ST中华B(200017)2008年年度报告（英文版）

SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 深圳中华自行车（集团）股份有限 公 司 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED 2008 ANNUAL REPORT April 25, 2009 1 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 IMPORTANT NOTICES: Directors, supervisors and senior executives of the Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as the Company) hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinions for the 2008 Financial Report of the Company. The Board of Directors of the Company made specific explanations on the relevant matters; the Supervisory Committee of the Company expressed definite opinions on the specific explanations by the Board of Directors. The investors are suggested to read for details. No director, supervisor and senior executives stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of 2008 Annual Report or have objection for this report. Director Mr. Zhu Jianqi was absent from the board meeting due to business evection and he entrusted Director Li Ronghui to attend and vote on his behalf. Chairman and Person in Charge of the Company Mr. Shang Shijun, Person in Charge of Accounting Works Mr. Jiang Houjin and Chief Accountant Ms. He Yili hereby confirm that the Financial Report of 2008 Annual Report is true and complete. Content I. Company Profile----------------------------------------------------------------------------------------------2 II. Summary of Accounting Highlight and Bussiness Highlight --------------------------------------3 III. Changes in Share Capital & Particulars about Shareholders------------------------------------6 IV Particulars about Directors, Supervisors, Senior Executives & Employees-------------------9 V. Administrative Structure----------------------------------------------------------------------------------14 VI. Particulars about Shareholders’ General Meetings------------------------------------------------16 VII. Report of the Board of Directors---------------------------------------------------------------------17 VIII. Report of the Supervisory Committee--------------------------------------------------------------25 IX. Significant Events-----------------------------------------------------------------------------------------27 X. Financial Report--------------------------------------------------------------------------------------------30 Documents Available for Documents-----------------------------------------------------------------------87 2 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 I. Company Profile 1. Legal Name of the Company in Chinese: 深圳中华自行车（集团）股份有限公司 In English: SHENZHEN CHINA BICYCLE COMPANY (HOLDINGS) LIMITED Short form of English Name: CBC 2. Legal Representative: Shang Shijun 3. Secretary of the Board of Directors: Li Hai Representatives for Securities Affairs: Cui Hongxia Tel: (86) 755 –28181666, 25516998 Contact Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Fax: (86) 755 –28181009 E-mail: dmc@szcbc.com 4. Registered Address and Office Address: No. 3008, Buxin Road, Shenzhen, Guangdong Province, PRC Post Code: 518019 Office Address: Zhonghua Industrial Park, Yousong Industrial Zone, Longhua, Shenzhen, Guangdong Province, China Post Code: 518131 The Company’s Internet Website: www.cbc.com.cn E-mail: cbc@szcbc.com 5. Newspapers Chosen for Disclosing the Information: Securities Times and Hong Kong Wen Wei Po Internet Website Designated for Publishing the Annual Report: www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors 6. Stock Exchange Listed with, Short Form of the Stock and Stock Code: Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SST ZHONGHUA – A, ST ZHONGHUA – B Stock Code: 000017 for A-share, 200017 for B-share 7. Other Information about the Company (1) Initial registered date: Aug. 24, 1984 (2) Initial registered place: Buxin Road, Shenzhen (3) Registration number for business license of legal person of corporation: PGYSZZi No.101165 (4) Registration number of tax: State Revenue SHEN ZI No. 440301618830452, Land Tax SHEN ZI No. 440303618830452 (5) Name and office address of the Certified Public Accountants engaged by the Company: Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Office Address: 5/F, Baofeng Building, 2006 South Dongmen Road, Shenzhen 3 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 II. Summary of Accounting Highlight and Bussiness Highlight 1. Major profit indexes as of the year 2008 (1) Major profit indexes as of the year 2008 (Unit: RMB) Operating profit -71,709,140.99 Total profit -44,489,780.00 Net profit attributable to the shareholders of the listed -44,893,006.40 company Net profit attributable to the shareholders of the listed -60,660,142.06 company after deducting non-recurring gains and losses Net cash flow arising from operating activities -14,392,427.25 (2) Items of non-recurring gains and losses (Unit: RMB) Items of non-recurring gains and losses Year 2008 Year 2007 1. Gains and losses from disposal of non-current asset 8,666,548.80 757,452.53 2. Any tax refund or exemption illegally approved or without supporting documents in writing --- --- 3.Governmental subsidy reckoned into current gains and losses --- --- 4. Income deriving from use by non-financial entities of an enterprise’s own fund --- --- 5. Gains and losses caused by that the merger cost of merger enterprise is smaller than the fair recognizable fair value of net asset enjoyable by the --- --- merger unit when taking merger 6. Exchanging gains and losses of non-currency assets --- --- 7. Gains and losses of entrusted investment --- --- 8. Accrual of provisions for asset impairment due to natural disasters and other majure --- --- 9. Gains and losses caused by debts reorganization 17,360,832.24 138,127,300.95 10. Expenses caused by enterprises reconstruction -11,452,225.33 --- 11. Profit/loss attributable to unfair portion of the value resulting from unfair priced transactions --- --- 12. Current net gains and losses during period-begin to merger date of subsidiaries caused by merger of enterprises under the common control --- --- 13. Gains and losses caused by projected liabilities irrelevant to main operations of the Company --- --- 14. Net amount of other non-operating income and cost excluded the aforesaid items 1,191,979.95 -13,868.87 15. Other --- --- Total 15,767,135.66 138,870,884.61 Less: Income tax relevant to non-recurring gains/losses --- --- Less: Part enjoyed by minority shareholders --- --- Net profit influenced by non-recurring gains/losses 15,767,135.66 138,870,884.61 Net profit in statement -44,489,780.00 63,036,241.24 Less: Gains/losses of minority shareholder 403,226.40 - Net profit attributable to shareholders of parent company -44,893,006.40 63,036,241.24 Net profit attributable to the shareholders of parent company after deducting non-recurring gains and losses -60,660,142.06 -75,834,643.37 2. Major accounting data and financial indexes over the recent three year at the end of report year 4 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 (Unit: RMB) (1) Main accounting data Unit: RMB Increase/de crease this year 2008 2007 compared 2006 with that last year (%) After Before adjustment After adjustment Before adjustment After adjustment adjustment Operating income 274,202,840.48 234,601,314.71 234,601,314.71 16.88% 219,673,260.11 232,525,287.59 Total profit -44,489,780.00 72,885,796.46 72,885,796.46 -161.04% -12,024,258.74 -12,012,582.39 Net profit attributable to -44,893,006.40 63,036,241.24 63,036,241.24 -171.22% -9,648,015.34 -12,012,582.39 shareholders of the listed company Net profit attributable to shareholders of the listed company after -60,660,142.06 -6,276,043.85 -75,834,643.37 -20.01% -9,681,664.56 -12,046,231.61 deducting non-recurring gains and losses Net cash flow arising from operating -14,392,427.25 -2,591,980.11 -2,591,980.11 455.27% -9,953,587.30 -8,950,557.42 activities -0.0936 0.1315 0.1315 -171.18% -0.0201 -0.0251 -0.0936 0.1315 0.1315 -171.18% -0.0201 -0.0251 Increase/de crease at the end of this year At the end of 2008 At the end of 2007 compared At the end of 2006 with that at the end of last year (%) After Before adjustment After adjustment Before adjustment After adjustment adjustment Total assets 190,897,705.53 214,381,530.57 214,381,530.57 -10.95% 282,611,118.07 282,611,118.07 Owners’ -1,803,059,381.3 -1,847,375,701.9 -1,870,068,543. equity(Shareholders’ -1,784,339,460.68 -1,807,032,302.68 -0.22% 9 2 92 equity) Share capital 479,433,003.00 479,433,003.00 479,433,003.00 0.00% 479,433,003.00 479,433,003.00 (2) Main financial indexes (Unit: RMB) Increase/decreas e this year 2008 2007 compared with 2006 that last year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment 5 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Basic earnings per share -0.0936 0.1315 0.1315 -171.18% -0.0201 -0.02508 (RMB/Share) Diluted earnings per share -0.0936 0.1315 0.1315 -171.18% -0.0201 -0.02508 (RMB/Share) Earnings per share calculated based on latest share -0.0936 0.1315 -171.22% -0.0201 -0.02508 0.1315 capital(RMB/Share) Basic earnings per share after deducting non-recurring gains -0.1265 -0.0131 -0.1582 -20.04% -0.0202 -0.0251 and losses (RMB/Share) Fully diluted return on equity - - - - - - (%) Weighted average return on - - - - - - equity (%) Fully diluted return on equity after deducting non-recurring - - - - - - gains and losses (%) Weighted average return on equity after deducting - - - - - - non-recurring gains and losses (%) Net cash flow per share arising from operating -0.03 -0.0054 -0.0054 - -0.0208 -0.0187 activities (RMB/Share) Increase/decreas e at the end of At the end of this year At the end of 2007 At the end of 2006 2008 compared with that at the end of last year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment Net asset per share attributable to shareholders of listed company -3.7608 -3.72 -3.7691 - -3.85 -3.90 (RMB/Share) 6 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 III. Changes in Share Capital & Particulars about Shareholders (I) Particulars about change in share capital 1. Change in share capital Unit: Share Before the change Increase/decrease of this time (+, - ) After the change Rat Bo Conver Propo ion nus sion of Additio Ot Subto Proport ed nal he Amount Amount rtion sha public tal ion (%) sha issuing rs （%） res reserve re 186,713,192 38.94 186,713,19 38.94 I. Unlisted Shares 2 186,713,192 38.94 186,713,19 38.94 1. Sponsors’ shares 2 Including: State-owned share Domestic legal 111,607,002 23.28 111,607,002 23.28 person’s shares Foreign legal person’s 75,106,190 15.67 75,106,190 15.67 shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others II. Listed Shares 292,719,811 61.06 292,719,811 61.06 1. RMB ordinary 76,752,000 16.01 76,752,000 16.01 shares 2. Domestically listed 215,967,811 45.05 215,967,811 45.05 foreign shares 3. Overseas listed foreign shares 4. Others 479,433,003 100.0 479,433,00 100.00 III. Total shares 0 3 2. Issuance and listing of the share: (1) The Company has not issued new shares and derivative securities over the recent three years ended the report period. (2) In the report period, the shares capital of the Company has not been changed. The Company issued 5.3 million inner employee’s shares at the issuance price of RMB 3.75 per share dated Dec. 28, 1991. Of the total, the Company holds 135,000 inner employee’ shares now (of which 75,000 shares are held by present directors of the Company), and entrusted Shenzhen Securities Registration Company Limited for the trusteeship; other 5,165,000 shares were all listed. (II) About shareholders at the end of report period 1. In the report period, the Company had no changes on share capital. Ended Dec. 31, 2008, the Company had 34,406 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Unit: Share) 7 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Amount of Amount of Amount of Proport non-circulat shares Nature of Full name of shareholders shares held ion (%) ing shares pledged or shareholders in year-end held frozen Shenzhen Guocheng Energy Investment 65,098,412 13.58 65,098,412 0 Other Development Co., Ltd. Hong Kong Zhuorun Technology Co., Foreign-funded 44,104,246 9.20 44,104,246 44,104,246 Ltd. shareholder Foreign-funded Hong Kong (Link) Bicycles Limited 26,000,000 5.24 26,000,000 26,000,000 shareholder Shenzhen Kangsheng Investment 11,968,590 2.50 11,968,590 0 Other Development Co., Ltd. Xinliyi Investment Management Co., State-owned 11,200,000 2.34 11,200,000 0 Ltd. shareholder State-owned Airline Trust and Investment Co., Ltd. 10,340,000 2.16 10,340,000 10,340,000 shareholder Shenzhen New Land Tool Consultants 9,857,556 2.06 0 0 Other PTE. LTD Shenzhen International Trust & 6,000,000 1.25 6,000,000 0 Other Investment Co., Ltd. Foreign-funded Jingchao Investment Co., Ltd. 5,001,944 1.04 5,001,944 0 shareholder Shanghai Yanxin Industrial Investment 3,500,000 0.73 3,500,000 0 Other Co., Ltd. Note: Among the top ten shareholders the Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies; among the other circulating shareholders, the Company was unaware of whether there existed associated relationship or whether there existed consistent actionist regulated in the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies 3. Introduction of the controlling shareholder or actual controller of the Company (1) The controlling shareholder and the actual controller of the Company remained unchanged in the report period. (2) Introduction of the controlling shareholder or actual controller of the Company i. Introduction to controlling shareholders: Shenzhen Guocheng Energy Investment Development Co., Ltd. Address: 501C Pacific Commercial Town of New Asia, No. 8 Zhonghang Road, Futian District, Shenzhen; Legal representative: Shang Shijun; Registeration capital: RMB 70 million; Operation scope: Establishing industry (additional application for specific items); domestic commerce, industry of supply and distribution of materials (excluded commodities which were monopolized, under special control and sold exclusively). The controlling shareholder of Shenzhen Guocheng Energy Investment Development Co., Ltd was Shenzhen Guomin Investment Development Co., Ltd with holding 100% shares. ii. Introduction to actual controller: Shenzhen Guomin Investment Development Co., Ltd. Controlling shareholder: Zhang Yanfen with holding 44% shares, Ji Hanfei with holding 20% shares, Huang Yinquan with holding 36% shares. Address: Pacific Commercial Town of New Asia, Junction between Zhenzhong Road and Zhonghang Road, Futian District, Shenzhen; Legal representative: Zhang Yanfen; Registration capital: RMB 250 million; Operation scope: Establishing industry (additional application for 8 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 specific items); domestic commerce, industry of supply and distribution of materials (excluded commodities which were monopolized, under special control and sold exclusively); supply and distribution of automobiles (excluded cars); and open and manage E-Town of New Asia. Main business: Commerce, operation and management of real-estate, and industry investment. 3. The property relationship between the actual controller and the Company was as follows: Zhang Yanfen Ji Hanfei Huang Yinquan 44% 20% 36% 100% Shenzhen Guomin Investment Development Co., Ltd. 100% Shenzhen Guocheng Energy Investment Development Co., Ltd. 13.58% Shenzhen China Bicycle Company (Holding) Limited 司 4. The top ten circulating shareholders of the Company. Amount of circulating Name of shareholders shares held shareholders Types (share) Shenzhen New Land Tool Consultants PTE. 9,857,556 RMB common share LTD. Zhang Huiling 2,071,372 Domestically listed foreign shares TANG JING YUAN 1,924,500 Domestically listed foreign shares Lu Huazhong 1,547,000 Domestically listed foreign shares Li Jinling 1,225,702 Domestically listed foreign shares Jiang Lan 1,215,800 Domestically listed foreign shares Xiao Lizhu 1,127,649 Domestically listed foreign shares Wang Zuoguang 1,025,700 Domestically listed foreign shares Liu Baohua 1,000,000 Domestically listed foreign shares Wei guobin 902,000 Domestically listed foreign shares 9 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 IV. Particulars about Directors, Supervisors, Senior Executives & Employees (I) Directors, supervisors and senior executives 1. Basis information: Amount of shares held （share） Name Title Sex Age Office term Holding Holding shares at the shares at the year-begin year-end Shang Shijun Chairman of the Board Male 45 2007.7-2010.7 0 0 Jiang Houjin Director, President Male 39 2007.7-2010.7 0 0 Li Ronghui Director Male 37 2007.7-2010.7 0 0 Yang Fenbo Director Male 51 2007.7-2010.7 0 0 Liu Linfeng Director Male 51 2007.7-2010.7 0 0 Zhu Jianqi Director Male 34 2008.11-2010.7 0 0 Li Chun Independent Director Male 51 2007.7-2010.7 0 0 Shao Liangzhi Independent Director Male 44 2007.7-2010.7 0 0 Zhang Independent Director Female 40 2007.7-2010.7 0 0 Xinmiao Wei Chuanyi Independent Director Male 37 2007.7-2010.7 0 0 Convener of the Yao Supervisory Male 33 2008.6-2010.6 0 0 Zhengwang Committee Lan Qihua Supervisor Male 58 2008.6-2010.6 0 0 Zheng Supervisor Male 46 2008.6-2010.6 10,500 10,500 Zhonghuan Vice President, Li Hai Male 40 2007.9-2010.9 0 0 Secretary of the Board Xia Bofu Vice President Male 38 2007.9-2010.9 0 0 He Yili Chief Accountant Female 36 2007.9-2010.9 0 0 Note: In the report period, the on-job supervisor Zheng Zhonghuan holds 10,500 A-shares of the Company by purchasing from the secondary market, there was no shares of the Company held by other directors, supervisors, and senior executives in the report period. 2. Particulars about directors or supervisors holding the position in Shareholding Company Title in Name Name of Shareholding Company Shareholding Office term Company Chairman of the Shang Shijun Shenzhen Guocheng Energy Investment 2007 till now Development Co., Ltd. Board Li Ronghui Shenzhen Guomin Investment Development Supervisor Nov. 2003 till now Co., Ltd. Deputy General Yao Zhengwang Shenzhen Guomin Investment Development Feb. 2003 till now Co., Ltd. Manager of 10 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Investment Department 3. Main work experiences of directors, supervisors and senior executives Mr. Shang Shijun, with master degree of management engineer, from 2002 till now, took post of Deputy General Manager and General Manager of Shenzhen Guomin Investment Development Co. Ltd.; Board Chairman and General Manager of Shenzhen Guoli Investment Development Co. Ltd.; Board Chairman and General Manager of Shenzhen Guocheng Energy Investment Development Co., Ltd.; Director of Sino Life Insurance Co., Ltd. He has engaged in industry of security investment, and has lots of experiences on management. Mr. Jiang Houiin, accountant with bachelor degree of management, from 2002 to Apr., 2006, successively took the post of Senior Manager of Investment Department, Chief Financial Planner of China Merchants Dichain Group Co. Ltd. and Vice Present of China Merchants Dichain Investment Holding Co. Ltd. From May 2006 to August 2007, he took the post of General Manger of Investment Management Center of Shenzhen Guomin Investment Development Co. Ltd.; now, he is the Director and Vice President of the Company. Mr. Li Ronghui, China certified public accountant and China Certified Tax Agents with master degree of MBA. From 2001 to 2006, he took the post of auditor of Andersen.HuaQiang CPAs; from 2002 to 2003, he took the post of auditor of PricewaterhouseCoopers Zhong Tian CPAs Limited Company; since Feb., 2003, he entered Shenzhen Guomin Investment Development Co. Ltd as superbisor. Since 1997, he acted the supervisor of Chia Tai Energy Development (China) Co., Ltd, and the superbisor of Shandong Century Electric Power Development Co.Ltd. Mr. Zhu Jianqi, MBA, he was successively took the posts of Project Manager of Shanghai Citic-Jiading Industrial Co., Ltd., Aissistant to President of Australian Tengda International Industrial Co., Ltd., Deputy Operation Supervisor of Shanghai Citic-Sumber International, Assistant to Vice President of Chai Tai Property Shanghai Co., Ltd. and Deputy General Manager of Strategy Management Center of Shenzhen Guomin Investment Development Co., Ltd. He had experiences on enteprise management for 10 years and good at strategy management and project management. Mr. Yang Fenbo, China senior economist with master degree of MBA and engineer, held the position of minister of development department, concurrently minister of science and technology department, assistant general manager, assistant to chairman, deputy chief engineer and chief engineer at Shenzhen Lionda Group; took the chairman and concurrently general manager of Guangdong Sunrise Holding Co., Ltd.; now, he is the chairman of Shenzhen Liona Group Co., Ltd. Mr. Liu Linfeng, MBA, born in 1957, senior engineer, ever took the post of director, general manager, standing deputy general manager and secretary of Communist Party of Shenzhen China Bicycle Company (Holdings) Limited; now he is the Vice-president of Shenzhen Furuide Group Co., Ltd and Executive President of Shenzhen Angel Drinking Water Group Co., Ltd. Mr. Li Chun, born in 1957, scholar of Company Law and Security Law, founder of the first legal group of China- Grandall Legal Group, now took the post of Chairman of Shenzhen Lawyers Association, Vice-Chairman of Guangdong Lawyers Association, Vice-director of Development 11 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Strategy Committee of Chinese National Lawyers Association, Development Strategy Committee of National Counsel Association, Finance and Securities Committee of National Counsel Association, Chief Researcher of Venture Investment Law Research Center and Managing Partner of Grandall Legal Group. He has ever been the first committee member of Listing Committee of Shenzhen Security Exchange, Chief Expert of Law Committee of studying team of Natinal Debt Reorganization of State-owned Enterprises; successively took part in the drafting and discussing work of several laws and regulations such as Company Law, Security Law and Interim Provisions on the Takeover of Domestic Enterprises by Foreign Investors. Mr. Shao Liangzhi, born in 1964, senior accountant with master degree of economic, from Mar., 2000 to Mar. 2004, took the post of Deputy Manager and Manager of Audit Department of Shenzhen Nanyoh Group Co. Ltd., committee member of Discipline Inspection Committee and Employee Supervisor of Supervisory Committee of Nanyoh Group Co. Ltd., and concurrently took the post of Chief Supervosor of the subsidiary company of Nanyoh Group Co. Ltd.- Nanyoh Jujian House Priority Company; from Mar. 2004 till now, took the post of Deputy General Manager concurrent CFO of Shenzhen Square Automobile Zone Co. Ltd. He has ever concurrently took the post of Vice Secretary of Chinese Institute of Finance and Cost for Young and Mid-career Professionals, Standing Director of Shenzhen Internal Audit Association; now concurrently took the post of Standing Director of Chinese Institute of Finance and Cost for Young and Mid-career Professionals and committee member of the third Jury Committee of Guangdong senior accountant qualification. Ms. Zhang Xinmiao, born in 1968, with bachelor degree, successively engaged legal affairs in the First Engineering Bureau of Water Resources & Electric Power Department, Shenzhen Jinhu Law Firm, and Guangdong Guanghe Law Firm. She obtained certification of lawyer issued by Ministry of Justice of People’s Republic of China in 1994. From 1999 till now, she took the post of partnership lawyer of Guangdong Chuangji Law Firm. Mr. Wei Chuanyi, born in 1971, economist with bachelor degree, took the post in Shenzhen Zhonghe Group Co. Ltd., and now is the Chairman of the Board of Yibang Craftwork Co. Ltd.(Shenzhen). Mr. Yao Zhengwang, born in 1975, with bachelor degree of law, successively took the post of Supervisor of Supervision Office, Deputy Manager of Sales Department, and Deputy Manager of Legal Affairs Department of Shenzhen Guomin Investment Development Co. Ltd. Now he is Deputy Manager of Investment Department of Shenzhen Guomin Investment Development Co. Ltd. He has engaged in real estate development and investment business for ten years and has lots of experiences of relevant business. Mr. Lan Qihua, graduated from three-years regular college, has ever worked in the army, and taken the post of director; successively took the post of Deputy Director of Supervision Office, Director of Party Office and concurrent Secretary of Party Committee of Lionda Group Corporation, General Manager and concurrent Secretary of Party Branch of Shenzhen Papermaking Company. Since Jun., 2000, he has taken the post of Chairman of the Trade Union of Shenzhen China Bicycle (Group) Holdings Co. Ltd. with lots of Experiences of management of enterprise. Mr. Zheng Zhonghuan, engineer with bachelor degree, successively took the post in Shenzhen Light Texile Industry Company and Shenzhen Light Industry Company; since Oct. 1985, entered Shenzhen China Bicycle (Group) Holdings Co. Ltd. and successively took the post of Deputy Manager, Manager of Planning Department and Manager of Material Department; now is Manager 12 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 of Manufacture Department of the Company. Mr. Li Hai graduated from Economic department of Shenzhen University in major of accounting, on-study Doctorate of MBA; he took the turns of deputy manager of finance department, chief supervisor associate of finance department and secretary of the Board, etc. of the Company, and now is in charge of vice president of the Company. Mr. Xia Bofu, graduated from the Central Party School with bachelor degree of law. He successively took the post of Manager of Business Department of Shenzhen Jiabeinianhua Industry Co. Ltd., Office Director of Shenzhen Lionda Technology Co. Ltd. and Chairman of the Board of Shenzhen Taiyang PCCP Co. Ltd. Since Oct. 2007, he has taken the post of Vice Present of the Company. Ms. He Yili, two degrees of Economics and Law, China CPA. She respectively was the Chief Accountant, principal of Investment Planning Department of Shenzhen Fountain Corporation, Financing Manager, and Administration Manager of Embest Info & Tech Co., Ltd, Financing Manager, Investment Consultant of China Shenzhen Color TV Corp. Since April 2005, she entered the Company and holds the Chief Accountant of the Company. II. Particulars about the annual salary of directors, supervisors and senior executives Referring to the standard of the same industry and local salary situation, the Company decided the annual salary of the above personnel integrated the operating achievements of the Company. In the report year, the remuneration level of the director, supervisor and senior executives of the Company remained the same as that of last year. (1) There are total 17 of directors, supervisors and senior executives in the Company, total 7 persons drew the remuneration from the Company, they are: Mr. Jiang Houjin amounting to RMB 355,800, Mr. Lan Qihua amounting to RMB 125,800, Mr. Zheng Zhonghuan amounting to RMB 85,100, Mr. Li Hai amounting to RMB 287,700, Mr. Xia Bofu amounting to RMB 267,000 and Ms. He Yili amounting to RMB 267,000 and Mr. Ye Qing amounting to RMB 217,000(Jan.-July, 2008),. The total annual remunerations of present directors, supervisors and senior executives received from the Company were RMB 1,605,400. (2) The Company paid the allowance of independent director of RMB 40,000 respectively. The Company reimbursed the expenses for business trips according to the actual situation, which independent directors attended the Board meeting and shareholders’ general meeting. Present directors, supervisors and senior executives of the Company totally draw annual remuneration of RMB 1,548,400 from the Company. III. Directors, supervisors and senior executives leaving the office and the reason in the report year 1. Director Mr. Zhang Xiang brought forward to resign his post as the director of 7th Board to the Board of Directors on July 12, 2008 due to personal work; in accordance with the recommendation by the largest shareholder of the Company Shenzhen Guocheng Engergy Investment Development Co., Ltd., Mr. Zhu Jianqi was chosen as the candidate for the director of the 7th Board which was approved in the 1st Extraordinary Shareholders’ General Meeing 2008 held on Nov. 20, 2008. 2. Director Mr. Shi Zhanxiong brought forward the resignation report to the Board of Directors due to personal reason. The Board of Diretors received the written resignation report from Director Mr. Shi Zhanxiong on Nov. 27, 2008. In accordance with the regulation in Articles of Association, the resignation report took effect since the report reached to the Board of Directors. 3. In the report period, the tenure of the fifth Board of Directors of the Company expired, and the election of changes was held in 2007 Annual Shareholders’ General Meeting in which elected Mr. Yao Zhengwang and Mr. Lan Qihua as the Supervisors of the 6th Supervisory Committee of the 13 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Company with the office term of 3 years dated June 27, 2008; Mr. Zheng Zhonghuan was elected as the Employee Representative Supervisor of the 6th Supervisory Committee of the Company with the office term of 3 years in the Staff Representatives Conference held on June 4, 2008. 4. On June 27, 2008, the 1st meeting of the 6th Board of Directors of the Company elected Mr. Yao Zhengwang as the Convenor of the 6th Supervisory Committee. 5. The Company held the 6th meeting of the 7th Board of Directors of the Company on July 28, 2008, in which approved Ye Qing resigned posts of President of the Company and relevant positions due to personal reason; in accordance with the nomination of Chairman Mr. Shang Shijun, Mr. Jiang Houjin was engaged as the President of the Company with the office term was same as the office term of the session management team. IV. About staff 1. The Company has totally 188 employees at present, including: (1) Classified according to professional/occupational composition: 102 production personnel; 15 salespersons; 17 technicians; 15 financial personnel and 39 administrative personnel. (2) Classified according to the educational background: master degree or above: 3 persons of Master degree, 25 persons of bachelor degree; 34 persons of junior college graduates. Proportion of the personnel with education background of junior college or above in the whole staff: 33%. 2. The Company needs to bear the expenses of 2 retirees. 14 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 V. Corporate Governance Structure I. Corporate Governance In the report period, the company conformed to regulations of relevant laws and rules such as the Company Law, Securities Law and Code of Corporate Governance for Listed Companies, in comparison with the Company’s actual conditions, perfected the administrative structure and tried to establish modern enterprise system. In order to standardize the Company’s operation, the Company revised Rules of Procedure for General Shareholders’ Meeting and Rules of Procedure for Supervisory Committee in Nov. 2008. 1. Particulars about starting special governance campaign According to Notice on matter concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Company issued by CSRC and Notice on Deeply Promoting Relevant Work of Special Campaign of Corporate Governance issued by Shenzhen Securities Regulatory Bureau, the Company continued to promote special campaign of corporate governance, made constant reform in the report period according to reform plan, and disclosed Reform Report of Corporate Governance in Juchao Website on July 23, 2008, further strengthened the establishment of internal control system and improved standard operation level. 2. Particulars about receiving spot inspection of Shenzhen Securities Regulatory Bureau and reform In the first half year of 2008, Shenzhen Securities Regulatory Bureau made spot inspection of the Company’ governance, information disclosure, financial management and accounting treatment since 2005, and sent Notice on Requiring Shenzhen China Bicycle Company (Holdings) Limited to Reform in Limited Period SZJGSZ [2008] No. 100 (hereinafter refer to as Reform Notice) on Sep. 22, 2008, which pointed out the problems existing in system of the Company, operation of Three Meetings, information disclosure, financial management and accounting disposal. The Company organized directors, supervisors and senior executives to seriously study requirements of the notice, compared with laws and regulations such as the Company Laws, Securities Laws, and Code of Corporate Governance for Listed Company, and By laws such as Articles of Association, found resource of problems, and combined with deep promotion of special governance campaign to establish detailed reform plan (Details could be found in Reform Plan of Problems in Spot Inspection of Shenzhen Securities Regulatory Bureau disclosed in Juchao Website on Oct. 23, 2008), and the reform was fulfilled before Nov. 30, 2008. Through this inspection, the Company made an overall arrangement of problems existing in governance, information disclosure, financial management, and accounting calculation, found basic reason of the problems, gradually established reform plan and seriously fulfilled reform, which made the governance level have improvement in some extent, and greatly promoted directors, supervisors and senior executives to improve the concept of standard operation. In the future, the board of directors would follow the requirements of the Company Laws, Securities Laws, Articles of Association and relevant laws and regulations, perfected governance of the Company, standardized behavior of the Company, timely, exactly and integrally made information disclosure to ensure steady and healthy development of the Company. 3.Through self-rectification, in 2008, there were no nonstandard situations on administration of the Company such as supply private informations to large shareholder and actual controller. II. Particulars about duty performance of independent directors In the report period, independent directors of the Company could all earnestly take their responsibility, actively took part in work of special committees of the board of directors, meeting of the board of directors and general shareholders’ meeting, and expressed independent opinions on significant events. In special governance campaign and spot inspection of Shenzhen Securities 15 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Regulatory Bureau, they also made independent and objective judgment with their professional knowledge, and made active contribution for the development of the Company. Particulars about independent directors attending the Board Meeting are as follows: This year should Presence in Entrusted Absence Name attend (times) person (times) presence (times) (times) Li Chun 4 4 0 0 Shao Liangzhi 4 4 0 0 Zhang Xinmiao 4 3 1 0 Wei Chuanyi 4 3 1 0 In the report period, independent directors of the Company had no different opinions on various proposals approved by the Board of Directors of the Company or other significant events. III. Separation from the Controlling Company in respect of Business, Personnel, Organization and Finance etc. The Company totally separated its Business, Personnel, Organization and Finance etc. with majority shareholders and related parties, and had independent and complete operation ability. IV. Establishment and perfection of internal control system According to regulations of Basic Standard for Enterprise Internal Control issued by Ministry of Finance and Shenzhen Stock Exchange and Guidelines for the Internal Control of Listed Companies issued by Shenzhen Stock Exchange, the Company established Self-estimation Report of Internal Control of the Company (2008) (Details could be found in Juchao Website.) Independent directors expressed opinions on Self-estimation Report of Internal Control of the Company as follows: in 2008, according to the requirements of Guidelines for the Internal Control of Listed Companies issued by Shenzhen Stock Exchange,, combined with problems found in special governance campaign by CSRC, the company timely revised and perfected internal control system, and made a total reform of the problems found in inspection and self-inspection. The self-estimation report of internal control could truly, objectively and integrally reflect the implementation and effect of internal control system. The supervisory committee expressed opinions on Self-estimation Report of Internal Control of the Company as follows: according to relevant regulations of CSRC and Shenzhen Stock Exchange, following basic principle of internal control, combined with self actual conditions, the Company constantly established and perfected internal control system, ensured the normal operation of the Company, and safeguarded the assets’ safety and integrality. In 2008, there was no behavior violating Guidelines for the Internal Control of Listed Companies. The self-estimation of internal control comprehensively, truly and exactly reflected the actual conditions of internal control of the Company. VI. Establishment and Implementation of Performance Evaluation and Encouragement Mechanism and Relevant Rewarding System for Senior Executives The Company firstly has established open and transparent performance evaluation criteria and encouragement and restriction mechanism for directors, supervisors and managers. The engagement of the managers conformed to the regulations of laws with openness and transparency. 16 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 VI. Brief Introduction to the Shareholders’ General Meeting In the report period, the Company held Annual Shareholders’ General Meeting and one Extraordinary Shareholders’ General Meeting. Basic information are as follows: 1. On Jun. 27, 2008, the 17th Shareholders’ General Meeting (2007) was held, and the resolution of the meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Jun. 28, 2008. 2. On Nov. 20, 2008, the 1st Extraordinary Shareholders’ General Meeting 2008 was held, and the resolution of the meeting has been published on Securities Times and Hong Kong Wen Wei Po dated Nov. 21, 2008. 17 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 VII. Report of the Board of Directors I. Discussion and analysis of whole operation in the report period 1. Overall operation of main business in the report period In 2008, the Company carried out works mainly concerning development of its main business of bicycle, promotion of integrity of human resource, respondance to lawsuits, promotion of debt reorganization, progress of Share Merger Reform, as well as reform in systems of remuneration, administration, operation and incentive mechanism. In front of double attack from inside and outside, and under the situation that huge disadvantageous change happened to market environment, the management team of the Company guided its all employees to almost successfully finish the operation target made by the Board at year begin. From January to December of 2008, the Company realized operating income of RMB 274,202,800, 16.88% up over the same period of last year; and net profit was loss of RMB 44,893,000. (1)Bicycle business. In 2008, in order to further adapt to change in market environment, the Company actively adjusted operation strategy and product structure, and adopted many operation strategies: strengthened network construction and after service, completed service system, meanwhile strengthened R&D for products, rationally positioned production base, etc. also, the Company strived to develop operation business, expanded electric bicycle business with hard efforts, and realized steady growth in general for main business. (2) Property lease and property management business. Present stock properties were fully utilized and abundant abnormally-occupied properties were clean up. Many channels were adopted to enlarge leasing area. Totally income of RMB 6.53 million was realized through leasing business for the whole year, and RMB 0.5 million rents owed in history had been called back. By means of rational layout for ground and integrity of production base in head office, workshop available for leasing in Longhua production base approximately approached to 50,000 square meters. Currently, the Company is taking various measures to clear stock materials, with the aim to ensure maximum external leasing in 2009, thus to improve cash flow and economic benefit of the Company. 2. Analysis on main business and operation of the Company The Company is mainly engaged in the production and sales of bicycles, electric bicycles and accessories and fittings. In the report period, the Company realized revenue from main operation amounting to RMB 264,600,683.98, and profit from main operation amounting to RMB 8,935,822.36. (1) Statement of main operations classified according to products Unit: RMB’0000 Main operations classified according to industries Increase/decre Increase/decrea Increase/decreas Operating ase in Classified according to Operating se in operating e in operating Operating cost profit ratio operating cost industries or products income income over profit ratio over (%) over last year last year (%) last year (%) (%) Bicycles manufacture and sales of 26,237.85 25,238.32 3.81% 16.85% 15.06% 64.64% accessories and fittings Property management 222.22 328.17 -47.68% 9.56% -15.53% -47.92% industry 18 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Main operations classified according to products Bicycles manufacture and accessories and 26,237.85 25,238.32 3.81% 16.85% 15.06% 64.64% fittings Property management 222.22 328.17 -47.68% 9.56% -15.53% -47.92% (2)Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease in operating Areas Operating income income over last year (%) Shandong 7,235.35 21.85% Henan 6,958.26 31.24% Hebei 3,902.72 34.93% Jiangsu 2,907.68 -0.70% Shanxi 718.27 -19.90% (3)Major suppliers and customers In the report period, the purchasing amount of top five suppliers amounted to RMB 217,417,700, taking 88.14% of annual purchasing amount; the sales amount to top five suppliers amounted to RMB 217,222,800, taking 79.22% of annual sales amount. 3. Change on formation of asset and expenses of the Company in the report period. Unit: RMB 2008 2007 Increase/ decrease ratio Proportion in proportion Proportion in Amount in total asset Amount in total asset total asset（%） （%） (%) Monetary fund 10,086,599.53 5.28% 14,062,198.43 6.56% -19.45% Account receivable 385,033.41 0.20% 482,050.51 0.22% -8.32% Inventory 36,197,343.93 18.96% 41,116,795.51 19.18% -1.14% Long-term investment of equity 2,619,840.50 1.37% 27,406,483.51 12.78% -89.26% Net values of fixed asset 56,010,305.12 29.34% 68,561,480.10 31.98% -8.25% Short-term loan 399,661,355.3 209.36% 418,165,449.05 195.06% 5 7.33% Long-term loans due 873,090,594.2 457.36% 915,134,453.92 426.87% 7.14% within one year 8 Increase/decre 2008 2007 ase (%) Operating expense 5,408,121.48 5,542,241.79 -2.42% Administrative 16,217,410.39 expense 36,231,031.25 123.41% Financial expense 32,083,564.27 35,273,002.48 -9.04% Income tax 0.00 9,849,555.22 -100.00% 19 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Note: Administrative expense of this report period increased by 123.41% over the same period of last year, mainly coming from expense of RMB 11,452,200 used for compensation for economic retirement and RMB 4,980,700 manufacture expense occurred during production-cease period transferring to administrative expense 4. Changes on cash flow of the Company Increase/decre Item 2008 2007 Increase/decrease amount ase proportion (%) Net cash flow arising from -14,392,427.25 -11,800,447.14 455.27% operating activities -2,591,980.11 Net cash flow arising from 10,439,829.52 10,716,861.98 -3,868.45% investing activities -277,032.46 Net cash flow arising from --- --- --- --- financing activities Note: 1. Net cash flow arising from operating activities of this report period decreased by RMB 11,800,500 over the same period of last year, mainly arising from expense of RMB 11,452,200 as compensation for employees for economic retirement. 2. Net cash flow arising from investment activities of this report period increased by RMB 10,716,900 over the same period of last year, mainly due to that RMB 10,180,000 was received for property disposal of Beijing Branch. 5. The operation and analysis to the operation and achievements of the main holding company and shareholding companies of the Company (1) Shenzhen Emmelle Industry Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in establishing industry. The asset scale of the Company amounted to RMB 25,433,400 and the net profit amounted to RMB 1,957,400. (2) Shenzhen Anjule Property Management Co., Ltd.: Its registered capital is RMB 2 million, with its main business scope in property management. The asset scale of the Company amounted to RMB 3,842,300 and the net profit amounted to RMB -1,533,000. (3) China Bicycles (Hong Kong) Co., Ltd.: Its registered capital is HKD 5 million and its place of registration is Hong Kong, with its main business scope in bicycle trading. The Company hasn’t any trading business in recent years. II. Prospect for the future development of the Company 1. The development trend in the industry of the Company and the market competitive pattern the Company faces The Company set foot in industry of electric bicycle since 2002. In 2007, the competition in industry of electric bicycle and bicycle present more fury, while the uncertainty brought by the new standard for industry of electric bicycle and the releasing time brings negative influence to sale of electric bicycle. The industry starts to walk into the step of standardized riffle. At the same time, the lasting sharp rise in prices for raw material, such as lead, steel, copper, rubber and oil, results in rise in cost for manufacture and use electric bicycle. Particularly the sharp price rise in consume fittings such as battery seriously affect the market demand trend, even the develop potential of the whole industry of electric bicycle. 2. The challenges for future and operation plan of the Company for the next year 20 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 (1) Fully promote reform in mechanism and management, and fully improve operation management level. (2)Completely promote Share Merger Reform. (3) Fully smooth and revise various bylaws and further perfect system of the Company. (4) Strengthen cashing for spare stock properties in other place and stock materials, and effectively improve economic benefit of stock assets. (5) Put more efforts in written-off and liquidation of branches and underlying companies in various places. (6) Fully cooperate and actively promote overall reorganization of the Company. 3. The unfavorable risk factors for the development of the Company (1) The international financial crisis burst out at year end of 2008 has already brought negative influences on domestic industry economy, import and export for trade, labor occupation, consumption market and consumotion prediction, moreover, the influence will impenetrate the whole year of 2009. (2) Huge debt approximately approaching to RMB 2 billion is still the biggest problem for the Company. Due to that the debts have been made for a long time, situation is complicated, and creditors are various, it is rather difficult to deal with the debts. Faced with the aforesaid problems, on one hand, the Company tries to expand its products sales, especially in the production and sales of electric bicycles with high additional values; on the other hand, the Company actively promotes the integrated reorganization of the Company, including the debts reorganization. III. Investment of the Company During the report period, the Company has not raised proceeds and significant investment. IV. Auditor’s opinion and accounting policy 1. Auditor’s opinion offered by Shenzhen Pengcheng Certified Public Accountants Co., Ltd.: Shenzhen Pengcheng Certified Public Accountants Co., Ltd. offered 2008 Financial Report with the disclaimer of opinion. 2. Explanations of the Board of Directors about 2008 Financial Report of the Company with the disclaimer of opinions issued by Shenzhen Pengcheng Certified Public Accountants Co., Ltd.: The Board of Directors agreed the 2008 Auditor’s Report offered by Shenzhen Pengcheng Certified Public Accountants Co., Ltd. Due to that the debt reorganization work of the Company had not been completely finished in 2008, so risk of bearing huge debt still remained with many significant uncertainties. The CPAs was not able to offer opinion on the financial debt, tax payable, contingent proceedings, lawsuits and sustainable operation. In light of that, the Board of the Company made the following explanations: i. Financial debt Shenzhen Pengcheng CPAs held that: the letters replied from the financial creditors for the inquiry showed that the Company missed to record an interest balance totaling to RMB 265,875,786.92, and some letters were replied without confirmation on interest for the principal of loans totaling to RMB 114,558,000.00, and principal of loans which haven’t been replied totaled to RMB 194,255,951.99, so it was not available to confirm influence on financial statement by financial debt. The Company provided explanation in Note 13.1 for details of interest confirmation balance: when some creditors implemented the document ((2004) No.6) released by China Committee on Bank Supervision, they had different understanding on this document with the Company. The document 21 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 noticed that: Bank of China and other 10 financial organizations stop calculating the interest of the Company for 3 years since Jan 1st of 2002 and at the same time, exempt all the interest payable of the Company (including penalty interest and compound interest) occurred before Dec 31st of 2001. Some assets management companies and banks considered that the Company was expected to return the interest exempted and stop-calculated, and some assets management companies had not confirmed the proceeding of interest calculation. The Company had transferred all the interest of loans payable owed before Dec 31st of 2001, RMB 357,993,665.24, (including penalty interest and compound interest) to capital public reserve. Interest was stopped with calculation from Jan 1st of 2002 to Dec 31st of 2004. The exempt term was due on Dec 31st of 2004. The Company held it was not necessary for him to return the interest exempted and stop-calculated, so when the term was due, the Company started to withdraw interest according to normal loan for those interests which needed to be returned. The stop-calculated interest and compound interest from Jan 1st of 2002 to Dec 31st of 2004 was not accrued. Besides, the financial debt of the Company was formed in history which had occurred for a long time and the amount of period–end had not changed for years. Body qualification of some creditors had been transferred and the particular personnel for handling had also changed, so the creditors needed time to check clearly the amount of creditor and debt of both involved parties and that was why some creditors had not replied the letters to confirm. The Company would continuously advance the account-check work with the relevant creditors of financial debt, trying as soon as possible to check clearly the interest on principal of the financial debt. Once progress is made, relevant information would be disclosed according to relevant regulation. ii. Issues on tax payable Shenzhen Pengcheng Certified Public Accountants Co., Ltd. thought that: in the audit process, the CPAs implemented audit procedures including inspection and inquiry, inquiring book tax amount payable, custom guarantee and penalty balance totaling to RMB 118,292,319.46. Until the audit report day, no reply has been received, so it was impossible for us to confirm the influence on financial statement of the Company. Due to the Company’s tax payable was formed in the past, which had a long time, there was no newl-increased tax payable in the report period, forming reasons were complex, personnel of specific affairs had changed, and tax department needed time to check clear the debts rights and amounts of both sides, therefore, we are not able to receive confirmation letter from tax department. According to the regulations in Administration of Tax Collection regulated by the State, it is possible to repay the penalties and overdue fine. The Company will continue to follow up the work of checking account of tax department, check clear the amount of tax payable as soon as possible, and will disclose information according to the requirements of relevant regulations if there is some progress. iii. Contingent events and lawsuits Shenzhen Pengcheng Certified Public Accountants believed that: card information for loans of the Company was not accordant because of system updating and other seasons; during the auditing, the CPAs made field verification in relevant courts involved in lawsuits for external guarantee and overdue loans of the Company as substitute audit procedure, while no confirmation document had been obtained from the relevant courts. Besides, due to that it was hard to implement other effective audit procedures, it was unable for us to judge whether the Company had disclosed complete contingent events and lawsuits, and impacts on its financial statement. The historically formed loan and guarantee lawsuit had existed rather long time; in the report period, there was no newly-added undisclosed guarantee events and lawsuits; part courts in charge of those lawsuits changed, and specific responsible people also altered; the court needs time to check details 22 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 and amount of the case, so the court didn’t write back for confirmation. The Company will continue follow up the check work by certified public accountants with related courts, and checks clear the contingent events and lawsuits as soon as possible. If there is any progress, information disclosure will be made according to requirements of relevant regulations. iv. Matters on sustainable operations Shenzhen Pengcheng Certified Public Accountants thought that, the Company’ asset could seriously not offset the debt; the measures on the reconciliation procedure of the bankruptcy to settle the debts had no material progress and could not be able to get adequate and proper audit evidence to confirm it could effectively improve the continuous operations of the Company; thus, we could not judge whether the financial report 2008 prepared by the Company based on imagined continuous operations was proper. Since March 2003, the promotion on debt restructuring by the former largest creditor of the Company-China Huarong Asset Management Corporation acquired breakthrough development, the Plan on Reorganization of Shenzhen China Bicycle Company (Holdings) Limited has obtained the approval from relevant department such as China Banking Regulatory Commission, in which all the interests of the financial debts the Company owed ended Dec.31, 2004 were exempted and stopped interest calculation , and it was under the stage of implementation. The Company and International Finance Corporation signed Reconciled Agreement on Mar 29th of 2007, in which it was agreed to settle all the credits and liabilities between the two parties with USD equivalent to RMB 2 million. The liabilities amount was consisted of principal approximately amounting to USD 3.87 million and an accrued interest approximately amounting to RMB 42.78 million. The two largest creditors of the Company-Shenzhen Guocheng Energy Investment Development Co., Ltd. and Guangdong Sunrise Holdings Co., Ltd. agreed to stop calculation of interest of consolidated loan of RMB 69,558,600 for the whole year of 2007, and RMB 66,226,800 for 2008. The interest would also not be collected in future. Besides progress is made in debt restructure, the Company also makes continuous growth in its main operation and the main operation continues to make profit. Payment pressure of the Company in short-term has been sharply brought down; the lasting operation ability has been improved comparatively. On Dec. 30, 2006, China Huarong Asset Management Corporation transferred its creditor right to Shenzhen Guocheng Energy Investment Development Co., Ltd. After the change of the largest creditor, the former largest creditor China Huarong Asset Management Corporation applied to Shenzhen Intermediate People’ Court for bankruptcy of the Company on August 1, 2005, planning to settle the debts of the Company completely through bankruptcy and reform measures; the new creditor Shenzhen Guocheng Energy Investment Development Co., Ltd. was responsible for promoting the restructuring works on relevant debts and reorganization, and speeded up making scheme of debt restructuring and got certain development. The Board of the Company believed that: as the debt and asset restructure of the Company continuously made progress, together with the continuous growth of the Company’s performance, its operation, operation status and sustainable operation ability would be improved further. V. Routine work of the Board of Directors (I) The board of directors of the Company totally held 4 meetings in the report period, details and resolutions of the board meetings were listed as follows: 1. On Apr. 25th of 2008, the 5th meeting of the 7th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Apr. 29th of 2008. 2. On Jul. 28th of 2008, the 6th meeting of the 7th board of directors was held, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Jul. 30th of 2008. 3. On Oct. 21st of 2008, the 7th meeting (extraordinary) of the 7th board of directors was held, 23 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Oct. 23rd of 2008. 4. On Nov. 4th of 2008, the 8th meeting of the 7th board of directors was held by communication voting, relevant resolutions have been published on Securities Times and Hong Kong Wen Wei Po dated Nov. 5th of 2008. (II) Implementation of resolutions of Shareholders’ General Meeting by the board of directors: 1. The Board of Directors strictly implemented all resolutions of Shareholders’ General Meeting in the report period with no material warps or errors. 2. In the report period, the Company had no profit distribution plan, plan of converting public reserve into share capital, rights offering as well as additionally equity offerings. 3. Duty performance of the special committee of the board of directors: The Audit Committee of the Board consists of 3 directors, 2 of which are independent directors and independent director takes the post of convener. In the report period, according to regulations of Working Rules of Audit Committee of the Board and Working Procedure of Audit Committee for Annual Report, the Committee periodically checked the internal audit report, financial statement and internal control system of the Company, and earnestly performed its obligation. In the report period, with professional knowledge and experience, the members of the Committee examined the annual financial statement prepared by the Company. According to relevant regulations and demands of CSRC, the Audit Committee presented two examination opinions for the annual financial statement. Before the certified public accountants enter for annual audit, the Audit Committee issued the first written opinion on the un-audited financial statements: according to the 38 detailed principles of Accounting Standard for Enterprise-Basic Standard, Accounting Standard for Enterprise No.1-Inventory and the relevant regulation in the Company’s financial system, the Audit Committee takes close eye on the reality and completeness of the financial statements, and on the preparation of the statements whether they were prepared in strict accordance to the new Accounting Standard for Enterprise and relevant regulation in the Company’s financial system. With inquiry and analysis on the financial files, the Audit Committee holds that: the Company stipulated its rational accounting policy and adequate accounting estimation, according to the relevant request of the new Accounting Standard for Enterprise and taking the actual status of the Company into consideration; the transaction records were real and complete; and the financial accounting statements prepared by the Company really reflected the financial status of the Company till Dec 31st of 2008, and the operation achievement and cash flow of the Company in 2008. It is agreed to take these financial statements as basis to carry out the financial audit work of 2008. After the CPA issued the initial audit opinion, the Audit Committee read the first audit report in time and negotiated with the CPA. The Audit Committee and the CPA had no disputation on the important issues concerned by the annual financial report of the Company. The financial report of the Company complies with the Accounting Standard for Enterprise and regulations of relevant laws. The Audit Committee agreed to take these financial statements as basis to prepare the 2008 Annual Report and its Summary, which made it available for the Company to disclose the 2008 Annual Report in time. 4. Duty performance of the Remuneration and Examination Committee of the Board: During the report period, the Remuneration and Examination Committee of the Board examined the remuneration policy and scheme of the directors, supervisors and senior executives of the Company. 24 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 It is believed that the remuneration of the directors, supervisors and senior executives of the Company disclosed in the V. of this report is real and accurate. VI. Profit distribution preplan or preplan of capitalization As audited by Shenzhen Pengcheng Certified Public Accountants, the losses of the Company amounted to RMB 44,893,000 in 2008. The Company has neither dividend distribution nor share capital conversion from capital public reserve. VII. Other issues (I) Explanation on the external guarantees of the Company, accumulative total and the current ones, issued by the independent directors: According to the regulations of the notice (CSRCF (2003) No.56) on Standardize Fund Exchange Between Listed Companies and Related Parties and on Problem of External Guarantee of Listed Companies, as the independent directors of Shenzhen China Bicycle Company (Holdings) Limited, we made inspection on the accumulative and current external guarantees of the Company and also on the guarantee getting out of line, together according to the document (SPSZSZ[2008] No.262) issued by Shenzhen Pengcheng CPAs on Special Explanation on Fund Occupancy and Guarantee Getting out of Line of the Controlling Shareholders and Other Related Parties of Shenzhen China Bicycle Company (Holdings) Limited and relevant data. Here comes the detail information: During the report period, no guarantee or guarantee out of line has been provided by the Company for its controlling shareholders and the enterprises where they take posts. The guarantees or guarantees out of line provided by the Company for its controlling shareholders and the enterprises where they take posts were those happened from year 1996 to year 1999, belonging to the events left in history. Due to that most units receiving guarantee are not able to repay, the Company treated most guarantees as projected liabilities which amounted to RMB 184,133,984.92. (II) In the report period, the Company tried to promote the Share Merger Reform. Proposal of Share Merger Reform was passed in Shareholders’ General Meeting on Share Merger Reform of A Share Market held on Feb. 1, 2007, and it also got replies from Ministry of Commerce, PRC SZNo.1343 [2007] and Approval of Adding Total Capital Shares of Shenzhen China Bicycle (Holdings) Co., Ltd from Shenzhen Commerce and Industry Bureau SMGZFu No.2257 [2007] in which the Share Merger Reform Prospectus passed in Shareholders’ General Meeting of the Company held in Feb. 1, 2007. According to Working Guidelines on Share Merger Reform for Listed Companies, related Share Merger Reform procedures are under transaction in Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. 25 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 VIII. Report of Supervisory Committee In the spirit of being responsible to shareholders and strictly according to regulations in PRC Company Law, Securities Law and Articles of Association of the Company, the Supervisory Committee has dutifully performed its obligations endowed by relevant laws and legislations, carried out work positively and hard, and safeguarded the legal rights and interests of the Company and shareholders in 2008. It has also put forward its opinions and suggestions promptly towards significant decisions made for productions, management and investment, and supervised the behaviors of directors and senior executives in terms of implementation of their obligations. I. Work of the Supervisory Committee in the report period In the report period, the Supervisory Committee of the Company held altogether 4 meetings. 1. The 9th meeting of the 5th Supervisory Committee was held on April 25, 2008. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated April 29, 2008. 2. The 10th meeting of the 5th Supervisory Committee was held on June 5, 2008. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated June 6, 2008 3. The 1st meeting of the 6th Supervisory Committee was held on June 27, 2008. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated June 28, 2008. 4. The 2nd meeting (extraordinary) of the 6th Supervisory Committee was held on Oct. 21, 2008. The public notice of relevant resolutions was published on Securities Times and Hong Kong Wen Wei Po dated Oct. 23, 2008. II. Opinions on relevant issues in 2008 expressed by the Supervisory Committee 1. Operation according to law: In accordance with relevant national laws and regulations, the Supervisory Committee has carried out supervision work on the holding procedures of Shareholders’ General Meetings and Board meetings, resolution, implementation of resolutions of Shareholders’ General Meetings by the Board of Directors, performance of duties of senior executives as well as the Company’s administration system etc.; it believes that, in 2008, the Board of Directors strictly complied with PRC Company Law, Securities Law, Rules for Stock Listing, Articles of Association and other relevant regulations and systems, operated in a standardized manner, worked conscientiously, conducted business and made decisions in a scientific and reasonable way, and further improved internal administration and internal control system; the directors and managers haven’t violated any laws, regulations, the Articles of Association or done harm to the interests of the Company and shareholders when performing duties. 2. Financial Inspection In the report period, Shenzhen Pengcheng Certified Public Accountants issued auditor’s report with disclaimer of opinion for the Financial Statement 2008 of the Company. The Financial Report of the Company objectively and truly reflected the financial status and operation achievements of the Company this year. 3. Use of raised funds: The Company has not raised funds in the report period. 4. Purchases and sales of assets: In the report period, the Company has no purchases or sales of assets. 26 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 5. Opinions towards related transactions Related transactions conducted by the Company are fair and square, and haven’t done harm to the interests of the Listed Company, and there was no insider dealing. 6. Implementation on resolution of shareholders’ general meeting by the Board Supervisors of the Company attended shareholders’ general meeting and presented meeting of the Board without voting. The Supervisory of the Company supervised implementation on resolution of shareholders’general meeting, and it thought that the Board earnestly implemented the various resolutions of shareholders’general meeting. III. Opinion issued by the Board on the auditor’s report with disclaimer of opinion issued by Shenzhen Pengcheng Certified Public Accountants Shenzhen Pengcheng CPAs issued the audit report with disclaimer of opinion for 2008. The Board had made special explanation on the events concerned by the report. The Supervisory Committee believed that: the audit report issued by Shenzhen Pengcheng CPAs truthfully reflected the financial condition and operation achievement of the Company; the explanation presented by the Board of the Company on the events concerned by the audit opinion complied with the actual condition of the Company. The Supervisory Committee would actively cooperate with the Board to carry out its works, supervise and urge the Board to intensify power in debt restructure and try to improve the persistent operating ability of the Company. 27 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 IX. Significant Events I. Material lawsuits and arbitrations in the report period: The details about the material lawsuits or arbitrations that occurred in the previous years are in the Notes 12 of the Financial Statement. II. The Company had no active purchase and sales of assets in the report period. III. Significant related transactions in the report period In the report period, there was no new significant related transaction; details about the significant related transactions that occurred in the previous years are in the Notes 10 of Financial Statement. IV. Significant Contracts and Implementation of Contracts 1. In the report period, the Company had not entrusted, contracted or leased the assets of other companies, nor had other companies entrusted, contracted or leased the assets of listed companies. 2. In the report period, the Company had not entrusted financing events. 3. In the report period, the Company did not happenthe situations of guarantees on controlling subsidiary, the guaranteed occurred in previous years were as follows: Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Complete Guarantee Date of happening Amount Name of the Company Guarante Impleme for related (Date of signing of Guarantee type guaranteed e term ntation or party (Yes or agreement) guarantee not no) Guangdong Sunrise Group Joint June 20, 1996 504.55 6 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint July 26, 2006 2,800.00 4 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint 12 Sep. 30, 1999 681.83 No No Co., Ltd. responsibility months Guangdong Sunrise Group Joint 11 Apr. 30, 1998 260.00 No No Co., Ltd. responsibility months Guangdong Sunrise Group Joint July 30, 1997 250.00 7 months No No Co., Ltd. responsibility Guangdong Sunrise Group Joint June 4, 1997 300.00 8 months No No Co., Ltd. responsibility Gintian Industry (Group) Co., Joint Oct. 30, 1998 5,000.00 6 months No No Ltd. responsibility Shenzhen Tianma Cosmetics Joint 12 Sep. 30, 1994 800.00 No No Co., Ltd. responsibility months Total amount of guarantee in the report period 0.00 Total balance of guarantee at the end of the report 10,596.38 period Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries during the 0.00 report period Total balance of guarantee for controlling subsidiaries at the end of 7,817.02 the report period Total amount of guarantee of the Company (including guarantee for controlling subsidiaries) Total amount of guarantees 18,413.40 Ratio of total guarantee to net assets of -10.21% 28 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 the Company Including: Amount of guarantee for shareholders, 0.00 actual controller and its related parties The debts guarantee amount provided for the guarantee of which the 18,413.40 assets-liability ratio exceeded 70% directly or indirectly Proportion of total amount of guarantee in net assets of the Company 18,413.40 exceeded 50% Total amount of the aforesaid three 36,826.80 guarantees Explanations on possibly bearing joint and several responsibilities for undue Naught guarantees Note: Guangdong Sunrise Group Co., Ltd. was the shareholder of the Company, its equity was auctioned by the court and now it is not the shareholder of the Company. V. Commitments of the Company and the shareholders holding more than 5% equity in the report period or lasting to the report period The Company or the shareholders holding more than 5% equity had no commitments made in the report period or made in previous period but carried forward to the report period that were likely to produce significant influence on the operation achievements and financial status of the Company. VI. Engagement and Disengagement of Certified Public Accountants of the Company In the report period, the Company engaged Shenzhen Pengcheng Certified Public Accountants as the auditing organ in this year with term of one year. In 2008, the Company paid auditing fee amounting to RMB 0.5 million to Shenzhen Pengcheng Certified Public Accountants. VII. Particulars about punishment received by the Company, the Board of Directors of the Company and the directors from supervisory department. In the report period, the Company, the Board of Directors of the Company and the directors have not been inspected, given administrative punishment or public criticism by CSRC, or publicly condemned by Shenzhen Stock Exchange. VIII. Particulars about the Company’s Reception of Investigation and Interview In accordance with the requirements of Guidance for Fair Information Disclosure for Listed Companies of Shenzhen Stock Exchange, the Company earnestly implements the System of Reception and Popularization. The Company and relevant personnel in charge of information disclosure strictly follow the principle of fair information disclosre. Situation that different treaty policy is implemented, information is disclosed for appointed person or non-public significant information is disclosed or leaked out has never happened. Reception Main content of talk and Reception place Reception way Person receipted date information provided Progress of the share merger Office of the Phone Shareholders of 2008 reform and the debt restructure Company communication circulating shares project of the Company 29 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 X. Financial Report Shenzhen China Bicycle Company (Holdings) Limited 2008 Financial Report Content Pages I. Auditor’s Report Balance Sheet Profit Statement Statement on Changes of Shareholders' Equity Cash Flow Statement Notes to Financial Statement 30 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Auditors’ Report Shenzhen Pengcheng GSZi [2009] No.086 To the shareholders of Shenzhen China Bicycle Company (Holdings) Limited, We have audited the accompanying financial statements of Shenzhen China Bicycle Company (Holdings) Limited (“the Company”), including consolidated balance sheet of the Company of 31 December 2008, and consolidated profit statement of the Company, and consolidated statement on changes of shareholders’ equity of the Company, and consolidated cash flow statement of the Company for the year ended, and notes to the financial statements for the year ended. I. Management's responsibility for the financial statements It is the responsibility for the management of the Company to prepare financial statements according to the stipulations of the business accounting rules. This responsibility includes: (1) devising, implementing and maintaining internal control related to the preparation of the financial statements so as to ensure that the financial statements do not contain major errors caused by fraudulence or mistake; (2) choosing and adopting appropriate accounting policies; and (3) making reasonable accounting estimations. II. Proceedings which result in disclaimer of opinion We noticed that: 1. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the financial debts of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2009. Until the audit report day, the replied letters told that a balance in interest of RMB 265,875,786.92 has been omitted by Shenzhen China Bicycle Company (Holdings) Limited; besides, some letters were replied to show unconfirmed interest on borrowing principal converting to RMB 114,558,000.00; to the un-replied letters, the total borrowing principal was converted into RMB 194,255,951.99. As to the aforesaid omitted interest balance, the Company provided explanation in Note 13.1 that when implementing the document (YJBT (2004) No.6) released by China Committee on Bank Supervision for offering a reference of the loan interest restructure of Shenzhen China Bicycle Company (Holdings) Limited, the Company and some creditors had different understanding on this document, which brought the aforesaid omission. Since the accounts had not been adjusted, we are not able to ensure the influence of this balance to the financial statements of the Company. 2. During the audit, we have specially implemented the audit procedures such as visit for inspection and inquiry, focusing on the tax payable of Shenzhen China Bicycle Company (Holdings) Limited which have expired for long time till the end of Dec 31st of 2008, in want of verification that whether the unpaid tax, tariff bond and amercement balance was totaling up to RMB 118,292,319.46 as the Company’s book said. While until the audit report day, nothing got replied. Thus, it was impossible for us to ensure the influence on the financial statements of the Company brought by the uncertainty. 3．In the process of audit, the information of credit card which we received from the account bank of the Company is not able to be checked whether contingency such as related guarantee information accord with disclosure, for it did not be annually inspected and credit card system did not upgrade related information. Therefore, we implement substitutive audit procedure of field checking the related courts to the claims of the Company caused by external guarantee and overdue loan. However, related courts all only make some oral explanations or provide some information which could only be used as reference. Otherwise, we are not able to implement other efficient audit procedure, so that we are not able to judge the integrity of the contingency disclosed in Note 11 and the lawsuits disclosed in Note 12 of the Company and possible effects of the issues on the Company’s financial report. 4. Refer to Note 15, until Dec. 31, 2008, total asset of Shenzhen China Bicycle Company (Holdings) Limited was RMB 190,897,705.5; total debt was RMB 1,993,553,860.52; net asset was RMB 31 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 -1,802,656,154.99 with debts beyond assets. Shenzhen China Bicycle Company (Holdings) Limited disclosed improving methods in Note 15 of financial statement, however, the main measurement adopted till 2006, that planed to accomplish the debt restructure of Shenzhen China Bicycle Company (Holdings) Limited through reconciled procedure of bankruptcy has not made any practical progress from year 2008 to the audit report day, thus making us unable to get complete and appropriate auditing evidence to identify whether it can improve continuous operation ability for Shenzhen China Bicycle Company (Holdings) Limited effectively. Therefore, we can not judge whether the 2008 financial statement which was made under continuous operation assumption of Shenzhen China Bicycle Company (Holdings) Limited is appropriate or not. III. Auditing Opinion Due to that the aforesaid events could possibly occur very significant and aboard influences, we could not issue auditor’ opinion on the financial statement of the Company. Shenzhen Pengcheng Certified China Certified Public Accountants Accountant Shenzhen y P.R.C. April 23, 2009 Li Hailin China Certified Accountant Li Zehao 32 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Balance Sheet Prepared by Shenzhen China Bicycle Company (Holdings) Limited December 31, 2008 Unit: RMB Balance at period-end Balance at year-begin Items Merger Parent Company Merger Parent Company Current assets: Monetary funds 10,086,599.53 417,444.51 14,062,198.43 477,660.27 Settlement provisions Capital lent Transaction finance asset Notes receivable 5,408,792.00 1,673,960.00 Accounts receivable 385,033.41 136,120,228.45 482,050.51 144,678,350.46 Accounts paid in advance 504,440.40 0.00 1,304,193.48 117,100.00 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Dividend receivable Other receivables 42,193,937.90 87,659,723.49 20,774,519.57 66,544,849.86 Purchase restituted finance asset Inventories 36,197,343.93 26,922,910.94 41,116,795.51 33,892,709.90 Non-current asset due within one year Other current assets Total current assets 94,776,147.17 251,120,307.39 79,413,717.50 245,710,670.49 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity 2,619,840.50 2,619,840.50 27,406,483.51 27,406,483.51 investment Investment property 10,311,261.40 10,311,261.40 10,956,836.08 10,956,836.08 Fixed assets 56,010,305.12 55,334,097.37 68,561,480.10 67,962,140.33 Construction in progress Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 27,180,151.34 27,180,151.34 28,043,013.38 28,043,013.38 33 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Expense on Research and Development Goodwill Long-term expenses to be apportioned Deferred income tax asset Other non-current asset Total non-current asset 96,121,558.36 95,445,350.61 134,967,813.07 134,368,473.30 Total assets 190,897,705.53 346,565,658.00 214,381,530.57 380,079,143.79 Current liabilities: Short-term loans 399,661,355.35 338,713,085.90 418,165,449.05 353,451,323.08 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable Accounts payable 130,714,884.86 324,940,555.98 135,329,891.70 338,652,954.48 Accounts received in 21,333,035.66 14,605,306.04 18,086,124.15 14,605,306.04 advance Selling financial asset of repurchase Commission charge and commission payable Wage payable 1,686,297.83 1,550,365.19 1,392,052.21 1,250,670.90 Taxes payable 95,399,029.08 94,220,632.13 95,460,222.24 94,178,777.08 Interest payable Dividend payable Other accounts payable 168,604,764.50 134,698,784.49 167,601,705.14 131,309,401.97 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Non-current liabilities 873,090,594.28 873,090,594.28 915,134,453.92 915,134,453.92 due within 1 year Other current 118,929,914.04 118,881,087.74 86,109,949.92 86,097,636.52 liabilities Total current liabilities 1,809,419,875.60 1,900,700,411.75 1,837,279,848.33 1,934,680,523.99 Non-current liabilities: Long-term loans Bonds payable Long-term account payable Special accounts 34 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 payable Projected liabilities 184,133,984.92 184,133,984.92 184,133,984.92 184,133,984.92 Deferred income tax liabilities Other non-current liabilities Total non-current 184,133,984.92 184,133,984.92 184,133,984.92 184,133,984.92 liabilities Total liabilities 1,993,553,860.52 2,084,834,396.67 2,021,413,833.25 2,118,814,508.91 Owner’s equity (or shareholders’ equity): Paid-in capital (or 479,433,003.00 479,433,003.00 479,433,003.00 479,433,003.00 share capital) Capital public reserve 410,893,564.33 410,893,564.33 362,027,636.64 362,027,636.64 Less: Inventory shares Surplus public reserve 32,673,227.01 32,673,227.01 32,673,227.01 32,673,227.01 Provision of general risk Retained profit -2,726,059,175.73 -2,661,268,533.01 -2,681,166,169.33 -2,612,869,231.77 Balance difference of foreign currency translation Total owner’s equity attributable to parent -1,803,059,381.39 -1,738,268,738.67 -1,807,032,302.68 -1,738,735,365.12 company Minority interests 403,226.40 Total owner’s equity -1,802,656,154.99 -1,738,268,738.67 -1,807,032,302.68 -1,738,735,365.12 Total liabilities and 190,897,705.53 346,565,658.00 214,381,530.57 380,079,143.79 owner’s equity Profit Statement Prepared by Shenzhen China Bicycle Company (Holdings) Limited January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Merger Parent Company Merger Parent Company I. Total operating income 274,202,840.48 18,798,716.14 234,601,314.71 22,683,649.92 Including: Operating income 274,202,840.48 18,798,716.14 234,601,314.71 22,683,649.92 Interest income Insurance gained Commission charge and commission income II. Total operating cost 345,036,984.40 93,719,698.42 299,249,788.87 89,943,090.21 Including: Operating cost 262,279,584.11 16,118,210.88 230,244,832.81 24,154,789.84 Interest expense Commission charge and commission expense Cash surrender value Net amount of expense of compensation 35 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Net amount of withdrawal of insurance contract reserve Bonus expense of guarantee slip Reinsurance expense Operating tax and extras 210,719.66 84.83 175,378.59 880.36 Sales expenses 5,408,121.48 771,808.21 5,542,241.79 1,393,554.08 Administration expenses 36,231,031.25 32,408,627.72 16,217,410.39 12,771,829.00 Financial expenses 32,083,564.27 35,722,902.67 35,273,002.48 39,825,114.12 Losses of devaluation of 8,823,963.63 8,698,064.11 11,796,922.81 11,796,922.81 asset Add: Changing income of fair value(Loss is listed with “-”) Investment income (Loss -874,997.07 -874,997.07 -1,336,613.99 -1,156,612.99 is listed with “-”) Including: Investment income on affiliated company and joint venture Exchange income (Loss is listed with “-”) III. Operating profit (Loss -71,709,140.99 -75,795,979.35 -65,985,088.15 -68,416,053.28 is listed with “-”) Add: Non-operating income 27,591,925.55 27,548,141.04 140,806,500.96 140,792,096.39 Less: Non-operating 372,564.56 151,462.93 1,935,616.35 1,935,616.35 expense Including: Disposal loss of non-current asset IV. Total Profit (Loss is -44,489,780.00 -48,399,301.24 72,885,796.46 70,440,426.76 listed with “-”) Less: Income tax 9,849,555.22 9,849,555.22 V. Net profit (Net loss is -44,489,780.00 -48,399,301.24 63,036,241.24 60,590,871.54 listed with “-”) Net profit attributable to owner’s equity of parent -44,893,006.40 -48,399,301.24 63,036,241.24 60,590,871.54 company Minority shareholders’ 403,226.40 gains and losses VI. Earnings per share i. Basic earnings per share -0.0936 0.1315 ii. Diluted earnings per share -0.0936 0.1315 36 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 Cash Flow Statement Prepared by Shenzhen China Bicycle Company (Holdings) Limited January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Merger Parent Company Merger Parent Company I. Cash flows arising from operating activities: Cash received from selling commodities and 170,135,054.82 7,060,524.04 161,272,081.30 20,891,671.25 providing labor services Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commission Net increase of capital borrowed Net increase of returned business capital Write-back of tax received Other cash received concerning operating 8,033,821.67 11,778,462.99 activities Subtotal of cash inflow arising from operating 178,168,876.49 18,838,987.03 161,272,081.30 20,891,671.25 activities Cash paid for purchasing commodities and receiving 147,502,490.17 1,438,426.75 131,243,202.76 7,196,032.27 labor service Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of 37 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 guarantee slip Cash paid to/for staff and 23,596,434.77 2,323,782.46 18,456,590.20 3,688,775.28 workers Taxes paid 6,363,405.90 3,534,493.44 4,132,851.41 2,299,281.44 Other cash paid concerning operating 15,098,972.90 11,592,003.89 10,031,417.04 7,597,313.04 activities Subtotal of cash outflow arising from operating 192,561,303.74 18,888,706.54 163,864,061.41 20,781,402.03 activities Net cash flows arising -14,392,427.25 -49,719.51 -2,591,980.11 110,269.22 from operating activities 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 10,554,667.52 115,942.92 187,507.00 187,507.00 and other long-term assets Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities Subtotal of cash inflow 10,554,667.52 115,942.92 187,507.00 187,507.00 from investing activities Cash paid for purchasing fixed, intangible and other 114,838.00 103,438.00 284,539.46 259,315.46 long-term assets Cash paid for investment Net increase of mortgaged loans Net cash received from 0.00 0.00 180,000.00 subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow 114,838.00 103,438.00 464,539.46 259,315.46 from investing activities Net cash flows arising 10,439,829.52 12,504.92 -277,032.46 -71,808.46 from investing activities III. Cash flows arising from financing activities Cash received from absorbing investment Including: Cash received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans Cash received from issuing bonds Other cash received concerning financing 38 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL REPORT 2008 activities Subtotal of cash inflow from financing activities Cash paid for settling debts Cash paid for dividend and profit distributing or interest paying Including: Dividend and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing activities Subtotal of cash outflow from financing activities Net cash flows arising from financing activities IV. Influence on cash due to -23,001.17 -23,001.17 -51,672.27 -65,236.99 fluctuation in exchange rate V. Net increase of cash and -3,975,598.90 -60,215.76 -2,920,684.84 -26,776.23 cash equivalents Add: Balance of cash and cash equivalents at the period 14,062,198.43 477,660.27 16,982,883.27 504,436.50 -begin VI. Balance of cash and cash 10,086,599.53 417,444.51 14,062,198.43 477,660.27 equivalents at the period -end 39 SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL Statement on Changes of Owners' Equity Prepared by Shenzhen China Bicycle Company (Holdings) Limited 2008 Amount in this report period Owners' equity at Owners' equity attributable to the parent company Minori Paid-up Total Items Surplu Genera ty Paid-up Less: Retain owners’ Less: capital Capital s l risk Othe intere capital Capital ed equity Treasur Treasury reserv provis rs st (Share reserves (Share reserves profit y Stock Stock es ion capital) capital) I. Balance at the end of the last 479,433,0 362,027,6 32,673,22 -2,681,166, -1,807,032,3 479,433,0 362,027,6 year 03.00 36.64 7.01 169.33 02.68 03.00 36.64 Add: Changes of accounting policy Error correction of the last period Others II. Balance at the beginning of 479,433,0 362,027,6 32,673,22 -2,681,166, -1,807,032,3 479,433,0 362,027,6 this year 03.00 36.64 7.01 169.33 02.68 03.00 36.64 III. Increase/ Decrease in this year 48,865,92 -44,893,00 403,226.4 4,376,147.69 (Decrease is listed 7.69 6.40 0 with'"-") -44,893,00 403,226.4 -44,489,780. (I) Net profit 6.40 0 00 (II) Profits and losses 48,865,92 48,865,927.6 calculating into owners' equity 7.69 9 1. Net changing amount SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL 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 48,865,92 48,865,927.6 4. Others 7.69 9 48,865,92 -44,893,00 403,226.4 Total of (I)and (II) 4,376,147.69 7.69 6.40 0 (III) Owners' devoted and decreased capital 1. Owners' devoted capital 2. Amount calculated into owners' equity paid in shares 3. Others (IV) Profit distribution 1. Withdrawal of surplus reserves 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. Others (V) Carrying forward internal owners' equity SHENZHEN CHINA BICYCLE COMPANY（HOLDINGS）LIMITED SUMMARY OF ANNUAL 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 the 479,433,0 410,893,5 32,673,22 -2,726,059, 403,226.4 -1,802,656,1 479,433,0 362,027,6 report period 03.00 64.33 7.01 175.73 0 54.99 03.00 36.64 Shenzhen China Bicycle Company （Holding） Limited Notes to Financial Statement For Year 2008 Otherwise stated, all amounts are stated in RMB Yuan. Note 1. Company profile Approved by Shenzhen People’s Government—ShenFuBanFu (1991) No 888, the Company was restructured to be a stock company limited. On Dec. 28, 1991, approved by the People’s Bank of China—Shenzhen Special Economic Zone Branch (ShenRenYinFu Zi (1991) No. 119), the Company was listed with Shenzhen Stock Exchange. The corporate business license was QGYSZF Zi No. 101165, with a registered capital of RMB 479,433,003.00. The Company was engaged in machine manufacturing industry. The main operations include: producing and assembling types of bicycles, the parts, fittings, mechanical products, sports instrument, fining chemicals, carbon-fiber compound materials, household electronic appliances and the fittings. Prime products are: Emmelle bicycle, Chimo bicycle, Diamondback bicycle and electric bicycle. Brief on production and management: The Company produces medium and top grade bicycles, mainly for exporting. Influenced by antidumping lawsuits in recent years; the sales volume slided down. The Company focuses on debts restructure as well as products research and development. The Company has developed series of electric bicycle, and has been working to exploit domestic market. Main businesses continue to make positive profit in the year. Note 2. Compiling basis of financial statement Compilation of financial statement of the company is based on continuous business according to actual trade based on continuous operations and actual occurred transactions and matters, and in according to the original Accounting Standards for Business Enterprises promulgated before Feb. 15, 2006 and original Accounting System for Business Enterprises (hereinafter refers to Original Accounting Standards and Systems for Business Enterprises) promulgated on Dec. 29, 2000 by Ministry of Finance. Since Jan.1, 2007, the Company implemented Accounting Standards for Business Enterprises (hereinafter refers to Accounting Standards for Business Enterprises) promulgated in Feb. 15, 2006 by Ministry of Finance. The financial statement was the first financial statement compiled based on Accounting Standards for Business Enterprises. The financial statement of the Company compiled based on the aforesaid compilation basis conformed to the requirements of Accounting Standards for Business Enterprises; reflected the financial status of the Company as of Dec. 31, 2008 truly and completely and the operation results and cash flow of year 2008. Note 3. Approving and delivering person of financial report and the approving and delivering date of financial report. The financial report of the Company was approved and delivered by the 10th meeting of 7th the Board of Directors dated April 23, 2009. 44 Note 4. Compilation method of main accounting policy, accounting estimate and consolidated financial statement. 1. Accounting policy Accounting policy and its application guidance of the company complies to Accounting Standards for Business Enterprises 2006 and application guidance issued by Ministry of Finance People's Republic of China as【2006】No. 3. 2. Fiscal year It shall adopt calendar year, namely, one calendar year means period from January 1st to December, 31st. 3. Recording currency RMB is used as the recording currency. 4. Foundation to charge to an account and price-calculating principle Foundation to charge to financial accounting is accrual basis. Price-calculating principle of every asset (except other price-calculating principles or required by "Enterprise Accounting Standard") refers to historical cost when obtaining. 5. Foreign-currency business, translation and accounting methods of foreign currency statement. Foreign currency payment shall be translated into recording currency amount by adopting spot exchange rates issued by People's Bank of China during initial confirmation. Treatments of foreign currency cash items and foreign currency non-cash items on balance sheet date are as follows： 1）Foreign currency cash items shall be translated by spot exchange rates on balance sheet date. Exchange differences caused by difference of spot exchange rates of balance sheet date and that during initial confirmation or that of former balance sheet date is accounted for current gains or losses. 2）Foreign currency non-cash items measured by historical cost can be translated by exchange rates of transaction date without changing recording currency amount. 3）Foreign currency non-cash items measured by fair value are translated by exchange rates on fair value confirmation date. Difference of translated recording currency amount and original carrying amount is accounted for current gains or losses as variation treatment of fair value. 4）Exchange gains or losses caused by debts with regard to construction of fixed assets shall be handled according to capitalization principle of borrowing expenses. Exchange gains or losses with regard to development of real estate shall be capitalized before completion of real estate. 6. Defined standard of cash equivalent The company uses investment with short holding period (generally refers to three months form procurement date), strong liquidity, eligibility to convert into cash of known amount and very small value variation risk as cash equivalent during preparation of cash flow statement. 7. Translation method of financial instruments Financial instruments of the company include financial assets and financial debts. 1）Accounting for financial assets： --- Confirmation standard of fair value of financial assets Confirmation standard of fair value of financial assets of the company is as follows： A. Price of balance sheet date is used as fair value if there are financial assets in active market. B. Fair value is confirmed by present value calculated by appropriate discount rate (current bank loan rate is generally used as discount rate) according to future cash flow if there are no financial assets in active market. Classification of financial assets Financial assets of the company are classified as follows： A. Financial assets measured by fair value and whose variation is accounted for current gains or 45 losses（including tradable financial assets and financial assets measured by fair value and whose variation is accounted for current gains or losses）； B. Holding or due investment； C. Receivable accounts； D. Financial assets can be sold Measurement of financial assets A. Initially confirmed financial assets shall be measured by fair value. Relevant transaction expenses of financial assets which are measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses directly；Relevant transaction expenses of other kinds of financial assets shall be accounted for initial confirmation amount. B. The company will measure financial assets consequently according to fair value without deducting possible transaction expenses during future financial assets treatment. However, following conditions are not included： ① Holding or due investment and receivable accounts shall be measured according to amortized cost by practical rate method； ② Equity instrument investment which has no active market or no quotation in active market and whose fair value can not be measured and derivative financial assets which link to equity instruments and shall be settled by delivery of equity instruments shall be measured by cost. C. Difference of reclassified fair value of financial assets and cost of book value due to classification change of financial assets caused by business holding purpose change shall be accounted for capital reserves. It shall be accounted for current gains or losses when confirmation is terminated or value is depreciated. Depreciation of financial assets Carry out depreciation test of book value of financial assets except those which shall be measured by fair value and whose variation is accounted for current gains or losses on balance sheet date. Objective evidences show that when financial assets depreciate, the difference of expected cash flow present value of financial assets and book value shall be reserved and accounted for current gains or losses. Objective evidences of depreciation of financial assets shall include following contents： A. Issue party or debtor has serious financial difficulties； B. Debtor has breached contract clauses, such as breach or exceeding the time limit to pay for interests or corpus； C. The company concedes to debtor who has difficulty by considering economical or legal factors； D. Debtor may have bankruptcy or other financial reorganizations because of uncertainty of continuous business； E. The company's financial assets can not continue to trade in active market because of serious financial difficulty of issue party； F. The company can not recover investment cost because of serious disadvantageous changes of technical, market, economical and legal environment of debtor； G. Fair value of equity instrument investment falls seriously or non-provisionally； H. Although we can not determine whether cash flow of a certain asset of financial asset combination decreases or not, the company discover that expected future cash flow since initial confirmation of the group of financial assets has decreased and it can be measured after overall evaluation according to open data. I. Other objective evidences which can show depreciation of financial assets. Measurement of depreciation loss of financial assets A. Financial assets measured by fair value and whose variation is accounted for current gains or losses need no depreciation testing； 46 B. Measurement of depreciation loss of holding or due investment：The difference of expected future cash flow present value and book value at the end of period shall be reserved and accounted for current gains or losses； C. Measurement of depreciation loss of receivable accounts：The company shall adopt allowance method of bad debt loss for translation, carry out depreciation test of receivable accounts and prepare for reserve in bad debt on balance sheet date. ① Carry out depreciation test of receivable accounts with large amount individually. If objective evidences show that the value has depreciated, the company will confirm depreciation loss and prepare for reserve in bad debt according to difference of future cash flow present value and book value. ② Reserve 3‰ of sum of receivable accounts at the end of year and other receivable accounts as for receivable accounts with not large amount and un-predicated receivable accounts after individual test. Preparation of bad debt reservation is accounted for current management expenses. ③ Reserve 100% of bad debts after individual confirmation of bad debts. Confirmation standard of bad debts of the company is as follows：① Property of debtor can not be recovered after payment due to bankruptcy or death；② Debtor can not pay for due debts with obvious evidence. D. Depreciation judgment of financial assets that can be sold：The financial assets can be thought to depreciate if fair value of the financial asset decreases continuously and non-provisionally. Gains or losses caused by variation of fair value of financial assets shall be handled according to following stipulations： A. Gains or losses caused by variation of fair value of financial assets measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses. B. Gains or losses caused by variation of fair value of saleable financial assets can be accounted for owners equity directly except exchange rate difference caused by depreciation loss and foreign currency cash financial assets. They shall be accounted for current gains or losses when financial assets are transferred confirmation termination. C. Exchange rate difference caused by saleable foreign currency cash financial assets shall be accounted for current gains or losses. Interests of saleable financial assets calculated by actual rate method shall be accounted for current gains or losses；Cash dividends of saleable equity instrument investment shall be accounted for current gains or losses during announcement of dividends issuing of invested unit. 2）Accounting of financial debts Financial debts are divided to following two categories： A. Financial debts measured by fair value and whose variation is accounted for current debts include transaction financial debts and financial debts measured by fair value and whose variation is accounted for current gains or losses. B. Other financial debts. Relevant transaction expenses of financial debts which are measured by fair value and whose variation is accounted for current gains or losses shall be accounted for current gains or losses directly；Relevant transaction expenses of other kinds of financial debts shall be accounted for initial confirmation amount. Consequent measurement of financial debts shall be handled according to following principle： A. Financial debts measured by fair value and whose variation is accounted for current gains or losses shall be measured by fair value. B. Equity instrument which has no active market or no quotation in active market and whose fair value can not be measured and derivative financial debts which link to equity instruments and shall be settled by delivery of equity instruments shall be measured by cost. 47 Financial debts measured by fair value and whose variation is accounted for current debts shall be accounted for current gains or losses. Difference of book value of confirmation termination and paid consideration during complete or partial confirmation termination of financial debts shall be accounted for current gains or losses. 8, Accounting method of stock in trade Stock in trade shall be divided into raw material, products in the process, commodity stocks, low-value consumption goods, etc. Procurement and warehousing of every kind of stocks in trade shall be valuated according to actual cost. Cost of holding inventory includes procurement cost, processing cost and other expenses which belong to cost of holding inventory and disbursement which meets capitalization conditions of borrowing costs. Stock quantity shall be determined by perpetual inventory system. It shall be valuated by weighed average method when the stock quantity is issuing. Low-value consumption goods shall adopt one-off amortization method. Prepare for inventory falling price reserves of goods at the end of period whose costs are unexpected to recover for damaged stocks, completely or partially worn stocks or those whose sale prices are less than costs on basis of wall-to-wall inventory of stock-in-trade. Define inventory falling price reserves according to difference of cost of single stock item and net realizable value and it shall be accounted for current gains or losses. 9, Translation method of long-term investment on stocks Long-term dividend investment reflects that of subsidiary company, consortium and joint venture held by the company. In the meanwhile, it includes equity investment of invested unit without control, common control or important influence, quotation in active market and measurement of fair value. The company will calculate long-term dividend investment caused by enterprise combination and that except for enterprise combination. Calculation is divided into four phases including initial cost confirmation, consequent measurement, income and settlement. Confirmation of initial investment cost： (1) Initial investment cost of long-term dividend investment of the company caused by enterprise combination form is determined according to following methods： A. Long-term dividend investment caused by enterprise combination under the same control ① Unify accounting policy and accounting period of combined party first under premise to adhere to significance principle. ② Obtained share of book value of owners’ equity of combined party on combination date shall be thought as initial investment cost of long-term dividend investment when the company adopts methods of payment in cash, conversion of non-cash capital or obligation incurred as combined consideration. Adjust capital reserves--stock premium of the company according to difference of initial investment cost and paid cash, transferred non-cash capital and book value of undertaken debts；Adjust reinvested earnings when amount of stock premium is insufficient. ③ The company will use equity securities as combined consideration. Aggregate nominal amount of shares shall be used as capital stock. Adjust capital reserves--stock premium according to difference of initial investment cost of long-term dividend investment and aggregate nominal amount of shares；Adjust reinvested earnings when amount of stock premium is insufficient. ④ Every direct relevant expense during combination, including auditing expense paid for enterprise combination, evaluation expense, legal service expense and so on shall be accounted for current gains or losses during occurrence. ⑤ Securities issued for enterprise combination or commission charges, brokerage expenses and so on paid for other debts shall be accounted for issued securities and initial measurement amount of other debts. ⑥ Commission charges, brokerage expenses and so on caused by issuing of equity securities during enterprise combination shall offset gain on disposal of assets. Offset capital reserves, surplus 48 reserves, and undistributed profit sequentially if gain on disposal of assets is insufficient. B. Long-term dividend investment caused by enterprise combination under different control ① Combination cost of one-off enterprise combinations of capital, occurred or undertaken debts paid for control rights of purchased party on procurement date of the company and fair value of issued equity securities. Difference of fair value and book value shall be accounted for current gains or losses. ② Combination cost of enterprise combinations by multiple transactions and step-by-step dividend obtainment is sum of every transaction cost. ③ Every direct relevant expense of the company during enterprise combination shall be accounted for enterprise combination cost. ④ If expected future items may occur on procurement date and the influence amount of combination cost can be measured under promise of future items that may influence combination cost in combination contract or agreement, it shall be accounted for combination cost. ⑤ The company will confirm difference of procurement cost and fair value of recognizable capital of combined party obtained in combination as commercial goodwill；Commercial goodwill after initial confirmation shall be measured by difference of cost and aggregate depreciation. Difference of procurement cost and fair value of recognizable net capital of combined party obtained in combination shall be accounted for current gains or losses. Fair value of recognizable net capital of combined party refers to difference of fair value of recognizable capital of combined party obtained in combination and debts or fair value with debts. The company will confirm every item of recognizable capital, debt of combined party which meets following conditions individually： ① The Company will confirm individually and measure according to fair value if economical interests of other assets (not limited to original assets confirmed by combined party) besides intangible assets of combined party during combination may flow into the company with reliable measurement. Intangible assets obtained in combination and whose fair value can be reliably measured can be confirmed as intangible assets and measured according to fair value. ② Other debts whose implementation of relevant obligations may lead economical interests flow out of the company with reliable measurement of fair value besides existing debts obtained by combined party during combination shall be confirmed individually and measured according to fair value. If combined party may have debts obtained in combination with reliable measurement of fair value, it shall be confirmed individually and measured according to fair value. (2) Long-term dividend investment obtained out of enterprise combination shall enter in an account during obtainment according to initial investment cost. Initial investment method shall be defined according to following methods： A. Long-term dividend investment purchased in cash shall be used as initial investment cost according to total price of actual payment (including relevant expenses such as paid taxation, commission charges). B. Long-term dividend investment obtained by issuing equity securities shall be used as initial investment cost according to fair value of issuing of equity securities. C. Long-term dividend investment paid by investor shall be used as initial investment cost according to value stipulated by investment contract or agreement except unfair value stipulated by contract or agreement. D. Long-term dividend investment obtained by debtor by way of payment of debts of non-cash capital or that converted by receivable creditor's rights shall be used as initial investment cost according to fair value and receivable relevant expenses of taxation. E. If transaction of conversion from non-cash trade to long-term dividend investment has commercial essence, converted long-term dividend investment shall be used as initial investment 49 cost according to fair value and receivable relevant expenses of taxation；If the transaction has no commercial essence, sum of book value caused by capital conversion by invested long-term dividend investment and receivable relevant expenses of taxation shall be used as initial investment cost. Price of actual payment includes announced but not drawn cash dividend. Difference of price of actual payment and announced but not drawn cash dividend shall be used as initial investment cost. Consequent measurement of long-term dividend investment Consequent measurement of long-term dividend investment of the company shall be calculated by cost method and equity method. The company's investment to subsidiary company and long-term dividend investment which has no common control or significant influence to invested unit, quotation in active market and reliable measurement of fair value shall be calculated by cost method. Adjust cost of long-term dividend investment calculated by cost method during super addition or recovery of investment. The company will calculate joint venture which has common control to invested unit and consortium which has significant influence to invested unit by equity method. Confirmation method of long-term dividend investment gains Confirm gains of enterprises which are calculated by cost method when invested unit declares to issue cash dividend but the investment income is limited to obtained quota of aggregate net profit of invested unit after receiving investment. If obtained cash dividend declared by invested unit exceeds above amount, the surplus shall be used as offset of initial investment cost to offset book valve of investment. As for enterprises which are calculated by equity method, net gains or losses after receiving stock rights of invested unit shall be thought as the foundation. It is required to confirm investment gains and adjust book value of long-term dividend investment at the end of every accounting period according to net profit or share of net loss of invested unit that the company shall share or undertake. The company shall decrease book value of long-term dividend investment correspondingly according to calculated profit or cash dividend declared by invested unit. Disposal of long-term dividend investment Difference of book value of investment and actually obtained price during disposal of equity investment shall be used as current investment gains. 10, Investment real estate 1) Definition of investment real estate Investment real estate of the company refers to real estate whose purpose includes rental-earning, capital appreciation or both. 2) Scope of investment real estate Investment real estate of the company includes leased building. 3) Investment real estate of the company shall be measured by cost mode. Measure, calculate and deduct depreciation charge or amortize investment real estate under cost mode according to regulations of "Accounting Standard for Business Enterprises No. 4-Fixed assets" and "Accounting Standard for Business Enterprises No. 6- Intangible assets"；Handle depreciation according to regulations of "Accounting Standard for Business Enterprises No. 8-Impairment of assets". 11. Valuation and depreciation methods of fixed assets Fixed assets refer to the tangible assets held for commodity production, labor service, lease, operation or management and with a use term of over 1 fiscal year. The related economic interest to the fixed assets is likely to flow into the company and the cost of it can be measured reliably. 1) Fixed assets of the company shall be initially measured according to the cost. The fixed assets include purchasing price, related taxes, and other expenditures that could be directly included in this assets and is used before making fixed assets in the usable condition, such as transportation fees, loading and unloading fees, service charge of career men, estimated 50 discarding expense and etc. As to the fixed assets which are bought at a total price, according to the fair value proportion of every fixed asset, we distribute the total cost and fix their cost. The cost of the self-built fixed asset is composed of the expenses needed in constructing before the expected applicable state. The loan cost expenditure which accords with the capitalization requirements is recorded in fixed asset cost. As to the fixed asset of which deferred payment is made under the abnormal credit condition, the fixed asset cost is measured on the basis of the present value of the purchasing price. The margin between the actual price and the present value of purchasing price, except the part which is capitalized according to China Accounting Standard No.17—loan cost, shall be recorded in current profit and losses. 2) If the follow-up expenditures related to fixed assets are proved to make economic interests which are going to flow to the enterprise and the cost can be measured reliably, then it should be capitalized. 3) At least, the service life, the estimated residual value and the depreciation method of the fixed asset should be checked at the end of the year, and discover: if the expected service life is discrepant to the initial, adjust the service life of the fixed asset, if the estimated residual value is discrepant to the initial, adjust it, and if the expected achieving method of the economic interest related to the fixed asset is changed greatly, the depreciation method of the fixed asset should be changed. 4) The changes to the service life, estimated residual value and the depreciation method of the fixed asset should be dealt as accounting estimate change. 5) The depreciation of fixed assets adopts the straight-line method to set the average, and according to the original value of various fixed assets and the expected service life of fixed assets minus residual value ratio (10% of the original) to set the depreciation rate, the year assorted depreciation rate as follows: Sort of the asset Service life Year depreciation ratio Houses and buildings 20 years 4.5% Machinery and equipment 10 years 9% Office equipment 5 years 18% Electronic equipment 5 years 18% Means of transportation 5 years 18% Other equipment 5 years 18% 6) If the following occur, on the date of balance sheet, the fixed asset should be measured according to the lesser one between the book value and the recoverable amount, and withdraw preparation of fixed asset measurement to the margin when the recoverable amount is less than the book value: A. It is proved that the asset is outdated or its entity is ruined, B. The asset has been or will be left unused, ended to use, or planed to be dealt with in advance, C. The enterprise interior report shows that the economic performance of the asset is or will be less than expected, D. Other evidence shows that the asset may have been under devaluating. After the recognition to the loss of asset devaluation, adjust the depreciation expense with asset devaluation to depreciate the asset after deducting the asset devaluation in the rest service life of the asset. 7) It shouldn’t be conversed in the future accounting period after the recognition of the asset devaluation loss. 12. Measurement method of construction in progress 51 The construction in progress is recorded in book according to the actual expenditure of each construction. When the built asset is in the expected applicable state, transfer to the fixed assets according to the final accounts of the construction, construction budget, cost or the actual cost measurement of the construction. Before the fixed assets achieve the expected applicable state, the loan cost which accords with the capitalization requirements and foreign currency conversion margin should be recorded in construction cost, and after that they should be recorded in current financial expense. On the date of balance sheet, for the construction in progress which is proved to have been devaluated or stopped construction and estimated that it will not be reconstructed within three years, the recoverable value should be estimated, and withdraw devaluation preparation according to the margin when the recoverable amount is less than the book value. 13. Measurement method to loan cost Loan costs refer to the interest, amortization of overate or discount price （including commission charge and so on）and difference of currency exchange caused by borrowing. 1) Capitalization requirements, if the following three requirements are all achieved, the loan cost before the fixed asset constructed achieving the expected applicable state should be capitalized. (1) The capital expenditure has been materialized (2) The loan cost has been materialized (3)The needed purchasing and construction activities for making the asset achieve the expected applicable state have already started 2) Recognition to the capitalization amount (1) The special loan borrowed for constructing or producing asset which accords with the capitalization requirements is recognized with the actually materialized interest expense of the special loan minus the interest income of the unused loan deposited in bank or the investing profit from application to the temporary investment. (2) For the general loan used to construct or produce asset which accords with the capitalization requirements, the company calculate the interest amount which should be capitalized of the general loan by multiplying the weighted average of the asset expenditure which is the exceeded part of the accumulated asset expenditure comparing with the special loan to the capital ratio of the general loan used. The capital ratio is calculated according to the weighted interest rate of the general loan. (3) If the discount or premium occurred to the loan, confirm the amortization value of every accounting period and adjust the interest amount of every period according to the actual interest rate. (4) During the capitalization, the exchange margin of the principal and interest of the foreign currency special loan should be capitalized and recorded in the asset cost which accords with the capitalization requirement. (5) As to The auxiliary expense of the loan, if it is materialized before the constructed asset, accordant to the capitalization requirement, achieving the expected applicable state or salable sate, it should be capitalized while materializing according to the materialized amount and recorded in the asset cost accordant to the capitalization requirements. If it is materialized before the constructed asset, accordant to the capitalization requirement, achieving the expected applicable state or salable sate, it should be recognized as expense while materializing according to the materialized amount and recorded in the current profit and losses. (6) Capitalization of loan costs will be stopped when abnormal suspension occurs to assets accordant to capitalization period while purchasing or construction goes on continuously for 3 months. The loan cost during suspension will be determined as expenses and recorded in current profit and losses until the constructing activity of assets restarted. 14. Valuation and amortization method of intangible assets 1) For the intangible asset purchased or obtained through legal procedures, it should be recorded according to the actual price. For the accepted intangible asset as investment, it should be recorded 52 to the contract or recognized measurement. For the intangible asset developed by ourselves, all the expenditures during researching should be recognized as expense and recorded in current profit and losses, and the expenditures during researching shall be capitalized if it accords with the following requirements: (1) It is technically feasible to finish the intangible asset to make it able to be used or sold (2) There is an intention to complete the intangible asset to use or sell (3) The intangible asset can bring about economic benefit (4) Having enough technical, financial and other resources to support to complete the development of the intangible asset and capable of using or selling it (5) The expenditure to the developing period of the intangible asset can be measured reliably 2) For the intangible asset of which the service life can be recognized, amortize with the straight-line method within its validity period. 3) For the intangible asset of which the service life can not be recognized, it will not be amortized within the holding period. 4) On the date of balance sheet, the intangible asset should be measured according to the lesser one between the book value and the recoverable amount, and withdraw devaluation preparation to the margin when the recoverable amount is less than the book value. Check the service life and amortization method of the intangible asset of which the service life is limited to ensure whether the service life and amortization method of the intangible asset should be changed or not. For the one need to be re-estimated, change the amortization time limit and method. After the recognition to the devaluation losses of the intangible asset, adjust the amortization expense of the devaluated intangible asset in the future, and amortize according to the book value after deducting the asset devaluation. It should not be conversed in the future accounting period after the recognition to the intangible asset devaluation. 15. The measurement method of long-term unamortized expenses 1) Organization costs: gather the organization costs in the long-term unamortized expenses when they occur, and recorded in the current profit and losses completely in the first monthly when the company begins to operate. 2) Long-term unamortized expenses: evaluate according to the actual materialized amount, if there is definite beneficial period, amortize according to the beneficial period, and if there is no beneficial period, amortize averagely in five years. 3) Fitment cost: amortize according to the beneficial period and the shorter fixed number of year of two fitments, usually the amortization is less than 5years. 16. Recognition principle of anticipated liabilities If the duty related to the contingent items accords with all the following requirements, it should be recognized as liability: 1) The duty is the current duty of the company 2) The execution of the duty may cause outflow of economic interest from the company 3) The duty can be measured reliably 17. Revenue Recognition 1) The recognition principle and method of product selling income (1) The product selling income of the company shall be recognized when it meets all the following requirements: A. the main risk and reward of the product property have been transferred to the purchasers B. the company has not retained the continued management authority usually related to the property or control effectively the products sold. C. the income can be measured reliably D. the related economic interest is likely to flow into the company E. the related cost materialized or going to be materialized can be measured reliably 53 (2) The company confirms the amount of product selling income according to the contract or negotiated price received or going to be received from the purchasers except the unfair contract or negotiated price received or going to be received. (3) The deferred method is applied to the collection of the contract or negotiated price, and the product selling amount is recognized according to the fair value of the receivable contract or negotiated price. The margin between the contract or negotiated price and their fair value should be amortized with the effective interest method during the period of contract or agreement and recorded in the current profit and losses. (4) If the contract or agreement signed by the company with others includes both products selling and rendering of service which can be distinguished and measured separately, product selling should be dealt with as product selling, and the rendering of service should be dealt with as rendering of service. (5) If the product selling and rendering of service cannot be distinguished or cannot be measured separately though distinguished, both of them should be dealt with as product selling. (6) If the product recognized as product selling income is returned back, counteract the current product selling income while occurring. 2) Rental income The rental date set in the contract or agreement signed by the company and the leaser is taken as the beginning to confirm rental income, and the amount is amortized monthly to confirm the rental income. 3) The usufruct income of the released assets will be recognized only when it meets all the following requirements: the related economic interest is likely to flow into the company and the income can be valuated reliably. The usufruct income of the released assets is recognized according to the following operations: interest income, recognized according to the time and effective interest rate of the capital used by others, other charges income, recognized by the charging time and method of related contract and agreement. 4) Rendering of service: the construction started and finished in the same year, when the service has been provided, and the charge or the charge proof has been collected, the service income should be recognized, if the beginning and ending of the service belongs to different accounting year, and the result to the rendering of service can be valuated reliably, the related service income should be recognized according to the percentage of completion on the date of balance sheet. The detailed disposal is as follows: (1) If the result to the rendering of service can be valuated reliably on the date of balance sheet, the service income should be recognized according to the percentage of completion. The total income of rendering of service should be recognized according to the received or to be received contract or agreement price. (2) On the date of balance sheet, the current service income should be recognized by multiplying the total service income to the completion rate of progress and deducting the accumulated service income recognized in the former accounting period. At the same time, carry forward the current service cost by multiplying the estimated total service cost to the completion rate of progress and deducting the accumulated service cost recognized in the former accounting period. (3) If the result to the rendering of service cannot be valuated reliably on the date of balance sheet, deal separately according to the following conditions: for the materialized service cost which is estimated to be compensated, confirm the service cost according to the materialized service cost, and carry forward the service cost with the same value, for the materialized service cost which is estimated not to be compensated, record the materialized service cost in current profit and losses, and do not confirm the service income. 5) Property management income, when the property management service is provided, the related economic interest can flow into the company and the related cost can be measured reliably, the 54 property management income should be recognized. 18. Measurement method to employees’ payment 1) Recognition and measurement to employee’s payment All kinds of payments to the employees for the service they provided should be measured as employees’ payment in the company. For measurement to the accrued wages, if the withdraw basis and withdraw proportion have been regulated by the nation, withdraw according to the national standard. If there is no definite withdraw basis and proportion, estimate the current accrued wages rationally according to the related payment system. If the current actual amount is more than the estimated amount, compensate the accrued wages. If the current actual amount is less than the estimated amount, withdraw the exceeded accrued wages. As to the accrued wages of which the validity is over one year after the date of balance sheet with the service provided by employees, record the discount value of the accrued wages in the related asset cost or current profit and losses by taking the corresponding bank lending rate as discounting rate. For the non-currency welfare to which the beneficiary cannot be recognized, record it directly in the current profit and losses and accrued wages. 2) The dismissed welfare is recorded in the current management cost, and the accrued wages is recognized. For the planed dismissing, follow the dismissing planed item, estimate and confirm rationally the accrued wages result from dismissing welfare. The quantity of the employees planned to be dismissed according to the planning item and each of their dismissing compensation is withdrawn as accrued wages and recorded in accrued wages. For the case which the material dismissing is finished within a year and the payment time is over a year, record the discount value as the accrued wages by taking the corresponding bank lending rate as discounting rate. 3) Recognition and measurement to the retiring welfare If there is a retiring welfare system in the company, follow the standard of the system, record the discount value as the accrued wages in the current profit and losses by taking the corresponding bank lending rate as discounting rate. 19. Measurement method of liabilities restructuring 1) Measurement method of debt restructuring If the liabilities conditions are changed, take the fair value after the liabilities conditions are changed as the recorded value of the liabilities after restructuring. For the margin between the book value and the recorded value of the restructured liabilities, if the anticipated liabilities is involved, the margin between the recorded value of the liabilities after restructuring and the anticipated liabilities value should be recorded in current profit and losses. If the liabilities restructuring is carried out by combining the method of discharging with cash, discharging with non-cash assets, forwarding the liabilities to assets, changing other liabilities conditions, counteract the book value of the restructured liabilities and the margin between the book value and recorded value of the restructured liabilities with the cash paid, the fair value of the transferred non-cash asset and the fair value taking shares in turn. If the anticipated liabilities are involved, the margin between the recorded value of the liabilities after restructuring and the anticipated liabilities value should be recorded in current profit and losses. In accordance with the regulations on Notice of Well Implementing Accounting Standards for Business Enterprise on the Works of 2008 Annual Report by the Letter No. CK [2008]60 from Ministry of Finance: “ if accepting the direct or indirect donations from the controlling shareholders or the subsidiaries of the controlling shareholder, judge the capitalization input on enterprise belonging to controlling shareholders from the economic substances which should be the Equity Transaction, and relevant income should be recorded in owners’ equity(capital public reserve).” 55 2) Measurement method of credit restructuring If the credit of the company is discharged with cash, record the margin between the book balance of the restructured credit and the cash received in the current profit and losses. If the credit has been withdrawn devaluation preparation, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation which is deficient in counteracting; record it in the current profit and losses. For the discharging with non-cash assets, record the fair value of the received non-cash assets in book, and record the margin between the book balance of the restructured credit and the fair value of the received non-cash asset in current profit and losses after deducting the withdrawn devaluation preparation. For the credit forwarded to assets, confirm the fair value taking shares as the investment to debtors. For the margin between the book balance of the restructured credit and the air value of the share, if the devaluation preparation to the credit has been already withdrawn, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation which is deficient in counteracting; record it in the current profit and losses. If the credit is discharged by combining the method of discharging with cash, discharging with non-cash assets, forwarding the liabilities to assets, changing other liabilities conditions, counteract the book balance of the restructured credit and the margin between the book balance and the fair value of the share with the cash paid, the fair value of the received non-cash asset and the fair value taking shares in turn. If the devaluation preparation to the credit has been already withdrawn, first counteract the devaluation preparation with the margin, for the part of the devaluation preparation which is deficient in counteracting; record it in the current profit and losses. 20. Accounting method to income tax The balance sheet liability method is applied to the accounting of the income tax expense 1) On the date of balance sheet, according to the discrepancy between tax law and accounting, it should be divided to taxable temporary discrepancy and counteractable temporary discrepancy and recognized as deferred income tax asset and deferred income tax liabilities separately, and measured with anticipated taxable (or given back) income tax value according to the tax law. If the effective tax rate is changed, reevaluate the recognized deferred income tax asset and deferred income tax liabilities with the new tax rate, and record the influenced value in the income tax expense corresponding to the tax rate changes. Record the income tax caused by enterprise combination and the exchanges occurs directly in owner’s equity in current income. On the date of balance sheet, check the book value of the deferred income tax asset. If it is proved that in the future there may be no sufficient taxable income to counteract the deferred income tax asset, deduct the book value of the deferred income tax asset according to the discrepancy between them. 2) Recognition to the deferred income tax asset (1) The company recognizes the deferred income tax asset result from the counteractable temporary discrepancy in the limit of the taxable income which is likely to be obtained to counteract the counteractable temporary discrepancy. However, the deferred income tax asset which own the following features and result from the initial recognition to assets and liabilities in exchanging should not be recognized. A. the exchange is not enterprise combination B. while exchanging, neither the accounting profit nor the taxable income is influenced (or the loss can be counteracted) (2) For the counteractable temporary discrepancy related to investment to subsidiary companies, affiliated companies and joint ventures, if it meets all the following requirements, the company recognizes the corresponding deferred income tax asset: A. the temporary discrepancy is likely to be conversed in the foreseeable feature B. the taxable income is likely to be obtained to counteract the temporary discrepancy in the future 56 3) Recognition to deferred income tax liabilities The company recognizes all the deferred income tax liabilities result from taxable temporary discrepancy except the deferred income tax liabilities result from the following conditions: (1) Initial recognition to goodwill (2) The initial recognition of asset or liability caused by exchanges owning all the following features: A. the exchange is not enterprise combination B. while exchanging, neither the accounting profit nor the taxable income is influenced (or the loss can be counteracted) (3) For the counteractable temporary discrepancy related to investment to subsidiary companies, affiliated companies and joint ventures, if it meets all the following requirements, the company recognizes the corresponding deferred income tax liabilities: A. the investing company has the ability to control the conversing time of the temporary discrepancy B. it is likely that the temporary discrepancy in the foreseeable will not be conversed 4) Measurement to income tax expenses The company records the current income tax and deferred income tax in the current profit and losses as income tax expenses income, except the income tax result from the following cases: (1) Enterprise combination (2) The exchanges or items directly recognized in the owner’s equity 21. Preparation method for consolidated accounting statements The principle to consolidate accounting statements: consolidate the accounting statements of the invested companies of which more than 50% of its voting capital are belong to parent company or the subsidiary companies to which parent company has the actual control power though no more than 50% of its voting capital are belongs to parent company. The method is to take the accounting statements of the parent company and the included subsidiary companies as basis, prepare according to other related data after adjusting the long-term investment on shares from the parent company to the subsidiary companies according to the equity law. While consolidating, counteracting the interior exchanges between the parent company and the subsidiary companies or among the subsidiary companies such as important investment, exchange, stock, purchase and sell and unfulfilled profit, and calculate the minority shareholders’ equity. The parent company is to prepare the consolidated accounting statement. Note 5: Accounting policies, accounting estimation changes, accounting mistakes corrections and the influence of changes to the range of the consolidated accounting statement 1. Changes on accounting policies and accounting estimation. In the current year, there were no changes on accounting policies and accounting estimation of the Company. 2. Corrections on accounting mistakes: (1) Changes on accounting mistakes of the exemption of debts interests in year 2007 From Jan. to Dec. of 2007, the Company withdrew the debts interests of Guocheng Energy and Sunrise Group in book. At the end of Dec. of year 2007, Guocheng Energy and Sunrise Group respectively exempted the interests payable of the Company in year 2007 amounting to RMB 54,707,767.09 and RMB 14,850,832.43, the Company directly charged the confirmed financial expense based on the exempted account but not recorded in non-operating income (income from debts restructuring) in accordance with the regulation of Accounting Standards fro Enterprise. The above accounting treatment of the Company was not appropriate which led to the mistakes on calculation and disclosure of the non-recurring gains/losses. Thus, the Company made retroactive adjustment on the mistakes adjusted the comparative financial 57 statement of year 2007 which had no influences on the current profit in year 2007. The following accounting items of profit statement in year 2007 were concerned to be adjusted: adjusted to increase the Financial Expense-Bank Interest RMB 69,558,599.52, adjusted to increase Non-operating income RMB 69,558,599.52. (2) Corrections on accounting mistakes of confirmation of projected liabilities The amount on the guarantee for the loan of Sunrise Group by the Company was RMB 36.1 million and USD 1.74 million. The above loans were both involved in lawsuits before year 2002, and the Company was judged to shoulder the joint responsibilities of compensation. The financial position of the Sunrise Group has been deteriorated in year 2001. The Company has confirmed the projected liabilities RMB 25,271,000 based on the 50% of the guarantee amount in year 2001, but not fully confirmed the projected liabilities in accordance with the full amount of guarantee which was not in accordance with the regulation of Accounting Standards fro Enterprise, and belonged to material accounting mistakes in previous years. Thus, the Company made retroactive adjustment on the mistakes adjusted the comparative financial statement of year 2007 which had no influences on the current profit in year 2007. in light of the changes on the exchange rate of the loan on the guaranteed USD, adjusted to increase the Projected Liabilities RMB 22,692,842.00 and meanwhile, adjusted to decreased the Undistributed Profit in Year-begin RMB 22,692,842.00. 3. Changes to the range of the consolidated accounting statement. In the current year, the Company had no changes to the range of the consolidated accounting statement Note 6: Tax The main taxes adopted by the Company include: VAT, business tax, city construction and maintenance tax, extra charges for education and enterprise income tax, etc. The respective tax rate of the turnover tax is: 17% for VAT, 5% for business tax, 1% for the city construction and maintenance tax, 3% for the extra charges for education. The tax rate of enterprise income tax is 18%. Note 7: Controlled subsidiaries and associated enterprises 1. Controlled subsidiaries Share-holdi Name of controlled Registered Investment Consolida Business scope ng subsidiaries capital amount ted or not proportion China Bicycle (Hong HK$ 5 Distribution of 5,350,000.00 99% Yes Kong) Co., Ltd. bicycle and parts million Shenzhen Anjule Property RMB 2 Self-owned property 2,000,000.00 100% Yes Management Co., Ltd. management million Shenzhen Emmelle RMB 2 milli Distribution of 1,400,000.00 70% Yes Industry Co., Ltd. bicycle and parts on China Bicycle Trade and Yes HK$ 20,000 20,000.00 100% (International) Co., Ltd. manufacture 58 2. Associated enterprises Share Registered Investment Name of associated enterprises Business scope proportio capital amount n Manufacture of motorcycle Hunan KYMCO Motorcycle USD 29.5 mill and fitting parts of engine, 5,679,300.00 5.5% Co., Ltd. ion etc. Shenzhen Golden Ring USD 3.7 Produce Positive plate and 14,883,560.00 38% Printing Co., Ltd. million sensitive developer, etc. Chengdu Emmelle Technology Software and hardware; Co., Ltd. machining, assembly, distribution and technical RMB 600,000 180,000.00 30% consultation of electric bicycle and other legal program Note 8: Notes to the main items presented in the financial statements (unless otherwise specified, the data below is consolidation data) 1. Monetary fund Dec. 31, 2008 Dec. 31, 2007 Original Converted to Original Converted to Item Currency currency RMB currency RMB RMB 76,329.51 76,329.51 131,454.91 131,454.91 Cash HK 1,894.30 1,666.98 1,894.30 1773.76 dollar US 1.20 8.20 1.2 9.13 dollar 78,004.69 133,237.80 Subtotal RMB 9,651,336.60 9,651,336.60 13,555,013.78 13,555,013.95 Bank deposit HK 41,756.67 36,745.87 34,374.51 32,187.16 dollar US 46,927.14 320,512.37 46,786.89 341,759.52 dollar 10,008,594.84 13,928,960.63 Subtotal Other - - - - monetary fund RMB 10,086,599.53 14,062,198.43 Total 2. Note receivable Note type Dec. 31, 2008 Dec. 31, 2007 5,408,792.00 Bank acceptance 1,673,960.00 59 5,408,792.00 Total 1,673,960.00 List as follows based on clients: Reason for Name of client Face amount Expiry date formation Zhengzhou Daming Technology 1,900,000.00 Sale May 27, 2009 and Trade Co., Ltd. Jinan Yuxintai Sales Co., Ltd. 3,208,792.00 Sale June 22, 2009 Zhengzhou Daming Technology 200,000.00 Sale June 8, 2009 and Trade Co., Ltd. Zhengzhou Daming Technology 100,000.00 Sale May 19, 2009 and Trade Co., Ltd. Total 5,408,792.00 3. Account receivable Age of the Dec. 31, 2008 Amount Proportion Bad debt reserve Net amount account 185,726.81 0.02% - 185,726.81 Within one year 120,518.46 0.01% 95.85 120,422.61 1-2 years - 0.00% - - 2-3 years 1,041,135,045.16 99.97% 1,041,056,161.17 78,883.99 Over 3 years Total 1,041,441,290.43 100.00% 1,041,056,257.02 385,033.41 Age of the Dec. 31, 2007 Amount Proportion Bad debt reserve Net amount account Within one year 251,184.98 0.02% 95.85 251,089.13 1-2 years 24.00 0.00% --- 24.00 2-3 years 104,844.07 0.01% 17,560.08 87,283.99 Over 3 years 1,040,796,109.98 99.97% 1,040,652,456.59 143,653.39 Total 1,041,152,163.03 100.00% 1,040,670,112.52 482,050.51 (1) Risk analysis for the account receivable at the end of the period Dec. 31, 2008 Amount Proportion Bad debt reserve Net amount Age of the account Account receivable with 904,866,318.70 86.89% 904,866,318.70 - single big amount 60 Account receivable with no single big amount but with big risk after 136,268,726.46 13.08% 136,189,842.47 78,883.99 combined according to the characteristics of credit risk Other accounts receivable 306,245.27 0.03% 95.85 306,149.42 without single big amount Total 1,041,441,290.43 100.00% 1,041,056,257.02 385,033.41 The standard for account receivable with single big amount of the Company is set as RMB 5 million according to the business scale and business nature of the Company and settlement performance of clients. (2) The balance at the end of the period does not include the account receivable of shareholders holding 5% (5% included) or above shares with voting rights of the Company. (3) Total amount of the top five in the balance at the end of the period is RMB 492,884,806.45, accounting for 47.33% of the total amount of account receivable. (4) At the end of the report period, the Company withdrew bad debt reserve of RMB 1,040,652,456.59 in sum amount for account receivable, taking 99.96% of the total account receivable. 4. Account paid in advance Structure of age of the Dec. 31, 2008 Dec. 31, 2007 Amount Proportion Amount Proportion account Within 1 year (1 year 494,714.35 98.07% included) 1,187,093.48 91.02% 1 year to 2 years (2 years 9,726.05 1.93% included) --- --- 2 years to 3 years (3 years - - included) 117,100.00 8.98% Over 3 years - - --- --- Total 504,440.40 100.00% 1,304,193.48 100.00% (1) The balance at the end of the period does not include the account paid in advance to shareholders holding 5% (5% included) or above shares with voting rights of the Company. 5. Other account receivable Dec. 31, 2008 Age of the account Amount Proportion Bad debt reserve Net amount 34,114,247.64 5.86% 9,111,049.38 25,003,198.26 Within one year 3,401,632.04 0.58% 10,118.71 3,391,513.33 1-2 years 95,212.35 0.02% 285.64 94,926.71 2-3 years 544,940,183.33 93.54% 531,235,883.73 13,704,299.60 Over 3 years 61 582,551,275.36 100.00% 540,357,337.46 42,193,937.90 Total Dec. 31, 2007 Age of the account Amount Proportion Bad debt reserve Net amount Within one year 9,436,385.37 1.71% 12,276.37 9,424,109.00 1-2 years 1,594,976.28 0.29% 4,705.53 1,590,270.75 2-3 years 9,225,788.74 1.67% 27,677.37 9,198,111.37 Over 3 years 531,647,245.61 96.33% 531,085,217.16 562,028.45 Total 551,904,396.00 100.00% 531,129,876.43 20,774,519.57 (1) Risk analysis for other account receivable at the end of the period: Dec. 31, 2008 Amount Proportion Bad debt reserve Net amount Age of the account Other account receivable with 501,545,148.56 86.09% 471,086,344.75 30,458,803.81 single big amount Other account receivable without single big amount but with big 60,149,538.98 10.33% 60,149,538.98 - risk after combined according to the characteristics of credit risk Other accounts receivable 20,856,587.82 3.58% 9,121,453.73 11,735,134.09 without single big amount Total 582,551,275.36 100.00% 540,357,337.46 42,193,937.90 The standard for other account receivable with single big amount of the Company is set as RMB 5 million according to the business scale and business nature of the Company and settlement performance of clients. (2) Total amount of the top five in the balance at the end of the period is RMB 357,711,532.44, accounting for 61.40% of the total amount of account receivable. (3) At the end of the report period, the Company withdrew bad debt reserve of RMB 531,221,136.55 in sum amount for other account receivable, taking 91.19% of the total other account receivable. (4)Other account receivable received an increase in period-end over period-begin, mainly due to that equity of Jiangxi Lihua Industrial Co., Ltd. had been transferred by Hong Kong Dahuan Group Co., Ltd., thus the Company transferred equity of Jiangxi Lihua into other account receivable. 6. Inventory and inventory devalue provision (1) The changes to inventory are listed as follows: Increase of the Decrease of the Type Dec. 31, 2007 current period current period Dec. 31, 2008 Raw material 249,215,915.55 12,597,453.35 36,933,176.97 224,880,191.93 Low-value 1,470,068.73 -1,557.64 23,126.55 1,445,384.54 consumables Self-manufactured 5,622,775.11 10,120,544.95 12,709,222.34 3,034,097.72 half-finished 62 products Goods in stock 39,069,218.53 254,313,491.47 258,408,113.80 34,974,596.20 Total of balance of 295,377,977.92 277,029,932.13 308,073,639.66 264,334,270.39 inventory Less: provision for 254,261,182.41 6,024,359.56 32,148,615.51 228,136,926.46 devaluation Total of net 41,116,795.51 36,197,343.93 inventory (2) Changes to inventory devalue provision are listed as follows: Increase of Decrease of the current Type Dec. 31, 2007 the current period Dec. 31, 2008 Switching Written-off period back Raw material 229,667,161.87 - - 29,233,214.64 200,433,947.23 Low-value 1,315,419.73 - - - 1,315,419.73 consumables Self-manufactured half-finished 2,611,095.99 - - - 2,611,095.99 products Finished products 20,667,504.82 6,024,359.56 - 2,915,400.87 23,776,463.51 Total 254,261,182.41 6,024,359.56 - 32,148,615.51 228,136,926.46 The basis for confirmation of the inventory above being converted into realizable net value is: the raw material is converted according to the average unit price of the latest purchase; the material which is out of expiration period, outdated, or unsuitable for transformation and awaiting scrap is converted according to the recoverable amount; finished products is converted according to the unit price of the latest sale minus the direct expense and tax that may be necessary for conversion. 7. Long-term equity investment (1) The long-term equity investment is listed as follows: Increase of Decrease of the the current Item Dec. 31, 2007 current period Dec. 31, 2008 period Long-term equity investment 46,286,150.08 25,723,290.08 20,562,860.00 Minus: devalue provision 18,879,666.57 2,273,242.13 3,209,889.20 17,943,019.50 Net amount of long-term equity 27,406,483.51 2,619,840.50 investment Decrease occurred in this report period was mainly due to that: equity of Jiangxi Lihua Industrial Co., Ltd. had been transferred by Hong Kong Dahuan Group Co., Ltd., thus the Company transferred equity of Jiangxi Lihua into other account receivable; Balance as of period-end was the liquidation balance of Shenzhen Golden Ring Printing Co., Ltd. which had been revoked with its industrial and commercial registration information. (2) Long-term equity investment a. Other equity investment calculated through cost method 63 Proportion in the Increas Investme Initial Name of company registered e of the Decrease of the nt time investment Dec. 31, 2007 Dec. 31, 2008 invested capital of the current current period limit cost company period invested Hunan KN 5.50% 5,679,300.00 5,679,300.00 - - 5,679,300.00 Motorcycle Co., Ltd. 50 years b. Other equity investment calculated through equity method Proportion Equity in the Other Name of registered Initial adjustment Accumulative Investment increase/decrease company capital of investment Dec. 31, 2007 during the equity Dec. 31, 2008 time limit invested the cost of the current company current adjustment period invested period Shenzhen Golden Ring 20 years 38% 14,883,560.00 14,883,560.00 14,883,560.00 Printing Co., Ltd. Chengdu Emmelle 30% 180,000.00 -180,000.00 Technology Co., Ltd. Jiangxi Lihua Industrial Co., 30 years 38.60% 30,740,000.00 25,723,290.08 -874,997.07 24,848,293.01 -5,891,706.99 - Ltd. Total 45,803,560.00 40,606,850.08 -874,997.07 24,848,293.01 -6,071,706.99 14,883,560.00 It is showed that registered industrial and commercial information of Shenzhen Golden Ring Printing CO., Ltd. has been already revoked, and its actual owner is the Company, for its shareholder-Hong Kong Link Bicycle Co., Ltd. was only entrusted by the Company to hold shares of Golden Ring on behalf of the Company. (3) Changes to devalue provision Decrease of Increase of the Name of the company invested Dec. 31, 2007 the current Dec. 31, 2008 current period period Hunan KN Motorcycle Co., Ltd. 4,719,777.37 959,522.63 - 5,679,300.00 Jiangxi Lihua Industrial Co., Ltd. 3,209,889.20 - 3,209,889.20 - Shenzhen Golden Ring Printing 10,950,000.00 1,313,719.50 - 12,263,719.50 Co., Ltd. Total 18,879,666.57 2,273,242.13 3,209,889.20 17,943,019.50 8. Investment real estate Increase of Decrease of Item Dec. 31, 2007 the current the current Dec. 31, 2008 period period 1. Total original price 14,346,102.94 - - 14,346,102.94 1) Houses, buildings 14,346,102.94 - - 14,346,102.94 2) Land-use right - - - 2. Total accumulative depreciation and 3,389,266.86 645,574.68 - 4,034,841.54 accumulative 64 Increase of Decrease of Item Dec. 31, 2007 the current the current Dec. 31, 2008 period period amortization 1) Houses, buildings 3,389,266.86 645,574.68 - 4,034,841.54 2) Land-use right - - - - 3. Total devalue provision amount - - - - 1) Houses, buildings - - - - 2) Land-use right - - - 4. Total book value 10,956,836.08 - - 10,311,261.40 1) Houses, buildings 10,956,836.08 - - 10,311,261.40 2) Land-use right The Company adopts cost method for the subsequent calculation of investment real estate. 9. Fixed assets and accumulated depreciation Increase of the Decrease of the Type Dec. 31, 2007 current period current period Dec. 31, 2008 Original value of fixed assets 236,056,082.90 - 7,163,658.00 228,892,424.90 Houses and buildings 1,339,700.00 118,000.00 430,271.00 1,027,429.00 Machinery equipments 1,778,027.00 - 1,018,258.00 759,769.00 Transport equipments 1,680,583.30 673,478.00 - 2,354,061.30 Other equipments 240,854,393.20 791,478.00 8,612,187.00 233,033,684.20 Total Accumulative depreciation 166,947,213.90 9,787,299.06 4,613,552.94 172,120,960.02 Houses and buildings 731,492.39 294,884.52 372,485.36 653,891.55 Machinery equipments 1,327,307.87 93,234.11 763,926.09 656,615.89 Transport equipments 1,202,024.71 305,012.68 - 1,507,037.39 Other equipments 170,208,038.87 10,480,430.37 5,749,964.39 174,938,504.85 Total 2,084,874.23 2,084,874.23 Devaluation provision 65 Net amount of fixed 68,561,480.10 56,010,305.12 assets (1)Original value decreased RMB 7,747,888.00 in period-end over period-begin, mainly due to that No. 91 property in West Fourth Street, Xicheng District, Beijing with original value of RMB 6,974,505.00 was sold in this report period. (2)Among the houses and buildings of the Company, except house property certificate was transacted for China Garden (original value of RMB 7,226,043.16), property right certificates haven’t been transacted for others. (3)Details for restriction upon property could be found in Note 12. 10. Intangible asset Increase Amortization Accumulated Periods left Obtaining of the of the Item Original value amortization Dec. 31, 2007 Dec. 31, 2008 for method current current amount amortization period period Land-use 43,143,099.08 Purchase-in 15,962,947.74 28,043,013.38 - 862,862.04 27,180,151.34 31.50 right The land-use right refers to the 127,333 ㎡ land in Yousong Village, Longhua Town, Bao’an District, Shenzhen, and the term is from July 1st, 1990 to June 30th, 2040. Details for restriction upon property could be found in Note 12. 11. Assets devalue provision The amount The amount Increase of the turned back in written off in Item Dec. 31, 2007 Dec. 31, 2008 current period the current the current period period 1. Bad debt reserve 1,571,799,988.95 9,613,605.53 - - 1,581,413,594.48 Inc: accounts receivable 1,040,670,112.52 386,144.50 - - 1,041,056,257.02 Other accounts receivable 531,129,876.43 9,227,461.03 - 540,357,337.46 2. Inventory devaluation 254,261,182.41 6,024,359.56 - 32,148,615.51 228,136,926.46 provision Inc: raw material 229,667,161.87 - 29,233,214.64 200,433,947.23 Low-value consumables 1,315,419.73 - - - 1,315,419.73 Self-manufactured 2,611,095.99 - - - 2,611,095.99 half-finished products Goods in stock 20,667,504.82 6,024,359.56 - 2,915,400.87 23,776,463.51 3. Devaluation provision for 19,059,666.57 2,273,242.13 - 3,209,889.20 18,123,019.50 long-term investment 4. Devaluation provision of 2,084,874.23 - - - 2,084,874.23 fixed assets Total 1,847,205,712.16 17,911,207.22 - 35,358,504.71 1,829,758,414.67 12. Assets with restricted ownership Increase of Decrease of Asset kind Dec. 31, 2007 the current the current Dec. 31, 2008 66 period period 1. Assets served as mortgages for loan * 230,684,010.96 --- --- 230,684,010.96 Inc: house and buildings 187,540,911.88 --- --- 187,540,911.88 Intangible assets 43,143,099.08 --- --- 43,143,099.08 2. Houses and buildings --- ** 4,768,111.78 --- 4,768,111.78 Total --- 461,368,021.92 --- 461,368,021.92 Values of the assets with restricted ownership listed above are all their book original values. * The Company had guaranteed for US$7.5 million loan of the subsidiary China Bicycle (Hong Kong) Co., Ltd. borrowed from China Merchants bank. Since China Bicycle (Hong Kong) Co., Ltd could not pay off the loan after the expiration period, the Company was brought into Shenzhen Intermediate People’s Court by China Merchants Bank. The Court had seized the 127,333 ㎡ land in Yousong Village, Longhua Town, Bao’an District, Shenzhen and buildings on the land. **The Company was brought into Shenzhen Luohu Court for the arrearage of US$500,000 advance for letter of credit and interest to Agricultural Bank of China, Shenzhen Luohu Branch. The court intended to auction the Company’s house property in SEG Park, South Huaqiang Road, Shenzhen to pay the arrearage. 13. Short-term loans (1) Listed according to loan types Dec. 31, 2008 Dec. 31, 2007 Loan type Original Converted to Original Converted to Currency currency RMB currency RMB - 620,000.00 - 620,000.00 Credit RMB 21,089,522.66 144,041,439.77 21,089,522.66 154,050,527.22 USD 144,661,439.77 154,670,527.22 Subtotal - 123,057,930.00 - 123,057,930.00 Guarantee RMB 8,000,000.00 7,040,000.00 8,000,000.00 7,491,040.00 HKD 18,248,139.39 124,901,985.58 18,248,139.39 132,945,951.83 USD 254,999,915.58 263,494,921.83 Subtotal 399,661,355.35 418,165,449.05 Total (2) Listed according to financial institution Prospective Loan Loan institution Loan amount Overdue reason date for loan application repayment Loan for China Orient Asset 95,828,026.48 turnover of Management Corporation Fund shortage Unpredictable production China Cinda Asset Loan for 58,360,649.40 Management Corporation turnover of Fund shortage Unpredictable 67 production Loan for Huizhou Orient Union 37,176,856.30 turnover of Fund shortage Unpredictable production Industrials Co., Ltd. Loan for The Export-Import Bank 114,557,930.00 turnover of Fund shortage Unpredictable production of China Loan for China Merchants Bank, 18,427,945.90 turnover of Luohu Branch Fund shortage Unpredictable production Loan for 13,741,677.82 turnover of China Everbright Bank Fund shortage Unpredictable production Loan for China Merchants Bank 60,948,269.45 turnover of Fund shortage Unpredictable production Head Office China Construction Bank, Loan for Sichuan Mianyang 620,000.00 turnover of Fund shortage Unpredictable Branch production Total 399,661,355.35 (3)The aforesaid loans were all overdue for many years 14. Accounts payable Item Dec. 31, 2008 Dec. 31, 2007 Accounts payable 130,714,884.86 135,329,891.70 The accounts payable does not include the arrearage to shareholders holding 5% (5% included) or above shares with voting rights of the Company. 15. Account received in advance Item Dec. 31, 2008 Dec. 31, 2007 Account received 21,333,035.66 18,086,124.15 in advance The accounts received in advance do not include the account received in advance from shareholders holding 5% (5% included) or above shares with voting rights of the Company. 16. Wages payable Item Dec. 31, 2008 Dec. 31, 2007 1 Wage 606,482.30 537,498.91 2 Bonus 3 Allowance 4 Subsidy 68 Item Dec. 31, 2008 Dec. 31, 2007 5 Employees’ welfare expenses 6 Social insurance expense 7 Housing fund 8 Trade union funds 901,777.77 854,553.30 9 Employee education fund 10 Non-monetary welfare 11 Dismission welfare 178,037.76 Share-based payment settled in 12 cash Total 1,686,297.83 1,392,052.21 The Company reduced staff for sake of economic consideration according to Labor Contract Law in 2008, and paid retire compensation of RMB 11,452,225.33, and still has RMB 178,037.76 left to pay. 17. Tax payable Tax type Dec. 31, 2008 Dec. 31, 2007 33,753,125.02 Enterprise income tax 33,753,125.02 53,948,342.26 VAT 54,139,347.10 399,505.63 Business tax 447,794.29 7,303,655.67 Housing property tax 7,303,655.67 City construction and -10,992.63 -15,823.39 maintenance tax -21,125.19 Withheld individual income tax -186,992.91 26,518.32 Others 19,116.46 95,399,029.08 Total 95,460,222.24 For the Company has owed tax for a long time, it is possible for it to pay relevant fines and late fee. 18. Other accounts payable Item Dec. 31, 2008 Dec. 31, 2007 Other accounts payable 168,604,764.50 167,601,705.14 The other accounts payable does not include the arrearage to shareholders holding 5% (5% included) or above shares with voting rights of the Company. 19. Long-term liabilities due in 1 year 69 Dec. 31, 2008 Dec. 31, 2007 Loan institution Curre Original currency Converted to RMB Original currency Converted to RMB ncy China Everbright 2,157,395.94 14,744,938.28 USD 2,157,395.94 15,758,914.37 Bank Shenzhen Guocheng Energy Investment 84,797,624.57 579,557,844.87 USD 84,797,624.57 619,412,728.42 Development Co., Ltd. Shenzhen Guocheng Energy Investment - 19,300,058.59 RMB --- 19,300,058.59 Development Co., Ltd. Guangdong Sunrise - 232,801,657.06 RMB --- 232,801,657.06 Holdings Co., Ltd. Guangdong Sunrise 204,847.86 1,599,595.48 USD 204,847.86 1,599,595.48 Holdings Co., Ltd. China Orient Asset - 3,000,000.00 Management RMB --- 3,000,000.00 Corporation China Industrial and - 2,000,000.00 Commercial Bank, RMB 2,000,000.00 Suzhou Branch Great Wall Asset 2,500,000.00 17,086,500.00 Management USD 2,500,000.00 18,261,500.00 Corporation Great Wall Asset - 3,000,000.00 Management RMB --- 3,000,000.00 Corporation 873,090,594.28 Total 915,134,453.92 The aforesaid loans were all overdue for many years. 20. Other current liabilities Reason for Item Dec. 31, 2008 Dec. 31, 2007 balance 70 118,881,087.74 86,097,636.52 Loan interest Unpaid 48,826.30 12,313.40 Others Total 118,929,914.04 86,109,949.92 21. Projected liabilities Item Dec. 31, 2008 Dec. 31, 2007 Reason for withdraw The company guaranteed 78,087,000.00 78,087,000.00 has gone into serious Loan guarantee for ZoriaPteLTd insolvency. The company guaranteed Loan guarantee for Jintian Industry 50,000,000.00 50,000,000.00 has gone into serious insolvency. (Group) Co., Ltd. The company guaranteed Loan guarantee for Guangdong 47,963,842.00 47,963,842.00 has gone into serious insolvency. Sunrise Holdings Co., Ltd. Loan guarantee for Shenzhen Tianma The company guaranteed 8,000,000.00 8,000,000.00 has gone bankrupt. Cosmetics Co., Ltd. The company guaranteed Loan guarantee for Shandong 83,142.92 83,142.92 has gone into serious insolvency. Huajiaming Trading Co., Ltd. 184,133,984.92 184,133,984.92 Total Details of reason for withdrawal could be found in Note 11. 22. Capital stock 2007.12.31 Increase/decrease of the current year(＋, －) Item Quantity Proportion Bonus share Converted from public reserve Equity incentive other 1. Shares with limited sales condition 186,713,203 38.94% --- --- --- -- 1) Shares held by state legal person --- --- --- --- --- -- 2) Other domestic capital shares 111,607,000 23.28% --- --- --- -- Inc: shares held by domestic legal person --- --- --- --- --- -- Shares held by domestic non-state legal person 111,607,000 --- --- --- --- -- 3) Others 75,106,203 15.67% --- --- --- -- Inc: shares held by foreign legal person 75,106,203 --- --- --- --- -- 2. Shares with no limited sales condition 292,719,800 61.06% --- --- --- -- 71 2007.12.31 Increase/decrease of the current year(＋, －) Item Quantity Proportion Bonus share Converted from public reserve Equity incentive other Domestically listed RMB ordinary share 76,752,000 16.01% --- --- --- -- Domestically listed foreign capital shares 215,967,800 45.05% --- --- --- -- 3. Total share amount 479,433,003 100.00% --- --- --- -- The capital stock of the Company has been verified with (96) YANZIZI No.076 Capital Verification Report issued by Shenzhen Accountant Office. 23. Capital reserves Increase of the Decrease of the Item Dec. 31, 2007 current period current period Dec. 31, 2008 362,027,636.64 48,865,927.69 - 410,893,564.33 Other capital reserve Inc: return from debt 358,019,011.67 48,865,927.69 - 406,884,939.36 restructuring Account need not to be 690,624.97 - - 690,624.97 paid Price difference of 3,318,000.00 - - 3,318,000.00 related transactions Total 362,027,636.64 48,865,927.69 - 410,893,564.33 In accordance with the regulations on Notice of Well Implementing Accounting Standards for Business Enterprise on the Works of 2008 Annual Report by the Letter No. CK [2008]60 from Ministry of Finance, the controlling shareholder of the Company- Shenzhen Guocheng Energy Investment Development Co., Ltd. exempted loan interest of RMB 48,865,927.69 for 2008, as capital input which was then recorded into capital reserve. 24. Surplus reserves Increase of Decrease of Item Dec. 31, 2007 the current the current Dec. 31, 2008 period period Statutory surplus reserve 32,673,227.01 --- --- 32,673,227.01 25. Undistributed profit Item Dec. 31, 2008 Dec. 31, 2007 Undistributed profit at the beginning -2,744,202,410.57 of the period -2,681,166,169.33 63,036,241.24 Net profit -44,893,006.40 Minus: withdraw statutory - - surplus reserve - - Withdraw statutory common 72 welfare reserve - - Ordinary shares dividends payable - - Profit converted to capital stock - - Other conversion Undistributed profit at the end of the -2,726,059,175.73 -2,681,166,169.33 period 26. Operating income and cost 2008 2007 Classification of business Operating Operating Operating cost Operating cost income income items Main business: Sales of bicycles and fitting 262,378,494.39 252,383,154.36 224,545,279.20 219,349,717.13 parts Income from property 2,222,189.59 3,281,707.26 2,028,200.43 3,885,073.40 management 264,600,683.98 255,664,861.62 226,573,479.63 223,234,790.53 Subtotal Other business: Fixed assets rental income 6,538,573.51 3,409,074.89 5,968,464.76 3,363,048.66 Income from water and 1,346,604.80 1,318,031.12 1,422,770.31 2,243,548.75 power charge 1,378,328.32 936,865.81 456,600.01 298,831.92 Sales of materials 338,649.87 950,750.67 180,000.00 1,104,612.95 Others 9,602,156.50 6,614,722.49 8,027,835.08 7,010,042.28 Subtotal 274,202,840.48 262,279,584.11 234,601,314.71 230,244,832.81 Total In the 2008 main business income, sales income from top five customers amounted to RMB 217,222,781.60, Taking 82.09% of the total main business income. 27. Business tax Tax type 2008 2007 Calculation and payment 73 standard Business tax 110,013.98 167,786.77 Rental income*5% City construction and Amount of turnover 25,916.58 2,558.22 maintenance tax tax*1% Extra charges for Amount of turnover 74,789.10 5,033.60 education tax*3% Total 210,719.66 175,378.59 28. Financial expenses Type 2008 2007 Interest expense 98,306,389.58 103,827,044.90 98,306,389.58 Minus: interest income 161,041.42 140,629.79 161,041.42 Minus: exchange gains 66,086,960.64 68,440,197.61 66,086,960.64 Others 25,176.75 26,784.98 25,176.75 Total 32,083,564.27 35,273,002.48 32,083,564.27 29. Asset impairment loss Type 2008 2007 Bad debt loss 526,361.94 3,945,197.10 Inventory devaluation 6,024,359.56 7,851,725.71 loss Long-term equity investment devaluation 2,273,242.13 - loss Total 8,823,963.63 11,796,922.81 30. Investment income Item 2008 2007 Gains and loss adjustment calculated -874,997.07 -1,336,613.99 through equity method Total -874,997.07 -1,336,613.99 31. Non-operating income Item 2008 2007 Gains from disposal of non-current assets 8,728,698.80 2,652,336.90 8,728,698.80 Profit from debt restructuring 17,360,832.24 138,127,300.95 17,360,832.24 Others 1,502,394.51 26,863.11 1,502,394.51 Total 27,591,925.55 140,806,500.96 27,591,925.55 Gains from disposal of non-current assets mainly referred to the income RMB 7,925,541.94 by selling the real estate of No. 91, West Four Avenue, West District, Beijing City. The profit from debt restructuring is caused that Guangdong Sunrise Holding co., Ltd. exempted the Company from the interest of loan payable for this year. Other incomes were mainly the accounts payable RMB 1,009,277.90 which could not be paid by 74 branch companies and RMB 440,670.00 received for brand infringing compensation account. 32. Non-operating expenditure Item 2008 2007 Loss from disposal of 62,150.00 2,775.00 non-current assets Commonweal donation 19,779.70 14,615.00 Loss on fixed assets 1,892,109.37 inventory shorts Amercement expense 40,122.93 Others 250,511.93 26,116.98 Total 372,564.56 1,935,616.35 33. Income tax Item 2008 2007 Income tax expense of the current --- --- period Deferred income --- 9,849,555.22 tax expense Total --- 9,849,555.22 34. Other paid cash related with operation activities All paid for period expenses in cash. Note 9. Notes to main items of the financial statement of parent company 1. Accounts receivable Age of Dec. 31, 2008 the Provision for bad Amount Proportion Net amount account debt Within 1 year 496,746.90 0.04% - 496,746.90 1 year to 2 years 31,950.00 0.00% 95.85 31,854.15 2 years to 3 years - - - - Over 3 years 1,172,776,011.87 99.96% 1,037,184,384.47 135,591,627.40 Total 1,173,304,708.77 100% 1,037,184,480.32 136,120,228.45 Age of the Dec. 31, 2007 account Provision for bad Amount Proportion Net amount debt Within 1 31,950.00 0.00% 95.85 31,854.15 year 1 year to 2 --- --- --- --- years 2 years to 1,127,063.59 0.10% 17,560.08 1,109,503.51 3 years Over 3 1,180,317,672.69 99.90% 1,036,780,679.89 143,536,992.80 years Total 1,181,476,686.28 100.00% 1,036,798,335.82 144,678,350.46 (1) The balance at the end of the period does not include the account receivable of shareholders 75 holding 5% (5% included) or above shares with voting rights of the Company. (2) Total amount of the top five in the balance at the end of the period is RMB 492,884,806.45, accounting for 42.01% of the total amount of account receivable. 2. Other accounts receivable Age of the account Dec. 31, 2008 Provision for Amount Proportion Net amount bad debt Within 1 year 40,722,758.73 6.64% 9,110,223.51 31,612,535.22 1 year to 2 years 1,175,870.02 0.19% 3,527.61 1,172,342.41 2 years to 3 years - - - - Over 3 years 571,131,039.07 93.17% 516,256,193.21 54,874,845.86 Total 613,029,667.82 100% 525,369,944.33 87,659,723.49 Age of the Dec. 31, 2007 account Provision for Amount Proportion Net amount bad debt Within 1 2,436,436.85 0.42% 7,309.31 2,429,127.54 year 1 year to 2 --- --- --- --- years 2 years to 3 9,129,289.40 1.57% 27,387.87 9,101,901.53 years Over 3 years 571,247,506.43 98.02% 516,233,685.64 55,013,820.79 Total 582,813,232.68 100.01% 516,268,382.82 66,544,849.86 (1) The balance at the end of the period does not include the other account receivable of shareholders holding 5% (5% included) or above shares with voting rights of the Company. (2) Total amount of the top five in the balance at the end of the period is RMB 357,711,532.44, accounting for 58.35% of the total amount of other accounts receivable. 3. Long-term investment (1) The long-term equity investment is listed as follows: Increase of Decrease of the Item Dec. 31, 2007 the current Dec. 31, 2008 current period period Long-term equity investment 55,054,877.68 25,723,290.08 29,331,587.60 Minus: devalue provision 27,648,394.17 2,273,242.13 3,209,889.20 26,711,747.10 Net amount of long-term equity investment 27,406,483.51 2,619,840.50 Decrease in the period was caused by that the equity of Jiangxi Lihua Industry Co., Ltd. was transferred by Hong Kong Dahuan (Group) Co., Ltd., and the equity was transferred into other account receivable; the balance at period-end was the liquidation balance of Shenzhen Golden Ring Printing Co., Ltd. which was revoked with industrial and commercial registration. (2) Long-term equity investment a. Other equity investment calculated through cost method Name of company Invest Proportion Initial Dec. 31, Increase Decrease Dec. 31, 76 invested ment in the investment 2007 of the of the 2008 time registered cost current current limit capital of period period the company invested Shenzhen Emmelle 1,400,000.0 70% 1,400,000.00 1,400,000.00 - - Industry Co., Ltd. 0 Shenzhen Anjule 2,000,000.0 Property Management 100% 2,000,000.00 2,000,000.00 - - 0 Co., Ltd. China Bicycle (Hong 5,350,000.0 100% 5,350,000.00 5,350,000.00 - - Kong) Co., Ltd. 0 China Bicycle 100% 18,727.60 18,727.60 - - 18,727.60 (International) Co., Ltd. Hunan KN Motorcycle 50 5,679,300.0 5.50% 5,679,300.00 5,679,300.00 - - Co., Ltd. years 0 14,448,027.6 14,448,027.6 14,448,027. Subtotal - - 0 0 60 b. Other equity investment calculated through equity method Proportio n in the Equity Inves Other Name of registered Initial adjustment Accumulative tment increase/decre company capital of investment Dec. 31, 2007 during the equity Dec. 31, 2008 time ase of the invested the cost current adjustment limit current period company period invested Shenzhen Golden Ring 20 38% 14,883,560.00 14,883,560.00 14,883,560.00 Printing Co., years Ltd. Jiangxi Lihua 30 Industry Co., 38.60% 30,740,000.00 25,723,290.08 -874,997.07 24,848,293.01 -5,891,706.99 - years Ltd. Total 45,623,560.00 40,606,850.08 -874,997.07 24,848,293.01 -6,071,706.99 14,883,560.00 Shenzhen Golden Ring Printing Co., Ltd. was withdrawn enterprise industrial and commercial registration; the original shareholder - Hong Kong (Link) Bicycles Limited was entrusted to hold its shares by the Company, so the actual owner was the Company. c. Changes of devaluation provision Increase of Decrease of the Name of the company Dec. 31, 2007 the current current Dec. 31, 2008 invested period period Shenzhen Emmelle Industry 1,400,000.00 - - 1,400,000.00 Co., Ltd. Shenzhen Anjule Property 2,000,000.00 - - 2,000,000.00 Management Co., Ltd. China Bicycle (Hong Kong) 5,350,000.00 - - 5,350,000.00 Co., Ltd. China Bicycle (International) 18,727.60 - - 18,727.60 Co., Ltd. Hunan KN Motorcycle Co., 4,719,777.37 959,522.63 - 5,679,300.00 Ltd. Shenzhen Golden Ring 10,950,000.00 1,313,719.50 - 12,263,719.50 77 Increase of Decrease of the Name of the company Dec. 31, 2007 the current current Dec. 31, 2008 invested period period Printing Co., Ltd. Jiangxi Lihua Industry Co., 3,209,889.20 - 3,209,889.20 - Ltd. Total 27,648,394.17 2,273,242.13 3,209,889.20 26,711,747.10 4. Main business income and cost Item 2008 2007 Main business income 4,342,078.22 10,122,401.15 Main business cost 9,652,725.20 17,556,401.02 Gross profit from main -5,310,646.98 -7,433,999.87 business 5. Investment income Item 2008 2007 Gains and loss adjustment calculated -874,997.07 -1,156,612.99 through equity method Total -874,997.07 -1,156,612.99 Note 10: Affiliated party relationships and the transactions among them 1. Relationship between related parties (1) Related companies with controlling relationship Legal Relationship Name of related Enterpri Registered Shares or representat Business scope with the company se type capital equity held ive Company Set up industry, Limited domestic business, Shenzhen liability material supply Guocheng compan and marketing of Energy y (legal Shang Controlling ￥70000,000 materials(excludin 13.58% Investment person Shijun shareholder g exclusive, Development sole controlled and Co., Ltd. propriet monopoly orship) commodity) (2) Related companies with no controlling relationship Name of related company Relationship with the Company Shenzhen Golden Ring Printing Co., Ltd. Affiliated company According to the resolution of the 5th meeting of the 7th Board of Directors on April 25, 2008, the Company cancelled investment to affiliated companies which was revoked with industrial and commercial registration. The following companies would have no related relationship with the Company any more. Names of companies The original relationship Shenzhen Danxia Bicycle Parts Co., Ltd. Affiliated company Shenzhen Canghai Industry Co., Ltd. Affiliated company Jiangsu Huaiyin Huayu Bicycle Parts Affiliated company Manufacturer Co., Ltd. 78 Yangzhou Xinghua Bicycle Material Co., Ltd. Affiliated company Shantou S.E.Z. Dapeng Industry Co., Ltd. Affiliated company Director Shi Zhangxiong left the post of director of the Company in this year, so the following companies would have no related relationship with the Company any more. Names of companies The original relationship The director of the Company was Daming International Co., Ltd General Manager of this company The director of the Company was DiamondBack（Hong Kong）Co., Ltd. General Manager of this company The director of the Company was Zhigao International mechanical Co., Ltd. General Manager of this company The director of the Company was Zhigao Resource international Co., Ltd. General Manager of this company The director of the Company was China Composite Material (Shenzhen) Co., Chairman of the Board of this Ltd. company The director of the Company was Hong Kong Huajiaming Industrial Trading Chairman of the Board of this Industry Co., Ltd company 2. Dealings of related companies Economic Dec. 31, 2008 Dec. 31, 2007 Item Name of related company content Long-term Shenzhen Guocheng Energy Principal liability due Investment Development Co., sum of 598,857,903.46 638,712,787.01 in 1 year Ltd. loan 598,857,903.46 638,712,787.01 Subtotal Other Shenzhen Guocheng Energy Interest 1,373,681.70 787,577.51 current Investment Development Co., of loan liabilities Ltd. 1,373,681.70 787,577.51 Other Shenzhen Golden Ring Printing 2,769,840.50 600,000.00 Account Co., Ltd. payable Subtotal 2,769,840.50 600,000.00 3. Transaction of related parties The shareholder and loaner of the Company - Shenzhen Guocheng Energy Investment Development Co., Ltd. agreed to stop calculating interest of the loan in 2008, which was totally RMB 48,865,927.69. Note 11: Contingency Influence on the company’s financial situation, operating Item Amount involved results and cash flow during Nature the current period and in the future Loan guarantee for Guangdong Sunrise RMB36,100,000.00 USD1,740,000.00 * Guarantee Holdings Co., Ltd. 79 Loan guarantee for Jintian Industry RMB50,000,000.00 ** Guarantee (Group) Co., Ltd. Loan guarantee for Shenzhen Tianma RMB8,000,000.00 *** Guarantee Cosmetics Co., Ltd. ZoriaPteLtdc USD10,000,000.00 **** Guarantee Shandong Huajiaming Trading Co., RMB83,142.92 ***** Guarantee Ltd. RMB94,183,142.92 Total USD11,740,000.00 * 100% of the guarantee amount for the company is predicted for loss, equal to RMB 47,963,842.00. ** The company is a listed limited company, and has gone into serious insolvency. Therefore, the total guarantee amount is predicted for loss. *** The company is closed down. Therefore, the total guarantee amount is predicted for loss. **** The company has gone into serious insolvency, and is under liquidation now. Therefore, the total guarantee amount is predicted for loss. ***** This company has gone into serious insolvency. Therefore, the total guarantee amount is predicted for loss. Note 12: Lawsuit 1. As of Dec. 31, 2008, the Company has been claimed by 16 financial organs for failure of repaying the loan in due with principal and interest of RMB 408,555,000, USD 90,660,100 and HKD 8,261,600. Most of the law suits have been judged and the Company has been defeated or mediated. In 2008, China Bank, Agricultural Bank of China and Industrial and Commercial Bank of China have transferred all or part creditor’s right to relevant asset management corporations and thus the main body involved in the lawsuits changed correspondingly. 2. As of Dec. 31, 2008, the Company has been claimed by 29 suppliers with amount of RMB 30,580,800, HKD 17,650,800 and USD 1,668,500 involved. Most of the lawsuits have been judged and the Company has been defeated. 3. In 2008, the Company was appealed by Shenzhen Caopu Dushu Village Industry Cooperation Co., Ltd. to Shenzhen Luohu People’s Court due to lease contract dispute. The People’s Court judged that the Company should pay rent RMB 1.4 million and relevant interests. The Company had accrued for the rent in the past years. Note 13: Interpretation for important issues 1. Restructuring of financial debts In accordance with YJBT [2004] No.6 document issued on Jan. 7, 2004 by China Banking Supervision and Administration Commission, that: 11 financial organs including BOC stopped collecting interest of load of the Company for 3 years since Jan. 1, 2002 and exempted from all interests (including default interest and Compound Interest) owed by the Company till Dec. 31, 2001. The Company has made all interest payable (including default interest and Compound Interest) of RMB 357,993,665.24 into "capital reserve" and stopped to withdraw interest for the period between Jan. 1, 2002 and Dec. 31, 2004. The exemption expired on Dec. 31, 2004. In 2005, China Huarong Asset Management Corporation, Shenzhen office, China Orient Asset Management Corporation, Shenzhen office, China Cinda Asset Management Corporation, Shenzhen office, as well as China Great Wall Asset management Corporation, Shenzhen office continued to stop calculating the annual interest of the Company for 2005. From 2006 to 2008, the Company has deducted the interest according to the normal loan rate of bank. For the ambiguity made by "stop to collect interest", and General Rules on Loan also has not 80 interpreted it, thus, China Huarong Asset Management Corporation, Shenzhen office, China Orient Asset Management Corporation, Shenzhen office, China Cinda Asset Management, Shenzhen office and Great Wall Asset management corporation, Shenzhen office did not asked the Company to return the interest which was stopped for withdrawal. Yet, Shenzhen Development Bank asked for the interest and compound interest occurred in the period between Jan. 1, 2002 and Dec. 31, 2004. The Company holds the idea that it needs not to pay the interest which was stopped for calculation. And the Company started to withdraw interest for the interest occurred since the aforesaid exemption expired, taking it as normal loan. So, the Company didn’t withdraw for the interest and compound interest which was stopped for calculation from Jan. 1, 2002 to Dec. 31, 2004. Till Dec.31, 2008, the interest confirmed by creditor banks is with RMB 265,875,786.92 more than the book interest payable recorded by the Company, and part institutions has not replied to confirm loan interests. The Company still could not determine whether the interest be withdrawn and returned or not, so did not make accounting adjustment. 2. Capital reserve transferring to capital stock and Share Merger Reform According to the Scheme of Capital Reserve Converting to Capital Stock and Scheme of Share Merger Reform voted through in the Shareholders’ General Meeting on Feb. 1, 2007, the Company made share capital conversion of 39,519,800 shares to circulating A-share shareholders and the Non- circulating stock obtained the circulating right. The B-shares shareholder was added 1.5 shares to each 10 shares and 32,395,200 shares were totally converted. Among the converted shares obtained by the circulating A-shares shareholders, deducting the 11,512,800 shares gained for the share capital expansion of the Company, the rest 28,007,000 shares are arranged to circulating A-share shareholders from the non circulating shareholders for consideration. After conversion, the total share equity increases to 551,348,000 shares and the circulating A shares increased to 116,271,800 from 76,752,000, among which 28,007,000 shares are consideration shares. According to Share Merger Reform memoranda No. 2—Information Disclosure (1) the consideration arrangement rate is 28,007,000÷88, 264, 8 00= 0.3173 with converted A shares share capital (88,264,800 shares) as base. Therefore, in the conversion, the circulating A shares shareholder obtained 3.173 consideration shares for each 10 shares. The Share Merger Reform of the Company has obtained the Reply of SZPi[2007] No. 1343 from Ministry of Commerce and the Reply of SMGZFu[2007] No.2257on Increasing the Total Shares Capital of Shenzhen China Bicycle Company (Holdings) Limited from Shenzhen Trade and Industry Bureau, in which agreed the Share Merger Reform scheme of the Company examined and approved in Shareholders’ General Meeting dated Feb.1, 2007. In accordance with Guidelines on Practice and Operations of Share Merger Reform of Listed Companies, the relevant procedure on Share Merger Reform of the Company was being transacted in Shenzhen Company of China Securities Depository and Clearing Corporation Limited. Note 14: Non adjustment items after the date of balance sheet The Company signed Affiliated Agreement on investing Jiangxi Lihua Industrial Co., Ltd. with Hong Kong Dahuan Group Co., Ltd.(hereinafter refers to be as Hong Kong Dahuan) on June 23, 1993. Considering that the aforementioned investment of the Company did not yield any profit until now, and the nominal shareholder of the aforementioned investment was Hong Kong Dahuan, the interests of the Company could not be guaranteed legally. Thus, with friendly negotiation with Hong Kong Dahuan, the Company signed Agreement on Releasing Affiliated Agreement with Hong Kong Dahuan on Jan. 20, 2009 in which Affiliated Agreement on investing Jiangxi Lihua Industrial Co., Ltd. signed on June 23, 1993 was released. Main contents of the transaction agreement were as follows: 1. Hong Kong Dahuan should repay the investment account to the Company amounting to RMB 30,740,000. 81 2. RMB 4,000,000 was repaid before signing the agreement; the remaining RMB 26,740,000 would be repaid in two years and six months after signing the agreement with amortization of 8 terms. 3. If Hong Kong Dahuan repaid the account with exceeding the time limitation, the penalty would be paid to the Company daily based on the 0.03% of the overdue repayment. 4. Chairman of the Board of Hong Kong Dahuan Mr. Shi Zhanxiong shouldered joint responsibility of guarantee for Agreement on Releasing Affiliated Agreement (the guarantee amount was RMB 20.74 million). RMB 4 million was received from Hong Kong Dahuan on Feb. 5, 2009 and RMB 2 million was received from Hong Kong Dahuan on March 18, 2009. Note 15: Sustained operation interpretation As of Dec. 31st, 2008 the total assets of the Company was RMB 190,897,705.53 and the total liabilities was RMB 1,993,553,860.52 with net assets of RMB-1,802,656,154.99. The Company is in insolvency and it may fail to liquidate assets to clear off debts during the normal operation. Therefore, the Company and the original first creditor adopted the measures as follows: Since March 2002, the original first creditor of the Company, China Huarong Asset Management Corporation made breakthrough advance on the debt restructuring. “Shenzhen China restructuring Scheme” has approved by the China Banking Regulatory Commission. The interests of the monetary liabilities of the Company before December 31st, 2004 have been exempted and stopped calculation and were under the age of implementing gradually. China Huarong Asset Management Corporation and Shenzhen Julongsheng Industrial Development Co., Ltd, Shenzhen Guocheng Energy Investment Development Co., Ltd. agreed and signed Letter of Agreement on November 13th, 2006. The Guocheng Energy accepted the 65,098,412 A corporate shares of the Company held by Huarong Corporation. The ownership right was transferred on April 30th, 2007. Shenzhen Guocheng Energy Investment Development Co., Ltd. became the largest shareholder and biggest creditor of the Company and the debt restructuring issues were under the progress. The Company is making debt restructuring scheme and has made certain achievement. The Company has signed Reconciliation Agreement with International Finance Corporation on March 29th, 2007. Both parties agreed to settle all right of credit and liability between the two parties by paying the amount equivalent to RMB 2 million. The debt amount was about U.S. dollars 3.87 million and the accrual interest was about RMB 42.78 million. The two biggest debtors of the Company, Shenzhen Guocheng Energy Investment Development Co. Ltd. and Guangdong Sunrise Holdings Co. Ltd. has agreed to stop calculating the whole interests of debts in year 2007 and 2008. The interests which were stopped calculation would not be collected in the future years. While making liability restructuring, the main businesses of the Company increased great continuously and make profit continuously. In this sense, the payment pressure for the Company in the short term reduced great and the ability of sustained operation improved. With restructuring of the debt and assets of the Company and the development of the achievements of the Company, the business environment and operation status will improve further. Note 16: Supplementary information 1. Supplementary information of cash flow statement (1) Supplementary information of consolidated cash flow statement Item 2008 2007 1. Reconciliation of net profit to cash flows from operating activities Net profit -44,489,780.00 63,036,241.24 82 Item 2008 2007 Plus: assets devalue provision 8,823,963.63 11,796,922.81 Fixed assets depreciation 10,480,430.37 11,754,523.18 Amortization of intangible assets 862,862.04 - Amortization of long-term expenses to be amortized - - Loss on disposal of fixed assets, intangible assets and other long-term assets (income is listed with“-”) -8,666,548.80 -2,649,561.90 Scrap loss of fixed assets (income is listed with“-”) - 1,892,109.37 Loss on changes to fair value (income is listed with“-”) - - Financial expense (income is listed with“-”) 32,083,564.27 35,273,002.48 Investment loss (income is listed with“-”) 874,997.07 1,336,613.99 Decrease of deferred income tax assets (increase is listed with“-”) - 9,849,555.22 Increase of deferred income tax liabilities (decrease is listed with“-”) - - Inventory decrease (increase is listed with“-”) 4,919,451.58 -3,533,289.17 Decrease in operating receivables (increase is listed with“-”) -196,006.76 10,973,871.15 Increase in operating payables (decrease is listed with“-”) -1,135,042.87 -4,194,667.53 Others -17,950,317.78 -138,127,300.95 Net amount of cash flows from operating activities -14,392,427.25 -2,591,980.11 2. Investing and financing activities that do not involve cash receipts and payments - Conversion of debt into capital - - Convertible bonds expired due within one year - - Fixed assets acquired under finance leases - - 3. Net increase /(decrease) in cash and cash equivalents - Cash balance the end of the year 10,086,599.53 14,062,198.43 Minus: cash balance at the beginning of the year 14,062,198.43 16,982,883.27 Plus: balance of cash equivalents at the end of the year - - Minus: balance of cash equivalents at the beginning of the year - - 83 Item 2008 2007 Net amount of increase in cash and cash equivalents -3,975,598.90 -2,920,684.84 (2) Supplementary information of the Company’ cash flow statement Item 2008 2007 1. Reconciliation of net profit to cash flows from operating activities Net profit -48,399,301.24 60,590,871.54 Plus: assets devalue provision 8,698,064.11 11,796,922.81 Fixed assets depreciation 10,209,845.90 11,449,561.79 Amortization of intangible assets 862,862.04 - Amortization of long-term expenses to be amortized - - Loss on disposal of fixed assets, intangible assets and other long-term assets (income is listed with“-”) -8,160,889.46 -2,646,561.90 Scrap loss of fixed assets (income is listed with“-”) - 1,892,109.37 Loss on changes to fair value (income is listed with“-”) - - Financial expense (income is listed with“-”) 35,722,902.67 39,825,114.12 Investment loss (income is listed with“-”) 874,997.07 1,156,612.99 Decrease of deferred income tax assets (increase is listed with“-”) - 9,849,555.22 Increase of deferred income tax liabilities (decrease is listed with“-”) - - Inventory decrease (increase is listed with“-”) 6,969,798.96 -1,383,545.41 Decrease in operating receivables (increase is listed with“-”) 8,289,077.51 14,092,372.23 Increase in operating payables (decrease is listed with“-”) 2,241,323.99 -8,385,442.59 Others -17,358,401.06 -138,127,300.95 Net amount of cash flows from operating activities -49,719.51 110,269.22 2. Investing and financing activities that do not involve cash receipts and payments - - Conversion of debt into capital - - Convertible bonds expired due within one year - - Fixed assets acquired under finance leases - - 3. Net increase /(decrease) in cash and cash equivalents - - Cash balance the end of the year 417,444.51 477,660.27 Minus: cash balance at the beginning of the year 477,660.27 504,436.50 Plus: balance of cash equivalents at the end of the - - 84 Item 2008 2007 year Minus: balance of cash equivalents at the beginning of the year - - Net amount of increase in cash and cash equivalents -60,215.76 -26,776.23 2. Detailed statement of non-recurring profit and loss items Detailed item 2008 2007 1. Disposal of profit and loss on non-current assets 8,666,548.80 757,452.53 Tax refund and exemption approved by exceeding 2. authority or without formal document of approval - - Government subsidy recorded into the current gains and 3. losses - - Capital occupation received from non- financial 4. enterprises and recorded into the current gains and losses - - The investment cost of subsidiaries, affiliated enterprise and combined enterprise obtained by the enterprise is 5. less than the obtained investment, then gains resulting from recognizable fair value of net asset of investee units should be enjoyed - - 6. Profit and loss on exchange of non-monetary assets - - 7. Profit and loss on entrusted investment - - Assets devalue provisions withdrawn for force majeure, 8. such as natural disaster - - 9. Debt restructuring expense 17,360,832.24 138,127,300.95 Enterprise restructuring expense such as expense on 10. allocation of employee and integrated expense -11,452,225.33 - Profit and loss exceeding fair value, resulting from unfair 11. transactions - - Net profit and loss of the current period from the beginning of the subsidiary to combination date, 12. resulting from enterprise combination under the common control - - Profit and loss on predicted liabilities unrelated to main 13. business of the Company - - Held transaction financial asset, gains/losses of changes of fair values from transaction financial liabilities, and investment gains from disposal of transaction financial 14. asset, transaction financial liabilities and financial asset available for sales, exclude the effective hedging business relevant with normal operations of the Company - - Reversal of provisions for asset impairment of account 15. receivable which is made singly impairment test - - 16. Gains/losses obtained from external entrusted loan - - Losses/gains from the change of fair values of investing 17. property of subsequent measurement adopted by method of fair value - - Influences on current losses/gains for one adjustment of 18. current losses/gains in accordance with the requirements of laws and regulations such taxation and accountings. - - 19. Income of trustee fee from entrusted operation - - Net amount of other non-operating income and expense 20. except the above items 1,191,979.95 -13,868.87 85 Other losses/gains items conforming the definitions of 21. non-recurring gains/losses - - Total 15,767,135.66 138,870,884.61 Minus: corresponding income tax of non-recurring profit and loss - - Minus: the part shared by minority shareholders - - Net profit influenced by non-recurring profit and loss 15,767,135.66 138,870,884.61 Net profit on the statement -44,489,780.00 63,036,241.24 Minus: profit and loss of minority shareholders 403,226.40 - Net profit attributable to shareholders of parent company -44,893,006.40 63,036,241.24 Net profit attributable to shareholders of parent company after deducting non-recurring profit and loss -60,660,142.06 -75,834,643.37 3. Return on equity and earnings per share Earnings per share (RMB Return on equity Period Financial index /share) Basic Diluted Weighted Fully diluted earnings earnings average per share per share Net profit attributable to common shareholders --- --- -0.0936 -0.0936 Net profit attributable to Year 2008 common shareholders after deducting non-recurring --- --- profit and loss -0.1265 -0.1265 Net profit attributable to common shareholders --- --- 0.1315 0.1315 Net profit attributable to Year 2007 common shareholders after deducting non-recurring --- --- profit and loss -0.1582 -0.1582 Item Year 2008 Year 2007 Calculation of basic earnings per share and diluted earnings per share 1. Numerator Net profit after tax -44,489,780.00 63,036,241.24 Adjust: preference share dividend and influence of other instruments Profit and loss attributable to common shareholders of parent company, in the calculation of basic earnings per share -44,893,006.40 63,036,241.24 Adjust: Dividend and interest related to diluted potential common share - - Changes to income or expense, caused by converting diluted potential common share - - 86 Profit and loss attributable to common shareholders of parent company, in the calculation of diluted earnings per share -44,893,006.40 63,036,241.24 2. Denominator Weight average of common shares issued externally during the current period, in the calculation of basic earnings per share 479,433,003.00 479,433,003.00 Plus: the weighted average while all diluted potential common shares are converted into common shares - - Weight average of common shares issued externally during the current period, in the calculation of diluted earnings per share 479,433,003.00 479,433,003.00 3. Earnings per share Basic earnings per share -0.0936 0.1315 Diluted earnings per share -0.0936 0.1315 The consolidated financial statement for year 2008 of the Company and notes are compiled according to Accounting Standards for Business Enterprises No.1 to No.37 issued by the state. Legal Representative of the Company: Shang Shijun Date: April 23, 2009 Person in Charge of Accounting Works: Jiang Houjin Date: April 23, 2009 Person in Charge of Accounting Institution: He Yili Date: April 23, 2009 XI. Documents Available For Reference 1. Accounting statements carrying the personal signatures and seals of legal representative, person in charge of the accounting affairs and person in charge of the accounting department. 2. Original of Auditors’ Report carrying the seal of the Certified Public Accountants as well as personal signatures and seals of certified public accountants. 3. Originals of all documents and public notices disclosed publicly on the newspapers as designated by China Securities Regulatory Commission in the report period. 4. English version of the 2008 Annual Report. The Board of Directors of Shenzhen China Bicycle Company (Holdings) Limited April 25, 2009 87