沙隆达Ｂ(200553)2008年年度报告（英文版）

HUBEI SANONDA CO., LTD ANNUAL REPORT 2008 湖北沙隆达股份有限公司 2008 年年度报告 Contents Contents Page I. Important Notes 2 II. Company Profile 2 III. Summary of Financial Highlight and Business Highlight 4 IV. Changes in Capital Shares and Particulars about Shareholders 6 V. Particulars about Directors, Supervisors, Senior Management and Staffs 10 VI. Corporate Governance 14 VII. Brief Introduction to the Shareholders’ General Meeting 17 VIII. Report of the Board of Directors 18 IX. Report of the Supervisory Committee 24 X. Significant Events 25 XI. Financial Report 29 XII. Documents Available for Inspection 88 湖北沙隆达股份有限公司 2008 年年度报告 I. Important Notes 1.1 The Board of Directors, the Supervisory Board, Directors, Supervisors and Senior Executives of Hubei Sanonda Co., Ltd. (hereinafter referred to as the Company) hereby confirm that no omission, misstatement, or misleading information exists in this report, and accept, individually and collectively, the responsibilities for the authenticity, accuracy and completeness of the contents of this report. 1.2 All directors attended the Board meeting. 1.3 Vocation International Certified Public Accountants Co., Ltd. has audited the 2008 Financial Reports of the Company and issued an unqualified Auditors' Report for the Company. 1.4 Mr. Li Zuorong, Chairman of the Board of the Company, Mr. He Xuesong, Chief Financial Officer and concurrently Person who is in Charge of Accounting Organ, hereby confirm that the Financial Report enclosed in this Annual Report is true and complete. 1.5 This report has been prepared in Chinese and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. 湖北沙隆达股份有限公司 2008 年年度报告 II. Company Profile 1. Legal name of the Company: In Chinese: 湖北沙隆达股份有限公司 Abbr. in Chinese: 沙隆达 In English: HUBEI SANONDA CO., LTD. Abbr. in English: SANONDA 2. Legal Representative: Li Zuorong 3. Secretary of the Board of Directors: Li Zhongxi Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 0716-8208632 Fax:(86) 0716-8208899 E-mail: li_zhongxi@263.net Securities Affairs Representative: Liang Jiqin Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 0716-8208232 Fax:(86) 0716-8208899 E-mail: freefly2006@263.net 4. Registered Address: No. 93, Beijing East Road, Jingzhou, Hubei Office Address: No. 93, Beijing East Road, Jingzhou, Hubei Post Code: 434001 Internet Website of the Company: http://www.sanonda.cn E-mail of the Company: sld@chemchina.com.cn 5. Newspaper for Disclosing the Information Chosen by the Company: China Securities Journal, Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report of the Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Office of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A, Sanonda B Stock Code: 000553, 200553 7. Other Relevant Information of the Company Date of initial registration: Nov. 30, 1993 Initial registration organization: Hebei Province Administration Bureau for Industry and Commerce Registration code of corporate business license: QGEZ Zi No.: 002523 Registration code of taxation: 421001706962287 Name and office address of Certified Public Accountants engaged by the Company: Domestic: Vocation International Certified Public Accountants Co., Ltd. Office Address: Room 208, Building B of Huatong Mansion, No.19, Chegongzhuang West Road Yi, Haidian District, Beijing, PRC 湖北沙隆达股份有限公司 2008 年年度报告 III. Summary of Accounting Highlights and Business Highlights (I) Accounting data as of the year 2008 Unit: RMB Yuan Operating profit 261,163,359.29 Total profit 234,353,632.34 Net profit attributable to shareholders of listed company 172,814,463.20 Net profit attributable to shareholders of listed company after deducting non-recurring gains and losses 185,654,159.77 Net cash flow from the operation activities 352,801,347.00 Note: Impact on net profit due from non-recurring gains and losses was RMB -12,839,696.57, the composing are as follows: Unit: RMB Yuan Items Amount Gains and losses on the disposal of non-current assets -28,853,198.22 Government subsidies recorded into current profit and loss (excluding government subsidies with close relationship with the Company’s business 1,236,939.11 and rationed government grants in line with the united standard) Capital occupied from non-financial enterprise recorded into current profit 1,864,239.99 and loss Gains and losses on debts restructuring 7,516,851.11 Gains and losses on change in fair value from tradable financial assets and tradable financial liabilities, as well as investment income from disposal of tradable financial assets and tradable financial liabilities and financial assets 7,803,881.99 available for sales except for effective hedging related with normal businesses of the Company Net amount of other non-operating incomes and expenses except the above -3,559,861.45 items Items of gains and losses being in compliance with definition of -2,271,750.00 non-recurring gains and losses Amount impact on income tax 4,095,511.47 Amount impact on minority interests -672,310.57 Total -12,839,696.57 湖北沙隆达股份有限公司 2008 年年度报告 (II) Key accounting data and financial indicators in the recent 3 years 1. Major accounting data Unit: RMB Yuan Increase/ decrease 2008 2007 2006 year-on-year (%) Before After adjustment After Before After adjustment adjustment adjustment adjustment 1,402,296,005.0 Operating income 2,217,343,196.68 1,648,350,997.55 1,648,350,997.55 34.52% 1,444,449,312.33 4 Total profit 234,353,632.34 40,061,647.32 51,726,808.08 353.06% 33,148,459.96 39,334,245.48 Net profit attributable to shareholders of listed 172,814,463.20 29,600,801.04 40,360,723.94 328.17% 22,956,580.59 25,985,571.59 company Net profit attributable to shareholders of listed company after 185,654,159.77 34,272,179.96 -9,743,848.53 1,805.35% 5,882,953.13 28,347,076.02 deducting Extraordinary Gain and Loss Net cash flow arising from operation 352,801,347.00 271,646,576.89 271,646,576.89 29.88% 240,431,207.69 240,184,855.01 activities Increase/ 31 December decrease 31 December 2007 31 December 2006 2008 year-on-year (%) Before After adjustment After Before After adjustment adjustment adjustment adjustment Total assets 2,049,481,852.69 1,740,712,079.90 1,740,712,079.90 17.74% 1,617,094,926.82 1,625,094,922.02 Owners’ equity 1,098,558,871.77 914,984,485.67 925,744,408.57 18.67% 900,295,089.22 883,458,820.83 (shareholders’ equity) Share capital 593,923,220.00 593,923,220.00 593,923,220.00 0.00% 296,961,610.00 296,961,610.00 湖北沙隆达股份有限公司 2008 年年度报告 2. Major financial indexes Unit: RMB Yuan Increase/ decrease 2008 2007 2006 year-on-year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment EPS-basic (RMB/share) 0.29 0.05 0.07 314.29% 0.08 0.09 EPS-diluted (RMB/share) 0.29 0.05 0.07 314.29% 0.08 0.09 Basic EPS after deducting non-recurring gains and 0.31 0.06 -0.02 1,450.00% 0.02 0.03 losses (RMB/share) Return on net assets (fully diluted) % 15.73% 3.24% 4.36% 11.37% 2.55% 2.94% Return on net assets (weighted average) % 17.07% 3.29% 4.46% 12.61% 2.55% 2.99% Fully diluted return on net assets after deducting non-recurring gains and 16.90% 3.75% -1.05% 17.95% 0.65% 3.21% losses % Weighted average return on net assets after deducting non-recurring 18.34% 3.81% -1.08% 19.42% 0.65% 3.26% gains and losses % Net cash flow per share arising from operation 0.59 0.46 0.46 28.26% 0.81 0.81 activities (RMB/share) Increase/ 31 December decrease 31 December 2007 31 December 2006 2008 year-on-year (%) Before After After Before After adjustment adjustment adjustment adjustment adjustment Net assets per share attributable to shareholders of listed company 1.85 1.54 1.56 18.59% 3.03 2.97 (RMB/share) 湖北沙隆达股份有限公司 2008 年年度报告 IV. Change in Share Capital and Brief to Shares held by Major Shareholder (I) Changes in share capital 1. Changes in share capital Unit: share Prior to the change Increase/decrease (+, - ) Subsequent to the change Issuance Capitalization Number of Proportion Number of Proportion of new Bonus of reserved Other Subtotal shares (%) shares (%) shares fund I. Shares subject to 122,231,632 20.58% -5,618 -5,618 122,226,014 20.58% trading moratorium 1. Shares held by state 2. Shares held by state-owned 118,887,202 20.02% 118,887,202 20.02% corporations 3. Shares held by other 3,300,000 0.56% 3,300,000 0.56% domestic investors Including: Shares held by domestic 3,300,000 0.56% 3,300,000 0.56% non-state-owned corporations Shares held by domestic natural person 4. Shares held by overseas investors Including: Shares held by overseas corporations Shares held by overseas natural person 5. Shares held by senior 44,430 0.01% -5,618 -5,618 38,812 0.01% management II. Shares not subject to 471,691,588 79.42% 5,618 5,618 471,697,206 79.42% trading moratorium 1. RMB ordinary shares 241,691,588 40.69% 5,618 5,618 241,697,206 40.70% (A-share) 2. Domestically listed 230,000,000 38.73% 230,000,000 38.73% foreign shares (B-share) 3. Overseas listed foreign shares 4. Others III. Total number of 593,923,220 100.00% 593,923,220 100.00% shares Change in shares subject to trading moratorium Unit: Share Name of shareholder Number of Number of Number of shares Number of Reason Date of shares subject shares released subject to trading shares subject to releasing to trading from trading moratorium trading trading moratorium at moratorium in increased in moratorium at moratorium year-begin current year current year year-end Sanonda Group Commitment in the 118,887,202 0 0 118,887,202 3 Aug. 2009 Corporation share merger reform Transferring in the share merger reform, Jingzhou Shashi District and continued to Union Rural Credit 2,500,000 0 0 2,500,000 3 Aug. 2009 perform commitment Cooperation in the share merger reform Transferring in the Jingzhou Sanonda 800,000 0 0 800,000 share merger reform, 3 Aug. 2009 Advertising Co., Ltd. and continued to 湖北沙隆达股份有限公司 2008 年年度报告 perform commitment in the share merger reform Freezing shares held Shares held by senior 44,430 5,618 0 38,812 by senior 1 Jan. 2010 management staffs management Total 122,231,632 5,618 0 122,226,014 － － 3. Particulars about issuance and listing of shares (1) Brief to issuance of shares over the past three years Over the previous three years as at the end of the reporting period, neither issuance of securities nor listing occurred in the Company. (2) Total number of share capital and change in equity structure in the reporting period In the reporting period, the total shares and equity structure remained unchanged. (II) Particulars about the shareholders 1. Number of shareholders and abut shares held Unit: Share 湖北沙隆达股份有限公司 2008 年年度报告 Total number of shareholders 124,985 Shares held by the top ten shareholders Number of shares Shareholding ratio Total number of Number of pledged or Name of shareholder Nature with conditions in (%) shareholding frozen shares sale SANONDA GROUP State-owned CORPORATION corporation 20.02% 118,887,202 118,887,202 0 BANK OF COMMUNICATIONS－ Domestic BOSHI XINXING GROWTH non-state-owned STOCK SECURITIES INVSTMENT corporation 2.15% 12,797,536 0 0 FUND STATE-OWNED ASSETS ADMINISTRATION BUREAU OF State shares 0.76% 4,489,266 0 0 QICHUN COUNTY JINGZHOU SHASHI DISTRICT Domestic UNION RURAL CREDIT non-state-owned 0.42% 2,500,000 2,500,000 0 COOPERATION corporation SHANXI TRUST CORPORATION Domestic LTD. － XINYUAN CAPITAL non-state-owned 0.20% 1,200,000 0 0 TRUST corporation Foreign natural WANG GONG LIN person 0.19% 1,104,000 0 0 Domestic natural QU HUAN ZHI person 0.15% 890,000 0 0 Foreign natural ZHONG YU LIAN person 0.15% 878,100 0 0 Foreign natural HUANG,WENJUN person 0.13% 801,000 0 0 Domestic JINGZHOU SANONDA ADVERTISING CO., LTD. non-state-owned 0.13% 800,000 800,000 0 corporation Shares held by the top ten shareholders holding shares not subject to trading moratorium Number of shares not subject to Name of shareholders Type of shares trading moratorium BANK OF COMMUNICATIONS－BOSHI XINXING GROWTH STOCK SECURITIES INVSTMENT 12,797,536 RMB ordinary shares FUND STATE-OWNED ASSETS ADMINISTRATION 4,489,266 RMB ordinary shares BUREAU OF QICHUN COUNTY SHANXI TRUST CORPORATION LTD. － 1,200,000 RMB ordinary shares XINYUAN CAPITAL TRUST WANG GONG LIN 1,104,000 Domestically listed foreign share QU HUAN ZHI 890,000 RMB ordinary shares ZHONG YU LIAN 878,100 Domestically listed foreign share HUANG,WENJUN 801,000 Domestically listed foreign share WEI DE LIANG 785,629 RMB ordinary shares ZHANG QI HUA 690,000 Domestically listed foreign share LI SHUN QIN 688,500 Domestically listed foreign share Explanation on associated The Company is not aware of whether there is any associated relationship among the above top relationship among the top ten ten shareholders and whether there is any action-in-concert among them. shareholders or acting-in-concert Note: As at the end of reporting period, the Company has 124,985 shareholders in total, of which, 95,489 ones of A shares and 29,496 ones of B shares. 2. Number of shares held by the top ten shareholders subject to moratorium and trading moratorium Unit: Share 湖北沙隆达股份有限公司 2008 年年度报告 Number of Date on which Number of Name of shareholders with shares subject shares can be additional shares No. shares subject to trading Trading moratorium to trading listed for can be listed for moratorium moratorium trading trading No trading or transferring within 36 Sanonda Group months from the first trading day of 1 118,887,202 3 Aug. 2009 118,887,202 A shares after the share merger Corporation reform proposal was implemented No trading or transferring within 36 Jingzhou Shashi District Union months from the first trading day of 2 2,500,000 3 Aug. 2009 2,500,000 A shares after the share merger Rural Credit Cooperation reform proposal was implemented No trading or transferring within 36 Jingzhou Sanonda Advertising Co., months from the first trading day of 3 800,000 3 Aug. 2009 800,000 A shares after the share merger Ltd. reform proposal was implemented 3. Brief to controlling shareholder and actual controller (1) The controlling shareholder Name of the controlling shareholder: Sanonda Group Corporation Legal representative: Li Zuorong Registered capital: RMB 240.66 million Date of foundation: 1994 Scope of business: manufacturing and sales of pesticide, chemical products and pharmaceutical products; import and export trade of pesticide, chemical products and its intermediate product, chemical mechanical equipments and fittings; manufacturing and sales of chemical mechanical equipments; production and fixing of steel construction; fixing of chemical engineering and lease of housing. (2) Actual controller Name of the actual controller: China National Agrochemical Corporation Registered capital: RMB 300 million China National Agrochemical Corporation is a large-scale stated-owned sole company subordinate to ChemChina Group Corporation, as well as the wholly-owned subsidiary of ChemChina Group Corporation and one of the specialized companies under ChemChina Group Corporation, who is engaged in investment, development, production and operation of pesticides, chemical fertilizers, fine chemical products and minerals products. ChemChina Group Corporation subordinates to SASAC of State Council, which is state-owned large-scale corporation established after approval by the State Council in 2004. (3) Brief to change in controlling shareholder and actual controller In the reporting period, controlling shareholder and actual controller remained unchanged.  (4) Relationship between the Company and its controlling shareholder: SASAC of State Council 100% China National Chemical Corporation 湖北沙隆达股份有限公司 2008 年年度报告 100% China National Agrochemical Corporation 100% Sanonda Group Corporation 20.02% Hubei Sanonda Co., Ltd. 4. Other corporate shareholder holding over 10% share of the Company There was no other corporate shareholder holding over 10% share of the Company in the reporting period. 湖北沙隆达股份有限公司 2008 年年度报告 V. Particulars about Directors, Supervisors and Senior Management (I) Particulars about changes in shares held by Directors, supervisors and senior management Remuneration Total received Amount of Amount remuneration from Beginning Ending shares of shares received from shareholder Gend date of date of Reasons Name Title Age held at the held at the Company entities or er office office for change beginning the in the report other term term of the year year-end period affiliated (RMB’0,000) parties or not (Yes / No) Chairman Li 30 Jun. 30 Jun. Zuorong of the Male 58 2006 2009 5,490 5,490 24.00 No Board Liu 30 Jun. 30 Jun. Xingping Director Male 46 2006 2009 32,840 32,840 21.00 No Director, He 28 Aug. 30 Jun. Fuchun General Male 43 2006 2009 4,880 4,880 21.00 No Manager Director, Standing Liu 30 Jun. 30 Jun. Anping Deputy Male 41 2006 2009 0 0 18.00 No General Manager He Director, 30 Jun. 30 Jun. Xuesong CFO Male 53 2006 2009 0 0 17.00 No Director, Deng Deputy 30 Jun. 30 Jun. Guobin General Male 41 2006 2009 4,880 4,880 17.00 No Manager 28 Aug. 30 Jun. Yin Hong Director Male 41 2006 2009 0 0 17.00 No Yu Independen 30 Jun. 30 Jun. Jingzhon t Director Male 44 2006 2009 0 0 4.80 No g Li Independen 30 Jun. 30 Jun. Shoumin t Director Male 63 2006 2009 0 0 4.80 No g Independen Fema 30 Jun. 30 Jun. Li Hui t Director le 40 2006 2009 0 0 4.80 No Assistant to Yang 1 Feb. 30 Jun. Guang General Male 36 2007 2009 0 0 15.00 No Manager Chairman Zhang of the 30 Jun. 30 Jun. Jianguo Supervisory Male 55 2006 2009 3,660 3,660 17.00 No Committee Xu 30 Jun. 30 Jun. Baojian Supervisor Male 52 2006 2009 0 0 5.00 No Fema 30 Jun. 30 Jun. Liu Jun Supervisor le 47 2006 2009 0 0 5.00 No Jiang 30 Jun. 30 Jun. Chengga Supervisor Male 34 2006 2009 0 0 5.00 No ng Gong 1 Feb. 30 Jun. Shubin Supervisor Male 39 2007 2009 0 0 5.00 No Li Secretary of 30 Jun. 30 Jun. Zhongxi the Board Male 38 2006 2009 0 0 12.00 No Total - - - - - 51750 51750 - 213.40 - Particulars about the major work experiences of current Directors, Supervisors and Senior Executives: Mr. Li Zuorong successively took the posts of workshop technician, workshop 湖北沙隆达股份有限公司 2008 年年度报告 Director, Chief of Technology Section and Director of Design Office in Yuansha City Pesticide Plant. Later, he successively worked as Minister of project department, Deputy General Manager and Director of the Company. Now he acts as Chairman of the Board and Secretary of the CPC of the Company. Mr. Liu Xingping successively took the posts of technician in Yuansha City Pesticide Plant, Director of Electrochemical Plant, as well as Director, Deputy General Manager, Vice Chairman of the Board and General Manager of the Company. Now he acts as Director of the Company. Mr. He Fuchun successively took the posts of section monitor in Yuansha City Pesticide Plant, Vice Workshop Director of the Company and Director of the Pesticide 1st Plant, as well as Director, Deputy General Manager and Chief Engineer of the Company. Now he acts as Director and General Manager of the Company. Mr. Liu Anping successively took the posts of Vice Director and Director of Energy Source Power Plant, Deputy Chief Engineer, Director and Assistant to General Manager of the Company. Now he acts as Director and Standing Deputy General Manager of the Company. Mr. He Xuesong successively took the posts of section monitor of the Yuansha City Pesticide Plant, Chief of financing section of Sha City Fuel-chemical Bureau, Deputy Minister and Minister of finance department in Sanonda Group Corporation as well as Deputy Chief Accountant and Chief Accountant of the Company. Now he acts as Director and Chief Financial Officer of Company. Mr. Deng Guobin successively took the posts of workshop Director of the Company, Director of the Pesticide 1st Plant, and Deputy Chief of technology division of the Company. Now he acts as Director and Deputy General Manager of the Company. Mr. Yin Hong successively took the posts of Vice Director of Fine Chemical Factory, Manager of Keyuan Company, Deputy Chief Engineer of the Company, and Minister of development department of the Company. Now he acts as Director of the Company. Mr. Yu Jingzhong was admitted by Accounting Department of South China Finance and Economics University through examination to study accounting in 1981. After graduation in 1985 he stayed at the school to teach. In 1991 he was sent to Huangshi as assistant to governor of Industrial and Commercial Bank of China, and was temporarily transferred into Shenzhen procuratorate in 1992. In 1993, he was sent back to teach in the University till now. Now he acts as Independent Director of the 5th Board of Directors of the Company. Mr. Li Shouming worked in mathematics Depart of Wuhan University since his graduation in the department in Jul.1970. Later, he studied abroad in University of Duisburg in Germany from 1983 to 1984. He had been in Georg-August-University Goettingen as senior visiting scholar in 1995 for a half year, researching on supporting system of financial decision-making. From 1989 to 1999, he acted as Chief of Financial and Accounting Department at the University. He is the professor and supervisor of postgraduate in Economics and Management Department of Wuhan University. He is also an expert enjoying a special subsidy from the State Council and the government. Apart from those titles, he is an evaluation expert in evaluation of 湖北沙隆达股份有限公司 2008 年年度报告 Senior Professional Title for Accountants in Hubei Province and a technological consulting expert in Wuhhan, Hubei. Now he acts as Independent Director of 5th Board of Directors of the Company. Ms. Li Hui is the lawyer in Wuhan Branch of Beijing Deheng Law Office and arbitrator of Wuhan Arbitrating Institute. Now she acts as Independent Director of 5th Board of Directors of the Company. Mr. Yang Guang successively took the posts of Workshop Director of 2nd Pesticide Factory of the Company, Deputy Chief and Chief of the Production Scheduling Department, as well as Supervisor of the Company. Now he acts as Assistant to General Manager of the Company. Mr. Zhang Jianguo, successively took the posts of Clerk of Organizing Cadres Section, Vice Secretary of the Party Branch of the Workshop, Deputy Director of Enterprise Management Department in the Yuansha City Pesticide Plant, as well as Deputy Director and Director of the Office, Secretary of the Board, Director, Vice Secretary of the CPC in the Company. Now he acts as Chairman of the Supervisory Committee, Vice Secretary of the CPC, Secretary of Discipline Committee and Chairman of Labor Union in the Company. Mr. Xu Baojian successively took the posts of Deputy Workshop Director of Yuansha City Pesticide Plant, Deputy Director of Energy Power Plant, Secretary of the Party Branch in Ministry of Works, Chairman of Labor Union of the Company as well as Manager in Industry Development Company’s Headquarter. Now he acts as Supervisor and Vice Chairman of Labor Union of the Company. Ms. Liu Jun successively took the posts of accountant of Financial Company, Chief Accountant of Sanonda Jingchun Company, Chief Accountant of Sanonda Jingzhou Agrochemical Company, and Chief of Accounting Department in Financial Company of the Company. Now she acts as Supervisor of the Company, Deputy General Manager of Financial Company of the Company as well as Chief of Capital Accounting Department. Mr. Jiang Chenggang successively took the posts of Chief of Quality Check Department, Organizing Clerk of Political Work Department, Deputy Secretary of the Party Branch, and Vice Director of Phosphate Plant, Deputy Chief and Chief of Political Work Department. Now he acts as Supervisor of the Company, Deputy Director of the Office and Chief of Political Work Department of the Company. Mr. Gong Shubin, successively took the posts of technician of the Company, Deputy General Manager of Sanonda Qichun Company, Deputy Director of Phosphate Plant, Deputy Director and Director of 1st Pesticide Factory. Now he acts as Supervisor of the Company and General Manager of Hubei Sanonda Tianmen Agrochemical Co., Ltd. Mr. Li Zhongxi successively took the posts of Office Secretary of the Company, Manager of packaging company. Now he acts as Secretary of the Board and Office Director of the Company. (II) Particulars about Directors and Supervisors holding posts in shareholding 湖北沙隆达股份有限公司 2008 年年度报告 companies Name of the Name Shareholding Post in the Shareholding Company Office term Company Li Sanonda Group Chairman of the Board, Dec. 2005 to now Zuorong Corporation Secretary of CPC Liu Sanonda Group Director, General Manager Aug. 2006 to now Xingping Corporation He Sanonda Group Director Dec. 2005 to now Fuchun Corporation Liu Sanonda Group Director Aug. 2006 to now Anping Corporation Sanonda Group Yin Hong Assistant to General Manager Aug. 2006 to now Corporation (III) No change in the Directors, Supervisors and Senior Executives occurred in the reporting period. (IV) Particulars about the annual remuneration of Directors, Supervisors and Senior Executives The Company formulated salary plan and implementation measures for Senior Executives. At the beginning of the year, the Company would decide the appraisal index of operation achievements or management duties for the Senior Executives, according to the overall development strategy and annual operating target, while at the end of the year, the Board appraised Senior Executives based on the work report and business achievement of Senior Executives. (V) Particulars about Employees At the end of the report period, the Company had 4095 on-the-job employees in total, as well as 2168 retirees, whose expenses are under the responsibility of the Company. Staff Composition: 1. Classification Based on Specialty Specialty category Number Production personnel 2456 Technical personnel 360 Management personnel 274 Sales personnel 190 Others 815 2. Classification Based on Education Background Education background Number Master and above 8 Junior college and above 1006 Senior high school and above 1977 Others 1104 湖北沙隆达股份有限公司 2008 年年度报告 VI. Corporate Governance (I) Corporate Governance of the Company In the report period, the Company followed the spirit of Notice on Carrying out a Special Campaign of Corporate Governance ([2008] No. 27) released by China Securities Regulatory Commission, and checked every aspect comparing with the situation described in the Report on the Special Campaign of Corporate Governance, as well as conducted overall examination and summery on the measures and effects of the special campaign in the previous period. The Extraordinary Meeting of the 5th Board deliberated and approved the Explanation on Special Campaign and Rectification, which was published in detail on http://www.cninfo.com.cn/ on Jul. 31, 2008. In the report period, the Company further revised and improved relevant systems, based on the relevant opinions of Hubei Securities Regulatory Commission on the spot inspection of the Company in 2008. The 16th meeting of the 5th Board deliberated and approved the Articles of Association, Rules for Shareholder’s General Meeting and Rules for the Board of Directors after revision and the 10th meeting of the 5th Board deliberated and approved Rules for the Supervisory Committee after revision, which were all published in detail on http://www.cninfo.com.cn/ on Nov. 27, 2008. In the report period, the Company continuously improved the legal person corporate governance structure and standardized the operation of the Company, stringently according to requirements of relevant laws and regulations like the Company Law, Securities Law, Guidelines for the Corporate Governance of Listed Companies, as well as Guiding Opinions on Establishing the Independent Director System in Listed Companies. The actual situation of the legal person governance structure of the Company was basically consistent with the requirements of regulatory documents about corporate governance released by China Securities Regulatory Commission. (II) Particulars about Duty Performance of Independent Directors In the report period, three Independent Directors of the Company faithfully performed their duties with diligence, according to Articles of Association and Work System of Independent Director, actively attended the Board meeting of the Company, carefully examined all meeting materials as well as made objective and fair judgment on them. Moreover, they issued independent opinions on relevant issues, as well as professional opinions on significant decision-making of the Company, making full use of their professional advantages, and as a result, they protected the interests of the Company and the small and medium shareholders. 2. In the report period, the Company totally held 7 Board meetings and 1 annual Shareholders’ General Meeting. Three Independent Directors did not raise any objection or disagreement on proposals of the meetings. Brief to their attendance at the meetings is as follow: Independent Meetings should be Times of personal Times of entrusting directors attended attendance attendance Yu Jingzhong 8 7 1 Li Shouming 8 8 0 Li Hui 8 8 0 湖北沙隆达股份有限公司 2008 年年度报告 (III) Separation between the Company and the controlling shareholder in business, personnel, assets, organization and finance 1. Independence of the Company’s business: The Company possesses independent purchasing and sales system and operated independently. There is no horizontal competition between the Company and the controlling shareholder. The affiliated transactions between them are legal, transparent and fair, and the transaction price was reasonable. 2. Independence of the Company’s personnel: The Company has established independent systems of labor, personnel and wage. The procedure that Senior Executives of the controlling shareholder concurrently act as Directors of the Company is legal. General Managers and other Senior Executives as well as core technicians of the Company are all full-time staff of the Company, who work for and receive salary from the Company. 3. Independence of the Company’s assets: The assets of the Company are independent and the property right is clear. The Company possesses independent production system, auxiliary production system and supporting facilities, and industrial property, trademark as well as non-patent technology related with the operation all belongs to the Company. 4. Independence of the Company’s organization: The Company has independent site for production and operations as well as independent offices. 5. Independence of the Company’s finance: The Company has established independent financial and accounting department, normative and independent accounting system and financial management system, and it possesses independent bank account and pays tax independently. (IV) Establishment and Improvement of Internal Control System of the Company 1. Report on Self-Appraisal of Internal Control System Report on Self-Appraisal of Internal Control System of the Company was published in detail on http://www.cninfo.com.cn/ on Apr. 10, 2009. 2. Opinions on the Self-Appraisal (1) General Appraisal of the Company The Company has established an internal control system covering every section of the Company, formulated a relatively sound and reasonable internal control system, and ensured standard operation and normal business of the Company, as well as the safety and soundness of the Company’s assets. Basically in compliance with the principle of comprehensiveness, importance, check and balance, applicability, as well as cost-effectiveness, and going with the relevant requirements on internal control of China Securities Regulatory Commission and Shenzhen Stock Exchange, the internal control over subsidiaries, affiliated transactions, external guarantee, use of raised proceeds, significant investment and information disclosure has no significant defects. 湖北沙隆达股份有限公司 2008 年年度报告 The Company has implemented the internal control system with obvious and effective results. Yet with the further development of the Company, change of the external environment and the improvement of management requirement, the internal control of the Company needs strengthening and improving continuously. (2) Opinion of the Supervisory Committee Concerning Self-Appraisal of Internal Control In accordance with relevant provisions stipulated by China Securities Regulatory Commission and Shenzhen Stock Exchange, the Company followed the basic principles of internal control, established and improved the internal control system covering all sections of the Company, based on the reality of the Company. With the internal control system, the Company ensured the plausibility and legality of the business and management of the Company as well as safety and soundness of the Company’s assets. In 2008, there was no breach of Guidelines of Shenzhen Stock Exchange for Internal Control in the Company and the Report on Self-Appraisal of Internal Control reflected the organization of the Company, establishment of the internal control system, key activities and key control activities in establishment and improvement of the internal control truly, completely, objectively and accurately. (3) Opinion of the Independent Directors Concerning Self-Appraisal of Internal Control The Board of Directors formulated and improved a series of new internal management rules of the Company, according to the requirement of the state’s relevant laws, regulations and regulatory authorities. The key control activities of the Company were launched stringently according to rules of various internal control systems of the Company. The internal control over shareholding subsidiaries, affiliated transactions, external guarantee, use of raised proceeds, significant investments and information disclosure was strict, sufficient and effective. The Report on Self-Appraisal of Internal Control of the Board has truly and objectively reflected the establishment, implementation and improvement of the Company’s internal control System. (V) Performance Appraisal Standard and Incentive Mechanisms The Company has formulated the remuneration plan of Senior Executives and its enforcement method in detail, so as to continuously improve performance appraisal standard and incentive mechanism for Directors, Supervisors and Senior Executives. The Board draws out the production and business target as well as annual budget of the Company every year, conducts evaluation on Senior Executives, as well as determines the amount of annual remuneration linked with efficiency of Senior Executives, based on the fulfillment of business target. 湖北沙隆达股份有限公司 2008 年年度报告 VII. Brief Introduction of Shareholders’ General Meeting The Shareholders' General Meeting 2007 was held on 30 May 2008. Relevant public notice was published on China Securities Journal, Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn on 31 May 2008. 湖北沙隆达股份有限公司 2008 年年度报告 VIII. Report of the Board of Directors (I) Operation status in the reporting period 1. Overall operation status The year 2008 was uncommon year. Influenced by financial fluctuation due to US subprime mortgage crisis, price of leading products of the Company fluctuated fiercely. Influenced by demand of pesticide market, price of leading products rose unreasoningly in the first half year. However, enlarging of domestic production capacity of relevant pesticide products and quick decrease of overseas demand caused drop of price of leading products since Sep. 2008. Meanwhile, snow disaster at the year-begin caused decrease of pest in the country, which made decrease of demand of domestic pesticide market. Encountering with unexpected and unprecedented difficulties caused by complicated and changeful economic situation and natural disaster, all cadres and employees held together, actively replied and got good results with continuous efforts. In 2008, the Company achieved operating income amounting to RMB 2.217 billion, up 34.52% year-on-year, total profit of RMB 234 million, up 353.06% year-on-year, net profit attributable to shareholder of listed company of RMB 173 million, up 328.17% year-on-year; export for foreign change amounting to USD 177 million, up 88.69% year-on-year; and realized earnings per share being RMB 0.29, up 314.29% year-on-year. During the report period, the Company accelerated construction of new and enlarged projects, successively completed construction of ion-exchange membrane caustic soda and expanded construction of projects of glyphosate, spermine, DDVP, paraquat, imidacloprid and so on, further perfected products structure and made good effect on production and operation of the Company in 2008. Meanwhile, aimed at troubles in production ,the Company actively organized technical innovation, developed research work on technics, analysis, dosage form, packaging and environment protection and achieved good performance. In aspect of sales, the Company caught the chance of bloom demand for pesticide products of international market, enlarged export, priced reasonably and effectively avoid influence by economic fluctuation in the second half year by keeping good relationship with clients. export for foreign exchange in 2008 amounted to USD 177 million, up 89% year-on-year, which was the first time to realize balance between domestic sales and export. 2. Operation status on main business (1) Scope of main business Business scope of the Company is production and sales of pesticides and chemical products. (2) Main business classified according to industries or products Unit: RMB’0000 Main business classified according to industries Increase/decrease of Increase/decrease of Increase/decrease of Operating Operating operating income operating income operating profit ratio Industry or products Operating cost income profit ratio compared with last compared with last compared with last year (%) year (%) year (%) New chemical materials and 1,372.21 1,053.89 23.20% -6.65% -4.89% -12.05% special chemical products Petro-chemical industrial and 6,748.68 5,755.60 14.72% 21.55% 22.63% 15.66% refined chemical products Agrochemical like fertilize, 208,419.35 150,356.47 27.86% 38.97% 19.10% 144.75% pesticide, etc Main business classified according to products 湖北沙隆达股份有限公司 2008 年年度报告 New chemical materials and 1,372.21 1,053.89 23.20% -6.65% -4.89% -12.05% special chemical products Petro-chemical industrial and 6,748.68 5,755.60 14.72% 21.55% 22.63% 15.66% refined chemical products Agrochemical like fertilize, 208,419.35 150,356.47 27.86% 38.97% 19.10% 144.75% pesticide, etc (3) Main business classified according to regions Unit: RMB’0000 Increase/decrease of operating income Regions Operating income compared with the last year (%) Domestic 104,131.24 25.57% Overseas 112,409.00 51.77% Total 216,540.24 37.93% (4) The top five suppliers and top five clients of the Company Unit: RMB’0000 Total purchase amount of the top five suppliers 48,137 Proportion in total purchase amount 30.63% Total sales amount of the top five clients 63,397 Proportion in total sales amount 28.59% 3. Explanations on the significant changes in asset composing of the Company in the reporting period Unit: RMB’0000 31 Dec. 2008 31 Dec. 2007 Increase/decrease Items Amount Proportion in total assets Amount Proportion in total assets range Monetary fund 56,283 27.46% 45,241 25.99% 24.41% Accounts receivable 8,268 4.03% 22,996 13.21% -64.05% Inventories 34,655 16.91% 30,164 17.33% 14.89% Fixed assets 78,101 38.11% 40,337 23.17% 93.62% Short-term loan 18,700 9.12% 33,498 19.24% -44.18% Long-term loan 29,756 14.52% 9,000 5.17% 230.62% Explanation: ① Monetary fund increased by 24.41% year-on-year, which was mainly due to increase of sales, callback of loans and long-term loans. ② Accounts receivable increased by 64.05% year-on-year, which was mainly because the Company gradually regulated formulation of credit policy in current period and increase of callback ratio of loans; ③ Inventories increased by 14.89% year-on-year, which was mainly due to increase of winter storages at the end of this report period; ④ Fixed assets increased by 93.62% year-on-year, which was mainly because projects of ion-exchange membrane, production line of 15,000 tons glyphosate started to construct in last period has been completed and put into production one after the other, and relative increase of fixed assets; ⑤ Short-term loans decreased by 44.18% year-on-year, mainly because short-term loan of Hubei Sanonda Foreign Trading Co., Ltd, shareholding subsidiary of the Company, decreased RMB 96,68 million. All short-term loans of Hubei Sanonda Foreign Trading Co., Ltd were financing loan for export trade. This company adopted cautious credit policy that most of L/C opened by foreign clients adopted documentary bills offered by banks and without recourse, which made reflow of capital of usance L/C be quickly, increased return rate of sales fund and decreased loan for trade financing. ⑥ Long-term loans increased by 230.62% year-on-year, which was mainly due to increase of project loans. 湖北沙隆达股份有限公司 2008 年年度报告 4. Analysis on sales expense, administrative expense and financial expense year-on-year in the reporting period Unit: RMB’0000 Items Amount of current period Amount at the same period of last year Change year-on-year % Sales expense 7,688 6,337 21.31% Administrative expense 13,426 9,269 44.84% Financial expense 4,616 4,104 12.48% Investment income 1,422 8,174 -82.60% Non-operating expense 3,625 1,664 117.83% Income tax expense 6524 763 755.05% Explanation: ① In the reporting period, sale expense increased by 21.31% year-on-year, which was mainly due to increase of sales and transportation fee and increased of export fee; ② In the reporting period, administrative expense increased by 44.84% year-on-year, mainly because repair fee, salary and welfare increased. ③ In the reporting period, financial expense increased by 12.48% year-on-year, mainly because interest expenses increased due to increase of loan and rise of interest rate in current report period, documentary expense and loss of exchange increased; ④ In the reporting period, investment income decreased by 82.60%, mainly because gains from subscription of new shares decreased; ⑤ In the reporting period, non-operating expense increased by 117.83% year-on-year, which was mainly caused by loss from disposal of fixed assets; ⑥ In the reporting period, income tax expense increased by 755.05% year-on-year, which was mainly due to increase of total profit. 5. Explanation on cash flow composing in the reporting period Unit: RMB’0000 Items 2008 2007 Increase/decrease amount Increase/decrease range Net cash flow arising from operating activities 35,280 27,165 8,115 29.88% Net cash flow arising from investing activities -42,090 -3,314 -38,777 Net cash flow arising from financing activities 17,853 -10,607 28,460 Net increase in cash and cash equivalent 11,043 13,244 -2,201 -16.62% Explanation: ① In the reporting period, net cash flow arising from operating activities increased by RMB 81.15 million year-on-year, which was mainly due to increase of sale of commodity and capital reflowing in time; ② In the reporting period, net cash flow arising from investing activities decreased by RMB 387.77 million year-on-year, which was mainly due to increase of investment. ③ In the reporting period, net cash flow arising from financing activities increased by RMB 284.60 million year-on-year, which was mainly due to increase of loan for project. 6. Analysis on the operation situation and achievements of the main holding companies Unit: RMB’0000 Registere Proportion of Total Net Operating Net Name of subsidiary company Nature of business d capital shares held assets assets revenue profit Sanonda Zhengzhou Pesticide Production of pesticides and chemical 4000 70.00% 15,803 2,097 23,186 -2,001 Co., Ltd. products such as omethoate and caustic soda Sanonda (Jingzhou) Pesticide Production of pesticides and intermediates 2800 87.50% 4,205 -215 8,773 215 and Chemical Industry Co., Ltd. 湖北沙隆达股份有限公司 2008 年年度报告 Hubei Sanonda Foreign Import & Export of pesticides and 1000 90.00% 10,241 2,707 20,105 792 Trading Co., Ltd. intermediates Hubei Sanonda Tianmen Production and sales of pesticides 800 85.00% 5,465 2,347 9,935 103 Agrochemical Co., Ltd. Jingzhou Longhua Production and sales of chemical products 500 65.00% 2,148 950 7,818 203 Petrochemical Co., Ltd. Jingzhou Sanonda Aifusi Research, development, production and 600 51.00% 1,260 1,077 1,373 156 Chemical Industry Co., Ltd. sales of fine chemical products (II) Outlook for the Company's future development 1. Development trend of the industry Firstly, international financial crisis was continued, impact to entity economy has been appeared, uncertain and unstable factors increased obviously; secondly, rigid demand of pesticide industry and series of policies supported development of agriculture by the state will help to resuscitation of pesticide market, which also will guarantee development of pesticide industry; thirdly, along with continuous promotion of requirements on safety protection, pesticide with safety, high efficiency and environment protection will be expanded, therefore, it is the key to accelerate adjustment on product structure, change increase way and improve development quality. 2. The key point of work of the Company in 2009 Working way for the year 2009: The Company will deeply fulfill scientific development concept, composedly reply to challenge of international financial crisis, continue to further carry out 6+4 key points of work “reduction of staff, reduction of liabilities, innovation, development, internationalized operation, construction of enterprise culture and sales & marketing, professionalized training, construction of informationization, energy saving & emission reduction”. Promote production and sales with main measure of occupation market; roundly push fine management, reduce cost to increase efficiency; accelerate technology innovation and project construction, increase support for development; establish and perfect internal control system, avoid and eliminate operating risk; strengthen party construction and improve diathesis of staff to ensure durative and stable development. 3. Production and operation target in 2009 The Company's production and operation target in 2009: operating income will reach to 2.3 billion, export for foreign exchange will be USD 150 million. 4. Capital demand, usage plan and resource of capital to realize future development strategy In 2009, the Company plan to invest RMB 500 million to build new projects, technology innovation projects and expanding projects, of which RMB 380 million was used to build new thermocouple and co-production projects, about RMB 100 million was used to technology innovation projects. The capital was loan from bank and owned capital of the Company. 5. Risk faced and measure adopted by the Company (1) Market risk Owing to influence of financial crisis, part of raw materials and price of products is able to fluctuate by a large margin. (2) Exchange rate risk In 2009, owing to influence of financial crisis, exchange rate of RMB will fluctuate frequently, and proportion of export for foreign exchange will take up 50% in operating income. Exchange rate risk will increase. (3) Risk of environmental protection Requirements in safety and environmental protection by China is higher and higher, 湖北沙隆达股份有限公司 2008 年年度报告 the working pressure will increase in safety and environmental protection. Aiming at the above-mentioned risks, the Company will adopt the following measures for response: a. Fixing target, occupying market and grasping sales. The Company will strengthen track of pesticide and chemical & chemical industry, realize demand and supply of market and change of price in time, establish information analysis and warning mechanism, enlarge frequency of analysis on sales price, cost and gross profit ratio and adjust sales strategy in time according to change of market. Emphasize export of leading products, formulate exact price policy, make effort to increase sales amounr, actively search for sales channel of new products and established stable clients resource. Insist on “Promotion of sales, Fixing fund reflowing”, contact with clients closely, established system of honesty and authenticity, acknowledge credit status of clients and avoid operating risk in process of product sales and trading. b. Roundly push fine management in production management, capital management, cost control, safety and environment protection, etc. c. Accelerate construction of new project, further perfect production capacity and improve competitive of products. d. Perfect internal control system and improve ability of avoiding risks. (III) Investment of the Company in the report period 1. Usage of raised funds During the report period, there ha no any newly raised fund in the Company, nor any raised fund postponed from previous years. 2. Project of non-raised funds Unit: RMB’0000 Name of projects Investment amount Progress of projects Earnings of projects 15,000-ton glyphosate 19,552.00 100% As scheduled Project of ion-exchange membrane 10,044.00 100% As scheduled Expanded construction of 40,000-ton spermine 3,017.00 100% As scheduled DDVP test 1,991.00 100% As scheduled Expanded construction of 3000t/a paraquat 942.00 100% As scheduled Total 35,546.00 - - 3. Reasons and influence of changes in accounting policy, accounting estimate or correction of significant accounting errors of the Company On 26 Dec. 2008, Ministry of Finance issued Circular on Properly Execution of Accounting Standards for Business Enterprise and Handling Annual Report 2008 of Listed Companies with document No. CKH [2008] 60, of which Article (III). 3 regulated that, safety production expense withdrew by enterprises belongs to industry with high risk according to regulations should dispose in line with specifics of Explanation on Accounting Standards for Business Enterprise, and “specific inventories” under items of “Surplus reserves” will not be listed as liabilities but be listed singly. The Company adopted accounting treatment according to the aforesaid regulation, transferred balance of safety production expense withdrawn in 2007 to “specific inventories” under “Surplus reserves” of owners’ equity from long-term account receivable and listed singly, retrospect and adjusted data of last year. Adjustment and influence: with change of the accounting policy, shareholders’ equity of the period-begin in consolidated balance increased RMB 11,665,160.76, of which shareholders’ equity attributable to parent company increased RMB 10,759,922.90 (surplus reserves increased RMB 7,122,597.44 and retained profit increased RMB 湖北沙隆达股份有限公司 2008 年年度报告 3,637,325.46) and minority interests of the period-begin increased by RMB 905,237.86; long-term accounts receivable of the period-begin decreased by RMB 11,665,160.76. Operating cost of last period in consolidated profit statement decreased by RMB 2,367,840.82, administrative expense of last period decreased RMB 9,297,319.94 and net profit of last period increased by RMB 11,665,160.76, including net profit attributable to parent company increased by RMB 10,759,922.90 and minority interests increased by RMB 905,237.86. (IV) Routine work of the Board of Directors during the report period 1. About the Board Meeting and resolutions (1) The Company held the 11th Meeting of the 5th Board of Directors on 20 Apr. 2008, and public notice on resolutions was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 22 Apr. 2008. (2) The Company held the 12th Meeting of the 5th Board of Directors on 24 Apr. 2008, and content of the meeting was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 25 Apr. 2008. (3) The Company held the 13th Meeting of the 5th Board of Directors on 4 May 2008, and content of the meeting was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 6 May 2008. (4) The Company held the Extraordinary Meeting of the 5th Board of Directors on 30 Jul. 2008, and content of the meeting was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 31 Jul. 2008. (5) The Company held the 14th Meeting of the 5th Board of Directors on 11 Aug. 2008, and public notice on resolutions was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 13 Aug. 2008. (6) The Company held the 15th Meeting of the 5th Board of Directors on 21 Oct. 2008, and content of the meeting was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 23 Oct. 2008. (7) The Company held the 16th Meeting of the 5th Board of Directors on 21 Nov. 2008, and content of the meeting was published on China Securities Journal, Securities Times and Ta Kung Pao as well as www.cninfo.com.cn on 27 Nov. 2008. 2. Performance on resolutions of the Shareholders’ General Meeting by the Board of Directors In the reporting period, the Board of Directors of Company strictly performed resolutions of the Shareholders' General Meeting in accordance with the Company Law and Articles of Association. (Ⅴ) Preplan regarding profit distribution and turning capital surplus to share capital As audited by Vocation International Certified Public Accounts Co., Ltd., the parent company achieved in 2008 a net profit of RMB 189,786,972.54. After making up for the undistributed profit at the period-begin of RMB -27,490,764.62, the Company still had a distributable profit of RMB 162,296,207.92. Of the distributable profit, RMB 16,229,620.79 (10% of the distributable profit) was withdrawn as the legal surplus reserve, RMB 9,497,401.30 was withdrawn according to relevant regulations as the surplus reserve-special reserve, and RMB 255,005.87 was used. Consequently, the accumulative undistributed profit stood at RMB 136,824,191.70, i.e. the parent company had a profit distributable to shareholders amounting to RMB 136,824,191.70 by 31 Dec. 2008. As the profit distribution preplan for the year 2008, the Board planned to distribute 湖北沙隆达股份有限公司 2008 年年度报告 RMB 0.5 (tax included) in cash per 10 shares with the total distributed cash amounting to RMB 29,696,161. And the capital surplus was not to be turned into share capital. (Ⅵ) Distribution of cash bonus in the previous three years Unit: (RMB) Yuan Net profit attributable to Proportion in the net profit Amount of cash owners of the parent attributable to owners of the bonus (tax company in the parent company in the included) consolidated statements consolidated statements Y2007 0.00 40,360,723.94 0.00% Y2006 0.00 25,985,571.59 0.00% Y2005 0.00 10,306,675.33 0.00% (Ⅶ) Duty fulfillment of specialized committees of the Board of Directors 1. Duty fulfillment of Audit Committee In the reporting period, according to the Circular of CSRC on 2008 Annual Reports of Listed Companies and Relevant Work, as well as the Rules of the Company on Audit Committee concerning Annual Report Preparation, the Audit Committee conscientiously performed its duties and conducted a thorough examination of the Company’s annual audit for 2008. Before the audit of the annual report, the Audit Committee and the registered accountants for the Company’s annual audit, through consultation, decided the schedule for the audit of the 2008 financial statements. Before the presence of the registered accountants, the Audit Committee carefully reviewed the preliminary financial and accounting statements prepared by the Company. After the review, the Audit Committee believed that the statements basically represented the Company’s operating results in 2008 and thus agreed the annual audit to be conducted on the basis of the said statements. After the presence of the accountants, the Audit Committee maintained close communication with the accountants and exchanged opinions with them concerning the problems found in the audit process. After the issuance of the preliminary audit opinions by the registered accountants, the Audit Committee once again reviewed the financial and accounting statements for fiscal year 2008. And the Audit Committee believed that the statements were prepared in accordance with the new Accounting Standards for Business Enterprises and the relevant financial regulations of the Company, and that the statements, in all major aspects, fairly represented the Company’s financial position on 31 Dec. 2008, as well as its operating results and cash flows for the year then ended. 2. Summary report on duty fulfillment of Remuneration Committee of the Board In the reporting period, the Remuneration Committee offered professional opinions 湖北沙隆达股份有限公司 2008 年年度报告 and advices in regard to the Company’s performance appraisal mechanism and incentive mechanism. It also conducted checks on the Company’s performance assessment, the payment of wages and bonus, etc.. And the Committee held the opinion that the Company’s existing remuneration system was established according to the stipulated decision-making procedure, and that the distribution standard of remuneration to the Company’s directors, supervisors and other senior management personnel was in line with relevant regulations. (Ⅷ) Others 1. In the reporting period, China Securities Journal, Securities Times and Ta Kung Pao were designated as the newspapers for the Company’s information disclosure, and http://www.cninfo.com.cn as the website for its information disclosure. 2. Special statement issued by Vocation International Certified Public Accounts Co., Ltd. regarding the irregular capital occupation by the Company’s controlling shareholder and other related parties Special Statement on the Irregular Capital Occupation by the Controlling Shareholder and Other Related Parties of Hubei Sanonda Co., Ltd. in 2008 TZJS Zi No.【2009】454-1 All shareholders of Hubei Sanonda Co., Ltd.: As entrusted, we have, in accordance with the China’s Auditing Standards for Registered Accountants, audited the balance sheet and consolidated balance sheet as of 31 Dec. 2008, the income statement and the consolidated income statement, the shareholders’ equity change statement and the consolidated shareholders’ equity change statement, and the cash flow statement and the consolidated cash flow statement for the year 2008 then ended (collectively referred to as “the Financial Statement”) of Hubei Sanonda Co., Ltd. (hereinafter referred to as “the Company”). And we issued the standard unqualified audit report dated 8 Apr. 2009. According to the Circular on Relevant Issues Concerning Standardization of Fund Transfer between Listed Companies and Associated Parties and Provision of External Guaranty issued by the CSRC and the State-owned Assets Supervision and Administration Commission of the State Council, the Company prepared the summary statement on the irregular capital occupation by the controlling shareholder and other related parties in 2008 (hereinafter referred to as “the Summary Statement”), which accompanied this special statement. It is the Company’s responsibility to prepare and disclose the Summary Statement, as well as to ensure its factuality, legitimacy and completeness. After collating the information provided in the Summary Statement with the examined accounting information and the audited financial statements acquired in the process of our auditing the Company’s 2008 financial statements, we found no inconsistency in all major aspects. Except for the relevant auditing procedures conducted on the related transactions in the process of our auditing the Company’s 2008 financial statements, we conducted no extra auditing procedures or other procedures on the information provided in the Summary Statement. 湖北沙隆达股份有限公司 2008 年年度报告 In order for a better understanding of the irregular capital occupation by the controlling shareholder and other related parties of the Company, the Summary Statement should be included in the audited financial statements for reference. April 8th, 2009 CPAs registered in China: Kuang Min, Wang Jijun 1) Summary statement of irregular capital occupation by the controlling shareholder and other related parties of the Company in 2008 (Unit: Yuan) Relationship Accounting Balance of Sort of Name of between the Balance of subject occupied parties parties Company and Increase in the Decrease in the occupied capital Reason for Type of calculated capital at the occupying occupying parties year 2008 year 2008 at the end of the occupation occupation by the beginning of capital capital occupying year 2008 Company the year 2008 capital Sanonda The parent Accounts Operating Group 1,710,720.00 1,710,720.00 - loans company receivable occupation Corporation Sanonda Other The parent Operating Group accounts 5,566,400.00 5,566,400.00 - loans company occupation Corporation receivable Jingzhou Other Sanonda The same Operating accounts 1,020.00 398,058.00 399,078.00 - loans Advertisement parent company occupation receivable Co., Ltd. China The parent National Accounts Operating company of the 100,100.00 34,920.00 135,020.00 - loans Agrochemical receivable occupation parent company Corporation Hubei Datian The The same Prepaid Operating Chemical Co., 928,859.50 928,859.50 - loans controlling parent company accounts occupation Ltd. shareholder, the actual Jingzhou controller Hengxiang and their Chemical The same Prepaid 301,372.10 1,874.50 301,372.10 1,874.50 loans Operating affiliated Ma terial parent company accounts occupation enterprises Trading Co., Ltd. Jingzhou Hengxiang Chemical The same Accounts Operating 118,084.81 24,570,118.39 24,688,203.20 - loans Material parent company receivable occupation Trading Co., Ltd. Beijing (Lanxing) The same Prepaid Operating 9,274,800.00 9,274,800.00 - loans Machinery actual controller accounts occupation Co., Ltd. Sichuan Lanxing The same Prepaid Operating 555,000.00 555,000.00 - loans Machinery actual controller accounts occupation Co., Ltd. subtotal 11,279,236.41 32,282,090.89 43,559,452.80 1,874.50 Subsidiaries Sanonda Other of the Zhengzhou Subsidiary Non-operating accounts 4,321,491.51 19,696,816.79 14,018,308.30 10,000,000.00 borrowings Company Pesticide Co., company occupation receivable and their Ltd. affiliated enterprises Sanonda Subsidiary Other 3,657,423.78 24,783,362.85 borrowings Non-operating (Jingzhou) company accounts 21,125,939.07 occupation Pesticide and receivable 湖北沙隆达股份有限公司 2008 年年度报告 Chemical Industry Co., Ltd. Hubei Other Fengyuan Subsidiary Non-operating accounts 139,020.00 37,823,840.85 139,020.00 borrowings Chemical Co., company 37,823,840.85 occupation receivable Ltd. Hubei Sanonda Other Subsidiary Non-operating Tianmen accounts 1,688,513.00 10,000,000.00 9,155,264.21 borrowings company 17,466,751.21 occupation Agrochemical receivable Co., Ltd. Jingzhou Sanonda Other Aifusi Subsidiary Non-operating accounts - 540,752.00 479,505.00 61,247.00 borrowings Chemical company occupation receivable Industry Co., Ltd. subtotal 80,738,022.64 25,722,525.57 62,321,654.15 44,138,894.06 Related natural persons and the legal persons controlled by them subtotal Other Hubei related Jingzhou The associated parties and Accounts Operating Huaxiang company of the 15,530,932.67 15,530,932.67 - loans their receivable occupation Chemical Co., parent company affiliated Ltd. enterprises Subtotal - 15,530,932.67 15,530,932.67 - Total 92,017,259.05 73,535,549.13 121,412,039.62 44,140,768.56 2) At the end of the reporting period, the balance of the capital irregularly occupied by the controlling shareholder and its subsidiaries for non-operating purposes was naught. 湖北沙隆达股份有限公司 2008 年年度报告 Ⅸ Report of Supervisory Board (Ⅰ) Work of Supervisory Board in reporting period 1. The 7th Meeting of the 5th Supervisory Board was convened at the overwater meeting room of the Company on 20 Apr. 2008, at which the proposals were reviewed and approved as follows: ① the 2007 work report of the Supervisory Board; ② the 2007 annual report and its summary. 2. The 8th Meeting of the 5th Supervisory Board was convened at the overwater meeting room of the Company on 11 Aug. 2008, at which the 2008 semi-yearly report and its summary was reviewed and approved. 3. The 9th Meeting of the 5th Supervisory Board was convened at the overwater meeting room of the Company on 21 Oct. 2008, at which the third quarterly report of 2008 was reviewed and approved. 4. The 10th Meeting of the 5th Supervisory Board was convened at the overwater meeting room of the Company on 21 Nov. 2008, at which the proposal on devising the Company’s Rules of Procedure for Supervisory Board was reviewed and approved. (Ⅱ) Independent opinions of Supervisory Board concerning supervision on the Company 1. About the operation according to laws. In the reporting period, members of the Supervisory Board attended the Shareholders’ General Meeting and all the meetings of the Board of Directors. And the Supervisory Board conducted checks and supervision concerning the Company’s operation according to laws. The Supervisory Board was of the opinion that: In the reporting period, the Company operated according to laws, with a legitimate procedure of decision-making. The Company enjoyed a sound internal control system, which was effectively executed. According to the Company’s Articles of Association and other laws and regulations, the directors and other senior management personnel of the Company diligently and honestly performed their duties and executed the resolutions made at the Shareholders’ General Meeting and the board meetings. And in the process of their carrying out responsibilities, they performed no acts in violation of laws, regulations or the Company’s Articles of Association, or harmful to the interests of the Company. 2. About the supervision on the Company’s financial status. Based on its supervision on the Company’s financial operation, the Supervisory Board held the opinion that the quarterly, semi-yearly and annual financial reports of the Company factually and objectively presented the Company’s financial status, as well as its production and operation results, and that Beijing Vocation International Certified Public Accounts Co., Ltd. issued an objective and factual unqualified opinion concerning the Company’s financial report in 2008. 3. In the reporting period, the Company did not raise funds or use funds previously raised. 湖北沙隆达股份有限公司 2008 年年度报告 4. The Company conducted no major purchases or sales of assets. 5. About the related transactions. In the reporting period, the Company conducted, with reasonable transaction prices, the related transactions on the principle of fairness, impartiality and transparency, which thus did no harm to the interests of the Company and all its shareholders. 湖北沙隆达股份有限公司 2008 年年度报告 Ⅹ. Significant Events (Ⅰ) Significant lawsuits and arbitrations In the reporting period, there existed no significant lawsuits or arbitrations where the Company was involved. (Ⅱ) Purchases and sales of assets as well as mergers in the reporting period In the reporting period, the Company conducted no significant purchases or sales of assets. Nor it conducted any merger. (Ⅲ) Significant related transactions in the reporting period For details, please refer to “10. Relationship and Transactions with Related Parties” under “Notes to Financial Statement” in “Section XI Financial Report”. (Ⅳ) Provision of guarantees External guarantees provided by the Company (excluding guarantees for its subsidiaries) Date of occurrence Guarantee for the Name of the Amount of Type of Term of Accomplis (date of agreement related party (yes guaranteed guarantee guarantee guarantee hed or not signed) or not) Guangxi Hechi Joint 5 Chemical Co., 12 Jan. 2008 10,000.00 not yes responsibility years Ltd. Total amount of guarantees occurred in reporting period 10,000.00 Total balance of guarantees at period-end 10,000.00 Guarantee for the Company’s subsidiaries Total amount of guarantees for subsidiaries in report period 25,950.00 Total balance of guarantees for subsidiaries at period-end 25,950.00 Total amount of guarantees (including guarantees for subsidiaries) Total amount of guarantees 35,950.00 Proportion of total guarantee amount in net assets 32.72% Of which: Guarantee amount provided for shareholders, the actual controller 10,000.00 and their related parties Guarantee amount directly or indirectly provided for the guaranteed 25,250.00 objects with the ratio of liabilities to assets exceeding 70% Amount of total guarantee amount exceeding 50% of net assets 0.00 Total of the three amounts of guarantees 35,250.00 Explanation on the possibility to take several and joint liability The Company provided its subsidiaries concerning the undue guarantees with joint responsibility guarantees, while 湖北沙隆达股份有限公司 2008 年年度报告 provided Guangxi Hechi Chemical Co., Ltd. with a mutual guarantee amounting to RMB 100 million. (Ⅴ) Trusteeship, leasing and other significant contracts In the reporting period, there was no trusteeship, leasing or other significant contracts. (Ⅵ) In the reporting period, the Company, the Company’s Board of Directors and its members received no investigation, administrative punishment, or notices of criticism from CSRC, as well as no public criticism from stock exchanges. (Ⅶ) Visits and interviews received in reporting period In the reporting period, the Company received phone calls and visits from the investors with open arms and detailedly answered their questions. The reception process was in strict compliance with the Guide of Shenzhen Stock Exchange on Fair Information Disclosure for Listed Companies. The Company provided visitors with the publicly disclosed information, and objectively, factually, accurately and completely introduced to the visitors the Company’s actual production and operation status. And it leaked no significant information which was undisclosed. In the reporting period, the Company received more than 10 visitors. (Ⅷ) Fulfillment of corporate social responsibilities in report period 1. Protection of the rights and interests of the shareholders and creditors: The Company fairly treated all its shareholders and creditors, and ensured that they could fully enjoy the legitimate rights and interests prescribed by laws, regulations. 2. Protection of the rights and interests of employees: In strict compliance with the Labor Law, the Company protected the legitimate rights and interests of its employees by establishing and improving the personnel system (including the remuneration system, incentive mechanism, etc..) and ensuring that the employees enjoyed their rights to work and performed their obligations according to laws. 3. Protection of the rights and interests of suppliers, customers and consumers: The Company adopted an honest manner in dealing with the suppliers, customers and consumers. And it never gave false publicity by advertisements for profits. Nor it ever infringed the intellectual property rights (including copyrights, trademark rights, patent rights, etc.) of its suppliers and customers. 4. Environmental protection and sustainable development: The Company followed a policy of environmental protection. Meanwhile, it established a special deparment to provide human resource, material and technological support for the implementation, maintenance and improvement of the Company’s environmental protection system. 5. Public relationship and public welfare undertakings: The Company actively participated in the local social welfare activities such as environmental protection activities and activities for helping the poor and the needy, which contributed to the 湖北沙隆达股份有限公司 2008 年年度报告 local development. Meanwhile, the Company voluntarily laid its operation open to the supervision and checks from government departments and regulatory authorities, while keeping an eye on the comments from the public and the press. (Ⅸ) Equity investments Equity Change in Profit and Initial proportion the owners’ Subject for Name of the Amount Book value at loss in Source of investment in that of equity in accounting held object held period-end reporting shares amount the held reporting calculation period object period Purchase of Commercial Long-term the original Bank of 20,000,000.00 20,000,000 5.25% 8,008,982.63 240000 0.00 equity legal person Jingzhou City investment shares Total 20,000,000.00 20,000,000 - 8,008,982.63 240000 0.00 - - (Ⅹ) Other significant events in reporting period 1. Sanonda Group Corporation (the controlling shareholder of the Company, which held 118,887,202 shares of the Company, taking up 20.02% of the Company’s total shares by the period-end.) discharged its pledge of 81,720,000 restricted tradable shares of the Company held by it on 29 Jul. 2008, which were originally pledged to the Jingzhou Shashi Sub-branch of the Industrial and Commercial Bank of China. And Sanonda Group Corporation went through the relevant procedure for discharging the pledge of shares in the Shenzhen Office of China Securities Depository and Clearing Co., Ltd.. After the discharge of the pledged shares, there was no pledge or freezing on the Company’s shares held by Sanonda Group Corporation. (Ⅺ) Commitments and implementation Sanonda Group Corporation—the Company’s controlling shareholder—made commitments in the share merger reform as follows: (1) All the non-tradable shareholders of the company will abide by the laws and regulations, and perform the most basic commitments prescribed by laws. (2) Besides the most basic commitments prescribed by laws, Sanonda Group Corporation also made the special commitments as follows: ① The Company’s shares held by Sanonda Group Corporation will not be listed and traded in Shenzhen Stock Exchange within 36 months from the first trading day after the implementation of the share merger reform. And the said commitment is in execution. ② Sanonda Group would put forward the proposal on transferring the capital reserve into share capital at the rate of 10 shares for every 10 shares to all shareholders at the 2007 Annual Shareholders’ General Meeting, and would vote affirmatively. The said commitment was fulfilled on 9 Jul. 2007. 湖北沙隆达股份有限公司 2008 年年度报告 (Ⅶ) Index of information disclosed Date of Website for Event Newspapers for disclosure disclosure disclosure Public Notice on the Progress of 22 Feb. 2008 China Securities Journal, www.cninfo.com.cn Significant Events Securities Times and Ta Kung Pao Public Notice on the 11th 22 Apr. 2008 China Securities Journal, www.cninfo.com.cn Meeting of the 5th Board of Securities Times and Ta Kung Pao Directors and Relevant Information Concerning 2007 Annual Report Public Notice on the 7th Meeting 22 Apr. 2008 China Securities Journal, www.cninfo.com.cn of the 5th Supervisory Board Securities Times and Ta Kung Pao The first Quarterly Report in 25 Apr. 2008 China Securities Journal, www.cninfo.com.cn 2008 Securities Times and Ta Kung Pao Public Notice on Convening the 6 May 2008 China Securities Journal, www.cninfo.com.cn 2007 Annual Shareholders’ Securities Times and Ta Kung Pao General Meeting Public Notice on Donation to 17 May 2008 China Securities Journal, www.cninfo.com.cn Victims in Sichuan Earthquake Securities Times and Ta Kung Pao Public Notice on Resolutions 31 May 2008 China Securities Journal, www.cninfo.com.cn made at 2007 Annual Securities Times and Ta Kung Pao Shareholders’ General Meeting Public Notice on Estimated 10 Jul. 2008 China Securities Journal, www.cninfo.com.cn Business Growth in the Middle Securities Times and Ta Kung Pao of the Year Statement Concerning Special 31 Jul. 2008 China Securities Journal, www.cninfo.com.cn Rectification Campaigns Securities Times and Ta Kung Pao Public Notice on Influence on 5 Aug. 2008 China Securities Journal, www.cninfo.com.cn the Company due to the Securities Times Shareholder’s Discharge of Share Pledge and the Cancellation of Some Export Tax Refunds for Pesticide Products Public Notice on the 14th 13 Aug. 2008 China Securities Journal, www.cninfo.com.cn Meeting of the 5th Board of Securities Times and Ta Kung Pao Directors and 2008 Semi-yearly Report and its summary Public Notice on Estimated 8 Oct. 2008 China Securities Journal, www.cninfo.com.cn Business Growth in the 3rd Securities Times and Ta Kung Pao Quarter of 2008 Public Notice on the 15th 23 Oct. 2008 China Securities Journal, www.cninfo.com.cn Meeting of the 5th Board of Securities Times Directors and the 3rd Quarterly Report Public Notice on the 16th 27 Nov. 2008 China Securities Journal, www.cninfo.com.cn Meeting of the 5th Board of Securities Times Directors Public Notice on the 10th 27 Nov. 2008 China Securities Journal, www.cninfo.com.cn Meeting of the 5th Supervisory Securities Times Board 湖北沙隆达股份有限公司 2008 年年度报告 XI. Financial Report (I) Auditor’s Report TZJS Zi [2009] No. 454 TO THE SHAREHOLDERS OF HUBEI SANONDA CO., LTD. We have audited the consolidated financial statements of Hubei Sanonda Co., Ltd. (the “Company”) which comprise the Balance sheet as at 31 December 2008, and the Income statement, Statement of changes in equity and Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Accounting Standards for Business Enterprises and Accounting System for Business Enterprises of the People’s Republic of China. These responsibilities include designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Independent Audit Standards promulgated by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Audit opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the Company as at 31 December 2008 and of the profit and cash flows of the Company for the year then ended in accordance with the Accounting Standards for Business Enterprise and the Accounting System for Enterprises of the People’s Republic of China. Vocation International Certified Public Accountants Co., Ltd. CPA of China Kuang Min Beijing China CPA of China Wang Jijun 8 April 2009 湖北沙隆达股份有限公司 2008 年年度报告 (II) Financial statement Balance Sheet Prepared by Hubei Sanonda Co., Ltd. 31 Dec. 2008 Unit: RMB Yuan Consolidation Parent Company Serial number for notes Assets Parent Closing balance Opening balance Closing balance Opening balance Consolidation Company Current assets: Monetary funds 562,832,319.76 452,405,704.33 490,154,426.30 384,695,931.50 VIII. 1 Settlement fund reserve Dismantle fund Transaction financial 4,183,872.00 - 4,183,872.00 - VIII. 2 asset Notes receivable 8,620,358.99 9,219,453.30 6,982,848.99 4,086,851.80 VIII. 3 Account receivable 82,676,725.12 229,963,431.81 7,589,321.37 32,952,675.83 VIII. 4 IX. 1 Account paid in 15,918,504.32 52,965,149.82 11,598,028.21 46,688,523.44 VIII. 5 advance Premium receivables Receivables from reinsurers Reinsurance contract reserve receivables Interest receivable Dividend receivable - - - 595,619.84 Other account 15,914,988.01 25,035,288.85 117,681,311.43 117,093,598.05 VIII. 6 IX. 2 receivable Financial assets purchased under agreements to resell Inventories 346,551,634.75 301,638,198.05 233,367,834.29 167,548,483.81 VIII. 7 Non-current assets due within 1 year Other current assets Total current assets 1,036,698,402.95 1,071,227,226.16 871,557,642.59 753,661,684.27 Non-current assets: Loans and advance Available for sale financial assets Held to maturity investments Long-term account receivable Long-term equity 12,818,382.63 15,763,382.63 73,932,025.27 81,598,425.27 VIII. 8 IX. 3 investment Investing property 5,356,412.50 5,581,186.50 5,356,412.50 5,581,186.50 VIII. 9 Fixed asset 781,010,440.01 403,368,455.33 730,043,892.69 324,118,110.46 VIII. 10 Project in 37,121,583.37 78,790,543.52 31,539,313.21 75,760,032.60 VIII. 11 construction Engineering material 7,580.83 28,298.44 - - Fixed asset disposal Bearer biological asset 湖北沙隆达股份有限公司 2008 年年度报告 Oil assets Intangible assets 158,813,608.07 163,784,716.33 115,835,981.98 118,945,235.98 VIII. 12 Development expense Goodwill Long-term expense 14,273.21 105,913.25 - - to be apportioned Deferred tax assets 17,641,169.12 2,062,357.74 14,049,527.17 - VIII. 13 Other non-current assets Total of non-current 1,012,783,449.74 669,484,853.74 970,757,152.82 606,002,990.81 assets Total assets 2,049,481,852.69 1,740,712,079.90 1,842,314,795.41 1,359,664,675.08 湖北沙隆达股份有限公司 2008 年年度报告 Balance Sheet (Con.) Prepared by Hubei Sanonda Co., Ltd. 31 Dec. 2008 Unit: RMB Yuan Consolidation Parent Company Serial number for notes Liabilities and shareholders’ equity Parent Closing balance Opening balance Closing balance Opening balance Consolidation Company Current liabilities: Short-term borrowings 187,000,000.00 334,979,993.25 170,000,000.00 185,000,000.00 VIII. 15 Borrowing from Central Bank Deposits and due to banks and other financial institutions Placements from banks and other financial institutions Transaction financial liabilities Notes payable 19,040,000.00 18,700,000.00 15,000,000.00 15,000,000.00 VIII. 16 Account payable 102,784,556.06 117,249,335.53 66,963,994.66 78,354,115.32 VIII. 17 Account received in 112,330,681.17 120,143,625.78 30,364,281.48 44,679,708.83 VIII. 18 advance Financial assets sold under agreements to repurchase Handling charges and commission payable Employee’s 25,448,279.39 19,920,791.68 14,813,333.63 6,908,859.22 VIII. 19 compensation payable Tax payable 51,639,246.20 1,759,988.62 54,951,662.72 1,622,398.62 VIII. 20 Interest payable - 3,912,441.11 - - dividend payable Other account 43,139,725.39 55,938,899.17 16,757,176.12 21,982,218.83 VIII. 21 payable Due to reinsurers Insurance contract reserve Customer deposits Amount payables under security underwriting Non-current liabilities due within 1 70,000,000.00 3,650,000.00 70,000,000.00 - VIII. 22 year Other current liabilities Total current liabilities 611,382,488.21 676,255,075.14 438,850,448.61 353,547,300.82 Non-current liabilities: Long-term borrowings 297,560,000.00 90,000,000.00 297,560,000.00 90,000,000.00 VIII. 23 Debentures payable Long-term payables 9,840,000.00 9,840,000.00 9,840,000.00 9,840,000.00 VIII. 24 Specific purpose 2,761,170.00 2,761,170.00 - - VIII. 25 account payables Provisions for contingent liabilities 湖北沙隆达股份有限公司 2008 年年度报告 Deferred tax liabilities Other non-current 11,549,512.89 12,119,452.00 6,990,000.00 6,990,000.00 VIII. 26 liabilities Total non-current 321,710,682.89 114,720,622.00 314,390,000.00 106,830,000.00 liabilities Total liabilities 933,093,171.10 790,975,697.14 753,240,448.61 460,377,300.82 Owner’s equity (or shareholders’ equity) Paid-in capital (or share 593,923,220.00 593,923,220.00 593,923,220.00 593,923,220.00 VIII. 27 capital) Capital surplus 271,719,841.74 271,719,841.74 268,447,075.77 268,447,075.77 VIII. 28 Less: Treasury Stock Reserved fund 89,879,859.33 64,407,843.11 89,879,859.33 64,407,843.11 VIII. 29 General risk provision Retained earnings 143,035,950.70 -4,306,496.28 136,824,191.70 -27,490,764.62 VIII. 30 Foreign exchange difference Total owners' equity attributable to holding 1,098,558,871.77 925,744,408.57 1,089,074,346.80 899,287,374.26 company Minority interest 17,829,809.82 23,991,974.19 - - Total owner’s equity 1,116,388,681.59 949,736,382.76 1,089,074,346.80 899,287,374.26 Total liabilities and 2,049,481,852.69 1,740,712,079.90 1,842,314,795.41 1,359,664,675.08 owner’s equity Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong 湖北沙隆达股份有限公司 2008 年年度报告 Income Statement Prepared by Hubei Sanonda Co., Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Consolidation Parent Company Serial number for notes Items Parent Amount in 2008 Amount in 2007 Amount in 2008 Amount in 2007 Consolidation Company I. Total sales 2,217,343,196.68 1,648,350,997.55 1,665,775,296.38 1,147,079,409.80 Including: Sales 2,217,343,196.68 VIII. 31 IX. 4 1,648,350,997.55 1,665,775,296.38 1,147,079,409.80 Interests income Premium income Handling charges and commission income II. Total cost of sales 1,967,374,176.88 1,672,548,837.36 1,410,932,952.19 1,179,747,482.16 Including: Cost of sales 1,616,017,584.32 1,398,589,000.31 1,165,488,408.18 972,035,966.64 VIII. 31 IX. 4 Interests expenses Handling charges and commission expenses Claim expenses-net Provision for insurance liability reserve Expenses for reinsurance accepted Payments on surrenders Policyholder dividends Taxes and associate charges 6,592,083.18 2,195,493.76 4,930,428.00 1,118,882.89 VIII. 32 Selling and distribution expenses 76,879,142.01 63,374,261.95 57,375,840.22 46,352,756.12 Administrative expenses 134,259,540.02 92,691,934.69 91,991,333.55 61,386,462.09 Financial expense 46,159,860.53 41,037,649.87 37,974,702.53 31,309,216.47 VIII. 33 Impairment loss 87,465,966.82 74,660,496.78 53,172,239.71 67,544,197.95 VIII. 34 Add: gain/(loss) from change in -3,025,868.96 - -3,025,868.96 - VIII. 35 fair value (“-” means loss) Gain/(loss) from investment (“-” 14,220,208.45 81,737,835.42 29,630,885.14 87,944,863.76 VIII. 36 IX. 5 means loss) Including: income form investment on affiliated enterprise and jointly enterprise Foreign exchange difference (“-” means loss) III. Business profit (“-” means 261,163,359.29 57,539,995.61 281,447,360.37 55,276,791.40 loss) Add: non-business income 9,440,022.39 10,827,960.65 90,767.78 110,089.66 VIII. 37 Less: non-business expense 36,249,749.34 16,641,148.18 33,216,854.79 13,409,119.60 VIII. 38 Including: loss from non-current 32,039,441.84 12,260,017.68 30,315,865.36 9,447,976.17 asset disposal IV. Total profit (“-” means loss) 234,353,632.34 51,726,808.08 248,321,273.36 41,977,761.46 Less: Tax expense 65,242,864.05 7,632,435.18 58,534,300.82 1,590,074.17 VIII. 39 V. Net profit (“-” means loss) 169,110,768.29 44,094,372.90 189,786,972.54 40,387,687.29 -Attributable to parent company 172,814,463.20 40,360,723.94 189,786,972.54 40,387,687.29 -Minority interest -3,703,694.91 3,733,648.96 - - VI. Earnings per share (I) Basic earnings per share 0.2910 0.0680 (II) Diluted earnings per share 0.2910 0.0680 Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong 湖北沙隆达股份有限公司 2008 年年度报告 Cash Flow Statement Prepared by Hubei Sanonda Co., Ltd. Jan.- Dec. 2008 Unit: RMB Yuan Consolidation Parent Company Serial number for notes Items Parent Amount in 2008 Amount in 2007 Amount in 2008 Amount in 2007 Consolidation Company 1. Cash flows for operating activities: Cash received from sales of goods or rending of services 2,152,166,414.42 1,671,493,810.91 1,547,063,360.00 1,188,894,719.03 Cash received on deposits and from banks and other financial institutions Net increased cash received on borrowings from central bank Cash received on placements from other financial institutions Premium received Cash received from reinsurance Net increased amount received on policyholder deposit and investment Cash received from disposal of held for trading financial assets Interests, handling charges and commission received Cash received on placements from bank, net Cash received under repurchasing, net Refund of tax and fare received 22,937,733.69 20,394,759.73 13,776,089.55 14,603,582.69 Other cash received relating to 65,514,681.87 23,442,727.62 45,927,386.91 31,411,626.27 VIII. 40 operating activities Sub-total of cash inflows 2,240,618,829.98 1,715,331,298.26 1,606,766,836.46 1,234,909,927.99 Cash paid for goods and services 840,505,311.27 1,588,594,197.03 1,221,087,573.67 1,153,613,691.43 Loans and advances drawn Cash paid to central bank, banks and other financial institutions, net Claims paid Interests, handling charges and commission paid Dividends paid to policyholders Cash paid to and on behalf of 125,759,324.72 108,634,353.26 79,078,230.73 67,826,630.51 employees Tax and fare paid 97,645,663.50 30,466,412.48 72,163,837.48 19,977,661.12 Other cash paid relating to 75,818,297.73 83,496,381.96 22,885,242.56 58,645,083.83 VIII. 40 operating activities Sub-total of cash outflows 986,954,686.73 1,887,817,482.98 1,443,684,721.37 1,327,741,002.20 Net cash flow from operating 352,801,347.00 271,646,576.89 279,025,834.26 247,955,241.26 VIII. 41 activities 2. Cash Flows from Investment Activities: Cash received from return of 45,761,649.50 119,315,789.68 65,525,374.57 93,619,416.63 investments Cash received from investment 8,437,404.72 18,155,744.75 8,805,756.34 24,028,892.14 income Net cash received from disposal 652,918.00 458,861.00 389,943.00 94,145.00 of fixed assets, intangible assets 湖北沙隆达股份有限公司 2008 年年度报告 and other long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to investment activities Sub-total of cash inflows 54,851,972.22 137,930,395.43 74,721,073.91 117,742,453.77 Cash paid for acquiring fixed assets, intangible assets and other 431,345,763.47 83,337,017.15 423,644,284.50 82,267,245.29 long-term assets Cash paid for acquiring 44,410,619.40 87,638,860.84 44,410,619.40 53,612,666.54 investments Net cash used in loans Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to - 90,689.30 - - investment activities Sub-total of cash outflows 475,756,382.87 171,066,567.29 468,054,903.90 135,879,911.83 Net cash flow from investing -33,136,171.86 -393,333,829.99 -18,137,458.06 activities -420,904,410.65 3. Cash Flows from Financing Activities: Cash received from absorbing investment Including: Cash received from increase in minority interest Cash received from borrowings 645,560,000.00 395,000,000.00 628,560,000.00 322,000,000.00 Cash received from issuing debentures Other proceeds relating to 31,743.85 1,212,451.29 - - financing activities Sub-total of cash inflows 645,591,743.85 396,212,451.29 628,560,000.00 322,000,000.00 Cash paid for settling debt 419,600,000.00 466,280,185.30 366,000,000.00 366,000,000.00 Cash paid for distribution of dividends or profit or reimbursing 47,382,125.25 34,247,031.25 42,793,509.47 24,225,682.71 interest Including: dividends or profit paid 2,458,469.46 - - - to minority interest Other cash payments relating to 79,939.52 1,755,531.88 - - financing activities Sub-total of cash outflows 467,062,064.77 502,282,748.43 408,793,509.47 390,225,682.71 Net cash flow from financing 178,529,679.08 219,766,490.53 -68,225,682.71 activities -106,070,297.14 4. Effect of foreign exchange rate changes 5. Increase in cash and cash 110,426,615.43 132,440,107.89 105,458,494.80 161,592,100.49 equivalents Add : Cash and cash equivalents 452,405,704.33 319,965,596.44 384,695,931.50 223,103,831.01 at year-begin 6. Cash and cash equivalents at 562,832,319.76 452,405,704.33 490,154,426.30 384,695,931.50 the end of the year Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong Statement of Change in Shareholders’ Equity of Parent Company Prepared by Hubei Sanonda Co., Ltd. Year 2008 Amount in 2008 Lessen: Items Surplus public General risk Share capital Capital reserve treasury Ret reserve reserve stock I. Balance at the end of last year 593,923,220.00 268,447,075.77 57,285,245.67 -27,49 Add: Change of accounting 7,122,597.44 policy Correction of errors in previous period II. balance at the beginning of this 593,923,220.00 268,447,075.77 64,407,843.11 -27,49 year III. Increase/ decrease of amount 25,472,016.22 164,3 in this year (“-” means decrease) (I) Net profit 189,7 (II)Gain/loss listed to owners’ equity directly 1. Net amount on changes in book value of financial assets available for sale 2. Effect on changes in other owners’ equity of invested units under equity method 3. Effect on income tax related to items listed to owners’ equity 4. Others Subtotal of (I)and (II) 189,7 (III) Input an reduced capital of owners 1. Input capital of owners 2. Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 16,229,620.79 -16,22 1. Withdrawing surplus public 16,229,620.79 -16,22 reserve 2. Withdrawing general risk reserve 3. Distribution to all owners (shareholders) 4. Other (V)Internal carrying forward of 9,242,395.43 -9,242 owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others 9,242,395.43 -9,242 IV. Balance at the end of this 593,923,220.00 268,447,075.77 89,879,859.33 136,8 period Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong Statement of Change in Shareholders’ Equity of Parent Company (Con Prepared by Hubei Sanonda Co., Ltd. Year 2008 Amount in 2007 Lessen: Items Surplus public General risk Share capital Capital reserve treasury Ret reserve reserve stock I. Balance at the end of last year 296,961,610.00 566,756,587.94 57,285,245.67 -14,46 Add: Change of accounting policy -1,347,902.17 -46,28 Correction of errors in previous period II. balance at the beginning of this 296,961,610.00 565,408,685.77 57,285,245.67 -60,75 year III. Increase/ decrease of amount 296,961,610.00 -296,961,610.00 7,122,597.44 33,26 in this year (“-” means decrease) (I) Net profit 40,38 (II)Gain/loss listed to owners’ equity directly 1. Net amount on changes in book value of financial assets available for sale 2. Effect on changes in other owners’ equity of invested units under equity method 3. Effect on income tax related to items listed to owners’ equity 4. Others Subtotal of (I)and (II) 40,38 (III) Input an reduced capital of owners 1. Input capital of owners 2. Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution - - 1. Withdrawing surplus public - - reserve 2. Withdrawing general risk reserve 3. Distribution to all owners (shareholders) 4. Other (V)Internal carrying forward of 296,961,610.00 -296,961,610.00 7,122,597.44 -7,122 owners’ equity 1. New increase of capital (share 296,961,610.00 -296,961,610.00 capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others 7,122,597.44 -7,122 IV. Balance at the end of this 593,923,220.00 268,447,075.77 64,407,843.11 -27,49 period Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong Consolidated Statement of Change in Owners’ Equity Prepared by Hubei Sanonda Co., Ltd. Year 2008 Amount in 2008 Shareholders’ equity attributable to parent company Items Lessen: General Surplus public Share capital Capital reserve treasury risk Retained profits reserve stock reserve I. Balance at the end of last year 593,923,220.00 271,719,841.74 57,285,245.67 -7,943,821.74 Add: Change of accounting policy 7,122,597.44 3,637,325.46 Correction of errors in previous period II. balance at the beginning of this 593,923,220.00 64,407,843.11 -4,306,496.28 year 271,719,841.74 III. Increase/ decrease of amount in 25,472,016.22 147,342,446.98 this year (“-” means decrease) (I) Net profit 172,814,463.20 (II)Gain/loss listed to owners’ equity directly 1. Net amount on changes in book value of financial assets available for sale 2. Effect on changes in other owners’ equity of invested units under equity method 3. Effect on income tax related to items listed to owners’ equity 4. Others Subtotal of (I)and (II) 172,814,463.20 (III) Input an reduced capital of owners 1. Input capital of owners 2. Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 16,229,620.79 -16,229,620.79 1. Withdrawing surplus public 16,229,620.79 -16,229,620.79 reserve 2. Withdrawing general risk reserve 3. Distribution to all owners (shareholders) 4. Other (V)Internal carrying forward of 9,242,395.43 -9,242,395.43 owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others 9,242,395.43 -9,242,395.43 IV. Balance at the end of this period 593,923,220.00 271,719,841.74 89,879,859.33 143,035,950.70 Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong Consolidated Statement of Change in Owners’ Equity (Con.) Prepared by Hubei Sanonda Co., Ltd. Year 2008 Amount in 2007 Shareholders’ equity attributable to parent company Items Lessen: General Surplus public Share capital Capital reserve treasury risk Retained p reserve stock reserve I. Balance at the end of last year 296,961,610.00 566,756,587.94 57,285,245.67 -20,708 Add: Change of accounting policy -16,836 Correction of errors in previous period II. balance at the beginning of this 296,961,610.00 566,756,587.94 57,285,245.67 -37,544 year III. Increase/ decrease of amount in 296,961,610.00 7,122,597.44 33,238 this year (“-” means decrease) -295,036,746.20 (I) Net profit 40,360 (II)Gain/loss listed to owners’ equity 1,924,863.80 directly 1. Net amount on changes in book value of financial assets available for sale 2. Effect on changes in other owners’ equity of invested units under equity method 3. Effect on income tax related to items listed to owners’ equity 4. Others 1,924,863.80 Subtotal of (I)and (II) 1,924,863.80 40,360 (III) Input an reduced capital of owners 1. Input capital of owners 2. Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution - 1. Withdrawing surplus public reserve - 2. Withdrawing general risk reserve 3. Distribution to all owners (shareholders) 4. Other (V)Internal carrying forward of 296,961,610.00 7,122,597.44 -7,122 owners’ equity -296,961,610.00 1. New increase of capital (share 296,961,610.00 capital) from capital reserves -296,961,610.00 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others 7,122,597.44 -7,122 IV. Balance at the end of this period 593,923,220.00 271,719,841.74 64,407,843.11 -4,306 Legal representative: Li Zuorong CFO: He Xuesong Person in charge of Accounting Organ: He Xuesong 湖北沙隆达股份有限公司 2008 年年度报告 (III) Notes to Financial Statement Hubei Sanonda Co., Ltd Notes to Financial Statement as of the Year 2008 (The following amount is expressed in RMB unless otherwise special explanation) I. Company profiles The former Hubei Sanonda Co., Ltd. (hereinafter referred to "Company" or "the Company") is state operated Hubei Sha City Pesticides Factory, which was set up in 1958. In Aug. 1992, as approved by Hubei Commission for Economic System Reformation, the original enterprise was reorganized as Hubei Sanonda Co., Ltd., which turned into the first pioneer large state-operated industry enterprise in Hubei Province. On 8 Sep. 1992, on the basis of reorganization of the former enterprise, the Company was established formally. As approved by People's Government of Hubei Province and reviewed by CSRC, 30,000,000 RMB ordinary public shares ("A shares") of the Company have been issued since Oct. to 30 Nov. 1993. On 3 Dec. 1993, shares of the Company have been listed on Shenzhen Stock Exchange. As approved by Securities Committee of the State Council with "ZF(1997) No. 23", its domestically listed foreign ordinary public shares ("B shares") amounting to 100,000,000 shares have been issued at the par value of RMB 1 per share on 29 Apr. 1997 to 5 May 1997, such shares have been listed on the Shenzhen Stock Exchange on 15 May 1997, and over-allotment option of 15,000,000 shares have been exercised since 15 May to 21 May 1997. The proposal on transferring capital reserve into share capital has been examined and approved at the Shareholders' General Meeting 2006 held in May 2007, which transferred capital reserve into share capital at the rate of 10 for 10, and has been implemented in July 2007. After transferring, the total share capital was RMB 593,920,000. The addresses of the registered office and principal place of business of the Company are No. 93, Beijing East Road, Jingzhou, Hubei. Legal representative is Li Zuorong. Share abbreviations are Sanonda A and Sanonda B with stock code of 000530 and 200530 respectively. Parent company of the Company is Sanonda Group Corporation, as well as ChemChina Agrochemical Corporation as final parent company. Main pesticide products include orthene, paraquate, glyphosate, trichlorphon, DDVP, omethoate, triazophos, imidacloprid and carbofuran. Main chemical products include spermine, liquid caustic soda, liquefied chlorine gas and hydrochloric acid. The Company has self-operated import & export right. The Company has passed ISO9002 Quality System Certification and ISO14001 Environment Management System Certification. 湖北沙隆达股份有限公司 2008 年年度报告 II. Statement for complying with the accounting standard for business enterprise The financial statements of the Company are prepared based on the following preparation basis, which are in compliance with the requirements of the accounting standard for business enterprise and reflect the Company’s financial status, operating results and cash flows in true and complete. III. Preparation basis of financial statement With sustaining operation as a postulate premise, the Company prepared the financial statement in accordance with the below-mentioned important accounting policies and accounting estimate and actual transaction events, as well as the provisions related to accounting standard for enterprise business promulgated by the Ministry of Finance on 15 Feb. 2006 and Application Guidelines. IV. Major accounting policies and accounting estimates 1. Fiscal period The Company’s fiscal year is from Jan. 1 to Dec. 31 the Gregorian calendar. 2. Bookkeeping base currency The Company adopts Renminbi as a bookkeeping base currency. 3. Financial statement items that measurement attributes changed and measurement attributes adopted in the reporting period Measurement attributes adopted by the Company shall include historical cost, replacement cost, net realizable value, present value and fair value. The Company shall make accounting recognition, measurement and report by adopting accrual basis. Historical cost shall be used for measurement of financial statement items except that such items as tradable financial assets, financial assets available for sales, business merger not under the same control, nonmonetary assets exchange with commercial purpose, debts reorganization, nonmonetary assets invested by investors shall be measured by adopting fair value. 4. Recognition standard for cash equivalents In cash flow statement, cash defines cash on hand and any deposit that can be used for cover, while cash equivalents are short-term (usually due within 3 months since the day of purchase) and high circulating investments, which are easily convertible into known amount of cash and whose risks in change of value are minimal. 5. Accounting methods for foreign currency (1) As for a foreign currency transaction, the Company shall convert the amount in a foreign currency into amount in its bookkeeping base currency at the middle price of market exchange rate published by the People’s Bank of China on the day the transaction is occurred. Of which, as for such transactions as foreign exchange or involving in 湖北沙隆达股份有限公司 2008 年年度报告 foreign exchange, the Company shall converted into amount in the bookkeeping base currency at actual exchange rate the transaction is occurred. (2) The Company shall, on the balance sheet date, converted the account balance of foreign currency monetary assets and liabilities into amount in its bookkeeping base currency at the middle price of market exchange rate published by the People’s Bank of China on the balance sheet date. The balance arising from the difference between amount in the bookkeeping base currency converted at exchange rate on the balance sheet date and amount in the original bookkeeping base currency shall be recorded into the exchange gains and losses. Of which, the exchange gains and losses arising from foreign currency loans related to acquisition of fixed assets shall be treated at the principle of capitalization of borrowing costs, other balance of exchange shall be measured into the financial expense of the current period. (3) The Company shall, on the balance sheet date, convert the foreign currency nonmonetary items measured at the historical cost into amount in its bookkeeping base currency at the middle price of market exchange rate published by the People’s Bank of China on the day the transaction is occurred, not changing its original bookkeeping base currency. Where the foreign nonmonetary items measured at the fair value shall be converted into amount in its bookkeeping base currency at the middle price of market exchange rate published by the People’s Bank of China on the day the fair value is recognized, the exchange gains and losses arising therefrom shall be recorded into the current period gains and losses as gains and losses on change in fair value. 6. Financial assets and financial liabilities (1) Classification of Financial assets and financial liabilities Financial assets shall be classified into the following four categories when they are initially recognized: (a) the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and the financial assets which are measured at their fair values and of which the variation is included in the current profits and losses; (b) the investments which will be held to their maturity; (c) loans and the account receivables; and (d)financial assets available for sale. Financial liabilities shall be classified into the following two categories when they are initially recognized:(a) the financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, including transactional financial liabilities and the designated financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; and (b) other financial liabilities. (2) Recognition of financial assets and financial liabilities and measurement methods When the Company becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. The financial assets and financial liabilities initially recognized by the Company shall be measured at their fair values. For the financial assets 湖北沙隆达股份有限公司 2008 年年度报告 and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, the transaction expenses thereof shall be directly recorded into the profits and losses of the current period; for other categories of financial assets and financial liabilities, the transaction expenses thereof shall be included into the initially recognized amount. The Company shall make subsequent measurement on its financial assets according to their fair values, and may not deduct the transaction expenses that may occur when it disposes of the said financial asset in the future. However, those under the following circumstances shall be excluded: (a) The investments held until their maturity, loans and accounts receivable shall be measured on the basis of the post-amortization costs by adopting the actual interest rate method; (b) The equity instrument investments for which there is no quotation in the active market and whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured on the basis of their costs. The Company shall make subsequent measurement on its financial liabilities on the basis of the post-amortization costs by adopting the actual interest rate method, with the exception of those under the following circumstances: (a) For the financial liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, they shall be measured at their fair values, and none of the transaction expenses may be deducted, which may occur when the financial liabilities are settled in the future; (b) For the derivative financial liabilities, which are connected to the equity instrument for which there is no quotation in the active market and whose fair value cannot be reliably measured, and which must be settled by delivering the equity instrument, they shall be measured on the basis of their costs; (c) For the financial guarantee contracts which are not designated as a financial liability measured at its fair value and the variation thereof is recorded into the profits and losses of the current period, and for the commitments to grant loans which are not designated to be measured at the fair value and of which the variation is recorded into the profits and losses of the current period and which will enjoy an interest rate lower than that of the market, a subsequent measurement shall be made after they are initially recognized according to the higher one of the following: i. the amount as determined according to the best estimate of the necessary expenses for the performance of the current obligation.; or ii. the surplus after accumulative amortization as determined according to the effective interest method is subtracted from the initially recognized amount. (3) Recognition of transfer of financial assets Where the Company has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee, it shall stop recognizing the financial asset. If it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall continue to recognize transferred financial assets, and the consideration received shall be recognized as a financial liabilities. Where the Company does not transfer or retain nearly all of the risks and rewards related to the ownership of a 湖北沙隆达股份有限公司 2008 年年度报告 financial asset, it shall deal with it according to the circumstances as follows, respectively: (a) If it gives up its control over the financial asset, it shall stop recognizing the financial asset; (b) If it does not give up its control over the financial asset, it shall, according to the extent of its continuous involvement in the transferred financial asset, recognize the related financial asset and recognize the relevant liability accordingly. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following two items shall be recorded in the profits and losses of the current period: (a)The book value of the transferred financial asset; (b) The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the entire book value of the transferred financial asset shall, between the portion whose recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative fair value, and the difference between the amounts of the following two items shall be included into the profits and losses of the current period: (a) The book value of the portion whose recognition has been stopped; (b) The sum of consideration of the portion whose recognition has been stopped, and the portion of the accumulative amount of the changes in the fair value originally recorded in the owner's equities which are corresponding to the portion whose recognition has been stopped. (4) Determination of the fair value of main financial assets and financial liabilities As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques (including the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc.) to determine its fair value. As for the financial assets initially obtained or produced at source and the financial liabilities assumed, the fair value thereof shall be determined on the basis of the transaction price of the market. (5) Impairment test of financial assets and withdrawal method of impairment provision The Company shall carry out an impairment test, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and 湖北沙隆达股份有限公司 2008 年年度报告 of which the variation is recorded into the profits and losses of the current period. An impairment test shall be made on the financial assets with significant single amounts. With regard to the financial assets with insignificant single amounts, an independent impairment test may be included in a combination of financial assets with similar credit risk features so as to carry out an impairment-related test. Where, upon independent test, the financial asset (including those financial assets with significant single amounts and those with insignificant amounts) has not been impaired, it shall be included in a combination of financial assets with similar risk features so as to conduct another impairment test. As for a financial asset measured on the basis of post-amortization costs, where there is any objective evidence proving that such financial asset has been impaired, a loss on impairment shall be made in the light of the balance between the book value and the current value of the predicted future cash flow. Where there is a very small gap between the predicted future cash flow of a short-term account receivable item and the current value thereof, the predicted future cash flow is not required to be capitalized when determining the relevant impairment-related losses. Where an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or a derivative financial asset which is connected with the equity instrument and which must be settled by delivering the equity instrument, suffers from any impairment, the gap between the carrying amount of the equity instrument investment or the derivative financial asset and the current value of the future cash flow of similar financial assets capitalized according to the returns ratio of the market at the same time shall be recognized as impairment-related losses. Where the fair value of financial assets available for sales has decrease by a big margin and the expected downward trend belongs to non-transient, the losses on impairment shall be recognized, and the accumulative losses on the fair value of the owner’s equity which was directly included shall be transferred out and recorded into the impairment-related losses. 7. Measurement of bad debts for accounts receivable (1) Recognition of bad debts: the accounts receivable can not be recalled in line with the legal liquidation procedure because debtor has a great bankruptcy and insolvency; or the accounts receivable indeed can not be recalled because debtor is cancelled without leaving any property or there is no person to undertake the obligation; or accounts receivable can not be recalled where the debtor failed to perform obligation overdue and there are conclusive evidences which make it clear hat the accounts receivable can not be recalled. (2) Allowance method shall be adopted by the company in the computation of the bad debts. (3) Withdrawal method of provision for bad debt and proportion: An independent impairment test shall be carried out on the accounts receivable with significant single amounts (the balance over RMB 5 million), and the losses on impairment shall be made on the basis of the balance between the current values of the predicted future cash flow lower than book value so as to withdraw provision for bad debts. The financial assets 湖北沙隆达股份有限公司 2008 年年度报告 with insignificant single amounts shall be divided into several combinations in the light of aging, and then the losses on impairment shall be made on the basis of a certain proportion of ending balance of accounts receivable combination so as to withdraw provision for bad debts. The Company shall withdraw the provision for bad debts at a proportion of 5% of ending balance of accounts receivable for every aging and 100% of accounts receivable for aging with 5 years or over. Where there are conclusive evidences which make it clear hat the accounts receivable can not be recalled, the Company shall, in accordance with administration authority, make a loss on bad debts after approval of the Shareholders’ General Meeting or the Board of Directors, so as to write off the provision for bad debts withdrawn. 8. Measurement of inventories (1) The inventories of the Company include raw materials, goods in process, merchandise on hand, consigned processing materials, goods in transit, packaging materials, low value consumables, etc. (2) The inventories shall be initially measured in light of their cost. On the date of balance sheet, the inventories shall be measured whichever is lower in accordance with the cost and the net realizable value. (3) Physical inventory at fixed periods shall be taken under perpetual inventory system. (4) A bulk chemicals raw materials, good in process and finished products shall be priced at actual cost, while cost of sending out inventories shall be carried forward at the weighted average method. Auxiliary material and packaging materials shall be priced at actual cost and be measured by adopting planned cost; the difference between the actual cost and planned cost shall be recorded into materials cost variance when measurement, which materials cost variance allocable thereto shall be calculated based on materials cost difference rate at the end of month, and the planned cost of sending out materials shall be adjusted as actual cost. Low value consumables shall be recoded at actual cost and be amortized by employing the one-off write-off method when claiming. (5) On the date of balance sheet, the inventories shall be measured whichever is lower in accordance with the cost and the net realizable value. If the cost of inventories is higher than the net realizable value, the provision for the loss on decline in value of inventories shall be made and be included in the current profits and losses. If the factors causing any write-down of the inventories have disappeared, the amount of write-down shall be resumed and be reversed from the provision for the loss on decline in value of inventories that has been made. The reverse amount shall be included in the current profits and losses. The net realizable value refers to in the daily business activity the amount after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. 9. Measurement of investment real estates Investment real estates of the Company include the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. 湖北沙隆达股份有限公司 2008 年年度报告 Investment real estates shall be recognized when it meets the following requirements simultaneously: (a) the Company can get rental income related to the investment real estates or incremental return, and (b) the cost of the investment real estates can be reliably measured. The initial measurement shall be made at its actual cost when purchase or building. The Company shall make a follow-up measurement to the investment real estates by employing the cost pattern on the date of the balance sheet. An accrual depreciation or amortization shall be made for the investment real estates in the light of the accounting policies of fixed assets and intangible assets. When the company has well –established evidence to indicate that the purpose of the real estate has changed, such as begins to be used for its own, it shall convert the investment real estate to other assets or vise versa. Measurement of impairment provision for investment real estates: on the balance sheet data, the Company shall make inspection to the investment real estates item by item; where there is any sign of impairment of the investment real estates, the recoverable amount shall be estimated in the light of the individual investment real estate item; with regard to the balance between recoverable amount lower than its book value, its provision for impairment of the investment real estate shall be withdrawn. The provision for impairment of the investment real estate shall be recognized on the basis of the balance between the book value of individual investment real estate item higher than its recoverable amount. Once any impairment provision of the investment real estate is recognized, it shall not be switched back in the future accounting periods. 10. Measurement of Fixed assets (1) The term "fixed assets" refers to the tangible assets that simultaneously possess the features as follows: (a) They are held for the sake of producing commodities, rendering labor service, renting or business management; and (b) Their useful life is in excess of one fiscal year. No fixed asset may be recognized unless it simultaneously meets the conditions as follows: (a) The economic benefits pertinent to the fixed asset are likely to flow into the enterprise; and (b) The cost of the fixed asset can be measured reliably. The initial measurement of a fixed asset shall be made at its cost. (2) Depreciation of fixed assets: The Company shall make depreciation for all its fixed assets. However, the fixed assets that have been fully depreciated but are still in use and the land that is separately measured and included shall be excluded. The term "depreciable amount" refers to the amount of deducting its expected net salvage value from the original price of the fixed asset to be depreciated. For a fixed asset, the provision for depreciation has been made, it shall deduct the accumulative amount of the provision for impairment of the depreciated fixed asset that has been already made shall be deducted. The "expected net salvage value" refers to the expected amount that an enterprise may obtain from the current disposal of a fixed asset after deducting the 湖北沙隆达股份有限公司 2008 年年度报告 expected disposal expenses at the expiration of its expected useful life. Depreciation of fixed assets shall be made by adopting the straight-line method. categories, expected useful life, expected residual ratio and yearly depreciation: Expected Categories Depreciation life yearly depreciation residual ratio House & buildings 24 years 4.00% 4% Special equipment 9 years 10.89% 2% General-purpose equipment 18 years 5.33% 4% Transportation vehicles 9 years 10.89% 2% Productive fixed assets has a large amount under the production environment with a certain chemical corrosion, as a result, the residual value is the smaller. (3) Measurement of provision for fixed asset impairment: on the balance sheet data, the Company shall make inspection to the fixed assets item by item; where there is any sign of impairment of the fixed assets, the recoverable amount shall be estimated in the light of the individual fixed assets item; with regard to the balance between recoverable amount lower than its book value, its provision for the fixed assets impairment shall be withdrawn. The provision for fixed assets impairment shall be recognized on the basis of the balance between the book value of individual fixed assets item higher than its recoverable amount. Once any impairment provision of the fixed assets is recognized, it shall not be switched back in the future accounting periods. 11. Measurement of construction in progress (1) Construction in progress of the Company includes self-operating project and construction contracted. (2) Initial measurement of the construction in progress: Cost of the construction in progress shall be recognized at its actual expenses incurred. Where interest on borrowing related to the construction in progress occurred before the fixed assets reached estimated usable status, it shall be capitalized. (3) Time point of construction in progress being carried forward as fixed assets shall be recognized at the time point that the construction reaches estimated usable status. 3. Measurement of provision for impairment of construction in progress: on the balance sheet data, the Company shall make inspection to the construction in progress item by item; where there is any sign of impairment of the construction in progress, the recoverable amount shall be estimated; with regard to the balance between recoverable amount lower than its book value, its provision for the construction in progress impairment shall be withdrawn. The provision for impairment of construction in progress shall be recognized on the basis of the balance between the book value of individual construction in progress item higher than its recoverable amount. Once any impairment provision of the construction in progress is recognized, it shall not be switched back in the future accounting periods. 湖北沙隆达股份有限公司 2008 年年度报告 12. Confirmation and measurement of intangible assets (1) Initial Measurement of intangible assets The intangible assets are initially measured according to its actual cost when acquired. (2) Classification criteria for research expenditures and development expenditures of the Company’s internal research and development projects The expenditures for the Company’s internal research and development projects are classified into research expenditures and development expenditures for separate handling. The research expenditures refer to the Company’s expenses for the creative and planned investigations to acquire and understand new scientific or technological knowledge. The Company’s research expenditures for its internal research and development projects are recorded into the profit or loss for the current period. The development expenditures refer to the Company’s expenses for the application of research achievement and other knowledge to a certain plan or design, prior to the commercial production or use, so as to produce any new material, device or product, or substantially improved material, device and product. And the development expenditures are confirmed as intangible assets when they satisfied the following conditions simultaneously: 1) It is technically feasible to finish the intangible assets for use or sale; 2) It is intended to finish and use or sell the intangible assets; 3) The usefulness of methods for intangible assets to generate economic benefits is proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or that there is a potential market for the intangible assets itself or that the intangible assets will be used internally; 4) It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; and 5) The development expenditures of the intangible assets can be reliably measured. Any other expenditure that the Company can not identify their belonging to research expenditures or development expenditures are recorded as management expenditures into the profit or loss for the current period. (3) Subsequent measurement of intangible assets ① Estimate of the service life of intangible assets As for the intangible assets that are possessed or controlled by the Company and that are derived from any contractual right or other statutory rights, their service lives do not exceed the term of the contractual right or other statutory rights; Where the contractual right or other statutory rights continue due to their renewal after expiration and it is proved that the Company does not need to pay a high cost for the renewal, the renewed period is included in the service life of the intangible assets; where the service lives of the intangible assets are not stipulated in contracts or by law, they are determined by the Company’s previous experience or professional opinions from relevant experts. After 湖北沙隆达股份有限公司 2008 年年度报告 adoption of the aforesaid methods, if it is still unable to forecast the period when the intangible asset can bring economic benefits to the Company, it is regarded by the Company as an intangible assets with uncertain service life. ② Check on the service life of intangible assets The Company checks the service life of intangible assets on the balance sheet date. Where there are evidences to prove that the service life of an intangible asset is different from before, the service life of the intangible asset will be changed and treated according to accounting estimate; where there are evidences to prove that the intangible assets with uncertain service life have limited service lives, they will be estimated of their service lives, and be treated according to the handling principles for intangible assets with uncertain service life. ③ Amortization of intangible assets with limited service lives The Company’s intangible assets with limited service lives are amortized on a straight-line basis within their expected service lives beginning from the month of their acquisition. ④ Subsequent measurement of intangible assets with uncertain service lives Based on the relevant information available, if the service life of an intangible asset can not be reasonably estimated, the Company recognizes the intangible asset as an intangible asset with an uncertain service life. The intangible assets with uncertain service lives will not be amortized during the holding period, but the Company will conduct testing in every accounting period for the devaluation of intangible assets with uncertain service lives. (4) Withdrawal method of reserve for intangible assets impairment At the period-end, the Company checks its intangible assets item by item. Where there is a sign of asset impairment, the Company estimates the recoverable amount according to the single intangible asset. Where the recoverable amount of the asset is less than its book value, the book value is written down as the recoverable amount. The written-down amount is recognized as assets impairment loss, and the corresponding impairment reserve is withdrawn. Upon the recognition of the reserve for intangible assets impairment, it is not to be reversed in the following accounting periods. 13. Long-term Equity Investments Recognition and Measurement (1) The initial measurement of long-term equity investment: the initial cost of the long-term equity investment, which is acquired by different means, shall be ascertained in the following ways: ○1 As for the long-term equity investment acquired by merger of enterprises under the same control, the share of the book value of the owner’s equity of the merged enterprise, on the date of merger, is regarded as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne 湖北沙隆达股份有限公司 2008 年年度报告 by the merging party, or the total face value of marketable securities issued shall be accounted into capital reserve; If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. ○2 As for the long-term equity investment acquired by the merger under different control, the merger costs ascertained is regarded as the initial cost of the long-term equity investment. If the merger cost is larger than the fair value difference of the purchased party’s net identifiable assets, it will be recorded as goodwill in the consolidated financial statement; if the merger cost is smaller than the fair value difference of the purchased party’s net identifiable assets, it will be accounted into current profits and losses. ○3 Beside the aforesaid long-term equity investment acquired by enterprises merger, with regard to the long-term investment acquired by payment in cash, non-monetary assets paid, or marketable securities issued, its fair value shall be regarded as the initial cost of the long-term equity investment; the initial cost of a long-term equity investment obtained by debt rephrasing will be the fair value of shares owned after debt-for-equity swap; as for long-term equity investment invested by investors, the valued ascertained in the investment contract or agreement shall be regarded as the initial cost, but if the value ascertained in the investment contract or agreement was not fair, the fair value of investment equity would be regarded as the initial cost. The cash profit included in the actual payment or consideration, which has been announced yet not drew, shall be independently calculated as account receivables. (2) Subsequent Measurement of Long-term Equity Investments: for a long-term equity investment for which there is no offer in the active market and of which the fair value cannot be reliably measured, if the Company has not joint control or significant influence over the subsidiaries or the invested entities, the cost method shall be employed in the measurement; if the Company has joint control or significant influence over the invested entities, the equity method shall be employed. The term “joint control” refers to the control over an economic activity in accordance with the contracts and agreements. Following situations shall be considered to decide whether it is joint control: ○1 No cooperative party can singly control the production and operation activities of the joint venture. ○2 Decisions involving basic business activities of the joint venture require consensus among the cooperative parties. ○3 The cooperative parties can appoint one cooperative party by contract or agreement to conduct management over daily operation of the joint venture, but the appointed cooperative party shall exercise its administrative power within the scope of finance and business policy, which has been agreed by all cooperative parties. The term “significant influences” refers to the power to participate in making decisions on the financial and operating policies of the invested entities, but not to control or do 湖北沙隆达股份有限公司 2008 年年度报告 joint control together with other parties over the formulation of these policies. As for the Company, holding directly or indirectly through subsidiaries more than 20% but less than 50% voting shares is regarded as having significant influence over the invested entities, except for the situations where there is specific evidence proving it can not participate the decision making in operation and production of the invested entities, and thus cannot exert significant influence. It’s generally considered by the Company that those entities which hold less than 20% voting shares of the invested entities have no significant influence over the invested entities except for the following situations: ○1 Having representative(s) in the Board of Directors or other similar authority of the invested entities. ○2 Participating in the process of formulating policies in the invested entities, including the formulation of dividend distribution policy etc. 3 Having important transactions with the invested entities. ○ 4 Dispatching management personnel to the invested entities. ○ 5 Providing key technology materials to the invested entities. ○ (3) Impairment for long-term equity investment: if there are signals for impairment, withdrawal in single items shall be conducted based on the difference between the receivable amount and the book value, so as to ascertain impairment losses. Once ascertained, the impairment for long-term equity investment will not be returned in the coming accounting period. 14. Recognition and Measurement of Borrowing Cost (1) The Range of Borrowing Costs The Company’s borrowing costs include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance incurred by foreign currency borrowings etc.. (2) The Ascertain Principle of Borrowing Costs Where the borrowing costs incurred to the Company can be directly attributable to the construction or production of assets eligible for capitalization, it shall be capitalized and recorded into the costs of relevant assets. Other borrowing costs shall be recognized as expenses on the basis of the actual amount incurred, and shall be recorded into the current profits and losses. (3) The Ascertain of Capitalization Period of Borrowing Costs 1 The Ascertain of Beginning Capitalization ○ If the asset disbursements or the borrowing costs have already incurred, and the construction or production activities which are necessary to prepare the asset for its intended use or sale have already started, the capitalization of borrowing costs begins. 湖北沙隆达股份有限公司 2008 年年度报告 2 The Ascertain of Suspending Capitalization ○ Where the construction or production of asset eligible for capitalization is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs incurred during such period shall be recognized as expenses, and shall be recorded into the profits and losses of the current period, till the construction or production of the asset restarts. If the interruption is a necessary step for making the qualified asset under acquisition and construction or production ready for the intended use or sale, the capitalization of the borrowing costs shall continue. 3 The Ascertain of Ceasing Capitalization ○ When the asset eligible for capitalization under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. The borrowing costs incurred after the asset eligible for capitalization under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses at the incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. (4) The Ascertain of the To-Be-Capitalized Amount of Borrowing Costs 1 The Ascertain of the To-Be-Capitalized Amount of Borrowing Interests ○ During the period of capitalization, the to-be-capitalized amount of interests (including the amortization of discounts or premiums) in each accounting period shall be determined according to the following provisions: A: As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. B: Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the Company shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. C: Where there is any discount or premium, the amount of discounts or premiums that shall be amortized during each accounting period shall be determined by the real interest rate method, and an adjustment shall be made to the amount of interests in each period. D: During the period of capitalization, the amount of interest capitalized during each accounting period shall not exceed the amount of interest actually incurred by the relevant borrowings in the current period. 湖北沙隆达股份有限公司 2008 年年度报告 2 The Ascertain of the To-Be-Capitalized Amount of Ancillary Expense ○ A: For the ancillary expense incurred to a specifically borrowed loan, those incurred before a qualified asset under acquisition , construction or production is ready for the intended use or sale shall be capitalized at the incurred amount when they are incurred, and shall be recorded into the costs of the asset eligible for capitalization; those incurred after a qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses on the basis of the incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. B: The ancillary expenses arising from a general borrowing shall be recognized as expenses at their incurred amount when they are incurred, and shall be recorded into the profits and losses of the current period. 3 The Ascertain of the To-Be-Capitalized Amount of Exchange Balance ○ During the period of capitalization, the exchange balance on foreign currency borrowings shall be capitalized and shall be recorded into the cost of assets eligible for capitalization. 15. Recognition and measurement of employee compensation (1) The employee compensation includes: wages, bonuses, allowances and subsidies for the employees; welfare benefits for the employees; endowment insurance, medical insurance, unemployment insurance, work injury insurance, maternity insurance and other social insurances; housing accumulation fund; labor union expenditure and employee education expenses; non-monetary welfare; compensations for the cancellation of the labor relationship with the employees; and other relevant expenditures of services offered by the employees. (2) During the accounting period of an employee’s providing services to the Company, the employee compensation payable is recognized as liabilities. Except for the compensations for the cancellation of the labor relationship with the employee, the employee compensations are recorded, according to the beneficiaries of the services offered by the employee, respectively as costs of fixed assets, costs of intangible assets, product costs and service costs. Other employee compensations are directly included in the profit or loss for the current period. 16. Recognition and measurement of government subsidy The government subsidies pertinent to incomes are treated respectively in accordance with the circumstances as follows: 1) Those subsidies used for compensating the related future expenses or losses of the Company are recognized as deferred income and are included in the current profits and losses during the period when the relevant expenses are recognized; or 2) Those subsidies used for compensating the related expenses or losses incurred to the Company are directly included in the current profits and losses. The government subsidies pertinent to assets are recognized as deferred income, equally 湖北沙隆达股份有限公司 2008 年年度报告 distributed within the useful lives of the relevant assets, and included in the current profits and losses. But the government subsidies measured at their nominal amount are directly included in the current profits and losses. 17. Recognition and measurement of projected liabilities (1) The obligation pertinent to a contingency is recognized as projected liabilities when the following conditions are satisfied simultaneously: ① That obligation is a current obligation of the Company; ② It is likely to cause any economic benefit to flow out of the Company as a result of performance of the obligation; and ③ The amount of the obligation can be measured in a reliable way. (2) Projected liabilities are initially measured in accordance with the best estimate of the necessary expenses for the performance of the relevant current obligation. If there is a sequent range for the necessary expenses and if all the outcomes within this range are equally likely to occur, the best estimate is determined in accordance with the middle estimate within the range. In other cases, the best estimate is conducted in accordance with the following situations, respectively: ① if the contingencies concern one single item, it is determined in the light of the most likely outcome. ② if the contingencies concern two or more items, the best estimate is calculated and determined in accordance with all possible outcomes and the relevant probabilities. 18. Recognition and measurement of revenues (1) Recognition standards for revenues from selling goods Revenues from selling goods are recognized when the following conditions are met simultaneously: 1) the significant risks and rewards of ownership of the goods have been transferred to the buyer by the Company; 2) the Company retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; 3) the relevant amount of revenues can be measured in a reliable way; 4) the relevant economic benefits may flow into the Company; and 5) the relevant costs incurred or to be incurred can be measured in a reliable way. (2) Recognition standards of revenues from providing labor services ① Recognition standards of revenues from providing labor services on the condition that the Company can reliably estimate the outcome of a transaction concerning the labor services it provides If the Company can, on the date of the balance sheet, reliably estimate the outcome of a transaction concerning the labor services it provides, it recognizes the revenues from 湖北沙隆达股份有限公司 2008 年年度报告 providing services employing the percentage-of-completion method. And the outcome of a transaction concerning the providing of labor services can be measured in a reliable way when the following conditions are met simultaneously: 1) the amount of revenues can be measured in a reliable way; 2) the relevant economic benefits are likely to flow into the Company; 3) the schedule of completion under the transaction can be confirmed in a reliable way; and 4) the costs incurred or to be incurred in the transaction can be measured in a reliable way. ② Recognition standards of revenues from providing labor services on the condition that the Company can not reliably estimate the outcome of a transaction concerning the labor services it provides If the Company can not, on the date of the balance sheet, measure the result of a transaction concerning the providing of labor services in a reliable way, it is to be conducted in accordance with the following circumstances, respectively: A. If the cost of labor services incurred is expected to be fully compensated, the revenues from providing labor services are recognized in accordance with the amount received or expected to be received, and the cost of labor services incurred is carried forward; B. If the cost of labor services incurred is expected to be partially compensated, the revenues from providing labor services are recognized in accordance with the compensated amount, and the cost of labor services incurred is carried forward; C. If the cost of labor services incurred is expected to be fully uncompensated, the cost incurred is included in the current profits and losses, and no revenue from the providing of labor services may be recognized. ③ Method of determining the stage of completion when employing the percentage-of-completion method The stage of completion is determined according to the proportion of the costs incurred against the estimated total costs. 19. Recognition and measurement of income tax The Company adopts the balance sheet approach in its income tax accounting. Where there is any deductible temporary difference between the book value of assets and liabilities and the tax base, the Company recognizes the deferred income tax assets arising from the deductible temporary difference, to the extent of the amount of the taxable income which it is most likely to obtain and which can be deducted from the deductible temporary difference. Where there is any taxable temporary difference between the book value of assets and liabilities and the tax base, the Company recognizes the deferred income tax liabilities arising from the taxable temporary difference. At the end of the period, the book value of deferred income tax assets is reexamined. If it is unlikely to obtain sufficient taxable income to offset the benefit of the deferred income 湖北沙隆达股份有限公司 2008 年年度报告 tax assets, the book value of the deferred income tax assets shall be written down. When it is probable to obtain sufficient taxable income, such written-down amount shall be subsequently reversed. V. Business merger and consolidated financial statement (I) Business merger There is no need to disclose the financial information related to the business merger. (II) Consolidated financial statement 1. Recognition principle of consolidation scope The consolidation scope of consolidated financial statements shall be determined on the basis of control. The term “control” refers to the power of the Company to govern the financial and operating policies of investee entity so as to obtain benefits from its business activities. To determine whether or not it is able to control the investee entity, one shall take into account the investee entity’s current convertible corporate bonds and current executable warrants held by the Company, as well as other potential factors relating to the voting rights. Where the Company holds half or more of the capital with voting rights of an investee entity, or holds less than 50% of the capital with voting rights of an invetee entity but owns the actual control right, such investee entities included in the consolidation scope of consolidated financial statements. 2. Preparation of consolidated financial statement In accordance with the provision stipulated in Accounting Standard for Business Enterprise No. 33 – Consolidated Financial Statements, the consolidated financial statements shall, on the basis of the financial statements of the parent company and its subsidiaries included in the consolidation scope and other relevant information, be prepared by the parent company after the long term equity investments in the subsidiaries are adjusted through the equity method, and after equity capital investment of parent company and quota held by parent company in owner’s equity of subsidiaries, internal significant transactions and internal current within the Company are offset. 3. Minority interests of important subsidiaries Name of subsidiaries Minority interest as at 31 Dec. 2008 Sanonda Zhengzhou Pesticide Co., Ltd. 6,290,459.28 Hubei Sanonda Foreign Trading Co., Ltd. 2,706,976.14 Hubei Sanonda Tianmen Agrochemical Co., Ltd. 232,098.56 Jingzhou Sanonda Aifusi Chemical Industry Co., Ltd. 5,275,122.31 Jingzhou Longhua Petrochemicals Co., Ltd. 3,325,153.53 Total 17,829,809.82 4. Subsidiaries of the Company 湖北沙隆达股份有限公司 2008 年年度报告 Proportion Proportion of Registered Actual of shares voting rights Name of subsidiaries Registration place Business Nature capital investment held by the enjoyed by the Company Company Production of chemical Sanonda Zhengzhou Pesticide Co., 57 Chengdong South products and such 40,000,000 38,558,619.32 70.00% 70.00% Ltd. Road, Zhengzhou pesticide as omethoate and sodium hydrate Sanonda (Jingzhou) Pesticide & 10 Xihuan Road, Production of pesticide 28,000,000 24,500,000.00 87.50% 87.50% Chemical Co., Ltd. Jingzhou District and intermediate Hubei Fengyuan Chemical Co., T1, Linjiang Road, Production of fine 40,000,000 22,000,000.00 55.00% 55.00% Ltd. Shashi District chemicals products Import and export of Hubei Sanonda Foreign Trading 1 Beijing East Road, pesticide and 10,000,000 9,000,000.00 90.00% 90.00% Co., Ltd. Jingzhou intermediate Hubei Sanonda Tianmen 179 Gudu Av., Zaoshi, Production and sale of 8,000,000 7,245,023.32 100.00% 100.00% Agrochemical Co., Ltd. Tianmen pesticide Jingzhou Longhua Petrochemicals 95 Beijing East Road, Production and sale of 5,000,000 3,250,000.00 65.00% 65.00% Co., Ltd. Jingzhou chemical products R&D, development, Jingzhou Sanonda Aifusi Chemical 93 Beijing East Road, production and sale of 6,000,000 3,060,000.00 51.00% 51.00% Industry Co., Ltd. Jingzhou fine chemical products Note: Hubei Fengyuan Chemical Co., Ltd., a subsidiary company of the Company, failed to be included in the consolidation scope because of its termination of production and insolvency, as well as book value of long-term equity investment by the Company being zero, which has little effect to the consolidated financial statement of the Company. Additionally, the said subsidiary company held the Shareholders’ General Meeting on 23 Feb. 2009, which it shall be given liquidation and dissolution. The relevant procedure is under handle. 5. Original subsidiaries that no longer be included in the consolidation scope of the Company Proportion Reason why this company is Registration Registered Business Proportion of No. Name of no longer included in the place capital nature voting right shareholding consolidation scope Finance and Jinzhou Sanonda 1 Beijing East investment 1 Finance Consulting Road, Shashi 5000000 90% 90% Completion of liquidation consultation Co., Ltd. District, Jingzhou and service 6. Subsidiaries that have been disposed 湖北沙隆达股份有限公司 2008 年年度报告 Year-begin to 2007 Disposal day disposal day No. Name Total Total Total Total Total Total assets Total equities Total assets liabilities liabilities equities income profit Jinzhou Sanonda Finance 1 21,781,699.85 21,781,699.85 21,959,694.53 21,959,694.53 177,994.68 Consulting Co., Ltd. VI. Tax 1. Income tax Income tax shall be paid in light of the taxable amount of income and tax rate applicable to the current period. Income tax rate is 25%. 2. VAT (1) Sales tax of VAT for pesticides that is produced by the Company, shall be measured at tax rate of 13%, such pesticides include orthene, paraquate, glyphosate, chlorofos, DDVP, omethoate, triazophos and imidacloprid, ect.. (2) Sales tax of VAT for chemical products shall be accounted at tax rate of 17%, such chemical products include spermine, liquid caustic soda, liquefied chlorine gas and hydrochloric acid. (3) VAT for export products shall be recorded in light of the policy of “Tax exemption, deduction and return”. 3. Business tax Business tax shall be paid at 5% of turnover. 4. City maintenance construction tax City maintenance construction tax shall be paid at 7% or 5% of turnover tax payable of the current period. 5. Extra charges for education Extra charges for education shall be paid at 3% of turnover tax payable of the current period. 6. Housing property tax Housing property tax shall be paid at 1.2% of balance after deducting 10-30% of original value of property in lump. If there is property rental, housing property tax shall be paid at 12% of property rental. 湖北沙隆达股份有限公司 2008 年年度报告 VII. Explanation on change in accounting policies and accounting estimates and correction of prior-period accounting errors 1. Change in accounting policies In accordance with the requirements of the Notice of the Ministry of Finance on Preparation for Annual Report 2008 regarding the Adoption of Accounting Standard for Business Enterprise (CKH [2008] No. 60 document), the Company makes the retrospective adjustment to accrued costs on safety in production. The change of such accounting policies result in, in the consolidated balance sheet, an increase of opening shareholder’ equity amounting to RMB 11,665,160.76, including the shareholders’ equity attributable to parent company of RMB 10,759,922.90 (surplus reserve of RMB 7,122,597.44 and retained profit of RMB 3,637,325.46) and opening minority interests of RMB 905,237.86; while the opening long-term accounts payable has decrease by RMB 11,665,160.76; meanwhile, in the consolidated income profit, a decrease of operating costs for the year 2007 totaling RMB 2,367,840.82, a decrease of administrative expense in 2007 of RMB 9,297,319.94, an increase of net profit amounting to RMB 11,665,160.76 for 2007, an increase of net profit attributable to parent company amounting to RMB 10,759,922.90, as well as an increase of minority shareholders’ gains and losses totaling to RMB 905,237.86 2. Change in accounting estimates The Company’s accounting estimates remained unchanged in 2008. 3. Correction of prior-period accounting errors There exist no correction of prior-period accounting errors in 2008. VIII. Notes to the consolidated financial statement Remark: The beginning of period (opening) refers to 1 Jan. 2008, the end of period (ending) refers to 31 Jan. 2007; last period refers to year 2007, current period refers to year 2008. 1. Monetary fund (1) Listing by categories Ending balance Opening balance Amount in Amount Amount in Amount Items Rate of Rate of original converted into original converted into exchange exchange currency RMB currency RMB Cash 5,191.39 28,776.43 Of which: RMB 5,191.39 1.0000 5,191.39 28,776.43 1.0000 28,776.43 Bank deposit 555,786,579.95 341,776,096.91 Of which: RMB 542,442,781.65 1.0000 542,442,781.65 341,174,101.97 1.0000 341,174,101.97 USD 1,952,497.59 6.8346 13,343,798.30 82,459.19 7.3005 601,994.94 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Amount in Amount Amount in Amount Items Rate of Rate of original converted into original converted into exchange exchange currency RMB currency RMB Other monetary 7,040,548.42 110,600,830.99 fund Of which: RMB 7,040,548.42 1.0000 7,040,548.42 110,600,830.99 1.0000 110,600,830.99 Total 562,832,319.76 452,405,704.33 Note: With regard to monetary fund of the Company, there are no any payment mortgaged or frozen that there exists restrictions on the realization, or any payment deposited abroad or existing potential risk of recycling. (2) Ending monetary fund has increased by 24% over the beginning of period, which was mainly due to the two reasons as below: a. operating revenue has a growth by 35% than that of last year and rate of recovery on payment for goods was mounting up; b. due to increase of long-term borrowing 2. Tradable financial assets Items Ending fair value Opening fair value Investment of tradable equity 4,183,872.00 instrument Total 4,183,872.00 Note: With regard to the above-mentioned tradable financial assets, there exist no materials restrictions on the realization. 3. Notes receivable Type of notes Ending balance Opening balance Bank acceptance bill 8,556,358.99 9,219,453.30 Trade acceptance draft 64,000.00 Total 8,620,358.99 9,219,453.30 4. Accounts receivable (1) Listing by aging Ending balance Opening balance Aging Provision for Provision for Balance Proportion Proportion Balance Proportion Proportion bad debts bad debts Within 1 year (including1 83,343,000.31 72.30% 4,196,608.55 5.04% 227,542,767.67 89.54% 11,513,073.87 5.06% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Provision for Provision for Balance Proportion Proportion Balance Proportion Proportion bad debts bad debts year) 1-2 years (including 2 years) 10,934,295.00 9.49% 8,397,093.21 76.80% 8,963,264.00 3.53% 961,615.09 10.73% 2-3 years (including 3 years) 5,066,362.40 4.39% 4,782,573.37 94.40% 1,817,553.15 0.72% 92,327.65 5.08% 3-4 years (including 4 years) 1,362,152.14 1.18% 789,196.35 57.94% 295,037.00 0.12% 41,339.98 14.01% 4-5 years (including 5 years) 156,776.09 0.14% 20,389.34 13.01% 4,172,711.35 1.64% 219,544.77 5.26% Over 5 years 14,414,129.66 12.50% 14,414,129.66 100.00% 11,314,192.18 4.45% 11,314,192.18 100.00% Total 115,276,715.60 100.00% 32,599,990.48 28.28% 254,105,525.35 100.00% 24,142,093.54 9.50% (2) Listing by categories Ending balance Opening balance Category Withdrawal Provision for Withdrawal Provision for Amount Proportion Amount Proportion proportion bad debts proportion bad debts Significant single 41,258,458.00 35.79% 23.13% 9,543,563.76 140,150,199.13 55.15% 5.00% 7,007,509.96 amounts Insignificant single amounts but 5,960,095.43 5.17% 100.00% 5,960,095.43 with significant credit risk Other 68,058,162.17 59.04% 25.12% 17,096,331.29 113,955,326.22 44.85% 15.04% 17,134,583.58 insignificant Total 115,276,715.60 100.00% 28.28% 32,599,990.48 254,105,525.35 100.00% 9.50% 24,142,093.54 Note 1: With regard to the withdrawal proportion of bad debts of accounts receivable with significant accounts, please refer to the following No. (4) as below: Note 2: Accounts receivable with insignificant single amounts but with significant credit risk is accounts receivable with larger recoverable risk recognized in accordance with collection work of the Company to debtors and daily businesses occurred, and credit of 湖北沙隆达股份有限公司 2008 年年度报告 debtors. (3) Amount in original currency of accounts receivable listed in foreign currency and conversion rate Currency Amount Conversion rate US dollar 9,558,631.83 6.8346 (4) Explanation on withdrawing provision for bad debts of accounts receivable with significant single amounts Ending book Amount of Withdrawal Items Reason balance bad debts proportion Business-as-usual, withdrawn in BAYER S/A 20,598,585.64 1,029,929.28 5.00% light of withdrawal policies of bad debt provision bankruptcy petition filed, TEKCHEM SA DE CV 7,874,358.80 7,874,358.80 100.00% off-chance recoverability, withdrawn in full Business-as-usual, withdrawn in UNITED PHOSPHORUS 7,738,421.17 386,921.06 5.00% light of withdrawal policies of bad LIMITED debt provision Business-as-usual, withdrawn in JUBAILY 5,047,092.39 252,354.62 5.00% light of withdrawal policies of bad debt provision Total 41,258,458.00 9,543,563.76 (5) Recalled accounts receivable that bad debts provision is withdrawn in full in the previous year, the withdrawal proportion of bad debt provision is the larger, or it is recalled through other ways such as debt restructuring Original reason for estimating Reason for Name of debtor Amount withdrawal proportion of provision for recalling payment bad debts Provision for bad debts was fully withdrawn in the previous years Aging over 5 years, a remote possibility 1. Shantou Jinsheng Trade Corporation 1,000,000.00 Recalling by law of recalling back 2. Guangxi Liuzhou Area Aging over 5 years, a remote possibility 739,822.23 Recalling by law Agrotechnical Service Center of recalling back (6) Nature of accounts receivable offset in 2008 and its reasons and amount 湖北沙隆达股份有限公司 2008 年年度报告 Name Amount Nature Reason of offset Payment for goods of nonrelated parties 2,346,287.03 Payment for goods estimated to be uncollectible Total 2,346,287.03 (7) At the end of period, the top five accounts receivable totaled RMB 45,966,130.48, including RMB 38,091,771.68 within one years and RMB 7,874,358.80 over one to two years, taking up 39.87% of total accounts receivable. (8) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the accounts receivable. (9) There exists no payment received from related parties in the accounts receivable. (10) At the end of period, accounts receivable has decrease by 64% over the period-begin, which was mainly because that the Company standardizes credit policies step by step by adopting careful credit policies in the reporting period. Apart from old clients with the higher credit, the Company sells to others by employing cash sale, resulting in rising of recoverable rate for payment for goods. Additionally, Hubei Sanonda Foreign Trade Corporation, the shareholding subsidiary company of the Company, also adopts the careful recalling measure to payment for goods of foreign clients, that is to say, with regard to L/C opened by the foreign clients, L/C without recourse documentary bills discount policy provided by the Bank is adopted, as a result, the recoverable rate for foreign payment for goods has increase due to funds of usance L/C can be called rapidly. 5. Prepayment (1) Listing by aging Ending balance Opening balance Aging Provision Provision Withdrawal Withdrawal Balance Proportion for bad Balance Proportion for bad proportion proportion debts debts Within 1 year (including1 year) 14,772,848.90 85.63% 1,110,045.41 7.51% 53,152,354.22 94.11% 2,919,802.57 5.49% 1-2 years (including 2 years) 422,769.89 2.45% 12,800.23 3.03% 862,475.56 1.53% 46,959.21 5.44% 2-3 years (including 3 years) 249,306.27 1.45% 12,230.95 4.91% 1,655,956.57 2.93% 79,561.81 4.80% 3-4 years (including 4 years) 1,342,957.71 7.78% 66,547.89 4.96% 349,732.66 0.62% 9,045.60 2.59% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Provision Provision Withdrawal Withdrawal Balance Proportion for bad Balance Proportion for bad proportion proportion debts debts 4-5 years (including 5 years) 349,732.66 2.03% 17,486.63 5.00% Over 5 years 114,440.63 0.66% 114,440.63 100.00% 459,650.63 0.81% 459,650.63 100.00% Total 17,252,056.06 100.00% 1,333,551.74 7.73% 56,480,169.64 100.00% 3,515,019.82 6.22% (2) Listing by categories Ending balance Opening balance Provision Provision Type Withdrawal Withdrawal Amount Proportion for bad Amount Proportion for bad proportion proportion debts debts Significant single amounts Insignificant single amounts but with significant credit risk Other insignificant 17,252,056.06 100.00% 7.73% 1,333,551.74 56,480,169.64 100.00% 6.22% 3,515,019.82 Total 17,252,056.06 100.00% 7.73% 1,333,551.74 56,480,169.64 100.00% 6.22% 3,515,019.82 (3) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the prepayment. 6. Other receivables (1) Listing by aging Ending balance Opening balance Aging Provision for Withdrawal Provision for Withdrawal Balance Proportion Balance Proportion bad debts proportion bad debts proportion Within 1 year (including1 year) 10,128,450.50 45.77% 246,835.27 2.44% 9,852,664.43 31.68% 222,816.09 2.26% 1-2 years (including 2 1,625,533.87 7.35% 81,359.14 5.01% 7,829,947.08 25.18% 316,218.06 4.04% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Provision for Withdrawal Provision for Withdrawal Balance Proportion Balance Proportion bad debts proportion bad debts proportion years) 2-3 years (including 3 years) 2,845,333.73 12.86% 155,397.11 5.46% 2,384,667.35 7.67% 142,734.41 5.99% 3-4 years (including 4 years) 949,028.90 4.29% 134,300.35 14.15% 5,295,046.76 17.03% 199,657.16 3.77% 4-5 years (including 5 years) 1,100,881.77 4.97% 116,348.89 10.57% 629,844.67 2.03% 75,455.72 11.98% Over 5 years 5,480,397.98 24.76% 5,480,397.98 100.00% 5,103,666.12 16.41% 5,103,666.12 100.00% Total 22,129,626.75 100.00% 6,214,638.74 28.08% 31,095,836.41 100.00% 6,060,547.56 19.49% (2) Listing by categories Ending balance Opening balance Type Withdrawal Provision for Withdrawal Provision for Amount Proportion Amount Proportion proportion bad debts proportion bad debts Significant single 7,213,524.14 23.20% 5.00% 360,676.21 amounts Insignificant single amounts but with significant credit risk Other insignificant 22,129,626.75 100.00% 28.08% 6,214,638.74 23,882,312.27 76.80% 23.87% 5,699,871.35 Total 22,129,626.75 100.00% 28.08% 6,214,638.74 31,095,836.41 100.00% 19.49% 6,060,547.56 (3) At the end of period, the top five other receivables totaled RMB 8,053,748.45, including RMB 5,108,803.03 within one years, RMB 1,789,444.68 over 2 to 3 years, RMB 590,563.89 over 3 to 4 years, and RMB 564,936.85 over 4-5 years, taking up 36.39% of total other receivable. (4) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the other receivables. 湖北沙隆达股份有限公司 2008 年年度报告 (5) There exists no payment received from related parties in the other receivables. 7. Inventory (1) Inventories Items Opening balance Increase in 2008 Decrease in 2008 Ending balance Raw material 53,398,290.14 1,478,134,407.13 1,462,524,554.26 69,008,143.01 Goods in process 41,973,603.26 2,846,074,036.27 2,841,740,792.66 46,306,846.87 Merchandise on hand 195,923,706.72 1,876,598,670.60 1,795,582,512.73 276,939,864.59 Low-value 933,086.96 1,047,517.09 1,286,057.98 694,546.07 consumption goods Packaging material 5,270,393.76 90,667,129.78 92,052,468.13 3,885,055.41 Consigned processing 10,769,961.38 12,463,766.23 23,224,855.61 8,872.00 materials Goods in transit 1,808,928.73 35,302,386.11 30,000,292.82 7,111,022.02 Total 310,077,970.95 6,340,287,913.21 6,246,411,534.19 403,954,349.97 (2) Provision for falling price of inventory Decrease in 2008 Opening Withdrawal Ending Items Switching balance in 2008 Writing-off Total balance back Raw material 860,505.60 10,611,440.61 3,710,747.91 3,710,747.91 7,761,198.30 Merchandise on 7,030,307.13 45,494,451.23 3,165,375.99 3,165,375.99 49,359,382.37 hand Packaging material 548,960.17 266,825.62 266,825.62 282,134.55 Total 8,439,772.90 56,105,891.84 7,142,949.52 7,142,949.52 57,402,715.22 Note: at the end of period, market price of the merchandise on hand has greatly decreased, as a result, net realizable value of merchandise on hand and raw materials is lower than cost. The provision for falling price of inventory of RMB 56,105,891.84 is withdrawn whichever is lower in accordance with the cost and the net realizable value. 8. Long-term equity investment (1) Listing by accounting method 湖北沙隆达股份有限公司 2008 年年度报告 Cash Initial Opening Ending Increase Decrease in dividend Investee entities investment carrying carrying in 2008 2008 received amount amount amount in 2008 Calculation at cost method: 1. Jingzhou City Commercial Bank 20,000,000.00 20,000,000.00 20,000,000.00 240,000.00 Co., Ltd 2. Jingzhou Tianyang Huibao 1,440,000.00 1,440,000.00 1,440,000.00 Precision Chemicals Co., Ltd 3. Jingzhou Sanonda Weixun 450,000.00 450,000.00 450,000.00 Chemicals Co., ltd 4. Beijing Yingli Fine Chemical 2,000,000.00 2,000,000.00 2,000,000.00 Technology Development Co., Ltd 5. Jingzhou Dali Industrial Co., Ltd 1,674,600.00 1,674,600.00 1,674,600.00 6.Hubei Shendian Co., Ltd. 564,000.00 564,000.00 564,000.00 7. Hubei Shuanghuan Science and 495,000.00 495,000.00 495,000.00 Technology Stock Co., Ltd 8. Wangda Industrial Holding Co., 550,000.00 550,000.00 550,000.00 Ltd 9. Guangxi Zhongding Holding Co., 580,800.00 580,800.00 580,800.00 Ltd 10. Huafei Chemical Industry Co., 32,000.00 32,000.00 32,000.00 Ltd 11. Hubei Fengyuan Chemical Co., 22,000,000.00 Ltd. Total 49,786,400.00 27,786,400.00 2,977,000.00 24,809,400.00 240,000.00 (2) Provision for impairment of long-term investment Investee entities Ending balance Opening balance Jingzhou City Commercial Bank Co., Ltd 11,991,017.37 11,991,017.37 Huafei Chemical Industry Co., Ltd 32,000.00 Total 11,991,017.37 12,023,017.37 9. Investment real estates 湖北沙隆达股份有限公司 2008 年年度报告 Opening Increase in Decrease in Ending Items balance 2008 2008 balance I. Original price 6,010,000.00 6,010,000.00 House and building 6,010,000.00 6,010,000.00 II. Accumulative depreciation and amortization 428,813.50 224,774.00 653,587.50 House and building 428,813.50 224,774.00 653,587.50 III. Accumulative provision for impairment of investment real estates House and building IV. Total carrying value of investment real 5,581,186.50 5,356,412.50 estate House and building 5,581,186.50 5,356,412.50 Note: Investment real estate of the Company is Hubei Building for hiring, which it is located in Shenzhen. Relevant property certification is in process. 10. Fixed assets (1) Category of fixed assets Opening Increase in Decrease in Items Ending balance balance 2008 2008 I. Total original price 858,973,459.24 506,297,824.49 107,313,102.52 1,257,958,181.21 Including: House and building 277,724,806.22 88,535,614.58 33,965,285.94 332,295,134.86 General equipment 102,943,492.97 515,550.62 14,041,910.63 89,417,132.96 Special equipment 465,863,125.65 416,729,895.48 58,648,120.70 823,944,900.43 Transportation vehicle 12,442,034.40 516,763.81 657,785.25 12,301,012.96 II. Total accumulative depreciation 444,606,982.76 69,744,541.54 72,241,578.59 442,109,945.71 Including: House and building 109,483,416.44 12,798,942.64 15,518,843.00 106,763,516.08 General equipment 64,243,580.73 4,540,327.04 8,877,519.52 59,906,388.25 Special equipment 268,019,849.33 47,233,453.24 47,267,904.59 267,985,397.98 Transportation vehicle 2,860,136.26 5,171,818.62 577,311.48 7,454,643.40 III. Total accumulative amount of provision for impairment of fixed 10,998,021.15 24,091,231.96 251,457.62 34,837,795.49 assets Including: House and building 1,090,718.63 6,367,459.11 7,458,177.74 湖北沙隆达股份有限公司 2008 年年度报告 Opening Increase in Decrease in Items Ending balance balance 2008 2008 General equipment 3,962,381.16 3,962,381.16 Special equipment 5,944,921.36 17,723,772.85 251,457.62 23,417,236.59 Transportation vehicle IV. Total carrying value of fixed assets 403,368,455.33 781,010,440.01 Including: House and building 167,150,671.15 218,073,441.04 General equipment 34,737,531.08 25,548,363.55 Special equipment 191,898,354.96 532,542,265.86 Transportation vehicle 9,581,898.14 4,846,369.56 (2) Idle fixed assets Accumulative Provision for Type of fixed assets Original price Net value depreciation impairment House and building 21,469,016.79 14,145,706.76 6,367,459.11 955,850.92 General equipment 9,428,495.99 4,644,242.42 3,962,381.16 821,872.41 Special equipment 56,274,501.99 32,597,566.82 17,821,812.00 5,855,123.17 Total 87,172,014.77 51,387,516.00 28,151,652.27 7,632,846.50 (3) At the end of period, the net value of the fixed assets that the property certifications failed to be all over was RMB 95,927,135.13. (4) In fixed assets increased in 2008, the amount of RMB 482,312,187.96 is transferred from construction in progress. (5) At the end of period, the fixed assets was increased by 94% over the beginning of period, which was mainly because that work on ionic membrane project launched in 2007 and 15000-ton glyphosate production lines were completed in succession and were put into production, resulting in increase of fixed assets. The fixed assets increased due to the completion of the said two projects accounts for 58% of total increased in fixed assets. 11. Construction in progress (1) Original price of construction in progress 湖北沙隆达股份有限公司 2008 年年度报告 Opening carrying balance Decrease in 2008 Budgeted Of which: Increase in Transferring Name of project Other amount Amount capitalization 2008 into fixed decrease of interest assets in 2008 Ionic membrane project 81,280,000.00 17,110,113.98 87,669.44 83,330,920.49 100,441,034.47 Extension and reformation of 40000-ton spermine 15,886,000.00 10,777,270.32 95,924.58 19,393,345.97 29,310,372.94 Extension of the 4th phase of sewage disposal 10,040,000.00 6,812,697.03 3,092.38 5,744,193.37 12,156,890.40 15000-ton glyphosate 125,985,000.00 6,759,707.38 5,895.62 188,758,810.69 195,518,518.07 Reformation of refrigeration station 6,075,670.15 228,736.20 6,075,670.15 DDV pilot test 10,446,000.00 5,609,508.73 48,846.39 14,304,718.14 19,914,226.87 Additional 12-set electric tank 4,743,255.84 156,168.16 4,743,255.84 Continuative alinating 4,578,101.59 24,082.10 4,578,101.59 Reformation of trichloracetic aldehyde 2,354,291.54 17,446.30 2,354,291.54 Reformation of tank zone aqueous ammonia 1,896,604.21 42,078.73 3,311,264.97 5,207,869.18 Removal project 1,482,332.50 572,566.00 Reformation of trimethyl ester 1,163,837.18 26,940.35 5,338,717.17 6,502,554.35 10000-ton caustic Soda Flakes 1,015,439.09 25,371.45 1,015,439.09 Disposal of 1,013,521.43 18,137.31 1,013,521.43 湖北沙隆达股份有限公司 2008 年年度报告 Opening carrying balance Decrease in 2008 Budgeted Of which: Increase in Transferring Name of project Other amount Amount capitalization 2008 into fixed decrease of interest assets in 2008 130000-ton hydrogen gas Extension and reformation of 3000t/a paraquat 3,770,000.00 548,565.94 8,869,487.25 3,910,087.10 Extension 20,000,000.00 9,428,247.83 2nd phase of glyphosate 8,523,681.58 Denitration by freezing 1,220,148.48 Reformation of compressed air station 1,105,958.47 Lipid dimethyl phosphite 3,488,099.96 Nes carbofuran project 517,604.98 Other projects 6,849,626.61 66,699.92 89,799,394.97 90,585,794.03 1,530,888.44 Total —— 79,308,148.50 847,088.93 443,189,555.34 482,312,187.96 2,546,327.53 Con.: Ending carrying balance Resource of Proportion of input in Name of projects Of which: capitalization Amount capital budgets of interest Ionic membrane Bank loans 123.57% project Extension and 860,243.35 Bank loans 189.92% reformation of 40000-ton spermine Extension of the 4th 400,000.00 Bank loans 125.07% phase of sewage 湖北沙隆达股份有限公司 2008 年年度报告 Ending carrying balance Resource of Proportion of input in Name of projects Of which: capitalization Amount capital budgets of interest disposal 15000-ton glyphosate Bank loans 155.19% Reformation of Bank loans refrigeration station DDV pilot test Bank loans 190.64% Additional 12-set Bank loans electric tank Continuative Bank loans alinating Reformation of Bank loans trichloracetic aldehyde Reformation of tank Bank loans zone aqueous ammonia Removal project 2,054,898.50 Self-raised Reformation of Bank loans trimethyl ester 10000-ton caustic Bank loans Soda Flakes Disposal of Bank loans 130000-ton hydrogen gas Extension and 5,507,966.09 56,420.75 Bank loans 249.82% reformation of 3000t/a paraquat Extension 9,428,247.83 10,175.84 Bank loans 47.14% 2nd phase of 8,523,681.58 Bank loans glyphosate Denitration by 1,220,148.48 Bank loans freezing Reformation of 1,105,958.47 Bank loans compressed air 湖北沙隆达股份有限公司 2008 年年度报告 Ending carrying balance Resource of Proportion of input in Name of projects Of which: capitalization Amount capital budgets of interest station Lipid dimethyl 3,488,099.96 Bank loans phosphite Nes carbofuran 517,604.98 Self-raised project Other projects 4,532,339.11 Bank loans Total 37,639,188.35 66,596.59 —— —— (2) Provision of impairment of construction in progress Opening Withdrawal Decrease in Items Ending balance Reason balance in 2008 2008 Nes carbofuran project 517,604.98 517,604.98 Total 517,604.98 517,604.98 (3) The construction in progress of the Company shall be capitalized at the capitalization rate of 7.74%. 12. Intangible assets Opening Increase in Decrease in Ending Items balance 2008 2008 balance I. Total original price 225,017,378.53 836,000.00 224,181,378.53 1. Non-patent technology 7,503,700.00 7,503,700.00 2. Land use right 217,513,678.53 836,000.00 216,677,678.53 II. Total accumulative 29,160,568.67 4,302,308.26 167,200.00 33,295,676.93 amortization 1. Non-patent technology 2,680,655.75 594,869.92 3,275,525.67 2. Land use right 26,479,912.92 3,707,438.34 167,200.00 30,020,151.26 III. Total accumulative amount of impairment provision of 32,072,093.53 32,072,093.53 intangible assets 1. Non-patent technology 2. Land use right 32,072,093.53 32,072,093.53 湖北沙隆达股份有限公司 2008 年年度报告 Opening Increase in Decrease in Ending Items balance 2008 2008 balance IV. Total carrying value of 163,784,716.33 158,813,608.07 intangible assets 1. Non-patent technology 4,823,044.25 4,228,174.33 2. Land use right 158,961,672.08 154,585,433.74 13. Deferred income tax assets and deferred income tax liabilities Corresponding Corresponding Ending Opening Items temporary temporary balance balance difference difference Deferred income tax assets 17,641,169.12 70,564,676.47 2,062,357.74 8,249,430.96 1. Provision for bad debts 4,187,826.13 16,751,304.52 2,062,357.74 8,249,430.96 2 Provision for devaluation of 12,696,875.75 50,787,502.99 inventories 3. Change in fair value of 756,467.24 3,025,868.96 tradable financial assets 14. Provision for assets impairment Increase in 2008 Decrease in 2008 Opening Increase for Ending Items Switching balance Withdrawal other Total Writing-off Total balance back reasons Provision for 33,717,660.92 7,268,843.02 1,507,964.05 8,776,807.07 2,346,287.03 2,346,287.03 40,148,180.96 bad debts Provision for falling price 8,439,772.90 56,105,891.84 56,105,891.84 7,142,949.52 7,142,949.52 57,402,715.22 of inventory Provision for impairment of long-term 12,023,017.37 32,000.00 32,000.00 11,991,017.37 equity investment Provision for impairment 10,998,021.15 24,091,231.96 24,091,231.96 251,457.62 251,457.62 34,837,795.49 of fixed assets 湖北沙隆达股份有限公司 2008 年年度报告 Provision for impairment of 517,604.98 517,604.98 construction in progress Provision for impairment 32,072,093.53 32,072,093.53 of intangible assets Total 97,768,170.85 87,465,966.82 1,507,964.05 88,973,930.87 - 9,772,694.17 9,772,694.17 176,969,407.55 Note 1: In increase of bad debt in 2008, increase due to other reasons is the accounts receivable recalled that it was offset in the previous years. Note 2: Bad debts of RMB 2,346,287.03 is written off in 2008. 15. Short-term loans (1) Category of loans Type Ending balance Opening balance Credit loan 1,278,352.00 Mortgage loan 91,000,000.00 44,000,000.00 Guaranteed loan 96,000,000.00 194,300,000.00 Secured borrowings 95,401,641.25 Total 187,000,000.00 334,979,993.25 Note: There is no matured short-term loan unredeemed in the Company. (2) Mortgage loan and guaranteed loan Units Amount Way Guarantor (object of pledge) Industrial and Commercial Bank of China, 10,000,000.00 Mortgage loan 69 production lines Jingzhou Jiangjin Subbranch Industrial and Commercial Bank of China, 20,000,000.00 Mortgage loan 69 production lines Jingzhou Jiangjin Subbranch China Construction Bank Jingzhou Sanwan 25,000,000.00 Mortgage loan House and land Subbranch China Construction Bank Jingzhou Sanwan 30,000,000.00 Mortgage loan House and land Subbranch Bank of China Tianmen Subbranch 3,000,000.00 Mortgage loan Properties, equipment and 湖北沙隆达股份有限公司 2008 年年度报告 Units Amount Way Guarantor (object of pledge) land Bank of China Tianmen Subbranch 3,000,000.00 Mortgage loan Properties, equipment and land Import and Export Bank of China 85,000,000.00 Guaranteed loan China National Agrochemical Corporation Bank of China Tianmen Subbranch 7,000,000.00 Guaranteed loan Hubei Sanonda Co., Ltd. Zhengzhou Xiangyang Rural Credit 4,000,000.00 Guaranteed loan Zhengzhou New World Cooperatives Agrochemical Co., Ltd. Total 187,000,000.00 (3) At the end of period, the short-term loan has decrease by 44% over the period-begin, which is because that short-term loan of Hubei Sanonda Foreign Trading Co., Ltd. has fallen off by RMB 96,680,000, taking up 65% of total decrease amount. Such short-term loan is export trade financing loan. The said company adopts the careful recalling policies to payment for goods of foreign clients, that is to say, with regard to L/C opened by the foreign clients, L/C without recourse documentary bills discount policy provided by the Bank is adopted, as a result, the recoverable rate for foreign payment for goods has increase due to funds of usance L/C can be called rapidly, as well as decrease of trade financing loan. 16. Notes payable Type Ending balance Opening balance Bank acceptance bill 19,040,000.00 18,700,000.00 Trade acceptance draft Total 19,040,000.00 18,700,000.00 Note: All above-mentioned notes will fall due in the next fiscal year. 17. Accounts payable (1) Listing by aging Ending balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year (including 1 year) 89,268,439.22 86.85% 97,013,555.56 82.74% 1-2 years (including 2 years) 3,873,516.82 3.77% 11,318,339.64 9.65% 2-3 years (including 3 years) 2,594,736.36 2.52% 6,002,187.60 5.12% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Amount Proportion Amount Proportion Over 3 years 7,047,863.66 6.86% 2,915,252.73 2.49% Total 102,784,556.06 100.00% 117,249,335.53 100.00% (2) There is no large item in the accounts payable with aging over 1 year. (3) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the accounts payable. (4) In the accounts payable, the payment owed to the related parties is RMB 590,473.49. 18. Advance from customers (1) Listing by aging Ending balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year (including 1 year) 104,525,367.22 93.05% 109,037,301.38 90.76% 1-2 years (including 2 years) 4,546,918.16 4.05% 7,423,471.49 6.18% 2-3 years (including 3 years) 300,613.54 0.27% 3,177,667.38 2.64% Over 3 years 2,957,782.25 2.63% 505,185.53 0.42% Total 112,330,681.17 100.00% 120,143,625.78 100.00% (2) There is no large item in the advance from customers with aging over 1 year. (3) Amount in original currency of advance from customers listed in foreign currency and conversion exchange rate Currency Amount Conversion exchange rate US dollar 20,734.00 6.8346 (4) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the advance from customers. (5) In the advance from customers, the payment owed to the related parties is RMB 173,803.46. 19. Payroll payable Opening Increase in Payment in Items Ending balance balance 2008 2008 I. Wages, bonuses, allowance and 197,203.00 91,207,254.27 82,334,397.27 9,070,060.00 湖北沙隆达股份有限公司 2008 年年度报告 Opening Increase in Payment in Items Ending balance balance 2008 2008 subsidies for the employees II. Welfare expenses for the employees 11,208,769.81 11,208,769.81 III. Social insurances 1,571,022.96 22,100,283.72 20,377,285.95 3,294,020.73 Of which: 1. Medical insurance 8,958.00 3,008,419.44 2,772,462.76 244,914.68 2. Endowment insurance 1,000,420.71 15,550,567.92 14,403,435.63 2,147,553.00 3. Annuity fund 4. Unemployment insurance 561,053.50 2,240,148.19 2,054,690.79 746,510.90 5. Work injury insurance 417 1,121,078.53 997,538.53 123,957.00 6. Maternity insurance 173.75 180,069.64 149,158.24 31,085.15 IV. Housing accumulation fund 1,304,281.23 5,789,253.89 6,672,289.86 421,245.26 V. Labor union expenditure 178,976.98 951,928.45 900,669.23 230,236.20 VI. Employee education expenses 54,737.09 29,322.29 20,961.50 63,097.88 VII. Non-monetary welfare VIII. Compensations for the cancellation of the labor relationship with the employees 16,614,570.42 4,244,951.10 12,369,619.32 IX. Other Of which: Cash-settled share-based payment Total 19,920,791.68 131,286,812.43 125,759,324.72 25,448,279.39 20. Taxes and dues payable (1) Listing by category Tax Ending balance Opening balance 1. Corporate income tax 45,380,948.30 6,916,656.63 2. VAT -2,782,326.42 -13,496,860.18 3. Business tax 69,421.92 2,841,305.03 4. Tax on resources 74,593.09 -24,939.84 5. Land holding tax 1,339,950.80 1,113,269.58 6. Housing property tax 601,266.84 356,163.84 湖北沙隆达股份有限公司 2008 年年度报告 Tax Ending balance Opening balance 7. Vehicle and vessel usage tax 840.00 8. Tax for municipal maintenance 3,849,718.34 1,931,280.11 and construction 9. Educational expenses 2,139,110.87 836,919.21 10. Individual income tax 490,171.90 780,380.95 calculation and filing 11. Other 476,390.56 504,973.29 Total 51,639,246.20 1,759,988.62 (2) At the end of period, taxes and dues payable has increased by a big margin compared with the year-begin, which was mainly because of the substantial increase in profits, as a result, the accrued income tax fails to pay. 21. Other payables (1) Listing by aging Ending balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year (including 1 year) 23,342,968.92 54.11% 43,215,971.32 77.26% 1-2 years (including 2 years) 14,284,383.32 33.11% 5,125,265.00 9.16% 2-3 years (including 3 years) 1,499,454.90 3.48% 3,849,816.79 6.88% Over 3 years 4,012,918.25 9.30% 3,747,846.06 6.70% Total 43,139,725.39 100.00% 55,938,899.17 100.00% (2) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the other payables. (3) There is no large item in the other payables with aging over 1 year. 22. Non-current liabilities due within one year (1) Listing by category Category Ending balance Opening balance Long-term loan due within one year 70,000,000.00 3,650,000.00 Total 70,000,000.00 3,650,000.00 (2) Long-term loan due within one year Category of loan Ending balance Opening balance 湖北沙隆达股份有限公司 2008 年年度报告 Category of loan Ending balance Opening balance Mortgage loan 70,000,000.00 Guaranteed loan 3,650,000.00 Total 70,000,000.00 3,650,000.00 (3) Mortgage loan Units Amount Way Object of pledge Industrial and Commercial Bank of China, 70,000,000.00 Mortgage Machinery equipment Jingzhou Jiangjin Subbranch Total 70,000,000.00 23. Long-term loan (1) Listing by category Category of loan Currency Ending balance Opening balance Mortgage loan RMB 90,000,000.00 Guaranteed loan RMB 297,560,000.00 Total 297,560,000.00 90,000,000.00 (2) Guaranteed loan Units Amount Way Guarantor China Construction Bank Jingzhou 97,560,000.00 Guaranteed China National Chemical Sanwan Subbranch loan Corporation (ChemChina) China Construction Bank Jingzhou 100,000,000.00 Guaranteed ChemChina Sanwan Subbranch loan Industrial Bank Wuhan Branch 100,000,000.00 Guaranteed Sanonda Group Co., Ltd. loan Total 297,560,000.00 (3) The long-term loan of the Company as of the period-end has a growth by 231% over the period-begin, which mainly caused by projects loans borrowed from the bank for construction of production equipment of 1000t/y imidacloprid, 2000t/y chlopyrifos and energy-saving technical innovation project of 50000t/y ion-exchange membrane caustic soda 24. Long-term payables 湖北沙隆达股份有限公司 2008 年年度报告 Category Ending balance Opening balance Special loan for environmental protection of Jingzhou 2,000,000.00 2,000,000.00 Financial Bureau Loan for glyphosate project 490,000.00 490,000.00 Fund used in pollution treatment of Environmental 200,000.00 200,000.00 Protection Bureau of Hubei Province Loan for cooperation project of Guangzhou Research & 160,000.00 160,000.00 Design Institute of Chemical Industry Loan for riskiest pesticide transfer project of Jingzhou 6,990,000.00 6,990,000.00 Financial Bureau Total 9,840,000.00 9,840,000.00 25. Special payable Category Opening balance Increase in 2008 Decrease in 2008 Ending balance Appropriation of fenoxycarb 2,400,000.00 2,400,000.00 project Fund used in treatment of 361,170.00 361,170.00 environmental protection Fund for T08 reconstruction 160,000.00 160,000.00 project Total 2,761,170.00 160,000.00 160,000.00 2,761,170.00 26. Other non-current liabilities Items Ending balance Opening balance Subsidy of treasury bonds financed projects (riskiest pesticide alternate 6,990,000.00 6,990,000.00 projects） Appropriation of fenoxycarb project 4,559,512.89 5,129,452.00 Total 11,549,512.89 12,119,452.00 27. Share capital 湖北沙隆达股份有限公司 2008 年年度报告 Opening balance Ending balance Increase Decrease Items Investment Investment Ratio in 2008 in 2008 Ratio amount amount I. Shares subject to trading moratorium 122,234,072.00 20.58% 122,234,072.00 20.58% 1. Shares held by the State 2. Shares held by state-owned corporation 118,887,202.00 20.02% 118,887,202.00 20.02% 3. Shares held by other domestic investors 3,346,870.00 0.56% 3,346,870.00 0.56% Of which: Shares held by domestic corporation 3,300,000.00 0.55% 3,300,000.00 0.55% Shares held by domestic natural person 46,870.00 0.01% 46,870.00 0.01% 4. Shares held by other foreign investors Of which: Shares held by foreign corporation Shares held by foreign natural person I. Shares not subject to trading moratorium 471,689,148.00 79.42% 471,689,148.00 79.42% 1. Renminbi common shares 241,689,148.00 40.69% 241,689,148.00 40.69% 2. Domestically listed foreign shares 230,000,000.00 38.73% 230,000,000.00 38.73% 3. Overseas listed foreign shares 4. Other Total shares 593,923,220.00 100.00% 593,923,220.00 100.00% 28. Capital reserve 湖北沙隆达股份有限公司 2008 年年度报告 Opening Increase Decrease Ending Reasons Items balance in 2008 in 2008 balance Capital (share) premium 264,195,844.61 264,195,844.61 Other 7,523,997.13 7,523,997.13 Total 271,719,841.74 271,719,841.74 29. Surplus reserve Opening Increase in Decrease Ending Items Reason balance 2008 in 2008 balance 53,470,160.02 16,229,620.79 69,699,780.81 Appropriating Statutory surplus 10% of net reserve profit Discretionary 3,815,085.65 3,815,085.65 surplus reserve Special reserves 7,122,597.44 9,497,401.30 255,005.87 16,364,992.87 Note Total 64,407,843.11 25,727,022.09 255,005.87 89,879,859.33 Note: Increase in reserve funds in 2008 is because that the Company appropriates safety in production costs in accordance with the on the Circular of the Ministry of Finance and State Administration of Work Safety on Printing and Issuing the Provisional Measures concerning the Financial Management for Safety in Production Costs of Enterprises in High-risk Industries (CQ [2006] No. 478 document); while decrease in 2008 is due to safety in production costs used in 2008. 30. Retained profit Items 2008 2007 Balance as at 31 Dec. 2007 -7,943,821.74 -20,708,354.39 Add: Change in accounting policies 3,637,325.46 -16,836,268.39 Previous accounting errors Balance as at 1 Jan. 2008 -4,306,496.28 -37,544,622.78 Increase in 2008 173,069,469.07 40,540,681.34 ① Net profit in 2008 172,814,463.20 40,360,723.94 ② Other 255,005.87 179,957.40 Decrease in 2008 25,727,022.09 7,302,554.84 ① Appropriating statutory surplus reserve 16,229,620.79 ② Appropriating discretionary surplus reserve 湖北沙隆达股份有限公司 2008 年年度报告 Items 2008 2007 ③ Appropriating reserve funds 9,497,401.30 7,302,554.84 ④ Appropriating enterprise development funds ⑤ Distributing profit ⑥ Other Ending balance 143,035,950.70 -4,306,496.28 Note 1: With regard to impact on retained profit due to change in accounting policies, please refer to “Note VII. 1” under the Notes to Financial Statement. Note 2: In decrease in retained profit in 2008, “appropriating reserve funds” is an amount that the Company withdraws safety in production costs recorded in “surplus reserve-special reserves” from “retained profit”, in increase in 2008, “other” is an amount that the Company uses safety in production costs returned in “retained profit” from “surplus reserve-special reserves”. 31. Operating revenue (1) Operating income and operating cost Operating income Operating cost Items Occurred amount Occurred amount Occurred amount Occurred amount in 2008 in 2007 in 2008 in 2007 Main operation 2,165,402,404.25 1,569,914,709.24 1,571,659,506.94 1,320,474,717.30 Other 51,940,792.43 78,436,288.31 44,358,077.38 78,114,283.01 Total 2,217,343,196.68 1,648,350,997.55 1,616,017,584.32 1,398,589,000.31 (2) Income from main operation Income from main operation Cost of main operation Profit from main operation Category of main business and products Occurred Occurred Occurred Occurred Occurred Occurred amount in 2008 amount in 2007 amount in 2008 amount in 2007 amount in 2008 amount in 2007 New Chemical Material 13,722,092.16 14,700,390.43 10,538,852.69 11,081,075.94 3,183,239.47 3,619,314.49 and Specialty Chemicals petrochemical and refining and chemical 67,486,817.98 55,520,193.94 57,555,992.82 46,934,026.33 9,930,825.16 8,586,167.61 products Agrochemical such as 2,084,193,494.11 1,499,694,124.87 1,503,564,661.43 1,262,459,615.03 580,628,832.68 237,234,509.84 fertilizer and pesticides Total 2,165,402,404.25 1,569,914,709.24 1,571,659,506.94 1,320,474,717.30 593,742,897.31 249,439,991.94 湖北沙隆达股份有限公司 2008 年年度报告 (3) Sales revenue from the top five clients of the Company is RMB 633,970,196.05 in total, accounting for 28.59% of total sales revenue. (4) Operating income as of 2008 has a growth by 35% over the previous year, which caused by a large-margin increase in production capacity of spermine, main product of the Company, and the growth in sales price by a big margin than that of last year. Meanwhile, additional glyphosate products result in the further growth in operating revenue. 32. Business taxes and surcharges Items Standard Occurred amount Occurred amount in 2008 in 2007 Business tax 5% of turnover 367,029.87 330,547.72 Tax on resources RMB 2/ton for liquid salt and 7,541.15 21,124.00 RMB 12/ton for solid salt Tax for municipal 7% or 5% of turnover tax 4,304,035.30 1,203,375.39 maintenance and construction Educational surtax 3% of turnover tax 1,856,337.17 532,691.46 Other 57,139.69 107,755.19 Total 6,592,083.18 2,195,493.76 33. Financial expense Items Occurred amount in Occurred amount in 2008 2007 Interest expense 43,500,160.86 36,125,345.15 Less: interest income 10,272,866.55 5,103,189.68 Exchange loss 10,077,518.90 2,865,658.00 Less: exchange gain 1,818,280.16 87,848.87 Other 4,673,327.48 7,237,685.27 Total 46,159,860.53 41,037,649.87 34. Loss on assets impairment (1) Listing by items Items Occurred amount in 2008 Occurred amount in 2007 Loss on bad debts 7,268,843.02 59,607,018.02 Loss on falling price of inventory 56,105,891.84 -578,521.24 湖北沙隆达股份有限公司 2008 年年度报告 Loss on impairment of long-term equity 32,000.00 investment Loss on impairment of fixed assets 24,091,231.96 Loss on impairment of intangible assets 15,600,000.00 Total 87,465,966.82 74,660,496.78 (2) Loss on assets impairment accounts for 37% of total profit as of 2008, which was due to sharp falling in the market price of merchandise inventory at the end of period, as a result, the provision for falling price of inventory is withdrawn. And some special equipments, houses and buildings in fixed assets have lain idle due to the integral removal of Sanonda Zhengzhou Pesticide Co., Ltd., as a result, the provision for impairment of fixed assets is withdrawn. 35. Income from change in fair value Item Occurred amount in 2008 Occurred amount in 2007 Change in fair value of tradable financial -3,025,868.96 - assets Total -3,025,868.96 - 36. Investment income (1) Listing by items Resource Occurred amount in 2008 Occurred amount in 2007 Income from long-term equity investment 240,000.00 calculated by cost method Income from disposal of long-term equity 3,150,457.50 1,730,000.00 investment calculated by cost method Income from tradable financial assets 10,829,750.95 80,007,835.42 Total 14,220,208.45 81,737,835.42 Note: There exists no major limitation to repatriation of investment income. (2) Investment income for the year 2008 has decrease by 83% over the last period, which was caused by the decrease in stock investment in 2008. 37. Non-operating income (1) Non-operating income Items Occurred amount in 2008 Occurred amount in 2007 1. Subtotal of gains from disposal of 35,786.12 552,625.75 non-current assets 湖北沙隆达股份有限公司 2008 年年度报告 Items Occurred amount in 2008 Occurred amount in 2007 Of which: gains from disposal of fixed 35,786.12 552,625.75 assets 2. Gains from debt Restructuring 7,516,851.11 9,864,764.75 3. Governmental subsidy 1,236,939.11 4. Inventory profit 12,714.36 63,803.13 5. Other 637,731.69 346,767.02 Total 9,440,022.39 10,827,960.65 Note: For debt restructuring, please refer to Note XIII under the Notes to the Financial Statement. (2) Governmental subsidy Items Amount in Amount Approval document 2008 in 2008 Appropriation for Fenoxycarb project of 569,939.11 YFGGJ [2005]1560 Sanonda Zhengzhou Pesticide Co., Ltd. document Subsidiary Fund for export of Hubei Sanonda 307,000.00 Naught Foreign Trading Co., Ltd. Subsidy for reconstruction project of Jingzhou ECF [2008]106 Sanonda Aifusi Chemical Industry Co., 360,000.00 document, EKJF[2007]87 Ltd.T08 document Total 1,236,939.11 38. Non-operating expense (1) Listing by items Items Occurred amount in 2008 Occurred amount in 2007 1. Total of loss on disposal of non-current 32,039,441.84 12,260,017.68 assets Of which: Loss on disposal of fixed assets 31,552,002.75 12,260,017.68 Loss on disposal of construction 487,439.09 in progress 2. Expense of common welfare donation 911,000.00 3. Extraordinary Losses 891.00 59,045.53 4. Inventory loss 493,918.77 湖北沙隆达股份有限公司 2008 年年度报告 Items Occurred amount in 2008 Occurred amount in 2007 5. Other 2,804,497.73 4,322,084.97 Total 36,249,749.34 16,641,148.18 (2) Non-operating expense for 2008 has a growth by 118% over the previous year, which was because that the Company disposes a batch of idle fixed assets, as a result, the loss on disposal of fixed assets has a growth by a big margin. 39. Income tax expense Items Occurred amount in 2008 Occurred amount in 2007 Income tax expense 65,242,864.05 7,632,435.18 Of which: Income tax of the current period 80,821,675.43 7,180,548.88 Deferred income tax -15,578,811.38 451,886.30 Note: the current income tax expense is an income tax that it should be paid to tax authorities in the current period after taxable income adjustment in light of the accounting profit; the deferred income tax expense is a balance between amount due at the end of period from deferred income tax assets and deferred income tax liabilities recognized in accordance with the provisions in the income tax standard and original recognized amount. 40. Other cash received or paid relating to operating activities Large projects 2008 2007 I. Other cash received relating to operating 65,514,681.87 23,442,727.62 activities Of which: Appropriation of special fund for treasury bond 10,980,000.00 Current of Zhengzhou New World Agrochemical 10,000,000.00 Corporation Current of Jingzhou Huaxiang Chemical Co., 29,490,786.80 Ltd. Current of Jingzhou Fude Foods General Factory 5,800,000.00 Received wages on behalf and insurance 6,323,881.44 Current of Jingzhou Xianghe Electrical 10,000,000.00 Equipment Co., Ltd. Current of Jingzhou Sanjiang Construction 2,000,000.00 Development Co., Ltd Refunment of Hubei Datian Chemical Co., Ltd. 1,000,000.00 II. Other cash paid relating to operating activities 75,818,297.73 83,496,381.96 Of which: 湖北沙隆达股份有限公司 2008 年年度报告 Large projects 2008 2007 Transport expenses 20,743,624.54 20,358,390.42 Business entertainment 1,073,092.80 3,690,349.93 Travel charge 1,974,542.58 3,969,353.90 Office expense 544,352.29 4,159,597.68 Loading and unloading expense 1,667,552.93 175,894.55 Operational funds 1,235,098.24 3,659,330.83 Insurance premium 5,893,449.88 2,995,517.02 Leasing charges 183,596.00 5,292,765.34 41. Net transferring net profit into cash flows of operating activities Items 2008 2007 Net profit 169,110,768.29 44,094,372.90 Plus: Provision for assets impairment 87,465,966.82 74,660,496.78 Depreciation of fixed assets, of oil-gas assets, of productive 69,969,315.54 biological assets 65,823,488.39 Amortization of intangible assets 4,302,308.26 4,573,534.97 Amortization of long-term deferred expense 91,640.04 91,640.04 Loss on disposal of fixed assets, intangible assets and other long-term 526,780.11 assets (income is listed as “-”) -559,931.99 Loss on retirement of fixed assets (income is listed as “-”) 31,476,875.61 12,410,553.79 Losses on change in fair value （income is listed as “-”） 3,025,868.96 Financial expense（income is listed as “-”） 42,573,934.54 35,924,635.14 Investment losses（income is listed as “-”） -14,220,208.45 -81,737,835.42 Decrease in deferred income tax assets（increase is listed as “-”） -15,578,811.38 451,886.30 Increase in deferred income tax liabilities（decrease is listed as “-”） Decrease of inventories (increase is listed as “-”) -101,019,328.54 34,467,245.17 Decrease in operating receivables (increase is listed as “-”) 186,783,904.32 -4,593,830.10 Increase in operating payables (decrease is listed as “-”) -111,707,667.12 86,231,829.08 Other -191,508.16 Net cash flows arising from operating activities 352,801,347.00 271,646,576.89 II. Investing and financing activities that do not involving cash receipts and payment: 湖北沙隆达股份有限公司 2008 年年度报告 Items 2008 2007 Conversion of debt into capital Convertible bond due with one year Fixed assets financed by finance leases III. Net increase in cash and cash equivalents: Cash at the end of period 562,832,319.76 452,405,704.33 Less: cash at the beginning of period 452,405,704.33 319,965,596.44 Add: cash equivalents at the end of period Less: cash equivalent at the beginning of period Net increase in cash and cash equivalents 110,426,615.43 132,440,107.89 42. Acquisition and disposal of subsidiaries and other operation units Items Amount Disposal of subsidiaries and other operation units: 1. Disposal of price of subsidiaries and other operation units: 2. Disposal of cash and cash equivalents received by subsidiaries and other operation units: Less: Cash and cash equivalents held by subsidiaries and other operation units 3. Disposal of net cash received by subsidiaries and other operation units: 4. Disposal of net asset of subsidiaries 21,959,694.53 Current assets 21,959,694.53 Non-current assets Current liabilities Non-current liabilities IX. Notes to the Financial Statement of Parent Company 1. Accounts receivable (1) Listing by aging Ending balance Opening balance Aging Provision for Provision for Balance Proportion Proportion Balance Proportion Proportion bad debts bad debts Within 1 6,346,920.10 36.08% 297,842.42 4.69% 24,440,203.40 63.22% 4,533,695.16 18.55% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Provision for Provision for Balance Proportion Proportion Balance Proportion Proportion bad debts bad debts year (including1 year) 1-2 years (including 2 years) 1,109,217.15 6.30% 55,460.86 5.00% 8,279,170.56 21.41% 874,400.41 10.56% 2-3 years (including 3 years) 4,746,548.11 26.97% 4,679,125.66 98.58% 1,593,336.34 4.12% 79,666.81 5.00% 3-4 years (including 4 years) 1,163,748.76 6.61% 744,683.81 63.99% 69,732.50 0.18% 3,486.63 5.00% 4-5 years (including 5 years) 4,280,244.25 11.07% 218,762.21 5.11% Over 5 years 4,229,744.25 24.04% 4,229,744.25 100.00% Total 17,596,178.37 100.00% 10,006,857.00 56.87% 38,662,687.05 100.00% 5,710,011.22 14.77% (2) Listing by categories Ending balance Opening balance Category Withdrawal Provision for Withdrawal Provision for Amount Proportion Amount Proportion proportion bad debts proportion bad debts Significant single amounts Insignificant single amounts but with 5,078,592.01 28.86% 100.00% 5,078,592.01 significant credit risk Other insignificant 12,517,586.36 71.14% 39.37% 4,928,264.99 38,662,687.05 100.00% 14.77% 5,710,011.22 Total 17,596,178.37 100.00% 56.87% 10,006,857.00 38,662,687.05 100.00% 14.77% 5,710,011.22 湖北沙隆达股份有限公司 2008 年年度报告 (3) Recalled accounts receivable that bad debts provision is withdrawn in full in the previous year, the withdrawal proportion of bad debt provision is the larger, or it is recalled through other ways such as debt restructuring Reason for recalling Original reason for estimating withdrawal Name of debtor Amount payment proportion of provision for bad debts Provision for bad debts was fully withdrawn in the previous years 2. Guangxi Liuzhou Area Aging over 5 years, a remote possibility of 739,822.23 Recalling by law Agrotechnical Service Center recalling back (4) Nature of accounts receivable offset in 2008 and its reasons and amount Name Amount Nature Reason of offset Payment for goods of nonrelated parties Payment for goods estimated to be uncollectible 2,333,112.03 Total 2,333,112.03 (5) At the end of period, the top five accounts receivable totaled RMB 7,557,380.33, including RMB 1,381,601.11 within one years, RMB 1,518,863.97 over two to three years, RMB 441,121.00 over three to four years, and RMB 4,215,794.25 over 5 years, taking up 42.95% of total accounts receivable. (6) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the accounts receivable. (7) Proportion of amount receivable from related parties in accounts receivable is 2.55%. 2. Other receivables (1) Listing by aging Ending balance Opening balance Aging Provision Provision Withdrawal Withdrawal Balance Proportion for bad Balance Proportion for bad proportion proportion debts debts Within 1 year (including1 year) 87,444,716.22 71.67% 73,851.72 0.08% 93,614,156.81 77.01% 34,673.27 0.04% 1-2 years (including 2 years) 17,245,679.61 14.13% 33,946.42 0.20% 7,072,209.30 5.82% 77,918.02 1.10% 2-3 years (including 3 years) 3,410,437.73 2.79% 37,027.31 1.09% 9,358,647.54 7.70% 55,916.94 0.60% 湖北沙隆达股份有限公司 2008 年年度报告 Ending balance Opening balance Aging Provision Provision Withdrawal Withdrawal Balance Proportion for bad Balance Proportion for bad proportion proportion debts debts 3-4 years (including 4 years) 9,358,647.54 7.67% 78,600.00 0.84% 7,182,762.23 5.91% 132,196.08 1.84% 4-5 years (including 5 years) 489,085.60 0.40% 43,829.82 8.96% 175,291.03 0.14% 8,764.55 5.00% Over 5 years 4,079,124.47 3.34% 4,079,124.47 100.00% 4,154,524.47 3.42% 4,154,524.47 100.00% Total 122,027,691.17 100.00% 4,346,379.74 3.56% 121,557,591.38 100.00% 4,463,993.33 3.67% (2) Listing by categories Ending balance Opening balance Provision Provision Category Withdrawal Withdrawal Amount Proportion for bad Amount Proportion for bad proportion proportion debts debts Significant single 113,559,042.42 93.06% 113,092,489.58 93.04% 0.77% 873,337.56 amounts Insignificant single amounts but with significant credit risk Other insignificant 8,468,648.75 6.94% 51.32% 4,346,379.74 8,465,101.80 6.96% 42.42% 3,590,655.77 Total 122,027,691.17 100.00% 3.56% 4,346,379.74 121,557,591.38 100.00% 3.67% 4,463,993.33 (3) Other receivable with large amount Contents Amount Hubei Sanonda Foreign Trading Co., Ltd. 69,620,415.36 Sanonda (Jingzhou) Pesticide & Chemical Co., Ltd. 24,783,362.85 Sanonda Zhengzhou Pesticide Co., Ltd. 10,000,000.00 Hubei Sanonda Tianmen Agrochemical Co., Ltd. 9,155,264.21 湖北沙隆达股份有限公司 2008 年年度报告 Contents Amount Shantou Biyue Plastic Co., Ltd. 3,185,000.00 (4) At the end of period, the top five accounts receivable totaled RMB 116,744,042.42, including RMB 84,966,352.14 within one years, RMB 16,566,751.21 over one to two years, RMB 2,745,891.53 over two to three years, RMB 9,280,047.54 over three to four years, and RMB 3,185,000.00 over five years, taking up 95.67% of total accounts receivable. (6) No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the other receivables. (7) Proportion of amount receivable from related parties in other receivables is 93.46%. 3. Long-term equity investment (1) Listing by accounting method Cash Initial Opening Increase Decrease in Ending carrying dividend Investee entities investment carrying amount in 2008 2008 amount received in amount 2008 Calculation at cost method: Investment in subsidiaries 1. Sanonda Zhengzhou Pesticide 38,558,619.32 38,558,619.32 38,558,619.32 Co., Ltd. 2. Sanonda (Jingzhou) Pesticide 24,500,000.00 24,500,000.00 24,500,000.00 & Chemical Co., Ltd. 3. Hubei Sanonda Foreign Trading Co., 9,000,000.00 9,000,000.00 9,000,000.00 Ltd. 4. Hubei Sanonda Tianmen 7,245,023.32 7,245,023.32 7,245,023.32 Agrochemical Co., Ltd. 5. Jingzhou Longhua Petrochemicals Co., 3,250,000.00 3,250,000.00 3,250,000.00 487,500.00 Ltd. 湖北沙隆达股份有限公司 2008 年年度报告 Cash Initial Opening Increase Decrease in Ending carrying dividend Investee entities investment carrying amount in 2008 2008 amount received in amount 2008 6. Jinzhou Sanonda Finance Consulting 4,721,400.00 4,721,400.00 4,721,400.00 Co., Ltd. 7. Jingzhou Sanonda Aifusi Chemical 3,060,000.00 3,060,000.00 3,060,000.00 Industry Co., Ltd. 8. Hubei Fengyuan 22,000,000.00 Chemical Co., Ltd. Other equity investment 1. Jingzhou Tianyang Huibao Precision 1,440,000.00 1,440,000.00 1,440,000.00 Chemicals Co., Ltd 2. Jingzhou Sanonda Weixun Chemicals Co., 450,000.00 450,000.00 450,000.00 Ltd 3 Beijing Yingli Fine Chemical Technology 2,000,000.00 2,000,000.00 2,000,000.00 Development Co., Ltd 4. Jingzhou Dali 1,674,600.00 1,674,600.00 1,674,600.00 Industrial Co., Ltd 5. Hubei Shendian Co., 564,000.00 564,000.00 564,000.00 Ltd. 6. Hubei Shuanghuan Science and Technology 495,000.00 495,000.00 495,000.00 Stock Co., Ltd 7. Wangda Industrial 550,000.00 550,000.00 550,000.00 Holding Co., Ltd 8. Guangxi Zhongding 580,800.00 580,800.00 580,800.00 Holding Co., Ltd 9. Huafei Chemical 32,000.00 32,000.00 32,000.00 Industry Co., Ltd 湖北沙隆达股份有限公司 2008 年年度报告 Cash Initial Opening Increase Decrease in Ending carrying dividend Investee entities investment carrying amount in 2008 2008 amount received in amount 2008 10. Jingzhou 20,000,000.00 20,000,000.00 20,000,000.00 240,000.00 Commercial Bank Total 140,121,442.64 118,121,442.64 7,698,400.00 110,423,042.64 727,500.00 (2) Provision for impairment of long-term investment Investee entities Ending balance Opening balance Sanonda (Jingzhou) Pesticide & 24,500,000.00 24,500,000.00 Chemical Co., Ltd. Huafei Chemical Industry Co., Ltd 32,000.00 Jingzhou Commercial Bank 11,991,017.37 11,991,017.37 Total 36,491,017.37 36,523,017.37 4. Operating income (1) Operating income and operating cost Operating income Operating cost Items Occurred amount Occurred amount Occurred amount Occurred amount in 2008 in 2007 in 2008 in 2007 Main operation 1,637,979,106.09 1,110,351,181.61 1,142,824,595.48 937,850,598.70 Other 27,796,190.29 36,728,228.19 22,663,812.70 34,185,367.94 Total 1,665,775,296.38 1,147,079,409.80 1,165,488,408.18 972,035,966.64 (2) Income from main operation Category of Income from main operation Cost of main operation Profit from main operation main business Occurred Occurred Occurred Occurred Occurred Occurred and products amount in 2008 amount in 2007 amount in 2008 amount in 2007 amount in 2008 amount in 2007 Agrochemical such as fertilizer 1,637,979,106.09 1,110,351,181.61 1,142,824,595.48 937,850,598.70 495,154,510.61 172,500,582.91 and pesticides Total 1,637,979,106.09 1,110,351,181.61 1,142,824,595.48 937,850,598.70 495,154,510.61 172,500,582.91 (3) Sales revenue from the top five clients of the Company is RMB 587,646,281.85 in total, accounting for 35.28% of total sales revenue. 湖北沙隆达股份有限公司 2008 年年度报告 5. Investment income Occurred amount Occurred amount Resource in 2008 in 2007 Income from long-term equity investment calculated by cost method 727,500.00 24,353,892.11 Income from disposal of long-term equity investment calculated 18,192,782.57 1,730,000.00 Income from tradable financial assets 10,710,602.57 61,860,971.65 Total 29,630,885.14 87,944,863.76 X. Relationship of related parties and their transactions 1. Information related with parent company of the Company Name of parent Registration place Character of business Registered capital Note companies Production and Sanonda Group 93 Beijing East Road, operation of pesticide, 240,661,000.00 Parent company Corporation Jingzhou, Hubei chemicals products 62 Northern Fourth Constructional China National Ring Road (West), engineering, mineral Parent company of Agrochemical 300,000,000.00 Haidian District, products, fertilizer, parent company Corporation Beijing chemical raw material 62 Northern Fourth Constructional China National Ring Road (West), engineering, mineral 8,897,497,037.78 Final controller Chemical Corporation Haidian District, products, fertilizer, Beijing chemical raw material 2. Shareholding proportion of the Company held by the parent companies and their voting right proportion Opening Items Increase in 2008 Decrease in 2008 Ending amount amount Shareholding proportion 20.02% 20.02% Voting right proportion 20.02% 20.02% 3. Transaction of related parties (Unit: RMB Yuan) (1) Purchase and sale transactions Proportion of Relationship of Transaction transaction Type of transactions Name of enterprises related parties amount amount in the same transactions Associated transaction of purchasing commodities and receiving labor service China National Agrochemical Same final Raw material procurement 29,618,985.00 1.91% Corporation controller Raw material procurement Sanonda Group Corporation Parent company 269,060,447.48 17.37% 湖北沙隆达股份有限公司 2008 年年度报告 Proportion of Relationship of Transaction transaction Type of transactions Name of enterprises related parties amount amount in the same transactions Same parent Packaging procurement Jingzhou Fude Food General Factory 6,005,127.78 6.62% company Jingzhou Hengxiang Material Trade Same parent Raw material procurement 33,546,848.03 2.17% Co., Ltd. company Jingzhou Tianyang Huibao Precision Joint stock Raw material procurement 5,472,265.98 0.35% Chemicals Co., Ltd company Joint stock Packaging procurement Jingzhou Dali Industrial Co., Ltd 6,380,093.16 7.04% company II. Associated transaction of selling commodities and providing labor service Sales of pesticide and China National Agrochemical Same final 7,981,522.05 0.36% chemical products Corporation controller Sales of raw materials Sanonda Group Corporation Parent company 6,219,760.68 0.28% Sales of pesticide and Jingzhou Hengxiang Material Trade Same parent 35,558,915.05 1.60% chemical products Co., Ltd company Sales of pesticide and Jingzhou Tianyang Huibao Precision Joint stock 631,988.13 0.03% chemical products Chemicals Co., Ltd company Sales of pesticide and Jingzhou Sanonda Weixun Chemicals Joint stock 261,125.45 0.01% chemical products Co., Ltd company Hubei Jingzhou Huaxiang Chemical Affiliated enterprise Sales of chemical products 13,274,301.43 0.60% Co., Ltd. of parent company Beijing Yingli Fine Chemical Joint stock Sales of chemical products 5,459,641.37 0.25% Technology Development Co., Ltd company III. Other Fees for possession of Sanonda Group Corporation Parent company 1,864,239.99 100% funds received Guarantee fee paid Sanonda Group Corporation Parent company 2,271,750.00 100% Note 1: Taking control and joint control or significant influence as preconditions, the Company recognizes related parties in line with the principle of substance over form. Note 2: In other associated transactions, fees for possession of funds received is capital occupied from non-financial enterprise recorded into current profit and loss is that the Company collected capital of the Company occupied by Sanonda Group Corporation 湖北沙隆达股份有限公司 2008 年年度报告 (parent company of the Company) in the last year; guarantee fee paid is that the Company paid security costs that parent company Sanonda Group Corporation provides the guarantees for the Company. (2) Guarantees between the Company and related parties ① The Mutual-guarantee Agreement is signed between the Company and Guangxi Hechi Chemicals Co., Ltd. (hereinafter referred to as “Hechi Chemicals”, it belongs to China National Chemicals Corporation, same as the Company, controlled by the same final controller), in which the Company provided a joint liability guarantee for loan of fixed assets of RMB 100,000,000 borrowed by Hechi Chemical from Agricultural Bank of China Hechi Branch, while Hechi Chemical also provided a joint liability guarantee for maximum loans of 60,000,000 borrowed by the Company from Industrial and Commercial Bank of China Jingzhou Shashi Sub-branch. ② Other guarantee by related parties otherwise the above-mentioned matters Units Bank Guarantee Guaranty period Typer amount at the period-end 20 Mar. 2008- Guarantee for Sanonda Group China Construction Bank 25,000,000 borrowing of Corporation Jingzhou Sanwan Subbranch 19 Mar. 2011 flow funds 18 Feb. 2008- Guarantee for Sanonda Group China Construction Bank 30,000,000 borrowing of Corporation Jingzhou Sanwan Subbranch 17 Feb. 2011 flow funds Sanonda Group Industrial Bank Wuhan 21 Apr. 2008- Guarantee for 100,000,000 Corporation Branch 21 Apr. 2015 project loan 5 Jun. 2009- Guarantee for China National Import & Export Bank of Agrochemical 85,000,000 borrowing of Corporation China 4 Jun. 2011 flow funds China Construction Bank 3 Feb. 2008- Guarantee for China National 97,560,000 Chemical Corporation Jingzhou Sanwan Subbranch project loan 2 Feb. 2015 China Construction Bank 29 Aug. 2008- Guarantee for China National 100,000,000 Chemical Corporation Jingzhou Sanwan Subbranch project loan 28 Aug. 2015 (3) Current balance of related parties Relationship of Proportion in total Units Items Ending balance related parties amount of project Same parent Advance Jingzhou Hengxiang Material Trade Co., Ltd 150,733.50 0.13% company receipts 湖北沙隆达股份有限公司 2008 年年度报告 Relationship of Proportion in total Units Items Ending balance related parties amount of project Same parent Advance Jingzhou Hengxiang Material Trade Co., Ltd 23,680.00 0.02% company receipts Advances Jingzhou Hengxiang Material Trade Co., Ltd Same parent 1,874.50 0.01% company to suppliers Advances China National Agrochemical Corporation Parent company 23,069.96 0.02% to suppliers Joint venture Advance Jingzhou Dali Industrial Co., Ltd 292,123.60 0.28% company receipts Same parent Advance Jingzhou Fude Food General Factory 274,669.89 0.27% company receipts XI. Share-based payment The Company has no information related with share-based payment to disclose in the reporting period. XII. Nonmonetary assets exchange The Company has no information related with nonmonetary assets exchange to disclose in the reporting period. XIII. Debts restructuring In the reporting period, Sanonda (Jingzhou) Pesticide & Chemical Co., Ltd., the shareholding subsidiary company, signed the Debts Restructuring Agreement with China Orient Asset Management Corporation. Based on the Agreement, total debt involved in this debt restructuring is RMB 8,111,291.11. After Sanonda (Jingzhou) Pesticide & Chemical Co., Ltd. conducted a one-time payment of RMB 600,000.00 to China Orient Asset Management Corporation, the remaining debt shall be exempted in full from China Orient Asset Management Corporation. Recognized income from debt restructuring of RMB 7,511,291.11 is measured in non-operating income. XIV. Borrowing costs The capitalization borrowing costs is RMB 5,335,433.16 during the reporting period at the capitalization rate of 7.74% XV. Segment reporting Business segment 湖北沙隆达股份有限公司 2008 年年度报告 New chemical materials and Petrochemical and refining and Agrochemical such as fertilizer and Items special chemical chemicals products pesticide 2008 2007 2008 2007 2008 2007 I. Operating 13,722,092.16 14,700,390.43 76,521,788.94 69,480,270.02 2,085,242,034.92 1,500,831,062.87 income Of which: 13,722,092.16 14,700,390.43 67,486,817.98 55,520,193.94 2,084,193,494.11 1,499,694,124.87 income from foreign transaction Income form 9,034,970.96 13,960,076.08 1,048,540.81 1,136,938.00 inter-segment transactions II. Operating 10,822,877.77 11,370,870.41 61,637,492.76 49,825,119.32 1,582,670,361.60 1,324,848,483.28 expenses III. Operating 2,899,214.39 3,329,520.02 14,884,296.18 19,655,150.70 502,571,673.32 175,982,579.59 profits (losses) IV. Total assets 54,396,678.83 67,135,001.09 21,319,863.02 23,169,369.85 1,943,305,759.09 1,632,581,968.59 V. Total 1,834,496.29 1,234,947.57 11,976,625.72 15,032,423.01 364,722,049.09 346,078,333.31 liabilities VI. Supplemental information 1. Expenses on 585,837.18 517,802.28 731,990.08 768,354.30 72,820,662.58 68,957,298.82 depreciation and amortization 2. Capital 1,334,977.53 357,380.00 556,577.00 123,747.86 504,406,269.96 52,035,741.37 expenditure 3. Non-cash charges except for depreciation and amortization Con.: Other Counteract Total Items 2008 2007 2008 2007 2008 2007 I. Operating income 51,940,792.43 78,436,288.31 10,083,511.77 15,097,014.08 2,217,343,196.68 1,648,350,997.55 湖北沙隆达股份有限公司 2008 年年度报告 Other Counteract Total Items 2008 2007 2008 2007 2008 2007 Of which: income from foreign 51,940,792.43 78,436,288.31 2,217,343,196.68 1,648,350,997.55 transaction Income form inter-segment 10,083,511.77 15,097,014.08 transactions II. Operating expenses 44,358,077.38 78,114,283.01 1,699,488,809.51 1,464,158,756.02 III. Operating profits (losses) 7,582,715.05 322,005.30 10,083,511.77 15,097,014.08 517,854,387.17 184,192,241.53 IV. Total assets 2,019,022,300.94 1,722,886,339.53 V. Total liabilities 378,533,171.10 362,345,703.89 VI. Supplementary information 1. Expenses on depreciation 224,774.00 245,208.00 74,363,263.84 70,488,663.40 and amortization 2. Capital expenditure 506,297,824.49 52,516,869.23 3. Non-cash charges except for depreciation and amortization XVI. Contingencies 1. Contingencies formed due from foreign guarantees Current Overdue Guarantor Guarantee Total amount Way Type situation of amount guarantees 1. Guarantees for subsidiaries The Hubei Sanonda Foreign Trading Joint liability Guarantee for loans USD5000000 Business-as-usual Company Co., Ltd. guarantee of trade financing The Hubei Sanonda Foreign Trading Joint liability Guarantee for loans RMB50000000 Business-as-usual Company Co., Ltd. guarantee of trade financing The Hubei Sanonda Foreign Trading Joint liability Guarantee for loans USD10000000 Business-as-usual Company Co., Ltd. guarantee of trade financing The Hubei Sanonda Foreign Trading Joint liability Guarantee for loans RMB100000000 Business-as-usual Company Co., Ltd. guarantee of trade financing The Hubei Sanonda Tianmen Joint liability Guarantee for RMB7000000 Business-as-usual Company Agrochemical Co., Ltd. guarantee current capital loans 2. Guarantees for other units 湖北沙隆达股份有限公司 2008 年年度报告 Current Overdue Guarantor Guarantee Total amount Way Type situation of amount guarantees The Guangxi Hechi Chemicals Co., Joint liability Guarantee for RMB100000000 Business-as-usual Company Ltd guarantee project loans Note: The guarantee provided for Hubei Sanonda Foreign Trading Co., Ltd. is that the Company provides maximum security of guaranty for its trade financing behaviors such as establishment of letter of credit and bill of exchange. 2. Other contingencies The Company has no other information related with contingency to disclose in the reporting period. XVII. Balance-sheet-date events 1. On 17 Feb. 2009, the Company and Sanonda Group Corporation (parent company of the Company) jointly signed the Joint Venture Contract in Jingzhou, which they decide to jointly establish Jingzhou Lingxiang Chemicals Co., Ltd. for purpose of building an annual output capacity of formaldehyde production equipment by 80,000 tons (converting into 37%) by the investment. The registered capital of new company is RMB 10,000,000, of which, the Company accounts for 51% equities and Sanonda Group Corporation takes up 49%. 2. For purpose of building formaldehyde production equipment, on 23 Feb. 2009, Jingzhou Lingxiang Chemicals Co., Ltd., a shareholding subsidiary company jointly invested and established by the Company and Sanonda Group Corporation, signed the Land Use Right Transfer Agreement with Jingzhou Hongxiang Chemicals Co., Ltd, a subsidiary company of Sanonda Group Corporation, in which Jingzhou Lingxiang Chemicals Co., Ltd. intends to invest RMB 5,144,300 to purchase Jingzhou Hongxiang Chemicals Co., Ltd’s land use right of 28,719.74 sq.m. located in Development Zone of Jingzhou. 3. For purpose of building 2*25MW CHP project, the Company signed the Land Use Right Transfer Agreement with Sanonda Group Corporation in Jingzhou on 23 Feb. 2009, in which the Company intends to invest RMB 23,407,500 to purchase Sanonda Group Corporation’s land use right of 131,024.07 sq.m. located in Development Zone of Jingzhou. 4. Hubei Fengyuan Chemical Co., Ltd., the subsidiary company, held the Shareholders’ General Meeting on 23 Feb. 2009, which it shall be given liquidation and dissolution. The relevant procedure is under handle. 5. On 8 Apr. 2009, the Company held the 18th meeting of the 5th Board of Directors of the Company, at which the financial report 2008 was examined and approved. The Board of Directors drafted a profit distribution preplan for the year 2008: the Company shall distribute cash dividend of RMB 0.5 (tax included) for every 10 shares but without 湖北沙隆达股份有限公司 2008 年年度报告 capitalization of capital reserve. XVIII. Commitment The Company has no information related with commitment to disclose in the reporting period. XIX. Supplementary information 1. Return on equity (ROE) and earnings per share (EPS) (1) ROE and EPS ROE EPS Profit in the Weighted Weighted Fully diluted Fully diluted reporting period average average 2008 2007 2008 2007 2008 2007 2008 2007 Net profit attributable to common 15.73% 4.36% 17.07% 4.46% 0.2910 0.0680 0.2910 0.0680 shareholders of the Company Net profit attributable to common shareholders of the Company after 16.90% -1.05% 18.34% -1.08% 0.3126 -0.0164 0.3126 -0.0164 deduction of non-recurring profit and loss (2) Explanation on counting process Items 2008 2007 Net profit attributable to common shareholders of the 172,814,463.20 40,360,723.94 Company Non-recurring gains and losses attributable to parent -12,839,696.57 50,104,572.47 company Net profit attributable to common shareholders of the 185,654,159.77 -9,743,848.53 Company after deduction of non-recurring profit and loss Opening net assets attributable to common 925,744,408.57 883,458,820.83 shareholders of the Company Ending net assets attributable to common 1,098,558,871.77 925,744,408.57 shareholders of the Company Ending net assets attributable to common 1,098,558,871.77 925,744,408.57 shareholders of the Company after dilution Net assets attributable to common shareholders of the 1,012,151,640.17 904,922,425.33 湖北沙隆达股份有限公司 2008 年年度报告 Items 2008 2007 Company after weighted average Number of shares 593,923,220.00 593,923,220.00 Formulas for computing various indexes are as follows: ① Fully diluted return on equity =P÷E Of which: P is the net profit belonging to common stockholders of the company or the net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss ；E is the closing net assets belonging to common stockholders of the company. ② Weighted average yield of net assets =P/(E0 ＋ NP÷2 ＋ Ei×Mi÷M0 － Ej×Mj÷M0±Ek×Mk÷M0) Of which: P is the net profit belonging to common stockholders of the company or net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss；NP is the net profit belonging to common stockholders of the company; E0 is the opening net assets belonging to common shareholders of the company; Ei is the net assets newly added due to issuance of new shares or debt-to-equity swap during the report period and belonging to common shareholders of the company; Ej is the net assets decreased due to counter-purchase or cash bonus and belonging to common shareholders of the company; M0 is the number of months of the report period; Mi is the number of months from the month following the increase of net assets to the end of the report period; Mj is the number of months from the month following the decrease of net assets to the end of the report period; Ek is the change in net assets caused by other transactions or events; Mk is the number of months from the month following the change of net assets to the end of the report period. ③ Basic earnings per share=P÷S S= S0＋S1＋Si×Mi÷M0－Sj×Mj÷M0－Sk Of which: P is the net profit belonging to common stockholders of the company or net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss; S is the weighted mean of the outstanding stock; S0 is the sum of shares at the beginning of the period; S1 is the number of shares increased due to conversion of accumulation funds to capital stock or distribution of stock dividends during the report period; Si is the number of shares increased due to issuance of new shares or debt-to-equity swap during the report period; Sj is the number of shares decreased due to counter-purchase during the report period; Sk is the number of shares reduced within the report period; M0 is the number of months of the report period; Mi is the number of months from the month following the increase of net assets to the end of the report period; Mj is the number of months from the month following the decrease of net assets to the end of the report period. ④ Diluted earnings per share=[P+(Diluted potential common stock dividends confirmed as expenses － conversion charge)×(1-income tax rate)]/(S0 ＋ S1 ＋ Si×Mi÷M0 － 湖北沙隆达股份有限公司 2008 年年度报告 Sj×Mj÷M0—Sk+ weighted mean of common stock increased by subscription warrants, stock options and convertible bonds ) Of which: P is the net profit belonging to common stockholders of the company or the net profit belonging to common stockholders of the company after deduction of non-recurring profit and loss. ⑤ The Company has no dilutional potential common share but possibly having dilution in the next period. ⑥ Number of common shares outstanding or number of potential common shares remained unchanged from the balance sheet date to reporting date of approval of the financial report. 2. Non-recurring gains and losses (1) Schedule of non-recurring gains and losses in the reporting period Items Amount (1) Gains and losses on the disposal of non-current assets, including offset -28,853,198.22 provision for assets impairment withdrawn (2) Government subsidies recorded into current profit and loss (excluding government subsidies with close relationship with the Company’s business and 1,236,939.11 rationed government grants in line with the united standard) (3) Capital occupied from non-financial enterprise recorded into current profit and 1,864,239.99 loss (4) Gains and losses on debts restructuring 7,516,851.11 (5) Gains and losses on change in fair value from tradable financial assets and tradable financial liabilities, as well as investment income from disposal of tradable financial assets and tradable financial liabilities and financial assets 7,803,881.99 available for sales except for effective hedging related with normal businesses of the Company (6) Net amount of other non-operating incomes and expenses except the above -3,559,861.45 items (7) Items of gains and losses being in compliance with definition of non-recurring -2,271,750.00 gains and losses Subtotal -16,262,897.47 Less: Amount impact on income tax -4,095,511.47 Non-recurring gains and losses after deducting influence on income tax -12,167,386.00 Of which: Attributable to owners of parent company -12,839,696.57 Attributable to minority shareholders 672,310.57 湖北沙隆达股份有限公司 2008 年年度报告 (1) Explanation on non-recurring gains and losses in the reporting period ① With regard to gains and losses on disposal of non-current assets, the losses is RMB 32,003,655.72 arising from disposal of idle fixed assets and retirement of fixed assets by the Company and its subsidiaries, as well as gains from disposal of long-term equity investment of RMB 3,150,457.50. ② Government subsidies recorded into current profit and loss include: appropriation of fenoxycarb project, a government subsidies related to assets obtained in the previous years by Sanonda Zhengzhou Pesticide Co., Ltd., the shareholding subsidiaries of the Company, was made deferred and charged to non-operating income amounting to RMB 569,939.11, Hubei Sanonda Foreign Trading Co., Ltd., the shareholding subsidiaries of the Company, received an export interest subsidy of RMB 307,000.00 in the current period, and Jingzhou Sanonda Aifusi Chemical Industry Co., Ltd., the shareholding subsidiaries of the Company, received a subsidy for T08 reconstruction project totaling to RMB 360,000.00. ③ Capital occupied from non-financial enterprise recorded into current profit and loss is that the Company collected capital of the Company occupied by Sanonda Group Corporation (parent company of the Company) in the last year. ④ Gains and losses on debts restructuring is from debts restructuring arising from Sanonda (Jingzhou) Pesticide & Chemical Co., Ltd., the shareholding subsidiaries of the Company. For details, please refer to Note XIII under the Notes to the Financial Statement. ⑤ Gains and losses on change in fair value of tradable financial assets and investment income is an income arising from stock investment by the Company in the reporting period. ⑥ Items of gains and losses being in compliance with definition of non-recurring gains and losses is that the Company paid security costs that parent company Sanonda Group Corporation provides the guarantees for the Company.