珠江Ｂ(200505)2008年年度报告（英文版）

HAINAN PEARL RIVER HOLDINGS CO., LTD. ANNUAL REPORT 2008 Section I. Important Notice Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of HaiNan Pearl River Holdings 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. Mr. Zheng Qing, Chairman of the Board as well as General Manager; Mr. Chen Binglian, Standing Deputy General Manager as well as Person in Charge of Financing Affairs; Mr. Yang Daoliang, Manager of the Financial Department hereby confirm that the Financial Report of the Annual Report is true and complete. Section II. Company Profile 1. Legal Name of the Company in Chinese: 海南珠江控股股份有限公司 In English: HaiNan Pearl River Holdings Co., Ltd. Abbr. in Chinese: 珠江控股 2. Legal Representative: Zheng Qing 3. Secretary of the Board: Gu Lirong Contact Address: 29/F, Royal Empire Building, Pearl River Plaza, Binhai Avenue, Haikou Tel: (86) 898-68581888, 68581199 ext. Fax: (86) 898-68581026 4. Registered Address: 29/F, Royal Empire Building, Pearl River Plaza, Binhai Avenue, Haikou Office Address: 29/F, Royal Empire Building, Pearl River Plaza, Binhai Avenue, Haikou Post Code: 570125 E-mail: hnpearl@public.hk.hi.cn 5. Newspapers Designated by the Company for Disclosing Information: Securities Times and Hong Kong Ta Kung Pao Internet Website Designated by China Securities Regulatory Commission for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Pearl River, Pearl River B Stock Code: 000505, 200505 7. Initial registration date and place: Jan. 11, 1992 in Haikou, Hainan Registered number for business license of corporation: 4600001006830 Registered number of taxation: 460100201284556 Organization Code Certificate: 20128455-6 Certified Public Accountant engaged by the Company: Daxin Certified Public Accountants Office address: 15/F, College of Beijing Nation Mansion. No.1 Zhichun Road. Haidian District, Beijing Section III. Summary of Financial Highlight and Business Highlight 1. Main financial highlight in the report period Unit: RMB Items Amount Operating profit -86,367,328 Total profit -79,174,628 Net profit attributable to the shareholders of the listed company -76,603,781 Net profit attributable to the shareholders of the listed company after -99,871,334 deducting non-recurring gains and losses Net cash flow arising from operating activities -66,035,246 Note: Items of non-recurring gains and losses deducted and the involved amounts are as following (Unit: RMB) Items Jan.-Dec., 2008 Jan.-Dec., 2007 Items of non-recurring gains and losses Amount Amount Gains and losses from the disposal of non-current asset, including the switching back part of reserve for impairment 82,256 8,654 of assets Capital occupation fee received from non-financial 16,613,888 enterprises and recorded into the current gains and losses Net amount of other non-operating income and expense 7,110,443 124,010 except the above items Other losses/gains items conforming to the definitions of 1,477,393 non-recurring gains/losses Less: Impact of income tax 604,010 -116,812 Less: Influenced amount of minority shareholder -64,976 -12,674 Total 23,267,553 1,739,543 2. Major accounting data and financial indexes over the past three years ended by the report period (Unit: RMB) (1) Main accounting data Increase/decrease this year 2008 2007 2006 compared with that last year (%) Operating income 101,791,839 153,716,148 -33.78 499,154,377 Total profit -79,174,628 -18,615,927 -325.31 83,458,598 Net profit attributable to shareholders of the listed company -76,603,781 -31,199,957 -145.53 58,326,224 Net profit attributable to shareholders of the listed company after -99,871,334 -32,939,500 -203.20 7,431,868 deducting non-recurring gains and losses Net cash flow arising from operating activities -66,035,246 -21,343,983 -209.39 137,680,434 Increase/decrease at the end of this At the end of At the end of 2008 year compared with that at the end At the end of 2006 2007 of last year (%) Total assets 975,122,914 939,167,238 3.83 740,910,491 Owners’ equity(Shareholders’ equity) 119,086,532 195,690,313 -39.15 226,890,270 (2) Main financial indexes Increase/decrease this 2008 2007 year compared with that 2006 last year (%) Basic earnings per share -0.18 -0.07 -157.14 0.14 Diluted earnings per share -0.18 -0.07 -157.14 0.14 Basic earnings per share after deducting non-recurring gains and losses -0.23 -0.08 -187.50 0.02 Decreased 48.39 Fully diluted return on equity -64.33% -15.94% 25.71% percentage points Decreased 33.90 Weighted average return on equity -48.67% -14.77% 43.76% percentage points Decreased 67.03 Fully diluted return on equity after deducting non-recurring gains and losses -83.86% -16.83% 3.28% percentage points Decreased 47.87 Weighted average return on equity after deducting non-recurring gains and losses -63.46% -15.59% 5.58% percentage points Net cash flow per share arising from operating activities -0.15 -0.05 -200.00 0.32 Increase/decrease at the At the At the end of At the end of end of this year compared end of 2008 2007 with that at the end of last 2006 year (%) Net asset per share attributable to shareholders of listed company 0.28 0.46 -39.13 0.53 3. Return on equity and earnings per share in the report period calculated according to requirements of Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) promulgated by CSRC (1) Return on equity Return on equity Fully diluted Weighted average Profit in the report period Amount of this Amount of last Amount of this year Amount of last year year year Net profit attributable to common -64.33% -15.94% -48.67% -14.77% shareholders of the Company Net profit attributable to common shareholders of the Company after deducting -83.86% -16.83% -63.46% -15.59% the non-recurring losses and gains (2) Earnings per share Earnings per share Profit in the report period Basic earnings per share Diluted earnings per share Amount of this Amount of last Amount of this Amount of last year year year year Net profit attributable to common shareholders of the Company -0.18 -0.07 -0.18 -0.07 Net profit attributable to common shareholders of the Company after deducting the -0.23 -0.08 -0.23 -0.08 non-recurring losses and gains 4. Differences based on CAS and IAS Net profit for Net assets as of year 2008 Dec. 31, 2008 RMB'000 RMB'000 As reported in statutory accounts -79,777 130,406 Impact of IFRS and other adjustments - Unrecognized switching back the reserve for impairment - -44,035 of financial assets available for sales - Amortization of land use rights - -1,337 - Adjustment to investing profit of associated companies - -9,929 Amount after adjustment -79,777 75,105 Section IV. Changes in Capital Shares and Particulars about Shareholders (I) Changes in share capital 1. Particulars about the changes in shares of the Company (Unit: Share) Before the change Increase/Decrease of this time (+, -) After the change New shares Conversion of Amount Proportion Bonus shares Others Subtotal Amount Proportion issued public reserve I. Restricted shares 130,740,609 30.64% -7,736,000 -7,736,000 123,004,609 1. State-owned shares 2. State-owned legal person’s 117,780,978 27.60% 1,299,500 1,299,500 119,080,478 shares 3. Other domestic shares 12,959,631 3.04% -9,035,500 -9,035,500 3,924,131 Including: Domestic non-state-owned legal 12,934,000 3.03% -9,035,500 -9,035,500 3,898,500 person’s shares Domestic natural person’s 25,631 0.01% 25,631 shares 4. Foreign shares Including: Foreign legal person’s shares Foreign natural person’s shares 5. Senior executives’ shares II. Unrestricted shares 296,004,795 69.36% 7,736,000 7,736,000 303,740,795 1. RMB Ordinary shares 231,029,795 54.14% 7,736,000 7,736,000 238,765,795 2. Domestically listed foreign 64,975,000 15.23% 64,975,000 shares 3. Overseas listed foreign shares 4. Others III. Total shares 426,745,404 100.00% 426,745,404 Statement on changes of restricted shares (Unit: Share) Restricted shares at Restricted shares released Increased restricted Restricted shares at Name of shareholders Reason for restriction Releasing date year-begin in current year shares in current year year-end Restricted shares due to Beijing Wanfa Real Estate Development Co., Ltd. 111,283,478 0 0 111,283,478 Aug. 17, 2009 Share Merger Reform Restricted shares due to Shanghai Dekai Clothing Co., Ltd 100,000 100,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Haikou Ningxia Economic Development Co., Ltd 690,000 690,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Dongyang City Huayi Computer Co., Ltd 200,000 200,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Shanghai Peidun Industrial & Trading Co., Ltd 100,000 100,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Shanghai Chenwen Trade Co., Ltd 100,000 100,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Shanghai Minxiong Trade Co., Ltd 500,000 500,000 0 0 Feb. 29, 2008 Share Merger Reform China Construction Bank Tianjin Jinghai Restricted shares due to 1,150,000 1,150,000 0 0 Feb. 29, 2008 Sub-branch Share Merger Reform Restricted shares due to Gaungzhou Lishengde Investment Co., Ltd. 4,896,000 4,896,000 0 0 Feb. 29, 2008 Share Merger Reform Restricted shares due to Hebei Securities Co., Ltd. 6,497,500 0 0 6,497,500 Aug. 17, 2009 Share Merger Reform Restricted shares due to Shenzhen Gintian Industry Co., Ltd 2,599,000 0 0 2,599,000 Aug. 17, 2009 Share Merger Reform Restricted shares due to Nanhua Finance Co., Ltd 1,299,500 0 0 1,299,500 Aug. 17, 2009 Share Merger Reform Guangzhou Pearl River Industrial Group Finance Restricted shares due to 1,299,500 0 0 1,299,500 Aug. 17, 2009 Co., Ltd Share Merger Reform Total 130,714,978 7,736,000 0 122,978,978 Note: The shareholder has not repaid the consideration of Share Merger Reform of Beijing Wanfa Real Estate Development Co., Ltd., and would handle the events on releasing restrictions after repayment. 2. Issuance and Listing of shares ① At the time of reform for the joint stock system, the Company issued RMB ordinary shares amounting to RMB 81.88 million at the price of RMB 1.00 per share, of which the five sponsors subscribed 60.7936 million shares, and the public subscribed 21.0864 million shares. The issuing duration was from Jan. 8 to Mar. 7, 1992. On Dec. 21, 1992, approved by the authority, 21.0864 shares were listed with Shenzhen Stock Exchange for trading. ② On May 18, 1993, the Company distributed bonus shares to the shareholders on 2-for-10 basis with totally 16.376 million bonus distributed; additionally, the Company placed 40.94 million new shares based on 5-for-10 at the price of RMB 6.00 per share. ③ On Apr. 16, 1994, the Company distributed bonus shares to the shareholders on 10-for-10 basis with totally 139.196 million bonus shares distributed. ④ On Apr. 12, 1995, the Company issued 50 million B shares, and the said shares were listed at the price of HK$ 2.58 per share on June 29, 1995. ⑤ On Apr. 29, 1995, the Company distributed bonus shares to the shareholders on 1.5-for-10 basis with totally 49.2588 million bonus shares distributed. ⑥ On Aug. 17, 2006, the Company implemented Share Merger Reform Scheme, the Company converted share capital to all the shareholders on 1.13-for-10 basis with totally 49.094604 million shares were converted in which original non-tradable shareholders quitted and converted into tradable shareholders of A-stock. (II) About shareholders 1. Particulars about shares held by the top ten shareholders and the top ten shareholders with unrestricted conditions Total shareholders 53924 Particulars about shares held by the top ten shareholders Proportion Amount of share Amount of conditional shares Names of shareholders Nature of shareholder Shares pledged or frozen of share held held held Beijing Wanfa Real Estate Development Co., State-owned legal person 26.08 111,283,478 111,283,478 0 Ltd. Hebei Securities Co., Ltd State-owned legal person 1.52 6,497,500 6,497,500 0 Yang Bochen Domestic natural person 1.43 6,100,000 0 0 Anhui Hengrun Mining Research & Domestic non-state-owned legal 1.04 4,452,037 0 0 Development Co., Ltd person Domestic non-state-owned legal Guangzhou Lishengde Investment Co., Ltd. 1.01 4,314,000 0 0 person Gu Hongjuan Domestic natural person 0.94 4,015,100 0 0 Yang Jianzhong Domestic natural person 0.71 3,042,000 0 0 Domestic non-state-owned legal Shenzhen Gintian Industry Co., Ltd 0.61 2,599,000 2,599,000 2,599,000 person Domestic non-state-owned legal Henglong International Co., Ltd. 0.53 2,257,638 0 0 person Wang Shuxia Domestic natural person 0.48 2,047,641 0 0 Particulars about shares held by the top ten unrestricted shareholders Name of shareholder Amount of unrestricted shares held Type of share Yang Bochen 6,100,000 RMB common share Anhui Hengrun Mining Research & Development Co., Ltd 4,452,037 RMB common share Guangzhou Lishengde Investment Co., Ltd 4,314,000 RMB common share Gu Hongjuan 4,015,100 RMB common share Yang Jianzhong 3,042,000 RMB common share Henglong International Co., Ltd. 2,257,638 RMB common share Wang Shuxia 2,047,641 RMB common share Zhang Xiaoxia 1,949,250 Domestically listed foreign share GUOTAI JUNAN SECURITIES(HONGKONG)LIMITED 1,696,652 Domestically listed foreign share Tianjin Shengda Rolled Steel Co., Ltd. 1,150,000 RMB common share There existed no associated relationship between the first largest shareholder and other shareholders, and they were not consistent Explanation on associated relationship or actionists according to Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. It accordant action among the aforesaid shareholders was unknown whether the other shareholders had affiliated relations or belonged to consistent actionist. 2. Controlling shareholder and actual controller In the report period, the first largest shareholder and actual controller of the Company did not change. Beijing Wanfa Real Estate Development Co., Ltd. (“Wanfa Real Estate”), the first largest shareholder of the Company, was established in Nov. 1995 with registered capital amounting to RMB 280 million, whose legal representative is Zheng Qing. Its main business includes the development and operation of real estate. Some original shareholders units did not exist due to reform, the present shareholders of Wanfa Real Estate are Beijing Xinxing Real Estate Development General Company and Tianzheng Beijing Construction Supervision Co., Ltd. The actual controller of the Company’s controlling shareholder, Beijing Xinxing Real Estate Development General Company (“Xinxing Real Estate”) is the main shareholder of Beijing Wanfa Real Estate Development Co., Ltd., who was established in 1992 with registered capital of RMB 10 million and legal representative Zheng Qing. The said company is principally engaged in the development and operation of real estate as an enterprise owned by the whole people. 3. Property right and controlling relationship between the actual controller of the Company and the Company is as follows: State-owned Assets Supervision and Administration Commission of Beijing Municipal Government 100% Beijing Xinxing Real Estate Development General Company 85.191% Tianzheng Beijing Construction Supervision Co., Ltd. 14.809% Beijing Wanfa Real Estate Development Co., Ltd. 26.08% HaiNan Pearl River Holdings Co., Ltd. Section V. Particulars about Directors, Supervisors, Senior Executives and Employees 1. Particulars about directors, supervisors and senior executives (1) Particulars about present directors, supervisors and senior executives Shares held Shares held Increase/decrease Name Title Sex Age Office term at the at the Remarks in shares year-begin year-end Director in Chairman of the June 20, 2006- Wanfa Real Zheng Qing Board / General Male 42 34,175 34,175 0 June 20, 2009 Estate since Manager June 1999 June 20, 2006- Peng Shuyin Director Male 51 0 0 0 June 20, 2009 June 20, 2006- Wu Xiaojing Director Male 57 0 0 0 June 20, 2009 Deputy GM in June 20, 2006- Wanfa Real Shi Yonghui Director Male 44 0 0 0 June 20, 2009 Estate since July 1993 Chairman in Guangzhou June 20, 2006- Zhang Jian Vice Chairman Male 55 0 0 0 Lishengde June 20, 2009 since Aug. 2000 GM in Hainan June 20, 2006- Yueyin Tan Shuguang Director Male 38 0 0 0 June 20, 2009 Technology since May 2001 Independent June 20, 2006- Yang Weiping Female 49 0 0 0 Director June 20, 2009 Li Independent Jul. 29, 2008- Male 62 Guangzhong Director June 20, 2009 Independent June 20, 2006- Zhang Taowei Male 45 0 0 0 Director June 20, 2009 Chairman of June 20, 2006- Sun Xianli Supervisory Male 62 0 0 0 June 20, 2009 Committee June 20, 2006- She Jianhui Supervisor Female 55 0 0 0 June 20, 2009 Yang June 20, 2006- Supervisor Male 38 0 0 0 Daoliang June 20, 2009 Standing Deputy June 20, 2006- Chen Binglian Male 49 0 0 0 General Manager June 20, 2009 Secretary of the Jul. 16, 2008- Gu Lirong Male 41 0 0 0 Board June 20, 2009 (2) Main work experience and office positions of directors, supervisors and senior executives for the recent five years: Zheng Qing: June 1999-now, Chairman and concurrently GM of HaiNan Pearl River Holdings Co., Ltd.; Director of Beijing Wanfa Real Estate Development Co., Ltd. Peng Shuyin: Dec. 1992-now, Deputy GM and concurrently Chief Engineer of Beijing Xinxing Real Estate Development General Company. Wu Xiaojing: Apr. 1995-now, Deputy GM of Beijing Xinxing Real Estate Development General Company. Shi Yonghui: July 1993-now, Deputy GM of Beijing Wanfa Real Estate Development Co., Ltd. Zhang Jian: Aug. 2000-now, Chairman of Guangzhou Lishengde Investment Co., Ltd. Tan Shuguang: May 2001-now, GM of Hainan Yueyin Technology Co., Ltd. Yang Weiping: Apr. 1998-now, Co-partner and Director of Bei Jing Fang Lue Law Office. Zhang Taowei: Aug. 1987-now, Professor of School of Economics and Management Tsinghua University and Visiting Scholor of Harvard Business School in year 2001. Li Guangzhong: year 1996-2007, Party Commissary of Zhongnan University of Economics and Law; Party Secretary and concurrently Deputy Dean of Accounting School. Year 2007-now, Member of Accounting Society of China, Non-practicing member of The Chinese Certified Public Accountant, and Trustee of Accounting Society of Hubei Province. Sun Xianli: Jan. 1997-now, Deputy GM of Beijing Xinxing Real Estate Development General Company. She Jianhui: Dec. 1993-now, Manager of the Financial Department of Beijing Xinxing Real Estate Development General Company. Yang Daoliang: Aug. 2006-now, Manager of the Financial Department of HaiNan Pearl River Holdings Co., Ltd. Chen Binglian: Apr. 2001-now, CFO, Deputy GM and Standing Deputy GM of HaiNan Pearl River Holdings Co., Ltd. Gu Lirong: Feb. 1997-now, Deputy Director of GM Office, Manager of Securities Department, Assistant to GM, Secretary of the Board of HaiNan Pearl River Holdings Co., Ltd. (3) Annual Remuneration Directors, supervisors and senior executives in current office positions received their remuneration from the Company according to the Company’s salary management system; the Company has not yet implemented equity incentive system and the Company would establish the allowance for independent directors. The Remuneration and Examination Committee of the Board will check the remunerations of the Directors, supervisors and senior executives. The followings drew their remunerations from the Company: Chairman and concurrently GM Zheng Qing with the total annual remuneration (before tax) was RMB 235,600; Standing Deputy GM Chen Binglian with the total annual remuneration (before tax) was RMB 154,900; Secretary of the Board Gu Lirong with the total annual remuneration (before tax) was RMB 112,600, and thus, the total amount for the aforementioned 3 persons was RMB 503,100. The total annual remuneration (before tax) for Employee Superviosr Yang Daoliang was RMB 95,700; the total annual remuneration (before tax) for Director and concurrently Deputy Commander-in-chief of Longzhu Phase III of the Company Wu Xiaojing was RMB 84,000. Directors of the Company---Peng Shuyin, Shi Yonghui, Zhang Jian and Tan Shuguang; Independent Directors of the Company---Yang Weiping, Zhang Taowei and Li Guangzhong; Supervisors of the Company---Sun Xianli and She Jianhui did not receive remunerations from the Company. (4) Particular of the engagement and leaving offices of Director, Supervisor and Senior Executive On July 29, 2008, the 2nd Extraordinary Shareholders’ General Meeing 2008 was held in which Mr. Li Guangzhong was elected as the Independent Director of the Company. The relevant resolution was published on China Securities Journal dated July 30, 2008. On July 16, 2008, the 17th meeting of the 5th Board of the Company was held in which Mr. Gu Lirong was engaged as the Secretary of the Board of the Company. The relevant resolution was published on China Securities Journal dated July 17, 2008. In the report period, Mr. Yang Kaijun resigned his post of Independent Director due to busy works; Mr. Feng Pai resigned his posts of Deputy GM and Secretary of the Board due to the change of work. 2. About Staff There were 33 staff members in the head office of the Company, including 25 holding college degrees or higher, taking 76% of the total, 17 holding medium professional titles or higher, taking 52% of the total. The Company had no retired staff. Section VI. Corporate Governance Structure I. Corporate Governance Structure In the report period, the Company strictly followed requirements of the Company Law, Securities Law, and Code of Corporate Governance for Listed Companies and relevant regulations, constantly perfected legal person governance structure, established and completed internal control system, continued to deeply develop special campaign of corporate governance, further standard operation and improved governance level of the Company. In the report period, combined with actual condition, the Company perfected organization construction of special committee of the board of directors. The 2nd extraordinary shareholders’ meeting held on Jul. 29, 2008 added to elect Mr. Li Guangzhong as Independent Director of the 5th board of directors, therefore, the number of independent directors and structure reached requirement. The 18th meeting of the 5th board of directors held on Jul. 29, 2008 decided to set two special committees of the board of directors – Audit Committee, Remuneration and Examination Committee, and established Working Instruction for Audit Committee of the Board of Directors and Working Instruction for Remuneration and Examination Committee of the Board of Directors to fully exert their functions in corporate governance. (1) Shareholders and General Shareholders’ Meeting The Company convened and held general shareholders’ meeting strictly according to regulations and rules of Rules of Procedure for General Shareholders’ meeting, to ensure the equal status and rights of shareholders especially minority shareholders. (2) The Company and holding shareholders The holding shareholders had canonical behavior, legally exerted their rights and relevant obligations, and did not directly or indirectly intervene in the Company’s decision and operation. Simultaneously, the Company had independent and complete business and operation ability, separated from holding shareholders in business, personnel, assets, organization and finance, and the board of directors, supervisory committee and internal organization operated independently. (3) Directors and the board of directors In the report period, the numbers and members of directors and independent directors accorded with requirements of laws and regulations. The board of directors held directors’ meeting strictly according to Rules of Procedure for the Board of Directors and System for Independent Directors, and independent director expressed opinions. Each director and independent director could diligently and responsibly exerted rights, and safeguard the interests of the Company and shareholders. (4) Supervisors and the supervisory committee The supervisory committee and number and constitutes of supervisors accorded with the requirements of laws and regulations. Supervisors could strictly follow the requirements of the Company Law and Rules of Procedures for the Supervisory Committee, seriously performed their own responsibility, and effectively supervised significant events, financial status, performance of directors and senior executives. (5) Senior executives and operation team The senior executives of the Company were elected by the board of directors according to Articles of Association, and recognized by independent directors. Senior executives including general manager and deputy general manager constituted operation team, who made effective control to daily production and operation. The operation team diligently and responsibly performed duties according to Articles of Association. (6) Relevant interests’ persons The Company could fully respect and safeguard legal interests of relevant interests’ persons, actively communicated with relevant interests’ persons, tried to realize interests’ equalization of shareholders, employees and society, and together promoted constant and stable development of the Company. (7) Information disclosure and transparency According to regulations of Information Disclosure Management System, the board of directors appointed secretary of the board of directors to take charge of management of investors’ relationship, work of daily information disclosure, and received shareholders’ interview and consultant. The Company tried to equitably, timely, exactly and integrally disclose information of the Company. In the report period, there was no nonstandard information disclosure or criticism from supervisory department. II. Performance of independent directors The proportion of independent directors in the board of directors and personnel constitution accorded with requirements of Guiding Opinions of independent Directors, and the Articles of Association defined independent directors system. Independent directors could diligently and responsibly exert their rights; seriously performed their duties, and exerted their functions. Independent directors seriously attend directors’ meeting, and expressed independent opinions on external guarantee and capital occupancy proceedings, engagement of audit institution proceedings and internal control system proceedings, and independent directors did not express disagreement on relevant proceedings of the Company. In the report period, independent directors’ attendance of meetings of the board of directors Name of independent Times are supposed Presence in Entrusted Absence Note Directors to be attendance person (Time) presence (Time) (Time) Yang Weiping 9 9 0 0 Zhang Taowei 9 9 0 0 Li Guangzhong 9 5 0 0 III. The Company and holding shareholders The Company is separated from the first largest shareholder – Beijing Wanfa Real Estate Development Co., Ltd. in terms of Personnel, Assets, Finance, Organization and Business; each independently calculate, take responsibility and risk. (1) Personnel: the Company is completely independent in terms of labor, personnel and wage management; senior executives including general manager draw their remuneration in listed company, who do not take important post in shareholders’ unit. (2) Assets: the Company has independent production system, assistant production system and matching equipment; intangible assets such as industrial property, trademark, and non-patent technology are independently possessed by the Company; and has independent purchase and sale system. (3) Finance: the Company set independent financial accounting department, established independent accounting calculation system and financial management system, and independently open account in bank. (4) Organization: the board of directors, supervisory committee and other internal organization independently operate; holding shareholders and their functional department has no subordinate superior relationship with the Company and its functional department. (5) Business: the Company has independent and complete business and self-operation ability. IV. Special campaign of corporate governance According to the requirements of Notice on the Matter Concerning Carrying Out a Special Campaign to Strengthen the Corporate Governance of Listed Company (ZJGSZ [2007] No. 28) and Notice [2008] No. 27 issued by CSRC, the Company compared with relevant requirements to further promote special campaign of corporate governance on the basis of consolidating governance achievement in 2007. The Company mainly self-inspected problem of large shareholders and affiliated enterprises occupying capital of listed company, and put in self-inspection report, which did not find and capital occupying or other problem. According to reform suggestion of Hainan Securities Regulatory Bureau [2008] No. 124, the Company added independent directors; and in the 18th meeting of the 5th board of directors set Audit Committee, Remuneration and Examination Committee of the board of directors; established Working Instruction for Audit Committee of the Board of Directors and Working Instruction for Remuneration and Examination Committee of the Board of Directors. Till then, each work of special campaign of corporate governance and relevant reform were completely ended. The whole text of Explanation on Reform of Corporate Governance of Pearl River Holding was published on China Securities Journal on Jul. 30, 2008. V. Self-estimation of internal control of the Company (I) Summary of internal control (1) Overall estimation According to the Company Law, Securities Law, Code of Corporate Governance for Listed Company, Guidance for Internal Control of Listed Company of Shenzhen Stock Exchange and other national laws and regulations, combined with details of organization structure, business character and operation manner, Hainan Pearl River Holdings Co., Ltd. set complete internal control system including corporate governance, internal management and operation flow. In 2008, the Company combined with special campaign of corporate governance of listed company to further perfect self internal control system, and internal control system was greatly implemented. (2) Governance structure According to regulations of the Company Law, Guiding Opinions of Independent Directors, Articles of Association and other laws and regulations, the Company established and completed legal governance structure of Three Meetings - general shareholders’ meeting, meeting of the board of directors, meeting of supervisory committee, each performed its own function and operated canonically. The board of directors is constituted by 9 directors, including 3 independent directors, which take one third of the whole members. The supervisory committee is constituted by 3 supervisors, including 1 employees’ supervisor. (3) Organization structure of internal control Combined with actual conditions, according to different responsibility, the Company set functional department such as General Manager Office, Securities Department, Finance Department, Tourism Property Department, Management Department And Audit Department, and defined goal, responsibility and authority of each department and post; established relevant posts’ responsibility and control procedure of each level; each functional department had clear division, mutually cooperated and supervised to ensure the work instruction of the board of directors and senior executives could be strictly implemented. (4) Establishment and perfection of internal control system According to the requirements of Code of Corporate Governance for Listed Company and Guidance for Internal Control of Listed Company of Shenzhen Stock Exchange, the Company established and perfected each internal control system, including Articles of Association; rules of procedure for general shareholders’ meeting; the board of directors and supervisory committee; Information Disclosure Management System; External Guarantee Management System; Related Transaction Management System; Raised Capital Management System; Working Instruction for General Manager and Operation Team; Management Measure for Secondary Company; personnel management system, remuneration management system, contract management system, finance management system and administration management system, which covered whole operation management process of the Company and formed a standard and comprehensive internal control system. (5) Internal audit According to requirements of supervisory department, the Company set special internal audit department, equipped with professional internal audit personnel to take charge of internal audit and supervisal and inspection of internal control, and inspection and audit of operation of secondary company. (6) Significant activities for establishing and perfecting internal control in 2008 According to requirements of relevant regulations of CSRC and special campaign of corporate governance, in 2008, the Company set two special committees - Remuneration and Examination Committee, Audit Committee, established relevant working institutions and perfected decision-making mechanism of the board of directors. In 2008, the Company comprehensively perfected each internal control system, mainly grasped the implementation of internal control system, and made spot inspection and internal audit of operation management. (II) Main control activities of internal control (1) Internal control of subsidiary’s management: the Company set Management Department and Audit Department, established Management Measures for Secondary Companies to implement comprehensive and standard management. Except daily management, the Company organized to make overall inspection and internal audit in 2008. Holding proportion and controlling structure of subsidiaries held by the Company are as follows: Hainan Pearl River Holdings Co., Ltd. 88% 100% 98% 100% 100% Sanya Wanjia Hotel Hainan Pearl River Hainan Pearl River Management Co., Ltd. Sanya Wanjia Hubei Pearl River Real Enterprises Holdings Co., Property Hotel Investment Co., Ltd. Estate Development Co., Ltd. Shanghai Real Estate Management Co., Ltd. Ltd. 100% Co., Ltd. 100% 100% 100% 100% Hainan Pearl River Property Hainan Pearl River Hainan Pearl River Gardening Electromechanical Real-Estate Marking Engineering Co., Ltd. Engineering Co., Ltd. & Planning Co., Ltd. Wuahan Pearl River Meilin Hainan Pearl River Property Hotel Management Co., Ltd. Cleaning Co., Ltd. (2) Internal control of external guarantee: the Company established and completed External Guarantee Management System. The internal control of external guarantee followed the principles of legality, prudence, mutual benefit and safety. Independent directors seriously performed supervisory duties, and expressed independent opinions on external guarantee. The Company had no external guarantee in 2008. (3) Internal control of related transaction: the Company established and completed Related Transaction Management System, which made specified regulations of related transaction principle, related parties and their relationship, decision-making procedure and disclosed procedure of related transaction. The related transaction happened in each year was implemented strictly according to regulations of Related Transaction Management System. The Company had no related transaction in 2008. (4) Internal control of raised capital usage: the Company established and completed Raised Capital Management Measures, which comprehensively standardized raised capital usage and management. The Company had no raised capital usage in 2008. (5) Internal control of significant investment: each investment of the Company followed regulations of relevant laws, rules, Articles of Association and relevant systems; according to regulations of audit authority, strictly performed audit procedure of investment decision-making. (6) Internal control of information disclosure: the Company established Information Disclosure Management, which specified procedures of information disclosure, regulated internal report and disclosure procedure of significant information, established information disclosure principles of equality, exactness, timeliness and integrity, and further defined management and responsibility of information disclosure. (III) Problems in main control activities and reform plan (1) There was no significant problem or abnormal proceeding in main control activities in 2008. (2) In 2008, CSRC and Shenzhen Stock Exchange did not made public criticism or other punishment to the Company or relevant personnel on internal control. (3) According to reform suggestion proposed in special campaign of corporate governance by Hainan Securities Regulatory Bureau, the board of directors set Remuneration and Examination Committee and Audit Committee, and established relevant working instruction in 2008. (IV) Independent directors’ opinions Independent directors thought that, the Company had set perfect internal control system according to Guidance for Internal Control of Listed Company of Shenzhen Stock Exchange and other regulations, and had been effectively implemented. The self-estimation report of internal control truly and objectively reflected the establishment and operation of internal control system of the company. (V) Supervisory committee’s opinions Supervisory committee thought that, the Company had set comparatively perfect internal control system according to Guidance for Internal Control of Listed Company of Shenzhen Stock Exchange and other regulations, and had been effectively implemented. The self-estimation report of internal control truly and objectively reflected the establishment and operation of internal control system of the company. VI. The achievements evaluation and incentive mechanism for senior executives of the Company The Company made annual achievement evaluation to senior executives and middle-level cadres each year, and would further research to establish incentive mechanism. The Company did not implement equity incentive system. Section VII. Brief introduction of Shareholders’ General Meeting 1. The 1st Extraordinary Shareholders’ General Meeting of 2008 of the Company was held in the conference room, 29th floor, Royal Empire Building, Pearl River Plaza, Haikou city dated Jan 24th of 2008. Proposal on Change of CPAs was examined and approved in this meeting. Resolution of the meeting was published on China Securities Journal on Jan 25th of 2008. 2. The 2007 Shareholders’ General Meeting of the Company was held in the conference room, 29th floor, Royal Empire Building, Pearl River Plaza, Haikou city dated May 15th of 2008. The following resolutions were examined and approved in this meeting: (1) 2007 Working Report of the Board; (2) 2007 Annual Report; (3) 2007 Working Report of the Supervisory Committee; (4) 2007 Financial Settlement Report and Profit Distribution Preplan; (5) Proposal on Reengagement for CPAs; (6) Proposal on Entrust Operation of Days Hotel and Suite Sanya Resort. Resolution of the meeting was published on China Securities Journal on May 16th of 2008. 3. The 2nd Extraordinary Shareholders’ General Meeting of 2008 of the Company was held in the conference room, 29th floor, Royal Empire Building, Pearl River Plaza, Haikou city dated Jul 29th of 2008. Proposal on Adding Li Guangzhong as Independent Director was examined and approved in this meeting. Resolution of the meeting was published on China Securities Journal on Jul 30th of 2008. Section VIII. Report of the Board of Directors (I)Discussion and analysis of administration level: Review of operation of the Company in the report period 1. Keep sober in current situation and try the best to promote Wuhan Project The Company is mainly engaged in real estate development which means a significant pillar industry for the country and its people. Due to the spread of the global financial crisis in 2008, the industry also received unprecedented impact. In the first half year, overheated economy made steels and cement remaining with high price; as for the later half year, the situation was even worse that house price dropped a lot, while deals were harder and harder to make, making the lowest performance in recent years. However, the Company still took up a favorable position through this crisis, for that the Company was still in development phase, and only Wuhan project was input with great capital; other projects hadn’t been developed, locating in preparation phase. Moreover, due to hard efforts from all members of Hubei Pearl River, Meilin Qingcheng Phase-I project received a big success. It not only made material contribution to the Company in 2006 and 2007, but also set its good reputation in local as excellent property where citizen could disburden. It was not equal to compare between the phase-II Phoenix Tree Avenue and phase-I in aspects of developing, operation and sales environment, for high jumping-off point brought comparatively strong competition ability. An area of 113,033 square meters was programmed to use for Meilin Qingcheng phase-II Phoenix Tree Avenue Project, with 1,019 sets dwelling houses; separated to A and B regions with 12 buildings. Though experienced freezing and snowing at year-begin of 2008, the phase-II project was started for construction completely; at end of March, civil work for the two villas was finished; in May, reform construction of Land Park and Phoenix Tree Avenue were accomplished; at beginning of June, villas were accomplished with extract decoration, and sales center opened a business, 80 sets were subscribed since the launching; in July, constructions in region A were accomplished with structural roof-sealing; in October, they were directly put into market to stimulate sales and then to rapidly turn back capital; in November, constructions in region A were accomplished with inside and outside decoration, and complete structural roof-sealing for region B; till December, totally 350 sets houses were sold and approximately RMB 150 million capital was turned back. Rolling development plan for Wuhan project through a whole year was realized. At present, in Meilin Qingcheng, we can enjoy broad roads, covering of phoenix trees and camphor and complete matching equipments, especially the elementary school and kindergarten which have received warm welcome from the local citizen. In 2009, phase-II of Wuhan Project-Phoenix Tree Avenue would be completely finished, and would make contribution for the Company again with a new look of better quality. 2. Adjust strategy and make preparation for other projects Blind input for new project in such crisis environment would make the Company not able to shoulder for fund chain. The Company should do something and not do something, to respond to the challenge cautiously. Outline cooperation agreement on Hefei Project was ever approved in the 9th meeting of the 5th board of directors in July of 2007 that the Company planned to cooperate with Bengbu New District Development Co., Ltd. to develop Tianxia Jincheng project in Changqing town, Baohe district, Hefei city, by means of equity transfer. The board of directors of the Company released Notice on Relieving Cooperation Development for Hefei Project in October of 2008. For this project, no official equity transfer agreement has been reached, and relevant examine-and approve procedure has not been implemented. Cooperation has not been carried out officially. In consideration of the domestic and foreign macro environment as well as present status of real estate market, the Company thought that there were risks and uncertainties in Hefei project. With friend negotiation between the two involved parties, they decided to cancel this cooperation and no more official contract will be reached. RMB 60 million (paid by the actual controller of the Company- Beijing Xinxing Real Estate Development General Company instead of the Company) paid in initial period according to the outline agreement has been completely returned, and the other party even paid RMB 16.61 million as relevant capital occupancy fee to the Company in interest rate of 20%. The amount has gone to the Company’s account on Oct 15th, 2008. Investment amount in Hefei project was large, with single equity transfer amount approaching to RMB 150 million, so it was reasonable for the Company to relieve this cooperation in such situation, for risk-proof and stable operation. The prompt return of account paid in advance ensured interest of listed company, and profit arising from the capital occupancy fee could almost reach RMB 10 million after deducting relevant interest and tax. As for Longzhu Phase-III project, problem of adjustment in operation thought also existed. The People’s Government of Haikou city originally expected the Company to build a twins tower, with 2 buildings of 60 floors and in complete-steeled structure, as the landmark building to advance the city’s figure. In current situation, if starting the project, the Company should put huge investment in this project; moreover, the key point was that whether such top-grade office building could find market in Haikou. Incautious investment in big project would bring unrecoverable aftermath to listed company. In front of the current crisis, the Company had to rebalance the market orientation and programming for Longzhu phase-III project. The realistic thought was that: one of the two buildings was still kept as the landmark building, and the other part was constructed to dwelling houses and top-grade properties which received warm welcome in market; and combination of properties available for sale which could rapidly bring cash flow, and combination between short-term and long-term, to find the best balance point. Headquarter of Longzhu phase-III also accomplished abundant practical prophase works in 2008, including: demolition and relocation of the ground temporary buildings across more than 30,000 square meters; relocation of underground concealments such as optical cable for national security of the Army, optical cable of China Union and optical cable of China Netcom. Three Availables and One Accessible for the entire project were basically realized. In 2007, the board of directors approved to develop tourism property in Hainan, to construct relevant project of golf course. So, the Company continuously kept grope in 2008, and carried out hard and careful works for problem of land-taking. 3. Hold firm confidence and manage to increase income from operation of Sanya Hotel Days Hotel and Suite Sanya Resort, invested by Pearl River Holdings, is a tropical leisure garden-style hotel, featuring with complete function, excellent equipment, elegant decoration and covering of green vegetation. Located in Sanya bay development zone where beautiful scenery could be enjoyed, the hotel takes an area of 50 acres, facing the south, leaning against Phoenix Mountain, facing and approaching South China Sea. Its construction area is 27,000 square meters, with the dimension rate only being 0.59. Its virescence area reaches to 70%. The hotel totally owns 208 various rooms (including 3 villas); natural hotspring with temperature of 41 Celsius degree; is equipped with large-sized hotspring SPA zone; swimming pool and matching equipments over 1000 square meters. The Company entrusted the national famous hotel brand-Days Hotel Group (China) to fully operate and manage Days Hotel and Suite Sanya Resort which began official business since Dec 28th of 2007. Since its open, the hotel realized its first success in New Year's Day, Spring Festival and January-to-March of 2008. The operation income of the 1st quarter of 2008 reached at RMB 9.81 million and the average room-rent rate reached at 78.76%, the operation gross profit ratio was 35.04%. However, since March of 2008, due to Beijing Olympic, Earthquake happened in Wenchuan in May, the so-called tsunami prediction in July and the financial crisis started in September; tourism hotels in Sanya experienced an advanced cold winter. In 2008, Days Hotel and Suite Sanya Resort realized operation income of RMB 25.99 million and 14.99% for operation gross profit ratio which didn’t reach the predicted target. Due to the over loss of the hotel, performance of holdings company was directly influenced. As a newly-opened hotel, it is unavoidable to experience various difficulties. As its owner company, the Company should hold firm confidence, supervise and assistant the manager of the hotel to gradually set brand figure, and manage to increase operation income. With strong support from the owners, manager of the hotel actively developed top-oriented customer market, cultivated fixed customer source, promoted the hotel in domestic and foreign market, and strengthened propaganda by full use of various media; completely advocated team spirit, inspired activity and creation of employees and continuously advanced administration level. Unique geography location and superior hotel hardware are the premises for resort hotel to accomplish good operation performance. The Company has already provided such condition for its underlying Sanya Hotel, and has considered building phase-II project for the hotel, in order to expand scale and enhance benefit. The Company firmly believes that: once the owners and managers exploit together, effect in investing Days Hotel and Suite Sanya Resort by the Company will gradually show up one day. (II)Analysis on operation achievement and financial status Unit: RMB Increase or Item Jan. to Dec., 2008 Jan. to Dec., 2007 Note decrease (%) Houses of Wuhan project have not been presented, so Operation income 101,791,839 153,716,148 -33.78 sales income available for confirmation decreased. Input in advertisement for presale of Wuhan project Sales expense 13,847,053 5,299,270 161.30 phase-II increased Sanya Hotel was put into operation, so depreciation and Administration expense 49,279,060 27,824,696 77.11 daily administration expense increased Income from Wuhan project decreased, and operation Operation profit -86,367,328 -18,748,592 -360.66 expenditure for Sanya Hotel increased Income from Wuhan project decreased, and operation Net profit -79,777,149 -30,363,632 -162.74 expenditure for Sanya Hotel increased Net cash flow arising from operating Increased capital input in development for Wuhan project -66,035,246 -21,343,983 -209.39 activities phase-II Net cash flow arising from financing Newly-increased capital borrowed from banks and actual 21,044,152 143,496,594 -85.33 activities controllers decreased Increase or Item Dec 31st of 2008 Dec 31st of 2007 Note decrease (%) Shareholders’ equity 130,405,666 210,182,815 -37.96 The Company received loss in this year Increased capital input in development for Wuhan project Monetary capital 36,655,536 110,933,404 -66.96 phase-II The original attended-partner for Hefei project returned Other account receivable 78,377,980 136,775,883 -42.70 RMB 60 million Increased capital input in development for Wuhan project Inventory 514,360,073 348,303,141 47.68 phase-II Short-term loans 24,000,000 42,900,000 -44.06 Returned part short-term loans Engineering account paid for Sanya Hotel project and Account payable 32,924,423 64,703,932 -49.12 Wuhan project increased Account received in advance 142,957,606 2,957,172 4734.27 Account received from presale of Wuhan project phase-II Loan interests which have not been paid to shareholders Interest payable 69,783,832 37,742,134 84.90 and actual controllers increased Long-term loans 157,000,000 117,000,000 34.19 Subsidiary-Hubei Pearl River Company increased loans (III)Operation classified according to products and areas 1. Operation of products which account for 10% or above operation income and other main products Unit: RMB Increase or decrease of Increase or decrease of Increase or decrease of Classified according to Operation Gross profit ratio Operation cost operating income over that operating cost over that of operating profit ratio over that industries or products income (%) of last year (%) last year (%) of last year (%) Decrease 37.75 percentage 23,768,640 23,190,009 2.43 -77.78 -63.76 Sales of real estate points Service of property Increase 1.09 percentage 51,659,449 44,427,081 14.00 17.47 16.00 management points Decrease 25.68 percentage 25,985,614 22,090,213 14.99 2,360.79 3,426.17 Service of tourism hotel points 2. Operation classified according to areas Unit: RMB Increase or decrease of operating income over that of Area Operation income last year (%) Hainan 97,880,769 96.46 Hubei 1,652,934 -98.38 Shanghai 1,880,000 1,196.55 (IV)Operation and performance of main controlling companies and participation companies Registered Total Net Net Operation Equity Company capital assets assets profit income Business nature proportion (RMB’0000) (RMB’0000) (RMB’0000) (RMB’0000) (RMB’0000) Hainan Pearl River Property Hotel Service of property 500 98.00% 3200 835 1 4650 Management Co., Ltd. management Sanya Wanjia Hotel Management Co., Ltd. 10800 100.00% 28724 6274 -3764 2599 Service of hotel Hainan Pearl River Industry Co., Ltd. Shanghai 4000 100.00% 5557 -878 620 188 Real estate development Real Estate Company Hubei Pearl River Real Estate Development 6500 88.00% 39855 9353 -2636 83 Real estate development Co., Ltd. Services of culture and Sanya Wanjia Investment Co., Ltd. 2000 100.00% 1983 1802 -132 0 physical (V) Main suppliers and customers of the Company Proportion taken in total Total purchase amount from the top 5 suppliers RMB 67.56 million 37.53% purchase amount Proportion taken in total Total sales amount to the top 5 customers RMB 22.77 million 22.45% sales amount (VI) Investment of the Company 1. Investment in projects Return received from Amount of the Project Progress of the project the project(RMB’0000) project(RMB’0000) Wuhan Meilin Qingcheng 20915 Phase-II construction Naught 2. The Company did neither raised proceeds in this report period, nor did proceeds raised in previous period last to use in this year. (VII)Prospect of future development and operation plan for the following year In 2008, Pearl River Holdings realized stable operation in the complicated external environment, ensured various business to promote forward according to the requirements. Due to that a period shall be took to develop real estate, main business income and profit decreased and loss appeared in this year. In 2009, real estate industry would face an even more variable economic situation, so the Company would also face more griming examination for performance. Promoted by the national economic policies aiming to enlarging domestic need, ensuring growth and advancing development, Pearl River Holdings would try its best to turn over the loss and increase profit. The following works would be concentrated: 1. To ensure completion of Wuhan phase-II project and realize profit transfer Phoenix Tree Avenue, the phase-II project of Hubei Wuhan Meililng Qingcheng project, shouldered burden from many aspects in 2008, and development progress was finished as scheduled. 2009 was a year for Wuhan phase-II to receive fruits, with not only request on performance, but also time limit. 1,019 sets commercial houses in regions A and B are expected to complete in the 3rd quarter with guaranteed quality and quantity, in the scheduled time; and to be examined and accepted promptly; and finally to complete house deliver and realize profit transfer. For that, in one side, the Company should focus on project progress, ensure quality and continue to build excellent buildings; in other side, the Company should reinforce marketing strength, guarantee capital need through presale, play full advantage as a matured community equipped with excellent and almost-available houses under the price burden from surrounding markets, try the best to make price of house really symbolizing quality of the house and enhance profit from main business of the Company. 2. Improve management of Sanya Hotel and try to increase operation income After an operation across an entire year, Days Hotel and Suite Sanya Resort has won some local reputations for its excellent hardware equipments and exquisite external & internal environment, although it received loss in operation. In 2009, owners and managers of the hotel are supposed to unite their thoughts, be definite in marketing orientation of the hotel, strengthen sales externally, perfect and improve service internally, establish a management team with high diathesis and efficiency, hand in cost analysis report periodically, and strictly control operation cost. As the main owner of the hotel, Pearl River Holdings would do research on expansion feasibility of phase-II project. Therefore, it strengthened communication with relevant departments in aspect of programming. Once available to construct the phase-II project, the hotel would step forward in scale and benefit. 3. Continue to make good preparation for Longzhu phase-III project and redo market orientation Market orientation of Longzhu phase-III project should be redone in current economic situation. Efforts are expected to spend in investigation and research on dwelling house market and office building market in Haikou city. The primary point for top-grade property cutting in market should be found. The Company should control and solve project risks, and adjust programming design scheme according to the actual condition, to make sure that the operation of this project would become the significant profit source of the Company in future. (VIII)Routine works of the board of directors 1. Meetings and resolutions of the Board in the report period (1)The 13th meeting of the 5th board of directors was held on Jan 7th of 2008 by communications, and the following resolutions were reached: Examined and approved Proposal on Change of CPAs; Examined and approved Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting for 2008; Resolution of the meeting was published on China Securities Journal dated Jan 8th of 2008. (2)The 14th meeting of the 5th board of directors was held on Apr 14th of 2008 in Beijing, and the following resolutions were reached: Examined and approved Working Report of the Board for 2007; Examined and approved 2007 Annual Report and Summary; Examined and approved Financial Settlement Report and Profit Distribution Preplan for 2007; Examined and approved Proposal on Reengagement for CPAs; Examined and approved Working System of Independent Directors for Annual Report; Examined and approved Report on Withdrawal of Asset Devaluation Reserve; Examined and approved Proposal on Entrust Operation of Days Hotel and Suite Sanya Resort. Resolution of the meeting was published on China Securities Journal dated Apr 17th of 2008. (3)The 15th meeting of the 5th board of directors was held on Apr 24th of 2008 by communications, and the following resolution was reached: Examined and approved the 1st Quarterly Report for 2008. Resolution of the meeting was published on China Securities Journal dated Apr 26th of 2008. (4)The 16th meeting of the 5th board of directors was held on Jul 9th of 2008 by communications, and the following resolutions were reached: Examined and approved Proposal on Adding Independent Directors; Examined and approved Proposal on Establishing Special Committee of the Board as Quickly as Possible; Examined and approved Proposal on Holding the 2nd Extraordinary Shareholders’ General Meeting for 2008; Resolution of the meeting was published on China Securities Journal dated Jul 10th of 2008. (5)The 17th meeting of the 5th board of directors was held on Jul 16th of 2008 by communications, and the following resolution was reached: Examined and approved Proposal on Change of Secretary of the Board. Resolution of the meeting was published on China Securities Journal dated Jul 17th of 2008. (6)The 18th meeting of the 5th board of directors was held on Jul 29th of 2008 by communications, and the following resolutions were reached: Examined and approved Proposal on Establishing Special Committee of the Board; Examined and approved Working Procedure of Remuneration and Examination Committee of the Board of the Company; Examined and approved Working Procedure of Audit Committee of the Board of the Company; Examined and approved Explanation on Reform in Administration of the Company. Resolution of the meeting was published on China Securities Journal dated Jul 30th of 2008. (7)The 19th meeting of the 5th board of directors was held on Aug 14th of 2008 by communications, and the following resolution was reached: Examined and approved Semi-annual Report for 2008. Resolution of the meeting was published on China Securities Journal dated Aug 18th of 2008. (8)The 20th meeting of the 5th board of directors was held on Aug 22nd of 2008 by communications, and the following resolution was reached: Examined and approved Proposal on Exchange for the Newly-increased Shares of Chongqing Changjiang River Water Transport Co., Ltd with Equity of Southwest Securities Co., Ltd. Held by the Company. Resolution of the meeting was published on China Securities Journal dated Aug 26th of 2008. (9)The 21st meeting of the 5th board of directors was held on Oct 27th of 2008 by communications, and the following resolution was reached: Examined and approved the 3rd Quarterly Report for 2008. Resolution of the meeting was published on China Securities Journal dated Oct 28th of 2008. 2. Implementation of resolutions reached in Shareholders’ General Meeting by the Board In the report period, the Company has no profit distribution plan, shares allotment, additionally share offering scheme and equity incentive plan. 3. Duty performance of the Audit Committee of the Board The Audit Committee of the 5th Board of the Company consists of 2 independent directors and 1 director. The convener is accounting-specialized personnel. During the report period, according to requests from CSRC and Shenzhen Stock Exchange, as well as regulations of Working Procedure of Audit Committee made by the Company, the Audit Committee held 2 meetings to examine and approve the Semi-annual Report for 2008 and the 3rd Quarterly Report for 2008. According to the demand of CSRC, the Committee made Working Procedure of Audit Committee for Annual Report, and implemented its duty of supervision and inspection in auditing the 2008 Annual Report. Here comes the detail: (1)Before the certified public accountants entered for annual audit, the Committee negotiated with Daxin CPAs which was in charge of annual audit of the Company, and confirmed schedule arrangement and audit plan for auditing the 2008 financial statement of the Company. The Audit Committee made field research for Wuhan project in February of 2009 and heard report from administration level. (2)Before the certified public accountants entered for annual audit, the Committee checked the financial accounting statement prepared by the Company, and issued the following written opinion: according to relevant regulations on annual report works promulgated by CSRC and Working Procedure of Audit Committee of the Board, Hainan Pearl River Holdings Co., Ltd. prepared financial accounting statement and provided these statements to the Audit Committee for examination, before the certified public accountants entered for annual audit. And we checked and approved these statements issued by the Company, and agreed Daxin CPAs to carry out the 2008 annual audit work in accordance to the audit plan. (3)After the certified public accountants entered for audit, according to the audit plan and time arrangement confirmed for audit work of 2008 financial statement, the Committee communicated with main functionaries through phones and emails, supervised and urged the CPAs to finish audit as scheduled, thus to ensure normal disclosure of Annual Report. (4)After the CPAs issued initial audit opinion, independent directors in the Audit Committee performed its duty to meet and communicate with the certified public accountants. The Committee rechecked the financial accounting statement. The following resolutions on the annual financial statement were reached in meeting of the Audit Committee: the Audit Committee of the Board of Hainan Pearl River Holdings Co., Ltd. examined the 2008 financial accounting statement according to relevant regulations and working procedure for annual report of CSRC, and held that the statement objectively and really reflected financial condition and operation achievement for 2008, and agreed to hand in this statement to the Board for examination and discussion. (5)The Audit Committee made full inspection and objective appraisal on audit works offered by Daxin CPAs for the Company for 2008, and formed the following resolution on summary of the audit work and reengagement for next year: Audit works for 2008 of the Company was undertaken by Daxin CPAs, with charge of RMB 430,000. In accordance to relevant regulations of CSRC and working procedure for annual report, the Audit Committee conducted supervision and inspection on the audit works offered by the CPAs and its occupation quality. After that, the Committee thought that the certified public accountants of Daxin CPAs had conducted audit in strict accordance to regulation of independent audit principles for certified public accountants; the audit time was sufficient; audit personnel was rationally collocated and qualified with their task; the audit report issued by the CPAs could objectively and really reflected financial condition and operation achievement of Hainan Pearl River Holdings Co., Ltd. for 2008, and the audit conclusion accorded with actual status of the Company. Whereas the CPAs performed professional ability and diligent and responsible working spirit during the audit for the Company for 2008, the Committee proposed to the Board for reengagement of Daxin CPAs as the audit institute for the Company for 2009, and the detailed audit charge was decided by the Board. 4. Duty performance of Remuneration and Examination Committee of the Board The Remuneration and Examination Committee of the 5th Board of the Company consists of 2 independent directors and 1 director. The convener is independent director. In the report period, the Remuneration and Examination Committee could earnestly perform its duty according to regulations of Articles of Association, and Working Procedure for Remuneration and Examination Committee of the Board. The Committee checked remuneration policy, standard and examination of directors, supervisors and senior executives disclosed in the annual report of the Company, and believed that remuneration of directors, supervisors and senior executives of the Company for 2008 was issued in strict accordance to remuneration management system, and according with relevant regulation of laws and codes. (IX)Profit distribution preplan and preplan of stock capital conversion from public reserve preplan Due to loss in the report period, the Company conducted no distribution and conversion. (X)Newspapers appointed for information disclosure The newspapers appointed by the Company for information disclosure: China Securities Journal and Hong Kong Ta Kung Pao. Section IX. Report of supervisory committee (I) Work of the Supervisory Committee 1. The 6th meeting of the 5th supervisory committee was held on April 14, 2008 in Beijing, which discussed and approved resolutions as follows: (1) Working Report of Supervisory Committee in 2007; (2) Annual Report 2007 and Summary; (3) Financial Settlement Report and Profit Distribution Preplan; Resolutions of the meeting were published in China Securities on April 17, 2008. 2. The 7th meeting of the 5th supervisory committee was held on April 26, 2008 by communication, which discussed and approved the First Quarterly Report 2008. Tthe First Quarterly Report was published in China Securities on April 27, 2008. 3. The 8th meeting of the 5th supervisory committee was held on Aug. 14, 2008 by communication, which discussed and approved Semi-annual Report 2008. Semi-annual Report was published in China Securities on Aug. 18, 2008. 4. The 9th meeting of the 5th supervisory committee was held on Oct. 27, 2008 by communication, which discussed and approved the Third Quarterly Report 2008. The Third Quarterly Report was published in China Securities on Oct. 28, 2008. (II) Supervisory committee’s independent opinion on relevant proceedings 1. The supervisory committee supervised legal operation of the Company according to relevant laws and regulations of the state, and thought that, the decision-making procedure of the Company was legal; the Company had established perfect internal control system and was effectively implemented. 2. The supervisory committee thought that, directors, senior executives of the Company was diligent, serious and prudent when performing duties, without any behaviors of voilating laws, regulation, Articles of Association or hurting interests of the Company. 3. The supervisory committee inspected financial status of the Company, and thuoght that, the financial report audited by Daxin Certified Public Accountants truly and objectively reflected fianacial status and operation achievement of the Company. 4. The supervisory committee thought that, the self-estimation report of internal control truly and objectively reflected building and operation of internal control system. Section X. Significant events I. Significant lawsuit and arbitration (I) Basic conditions of significant lawsuit The Company published the following significant lawsuit on Dec. 4, 2007: On Mar. 15, 2007, the Company borrowed the loans RMB 130,000,000.00 from Chongqing Putian Communication Equipment Co., Ltd. with 6 months time limit and 6.804% lending rate per year. Because the Company didn’t compensate it exceeding the time limit, Chongqing Putian Communication Equipment Co., Ltd. (The accuser) lodged the civil lawsuit in Chongqing the 5th Intermediate People’s Court on Oct. 16, 2007, and requested Hainan Pearl River Holdings Co., Ltd. (The defendant) compensated the principal of RMB 130,000,000.000 and corresponding interest. Then the Company received the civil petition and Document No. 377 of civil ruling with (2007) YWZMCZi from Chongqing the 5th Intermediate People’s Court via e-mail on Nov. 30, 2007. The document No. 377 of civil ruling ordered that 75.00 million shares of Southwest Securities Co., Ltd. held by the Company was sealed up , in accordance with the application for property preservation from Chongqing Putian Communication Equipment Co., Ltd. (The accuser). (II) Development of the significant lawsuit Chongqing the 5th Intermediate People’s Court judged the lawsuit, and sent Document No. 377 of civil ruling with (2007) YWZMCZi on June 5, 2008 as follows: The defendant Hainan Pearl River Holdings Co., Ltd. should compensate principle sum of loan RMB 130 million to the accuser Chongqing Putian Telecommunications Co., Ltd. within 10 days since the judgment begin to have force effect, and the capital occupancy loss is calculated as annual interests rate 6.80% since Sep.21, 2007 till the principle sum is paid off. The total fee of the case RMB 701,960 including the court acceptance fee RMB 696,960 and Attachment fee RMB 5,000, was paid by the defendant Hainan Pearl River Holdings Co., Ltd. The case is in the execute phase, and the pledge would be publicly sold to execute payment of the account. In the report period, there was no result of the execution. The notice on the development of the lawsuit was published in China Securities on Aug. 6, 2008. II. In the report period, there was no bankruptcy and recombination proceeding. III. Securities investment, holding equity of other listed companies and financial enterprises including share participating of commercial banks (I) In the report period, the Company had no securities investment or income, and did not hold equity of other listed companies. (II) In the report period, the Company held equity of fianancial enterprises as follows: Gain and Proportion in Changes in Initial invest Book value at loss in Accounting Name of the equity Held amount the equity of equity in the Equity resource amount period-end the report calculation title this company report period period Equity of Southwest 75 million long-term RMB 15 million 3.21% 68,000,451.80 Directly investment Securities shares investment IV. In the report period the Company had no purchase and sale of assets, takeover and merger. V. In the report period, the Company had no equity incentive plan. VI. Related transaction (I) In the report period, the Company had no significant related transaction or related transaction related with daily operation. (II) Related Creditor’s rights and liability Funds the listed company providing for Funds the related party providing for the listed company the related party Related parties Relationship Occurring Balance Occurring amount Balance amount Beijing Xinxing Real Estate Development Controlling shareholder of -49,470,000.00 154,690,447.00 General Company the first largest shareholder Beijing Wanfa Real Estate Development Co., The first largest shareholder 3,200,000.00 75,225,000.00 Ltd. of Company Beijing Yulong Jisheng Real Estate Co., Ltd. Controlled by the same party 0.00 1,500,000.00 Bohua Assets Administration Co., Ltd. Controlled by the same party -3,200,000.00 0.00 Total -49,470,000.00 231,415,447.00 Including: in the report perod, listed companies provided occurring amount RMB 0.00 and balance RMB 0.00 for holding shareholders and subsidiaries. (III) In the report period, there was no capital occupancy or clearing up arrears. VII. Significant contract and implementation (I) In the report period, the Company did not sign any significant contract. (II) In the report period, the Company had no entrustment, contract or leasing procedding. (III) In the report period, the Company had no significant guarantee proceeding. (IV) In the report period, the Company had not entrustment of assets management proceeding. VIII. Special explanation and independent opinions of independent directors on capital occupancy and external guarantee of related parties Independent directors of the Company expressed sSpecial explanation and independent opinions on capital occupancy and external guarantee of related parties as follows: (I) In 2008, the Company did not provide guarantee for holding shareholders, other related parties who held less than 50% equity, entity without legal personality or individuals; (II) The Company had no external guarantee happened in the past year and lasted to the end of 2008; (III) Till Dec. 31, 2008, there was no capital occupancy of holding shareholders and other related parties. IX. In the report period, the Company or shareholders holding above 5% shares had no commitment. Commitment of the original non-tradable shareholders of the Company in share merger reform and implementation Name of shareholders Special commitment Implementation Held non-tradable shares would not be sold in Stock Exchangeat least within 36 Beijing Wanfa Strictly implemented months since obtaining the right for circulation in A share market. X. Engagement, disengagement of Certified Public Accountants and remuneration payment in the report period Daxin Certified Public Accountants was engaged to take charge of the audit work for the Company in 2008, with remuneration of RMB 430,000. Daxin Certified Public Accountants had provided auditing services for the Company since 2007. XI. In the report period, the Company and its directors, supervisors, senior executives and actual controllers have not received check and administrative penalty from China Securities Regulatory Commission, public criticize from the securities exchange, and other administrative punishment. XII. In the report period, the Company made information disclosure and relevant work according to equality principle, with no reception of investors’ research and interview. Section XI. Financial Statement (Attachment) Section XII. Document available for reference I. Text of the financial report carrying the signatures and seals of the legal representative, financial principal and person in charge of accouting; II. Original of the Auditors’ Report carrying the seal of CPAs and the signatures and seals of the certified public accountants; III. Original of the documents of the Company and public notices publicly disclosed on the newspapers designated by CSRC in the report period. Auditors’ report Daxin Shen Zi (2009) No.1-1024 To the shareholders of HaiNan Pearl River Holdings Co., Ltd., We have audited the accompanying financial statements of HaiNan Pearl River Holdings Co., Ltd. (“the Company”), including balance sheet and consolidated balance sheet of 31 December 2008, and profit statement and consolidated profit statement, and cash flow statement and consolidated cash flow statement and statement on changes of shareholders’ equity and consolidated statement on changes of shareholders’ equity 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. Daxin Certified Public Accountants Beijing, P.R.C China Accountant: Chen xinhiu China Accountant: Zou Chongbo April 24, 2009 Consolidated Balance Sheet Prepared by HaiNan Pearl River Holdings Co., Ltd. Dec. 31, 2008 Unit: RMB Balance at Items Notes Balance at year-begin period-end Current assets: Monetary funds V.(1) 36,655,536.17 110,933,403.84 Settlement provisions Capital lent Transaction finance asset Notes receivable Accounts receivable V.(2) 4,129,361.34 2,574,234.70 Accounts paid in advance V.(3) 28,251,517.83 24,141,033.43 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Dividend receivable 260,015.00 260,015.00 Other receivables V.(4) 33,822,326.10 95,953,771.19 Purchase restituted finance asset Inventories V.(5) 454,982,865.16 286,795,984.18 Non-current asset due within one year Other current assets Total current assets 558,101,621.60 520,658,442.34 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity investment V.(6) 81,154,403.04 81,106,599.76 Investment property V.(7) 21,668,361.96 19,655,005.82 Fixed assets: V.(8) 280,665,887.45 281,825,967.73 Construction in progress V.(9) 3,042,163.40 Engineering material 606,206.60 606,206.60 Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets V.(10) 32,926,433.55 32,272,852.44 Expense on Research and Development Goodwill Long-term expenses to be apportioned Deferred income tax asset Other non-current asset Total non-current asset 417,021,292.60 418,508,795.75 Total assets 975,122,914.20 939,167,238.09 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Consolidated Balance Sheet (Con.) Prepared by HaiNan Pearl River Holdings Co., Ltd. Dec. 31, 2008 Unit: RMB Items Notes Balance at period-end Balance at year-begin Current liabilities: Short-term loans V.(13) 24,000,000.00 42,900,000.00 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable Accounts payable V.(14) 32,924,422.72 64,703,931.72 Accounts received in advance V.(15) 142,957,606.19 2,957,171.99 Selling financial asset of repurchase Commission charge and commission payable Wage payable V.(16) 4,026,386.21 2,737,249.57 Taxes payable V.(17) 2,503,332.27 7,993,661.33 Interest payable V.(18) 69,783,831.76 37,742,133.73 Dividend payable 3,213,302.88 3,213,302.88 Other accounts payable V.(19) 403,308,365.93 449,736,971.73 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Non-current liabilities due within 1 year V.(20) 5,000,000.00 Other current liabilities Total current liabilities 687,717,247.96 611,984,422.95 Non-current liabilities: Long-term loans V.(21) 157,000,000.00 117,000,000.00 Bonds payable Long-term account payable Special accounts payable Projected liabilities Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 157,000,000.00 117,000,000.00 Total liabilities 844,717,247.96 728,984,422.95 Owner’s equity Share capital V.(22) 426,745,404.00 426,745,404.00 Capital public reserve V.(23) 334,260,156.98 334,260,156.98 Less: Inventory shares Surplus public reserve V.(24) 114,177,485.88 114,177,485.88 Retained profit V.(25) -756,096,515.01 -679,492,733.72 Balance difference of foreign currency translation Total owner’s equity attributable to parent company 119,086,531.85 195,690,313.14 Minority shareholders’ interests 11,319,134.39 14,492,502.00 Total shareholders’ equity 130,405,666.24 210,182,815.14 Total liabilities and shareholders’ equity 975,122,914.20 939,167,238.09 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Consolidated Profit Statement Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Items Notes Amount in this Amount in last report period report period I. Total operating income 101,791,839.28 153,716,147.93 Including: Operating income V.(26) 101,791,839.28 153,716,147.93 Interest income Insurance gained Commission charge and commission income II. Total operating cost 188,206,970.28 172,830,440.30 Including: Operating cost V.(26) 89,795,441.30 103,742,044.42 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 V.(27) 12,424,553.31 11,258,127.86 Sales expenses V.(28) 13,847,053.41 5,299,270.10 Administration expenses V.(29) 49,279,060.03 27,824,695.80 Financial expenses V.(30) 18,766,135.75 17,648,564.56 Losses of devaluation of asset V.(31) 4,094,726.48 7,057,737.56 Add: Changing income of fair value(Loss is listed with “-”) Investment income (Loss is listed with “-”) V.(32) 47,803.28 365,700.67 Including: Investment income on affiliated company and joint venture 47,803.28 297,870.67 Exchange income (Loss is listed with “-”) III. Operating profit (Loss is listed with “-”) -86,367,327.72 -18,748,591.70 Add: Non-operating income V.(33) 8,057,779.58 862,466.25 Less: Non-operating expense V.(34) 865,080.23 729,801.72 Including: Disposal loss of non-current asset 26,560.13 78,521.70 IV. Total Profit (Loss is listed with “-”) -79,174,628.37 -18,615,927.17 Less: Income tax V.(35) 602,520.53 11,747,704.97 V. Net profit (Net loss is listed with “-”) -79,777,148.90 -30,363,632.14 Net profit attributable to owner’s equity of parent company -76,603,781.29 -31,199,957.08 Minority shareholders’ gains and losses -3,173,367.61 836,324.94 VI. Earnings per share i. Basic earnings per share (RMB/Share) -0.18 -0.07 ii. Diluted earnings per share (RMB/Share) -0.18 -0.07 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Consolidated Cash Flow Statement Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in this Items Notes Amount in last report period report period I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor services 233,142,581.27 146,735,903.24 Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commission Net increase of capital borrowed Net increase of returned business capital Write-back of tax received Other cash received concerning operating activities V.(36) 36,974,247.39 7,140,650.33 Subtotal of cash inflow arising from operating activities 270,116,828.66 153,876,553.57 Cash paid for purchasing commodities and receiving labor service 248,900,892.96 100,313,157.06 Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of guarantee slip Cash paid to/for staff and workers 44,943,198.94 28,552,597.99 Taxes paid 23,336,181.24 28,311,533.45 Other cash paid concerning operating activities V.(36) 18,971,801.48 18,043,248.17 Subtotal of cash outflow arising from operating activities 336,152,074.62 175,220,536.67 Net cash flows arising from operating activities -66,035,245.96 -21,343,983.10 II. Cash flows arising from investing activities: Cash received from recovering investment Cash received from investment income Net cash received from disposal of fixed, intangible and other long-term assets 78,690.00 395,450.00 Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow from investing activities 78,690.00 395,450.00 Cash paid for purchasing fixed, intangible and other long-term assets 37,463,525.53 29,365,463.54 Cash paid for investment Net increase of mortgaged loans Net cash received from subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow from investing activities 29,365,463.54 37,463,525.53 Net cash flows arising from investing activities -37,068,075.53 -29,286,773.54 III. Cash flows arising from financing activities Cash received from absorbing investment Including: Cash received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans V.(36) 114,530,000.00 414,275,000.00 Cash received from issuing bonds Other cash received concerning financing activities Subtotal of cash inflow from financing activities 114,530,000.00 414,275,000.00 Cash paid for settling debts V.(36) 77,900,000.00 259,070,000.00 Cash paid for dividend and profit distributing or interest paying 15,546,612.17 11,633,185.82 Including: Dividend and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing activities 39,236.00 75,220.66 Subtotal of cash outflow from financing activities 93,485,848.17 270,778,406.48 Net cash flows arising from financing activities 21,044,151.83 143,496,593.52 IV. Influence on cash due to fluctuation in exchange rate V. Net increase of cash and cash equivalents -74,277,867.67 85,084,534.89 Add: Balance of cash and cash equivalents at the period -begin 110,933,403.84 25,848,868.95 VI. Balance of cash and cash equivalents at the period -end 36,655,536.17 110,933,403.84 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Consolidated Statement on Changes of Owners’ Equity Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in this report period Owners’ equity attributable to the parent company Items Minority Total owners’ Less: General Capital Surplus interest equity Share capital Treasury risk Retained profit Others reserves reserves Stock provision I. Balance at the end of the 426,745,404.00 334,260,156.98 114,177,485.88 -679,492,733.72 14,492,502.00 210,182,815.14 last year Add: Retroactive adjustment occured in enterprise merger under the common control Changes of accounting policy Error correction of the last period Others II. Balance at the beginning 426,745,404.00 334,260,156.98 114,177,485.88 -679,492,733.72 14,492,502.00 210,182,815.14 of this year III. Increase/ Decrease in this year (Decrease is listed -76,603,781.29 -3,173,367.61 -79,777,148.90 with'"-") (I) Net profit -76,603,781.29 -3,173,367.61 -79,777,148.90 (II) Profits and losses calculating into owners' equity directly 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3. Effect of income tax related to owners' equity 4. Others Total of (I) and (II) -76,603,781.29 -3,173,367.61 -79,777,148.90 (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 426,745,404.00 334,260,156.98 114,177,485.88 -756,096,515.01 11,319,134.39 130,405,666.24 report period Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Consolidated Statement on Changes of Owners’ Equity (Con.) Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in the same period of last year Items Owners’ equity attributable to the parent company Minority Total owners’ Capital Less: Surplus General risk interest equity Share capital reserves Treasury reserves provision Retained profit Others Stock I. Balance at the end of 426,745,404.00 334,260,156.98 114,177,485.88 -634,334,182.69 -13,958,593.95 13,649,752.51 240,540,022.73 the last year Add: Retroactive adjustment occured in enterprise merger under the common control Changes of accounting -13,958,593.95 13,958,593.95 6,424.55 6,424.55 policy Error correction of the last period Others II. Balance at the 426,745,404.00 334,260,156.98 114,177,485.88 -648,292,776.64 13,656,177.06 240,546,447.28 beginning of this year III. Increase/ Decrease in this year (Decrease is -31,199,957.08 836,324.94 -30,363,632.14 listed with'"-") (I) Net profit -31,199,957.08 836,324.94 -30,363,632.14 (II) Profits and losses calculating into owners' equity directly 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3. Effect of income tax related to owners' equity 4. Others Total of (I) and (II) -31,199,957.08 836,324.94 -30,363,632.14 (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 426,745,404.00 334,260,156.98 114,177,485.88 -679,492,733.72 14,492,502.00 210,182,815.14 of this report period Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Balance Sheet of Parent Company Prepared by HaiNan Pearl River Holdings Co., Ltd. Dec. 31, 2008 Unit: RMB Items Notes Balance at period-end Balance at year-begin Current assets: Monetary funds 4,869,795.27 2,188,333.46 Transaction finance asset Notes receivable Accounts receivable VI.(1) 2,675,761.66 2,254,318.60 Accounts paid in advance 3,612,122.00 Interest receivable Dividend receivable 260,015.00 260,015.00 Other receivables VI.(2) 60,334,145.29 126,706,272.29 Inventories 81,860,455.91 97,849,732.24 Non-current asset due within one year Other current assets Total current assets 150,000,173.13 232,870,793.59 Non-current assets: Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity investment VI.(3) 269,511,761.70 269,511,761.70 Investment property Fixed assets 22,340,376.54 13,769,867.95 Construction in progress 3,042,163.40 Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 1,743,695.16 1,795,268.80 Expense on Research and Development Goodwill Long-term expenses to be apportioned Deferred income tax asset Other non-current asset Total non-current asset 293,595,833.40 288,119,061.85 Total assets 443,596,006.53 520,989,855.44 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Balance Sheet of Parent Company(Con.) Prepared by HaiNan Pearl River Holdings Co., Ltd. Dec. 31, 2008 Unit: RMB Items Notes Balance at period-end Balance at year-begin Current liabilities: Short-term loans 24,000,000.00 42,900,000.00 Transaction financial liabilities Notes payable Accounts payable 4,200,330.44 3,220,218.99 Accounts received in advance 36,167.00 15,000.00 Wage payable 957,127.11 897,002.47 Taxes payable -2,087,904.47 -3,250,149.80 Interest payable 40,928,604.71 20,792,361.40 Dividend payable 3,213,302.88 3,213,302.88 Other accounts payable 240,018,631.52 299,780,953.18 Non-current liabilities due within 1 year Other current liabilities Total current liabilities 311,266,259.19 367,568,689.12 Non-current liabilities: Long-term loans Bonds payable Long-term account payable Special accounts payable Projected liabilities Deferred income tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 311,266,259.19 367,568,689.12 Shareholders’equity Share capital 426,745,404.00 426,745,404.00 Capital public reserve 337,276,496.52 337,276,496.52 Less: Inventory shares Surplus public reserve 109,487,064.39 109,487,064.39 Retained profit -741,179,217.57 -720,087,798.59 Total shareholder’s equity 132,329,747.34 153,421,166.32 Total liabilities and shareholder’s equity 443,596,006.53 520,989,855.44 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Profit Statement of Parent Company Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Items Notes Amount in this period Amount in last period I. Sales Income VI.(4) 20,613,843.16 6,498,295.56 Less: Business costs VI.(4) 20,858,479.84 6,302,366.79 Business taxes and surtax 2,047,525.22 357,406.29 Sales expenses 26,153.14 382,768.50 Administration expenses 10,879,091.01 10,811,368.16 Financial expenses 6,338,829.79 16,506,112.19 Losses of devaluation of asset 2,358,762.00 5,289,546.28 Add: Changing income of fair value(Loss is listed with “-”) Investment income (Loss is listed with “-”) VI.(5) 67,830.00 Including: Investment income on affiliated company and joint venture II. Operating profit (Loss is listed with “-”) -21,894,997.84 -33,083,442.65 Add: Non-operating income 816,300.00 672,628.20 Less: Non-operating expense 12,721.14 48,970.05 Including: Disposal loss of non-current asset 12,721.14 40,970.05 III. Total Profit (Loss is listed with “-”) -21,091,418.98 -32,459,784.50 Less: Income tax IV. Net profit (Net loss is listed with “-”) -21,091,418.98 -32,459,784.50 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Cash Flow Statement of Parent Company Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in this report Amount in last report Items Notes period period I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor services 19,660,811.92 7,214,220.61 Write-back of tax received Other cash received concerning operating activities 19,749,867.09 54,117,215.91 Subtotal of cash inflow arising from operating activities 39,410,679.01 61,331,436.52 Cash paid for purchasing commodities and receiving labor service 4,424,881.39 3,322,336.29 Cash paid to/for staff and workers 3,437,354.01 2,792,221.13 Taxes paid 1,765,370.21 864,965.05 Other cash paid concerning operating activities 7,606,869.77 7,310,860.78 Subtotal of cash outflow arising from operating activities 17,234,475.38 14,290,383.25 Net cash flows arising from operating activities 22,176,203.63 47,041,053.27 II. Cash flows arising from investing activities: Cash received from recovering investment Cash from obtaining investment income Net cash received from disposal of fixed, intangible and other long-term assets 1,250.00 152,250.00 Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow from investing activities 1,250.00 152,250.00 Cash paid for purchasing fixed, intangible and other long-term assets 1,481,489.00 4,071,765.50 Cash paid for investment 60,000,000.00 Net cash paid for subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow from investing activities 1,481,489.00 64,071,765.50 Net cash flows arising from investing activities -1,480,239.00 -63,919,515.50 III. Cash flows arising from financing activities Cash received from absorbing investment Cash received from loans 37,700,000.00 238,375,000.00 Other cash received concerning investing activities Subtotal of cash inflow from financing activities 37,700,000.00 238,375,000.00 Cash paid for settling debts 52,900,000.00 210,880,000.00 Cash paid for dividend and profit distributing or interest paying 2,775,266.82 9,300,105.50 Other cash paid concerning financing activities 39,236.00 75,220.66 Subtotal of cash outflow from financing activities 55,714,502.82 220,255,326.16 Net cash flows arising from financing activities -18,014,502.82 18,119,673.84 IV. Influence on cash due to fluctuation in exchange rate V. Net increase of cash and cash equivalents 2,681,461.81 1,241,211.61 Add: Balance of cash and cash equivalents at the period -begin 2,188,333.46 947,121.85 VI. Balance of cash and cash equivalents at the period–end 4,869,795.27 2,188,333.46 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Statement on Changes of Owners’ Equity of Parent Company Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in this report period Items Less: Capital Surplus Share capital Treasury Total owners’ equity Share capital reserves reserves Stock I. Balance at the end of the 426,745,404.00 337,276,496.52 109,487,064.39 -720,087,798.59 153,421,166.32 last year Add: Changes of accounting policy Error correction of the last period Others II. Balance at the beginning 426,745,404.00 337,276,496.52 109,487,064.39 -720,087,798.59 153,421,166.32 of this year III. Increase/ Decrease in this year (Decrease is listed -21,091,418.98 -21,091,418.98 with'"-") (I) Net profit -21,091,418.98 -21,091,418.98 (II) Profits and losses calculating into owners' equity 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3. Effect of income tax related to owners' equity 4. Others Total of (I) and (II) -21,091,418.98 -21,091,418.98 (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. Distribution for owners (shareholders) 3. 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 426,745,404.00 337,276,496.52 109,487,064.39 -741,179,217.57 132,329,747.34 this report period Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Statement on Changes of Owners’ Equity of Parent Company(Con.) Prepared by HaiNan Pearl River Holdings Co., Ltd. 2008 Unit: RMB Amount in the same period of last year Less: Items Capital Surplus Total owners’ Share capital Treasury Retained profit reserves reserves equity Stock I. Balance at the end of the last year 426,745,404.00 337,276,496.52 109,487,064.39 -643,533,304.26 229,975,660.65 Add: Changes of accounting policy -44,094,709.83 -44,094,709.83 Error correction of the last period Others II. Balance at the beginning of this year 426,745,404.00 337,276,496.52 109,487,064.39 -687,628,014.09 185,880,950.82 III. Increase/ Decrease in this year (Decrease is listed with'"-") -32,459,784.50 -32,459,784.50 (I) Net profit -32,459,784.50 -32,459,784.50 (II) Profits and losses calculating into owners' equity 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 3. Effect of income tax related to owners' equity 4. Others Total of (I) and (II) -32,459,784.50 -32,459,784.50 (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. Distribution for owners (shareholders) 3. 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 report period 426,745,404.00 337,276,496.52 109,487,064.39 -720,087,798.59 153,421,166.32 Legal Representative: Zheng Qing Person in Charge of Accounting Works: Chen Binglian Person in Charge of Accounting Institution: Yang Daoliang Hainan Pearl River Holding Company Limited Notes on the Financial Statements for the Year ended 31 December 2008 (All amounts are stated in RMB Yuan unless otherwise stated) I. General information The old name of Hainan Pearl River Holding Company Limited (the "Company") was Hainan Pearl River Industry Company Limited. Hainan Provincial People's Government Office approved the reorganization of the Company into a joint stock limited company according to the document of Qiong Fu Ban [1992] No.1. The Company was registered in Hainan Administration for Industry and Commerce in January 1992 The Company issued 21,086,400 shares of RMB common stock to the public and was listed on Shenzhen Stock Exchange according to the document of securities administration office [1992] No. 83 of the People's Bank of China in December 1992. The Company issued the domestic listing foreign capital stock (B-share) with the approval of China Securities Regulatory Commission in June 1995. The Company changed to present name in January 2000. In August 2006, the Company increased stocks with capital surplus to all shareholders, and the registered capital was changed to 426,745,400 Yuan from 377,650,800 Yuan. The business license number: 4600001006830 Office address: 29/F., Dihao Building, Pearl River Plaza, Binhai Avenue, Haikou, Hainan, the PRC. Corporate representative: Zheng Qing The operation scope: Industrial investment, tropical farming, aquaculture, real estate development and management, hotel investment and management, material supply, construction equipment purchasing, leasing, hardware, chemical, trade of household items, decoration, vehicle parking, and high-tech investment projects, investment in environmental protection projects, investment advice. The company mainly engaged in real estate development and property management, which belong to real estate aspect. The Company's basic organizational structure: General meeting of shareholders is the highest organ of power. Board of directors is the executing agency. Supervisory board is the Company's internal auditing agency. General Manager is responsible for the Company's daily operational management. There are General Manager Office, Securities Department, Tourism Real Estate Department, Financial Department, Management Department, Auditing Department and others in the Company. II. Accounting policies, accounting estimates and error correction of previous years 1. Announcement about compliance with Accounting Standards for Business Enterprises The Company’s financial statements are prepared in accordance with the requirements of the Accounting Standards for Business Enterprises, and they fairly and completely present the financial position, operation results, cash flow and other relevant information of the Company. 2. Preparation basis of financial statement Preparation of the financial statements is based on going concern postulate. Recognition and measurement comply with actual transactions or events, and the Company prepares financial statements on these bases. 3. Accounting year Accounting year of the Group is the calendar year from January 1 to December 31. 4. Reporting currency The Company’s reporting and presentation currency is the Renminbi (“RMB”). 5. Accounting measurement characters The main measurement method of financial statements’ items is history cost system. Financial assets and financial liabilities that measured by fair value and changes recorded into current profit and loss, and financial assets available for sale and derivative instrument are measured by fair value. Purchasing inventory and fixed assets that exceed normal credit terms deferred payment are measured by present value of purchase price. Stocks occurring impairment losses are measured by net realizable value. Other impairment assets are measured by recoverable amount (the higher one between fair value and present value). Surplus assets are measured by the replacement cost. 6. Cash and Cash equivalents Cash refers to cash on hand and demand deposits. “Cash equivalents” refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk on change in value. 7. Foreign currency transactions Foreign currency (currency other than the reporting currency) transactions are translated into reporting currency at spot exchange rates prevailing on the day in which the transactions take place. Monetary items are adjusted according to spot exchange rates at the balance sheet date. The exchange balance on foreign currency shall be capitalized and recorded into the cost of relevant assets if it is eligible for capitalization; other exchange balance on foreign currency shall be recorded into current profit and loss. Foreign currency non-monetary items measured with history cost are translated into reporting currency at spot exchange rates on the occurrence date. Foreign currency non-monetary items measured with fair value are translated into reporting currency at spot exchange rates of fair value confirming date; the difference is recorded as the changes in the profit and loss of fair value. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are translated into reporting currency at spot exchange rates on the occurrence date except the item of undistributed profits. Income Statement items are translated into reporting currency at spot exchange rate on the occurrence date. The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. 8. Financial Instruments (1) Classification of financial assets and financial liabilities Financial assets shall be classified into the following four categories when they are initially recognized: the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and the financial assets which are measured at their fair values and of which the variation is included in the current profits and losses; held-to-maturity investments; loans and account receivables; available-for-sale financial assets. Financial liabilities shall be classified into the following two categories when they are initially recognized: the financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; and other financial liabilities. (2) Recognition and measurement of financial instruments When an enterprise becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. The financial assets and financial liabilities initially recognized by an enterprise except loans and account receivables shall be measured at their fair values; loans and account receivables initially recognized by an enterprise shall be measured at price in the contract or agreement. For the financial assets and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, the transaction expenses thereof shall be directly recorded into the profits and losses of the current period; for other categories of financial assets and financial liabilities, the transaction expenses thereof shall be included into the initially recognized amount. An enterprise shall make subsequent measurement on its financial assets according to their fair values, and may not deduct the transaction expenses that may occur when it disposes of the said financial asset in the future. However, those under the following circumstances shall be excluded: a. The investments held until their maturity, loans and accounts receivable shall be measured on the basis of the post-amortization costs by adopting the actual interest rate method; b. The equity whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. An enterprise shall make subsequent measurement on its financial liabilities on the basis of the post-amortization costs by adopting the actual interest rate method, with the exception of those under the following circumstances: a. For the financial liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, they shall be measured at their fair values, and none of the transaction expenses may be deducted, which may occur when the financial liabilities are settled in the future. b. For the derivative financial liabilities, which are connected to the equity instrument for which there is no quotation in the active market and whose fair value cannot be reliably measured, and which must be settled by delivering the equity instrument, they shall be measured on the basis of their costs. c. For the financial guarantee contracts which are not designated as a financial liability measured at its fair value and the variation thereof is recorded into the profits and losses of the current period, and for the commitments to grant loans which are not designated to be measured at the fair value and of which the variation is recorded into the profits and losses of the current period and which will enjoy an interest rate lower than that of the market, a subsequent measurement shall be made after they are initially recognized according to the higher one of the following: the best estimation required to pay when carrying out the prevailing obligations, and initially recognized amount deducting accumulative amortization which adopts the actual interest rate method. (3) Recognition and measurement of transfer of financial assets Where an enterprise has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee, it shall stop recognizing the financial asset. If it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall not stop recognizing the financial asset. Where an enterprise does not transfer or retain nearly all of the risks and rewards related to the ownership of a financial asset, it shall deal with it according to the circumstances as follows, respectively: a. If it gives up its control over the financial asset, it shall stop recognizing the financial asset; b. If it does not give up its control involvement in the transferred financial asset, recognize the related financial asset and recognize the relevant liability accordingly. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following 2 items shall be recorded in the profits and losses of the current period: a. The book value of the transferred financial asset; b. The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the entire book value of the transferred financial asset shall, between the portion whose recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative fair value, and the difference between the amounts of the following 2 items shall be included into the profits and losses of the current period : a. The book value of the portion whose recognition has been stopped; b. The sum of consideration of the portion whose recognition has been stopped, and the portion of the accumulative amount of the changes in the fair value originally recorded in the owner's equities which is corresponding to the portion whose recognition has been stopped. (4) Determination of the fair value of main financial assets and financial liabilities As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. As for the financial assets initially obtained or produced at source and the financial liabilities assumed, the fair value thereof shall be determined on the basis of the transaction price of the market. (5) Impairment of financial assets An enterprise shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. An impairment test shall be made on the financial assets with significant single amounts. With regard to the financial assets with insignificant single amounts, they shall be included in a combination of financial assets with similar credit risk features so as to carry out an impairment-related test. Where, upon independent test, the financial asset (including those financial assets with significant single amounts and those with insignificant amounts) has not been impaired, it shall be included in a combination of financial assets with similar risk features so as to conduct another impairment test. Where a financial asset measured on the basis of post-amortization costs is impaired, the carrying amount of the said financial asset shall be written down to the current value of the predicted future cash flow (excluding the loss of future credits not yet occurred), and the amount as written down shall be recognized as loss of the impairment of the asset. Where there is a very small gap between the predicted future cash flow of a short-term account receivable item and the current value thereof, the predicted future cash flow is not required to be capitalized when determining the relevant impairment-related losses. Where an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or a derivative financial asset which is connected with the equity instrument and which must be settled by delivering the equity instrument, suffers from any impairment, the gap between the carrying amount of the equity instrument investment or the derivative financial asset and the current value of the future cash flow of similar financial assets capitalized according to the returns ratio of the market at the same time shall be recognized as impairment-related losses. Where available-for-sale financial assets are impaired due to significant drop of fair value and the drop is not temporary, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. 9. Accounts receivable and bad debts (1) Measurement method and the percentage of bad debts Measurement method of bad debts: accounted with allowance method. At the end of the period, impairment test shall be made on individual accounts receivable with significant amounts. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of future cash flows. For those individual accounts receivable without significant amounts at the end of the period, along with those accounts receivable that have been tested individually but not impaired, the Company classifies them in line with similar credit risk characteristics into several groups, and make a specific percentage of bad debts provision on the accounts receivable balances at balance sheet date. On the basis of the actual loss rate of receivable accounts, with same or similar credit risk characteristics of accounts receivable package in previous year, the Company also considers current situation and determine the percentage of bad debt provision. Here is the Company’s bad debts provision policy: Ages Percentage (%) Within 1 year (including 1 year, same as following) 2 1 year to 2 years 5 2 years to 3 years 10 3 years to 4 years 20 4 years to 5 years 30 Over 5 years 50 There is strong evidence that accounts receivable can’t be recovered or little possibility of recovery (it is unable to pay in the short term due to bankruptcy, insolvent, serious shortage of cash flow, serious natural disasters and etc. ) as well as other evidences of occurring loss, the Company can make full provision for the accounts receivable. (2) The accounts receivable meeting the following criteria are recognized as bad debts: For accounts receivable that are surely uncollectible, such as they can be written off as bad debts after the approval of the general meeting of shareholders or the board of directors. 10. Inventories (1) Inventories include: development cost (constructing development product), development product, finished goods, low-value consumable supplies and etc. All inventories are calculated at actual cost when acquire. The issue of inventories is calculated according to individual cognizance method. The low–value consumable supplies are amortized at one time. Inventories stock physical count system: perpetual inventory method Measurement method of land used for development: the land used for development is included in “Inventories - development cost”. Public facilities costs: public facilities such as schools, as well as public facilities fees acquired by government departments, the cost is included in "development costs" and its apportionment and detailed calculation are in accordance with calculation objects and cost items. (2) For inventories at balance sheet date, the evaluation criteria should base on the lower value between costs and net values that can be converted into cash. When net values that can be converted into cash are lower than costs, provision for impairment loss of inventories shall be made and recorded into current profit and loss. 11. Long-term equity investment (1) The initial cost of the long-term equity investment For the business combination under the same control, it shall, on the date of merger, regard the share of the book value of the owner's equity of the merged enterprise as the initial cost of the long-term equity investment. For the business combination not under same control, the initial cost of long-term equity investment is fair value of assets paid, liabilities undertaken, the equity securities issued by the Company, and includes all direct expenses and future events that will influence combination cost. Besides the long-term equity investments formed by the business combination, the initial cost of a long-term equity investment obtained by other means shall be ascertained in accordance with the provisions as follows: The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid; the initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued; the initial cost of a long-term equity investment of an investor shall be the value stipulated in the investment contract or agreement. (2) Subsequent measurement The Company uses cost method for the following conditions: a long-term equity investment where the investing enterprise can exercise control over the investee, or the investing enterprise does not have joint control or significant influence over the investee, the investment is not quoted in an active market and its fair value can’t be reliably measured. For a long-term equity investment where the investing enterprise can exercise control over the investee, the investing enterprise shall make an adjustment by employing the equity method when it works out consolidated financial statements. When adopting cost method, the dividends or profits declared to distribute by the invested entity shall be recognized as the current investment income. The investment income recognized by the investing enterprise shall be limited to the amount received from the accumulative net profits that arise after the invested entity has accepted the investment. Where the amount of profits or cash dividends obtained by the investing entity exceeds the aforesaid amount, it shall be regarded as recovery of initial investment cost. A long-term equity investment of the investing enterprise that does joint control or significant influences over the invested entity shall be measured by employing the equity method. If the initial cost of a long-term equity investment is more than the investing enterprise' attributable share of the fair value of the invested entity's identifiable net assets for the investment, the initial cost of the long-term equity investment may not be adjusted. If the initial cost of a long-term equity investment is less than the investing enterprise' attributable share of the fair value of the invested entity's identifiable net assets for the investment, the difference shall be included in the current profits and losses and the cost of the long-term equity investment shall be adjusted simultaneously. After an investing enterprise obtains a long-term equity investment, it shall, in accordance with the attributable share of the net profits or losses of the invested entity, recognize the investment profits or losses and adjust the book value of the long-term equity investment. Where any change is made to the owner's equity other than the net profits and losses of the invested entity, the book value of the long-term equity investment shall be adjusted and be included in the owner's equity. The Company should have impairment test for any long-term equity investment on very balance sheet date. When the estimated value in use is less than its book value, it will be treated as impairment loss. And this loss should be transferred into current profit and loss account; meanwhile, the company should set up provision for the long-term equity investment impairment loss. To any long-term equity investments, which are measured by cost method, there is no price or its fair value can not be measured reliably, the impairment loss of these investments should be the difference between the book value and the present value of the future cash flow calculated by using current market rate of similar financial asset. For other long-term equity investment, where any evidence shows that there is possible assets impairment, the impairment provision is made according to relevant regulations and methods. (3) Recognization basis of joint control and significant influences The term "joint control" refers to the control over an economic activity in accordance with the contracts and agreements, which does not exist unless the investing parties of the economic activity with one an assent on sharing the control power over the relevant important financial and operating decisions. The term "significant influences" refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not to control or do joint control together with other parties over the formulation of these policies. (4) Disposal of long-term equity investment When disposing of a long-term equity investment, the difference between its book value and the actual purchase price shall be included in the current profits and losses. If any change other than the net profits and losses of the invested entity occurs and is included in the owner's equity, the portion previously included in the owner's equity shall, when disposing of a long-term equity investment measured by employing the equity method, be transferred to the current profits and losses according to a certain proportion. 12. Business combinations (1) Business combinations under the same control A business combination under the same control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or the same parties both before and after the business combination and on which the control is not temporary. The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital shall be adjusted. If the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted. (2) Business combinations not under the same control A business combination not under the same control is a business combination in which the combining enterprises are not ultimately controlled by the same party or the same parties both before and after the business combination. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. The business reputation upon initial measurement shall be measured on the basis of its costs minus the accumulative impairment provisions. If the combination costs are less than the fair value of the identifiable net assets it obtains from the acquiree, after the reexamination, it shall record the balance into the profits and losses of the current period. 13. Investment property The term "investment property" refers to the real estates held for generating rent and/or capital appreciation. Including: the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. The initial measurement of the investment property shall be made at its cost. An enterprise shall make a follow-up measurement to the investment real estate through the cost pattern. For buildings which have already been rented, the Company calculates depreciation as the same method of fixed assets. For the right to use any land, it is amortized with straight-line method according to the serviceable life. At the balance sheet date, where any evidence shows that there is possible assets impairment, the impairment provision is made. 14. Fixed assets (1) Recognition of fixed assets Fixed assets are tangible assets that are held for use in production or supply of goods or services, for rental to others, or for administrative purpose, and have useful lives more than one accounting year. The expected discard expenses should be taken into consideration in the ascertainment of the cost of a fixed asset. (2) The category and depreciation method of fixed assets Fixed assets include buildings and structures, vehicles, general equipments, specific equipments and other equipments. Straight-line method is in used to calculate the depreciation of fixed assets. The estimated useful lives, expected residual value and annual depreciation rate of various types fixed assets are listed as follows: Expected Annual Estimated useful Category residual value depreciation rate lives (years) (%) (%) Buildings and structures 25 5 3.8 Vehicles 5 5 19.0 General equipments 10 5 9.5 Specific equipments 5 5 19.0 Other equipments 5 5 19.0 Depreciation shall be made for the fixed assets on a monthly basis. Fixed assets increased this month shall make depreciation from next month; fixed assets decreased this month shall stop making depreciation from next month. The company shall, at least at the end of each year, have a check on the useful life, expected residual value and the depreciation method of the fixed assets, and adjust them when necessary. At the balance sheet date, where any evidence shows that there is possible assets impairment, the impairment provision is made according to Notes II. 17. (3) Idle fixed assets Fixed assets that are not used for six months continuously due to underemployment or natural disasters are identified as idle fixed assets (except for seasonal break). The depreciation method of idle fixed assets is consistent with other fixed assets. (4) Fixed assets under financing lease When one or more of the following criteria are met, a lease shall be classified as a financial lease: a. the lease transfers ownership of the leased asset to the lessee by the end of the lease term; b. the lessee has the option to purchase the leased asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised by the lessee; c. the lease term is for the major part of the useful life of the leased asset even if title is not transferred; d. in the case of the lessee, at the inception of the lease the present value of the minimum lease payments amounts to substantially all of the fair value of the leased asset; in the case of lesser, at the inception of the lease the present value of the minimum lease receipts amounts to substantially all of the fair value of the leased asset; e. the leased assets are of a specialized nature such that only the lessee can use them without major modifications being made. Fixed assets under financing lease shall be recorded at the lower one of the fair value of the leased asset and the present value of the minimum lease payments. The depreciation method is consistent with fixed assets of the Company. 15. Construction in progress Construction in progress (“CIP”) includes all costs incurred during the preparation period before commencement of construction and until the asset is ready for its intended use. These costs include direct materials, direct labour, equipment for installation, construction and installation charges, management fees, gain or loss on trial run production and borrowing costs which are qualified for capitalization. CIP is transferred to fixed assets when the asset is ready for its intended use. At the balance sheet date, where any evidence shows that there is possible CIP impairment, the impairment provision is made according to Notes II.17. 16. Intangible assets The term "intangible assets" refers to the identifiable non-monetary assets possessed or controlled by enterprises which have no physical shape. If it is unable to forecast the period when the intangible asset can bring economic benefits to the enterprise, it shall be regarded as an intangible asset with uncertain service life. The intangible assets shall be initially measured according to its cost. If it is unable to determine the expected realization pattern reliably, intangible assets shall be amortized by the straight-line method. An enterprise shall, at least at the end of each year, check the service life and the amortization method of intangible assets with limited service life, and adjust them when necessary. Intangible assets with uncertain service life may not be amortized. An enterprise shall check the service life of intangible assets with uncertain service life during each accounting period. Where any evidence shows that there is possible assets impairment, the impairment provision is made. 17. Impairment of assets At the balance sheet date, where there is any evidence indicating a possible impairment of assets except inventories, investment property measured at fair value model, deferred income tax assets and financial assets whose impairment losses are calculated according to special regulations, the enterprise shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset group to which the asset belongs. When the recoverable amount of the asset is less than its carrying amount, the differences are recognized as impairment loss and accounted for profit and loss in current period. Once the impairment loss is recognized, it can not be reversed in subsequent years. The recoverable amount shall be determined in light of the higher one of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets. No matter whether there is any sign of possible assets impairment, the business reputation formed by the merger of enterprises and intangible assets with uncertain service lives shall be subject to impairment test every year. 18. Borrowing Costs Borrowing costs are interest and other related costs incurred by the Company in connection with the borrowing of funds, and include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. The amounts of other borrowing costs incurred shall be recognized as an expense in the period in which they are incurred. Qualifying assets are assets (fixed assets, investment property, inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale. The capitalization of borrowing costs can commence only when all of the following conditions are satisfied: (1) expenditures for the asset are being incurred; (2) borrowing costs are being incurred; (3) activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced. When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased; then the borrowing costs incurred shall be recorded into the profits and losses of the current period. Borrowing costs due to loans from real estate development are recorded into development cost before the completion of the project and recorded into current profit and loss after the completion of the project. Borrowing costs are recorded into development cost and amortized quarterly. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs incurred during such period shall be recognized as expenses, and shall be recorded into the profits and losses of the current period. During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as follows: (1) for a specific-purpose borrowing, the amount of interest to be capitalized shall be the actual interest expense incurred for the period less temporary deposit’s interest or investment income; (2) where funds are borrowed under general-purpose borrowings, the Company shall determine the amount of interest to be capitalized by applying a capitalization rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalization rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings. 19. Payroll The term "employee compensation" refers to all kinds of payments and other relevant expenditures given by enterprises in exchange of the services offered by the employees. The employee compensation shall include: wages, bonuses, allowances and subsidies for the employees, non-monetary welfare and etc. During the accounting period of an employee' providing services to an enterprise, the enterprise shall, in accordance with beneficiaries of the services offered by the employee, treat the following circumstances respectively: (1)The compensation for the employee for producing products or providing services shall be recorded as the product costs and service costs; (2)The compensation for the employee for any on-going construction project or for any intangible asset shall be recorded as the costs of fixed asset or intangible assets; (3)The compensation for the cancellation of the labor relationship with the employee shall be recorded into general and administrative expenses of the current period. The compensation for the employee other than those as mentioned above shall be recorded as profit or loss for the current period. 20. Contingencies liabilities The obligation pertinent to a Contingencies shall be recognized as accrued liabilities when the following conditions are satisfied simultaneously: (1)That obligation is a current obligation of the enterprise; (2)It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; (3)The amount of the obligation can be measured in a reliable way. The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation. 21. Share-based payments The term "share-based payment" refers to a transaction in which an enterprise grants equity instruments or undertakes equity-instrument-based liabilities in return for services from employee or other parties. The share-based payments shall consist of equity-settled share-based payments and cash-settled share-based payments. The equity-settled share-based payment in return for employee services shall be measured at the fair value of the equity instruments granted to the employees. An equity-settled share-based payment in return for the service of any other party shall be measured at the fair value of the service on the acquisition date; If the fair value of the service of any other party can not be measured in a reliable way, it shall be measured at the fair value of the equity instruments on the acquisition date. The fair value of the equity instruments is recognized according to following methods: (1) For which there is an active market, the quoted prices in the active market shall be used to determine the fair values. (2) Where there is no active market for equity instrument, the enterprise concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. The Company makes the best estimation to the equity instruments can be exercised rights according to subsequent information, for example, change of employees who can exercise rights as currently obtained. 22. Revenue recognition (1) Revenue from the sale of goods shall be recognized only when all of the following conditions are satisfied: a. the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; b. the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; c. the amount of revenue can be measured reliably; d. it is probable that the associated economic benefits will flow to the enterprise; e. the associated costs incurred or to be incurred can be measured reliably. Real estate sales revenue: the Company can recognize real estate sales revenue after the completion and acceptance of the property, signing sale contract, acquiring payment proof from buyer and delivery. When the buyer receives written delivery notice and has no warrant to refuse to accept it, the sales revenue is realized after delivery limit closed of delivery notice. For the development project consigned by other, as well as in accordance with " Accounting Standards for Business Enterprises -Construction Contract", the revenue shall be recognized in light of the percentage-of- completion method. The percentage-of- completion is determined by the proportion of finished workload. (2) Rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably at the balance sheet date (including: the amount of revenue can be measured reliably; it is probable that the associated economic benefits will flow to the enterprise; the stage of completion of the transaction can be measured reliably; the costs incurred and to be incurred for the transaction can be measured reliably), revenue associated with the transaction shall be recognized using the percentage of completion method, and the stage of completion of the transaction is recognized according to the proportion of the cost having taken place occupied the estimated total cost. When the outcome of a transaction involving the rendering of services can not be estimated reliably at the balance sheet date: when the costs incurred are expected to be recoverable, revenue shall be recognized to the extent of costs incurred and an equivalent amount shall be charged to profit or loss as service costs; when the costs incurred are not expected to be recoverable, the costs incurred shall be recognized in profit or loss for the current period and no service revenue shall be recognized. The revenue of property management service is recognized when following conditions are satisfied: the property management service has been offered; the associated economic benefits will flow to the enterprise; the associated costs can be measured reliably. (3) Use by others of enterprise assets Revenue arising from the use by others of enterprise assets shall be recognized only when both of the following conditions are satisfied: it is probable that the associated economic benefits will flow to the enterprise; the amount of the revenue can be measured reliably. The amount of interest shall be determined according to the length of time for which the enterprise’s currency fund is used by others and the effective interest rate. The amount of royalties shall be determined according to the period and method of charging as stipulated in the relevant contract or agreement. 23. Government grants Government grants shall be recognized at fair value on the conditions that the Company can receive the grant and comply with the conditions attaching to the grant. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred by the Company in subsequent period, the grant shall be recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset. 24. Income tax The Company shall use the balance sheet liabilities method to measure income tax. The income tax expenses include income tax of current period and deferred income tax expense (or income). The income taxes of the current period and deferred income tax of an enterprise shall be treated as income tax expenses or incomes, and shall be recorded into the current profits and losses, excluding the income taxes incurred under the following circumstances: the business combination; and the transactions or events directly recognized as the owner's rights and interests. The current income tax is calculated with the amounts of taxable income of enterprises for the current period. The taxable income is adjusted according to Tax Law and based on current profit. At the balance sheet date, the Company analyzes the carrying amount of assets or liabilities and its tax base; where there is difference between the carrying amount of the assets or liabilities and its tax base, the deferred income tax assets, the deferred income tax liabilities or corresponding deferred income tax expense (or income) shall be determined. When the carrying amount of assets is higher than its tax base or the carrying amount of liabilities is lower than its tax base, the taxable temporary differences occur and the deferred income tax liabilities shall be recognized; When the carrying amount of assets is lower than its tax base or the carrying amount of liabilities is higher than its tax base, the deductible temporary differences occur and the deferred income tax assets shall be recognized. 25. Maintenance fund The Company’s property management company receives and manages public maintenance fund consigned by owners, and charges to “agency fund”. The fund is used in the maintenance and update of the common apparatus and common position of the house and communal facilities of property management region. 26. Quality assurance reserve funds Construction party should remain quality assurance reserve funds according to the amount in the construction contract, and list in "accounts payable". The funds should be paid according to the actual conditions and contract after guarantee period. 27. Preparation method of consolidated financial statements The Company shall include all subsidiaries within the scope of consolidation. The consolidated financial statements shall be prepared by parent based on the financial statements of the parent and its subsidiaries, using other related information and after adjusting the long-term equity investments in subsidiaries using the equity method according to “Accounting Standard for Business Enterprises No.33—Consolidated Financial Statements”. 28. Changes of accounting policies and accounting estimates and error correction (1) Changes of accounting policies Not applicable. (2) Changes of accounting estimates and error correction Not applicable. III. Taxation The main taxes include: business tax, city construction and maintenance tax, education fee, income tax and etc. The tax rates are as following: Category Rate Taxable base Revenue of house property sale and Business tax 5% lease, property management income and etc. City construction and maintenance 5%, 7% Business tax and value-added tax tax Education fee 3% Business tax and value-added tax Income tax 18%, 25% Taxable income Note: Except that income tax of companies in Hainan District and Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. is levied at 18% of taxable income, the income tax of other companies is levied at 25% of taxable income. IV. Business combinations and consolidation financial statements 1. Subsidiaries established by the Company Registered Voting Amount invested Registered Principal Holding Subsidiary’s name capital rights by the Company address activities proportion (RMB 0’000) proportion (RMB 0’000) Hainan Pearl River Properties and Hainan Properties and Hotels 500 Hotels 98% 98% 490 Haikou Management Co., Ltd. Management Hainan Pearl River Gardens Hainan Environmental Projects Co., 100 engineering 100% 100% 100 Haikou Ltd. construction Hainan Pearl River Estate Hainan Cleaning 20 100% 100% 20 Cleaning Company Haikou projects Hainan Pearl River Estate Mechanical Hainan Machine Engineering 150 and electrical 100% 100% 150 Haikou Company products sales Real Estate Hainan Pearl River Estate Hainan 100 Marketing 100% 100% 100 Marketing Co., Ltd. Haikou Planning Sanya Wanjia Hotel Hainan 10,800 Hotel service 100% 100% 10,800 Management Co., Ltd. Sanya Sanya Wanjia Golf Co., Ltd. Hainan Cultural and 2,000 100% 100% 2,000 Sanya sports services Hubei Pearl River Real Estate Hubei Real estate 6,500 88% 88% 5,720 Development Co., Ltd. Wuhan development Registered Voting Amount invested Registered Principal Holding Subsidiary’s name capital rights by the Company address activities proportion (RMB 0’000) proportion (RMB 0’000) and management Wuhan Pearl River Meilin Hubei Hotels Management Co., 50 Service 100% 100% 50 Wuhan Ltd. Real estate Hainan Pearl River development Enterprises Holding Co., Shanghai 4,000 100% 100% 4,000 and Ltd. Shanghai Real Estate Co. management 2. Changes of consolidation scope The Company did not change the consolidation scope of the financial statements during this reporting period. 3. Information about minority interest of subsidiaries Minority interest on 1 Minority interest on 31 Subsidiary’s name Increment decrement Jan 2008 Dec 2008 Hubei Pearl River Real Estate Development Co., Ltd. 14,327,018.75 3,168,229.76 11,158,788.99 湖北珠江房地产开发有限公司 Hainan Pearl River Properties and Hotels Management Co., Ltd. 153,412.65 6,932.75 160,345.40 海南珠江物业酒店管理有限公司 Hainan Pearl River Estate Cleaning Company 12,070.60 12,070.60 海南珠江物业清洁有限公司 Total 14,492,502.00 6,932.75 3,180,300.36 11,319,134.39 V. Notes to significant items of the consolidated financial statements 1. Monetary funds Items Dec 31, 2008 Jan 1, 2008 Cash 257,690.21 456,917.03 Bank deposit 36,367,845.96 110,446,486.81 Other monetary funds 30,000.00 30,000.00 Total 36,655,536.17 110,933,403.84 Note: Ending amount of monetary funds is decreased by 66.96% compared with initial amount. It is mainly due to Hubei Pearl River Real Estate Development Co., Ltd. increasing amount of investment on real estate development. 2. Accounts receivable (1) Detailed information 31 Dec 2008 1 Jan 2008 Items Balance Proportion (%) Bad debts Net value Balance Proportion (%) Bad debts Net value Individual with significant amount 9,157,687.60 63.32 7,789,627.20 1,368,060.40 7,761,707.60 61.87 7,761,707.60 Individual without significant amount,but with 2,825,626.55 19.54 2,253,870.24 571,756.31 2,297,393.97 18.31 2,019,368.36 278,025.61 significant credit risk Other unimportant receivables 2,479,093.98 17.14 289,549.35 2,189,544.63 2,486,995.57 19.82 190,786.48 2,296,209.09 Total 14,462,408.13 100.00 10,333,046.79 4,129,361.34 12,546,097.14 100.00 9,971,862.44 2,574,234.70 (2) Aging analysis 31 Dec 2008 1 Jan 2008 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 1 2,980,744.98 20.61 59,614.90 2,921,130.08 1,163,954.75 9.28 23,279.09 1,140,675.66 year 1-2 years 418,921.00 2.90 20,946.05 397,974.95 754,685.82 6.02 37,734.29 716,951.53 2-3 years 475,408.00 3.29 236,908.00 238,500.00 100,000.00 0.8 10,000.00 90,000.00 3-4 years 100,000.00 0.69 20,000.00 80,000.00 207,334.00 1.65 41,466.80 165,867.20 4-5 years 200,997.00 1.39 60,299.10 140,697.90 261,021.00 2.08 78,306.30 182,714.70 Over 5 10,286,337.15 71.12 9,935,278.74 351,058.41 10,059,101.57 80.18 9,781,075.96 278,025.61 years Total 14,462,408.13 100.00 10,333,046.79 4,129,361.34 12,546,097.14 100 9,971,862.44 2,574,234.70 Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 2: The first five debtors’ ending total balance is 9,157,687.60 Yuan, and is 63.32% of accounts receivable total amount. 3: There are 1,395,980.00 Yuan within 1 year and 7,761,707.60 Yuan over 5 years in the first five debtors’ ending total balance. Details are as follows: Relationship with Proportion of total Name Owned amount Ages the company accounts receivable (%) Hainan centaline property agency client 2,090,069.77 over 5 years 14.45 海南中原物业代理公司 Hainan racing entertainment Co., LTD client 2,406,158.00 over 5 years 16.64 海南赛马娱乐有限公司 Hainan Baoping company client 2,218,494.43 over 5 years 15.34 海南宝平公司 Hainan dragon flim studio client 1,046,985.40 over 5 years 7.24 海南龙珠影视城 Sun Gong - Pearl Plaza attaching building,4-floor client 1,395,980.00 within 1 year 9.65 孙工-珠江广场裙楼四层 Total 9,157,687.60 63.32 4: The bad debts proportion and reasons for individual accounts receivable with significant amount Individual accounts receivable whose amount is more than 1 million and whose ending balance is owned more than 5% (including 5%) of the total other receivables will be recognized as individual accounts receivable with significant amount. At the end of this year, the individual accounts receivable with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of accounts receivable portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 7,761,707.60 Yuan. 5: The bad debts proportion and reasons for individual accounts receivable without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the accounts receivable over 5 years, the bad debts proportion is 50% of the balance. For accounts receivable that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual accounts receivable with significant amount from accounts receivable satisfied with above situations, the leavings are individual accounts receivable without significant amount, but with significant credit risk. 3. Advances to suppliers 31 Dec 2008 1 Jan 2008 Ages Proportion Balance Balance (%) Proportion (%) Within 1 year 27,891,517.83 98.73 23,804,462.93 98.61 1-2 years 60,000.00 0.21 36,570.50 0.15 2-3 years 0.00 300,000.00 1.24 Over 3 years 300,000.00 1.06 Total 28,251,517.83 100.00 24,141,033.43 100.00 Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 4. Other receivables (1) Detailed information 31 Dec 2008 1 Jan 2008 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with significant amount 49,250,125.00 62.84 19,342,875.00 29,907,250.00 109,250,125.00 79.88 16,846,125.00 92,404,000.00 Individual without significant amount, 25,104,007.81 32.03 24,874,333.10 229,674.71 24,396,452.67 17.84 23,752,829.34 643,623.33 but with significant credit risk Other unimportant receivables 4,023,847.38 45.64 338,445.99 3,685,401.39 3,129,305.48 2.28 223,157.62 2,906,147.86 Total 78,377,980.19 100.00 44,555,654.09 33,822,326.10 136,775,883.15 100.00 40,822,111.96 95,953,771.19 (2) Aging analysis 31 Dec 2008 1 Jan 2008 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 1 3,132,090.58 4.00 62,641.80 3,069,448.78 66,962,582.60 48.96 1,339,251.65 65,623,330.95 year 1-2 years 5,691,756.80 7.26 505,804.19 5,185,952.61 876,710.80 0.64 43,835.54 832,875.26 2-3 years 800,000.00 1.02 80,000.00 720,000.00 6,087,319.88 4.45 608,731.99 5,478,587.89 3-4 years 6,005,129.00 7.66 1,201,025.80 4,804,103.20 21,969,192.20 16.06 4,393,838.44 17,575,353.76 4-5 years 21,888,381.65 27.93 6,858,810.14 15,029,571.51 4,001,000.00 2.93 1,201,000.00 2,800,000.00 Over 5 40,860,622.16 52.13 35,847,372.16 5,013,250.00 36,879,077.67 26.96 33,235,454.34 3,643,623.33 years Total 78,377,980.19 100.00 44,555,654.09 33,822,326.10 136,775,883.15 100.00 40,822,111.96 95,953,771.19 Note 1: The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 2: The first five debtors’ ending total balance is 49,250,125.00 Yuan, and is 62.84% of other receivables total amount. 3: There are 5,000,000.00 Yuan between 1-2 years, 600,000.00 Yuan between 2-3 years, 6,000,000.00 Yuan between 3-4 Years, 21,167,500.00 Yuan between 4-5 years and 16,482,625.00 Yuan over 5 years in the first five debtors’ ending total balance. Details are as follows: Relationship with Proportion of total Name Owned amount Ages the company Other receivable (%) Hainan Baxter industrial Co., LTD The entity outside 11,417,500.00 4-5years 14.57 海南百特实业有限公司 the group 5,000,000.00 Yuan between 1-2 Beijing Yidong international Properties Co., LTD The entity outside 14,750,000.00 years，and 9,750,000.00 yuan 18.82 北京怡东国际置业有限公司 the group between 4-5 years 600,000.00 Yuan between 2-3 YangPu Nanhua Datong investment Co., LTD The entity outside years, 6,000,000.00 Yuan between 12,600,000.00 16.08 洋浦南华大通投资有限公司 the group 3-4 Years and6,000,000.00 Yuan over 5 years Shenzhen impression computer Co., LTD The entity outside 6,482,625.00 Over 5 years 8.27 深圳印象计算机有限公司 the group Wuhan land consolidation reserve-supply center The entity outside 4,000,000.00 Over 5 years 5.10 武汉市土地整理储备供应中心 the group Total 49,250,125.00 62.84 4: Ending amount of other receivables is decreased by 59.39% compared with initial amount. It is mainly due to Zhejiang Guangsha Corporation Anhui Zhiye Co.,Ltd. repaid 60 million Yuan loan to the Company. Details refer to Notes XIII. Other important events 3. 5: The bad debts proportion and reason for individual other receivables with significant amount The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. Individual other receivables whose amount is more than 1 million and whose ending balance is owned more than 5% (including 5%) of the total other receivables will be recognized as individual other receivables with significant amount. At the end of this year, the individual other receivables with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of other receivables portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 16,482,625.00 Yuan. 6: The bad debts proportion and reason for individual other receivables without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the other receivables over 5 years, the bad debts proportion is 50% of the balance. For other receivables that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual other receivables with significant amount from other receivables satisfied with above situations, the leavings are individual other receivables without significant amount, but with significant credit risk. 5. Inventories (1) Inventories category 31 Dec 2008 1 Jan 2008 Items Impairment Impairment Balance Balance provision provision Raw material 2,754,432.65 Low-value 55,009.70 consumption goods Finished goods 28,983.79 905,819.53 Constructing development 450,222,653.24 41,686,535.83 261,730,986.32 41,686,535.83 product Development 61,298,993.96 17,690,672.35 85,666,334.76 19,820,620.60 product Total 514,360,073.34 59,377,208.18 348,303,140.61 61,507,156.43 Net value 454,982,865.16 286,795,984.18 Note 1: Net realizable value of inventories is the net value of market price in the voluntary transactions deducting further development or sales costs according to the individual stock item in a fair market transaction. Details of inventory impairment provision refer to Notes V. 5 (4). 2: Ending amount of inventories is increased by 47.68% compared with initial amount. It is mainly due to Hubei Meilin Qingcheng second period project increasing amount of investment on real estate development. 3: Inventory mortgage is as follows: a. The area of Pearl River Plaza 5th floor west side is 2,046.00 square meters, the book value is 7,958,858.16 Yuan; the area of Longzhu Plaza 21st floor is 792.2 square meters, the book value is 1,048,080.60 Yuan; investment real estates listed in Notes V. 7 note 2; fixed-assets listed in Notes V. 8 note 1; these assets have been mortgaged to the Bank of Communication Hainan Branch, and loan amount is 24,000,000 Yuan. b. Meilin Qingcheng land use right and commercial house of 63,327.00 square meters in the Road No.20 Wuchang District of Wuhan, the book value is 74,946,255.99 Yuan, have been mortgaged to the Construction Bank of China Wuchang Branch, the loan amount is 150,000,000 Yuan. 4: Capitalized interest amount is 11,730,260.67 Yuan included in the increase of inventories. Capitalization rate is same as the bank lending rate over the same period. (2) Constructing development product is as follows: Estimated total Commencement Estimated time Project name investment 31 Dec 2008 1 Jan 2008 date for completion (0’000) Wuhan Meilin Qingcheng second In Sep 2006 In 2011 79,929.00 339,458,555.11 153,609,255.29 and third period projects Longzhu third period Note 1 49,592,021.33 46,949,654.23 project Along No.1 road Note 2 61,172,076.80 61,172,076.80 engineering project Total 450,222,653.24 261,730,986.32 Note 1: The Company and Haikou Land Resources Bureau signed the "supplementary agreement of land for construction" on 31 August 2004. The Land Resources Bureau agreed that the Company can defer exploiting the land of 16,512.62 square meters, locating in Longkun North Road No.2 (Pearl River International Hotel land). The project plan is waiting for the government’s examining and approving. 2: According to “Equity application letter about Changdi along river No.1 road project” of Haikou City Development Co., Ltd (dismantlement and direct department of Changdi along river No.1 road) on 23 September 2006, it is required the Company applies relevant equity and data of the project. On 11 October 2006, the basic intention of the Company for the project is to obtain land with same value in Haikou according to actual capital invested by the Company or transfer the investment to new investors. (3) Development product is as follows: Time for Project name 1 Jan 2008 Increment Decrement 31 Dec 2008 completion F2 Dihao In 1995 208,046.94 208,046.94 F4 Pearl River Plaza In 1995 8,187,691.40 437,396.80 8,625,088.20 attaching building Pearl River Plaza F3 Dijing In 1995 3,614,394.69 1,701,301.85 5,315,696.54 Pearl River Plaza F4 In 1995 21,342,043.32 12,929,341.44 8,412,701.88 attaching building Longzhu Plaza In 1992 1,598,659.60 1,598,659.60 Pearl River Plaza In 1995 6,919,373.98 6,919,373.98 underground garage Longzhu Plaza underground In 1992 2,664,000.00 2,664,000.00 garage Rose garden high floor In 2000 1,908,873.88 1,908,873.88 Rose garden attaching In 2000 4,499,958.12 4,499,958.12 building Rose garden underground In 2000 30,345,040.97 30,345,040.97 garage two floor Wuhan Meilin Qingcheng In Aug 2006 4,378,251.86 243,604.75 4,134,647.11 first period project Total 85,666,334.76 2,138,698.65 26,506,039.45 61,298,993.96 (4) Inventories impairment provision Decrement Items 1 Jan 2008 Increment 31 Dec 2008 Transfer back Write off Development product 19,820,620.60 -1,137,813.75 992,134.50 17,690,672.35 Constructing 41,686,535.83 41,686,535.83 development product Total 61,507,156.43 -1,137,813.75 992,134.50 59,377,208.18 Note: This year inventories impairment provision of -1,137,813.75 yuan is mainly caused by the development product Rose Garden Attaching Building of 4,499,958.12 yuan was transferred to investment property, and its relevant inventories impairment provision was transferred into “ Investment property—impairment”. This year 992,134.50 yuan was written off from the original inventories impairment provision, it is mainly due to sell part of the Pearl River Plaza Attaching Building. 6. Long-term Equity Investment (1) Category 31 Dec 2008 1 Jan 2008 Items Balance Provision Book value Balance Provision Book value Investment to joint 457,831.42 332,092.00 125,739.42 410,288.90 332,092.00 78,196.90 venture Investment to affiliate 1,616,901.92 1,616,901.92 1,616,641.16 1,616,641.16 Other equity investment 206,200,703.44 126,788,941.74 79,411,761.70 206,200,703.44 126,788,941.74 79,411,761.70 Total 208,275,436.78 127,121,033.74 81,154,403.04 208,227,633.50 127,121,033.74 81,106,599.76 (2) Adopting equity method Equity increment or Initial decrement Percentage Name investing 1 Jan 2008 of invested companies 31 Dec 2008 % amount Amount of Accumulative this year amount Beijing Yangguang Tiancheng Property 30 1,500,000.00 1,616,641.16 260.76 116,901.92 1,616,901.92 Management Co., Ltd Shanghai Bright Pearl at Sea Property 50 832,000.00 410,288.90 47,542.52 -374,168.58 457,831.42 Management Company Total 2,332,000.00 2,026,930.06 47,803.28 -257,266.66 2,074,733.34 (3) Adopting cost method Initial Percentage Name investing 1 Jan 2008 Increment Decrement 31 Dec 2008 % amount Southwest Security 3.21 150,000,000.00 159,705,748.15 159,705,748.15 Guangzhou Pearl River Investment 18,177,240.29 18,177,240.29 18,177,240.29 Management Co., Ltd 9.4785 China Net Promoting Science and 10,000,000.00 10,000,000.00 10,000,000.00 Technology Investment Company 10 China (Hainan) Reform Development Academe 8,640,000.00 8,640,000.00 8,640,000.00 Hainan Tongsheng Harbor Company 15 6,000,000.00 6,000,000.00 6,000,000.00 Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 1,680,000.00 Nanli Lake member card 662,400.00 662,400.00 662,400.00 Hainan Pearl River Pipe and Peg Co., Ltd 1.33 618,500.00 426,315.00 426,315.00 Hainan General Commercial Board 6.67 500,000.00 500,000.00 500,000.00 Nanli Lake Golf member card 249,000.00 249,000.00 249,000.00 Hainan Huadi Pearl River Base-Project Co., Ltd 2 160,000.00 160,000.00 160,000.00 Total 196,687,140.29 206,200,703.44 206,200,703.44 Note: During the long-term equity investment, the investment in Southwest Security was pledged. Details refer to Note XIII. Other important events. (4) Long-term investment impairment provision Decrement Name 1 Jan 2008 Increment Transfer Write 31 Dec 2008 Reason back off Southwest Security 91,705,296.35 91,705,296.35 Huge loss Deterioration of Guangzhou Pearl River Investment 7,352,245.39 7,352,245.39 the financial Management Co., Ltd situation China Net Promoting Science and Be revoked the 10,000,000.00 10,000,000.00 Technology Investment Company business license China (Hainan) Reform Unable to Development 8,640,000.00 8,640,000.00 recover Academe investment Project has Hainan Tongsheng Harbor 6,000,000.00 6,000,000.00 already been Company suspended Hainan South Ocean Ship Industry Negative net 1,680,000.00 1,680,000.00 Stock Co., Ltd assets Unable to Nanli Lake member card 662,400.00 662,400.00 recover investment Unable to Hainan General Commercial Board 500,000.00 500,000.00 recover investment Shanghai Bright Pearl at Sea Deterioration of Property 332,092.00 332,092.00 the financial Management Company situation Unable to Nanli Lake Golf member card 249,000.00 249,000.00 recover investment Total 127,121,033.74 127,121,033.74 7. Investment real estates Items 1 Jan 2008 Increment Decrement 31 Dec 2008 I. Original value 22,699,262.00 4,499,958.12 938,570.78 26,260,649.34 (1) Buildings and structures 22,699,262.00 4,499,958.12 938,570.78 26,260,649.34 (2) Land use right II. Accumulated depreciation and amortization 780,038.07 857,657.58 24,492.15 1,613,203.50 (1) Buildings and structures 780,038.07 857,657.58 24,492.15 1,613,203.50 (2) Land use right III. Impairment provision 2,264,218.11 1,137,813.75 422,947.98 2,979,083.88 (1) Buildings and structures 2,264,218.11 1,137,813.75 422,947.98 2,979,083.88 (2) Land use right IV. Book value 19,655,005.82 21,668,361.96 (1) Buildings and structures 19,655,005.82 21,668,361.96 (2) Land use right Note 1: The Company adopts cost pattern to measure investment property. 2: Shanghai Pudong Avenue 1097 No. 23 and No. 24 attaching building first floor, area is 749.64 square meters, the book value is 2,733,826.70 Yuan; Shanghai Pudong Avenue 1097 No. 23 and No. 24 attaching building second floor, area is 749.65 square meters, the book value is 3,266,323.26 Yuan. underground garage one-floor with 104 parking spaces, parking area is 3,517.28 square meters; the book value is 14,875,794.08Yuan. All these have been mortgaged to Bank of Communication Hainan Branch, details refer to Notes V. 5 (1) note 3. 8. Fixed assets and accumulated depreciation Items 1 Jan 2008 Increment Decrement 31 Dec 2008 I. Original value Buildings and structures 257,706,127.82 7,991,692.00 265,697,819.82 General equipments 39,848,014.35 388,501.00 3,553.71 40,232,961.64 Vehicles 12,447,199.36 4,482,567.00 1,335,705.00 15,594,061.36 Other equipments 26,886,962.20 5,305,629.45 856,852.22 31,335,739.43 Total 336,888,303.73 18,168,389.45 2,196,110.93 352,860,582.25 II. Accumulated depreciation Buildings and structures 8,629,591.97 9,317,394.01 17,946,985.98 General equipments 16,195,412.37 2,326,296.90 337.56 18,521,371.71 Vehicles 6,342,269.68 1,926,070.79 956,011.87 7,312,328.60 Other equipments 6,863,434.28 4,761,458.34 242,511.81 11,382,380.81 Total 38,030,708.30 18,331,220.04 1,198,861.24 55,163,067.10 III. Impairment provision Buildings and structures 17,031,627.70 17,031,627.70 General equipments Items 1 Jan 2008 Increment Decrement 31 Dec 2008 Vehicles Other equipments Total 17,031,627.70 17,031,627.70 IV. Book value Buildings and structures 232,044,908.15 230,719,206.14 General equipments 23,652,601.98 21,711,589.93 Vehicles 6,104,929.68 8,281,732.76 Other equipments 20,023,527.92 19,953,358.62 Total 281,825,967.73 280,665,887.45 Note 1: Longzhu Plaza’s twenty-two floor and its north-east side 2-floor are 792.20 and 1,669.13 square meters respectively, and the total carrying amount is 2,534,048.87 The two properties have been mortgaged to the Bank of Communication Hainan Branch; details refer to Notes V. 5 (1) note 3. Equipment: 2 sets of air conditionings, 2 sets of diesel generators, and 8 Elevators of Huayu brand (included in property value), the book value is 6,515,121.08 Yuan, as well as the right to use land in Sanya hotel, these have been mortgaged to the Bank of China Hainan Yeshumeng branch, and loan amount is 12,000,000 Yuan. 2: The carrying amount of Wuhan Meilin Club is 6,616,310.00 Yuan; the relevant property ownership certificate is in the course of handling. 3: The increment of fixed assets with amount of 18,168,389.45 yuan during this year is mainly due to Sanya villa real estates and general equipment transferred 8,227,931.02 yuan into fixed assets. 9. Construction in progress Transferred to Other 31 Dec Source of Project name 1 Jan 2008 Increment fixed assets decrement 2008 fund Sanya villa 3,042,163.40 5,185,767.62 8,227,931.02 0.00 Self-financing Total 3,042,163.40 5,185,767.62 8,227,931.02 0.00 10. Intangible assets Items 1 Jan 2008 Increment Decrement 31 Dec 2008 I. Original value 33,312,166.47 1,547,786.71 34,859,953.18 Land use right of Sanya hotel 28,840,000.00 1,502,484.00 30,342,484.00 Sanya villa land 1,839,022.44 1,839,022.44 Wuhan club land 1,443,725.13 1,443,725.13 Shanghai house use right 695,732.00 695,732.00 Software 493,686.90 45,302.71 538,989.61 II.Accumulative amortization 1,039,314.03 894,205.60 1,933,519.63 Land use right of Sanya hotel 747,473.00 750,887.74 1,498,360.74 Sanya villa land 47,663.64 47,663.64 95,327.28 Wuhan club land 11,558.63 20,624.64 32,183.27 Shanghai house use right 202,573.54 13,914.64 216,488.18 Software 30,045.22 61,114.94 91,160.16 III. Carrying amount 32,272,852.44 653,581.11 32,926,433.55 Note 1: The right to use land of 30,780.13 square meters in Sanya hotel has been mortgaged to the Hainan Yeshumeng branch of the Bank of China. Details refer to Notes V. 8 . 2: The carrying amount of land use right in Wuhan Club is 1,443,725.13 Yuan; the relevant property ownership certificate is in course of handling. 11. Assets impairment provision Decrement Items 1 Jan 2008 Increment 31 Dec 2008 Transfer back Write off Bad debt provision 50,793,974.40 4,109,172.39 14,445.91 54,888,700.88 Inventories impairment 61,507,156.43 -1,137,813.75 992,134.50 59,377,208.18 provision long-term equity investment impairment 127,121,033.74 127,121,033.74 provision Investment property 2,264,218.11 1,137,813.75 422,947.98 2,979,083.88 impairment provision Fixed assets impairment 17,031,627.70 17,031,627.70 provision Others Total 258,718,010.38 4,109,172.39 14,445.91 1,415,082.48 261,397,654.38 Note: The increment of investment property impairment provision is 1,137,813.75 Yuan; it is due to inventory-development products was transferred to investment property, at the same time inventories impairment provision transferred to investment property impairment provision. 12. Assets with restricted ownership Items Assets name Area Amount Remark 1.Inventories Subtotal 83,953,194.75 Pearl River Plaza attaching They have been Development building 5-floor west side real 2,046.00 7,958,858.16 mortgaged to the China product estates Construction Bank Hainan Branch for loan 24 million Longzhu Plaza 21-floor 792.20 1,048,080.60 Yuan. It has been mortgaged to Constructing Land use right of Wuhan the Construction Bank of development Meilin Qingcheng second 63,327.00 74,946,255.99 China Wuchang Branch for product period project loan 150 million Yuan. 2.Investment real Subtotal 20,875,944.04 estates Shanghai Pudong Avenue They have been Buildings and 1097 No. 23 and No.24 1,499.28 6,000,149.96 mortgaged to the China structures attaching buildings 1-floor and Construction Bank Hainan 2-floor real estates Branch for loan 24 million Buildings and Underground garage 1-floor 3,517.28 14,875,794.08 Yuan. structures with 104 parking spaces 3.Fixed assets Subtotal 9,049,169.95 They have been mortgaged to the China Buildings and Longzhu Plaza 22-floor and its 2,461.33 2,534,048.87 Construction Bank Hainan structures northeast 2-floor real estates Branch for loan 24 million Yuan. It has been mortgaged to the Bank of China Hainan Equipments General equipments 6,515,121.08 Yeshumeng branch for loan 12 million Yuan. 4.Intangible assets Subtotal 28,844,123.26 It has been mortgaged to the Bank of China Hainan Land Land use right of Sanya hotel 30,780.13 28,844,123.26 Yeshumeng branch for loan 12 million Yuan. 5.Long-term Subtotal 68,000,451.80 equity investment Other equity 75 million shares of Southwest Details refer to Notes 68,000,451.80 investment Security VIII. Note: Assets with restricted ownership are mainly used for guarantee of bank loans. 13. Short-term loans Category 31 Dec 2008 1 Jan 2008 Guaranteed loans Pledge loans 24,000,000.00 42,900,000.00 Total 24,000,000.00 42,900,000.00 Note 1: Beijing Wangfa Real Estate Development provides loan guarantee of 43,000,000 Yuan that the Company gets from the Bank of Communication Hainan Branch, and the ending amount of the loan is 24,000,000 Yuan. At the same time, the Company provides mortgage for the loan, details refer to Notes V. 12. 2: There are no unpaid overdue short-term loans this year. 14. Accounts payable Ages 31 Dec 2008 1 Jan 2008 Within 1 year 3,391,600.90 56,542,515.07 1-2 years 21,545,357.34 311,689.72 2-3 years 166,672.39 151,674.11 Over 3 years 7,820,792.09 7,698,052.82 Total 32,924,422.72 64,703,931.72 Note 1: The end of this reporting period did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. 2: Accounts payable over 3 years is unpaid project fund. 3: Ending carrying amount of accounts payable is decreased by 49.12% compared with initial amount. It is mainly due to payment made for Sanya Wanjia Deiss Hotel project and decrease accounts payable. 15. Advances from customers Ages 31 Dec 2008 1 Jan 2008 Within 1 year 142,868,649.50 2,957,171.99 1-2 years 88,956.69 2-3 years Over 3 years Total 142,957,606.19 2,957,171.99 Note 1: The end of this reporting period did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Note 2: Ending carrying amount of advances from customers is increased by 4734.27% compared with initial amount. It is mainly due to the pre-sale of Wuhan Meilin Qingcheng second period project. 16. Accrued payroll Items Jan 1, 2008 Increment Decrement 31 Dec 2008 I. Salary, bonus, allowance 856,553.89 36,531,354.02 35,780,931.09 1,606,976.82 II. Employee Welfare expenses 3,244,257.57 3,244,257.57 III. Social insurance 570.50 5,040,753.80 5,038,280.52 3,043.78 Including: 1. medicare 103.80 1,157,403.30 1,157,507.10 2. basic endowment insurance 414.80 3,365,421.39 3,362,792.41 3,043.78 3. annuity 4.unemployment insurance 51.90 351,759.30 351,811.20 5.labour injury insurance 94,190.78 94,190.78 6.bearing insurance 71,979.03 71,979.03 IV. Housing accumulation fund 308.00 297,267.60 283,623.60 13,952.00 V. Labor union outlay and employee education outlay 1,879,817.18 1,118,702.59 596,106.16 2,402,413.61 VI. Non-monetary welfares VII. Compensation for dismissal VIII. Other Total 2,737,249.57 46,232,335.58 44,943,198.94 4,026,386.21 Note: There is no accrued payroll without paid on time or linking with work efficiency. 17. Taxes payable Items 31 Dec 2008 Jan 1, 2008 VAT -154,353.80 -222,962.66 Individual income tax 62,517.25 52,241.92 City construction and maintenance tax 46,497.50 79,045.54 Corporate income tax 138,975.17 8,768,437.36 Property tax 483,589.37 2,195.73 Business tax 119,498.18 517,349.17 Land use tax 69,255.57 7,695.03 Education fee -107,699.03 -95,387.81 Local education fee 24,100.15 49,217.84 Land value-added tax 1,691,791.89 -1,294,253.75 Others 129,160.02 130,082.96 Total 2,503,332.27 7,993,661.33 18. Interest payable Item 31 Dec 2008 Jan 1, 2008 Loan interest 69,783,831.76 37,742,133.73 Total 69,783,831.76 37,742,133.73 Note 1: The end of this year did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Details refer to Notes VII. Related party relationship and transactions. 2: Ending carrying amount of interest payable is increased by 84.90% compared with initial amount. It is mainly due to unpaid loan interest of shareholder’s loan. Details refer to Notes VII. Related party relationship and transactions. 19. Other payables Ages 31 Dec 2008 1 Jan 2008 Within 1 year 53,962,760.10 326,758,453.67 1-2 years 254,658,213.94 64,022,142.74 2-3 years 54,592,536.88 20,605,700.13 Over 3 years 40,094,855.01 38,350,675.19 Total 403,308,365.93 449,736,971.73 Note 1: The end of this year did not contain debt owned by any major shareholders who own more than 5% of the Company’s share capital. Details refer to Notes VII. Related party relationship and transactions. 2: Other payables over 3 years are mainly due to loan from shareholders. Details refer to Notes VII. Related party relationship and transactions. 20. Non-current liability due within one year Category 31 Dec 2008 1 Jan 2008 Credit loans Pledge loans 5,000,000.00 Total 5,000,000.00 Note 1: The information of non-current liability within one year about pledge loans 5 million Yuan refers to Notes V. 12. and the information of loan guarantee refers to Notes V.21. 21. Long-term borrowings Category 31 Dec 2008 1 Jan 2008 Credit loans Pledge loans 157,000,000.00 117,000,000.00 Total 157,000,000.00 117,000,000.00 Note 1: Pledge loans, of which 150 million yuan was pledged by the 63,327.00 square meters’ land use right of Hubei Meiling Qingcheng second project which located in No.20 Fangji Road, Wuchang District, Wuhan. Details refer to Note V.12. The information about pledge loans 7 million Yuan refers to Notes V. 12. Among them, Beijing Wangfa Real Estate Development provides loan guarantee for loan 7 million Yuan, the amount in the loan contract is 30million Yuan and ending balance is 12 million Yuan, and the amount due within one year is 5 million yuan. Note 2: There are no unpaid overdue long-term borrowings this period. 22. Share capital Unit: share 1 Jan 2008 Increment or decrement (+,-) 31 Dec 2008 Items Percentage issued Bonus Surplus Percentage Num. of Shares others subtotal amount (%) new shares issue converted % 1. Unlisted shares 130,740,609.00 30.64 -7,736,000.00 -7,736,000.00 123,004,609.00 28.82 State owned shares State corporate shares 117,780,978.00 27.60 1,299,500.00 1,299,500.00 119,080,478.00 27.90 Other domestic shares 12,959,631.00 3.04 -9,035,500.00 -9,035,500.00 3,924,131.00 0.92 Including:Domestic corporate shares 12,934,000.00 3.03 -9,035,500.00 -9,035,500.00 3,898,500.00 0.91 Domestic natural person shares 25,631.00 0.01 0.00 0.00 25,631.00 0.01 2.Listed shares 296,004,795.00 69.36 7,736,000.00 7,736,000.00 303,740,795.00 71.18 A shares 231,029,795.00 54.14 7,736,000.00 7,736,000.00 238,765,795.00 55.95 B shares 64,975,000.00 15.23 64,975,000.00 15.23 3. Total shares 426,745,404.00 100.00 426,745,404.00 100.00 23. Capital surplus Items 31 Dec 2008 1 Jan 2008 Share premium 224,960,139.16 224,960,139.16 Other capital surplus 109,300,017.82 109,300,017.82 Total 334,260,156.98 334,260,156.98 24. Surplus reserves Items 31 Dec 2008 1 Jan 2008 statutory surplus reserve 76,542,657.95 76,542,657.95 General surplus reserve 37,634,827.93 37,634,827.93 Total 114,177,485.88 114,177,485.88 25. Undistributed profits Items 2008 2007 Balance at the end of last year -679,492,733.72 -634,334,182.69 Add: Change in accounting policy -13,958,593.95 Balance at the beginning of this year -679,492,733.72 -648,292,776.64 Add: Net profit attributable to parent -76,603,781.29 -31,199,957.08 company this year Profit available for distribution -756,096,515.01 -679,492,733.72 Less: Draw statutory surplus reserve Draw legal public welfare funds Profit available for distribution of investors -756,096,515.01 -679,492,733.72 Less: Preferred shares dividends payables Draw free surplus reserves Common stock dividends payables Common stock dividends transferred to capital stock Undistributed profits at the end of the year -756,096,515.01 -679,492,733.72 27. Operating income and cost (1) details of operating income and cost Items 2008 2007 Main operating income 101,413,702.53 151,993,221.51 Other operating income 378,136.75 1,722,926.42 Total 101,791,839.28 153,716,147.93 Main operating costs 89,707,303.54 102,907,668.74 Other operating costs 88,137.76 834,375.68 Total 89,795,441.30 103,742,044.42 (2) Operating income and cost ① The details of main operating income and cost are as follows according to products: Items 2008 2007 Main operating income Real estate sales 23,768,640.12 106,961,905.14 Property management services 51,659,448.80 43,975,331.72 Tourist hotel services 25,985,613.61 1,055,984.65 Subtotal 101,413,702.53 151,993,221.51 Main operating costs Real estate sales 23,190,009.39 63,983,019.21 Property management services 44,427,080.80 38,298,184.18 Tourist hotel services 22,090,213.35 626,465.35 Subtotal 89,707,303.54 102,907,668.74 Operation gross profit Real estate sales 578,630.73 42,978,885.93 Property management services 7,232,368.00 5,677,147.54 Tourist hotel services 3,895,400.26 429,519.30 Subtotal 11,706,398.99 49,085,552.77 ②The details of main operating income and cost are as follows according to regions: Items 2008 2007 Main operating income Hainan 97,880,768.82 49,821,646.46 Hubei 1,652,933.71 102,026,575.05 Shanghai 1,880,000.00 145,000.00 Total 101,413,702.53 151,993,221.51 Main operating costs Hainan 87,287,636.23 44,772,295.04 Hubei 1,056,964.44 58,012,344.83 Shanghai 1,362,702.87 123,028.87 Total 89,707,303.54 102,907,668.74 Note 1: The first five customers’ total balance is 22,766,006.00Yuan, and is 22.45% of total income. 2: Main operating income in this year is decreased by 33.78% compared with income in the last year; it is mainly due to that commercial house sales of Wuhan Meilin Qingcheng second period project owned by Hubei Pearl River Real Estate Development Co., Ltd. have not been finished, so area available for sale is decreased this year. 27. Operating taxes and extras Items 2008 2007 City construction and maintenance tax 395,342.14 532,306.32 Education fee 182,270.52 331,969.61 Business tax 6,073,622.96 7,630,913.67 Land value-added tax 5,759,181.83 2,558,263.80 Others 14,135.86 204,674.46 Total 12,424,553.31 11,258,127.86 Note: Rate and taxable base refer to Notes III. Taxation. 28. Sales expenses Items 2008 2007 Total 13,847,053.41 5,299,270.10 Note: Sales expenses are increased by 161.30% compared with last year. It is mainly due to increasing advertisement fees on the pre-sale of commercial houses of Wuhan Meilin Qingcheng second period project owned by Hubei Pearl River Real Estate Development Co., Ltd. 29. General and administrative expenses Items 2008 2007 Total 49,279,060.03 27,824,695.80 Note: General and administrative expenses is increased by 77.11% compared with last year. It is mainly due to Sanya Wanjia Hotel Management Co., Ltd was put into operation during the year, and the relevant depreciation provision on fixed assets and general and administrative expenses was increased. 30. Financial expenses Items 2008 2007 Interest expenses 35,348,399.35 17,614,479.50 Less: Interest income 16,859,477.92 320,709.55 Loss or gain of exchange Commission charge 277,214.32 354,794.61 Other Total 18,766,135.75 17,648,564.56 Note: Financial expenses are increased by 100.68% compared with initial amount. It is mainly due to the average amount of loan made by shareholders is increased. Financial income is increased by 5156.93% compared with initial amount. It is mainly due to lend 60 million yuan to Zhejiang Guangxia Goup Anhui Real Estate Co., LTD and it was charge 16,613,888.00 yuan as interest income during the year. Details refer to Note XIII. Other important issues 3. 31. Loss of devaluation of assets Items 2008 2007 Bad debt 4,094,726.48 -142,262.44 Inventory falling price provision 7,200,000.00 Total 4,094,726.48 7,057,737.56 33. Investment income Items 2008 2007 Net increase or decrease of invested enterprise’s owner’s equity 47,803.28 297,870.67 adjusted at the end of the year Income from transferring equity investment Dividend distributed by invested enterprise 67,830.00 Total 47,803.28 365,700.67 33. Non-operating income Items 2008 2007 Profit on disposal of fixed assets 108,816.16 87,175.70 Net income from penalty 763,980.50 Demolition compensation 7,100,000.00 Balance not required to repay 816,300.00 Others 32,663.42 11,310.05 Total 8,057,779.58 862,466.25 Note: 7,100,000.00 yuan of demolition compensation is received by the company’s subsidiary Hainan Pearl River Industrial Co., Ltd. Shanghai real estate company because of relocation the land of No. 1097 on Pudong Avenue (area of 704 ㎡), and its adjunct. According to civil mediation book (2008) Qiong Min Kang Zi No.21 of Higher People's Court in Hainan Province, the Company and Hainan province Zhongqiang Industry Development Corporation reached the conciliation agreement for the dispute of house sale contract, the Company paid 850,000.00 Yuan to Hainan province Zhongqiang Industry Development Corporation and didn’t need to pay the remaining 816,300.00 Yuan. 34. Non-operating expenses Items 2008 2007 Loss on disposal of fixed assets 26,560.13 78,521.70 Donation 296,680.00 218,000.00 Penalty payout 515,646.42 67,947.64 Indemnity for breaking a contract 216,000.00 Others 26,193.68 149,332.38 Total 865,080.23 729,801.72 35. Income tax Items 2008 2007 Income tax this year 602,520.53 11,747,704.97 Deferred income tax Total 602,520.53 11,747,704.97 36. Information of cash flow statement (1) Cash received relating to other operating activities Details of significant amount items: Items 2008 2007 Fee of handling certificate from customer 340,328.50 Collecting water and electricity charge of owners 6,852,535.44 2,333,028.00 Interest income 16,859,477.92 Demolition compensation 7,100,000.00 Others 6,162,234.03 4,467,293.83 Total 36,974,247.39 7,140,650.33 (2) Cash paid relating to other operating activities Details of significant amount items: Items 2008 2007 Information disclosure fee 533,032.62 525,000.00 Audit and consultation fee 1,053,026.00 1,439,679.17 Advertisement publicity expenses 8,025,216.89 1,320,396.00 Agent and lawyer fee 3,824,788.46 1,870,791.00 Travel expenses 993,005.66 2,687,483.90 Business serving fee 2,043,845.63 1,438,290.30 Items 2008 2007 Office expenses 580,692.75 1,093,824.00 Wanjia Hotel expense 3,657,672.00 Rent 915,294.25 483,090.70 Other management fees 1,002,899.22 3,527,021.10 Total 18,971,801.48 18,043,248.17 (3) “Cash received from borrowings” includes loan 40,530,000.00 yuan from Beijing Xinxing Real Estate Development Company and Beijing Wangfa Real Estate Development Holdings Co., Ltd; “Cash repayments of amounts borrowed” includes repayment 30,000,000.00 Yuan to Beijing Xinxing Real Estate Development Company. (4)Supplementary information of cash flow statement Items 2008 2007 1．Reconciliation of net profit to cash flows from operating activities: Net profit -79,777,148.90 -30,363,632.14 Add: Provision for impairment of assets 4,094,726.48 7,057,737.56 Depreciation of fixed assets 19,188,877.62 3,659,948.79 Amortization of intangible assets 894,205.60 835,461.73 Amortization of long-term prepayments 1,014,006.50 Losses on disposal of fixed assets, intangible -82,256.03 8,654.00 assets and other long-term assets Losses on scrapping of fixed assets Losses on fair value change Financial expenses 35,348,399.35 17,614,479.50 Investment losses -47,803.28 -365,700.67 Decrease in deferred income tax assets Increase in deferred income tax liabilities Decrease in inventories -158,232,378.22 15,523,433.16 Decrease in operating receivables 59,197,434.70 -57,964,772.56 Increase in operating payables 53,380,696.72 21,636,401.03 Others Net cash flows from operating activities -66,035,245.96 -21,343,983.10 2．Significant investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Items 2008 2007 Fixed assets under finance lease 3．Net increase in cash and cash equivalents Cash at the end of the period 36,655,536.17 110,933,403.84 Less: Cash at the beginning of the period 110,933,403.84 25,848,868.95 Add: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase in cash and cash equivalents -74,277,867.67 85,084,534.89 (5) Cash and cash equivalents Items 2008 2007 1. Cash 36,655,536.17 110,933,403.84 Including: Cash on hand 257,690.21 456,917.03 Bank deposit paid at any time 36,367,845.96 110,446,486.81 Other monetary funds paid at any time 30,000.00 30,000.00 2. cash equivalents 3. Cash and cash equivalents at the end of year 36,655,536.17 110,933,403.84 VI. Notes to significant items of the parent company’s financial statements 1. Accounts receivable (1) Detailed information 31 Dec 2008 1 Jan 2008 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with significant amount 9,157,687.60 71.06 7,789,627.20 1,368,060.40 7,761,707.60 64.00 7,761,707.60 0.00 Individual without significant 2,733,637.13 21.21 2,161,880.82 571,756.31 2,205,404.55 18.18 1,927,378.94 278,025.61 amount,but with significant credit risk Other unimportant receivables 995,829.00 7.73 259,884.05 735,944.95 2,160,550.57 17.82 184,257.58 1,976,292.99 Total 12,887,153.73 100.00 10,211,392.07 2,675,761.66 12,127,662.72 100.00 9,873,344.12 2,254,318.60 (2) Age analysis 31 Dec 2008 1 Jan 2008 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 1,497,480.00 11.62 29,949.60 1,467,530.40 837,509.75 6.91 16,750.19 820,759.56 1 year 1-2 418,921.00 3.25 20,946.05 397,974.95 754,685.82 6.22 37,734.29 716,951.53 years 2-3 475,408.00 3.69 236,908.00 238,500.00 100,000.00 0.82 10,000.00 90,000.00 years 3-4 100,000.00 0.78 20,000.00 80,000.00 207,334.00 1.71 41,466.80 165,867.20 years 4-5 200,997.00 1.56 60,299.10 140,697.90 261,021.00 2.15 78,306.30 182,714.70 years Over 5 10,194,347.73 79.10 9,843,289.32 351,058.41 9,967,112.15 82.18 9,689,086.54 278,025.61 years Total 12,887,153.73 100.00 10,211,392.07 2,675,761.66 12,127,662.72 100.00 9,873,344.12 2,254,318.60 Note 1: The end of this year did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 2: The first five debtors’ ending total balance is 9,157,687.600 Yuan, and is 71.06% of accounts receivable total amount. 3: There are 1,395,980.00 Yuan within 1 year and 7,761,707.60 Yuan over 5 years in the first five debtors’ ending total balance. Details refer to the following statement: Relationship Name Amount Ages Percentage(%) With the company Hainan centaline property agency Client 2,090,069.77 Over 5 years 16.22 海南中原物业代理公司 Hainan racing entertainment Co., LTD Client 2,406,158.00 Over 5 years 18.67 海南赛马娱乐有限公司 Hainan Baoping company Client 2,218,494.43 Over 5 years 17.21 海南宝平公司 Hainan dragon flim studio Client 1,046,985.40 Over 5 years 8.12 海南龙珠影视城 Sun Gong - Pearl Plaza attaching building,4-floor Client 1,395,980.00 Within one year 10.83 孙工-珠江广场裙楼四层 Total 9,157,687.60 71.06 4: The bad debts proportion and reasons for individual accounts receivable with significant amount Individual account receivables whose amount is more than 1 million and whose ending balance is owned more than 5% (including 5%) of the total account receivables will be recognized as individual other receivables with significant amount. At the end of this year, the individual accounts receivable with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of accounts receivable portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 7,761,707.60 Yuan. 5: The bad debts proportion and reasons for individual accounts receivable without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the accounts receivable over 5 years, the bad debts proportion is 50% of the balance. For accounts receivable that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual accounts receivable with significant amount from accounts receivable satisfied with above situations, the leavings are individual accounts receivable without significant amount, but with significant credit risk. 2. Other receivables (1) Detailed information 31 Dec 2008 1 Jan 2008 Items Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Individual with significant amount 79,250,025.99 73.56 21,332,250.57 57,917,775.42 146,700,025.99 85.25 21,915,500.57 124,784,525.42 Individual without significant amount 27,309,923.89 25.35 25,802,651.89 1,507,272.00 24,005,900.78 13.95 23,377,607.45 628,293.33 ,but with significant credit risk Other unimportant receivables 1,177,194.26 1.09 268,096.39 909,097.87 1,382,630.32 0.80 89,176.78 1,293,453.54 Total 107,737,144.14 100.00 47,402,998.85 60,334,145.29 172,088,557.09 100.00 45,382,284.80 126,706,272.29 (2) Aging analysis 31 Dec 2008 1 Jan 2008 Ages Proportion Proportion Balance Bad debts Net value Balance Bad debts Net value (%) (%) Within 732,655.94 0.68 14,653.12 718,002.82 60,828,950.90 35.35 1,216,579.02 59,612,371.88 1 year 1-2 244,538.32 0.23 233,443.27 11,095.05 252,360.80 0.15 12,618.04 239,742.76 years 2-3 200,000.00 0.19 20,000.00 180,000.00 2,840.00 0.00 284.00 2,556.00 years 3-4 2,840.00 0.00 568.00 2,272.00 21,465,978.62 12.47 4,293,195.72 17,172,782.90 years 4-5 21,465,978.62 19.92 6,648,728.62 14,817,250.00 0.00 0.00 0.00 years Over 5 85,091,131.26 78.98 40,485,605.84 44,605,525.42 89,538,426.77 52.03 39,859,608.02 49,678,818.75 years Total 107,737,144.14 100.00 47,402,998.85 60,334,145.29 172,088,557.09 100.00 45,382,284.80 126,706,272.29 Note 1: The end of this year did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 2: The first five debtors’ ending total balance is 84,975,728.70 Yuan, and is 78.87% of other receivables total amount. 3: There are 21,167,500.00 Yuan between 4-5 years and 63,808,288.70 Yuan over 5 years in the first five debtors’ ending total balance. Details are as follows: Relationship Name Amount Ages Percentage(%) With the company Hainan Pearl River Industrial Co., Ltd. Shanghai real estate company susidiary 58,082,525.99 Over 5 years 53.91 海南珠江实业股份有限公司上海房地产公司 Hainan Baxter industrial Co., LTD Outside the group 11,417,500.00 4-5 years 10.60 海南百特实业有限公司 Beijing Yidong international Properties Co., LTD Outside the group 9,750,000.00 4-5 years 9.05 北京怡东国际置业有限公司 YangPu Nanhua Datong investment Co., LTD Outside the group 3,000,000.00 Over 5 years 2.78 洋浦南华大通投资有限公司 Dingjia International Co., LTD Outside the group 2,725,702.71 Over 5 years 2.53 定佳国际有限公司 Total 84,975,728.70 78.87 4: Other receivables is decreased by 37.39％ compared with initial amount. It is mainly due to receive the repayment of 60 million yuan from Zhejiang Guangxia Goup Anhui Real Estate Co., LTD during the year. Details refer to Note XIII. Other important issues 3. 5: The bad debts proportion and reason for individual other receivables with significant amount Individual other receivables whose amount is more than 1 million and whose ending balance is owned more than 5% (including 5%) of the total other receivables will be recognized as individual other receivables with significant amount. At the end of this year, the individual other receivables with significant amount that doesn’t occur impairment loss after individual testing, shall base on actual loss rates of other receivables portfolio with same ages and present situation to determine the bad debts proportion. Among them, the balance over 5 years is 58,082,525.99Yuan. 6: The bad debts proportion and reason for individual other receivables without significant amount, but with significant credit risk according to credit risk characteristics portfolio For the other receivables over 5 years, the bad debts proportion is 50% of the balance. For other receivables that are surely uncollectible, the bad debts proportion could be increased to 100% of the balance. After deducting individual other receivables with significant amount from other receivables satisfied with above situations, the leavings are individual other receivables without significant amount, but with significant credit risk. 3. Long-term equity investment (1) Category 31 Dec 2008 1 Jan 2008 Items Balance Provision Book value Balance Provision Book value Investment to 230,100,000.00 40,000,000.00 190,100,000.00 230,100,000.00 40,000,000.00 190,100,000.00 subsidiary Investment to affiliate Other equity investment 205,951,703.44 126,539,941.74 79,411,761.70 205,951,703.44 126,539,941.74 79,411,761.70 Total 436,051,703.44 166,539,941.74 269,511,761.70 436,051,703.44 166,539,941.74 269,511,761.70 (2) Investment to subsidiary Equity Accumulative Initial Holding Incre increase or equity Decre Name investing 1 Jan 2008 31 Dec 2008 proportion ment decrease increase or ment amount this year decrease Hainan Pearl River Properties and 98% 4,900,000.00 4,900,000.00 4,900,000.00 Hotels Management Co., Ltd. Sanya Wanjia Hotel Management Co., 100% 108,000,000.00 108,000,000.00 108,000,000.00 Ltd. Sanya Wanjia 100% 20,000,000.00 20,000,000.00 20,000,000.00 investment Co., Ltd. Hubei Pearl River Real Estate 88% 57,200,000.00 57,200,000.00 57,200,000.00 Development Co., Ltd. Hainan Pearl River Enterprises Holding 100% 40,000,000.00 40,000,000.00 40,000,000.00 Co., Ltd. Shanghai Real Estate Co. Total 230,100,000.00 230,100,000.00 230,100,000.00 (3) Other equity investment Holding Initial investing Name 1 Jan 2008 Decrement 31 Dec 2008 proportion % amount Southwest Security 3.21 150,000,000.00 159,705,748.15 159,705,748.15 Guangzhou Pearl River Investment Management Co., Ltd 9.4785 18,177,240.29 18,177,240.29 18,177,240.29 China Net Promoting Science and Technology Investment Company 10 10,000,000.00 10,000,000.00 10,000,000.00 China (Hainan) Reform Development Academe 8,640,000.00 8,640,000.00 8,640,000.00 Hainan Tongsheng Harbor 15 6,000,000.00 6,000,000.00 6,000,000.00 Company Hainan South Ocean Ship Industry Stock Co., Ltd 1,680,000.00 1,680,000.00 1,680,000.00 Nanli Lake member card 662,400.00 662,400.00 662,400.00 Hainan Pearl River Pipe and Peg Co., Ltd 1.33 618,500.00 426,315.00 426,315.00 Hainan General Commercial Board 6.67 500,000.00 500,000.00 500,000.00 Hainan Huadi Pearl River Base-Project Co., Ltd 2 160,000.00 160,000.00 160,000.00 Total 196,438,140.29 205,951,703.44 205,951,703.44 Note: During the long-term equity investment, the investment in Southwest Security was pledged. Details refer to Note XIII. Other important events. (4) Long-term investment impairment provision Decrement Name 1 Jan 2008 Increment Transfer Write 31 Dec 2008 Reason back off Southwest Security 91,705,296.35 91,705,296.35 Huge loss Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real 40,000,000.00 40,000,000.00 Huge loss Estate Co. Deterioration of Guangzhou Pearl River Investment 7,352,245.39 7,352,245.39 the financial Management Co., Ltd situation China Net Promoting Science and Be revoked the 10,000,000.00 10,000,000.00 Technology Investment Company business license China (Hainan) Reform Unable to Development 8,640,000.00 8,640,000.00 recover Academe investment Hainan Tongsheng Harbor Project has 6,000,000.00 6,000,000.00 Company already been Decrement Name 1 Jan 2008 Increment Transfer Write 31 Dec 2008 Reason back off suspended Hainan South Ocean Ship Industry Negative net 1,680,000.00 1,680,000.00 Stock Co., Ltd assets Unable to Nanli Lake member card 662,400.00 662,400.00 recover investment Unable to Hainan General Commercial Board 500,000.00 500,000.00 recover investment Total 166,539,941.74 166,539,941.74 4. Operating income and cost (1) Detailed information of Operating income and cost Items 2008 2007 Main operating income 20,235,706.41 5,303,369.14 Other operating income 378,136.75 1,194,926.42 Total 20,613,843.16 6,498,295.56 Main operating costs 20,770,342.08 6,248,029.18 Other operating costs 88,137.76 54,337.61 Total 20,858,479.84 6,302,366.79 (2) The details of main operating income and cost are as follows according to products: Items 2008 2007 Main operating income Real estate sales 20,235,706.41 5,303,369.14 Items 2008 2007 Main operating costs Real estate sales 20,770,342.08 6,248,029.18 5. Investment income Items 2008 2007 Net increase or decrease of invested enterprise’s owner’s equity adjusted at the end of the year Income from transferring equity investment Dividend received 67,830.00 Total 67,830.00 Note: At the balance sheet date, there were no significant restrictions on the return from investments. VII. Related party relationship and transactions 1. Related party relationship (1) Related parties with control relationship a. Parent company and ultimate controller: Relationship Voting Registered Organization Principal Registered Holding Name with the rights address code operating capital proportion Company proportion Beijing Wangfa Real estate The first Real Estate development 280 million Beijing 60003715-7 largest 26.08% 26.08% Development and Yuan shareholder Holdings Co., Ltd operation Beijing Xinxing Real estate Controller of Real Estate development the first 10 million Beijing 10113538-5 Development and largest Yuan Company operation shareholder b. Registered capital and its changes about related party with controlling relationships Name 1 Jan 2008 Increment Decrement 31 Dec 2008 Beijing Wangfa Real Estate 280 million Yuan 280 million Yuan Development Holdings Co., Ltd c. Equity and its changes about related party with controlling relationships 1 Jan 2008 Increment Decrement 31 Dec 2008 Name Balance % Balance Balance Balance % Beijing Wangfa Real Estate Development 111,283,500 26.08 111,283,500 26.08 Holdings Co., Ltd. d. Information about subsidiaries Details refer to IV. Business combinations and consolidation financial statements. (2) Information about joint venture and affiliate of the Company Organization Registered Principal Registered Holding Voting rights Name code address operating capital proportion proportion Shanghai Bright Pearl at Sea Property Property Management 60732602-3 Shanghai management 1,660,000 50% 50% Company service Beijing Yangguang Tiancheng Property Property Management Co., 77954738-3 Beijing management 5,000,000 30% 30% Ltd service (3) Other related parties Relationship with Name the Company Beijing Yulong Jisheng Real Estate Development Co., Ltd. With same controller Bohua Asset Management Co., Ltd. With same controller 2. Related party transactions (1) Providing funds a. The Company borrowed 13.7 million Yuan from Beijing Xinxing Real Estate Development Company and repaid 70 million yuan (include receipt of 60 million yuan from Zhejiang Guangxia) during this reporting period, then the accumulated borrowing balance is 9,160,400.00 yuan at the end of this year. The company also borrowed 3.2 million yuan from Beijing Wanfa Real Estate Development Company during this reporting period , and the accumulated borrowing balance is 55.525 million yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. b. The Company’s subsidiary Hubei Pearl River Real Estate Development Co., Ltd. repaid 20 million Yuan to Beijing Xinxing Real Estate Development Company this period, and the accumulated borrowing balance is 3.5 million yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. c. The Company’s subsidiary Sanya Wanjia Hotel Management Co., Ltd borrowed 26.83 million Yuan from Beijing Xinxing Real Estate Development Company this report period, and the accumulated borrowing balance is 142.03 million yuan at the end of this year. It also borrowed 0 yuan from Beijing Wangfa Real Estate Development Company, and the accumulated borrowing balance is 19.7 million yuan at the end of this year. Borrowing rate is complied with one-year RMB benchmark lending rate of the People's Bank of China and changed according its change. During the reporting period, of interest on related party loans mentioned in the above a) -c) are 22,890,411.37 yuan, until to the year end the accumulated interest payable is 47,191,413.83 yuan. d. According to the agreement among the Company, Bohua Asset Management Co., Ltd, and Beijing Wangfa Real Estate Development Holdings Co., Ltd, the loan 3.2 million Yuan which was borrowed from Bohua Asset Management Co., Ltd, by the Company was transferred as the debt that the Company should pay Beijing Wangfa Real Estate Development Holdings Co., Ltd. This year, the Company drew interest 158,666.66 Yuan for the loan and the accumulative unpaid interest owned by Bohua Asset Management Co., Ltd, was 4,502,244.47 Yuan, according to the agreement among the Company, Bohua Asset Management Co., Ltd, and Beijing Wangfa Real Estate Development Holdings Co., Ltd, the accumulative interest 4,502,244.47 Yuan was transferred as the debt that the Company should pay Beijing Wangfa Real Estate Development Holdings Co., Ltd. (2) Loan guarantee During this year, Beijing Wangfa Real Estate Development Holdings Co., Ltd provided loan guarantee of 24,000,000 Yuan that the Company got from the Bank of Communication Hainan Branch. It also provided loan guarantee of 12,000,000 Yuan that the Company’s subsidiary company Sanya Wanjia Hotel Management Co., Ltd got from the Bank of China Haikou Yeshumeng Branch. 3. Balances of related party receivable and payable 1 Jan 2008 Increment Decrement 31 Dec 2008 Items Amount Proportion（%） Amount Proportion（%） 1. Other payables Beijing Xinxing 204,160,447.00 45.40 40,530,000.00 90,000,000.00 154,690,447.00 38.36 1 Jan 2008 Increment Decrement 31 Dec 2008 Items Amount Proportion（%） Amount Proportion（%） Real Estate Development Company Beijing Wangfa Real Estate 72,025,000.00 16.01 3,200,000.00 0.00 75,225,000.00 18.65 Development Holdings Co., Ltd. Beijing Yulong Jisheng Real Estate 1,500,000.00 0.33 1,500,000.00 0.37 Development Co., Ltd. Bohua Asset Management Co., 3,200,000.00 0.71 3,200,000.00 0.00 0.00 Ltd. Total 280,885,447.00 62.46 43,730,000.00 93,200,000.00 231,415,447.00 57.38 2. Interest payable Beijing Xinxing Real Estate 13,961,778.65 36.99 17,450,162.19 31,411,940.84 45.01 Development Company Beijing Wangfa Real Estate 5,836,979.34 15.47 9,942,493.65 15,779,472.99 22.61 Development Holdings Co., Ltd. Bohua Asset Management Co., 4,343,577.81 11.51 158,666.66 4,502,244.47 0.00 0.00 Ltd. Total 24,142,335.80 63.97 27,551,322.50 4,502,244.47 47,191,413.83 67.63 3. Reward of key managers Name 2008 2007 Remark Zheng Qing 235,600.00 217,000.00 Chairman of the board, General Manager Feng bai 154,000.00 Vice General Manager Chen Binglian 154,960.00 133,000.00 Vice General Manager Gu Lirong 112,640.00 secretary of the board of directors Name 2008 2007 Remark Wu Xiaojing 84,000.00 Director Yang Daoliang 95,760.00 80,000.00 Employee supervisor Total 682,960.00 584,000.00 Note: The other directors and supervisors of the Company do not draw reward from the Company. VIII. Contingent events Not applicable. IX. Commitments On 25 August 2004, the Company and the Bank of China Haikou Yeshumeng branch signed loan agreement with total contract amount 30 million Yuan, and the Company shall repay the loan at 6 times up to 25 August 2012. The loan balance is 12 million Yuan up to 31 December 2008. X. Non-adjusting events after the balance sheet date On February 17, 2009 it completed all registration procedures of asset reorganization and absorption merger between Chongqing Changjiang River Transport Limited Company and Southwest Securities Co., LTD. Then the company became a shareholder of Southwest Securities Co., Ltd. with holding 53,250,000 shares, which representing 2.797% of the total share capital. On April 14, 2009, the Company’s 31.09 million shares of Southwest Securities Company Ltd were put up to auction in Chongqing United Equity Exchange. As a result, No. 06 bidder won the bid with offering 197,545,900.00 yuan. When the Company received the "auction confirmation letter", and submitted the “letter of objection to the implementation” to Chongqing Fifth Intermediate People's Court and required to confirm the auction is null and void act. Details refer to Note XIII Other important events 2 as well as the Company’s announcement. XI. Non-monetary transactions Not applicable. XII. Debt restructuring Not applicable. XIII. Other important events 1. On 2007 March Hainan Pearl River Holding Company Limited (the Company) borrowed 130,000,000.00 Yuan from Chongqing Putian Communication Equipment Co., Ltd for six months with annual interest rate of 6.804%. The Company’s 75 million shares of Southwest Securities Company Ltd were used as mortgage and pledged in Chongqing Banan rural credit cooperative. As the Company didn’t repay at due date, Chongqing Putian Communication Equipment Co., Ltd. (the plaintiff) appealed the Company (the defendant) and asked the company to repay principal 130,000,000.00 Yuan and the corresponding interest( untill 31 December,2008 the interest is 11,249,091.00 yuan). The company received "the civil lawsuit" and "the civil judgment” on November 30, 2007. According to the civil judgment, the Company's 75 million shares of Southwest Securities Company Ltd. were sealed up. The detailed information in the civil judgment is as follows: the Company shall repay principal 130,000,000.00 Yuan to Chongqing Putian Communication Equipment Co., Ltd. within 10 days when the judgment came into force; the Company shall pay funds occupied loss at the annual interest rate of 6.804% from September 21, 2007 until paying off principal. On July 4, 2008, the Company submitted a "civil complaint". The Company’s appeal was withdrawn automatically after 15 days of appeal period. The case has entered into the implementation stage now. Details refer to the Company’s announcement. 2. On August 26, 2008, the Company convened 20th session of fifth board of directors, The Company agreed to use 75 million shares of Southwest Securities before the merger of Southwest Securities, occupied 3.21% of registered capital, to exchange additional shares of Chongqing Changjiang River Transport Limited Company. After the completion of the absorption merger, the Company will be the shareholder of Changyun Stock holding 53.25 million shares, occupied 2.931% of total shares. Changyun Stock applies to change its name to "Southwest Securities Co., Ltd.". On January 22, 2009, the above mentioned restructuring program was approved by China Securities Regulatory Commission with a document (2009) No. 62 "On the approval of Asset Reorganization and Absorption Merger between Chongqing Changjiang River Transport Limited Company and Southwest Securities Co., LTD ", and on February 17, 2009 it complete all registration procedures. Then the Company became a shareholder of Southwest Securities Co., Ltd. with holding 53,250,000 shares, which representing 2.797% of the total share capital. On February 26, 2009, Changyun Stock resume trading, and change its stock name from "* ST Chang Yun" to "Southwest Securities", stock code "600369" remain the same. 53,250,000 shares held by the company are limited sale outstanding shares with limited sale period of three years. 3. The Company intended to use the method of share transfer to develop the "the Tianxi Jincheng" project located in Changqing town Baohe District of Hefei with Bengbu New District Development Company Limited. But the project had not been officially launched. Whereas the current macro-environmental impact at home and abroad and real estate market conditions, there are certain risks and uncertainties in the Hefei project. Through friendly consultations, the two sides both agreed to relieve the co-operation. Bengbu New District Development Company Limited had returned the 60 million Yuan which was obtained according to the original agreement (60 million Yuan was paid by Beijing Xinxing Real Estate Development Company which is the actual controller of the Company) and paid corresponding fund occupation fee 16,613,888.00 Yuan with the interest rate of 20% to the Company. 4. On March 17, 2008, the Company received the notice from Beijing Wanfa Real Estate Development Co., Ltd and Beijing Xinxing Real Estate Development Corporation, and was informed that the actual controller of Beijing Xinxing Real Estate Development Corporation and CITIC Group were negotiating and communicating about the reorganization issue of Beijing Xinxing Real Estate Development Corporation. There was no clear progress of the communication about reorganization between Beijing Xinxing Real Estate Development Corporation and CITIC Group untill the year end. XIV. Supplementary information 1. According to “Information disclosure requirement No.1 for the companies issuing securities publicly – Non-recurring Profit and Loss [2008]” issued by China Securities Regulatory Commission ([2008] No. 43), the amount of non-recurring profit and loss is as follows (profit is “+”, loss is “-”): Items 2008 2007 Profit and loss on disposal of non-current assets 82,256.03 8,654.00 Fund occupation fee from non-financial enterprises 16,613,888.00 included in the current profit and loss Other net operating income other than the above items 7,110,443.32 124,010.53 Other extraordinary gains and losses items included in 1,477,392.82 profit and loss account Non-operating gains and losses effects on total profits 23,806,587.35 1,610,057.35 Less: Income tax impact 604,009.92 -116,812.29 Less: Minority shareholder impact -64,975.73 -12,673.85 Attributable to the parent company of extraordinary gains 23,267,553.16 1,739,543.49 and lossesaffect net profit attributable to parent company after deducting -99,871,334.45 -32,939,500.57 extraordinary gains and losses 2. According to “Rules for the Compilation of Information Disclosures by the Companies That Offer Securities to the Public No. 9 – Calculation and Disclosure of Return on Net Assets and Earnings Per Share” issued by China Securities Regulatory Commission (revised in 2007), the return on net assets and earnings per share are as follows: (1) Return on net assets Return on net assets Profit of this year Fully diluted Weighted average 2008 2007 2008 2007 Net profit attributable to common -64.33% -15.94% -48.67% -14.77% shareholders Net profit excluding non-recurring Profit and Loss attributable to common -83.86% -16.83% -63.46% -15.59% shareholders (2) Earnings per share Earnings per share Profit of this year Basic earnings per share Diluted earnings per share 2008 2007 2008 2007 Net profit attributable to common -0.18 -0.07 -0.18 -0.07 shareholders Net profit excluding non-recurring Profit and Loss attributable to common -0.23 -0.08 -0.23 -0.08 shareholders Items 2008 2007 Calculation of basic earnings per share and diluted earnings per share 1. Numerator Net profit deducting tax -76,603,781.29 -31,199,957.08 Profit and loss attributable to common shareholders of -76,603,781.29 -31,199,957.08 parent company Diluted Profit and loss attributable to common -76,603,781.29 -31,199,957.08 shareholders of parent company 2. Denominator Outstanding weighted average of ordinary shares 426,745,404.00 426,745,404.00 Diluted Outstanding weighted average of ordinary shares 426,745,404.00 426,745,404.00 3. Earnings per share Items 2008 2007 Basic earnings per share -0.18 -0.07 Diluted earnings per share -0.18 -0.07 (3) Calculation process Fully diluted return on net assets = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ net assets attributable to common shareholders at the end of this year Weighted average return on net assets = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ (net assets at the beginning of this year + net profit attributable to common shareholders ÷ 2) Basic earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares Diluted earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares after adjusted There are no potential diluted ordinary shares in the Company during the report period. XV. The financial statements were approved by 22nd session of fifth board of directors of the Company. Hainan Pearl River Holding Company Limited 24 April, 2009