital. According to the regulation 42 of Company Law, only Anhui Keda Xunfei Information Technology Co., Ltd. gets listed could the Company release the abovesaid shares to market after May 12th of 2009. Before this, they could remain restricted circulating shares. The Company holds 1,000,000 legal person shares (stock code 601601) of China Pacific Insurance (Group) Co., Ltd., taking 0.01299% of its registered capital. In accordance with the No. 42 regulations in Company Law, only China Pacific Insurance (Group) Co., Ltd. gets listed could the Company release the abovesaid shares to market after Dec 26th of 2008. Before this, they could remain restricted circulating shares. According to the related regulation of Accounting Standards for Business Enterprise Explanation No.1(CK(2007)No.14) released by the Ministry of Finance and No.3 Experts’ Opinion on Implementating Accounting Standards for Business Enterprise: if a company holds restricted shares of listed company, besides, it dosen’t control, co-control or has material influence over the listed company, the restricted shares should be categorized into financial assets available for sale and the gains and losses formed from its fair value change should be written into capital reserve, according to the regulation of Accounting Standards for Business Enterprise No.22-Confirmation and Measurement for Financial Instrument. On Dec 31st of 2008, the closing price of the circulating shares of Anhui Keda Xunfei Information Technology Co., Ltd. was RMB 23.5 per share and its fair value was RMB 155,100,000.00, among which RMB 136,140,000.00 was written into capital reserve; On Dec 31st of 2008, the closing price of the circulating shares of China Pacific Insurance (Group) Co., Ltd. was RMB 11.12 per share and its fair value was RMB 11,120,000.00, among which RMB 10,540,000.00 was written into capital reserve; Annotation 8. Long-term equity investment Book balance Increase in this Decrease in Book balance Item at year-begin year this year at year-end Long-term equity investment 52,782,961.20 675,807.92 19,740,000.00 33,718,769.12 Less: impairment for long-term 1,660,000.00 -- -- 1,660,000.00 equity investment Net value of long-term equity 51,122,961.20 675,807.92 19,740,000.00 32,058,769.12 investment (1) Classification of long-term equity investment Book balance at year-begin Book balance at year-end Increase in Decrease in Item Provision for Provision for Amount this year this year Amount depreciation depreciation Investment in subsidiary -- -- -- -- -- -- Investment in joint ventures and -- -- -- -- -- -- co-operative enterprise Investment in joint 26,582,961.20 -- 675,807.92 200,000.00 27,058,769.12 -- owned enterprise Investment in other 26,200,000.00 1,660,000.00 -- 19,540,000.00 6,660,000.00 1,660,000.00 enterprise Including: investment on -- -- -- -- -- -- stock Other equity investment 26,200,000.00 1,660,000.00 -- 19,540,000.00 6,660,000.00 1,660,000.00 Total 52,782,961.20 1,660,000.00 675,807.92 19,740,000.00 33,718,769.12 1,660,000.00 Book value of 51,122,961.20 32,058,769.12 long-term investment The book value of long-term equity investment at year-begin RMB 51,122,961.20 has decreased RMB 2,000,000.00 compared to RMB 53,122,961.20 disclosed in last year-end. Reason for that is: on Jan 28th of 2008, the Company signed Equity Transfer Contract on Hefei Changhong Meiling Refrigeration Co., Ltd. with Sichuan Changhong. It was agreed that taking Dec 31st, 2008 as the basic day, Sichuan Changhong transferred 90% equity of Changhong Meiling Refrigeration to the Company. After this transfer, the Company would hold 100% equity of Changhong Meiling Refrigeration, thus Changhong Meiling Refrigeration was taken into consolidated statement this year. Long-term equity investment has increased RMB 675,807.92 this year which all came from the investment to joint ventures and co-operative enterprise calculated by equity method, among which: RMB 588,830.17 was expected to obtain from its affiliated company-Hefei Technology Property Exchange according to the net profit it had realized this year; RMB 86,977.75 was expected to obtain from its affiliated company-Meiling Packing Company according to the net profit it had realized this year. Long-term equity investment has decreased RMB 19,740,000.00 this year, among which: RMB 19,540,000.00, which was originally taken as investment to China Pacific Insurance (Group) Co., Ltd. and Anhui Keda Xunfei Information Technology Co., Ltd., was transferred into financial assets for sale referring to risk management demand and holding aim; RMB 200,000.00 came from the bonus of its affiliated company- Hefei Technology Property Exchange. (2)Particulars about long-term equity investment Relations Proporti hip with on of Calculat Book amount at Provision for Invested Unit the invested Invest limit ion parent amount method year-end depreciation company % Cost Huishang Bank Co., Ltd. -- 1.15 Long-term 5,000,000.00 -- method Meiling Sigma Appliance Co., Cost -- 20.00 15years 1,660,000.00 1,660,000.00 Ltd. method Hefei Technology Property Right joint Equity 28.57 Long-term 2,292,931.53 -- Exchange owned method joint Equity Meiling Packing Co., Ltd. 48.28 Long-term 24,765,837.59 -- owned method Total 33,718,769.12 1,660,000.00 (3) Investment on affiliated enterprise (Unit:’0000) Propo Amount occurred in this Book balance at year-end rtion Proportio year Registere for n for Invested Unit d place share- vote Total Operating Total assets Net profit holdin right liabilities income g Hefei Technology Property Right Hefei 28.57% 28.57% 3,500.13 2,708.00 129.87 202.33 Exchange* Meiling Packing Hefei 48.28% 48.28% 13,635.95 8,506.32 15,908.29 18.02 Co., Ltd. *The 2008 annual report of Hefei Technology Property Right Exchange received by the Company has not been audited. If there is difference existed between the audited report and the current report, the Company will adjust in 2009 according to the regulation of Accounting Standard of Enterprise No. 28-Accounting Policy, Accounting Estimation and Correction of Prior Period Errors. (4) Increase or decrease in long-term equity investment: Initial Balance of Increase or Accumulate Balance of Invested unit d equity investment year-begin decrease in adjustment year-end Hefei Technology Property Right 1,000,000.00 1,904,101.36 388,830.17 1,292,931.53 2,292,931.53 Meiling Packing Co., Ltd. 25,055,600.00 24,678,859.84 86,977.75 -289,762.41 24,765,837.59 Huishang Bank Co., Ltd. 5,000,000.00 5,000,000.00 -- -- 5,000,000.00 Meiling Sigma Appliance Co., Ltd. 1,660,000.00 1,660,000.00 -- -- 1,660,000.00 China Pacific Insurance (Group) Co., Ltd. 580,000.00 580,000.00 -580,000.00 -- -- Zhongkeda Xunfei Information 18,960,000.00 18,960,000.00 -18,960,000.00 -- -- Technology Co., Ltd. Total 52,255,600.00 52,782,961.20 -19,064,192.08 1,003,169.12 33,718,769.12 (5) Provision for depreciation of long-term equity investment: Decrease Book balance at Increase in Balance at Invested unit in this Notes year-begin this year year-end year Operation suspension, Meiling Sigma Appliance Co., Ltd. 1,660,000.00 -- -- 1,660,000.00 preplanned liquidation Annotation 9. Real estate investment Book balance at Increase in this Decrease in Book balance at Item year-begin year this year year-end I. Total of original price 1.Houses and buildings 5,511,485.56 -- -- 5,511,485.56 2. Land Use Right -- -- -- -- II. Total of accumulated depreciation and accumulated amortization 1.Houses and buildings 1,297,650.53 131,649.75 -- 1,429,300.28 2. Land Use Right -- -- -- -- III. Total of accumulated amount of provision for depreciation of investment real estate 1. Houses and buildings -- -- -- -- 2. Land Use Right -- -- -- -- IV. Total book value of investment real estate 1.Houses and buildings 4,213,835.03 4,082,185.28 2. Land Use Right -- -- -- -- Annotation 10. Fixed asset and accumulated depreciation Book balance at Increase in this Decrease in Book balance at Item year-begin year this year year-end 1. Original value Houses and buildings 198,436,067.77 121,220,444.61 46,743,801.16 272,912,711.22 Special equipment 538,562,905.91 153,331,339.99 35,027,107.72 656,867,138.18 Transport equipment 20,834,415.82 3,707,906.80 1,713,309.00 22,829,013.62 Others 26,671,830.04 5,574,903.85 7,044,081.17 25,202,652.72 Total 784,505,219.54 283,834,595.25 90,528,299.05 977,811,515.74 2. Accumulated depreciation Houses and buildings 27,630,979.11 8,875,266.83 11,678,376.81 24,827,869.13 Special equipment 245,015,790.18 34,450,111.20 27,578,231.47 251,887,669.91 Transport equipment 10,277,640.58 2,316,383.81 1,569,077.64 11,024,946.75 Others 14,025,556.93 1,888,258.53 6,082,655.56 9,831,159.90 Total 296,949,966.80 47,530,020.37 46,908,341.48 297,571,645.69 3. Net value 487,555,252.74 -- -- 680,239,870.05 4. Depreciation reserve of fixed asset Houses and buildings 950,000.00 -- -- 950,000.00 Special equipment 16,028,544.96 -- 6,349,866.81 9,678,678.15 Transport equipment 731,636.96 -- 135,569.00 596,067.96 Others 1,783,299.63 -- -- 1,783,299.63 Total 19,493,481.55 -- 6,485,435.81 13,008,045.74 5. Book amount of fixed asset Houses and buildings 169,855,088.66 -- -- 247,134,842.09 Special equipment 277,518,570.77 -- -- 395,300,790.12 Transport equipment 9,825,138.28 -- -- 11,207,998.91 Others 10,862,973.48 -- -- 13,588,193.19 Total 468,061,771.19 -- -- 667,231,824.31 Difference between the book balance of fixed assets and accumulated depreciation as of year-begin and the amount disclosed last year mainly due to mergering Hefei Changhong Meiling Refrigeration Co., Ltd. this year. Original value of fixed assets has increased RMB 283,834,595.25 in this year, which mainly include: (1)fixed assets RMB 265,459,648.45 transferred from project in process; (2)extra purchase fixed assets RMB 8,416,767.03; (3)the sales branch increased fixed assets RMB 2,600,456.52; (4)capitalized interest increased fixed asset RMB 3,806,401.68; (5)according to the actual settlement amount for the phase 1 project of the industry park, to offset the excessive fixed assets RMB 8,047,260.55 which was recorded into account temporarily last year( among which, RMB 4,036,973.51 was excessive for contract and RMB 4,010,287.04 for others. ) Original value of fixed assets has decreased RMB 90,528,299.05 in this year, including RMB 22,916,179.40 decreased for disposing fixed asset, RMB 65,963,686.78 for discarding as useless and RMB 1,417,790.47 for others, which was mainly due to that machine equipment of fixed assets could offset adjustment of withholdings on VAT. The aforesaid disposure and discarding of fixed assets correspondingly decreased accumulated depreciation RMB 46,904,366.65. Property Right Certification for some part houses and buildings are still in transacting. Here comes the details: Serial Name Notes number 1 No.1 main workshop Phase I project of Meiling Industry Park 2 No.1 finished products warehouse Phase I project of Meiling Industry Park 3 Eatery Phase I project of Meiling Industry Park 4 1# domitory building Phase I project of Meiling Industry Park 5 2# domitory building Phase I project of Meiling Industry Park 6 Power Distribution House Air Compressure station Phase I project of Meiling Industry Park 7 Chemistry warehouse Phase I project of Meiling Industry Park 8 No.2 main workshop Phase II project of Meiling Industry Park 9 No.2 finished products warehouse Phase II project of Meiling Industry Park Plate-squeeze and plastic-sucking 10 Phase II project of Meiling Industry Park factory 11 Raw material storehouse Phase II project of Meiling Industry Park 12 Waster station Phase II project of Meiling Industry Park 13 cake gold factory Phase II project of Meiling Industry Park 14 Injection mold factory Phase II project of Meiling Industry Park 15 R&D center Phase II project of Meiling Industry Park 16 Administration center Phase 1project of Meiling Industry Park 17 Marketing center Phase II project of Meiling Industry Park 18 Multi-function center Phase II project of Meiling Industry Park 19 No.6 workshop Phase II project of Meiling Industry Park 20 1# domitory building for cadreman Phase II project of Meiling Industry Park 21 2# domitory building for cadreman Phase II project of Meiling Industry Park The original value, accumulated depreciation, depreciation reserve and rest value of the fixed assets which has been already withdrawed enough are respectively RMB 61,428,875.32, RMB 57,668,195.60, RMB 1,022,769.84, and RMB 2,737,909.88. Fixed assets used for mortagage are as follows: Name of houses Property ownership certificate Original value Net value Pledge unit Property Ownership Right Molding filiale 5,200,216.00 4,570,946.44 Communication Bank (FD)No. 007761 Property Ownership Right Hefei Branch of Citic Freezer workshop 8,686,682.09 6,118,780.36 (FD)No.028134 Bank Preparatory plant Property Ownership Right Hefei Branch of Citic 2,700,875.74 1,888,637.22 workshop (FD)No.028130 Bank Plant workshop Property Ownership Right 1,223,777.68 999,084.24 Hefei Branch of Citic (FD)No.028131 Bank Office building of Property Ownership Right Hefei Branch of Citic 1,168,591.33 950,997.67 freezer factory (FD)No.028133 Bank Property Ownership Right Hefei Branch of Citic Cake gold plant 2,289,662.37 1,717,505.70 (FD)No.028132 Bank Property Ownership Right Ministry of Finance Crusher room 242,232.00 220,399.16 (FD)No.028284 of Hefei Power distribution Property Ownership Right Ministry of Finance 88,970.00 85,332.11 room (FD)No.028278 of Hefei Property Ownership Right Ministry of Finance Plant wokshop 2,796,137.00 2,456,904.46 (FD)No.028283 of Hefei Property Ownership Right Ministry of Finance Substation 12,055.47 8,157.24 (FD)No.028273 of Hefei Air Compressor Property Ownership Right Ministry of Finance 231,928.00 25,686.54 House (FD)No.028282 of Hefei Property Ownership Right Huishang Big Center warehouse 22,228,826.09 15,075,433.62 (FD)No.028285 East-gate Total 46,869,953.77 34,117,864.76 Annotation 11. Construction in process Amount Book balance Increase in transferred into Other Book balance Item Capital source Progress at year-begin this year fixed asset in this decrease at year-end year 1.Original value of construction in process: Export base 388,616.06 -- 388,616.06 -- -- Self-raised Medial Low temperature Refrigeration Equipment 306,300.00 -- 306,300.00 -- -- Self-raised Item 1,074,196. New ERP system 2,798,331.98 -- -- 3,872,528.08 Self-raised 90% 10 Meiling economic technical 425,811.58 -- 425,811.58 -- -- Self-raised development zone Phase II of Changhong 129,082,38 23,173.0 48,685,268.63 175,305,021.47 2,439,457.22 Self-raised 80% Meiling industry park 3.06 0 U-shape box forming line 1,542,564.10 465,982.91 2,008,547.01 -- -- Self-raised No. 2 workshop and 669,000.00 442,111.11 1,111,111.11 -- -- Self-raised movement of C line Move and restructure of the 2,340,90 2,340,905.95 -- -- -- Self-raised Company 5.95 PDM 1,860,958.95 -- -- -- 1,860,958.95 Self-raised 60% Phase II drive and 448,717.92 448,717.92 897,435.84 -- -- Self-raised illumination chest / box Mianyang box one 1,616,069. 676,923.08 2,292,992.26 -- -- Self-raised line(16-position) 18 Epoxy = resin try type 1,238,461. aluminum power 530,769.23 1,769,230.77 -- -- Self-raised 54 transformers Switchgear and separation 911,794.88 607,863.24 1,519,658.12 -- -- Self-raised chest GGD/GGJ-typed low-voltage AC power 3,897,726. distributing cabinet and 3,464,444.43 7,362,170.94 -- -- Self-raised 51 low-voltage busbar bridge channel Five stage case expanded line newly increased in 320,512.83 747,863.24 1,068,376.07 -- -- Self-raised E-line, added 10 single-station forming 2,297,435. 984,615.36 3,282,051.28 -- -- Self-raised machines 92 1,076,923. 3 portal foaming lines 461,538.45 1,538,461.54 -- -- Self-raised 09 Non-flat side forming line 423,076.90 987,179.51 1,410,256.41 -- -- Self-raised Hanging paint production line, powder room and 1,423,931. 610,256.41 2,034,188.03 -- -- Self-raised surrounded house, portal 62 paint booth Portal High-pressure Foaming Machine and 353,846.15 825,641.03 1,179,487.18 -- -- Self-raised affiliated equipment reform Trigger 307,692.32 717,948.71 1,025,641.03 -- -- Self-raised Safety system reform on 160,683.76 482,905.98 643,589.74 -- -- Self-raised expanded zone Network placing of industry 92,307.69 92,307.71 184,615.40 -- -- Self-raised park Expense item for the phase I project of Meiling bar 4,114,821. -- 11,109.40 -- 4,103,711.89 Self-raised 90% code system(finished 29 products and raw material) New construction and integration project of 1,414,529. -- 1,414,529.91 -- -- Self-raised computer network of 91 industry park Jian’an project of Mianyang 13,884,989 -- 2,257,630.58 -- 11,627,359.19 Self-raised 90% Branch .77 Remove and alteration 64,424,008 17,949,7 -- 10,685,200.00 35,789,092.81 Self-raised 80% project .83 16.02 Phase I project of Meiling 33,112,113 -- 33,112,113.77 -- -- Self-raised Industry Park .77 11,678,387 74,358.9 Others 1,067,628.25 12,225,502.95 446,153.83 60% .51 8 276,154,49 20,388,1 Total original value 69,832,564.91 265,459,648.45 60,139,261.97 9.46 53.95 2.Depreciation reserve for -- -- -- -- -- construction in process 3.Net amount of 276,154,49 20,388,1 69,832,564.91 265,459,648.45 60,139,261.97 construction in process 9.46 53.95 Among the other decrease of construction in process, RMB 17,949,716.02 was temporarily dealt with as fixed assets which were originally construction in process waiting for removing and discarding as useless in accordance with the agreement. RMB 2,340,905.95 was the occurring amount paid for mergering and removing. The capitalized interest amount in the book balance of construction in process at year-end was RMB 482,322.40. The Company would get governmental compensation for land-transferring for this move. It was predicted that no depreciation would happen. Annotation 12. Disposal of fixed asset Book balance at Increase in this Decrease in this Book balance at Item year-begin year * year ** year-end Houses for movement 122,843,184.11 35,065,424.35 -- 157,908,608.46 transferred into disposal Losses occurred in 73,715,357.59 113,197,986.99 78,749,714.67 108,163,629.91 movement Land which is taken back for reserve transferred to 78,044,738.24 -- -- 78,044,738.24 disposal Construction in process 13,699,198.73 -- -- 13,699,198.73 transferred to disposal Discarded as useless -- -- -- -- Others -- 416,126.72 219,178.26 196,948.46 Total 288,302,478.67 148,679,538.06 78,968,892.93 358,013,123.80 In line with the relevant regulations of No.89 file of Hefei government and the sprit of relevant governmental meetings, the Company reaches Agreement on Taking Back of the Right of the Use of State-owned Land with Hefei Land Reserve Center in 2006. Hefei Land Reserve Center agreed to take back the lands with total areas of 119,400 square meters respectively lies in No. 33 and No. 48 of Wuhu Road. The Ministry of Finance of Hefei should pay the relevant subsidy (including expenses in movement, relocation and settlement.) for the lands to the Company within 6 months after the lands business is done in list market. Detailed subsidy is decided according to 65% of the total transaction amount of the lands (tax paid) which is already deducted the bank interest (estimation fee included) arising from land pledged for loan made by Hefei Land Reserve Center. The taking back action of Hefei Land Reserve Center will bring some benefit to the Company, while the realization of the benefit is still uncertain. * Increase in this year: The Company transferred the losses arising from discarding houses and equipment as useless for this movement, products losses occurred from this movement, as well as the manual work expenditure in relocation and adjustment expense in equipment installation, into the item of disposal of fixed asset and this would be all transferred again when the subsidy is received. ** Decrease in this year: among which RMB 37,793,014.50 was mainly bank deposit taken back for backout and auction of the former workshop; and RMB 31,360,000.00 was retransferred into fixed assets since the completion of installation and restructure of the equipment of forming machine product line. Annotation 13. Intangible assets Decrease Limit for Book balance Increase in Book balance Item in this the rest at year-begin this year at year-end amortization year I. Original value - 1. Right of use of land 549,909,818.75 -- -- 549,909,818.75 38-46 years 2. Trademark special 73,711,036.84 -- -- 73,711,036.84 4 years right 3. New mixed-refrigerant technology in producing throttling, refrigerating 9,000,000.00 -- -- 9,000,000.00 3 years and cryogenic refrigerator Total 632,620,855.59 -- -- 632,620,855.59 -- II.Accumulated - -- -- -- amortization Right of use of land 11,618,112.64 11,483,716.75 -- 23,101,829.39 -- Trademark special right 13,007,830.03 13,007,830.03 -- 26,015,660.06 -- New mixed-refrigerant technology in producing throttling, refrigerating 2,250,000.00 2,250,000.00 -- 4,500,000.00 -- and cryogenic refrigerator Total 26,875,942.67 26,741,546.78 - 53,617,489.45 -- III.Accumulated -- -- -- -- -- depreciation reserve Right of use of land -- -- -- -- -- Trademark special right -- -- -- -- -- New mixed-refrigerant technology in producing throttling, refrigerating -- -- -- -- -- and cryogenic refrigerator Total -- -- -- -- -- IV. Book value -- -- -- -- -- Right of use of land 538,291,706.11 -- -- 526,807,989.36 -- Trademark special right 60,703,206.81 -- -- 47,695,376.78 -- New mixed-refrigerant technology in producing throttling, refrigerating 6,750,000.00 -- -- 4,500,000.00 - and cryogenic refrigerator Total 605,744,912.92 -- -- 579,003,366.14 -- (1)Land use right comes from that: In 2004, the Company took account receivable for change of the land in Meiling Group Company Development Zone; on Dec. 31st of 2005, Meiling Group Company and Meiling Washer Company used the land use right of their development zone to commute the debts they owed to the Company. The relevant transfer procedure for the certificates for the right of use of the land has been finished. And the certificate numbers for the two certificates for right of use of the state-owned land are respectively HGY (2007) No. 061 and HGY (2007) No. 076. (2) The trademark special right is obtained through the transfer from Meiling Group Company in 2002. (3) The new mixed-refrigerant technology in throttling and refrigerating and its application research in cryogenic reserve box is an intangible asset devoted to the subsidiary-Zhongke Meiling Company by Technical Institute of Physics and Chemistry in Chinese Academy of Science. With appraisal, its value is RMB 18million which takes 30% equity of Zhongke Meiling Company. The agreement regulates that the limit term is 8 years Particulars about the pledge of intangible asset: Area of Intangible asset Land certificate number property right Net book value Note （M2） Meiling Industry Park in Section A of Communication DGY (2002) No. 0257 10,560.00 Bank of Hefei Longgang Industry Zone Branch Meiling Industry Park in Section A of Communication DGY (2002) No. 0259 5,015.00 31,915,645.84 Bank of Hefei Longgang Industry Zone Branch Meiling Industry Park in Section A of Citic Bank of Hefei DGY (2004) No. 0200 105,121.71 Longgang Industry Zone Branch The Export and Land use right of Economic Development Import Bank of HGY (2007) No. 076 220,100.00 160,440,642.56 Zone Chinaof Nanking Branch Industry and Land use right of Economic Development Commercial Bank HGY (2007) No.061 477,550.00 324,315,599.80 Zone of China of Dadongmen Branch Total 516,671,888.20 Annotation 14. Deferred income tax asset (1) Particulars about the recognized deferred income tax asset and deferred income tax liability Item Book balance at year-end Book balance at year-begin I. Deferred income tax asset 12,980,747.10 17,268,580.25 1.Depreciation reserve for asset 12,980,747.10 17,232,075.34 2. Deductible losses -- 36,504.91 II.Deferred income tax liability -- -- 1. Added value in appraisal -- -- (2) Amount of the deductible temporary difference and deductible losses of unconfirmed deferred income tax asset Deductible temporary difference of unconfirmed deferred income tax asset: RMB 2,270,759.86 predicted as deposit for product quality. Deductible losses of unconfirmed deferred income tax asset: the subsidiary-Jiangxi Meiling Company hasn’t made up losses of RMB 810,590.47. Annotation 15. Asset depreciation reserve Book balance Increase in Decrease in this yea Book balance Item at year-begin this year Reversing Offset at year-end 1.Provision for bad debt 28,694,736.96 4,096,827.37 - 3,148,479.34 29,643,084.99 2. Inventory falling price reserves 23,365,553.45 20,630,047.77 - - 43,995,601.22 3. Depreciation reserve for financial asset available - for sale 4. Depreciation reserve for held-to-maturity - investment 5. Depreciation reserve for long-term equity 1,660,000.00 1,660,000.00 investment 6. Depreciation reserve for investment of real estate - 7. Depreciation reserve for fixed asset 19,493,481.55 6,485,435.81 13,008,045.74 8. Depreciation reserve for project material - 9. Depreciation reserve for construction in process - 10. Depreciation reserve for capitalized biological - asset 11. Depreciation reserve for oil and gas asset - 12. Depreciation reserve for intangible asset - 13. Depreciation reserve for goodwill - 14. Others - Total 73,213,771.96 24,726,875.14 - 9,633,915.15 88,306,731.95 Annotation 16. Asset with ownership restricted For details, please refer to the Appendix8, Annotation1-Monetary Fund, Annotation10- Fixed Asset and Annotation13-Intangible Asset. Annotation 17. Short-term loans (1) Kinds of loans Book balance at Book balance at Loan condition Note year-end year-begin Mortgage with house property Loan in mortgage 162,000,000.00 218,353,256.00 and land use right The Company guaranteed for Zhongke Meiling with RMB Loan in assurance 165,000,000.00 182,400,141.57 30,000,000 and the rest is guaranteed by Meiling Group for the Company Loan in bill purchase 9,427,193.11 43,528,800.90 Total 336,427,193.11 444,282,198.47 (2) Currency for loans Japanese Loan condition US. Dollars Euro RMB Total Yuan Loan in -- -- -- 162,000,000.00 162,000,000.00 mortgage * Loan in -- -- -- 165,000,000.00 165,000,000.00 assurance ** Loan in bill 1,354,743.00 -- -- -- purchase *** 17,400.00 Total 1,354,743.00 17,400.00 -- 327,000,000.00 -- Exchange rate at 6.8346 9.659 -- -- -- period-end RMB converted 9,259,126.51 168,066.60 -- 327,000,000.00 336,427,193.11 into *Details for the loans in mortgage: (i) On Jun 19th of 2008, the Company signed Real Estate Mortgage Contract ((2008)IEB (NXD) No. 006) with Import and Export Bank of China. In this contract, the Company takes the land use right of 220,100 square meters in Hefei Economic Technology Development Zone which is held by the Company, as mortgage for the borrowing of RMB 95,000,000.00 as import and export seller credit loans, from Jun 23rd of 2008 to Jun 23rd of 2009 from this bank. The certificate number for the mortgaged land use right is HJKGY (2007) No. 76. The balance of actual borrowings at the year end is RMB 95,000,000.00. (ii) On Dec 25th of 2008, the Company signed the Top Amount Mortgage Contract (CDDZ (2008) No. 0063) with Industry and Commercial Bank of China of Hefei Changjiang East Road Branch, In this contract, the Company takes the land use right of 477,550 square meters in Hefei Economic Technology Development Zone which is held by the Company, as mortgage for the top amount balance of borrowing of RMB 156,100,000.00 from Dec 25th of 2008 to Dec 24th of 2009 from this bank. The certificate number for the mortgaged land use right is HJKGY (2008) No. 099. Meanwhile, the credit and debt, carried by the Top Amount Mortgage Contract (CDDZ (2007) No. 0004) signed by the Company and the Bank dated Apr 25th of 2007, are all transferred to the aforesaid contract. The balance of actual borrowings at the year end is RMB 48,000,000.00. (iii) On Jan 22nd of 2007, the Company signed the Top Amount Mortgage Borrowing Contract with Communication Bank of Hefei Branch respectively with No. 07007 and No. 07008. The Company takes the land use right and house property of 5015 square meters and 10560 square meters (FDGY (2002) No. 0258 and 0259), to provide top amount mortgage guarantee for all main contracts signed with Communication Bank from Jan 22nd of 2007 to Jan 22nd of 2009. The top creditor’s right amount is RMB 10,000,000.00 for mortgage guarantee. The actual borrowing amount at the year end is RMB 9,000,000.00. (iv) On Nov 24th of 2005, the Company signed the Top Amount Mortgage Contract (11Z (2005) No. 013) with Huishang Bank of Hefei Dadongmen Branch, In this contract, the Company takes 23,905.35 square meters houses in Feidong Meiling Industry Park which is held by the Company, as mortgage for the top loan of RMB 20,000,000.00 from Nov 24th of 2005 to Nov 24th of 2008 borrowed by its subsidiary-Zhongke Meiling Company from this bank. The balance of actual borrowings at the year end is RMB 10,000,000.00. This mortgage contract has expired on Nov 24th of 2008 and has not been extended till now. The bank expresses that since the loans expire, contract could be extended when Zhongke Meiling intends to continue to loan. ** Details for the loans in assurance: (i)The balance of RMB borrowing at year-end guaranteed by Meiling Group Company for the Company is RMB 145,000,000.00. Annual Balance Repaying Bank providing loan Loan date interest Guarantor (RMB) date rate Communication Bank of 35,000,000.00 2008-2-20 2009-2-20 7.844 Hefei Shouchun Road Branch Communication Bank of 15,000,000.00 2008-10-31 2009-9-28 6.660 Hefei Shouchun Road Branch Huishang Bank of Hefei 14,500,000.00 2008-3-14 2009-3-14 7.470 Hefei Meiling Group Dadongmen Branch Holdings Co., Ltd. Huishang Bank of Hefei 30,000,000.00 2008-6-6 2009-6-6 7.470 Dadongmen Branch Huishang Bank of Hefei 35,500,000.00 2008-12-11 2009-12-11 5.580 Dadongmen Branch Citic Bank of Hefei Branch 15,000,000.00 2008-7-21 2009-7-21 7.470 Subtotal 145,000,000.00 st a. On Mar 1 of 2007, Meiling Group Company signed Top Amount Guarantee Contract (HYZBZ (2007) No. 07125) with Citic Bank of Hefei Branch, to provide guarantee for the various debts such as loans, notes, guarantee and letter of credit made by the Company from Mar 1st of 2007 to Mar 1st of 2009 from the Bank. The top creditor’s right guaranteed is RMB 80,000,000. b. On May 4th of 2008, Meiling Group Company signed Borrowing Guarantee Contract (ZBZ (2008) No. 004) with Huishang Bank of Hefei Dadongmen Branch, to provide guarantee for the loans made by the Company from May 4th of 2008 to May 4th of 2009 from the Bank. The top creditor’s right guaranteed is RMB 80,000,000. c. On Mar 19th of 2008, Meiling Group Company signed Borrowing Guarantee Contract (No. 080136) with Communication Bank of Hefei Branch, to provide guarantee for the various debts such as loans, issue of bank acceptance, import L/C, import Financing and negotiating export bills under L/C made by the Company from Mar 19th of 2008 to Mar 19th of 2009 from the Bank. The top creditor’s right guaranteed is RMB 100,000,000. (ii)On Mar 3rd of 2008, the Company signed Guarantee Contract (080055) with Communication Bank of Hefei Branch, to provide guarantee for the borrowing of RMB 20,000,000 made by Zhongke Meiling from Mar 3rd of 2008 to Mar 3rd of 2010 from the Communication Bank. ***Details for the loan in bill purchase: Annual Bank providing Balance Balance Balance Loan date Repaying date interest loan (USD) (EURO) (RMB) rate th th Citic Bank* 34,480.00 -- 235,657.01 Oct.27 , 2008 Jan.26 , 2009 6.51% Citic Bank* 17,558.00 -- 120,001.91 Oct.27th, 2008 Jan.26th, 2009 日 6.51% Communication 21,750.00 -- 148,652.55 Dec.18th, 2008 Apr.17th, 2009 5.8% Bank of China* Communication 44,500.00 -- 304,139.70 Dec.23rd, 2008 Mar.23rd, 2009 5.8% Bank of China* Communication 57,400.00 -- 392,306.04 Dec. 23rd, 2008 Mar.23rd, 2009 5.8% Bank of China* Communication 60,480.00 -- 413,356.61 Dec.26th, 2008 Apr.25th, 2009 5.8% Bank of China* China Everbright 15,900.00 -- 108,670.14 Nov.5th, 2008 5.21% Bank* China Everbright 99,400.00 -- 679,359.24 Dec.3rd, 2008 4.51% Bank* China Everbright -- 17,400.00 168,066.60 Dec.29th, 2008 4.18% Bank* Communication 1,003,275.00 -- 6,856,983.31 Jul.5th, 2008 Nov.5th, 2008 7.3% Bank of China ** Bill purchased are foreign currency which would be Subtotal 1,354,743.00 17,400.00 9,427,193.11 converted into RMB according to the exchange rate as of period-end. *belong to negotiating export bills under L/C; **belong to import financing whose guarantee could be found in the last paragraph Details for the Loans in Assurance (i) c. with application, the Company extended the import financing to Jan 5th of 2009. On Jan 4th of 2009, exchange had been settled (payment made). Payment after the period: the two negotiating export bills under L/C of Citic Bank listed in the above table have already been settled (payment made), among which USD 34,480.00 was settled (payment made) on Jan 12th of 2009 and USD 17,558.00 was paid back on Jan 1st of 2009. Annotation 18. Notes payable Type Book balance at year-end Book balance at year-begin Bank acceptance bill 471,314,822.34 426,000,000.00 Commercial acceptance bill 113,245,703.75 -- Total 584,560,526.09 426,000,000.00 Particulars about notes payable at year end-bank acceptance bill: Acceptance Signature Expiration Guarantee Amount Note No. Note bank day day deposit 30,000,000.00 2644923-2644944 2008-08-01 2009-02-01 9,000,000.00 30,000,000.00 3096006-3096026 2008-11-12 2009-05-12 9,000,000.00 Guaranteed by Meiling Group, the top Huishang Bank guarantee amount RMB 80,000,000. 30,000,000.00 4100757-4100775 2008-11-27 2009-05-27 9,000,000.00 of Dadongmen Contract No.: ZBZ (2008) No.004. 20,000,000.00 4101385-4101405 2008-12-03 2008-06-03 6,000,000.00 Branch Guarantee term is from May 4th of 30,000,000.00 4102842-4102861 2008-12-23 2008-06-23 9,000,000.00 2008 to May 4th of 2009. 28,000,000.00 4103473-4103489 2008-12-30 2009-06-30 8,400,000.00 Guaranteed by Meiling Group. Top Citic Bank of Amount Guarantee Contract (HYZBZ Shengli Road 20,000,000.00 2809281-2809283 2008-08-07 2009-02-07 6,000,000.00 (2007) No.07125. The integrated Branch authorized limit is RMB 80,000,000. The guarantee limit is from Mar 1st of 20,000,000.00 3090410-3090422 2008-08-27 2009-02-27 6,000,000.00 2007 to Mar 1st of 2009. 27,000,000.00 4100130-4100142 2008-09-10 2009-3-10 8,100,000.00 20,000,000.00 3091881-3091885 2008-11-10 2009-05-10 6,000,000.00 20,000,000.00 3100247-3100271 2008-12-29 2009-06-29 6,000,000.00 Guaranteed by Meiling Group, the top Communication 30,000,000.00 8224299-8244301 2008-12-12 2009-03-12 15,000,000.00 guarantee amount RMB 100,000,000. Bank of Contract No.: No.080136. Guarantee Shouchun Road 30,000,000.00 8225650-8225652 2007-12-26 2009-03-26 15,000,000.00 term is from May 19th of 2008 to May Branch 19th of 2009. 20,000,000.00 640842-640851 2008-08-27 2009-02-27 6,000,000.00 Guaranteed by Meiling Group, China 10,000,000.00 641271-641278 2008-10-06 2009-04-06 3,000,000.00 guaranteeing the implementation of Everbright the Integrated Credit Agreement Bank of Hefei 20,000,000.00 641428-641438 2008-10-07 2009-04-07 6,000,000.00 signed by the Company and China Branch 20,000,000.00 641527-641542 2008-10-27 2009-04-27 6,000,000.00 Everbright Bank dated Mar 25th of Guaranteed by Changhong Group, the 10,000,000.00 1633217-1633238 2008-12-05 2009-06-05 4,500,000.00 top guarantee amount RMB China 40,000,000. Contract No.: Merchant Bank HYB(2008)No.91081103. Guarantee of Hefei Branch 26,000,000.00 1633240 2008-12-09 2009-06-09 11,700,000.00 term is from Jun 13th of 2008 to Jun 12th of 2009. Shanghai Pudong Guaranteed by Meiling Group, the top Development 28,000,000.00 467944-467956 2008-07-04 2009-01-04 8,400,000.00 creditors’ right amount guaranteed is Bank of Hefei RMB 30,000,000. Branch Hefei 25,190.40 2644553 2008-7-29 2009-1-29 Zhongke Meiling signed RMB Commercial 20,000,000 top mortgage contract 47,130.00 2644554 2008-7-29 2009-1-29 Bank of with Commercial Bank of 137,381.50 2644555 2008-7-29 2009-1-29 Dadongmen 173,203.71 Dadongmen Branch. Zhongke Meiling 43,075.00 2644556 2008-7-29 2009-1-29 Branch borrowed RMB 10,000,000, and the 23,200.00 2644557 2008-7-29 2009-1-29 rest part was guaranteed by the 301,368.80 2644558 2008-7-29 2009-1-29 exposure part of bank acceptance bill. 50,000.00 4099119 2008-10-24 2009-4-24 The mortgage contract expired on Nov 24th of 2008 and hasn’t been 15,750.00 4099120 2008-10-24 2009-4-24 extended. The Bank expressed that 58,500.00 4099121 2008-10-24 2009-4-24 96,461.87 when the loans expired, Zhongke 64,590.00 4099122 2008-10-24 2009-4-24 Meiling could extended the contract 132,699.55 4099123 2008-10-24 2009-4-24 since they intended to continue to 40,084.90 4100435 2008-11-19 2009-5-19 loan. 30,000.00 4100436 2008-11-19 2009-5-19 58,165.40 4100437 2008-11-19 2009-5-19 195,751.17 82,687.59 4100438 2008-11-19 2009-5-19 441,566.00 4100439 2008-11-19 2009-5-19 36,660.00 4102660 2008-12-19 2009-6-19 79,029.96 46,185.05 4102661 2008-12-19 2009-6-19 44,656.00 4102662 2008-12-19 2009-6-19 88,400.00 4102663 2008-12-19 2009-6-19 14,367.15 4102664 2008-12-19 2009-6-19 33,165.00 4102665 2008-12-19 2009-6-19 500,000.00 4103312 2008-12-19 2009-12-19 150,000.00 Total 471,314,822.34 158,794,446.71 In the balance of notes payable at year end, there is no bank acceptance bill which has already expired while they hasn’t been paid. Till the end of 2008, the total amount of bank acceptance bills issued by the Company amount to RMB 471,314,822.34. The total guarantee deposit for bills paid by the Company reaches to RMB 158,794,446.71. The exposure amount of RMB 312,520,375.63 is guaranteed by Meiling Group Company Changhong Group as well as Zhongke Meiling respectively with amount RMB 291,100,000.00 RMB 19,800,000.00 and RMB 1,620,375.63. Particulars about notes payable at year end-commercial acceptance bill: Expiration Acceptance bank Amount Signature date Drawee date Industry and Commercial Bank of China Sichuan Changhong Electrics 60,000,000.00 2008-11-25 2009-05-25 Changjiang East Road Branch Co., Ltd. Communication Bank of Shouchun Sichuan Changhong Electrics 600,000.00 2008-12-11 2009-06-11 Luqiao Branch Co., Ltd. Communication Bank of Shouchun Sichuan Changhong Electrics 18,345,965.75 2008-12-25 2009-06-25 Luqiao Branch Co., Ltd. Communication Bank of Shouchun 21,000,000.00 2008-12-25 2009-06-25 Huayi Compressor Co., Ltd. Luqiao Branch Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 2,074,130.00 2008-07-07 2009-01-07 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 900,000.00 2008-07-22 2009-01-22 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 70,108.00 2008-08-27 2009-02-27 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 8,888,100.00 2008-09-08 2009-03-08 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 120,000.00 2008-11-11 2009-05-11 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 227,400.00 2008-12-01 2009-06-01 Co., Ltd. Sichuan Changhong Electrics China Everbright Bank of Hefei Branch 350,000.00 2008-12-01 2009-06-01 Co., Ltd. Communication Bank of Shouchun Sichuan Changhong Electrics 670,000.00 2008-11-27 2009-5-27 Luqiao Branch Co., Ltd. Total 113,245,703.75 Annotation 19. Account payable Book balance at year-end Book balance at year-begin Age of the account Amount Proportion(%) Amount Proportion(%) Within 1 year 616,569,516.91 96.90 796,978,721.24 98.65 1-2 years 11,255,590.53 1.77 2,881,362.97 0.36 2-3 years 1,048,591.78 0.16 701,171.04 0.09 Above 3 years 7,414,651.57 1.17 7,278,269.28 0.90 Total 636,288,350.79 100.00 807,839,524.53 100.00 The balance of account payable at this year end has decreased RMB 171,551,173.74 compared to that of last year, with a decrease rate of 21.24%. This is mainly due to that the Company strengthens fund management, optimizes purchase procedure and honors payment for goods for suppliers. The account payable aging over 3years at the year end is RMB 7,414,651.57 which will be paid or written off after check. Accounts in the balance of this year-end payable to the shareholders units which hold over 5% (5% included) equity of the Company: Book balance at Book balance at Item Note year-end year-begin Sichuan Changhong Electric Co., Ltd. 5,053,199.18 -- Sichuan Changhong Electron Group Co., Ltd. 22,380.00 -- Accounts in the balance of this year-end payable to the top 5 units totals to RMB 89,359,073.07, taking 14.04% of the balance at year-end. Annotation 20. Account received in advance The balance of account received in advance at this year end is RMB 319,411,065.64 and RMB 376,609,630.83 for last year, thus it decreased RMB 57,198,565.19 xompared to that of last year with a decrease rate of 15.19%. Accounts in the balance of this year-end received in advance from the shareholders units which hold over 5% (5% included) equity of the Company: Book balance at Book balance at Item Note year-end year-begin Sichuan Changhong Electric Co., Ltd. 4,645,445.98 4,626,548.08 Accounts in the balance of this year-end received in advance from the top 5 units totalling to RMB 33,698,493.82, taking 10.55% of the balance at year-end. Annotation 21. Wages payable Book balance Increase in this Decrease in Book balance Item at year-begin year this year at year-end 147,745,201.3 148,265,504.2 I. Salary, bonus, allowance and subsidy 3,814,086.34 3,293,783.38 3 9 II. Welfare for workers and staff -- 5,739,673.32 5,899,011.54 -159,338.22 III. Social insurance 3,663,921.63 28,705,569.36 29,728,917.95 2,640,573.04 Including: 1. Medical insurance 157,081.88 7,828,498.47 7,923,082.48 62,497.87 2. Basic endowment insurance 3,369,494.76 17,969,774.17 18,761,637.46 2,577,631.47 3.Annuity payment -- -- -- -- 4.Unemployment insurance 182,365.52 1,608,236.65 1,790,158.47 443.70 5. Work injury insurance -45,020.53 817,624.68 772,604.15 -- 6. Maternity insurance -- 481,435.39 481,435.39 -- IV. Housing accumulation fund 5,042,486.79 18,003,387.11 19,209,911.65 3,835,962.25 V. Labor union expenditure and personnel 998,685.38 660,610.93 1,064,124.91 595,171.40 education expense VI. Non-monetary welfare -- -- -- -- VII. Compensation for cancellation of labor 13,898,371.04 6,773,799.23 3,989,128.76 16,683,041.51 relationship with employees VIII. Others 4,497.00 1,079,974.82 99,758.54 984,713.28 Including: shares payment settled with cash -- -- -- -- 208,708,216.1 208,256,357.6 Total 27,422,048.18 27,873,906.64 0 4 Referring to the employee inner advance retire policy made by the Company and the resolution made in the 29th meeting of the 5th session Board of Directors on Jan 28th of 2008, the female employee above 45 years old and male employee above 48 can retire in advance if the Company and themselves all agree. The retire welfare of wages and social insurances which should be enjoyed to the retire time by the employees who have already made inner retire procedure in 2007,amounting to RMB 8,152,775.00, should be calculated into wages payable-retire welfare, which increased RMB 8,152,775.00 in administration expense in 2007; The retire welfare of wages and social insurances which should be enjoyed to the retire time by the employees who have already made inner retire procedure in 2008,amounting to RMB 5,911,249.00, should be calculated into wages payable-retire welfare, which increased RMB 5,911,249.00 in administration expense in 2008. Because the Company makes commitment that it will increase wages for inner retire employee with the improvement of the lowest living insurance, it will make calculation on the expense of wages and social insurance for inner retire employees according to present standard. And discount has not been considered. Annotation 22. Tax payable Book balance Book balance Item Legal tax rate executed at year-end at year-begin 1. Value-added tax 9,111,740.52 -43,777,708.89 17% 2. Business tax 112,727.80 173,750.00 3. Enterprise income tax -3,422,719.21 -3,152,604.78 33% 4. Urban maintenance and construction 2,352,413.01 106,700.03 5%、7% tax 5. House property tax 258,731.04 90,000.00 6. Land-use right tax 1,775,950.59 61,500.00 3% of circulating tax payable and 7. Educational surtax 1,352,879.41 71,714.11 1%for local educational surtax 8.Construction fund of Water 0.6‰ of the sales income of the last 521,355.83 490,212.71 Conservancy Projects year 9. Stamp tax 165,280.70 115,419.98 10. Vehicles and ships usage tax - - 11. Fund for coarse adjustment 98,068.30 - 12．Fund for flood prevention 176,481.97 - 13. Withholding and paying of individual 1,113,252.14 812,505.84 income tax Total 13,616,162.10 -45,008,511.00 Annotation 23. Dividends payable Book balance at Book balance at Shareholder units Note year-end year-begin Industry and Commercial Bank of China of 170,775.00 170,775.00 Hefei Branch Hold above 5% of shares Hefei Meiling Group (Holdings) Co., Ltd 167,506.42 167,506.42 of the Company International Business Department of Industry and Commercial Bank of China of Anhui 153,697.50 153,697.50 Branch Provincial Technic Import and Export Company 153,697.50 153,697.50 Communication Bank of Hefei Branch 153,697.50 153,697.50 Paid dividend RMB 85,387.00 to Trust and Other 26 piecemeal units 588,576.50 673,963.50 Srcurity Department on Aug. 4th, 2008. Total 1,387,950.42 1,473,337.42 Annotation 24. Other payable The balance of other payable for this year-begin is RMB 350,937,168.31, and RMB 249,676,886.28 for last year. It has increased RMB 101,260,282.03 compared to that in last year, with an increase rate of 40.56%. The main reasons are: ① the increase of market support expenses, sales expenses including employees’ salaries, travelling expenses and business expenses; ② the increase RMB 62,783,774.84 of Sichuan Changhong current account. Account paid to the shareholder unit which holds above 5% of the shares of the Company in the balance of other payable at the year-end: Unit Book balance at year-end Book balance at year-begin Sichuan Changhong Electrics Co., Ltd 166,495,146.21 144,022,771.37 Annotation 25. Non-current liability due within one year Book balance at Book balance at Kinds of loans Note year-end year-begin Loan in mortgage -- 20,000,000.00 Real estate mortgage Total -- 20,000,000.00 Particulars about time limit, interest rate and pledge of loans: Borrowing Returnin Annual Mortgage(pledge)/gua Loan Real Loan bank Balance day g day in interest rantor bank returnin contact rate g day 10,000,000. Jul. 17, Jul. 16, Right of use of Mort Jul. 16, 6.1425% 00 2006 2008 state-owned land gage 2008 China Construction (HGYZ No.0121) Bank of Hefei Luyang with area of 27,103.6 10,000,000. Aug. 30. Aug. 29. Mort Aug. 29. Branch 6.30% square meters, House 00 2006 2008 gage 2008 property right No. 026780 and 026782 On Jul 20th of 2006, the Company signed the Top Amount Mortgage Contract (M20061230011) with China Construction Bank of Hefei Luyang Branch. In this contract, the Company takes the state-owned land use right (HGY (JC)No. 0121) and house property right (HCZ No. 026780 and No. 026782) as mortgage for the top amount balance of borrowing of RMB 22,420,000.00 from Jul 17th of 2006 to Jul 16th of 2008 from this bank. The estimated value is RMB 32,233,600. Annotation 26. Long-term loans Book value at Book value at Kinds of loans Note year-end year-begin Loan in mortgage * 7,040,000.00 7,040,000.00 Takes real estate as mortgage Lending of treasury bond fund of the Ministry of Loan in credit * 9,158,200.00 9,809,100.00 Finance of Hefei Loan in guarantee** 3,000,000.00 -- Total 19,198,200.00 16,849,100.00 * Particulars about time limit, interest rate and pledge of loans: Annual Borrowing Returning Mortgage(pledge)/ Loan bank Balance interest Type day day guarantor rate Nov. 8, 7,040,000.00 Nov. 9, 2006 (1) Mortgage 2021 Rate on Ministry of Finance of Dec. 20, one-year 5,858,200.00 Dec. 21, 2002 (2) Credit Hefei 2017 deposit Dec. 20, plus 3% 3,300,000.00 Dec. 20, 2004 Credit 2017 (3) Total 16,198,200.00 In August of 2006, the Company signed Asset Mortgage Agreement with Ministry of Finance of Hefei. It takes five industry crusher chambers which cover an area of 2,322.98 square meters (Details could be found in Fixed assets for mortagage in the Appendix VIII and X – Fixed assests and accumulated depreciation) as mortgage for the Company to get the lending of treasury bond fund which has 15-year term and worthy of RMB 7,040,000 from the Ministry of Finance of Hefei. The time limit for the loan is from Nov.9th of 2006 to Nov. 8th of 2021. The capital on-lending began to calculate the interest from the appreciation date Nov. 9th, 2006, which would be paid by stages in the loan period to Ministry of Finance of Hefei by the Company. The first four years were grace period, in which the annual interest rate was drifted from 1999 (the annual interest rate was the annual interest rate of one year fixed deposit plus 0.3%). The interest payable in this year was RMB 236,500.00. (2) On Nov. 1st, 2002, the Company signed Agreement on Lending of Treasury Bond for Building Project fund with Ministry of Finance of Hefei, which promissed that Ministry of Finance of Hefei lending treasury bond RMB 7,160,000 of the technology reform project of nanometer preservation material to the Company with the return time limit of 15 years. The capital on-lending began to calculate the interest from the appreciation date Nov. 21, 2002, which would be paid by stages in the loan period to Ministry of Finance of Hefei by the Company. The first four years were grace period, in which the annual interest rate was drifted after year 1999 (the annual interest rate was the annual interest rate of one year fixed deposit plus 0.3%). The principle payable in this year was RMB 650,900.00, and interest was RMB 271,400.00. (3) It was the special treasury bond capital appreciated by Ministry of Finance of Hefei for enterprises’ information reform, received on Dec. 10th, 2004. The intersest payable in this year was RMB 137,600.00. ** On Aug. 18th, 2008, the Company signed gurantee contact with Hebei Innovetion Science and Technology Risk Investment Co., Ltd., which provided guarantee for the loan RMB 3,000,000.00 lent from Huihang Bank Hefei Chenghuangmiao branch to Zhongke Meiling Co., Ltd. during the period from Aug. 18th, 2008 to Aug. 18th, 2010. Annotation 27. Projected liability Book balance at Increase in Decrease in this Book balance at Item year-begin this year year year-end Value-added tax-related dissension(1) 20,416,759.26 -- 20,416,759.26 -- Product quality bond(2) 1,572,294.73 78,465.13 -- 1,650,759.86 Total 21,989,053.99 78,465.13 20,416,759.26 1,650,759.86 (1) It was the value-added tax –related case in 2001. Details could be found in the Appendix XIII of the Financial Report of 2001 - Other Significant Proceedings. The 10th meeting of the 6th board of directors on Feb. 23, 2009 decided transferred this banlance into tax payable (value-added tax). Details could be found in Appendix 14 After Proceedings I (1) (3) in balance sheet. (2) Increase in this year was the balance between the product quality bond in the budget for this year and the part which has already been written into account. Annotation 28. Deferred income tax liabilities Item Book balance at year-end Book balance at year-begin Discrepency on tax payable (financial asstes available 22,002,000.00 -- for sale) Book balance at year-end of deffered income tax liabilities increase RMB 22,002,000.00 compared with that at year-begin, with the increase amplitude of 100%, which was due to the fair value of financial assets available for sale held by the Company – stock of listed company improved. Details could be found in Apendix 7 – Financial Assets Available for Sale. Annotation 29. Share capital Book balance at Book balance at year-begin Book balance at year-end year-begin Item Accumulation Allotted Split- Amount Amount fund Transfer Sub-total Amount Proportion% share share transferred I. Shares with -12,543,5 126,359,625 30.55% -12,543,559113,816,066 27.52% conditional subscription 59 1. State-owned shares 69,135,006 16.71% ,710,671 1,710,671 70,845,677 17.14% 2. State-owned legal 32,078,846 7.76% 32,078,846 7.77% 3. Other domestic shares 25,145,773 6.08% -14,254,2 -14,254,230 10,891,543 2.61% Including: Domestic -14,254,2 non-state-owned legal 25,069,203 6.06% -14,254,230 10,814,973 2.59% person’s shares 30 Domestic natural 76,570 0.02% 76,570 0.02% 4. Foreign shares Including: Foreign legal Foreign natural person’s II. Shares with 287,283,324 69.45% 2,543,55 12,543,559299,826,883 72.48% 1. RMB common shares 174,183,324 42.11% 2,543,55 12543,559186,726,883 45.14% 2. Domestically listed 113,100,000 27.34% 113,100,000 27.34% foreign shares 3. Overseas listed foreign shares 4. Others III. Total shares 413,642,949 100.00% 413,642,949 100.00% For details of equity transfer and share merger reform, please refer to the Appendix I-Brief Introduction of the Company. Annotation 30. Capital reserve Book balance at Book balance at Item Increase in this year Decrease in this year year-begin year-end Share premium 548,776,919.89 20,367,400.00 528,409,519.89 Other capital 48,080,558.83 146,680,000.00 22,002,000.00 172,758,558.83 reserve Total 596,857,478.72 146,680,000.00 42,369,400.00 701,168,078.72 (1) Share premium: book balance at period-begin increase RMB 18,000,000.00 compared with that of last year RMB 578,857,478.72, which was due to that according to relevant regulations of Accounting Standards for Enterprises No. 20 – Enterprise Merger, the business combination of the Company and Changhong Meiling happened in 2008, so there was no long-term equity investment of the Company in 2007, when compiling financial report, after combinating the related assets and debts of the combinated party, capital reserve – share premium were adjusted in accounting report 2007 due to the increased net assets – RMB 18,000,000.00 the capital reserve, which was offset when the Company actually happened business combination with Changhong Meiling, at the same time, RMB 2,367,400.00 which the combination price paid by the Company exceeded the interests enjoyed by the combinated party on combination date offset the share premium of the Company. (2) Other capital reserve: according to Opinions of Experts Group on Impliment of Accounting Standards for Business Enterprises issued on Jan. 21, 2008, the restricted equity of listed company held by enterprise did not had the function of controling, togerther controling or having significant influence on listed company, so the capital reserve in this year should accord with the regulations of Accounting Standards for Enterprises No.22–Recognition and Measurement of Financial Instruments, and would divide the restricted equity into financial assets available for sale. According to the closing price in Stock Exchange on Jun. 30, 2008, the Company respectively confirmed the fair value of the restricted equity of Anhui Ustc Iflytek Co. Ltd. and China Pacific Insurance (group) Co., Ltd. as financial assets available for sale. According to the regulations of Accounting Standards for Busineaa Enterprises and Explanations of Accounting Standards for Busineaa Enterprises, the profits on the changes of fair value which was the margin of fair value and original cost of book value were directly calculated into other capital reserve. Details could be found in Annonation 7 – Financial Assets Available for Sale in Appendix VIII. Original cost of Profits on the Short form of the stock (stock Fair value at book value changes of fair code) year-end value Anhui Ustc Iflytek Co., Ltd. 18,960,000.00 155,100,000.00 136,140,000.00 (002230) China Pacific Insurance (group) 580,000.00 11,120,000.00 10,540,000.00 Co., Ltd. (601601) Total 166,220,000.00 19,540,000.00 146,680,000.00 The decrease of capital reserve in this year was due to the increase of deferred income tax liability caused by the change of financial assets – fair value of stock held by the Company. Annotation 31. Surplus reserves Book balance at Increase in this Decrease in this Book balance at Item year-begin year year year-end Legal surplus reserve 131,070,299.39 131,070,299.39 Free surplus reserve 153,819,249.12 153,819,249.12 Total 284,889,548.51 284,889,548.51 Annotation 32. Undistributed profit Amount occurred in this Amount occurred in last Item year year 1. Net profit 25,636,109.34 17,775,596.47 Net profit distributable to owners of parent 25,678,991.58 17,707,985.60 Minority shareholder’s gains and losses -42,882.24 67,610.87 Plus: undistributed profit at year-begin *1 -365,148,528.22 382,856,513.82 2. Profit available for distribution of parent -339,469,536.64 -365,148,528.22 Less: Withdrawal legal surplus reserves and 3. Profit available for distribution for investors -339,469,536.64 -365,148,528.22 Less: Withdrawal other surplus reserves Common stock dividends payable Common stock dividends change to 4. Undistributed profit *2 -339,469,536.64 -365,148,528.22 *The book balance of undistributed profit at the end of last year was RMB -365,148,528.22 which increased RMB 140,672.87 compared with that of 2007 RMB -365,289,201.09, which was the part reducted retained income of combinated party from capital reserve – capital premium. Annotation 33. Minority shareholder’s equity Minority shareholder’s equity distributable to the minority shareholders of subsidiary company: Unit Book balance at Book balance at Zhongke Meiling Low-TemperatureTechnology Co., Ltd. 16,754,404.02 16,736,177.37 Hefei Meiling Real Estate Development Co., Ltd 2,008,444.64 Jiangxi Meiling Refrigerating Co., Ltd -24,317.71 -11,723.63 Total 16,730,086.31 18,732,898.38 Annotation 34. Operating income and operating cost Amount occurred in this year Amount occurred in last year Gross Gross Item Operating Operating cost Operating Operating cost profit profit income income margin margin 1.Main business 3,972,480,833.10 3,020,398,075.14 23.97% 3,740,069,637.11 3,139,977,649.99 16.04% Refrigerator, freezer 3,948,387,477.14 2,996,062,857.26 24.12% 3,740,069,637.11 3,139,977,649.99 16.04% (1)domestic sales 3,284,888,502.85 2,353,520,705.20 28.35% 2,756,647,498.54 2,147,861,408.52 22.08% (2)foreign sales 663,498,974.29 642,542,152.06 3.16% 983,422,138.57 992,116,241.47 -0.88% Air-conditioning 24,093,355.96 24,335,217.88 -1.00% 2. Other business income 363,455,463.44 338,097,257.55 6.98% 312,149,049.49 297,758,726.57 4.61% (1)selling raw material 360,655,784.95 335,072,117.89 7.09% 311,160,858.47 297,692,664.10 4.33% (2)rental income 1,958,028.00 245,349.93 87.47% 641,868.50 65,824.86 89.74% (3)other income 841,650.49 2,779,789.73 -230.28% 346,322.52 237.61 99.93% Total 4,335,936,296.54 3,358,495,332.69 22.54% 4,052,218,686.60 3,437,736,376.56 15.16% The total sale income from the top five customers in this year amounts to RMB 466,655,603.49 which takes 11.75% of the main business income and 10.76% of the operating income. The total sale income from the top five customers in last year amounts to RMB 309,207,127.05 which took 8.00% of the main business income and 7.63% of the operating income. The top client sales income at the same time of last year was different with that of 2007, the reason of which was that Sichuan Changhong Meiling Refregerating Co., Ltd. was included into the combination report, and adjusted the amount at the same time of last year. The gross rate in this year 22.54% increased 7.38% compared with that of last year 15.16%, which was due to the adjustment and optimization of product structure and the increase of sale price. Annotation 35. Business tax and extra charges Amount of this year Amount of last year Item Tax rate Amount Tax rate Amount Business tax 5% 154,138.32 5% 213,750.00 City construction tax 5%-7% 10,495,485.01 5%-7% 6,502,274.57 Extra charge for education 3%, Local extra 1% 6,221,707.07 3%, Local extra 4,044,458.15 Total 16,871,330.40 10,760,482.72 Annotation 36. Operation expense Sales expense in this year was RMB 727,276,441.32, which increased RMB 283,817,966.18 compared with that of last year RMB 443,458,475.14, with the rate of 64.00%. The main reason was that the Company layouted Household Electrical Appliances Going into Rural Families and promoted project building including citadel, golden delta and Athena, improved marketing effort, and market was further subdivided, so the market support expenses, related man power expenses, vehicle oil expneses, logistic and storage expenses and exhibition expenses increased. The main expenses are as follows: Amount occurred Amount occurred Proportion Main item Amount changed in this year in last year changed Market support 291,244,043.92 118,677,973.24 172,566,070.68 145.41% Salary and extra charges 117,703,554.29 74,537,735.39 43,165,818.90 57.91% Transport expenses 114,169,171.06 80,662,320.23 33,506,850.83 41.54% Three guarantees expenses 35,135,161.35 31,208,794.47 4,546,366.88 12.58% Advertisement expenses 33,321,008.49 27,829,092.30 5,491,916.19 19.73% Exhibition expenses 30,804,878.50 22,481,556.49 8,323,322.01 37.02% Storagy lease expenses 29,410,025.52 7,818,572.51 21,591,453.01 276.16% Operation activities 18,845,615.80 15,427,748.73 3,417,867.07 22.15% Travelling expenses 16,875,463.04 12,375,304.31 4,500,158.73 36.36% Meeting organization 6,307,215.60 2,536,430.90 3,770,784.70 148.66% Communication expenses 6,163,246.67 5,163,859.94 999,386.73 19.35% House-lease expenses 5,321,972.90 95,057.00 5,226,915.90 5498.72% Vehicle oil expenses 4,840,814.26 2,569,812.13 2,271,002.13 88.37% Office expenses 3,659,320.59 3,581,812.46 77,508.13 2.16% Depreciation expenses 1,962,363.07 1,853,188.88 109,174.19 5.89% Annotation 37. Administration expense The amount of administration expense of this year is RMB 143,453,165.08, which increased 34,499,327.28 compared with that of last year RMB 108,653,837.80, with the 31.75% increase. And the main item expenses are as follows: Amount of last Rate for Main Item Current amount Amount changed year change Salary and extra charges 36,959,015.65 22,682,418.61 14,276,597.04 62.94% Amortization of intangible asset 26,741,546.78 26,875,942.67 -134,395.89 -0.50% Tax 14,804,454.64 5,766,720.81 9,037,733.83 156.72% Social charity expense 10,136,924.82 15,732,034.24 -5,595,109.42 -35.57% Labor protection expense 8,622,742.23 3,604,097.23 5,018,645.00 139.25% Science expense 6,387,658.72 3,688,808.87 2,698,849.85 73.16% Annotation 38. Financial expense Item Current amount Amount of Last year Interest expenditure 26,765,690.32 22,317,273.28 Less：Interest income 4,776,397.91 3,190,278.03 Foreign exchange loss 10,919,952.13 8,679,427.02 Less：Foreign exchange gains -- -- Discount interest and commission charge expense 30,313,926.22 16,880,485.11 Less: discount interest income 16,408,357.80 20,026,783.33 Other 3,462,965.03 8,022,504.61 Total 50,277,777.99 32,682,628.66 The current amount of financial expense in 2008 increased 17,595,149.33 compared with that in 2007, with 53.84% increase, which was mainly due to the increase of bank interest rate and discount expense of bank acceptance. Annotation 39. Assets depreciation reserves Item Current amount Amount of last year I. Total of provision for bad debts 301,078.97 19,798,462.18 II. Provision for falling price of inventory 20,630,047.77 20,219,881.11 III. Provision for devaluation of financial asset -- available for sales - IV. Provision for devaluation of held-to-maturity -- investment - V. Provision for devaluation of long-term equity -- investment - VI. Provision for devaluation of investing -- property - VII. provision for devaluation of fixed assets - -- VIII. Provision for devaluation of engineering -- materials - IX. Provision for devaluation of construction in -- progress - X. Provision for devaluation of productive -- biological asset - XI. Provision for devaluation of oil asset - -- XII. Provision for devaluation of intangible -- asset - XIII. Provision for devaluation of goodwill - -- XIV. Other - -- Total 20,931,126.74 40,018,343.29 Annotation 40. Investment gains (1) The investment items were confirmed as follows: Amount of last Item Current amount period Long term investment income includes：investment gains by equity method① 633,543.00 821,524.22 Distributed profit by investing company by cost method 1,950,000.00 -- Long term equity investment difference amortization -- -- Equity investment liquidation income -- -- Investment income on bonds -- -- Long term investment depreciation reserves -- -- Other long term investment income -- -- Income from handling with other equity investment ② 35,532,277.20 Total 2,583,543.00 36,353,801.42 ① The detailed investment gains by equity method at the end of the period were as follows: Investment Internal Invested Units Gains or Identified Net profit of proportion% return loss at investment subsidiaries Beginn counteracti Ending ending（-） income ing on Heifei Technological Property 2,061,008.63 28.57% 28.57% 588,830.17 -- 588,830.17 Exchange Meiling Packing Co. Ltd. 180,152.75 48.28% 48.28% 86,977.75 42,264.92 44,712.83 Total 675,807.91 675,807.91 633,543.00 According to regulation of No. 1 Accounting Standards for Enterprise, the profit got from products sales of Meiling Packing Co. Ltd. to the Company should be offset. The aforsaid sales profit made in 2008 amounted to RMB 77,302,837.71, which took 48.59% of Meiling Packing Co. Ltd.’s main business profit. Considering that the Company was not available in distinguishing inventory percentage of products purchased from Meiling Packing Co. Ltd. at the end of reoport period, at the same time all the bought packing products have been sold out with commodities, so the Company holds that all sales is realized. The net sale profit conteracted by investment proportion=net profit of Meiling Packing Co. Ltd. × income proportion %obtained from the sales of Meiling Packing Co. Ltd.to the company Investment proportion %. The net sale profit conteracted by investment proportion offset the main business cost of the Company. ② That were the profit of Anhui USTC iFLYTEK Co., Ltd. - RMB 1,650,000.00 and profit China Pacific Insurance (Group) Co., Ltd. - RMB 300,000.00 calculated by cost. (2) Untill the end of 2008; no notice on significant limitation arising from the investment income return of its related invested companies has been received by the Company. Annotation 41. Non-operation revenue Item Current amount Amount of last period 1．Gains from disposal of non-current assets 416,432.96 1,550.00 Incl.：gains from disposal of fixed assets 416,432.96 1,550.00 gains from disposal of Intangible assets -- -- 2. Gains from exchange non monetary capital -- -- 3. Gains from debt restructuring -- -- 4.Goverment subsidy* 10,029,210.00 8,322,300.00 5.Gains from inventory checking -- -- 6. Gains from donation -- -- 7.Net income of penalty 325,148.66 356,100.00 8.Others 259,323.25 254,667.72 Total 11,030,114.87 8,934,617.72 Goverment subsidy was financial police reward for new production, improvement reward for enterprises, and development fund for enterprises and allowance for technology innovation appreciated by Hefei Finance Bureau. Annotation 42. Non-operating expenditure: Item Current amount Amount of last period 1.Loss from disposal of non-current asset assets 219,178.26 765,245.58 Incl.：loss from disposal of fixed assets 219,178.26 765,245.58 loss from disposal of Intangible -- -- 2. Loss from exchange non-monetary asset capital -- -- 3. Loss from debt restructuring -- -- 4.Disburses of donation 1,223,274.50 500,000.00 5.Special loss* 1,171,245.91 63,364.99 6. Loss from inventory checking -- -- 7. Penalty and late fee 7,139.03 1,655.04 Total 2,620,837.70 1,330,265.61 RMB 340,540.62 in this item was net loss in slow disaster stated in Item I in Apendix XIV - Non-adjusting events occurring after the balance sheet date of Financial Account Report 2007. Others were the loss of Mianyang Branch of the Company caused by the May 12th earthquake. Annotation 43. Income tax expenses Item Current amount Amount of last period current income tax -- 64,833.72 Deferred Income Tax 4,287,833.15 5,026,265.77 total 4,287,833.15 5,091,099.49 Total profit in combine sheet was adjusted to income tax expenses: No. Item Current amount Amount of last Note 1 Total profit 29,923,942.49 22,780,619.28 2 Income tax expense by adequate - 64,833.72 3 Depreciation of assets reserve 86,538,314.00 68,986,186.62 4 deductible loss - 146,019.62 5 Deferred income tax capital 12,980,747.10 17,268,580.25 6 Deferred income tax capital 17,268,580.25 22,294,846.02 7 Current deferred income tax 4,287,833.15 5,026,265.77 8 Income tax expense 4,287,833.15 5,091,099.49 Annotation 44. Government subsidy: RMB 10,029,210.00 has been gotten from government subsidy, and details refer to Annotation 41 - Non-operation Revenue in Apendix VIII. Annotation 45. Non-monetary capital exchange: None Annotation 46. Share payment: None Annotation 47. Debt restructure: None Annotation 48. Loan expense: The capitalization amount of loan fees was RMB 4,288,724.08 in this year. The capitalization rate for confirming the capitalization amount of loan fees was 7.03%. Annotation 49. Foreign currency translation: Details were in Annotation I - “Monetary capital” Appendix VIII. Annotation 50. Enterprises merge：Details were in Annotation II Appendix VII. Annotation 51. Lease (1) There is no financing lease in this period. (2) Particulars on lease capital as operational leaser: The Company leased No.1247 Repairing Center of Technology Service Building (Investing Real Estate) Heyu Road’s to Hefei Dingxin Furniture Accessory Co. Ltd. The lease duration is from 1st Dec., 2006 to 30th Nov., 2016, with rent of RMB 200, 000 per quarter. And the Company allowed giving them 4 months for decoration, so the rent should be paid since 1st April. The rent for this year was RMB 800,000, and RMB 594,300 has actually been paid. (3) Details of particulars on significant operational lease as operation leaser could be found in item II (2) in Annotation 50 - Lease of Accounting Report Appendix 2007. Untill Dec.31, 2008, Jingdezhen State-owned Assets Management Co., Ltd. did not formally signed document to agree that Huayi Electric General Company entrust Jiangxi Meiling Refrigerating Co., Ltd. to manage its refrigerator assets. In 2008, according to the cooperation agreement, Jiangxi Meiling Refrigerating withdrew assets usage changes RMB 500,000 which should paid to Huayi Electric. Annotation 52. Operation ending The subsidiary company - Meiling Real Estate Co., Ltd. has cancelled this year. Details could be found in Appendix VII (I) 4. Annotation 53. Other cash received related to operation business Item Current amount Amount of last period Subsidies income 10,027,210.00 8,322,300.00 Indemnity income * 11,996,186.95 -- Rental income 617,800.00 Received bail 10,940,421.43 -- Penalty income 261,007.55 356,100.00 Deposit 1,228,499.78 350,000.00 Other current account 3,957,909.25 426,500.00 Subtotal 39,029,034.96 9,454,900.00 * Mainly received the indemnity of slow disaster from insurance agent RMB 11,547,990.00. Annotation 54. Other Cash paid out related to operation business Other cash out related to operation business for this year is RMB 377,528,444.29, and the amount of last year is RMB 286,747,347.29. And main items were as follows: Main item Current amount Amount of last Promotion fee 159,361,913.71 105,226,029.72 Transport fee 61,132,860.22 95,422,156.33 Ad. Fee 24,319,987.20 26,149,306.33 Travel expense 8,928,180.48 16,460,242.00 Storage fee 21,710,761.60 10,287,591.56 Communication fee 2,110,233.51 5,503,031.85 Consultation fee 534,630.00 1,849,371.52 House renting fee 8,343,868.76 3,042,028.50 Reparation fee 10,953,862.36 1,019,183.67 The retired fee 2,476,081.65 1,604,097.23 Vehicle fee 1,695,993.98 2,840,859.34 Conference fee 3,045,726.28 2,543,080.90 Business reception fee 1,925,076.82 1,245,078.77 The Board of Directors fee 1,374,639.89 2,798,787.52 Office fee 1,948,994.82 5,871,870.17 Training fee 2,327,335.18 -- Easily consumed goods with low value 1,344,423.93 -- Donation 1,106,850.00 -- Total of main item 314,641,420.39 281,862,715.41 Annotation 55. Other cash received related to investment activities Item Current amount Amount of last period Interest income of bank deposit 3,574,937.06 3,023,837.08 Annotation 56. Other cash paid in related with investing activities: None. Annotation 57. Other cash received in related with financing activities: None. Annotation 58. Other cash paid in related with financing activities Item Current amount Amount of last period Investment amount returned to Sichuan Changhong Electric 1,959,929.83 -- Group Co., Ltd. Annotation 59. Supplementary information for cash flow statement Supplementary information Current amount Amount of last period Cash flow of operation activity transferred from net profit Net profit 25,636,109.34 17,775,596.47 Add： Reserve of the devaluation of asset 20,931,126.74 40,018,343.29 Depreciations of fixed assets, oil and gas assets and 47,657,695.29 52,348,035.19 productive biological assets Amortization of intangible asset 26,741,546.78 27,217,867.19 Long term amortization expense - - Loss from disposal of fixed assets, intangible assets and other 219,178.26 -1,550.00 long term asset Rejected loss of fixed assets - 76,524.58 Losses on change of fair value - - Financial loss 34,045,065.48 23,457,995.82 Investment loss (less：income) -2,585,803.20 -36,353,801.42 Decrease in deferred income tax asset 4,287,833.15 5,026,265.77 Increase in deferred income tax liabilities - - Decreased inventory -21,304,492.85 -329,847,140.74 Decrease of operational items receivable 283,479,580.05 -97,276,525.61 Increase of operational items paid -229,187,256.82 476,596,766.89 Others - 70,000.00 Net cash flow arising from operating activities 189,920,582.22 179,108,377.43 2. Investment and financing activities not concerning cash income and expense Debt transferred to capital - - Convertible company bonds due within one year - - Leased capital of financial capital - - 3. Net change on cash and cash equivalent - - Cash balance in period-end 338,230,921.44 404,131,911.83 Decreased: Cash balance in period-begin 404,131,911.83 300,223,381.46 Add: cash equivalent in period-end - - Decreased: cash equivalent in period-begin - - Increased amount of cash and cash equivalent -65,900,990.39 103,908,530.37 Annotation 60. Cash and cash equivalent are as follows Amount of last I. Cash Current amount period Including: Cash on hand 38,861.09 97,063.50 Available bank deposit for payment 173,358,267.21 238,668,695.53 Available other currency for payment 164,833,793.14 165,366,152.80 II. Cash equivalent -- -- Including: Bonds investment due within three months -- -- III. Final cash and cash equivalent balance 338,230,921.44 404,131,911.83 Annotation 61. The influence of notes receivable on received cash flow by selling goods and providing labors Due to directlly endorsed the received bill of exhcnage RMB 2,043,520,000 to supplier to settle the purchase amount, the cash flow of received cash flow by selling goods and providing labors and paid cash for purchasing goods and receiving labors decreased RMB 2,043,520,000 at the same time. Annotation 62. Related information of subsidiaries and other operation companies Item Amount I. Related information of gaining subsidiary companies and other business units: 1. Price of gaining subsidiaries and other business units 20,367,400.00 2. Paid cash and cash equivalents for gaining subsidiary companies and other business units 20,367,400.00 Less: held cash and cash equivalents for gaining subsidiary companies and other business units 13,494,716.11 3. Paid net cash for gaining subsidiary companies and other business units 6,872,683.89 4. Net assets of the gained subsidiary companies 20,140,672.87 Include: Current assets 295,285,043.97 Noncurrent assets 189,752,066.11 Current debts 464,896,437.21 Noncurrent debts -- II. Related information of disposing subsidiary companies and other business units: 1. Price of disposing subsidiaries and other business units 2. Paid cash and cash equivalents for disposing subsidiary companies and other business units 17,642,127.35 Less: held cash and cash equivalents for disposing subsidiary companies and other business units -- 3. Paid net cash for disposing subsidiary companies and other business units -- 4. Net assets of the gained subsidiary companies 19,599,298.35 Include: Current assets 19,611,651.68 Noncurrent assets -- Current debts 12,353.33 Noncurrent debts -- Annotation 63. Branch report Current amount Amount of last period District Gross Gross Income Cost Income Cost interest interest I. Main business National Sale 3,308,981,858.81 2,377,855,923.08 28.14% 2,756,647,498.54 2,147,861,408.52 22.08% Export 663,498,974.29 642,542,152.06 3.16% 983,422,138.57 992,116,241.47 -0.88% II Other business National Sale 363,455,463.44 338,097,257.55 6.98% 312,149,049.49 297,758,726.57 4.61% Total 4,335,936,296.54 3,358,495,332.69 22.54% 4,052,218,686.60 3,437,736,376.56 15.16% IX. Annotation for main items of financial statements of parent company Annotation 1. Account Receivable (1) Account receivable classified by the balance and accounting risk Accounting age Book balance in year-end Book balancein year-begin Percenta Provisions of bad Percenta Provisions of Amount Amount ge% debts ge% bad debts Class I 44,909,007.02 14.66 2,245,450.35 -- -- -- Class II -- -- -- -- -- -- Class III 261,359,089.96 85.34 20,377,582.88 244,113,343.07 100.00 21,559,156.60 Total 306,268,096.98 100.00 22,623,033.23 244,113,343.07 100.00 21,559,156.60 Book value 283,645,063.75 222,554,186.47 Classification 1 was significant account receivable of single amount (balance value in year-end over RMB 20,000,000). Classification 2 was not significant but account receivable with bigger risks after the combination of credit risk characteristics. Classification 3 is other unsignificant of account receivable. (2) Account receivable classified by account age Book balance in year-end Book balance in year-begin Account age Provision for Provision for Amount Percentage% Amount Percentage% bad debt bad debt Within 1 year 269,882,846.13 88.12% 11,399,732.73 209,632,264.90 85.87 13,276,519.19 From 1-2 years 18,893,696.21 6.17% 2,834,054.43 25,655,402.91 10.52 4,786,709.03 From 2-3 years 9,131,483.96 2.98% 3,196,019.39 6,754,572.79 2.77 2,341,870.80 From 3-4 years 6,392,723.81 2.09% 3,515,998.10 2,037,877.53 0.83 1,120,832.64 From 4-5years 1,934,121.93 0.63% 1,644,003.64 -- -- -- Above 5 years 33,224.94 0.01% 33,224.94 33,224.94 0.01 33,224.94 Total 306,268,096.98 100.00% 22,623,033.23 244,113,343.07 100.00 21,559,156.60 Net balance 283,645,063.75 222,554,186.47 The book balance of account receivable in the year-end incraesed RMB 62,154,753.91 with the rate of 25.46% compared with that of last year, the main reasons of which were that: ① the Company implemented information management system tool to strengthen information policy and reduce the risk of account receivable. ② at the end of 2007, the the accounts receivable of clients calculated by subsidiary company Changhong Meiling Refrigerating Co., Ltd. was taken into the calculationsof the Company at the end of this year, and the book balance of this part was RMB 128,953,271.36. There was no fund of companies holding shares above 5%. (3) The top 5 accounts receivable at the end of this year are as follows: Book balance in year-end Book balance in year-begin Title of debtor unit Percentage Percentage Amount Amount % % Total of top 5 in accounts receivable 81,786,513.98 26.70 75,583,648.11 30.96 (4) Main debt companies of accounting receivable Debt Name of debt companies Amount Debt duration Note reason Nanjing Procurement center of Within one year Loan Suning Appliance Co., Ltd 44,909,007.02 Electrolux Major Appliances, Latin Within one year Account and 13,535,127.44 Loan withdrawal debt America Within one year according to Dashang Group Co., Ltd 9,441,435.48 Loan bad debt policy Littlewoods Shop Direct Group 7,031,578.60 Within one year Loan FAGORBRANDT 6,869,365.44 Within one year Loan Total 81,786,513.98 Percentage of accounting receivable: 26.70% (5) Particulars on special bringing bad debt were combined into sheet. See Appendix XIII, annotation 3(V). (6) The written-off and switch-back of accounts receivable of this year The received accounts receivable written off in the passed years were totally RMB 3,620,816.20 in this year. There was no account receivable written off in this year. Annotation 2. Other accounting receivable (1) On accounting risk Book balance in year-end Book balance in year-begin Item Percenta Provision for Percenta Provision for Amount Amount ge% bad debt ge% bad debt Class I 21,902,529.86 47.07 2,639,858.35 -- -- -- Class II 2,405,856.33 5.17 2,254,457.87 -- -- -- Class III 22,226,054.49 47.76 2,122,685.41 46,019,827.30 100.00 7,036,919.15 Total 46,534,440.68 100.00 7,017,001.63 46,019,827.30 100.00 7,036,919.15 Book value 39,517,439.05 38,982,908.15 Classification 1 was significant other account receivable of single amount (balance value in year-end over RMB 1,000,000). Classification 2 was not significant but other account receivable with bigger risks after the combination of credit risk characteristics. Classification 3 is other unsignificant of other account receivable. (2) On accounting age Book balance in year-end Book balance in year-begin Accounting age Percentag Provision for Percenta Provision for Amount Amount e% bad debt ge% bad debt Within 1 year 36,388,995.84 78.20 1,816,435.57 40,039,963.35 87.01 1,677,692.82 1-2 years 5,531,895.90 11.89 829,784.39 354,071.08 0.77 53,110.66 2-3 years 141,070.48 0.30 49,374.67 243,998.12 0.53 85,399.34 3-4 years 2,301,075.05 4.94 2,198,475.90 338,148.72 0.73 185,981.80 4-5years 323,148.72 0.69 274,676.41 3,616,021.96 7.86 3,607,110.46 Above 5 years 1,848,254.69 3.98 1,848,254.69 1,427,624.07 3.10 1,427,624.07 46,019,827.3 Total 100.00 7,036,919.15 46,534,440.68 100.00 7,017,001.63 0 Net balance 39,517,439.05 38,982,908.15 There was no fund of companies holding shares above 5% in book balance of other receivable at the end of the year. * The book balance in 3-4 years was RMB 2,301,075.05 more than that in 2-3 years RMB 243,998.12. The reason was that the current amount of Jiangxi Kesheng Industry & Trade Co., Ltd. RMB 2,073,076.93 whose accounting age was in 2-3 years in accounts paid in advance at the end of last year was calculated into other accounts receivable. (3) Top 5 other receivable debt and companies as well as reasons of special percentage accounting bad debt has been consolidated into the report. See Appendix VII-annotation 5. Top debtors totaled to RMB 14,087,185.18 which accounted for 30.27% in balance in year-end. The top 5 debtors in last year-end totaled to RMB 14,083,978.43 which accounted for 30.60% in balance in year-end. (4) Other written-off of other account receivable: approved in the resolution of the 12th meeting of the 6th Board of the Company dated Feb 23rd of 2009, the tax guarantee fee receivable RMB 3,148,479.34 of Wuhu Sales Company was written off in this year. Details could be found in Appendix 14 Events occurring after the balance sheet date I (1) (2). Annotation 3. Long term investment Book balance at Increased of Decreased of Book balance at Item beginning this year this year ending Long term equity investment 132,782,961.20 45,816,480.79 37,740,000.00 140,859,441.99 Decreased: depreciation reserves of long 1,660,000.00 1,660,000.00 term equity investment Net value of long term equity investment 131,122,961.20 45,816,480.79 37,740,000.00 139,199,441.99 (1) Project of long term equity investment Book balance at year-begin Book balance at year-end Increased of Decreased of Item Depreciation Depreciation Amount this year this year Amount reserves reserves Investment for 78,000,000.00 -- 45,140,672.87 18,000,000.00 105,140,672.87 -- subsidiaries Investment for -- -- -- -- -- -- co-operative enterprises Investment for 26,582,961.20 -- 675,807.92 200000 27,058,769.12 -- coordinated enterprise Investment for other 28,200,000.00 1,660,000.00 -- 19,540,000.00 8,660,000.00 1,660,000.00 enterprise Include：stock investment -- -- -- -- -- -- Other equity 28,200,000.00 1,660,000.00 -- 19,540,000.00 8,660,000.00 1,660,000.00 investment Total 132,782,961.20 1,660,000.00 45,816,480.79 37,740,000.00 140,859,441.99 1,660,000.00 Book value of long term 131,122,961.20 -- -- -- 139,199,441.99 -- investment The Long-term investment in this year increased RMB 45,816,480.79, which included: ① the investment to subsidiary companies increased RMB 45,140,672.87: firstly, the investment to Changhong Meiling Refrigerating Co., Ltd. increased RMB 18,140,672.87, the reason of which could be found in Appendix VII, (I), 2; secondly, the investment to Jiangxi Meiling Co., Ltd. increased RMB 27,000,000.00 after the 4th meeting of the 1st Shareholders’ Meeting on Dec. 22nd, 2008; ② the investment to associated enterprises increased RMB 675,807.92, that was the income increase of Hefei Technology Property Right Exchange RMB 588,830.17 and income increase of Meiling Packing Procuct Co., Ltd. RMB 86,977.75. The long-term equity investment decreased RMB 37,740,000.00, included: ① the decrease of the investment to Meiling Real Estate Co., Ltd. RMB 18,000,000.00, the reason of which could be found in Appendix VII, (I), 1, (2); ② the income decrease of long-term investment to Hefei Technology Property Right Exchange calculated by equity method RMB 200,000.00; ③ the investment totally RMB 19,540,000.00 including RMB 580,000.00 to Chinese Pacific Insurance (Group) Co., Ltd.and RMB 18,960,000.00 to Anhui Ustc Iflytek Co., Ltd. was adjusted into financial assets availble for sale according to the requirement of risk management and holding aim, the details of which could be found in Appendix VII – Financial Assets Available for Sale. (2) General situation of long term equity investment Percentage Invest Relationship of invested Account Investing ment Depreciation Invested unite with its parent company’s ing amount at duratio reserves company register method the ending n capital Hefei Changhong Meiling Long Cost 20,140,672.8 100.00% term method -- Refrigeration Co., Ltd. 7 Long Cost Huishang Bank Co., Ltd. 1.15% term method 5,000,000.00 -- 15 Cost Meiling Sigma Electrics Co., Ltd. 20.00% years method 1,660,000.00 1,660,000.00 Hefei Technology Property Right Coordinated Long Equity operation 28.57% term method 2,292,931.53 -- Exchange Hefei Meiling Packing Product Coordinated Long Equity 24,765,837.5 operation 48.28% term method -- Co.,Ltd 9 Zhongke Meiling Low Long Cost 42,000,000.0 Subsidiary 70.00% -- Temperature Technology Co., term method 0 Ltd. Jiangxi Meiling Refrigeration Co., Long Cost 45,000,000.0 Subsidiary 90.00% -- Ltd. term method 0 140,859,441. Total 1,660,000.00 99 (3) Investment for coordinated enterprise (Unit：RMB10,000) Registrat Book balance at the Occurring amount in this Share ion place Vote right year-ending year Invested units perce percentage Operation ntage Total capital Total debt Net profit income Hefei Technology Property Right Hefei 28.57% 28.57% 3,500.13 2,708.00 129.87 202.33 Exchange* Hefei Meiling Packing Product Co.,Ltd Hefei 48.28% 48.28% 13,635.95 8,506.32 15908.29 18.02 * The current 2008 annual statement of Hefei Technology Property Right Transaction Company Ltd. has not been audited. If there is any difference after examination, the Company will adjust it in 2009 according to No.20 of financial accounting standards--- financial policy, financial assessment and modification of prior errors. (4) Increase/decrease of long term equity investment are as follows： Adjustment Initial Book balance Increase/decre of Book balance Invested unit investment at the ase amount in accumulative at the year-end amount year-begin this year equity Chinese Pacific Insurance (Group) Co., Ltd. 580,000.00 580,000.00 -580,000.00 -- -- Hefei Changhong Meiling Refrigeration Co., 20,140,672.87 2,000,000.00 18,140,672.87 -- 20,140,672.87 Ltd. Heifei Commercial Bank 5,000,000.00 5,000,000.00 -- -- 5,000,000.00 Meiling Sigma Electrics Co., Ltd. 1,660,000.00 1,660,000.00 -- -- 1,660,000.00 Zhongkeda Xunfei Information Technology Co., Ltd. 18,960,000.00 18,960,000.00 -18,960,000.00 -- -- Hefei Technology Property Right Exchange 1,000,000.00 1,904,101.36 388,830.17 1,292,931.53 2,292,931.53 Hefei Meiling Packing Product Co.,Ltd. 25,055,600.00 24,678,859.84 86,977.75 -289,762.41 24,765,837.59 Zhongke Meiling Low Temperature Technology Co., Ltd. 42,000,000.00 42,000,000.00 -- -- 42,000,000.00 Hefei Meiling Real Estate Co., Ltd. 18,000,000.00 18,000,000.00 -18,000,000.00 -- -- Jiangxi Meiling Refrigeration Co., Ltd. 45,000,000.00 18,000,000.00 27,000,000.00 -- 45,000,000.00 132,782,961.2 140,859,441.9 Total 177,396,272.87 8,076,480.79 1,003,169.12 0 9 (5) Depreciation reserves of long term equity investment are as follows： Book balance at the Book balance at Invested unit Increased Decreased Note year- begin the year-end End operation, plan Meiling Sigma Electrics Co., Ltd. 1,660,000.00 liquidation Annotation 4. Income and cost of main business Occurring amount in this year Occurring amount in last year Gross Item Operation Gross profit Operation Operation cost Operation cost profit income percentage income percentage 1. Main business 3,966,896,876.55 3,037,873,169.38 23.42% 3,571,397,447.22 3,046,690,169.36 14.69% Refrigerator/freezer 3,942,842,494.95 3,013,537,951.50 23.57% 3,571,397,447.22 3,046,690,169.36 14.69% (1)National sales 3,279,343,520.66 2,370,995,799.44 27.70% 2,587,975,308.65 2,049,172,171.16 20.82% (2)Aboard sales 663,498,974.29 642,542,152.06 3.16% 983,422,138.57 997,517,998.20 -1.43% Air-Conditioning 24,054,381.60 24,335,217.88 -1.17% 2.Other business income 550,776,528.14 525,768,479.55 4.54% 332,409,466.75 318,434,355.32 4.20% (1)Raw material sales 548,603,238.43 525,523,129.62 4.21% 331,767,598.25 318,368,530.46 4.04% (2)Lease income 1,958,028.00 245,349.93 87.47% 641,868.50 65,824.86 89.74% (3)Other income 215,261.71 100.00% Total 4,517,673,404.69 3,563,641,648.93 21.12% 3,903,806,913.97 3,365,124,524.68 13.80% This period, the total amount sale profits of top 5 clients are RMB 1,026,554,047.37, 25.88% of main business profit. And last period. The total amount sale profits of top 5 clients are RMB 2,721,354,218.67, 76.20% of main business profit. High percentage of top 5 profits was due to the agency method for Sichuan Changhong and Changhong Meiling as general agents. The gross profit in this year was 21.12%, increased 7.32% compared with that of last year 13.8%, the main reason of which was that the sales structure was adjusted and the unit price increased from Jan. 1, 2008 according to Report on Price Adjustment of Meiling Refrigerator in 2008 on Dec. 28, 2007 and the price of some products was adjusted from Apr.10, 2008. Annotation 5.Investment income (1) Details of current investment income are as follows: Occurring amount Occurring amount Item in this year in last year Long term investment income Include：Income by equity method* 633,543.00 821,524.22 Distributed profit of invested unit by accounting 1,950,000 -- method Amortization of long term equity difference -- -- Income of equity investment liquidation -- -- Income of debt investment -- -- Depreciation reserves of long term investment -- -- Other long term investment income -- -- Income of disposal for other equity investment 35,532,277.20 Inputed income of Meiling Real Estate Co., Ltd. calculated by cost method and equity method -357,872.65 -- Total 2,225,670.35 36,353,801.42 * Income by equity method at the end is as follows: Investment percentage Income or Inner Confirmed Net profit of Amount loss(-) at income Invested unit Amount at the investment subsidiaries at the the report offset year-begin income year-end ending Hefei Technology Property Right 2,061,008.63 28.57% 28.57% 588,830.17 ―― 588,830.17 Exchange Hefei Meiling Packing 180,152.75 48.28% 48.28% 86,977.75 42,264.92 44,712.83 Product Co., Ltd * Total 675,807.91 675,807.91 633,543.00 * According to regulation of Accounting Standards for Business Enterprises Explanation No.1, the profit got from products sales of Meiling Packing Co. Ltd. to the Company should be offset. The 2008 sales profit amounted to RMB 77,302,837.71 which is 48.59% of Meiling Packing Co. Ltd.’s main business profit. Considering at the ending, no distinguishing of inventory percentage of products from Meiling Packing Co. Ltd., at the same time all the bought packing products have been sold out with commodities, all sales is realized. The offset gross sale profit by investment percentage= Gross profit of Meiling Packing Co. Ltd. ×sales profit percentage of Meiling Packing Co. Ltd. %×Investment percentage%. The profit got from products sales of Meiling Packing Co. Ltd. to the Company offset its main business cost. (2) Until the end of 2008, no significant limitation notice of related investing companies was received. X. Major differences on consolidated financial statements with parent financial statements 1. Net profit differences Occurring Occurring amount Item amount in last in this year year Net profit of parent company 29,804,074.79 17,782,771.03 Add: Effect on parent company’s current bad debt -- -- reserves offset to its subsidiaries Add: Current effect on emerging offset of bad debt -- -- reserves to deferred income tax Add: Minority shareholders’ interests -42,882.24 67,610.87 Add: Subsidiaries’ loss belonged to parent company -4,125,083.21 -74,785.43 Add: Offset effect of unrealized internal sales -- -- Combined net profit 25,636,109.34 17,775,596.47 2. Shareholders’ equity difference Book value at Book value at the Item the end of last end of this period period Shareholders’ equity of parent company 1,067,608,104.52 915,352,756.86 Add: Minority shareholders’ interests 16,730,086.31 18,732,898.38 Add: Effect on emerging offset of bad debt reserves to deferred income tax -- capital Add: Effect on parent company’s current bad debt reserves offset to its -- subsidiaries Add: Subsidiaries’ current loss belonged to parent company -4,125,083.21 -137,621.41 Add: Subsidiaries’ prior period loss belonged to parent company -3,391,981.72 -3,254,360.31 Add: Subsidiary’s other variance belonged to parent company 140,000.00 140,000.00 Add: Net capital variance of enterprise merger under same control 18,077,836.89 Add: Offset effect of unrealized internal sales -- Combined shareholders’ profit 1,076,961,125.90 948,974,346.39 XI. Contingent items 1. Guarantee status (1) Guarantee to other company: Until the end of this year, no guarantee is provided to other company. (2) Guarantee to holding subsidiary company: Ended the year 2008, the company provided guarantee to its subsidiary company Zhongke Meiling Low Temperature Co., Ltd. for RMB 33,000,000 loans .See details at Appendix XII-(II)-4. 2. Important law suit cases: Until the end of this year, no major suit case occurs. XII. Related-party relationships and transactions (I) Related-party relationship 1. The Company’s parent company and control relationship: The parent company is Sichuan Changhong, who holds 12.88% of total shares of the Company and 24.47% of voting right proportion, and is the largest shareholder of the Company. Changhong Group holds the Company’s 32,078,846 shares, or 7.76% of total shares of the Company, and is the sencong lagest shareholder of the Company. Changhong Group has transferred the total shares to the largest shareholder - Sichuan Changhong, but equity transferring procedure has not accomplished. The Board of Directors held a new election on Mar.11, 2008 that the new Board of Directors was formed by 9 members, and Sichuan Changhong elected 5 members of new Board of Directors and 3 independent directors, chairman of the board and general manager. Changhong Group holds 581,347,658 shares of Sichuan Changhong, 30.63% of the total shares, and is the largest shareholders of Sichuan Changhong. Mianyang State-owned Assets Supervision and Administration Commission holds 100% shares right, and is the actual controller of the Company. 2. Brief information of the Company’s parent companies and subsidiaries (1) Brief information of the Company’s parent companies Relationship Legal Registered Economic Corporate name Main business with the represent address nature or type Company ative Manufacture and sales High-tech Actual of Home appliance, Limited Development controller Zhao Changhong Group electric products, gas liability Zone, Mianyang of parent Yong products, chemical company City company products The largest Manfacture and sales shareholde Limited Zhao Sichuan Changhong Mianyang City of home appliance r of the company Yong Company (2) Brief information of the Company’s subsidiaries Relationship Economic Registered Legal Corporate name Main business with the nature or address representative Company type Zhongke Meiling Low Research, development, Limited Temperature manufacture, sales and service of Hefei City Subsidiary Wang Yong Technology Limited low-temperature refrigerating Company equipments and products Development, manufacture and sales Limited Jiangxi Meiling Jiangxi of refrigeration appliance, electric Subsidiary Wang Yong Refrigeration Co., Ltd. Jingdezhen productsand their components Hefei Changhong Electric appliance, electric products, machine and production, sales and Meiling Refrigeration Hefei City Subsidiary Limited Li Jin development of relevant parts and Co., Ltd. components; twchnology consultanrn. (3) Registered capitals and changes of the Company’s parent companies and subsidiaries Account Increment in Decrement in Account Corporate name balance at the the year the year balance at the Changhong Group 671,540,000 -- -- 671,540,000 Sichuan Changhong 1,898,211,418 -- -- 1,898,211,418 Zhongke Meiling Low Temperature Technology Limited 60,000,000.00 -- -- 60,000,000.00 Jiangxi Meiling Refrigeration 20,000,000.00 20,000,000.00 -- 40,000,000.00 Co., Ltd. Hefei Changhong Meiling 20,000,000.00 -- -- 20,000,000.00 Refrigeration Co., Ltd. (4) Shares or equity and changes of parent companies holding the Company or the Company holding its subsidiaries Account Increment in Decrement in Account Corporate name balance at the the year the year balance at the Changhong Group 32,078,846.00 32,078,846.00 Sichuan Changhong 38,135,951.00 15,140,484.00 53,276,435.00 Zhongke Meiling Low Temperature Technology 42,000,000.00 42,000,000.00 Jiangxi Meiling Refrigeration 20,000,000.00 20,000,000.00 40,000,000.00 Co., Ltd. Hefei Changhong Meiling 20,000,000.00 -- -- 20,000,000.00 Refrigeration Co., Ltd. (5) Ownership and voting right proportion and their changes of parent companies holding the Company or the Company holding its subsidiaries Account balance at Increment in the Decrement in the Account balance Corporate name the beginning of the year year at the end of the Ownership Voting right Ownership Voting Ownership Voting Ownership Voting % % % right % right % right Changhong 9.22 24.47 3.66 3.83 12.88 20.64 Sichuan 7.76 -- 7.76 -- Zhongke Meiling 70.00 70.00 70.00 70.00 Low Temperature Technology Jiangxi Meiling 97.00 97.00 97.00 97.00 Refrigeration (6) Other related parties Corporate name Relationship with the Company Hefei Xingtai Holding Group Co., Ltd. The third largest shareholder of the Company Hefei Meiling Packing Products Co., Ltd Sharing company of the Company Hefei Meiling Sigma Electric Co., Ltd Sharing company of the Company Sichuan Changhong Jiahua IT Products Limited Subsidiary controlled by Sichuan Changhong Sichuan Changhong Minsheng Logistic Limited Subsidiary controlled by Sichuan Changhong Sichuan Changhong Jijia Jinggong Co., Ltd Subsidiary controlled by Sichuan Changhong Sichuan Changhong Mold&Palstic Tech. Co.,Ltd Subsidiary controlled by Sichuan Changhong Leyijia Chain Management Co., Ltd. Subsidiary controlled by Sichuan Changhong Changhong (Hong Kong) Trading Limited Subsidiary controlled by Sichuan Changhong Huayi Compressor Co., Ltd. Actually controlled by Sichuan Changhong Sichuan Changhong Packing Printing Co., Ltd. Subsidiary controlled by Sichuan Changhong (II) Related-party transaction Pricing policy: all business between the Company and its related-party enterprise are dealt with common market rules, and treated equal to other enterprise with business relationship. Any price of purchase & sales or other service between the Company and its related-party enterprise shall be state stipulated price if state stipulated price exists; if where state stipulated price does exist, it shall be market price; if where no market price exists, it shall be priced by both parties based on the practical cost plus reasonable expenses; to any special service, of which price can not be decided in accordance with the principle of Cost Plus Expenses, shall be priced by both parties through negotiation. 1. Related-party purchase, the Company’s purchases from related parties in the year are following: (Unit: RMB 0,000Yuan) Related-party enterprise name Purchase in the year Purchase in the last year Hefei Meiling Packing Products Co., Ltd 6,260.09 12,005.38 Sichuan Changhong 5,039.13 13,077.58 Sichuan Changhong Jiahua IT Products Limited -- 48.61 Sichuan Changhong Minsheng Logistic Limited 878.68 354.60 Huayi Compressor Co., Ltd. 24,403.94 19,602.25 Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 6,350.28 -- Sichuan Changhong Jijia Jinggong Co., Ltd 56.92 -- 2. Related-party sales In the year the Company’s sales to related parties are following: (Unit: RMB 0,000Yuan) Sales in the year Sales in the last year Related-party enterprise name (excluding tax) (excluding tax) Hefei Meiling Packing Products Co., Ltd -- 11.11 Sichuan Changhong -- 8,987.66 Changhong (Hong Kong) Trading Limited 322.15 93.45 Sichuan Changhong Jijia Jinggong Co., Ltd 67.86 6.49 Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 4,102.51 675.54 Changhong (Australia) 157.02 -- Leyijia Chain Management Co., Ltd. 356.88 25.10 Leyijia (Fuzzhou) Trade Co., Ltd. 1.99 -- Leyijia (Guiyang) Trade Co., Ltd. 3.19 Leyijia (Jinan) Trade Co., Ltd. 2.05 Leyijia (Mianyang) Trade Chain Co., Ltd. 141.96 Leyijia (Taiyuan) Trade Chain Co., Ltd. 21.97 Leyijia (Tianjin) Trade Co., Ltd. 4.22 Leyijia (Chengdu) Trade Co., Ltd. 271.54 3. Balances of receivables and payables to related-party enterprises At the end of the year At the beginning of the year Item Amount Proportion Amount Proportion Other account receivable: Sichuan Changhong 166,495,146.21 47.44 144,022,771.37 57.68 Meiling Packing Products Co., Ltd 223,811.50 0.06 315,097.48 0.13 Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 41,691.13 0.01 50,000.00 0.02 Sichuan Changhong Minsheng Logistic Limited 5,070,644.60 1.44 - - Account payable: Meiling Packing Products Co., Ltd 10,222,623.22 1.61 35,426,281.19 4.39 Sichuan Changhong 5,053,199.18 0.79 - - Sichuan Changhong Minsheng Logistic Limited 2,292,660.18 0.36 14,581.03 -- Sichuan Changhong Jijia Jinggong Co., Ltd 1,171,904.55 0.18 14,540.99 -- Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 3,690,763.28 0.58 - - Sichuan Changhong Packing Printing Co., Ltd. 140,983.24 0.02 - - Huayi Compressor Co., Ltd. 26,323,603.13 4.14 25,100,861.12 3.11 Changhong Group 22,380.00 -- - - Account paid in advance: Sichuan Changhong 5,097,231.72 6.58 Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 1,572,294.03 2.03 Account receivable: Changhong (Hong Kong) Trading Limited 377,971.95 0.09 Sichuan Changhong Jijia Jinggong Co., Ltd 75,962.24 0.02 Leyijia Chain Management Co., Ltd. 155,826.72 0.04 Leyijia (Fuzzhou) Trade Co., Ltd. 23,267.70 0.01 Leyijia (Guiyang) Trade Co., Ltd. 37,368.00 0.01 Leyijia (Jinan) Trade Co., Ltd. 24,007.60 0.01 Leyijia (Mianyang) Trade Chain Co., Ltd. 139,911.87 0.05 Leyijia (Taiyuan) Trade Chain Co., Ltd. 39,404.05 0.01 Leyijia (Tianjin) Trade Co., Ltd. 49,421.92 0.02 Leyijia (Chengdu) Trade Co., Ltd. 357,129.22 0.12 Sichuan Changhong Mold&Palstic Tech. Co.,Ltd 0.36 -- Account received in advance: Sichuan Changhong 4,645,445.98 1.45 4,626,548.08 1.23 Leyijia (Chengdu) Trade Co., Ltd. 326,094.71 0.09 Changhong (Hong Kong) Trading Limited 223.69 -- Changhong (Australia) 3,280.76 -- Leyijia Chain Management Co., Ltd. 0.02 -- 4. The Company’s guarantee for loan of related party: Amount guar Type of The guaranteed anteed(RMB’ Loan bank Loan period Note guarantee 0000) Zhongke Meiling Low Hefei Branch, Surety Temperature Technology Limited 2,000.00 Bank of 2008.10.22-2009.10.22 Company Communications bond Hefei Zhongke Meiling Low Surety Huangchengmiao Temperature Technology Limited 300.00 Branch, 2008.08.18-2010.8.18 Company bond Huishang Bank Hefei Zhongke Meiling Low Surety Dadongmen Temperature Technology Limited 1,000.00 Branch, 2008.5.22-2009.5.22 Company bond Huishang Bank Total 3,300.00 -- -- -- 5. Guarantees of related parties provided for the Company (1) Guarantee of related party for the Company’s bank draft: Changhong Group guarantees the Company’s bank draft with balance RMB 36,000,000.00 Yuan, detailed information in Annex 8, Note 18 “Payable Notes”. 6. Other items about related-party transaction (1) On Feb. 2, 2008, the Company signed up “Service Contract on ERP System Implementation Project of Hefei Meiling and Changhong Meiling” with Sichuan Hongxin Software Co., Ltd. In the contract both parties stipulated to implement ERP system MySAP.COMECC (Version 5.0) in the Company, and modules implemented included sales management, material management and financial accounting. The period from the start to the end of the system implementation in plan was 4 months, or from Feb. 20 to Mar. 31, 2008. The price of the contract is RMB 60,000 Yuan, and the system has been online since Apr., 2008, and the price of the contract has been settled. (2) On Apr. 3, 2008, the Company signed Project Implementation Service Contract of Bar Code Management System (Phase I) of Hefei Meiling Co., Ltd. The contract promised to manage the bar code of products. The implemented module included product line module, CDC module and RDC module. The project planned to start from Feb.18, 2008 to May 31, 2008, and the price of the contract was 700,000. The system has been online since Jun., 2008, and the price of the contract has been settled. (3) On Aug. 10, 2008, the Company signed Project Implementation Service Contract of Credit Management System of Hefei Meiling Co., Ltd. the contract promised to realize the credit management of account receivable, promotion of ERP and start of account clearing of ERP system. The project was planned to start on Aug.18, 2008, get online and operate on Sep.30, 2008, and the contract price was 200,000. This project did not completed untill Dec.31, 2008, and RMB 80,000 was settled. (4) On Apr. 8, 2008, the Company signed up “Service Contract on ERP System Implementation Project of Hefei Meiling and Changhong Meiling” with Sichuan Hongxin Software Co., Ltd. In the contract both parties stipulated to implement ERP system MySAP.COMECC (Version 5.0) in the subsidiary company – Mainyang Meiling Refrigeration Co., Ltd., and modules implemented included sales management, material management and financial accounting. The period from the start to the end of the system implementation in plan was 4 months, or from Mar. 30, 2008 to Apr.30, 2008. The price of the contract is RMB 40,000 Yuan, and the system has been online since May, 2008, and the price of the contract has been settled. (5) To promote Meiling’s products, form Meiling brand to be an uniform service impression, improve service level of Meiling service and user satisfaction, realize close loop treatment on service information, strengthen real-time monitoring on whole process of service, reinforce data collection capability, realize standardization, normalization and specialization of hot-line, the Company continued to sign Meiling Service Hot-line Consignation Agreement with Sichuan Changhong on Oct. 22, 2007. The consignation expense was RMB 1,500,000 from Aug.1, 2007 to Jul.31, 2008, and the Company paid RMB 120,000 each month. In Jul., 2008, the Company Continued to sign the agreement, which promised that the expense was 1,700,000 from Aug.1, 2008 to Jul.31, 2009. RMB 1,200,000 of the expense has settled in this period. (6) The Company signed up Meiling Product Transport Contract 2008 with Sichuan Changhong Minsheng Logistic Limited, which stipulates that Sichuan Changhong Minsheng Logistic Limited is assumed to transport the Company’s product from Zhongshan to all districts and cities of Guangdong, Guangxi, Fujian, Hainan, Sichuan, Shanghai, totally 6 highroad lines, and all other highroad transports from the above districts to any address assigned by the Company and from the above districts to the starting places of transport. The period of the contract is from Jan. 1, 2008 to Dec. 31, 2008. In this year RMB 8,826,950.40 Yuan freight excluding tax has been settled. (7) On Nov 17, 2006, the Company signed up Air Conditioner OEM Contract [ML-CH-2007-01] with Sichuan Changhong, in which both parties reached agreement on home air conditioner branded with “Meiling” and manufactured by Sichuan Changhong in accordance with the Company’s requirements, and settlement shall be bank acceptance, and OEM price for settlement shall be regional uniform accounting price of Sichuan Changhong. The period of the contract is from Nov 17, 2006 to Nov 17, 2007. On Sep 30, 2007, both parties signed Air Conditioner OEM Contract [ML-CH-2007-02], which stipulates that machines in stock manufactured in accordance with former contract shall be priced as cost plus premium, and the products to be manufactured shall be priced in accordance with budgeted cost of Sichuan Changhong, and the period of the contract is from Sep 30, 2007 to Dec 31, 2008. In this year RMB 50,391,300.00 Yuan payment for goods excluding tax has been settled. XIII. Commitment: None XIV. Events occurring after the balance sheet date 1. Non-adjusting events occurring after the balance sheet date (1) On Feb.23, 2009, the 12th meeting of the 6th Board of Directors discussed and passed Proposal on Implementing Employees’ Early Retirement Welfare, Proposal on Canceling Receivable Wuhu Tax Guaranty Funds in Other Account Receivable, Proposal on Confirming Tax Account Loss and Proposal on Withdrawing Provision for Inventory. ① According to the policy of employees’ early retirement, 50 employees deal with the early retirement procedure in 2008, who need living bunus RMB 5,911,249.00 from early retirement to formal retirement, and the Company agreed to take this budget into welfare expense in employees’ welfare plan. Accoding to the requirement of Accounting Sandard for enterprises, the Company listed this expense into employees’ salary – demission welfare, and took it as management expense. ② the book balance of receivable Wuhu tax guaranty funds RMB 3,148,479.34 has over 5 years, that in the passed years has totally withdrew bad debts provission. Through checking the original account record, that account was not guaranty funds handed in tax institution, but actually the returns from Wuhu sales branch, and in fact that was not encashed. The Company cancelled the part, and set off other account receivable (receivable Wuhu tax guaranty funds) RMB 3,148,479.34. ③ In order to enjoy the faverable policy of Wuhu Ecnomic development district, when delivering goods to Wuhu branch, the Company did not declare output tax to Hefei tax institution, but derectly declared value-added tax to Wuhu tax institution, so was punished by Hefei tax institution, and handed in value-added tax RMB 20,416,759.26, which was listed in expected liability due to it was expected totally in 2001. At present, this tax dispute has not any development, and the time is too long. The Company cancelled this tax loss in 2008, and set off expected liability. ④ Combined with present market and the quality of stored products, the Company withdrew provission of inventory RMB 20,630,047.77 for the stored products in 2008, and till the end of 2008, the accumulative withdrew provission for inventory RMB 43,995,601.22. (2) On Feb.23, 2009, the Board of Directors deliberated and approved its Financial Statements 2008 and its abstract, and made a predetermined plan on profit distribution 2008, which was no distribution or transferration. 2. Adjusting events occurring after the balance sheet date: None XV. Other important matters 1. To support Share Merger Reformand resettlement, in accordance with related regulations of Decree No.89 issued by Hefei Municipal Government and related meeting spirits of Hefei Municipal Government, recently the Company reached agreement with Hefei Municipal Land Reserve Center (hereinafter abbreviated as Reserve Center) on paid withdrawal of state-owned land use right. The Company agrees that Reserve Center withdraws 2 plots of land with area 119,400 square meters, which locate in Wuhu Lu, Hefei City, and after the land withdrawn by Reserve Center and sold in land market, within 6 months land compensation shall be transferred to the Company by governmental financial department. The Company will deliver the land to Reserve Center after its resettlement and land demolishment, and Reserve Center says it will actively promote the land and try to sell the land at the best price. The Company’s above 2 plots of land use rights will be withdrawn by Reserve Center, and it will return some benefits to the Company, but there is still uncertainty for realization of such benefits. In 2007 the Company started its resettlement, and Reserve Center has reserved the above land, and the whole resettlement will be completed in May 2008 as predicted. The Company temporarily collects and transfers discarded or damaged construction in process, fixed assets, land use right and other items to fixed assets liquidation for accounting, which will be treated jointly with and after land compensation received. 2. Zhongke Meiling Low Temperature Technology Limited Company (hereinafter abbreviated as Zhongke Meiling), held its second Board Meeting of the third Board of Directors, and made proposal: to promote fast development of Zhongke Meiling, strengthen incentive mechanism, form effective decision mechanism and supervision mechanism, adopt Zhongke Meiling to violent market competition, the meeting approved Zhongke Meiling to exercise listing plan and incentive stock option, and the detailed rules of incentive stock option shall be submitted to Shareholders’ Meeting for deliberation and approval. By now, the detailed rules of incentive stock option have not been submitted to Shareholders’ Meeting of Zhongke Meiling for approval and actually implemented. 3. In Jan., 2008, the infrequent slow disaster in Hefei caused that Guangtai warehouse which the Company lent broke down, and some of the stored refrigerators were damaged. The relevant asstes had insured, and the claim settlement had finished till Dec.31, 2008. The Company actually received compensation 11,537,494.00, and the net loss in slow disaster had calculated into non-operation expense. 4. On Dec. 21, 2008, one corner of Tianjin warehouse was collapsed by the slow disaster, and products stored in the warehouse were damaged. According to the agreement signed by the Company and Tianjin Taituola Storage Co., Ltd., during the safekeeping time, the loss of the products stored in the warehouse was compensated by Tianjin Taituola warehouse. At present, Tianjin Taituola Storage Co., Ltd. is claiming its insurance agent for compensation, and requests the Company to provide relevant fianancial materials. It expected that the slow disaster would not bring loss of the Company. 5. On Dec. 1, 2008, the 9th meeting of the 6th Board of Directors deliberated and approved Proposal on Founding Mianyang Company. According to the latest finance and taxation policy and the faverable policy to Wenchuan, for better orientation of Mianyang Branch and the whole economic benefit, the Company decided to found Mianyang Meiling Company on the perspective of tax, financing and account report. The registered capital of Mianyang Meiling Company is 50,000,000, with cash investment. The Company invested RMB 45,000,000, 90% of the registered capital; Zhongke Meiling Company invested RMB 5,000,000, 10% of the registered capital. 6. Jiangxi Meiling Company signed Bargain Confirmation Statement with Jiangxi Tianhe Commodities Auction Co., Ltd on Dec 24th of 2008, confirming that Jiangxi Meiling Company had successfully auctioning part bankrupt assets of Jingdezhen Huayi Electric General Corporation Refrigerator Factory on Nov 24th of 2008. Thus, Jiangxi Meiling Company became the legal buyer of the object, and the price was RMB 58,000,000.00. Till Dec 24th of 2008, Jiangxi Meiling Company had already made full payment RMB 58,000,000.00 to liquidation team of Jingdezhen Huayi Electric General Corporation. The details and transaction price for this project are as follows: Part bankrupt assets of Jingdezhen Huayi Electric General Corporation Refrigerator Name of project Place Amount Notes Price No. 206, Cidu Road, 183645 square JTGY (2003) Z No. 0406 Land use right 2981.0840 Jingdezhen City meters JTGY (2003) Z No. 0407 17 items had transacted 1893.9262 No. 206, Cidu Road, 148064square House and buildings property certificate Jingdezhen City meters 68 items Take the estimation report of 924.9898 No. 206, Cidu Road, Machinery equipment 581 items Xiangying XCPBZ (2008) Jingdezhen City No. 15 as standard Total RMB 58,000,000 st Till Dec 31 of 2008, registration transfer procedure for the above assets hasn’t been finished yet. XVI. Complementary information 1. In accordance with Explanatory Notice No. 1 for Information Disclosures by Companies That Offer Securities to the Public -Non-recurring Gains and Losses(2008) issued by CSRC, the deducted item and amount of non-recurring gains and losses of the Company are following: Non-recurring Non-recurring gains/losses gains/losses attributed to Non-recurring Income attributed to Item the owners of gains/losses tax minority parent shareholders company after after tax tax 1.Disposal profit and loss on non-current assets 197,254.70 -- -- 197,254.70 2. Tax refund and exemption approved by exceeding authority or without formal document of approval 3. Government subsidy reckoned into current profit/loss, but close to the Company’s business, except 10,029,210.00 10,029,210.00 for government subsidy at an uniform national standard or with a certain ratio 4. Capital occupation received from non- financial enterprises and recorded into the current gains and losses 5. The investment cost of subsidiaries, affiliated enterprise and combined enterprise obtained by the enteprise is less than the gains resulting from recoganizable fair value of net asset enjoyed by investee units 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 gains/losses 10. Enterprise restructuring expense such as the expense for employee allocation and combined expense 11. Profit and loss exceeding fair value, resulting from unfair transactions 12. Current net gains/losses of the subsidiaries from the period-begin to merger date occurred in enterprise merger under the common control 13. Losses/gains occurred in contigent matters -- -- non-irelevant with normal operations of the Company 14. Held trasaction financial asset, gains/losse of changes of fair values from transaction financial liablities, and investment gains from disposal of transaction financial asset, transaction financial liablities -- -- and financial asset available for sales, exclude the effective hedging business relevant with normal operations of the Company 15. Switch back of provision for the devaluation of -- -- account receivable of singly adopting devaluation test 16. Losses and gains obtained from external entrusted -- -- loans 17. Losses/gains from the change of fair values of investing property of subsequent measurement adopted -- -- by method of fair value 18. Influences on current losses/gains for one adjustment of current losses/gains in accordance with -4,287,833.15 -4,287,833.15 the requirements of laws and regualations such taxation and accountings. 19. Income of trustee fee from entrusted operation -- -- 20. Net amount of other non-operating income and -1,817,187.53 -1,817,187.53 expense except the above items 21. Other losses/gains items conforming the definitions of non-recurring gains/losses Subtotal of non-recurring gains/losses 4,121,444.02 -- -- 4,121,444.02 * The Company and Zhongke Meiling Company applied for high-tech enterprises this year and got approval(the certificate number were respectively GR200834000169 and GR200834000177 with 3 years’ validity) , the Enterprise Income Tax Rate was adjusted to 15%, balance tax rate difference of deferred income tax asset in year-begin(25% was adjusted to 15%) adjusted the current income tax for once. The influences of current gains/losses from the adjustment were listed into nonrecurring gains/losses. 2. In accordance with China Securities Regulatory Commission, Compilation Rules for Information Disclosures by Companies That Offer Securities to the Public (No. 9): – Calculation and Disclosure of Return on Net Assets and Earnings per Share, calculated return on net assets and earnings per share are following: Return on Net Assets Earnings per Share Profits in report Basic Diluted Item Weighed period Diluted earnings earnings average per share per share Net profits attributed to owners of 25,678,991.58 2.42% 2.72% 0.0621 0.0621 the parent company’s Net profits attributed to common shareholders of the Company after 21,557,547.56 2.03% 2.29% 0.0521 0.0521 deducting non-recurring profit/loss 3. Adjustment of comparative data As stated in Note VII(I)2, the Company totally held 100% equity of Changhong Meiling Refrigeration, since the Company obtained the 90% equities of Changhong Meiling Refrigeration via Sichuan Changhong, plus the 10% equities of Changhong Meiling Refrigeration held by the Company before 2008. In accordance with relevant regulations of enterprise merger under the common control stated in Accounting Standard for Business Enterprises-No. 20 Enterprises Merger issued by Ministry of Finance dated Feb. 15, 2006, the Company restated the year-begin amount and amount in last year in 2008 financial report, the details on balance sheet and profit statement between before restated and after restated: (1) Asset Dec. 31, 2007 Dec. 31, 2007 Balance ③＝ Asset （before (after restated） Remarks restated）① ② ②－① Current assets: Monetary funds 390,637,195.72 404,131,911.83 13,494,716.11 Settlement provisions - - Capital lent - - Transaction finance asset - - - Notes receivable 241,290,060.33 241,290,060.33 - Accounts receivable 223,847,987.50 383,641,450.20 159,793,462.70 Accounts paid in advance 77,441,395.59 77,441,395.59 - Insurance receivable - - Reinsurance receivables - - Contract reserve of reinsurance receivable - - Interest receivable - - - Dividend receivable - - - Other receivables 39,568,230.31 34,240,914.94 -5,327,315.37 Purchase restituted finance asset - - - Inventories 650,814,778.03 650,814,778.03 - Non-current asset due within one year - - - Other current assets - - - 1,623,599,647. 1,791,560,510. Total current assets 167,960,863.44 48 92 Non-current assets: Granted loans and advances - - Finance asset available for sales - - Held-to-maturity securities - - - Long-term account receivable - - - Long-term equity investment 53,122,961.20 51,122,961.20 -2,000,000.00 Investment property 4,213,835.03 4,213,835.03 - Fixed assets: 278,309,705.08 468,061,771.19 189,752,066.11 Construction in progress 69,832,564.91 69,832,564.91 - Engineering material - - - Disposal of fixed asset 288,302,478.67 288,302,478.67 - Productive biological asset - - Oil and gas asset - - Intangible assets 605,744,912.92 605,744,912.92 - Expense on Research and Development - - - Goodwill - - - Long-term expenses to be apportioned - - - Deferred income tax asset 17,268,580.25 17,268,580.25 - Other non-current asset - -- - 1,316,795,038. 1,504,547,104. Total non-current asset 187,752,066.11 06 17 2,940,394,685. 3,296,107,615. Total assets 54 09 355,712,929.55 (2) Liabilities and shareholders’ equity Dec. 31, 2007 Dec. 31, 2007 Balance ③＝ Liabilities and shareholders’ equity （before (after restated） Remarks restated）① ② ②－① Current liabilities: Short-term loans 444,282,198.47 444,282,198.47 - Loan from central bank - - - Absorbing deposit and interbank deposit - - - Capital borrowed - - - Transaction financial liabilities - - - Notes payable 426,000,000.00 426,000,000.00 - Accounts payable 779,729,287.58 807,839,524.53 28,110,236.95 Accounts received in advance 212,514,494.14 376,609,630.83 164,095,136.69 Selling financial asset of repurchase - - - Commission charge and commission - - - payable Wage payable 27,422,048.18 27,422,048.18 - Taxes payable -47,714,875.94 -45,008,511.00 2,706,364.94 Interest payable - - - Dividend payable 1,473,337.42 1,473,337.42 - Other accounts payable 107,016,368.18 249,676,886.28 142,660,518.10 Reinsurance payables - - - Insurance contract reserve - - - Security trading of agency - - - Security sales of agency - - - Long-term liabilities due within 1 year 20,000,000.00 20,000,000.00 - Other current liabilities - - - 1,970,722,858. 2,308,295,114. Total current liabilities 337,572,256.68 03 71 Non-current liabilities: - Long-term loans 16,849,100.00 16,849,100.00 - Bonds payable - - - Long-term account payable - - - Special accounts payable - - - Projected liabilities 21,989,053.99 21,989,053.99 - Deferred income tax liabilities - - - Other non-current liabilities - - - Total non-current liabilities 38,838,153.99 38,838,153.99 - 2,009,561,012. 2,347,133,268. Total liabilities 337,572,256.68 02 70 Owner’s equity (or shareholders’ equity): - Paid-in capital 413,642,949.00 413,642,949.00 - Capital public reserve 578,857,478.72 596,857,478.72 18,000,000.00 Less: Inventory shares - - - Surplus public reserve 284,889,548.51 284,889,548.51 - Provision of general risk - - - -365,289,201.0 -365,148,528.2 Retained profit 140,672.87 9 2 Balance difference of foreign currency - - - translation Total owner’s equity attributable to parent 912,100,775.14 930,241,448.01 18,140,672.87 company Minority interests 18,732,898.38 18,732,898.38 - Total owner’s equity 930,833,673.52 948,974,346.39 18,140,672.87 2,940,394,685. 3,296,107,615. Total liabilities and owner’s equity 355,712,929.55 54 09 (3) Profit statement Dec. 31, 2007 Dec. 31, 2007 Balance ③＝ Items （before (after restated） Remarks restated）① ② ②－① 3,904,901,015. 4,052,218,686. I. Total operating income 147,317,671.57 03 60 3,904,901,015. 4,052,218,686. Including: Operating income 147,317,671.57 03 60 Interest income - - - Insurance gained - - - Commission charge and - - - commission income 3,926,008,549. 4,073,310,144. II. Total operating cost 147,301,594.89 28 17 3,350,362,324. 3,437,736,376. Including: Operating cost 87,374,052.07 49 56 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 9,389,467.69 10,760,482.72 1,371,015.03 Sales expenses 387,230,161.61 443,458,475.14 56,228,313.53 Administration expenses 106,236,152.86 108,653,837.80 2,417,684.94 Financial expenses 32,772,099.34 32,682,628.66 -89,470.68 Losses of devaluation of asset 40,018,343.29 40,018,343.29 - Add: Changing income of fair - - - value(Loss is listed with “-”) Investment income (Loss is listed 36,353,801.42 36,353,801.42 - with “-”) Including: Investment income on 821,524.22 821,524.22 - affiliated company and joint venture Exchange income (Loss is listed - - - with “-”) III. Operating profit (Loss is listed 15,246,267.17 15,262,343.85 16,076.68 with “-”) Add: Non-operating income 8,864,617.72 8,934,617.72 70,000.00 Less: Non-operating expense 1,330,265.61 1,330,265.61 - Including: Disposal loss of 763,695.58 763,695.58 - non-current asset IV. Total Profit (Loss is listed with 22,780,619.28 22,866,695.96 86,076.68 “-”) Less: Income tax 5,067,858.79 5,091,099.49 23,240.70 V. Net profit (Net loss is listed with 17,712,760.49 17,775,596.47 62,835.98 “-”) Net profit attributable to owner’s 17,645,149.62 17,707,985.60 62,835.98 equity of parent company Minority shareholders’ gains and 67,610.87 67,610.87 losses XVII. Explanation on differences between Domestic Accounting Standards and International Accounting Standards On Sep. 12, 2007, China Securities Regulatory Commission issued Notice on the Relevant Issue about the Auditing of the Companies That Issue the Domestically Listed B-shares in Foreign Currencies, in which announced that cancel the requirements on double audit stated in regulations on information disclosure released before on the domestically listed B-shares in foreign currencies shall carry out the overseas auditing when hiring an accounting firm with the securities certifications since the day of notice release. Since year 2007, the Company has not compiled the financial report under the International Accouting Standards, the financial report of the Company was compiled in accordance with China’s Accounting Standard for Business Enterprises, and thus, there were no differences between Domestic Accounting Standards and International Accounting Standards in the end of this year. Hefei Meiling Co., Ltd. Legal representative: Zhao Yong Person in charge of accounting works: Yu Wanchun Person in charge of accounting institution: Wang Shaozhuo February 23, 2009 Section XI. Documents for Reference I. Accounting statements with the signature and seal of Chairman of the Board, Vice President, and principal of accounting institutions; II．Original of the Auditor’s Report with the seals of domestic and international certified public accountants, and the signature of the certified public accountants; III. Original of the documents of the Company and public notices publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period. The aforesaid documents are all available and complete at headquarter of the Company. The Company would provide them timely when CSRC and Shenzhen Stock Exchange required or the shareholders need consultation according to the regulations and Articles of Association. Chairman of the Board: Zhao Yong Board of the Directors of Hefei Meiling Co., Ltd. February 25, 2009